The ACIT,(OSD)-I, Circle-4, Ahmedabad V. Mundra Port & Special Economic Zone Ltd., Ahmedabad

ITA 1878/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0659 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.1878/AHD/2011 (REVENUE) AND CO NO.221/AHD/2011 AY 2008-09 (ASSESSEE) ( / ASSESSMENT YEAR : 2008-09) THE ACIT (OSD)-I CIRCLE-4 AHMEDABAD / VS. MUNDRA PORT AND SPECIAL ECONOMIC ZONE LTD. 1 ST FLOOR, ADANI HOUSE NR. MITHAKALI CIRCLE NAVRANGPURA, AHMEDABAD ./ ./ PAN/GIR NO. : AAACG 7917 K ( / APPELLANT ) .. ( / RESPONDENT AND CROSS OBJECTOR ) / APPELLANT BY : MS. VIBHA BHALLA, CIT-DR / RESPONDENT BY : SHRI S.N. SOPARKAR, AR / DATE OF HEARING 29/06/2016 !'# / DATE OF PRONOUNCEMENT 01/09/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDA BAD DATED 06/05/2011 FOR THE ASSESSMENT YEAR (AY)2008-09 AND THE ASSESSEE IS IN CROSS OBJECTION THEREOF. ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 2 - 2. BEFORE US, AT THE OUTSET, LD.AR SUBMITTED THAT THE SOLITARY GROUND RAISED BY THE REVENUE IS INTER-CONNECTED WITH GROUN D NOS.1 & 2 RAISED BY ASSESSEE IN ITS CROSS OBJECTION. HE THEREFORE S UBMITTED THAT THE SUBMISSIONS MADE BY HIM ON THESE GROUNDS WOULD BE A PPLICABLE TO BOTH THE APPEALS. LD.CIT-DR DID NOT OBJECT TO THE AFORE SAID SUBMISSIONS OF LD.AR. WE THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS TOGETHER. 2.1. THE RELEVANT FACTS AS CULLED OUT FROM THE MATE RIALS ON RECORD ARE AS UNDER:- 2.2. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF DEVELOPMENT AND OPERATION OF PORTS, SPECIAL ECONOM IC ZONES (SEZ) AND RELATED INFRASTRUCTURE. ASSESSEE FILED ITS RETU RN OF INCOME FOR AY 2008-09 ON 26/09/2008 DECLARING TOTAL INCOME OF RS. 23,20,62,397/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER A SSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE ORDER DATED 30/12/2010 AND THE TOTAL I NCOME WAS DETERMINED AT RS.45,85,26,750/-. AGGRIEVED BY THE ORDER OF TH E ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT (A), WHO VIDE ORDER DATED 06/05/2011 (IN APPEAL NO.CIT(A)-VIII/ADDL.CI T R-4/681/10-11) ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 3 - GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED B Y THE ORDER OF THE LD.CIT(A), REVENUE IS IN APPEAL BEFORE US AND HAS R AISED FOLLOWING GROUND:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO BY NETTING OF INTEREST INCOME OF RS. 19,58,34,587/- AGAINST INTEREST EXPENSES OF RS.135.37 CRORES. 2.3. ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITS C ROSS OBJECTION:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN CONFIRMING THE FINDING OF THE ASSESSING OFFICER THAT THE INTEREST INCOME OF RS.19,58,34,587, BROUGHT TO THE CHARGE OF TAX BY HIM AS BUSINESS INCOME, IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IAB OF THE I.T.ACT. 2. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING THE ASS ESSING OFFICERS FINDING THAT SHARE ISSUE EXPENSES AGGREGATING TO RS .58.14 CRORES CANNOT BE SET OFF AGAINST THE INTEREST INCOME OF RS.19.58 CRORES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,19,65,021 MA DE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14 OF THE I.T.ACT. 2.4. WE FIRST PROCEED WITH GROUND NO. 1 OF REVENU ES APPEAL AND GROUND NOS. 1 & 2 OF ASSESSEES CROSS OBJECTION. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION OF RS.213,44,75,093/ - U/S 80IAB OF THE ACT AND THE AMOUNT ON WHICH THE DEDUCTION WAS CLAIM ED INCLUDED ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 4 - INTEREST INCOME OF RS.19,58,34,587/-. THE ASSESSEE WAS THEREFORE ASKED TO JUSTIFY ITS CLAIM OF DEDUCTION INCLUDING THE CLA IM OF DEDUCTION ON THE INTEREST INCOME. ASSESSEE INTER-ALIA SUBMITTED THAT ASSESSEE HAD COME OUT WITH A PUBLIC ISSUE OF SHARES IN NOV-2007 FOR T HE OBJECTS SPECIFIED IN THE PROSPECTUS. THE FUNDS THAT WERE NOT IMMEDIATELY REQUIRED WERE PARKED WITH BANK AND ON SUCH AMOUNT OF MONEY PARKED , THE ASSESSEE HAD RECEIVED INTEREST AND THEREFORE THE INTEREST INCOME HAD A DIRECT AND PROXIMATE CONNECTION WITH THE CARRYING ON OF BUSINE SS OF DEVELOPMENT OF SEZ AND