2021 (11) TMI 97 - AT - Income Tax

Deduction u/s 80IA - income on the business of running of Inland Container Depot (ICD) - business of ICD covered under the definition of infrastructure facilities - HELD THAT - CIT (A) deleted the impugned addition made by the AO by way of disallowance made u/s 80IA by thrashing the facts at hand in the light of the decision rendered in case of Container Corporation of India Ltd. 2012 (5) TMI 260 - DELHI HIGH COURT , hence we find no scope to interfere into the same. So, ground no.1 of AYs 2013-14 2014-15 is determined against the Revenue. Disallowance u/s 14A r.w.r.8D - disallowance deleted on the sole ground that assessee company has not earned exempt dividend income from the investment during the year under consideration and as such, no disallowance can be made - HELD THAT - Hon ble Delhi High Court in case of Holcim India Pvt. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT and Hon ble Supreme Court in case of Godrej Boyce Manufacturing Company Ltd. 2017 (5) TMI 403 - SUPREME COURT have categorically held that, when the assessee has not earned any dividend income forming part of the total income during the year under consideration, section 14A read with Rule 8D is not attracted. Consequently, we find no scope to interfere into the deletion of disallowance made by the ld. CIT (A) u/s 14A read with Rule 8D. - Decided against revenue. Addition u/s 37 - proportionate disallowance of interest qua the amount made by the assessee to its subsidiary and sister concern on the ground that the same was not for business purpose - CIT (A) has deleted the addition by thrashing facts in the light of the submissions made by the assessee on the ground that when the AO has failed to establish a reasonable nexus between the borrowing fund and interest free advances, addition is not sustainable - HELD THAT - CIT (A) brought on record the fact that the assessee was having surplus fund in its kitty. When the assessee was having surplus fund of ₹ 133.06 crores during the year under consideration, advancing of interest free loan of ₹ 35.42 crores to its subsidiaries is not to attract any disallowance on account of proportionate interest on advances made to the subsidiaries. So, ld. CIT (A) has rightly deleted the addition, hence ground no.3 of AY 2014-15 is determined against the Revenue. Disallowance of interest earned by the assessee company on FDR - HELD THAT - We have perused the aforesaid findings which are strictly on facts in the light of the law laid down in case of CIT vs. Jaypee DSC Ventures Ltd . 2011 (3) TMI 309 - DELHI HIGH COURT the ratio of which is that, when a bank guarantee is furnished as a condition precedent to entering into a contract and further it has to be kept alive to fulfill certain obligations and the fixed deposits have not been made out of the surplus funds available with the assessee, the same is to be treated as business income. Since judgment of by Hon ble jurisdictional High Court in case of CIT vs. Jaypee DSC Ventures Ltd. (supra) is squarely applicable to the facts of the case at hand, ld. CIT (A) has rightly deleted the addition. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition on account of disallowance of claim of deduction under section 80IA.
2. Deletion of addition made under section 14A read with Rule 8D.
3. Deletion of addition under section 37 on account of interest on advances to subsidiary and sister concerns.
4. Deletion of addition on account of disallowance of interest earned on FDR.

Issue-Wise Detailed Analysis:

Issue 1: Deletion of Addition on Account of Disallowance of Claim of Deduction under Section 80IA
The assessee claimed deductions under section 80IA for income derived from operating and maintaining an Inland Container Depot (ICD). The Assessing Officer (AO) disallowed these claims, citing the Income-tax Department's non-acceptance of a similar decision by the Delhi High Court in the case of Container Corporation of India Ltd. The CIT (A) deleted the disallowance by following the Delhi High Court's decision, which held that ICDs qualify as "inland ports" under Explanation (d) of section 80-IA (4). The Tribunal upheld the CIT (A)'s decision, finding no grounds for interference, as the AO's disallowance was based solely on the Department's pending appeal before the Supreme Court.

Issue 2: Deletion of Addition Made Under Section 14A Read with Rule 8D
For AY 2014-15, the AO made a disallowance of ?1,42,68,784 under section 14A read with Rule 8D, arguing that expenses were incurred to earn exempt income. The CIT (A) deleted the disallowance, noting that the assessee did not earn any exempt income during the year. The Tribunal upheld this decision, citing rulings from the Delhi High Court and the Supreme Court which state that section 14A read with Rule 8D is not applicable if no exempt income is earned during the year.

Issue 3: Deletion of Addition Under Section 37 on Account of Interest on Advances to Subsidiary and Sister Concerns
The AO disallowed ?3,49,97,305 under section 37, attributing it to interest on advances made to subsidiary and sister concerns for non-commercial purposes. The CIT (A) deleted the disallowance, observing that the assessee had sufficient surplus funds (?133.06 crores) and that the advances were made for business purposes, such as land acquisition for dry port operations. The Tribunal upheld the CIT (A)'s decision, emphasizing the lack of a demonstrated nexus between borrowed funds and interest-free advances.

Issue 4: Deletion of Addition on Account of Disallowance of Interest Earned on FDR
The AO added interest income from Fixed Deposit Receipts (FDRs) under "income from other sources," while the assessee argued that the FDRs were business-related, used as margin money for bank guarantees required for contracts. The CIT (A) agreed with the assessee, treating the interest as business income based on the Delhi High Court's decision in CIT vs. Jaypee DSC Ventures Ltd., which held that interest on FDRs used for business guarantees should be considered business income. The Tribunal upheld this view, finding the CIT (A)'s decision consistent with applicable legal precedents.

Conclusion:
The Tribunal dismissed the Revenue's appeals for AYs 2013-14 and 2014-15, upholding the CIT (A)'s deletions of the various disallowances made by the AO. The decisions were based on established legal principles and factual determinations that the disallowed amounts were either business-related or not applicable under the cited sections.

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