DCIT, New Delhi V. M/s. DLF Assets Pvt. Ltd., New Delhi

ITA 126/DEL/2013

• Counselvise Citation: 12620114 RSA 2013
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 07-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SUDHA KUMARI
• Assessee Lawyers: R K KAPOOR
• Keywords: Earning of tax free income; Deemed to accrue or arise in india
• Section: 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.126/DEL/2013 & I.T.A. NO. 4761/DEL/2012 ASSESSMENT YEAR : 2008 -09 & 2009-10 DCIT, DLF ASSETS PVT. LTD. CIRCLE-10 (1), 1-E, NAAZ CINEMA COMPLEX, NEW DELHI. V. JHANDEWALAN EXTN, NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AACCD AACCD AACCD AACCD- -- -4923 4923 4923 4923- -- -A AA A APPELLANT BY : DR.SUDHA KUMARI, CIT-DR. RESPONDENT BY : SHRI PRADEEP DINODIA & SHRI RK KAPOOR, C.A. ORDER PER BENCH; THESE APPEALS WERE EARLIER HEARD ON 23.8.2013 WHICH W ERE RE- FIXED FOR CERTAIN CLARIFICATION AND WERE FINALLY HE ARD ON 10.1.2014. THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE TWO SEPARATE ORDERS OF LD CIT(A) WHICH WERE PASSED ON 26.10.2012 AN D 4.6.2012 RESPECTIVELY. THE REVENUE HAS TAKEN TWO GROUNDS OF APP EAL IN ASSESSMENT YEAR 2008-09 WHEREAS IN ASSESSMENT YEAR 2009-10 T HE REVENUE HAS TAKEN THREE GROUNDS OF APPEALS. GROUND NO. 1 & 2 OF ASSESSMENT YEAR 2008-09 AND GROUND NO.1 & 3 IN ASSESSMENT Y EAR 2009-10 ARE SIMILAR GROUNDS. THE ONLY DIFFERENCE IS TH E AMOUNT. FOR THE ITA NO126 & 4761/DEL/2013 & 2012 2 SAKE OF CONVENIENCE, GROUNDS OF APPEALS IN ASSESSMENT YEAR 2009-10 ARE REPRODUCED BELOW:- ASSESSME ASSESSME ASSESSME ASSESSMENT YEAR: 2009 NT YEAR: 2009 NT YEAR: 2009 NT YEAR: 2009- -- -10: 10: 10: 10: 1. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW WAS JUSTIFIED IN RESTRICTING THE DISALL OWANCE TO ` .18.75 LAKHS AS AGAINST THE DISALLOWANCE OF ` .20.17 LAKHS WORKED OUT BY THE ASSESSING OFFICER AS PER THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH R ULE 8D OF THE IT RULES. 2. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW WAS JUSTIFIED IN DELETING THE ADJUSTMEN T OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 AMO UNTING TO ` .20,17,000/- IN THE BOOK PROFIT CALCULATION U/S 115J B OF THE IT ACT, 1961 MADE BY THE ASSESSING OFFICER. 3. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN DELETING THE ADJUSTME NT OF A SUM OF ` .1,40,76,35,917/- IN THE BOOK PROFIT U/S 115JB OF TH E IT ACT, 1961 WHICH HAS NOT BEEN CLAIMED AS INCOME DERIVED FRO M OPERATIONS & MAINTENANCE OF SEZ BY ASSESSEE. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND AN Y GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND OTHER ALLIED ACTIVITIES. IN THE YEAR 2008-09 THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` .27,24,000/- U/S 14A AS EXPENSES PERTAINING TO EARNING OF EXEMPT INCOME. THE AMOUNT OF DISALLOWANCE IN THE YEAR 2009- 10 WAS ` .20,17,000/-. THE SECOND COMMON ADDITION MADE IN BOT H THE YEARS WAS ON ACCOUNT OF REFUSAL OF ASSESSING OFFICER TO EXCLUDE THE INCOME ITA NO126 & 4761/DEL/2013 & 2012 3 EARNED BY THE ASSESSEE FROM SEZ BUSINESS FOR THE PURPOSE OF CALCULATION OF PROFIT U/S 115JB OF THE ACT. THE OPER ATIVE PART OF ASSESSING