THEREFORE ELIGIBLE FOR DEDUCTION. THE SUBMI SSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW THAT INTEREST INCOME HAD NO RELATIONSHIP WITH THE BUSINE SS OF DEVELOPMENT OF SEZ. HE WAS OF THE VIEW THAT FOR CLAIMING DEDUCTION U/S 80IAB, THE INCOME SHOULD BE DERIVED FROM THE BUSINESS AND THE EXPRESSION DERIVED FROM REFERS TO THE FIRST DEGREE/IMMEDIATE CONNECTI ON WITH THE BUSINESS. ACCORDING TO HIM THE INTEREST INCOME EARNED CANNOT BE CONSIDERED TO BE DERIVED FROM BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80IAB OF THE ACT AND FOR WHICH HE PLACED RELIANCE ON THE DECISIONS I N THE CASE OF STERLING FOOD VS CIT 237 ITR 579, PANDIAN CHEMICALS LTD VS. CIT 262 ITR 278 (SC) AND OTHER DECISIONS CITED IN THE ORDER. BEFORE AO, AN ALTERNATE CLAIM WAS MADE BY THE ASSESSEE THAT THE INTEREST INCOME S HOULD BE NETTED OFF AGAINST THE INTEREST EXPENDITURE BECAUSE IT WAS INE XTRICABLY LINKED WITH ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 5 - THE BUSINESS OF THE ASSESSEE. THE ALTERNATE CLAIM W AS ALSO DENIED BY THE AO. HE ACCORDINGLY DENIED THE CLAIM OF DEDUCTION U/ S 80IAB ON THE INTEREST RECEIPTS OF RS.19,58,34,587/- AND THUS GRA NTED DEDUCTION U/S 80IAB OF RS 193,86,40,506/- AS AGAINST THE ASSESSEE S CLAIM OF DEDUCTION OF RS 213,44,75,093/-. AGGRIEVED BY THE O RDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD CIT(A) WHO H ELD THAT INTEREST INCOME IS NOT ELIGIBLE FOR DEDUCTION U/S.80IB BY HO LDING AS UNDER:- 6. I HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS VIS--VIS THE REASONS GIVEN BY THE ASSESSING OFFICER FOR THE DISALLOWANCE AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT-COMPANY. IT IS TRU E THAT THE AFORESAID INTEREST INCOME OF RS.19,58,34,587 HAS BEEN TREATED BY THE ASSESSING OFFICER AS BUSINESS INCOME AND NOT INCOME FROM OTHE R SOURCES. HOWEVER, THE ASSESSING OFFICER HAS RECORDED A FINDI NG THAT THE SAID INCOME IS NOT IN THE NATURE OF 'INCOME DERIVED' FRO M THE SPECIFIED BUSINESS AS PER PROVISIONS OF SECTION 80-IAB OF THE L.T. ACT. THE CASE OF THE ASSESSING OFFICER IS THAT BEFORE ANY ITEM OF IN COME IS CONSIDERED AS ELIGIBLE FOR DEDUCTION IT MUST BE ESTABLISHED THAT SUCH INCOME HAS DIRECTLY GENERATED FROM THE SPECIFIC BUSINESS. IN O THER WORDS, IT HAS TO BE INCOME DERIVED FROM THE SPECIFIC BUSINESS AND NO T MERELY ATTRIBUTABLE TO THAT BUSINESS. TO BUTTRESS THIS VIE W THE ASSESSING OFFICER HAS REFERRED TO THE SUPREME COURT DECISION IN THE C ASE OF LIBERTY INDIA 317 ITR 218 (SUPRA). HE HAS ALSO RELIED ON THE SUPR EME COURT DECISIONS IN THE CASES OF HINDUSTAN LEVER LTD 239 ITR 297., S TERLING FOODS 237 ITR 579 AND PANDYAN CHEMICALS LTD 262 ITR 278 WHICH HAVE BEEN REFERRED TO ABOVE. THE RATIO OF THE CASE OF LIBERTY INDIA HAS ALREADY BEEN REPRODUCED ABOVE. IN THAT CASE, THE HON'BLE SU PREME COURT WAS CONCERNED WITH THE INTERPRETATION OF THE PROVISIONS OF SECTION 80-IA AND 80-IB WHICH ARE SIMILAR AS THE PROVISIONS OF SECTIO N 80-IAB UNDER WHICH DEDUCTION IS ADMISSIBLE IN THE CASE OF THE AP PELLANT-COMPANY. IN THAT CASE THE QUESTION WAS AS TO WHETHER DEPB RECEI PT AND DUTY ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 6 - DRAWBACK CAN BE SAID TO BE ITEMS OF INCOME ELIGIBLE FOR DEDUCTION U/S.80-IA AND 80-IB. THE HON'BLE COURT OBSERVED THA T SUCH RECEIPTS DO NOT FORM PART OF NET PROFIT OF ELIGIBLE INDUSTRIAL UNDERTAKING AND THEY ARE ONLY ATTRIBUTABLE TO THE BUSINESS OF INDUSTRIAL UNDERTAKING. IN THE WRITTEN SUBMISSIONS, AN EFFORT HAS BEEN MADE ON BEH ALF OF THE APPELLANT- COMPANY TO DISTINGUISH THE CASE OF LIBERTY INDIA AN D IT HAS BEEN ARGUED THAT THE INTEREST INCOME HAS PROXIMITY OF FIRST DEG REE WITH THE BUSINESS INCOME OF THE APPELLANT-COMPANY DERIVED FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF SECTION 80-1AB. A NUMBER OF CASES H AVE ALSO BEEN CITED BEFORE ME TO ESTABLISH THAT IN CERTAIN FA CTS AND CIRCUMSTANCES EVEN INTEREST INCOME CAN BE SAID TO BE ELIGIBLE FO R DEDUCTION. I HAVE CAREFULLY GONE THROUGH THE VARIOUS CASES REFERRED T O BY THE ASSESSING OFFICER AND THE CASES WHICH HAVE BEEN RELIED UPON BY THE APPELLANT- COMPANY. IN