Disallowance under section 14A- whether interest expenses to be taken as net or gross amount ?

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Disallowance under section 14A- whether interest expenses to be taken as net or gross amount ?

Disallowance under section 14A- whether interest expenses to be taken as net or gross amount ?

Short Overview:

Interest expenses net of interest income would be considered for working of disallowance under section 14A read with rule 8D.

Assessee-company was engaged in the business of leasing and operation and maintenance of commercial properties under special economic zones. AO computed the income of the assessee under section 115JB and made disallowance under section 14A read with rule 8D. Assessee submitted that the interest expenses net of interest income might be considered for working of disallowance.

It is held that, For the purpose of applying factors contended in clause (ii) of sub-rule (2) of rule 8D, prior to its amendment with effect from 2-6-2016, amount of expenditure by way of interest would be the interest paid by the assessee on borrowings minus taxable interest earned during the financial year.

Decision: In assessee’s favour.

Referred: Pr. CIT v. Nirma Credit and Capital (P) Ltd. 2017 TaxPub(DT) 4021 (Guj-HC),ITO v. Karnavati Petrochmem (P) Ltd., ITA No. 2228/Ahd./2012 : 2013 TaxPub(DT) 2366 (Ahd-Trib),Morgan Stanley India Securities v. Asstt. CIT, ITA Nos. 5072/Mum/2005 & 6774/Mum./2008.

IN THE ITAT, DELHI BENCH

G.D. AGRAWAL, PRESIDENT & K.NARASIMHA CHARY, J.M.

Dy. CIT v. DLF Assets (P) Ltd.

ITA No. 167/Del/2016

24 September, 2018

Revenue by: Shefali Swaroop, CIT (DR)

Assessee by: Satyajeet Goyal, CA

ORDER

K. Narasimha Chary, J.M.

This is an appeal filed by the assessee against the order dated 20-10-2015 passed by the learned Commissioner (Appeals)-3, Delhi (Ld. CIT(A)) for assessment year 2011-12.

2. Brief stated facts are that the assessee is a company engaged in the business of leasing of commercial properties under special economic zones and operation and maintenance of commercial properties under Special Economic Zones. The assessee was also Co-developers in the said projects, namely DLF Cyber City Developers Limited, DLF Infocity Developers (Chennai) Ltd., DLF Commercial Developers Ltd., DLF Ltd. They also derived income from leasing and maintenance of these SEZs and has obtained from the Ministry of Commerce & Industry to work as co-developer for running and maintenance of the SEZ projects. For the assessment year 2011-12 they have filed return of income on 30-9-2011 at a loss of Rs. 373,72,42,238 and revised the same on 30-3-2013 under which the loss remained unchanged but the credit of prepaid taxes was increased from Rs. 26,76,26,540 to Rs. 26,89,83,389.

3. Learned assessing officer (Ld. AO) computed the income of the assessee under section 115 JB of the Income Tax Act, 1961 (for short referred to as ‘the Act’) at Rs. 53,94,41,180 while making addition of Rs. 7,90,00,000 by making disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (for short ‘the Rules’) and SEZ income of Rs. 46,04,41,180 and also adding a another some Rs. 7,90,00,000 by invoking section 14 A of the Act read with rule 8D of the Rules. When the assessee challenged these additions in appeal, learned Commissioner (Appeals) by way of impugned order, deleted the additions made by the learned assessing officer. Hence, the revenue is in appeal before us stating that the learned Commissioner (Appeals) committed error in deleting the additions made by the assessing officer under different heads.

4. On the aspect of disallowance made by the learned assessing officer by invoking the provisions under section 14A of the Act read with rule 8D(2)(ii) of the Rules, it is the submission of the learned AR that the interest expenses net of interest income may be considered for working of disallowance. Learned DR relied upon the assessment order.

5. The decision of Hon’ble High Court in PCIT v. Nirma Credit & Capital (P) Ltd. is brought to our notice and it is so held in the said decision that for the purpose of applying factors contended in clause (ii) of sub-rule (2) of rule 8D, prior to its amendment with effect from 2-6-2016, amount of expenditure by way of interest would be the interest paid by the assessee on borrowings minus taxable interest earned during the financial year. As a matter of fact learned Commissioner (Appeals) also placed on reliance on the decisions of the ITAT reported in the case of Income Tax Officer, Ahmedabad v. Karnavati Petrochem Pvt. Ltd. (ITA No. 2228/Ahd./2012, assessment year 2008-09) : 2013 TaxPub(DT) 2366 (Ahd-Trib), and of Mumbai Tribunal in case of Morgan Stanley India Securities Pvt. Ltd. v. ACIT, ITA Nos. 5072/Mum/2005 & 6774/Mum./2008 (Assessment Years 200-02 & 2004-05) and also the decision of his predecessor in assessee’s own case for assessment years 2008- 09 and 2009-10.