OFFICER FOR MAKING DISALLOWANCE IS CONTAINED IN PARA 5.3 OF THE ASSESSMENT ORDER FOR THE YEAR 2008-09N WHICH IS REPR ODUCED BELOW:- REGARDING INCOME OF ` .1,85,,48,545/- ALLEGEDLY ON ACCOUNT OF OPERATION AND MAINTENANCE OF SEZ. IT IS NOT WORTHY T HAT THE ASSESSEE HAS NOT MADE ANY CLAIM FOR DEDUCTION U/S 80IAB O F THE IT ACT. THIS MAY PRESUMABLY BE ON ACCOUNT OF THE FACT THAT AS PER ITS REVISED COMPUTATION OF INCOME, THE GROSS TOTAL INCO ME IS A LOSS. NOTWITHSTANDING THE SAME IF THE ASSESSEE IS CLAIMING T HAT INCOME ACCRUING TO IT ON ACCOUNT OF OPERATION AND M AINTENANCE OF SEZ IS TO BE EXCLUDED, IT HAS TO BRING ON RECORD A LL FACTS AND DOCUMENTS IN SUPPORT OF SUCH CLAIM. THE ASSESSEE HAS NOT F ILED FORM NO.10CCB WHICH IS REQUIRED TO BE FILED FOR CLAI MING DEDUCTION U/S 80IAB. FURTHER THE CLAIM OF THE ASSESSEE F OR CLAIMING DEDUCTION U/S 80IAB IS YET TO BE DETERMINED AND SHALL REMAIN PART OF BOOK PROFIT FOR COMPUTING THE TAX LI ABILITY U/S 115JB. 3. THE THIRD DISALLOWANCE MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2009-10 WAS ON ACCOUNT OF CALCULATION OF BOOK PROFIT U/S 115JB. THE ASSESSING OFFICER HAS ADDED BACK DISALLOWAN CE U/S 14A FOR THE PURPOSE OF CALCULATION OF BOOK PROFIT. 4. DISSATISFIED WITH THE ORDER OF ASSESSING OFFICER THE ASSE SSEE FILED APPEALS BEFORE LD CIT(A) AND LD CIT(A) REDUCED THE D ISALLOWANCE U/S 14A BY EXCLUDING INTEREST EXPENSE AND FURTHER DELETED THE DISALLOWANCE MADE IN RESPECT OF CALCULATION OF BOOK P ROFIT AND ALSO ITA NO126 & 4761/DEL/2013 & 2012 4 GAVE RELIEF TO THE ASSESSEE ON ACCOUNT OF EXCLUSION OF SEZ INCOME FROM THE TOTAL INCOME FOR THE PURPOSE OF CALCULATION U/S 1 15JB OF THE ACT. THE OPERATIVE PART OF LD CIT(A)S ORDER FOR REDUCING DISA LLOWANCE U/.S 14A FOR ASSESSMENT YEAR 2008-09 IS REPRODUCED BELOW:- I HAVE CONSIDERED THE SUBMISSION FILED BY THE APPELLAN T, OBSERVATION OF THE ASSESSING OFFICER AND VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT IN THIS REGARD. ON VERIFICATIO N OF BALANCE SHEET OF THE APPELLANT, IT IS SEEN THAT APPELLANT HAS P AID UP SHARE CAPITAL OF ` .2563.87 CRORES DURING THE YEAR WHICH IS FREE FROM INTEREST AS AGAINST THIS APPELLANT HAS MADE INVESTMENT OF ` .75 CRORES IN THE UNIT OF MUTUAL FUNDS. IT IS ALSO SEEN THAT INVESTMENT OF ` .24 CRORES WERE MADE IN EARLIER YEARS AND DURING THE YEAR INVESTMENT OF ` .51 CRORES WERE MADE. IT IS ALSO SEEN FROM THE BALANCE SHEET THAT APPELLANT HAS SHOWN INTEREST INCOME OF ` .118.12 CRORES AS AGAINST THAT APPELLANT HAS SHOWN INTER EST PAYMENT OF ` .1.21 CRORES. THEREFORE, THE APPELLANT HAD ENOUGH NON INTEREST BEARING FUNDS FOR MAKING INVESTMENT IN MU TUAL FUNDS, HENCE, NO INTEREST CAN BE ATTRIBUTED FOR EARNI NG EXEMPT INCOME AND NO INTEREST EXPENDITURE REQUIRES TO BE DISA LLOWED FOR EARNING EXEMPT INCOME. THE FINDINGS OF LD CIT(A) IN ASSESSMENT YEAR 2009-10 ARE REPRODUCED BELOW:- CONSIDERING THE ABOVE, THE ASSESSING OFFICER HAS APPLIED AND DISALLOWANCE OF ` .20,17,000/- HAS BEEN WORKED OUT. HOWEVER, AS DISCUSSED ABOVE THE APPELLANT HAS INVESTED IN MUTUAL FUN DS OUT OF OWN FUNDS THEREFORE NO INTEREST FOR MAKING INVESTME NT CALLS FOR DISALLOWANCE AS PER PROVISIONS