MY VIEW, THE APPELLANT-COMPANY CANN OT SUCCEED ON THIS ISSUE. THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA SETTLES THE ISSUE AGAINST THE APPE LLANT-COMPANY. IN VARIOUS OTHER CASES, WHICH HAVE BEEN RELIED UPON BY THE APPELLANT- COMPANY, THE AFORESAID CASE OF LIBERTY INDIA NEVER CAME UP FOR CONSIDERATION. I HOLD THAT EVEN THOUGH THE INTEREST INCOME MAY BE IN THE NATURE OF BUSINESS INCOME, BUT IT CANNOT BE CONSIDE RED AS 'INCOME DERIVED FROM' THE SPECIFIC BUSINESS FOR THE PURPOSE S OF SECTION 80-IAB. IT MAY BE TRUE THAT THE IPO FUNDS WERE REQUIRED TO BE INVESTED AS PER THE GUIDELINES OF SEBI AND IT MAY ALSO BE TRUE THAT THE INTER- CORPORATE DEPOSITS WERE MADE FOR SOME BUSINESS COM PULSIONS FOR BUSINESS PURPOSES. STILL I DO NOT AGREE WITH THE PR OPOSITION OF THE LEARNED COUNSEL APPEARING FOR THE APPELLANT-COMPAN Y THAT SUCH INTEREST INCOME IS ELIGIBLE FOR DEDUCTION U/S.80-IAB. ACCORD INGLY, GROUNDS NO.1 TO 4 ARE REJECTED. 3.1 BEFORE LD CIT(A) ASSESSEE, WITHOUT PREJUDIC E TO THE MAIN CONTENTION THAT THE INTEREST INCOME IS ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT RAISED AN ALTERNATE PLEA OF SETTING OF THE INTEREST EXPENDITURE OF ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 7 - RS.135.37 CRORE (ROUNDED OFF) AGAINST THE INTEREST INCOME OF RS 19.58 CRORE (ROUNDED OFF). THE ALTERNATE CONTENTION RAISE D BY THE ASSESSEE WAS DECIDED IN FAVOUR OF ASSESSEE BY CIT(A) BY HOLDING AS UNDER: 7. GROUND NO.5 PERTAINS TO NOT ALLOWING SET OFF O F THE INTEREST EXPENDITURE OF RS.135.37 CRORES AGAINST THE INTERES T INCOME OF RS.19,58,34,587. THIS WAS THE ALTERNATIVE CLAIM MA DE BY THE APPELLANT COMPANY BEFORE THE ASSESSING OFFICER WITHOUT PREJUD ICE TO THE MAIN CONTENTION THAT THE AFORESAID INTEREST INCOME IS IN THE NATURE OF INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80IAB OF THE I NCOME TAX ACT, 1961. 7.1.THE ASSESSING OFFICER REJECTED THIS ALTERNATIVE CLAIM MAINLY ON THE GROUND THAT THERE IS NO DIRECT NEXUS BETWEEN THE IN TEREST INCOME AND THE INTEREST EXPENDITURE. FURTHER, HE RELIED ON THE HO NBLE BOMBAY HIGH COURT DECISION IN THE CASE OF ASIAN STAR REPORTED I N 231 CTR-1 WHEREIN, IN THE CONTEXT OF SECTION 80HHC, IT WAS HELD THAT G ROSS INTEREST INCOME HAS TO BE ADOPTED AND NOT NET. .. 7.2 DURING THE COURSE OF APPELLATE PROCEEDINGS THE LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLANT HAS FILED DETA ILED BREAK-UP OF THE INTEREST EARNED ON INVESTMENT OF IPO FUNDS AND INTE REST EARNED ON INTER- CORPORATE DEPOSITS. FROM THESE DETAILS THE FACTUAL POSITION WHICH EMERGES IS THAT THE APPELLANT COMPANY WAS UNDER A C OMPULSION TO INVEST IPO FUNDS ONLY IN SPECIFIED AVENUES AS DIREC TED BY SEBI. THESE INVESTMENTS WERE MONITORED BY IDFC AND THE IPO FUND S COULD NOT BE USED FOR ANY PURPOSE AT THE SWEET WILL OF THE APPEL LANT COMPANY. THE DETAILS REGARDING INCORPORATE DEPOSITS ESTABLISH TH AT THESE DEPOSITS WERE MADE ONLY FOR BUSINESS PURPOSES INCLUDING MARG IN MONEY. 7.3. I HAVE CAREFULLY GONE THROUGH THE RELEVANT PA RT OF THE ASSESSING OFFICER'S ORDER AND THE SUBMISSIONS MADE BEFORE ME ON BEHALF OF THE APPELLANT COMPANY. THE HON'BLE BOMBAY HIGH COURT DE CISION IN THE ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 8 - CASE OF ASIAN STAR WAS RENDERED WHILE INTERPRETING THE PROVISIONS OF EXPLANATION - (BAA) UNDER SECTION 80HHC. THIS DECIS ION HAS BEEN CONSIDERED AND EXPLAINED BY THE HON'BLE I.T.A.T., A HMEDABAD, IN THE CASE OF ABM STEEL PVT. LIMITED, RELEVANT PART OF WH ICH DECISION HAS ALREADY BEEN REPRODUCED ABOVE. IT HAS BEEN HELD BY THE HON'BLE JURISDICTIONAL TRIBUNAL THAT THE CASE OF ASIAN STAR HAS CONSIDERED-THE- SPECIFIC-PROVISIONS OF-EXPLANATION - (BAA). IN-THAT -EXPLANATION, THE LEGISLATURE ALREADY PROVIDED DEDUCTION AT A UNIFORM RATE OF 10% FROM THE GROSS INTEREST, TO TAKE CARE OF THE ELEMENT OF EXPENDITURE. THEREFORE, THE HON'BLE BOMBAY HIGH COURT CAME TO THE CONCLUSI ON THAT FOR THE PURPOSES OF EXPLANATION - (BAA) ONLY GROSS INTEREST INCOME HAS TO BE TAKEN AND NOT NET. IN THE PRESENT CASE WE ARE NOT C ONCERNED WITH THE DEDUCTION UNDER SECTION 80HHC. WE ARE ONLY CONCERNE D AS TO WHETHER THE INTEREST INCOME HAS TO BE DETERMINED ONLY AFTER NETTING OF THE INTEREST EXPENDITURE. 