6. No circumstances are brought to our notice to say as to why the decisions of the Tribunal stated above and also the decision of Hon’ble Gujarat High Court shall not be made applicable facts of the present case. We are convinced with the reasoning adopted by the learned Commissioner (Appeals) in paragraph 7.3 and 7.4 of his order. Consequently we do not find any illegality or regularity in such finding, and therefore, while upholding the same dismiss this ground No. 1 of this appeal.

7. On Ground No. 2 of the appeal, it is the argument of the learned DR that while calculating the income under section 115JB of the Act, the assessee had debited income from SEZ which is to the tune of Rs. 46,04,41,180 besides not claiming deduction under section 80-IAB of the Income Tax Act, 1961 and thereby reduced the book profit from Rs. 47,00,02,273 to nil. Learned assessing officer further recorded that only with a view to postpone the benefits to be subsequent years the assessee has not chosen to claim deduction under section 80-IAB in the year, the assessee offered the income from SEZ is taxable income as such the assessee cannot reduce the deduction from the book profit and those the postponement of benefit under section 80-IB while claiming simultaneously deduction under section 115JB Act.

8. On this aspect the learned AR submitted that it is permissible under law for the assessee to claim deduction under sub-section 1 of section 80-IAB of the Act for any 10 consecutive assessment years out of 15 years beginning from the year in which a special economic zone has been notified by the Central Government and it is not open for the learned assessing officer to draw an inference that the assessee has to choose either the postponement of the benefits under section 80-IAB of the Act or the deduction under section 115JB of the Act.

9. Further, it is brought to our notice that in assessee’s own case for the earlier assessment years, when the learned Commissioner (Appeals) deleted the addition made on this ground, the revenue preferred an appeal in ITA No. 4433/Del/2013 in respect of assessment year 2010-11and this Tribunal while noticing its own order dated 24-1-2014 in ITA No. 126/Del/2013 for the assessment years 2008-09 and 2009-10 vide order dated 24-1-2014 and also the orders of the learned Commissioner (Appeals) found that the view taken by the learned Commissioner (Appeals) was accepted by the Tribunal in those ITAs as such consistent with such view, this tribunal upheld the orders of the first appellate authority in respect of orders 2010-11 to dismiss the appeal.

10. We have gone through the record on this aspect. On a careful reading of the record including the orders of the Tribunal with their observations referring to the orders of the First Appellate Authority, we are of the considered opinion that the facts of the present case identical to the facts involved for the earlier years covered by the above orders, and in as much as there is no change of circumstances, there would be no justification to take a different view, hence, consistent with such view taken for a fairly long period by the Tribunal we hold that this ground of appeal of the revenue is devoid of any merits and is liable to be dismissed.

11. Now, coming to ground No. 3, it relates to the addition made by the learned assessing officer under section 14 A of the Act while computing book of profit under section 115JB of the Act. On this aspect also learned Commissioner (Appeals) placed reliance on the observations of his predecessor in assessee’s own case relating to the assessment year 2009-10 and also the order of the Tribunal in ITA No. 126/Del/2013 and ITA No. 4761/Del/2012 to reach a conclusion that such an addition cannot be sustained.

12. Further, a Special Bench of this Tribunal in ACIT v. Vireet Investment (P) Ltd. (2017) 82 taxman.com 415 (Delhi-Trib.) (SB) : 2017 TaxPub(DT) 1760 (Del-Trib) held that computation under clause (f) of explanation 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated under section 14A of the Act read with rule 8D of the Rules.

13. We, therefore, while respectfully following the Special Bench decision, do not find it necessary to interfere with the findings of the learned Commissioner (Appeals) recorded in paragraph 8 to 8.5 of his order. We consecutively find that ground No. 3 of the appeal is also liable to be dismissed. We do so.

14. In the result, the appeal filed by the revenue is dismissed.

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