TMI Blog2013 (4) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... t on 17.03.10, the issue relating to sec.43B was not considered in the earlier assessment and therefore the CIT(A) should have upheld the reopening of assessment at least on this ground. 3. Facts apropos are that assessee is a company promoted as a joint venture by M/s.TIDCO M/s.ELCOT. Both M/s.TIDCO M/s.ELCOT are Government of Tamil Nadu undertakings. Assessee is engaged in developing, operating and maintaining information Technology Parks. The name of the park developed, maintained, and operated during the relevant previous year was Tidel Park . Assessee is having approval for setting up industrial park by Ministry of Industry, Government of India. CBDT has also notified it as an industrial park under section 80 IA(4)(iii) of the Act. For impugned Assessment Year, assessee filed return declaring an income of ` 76,67,750/-. Deduction of ` 6,73,15,795/- was claimed under section 80 IA (4)(iii) of the Act. Thereafter, assessment was completed on 10.03.06 under section 143(3) of the Act. On 26.03.08, assessee was served with a notice proposing a reopening. Assessee in its reply filed on 17.04.08 requested the Assessing Officer to treat the return originally filed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this income. (iii) The Govt of TN allotted land for Tidel Park and ordered payment of consideration of `28.5 crore. Out of the consideration payable the assessee issued equity shares for value of `6.75 crores to TIDCO and the balance of `21.7 crores was converted as loan repayable to TIDCO. The interest payable of `1,94,04,211/- was debited in the P L account. Non-payment of interest attracts provisions of Sec 43B and accordingly disallowance. 4. Though the assessee objected to the second reopening as well, Assessing Officer chose to proceed with reassessment and completed such reassessment on 31.12.2010 denying deduction claimed under section 80-IA of the Act. In such reassessment, Assessing Officer took a view that deduction under section 80-IA (4)(iii) could be availed only for profits derived from developing, operating and maintaining facilities of the nature mentioned therein and could not be applied for rentals received from property. Assessee did content that during the course of original proceedings itself, details of its claim under section 80-IA was called for by the Assessing Officer and such details furnished. Assessee pointed out that one of the questions raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a second reason as well. Interest shown as payable to TIDCO was allowed, without considering Sec 43B of the Act. According to him, unless and until the interest shown as outstanding in the accounts to Government or a Government enterprise was paid before the end of the previous year or before the due date of filing the return, claims in this regard could not be allowed. This was never considered by the Assessing Officer at the stage of original assessment or at the stage of first reopening. A.O had allowed the claim in full without verifying, how far assessee had complied with the requirements of Sec.43B. Just because assessee had filed a profit and loss account will not absolve it from its duty to explain how the claim was allowable. Just because A.O could have with due diligence found this out from the records filed by the assessee, would not be a reason to hold that assessee had not failed to make disclosure, sufficient enough to rule out a reopening. Therefore, according to him, the reopening was rightly done and CIT(A) fell in error in holding reopening to be invalid. 9. Per contra, Ld. A.R, supporting the order of CIT(A) submitted that in the course of original asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 showing a total income of `76,67,750/-. The return of income was processed under section 143(3) on 30.02.04. The case was selected for regular scrutiny. In response to notice under section 143(2)/142(1) Shri I. Subramanian, Accounts Officer of the company attended. He filed the details called for. He produced books/bills called for and the case is discussed with him. The assessee company is engaged in the business of developing, operating and maintaining Information Technology Park. Government of India notified the assessee company as an Industrial Park for the purpose of 80IA. The assessee company is a public sector undertaking of Govt. of Tamilnadu. The assessee company claimed the entire income as exempt under section 80IA. The issues involved in this case are discussed as under:- It is clear from the above that the Assessing Officer was aware that the assessee was a company notified by the Government of India as industrial park and had claimed its income exempt under section 80-IA of the Act. 11. Para-2 of the same assessment order clearly deals with the deduction claimed by the assessee under section 80IA of the Act. This is reproduced hereunder:- 2. Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee was on deposits made by it in the banks. The mere fact that the deposit was made for the purpose of obtaining letters of credit which were in turn used for the purpose of business of industrial undertaking did not establish a direct nexus between the interest and the industrial undertaking and therefore, the assessee was not entitled to get the benefit of 10A/10B in relation to the interest income. The Madras High Court relied in this case on the following Supreme Court decisions on this issue. (a) Cambay Electric Supply Industrial Co Ltd Vs. CIT (1978)(113 ITR 84)(SC) (b) CIT V Sterling Foods (1999) (237 ITR 579)(SC) (c) CIT V Pandian Chemicals Ltd (2003) 129 Taxman 539 (d) CIT Vs. Tuticorin Alkali Chemicals Fertilisers Ltd. The Supreme Court in the above cases clearly held that the word derived has narrower meaning than the word attributable to . The word derived is followed by the word from . This clearly shows that there should be a direct nexus between the source and the income generated. It is submitted that interest income from deposits, miscellaneous income and other rents are not derived from infrastructure proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a number of functionalities on the same footing. It is also noteworthy to mention the observations of their Lordships in Chennai Properties and Investments Ltd.(supra). It was observed that the question whether income of leasing out should be treated as income from property or business must be considered in the circumstances of each case. We also find that this position of law has been reiterated by Hon ble jurisdictional High Court in the case of CIT Vs. M/s.Elnet Technologies Ltd. ( TCA No.2336 2623 of 2006 and 2169 of 2008 dated 09.10.12) wherein decision of Hon ble Jurisdictional High Court in the case of CIT Vs. Chennai Properties and Investments Ltd. was considered. Thus, what comes out clearly is that not only Assessing Officer had applied his mind on the applicability of Sec.80-IA to various categories of income of the assessee, but had also reached a lawful conclusion that assessee was eligible for claiming such deduction, except on some of such categories. 13. Coming to the second item regarding interest payable of ` 1,94,04,211/-, there is no mention whatsoever in the reason itself that such interest was not paid. Assessing Officer had simply stated that non-pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for Assessment Year 2005-06 are taken up. Since C.O. of the assessee assails the reopening, this is considered first. 15. Facts apropos are that assessee had for the impugned Assessment Year claimed deduction under section 80-IA(4)(iii) of the Act. This was allowed in the original assessment under section 143(3) of the Act, completed on 19.12.07. Assessing Officer thereafter issued a notice on 17.03.10 under section 148 proposing a reassessment. Reasons given for such reopening read as under:- In the assessment completed under section 143(3) deduction under section 80-IA was allowed in excess as below: The assessee has declared income from the following as business income and claimed deduction under section 80 IA. Rent from premises 52,85,43,673 Rent from Auditorium 31,60,823 Rent other 1,83,79,315 Total 55,00,83,811 But the assessee s claim under section 80IA taking the above income and the business income is incorrect as per the decision of the jurisdictional High Court in the case of CIT Vs Chennai Properties and Investments Ltd 274 ITR 117 (MAD) supported by IOB Vs CIT 246 ITR 206 (MAD), CIT Vs. Indian Metal and Metalo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee, re-opening was based on a mere change of opinion. Reliance was once again placed in the decision of CIT Vs. Kelvinator of India (supra). 19. However, Ld. CIT(A) was not impressed. According to him, Assessing Officer had examined only receipts under the head O M charges, interest income, Revenue sharing from lessees, other income, rent from Auditorium and rent from others. As per Ld. CIT(A) Assessing Officer had not taken any view on the rent from premises claimed by the assessee as eligible for deduction under section 80IA of the Act. What had come out in a subsequent assessment could very well be a reason for reopening for a preceding year, according to Ld. CIT(A). In his opinion, additional materials were with the Assessing Officer for reaching a conclusion that assessee was not eligible for deduction under section 80-IA of the Act. In this view of the matter, he held that re-opening was validly done. However, on merits, Ld. CIT(A) held the assessee to be eligible for deduction under section 80 IA on its income from leasing of the units in the industrial park. As per the Ld. CIT(A) such receipts fell under the head profits and gains on business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 746 or the decision of Hon ble Apex Court in the case of A.L.A. Firm in 189 ITR 285. According to the Ld. D.R., their Lordships in the case of A.L.A. Firm (supra) had held that non-consideration of a jurisdictional High Court decision was good enough a reason for resorting to a reopening. Therefore, according to him, CIT(A) was justified in approving the reopening. 23.We have perused the orders of the lower authorities and heard rival contentions. There is no dispute that for the impugned Assessment Year re-opening was done within a period of four year from the end of the impugned assessment year. Therefore, first proviso to Sec 147, as mentioned by Ld. D.R., does not apply. The only requirement is that A.O. should have a reason to believe that income chargeable to tax had escaped assessment. However, such reason should be a reason that reasonable man will have in the facts and circumstances of the case. Assessee had during the course of original assessment proceedings, replied to a notice dated 23.10.07, giving the details of the rental income received by it, details of the other income received by it and details of various expenses claimed by it. It had also given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The return was processed under section 143(1) on 31.03.2007. 25.Thereafter Assessing Officer had also done a reworking of the deduction claimed by the assessee under section 80-IA of the Act. His views on the claim of deduction made by the assessee under various heads appear at para four of the said assessment order which is reproduced hereunder: Reworking of deduction under section 80-IA 4.1. For the Assessment Year 2005-06, the assessee has claimed deduction under section 80 IA to the tune of `283264825/-. The assessee has credited the following incomes in its Profit and Loss account: (i) Rent from premises 528543673 (ii) Rent from Auditorium 3160823 (iii) Rent-Others 18379315 (iv) Operating Maintenance charges 86551361 (v) Interest Income 31817559 (vi) Revenue sharing from Lessees 4262435 (iv) Other Income 4213330 Total(A) 676928496 From the above incomes received, the assessee has debited the following sums, in arriving at the profit of the business. (i) Employees Cost 4727090 (ii) Maintenance Expenses 64674423 (iii) Administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts from the buyers of the building for betterment and maintenance of Tidel Park. This is in the form of non refundable interest free sum equivalent to 1% of the total consideration. The sum so received has been kept as a sinking fund corpus . The amount lying in this fund has been deposited in a separate fixed deposit. The interest earned on the above sum is transferred to the sinking fund account net of income tax. The total interest including tax works out to ` 19468487/- [`13793256 (+) `810378 (+) `4799760 (+) `65093) 27. On the face of the above, it is difficult to come to a conclusion that Assessing Officer had not applied his mind on the claims of assessee. Assessee had filed all particulars. There could have been a case of reopening, if the particulars filed by the assessee, did not reveal the nature of the income, on which it had claimed deduction under section 80IA of the Act. The nature of income was clear. The nature of business of the assessee was also clear. Assessing Officer had considered the claim, disallowed some, and allowed others. Therefore, the reason mentioned for re-opening that assessee was not eligible for a claim of deduction under section 80-IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force in the argument on behalf of the assessee that, in the face of all the details and statement paced before the ITO at the time of the original assessment, it is difficult to take the view that the ITO had not at all applied his mind to the question whether the surplus is taxable or not. It is true that the return was filed and the assessment was completed on the same date. Nevertheless, it is opposed to normal human conduct that an office would complete the assessment without looking at the material placed before him. It is not as if the assessment record contained a large number of documents or the case raised complicated issues rendering it probable that the ITO had missed these facts, It is a case where there is only one contention raised before the ITO and it is, we think, impossible to hold that the ITO did not at all look at the return filed by the assessee or the statements accompanying it. The more reasonable view to take would, in our opinion, be that the ITO looked at the facts and accepted the assessee s contention that the surplus was not taxable. But, in doing so, he obviously missed to take note of the law laid down in G.R.Ramachari Co.(supra) which, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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