7.4 I HAVE GONE THROUGH THE VARIOUS CASES CITED IN THE WRITTEN SUBMISSIONS WHICH SUPPORT THE VIEW THAT IF INTEREST RECEIPTS ARE IN THE NATURE OF BUSINESS INCOME, THE INTEREST EXPENDITURE HAS TO BE SET OFF AGAINST SUCH RECEIPTS TO ARRIVE AT THE NET FIGURE F OR THE PURPOSE OF DETERMINING THE INTEREST INCOME CHARGEABLE TO TAX A S BUSINESS INCOME. IN THE PRESENT CASE, THE APPELLANT COMPANY HAD NO O PTION BUT TO INVEST THE IPO FUNDS ONLY IN THE SPECIFIED AVENUES AS PER THE DIRECTIONS OF SEBI. THE FUNDS WERE NOT SO INVESTED WITH THE MOTIV E OR PURPOSE OF EARNING INTEREST INCOME. AS A MATTER OF FACT, THE A SSESSEE HAS INCURRED HUGE INTEREST EXPENDITURE AND OTHER FINANCE CHARGES ON LOANS RAISED FOR BUSINESS PURPOSES. FURTHER, SUBSTANTIAL BORROWINGS HAVE BEEN MADE EVEN AFTER COLLECTING FUNDS VIA IPO. BUT FOR THE RE QUIREMENT OF INVESTMENT OF IPO FUNDS ONLY IN SPECIFIED AVENUE, T HOSE FUNDS COULD HAVE BEEN USED BY THE APPELLANT COMPANY FOR PAYING OFF THE LOANS, WHICH WOULD HAVE RESULTED INTO REDUCTION OF THE LIA BILITY FOR PAYMENT OF INTEREST. HOWEVER, THIS WAS NOT POSSIBLE FOR THE RE ASONS STATED ABOVE. SIMILARLY, THE INTER-CORPORATE DEPOSITS HAVE NOT BE EN MADE BY THE APPELLANT COMPANY FOR EARNING INTEREST INCOME BUT T HE SAME ARE ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 9 - SPECIFICALLY FOR BUSINESS PURPOSES VIZ. ENSURING CO NTINUOUS SUPPLY OF ENERGY WHICH IS QUITE VITAL FOR SEZ BUSINESS AND AD VANCES FOR PURCHASE OF LAND ETC. THESE DEPOSITS WERE NECESSITATED ONLY FOR EFFICIENT LY CARRYING ON THE BUSINESS ACTIVITY BY THE APPELLANT COMPANY. IN THES E CIRCUMSTANCES, IN MY VIEW THE INTEREST EXPENDITURE AND INTEREST INCOM E HAVE TO BE SET OFF AGAINST EACH OTHER AND ONLY THE NET AMOUNT SHOULD B E CONSIDERED FOR INCOME-TAX PURPOSES. IN MY VIEW ITEM TO ITEM DIRECT NEXUS OF INTEREST EXPENDITURE AND INTEREST INCOME IS NOT REQUIRED TO BE ESTABLISHED AND HAVING REGARD TO THE ENTIRE FACTS AND CIRCUMSTANCES MENTIONED ABOVE, A GENERAL OR GLOBAL NETTING HAS TO BE DONE. IN MY VIE W, HAVING REGARD TO THE FACTS AND THE LEGAL POSITION, IF THE INTEREST I NCOME IS NOT NETTED AGAINST THE INTEREST EXPENDITURE IT WOULD RESULT IN TO DOUBLE JEOPARDY FOR THE APPELLANT COMPANY, WHICH IS NOT THE INTENTION O F LAW. THEREFORE, HAVING REGARD TO THE ENTIRE FACTS AND CIRCUMSTANCE OF THE CASE, THE ASSESSING OFFICER IS DIRECTED TO ADOPT THE NET INTE REST FOR THE PURPOSE OF COMPUTATION OF INCOME. 8. GROUND NO. 6 IS AN ALTERNATIVE GROUND CLAI MING THAT THE ASSESSING OFFICER HAS ERRED IN NOT ALLOWING SET OFF OF SHARE ISSUE EXPENSES AGGREGATING TO RS. 58.145 CRORES AGAINST T HE INTEREST INCOME OF RS. 19.58 CRORES. 8.1. ON THIS ISSUE DETAILED SUBMISSIONS HAVE BEEN M ADE ON BEHALF OF THE APPELLANT COMPANY WHICH HAVE BEEN CAREFULLY CONSIDE RED BY ME. IN MY VIEW, IPO EXPENSES CANNOT BE SET OFF AGAINST INTERE ST INCOME. THEREFORE, THIS GROUND OF APPEAL IS REJECTED. 3.2. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE & ASSESSEE ON THESE GROUNDS ARE NOW IN APPEAL BEFORE US. ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 10 - 4. BEFORE US, LD AR REITERATED THE SUBMISSIONS MAD E BEFORE AO AND CIT(A) AND FURTHER SUBMITTED THAT THE ASSESSEE HAD COME OUT WITH A PUBLIC ISSUE OF SHARES. THE PROCEEDS OF THE ISSUE W AS TO BE INTER-ALIA UTILIZED FOR THE DEVELOPMENT OF SEZ & THE INVESTMEN TS IN SUPPORTING SUBSIDIARY COMPANIES. TILL THE TIME THE AMOUNT WAS UTILIZED FOR THE PURPOSES SPECIFIED IN PROSPECTUS, THE FUNDS WERE IN VESTED IN HIGH QUALITY INTEREST BEARING LIQUID INSTRUMENTS AND BANK DEPOSI TS AND THAT THE UTILIZATION OF FUNDS WAS UNDER THE SUPERVISION OF F INANCIAL INSTITUTION THAT WAS NOMINATED BY SEBI. HE THUS SUBMITTED THAT THE PARKING OF THE FUNDS IN THE SPECIFIED DEPOSITS WAS ON ACCOUNT OF COMPULS ION AND AS PER THE REQUIREMENT OF SEBI AND THAT ON THE AMOUNTS THAT WE RE PARKED, ASSESSEE HAD RECEIVED THE INTEREST AND IN SUCH A SITUATION T HE INTEREST INCOME