DCIT, CHENNAI V. M/s. ASCENDAS IT SEZ (Chennai) Pvt. Ltd., CHENNAI

ITA 2800/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8036 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 27-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Keywords: Deemed to accrue or arise in india
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 80IB; 143(1); 143(2)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I T.A. NO. 2800 /MDS/201 6 / ASSESSMENT YEAR :20 11 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, C ORPORATE CIRCLE 1(1) , CHENNAI 600 034. VS. M/S. ASCENDAS IT SEZ (CHENNAI) PVT. LTD., NO.9, 1 ST FLOOR, INTERNAT IONAL TECHPARK, TARAMANI ROAD, TARAMANI, CHENNAI 600 113. [PAN: A AFCA5329L ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SUPRIYO PAL , J CIT / RESPONDENT BY : SHRI LALITH KUMAR, C.A . / DATE OF HEARING : 28 . 1 2 .201 6 / DATE OF P RONOUNCEMENT : 20 . 0 1 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1 , CHENNAI DATED 04 . 0 7 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 11 - 12 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF PROVISION WRITTEN BACK FROM THE ELIGIBLE PROFIT CLAIMED AS DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. I.T.A. NO . 2800 /M/ 16 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 ADMITTING NIL INCOME AFTER CLAIMING DEDUCTION UNDER SECTIO N 80IB OF THE ACT. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT DATED 02.08.2012 WAS SERVED ON THE ASSESSEE. IN RESPONSE THERET O, THE ASSESSEE FILED ALL DETAILS AND AFTER CONSIDERING THE SUBMISSIONS AND DETAILED FILED BY THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 27.03.2014 BY ASSESSING TOTAL INCOME OF THE ASSESSEE T .1,34,08,346/ - AFTER MAKING DISALLOWANCES OF CERTAIN INCOME UNDER THE CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND RAISED VARIOUS GROUNDS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE GROUND OF INCLUSION OF THE PROVISION WRITTEN BACK FOR ARRIVING AT THE ELIGIBLE PROFITS FOR CLAIMI NG DEDUCTION UNDER SECTION 80IB OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE PROVISIONS WRITTEN BACK IS NOT A REAL INCOME BUT A DEEMED INCOME UNDER SECTION 41(1) OF THE ACT AND THEREFORE, THE LD. DR HAS PLEADED THAT THE PROVISION WRITTEN BACK CANNOT B E ALLOWED FOR COMPUTING THE ELIGIBLE PROFITS FOR CLAIMING DEDUCTION UNDER SECTION 80IB OF I.T.A. NO . 2800 /M/ 16 3 THE ACT. HE FURTHER CONTENDED THAT FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80IB OF THE ACT, THE INCOME NEEDS TO BE DERIVED FROM THE UNDERTAKING AND RELIED UPON THE DECISION IN THE CASE OF LIBERTY INDIA V. CIT 317 ITR 218 (SC), WHEREIN, IN THAT CASE, THE HON BLE SUPREME COURT HAS HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF DUTY DRAWBACK WAS NOT AN INCOME DERIVED FROM THE BUSINESS OF THE INDUS TRIAL UNDERTAKING SO AS TO CLAIM DEDUCTION UNDER SECTION 80IB OF THE ACT. THEREFORE, THE LD. DR HAS PLEADED FOR REVERSAL OF THE ORDER PASSED BY THE LD. CIT(A) ON THIS COUNT. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY SUPPORTED T HE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IB OF THE ACT FOR ITS INDUSTRIAL UNDERT AKING LOCATED AT SEZ AND INCLUDED PROVISION WRITTEN OFF OF .2,06,08,550/ - IN THE ELIGIBLE PROFITS FOR CLAIMING DEDUCTION UNDER SECTION 80IB OF THE ACT WHICH IS OTHERWISE DEEMED INCOME TAXABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION . FURTHER, T HE ASSESSING OFFICER HAS NOTED THAT IT WAS NOTHING BUT THE DEVELOPMENT EXPENSES WHICH THE ASSESSEE INCURRED IN EARLIER YEARS FOR WHICH EXPENSES WERE CLAIMED IN THE EARLIER ASSESSMENT YEARS, WHICH ARE ALSO NOW WRITTEN OFF AND THAT PROVISION WRITTEN OFF INCO ME IS NOT A REAL INCOME BUT A DEEMED INCOME AS PER THE PROVISIONS I.T.A. NO . 