THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), , VISAKHAPATNAM vs. GATEWAY EAST INDIA PRIVATE LIMITED, VISAKHAPATNAM

PER DUVVURU RL REDDY, Judicial Member :

2 2. Brief facts of the case are that the assessee is a domestic company engaged in the operation of Container Freight Station and deriving income thereof, filed its return of income for the AY 2017-18 on 25/10/2017, declaring NIL income after claiming deduction under Chapter VIA at Rs. 20,17,70,857/- which includes deduction U/s. 80IA(4) of the Act at Rs. 20,05,66,144/-.

Subsequently, the case was selected for complete scrutiny under CASS. Accordingly, notice U/s. 143(2) of the Act was issued on 13/08/2018. Thereafter, due to change in incumbency, as per the provisions of section 129 of the Act, fresh opportunity of being heard was accorded to the assessee vide letter dated 06/08/2019. Subsequently, notice U/s. 142(1) of the Act along with the detailed questionnaire was issued to the assessee on 30/08/2019 calling for detailed information. In response, the assessee furnished its submissions from time to time. On perusal of the submissions of the assessee, the Ld. AO noted that the assessee’s claim of deduction U/s. 80IA(4) made in its ITR does not fulfill the conditions enumerated in Circular No. 793, 23/06/2000 as well as the Circular No. 10/2005, dated 16/12/2005. The Ld. AO vide para 3.5 of the assessment order further observed that the case laws relied on by the assessee are distinguishable on salient features and facts of the case. Further,

3 the Ld. AR also noted that the reliance placed by the assessee on the decision of the Hon’ble ITAT, Visakhapatnam Bench in AY 2014-15 wherein the Tribunal allowed the assessee’s appeal regarding deduction U/s. 80IA(4) of the Act was not accepted by the Revenue and an appeal has been preferred before the Hon’ble High Court of Andhra Pradesh. The Ld. AO strongly relied on the clarification issued by the CBDT regarding the infrastructure activities U/s. 80IA(4)(i) of the Act with respect to CFS and ICDs vide F.No. 178/42/2010-ITA-I, dated 06/01/2011 and came to a conclusion that the assessee is not eligible for claiming deduction U/s. 80IA(4) of the Act and hence issued a show cause notice on 6/12/2019. In response the assessee filed its reply vide letter dated 09/12/2019. Not convinced with the assessee’s reply, the Ld. AO disallowed the assessee’s claim of deduction of Rs. 20,05,66,144/- U/s. 80IA(4) of the Act and added the same to the total income of the assessee and determined the assessed income at Rs. 20,05,66,144/- vide the assessment order No. ITBA/AST/S/143(3)/2019- 20/1022223555(1), dated 12/12/2019 U/s. 143(3) of the Act.

Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A)-1, Visakhapatnam.

4 3. On appeal, the Ld. CIT(A) vide para 4.3 of his order observed that the similar issue was raised before him for the AY 2014-15 wherein the Ld. CIT(A) examined the issue with reference to the facts and various submissions made by the assessee. The Ld.CIT (A) further observed that the Hon’ble ITAT, Visakhapatnam has allowed the ground raised by the assessee and sustained his [Ld.

CIT(A)’s] decision after examining the facts and circumstances of the case and applying the ratio of Hon’ble Supreme Court in the case of M/s. Container Corporation [404 ITR 397 (SC) (2018)] and M/s. AL Logistics (P) Ltd of Hon’ble Madras High Court [374 ITR 609, Madras – HC], decision of the Hon’ble Bombay High Court in the case of Continental Warehousing Corporation [374 ITR 645, Bom. – HC] as well as the assessee’s own case in for the AY 2014-15. Thus, the Ld. CIT(A) concluded that since there being no change in the facts of the case for the AY 2017-18, the disallowance made by the Ld. AO is deleted and allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT (A), the Revenue is in appeal before us by raising the following grounds of appeal:

“1. The order of the Ld. CIT (A) is erroneous both on facts and in law.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in appreciating that the definition of infrastructure facility as defined U/s. 80IA(4) includes ‘a port, airport, inland water way, inland port or navigational channel in the sea’ but does not include Container Freight (CFS).

3. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have considered that even as per the letter issued by the Visakhapatnam Port Trust, the Structure (CFS) does not form part of the Port and therefore, the Hon’ble Supreme Court’s judgment in the case of Container Corporation of India in 302 CTR 221 (SC) is not applicable to the facts of the case.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have considered that the fact that CFS of the assessee has not been built under BOT and BOLT scheme and there is no agreement that the same would be transferred to VPT on expiry of time stipulated in the agreement and therefore, does not form part of the port.

6. On the facts and in the circumstances of the case, the Ld. CIT (A) ought to have appreciated that the Assessing Officer had categorically pointed out that the CFS is located far away from the port premises, and therefore, does not form part of port as contemplated U/s. 80IA(4)(i) of the Act.

For these and other grounds that may be urged at the time of appeal hearing, it is prayed that addition made by the Ld. AO on account of disallowance of deduction U/s. 80IA(4) be restored.”

6 4. Before us, at the outset, Sri Fenil Amit Bhatt, the Ld.

Authorized Representative [Ld. AR] of the assessee submitted that the issue in question is no more res intigra and is covered by the judgments of various High Courts viz., the decision of the Hon’ble Delhi High Court in the case of Container Corporation of India vs. ACIT reported in 346 ITR 140 wherein the High Court observed that the CFS is an “Inland Port”. Further, the Ld. AR also relied on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Container Corporation of India Ltd [2018] 93 taxmann.com 31 (SC). Further, the Ld. AR also relied on the decision of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics Ltd. The Ld. AR further also relied on the decision of the Coordinate Bench of ITAT, Visakhapatnam in the assessee’s own case in dated 29/04/2015. Further, the Ld. AR also relied on the Circular of the CBEC i.e., Circular No. 18/2009, dated 08/06/2009.

Therefore, the Ld. DR vehemently argued in support of the order of the Ld. DR.

“8. In circular no. 18/2009 dated 08/06/2009 issued by the Central Board of Excise and Customs in F.No. 434/17/2009-CUS.IV the difference between Inland Container Depots (ICD) and Container Freight Stations(CFS) has been spelt out in the following manner: “(a) DEFINITION OF ICD: An Inland Container Depot may be defined as: A common user facility with public authority status (emphasis supplied) equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under customs control and with Customs and other agencies competent to clear goods for home use, warehousing, temporary admissions, re- export, temporary storage for onward transit and outright export. Transshipment of cargo can also take place from such stations. (b) DEFINITION OF CFS: A Container Freight Station may be defined as: Container Freight Stations are specified as customs area under Clause (b) of the said Section 8 wherein imported goods or export goods are ordinarily kept before clearance by the customs. Firstly, CFS do not have "public authority status" whereas ICD is a place that acts as a "self contained Customs Station" as categorically spelt in Circular of CBEC dt. 08.06.2009. Further the said circular clearly distinguishes ICD and CFS and makes it very obvious that CFS is nothing but a warehouse.

(c) Distinction between ICD & CFS: • "Inland Container Depot is a place that acts as a "self contained customs station" like a port or air cargo unit where - Filling of customs manifests, Bills of entry, Shipping bills and other declarations, assessment and all the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transshipment, etc., takes place."

•"Container Freight Stations are specified as customs area under Clause (b) of the said Section 8 wherein imported goods or export goods are ordinarily kept before clearance by the customs".

• An ICD is a 'self contained Customs station' like a port or air cargo unit where filing of Customs manifests, Bills of Entrys, Shipping Bills and other declarations, assessment and all the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transshipment, etc., take place. An ICD would have its own automated system with a separate station code [such as INTKD 6, INSNF6 etc.] being allotted by Directorate General of Systems and with in-built capacity to enter examination reports and enable assessment of documents, processing of manifest, amendments, etc.

• Container Freight Stations are specified as customs area under Clause (b) of the said Section 8 wherein imported goods or export goods are ordinarily kept before clearance by the customs. A CFS is only a Customs area located in the jurisdiction of a Commissioner of Customs exercising control over a specified Customs port, airport, LCS/lCD. A CFS cannot have an independent existence and has to be linked to a Customs station within the jurisdiction of the Commissioner of Customs. It is an extension of a Customs station set up with the main objective of decongesting the ports. In a CFS only a part of the Customs processes mainly the examination of goods is normally carried out by Customs besides stuffing/destuffing of containers and aggregation/segregation of cargo. Thus, Custom's functions relating to processing of manifest, import/export declarations and assessment of Bill of Entry/Shipping Bill are performed in the Custom House/Custom Office that exercises jurisdiction over the parent port/airportlICD/LCS to which the said CFS is attached. In the case of Customs Stations having facility of automated processing of documents, terminals are provided at such CFSs for recording the result of examination, etc. In some CFSs, extension Service Centers are available for filing documents, amendments etc. However, the assessment of the documents etc. is carried out centrally.

