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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the assessee against two separate orders dated 20/04/2012 and 13/08/2014 passed by the Ld. Commissioner of Income Tax (Appeals)-21, Mumbai, for the assessment years 2009-2010 and 2010-2011 respectively, whereby the Ld. CIT (A) has dismissed the appeal pertaining to the assessment year 2009-10 and partly allowed the appeal Assessment Years: 2009-10 & 2010-11 pertaining to the assessment year 2010-11 of the assessee against assessment orders passed u/s 143(3) of the Income Tax Act, 1961 (for short ‘the Act’). Since, these appeals pertain to the same assessee, these appeals were clubbed, heard together and are being disposed of by this common order for the sake of convenience.
Brief facts of the case are that the assessee engaged in the business of operating container, freight station, filed its return of income for the assessment year under consideration declaring the total income of Rs. 19,45,646/-. Since, the return was selected for scrutiny, notice u/s 143 (2) was issued by the AO. In response to the said notice, the authorized representative of the assessee appeared before the AO and filed details called for. It was noticed from the details submitted by the assessee that an amount of Rs. 20,75,964/- pertaining to Dadri Unit (eligible for deduction u/s 80IA) has not been reduced from the profit of Dadri Unit for claiming deduction u/s 80IA of the Act, detail of which are as under:-
Rent received Rs. 13,06,520/- 2. Interest on fixed deposit Rs. 1,46,742/- 3. Balance Return back Rs. 3,95,807/- 4. Miscellaneous Income Rs. 2,26,895/-
3. The AO relying on the judgments of the Hon’ble Supreme Court in the case of Sterling Foods 237 ITR 579 and Orissa State Warehousing Corporation 237 ITR 589 held that the assessee is not eligible for deduction u/s 80IA holding that since the aforesaid income has not been derived from business activities of the assessee, the same is not eligible for deduction u/s 80IA of the Act. The assessee challenged the assessment order before the Ld. CIT (A). The Assessment Years: 2009-10 & 2010-11 Ld. CIT (A) dismissed the appeal filed by the assessee and confirmed the order of the AO. Against the said order, the assessee is in appeal before the Tribunal.
4. The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “The Hon’ble Commissioner of Income Tax (Appeals-21), Mumbai, has erred in view of the facts and in the circumstances of the case in upholding the action of the learned Assessing Officer in reducing a sum of Rs. 20,75,964/- comprising of the following amounts from the profits eligible for claiming deduction u/s 80 IA of the Income Tax Act, 1961. These amounts are: a) Rent received Rs. 13,06,520/- b) Interest on Fixed Deposits Rs. 1,46,742/- c) Balance Written back Rs. 3,95,807/- d) Miscellaneous Income Rs. 2,26,895/-
2. In any case and without prejudice, the reduction of the said sums for the purpose of claim of the said deduction, are far too excessive, as well as the treatment of all of the items as liable for the consideration of the said disallowance is also excessive.
3. The remarks made in this connection to justify the said disallowance are against facts and do not in any case justify the disallowance.”
5. Before us, the Ld. counsel for the assessee submitted that the assessee is engaged in the business of operating and running container freight station at Greater Noida, Dadri Uttar Pradesh from which appellant derived business income entitled for deduction u/s 80IA of the Act apart from the income from other sources. So far as rental income earned by the assessee is concerned, the Ld. counsel submitted that assessee had been providing officials space to facilitate customers such as shipping lines CHA and other associates on rent. Though the letting out is not the business activity of the assessee yet it is an Assessment Years: 2009-10 & 2010-11 integral part of appellant customer freight station. The Ld. Counsel further pointed out that the Ld. CIT(A) has decided this issue in favour of the assessee in assessee’s appeal for the assessment year 2010-11 and the department has not challenged the findings of the Ld. CIT(A).
On the other hand the Ld. departmental representative (DR) did not controvert the facts stated by the Ld. counsel however, contended that since the issue involved pertains to a separate assessment year the assessee cannot take advantage of the order pertaining to the earlier years.