SHOULD BE CONSIDERED TO HAVE BEEN DERIVED OUT OF B USINESS AND THEREFORE ELIGIBLE FOR DEDUCTION AND FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF EMPIRE PUMPS (P) LTD VS ACIT REPORTED IN (2015) 54 TAXMANN.COM 371 ( GUJ.) AND FROM THE AFORESAID DECISION HE POINTED TO THE RELEVANT OBSER VATIONS OF HONBLE HIGH COURT. HE ALSO PLACED ON RECORD THE COPY OF TH E AFORESAID DECISION. HE THEREFORE SUBMITTED THAT THE SAME ITEM OF RECEI PT CANNOT BE TREATED DIFFERENTLY, NAMELY, ONCE WHILE COMPUTING THE GROSS TOTAL INCOME AND SECONDLY AT THE TIME OF COMPUTING DEDUCTION U/S 80I AB OF THE ACT. HE ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 11 - SUBMITTED THAT WHEN ONCE THE INTEREST INCOME HAS BE EN CONSIDERED BY THE REVENUE AUTHORITIES AS BUSINESS INCOME AND NOT AS I NCOME FROM OTHER SOURCES, ON SAME INCOME, THE ASSESSEE COULD NOT BE DENIED THE BENEFIT OF DEDUCTION U/S 80IAB OF THE ACT. WITH RESPECT TO LD.CIT(A)S DIRECTION IN NETTING THE INTEREST INCOME OF RS.19.58 CRORES ( ROUNDED OFF) AGAINST THE INTEREST EXPENSES OF RS.135.37 CRORES (ROUNDED OFF) , HE SUBMITTED THAT LD.CIT(A) HAD RELIED UPON THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF ASIAN STAR (SUPRA). HE SUBMITTED TH AT THE AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT HAS BEEN REVE RSED BY HONBLE APEX COURT AND THE DECISION OF HONBLE APEX COURT I S REPORTED IN 343 ITR 89(SC). WITH RESPECT TO THE 2 ND GROUND, WHICH IS WITHOUT PREJUDICE TO ITS CLAIM IN 1 ST GROUND, WHICH IS WITH RESPECT TO NETTING OFF OF IN TEREST INCOME OF RS.19.58 CRORES (ROUNDED OFF) AGAINST THE SHARE ISSUE EXPENSES OF RS.58.14 CRORES (ROUNDED OFF) HE SUBMITTED THAT THE INTEREST INCOME IS INEXTRICABLY LINKED WITH THE REQUIREMENT OF ASSESSE E TO RAISE SHARE CAPITAL AND WAS THEREFORE ADJUSTABLE AGAINST THE EXPENSES I NCURRED FOR ISSUE OF SHARES AND FOR THIS PROPOSITION HE RELIED ON THE DE CISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. SHREE RAMA MULTI TECH LTD. REPORTED IN (2013) 32 TAXMANN.COM 296(GUJ .). HE THEREFORE SUBMITTED THAT IN VIEW OF THE AFORESAID DECISIONS, THE GROUNDS RAISED BY ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 12 - THE ASSESSEE NEEDS TO BE DECIDED IN FAVOUR OF THE A SSESSEE. LD.CIT-DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND CIT (A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPE CT TO ALLOWABILITY OF DEDUCTION U/S 80IAB ON THE INTEREST EARNED BY THE A SSESSEE. 5.1. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD COME OUT WITH A PUBLIC ISSUE OF SHARES INTER-ALIA FOR DEVELOPMENT OF SEZ & PORT AND FOR ITS ALLIED ACTIVITIES AND THE MONEY THAT WAS RECEIVED FROM THE SUBSCRIPTION OF SHARES WAS UTILIZED FOR THE AFORESAID OBJECTS AND T HAT THE MONEY THAT COULD NOT BE IMMEDIATELY UTILIZED WAS PARKED WITH T HE SPECIFIED AUTHORITIES AND THE PARKING OF FUNDS WAS AS PER THE REQUIREMENTS OF SEBI AND UNDER THE SUPERVISION OF MONITORING AUTHORITY. ON THE AMOUNTS THAT WERE PARKED BY THE ASSESSEE, IT HAD RECEIVED INTERE ST. IT IS ALSO A FACT THAT THE INTEREST RECEIVED BY THE ASSESSEE HAS NOT BEEN CONSIDERED BY THE REVENUE AUTHORITIES AS INCOME FROM OTHER SOURCES BUT HAS BEEN TREATED AS BUSINESS INCOME. WE FIND THAT IDENTICAL ISSUE OF ALLOWABILITY OF INTEREST FOR THE PURPOSE OF DEDUCTION AROSE BEFORE THE HONB LE GUJARAT HIGH COURT IN THE CASE OF EMPIRE PUMPS (P) LTD. (SUPRA). THE R ELEVANT QUESTION ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 13 - BEFORE THE HONBLE HIGH COURT AND THE RELEVANT OBSE RVATIONS OF HBLE HIGH COURT ARE AS UNDER: 3. THESE APPEALS HAVE BEEN ADMITTED FOR CONSIDERAT ION OF THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW: TAX APPEAL NO. 186 OF 2003 (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN ITS INTERPRETATION OF SECTION 80HHA AND SECTION 80-I OF THE INCOME TAX ACT, 1961 IN RESPECT OF ITEM OF INTEREST INCOME OF RS. 2306847/- BEING BUSINESS INTEREST FROM TRADE DEBTORS AND OTHE R INTEREST OF RS. 95189/- BEING INTEREST ON MISCCELLANEOUS RECEIPTS? (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN ITS INTERPRETATION OF SECTION 