OF SECTION 14A READ W ITH RULE ITA NO126 & 4761/DEL/2013 & 2012 5 8D. HOWEVER, THE INVESTMENT IS NOT A PASSIVE ACTIVITY AND EXPENSES ON MANAGEMENT AND ADMINISTRATION OF INVESTMENT ARE EMBEDDED IN THE EXPENSES DEBITED TO P&L A/C DURING TH E YEAR, HENCE 0.5% OF THE AVERAGE INVESTMENT HAS TO BE WORKED OUT BEING EXPENSES INCURRED ON MANAGEMENT AND ADMINISTRATI ON OF INVESTMENTS MADE BY THE APPELLANT. DURING THE YEAR, T HE AVERAGE INVESTMENT WORKS OUT AT ` .37.5 CRORES AND 0.5% OF THE SAME WORKS OUT AT ` .18.75 LAKHS WHICH IS CONSIDERED AS EXPENSES INCURRED FOR EARNING EXEMPT INCOME. THEREFORE, THE DISALLOWANCE IS RESTRICTED TO ` .18.75 LAKHS, AS A RESULT APPELLANT GETS A RELIEF OF ` .1,42,000/-. 5. THE SECOND COMMON DISALLOWANCE WAS DELETED BY THE LD CIT(A) BY HOLDING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, OBSE RVATION OF THE ASSESSING OFFICER AND PROVISIONS OF THE ACT. IT IS SEEN THAT THE APPELLANT IS A CO-DEVELOPER OF THE SEZ PROJECTS AND IT HAS RECEIVED INCOME FROM SEZ OPERATIONS. THE PROVISIONS L AID DOWN IN SEC. 80IAB OF THE INCOME TAX ACT, 1961 PROVIDE TH AT THE DEDUCTION IS ADMISSIBLE FOR 10 CONSECUTIVE ASSESSMENT YEAR S IN A SPAN OF 15 YEARS AT THE OPTION OF THE ASSESSEE. THE APPE LLANT HAS NOT YET EXERCISED ITS OPTION TO CLAIM THE DEDUCTION A DMISSIBLE TO IT U/S 80IAB AND THE SAME IS REQUIRED IF THE DEDUCTION IS CLAIMED UNDER THAT SECTION. SINCE THE DEDUCTION WAS NOT CLAIM ED, THE REPORT AS STATED BY THE ASSESSING OFFICER WAS NOT REQUIRED TO BE FILED. THE APPELLANT CLAIMED THAT ITS ONLY SOURCE OF INCOME IS INCOME FROM OPERATION AND MAINTENANCE OF SEZ PROJECTS. THE APPELLANT ITA NO126 & 4761/DEL/2013 & 2012 6 HAS CONTENDED THAT THE OPERATION OF SEC. 115JB (6) OF THE INCOME TAX ACT, 1961 IS INDEPENDENT OF THE PROVISIONS CONTAI NED IN THE SECTION 80IAB OF THE IT ACT. THE PROVISIONS OF SEC., 11 5JB(6) CLEARLY STATE THAT THE PROVISIONS OF SEC. 115JB SHALL NO T APPLY TO THE INCOME ACCRUED OR ARISING ON OR AFTER THE IST DAY OF APRIL, 2005 FROM ANY BUSINESS ON OR SERVICES RENDERED BY AN ENTREPRENEUR OR A DEVELOPER IN A UNIT OR SPECIAL ECO NOMIC ZONE AS THE CASE MAY BE. IN A WAY THE PROVISIONS OF SUB SECTI ON 15JB ARE A COMPLETE CODE IN ITSELF AND ARE INDEPENDENT O F ANY OTHER SECTIONS. REFERENCE WAS ALSO MADE TO THE AUDIT REPORT FILED DU RING THE COURSE OF ASSESSMENT ORDER, COPY OF WHICH HAS ALSO BEEN FI LED BEFORE ME. THE LD AR HAS SUBMITTED THAT THE AUDITOR A LSO HAS CONSIDERED THE INCOME AS SEZ INCOME AND HAS REDUCED T HE SAME FROM THE BOOK PROFIT IN VIEW OF THE PROVISIONS OF SECT ION 115JB (6). THE PROVISIONS OF SEC. 115JB (6) ARE VERY CLEAR AND T HE INCOME FROM THE DEVELOPMENT AND MAINTENANCE OF SEZ PROJECT IS NOT TO BE INCLUDED FOR WORKING OUT OF BOOK PROFITS. I AGREE WITH THE SUBMISSIONS OF THE APPELLANT THAT SUCH ADJUSTMENT IS ALSO NOT PROVIDED IN EXPLANATION CONTAINED IN SECTION 115JB W HICH PROVIDE FOR CERTAIN ADDITIONS AND SUBTRACTIONS FROM THE PROFIT SHOWN IN THE P&L ACCOUNT. I, THEREFORE, HOLD THAT INCOME OF THE APPELLANT IS F ROM SEZ OPERATIONS AND NOT TO BE INCLUDED FROM WORKING OF BO OK PROFIT U/S 115JB. THE APPELLANT GETS A RELIEF OF ` .1,85,48,545/- FOR WORKING OUT THE BOOK PROFIT U/S 115JB. ITA NO126 & 4761/DEL/2013 & 2012 7 SIMILAR FINDINGS WERE MADE IN THE ASSESSMENT YEAR 2009-1 0. 