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TMI Blog2023 (7) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 17.02.2014 25.09.2018 2. Candor Gurgaon Two Developers 2013-14 7470/Del/2018 31.03.2016 25.09.2018 3. Candor Gurgaon Two Developers 2014-15 2836/Del/2018 30.12.2016 19.01.2018 4. Candor Kolkata One Hi-Tech (here in after mentioned as Entity no 2) 2010-11 6315/Del/2017 26.03.2013 14.08.2015 5. Candor Kolkata One Hi-Tech 2012-13 7762/Del/2019 30.03.2016 08.08.2019 6. Candor Kolkata One Hi-Tech 2014-15 3879/Del/2018 30.12.2016 23.03.2018 2. Heard and perused the record. The facts in brief are that assessee is in the business of developing SEZ in IT/ITES Sector and lease-out the premises for rent and maintaining the said SEZ. The cases of all assessee were taken up for scrutiny in the respective years and primarily the grounds raised in the appeals can be summarized in the form of following issues which are common. 2.1 The issue no.1, pertains to the disallowance made u/s 14A raised in ITA no 7762 for AY 2012-13 of Entity 2, ITA no 7839 for AY 2011-12 of Entity 1 and ITA no 7470 for AY 2013-14 of Entity 1. 2.2 The issue no.2, concerns the action of Ld. AO in increasing the book profits of the assessee computed u/s 115JB of the Act by disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Rs. 22,99,529/- made by the Assessing Officer under Section 14A of the Act. In this regard, we take note of the following arguments raised on behalf of the assessee, i.e., (i) a suo motu disallowance of Rs. 5,45,306/- has been carried out which is the total indirect expenses and all other expenses claimed are directly attributable to SEZ operations and has no relation to the exempt income earned by way of dividend on mutual fund investment (ii) where suo motu disallowance has been made, the Assessing Officer is required to form 'satisfaction' in terms of Section 14A of the Act for higher disallowance which has not been made and thus the formula provided for quantification of disallowance under Rule 8D would not automatically apply. 9. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of section 115JB would apply. The disallowance under section 14A of the Act is a notional disallowance and therefore, by taking recourse to section 14A of the Act, the amount cannot be added back to book profit under clause (/) of section 115JB of the Act. It is also pertinent to mention here that similar view, which has been taken by this court in Gokaldas Images (P.) Ltd. (supra) was also taken by High Court of Bombay in CIT v. Bengal Finance & Investments (P.) Ltd. [IT Appeal. No. 337 of 2013, dated 10-2-2015], It is pertinent to note that in Rolta India Ltd., the Supreme Court was dealing with the issue of changeability of interest under sections 234B and 234C of the Act on failure to pay advance tax in respect of tax payable under section 115JA/115JB of the Act and therefore, the aforesaid decision has no impact on the issue involved in this appeal. Similarly, in Maxopp Investment Ltd. (supra) the Supreme Court has dealt with section 14A of the Act and has not dealt with section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of authorized activities as per the guidelines. Another reference was made to communication No. F 2/115/2005-EPZ Government of India, Ministry of Commerce and Industry, Department of Commerce (SEZ Section) dated 30th January, 2008 and was asserted that car parking has been included as part of authorized operations in SEZ. It is thus contended that car parking cannot be separated from the main business of SEZ and hence there is no justifiable reason to deny benefits on income from car parking rental in this backdrop. 4. We have 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." In the light of aforesaid grounds in respective appeals arising out of the issue no 3 stands determined in favour of the assessee. 6. The issue no 4 pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be adirect nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains" spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error." 22. However, in CIT v. Andaman Timber Industries Ltd., 120001 242 ITR 204/109 Taxman 135 .(CaL), the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in Cement Mfg Co. Ltd. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable.' 23. We are of the view that the judgment in Merinoply & Chemicals Ltd.'s case (supra) and the recent judgment of the Calcutta High Court have correctly appreciated the legal position." 7. The assessee has claimed that the fixed deposit receipts were created as the Collateral security which are covered by the aforesaid observations and there appears to be no denial to aforesaid arguments and accordingly the grounds arising out of this issue stand decided in favour of the assessee. 8. As with regard to the issue no 5 being ground of brokerage in ITA No. 3879/Del/2018, it can be observed that the invoices produced on behalf of the appellant at page no. 1 and 3 of the paper book clearly mention the details of the premises let out and the party to whom the lease was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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