7. We have gone through the orders passed by the authorities below in the light of the rival submissions. We notice that the Ld. CIT(A) has decided the identical issue in favour of the assessee in assessee’s own appeal for the assessment year 2010-11 holding that the income from rent received by the assessee is directly related to the main business of the assessee and the amount is eligible for deduction u/s 80IA of the Act. The Ld. DR did not point out any difference of facts in the assessee’s case for both the years. Admittedly, the issues involved in AY 2010-11 and the assessment year under consideration are identical. Moreover, the Ld. CIT(A) has not given any reason for taking a view inconsistent with the view taken in the earlier year on the identical issue. Under these circumstances, we do not find any reason to agree with the Ld. CIT(A). Moreover, the facts relied upon by the Ld. CIT(A) is different from the facts of the present case. We therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the disallowance made in respect of the rental income earned by the assessee.
8. In respect of interest income received on fixed deposit the Ld. counsel submitted that Rs. 25,000/-was pledged with the Sales Tax Authorities for issuing various forms from time to time. Similarly, Rs. 15,56,500 was pledged with Customs Authorities for obtaining EPCG license for import of capital Assessment Years: 2009-10 & 2010-11 goods. The appellant had given bank guarantee supported by fixed deposit of the equivalent amount. The Ld. counsel relying on the decision of the ITAT Cuttack Bench in the case of ACIT vs. Max care Laboratories Ltd. (2005) 92 ITD 11 (Ctk), submitted that this issue is covered in favour of the assessee by the decision of the ITAT Cuttack Bench in which it has been held that interest earned on deposits made under business compulsions are eligible for benefits u/s 80IA of the Act. 9. On the other hand, the Ld. DR relying on the assessment order passed by the Assessing Officer submitted that only profit of from industrial undertaking is eligible for deduction u/s 80IA. Since interest income is assesses under the head income from other sources, there is no merit in the contention of the assessee. 10. We notice that the Cuttack Bench of the ITAT in the case of ACIT vs. Max care Laboratories Ltd. (supra) has decided the identical issue in favour of the assessee relying on the decisions of various Benches of the Tribunal. The operative part of the order of the Cuttack Bench reasds as under:-
“15. Applying the proposition laid down in the above judgments and keeping in view the findings recorded by the CIT (Appeals), we can safely reach to the conclusion that the deposits given by the assessee out of business compulsion and the interest earned thereon even though not derived from industrial undertaking but was having direct and proximate connection with the business of industrial undertaking of the assessee, the assessee was therefore eligible for deduction under section 80-IA on the interest earning. The case laws discussed by the Assessing Officer in his order are related to deduction under sections 80HH and 80-I. There are several Rulings of the Hon';ble Courts, in which the claim under sections 80HH and 80-I, etc. in which the expression ';profits and gains derived from industrial undertaking'; was used and the claim was not allowed by following the principle that the expression ';derived from'; industrial undertaking should be given restricted meaning and whenever the Legislature wanted to give wider expression, it employed the expression Assessment Years: 2009-10 & 2010-11 ';attributable to';. But there was no occasion before the Courts, brought to our notice, to consider further wider expression as used in section 80-IA, i.e., ';profits and gains derived from any business of an industrial undertaking';. As such the Rulings of these courts are not applicable to the instant case before us.”
The issue involved in this case is identical to the issue involved in the case of ACIT vs. Max care Laboratories Ltd. (supra). In the present case also the assessee had to make deposits under business compulsion. The revenue has not brought to our notice any decision contrary to the findings aforesaid rendered in similar set of facts. Hence, we respectively following the decision of the Cuttack Bench of the Tribunal allow this ground of appeal
and direct the AO to allow the interest so earned by the assessee for the purpose of deduction u/s 80IA of the Act. However, AO is further directed to compute the amount after netting off the interest paid and interest received by the assessee during the year relevant to the assessment year under consideration.
