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TMI Blog2016 (10) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... n undisputed fact that the assessee has earned exempt income of ₹ 33,01,981/- and the disallowance u/s.14A r.w.s.Rule 8D has been worked out at ₹ 4,19,65,021/- which is about 1270 times the exempt income and thus the disallowance u/s.14A of the Act worked out by the AO is much more than the income liable to tax. Considering the facts of the present case in the light of the decision of Hon’ble Delhi High Court in the case of Joint Investments (P.) Ltd. vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT ) and in the absence of any contrary binding decision pointed out by Revenue, we are of the view that the disallowance as worked out by the AO is not warranted. We therefore direct that the disallowance u/s.14A in the present case be restricted to ₹ 33,01,981/-, being the exempt income, earned by the assessee. Thus, this ground of assessee is allowed. - I.T.A. No.1878/Ahd/2011 (Revenue) And CO No.221/Ahd/2011 - - - Dated:- 1-9-2016 - SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER And SHRI KUL BHARAT, JUDICIAL MEMBER For The Appellant : Ms. Vibha Bhalla, CIT-DR For The Respondent : Shri S.N. Soparkar, AR ORDER PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of ₹ 19.58 crores. 3. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the disallowance of ₹ 4,19,65,021 made by the Assessing Officer by invoking the provisions of section 14 of the I.T.Act. 2.4. We first proceed with ground No. 1 of Revenue s appeal and ground Nos. 1 2 of Assessee s Cross objection. 3. During the course of assessment proceedings, AO noticed that Assessee has claimed deduction of ₹ 213,44,75,093/- u/s 80IAB of the Act and the amount on which the deduction was claimed included interest income of ₹ 19,58,34,587/-. The Assessee was therefore asked to justify its claim of deduction including the claim of deduction on the interest income. Assessee inter-alia submitted that Assessee had come out with a public issue of shares in Nov-2007 for the objects specified in the prospectus. The funds that were not immediately required were parked with bank and on such amount of money parked, the Assessee had received interest and therefore the interest income had a direct and proximate connection with the carrying on of business of development of SEZ and therefore eligible for deduction. The submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions in the cases of Hindustan Lever Ltd 239 ITR 297., Sterling Foods 237 ITR 579 and Pandyan Chemicals Ltd 262 ITR 278 which have been referred to above. The ratio of the case of Liberty India has already been reproduced above. In that case, the Hon'ble Supreme Court was concerned with the interpretation of the provisions of section 80-IA and 80-IB which are similar as the provisions of section 80-IAB under which deduction is admissible in the case of the appellant-company. In that case the question was as to whether DEPB receipt and duty drawback can be said to be items of income eligible for deduction u/s.80-IA and 80-IB. The Hon'ble Court observed that such receipts do not form part of net profit of eligible industrial undertaking and they are only attributable to the business of industrial undertaking. In the written submissions, an effort has been made on behalf of the appellantcompany to distinguish the case of Liberty India and it has been argued that the interest income has proximity of first degree with the business income of the appellant-company derived from the eligible business for the purposes of section 80-1AB. A number of cases have also been cited befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHC, it was held that gross interest income has to be adopted and not net. .. 7.2 During the course of Appellate Proceedings the learned counsel appearing on behalf of the Appellant has filed detailed break-up of the interest earned on investment of IPO funds and interest earned on intercorporate deposits. From these details the factual position which emerges is that the Appellant Company was under a compulsion to invest IPO funds only in specified avenues as directed by SEBI. These investments were monitored by IDFC and the IPO funds could not be used for any purpose at the sweet will of the Appellant Company. The details regarding incorporate deposits establish that these deposits were made only for business purposes including margin money. 7.3. I have carefully gone through the relevant part of the Assessing Officer's order and the submissions made before me on behalf of the Appellant Company. The Hon'ble Bombay High Court decision in the case of Asian Star was rendered while interpreting the provisions of Explanation - (baa) under Section 80HHC. This decision has been considered and explained by the Hon'ble I.T.A.T., Ahmedabad, in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each other and only the net amount should be considered for income-tax purposes. In my view item to item direct nexus of interest expenditure and interest income is not required to be established and having regard to the entire facts and circumstances mentioned above, a general or global netting has to be done. In my view, having regard to the facts and the legal position, if the interest income is not netted against the interest expenditure it would result into double jeopardy for the Appellant Company, which is not the intention of law. Therefore, having regard to the entire facts and circumstance of the case, the Assessing Officer is directed to adopt the net interest for the purpose of computation of income. 