80HHA AND SECTION 80-I OF THE INCOME TAX ACT, 1961 IN RESPECT OF ITEM OF INTEREST FROM IDBI AMOUNTING TO RS. 50225/-? . TAX APPEAL NO. 371 OF 2002 (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN ITS INTERPRETATION OF SECTION 80HHA AND SECTION 80-I OF THE INCOME TAX ACT, 1961 IN RESPECT OF ITEM OF INTEREST INCOME OF RS. 852744/- COMPRISING OF FINANCIAL INTEREST ON FIXED DEPOSIT, BUSINESS INTEREST FROM TRADE DEBTORS AND OTHER INTEREST ON MISCELLANEOUS RECEIPT S? (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN ITS INTERPRETATION OF SECTION 80HHA AND SECTION 80-I OF THE INCOME TAX ACT, 1961 IN RESPECT OF ITEM OF INTEREST FROM IDBI AMOUNTING TO RS. 28700/-? 6. WE HAVE HEARD LEARNED ADVOCATES FOR BOTH THE SI DES AND PERUSED THE PAPERS ON RECORD. THE ISSUE INVOLVED IN TAX APPEALS NOS. 186 OF 2003 AND 371 OF 2002, SO FAR ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 14 - AS QUESTION NO. 1 IS CONCERNED IS SQUARELY COVERED BY THE DECISION OF THIS COURT IN THE CASE OF NIRMA INDUSTRIES (SUPRA) WHICH READS AS UNDER: 27. IN SO FAR AS QUESTION NO.2 IS CONCERNED, ACCOR DING TO THE TRIBUNAL SECTION 80I OF THE ACT USES THE PHRASE 'DERIVED FROM' AND H ENCE THE INTEREST RECEIVED BY THE ASSESSEE FROM ITS TRADE DEBTORS CANNOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTING PROFITS DERIVED FROM AN INDUST RIAL UNDERTAKING. THE TRIBUNAL HAS FAILED TO APPRECIATE THAT IT IS NOT TH E CASE OF THE ASSESSING OFFICER THAT THE INTEREST INCOME IS NOT ASSESSABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS'. IT IS ONLY WHILE COMPUTING RELIEF UNDER SECTION 80I OF THE ACT THAT THE REVENUE CHANGES ITS STAND. WHEN ONE READS THE OPENING PORTION OF SECTION 80I OF THE ACT IT IS CLEAR THAT WORDS USED ARE : GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM AN INDU STRIAL UNDERTAKING. ONCE THIS IS THE POSITION THEN, IN COMPUTING THE TOTAL I NCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO THE PRESCRIBED PERCENTAGE IS TO BE ALLOWED. THAT, IN FACT THE GROS S TOTAL INCOME OF THE ASSESSEE INCLUDED PROFITS AND GAINS FROM SUCH BUSINESS, AND THIS IS APPARENT ON A PLAIN GLANCE AT THE COMPUTATION IN THE ASSESSMENT ORDER. BOTH IN RELATION TO VATVA UNIT AND MANDALI UNIT THE COMPUTATION COMMENCES BY TAKING PROFIT AS PER STATEMENT OF INCOME FILED ALONG WITH RETURN OF INCO ME. THEREFORE, THE SAME ITEM OF RECEIPT CANNOT BE TREATED DIFFERENTLY : ONC E WHILE COMPUTING THE GROSS TOTAL INCOME, AND SECONDLY, AT THE TIME OF COMPUTIN G DEDUCTION UNDER SECTION 80I OF THE ACT. THEREFORE, ON THIS LIMITED COUNT AL ONE THE ORDER OF THE TRIBUNAL, SUFFERS FROM A BASIC FALLACY RESULTING IN AN ERROR IN LAW AND ON FACTS. THE TRIBUNAL INSTEAD OF RECORDING FINDINGS ON FACTS PROCEEDED TO DISCUSS LAW. THIS LITIGATION COULD HAVE BEEN AVOIDED IF THE PART IES HAD INVITED ATTENTION TO BASIC FACTS. [EMPHASIS SUPPLIED] 6.1 SECTIONS 80HH AND 80-I OF THE ACT ARE ALSO REPR ODUCED HEREUNDER: 7. IN VIEW OF THE ABOVE DECISION, WE ARE OF THE OPI NION THAT THE TRIBUNAL HAS ERRED IN REDUCING THE OTHER INCOME RECEIVED BY THE APPELLANT AS THE ENTIRE INCOME IS INCIDENTAL TO MANUFACTURING ACTIVITIES AND THEREFOR E THE DEDUCTION UNDER SECTION 80-I IS REQUIRED TO BE ALLOWED ON THE GROSS TOTAL INCOME BEFORE DEDUCTION OF 80-HHA AND INCOME FROM OTHERS. THEREFORE, QUESTION NO. 1 IN TA X APPEALS NOS. 186 OF 2003 AND ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 15 - 371 OF 2002 IS REQUIRED TO BE ANSWERED IN THE AFFIR MATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. . 10. THUS, IT IS CLEAR THAT THE INCOME EARNED FROM F IXED DEPOSIT PLACED FOR BUSINESS PURPOSE CANNOT BE TREATED AS INCOME FROM OTHER SOUR CE BUT MUST BE SEEN AS PART OF THE ASSESSEES BUSINESS INCOME. IN THE PRESENT CASE ALSO 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 THER EUPON CANNOT BE TERMED TO BE INCOME FROM OTHER SOURCES. 