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2017 (12) TMI 1134 - AT - Income TaxClaim of deduction u/s.80IA in respect of profit of rail systems - to be treated as the infrastructure facility or not - scope of the term public facility - Held that - Contention of revenue authorities that Railways had constructed the rail system is not factually correct. In fact, M/s L& T had entered into agreement with the appropriate rail authorities to Develop its rail systems. M/s. L&T had constructed the rail system by awarding contract to the private parties for construction of rail sidings (including upto the nearest rail head) under the supervision of Indian Railways approved agency, and the entire cost for construction/ development paid to the aforesaid agency and supervision charges paid to Indian Railways approved agency have been borne by the assessee, apart from all costs incurred for all the materials and incidental expenses. Public facility or not - Held that - the railway siding from the point of interchange till factory gate of the assessee has immense potential, with enabling powers to the Railway Administration (which itself is a public department), to be developed into a facility that will ensure to the public at large. The railway sidings are always constructed for captive consumption. Thus, the provisions of section 80IA(4) cannot be read in the manner to make it redundant, when the legislature in all its wisdom intended to give benefit of tax holiday for construction of infrastructure facility in the form of railway which is meant for captive consumption. The operation of rail is not merely hauling of wagons but comprises of various activities all of which is carried on by the assessee Company. Section 80IA(2) provides that the deduction is available at the option of the assessee for any ten consecutive assessment years out of twenty years beginning from the year in which the undertaking or enterprise develop and operate any infrastructure facility. UTCL has started to claim deduction within the prescribed period of twenty years. The claim is thus legitimately made by assessee complying the requirements mentioned under section 801A. In view of the above discussion and respectfully following the order of the Tribunal in assessee s own case for the A.Y.2004-05 to 2008-09, we do not find any merit in the action of the Revenue authorities declining the claim of deduction u/s.80IA(4). Accordingly AO is directed to allow the deduction as claimed by the assessee with respect to its rail system. We direct accordingly. Addition of exemption of sales tax benefit received by the assessee by treating the same as revenue receipt - Held that - As considered rival contentions and carefully gone through the orders of the authorities below as well as the order passed by the Tribunal in assessee s own case in the A.Y.2004-05 to 2006-07. We found that exactly similar issue was considered in detail by the Tribunal and after discussing various judicial pronouncements held that subsidiary so received by the assessee was capital in nature, therefore not liable to tax as revenue receipt. Disallowance of interest expenditure on exempt income u/s.14A - Held that - no disallowance is warranted on account of interest as the assessee has sufficient interest free funds available with it. Learned AR has also invited our attention to the cash flow statement placed in the paper book to indicate that cash surplus was much more than the fund invested for earning exempt income, therefore, with a limited issue of verifying the cash surplus available vis- -vis amount invested in tax free securities, we restore the matter back to the file of the AO. If the AO finds that cash surplus so generated is more than the amount of investment in tax free securities / units of mutual funds, no disallowance on account of interest is warranted under Rule 8D 2(ii). Disallowance of expenditure other than interest alleged to be incurred on exempt income u/s.14A - Held that - During the year under consideration, we found that assessee has offered expenses on Cost to Company basis of employees, executives and staff those were looking after the profit on investment in the mutual funds amounting to ₹ 43,31,541/-. Assessee has also offered expenditure indirectly attributable to these employees amounting to ₹ 12,09,391/- thus, total disallowance offered by the assessee amounts to ₹ 55,40,932/- which appears to be reasonable looking to the nature of the exempt income vis- -vis nature of expenses so incurred for earning the same. Respectfully following the decision of the Tribunal in assessee s own case, we restrict the disallowance under Rule 8D(2)(iii) to the extent of ₹ 55,40,932/-. Following the same reasoning, we direct AO to restrict disallowance under Rule 8D(2)(iii) to the extent of ₹ 64,30,155/- as offered by assessee in the A.Y 2010-11. Disallowance made u/s.14A on account of interest and administrative expenses - Held that - We restore this issue back to the file of the AO to verify the availability of cash surplus of ₹ 1571.93 crores generated during the year and which was invested in the units of mutual funds. If the AO found that assessee has generated cash surplus of 1571.93 crores, no disallowance on account of interest expenditure should be made in so far as cash surplus is much more than the investment so made in the units of mutual funds
