Case Law Details
Adani Ports & Special Economic Vs Commissioner of Income Tax (ITAT Ahmedabad)
ITAT Ahmedabad held that interest income related to FD interest, interest from customer’s receipts and interest income from business advances is eligible for deduction under section 80IAB of the Income Tax Act.
Facts- Assessee has preferred the present appeal contesting that CIT(A) has erred in confirming disallowance made by the Assessing Officer while computing Profits and Gains eligible for deduction u/s.80-IAB of the IT. Act, thereby holding that Interest Income derived by the appellant from business advances cannot be considered to be inextricably linked to the carrying on of the business eligible u/s.80-IAB of the I. T. Act.
Conclusion- In respect of interest income related to FD interest, interest from customer’s receipts and interest income from business advances, the said issue has been allowed by the Tribunal in A.Ys. 2008-09, 2009-10 & 2010-11. The facts are identical in the present assessment year as well. The Ld. DR could not point out any distinguishing facts and the decisions relied upon by the Ld. DR are on different facts As regards scrap sale income and currency swap income, the same is also identical as referred by the assessee to various decisions before us and no distinguishing facts were pointed out by the Ld. DR.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These are cross appeals filed by the Assessee & Revenue against the order dated 13.1 1 .2014 passed by the CIT(A)-6, Ahmedabad for the Assessment Year 2011-12.
2. The assessee has raised the following grounds of appeal :-
“1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of Rs. 19,20,47,000/-, made by the Assessing Officer while computing Profits and Gains eligible for deduction u/s.80-IAB of the IT. Act, thereby holding that Interest Income derived by the appellant from business advances cannot be considered to be inextricably linked to the carrying on of the business eligible u/s.80- IAB of the I. T. Act.
2. On the facts and in the circumstances of the case, the learned CIT(A] erred in confirming disallowance of Rs.30,23, 15,000/-, made by the Assessing Officer while computing profits and gains eligible for deduction u/s.80-IAB of the I. T. Act, being interest income derived on Fixed Deposits placed by the appellant-company for availing of Credit Facility, Performance Guarantees, Bank Guarantees, Bid Bonds etc., exclusively for the purposes of the business eligible u/s.80-IAB of the I. T. In doing so, he has erred in holding that the said interest income cannot be considered to have been derived from business of developing SEZ.
3. Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) erred in not appreciating that the phraseology of “business of development of SEZ” is much wider than the phraseology of “Profits and gains derived from the undertaking”. Consequently interest income on business advances needs to be allowed as deduction u/s.80-IAB of the Act On this ground as well the claim of the appellant may be allowed.
4. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of Rs. 16,35,12,511/- made by the Assessing Officer u/s. !4A of the I. T. Act.
5. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of depreciation of Rs. 1,54,11,254/- claimed by the appellant-company on “right to use leasehold land”, being intangible asset eligible for grant of depreciation u/s.32 of the I. T.
5.1 Without prejudice to above, even if the disallowance in respect of depreciation of Rs. 1,54,11,254/- claimed by the appellant-company on “right to use leasehold land” is confirmed, the Hon’ble Tribunal may direct the Assessing Officer to increase the deduction claimed u/s.80- IAB to that extent.
6. On the facts and in the circumstances of the case, the learned CIT(A] erred in confirming disallowance of Rs.5, 16,28,097/- claimed by the appellant-company towards amortization of the value of leasehold land development, which is in the nature of allowable revenue expenditure.
6.1 Without prejudice to the above, even if addition in respect of amortization of lease hold expenses of Rs.5, 16,28,097/- is confirmed, the Hon’ble Tribunal may direct the Assessing Officer to increase the deduction u/s.80-IAB of the Act to that extent.
7. On the facts and in the circumstances of the case, the learned CIT(A) erred in dismissing as academic and infructuous assessee’s ground of appeal No.9.1 which reads as under:
“9.1 Without prejudice to the above, even if addition in respect of retention money from customers is confirmed, your good self may direct the AO to increase the claim of deduction u/s.80-IAB of the Act.”
8. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”
2.1 The Revenue has raised the following grounds of appeal :-
“1.The Id. CIT(A) has erred in directing the AO to exclude only the net interest income while computing the deduction u/s 80IA B despite the fact that the income derived from the industrial undertaking is eligible for deduction and interest income cannot be netted off with the interest expenditure which was incurred for business.
2.The Id. CIT(A) has erred in deleting the disallowance of interest income on delayed payment from customers of Rs. 56,76,000/- without appreciating the fact that such compensation received cannot be treated to have been derived from SEZ activities and not eligible for deduction u/s 80IAB of the Act.
