ASCENDAS IT SEZ (CHENNAI) PRIVATE LIMITED,CHENNAI vs. ITO, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.1193/Mds/2015. :- 2 -: passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

‘’2.1 The learned CIT(A) has erred in confirming that the interest income of INR 2,52,04,544/- derived from the industrial undertaking is not eligible for deduction u/s80IAB of the Act.

2.2 The learned CIT(A) has failed to appreciate the facts of the case and submissions made by the assessee to show that such interest income was inextricably linked to the company’s business activity and therefore eligible for deduction under section 80IAB of the Act’’.

The Brief facts of the case the assessee is in the business of 3. developing and leasing of IT parks and filed its e-return of income on 25.08.2010 admitting nil income. The case was selected for scrutiny and notice u/s.143(2) was issued. In compliance to notice, the ld. Authorised Representative of assessee appeared from time to time and furnished details. The ld. Assessing Officer on perusal of the financial statements found that assessee has claimed deduction u/s.80IAB of the Act �4,20,59,087/- which includes interest income of �2,52,04,544/- and the assessee has treated interest income as business profits for claiming deduction u/s.80IAB of the Act. The ld. Assessing Officer on perusal of the provisions of Sec. 80IAB found that ITA No.1193/Mds/2015. :- 3 -: interest income does not form part of business profits of an undertaking. The ld. Authorised Representative explained that it inadvertently claimed and as per the form No.10CCB issued by Auditor restricted the claim to �1,68,54,543/-. The Assessing Officer considered the explanations and the records and treated balance �.2,52,04,544/- as income from other sources and passed order u/s.143(3) of the Act dated 30.12.2011 and raised demand. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative raised additional grounds and were admitted by the Commissioner of Income Tax (Appeals). The ld. Authorised Representative reiterated the submissions made before the Assessing Officer and also relied on the judicial decisions of High Courts. The ld. Commissioner of Income Tax (Appeals) considered the observations of the ld. Assessing Officer and business operations of the assessee that the company business is only developing SEZ and leasing them to enterprises engaged in information technology and technology enabled service providers. The assessee company invested surplus arising out of business which is immediately not required in fixed deposits. The ld. Commissioner of Income Tax (Appeals) considered the detail

ITA No.1193/Mds/2015. :- 4 -: submissions at para 5.1.1 of the order and judicial decisions relied by the assessee. But the ld. Commissioner of Income Tax (Appeals) gave findings that assessee suo-motu has claimed as the form 10CCB deduction u/sec. 80IAB for �1,68,54,543/- and agreed in assessment proceedings and observed para 5.2 of his order as under:-

‘’5.2 I have carefully considered the facts and the submissions of the Id.AR. I have also gone through the decisions relied on by the Id.AR. As seen from the facts of the case, the appellant has accepted certain refundable advances I security deposits from the tenants and the same were deposited with the banks in the form of Fixed Deposits and earned interest. The AO has treated this interest as income from other sources as it was not derived from the activity of development of SEZ which is eligible for 80IAB deduction. No doubt the interest income was derived in the course of business and it certainly becomes an earning of the appellant, but as the activity of the undertaking which is eligible for deduction is different from the activity of taking deposits and earning into the banks will not fit into business activity of the appellant company so as to avail deduction u/s 80IAB. In other words, when the undertaking is entitled for deduction u/s 80IAB, for the purpose of working of 80lAB the interest earned from the bank should be reduced. Therefore, I hold that the AO has rightly brought to tax the interest income earned of ₹2,52,04,544 as income from other sources and the balance of ₹1,68,54,543 was allowed for deduction u/s 80IAB as was claimed by the appellant in Form 10CCS. Further, when the appellant itself has accepted before the AO that the claim of 80lAB was only ₹1,68,54,543 as claimed in Form 10CCB, there is no scope for dispute now. I, therefore, uphold the decision of the AO. The decisions relied on by the appellant are distinguishable. The ground is dismissed’’.

ITA No.1193/Mds/2015. :- 5 -: and dismissed the appeal of the assessee. Aggrieved by the Commissioner of Income Tax (Appeals) order, the assessee assailed an appeal before Tribunal.

Before us, the ld. Authorised Representative of the assessee 5. reiterated the submissions made in the assessment proceedings and appellate proceedings on the additional grounds admitted by the Commissioner of Income Tax (Appeals). The contention of the ld. Authorised Representative being that the nature of the business of the assessee being development and maintenance of IT park and the interest on deposits pertains to advance money security deposits received from tenants and they have to be refundable on termination of lease or vacation of premises. It is mandatory to collect the security deposit as a prudent business practice in the development of software industry. As there was no immediate requirements of funds, the assessee company deposited the amount with banks and earned interest. The nature of transaction of funds are only in connection with lease rentals and they are incidental to the business activities and therefore takes the characteristic of profit of business undertaking and eligible for deduction u/s.80IAB of the Act. The ld. Authorised Representative further supported his arguments with judicial decisions and financial statement of the assessee company for the said

ITA No.1193/Mds/2015. :- 6 -: assessment year and prayed for allowing deduction of interest income as business profit of undertaking.

Contra, ld. Departmental Representative relied on the orders 6. of lower authorities and opposed to the grounds and filed judicial decisions supporting the grounds of the lower authorities and prayed for dismissal of appeal.

other sources. The ld. Authorised Representative before Commissioner of Income Tax (Appeals) has contested and filed additional grounds to treat interest income as business profits of undertaking eligible for deduction u/s.80IAB of the Act. The ld. Commissioner of Income Tax (Appeals) considering the facts, provisions of law has elaborately discussed at para 5.2 of the order were assessee agreed the addition and claimed relief as per form 10CCB and upheld the order of the Assessing Officer. Now question arises whether after agreeing the addition on technical grounds, can assessee can claim further deduction, on legal aspect interest on FDR as income derived from industrial undertaking, the ld. Authorised Representative relied on judicial decisions and Tribunal decision to support the case. On perusal of the financial statements of the assessee company at page 35 of the paper book the main source of income being lease income and assessee offered interest income referred at schedule 10 of page 41 of paper book. Further, similar interest income for the assessment year 2007-2008 was obtained. The ld. Authorised Representative could not support with explanation whether assessee has claimed deduction u/s.80IAB of the Act for the assessment year 2008-09 on interest income. We found the assessee could not substantiate the direct nexus with the industrial undertaking and we rely on decision of ITA No.1193/Mds/2015. :- 8 -:

Supreme Court in the case of Pandian Chemicals Ltd vs. CIT 262 ITR 278 were it was held as under:-

‘’The words ‘’derived from’’ in section 80HH of the Income Tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee’s industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. Held accordingly, that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction under section 80HH’’. On application of ratio of above case, we are not inclined to interfere with order of the Commissioner of Income Tax (Appeals) on this ground and upheld the same and dismiss the appeal of the assessee.

Order pronounced on Friday, the 29th day of April, 2016, at Chennai.