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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 ..... wance cannot exceed the actual expenditure incurred in relation to the earning of the exempt income - Decided in favour of the assessee. Computation of the book profits u/s 115JB of the Act by invoking provisions of Section 14A - Revenue could not dispute the settled proposition of law that the disallowance u/s 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 profits under clause (f) of section 115JB of the Act - See Vireet Investment (P.) Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] and Sobha Developers Ltd. [ 2021 (1) TMI 378 - KARNATAKA HIGH COURT] - Decided in favour of the assessee. Allowability of the deduction u/s 80-IAB with regard to car parking rental - HELD THAT:- As decided in M/s. Unitech Developers and Projects Ltd. [ 2022 (10) TMI 82 - ITAT DELHI] 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of expenses u/s 14A of the Act, 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. 2.3 The issue no 3, is the question of denial of deduction u/s 80-IAB of the Act, on income from car parking rentals on the allegation that they do not have direct nexus with the business carried on by the assessee. Raised in ITA no 7762 for AY 2012-13 of Entity 2, ITA no 3879 for AY 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 the disallowance offered amounting to Rs. 5,45,306/-. The action of the Assessing Officer is apparently without application of mind inasmuch as the actual indirect expenditure available for allocation is Rs. 5,45,306/- only. Other expenses incurred are stated to be directly attributable to SEZ operation and thus cannot be subjected to estimated disallowance qua be exempt income. We thus find merit in the plea of the assessee. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal dated 9-1-2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed. In the result, the appeal is allowed. Accordingly the grounds arising of this issue in the respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 pertaining to allowability of 80-IAB reduction on interest income is claimed by the assessee to be covered in favour of the assessee by the judgment of Hon ble Supreme Court of India in the case of Meghalaya Steels Ltd. vs. CIT [2016] 67 taxmann.com 158 (SC). It can be observed that Hon ble Supreme Court of India in the case of Meghalaya Steels Ltd. (supra) has made observations in regard to that the issue in para no. 17- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chemicals Ltd.'s case (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 's case (supra) by a judgment dated 15.1.2015, distinguished the judgment in Andaman Timber Industries Ltd.'s case (supra) and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held: 'Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 made. The copies of lease deed have also been placed on record. Ld. Tax Authorities have fallen in error in want of more evidences. When assessee is engaged in the business of rental of the properties then engaging brokers for procurement of the tenants is a common practice and the expenses of brokerage thus, have to be considered to have been incurred in ordinary course of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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