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2020 (3) TMI 1223 - AT - Income TaxDeduction u/s.80IAB(4)(iii) - Deduction under the said provision in respect of income derived from a SEZ project known as Millennium Towers - HELD THAT - AO considers income from Millennium project as Business income then he should allow all the expenses claimed by the Assessee and therefore the income from Millennium project arrived at by the AO at ₹ 1,17,35,191 was not proper. By reason of this conclusion, there would be only loss from the project Millennium and therefore there is no occasion to allow deduction u/s.80IAB(4)(iii). There was also a disallowance of expenditure u/s.14A of the Act. The disallowance u/s.14A of the Act was sustained by the CIT(A) at a sum of ₹ 65,65,245/-. The CIT(A) in para 6.10 of his order observed that if the profit of the Assessee increases after the disallowance of expenses u/s.14A of the Act, the Assessee would be eligible for deduction u/s.80IAB(4)(iii)/80IA of the Act on such enhanced profit. There is no bifurcation of the sum of ₹ 65,65,245 between the Millennium Towers project eligible for deduction u/s.80IAB(4)(iii) of the Act and the other project on which the Assessee claimed deduction u/s.80IA of the Act. The CIT(A) however in paragraph-7 of his order observed that the Assessee has negative income after setting off loss of earlier years business loss and hence he did not allow any deduction u/s.80IAB(4)(iii). - Therefore the grounds raised by the revenue in this regard are without any basis and does not arise out of the order of the CIT(A). - Decided against the revenue. Disallowance of expenses u/s.14A r.w.r. 8D - HELD THAT - There can be no dispute on the availability of own funds more than the investments that are likely to yield tax free income. This finding of the CIT(A) has not been shown to be erroneous except a submission that own funds and borrowed funds come from a common pool of funds. The law by now is well-settled that if available interest-free funds are much more than investments in dividend yielding shares, then there can be no disallowance under rule 8D(2)(ii) of the Act. In the case of CIT Vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT it was held where assessee's own funds and other non-interest bearing funds were more than investment in tax free securities, no disallowance of part of interest payments under section 14A of the Act can be made. In light of the above factual and legal position, we are of the view that disallowance of interest under rule 8D(2)(ii) cannot be sustained and was rightly deleted by the CIT(A). Besides the above the interest expenditure claimed by the Assessee as deduction were all in respect of borrowings which by its very nature was not capable of being used by the Assessee for the purpose other than business purpose of the Assessee and not for making investment. We find no grounds to interfere with the order of the CIT(A) and dismiss the relevant grounds of appeal of the revenue.
Issues Involved:
1. Deduction under Section 80IAB(4)(iii) of the Income Tax Act. 2. Disallowance of expenses under Section 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deduction under Section 80IAB(4)(iii) of the Income Tax Act: The Revenue challenged the CIT(A)'s order allowing the Assessee's claim for deduction under Section 80IAB(4)(iii) of the Income Tax Act, 1961. The Revenue's grounds included: - The CIT(A) erred by following previous orders which were under appeal and not final. - The Assessee did not meet the conditions for approval by the Ministry of Commerce and Industry. - The Assessee had fewer tenants than required and leased more than 60% of the total area to a single tenant. - The CIT(A) failed to appreciate that two companies were actually one due to amalgamation. - The CIT(A) allowed relief based on previous years' orders without finality. The Assessee, engaged in property development including IT Park and SEZ, filed a return declaring nil income and claimed a deduction under Section 80IAB. The AO treated income from the Millennium Towers project as business income and denied the deduction. The CIT(A) held that if the AO considered the income as business income, all expenses should be allowed, leading to a loss and no occasion to allow the deduction under Section 80IAB. The Tribunal upheld the CIT(A)'s order, noting that the issue for AY 2012-13 was identical to AY 2011-12, and dismissed the Revenue's grounds. 2. Disallowance of Expenses under Section 14A of the Income Tax Act: The AO computed disallowance under Section 14A read with Rule 8D, disallowing ?3,97,50,064, including ?3,31,84,809 for interest expenses. The CIT(A) reduced the disallowance to ?65,65,245, deleting the interest expense disallowance, reasoning that the interest payments were related to business borrowings, not investments yielding tax-free income. The Revenue argued that the CIT(A) erred in deleting the disallowance, asserting that interest expenses not directly attributable to any income should be disallowed under Rule 8D(2)(ii). The Assessee contended sufficient own funds were available, much more than the tax-free investments. The Tribunal found that the Assessee had sufficient own funds exceeding the tax-free investments and upheld the CIT(A)'s order, citing the principle that if interest-free funds exceed investments yielding tax-free income, no disallowance under Rule 8D(2)(ii) is warranted. The Tribunal dismissed the Revenue's appeal, noting the Assessee's interest expenses were for business purposes and not for making investments. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both the deduction under Section 80IAB(4)(iii) and the disallowance of expenses under Section 14A. The Tribunal affirmed that the Assessee met the conditions for the deduction and had sufficient own funds to cover tax-free investments, justifying the deletion of interest expense disallowance.
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