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Assessee by Miss. Neelam C. Jadhav : (AR) Revenue by : Shri V. Vidhyadhar (DR) Date of hearing : 26.12.2017 Date of Pronouncement : 07.02.2018 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee under section 253 of Income Tax Act is directed against the order of Commissioner appeals-10, Mumbai dated 10th December 2015 for Assessment Year 2011-12, which in turn arises from the order passed by Assessing Officer under section 143(3) dated 21st March 2014. The assessee has raised following grounds of appeal:
Reduction of claim of Rs.41,79,481/- under section 80IA. (1) The learned Commissioner (Appeals) erred in confirming the order of assessing officer assessing interest income from margin money and fixed deposits as income from other sources instead of business income and thereby reducing claim under section 80 IA amounting to Rs.41,79,481/-. (2) Without prejudice to the above, the appellant used borrowed money to keep Margin money and fixed deposits as security deposits in relation to the MSW recycling business for obtaining the contracts from various municipal Hanjer Biotech Energies P. Ltd. authorities, therefore, the interest paid on borrowed money may be set off against interest assessed as income from other sources. (3) The appellant craves leave to add, and, substitute and/after all or any of the above grounds of appeal at the time of hearing.
2. The brief facts of the case are that the assessee-company is engaged in the business of Developing, Operating and Manufacturing of Solid Waste Management System with various Municipal Corporations, filed its return of income for Assessment Year 2011-12 on 29th September 2011 declaring total income at Rs. Nil under normal provisions and on the book profit at Rs. 30,47,68,763/- as per the provisions of section 115JB of the Act. The Assessing Officer completed the assessment under section 143(3) on 21st March 2014. During the assessment proceeding the Assessing Officer noted that assessee claimed deduction under section 80IA(4) of Rs. 67,22,73,075/- claiming itself in the business of Developing, Operating and Maintenance of Solid Waste Management System. The assessee not excluded the interest income of Rs. 41,79,481/- from the profit of the undertaking for the purpose of computation of deduction under section 8OIA. The Assessing Officer issued show cause notice to the assessee as to why the interest income should not be excluded from the deduction under section 80IA. The assessee vide its reply dated 14.02.2014 contended that the interest on bank FD and security deposit are in co-relation to Management Solid Waste Recycling Business Activity of the assessee. All FDs and security deposit are kept in Hanjer Biotech Energies P. Ltd. relation to business of assessee and be treated as business income and be adjusted against the deduction under section 80IA. The contention of the assessee was not accepted by the AO holding that the interest is not derived directly from the business undertaking of the assessee. On appeal before the ld. CIT(A), the action of AO was confirmed. Thus, further aggrieved by the order of AO, the assessee has filed the present appeal before us.
We have heard the ld. AR of the assessee and ld. DR for the Revenue and perused the material available on record. Ground No.1 of the appeal relates to exclusion of interest income from deduction under section 80IA. The ld. AR of the assessee argued that the assessee deposited the margin money in the Bank and earned interest. The interest earned by the assessee is from its business activity and should be treated as income derived from the eligible undertaking. The AO treated the interest income as “Income from Other Sources” though it was a part of business income. On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld. DR for the Revenue argued that the interest income earned by assessee is not derived from eligible undertaking for deduction under section 80IA. The interest income cannot be said to be flowing directly from business of the assessee. 4. We have considered the rival submission of the parties and have gone through the orders of authorities below. There is no dispute that assessee 3 ITA No.2190/M/16 Hanjer Biotech Energies P. Ltd.
earned interest income of Rs. 41,79,481/- on FD and Security Deposit. The assessee claimed to have earned the interest income on Bank deposits of margin money received from various Municipal Authorities. In our view, the interest income from FD and Security deposit is independent of business activity of the assessee. The Hon’ble Supreme Court in case of Pandian Chemicals Ltd. vs. CIT (2003) 129 Taxman 539 (SC) held that deriving of interest or profit on deposit with Electricity Board cannot be said to be flowing directly from industrial undertaking and, therefore, deduction under section 80HH could not be allowed in respect thereof. Considering the decision of Hon’ble Supreme Court that the interest or profit on deposit cannot be said to be flowing from the eligible industrial undertaking. Thus, we do not find any illegality or infirmity in the order passed by ld. CIT(A). In the result, Ground No.1 of the appeal is dismissed.
Ground No.2 relates to set-off of interest against the borrowed money. We have noted that the ld. AR of the assessee has not argued anything in support of this ground of appeal
. Hence, the ld. DR has no opportunity to controvert the submission of ld. AR of the assessee. Considering the fact that the assessee has raised this ground of appeal in alternative. We have further noted that no such ground of appeal was raised before ld. CIT(A). Considering the fact that the assessee has raised this ground of appeal for the first time before the Tribunal, we admit this ground of appeal and 4. Hanjer Biotech Energies P. Ltd. restored this ground of appeal to the file of AO to decide the same in accordance with law. Needless to say that AO shall grant sufficient opportunity before passing the order. Hence, this ground of appeal is allowed for statistical purpose.