2023 (12) TMI 334 - AT - Income Tax

Deduction u/s. 80IA - interest on Fixed Deposit with bank - As per appellate order, interest was held to be not eligible for deduction, thus, deduction on the above interest income was denied - HELD THAT - As decided in assessee own case 2020 (6) TMI 5 - ITAT MUMBAI fixed deposit interest income earned by the assessee could not be said to have any nexus with the eligible business for which deduction u/s 80IA of the Act is available. Anyway, assessee has stated before LD lower authorities that bank Fixed Deposit interest is earned where surplus sum was placed with the bank in the form of Fixed Deposits. Thus, ground no.1 of the appeal is dismissed holding that fixed deposit interest earned by the assessee cannot be said to be an income derived from the business of eligible infrastructure facility. Denial to consider only net interest income after reducing finance cost - HELD THAT - If blanket netting off is allowed of above bank FDR interest, it will result in lower interest expenditure for determination of eligible income for deduction to that extent, thereby assessee will get the full deduction to the extent of amount of FDR interest. Therefore, the argument of the LD AR though looks attractive. But can be decided only after examination of facts. Before us, details of interest paid which has gone to reduce the eligible income for deduction, nor details of Interest on FDR as well as nexus of interest paid on funds is available. Thus, the alternative argument cannot be considered without ascertaining facts. Therefore , we restore this issue back to the file of AO with a direction to assessee to first show the facts about interest earned and interest paid along with nexus, and then substantiate why such netting off should be allowed and to what extent. AO may examine same, and if found in accordance with law, may recompute the deduction u/s 80 IA 4 of the Act. Accordingly, alternative ground of the appeal is allowed with above directions. Allowability of benefit u/s 80IA - income from sale of scrap - sale of scrap was stated by AI as not derived from the business of industrial undertaking - HELD THAT - We find that assessee has earned income from sale of scrap by selling wire ropes, Scrap and Waste oil. These are the income generated out of the maintenance and operational activity of the port. These are either left over or old and used wire ropes. Necessary evidences in form of sales bills are also produced before lower authorities. Cost of these materials has already gone into the expenditure of operation of the port activities. We find that when scrap sold by the assessee has direct nexus with the business of the infrastructure facility, such income should be eligible for deduction u/s 80IA 4 of the Act. It is not the claim of revenue that such scrap sale is of totally unrelated items to the business of assessee. Therefore, income from sale of scrap is eligible for deduction u/s 80IA of the Act. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Denial of deduction u/s. 80IA for interest on Fixed Deposit with bank.
2. Denial to consider only net interest income after reducing finance cost.
3. Denial of benefit u/s. 80IA on income from sale of scrap.

Comprehensive details of the judgment for each issue involved:

Issue 1:
The dispute revolves around whether interest on fixed deposit with the bank, amounting to Rs. 20,19,07,418, is eligible for deduction under Section 80IA of the Income-tax Act. The assessee argued that the interest income from fixed deposits should be considered as profits derived from the eligible business for the purpose of claiming the deduction. However, both the Assessing Officer and the Commissioner of Income-tax (Appeals) held that the interest income is not derived from the specified activity and hence not eligible for deduction under Section 80IA. The Tribunal, following a previous decision in the assessee's case, upheld the denial of deduction for the fixed deposit interest income.

Issue 2:
The second ground raised by the assessee was regarding the consideration of net interest income after reducing finance cost. The Tribunal directed the Assessing Officer to examine the facts related to interest earned and interest paid, along with their nexus, before allowing any netting off. It emphasized that both income and expenditure should be derived from the eligible business for such netting off to be considered. The Tribunal allowed this ground with directions for further examination and verification of facts by the Assessing Officer.

Issue 3:
The third issue pertained to the denial of benefit under Section 80IA on income from the sale of scrap amounting to Rs. 46,06,161. The Tribunal found that the income generated from the sale of scrap, which was a result of maintenance and operational activities of the port, had a direct nexus with the business of the infrastructure facility. It noted that the materials sold as scrap had already been part of the operational expenditure of the port activities. Therefore, the Tribunal allowed this ground, stating that income from the sale of scrap is eligible for deduction under Section 80IA.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, allowing the deduction for income from the sale of scrap but upholding the denial of deduction for interest income from fixed deposits.