6. THE THIRD DISALLOWANCE WAS DELETED BY THE LD CIT(A ) BY RELYING UPON THE HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF APOLLO TYRES LTD. V. CIT 255 ITR 273. THE OPERATIVE PART OF LD C IT(A)S ORDER IS REPRODUCED BELOW:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE CASE LAWS RELIED UPON BY THE APPELLANT IN THIS REGARD OF H ON 'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (2002) 255 ITR 27, (SC) WHEREIN THE COURT HAS HELD THAT ASSE SSING OFFICER WHILE COMPUTING THE INCOME UNDER SECTION I15 JB OF THE INCOME-TAX ACT, 1961 HAS NO POWER OF EXAMINING THE B OOKS OF ACCOUNTS BY GOING BEHIND NET PROFIT SHOWN IN THE PROF IT AND LOSS ACCOUNT, EXCEPT TO THE EXTENT PROVIDED IN THE' EXPL ANATION TO SECTION 115 JB, DULY CERTIFIED BY THE AUTHORITIES UN DER THE COMPANIES ACT WHICH IS AS UNDER: '8. XXXXXXX IF WE EXAMINE THE SAID PROVISION IN THE A BOVE BACKGROUND, WE NOTICE THAT THE USE OF THE WORDS' IN A CCORDANCE WITH THE PROVISIONS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT' WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AU THENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY. AN ASSESSING OFFICER UNDER THE IT ACT HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH R EFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WHICH OBLIGATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN A MANNER PROVIDED BY THE COMPANIES ACT AND THE SAME TO BE SCRUTINIZED AND CERTI FIED BY STATUTORY AUDITORS AND WILL HAVE TO BE APPROVED BY TH E COMPANY ITA NO126 & 4761/DEL/2013 & 2012 8 IN ITS GENERAL MEETING AND THEREAFTER TO BE FILED BE FORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION A LSO TO EXAMINE AND SATISFY THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF TH E COMPANIES ACT. IN SPITE OF ALL THESE PROCEDURES CONTEMP LATED UNDER THE PROVISIONS OF THE COMPANIES ACT, WE FIND IT DIFFICULT TO ACCEPT THE ARGUMENT OF THE REVENUE THAT IT IS STILL O PEN TO THE ASSESSING OFFICER TO RE-SCRUTINIZE THIS ACCOUNT AND SATISFY HIMSELF THAT THESE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANC E WITH THE PROVISIONS OF THE COMPANIES ACT. IN OUR OPINION R ELIANCE PLACED BY THE REVENUE ON SUB-SECTION (1 A) OF SECTIO N 115-J OF THE IT ACT IN SUPPORT OF THE ABOVE CONTENTION IS MISPL ACED. SUB- SECTION (1A) OF SECTION 115-J DOES NOT EMPOWER THE ASSE SSING OFFICER TO EMBARK UPON A FRESH INQUIRY IN REGARD TO THE ENTRIES MADE IN THE HOOKS OF ACCOUNT OF THE COMPANY. THE SAI D SUB- SECTION. AS A MATTER OF FACT MANDATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN ACCORDANCE WITH THE REQUIREMENTS OR TH E COMPANIES ACT WHICH MANDATE. ACCORDING TO US IS BODILY LIFTED FROM THE COMPANIES ACT INTO THE IT /\CT FOR THE LIMI TED PURPOSE OF MAKING THE SAID ACCOUNT SO MAINTAINED AS A BASIS FOR COM PUTING THE COMPANY'S INCOME FOR LEVY OF INCOME-TAX. BEYOND THAT, WE DO NOT THINK THAT THE SAID SUB-SECTION EMPOWERS THE AUT HORITY UNDER THE INCOME-TAX ACT TO PROBE INTO THE ACCOUNTS ACCEPTED BY THE AUTHORITIES UNDER THE