12. As regards sundry credit balance written off during the year amounting to Rs. 3,95,807/-, the ld. counsel submitted that M/s Manulal and Sons, one of the vendors for interior work, executed work for CFS building amount was Rs. 3,62,160/-. The assessee retained 5% of the total cost as retention amount due to improper work and support received from the vendors, the management of the assessee decided to write back this amount. The balance amount of Rs. 33,647/- is a petty business transaction for the whole year. In respect of miscellaneous of Rs. 2,26,895/-, the Ld. counsel submitted that the same was received from CFS Ltd. on a monthly basis towards punching of custom data into the system. The assessee had provided CMC office space, computers and internet facility for which CMC Ltd. also deducted tax at source at all payment and make during the relevant year. The Ld. counsel further pointed out that the Ld. CIT(A) has held that balance written back and miscellaneous income are eligible for claim under section 80IA of the Act in assessee’s appeal for the assessment year 2010-11. Assessment Years: 2009-10 & 2010-11
On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the Ld. CIT (A) submitted that since the decision of the Ld. CIT (A) is based on the established principles of law, there is no infirmity in the order of the Ld. CIT (A) to interfere with.
We have heard the rival submissions and also perused the order passed by the Ld. CIT (A). As pointed out by the Ld. counsel for the assessee, the Ld. CIT(A) has decided the issues pertaining to balances written back and miscellaneous income, in favour of the assessee in assessee’s appeal pertaining to the assessment year 2010-11. The relevant para of the order passed by the Ld. CIT (A) reads as under:- “With regard to balance written back and miscellaneous income, these are mainly related to the appellant’s activity. Hence, these amounts are eligible for the claim under 80IA. These amounts are to be allowed for computation of deduction u/s 80IA.”
We notice that the AO has rejected the claim of the assessee without giving any reason as to how the amounts in question are not eligible for the claim u/s 80IA of the Act. Similarly, the Ld. CIT(A) has affirmed the findings of the AO discussing the general principles of the law without giving specific reasons as to why the amounts in question cannot be treated as profits and gains derived from the eligible business of the assessee. Moreover, the Ld. CIT(A) has not given any reason for taking a view contrary to the view already taken in the assessee’s appeal pertaining to the assessment year 2010-11 in the similar set of facts. Therefore, we are of the considered view that the findings of the Ld. CIT(A) are not based on cogent and convincing reasons. Hence, keeping in view the nature of income earned by the assessee in this case i.e., balance written back and miscellaneous income, we hold that the said amounts should be treated as profits and gains derived from the eligible business. Accordingly, we set aside the findings of the Ld. CIT(A) and direct the AO to treat the said amounts as profits and gains derived from the eligible business of the assessee. Assessment Years: 2009-10 & 2010-11 This appeal of assessee pertains to the assessment year 2010-11. The assessee engaged in the business of operating container, freight station, filed its return of income for the assessment year under consideration declaring the total income of Rs. 1,53,62,861/-. It was noticed from the details submitted by the assessee that an amount of Rs. 23,58,364/- pertaining to Dadri Unit (eligible for deduction u/s 80IA) has not been reduced from the profit of Dadri Unit for claiming deduction u/s 80IA of the Act, detail of which are as under:- a) Rent received Rs. 12,69,030/- b) Interest on Fixed Deposits Rs. 4,83,391/- c) Interest on IT Refund Rs. 3,13,385/- d) Balance Written back Rs.99,985/- e) Miscellaneous Income Rs. 1,92,364/-
2. AO after hearing the authorized representative of the assessee deducted the said amount from the gross income of the assessee holding that the said amount has no direct nexus with assessee’s eligible business and complete the assessment u/s 143(3) of the Act determining the total income of the assessee at Rs. 2,61,78,275/-. In the first appeal, the Ld. CIT(A) confirmed the disallowance made on account of interest on FD and interest on income tax refund and allowed rest of the amounts. The assessee is in appeal against the said of the Ld. CIT(A).
The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
“1. The Honorable Commissioner of Income Tax (Appeals)-21 upheld the disallowance of a sum amounting in all to Rs. 7,96,776/-, made by the Assessing Officer, comprising of (a) a sum of Rs. 4,83,391/-, being interest received on Fixed Deposits and (b) a sum of Rs. 3,13,385/-, being interest received on Income Tax Refund, while computing the claim for deductions under Assessment Years: 2009-10 & 2010-11 section 80 IA of the Income Tax Act, 1961. Your Appellants submit that the said disallowance be deleted and the aforesaid income be considered for the purpose of computing the profit eligible for deduction under section 80 IA of the Income Tax Act, 1961.
