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2019 (2) TMI 1889 - ITAT AHMEDABADDeduction u/s 10AA - Eligibility of deduction of interest on fixed deposit for the purposes of Section 10AA - AO took a view that interest on fixed deposits is not akin to ‘profits derived’ as laid down in section 10AA (7) of the Act and consequently such interest income do not form part of the business operation of the SEZ unit - CIT(A) accordingly held that the AO was not justified in excluding the interest income earned from fixed deposits but in the nature of business income for the purposes of computation of deduction under section 10AA - HELD THAT:- For determining the scope of section 10AA(7), the reference to the expression ‘derived from’ is not material. To expound further ‘profits of the business of the undertaking’ is wider than ‘profits and gains derived by an undertaking’ - profits derived from export have been equated with business profits of the undertaking as per the formula laid down by section 10AA(7) - the direct nexus or proximity of business income with the export activity is not necessary in view of section 10AA(7) - CIT(A), in our view, has rightly treated the interest income to be eligible for deduction under section 10AA of the Act as per the findings noted in earlier paragraphs. Substantial merit in the action of the CIT(A) in holding the interest income from FDRs to be ‘business income’ of SEZ unit consistent with the position taken by the assessee in view of the purpose and utilization of FDRs for its business operation. We profitably refer to the decision of Hewlett Packard [2017 (11) TMI 205 - KARNATAKA HIGH COURT] wherein it was held that interest income earned by the assessee on the deposits placed by it with banks in the ordinary goods of its business would not be taxable as ‘income from other source’ under section 56 of the Act and is required to be treated as business income of the assessee regardless of the fact that assessee is not engaged in any banking/financial activity. The interest income thus is eligible for deduction under section 10AA of the Act on such income once it falls in the ambit of the business income - Thus the CIT(A) in our considered view has rightly hold interest income from FDRs to be ‘business income’ and consequently eligible for deduction under section 10AA of the Act in terms of formula provided under section 10AA(7) - Decided against revenue. Disallowance u/s 14A - Disallowance on the ground that the interest free funds at the disposal of the assessee is in excess of the corresponding investments yielding tax free income - HELD THAT:- On such facts, we do not see any reason to interfere with the aforesaid findings in view of the decision of the Hon’ble Gujarat High Court in CIT vs Suzlon Energy Ltd. [2013 (7) TMI 697 - GUJARAT HIGH COURT]and CIT vs GIDC [2013 (1) TMI 809 - GUJARAT HIGH COURT]. Disallowance of interest on advance given for purchase of immovable property - perusal of the order of the CIT(A) shows that the assessee had demonstrated before the first appellate authority that the advances given for purchases of immovable property is far in excess of the interest free funds - HELD THAT:- In view of the facts narrated by the CIT(A) towards availability of interest free funds in excess of interest bearing loans for towards advances immovable property, we do not see any reason to interfere with the order of the CIT(A) which is sync with the judicial precedence prevailing in this regard.
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