3. The Id. CIT(A) has erred in deleting the disallowance of Rs. 1,51,24,000/- earned from sale of scrap as deduction u/s. 80IAB of the Act without appreciating the fact that the assessee is engaged in SEZ activities.
4. The Id. CIT(A) has erred in deleting the disallowance of 10,61,15,265/- being derivatives contracts/swap contracts gain on speculative transactions without appreciating the fact that such income are not derived from the business of developing, operating and maintaining of SEZ and not eligible for deduction u/s 80IA B of the Act. .
5. The Id. CIT(A) has erred in deleting the disallowance of 15,14,60,000/- on account of loss from foreign currency swaps by relying on the decision of Ahmedabad Tribunal in the case of ACIT vs. Heavy Metal & Tubes Ltd., despite the fact that the claim of the assessee is in the nature of speculative loss and not allowable as business expenditure.
6. The Id. CIT(A) has erred in directing the AO to re-compute the deduction u/s. 80IAB after increasing the amount of deduction by the amount of disallowance u/s 14A.
7. The Id. CIT(A) has erred in deleting the disallowance with regard to the claim of deduction in respect of donations u/s. 80G of Rs. 6,48,791/-. The Id, CIT(A) has failed to appreciate that the assessee has taken the income from business as the income of the undertaking and claimed deduction u/s 80IAB.
8. The Id. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.38,23,761/- despite the fact that the assessee has claimed excess depreciation on office equipments @ 15% instead of qualified rate of depreciation @ 10%.
On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit.
The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.”
3. The assessee is mainly engaged in development/operation and maintenance of Ports and Special Economic Zones at Mundra, Gujarat apart from running other activities. The return of income was filed by the assessee on 26.11.2011 declaring total income of Rs.30,81,75,558/-. The Assessing Officer observed that the assessee has shown turnover of Rs.1934.83 crores on which a PBT of Rs.1076.88 Crores has been shown in the Profit & Loss Accounts. In its computation of income, the assessee computed the income from business and profession at Rs.899,81 ,67,978/- and gross total income of Rs.901 ,67,1 7,652/- after necessary adjustments and the factoring for depreciation as per Income Tax Rules of Rs.869,23,22,327/- is claimed as deduction under Section 80IAB of the Income Tax Act, 1961 as Developer of Mundra SEZ. During the course of hearing, the assessee submitted a copy of annual report, audit report in prescribed format and a certificate in Form No.1 0CCB in respect of deduction under Section 80IAB claimed by it. The Assessing Officer observed that this deduction claimed corresponds to the amount of income computed as per computation sheet filed by the assessee and includes all other income except profit on sale of investments of Rs.20,29,000/-, profit on sale of fixed assets of Rs.32,90,98,000/-, dividend of Rs.6,20,88,000/-. Apart from that income derived from DTA i.e. rental income from JUB of Rs.24.40 Crores and income from dredging activities at Hazira of Rs.6.18 Crores was also reduced while computing the profit derived by the undertaking from eligible business of the assessee. The Assessing Officer made disallowance of Rs.62,12,77,265/- and directed to reduce the same from deduction under Section 80IAB of the Act as the same is speculative transactions which cannot be said to be an income derived from business and developing, operating and maintaining of SEZ and also the sale of scrap and the interest income received relating to customers. The Assessing Officer further made disallowance under Section 14A of the Act of Rs.16,35,12,511/-. The Assessing Officer made disallowance of Rs.5,16,28,097/- towards amortised value of leasehold land. The Assessing Officer made addition of Rs.39,73,299/- as Long Term Capital Gain which was declared as undisclosed and disallowance of Rs.1,54,11,254/- relating to depreciation claimed on right to use leasehold land. The Assessing Officer also made addition of Rs.15,14,60,000/- in respect of loss on derivative/swab contract, addition of Rs.7,91 ,25,000/- towards retention money due for contract in progress, addition of Rs.38,23,761 towards depreciation on office equipment restricted to 10% and also disallowance of Rs.1,55,70,975/- related to allocation of donation which are deducted/reduced after giving eligible deduction under Section 80G of the Act.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. As regards the assessee’s appeal, the Ld. AR submitted that related to ground 1, 2 & 3 disallowance of interest income of Rs.19,20,47,000/- derived from assessee’s business advances and Rs.30,23,15,000/- derived on fixed deposits placed by the assessee for availing credit facility, performance guarantees, bank guarantees, bid bonds etc. exclusively for the purpose of business in computing eligible profit and gains for deduction under Section 80IB of the Act. The Ld. AR submitted that the issue related to net interest income should not be excluded from the computation of eligible business of income. The Ld. AR submitted that for A.Y. 2008- 09 the issue travelled upto Tribunal and the Tribunal allowed the inclusion. The Ld. AR further submitted that in A.Y. 2009-10 and 2010-11 also the Tribunal allowed entire interest income to be eligible for deduction. Ld. AR relied upon the decision of Hon’ble Orissa High Court in the case of Odisha Power Generation Corporation Limited (2022) 138 Taxmann.com 341 wherein the Department’s appeal was dismissed. The Ld. AR also relied upon the decision of Zaveri & Co. (P) Ltd., 184 ITD 777 (Ahmedabad Tribunal) and Akash Infra Projects, 141 Taxmann.com 516 (Ahmedabad Tribunal). As regards the scrap sales, the Ld. AR relied upon the decision of Zydus Infrastructure (P) Ltd., 72 Taxmann.com 199 (Ahmedabad Tribunal) and Jikar A Saiyed, 42 Taxmann.com 403 (Gujarat High Court). The Ld. AR submitted that the CIT(A) has allowed the said issue and the same may be allowed. As regards currency swap income of Rs.10.51 Crores, the Ld. AR relied upon the Tribunal’s decision in the case of Adani Enterprise Limited, ITA No.1840/Ahd/2012, order dated 12.02.2019.