5.2. CONSIDERING THE FACTS OF THE PRESENT CASE AN D IN THE LIGHT OF THE AFORESAID DECISION OF HONBLE HIGH COURT, WE ARE OF THE VIEW THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE IS INEXTRI CABLY LINKED WITH THE BUSINESS OF THE ASSESSEE AND IS THEREFORE ELIGIBLE FOR DEDUCTION U/S.80IAB OF THE ACT MORE SO WHEN INTEREST INCOME HAS BEEN TA XED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES BY TH E REVENUE MEANING THEREBY THAT THE INCOME FROM INTEREST BEING BUSINES S INCOME HAS ACCEPTED BY REVENUE. BEFORE US, REVENUE HAS NOT PLA CED ANY CONTRARY BINDING DECISION NOR HAS POINTED OUT ANY DISTINGUIS HING FEATURE IN THE PRESENT CASE AND THE AFORESAID DECISION OF HONBLE HIGH COURT. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE IN TEREST INCOME IS ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT. FURTHER WE ALSO FIND THAT WHILE DECIDING THE ISSUE OF NETTING OFF OF INTEREST EXPEN SES AGAINST THE INTEREST INCOME, LD.CIT(A) HAS ALLOWED NETTING OF INTEREST I NCOME AGAINST INTEREST ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 16 - EXPENSES FOR THE REASON STATED BY LD.CIT(A) IN HIS ORDER. IN SUCH A SITUATION THE NETTING OFF OF INTEREST INCOME AGAINS T THE INTEREST EXPENSES ALSO DOES NOT REQUIRE INTERFERENCE. WE THUS ALLOW T HIS GROUND OF THE ASSESSEE. SINCE THIS GROUND OF ASSESSEE IS DECIDED BY US IN FAVOUR OF ASSESSEE, THE GROUND RAISED BY REVENUE IS DISMISSED AND IN SUCH A SITUATION, WE ARE OF THE VIEW THAT THE ALTERNATE GR OUND OF THE ASSESSEE WITH REFERENCE TO NETTING OFF OF INTEREST INCOME AG AINST SHARE ISSUE EXPENSES HAS BEEN RENDERED ACADEMIC AND THEREFORE R EQUIRES NO ADJUDICATION AND THEREFORE THE SECOND GROUND OF ASS ESSEE IS DISMISSED. 6. THIRD GROUND IS WITH RESPECT TO DISALLOWANCE U /S 14A OF THE ACT. 6.1. AO ON PERUSING THE ACCOUNTS OF THE ASSESSEE NOTICED THAT ASSESSEE HAD MADE SUBSTANTIAL INVESTMENTS IN BONDS, MUTUAL F UNDS AND IN SHARES OF OTHER COMPANIES AND THE INCOME FROM THOSE INVESTMEN TS WAS PRIMA FACIE EXEMPT FROM TAX AND HENCE NOT INCLUDIBLE IN THE TAX ABLE INCOME OF THE ASSESSEE. AO ALSO NOTICED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES. AO WAS THEREFORE OF THE VIEW THAT PROVISIONS OF S.1 4A WERE ATTRACTED. HE ACCORDINGLY WORKED OUT THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES AND ADMINISTRATIVE EXPENSES AS PER THE FORMULA PRES CRIBED UNDER RULE 8D AND THE DISALLOWANCE U/S 14A WAS DETERMINED AT RS.4 ,19,65,021/-. ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 17 - AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO CONFIRMED THE ACTION OF AO BY HOLDING AS UNDER: 11. GROUND NO. 9 PERTAINS TO DISALLOWANCE OF R S. 4,19,65,021 MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. THE RELEVANT FACTS BRIEFLY STATED ARE THAT DURING THE YEAR UNDER CONSIDERATION THE COMPANY HAS EARNED THE DIVIDEND INCOME OF RS.33,01,981/- . THE LD. AO IN THE IMPUGNED ORDER A LLEGED THAT THE APPELLANT HAS UTILIZED BORROWED FUNDS AS WELL AS OWN FUNDS FO R THE PURPOSE OF MAKING INVESTMENTS AND EARNING TAX FREE INCOME. ACCORDINGL Y, HE DISALLOWED A PART OF INTEREST EXPENDITURE AND OTHER ADMINISTRATIVE EXPEN DITURE UNDER RULE 8D OF THE INCOME-TAX, RULES 1962, AS UNDER: AMOUNT IN CRORES (RS.) AMOUNT IN CRORES (RS.) EXPENSES DIRECTLY ATTRIBUTABLE TO EARNING EXEMPT INCOME NIL DISALLOWANCE U/S 14 A - FOR APPORTIONED INTEREST EXPENSE 113,85,93,014* (135.45) 3,51,92,521 (4382.25) 0.5% OF 135.45 CRORES BEING AVERAGE INVESTMENTS 67,72,500 TOTAL 4,19,65,021 12. THIS ISSUE HAS BEEN DISCUSSED BY THE ASSESS ING OFFICER AT PAGES - 14 TO 16 OF HIS ORDER. THE ASSESSEE FILED WRITTEN REPLY B EFORE THE ASSESSING OFFICER WHICH HAS BEEN REPRODUCED AT PAGES - 14 AND 15 OF THE ASSESSMENT ORDER. IN THIS REPLY IT WAS CLAIMED THAT THE ENTIRE INVESTMEN T IN THE MUTUAL FUND OR SHARES HAS COME FROM OUT OF INTEREST FREE FUNDS AND NOT OUT OF INTEREST BEARING BORROWED FUNDS. THE ASSESSING OFFICER EXAMINED THE CLAIM OF THE ASSESSEE ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 18 - AND RECORDED A FINDING AT PARA - 4.6 OF THE ASSESSM ENT ORDER TO THE EFFECT THAT THE ENTIRE INVESTMENT HAS NOT COME FROM INTEREST FR EE IPO FUNDS. HE, THEREFORE, APPLIED THE FORMULA OF RULE - 8D FOR CAL CULATING THE DISALLOWANCE UNDER SECTION 14A. AFTER GOING THROUGH THE RELEVANT PART OF THE ASSESSMENT ORDER, I AM IN AGREEMENT WITH THE ASSESSING OFFICER THAT SECTION 14A IS ATTRACTED. NO EVIDENCE OR ANY MATERIAL COULD BE PRO DUCED BEFORE ME BY THE APPELLANT COMPANY TO CONTROVERT THE FACTUAL FINDING OF THE ASSESSING OFFICER. THEREFORE, THE DISALLOWANCE MADE UNDER SECTION 14A IS CONFIRMED. 