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2020 (3) TMI 951 - AT - Income TaxDeduction u/s 10AA disallowed - allegation of diversion of profit from DTA unit to in its SEZ unit - HELD THAT - Assessee has claimed deduction under section 10AA for the first time in the year 2009-10 which was allowed by the AO himself, but this order was set aside by the ld.CIT under section 263 of the Act. The order of the ld.CIT under section 263 passed in supervisory jurisdiction, did not meet approval of the Tribunal, and orders for the Asstt.Year 2009-10 and 2010-11 were set aside by the Tribunal. The next assessment year was A.Y.2011-12 wherein the ld.CIT(A) has allowed deduction and order of the ld.CIT(A) has been upheld by the Tribunal. Therefore, consistently, it is observed that the assessee has been allowed deduction under section 10AA on the profit derived by it in its SEZ unit including on the interest income which has been assessed as business income derived from SEZ. Therefore, respectfully following orders of the Co-ordinate Bench, we do not find any reason to interfere in order of the ld.CIT(A) in both these years. Ground No.1 to 3 of 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 care of administrative expenditure for making investment and earning exempt income. Accordingly, grounds raised by the assessee are partly allowed. Disallowance u/s 14A in the book profit determined under section 115JB - HELD THAT - As relying on VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI we reject this ground of appeal in both the years and direct the AO not to make adjustments in book profit for the purpose of MAT liability on the basis of calculations made with Rule 8D of the Income Tax Rules Disallowance on account of deduction u/s 80IA - Computation of deduction - HELD THAT - We find that similar claim of the assessee was allowed in the Asstt.Year 2011-12 when the assessee exercise the option of choosing the initial assessment year as culled out in sub section (2) of section 80IA from which it choose its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forwards as stipulated in section 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).- thus appellant is entitled to deduction U/S.80IA on the profits derived from wind mill unit Disallowance in respect of employee s contribution to PF/ESIC - HELD THAT - Assessee fairly conceded that this issue is covered against the assessee by decision of Hon ble jurisdictional High Court in the case of Gujarat State Road transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT .
Issues Involved:
1. Deletion of disallowance under Section 10AA of the Income Tax Act. 2. Eligibility of interest income for deduction under Section 10AA. 3. Disallowance under Section 14A of the Income Tax Act. 4. Inclusion of disallowance under Section 14A in book profits under Section 115JB. 5. Deduction under Section 80IA for windmill units. 6. Disallowance of employee’s contribution to PF/ESIC. Detailed Analysis: 1. Deletion of Disallowance under Section 10AA: The Revenue challenged the deletion of disallowance of ?42,29,32,066/- and ?10,58,10,775/- for the assessment years 2012-13 and 2013-14, respectively. The Tribunal found that the issue was already settled in favor of the assessee in earlier years (2009-10 and 2010-11) where the Tribunal had quashed the Commissioner’s order under Section 263. The Tribunal upheld the CIT(A)’s decision to delete the disallowance, noting that the assessee had consistently been allowed deduction under Section 10AA for its SEZ unit. 2. Eligibility of Interest Income for Deduction under Section 10AA: The Revenue contended that interest income should be assessed as "income from other sources" and not eligible for deduction under Section 10AA. The Tribunal referred to its earlier decision and the Karnataka High Court’s ruling in Motorola India Electronics (P) Limited, confirming that interest income earned on fixed deposits (used as security for letters of credit) is part of business income and eligible for deduction under Section 10AA. The Tribunal upheld the CIT(A)’s decision, allowing the interest income to form part of the business profits for Section 10AA deduction. 3. Disallowance under Section 14A: The AO disallowed ?36,59,563/- and ?67,30,601/- for the assessment years 2012-13 and 2013-14, respectively, under Section 14A, which was partially deleted by the CIT(A). The CIT(A) found that the assessee had sufficient interest-free funds and restricted the disallowance to ?17,93,818/- and ?23,06,949/-. The Tribunal upheld the CIT(A)’s decision, noting that the AO had not examined the accounts properly before applying Rule 8D. The Tribunal further reduced the disallowance to ?7 lakhs and ?12 lakhs for the respective years, considering the administrative expenditure for earning exempt income. 4. Inclusion of Disallowance under Section 14A in Book Profits under Section 115JB: The Tribunal referred to the Special Bench decision in ACIT Vs. Vireet Investments P. Ltd., which held that disallowance under Section 14A cannot be added back to book profits under Section 115JB. The Tribunal thus directed the AO not to make adjustments in book profit for MAT liability based on Rule 8D calculations. 5. Deduction under Section 80IA for Windmill Units: The AO disallowed the deduction of ?2,90,55,441/- under Section 80IA, arguing that it should be claimed after setting off earlier years’ brought forward losses. The CIT(A) allowed the deduction, noting that there were no brought forward losses as they had been set off against other income in earlier years. The Tribunal upheld the CIT(A)’s decision, referencing the Tribunal’s earlier ruling in the assessee’s favor for the assessment year 2011-12. 6. Disallowance of Employee’s Contribution to PF/ESIC: The assessee’s ground against the disallowance of ?1,15,091/- for employee’s contribution to PF/ESIC was rejected, as the issue was covered against the assessee by the Gujarat High Court’s decision in Gujarat State Road Transport Corporation. Conclusion: The Tribunal dismissed the appeals of the Revenue and partly allowed the appeals of the assessee, providing a detailed analysis and upholding the CIT(A)’s decisions on various grounds, including the eligibility of deductions under Sections 10AA and 80IA and the treatment of disallowances under Section 14A.
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