ACIT, CHENNAI vs. M/S. STERLITE INDUSTRIES LTD., TUTICORIN

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both the appeals of the assessee and Revenue are directed

against the same order of the Commissioner of Income Tax

(Appeals)–V, Chennai, dated 01.02.2011 and pertain to assessment

year 2000-01. Therefore, we heard both the appeals together and

disposing of the same by this common order.

Let’s first take assessee’s appeal in I.T.A. No.718/Mds/2011.

by the assessee under Section 80-IA of the Income-tax Act, 1961

(in short 'the Act') in respect of interest, management fees and

corporate guarantee commission.

submitted that the assessee claimed deduction under Section 80-IA

of the Act in respect of interest income received from deposits,

management fees and corporate guarantee commission. According

to the Ld. counsel, these receipts were inextricably linked to the

business of the assessee. Therefore, according to the Ld. counsel,

the assessee is eligible for deduction under Section 80-IA of the Act

3 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

while computing taxable income. Referring to the judgment of Apex

Court in ACG Associated Capsules Pvt. Ltd. (2012) 343 ITR 89, the

Ld.counsel submitted that at the best, only the net profit shall be

taken into consideration. The Ld.counsel submitted that netting of

the expenditure / interest has to be allowed while computing the

taxable income.

Counsel for the Revenue, submitted that interest income,

management fees and corporate guarantee commission are not

derived from the industrial undertaking, therefore, the same is not

eligible for deduction under Section 80-IA of the Act. Referring to

the order of the CIT(Appeals), the Ld. Sr. Standing Counsel

submitted that the assessee has received interest income to the extent of `5,14,989/-, management fees to the extent of

`3,54,36,933/- and corporate guarantee commission to the extent of

`1,64,90,412/. The Assessing Officer and the CIT(Appeals) found

that they are not derived from the eligible business of the assessee.

Therefore, by placing reliance on the judgment of Apex Court in

Sterling Foods (237 ITR 579) found that the income to the extent of `5,24,43,323/- received as interest income, management fees and

4 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

corporate guarantee commission, etc. would not form part of eligible

business, therefore, the assessee is not eligible for deduction under

Section 80-IA of the Act.

submitted that the CIT(Appeals) has placed his reliance on the

judgments of Apex Court in Pandian Chemicals v. CIT (262 ITR

278) and in Liberty India v. CIT (317 ITR 218). In view of these

judgments of Apex Court, according to the Ld. Sr. Standing

Counsel, the assessee is not eligible for deduction under Section

80-IA of the Act of the amount received from interest income,

management fees and corporate guarantee commission.

perused the relevant material available on record. We have

carefully gone through the provisions of Section 80-IA of the Act.

Section 80-IA of the Act clearly says that where the gross total

income of the assessee includes profits and gains derived by an

undertaking or an enterprise from any business referred to in sub-

section (4) of Section 80-IA of the Act. Section 80-IA(4) of the Act

clearly says that the provisions of Section 80-IA of the Act is

applicable to an enterprise on the business of developing, operating

5 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

and maintenance or developing, operating and maintaining of any

infrastructure facility which fulfills the conditions laid down therein.

Therefore, it is obvious that the income shall be derived from the

business of developing or operating and maintaining or developing

or operating and maintaining any infrastructure facility. In the case

of present assessee, it is not the case of the assessee that interest

income, management fees and corporate guarantee commission

were derived directly from the business of developing or operating

and maintaining or developing or operating and maintaining of

infrastructure facility. The only contention of the assessee before

this Tribunal is that interest, management fees and corporate

guarantee commission are inextricably linked to the business of the

assessee. Merely because there was a nexus between the

business and the receipt of income, we cannot say that the income

was directly derived from the business undertaking. This Tribunal is

of the considered opinion that for claiming deduction under Section

80-IA(4) of the Act, the income shall have to be derived from

business of developing or operating and maintaining or developing

or operating and maintaining of infrastructure facility. Therefore,

interest income received from deposits, management fees and

corporate guarantee commission are not eligible for deduction

6 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

under Section 80-IA of the Act. In fact, the CIT(Appeals) has rightly

placed his reliance on the judgment of Apex Court in Sterling Foods

(supra), Pandian Chemicals (supra) and Liberty India (supra).

in ACG Associated Capsules Pvt. Ltd. (supra). In the case before

the Apex Court, the issue was deduction claimed by the assessee

under Section 80HHC of the Act. After referring to Explanation

(baa) to Section 80 HHC of the Act, the Apex Court found that 90%

of net interest or net rent, which was included in the profit of the

business of the assessee as computed under the head “Profits and

gains from business or profession” was eligible for deduction under

Section 80HHC of the Act. In the case before us, it is the deduction

under Section 80-IA of the Act. There is no provision like

Explanation (baa) to Section 80HHC in 80-IA of the Act for including

all the miscellaneous income for the purpose of computing

deduction under Section 80-IA of the Act. In the absence of specific

provision like Explanation (baa) to Section 80HHC of the Act, this

Tribunal is of the considered opinion that the entire miscellaneous

income has to be excluded since they are not derived from industrial

undertaking. Therefore, the question of netting would not arise for

7 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

consideration. This Tribunal is of the considered opinion that the

judgment of Apex Court in ACG Associated Capsules Pvt. Ltd.