• An ICD may also have a number of CFSs attached to it within the jurisdiction of the Commissioner of Customs just as in the case of a port and its CFSs (as on date there are 28 CFSs linked to Chennai port) [Refer Circular No. 18/2009-Cus. , dated 8- 6-2009].

• A standalone Customs clearance facility in an inland Commissionerate cannot be approved by the Commissioner as a CFS, if there is no ICD/port within its 9 jurisdiction to which the said CFS can be attached. Sucha facility can, however, be notified as an ICD i.e., as an independent Customs station with provision for filing and assessment of documents and examination of goods. A Customs clearance facility could be established as a CFS at a port city for examination of imported/export goods, since the CFS would fall under the jurisdiction of Commissioner of Customs, having jurisdiction over the Customs port with which the CFS would be attached. Further, in a port city such as Chennai or Mumbai, it may be possible to develop an ICD within the territorial jurisdiction of the concerned Customs Commissionerate in addition to existing CFSs. Such an ICD should be capable of providing full-fledged Customs services, independent EDI system, and all procedures meant for transshipment of cargo have to be followed for movement of goods from the port of import to the ICD. Further, such an ICD would function as an independent Customs Station in all respects and would not be attached to any other port or airport. Thus, in respect of proposals for setting up of ICD/Container Freight Station from prospective operators it has to be examined whether the proposed facility is required to be approved as an ICD or CFS.

• Movement of goods from a port/airport/LCS to an ICD is in the nature of movement from one Customs station to another, governed by Goods Imported (Condition of Transshipment) Regulations, 1995. On the other hand, movement of goods from a port/airport/LCS or an ICD to a CFS is akin to local movement from a Customs area of the Customs station to another Customs area of the same station, covered by local procedure evolved by the Commissioner of Customs and covered by bonds, bank guarantee, etc. Further, the person undertaking the transshipment would be required to follow the prescribed procedure.”

As rightly contended by the learned AR of the appellant, the above circular answers in a very clear and categorical manner the objections raised by the assessing officer.

“7. Now, we proceed to the next issue, whether in the absence of specific agreement with the Central/State Government, local authority or Statutory Body, the assessee is entitled to claim the benefit of section 80IA( 4 )(i)? The assessee had made an application for setting up of CFS at Haldia. In response to the application of assessee, the Department of Commerce, Infrastructure Division, Ministry of Commerce and Industry approved the proposal of the assessee for setting up of CFS at Haldia for handling import/export of cargo subject to execution of certain documents and compliance of other terms and conditions as stated in the letter. The Id. Counsel for the assessee has placed on record letter dt.27-05-2003 from theMinistry of Commerce and Industry permitting the assessee to set up CFS at Raldia. The contents of the letter are reproduced herein below:

"No. 16/6/2003-lnfra-I Government of India Ministry of Commerce & Industry Deptt.of Commerce Infrastructure Division UdyogBhawan, New Delhi,

Dated the 27th May,2003. To The Director, M/s A L Logistics Pvt. Ltd., Chennai. Subject: Setting up of an CFS at Haldia. Sir,

I am directed to refer to your application dated 8.2.2003 on the above subject and to say that the Government has approved your proposal for setting up of an Container Freight Station at Haldia for Handling import and export cargo. The approval is subject to t le following terms and conditions:-

(a) The Letter of Intent holder shall take adequate steps to create proper infrastructure keeping in view the indicative norms given in Parts A& B of the Guidelines for setting up Inland container Depots I Container Freight Stations (ICDs/CFs) within a period of one year from the date of issue of this letter.

(b) Necessary bond and guarantees, as required, would be executed with the concerned Commissioner of Customs and Central Excise.

(c) The approval would be subject to cancellation in the event of violation of the Customs and other laws of the land and Rules.

(d) A quarterly progress report of the implementation shall be sent to the Ministry of Commerce.

(e) The working of the CFS will be open to review by the Inter Ministerial Committee.

(f) Formalities in respect of acquisition/possession of the land shall be completed within 60 days and intimated to the Mlo Commerce, failing which the approval granted would be automatically cancelled.