2022 (10) TMI 82 - AT - Income Tax

Denial of deduction u/s 80IAB - income received in the nature of car parking rental - as submitted provision of car parking services is essential part of carrying out the business of development, operation and maintenance of SEZ - HELD THAT - As carefully examined the issue and perused the orders of the lower authorities. In the light of documentary evidences placed by way of notifications and instructions from competent authorities, it is manifest that car parking rentals have been reckoned as authorized operation in SEZ. In the light of express guidelines issued by the Government as referred to and relied upon, we are of the view that the income from car parking rental would squarely qualify for deduction under Section 80IAB of the Act. Ground of the appeal of the assessee is allowed. Deduction u/s 80IAB on sale of garbage and oil waste - HELD THAT - We take note of the similar contentions on behalf of the assessee that generation of waste oil and garbage are inextricably connected to the maintenance and running of a SEZ and thus any profit derived from sale of such scrap will be eligible for deduction under Section 80IAB of the Act. A reference made in this regard in the case of ACIT vs. Zydus Infrastructure 2016 (8) TMI 696 - ITAT AHMEDABAD has been taken note of. We thus agree with the plea of the assessee on this score too. Ground No.2 of the Assessee is thus allowed. Disallowance u/s 14A - suo motu disallowance made by assessee - HELD THAT - We find merit in the plea of the assessee that the disallowance cannot exceed the actual expenditure incurred in relation to the earning of the exempt income. In the instant case, no direct expenses has been incurred and the disallowance has been carried out under Rule 8D(2)(iii) of the Rules in respect of indirect expenses. The disallowance has been carried out at Rs.22,99,529/- (being 0.5% of the average value of investments) in place of the disallowance offered amounting to Rs.5,45,306/-. The action of the Assessing Officer is apparently without application of mind inasmuch as the actual indirect expenditure available for allocation is Rs.5,45,306/- only. Other expenses incurred are stated to be directly attributable to SEZ operation and thus cannot be subjected to estimated disallowance qua be exempt income. We thus find merit in the plea of the assessee. The Assessing Officer is directed to restore the position claimed by the assessee in this regard. Assessee ground allowed.

Summary

Issues:
1. Denial of deduction under Section 80IAB for car parking rental income.
2. Denial of deduction under Section 80IAB for sale of waste oil and garbage.
3. Disallowance under Section 14A of the Act.

Analysis:

Issue 1: Denial of deduction under Section 80IAB for car parking rental income
The appellant challenged the denial of deduction under Section 80IAB for car parking rental income. The Assessing Officer and CIT(A) denied the deduction, considering such income as incidental and not falling within the purview of "derived from" as required by Section 80IAB. The appellant argued that car parking rental income is directly related to the main business of developing and operating a SEZ and should qualify for the deduction. The Tribunal examined documentary evidence, including government instructions, which recognized car parking rentals as authorized operations in SEZ. Consequently, the Tribunal allowed Ground No.1 of the appeal, stating that car parking rental income qualifies for deduction under Section 80IAB.

Issue 2: Denial of deduction under Section 80IAB for sale of waste oil and garbage
The appellant contested the denial of deduction under Section 80IAB for the sale of waste oil and garbage, asserting that such income is connected to the maintenance and operation of a SEZ. Citing a relevant case law, the Tribunal agreed with the appellant's argument, stating that profits from the sale of waste oil and garbage are eligible for deduction under Section 80IAB. Consequently, Ground No.2 of the appeal was allowed by the Tribunal.

Issue 3: Disallowance under Section 14A of the Act
The appellant challenged the disallowance of expenses under Section 14A of the Act. The appellant argued that the disallowance exceeded the actual expenditure related to earning exempt income and was made without forming satisfaction as required by the Act. The Tribunal agreed with the appellant, noting that the disallowance should not exceed the actual indirect expenses incurred. The Tribunal directed the Assessing Officer to restore the position claimed by the appellant. As a result, Ground No.3 of the appeal was allowed by the Tribunal.

In conclusion, the Tribunal allowed all grounds of the appeal, ruling in favor of the appellant in each issue raised before the Tribunal.