2. The Assessing Officer has issued Notice under section 274 read with section 271 (1) (c) of the Income Tax Act, 1961, requiring your Appellant to show cause why an order imposing a penalty should not be made under section 271 of the Income Tax Act, 1961.”
As regards the claim of the assessee in respect of interest on FD is concerned, this ground is identical to one of the grounds of assessee’s appeal pertaining to the assessment year 2009-10 and since we have partly allowed this ground of appeal
of the assessee in assessee’s appeal pertaining to the assessment year 2009-10 and directed the AO to compute the total income after netting off the interest paid and interest received by the assessee during the year relevant to the assessment year under consideration, consistent with our findings, we partly allow this ground of appeal and direct the AO to compute the total income of the assessee after netting off the interest paid and interest received by the assessee during the year relevant to the assessment year under consideration
5. So far as the interest received on IT refund is concerned, the Ld. counsel for the assessee submitted before us that in this case the IT refund arises as a result of tax deducted at source by various customers of the assessee who used CFS facilities. Therefore, the interest of Rs. 3,13,385/-being related to the business of the assessee, eligible for the benefits u/s 80IA of the Act. The Ld. counsel placing reliance on the decision of the Mumbai Tribunal rendered in the case of ITO vs. Hiranandani Builders (2015) TTJ (Mumbai) 533, submitted that interest received by the assessee on TDS refund should be netted off against the interest expenditure for the purpose of commuting profit and gains derived from the under taking. Assessment Years: 2009-10 & 2010-11
6. On the other hand, the Ld. DR relying on the order passed by the Ld. CIT (A) submitted that only profit of from industrial undertaking is eligible for deduction u/s 80IA. Since the findings of the Ld. CIT(A) is based on the established principles of law, there is no infirmity in the order of the Ld. CIT (A) to interfere with.
We have perused the relevant material on record in the light of the rival submissions of the parties. As pointed out by the Ld. counsel for the assessee, one of the issues for consideration before the coordinate Bench was whether the assessee was eligible to claim deduction under section 80IA of the Act on interest on IT refund. The coordinate Bench after hearing both the parties decided the said issue in favour of the assessee holding as under:-
12, . Thus, we notice that the TDS deduction from lease rental income was beyond the control of the assessee and also due to the delay in getting no deduction certificate from the AO. In view of the same, the assessee was deprived of funds to the extent of TDS amount, which would have been otherwise used for the purpose of business purposes including repayment of loan taken for construction of IT Park and SCZ. The IT Department was required to pay interest only due to the delay in getting refund of TDS. In the case of Liberty India Ltd.(supra), relied upon by the AO, the assessee therein received DEPB credits as per the scheme framed by the government of India. Hence, the Hon’ble Supreme Court held that the primary source of DEPB receipt is the scheme framed by the Government. However, in the present case, TDS deduction is integral part connected with the receipt of lease income and the same cannot be separated from the activity carried on by the assessee. Since, the lease income is the primary source of the assessee and since the TDS has been deducted from the said primary source and since the assessee was deprived of a portion of lease rent for a temporary period for the reasons beyond control of the assessee, there is some merit in the contention of the assessee that the interest on TDS refund should be equated with the interest on delayed payments of business receipts. In our view, the assessee has got strong case Assessment Years: 2009-10 & 2010-11 in the alternative contention that interest received by it on TDS refund should be netted off against the interest expenditure for the purpose of computing the profits and gains derived from the undertaking, in which case of the interest income need not be assessed separately and it would automatically get deduction under section of the Act due to netting off. In view of the above, we uphold the decision taken by the learned CIT(A) on this issue.
In the light of the decision of the coordinate Bench rendered in the case of ITO vs. Hiranandani Builders (supra), we hold that interest received by the assessee on the TDS refund should be netted off against the interest expenditure for the purpose of computing profits and gains derived from the eligible unit of the assessee. Respectfully, following the decision of the coordinate Bench, we partly allow this ground of appeal of the assessee and direct the AO to compute the profits and gains derived from the eligible unit after netting off the interest against the interest expenditure.
In the result, appeals filed by the assessee for assessment years 2009- 2010 and 2010-2011 are partly allowed.