COMPANIES ACT. IF THE STATUT E MANDATES THAT INCOME PREPARED IN ACCORDANCE WITH THE COMPANI ES ACT SHALL BE DEEMED INCOME FOR THE PURPOSE OF SECTION 115 -J OF THE ACT THEN IT SHOULD BE THAT INCOME WHICH IS ACCEPTABLE TO THE AUTHORITIES UNDER THE COMPANIES ACT. THERE CAN NOT BE TWO INCOMES ONE FOR THE PURPOSE OF COMPANIES ACT AND ANOTH ER FOR THE PURPOSE OF INCOME TAX BOTH MAINTAINED UNDER THE SAME ACT. ITA NO126 & 4761/DEL/2013 & 2012 9 IF THE LEGISLATURE INTENDED THE ASSESSING OFFICER TO REA SSESS THE COMPANY'S INCOME, THEN IT WOULD HAVE STATED IN SECTI ON 115J THAT INCOME OF THE COMPANY AS ACCEPTED BY THE ASSESSING OFFI CER. IN THE ABSENCE OF THE SAME AND ON THE LANGUAGE OF SECTIO N 115J, IT WILL HAVE TO HELD THAT VIEW TAKEN BY THE TRIBUNAL I S CORRECT AND THE HIGH COURT HAS ERRED IN REVERSING THE SAID VIEW OF THE TRIBUNAL. 9. THEREFORE, WE ARE OF THE OPINION. THE ASSESSING OFFI CER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARC CERTIFIES BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PRO PERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING I NCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION. TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HA VE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXP LANATION TO SECTION I J 5-J.' IN VIEW OF THE ABOVE THE ACTION OF THE ASSESSING OFFICE R OF ADDING `.20, 17,000/- IN THE BOOK PROFIT CALCULATED U/S 115 JB OF THE I.T.. ACT WAS NOT CORRECT. FOR WORKING OUT BOOK PROFIT ADJ USTMENT CAN BE MADE TO THE BOOK PROFIT AS PER THE EXPLANATION 1 TO SUB- SECTION 2 OF SECTION 115JB AND NO ADJUSTMENT BEYOND TH AT CAN BE MADE. THEREFORE THE ADJUSTMENT MADE BY THE ASSESSING OFF ICER IN THE BOOK PROFIT OF RS.20, 17,000/- IS DELETED. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. ITA NO126 & 4761/DEL/2013 & 2012 10 8. AT THE OUTSET, WITH REGARD TO GROUND NO.3, THE LD DR SUBMITTED THAT THESE SUBMISSIONS WERE NOT SUBMITTED TO ASSESSING OFFIC ER AND IN SUPPORT RELIED UPON PARA 3 OF ASSESSMENT ORDER AND ARGUE D THAT SINCE NO COMPLETE DETAILS WERE PROVIDED, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING DISALLOWANCE OF COMMON INTEREST AS WELL AS E XPENSES. ARGUING SECOND GROUND OF APPEAL WHICH IS ALSO THIRD GR OUND OF APPEAL IN ASSESSMENT YEAR 2009-10 THE LD DR SUBMITTED THAT BEF ORE ASSESSING OFFICER NO DETAILS WERE THERE AS TO WHICH INCOM E WAS FROM SEZ AND WHICH WAS NOT FROM SEZ. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN EXCLUDING THE ALLEGED SEZ INCOME FROM T HE CALCULATION OF PROFIT U/S 115JB. IT WAS FURTHER SUBMITTED THAT SECTIO N 115JB IS A COMPLETE CODE IN ITSELF AND ASSESSING OFFICER MADE THE A DDITION FOR THE PURPOSE OF SECTION 115JB AS THE ASSESSEE HAD NOT CLAIMED D EDUCTION U/S 80IAB OF THE ACT. 9. REGARDING THE SECOND GROUND OF APPEAL IN ASSESSMENT Y EAR 2009-10, THE LD DR SUBMITTED THAT DISALLOWANCE U/S 14A HAS TO BE CONSIDERED AND HAS TO BE ADDED BACK TO THE PROFIT AS PER P&L ACCOUNT AS IT IS SPECIFICALLY COVERED BY THE CLAUSE (F) OF EXPL ANATION-1 TO SECTION 115JB OF THE ACT AND IN THIS RESPECT OUR ATTENTION WA S INVITED TO EXPLANATION-1 TO SECTION 115JB AND IN VIEW OF THIS IT WAS ARGUED THAT LD CIT(A) HAS WRONGLY GIVEN THE RELIEF TO THE ASSESSEE ON T HIS ACCOUNT. 