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TMI Blog2019 (8) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... be investment of surplus funds, but on the other hand, was a pre-condition for obtaining bank guarantee / security deposits for running day-to-day activities of business of infrastructure development and hence, were eligible for claim of deduction under section 80IA(4) of the Act. Sales Tax Refund - Under the scheme of Maharashtra VAT Act, VAT / sales tax is paid by assessee or deducted by the contractee from RA bills and the same is debited to Profit and Loss Account. However, excess amounts, if any, after calculating the net liability is credited to Profit and Loss Account; where sales tax / VAT has direct link to the business activity of infrastructure development, the receipts were eligible business receipts in the hands of assessee and entitled to the claim of 80IA(4) deduction. Accordingly, we hold so. VAT reimbursement - Authorized Representative for the assessee explained that as per contract agreement in respect of work of Jalochi and Khadkpurna, VAT liability was payable by the contractee over and above contract price. Such VAT paid was debited to Profit and Loss Account. However, the same was reimbursed by the Department as per contract agreement and as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals filed by assessee and Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No.1176/PUN/2015 has raised the following grounds of appeal:- 1) On the facts and circumstances of the case and in law the Ld. CIT(A) Kolhapur was not justified in sustaining the disallowance made by the A.O. of ₹ 2,47,716/- invoking the provisions of S.14A of the Act r.w.r. 8D. The Ld. CIT(A) failed to appreciate the quantum of interest free funds available with the appellant company. The judgment of the Hon'ble jurisdictional Bombay High Court in CIT v. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) was squarely applicable to the facts of the case. The disallowance be deleted. 2) On the facts and circumstances of the case and in law and on careful perusal of the order passed by the A.O., it reveals that the prerequisites of such disallowance in S. 14A have been ignored which mandate that the A.O. to record satisfaction that the interest-bearing funds have been used to earn tax-free income. The satisfaction to be recorded must be based upon credible and relevant evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 14A of the Act read with Rule 8D of the Rules at ₹ 2,47,716/-. 7. The CIT(A) upheld the same, against which the assessee is in appeal. 8. The learned Authorized Representative for the assessee also drew our attention to the Profit and Loss Account placed at pages 157 to 162 of Paper Book to point out that no dividend income has been earned by assessee. He further placed reliance on the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC), wherein Special Leave Petition was dismissed against the High Court ruling that section 14A of the Act could not be invoked where no exempt income was earned by assessee in the relevant assessment year. 9. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 10. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is whether any disallowance can be made under section 14A of the Act read with Rule 8D of the Rules in the year when no income is earned, which is exempt from tax. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 153A of the Act. Upto instant assessment year, the assessee had filed returns of income. However, for the later years, returns of income were not filed and the said deduction was claimed in the return filed under section 153A of the Act. The assessee pleaded that it was engaged in the development of infrastructure facilities within meaning of section 80IA(4) of the Act and assessments for assessment years 2005-06 to 2007-08 were completed under section 143(3) of the Act. The issue of deduction claimed under section 80IA(4) of the Act was ultimately allowed by Tribunal for assessment years 2005-06 and 2006-07 and by the CIT(A), Kolhapur for assessment year 2007-08. The assessee pleaded that the said issue could not be re-agitated during 153A proceedings on the ground that assessee was not developer but work contractor. In this regard, reliance was placed on different decisions of Hon ble Bombay High Court and various Tribunals. The learned Authorized Representative for the assessee then before the Assessing Officer referred to various amendments to section 80IA(4) of the Act with special emphasis on the amended provisions w.e.f. 01.04.2000 by the Finance Act, 1999, under which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer observed that prima facie these receipts were not coming from business activities of assessee. It was further observed by him that because of the fact that income was not coming from business, the assessee had shown these receipts separately as Miscellaneous receipts. The assessee was asked to explain how these receipts were eligible for the aforesaid 80IA(4) deduction. The breakup of Miscellaneous receipts is tabulated at pages 48 and 49 of assessment order. After considering the explanation with regard to different items of Miscellaneous receipts, which is reproduced at pages 49 to 51 of assessment order, the Assessing Officer observed as under:- 15.4 The above submission of the assessee has been considered but not accepted because of the following reasons:- (i) The head such as Discount Received account, Commission from sub-contractor, other deduction sub contract, VAT Tax Refund Goa, VAT Tax Refund M.S., other income, other interest, material deduction Sub contract, VAT Rem received, profit on sales of vehicle, liquidated