(supra) would not be applicable to the facts of the case. In view of

the above discussion, this Tribunal do not find any reason to

interfere with the order of the lower authority and accordingly the

same is confirmed.

deduction under Section 80-IA of the Act in the computation of book

profit under Section 115JA of the Act.

submitted that the Assessing Officer disallowed the claim of the

assessee by placing reliance on sub-section (4) of Section 80-IB of

the Act. Referring to sub-section (4) of Section 80-IB of the Act, Dr.

Anita Sumanth submitted that the deduction under Section 80-IB of

the Act shall be 100% of profits and gains derived from industrial

undertaking for five assessment years. The deduction of profit from

book profit would be applicable as a statutory deduction. Merely

because there was restriction of the profit at the rate of 30% in the

normal computation that cannot be a reason to disallow the claim of

8 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

the assessee. Therefore, the statutory restriction of the claim to

30% cannot be a reason for disallowing the claim of the assessee.

Counsel for the Revenue, submitted that the assessee claimed

deduction at the rate of 100% of the profit in the case of CCR

Silvassa and ACSR Rakholi. However, in respect of JFTC Silvassa

of the reserves, the assessee claimed deduction only at the rate of

30%. The Assessing Officer after examining the case under

Section 115JA(v) of the Act, found that before the introduction of 80-

IB(4) and 80-IB(5) by Finance Act 1999, there was a reference

about 115JB in Section 80-IA(2) with sub-clause (iv). The change

was effected in Section 115-JA consequent to splitting of Section

80-IA into Section 80-IA and 80-IB by Finance Act 1999 with effect

from 01.04.2000. Therefore, the assessee is eligible for deduction

under Section 80-IA or subsequently under Section 80-IB after

amendment to the extent of 100% for the first five years and 30%

for next five years and the deduction of profit from the book profit

would be applicable during the period in which the assessee is

eligible for 100%. In the absence of any express provision for

allowing the deduction when the assessee itself claims at the rate of

9 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

30% at the normal computation, according to the Ld. Sr. Standing

Counsel, the CIT(Appeals) has rightly confirmed the order of the

Assessing Officer.

perused the relevant material available on record. Sub-section (4)

of Section 80-IB of the Act clearly says that in case of industrial undertaking in the industrially backward State, specified in 8th

Schedule shall be 100% of the profits and gains derived from the

industrial undertaking for five assessment years beginning with

initial assessment year and thereafter 30% of the profits and gains

derived such industrial undertaking eligible for deduction.

115JA of the Act. Explanation (v) to Section 115JA of the Act

clearly says that the profit derived from the industrial undertaking

located in industrially backward area as referred to in sub-section

(4) and sub-section (5) of Section 80-IB of the Act is eligible for

deduction of 100% of the profits and gains under sub-section (4)

and sub-section (5) of Section 80-IB of the Act. This sub-section, as

rightly pointed out by the Ld.counsel for the assessee, does not

restrict the deduction allowed under Section 80-IA or under Section

10 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

80-IB of the Act, as the case may be. This Section merely says that

the assessee is eligible to claim deduction at 100% of he profits and

gains for the first five assessment years. For the first five

assessment years, the assessee is eligible for 100% of the profits

and gains and in the next year, in the case of company, the

assessee is eligible for 30% of the profits. Therefore, the 30% of

the profits and gains allowed under Section 80-IA of the Act has to

be reduced from the book profit computed for the purpose of

Section 115JA of the Act. Therefore, this Tribunal is unable to

uphold the orders of the lower authorities. Accordingly, the orders

of the lower authorities are set aside and the Assessing Officer is

directed to reduce 30% of the profits and gains, which was

computed under Section 80-IB(4) of the Act, from the book profit for

the purpose of computing taxable income under Section 115JA of

the Act.

profit under Section 115JA of the Act.

submitted that this issue was considered by this Tribunal in the

11 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

assessee's own case for assessment years 1998-99 and 1999-2000

and this Tribunal found that the assessee estimated the profit at `233.26 Crores for the purpose of computing profit under Section

155JA of the Act and addition was also made to the extent of `61

Crores in the normal computation. The Ld. Sr. Standing Counsel

submitted that by referring to the method of accounting followed by

the assessee and the judgment of Apex Court in Apollo Tyres (255

ITR 273), this Tribunal decided the issue in favour of the assessee

which is reported in 6 SOT 497. Therefore, according to Ld. Sr.