6.2. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE I S NOW IN APPEAL BEFORE US. 6.3. BEFORE US, LD AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND CIT(A) AND THEREFORE NO DISALLOWANCE U/S 14A IS CAL LED FOR. AS AN ALTERNATE CONTENTION, HE SUBMITTED THAT THE EXEMPT INCOME EARNED BY THE ASSESSEE IS ONLY RS.33,01,981/- AND AGAINST WHICH T HE DISALLOWANCE UNDER S. 14A OF THE ACT HAS BEEN WORKED BY THE AO A T RS 4.19 CRORE WHICH IS MUCH MORE THAN THE EXEMPT INCOME. IN SUPPO RT OF HIS CONTENTION OF EARNING THE EXEMPT INCOME OF ONLY RS.33.01 LACS, HE POINTED TO THE COMPUTATION OF INCOME WHICH IS PLACED AT PAGE 128 O F THE PAPER BOOK. HE THEREFORE SUBMITTED THAT SINCE THE DISALLOWANCE WORKED U/S.14A IS MORE THAN THE EXEMPT INCOME, THE DISALLOWANCE U/S.1 4A BE RESTRICTED TO THE EXEMPT INCOME EARNED BY THE ASSESSEE AND FOR TH IS PROPOSITION HE PLACED RELIANCE ON THE DECISION IN THE CASE OF JOIN T INVESTMENTS (P.) LTD. ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 19 - VS. CIT REPORTED AT [2015] 372 ITR 694 (DELHI). LD .CIT-DR SUPPORTED THE ORDER OF AO AND LD.CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DISALLOWANCE U/S.14A OF THE ACT. IN THE PRESENT CASE, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.33,01,981/- AND THE DISALLOWANC E U/S.14A R.W.S.RULE 8D HAS BEEN WORKED OUT AT RS.4,19,65,021 /- WHICH IS ABOUT 1270 TIMES THE EXEMPT INCOME AND THUS THE DISALLOW ANCE U/S.14A OF THE ACT WORKED OUT BY THE AO IS MUCH MORE THAN THE INCO ME LIABLE TO TAX. ON IDENTICAL ISSUE WHEREIN THE DISALLOWANCE U/S.14A WAS WORKED OUT MORE THAN THE EXEMPT INCOME, WE FIND THAT IN THE CA SE OF JOINT INVESTMENTS (P.) LTD. VS. CIT(SUPRA), THE HONBLE D ELHI HIGH COURT HAS OBSERVED AS UNDER:- 9. .THE THIRD, AND IN THE OPINION OF THIS COURT , IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREA S THE ENTIRE TAX EXEMPT INCOME IS RS. 48,90,000, THE DISALLOWANC E ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110 PER CENT OF THAT S UM, I.E., RS. 52,56,197/-. BY NO STRETCH OF IMAGINATION CAN S. 14 A OR R. 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATE D IN S. 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITUR E 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME'. THIS PROPORTION ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 20 - OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT S WALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 8. CONSIDERING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT IN VESTMENTS (P.) LTD. VS. CIT(SUPRA) AND IN THE ABSENCE OF ANY CONTRARY BINDI NG DECISION POINTED OUT BY REVENUE, WE ARE OF THE VIEW THAT THE DISALLO WANCE AS WORKED OUT BY THE AO IS NOT WARRANTED. WE THEREFORE DIRECT THA T THE DISALLOWANCE U/S.14A IN THE PRESENT CASE BE RESTRICTED TO RS.33, 01,981/-, BEING THE EXEMPT INCOME, EARNED BY THE ASSESSEE. THUS, THIS G ROUND OF ASSESSEE IS ALLOWED. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED, W HEREAS ASSESSEES CROSS OBJECTION IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON /08/2016 SD/- SD/- 01/09/2016 29 .08.2016 ( KUL BHARAT ) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED / 08 /2016 &.., .(../ T.C. NAIR, SR. PS ITA NO.1878/AHD/2011(BY REVENUE) AND CO NO.221/AHD/2011 (BY ASSESSEE) ACIT VS. MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD. ASST.YEAR 2008-09 - 21 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-VIII, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 29.6.17 (DICTATION-PAD 5+ P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15.7.16/19.7.16/26.8.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.7.9.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.9.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER