TMI Blog2020 (3) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue s appeal in both the years are rejected. Disallowance u/s 14A - whether such disallowed amount be added back in the book profit for the purpose of section 115JB? - HELD THAT:- We find that the assessee has sufficient interest free funds, and no interest amount deserves to be disallowed. Thus, interest free fund available with the assessee was far more than the investment, and no interest expenditure could be disallowed. Sometime investment could be of 100 crores, but exempt income is only few lakhs. Can the expenditure exceed the exempt income. This situation has been answered by the Hon ble Gujarat High Court in the case of Corretech Energy P.Ltd. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] by propounding that if there is no tax free income, then there could not be any expenditure. This view was expressed by the Hon ble Delhi High Court in the case of Cheminvest [ 2009 (8) TMI 126 - ITAT DELHI-B] while reversing the conclusion of the Special Bench of the Tribunal. Ends of justice would be meet if we restrict the disallowance to rupees seven lakhs in the Asstt.Year 2012-13, and rupees twelve lakhs in the Asstt.Year 2013-14, which will be sufficient for taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Ahmedabad dated 6.3.2018 and 15.3.2018 passed for the assessment years 2012-13 and 2013-14 respectively. Since issues are inter- connected with each other, therefore, we heard these appeals together and deem it appropriate to dispose of them by this common order. 2. First we take appeals of the Revenue. 3. Ground No.1 and 2 in each assessment year are inter-connected with each other. In these grounds, the Revenue has pleaded that the ld.CIT(A) has erred in deleting the disallowance amounting to ₹ 42,29,32,066/- and ₹ 10,58,10,775/- in the Asstt.Years 2012-13 and 2013-14. 4. The ld.counsel for the assessee at the very outset submitted that issue in dispute is squarely covered by order of the Tribunal dated 4.3.2019 passed in ITA Nos.630 and 864/Ahd/2017 for the Asstt.Year 2011-12 in assessee s own case. The ld.DR was unable to controvert this contention of the ld.counsel for the assessee. 5. With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee-company was incorporated in the year 2003 and engaged in the business of retail jewellery, trading in bullions, transactions in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed its returns of income on 30.9.2012 and 30.11.2013 declaring total income at ₹ 40,97,64,670/- and 27,44,30,102/- in the assessment year 2012-13 and 2013-14 respectively. The case of the assessee was selected for scrutiny assessment in both the years, and notices under section 143(2) were issued on 2.9.2013 and 8.9.2014 in both these assessment years respectively. A perusal of the record would indicate that the assessee has claimed deduction under section 10AA at ₹ 42,29,32,066/- and ₹ 10,58,10,775/- in the Asstt.Year 2012-13 and 2013-14 respectively. The ld.AO sought explanation of the assessee as to why this deduction be not disallowed. After referring various expression service and entrepreneur employed in SEZ Rules, the ld.AO has disallowed the deduction. 7. We find that detailed finding recorded by the AO has been reproduced by the ld.CIT(A) in the impugned order. The ld.CIT(A) thereafter took cognizance of finding recorded by her predecessor in the Asstt.Year 2011-12 and deleted the disallowance made by the AO. The finding of the ld.CIT(A) in the Asstt.Year 2011-12 has been upheld by the Tribunal. 8. Before taking note of the finding of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded as follows :- 3.41 From the above facts and circumstances and commercial and legal pronouncements by various courts as discussed above, it is also clear that the interest income earned by assessee for the year under consideration is in the nature of other income liable to be taxed as income from other sources . 3.42 It is also seen that assessee has computed the book profit u/s.115JB of the Act by reducing profit of the SEZ unit as computed after inclusion of interest income. However, as stated above, assessee did not derive any profit from eligible and core operations of SEZ unit eligible for claim u/s.10AA of the Act and hence, assessee had legally factually made a wrong. 3.43 In view of the above, it is held that (i) The assessee is not eligible for any claim of deduction u/s. 1OAA of the Act. (ii) Since the assessee is not eligible for any claim of deduction u/s.10AA of the Act, it is not eligible for any reduction in book profit on account of profit of SEZ unit. (iii) The interest income on bank FDR of ₹ 219,11,58,218/- is in the nature of 'income from other sources' and therefore, the assessee is not eligible for claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overall income to the assessee. The interest income in question are interest income which are earned by the assessee on fixed deposit receipts which are kept or pledged by the assessee with its bank for obtaining the Letter of Credit against its purchases is not in dispute. 39. We find that in the instant case, it is not in dispute that the interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of reexport, for obtaining Letter of Credit for its purchases. We thus find that the relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business. The fixed deposit receipts being business assets, we find no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. Our above view finds support from the recent decisions of the Hon'ble Karnataka High Court in the case of CIT anr. Vs. Motorola India Electronics (P) Limited (2014) 265 CTR 94 (Kar.) wherein it was held that: No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. 