2800 /M/ 16 4 OF SECTION 41(1) OF THE ACT AND THEREFORE, THE SAID INCOME CANNOT BE ALLOWED TO BE THE PART OF THE ELIGIBLE PROFITS FOR CLAIMING DEDUCTION UNDER SECTION 80IB OF THE ACT. SINCE THE ASSESSEE H AS CLAIMED DEDUCTION UNDER SECTION 80IB OF THE ACT OF .1,34,08,346/ - , THE ASSESSING OFFICER HAS RESTRICTED T O THAT EXTENT AND AS A RESULT OF WHICH THERE WILL BE NO DEDUCTION UNDER SECTION 80IB OF THE ACT AVAILABLE FOR THE ASSESSEE. BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT THE PROVISION IN QUESTION WAS CREATED IN CONNECTION TO THE DEVELOPMENT OF BUILDING IN THE SEZ WHICH WAS THE MAIN BUSINESS OF THE COMPANY DURING THE FINANCIAL YEAR 2007 - 08. IT HAD CREDITED TO THE P & L ACCOUNT SUCH PROVISION CREATED SINCE IT WAS NO LONGER REQUIRED. THEREFORE, HE PRAYED BEFORE THE LD. CIT(A) THAT THE SAME SHOULD BE CONSIDERED AS AN INGREDIENT OF PROFIT AND GAINS DERIVED FROM THE BUSINESS UNDERTAKING IN VIEW OF THE CLOSE NEXUS WITH THE BUSINESS ACTIVITY OF THE A SSESSEE. IT WAS ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT HAD THE ASSESSEE CHARGED ONLY THE ACTUAL EXPENDITURE IN THE FINANCIAL YEAR 2007 - 08, THE PROFIT ELIGIBLE FOR DEDUCTION WOULD HAVE BEEN HIGHER THAN THE CURRENT NET PROFIT. THEREFORE, THE DEDUCTION UND ER SECTION 80IB OF THE ACT FOR THE FINANCIAL YEAR 2007 - 08 WAS LOWER TO THE EXTENT OF THE PROVISION DEBITED TO THE PROFIT AND LOSS ACCOUNT AND HENCE CORRESPONDING BENEFIT SHOULD BE ALLOWED DURING THE CURRENT FINANCIAL YEAR 2010 - 11 IN WHICH THE PROVISION WAS REVERSED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: I.T.A. NO . 2800 /M/ 16 5 10. I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE, THE REASONS BASED ON WHICH THE AO HAS PREFERRED THE DISALLOWANCE/ADDITION, THE ARGUMENTS ADVA NCED BY THE APPELLANT AND MATERIAL ON RECORD. THE APPELLANT IS INTO THE BUSINESS OF DEVELOPING SPECIAL ECONOMIC ZONES (SEZ) AND LEASING THEM TO INFORMATION TECHNOLOGY (IT) PARKS. I CONCUR WITH THE VIEW THAT THE PROVISION IN QUESTION CREATED WAS IN CONNECTI ON WITH THE DEVELOPMENT OF BUILDING IN THE SEZ WHICH IS THE MAIN BUSINESS OF THE COMPANY DURING THE FY 2007 - 08. IT HAD CREDITED TO THE P & L A/C SUCH PROVISION CREATED SINCE IT WAS NO LONGER REQUIRED. HENCE, IT SHOULD BE CONSIDERED AS AN INGREDIENT OF PROF IT AND GAINS DERIVED FROM THE BUSINESS UNDERTAKING IN VIEW OF THE INTIMATE NEXUS WITH THE BUSINESS ACTIVITY OF THE APPELLANT. 11. IN MY CONSIDERED VIEW THE PLEA OF THE APPELLANT SUMMED UP ABOVE NEEDS TO BE UPHELD. THE AO IS DIRECTED TO MODIFY THE ORDER ACCORDINGLY. THIS GROUND OF APPEAL IS ALLOWED . 6.1 FIRST WE SHALL CONSIDER THE SUBMISSION WITH REGARD TO APPLICATION OF DECISION AS RELIED UPON THE DEPARTMENT IN THE CASE OF M/S. LIBERTY INDIA V. CIT 317 ITR 218(SC), WHEREIN , THE HON BLE SUPREME COURT H AS HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF DUTY DRAW BACK WAS NOT AN INCOME DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING SO AS TO ENTITLE THE ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 80IB OF THE ACT. IN THIS CASE, THE ASSESS EE HAS NOT CLAIMED ANY DUTY DRAW BACK PAID BY THE GOVERNMENT UNDER VARIOUS INCENTIVE SCHEMES AND THUS, IT CANNOT BE SAID THAT THE PROVISION OF WRITTEN B ACK , AS CLAIMED BY THE ASSESSEE, ARE NOT DERIVED FROM ELIGIBLE BUSINESS SO AS TO ATTRACT THE CASE LAW RE LIED ON BY THE LD. DR . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE INCOME FROM THE PROVISION OF WRITTEN OFF WAS NOTHING BUT THE DEVELOPMENTAL EXPENSES WHICH THE ASSESSEE INCURRED EARLIER YEARS AND FOR WHICH EXPENSES I.T.A. NO . 2800 /M/ 16 6 WERE CLAIMED IN THE EARLIER ASSESSMENT YEARS . IT WAS NOT DISPUTED THAT THE MAIN BUSINESS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS DE VELOPING SEZ AND LEASING THEM TO IT PARKS. BUT, IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING TOWARDS SOURCE OF INCOME TO PARTAKE THE CHARACTER OF BUSINESS OR NON - BUSINESS. MOREOVER, IN THE APPELLATE ORDER ALSO, THE LD. CIT(A) HAS N OT VERIFIED THE SOURCE OF INCOME AND THE ORDERS OF AUTHORITIES BELOW ARE VERY CRYPTIC. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSESSEE HAS EARNED THE INCOME BY MEANS OF ANY INCENTIVE FROM THE GOVERNMENT OR SHOWN AS EXPENDI TURE IN ACCOUNTS OF THE ASSESSEE AGAINST WHICH THE ASSESSEE HAS WRITTEN BACK THE INCOME AFTER ALLOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRON OUNCED ON THE 20 TH JANUARY, 2017 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 20 . 0 1 .201 7 VM/ - I.T.A. NO . 2800 /M/ 16 7 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.