6. As regards Ground nos.1 to 3 of assessee’s appeal, the Ld. DR submitted that the issue is related to the netting of interest and the same is covered in respect of Hon’ble Supreme Court decision in Pandian Chemicals Ltd. vs Commissioner Of Income-Tax 262 ITR 278 SC. The Ld. DR further submitted that the netting of interest falling under the income derived from business is a incidental income and, therefore, the CIT(A) and Assessing Officer has rightly disallowed the same. The Ld. DR relied upon the decision of Hon’ble Uttarakhand High Court in case of Conventional Fastner (ITA No. 24 of 2015 order dated 15.11.2017). Thus, the Ld. DR relied upon the orders of the Assessing Officer as well as CIT(A).
7. We have heard both the parties and perused all the relevant material available on record. In respect of interest income related to FD interest, interest from customer’s receipts and interest income from business advances, the said issue has been allowed by the Tribunal in A.Ys. 2008-09, 2009-10 & 2010-11. The facts are identical in the present assessment year as well. The Ld. DR could not point out any distinguishing facts and the decisions relied upon by the Ld. DR are on different facts As regards scrap sale income and currency swap income, the same is also identical as referred by the assessee to various decisions before us and no distinguishing facts were pointed out by the Ld. DR. Hence, ground no.1 to 3 of assessee’s appeal is allowed.
8. As regards Ground no.4 of the assessee’s appeal, Ld. AR submitted that the CIT(A) erred in confirming disallowance under Section 14A of Rs.16.35 Crores, the AR submitted that the assessee’s own funds are more than the investment and the presumption would be that the own funds are used to make investment. Thus, the Ld. AR relied upon the decision of Hon’ble Gujarat High Court in the case of UTI Bank Limited, 398 ITR 514 (Guj) and decision of Hon’ble Bombay High Court in the case of Shapoorji Pallonji & Co. Ltd., 423 ITR 220 (Bombay). The Ld. AR also relied upon the decision of Zaveri & Co. (supra). Ld. AR further submitted that in A.Y. 2009-10 the Tribunal has restricted the 14A disallowance to dividend income in assessee’s own case. The Ld. AR further submitted that the Assessing Officer has not given any cogent reasons as to why suo moto disallowance by the assessee is not proper. The Ld. AR relied upon the decision of West Bengal Infrastructure Development, 143 taxman.com, 135(Calcutta) and Hindustan Aeronautics, 143 taxmann.com 357 (Karnataka). The Ld. AR further submitted that only those investments are to be considered for computing average value of investment which yielded exempt income during the year and relied upon the decision of Special Bench of Tribunal in the case of Vireet Investments (P) Ltd., 82 taxmann.com 415 (Sp. Bench). Thus, the Ld. AR submitted that the disallowance under Section 1 4A was not justified.
9. The Ld. DR submitted that the satisfaction related to disallowance under Section 14A of the Act was rightly recorded by the Assessing Officer and hence the disallowance confirmed by the CIT(A) is correct.
10. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that disallowance under Section 14A of the Act, the Assessing Officer has given satisfaction but the fact remains that own funds are more than investments and the same was utilised while making investments. From the perusal of records it appears that the alternate argument of the assessee that only those investments which are yielded from sales income during the year should be allowed as per the decision of Delhi Tribunal in case Vireet (supra) appears to be correct. Therefore, alternate argument of the assessee is allowed and ground no.4 is partly allowed.
11. As regards Ground nos. 5 & 5.1 of the assessee’s appeal, the Ld. AR submitted that the CIT(A) erred in confirming the disallowance of depreciation on right to use lease hold land of Rs.1 .54 Crores. If the disallowance is to be confirmed, the same to increase the eligible business profits for deduction under Section 80IAB of the Act are not justifiable. The Ld. AR submitted that the recognition of the right to use leasehold land as intangible asset is as per the requirement of accounting standards. The assessee has to recognise the same and assessee has correctly recognised it. Once an intangible asset is recognised, the same is eligible for depreciation under Section 32 and, therefore, the claim of depreciation is correct. The Ld. AR further submitted that if the said depreciation is not available, the eligible profit for computation of d3eductioan under Section 80IAB should increase. The Ld. AR relied upon the decisions of RFCL Limited, 57 com 17 (HP) and Bhushan Steels, 390 ITR 485 (Delhi).
12. The Ld. DR submitted that as regards land, there is no question of depreciation, so question of allowing the same in the capital nature does not survive.
13. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the recognition of the right to use lease hold land as intangible asset as per the statement of account and the same was not disputed by the Department at any stage. Thus, the claim of depreciation was correctly made and the same should have been taken into account by the Assessing Officer as well as CIT(A). Thus, ground no.5 and ground no.5.1 are allowed.
14. As regards Ground no.6 & 6.1 of assessee’s appeal, the Ld. AR submitted that the CIT(A) erred in confirming the disallowance of amortisation expenditure claimed in relation to leasehold land of Rs.5.16 Crores. If the disallowance is to be confirmed, the same has to increase the eligible business profit for deduction under section 80IAB of the Act. The Ld. AR further submitted that amortisation expense is claimed as part of the additional improvement cost incurred by the assessee. This is not part of the lease rent payment but cost incurred by the assessee over and above that. The same can be even revenue expense. Amortisation of the same is also permissible. The claim is correct. Amortisation is only nomenclature. The Ld. AR relied upon the decisions of Mahavir Inductomelt, 394 ITR 50 (Guj) and Sun Pharmaceuticals, 329 ITR 479 (Guj). Ld. AR further submitted that even if the said amortisation is not available, the eligible profit for computation of deduction under Section 80IAB should increase.
15. The Ld. DR submitted that the principle of depreciation of value/amortisation expenses does not apply to land.
16. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the amortisation expenses are not available to the assessee as it was part of lease rent payment and, therefore, the plea of the assessee that eligible profit for computation of deduction under Section 80IAB should increase is Hence, ground nos.6 and ground no.6.1 are allowed.
17. As regards Ground no.7 of the assessee’s appeal, the Ld. AR submitted that the addition in respect of retention money from customers if added, the eligible profit for computation of deduction under Section 80IAB should increase. The Ld. AR submitted that in order giving effect to CIT(A)’s order the Assessing officer has given the relief on this ground on merits. Therefore, the argument is not on merit but on legal principle. The Ld. AR submitted that if said addition is to be made, the eligible profit for computation of deduction under Section 80IAB of the Act should increase.
18. The Ld. DR relied upon the assessment order and the order of the CIT(A).
19. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that, retention money from customers if added, the eligible profit for computation of deduction under Section 80IAB should increase, this contention is on the legal principle and it appears to be correct statement. Thus, Ground no.7 is allowed.
20. Thus, appeal filed by the assessee being ITA No. 122/Ahd/2015 is partly
21. As regards Revenue’s appeal related to Ground nos.1, 2 & 3, the same are in consonance with ground nos.1 ,2 & 3 of assessee’s appeal and, therefore, no separate findings are required, hence the same are dismissed.
22. As regards ground nos.4, 5 & 6 of Revenue’s appeal, the same are also identical to ground nos.1, 2 & 3 of assessee’s appeal as well as Revenue’s appeal and hence the same are dismissed.
23. As regards ground no.7 of Revenue’s appeal related to deduction in respect donation under Section 80G of the Act, the CIT(A) has observed that the said donations were related to the business income and hence rightly claimed deduction under Section 80IAB of the Act. The CIT(A) has given detailed finding and there is no need to interfere with the same. Hence, ground no.7 of the Revenue’s appeal is
24. As regards ground no.8 of Revenue’s appeal relating to disallowance of depreciation on office expenses at 15% expenses instead of qualified rate of depreciation @ 10%, the reasoning given by the CIT(A) is justifiable and hence ground no.8 of Revenue’s appeal is dismissed.
25. Thus, appeal of the Revenue being ITA No. 167/Ahd/2015 is dismissed.
26. In the result, appeal of the assessee is partly allowed and appeal of the Revenue is dismissed.
Order pronounced in the open Court on this 29th day of March, 2023.
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