5.2.1 It is further seen that the various other judicial decisions relied upon by the appellant in this respect also squarely cover its case, viz. the decision of the Hon. Gujarat High Court in Hari Orgocheme Pvt. Ltd. In view of the judicial decisions cited supra and the categorical finding of the Hon'ble ITAT, Ahmedabad in the appellant's own case for the earlier two years on an identical issue, it is held that interest income would form part of the profit of the business and would be included for arriving at profits derived from export to be calculated u/s. 10AA(7) of the I.T. Act and the disallowance made by the Assessing Officer is deleted. Grounds of appeal Nos. 3, 4 5 are allowed. 14. The Assessing officer is aggrieved of the relief so granted by the learned CIT(A) and is in appeal before us. 15. We have heard the rival contentions, perused the material on record and considered facts of the case in the light of the applicable legal position. 16. We find that the above issue is covered, in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Commissioner of Income Tax had held that the interest are mandatorily assessable under the head income from other sources . 39. We find that in the instant case, it is not in dispute that the interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of reexport, for obtaining Letter of Credit for its purchases. We thus find that the relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business. The fixed deposit receipts being business assets, we find no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. Our above view finds support from the recent decisions of the Hon ble Karnataka High Court in the case of CIT anr. Vs. Motorola India Electronics (P) Limited (2014) 265 CTR 94 (Kar.) wherein it was held that: No doubt Sub-section 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above, we find that the view adopted by the Assessing Officer showing interest income under consideration is business income cannot be held as not a possible view and therefore, the Commissioner of Income Tax was not justified in interfering with the said view in the impugned order. 41. The other connected issue is that as per the view of the Commissioner of Income Tax, the interest income in question being derived by the assessee from Indian Bank, the same is to be excluded while computing profits derived from the export of articles or things or services for the purpose of section 10AA of the Act. Sub-section (7) of section 10AA provides the manner in which the profits derived from export of articles or things or services is to be computed for the purposes of section 10AA of the Act. Therefore, in view of the above specific provision in the section itself, profits derived from the export of articles or things or services cannot be computed in any other manner. Sub-section (7) of Section 10AA reads as under: For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajesh Exports Limited Vs. ACIT, (2008) TIOL-457-ITAT-Bangalore wherein it was held that: In the light of the aforesaid discussion, it seems to us that the expression profits of the business of the undertaking appearing in section 10B(4) has to be construed in a wider sense than the expression profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things appearing in section 10B(1) of the Act. We have already noticed that sub-section (1) has been expressly made subject to the provisions of the Section. Therefore, the meaning to be ascribed to the words used in that sub-section should be controlled or tempered by the language used in subsection (4). So constructed it appears to us that the profits of the business of the undertaking includes not merely the profits derived by or from the undertaking, but also include any profits or income which are incidental to the carrying on of the business of the undertaking. To the same effect is the decision of the Hon ble Karnataka High Court in the case of Motorola India Electronics (P) Limited (supra). 43. In view of the above, we find that the view adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of brought forward loss. The above issue is consequential to the finding of the Commissioner of Income Tax in respect of head under which the interest income earned by the assessee on fixed deposit receipts is to be assessed. As we find that the view adopted by the Assessing Officer in the assessment order that interest income earned by the assessee on fixed deposit receipts are assessable under the head business income on the facts of the instant case was found to be a possible view and therefore, we have to also hold that set-off of brought forward business loss against such business income as done by the Assessing Officer in the assessment order was a possible view. Therefore, we set aside the order of the Commissioner of Income Tax to the extent it directed that as interest income earned on fixed deposit receipts taxed as income from other sources, the assessee would not be entitled for set-off of brought forward business loss against such interest income. 17. While the above observations were in the context of revision proceedings under section 263, these observations were equally applicable on merits. The coordinate bench has dealt with the matter on the merits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of Explanation (baa) to section 80 HHC, no part of interest income is to be excluded from the profits to arrive at the profits eligible for Section 10AA benefit. What is not provided by the statute cannot be inferred by us either. As a corollary to this legal position, once interest income is required to be treated as business income, as it is required to be on the facts of this case in the light of factual position that interest was earned on placing the fixed deposits which were wholly made for availing the letter of credit facilities, the same becomes part of business profits and is eligible for benefit of Section 10AA. This approach is fully supported by a coordinate bench decision in assessee s own case, in the context of revision proceedings, in the case of Ausom Enterprise Lytd (Order dated 15th October 2018 in ITA No. 857/Ahd/17) and by Hon ble Karnataka High Court s full bench judgment in the case of CIT Vs Hewlwtt Packard Global Soft Ltd [(2017) 87 taxmann.com 182 (Kar FB)]. 20. Whichever way we look at it, thus, the conclusions arrived at by the learned CIT(A) are indeed correct and call for no interference. In view of these discussions, and bearing in min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minvest Ltd. Vs. ITO, 124 TTJ 577 (Del)(SB). He also made reference to the decision of Special Bench in the case of Daga Capital Management P.Ltd., 117 ITD 169 (Mum)(SB). Apart from these decisions, he made reference to the Hon ble Rajasthan High Court in the case of Rajasthan state Warehousing Corpn Ltd. Vs. CIT, 242 ITR 450(Raj), and also four more ITAT s orders. He worked out the disallowance of ₹ 36,59,563/- in the Asstt.Year 2012-13 and ₹ 67,30,601/- in the Asstt.Year 2013-14. Dissatisfied with the disallowance, assessee went in appeal before the ld.CIT(A) who deleted the disallowance partly. The ld.CIT(A) was of the view that the assessee has sufficient interest free funds, and therefore, no interest expenditure required to be disallowed for earning tax free income. In this way, the ld.CIT(A) has restricted the disallowance to ₹ 17,93,818/- and ₹ 23,06,949/- as against ₹ 36,59,563/- and ₹ 67,30,601/- in the Asstt.Years 2012-13 and 2013-14 respectively. Against this partial deletion of the disallowance, Revenue is in appeal before us. Qua confirmation of part disallowance, the assessee is in appeal before the Tribunal. 14. With the assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roughly ₹ 62 lakhs of tax free income in the Asstt.Year 2012-13 and ₹ 2.07 crores in the Asstt.Year 2013- 14, how much administrative expenditure should be construed as sufficient. An ideal situation would be to find out the expenditure from the books of accounts. If the same is not available, then take help of Rule 8D. In that situation, sometime investment could be of 100 crores, but exempt income is only few lakhs. Can the expenditure exceed the exempt income. This situation has been answered by the Hon ble Gujarat High Court in the case of Corretech Energy P.Ltd., 372 ITR 97 by propounding that if there is no tax free income, then there could not be any expenditure. This view was expressed by the Hon ble Delhi High Court in the case of Cheminvest (supra) while reversing the conclusion of the Special Bench of the Tribunal. Therefore, looking into the facts of the case from all these angles, we are of the view that ends of justice would be meet if we restrict the disallowance to rupees seven lakhs in the Asstt.Year 2012-13, and rupees twelve lakhs in the Asstt.Year 2013-14, which will be sufficient for taking care of administrative expenditure for making investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, nothing remained to be set off against the profit of current year, and the claim of the assessee is within the provisions of section 80IA(5) of the Act. The ld.AO did not accept the explanation of the assessee and he held that for the purpose of determination of quantum of deduction under section 80IA has to be computed after deduction of notional brought forward loss and depreciation of eligible business, though the same would have been allowed to be set off against other income in earlier years. After relying on some case laws, as mentioned in his impugned order, the ld.AO rejected claim of the assessee, and the deduction was added back to the total income of the assessee. Aggrieved by the action of the AO, the assessee went in appeal before the ld.CIT(A). The ld.CIT(A) after going through order of the AO and considering order of his predecessor in the assessee s own case for the assessment year 2011-12, allowed the claim of the assessee. Revenue is aggrieved by this order of the ld.CIT(A), and hence, before the Tribunal. 21. Before us, the ld.DR relied on the order of the AO, while the ld.counsel for assessee relied upon order of the ld.CIT(A). The ld.counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Goldmine Shares and Finance Pvt Ltd. wherein it was held that as per section 801A(5) of the I. T. Act deduction was to be computed after reducing notional brought forward losses and depreciation of eligible business even though they had already been set off against other income in earlier years. However it is seen that, this was done since at that time, the year of commencement of business was considered as the initial Asst. year. The Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills vs. ACIT 340 ITR 463, decided a similar issue in favour of the appellant on an identical issue. The decision in the case ofSadbhav Engineering Ltd. vs DC/7 in ITA No. 610/Ahd/2008, 1834 2054/Ahd/2009 1835 2Q55/Ahd/2009 and 2053/Ahd/2009, wherein the Hon. Tribunal has held as under- We find that section 801A of the Act which has been substituted with effect from 01.04.2000 provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from eligible business referred to in sub section 4, there shall, in accordance with an subject to the provision of section, be allowed in computing the total income, the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA(5). The loss prior to the initial assessment year which was already been set off cannot be brought forward and adjusted into the period of 10 years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has adjust loss in subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section 80IA can be determined. This is the true import of section 80IA(5). The CBDT has also issued a Circular No.1/2016 dated 15.12.2016 wherein it has been clarified that the initial Asst. year for the purpose of Section 801 A(5) is not the year of commencement of production, but it is the first year of claim of deduction at the assessee's choice out of block period of 10 years. In the appellant's case, the losses incurred by it were already set off and adjusted against the profits of the earlier years. During the current Assessment year 2011- 12, the appellant exercised the option under s.80-IA(2). During the relevant period, there was no unabsorbed depreciation or loss of t he eligible unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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