8. Ground No. 6 is an alternative ground claiming that the Assessing Officer has erred in not allowing set off of share issue expenses aggregating to ₹ 58.145 crores against the interest income of ₹ 19.58 crores. 8.1. On this issue detailed submissions have been made on behalf of the Appellant Company which have been carefully considered by me. In my view, IPO expenses cannot be set off against interest income. Therefore, this ground of appeal is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1st ground, which is with respect to netting off of interest income of ₹ 19.58 crores (rounded off) against the share issue expenses of ₹ 58.14 crores (rounded off) he submitted that the interest income is inextricably linked with the requirement of assessee to raise share capital and was therefore adjustable against the expenses incurred for issue of shares and for this proposition he relied on the decision of Hon ble Gujarat High Court rendered in the case of CIT vs. Shree Rama Multi Tech Ltd. reported in (2013) 32 Taxmann.com 296(Guj.). He therefore submitted that in view of the aforesaid decisions, the grounds raised by the Assessee needs to be decided in favour of the Assessee. Ld.CIT-DR on the other hand supported the order of AO and CIT(A). 5. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to allowability of deduction u/s 80IAB on the interest earned by the Assessee. 5.1. It is an undisputed fact that Assessee had come out with a public issue of shares inter-alia for development of SEZ Port and for its allied activities and the money that was received from the subscription of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 371 of 2002, so far as question no. 1 is concerned is squarely covered by the decision of this Court in the case of Nirma Industries (supra) which reads as under: 27. In so far as Question No.2 is concerned, according to the Tribunal Section 80I of the Act uses the phrase 'derived from' and hence the interest received by the assessee from its trade debtors cannot be taken into consideration for the purpose of computing profits derived from an industrial undertaking. The Tribunal has failed to appreciate that it is not the case of the assessing officer that the interest income is not assessable under the head 'profits and gains of business'. It is only while computing relief under section 80I of the Act that the revenue changes its stand. When one reads the opening portion of section 80I of the Act it is clear that words used are : gross total income of an assessee includes any profits and gains derived from an industrial undertaking . Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the prescribed percentage is to be allowed. That, in fact the gross total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted by Revenue. Before us, Revenue has not placed any contrary binding decision nor has pointed out any distinguishing feature in the present case and the aforesaid decision of Hon ble High Court. In view of the aforesaid facts, we are of the view that the interest income is eligible for deduction u/s 80IAB of the Act. Further we also find that while deciding the issue of netting off of interest expenses against the interest income, ld.CIT(A) has allowed netting of interest income against interest expenses for the reason stated by ld.CIT(A) in his order. In such a situation the netting off of interest income against the interest expenses also does not require interference. We thus allow this ground of the Assessee. Since this ground of assessee is decided by us in favour of assessee, the ground raised by Revenue is dismissed and in such a situation, we are of the view that the alternate ground of the Assessee with reference to netting off of interest income against share issue expenses has been rendered academic and therefore requires no adjudication and therefore the second ground of assessee is dismissed. 6. Third ground is with respect to disallowance u/s 14A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mutual fund or shares has come from out of interest free funds and not out of interest bearing borrowed funds. The Assessing Officer examined the claim of the Assessee and recorded a finding at para - 4.6 of the Assessment Order to the effect that the entire investment has not come from interest free IPO funds. He, therefore, applied the formula of Rule - 8D for calculating the disallowance under Section 14A. After going through the relevant part of the Assessment Order, I am in agreement with the Assessing Officer that Section 14A is attracted. No evidence or any material could be produced before me by the Appellant Company to controvert the factual finding of the Assessing Officer. Therefore, the disallowance made under Section 14A is confirmed. 6.2. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. 6.3. Before us, Ld AR reiterated the submissions made before AO and CIT(A) and therefore no disallowance u/s 14A is called for. As an alternate contention, he submitted that the exempt income earned by the Assessee is only ₹ 33,01,981/- and against which the disallowance under s. 14A of the Act has been worked by the AO at ₹ 4.19 crore whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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