Standing Counsel, the issue is covered in favour of the assessee by

earlier order of this Tribunal.

assessee also. The Ld.counsel submitted that this issue is covered

in favour of the assessee for the assessment years 1998-99 and

1999-2000.

perused the relevant material available on record. As rightly

submitted by the Ld. Sr. Standing Counsel for the Revenue and the

Ld.counsel for the assessee, the very same issue was considered

by this Tribunal for the assessment years 1998-99 and 1999-2000

12 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

and this Tribunal deleted the similar addition made by the Assessing

Officer. Both, the Ld. Sr. Standing Counsel for the Revenue and the

Ld.counsel for the assessee very fairly brought to the notice of the

Tribunal that the issue is covered in favour of the assessee. We

have carefully gone through the order of this Tribunal. In view of

this order of the Tribunal for assessment years 1998-99 and 1999-

2000, the addition made by the Assessing Officer to the extent of `61 Crores is not justified. Accordingly, the CIT(Appeals) has rightly

deleted the addition. This Tribunal do not find any reason to

interfere with the order of the lower authority and accordingly the

same is confirmed.

claimed by the assessee on the purchase of steel.

Revenue, submitted that the assessee claimed depreciation on

bogus purchase of steel. The assessee could not produce

purchase bills before the Assessing Officer or the CIT(Appeals).

The CIT(Appeals) by placing reliance on the order of this Tribunal

for the block period, presumed that the assessee has purchased the

steel which was used for fabrication of plant. The Ld. Sr. Standing

13 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

Counsel further submitted that block assessment proceeding was

set aside by this Tribunal on the ground that there was no search

material found during the course of search operation and the order

is barred by limitation. This Tribunal had no occasion to discuss the

matter on merit. When this Tribunal has not discussed the matter

on merit and no evidence like bills for purchase of steel was

produced, according to the Ld. Sr. Standing Counsel, the matter

needs to be verified by the Assessing Officer. Therefore, the Ld. Sr.

Standing Counsel submitted that the matter may be remitted back to

the file of the Assessing Officer for reconsideration.

assessee, submitted that the CIT(Appeals) considered the issue

elaborately in the block assessment proceeding and found that the

assessee is eligible for depreciation. The Ld.counsel further

submitted that this order of the CIT(Appeals) was considered by this

Tribunal and the appeal of the assessee was allowed on the ground

that there was no search material and the order of the Assessing

Officer was barred by limitation. According to the Ld. counsel, even

though this Tribunal had not considered this issue on merit and the

finding recorded by the CIT(Appeals) with regard to purchase of

14 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

steel, the finding recorded in block assessment by the CIT(Appeals)

cannot be ignored by the Tribunal since the Commissioner is having

coterminous power as that of the CIT(Appeals), who passed the

impugned order now under challenge before this Tribunal. In the

block assessment, the CIT(Appeals) has examined the issue and

found that the assessee has purchased the steel which was used in

fabrication of plant. Therefore, the CIT(Appeals) has rightly allowed

the claim of the assessee.

perused the relevant material available on record. The issue before

this Tribunal is with regard to depreciation on the so-called

purchase of steel. The Revenue claims that the assessee has not

produced bills and vouchers for purchase of steel, and the claim is

bogus. From the material available on record, it appears that the assessee purchased steel to the extent of `267,66,84,018/-. The

Assessing Officer found that the copies of bills to support the

purchase are not produced. The CIT(Appeals), by referring to the

order of block assessment, found that the assessee is eligible for

depreciation.

15 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

block period. The block assessment was made under old scheme,

i.e. under Section 158BC of the Income-tax Act. Under the old

scheme of block assessment, the Assessing Officer was expected

to confine himself to the material found during the course of search

operation. Therefore, this Tribunal found that in the absence of

search material, there cannot be a block assessment under Section

158BC of the Act. The Tribunal further found that the order of the

Assessing Officer was also barred by limitation. The assessment

now under consideration before this Tribunal is a regular

assessment under Section 143(3) of the Act. Under the old scheme

of block assessment, the Assessing Officer was empowered to

frame assessment in respect of undisclosed income under Section

158BC of the Act on the basis of the material found during search

operation and also regular assessment in respect of income

disclosed in regular course under Section 143(3) of the Act. Now,

admittedly, no assessment is in existence in respect of undisclosed

income for want of search material and the order of Assessing

Officer itself was barred by limitation. Therefore, this Tribunal is of

the considered opinion that placing reliance on the order of the

16 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

CIT(Appeals) for the block period, which was admittedly set aside

by this Tribunal, is not justified.

of purchase of steel independently on the basis of the material

available on record and thereafter record his own finding with regard

to acquisition and existence of the capital asset. Unfortunately, the

CIT(Appeals) has not taken any pain to ascertain the genuineness

of purchase of steel and the acquisition / existence of the capital

asset. Therefore, as rightly submitted by the Ld. Sr. Standing

Counsel for the Revenue, the matter needs to be re-examined.