10. WHILE DEFENDING THE LD CIT(A)S ORDER THE LD AR INVITED OUR ATTENTION TO LD CIT(A)S ORDER WITH RESPECT TO DISALLO WANCE U/S 14A AND SUBMITTED THAT ASSESSING OFFICER HIMSELF HAD HELD THAT THERE WAS NO DIRECT EXPENDITURE AS CONTAINED ON PAGE 5 OF ASSESSMENT ORDER. HE FURTHER ARGUED THAT LD CIT(A) HAS VERY RIGHTLY REDUC ED THE AMOUNT OF INTEREST FROM THE CALCULATION OF DISALLOWANCE AS PER R ULE 8D AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS WHICH IS APPA RENT FROM THE FINDINGS OF LD CIT(A) IN WHICH HE HAS HELD THAT INSTEA D OF INTEREST ITA NO126 & 4761/DEL/2013 & 2012 11 EXPENSE, THE ASSESSEE HAD EARNED NET INTEREST INCOME. DE FENDING 2 ND & 3 RD GROUND FOR ASSESSMENT YEAR 2008-09 & 2009-10 THE LD A R INVITED OUR ATTENTION TO THE PROVISIONS OF CLAUSE (6) TO SEC. 1 15JB WHICH SPECIFICALLY EXEMPTED THE INCOME OF SEZ FOR THE PURP OSE OF CALCULATION OF BOOK PROFIT U/S 115JB OF THE ACT. TO A QUERY FROM THE BENCH AS TO WHETHER THE DEVELOPER INCLUDES CO-DEVELOPER, OUR AT TENTION WAS INVITED TO THE SECTION 2 OF SEZ ACT, 2005 WHICH CONT AINED THE DEFINITION OF DEVELOPER AND WHICH INCLUDED A CO-DEVELOPER ALSO. OUR ATTENTION WAS ALSO INVITED TO EXPLANATION PROVIDED IN SECTION 80 IAB FOR THE PROPOSITION THAT FOR THE PURPOSE OF THIS SECTION DEVELO PER AND SEZ SHALL HAVE THE SAME MEANING AS ASSIGNED TO THEM IN CLAUSES (G) AND (ZA) OF SEZ ACT, 2005. REGARDING CLAIM OF THE ASSESSING OFFICE R THAT ASSESSEE HAD NOT CLAIMED DEDUCTION U/S 80IAB IT WAS ARGUED THA T ASSESSEE WAS FREE TO CLAIM THE DEDUCTION U/S 80IAB FOR 10 CONSECUT IVE ASSESSMENT YEARS OUT OF A PERIOD OF 15 YEARS BEGINNING FROM THE YEAR IN WHICH SEZ WAS NOTIFIED BY THE CENTRAL GOVT. AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO THE PROVISIONS (1) & (2) OF SECTION 80IAB. THEREFORE, IN VIEW OF THE ABOVE CIRCUMSTANCES THE LD AR SUBMITTED THAT LD CIT(A) HAS RIGHTLY GIVEN THE RELIEF. 11. REGARDING GROUND NO.2 IN ASSESSMENT YEAR 2009-10 TH E LD AR SUBMITTED THAT LD CIT(A) WAS RIGHTLY GIVEN THE RELIEF RELYING UPON THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD., (SUPRA). HE FURTHER ARGUED THAT UNDER SIMILAR CIRCUMST ANCES THE HON'BLE TRIBUNAL HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE IN I.T.A. NO. 410/DEL/ VIDE ORDER DATED 27 TH NOVEMBER, 2009 AND OUR SPECIFIC ATTENTION WAS INVITED TO PARA 6 OF THE SAID O RDER AND IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THE MATTER IS DULY COVE RED IN FAVOUR OF ASSESSEE AND THEREFORE, THE GROUND OF APPEAL TAKEN BY R EVENUE NEEDS TO BE DISMISSED. ITA NO126 & 4761/DEL/2013 & 2012 12 12. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THESE APPEALS WERE EARLIER HEAD ON 23.8.2013. HOWEVER, WHILE DICT ATING THE ORDER, IT WAS OBSERVED THAT GROUND NO.2 IN ASSESSMENT YEAR 2009-10 WAS NOT ARGUED THEREFORE THE APPEALS WERE REFIXED FOR CLARIF ICATIONS AND WAS FINALLY HEARD ON 10.1.2014. REGARDING DISALLOWANCE U /S 14A WE FIND THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS WHICH I T HAD INVESTED IN MUTUAL FUNDS AND MOREOVER THE ASSESSEE INSTEAD OF INCURRI NG EXPENDITURE IN THE FORM OF INTEREST HAS EARNED INCOME AND THEREFORE LD CIT(A) HAS RIGHTLY DELETED THE INTEREST COMPONENT FRO M THE DISALLOWANCE OF RULE 8D. THE LD CIT(A) HAS VERY ELABO RATELY HELD THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AND THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A). THEREFORE, GROUND NO.1 IN BOTH THE YEARS IS DISMISSED. 