damages, excess provision of FBT are prima facie nothing to do with the business which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Hon ble jurisdictional High Court in the case of ABG Heavy Industries Ltd. Ors. (supra) was later approved by the Hon'ble Supreme Court and in view of the law, the assessee company was held to be entitled to relief as developer. The CIT(A) also held that Explanation introduced by Finance Act, 2007 and 2009 was not applicable to the facts of the case. The CIT(A) also took note of the contention of assessee that the order of Assessing Officer in not following the decision of Tribunal in assessee s own case was contrary to the law of land and without jurisdiction and also the issue was settled by the Hon ble jurisdictional High Court in the case of ABG Heavy Industries Ltd. Ors. (supra). The CIT(A) after going through various judicial precedents on the issue held the assessee to be entitled to claim the aforesaid 80IA(4) deduction, wherein the assessee had developed the infrastructure facilities as per the agreement with State Government. The CIT(A) allowed all the grounds taken on this issue. 16. The Revenue is in appeal against the order of CIT(A) and has raised the issue that the CIT(A) had erred while allowing the assessee s appeal of eligibility of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be profits and gains of business derived from business of industrial undertaking and it had distinguished the decision of Apex Court in CIT Vs. Pandian Chemicals Ltd. 318 ITR 420 (SC). The next reliance was on the judgment of Hon ble Bombay High Court in CIT Vs. Jagdishprasad M. Joshi (2009) 318 ITR 420 (Bom), CIT Vs. Shah Alloys Ltd. (2017) 396 ITR 711 (Guj) and CIT Vs. Eltek SGS (P) Ltd. (2008) 76 CCH 249 (Del). 19. Another point which was raised in respect of bank interest was that most of the bank deposits were made from borrowed funds, which carry interest and accordingly, net interest was to be treated income attributable to assessee. However, as against interest received of ₹ 78,85,014/-, there was outgo of interest at ₹ 2.21 crores and there was net interest outgo of ₹ 1.42 crores. Hence, no income could be said to have been generated out of these deposits. 20. Now, coming to next receipt i.e. commission from sub-contract of ₹ 1,61,021/-, which was not pressed by assessee. Further head was other income of ₹ 4,35,000/-, which was Miscellaneous receipt from Department, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue and also the issue was settled in favour of assessee by the Hon ble jurisdictional High Court in the case of ABG Heavy Industries Ltd. Ors. (supra). The Assessing Officer however, did not accept the same. The CIT(A) on the other hand, directed the Assessing Officer to allow the claim of aforesaid deduction in the hands of assessee, against which the Revenue is not in appeal. The grievance of Revenue is only in respect of allowing the said deduction on Miscellaneous receipts of ₹ 2,82,54,725/-. The breakup of Miscellaneous receipts is as under:- Sr. No. Ledger Amount 1 Bank Interest received 78,85,014.50 2 Commission from Sub-Contract 1,61,021.00 3 Other Income 4,35,000.00 4 Sales Tax Refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome earned on business and could not be treated as income from other sources and was held to be eligible for deduction under section 80IA(4) of the Act. 29. The Hon ble Bombay High Court in Temma Exchangers Manufacturers Pvt. Ltd. Vs. ACIT (supra) has in turn, relying on earlier decision of the Hon ble Delhi High Court had pointed out that there was difference in language of two sections i.e. 80HH and 80IA of the Act. The words used in section 80HH of the Act are profits and gains derived from industrial undertaking as against the words used in 80IA of the Act i.e. profits and gains derived from any business of an industrial undertaking . The Hon ble Bombay High Court held that interest on fixed deposits would be profits and gains derived from any business of industrial undertaking. The Hon ble Delhi High Court in CIT Vs. Eltek SGS (P) Ltd. (supra), which is relied upon by the Hon ble Bombay High Court in Temma Exchangers Manufacturers Pvt. Ltd. Vs. ACIT (supra) on such difference in the language of section had distinguished the decision of Hon ble Apex Court in Pandian Chemicals Ltd. Vs. CIT (supra). The learned Departmental Representative for the Revenue on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores and material deduction of ₹ 10,15,398/-. These were in the form of recoveries from the sub-contractors on account of material difference or other accounts i.e. diesel, transport charges, rent for machinery, etc. and were in the nature of reimbursement of expenditure, which was already debited to the books of account. Once the said recoveries are made from the sub-contractors, which were against expenditure claimed by assessee, were part of its carrying on of business activity, then the recoveries were to be treated as income from business of infrastructure development and there is no merit in taxing them separately. The assessee is entitled to the aforesaid deduction claimed under section 80IA(4) of the Act. 34. The last item which needs to be adjudicated is the other income of ₹ 4,35,000/-. The assessee claims that it represents Miscellaneous receipts from the Department for Bodhegaon maintenance bill. In view of the nature of receipts being relatable to the business activity carried on by the assessee, there is merit in the claim of assessee of deduction under section 80IA(4) of the Act and the same cannot be denied to the assessee on the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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