Accordingly, the orders of the lower authorities are set aside and the

issue with regard to depreciation is remitted back to the file of the

Assessing Officer. The Assessing Officer shall re-examine the

matter afresh on the basis of bills and vouchers that may be

produced by the assessee for purchasing the steel and thereafter

decide the issue afresh, in accordance with law, after giving a

reasonable opportunity to the assessee.

depreciation on account of capitalization of foreign exchange

fluctuation consequent to block assessment. Since the main issue

17 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

of depreciation is remitted back to the file of the Assessing Officer,

this Tribunal is of the considered opinion that all the issues of

depreciation shall be reconsidered by the Assessing Officer, in

accordance with law, after giving a reasonable opportunity to the

assessee.

under Section 14A of the Act.

submitted that the Assessing Officer disallowed the claim of the assessee to the extent of `2.93 Crores and the CIT(Appeals),

however, allowed the claim of the assessee on the ground that the

assessee has invested its own funds. According to the Ld. Sr.

Standing Counsel, irrespective of investment out of its own funds,

the assessee has to necessarily incur expenditure on managerial

level for the purpose of taking decision to make investment.

Therefore, according to the Ld. Sr. Standing Counsel, the

CIT(Appeals) is not justified in allowing the claim of the assessee.

assessee, submitted that the assessee invested its own funds,

18 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

therefore, the assessee has not incurred any expenditure at all.

Hence, there cannot be any disallowance. Therefore, according to

the Ld. counsel, the CIT(Appeals) has rightly allowed the claim of

the assessee.

perused the relevant material available on record. The assessment

year under consideration is 2000-01. Therefore, Rule 8D of

Income-tax Rules, 1962 is not applicable for the year under

consideration. Therefore, reasonable estimation has to be made for

the expenditure incurred by the assessee. Now before this

Tribunal, the assessee submits that no expenditure was incurred

and the assessee’s own funds were invested. The assessee being

a company, has to entrust the matter to some of the executives for

making investment. Therefore, the salary paid to the executives,

who were entrusted the work of investment, is definitely a cost

incurred by the assessee for taking administrative decision to invest

in the shares which yielded exempted income. The managerial

function performed by the executives need to be taken into

consideration for the purpose of estimation of disallowance. Since

Rule 8D is not applicable, this Tribunal is of the considered opinion

19 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

that a reasonable estimation has to be made. This Tribunal,

wherever Rule 8D of Income-tax Rules, 1962 is not applicable, is

uniformly making 2% disallowance of investment. Accordingly, the

orders of the lower authorities are set aside and the Assessing

Officer is directed to estimate the disallowance at 2% of investment

made by the assessee.

claimed by the assessee under Section 80HHC of the Act.

Revenue, submitted that the CIT(Appeals) directed the Assessing

Officer to verify Form 10CCAC and thereafter decide the matter.

Therefore, the Ld. Sr. Standing Counsel placed his reliance on the

grounds of appeal raised by the Revenue.

assessee, submitted that since the CIT(Appeals) directed the

Assessing Officer to verify Form 10CCAC, the Revenue cannot

have any grievance at all.

perused the relevant material available on record. Deduction under

20 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

Section 80HHC of the Act was denied on the ground that the

assessee has not filed Form 10CCAC, which was a pre-condition

for allowing deduction under Section 80HHC of the Act. Therefore,

the CIT(Appeals) directed the Assessing Officer to verify Form

10CCAC. This Tribunal do not find any reason to interfere with the

order of the lower authority and accordingly the same is confirmed.

off of losses by the assessee while computing book profit.

Revenue, submitted that the CIT(Appeals) directed the Assessing

Officer to compute the book profit after setting off of losses by the

assessee-company. According to the Ld. Sr. Standing Counsel, the

claim cannot be set off.

assessee, also. It is not known what kind of claim was made by the

assessee to set off while computing the book profit. In the absence

of details of claim for set off for deduction under Section 80HHC of

the Act, this Tribunal is of the considered opinion that the matter

needs to be reconsidered. Accordingly, the orders of the authorities

21 I.T.A. No.718/Mds/2011 I.T.A. No.1008/Mds/2011

below are set aside and the issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the matter in the light of the material that may be filed by the assessee, in accordance with law, after giving a reasonable opportunity to the assessee.

Order pronounced on 23rd September, 2016 at Chennai.

sd/- sd/- (एस जयरामन) (एन.आर.एस. गणेशन) (S. Jayaraman) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 23rd September, 2016.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-V, Chennai-34 4. आयकर आयु�त/CIT, Chennai-III, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.