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TMI Blog2021 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred on the facts and circumstances of the case by deleting addition u/s 37 made by the AO on account of addition u/s 37 of the I.T. Act. 4. The Ld. CIT (A) has erred on the facts and circumstances of the case by deleting the addition made by the AO on account of disallowance of interest earned on FDR. 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company during the year under consideration was engaged in the business of operating and maintaining Dry Port (Inland Container Depot). Assessee claimed deduction under section 80IA of the Income-tax Act, 1961 (for short the Act ) to the tune of ₹ 10,79,48,177/- ₹ 9,64,63,739/- for Assessment Years 2013-14 2014-15 respectively. Declining the contentions raised by the assessee for the claim of deduction under section 80IA of the Act, Assessing Officer (AO) proceeded to disallow the same. 3. In AY 2014-15, AO also made disallowance to the tune of ₹ 1,42,68,784/- by invoking the provisions contained u/s 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 (for short the Rules ). 4. In AY 2014-15, AO also called upon the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dispute that business of ICD covered under the definition of infrastructure facilities. 8. Perusal of the order passed by the AO goes to prove that he has denied the deduction u/s 80IA of the Act on the ground that Income-tax Department having not accepted the decision rendered by Hon ble Delhi High Court in case of Container Corporation of India Ltd. vs. ACIT 346 ITR 140 (Del.) and thereby filed Special Leave Petition before Hon ble Supreme Court. 9. Ld. CIT (A) deleted the impugned disallowance on account of deduction u/s 80IA by following the decision rendered by Hon ble Delhi High Court in case of Container Corporation of India Ltd. (supra). 10. Hon ble Delhi High Court decided the identical issue in case of Container Corporation of India Ltd. (supra) by returning following findings :- ..In our opinion having regard to the provisions of the Customs Act, the communications issued by the CBEC as well as the Ministry of Commerce and Industry, the object of including inland port as an infrastructure facility and also having regard to the fact that customs clearance also takes place in the ICD, the assessee s claim that the ICDs are Inland Ports un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that during the previous year relating to assessment year 2014-15, an amount of ₹ 50114766/- has been debited as interest expenditure to the profit and loss account. However, no exempt income more particularly dividend from the investment is found to be claimed in the tax computation 5.2.3 In view of the above facts and circumstances of the case, it is amply clear that as far as provisions of section 14A are concerned, disallowance under this section can be made only in respect of expenditure incurred by the assessee to earn the exempt income. 14. Bare perusal of the impugned order passed by the ld. CIT(A) goes to prove that disallowance of ₹ 1,42,68,784/- has been 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. 15. Hon ble Delhi High Court in case of Holcim India Pvt. Ltd. ITA No.486/3024 ITA No.299/2014 and Hon ble Supreme Court in case of Godrej Boyce Manufacturing Company Ltd. vs. DCIT 394 ITR 449 (SC) have categorically held that, when the assessee has not earned any dividend income forming part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly Ra.61.65 lakhs. 5,3.4 Ld. AO though disallowed a portion of interest on above account only because of being not satisfied with the reply of the appellant, has not elaborated how and why at all the reply/explanation offered by the assessee advanced during the course of assessment proceedings was not acceptable. On careful consideration of the submission of the appellant vis-avis impugned order and material on record, I find it convincing that Ld. AO has not established nexus between the borrowed funds and amount advanced. It was incumbent upon the AO to establish a reasonable nexus between borrowed funds and interest free advances, the same is not found to be made in the impugned order. The nexus between borrowed funds and interest free advance has to be necessarily established before resorting to the disallowance of interest expenditure as held in the ACIT vs M/s Namdev Ex ort RD. Joshi Co, v CIT 251 ITR 332 (MP) as also in ACIT vs Chandra Prakash 27 tax World 328 (Jaipur Bench). 5.3,5 It is therefore, logical that advance given by the appellant to its subsidiaries of Rs,35.42 crores which includes current year fresh advance of ₹ 61.65 lakhs be taken and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom deposits in the bank under the head income from other sources and made addition thereof to the income of the assessee. 21. Undisputedly, assessee submitted a bank guarantee to the Central Warehousing Corporation as a pre-condition for contract and to some Chain Train Operators for lease of containers. It is also not in dispute that in consideration to the aforesaid bank guarantee, assessee deposited margin with the banks in the form of FDR on which it has earned interest and thereby deducted the same from the interest income. 22. Assessee s claim is that deposits have been made for the business purpose and have not been made out of surplus fund to earn extra income and as such, no disallowance is admissible. 23. Aforesaid contentions of the assessee have been considered by the ld. CIT (A) and deleted the same by returning following findings :- 5.4.4 In the light of facts as discussed above, the issue arises whether the interest income arising out of FOR kept as margin money to obtain the bank guarantee for securing the contract/to enter into agreement with the CWC (The Central Warehousing Corporation) requires to be treated as business income (as claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions and therefore the income received thereupon cannot be termed to be income from other sources ... 5.4.7 In view of the factual matrix of the case and judicial pronouncements cited supra including that of jurisdictional High Court of Delhi, I find that this ground of appeal is covered under the ratio and decision of the cases and therefore, deserves to be decided in favour of appellant. Accordingly, the interest income of ₹ 20,05,747/- is directed to be treated as income from business 'and profession so mu.ch so the same should be allowed for computation of deduction u/s 80IA of the Act. 24. We have perused the aforesaid findings which are strictly on facts in the light of the law laid down by Hon ble Delhi High Court in case of CIT vs. Jaypee DSC Ventures Ltd. (2012) 17 taxmann.com 257 (Delhi), 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 surp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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