M/S. ELECTRONICS CORPORATION OF TAMILNADU LTD., CHENNAI V. ACIT, CC - 2 (1), CHENNAI

ITA 828/CHNY/2020

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The case involves M/s. Electronics Corporation of Tamilnadu Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals)-6, Chennai, concerning the disallowance of deductions under section 80IAB and the application of section 14A read with Rule 8D of the Income Tax Rules, 1962, across three assessment years. The primary contention was the eligibility to claim deductions under section 80IAB despite the absence of business income, and the appropriateness of the disallowance of expenses related to exempt income under section 14A. The Tribunal found that the assessee's income comprised solely of interest income and did not include any business profits, thus not qualifying for the deduction under section 80IAB. However, it agreed that the disallowance under section 14A should not be added back while computing book profits under section 115JB.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134024 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 19-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 08-10-2020
• Other Referred Cases: ACIT vs. Vireet Investment (P.) Ltd. (82 Taxmann.com 415)
• Laws Referred To: Income Tax Act, Income Tax Rules, 1962, Special Economic Zones Act, 2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Rule 8D
• Section: 143(3); 14A; 115JB; 153

Judgement Text

आयकर अपीलीय अिधकरण ‘सी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा01 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम1। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.828/Chny/2020 (िनधाBरण वषB / Assessment Year: 2014-15) & आयकर अपील सं./ ITA No.829/Chny/2020 ( िनधाBरण वषB / Assessment Year: 2015-16) & आयकर अपील सं./ ITA No.840/Chny/2020 (िनधाBरण वषB / Assessment Year: 2016-17) M/s. Electronics Corporation of Tamilnadu Ltd. 692, MHU Complex, Anna Salai, Nandanam, Chennai-600 035. बनाम / V s. ACIT Corporate Circle-2(1), Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAAC E -1 6 7 0 -K (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Appellant by : Shri N. Arjun Raj (CA.)- Ld. AR थ कीओरसे/Respondent by : Shri P.Sajit Kumar, (JCIT)-Ld. DR सुनवाईकीतारीख/ Date of Hearing : 20-12-2022 घोषणाकीतारीख / Date of Pronouncement : 04-01-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): 1. The sole substantive issue that fall for our consideration in captioned appeals for Assessment Year (AYs) 2014-15, 2015-16 & 2 ITA Nos.828, 829 & 840/Chny/2020 2016-17 is assessee’s eligibility to claim deduction u/s 80IAB. The assessee also contest disallowance u/s 14A. Facts as well as issues are pari-materia the same in all the years and it is admitted position that adjudication in any one year shall apply to other appeals also. 2. The registry has noted delay of 153 days in appeals for AYs 2014- 15 & 2015-16 and delay of 170 days in appeal for AY 2016-17. Considering the fact that time available to prefer the appeal fall within lockdown situation arising out of Covid-19 Pandemic, the delay is condoned and the appeals are admitted for adjudication on merits. 3. The appeal for AY 2014-15 arises out of common order dated 03.03.2020 passed by learned Commissioner of Income Tax (Appeals)- 6, Chennai [CIT(A)] in the matter of separate assessments framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act. The ground raised in AY 2014-15 read as under: - 1. The common order of the Commissioner of Income Tax (Appeals) - 6, Chennai dated 03.03.2020 in I.T.A.Nos. 521/16-17, 233/17-18 & 113/CIT(A)- 6/18-19 in so far as the issues raised in the present appear for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in sustaining the disallowance of expenses notionally estimated under Rule 8D of the Income Tax Rules, 1962 on the application of section 14A of the Act in the computation of taxable total income and further erred in not considering the addition made in terms of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 in the MAT computation u/s 115JB of the Act without assigning proper reasons and justification. 3. The CIT (Appeals) failed to appreciate that the provisions of section 14A of the Act had no application to the facts of the case and ought to have appreciated that in the absence of requisite satisfaction on the incurring of expenses for earning tax free income, the sustenance of the disallowance of expenses notionally estimated was wrong, erroneous, unjustified, incorrect, invalid and not sustainable both on facts and in law. 4. The CIT (Appeals) failed to appreciate that in any event the estimation of notional expenses as per Rule 8D of the lncome Tax Rules, 1962 on various facts was wrong, erroneous, unjustified, incorrect, invalid and not sustainable both on facts and in law. 3 ITA Nos.828, 829 & 840/Chny/2020 5. The CIT (Appeals) [ailed to appreciate that there was no application of mind in so far as the various limbs of the quantification mechanism prescribed in Rule 8D of the Income Tax Rules, 1962 and ought to have appreciated that the financial performance of the tax free portfolio was completely ignored while applying the formula prescribed in the said rule especially limb (ii) and limb (iii) mechanically which according to the appellant would defy the consistent view judicially taken in various other matters. 6. The CIT (Appeals) erred in sustaining the disallowance of the claim of deduction u/s 80 IAB of the Act and consequently erred in sustaining the addition made in the computation of taxable total income without assigning proper reasons and justification. 7. The CIT (Appeals) failed to appreciate that the quantification of the eligible profits for claiming deduction u/s 80 lAB of the Act was wrongly rejected and ought to have appreciated that there was complete adherence to the statutory prescription for the eligibility to make the claim for deduction as well in the matter of computing such deduction for the purpose of arriving at the taxable total income. 