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Deduction under Section 80IA in respect of Railway Systems. 3. Treatment of Sales Tax Exemption Benefits as Capital Receipts. 4. Jurisdiction of CIT(A) for Assessment Year 2010-11. 5. Initiation of Penalty Proceedings under Section 271(1)(c). Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: - Assessment Year 2009-10: - The assessee contested the disallowance of ?6,26,46,484 on account of interest and ?2,65,70,329 on account of administrative expenses under Section 14A read with Rule 8D. - The Tribunal referred to earlier decisions in the assessee’s own case, where it was established that investments were made from interest-free funds. The Tribunal directed the AO to verify the cash surplus and if found sufficient, no disallowance on account of interest should be made. The disallowance of administrative expenses was restricted to ?55,40,932 as offered by the assessee, following the Tribunal's earlier orders. - Assessment Year 2010-11: - A similar issue arose with disallowances of ?13,85,61,471 for interest and ?4,92,15,823 for administrative expenses. - The Tribunal restored the issue to the AO to verify the availability of cash surplus of ?1571.93 crores generated during the year. If found sufficient, no disallowance on account of interest should be made. The disallowance of administrative expenses was restricted to ?64,30,155 as offered by the assessee. 2. Deduction under Section 80IA in respect of Railway Systems: - Assessment Year 2009-10: - The AO disallowed the deduction claimed by the assessee under Section 80IA for profits from rail systems, arguing that the rail systems were not independent units and were not operated by the assessee. - The CIT(A) followed the Tribunal’s earlier orders allowing the deduction but noted new facts for the A.Y. 2010-11. - The Tribunal reiterated its earlier decisions, confirming that the rail systems met the conditions of Section 80IA(4), including agreements with Indian Railways for development, operation, and maintenance. The Tribunal directed the AO to allow the deduction. - Assessment Year 2010-11: - The CIT(A) denied the deduction, citing new facts and the non-public utility nature of the rail systems. - The Tribunal, however, found that the conditions of Section 80IA(4) were met, and the agreements with Indian Railways were as envisaged under the section. The Tribunal directed the AO to allow the deduction, following the principle of consistency. 3. Treatment of Sales Tax Exemption Benefits as Capital Receipts: - Assessment Years 2009-10 and 2010-11: - The AO treated the sales tax exemption benefits as revenue receipts. - The CIT(A) allowed the assessee’s claim, treating the benefits as capital receipts, following the Tribunal’s earlier orders in the assessee’s own case. - The Tribunal upheld the CIT(A)’s decision, noting that the issue had been settled in the assessee’s favor in earlier years, and the facts and circumstances remained the same. 4. Jurisdiction of CIT(A) for Assessment Year 2010-11: - The assessee contended that the CIT(A) passed the order without jurisdiction as per Section 127. - The Tribunal did not specifically address this issue in the summary provided, focusing instead on the substantive issues of deductions and disallowances. 5. Initiation of Penalty Proceedings under Section 271(1)(c): - Assessment Year 2010-11: - The CIT(A) initiated penalty proceedings under Section 271(1)(c). - The Tribunal did not specifically address this issue in the summary provided, focusing instead on the substantive issues of deductions and disallowances. Conclusion: The Tribunal, following its earlier decisions and the principle of consistency, allowed the assessee’s claims for deductions under Section 80IA and treated sales tax exemption benefits as capital receipts. It also directed the AO to verify cash surplus before making disallowances under Section 14A and restricted administrative expense disallowances to amounts offered by the assessee. The appeals of the Revenue were dismissed, and the assessee’s appeals were allowed in part.
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