13. REGARDING GROUND NO. 2 IN ASSESSMENT YEAR 2009-10 W E FIND THAT THE PROVISIONS OF CLAUSE (G) TO SECTION 115JB REFERS TO THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME WHIC H HAS TO BE ADDED BACK TO THE PROFIT AS PER P&L A/C FOR THE PURP OSE OF CALCULATION OF BOOK PROFITS U/S 115JB. HOWEVER, WE FURTHER FIND T HAT FOR THE PURPOSE OF MAKING ADDITION OF SUCH EXPENSES TO PROFITS FOR THE PURPOSE OF SECTION 115JB FIRST REQUIREMENT IS THAT AMOUNT OF EXPE NDITURE SHOULD HAVE BEEN DEBITED IN THE P&L A/C. THIS REQUIREMENT I S CONTAINED IN THE SECTION ITSELF. IN THE PRESENT CASE, THE DISALLOWANCE WA S MADE ON NOTIONAL BASIS UNDER SECTION 14A AND THEREFORE LD CIT (A) HAS RIGHTLY FOLLOWING THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) HAS DELETED THE DISALLOWANCE. MOREOV ER, THE HON'BLE TRIBUNAL IN I.T.A. NO. 410/DEL/ DATED 27 TH NOVEMBER, 2009 FOLLOWED THE SAME. THE FINDINGS ARE CONTAINED IN PARA 6 OF THIS OR DER WHICY ARE REPRODUCED BELOW:- ITA NO126 & 4761/DEL/2013 & 2012 13 COMING TO THE SUSTENANCE OF DISALLOWANCE OF ` .88,290/- U/S 115JB THE CIT(A) HAS UPHELD THE DISALLOWANCE UNDER CL AUSE (F) OF EXPLANATION TO SEC. 115JB (2) OF THE ACT. U/S 115JB O F THE ACT, THE ASSESSEE IS REQUIRED TO PAY TAX ON ITS BOOK PROFIT SUBJECT TO CERTAIN CONDITIONS. THE BOOK PROFIT IS TO BE DETERMIN ED U/S 115JB(2) AS PER PART II & III OF SCHEDULE VI TO COMP ANYS ACT 1956. EXPLANATION 1 TO SEC. 115JB (2) DEFINES THE EXP RESSION BOOK PROFIT AND MEANS THE NET PROFIT AS SHOWN IN TH E P&L A/C FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB SEC. (2) AS INCREASED BY THE AMOUNTS SPECIFIED IN CLAUSE (A) TO (H ) OF THE EXPLANATION-1 . CLAUSE (F) OF THE EXPLANATION 1 REFE RS TO THE AMOUNT OR AMOUNTS OR EXPENDITURE RELATABLE TO ANY IN COME TO WHICH SECTION 10 (OTHER THAN PROVISIONS CONTAINED IN C LAUSE 38 THEREOF) OR SECTION 11 OR SEC. 12 APPLY. FOR APPLYING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION TO SECTION 115 JB (2) THERE SHOULD BE NEXUS BETWEEN THE AMOUNT OF EXPENDITURE REL ATABLE TO THE INCOME EXEMPT U/S 10 OF THE ACT. THE DIVIDEND IN COME IS EXEMPT U/S 10(33) FOR ASSESSMENT YEAR 2001-02. SINCE THE EXPENDITURE INCURRED HAS NOT BEEN IDENTIFIED AND NO NEXUS HAS BEEN ESTABLISHED WITH THE DIVIDEND INCOME, THE EXPEND ITURE COULD NOT BE DISALLOWED UNDER CLAUSE (F) OF THE EXPL ANATION. AS PER THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. THE ASSESSING OFFICER IS NOT ENTITLED TO TINKE R WITH THE BOOK PROFITS AS DETERMINED AS PER PROVISIONS OF COMPAN YS ACT UNLESS THE AMOUNT IS SPECIFIED IN CLAUSES (A) TO (H) OF T HE EXPLANATION. THE AMOUNT OF ` .88,290/- HAS NOT BEEN ESTABLISHED TO HAVE NEXUS WITH THE DIVIDEND INCOME. THE AMOUNT O F ` .88,290/- HAS BEEN ESTIMATED AT 1% OF THE INCOME. IN OUR VIEW, NO DISALLOWANCE COULD BE MADE. ACCORDINGLY, WE DIREC T THE ITA NO126 & 4761/DEL/2013 & 2012 14 ASSESSING OFFICER TO DELETE THE AMOUNT OF ` .88,290/- FROM THE BOOK PROFIT. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE, WE DISMISS GROUND NO.3 IN ASSESSMENT YEAR 2009-10. 14. AS REGARDS GROUND NO.2 IN ASSESSMENT YEAR 2008-09 AND GROUND NO.3IN ASSESSMENT YEAR 2009-10 WE FIND THAT THE ASSESSING O FFICER HAS NOT CONSIDERED THE CLAIM OF ASSESSEE BECAUSE OF THE FACT THAT ASSESSEE HAD NOT MADE CLAIM U/S 80IAB OF THE ACT AND FURTHER THE ASSESSING OFFICER HAD NOT EXAMINED THE CLAIM U/S 80IAB. HOWEVE R, WE FIND THAT ASSESSEE IS ELIGIBLE TO CLAIM THE DEDUCTION U/S 80IAB IN 10 CONSECUTIVE ASSESSMENT YEARS WITHIN A PERIOD OF 15YEARS AND WE ALSO FI ND THAT ASSESSEE AS A CO-DEVELOPER ALSO QUALIFIES TO BE A DEVELOPE R FOR THE PURPOSE OF CLAIMING BENEFIT U/S 115JB OF THE ACT AS TH E DEFINITION OF DEVELOPER INCLUDES CO-DEVELOPER AS CONTAINED IN CLAUSE (G) OF SECTION 2OF SEZ ACT, 2005 WHICH DEFINES THE DEVELOPER AS UNDE R:- (G) DEVELOPER MEANS A PERSON WHO OR A STATE GOVT. WH ICH HAS BEEN GRANTED BY THE CENTRAL GOVT. A LETTER OF APPRO VAL UNDER SUB SECTION 10 OF SECTION (3) AND INCLUDES AN AUTHORITY AN D A CO- DEVELOPER. 15. IT IS UNDISPUTED FACT THAT ASSESSEE IS A CO-DEVELOPER AS THE NECESSARY LETTER FOR APPROVAL AS A CO-DEVELOPER IS PLAC ED IN PAPER BOOK PAGES 40 TO 56. REGARDING APPLICABILITY OF CLAUSE (6) OF SEC. 115JB WE FIND THAT CLAUSE (6) SPECIFICALLY CONTAINS THE FOLLOW ING PROVISIONS:- THE PROVISION OF THIS SECTION SHALL NOT APPLY TO THE I NCOME ACCRUED OR ARISING ON OR AFTER THE IST DAY OF APRIL, 2005 FROM ANY ITA NO126 & 4761/DEL/2013 & 2012 15 BUSINESS CARRIED ON OR SERVICES RENDERED BY AN ENTREPREN EUR OR A DEVELOPER IN A UNIT OR SEZ AS THE CASE MAY BE. THEREFORE, THERE IS NO DISPUTE THAT THE ASSESSEE WAS ELIG IBLE FOR EXCLUSION OF INCOME FROM SEZ BUSINESS FOR THE PURPOSE OF SECTION 115JB. HOWEVER, WE FIND THAT THE CLAIM OF ASSESSEE WITH RESPECT TO SEZ INCOME HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER OR BY LD CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE WE REM IT THIS GROUND OF APPEAL TO ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE CLAIM OF ASSESSEE IN RESPECT OF INCOME FROM SEZ BUSINESS AND AFTER A RRIVING AT THE AMOUNT OF PROFITS FROM SEZ BUSINESS, ALLOW THE SAME AS EXCLUSION FOR THE PURPOSE OF DETERMINING BOOK PROFITS U/S 115JB OF THE ACT. 16. IN VIEW OF THE ABOVE, GROUND NO.2 AND GROUND NO .3 IN RESPECT OF ASSESSMENT YEAR 2008-09 AND 2009-10 IS ALLOWED FOR STATIST ICAL PURPOSES. 17. IN VIEW OF THE ABOVE, THE APPEALS FILED BY THE R EVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 18. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH DAY OF JANUARY, 2014. SD/- SD/- (DIVA SINGH) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 24.1.2014. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT ITA NO126 & 4761/DEL/2013 & 2012 16 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 10.1.2014 DATE OF DICTATION 17.1.2014 DATE OF TYPING 17.1.2014 DATE OF ORDER SIGNED BY BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.