8. The CIT(Appeals) failed to appreciate that the assessment of certain components of income under other heads would not take away the right of the appellant to include such income as part of the eligible profits quantified as per section 80 lAB of the Act and ought to have appreciated that the head of income was only for the limited purpose of computation as per the statutory prescription while further ought to have appreciated that there was no prescription in law for exclusion of such income having direct and proximate nexus with the eligible undertaking, thereby vitiating the related finding. 9. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing the impugned order and any order passed in violation of the principles of natural justice is nullity in law.” Having heard rival submissions and after perusal of case records, our adjudication would be as under. Assessment Proceedings 4.1 The assessee is an entity owned by Government of Tamil Nadu and stated to be engaged in procurement of IT and ITES products for state government. In the computation of income, the assessee reflected profit as per profit & loss account for Rs.1663.91 Lacs and after making admissible adjustments under Income Tax Act, it arrived at loss of Rs.1650.59 Lacs. The assessee also earned interest income for Rs.2974.72 Lacs which was offered as ‘income from other sources’. The gross total income was thus arrived at Rs.1324.12 Lacs after adjusting 4 ITA Nos.828, 829 & 840/Chny/2020 the aforesaid business loss from interest income. Thus, the gross total income solely comprise-off net interest income after inter-head adjustments. Against this Gross Total Income, the assessee claimed deduction u/s 80IAB for Rs.231.27 Lacs and taxable income was thus reduced to Rs.1092.84 Lacs. 4.2 The Ld. AO, considering the applicable statutory provisions, held that deduction could be allowed only when there is income / profit from business and not ‘income from other sources’. To avail the benefit of Sec.80IAB, there should be ‘business income’. Since the assessee did not have any business income as part of gross total income, the deduction so claimed by the assessee was denied. 4.3 The assessee earned exempt dividend income of Rs.74.56 Lacs and submitted that no expenditure was incurred to earn the exempt income. However, rejecting the same, Ld. AO computed indirect expenses disallowance u/s 14A r.w.r. 8D(2)(iii) for Rs.17.17 Lacs, computed @0.5% of average investments held by the assessee. Appellate Proceedings 5. The Ld. CIT(A) confirmed the denial of deduction u/s 80IAB on the ground that the assessee incurred losses in all the years and gross total income merely consist of interest income which was assessable as ‘income from other sources’. The disallowance u/s 14A was also confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 6. After going through assessee’s computation of income as placed on record, the undisputed fact that emerges is that the assessee has incurred business losses during the year which has been set-off by way of inter-head adjustment from ‘income from other sources’ which solely 5 ITA Nos.828, 829 & 840/Chny/2020 comprise-off of interest income. The, gross total income, thus solely consist of interest income only and do not have any element of business income / profits. In such a case, no further deduction would be available to the assessee in view of clear statutory mandate of Sec.80IAB which provide that: - 80-IAB. (1) Where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years: It is amply clear that to claim this deduction, gross total income must include any profits and gains derived from specific activity which is not the case here. The inclusion of business profits and gains is sine qua non to claim this deduction. In the absence thereof, no such deduction could be allowed to the assessee. Accordingly, the impugned order could not be faulted with. The Ld. AR has cited many judicial decisions to support the argument, however, upon study, none is found to be applicable to the facts of the present case and the same do not render any assistance to the case of the assessee. The corresponding grounds thus raised stand dismissed. 7. So far as the disallowance u/s 14A is concerned, it could be seen that the assessee has earned exempt income but did not attribute any disallowance against the same. Not satisfied with assessee’s explanation, Ld. AO computed the disallowance as per statutory mandate by applying Rule 8D. Therefore, no fault could be found in the same. However, this disallowance could not be added back while 6 ITA Nos.828, 829 & 840/Chny/2020 computing book profits u/s 115JB as per the decision of Special Bench of ITAT in ACIT vs. Vireet Investment (P.) Ltd. (82 Taxmann.com 415). We order so. The grounds of the assessee stand disposed-off accordingly. The appeal stands partly allowed. 8. In AY 2015-16, the assessee is aggrieved by denial of deduction u/s 80IAB and adjustment of disallowance u/s 14A while computing book profits. Facts being pari-materia the same, our adjudication as above shall mutatis mutandis apply to this appeal also. The appeal stands partly allowed. 9. In AY 2016-17, the sole grievance of the assessee is disallowance u/s 14A which is similarly disposed-off. The appeal stands partly allowed. 10. All the appeals stand partly allowed in terms of our above order. Order pronounced on 04 th January, 2023. Sd/- (MAHAVIR SINGH) उपा01 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखासद9 /ACCOUNTANT MEMBER चे+ई/ Chennai; िदनांक/ Dated : 04-01-2023 DS आदेशकीVितिलिपअ6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant2. थ /Respondent 3. आयकरआयु4 (अपील)/CIT(A)4. आयकरआयु4/CIT 5. िवभागीय ितिनिध/DR6. गाड9 फाईल/GF