Income Tax Appellate Tribunal - Hyderabad
L & T Infocity Limited, Hyderabad vs Assessee on 4 September, 2015
ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'B' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No.1627/Hyd/2014
(Assessment year: 2011-12)
L&T Infocity Limited Vs. Dy. Commissioner of Income
Hyderabad Tax, Circle 16(1)
PAN: AAACL 5895 R Hyderabad
(Appellant) (Respondent)
ITA No.1591/Hyd/2014
(Assessment year: 2011-12)
Dy. Commissioner of Income Vs. L&T Infocity Limited
Tax, Circle 16(1) Hyderabad
Hyderabad PAN: AAACL 5895 R
(Appellant) (Respondent)
For Assessee : Shri Ravi Bhardwaj &
Shri Aditya Bajoria
For Revenue : Shri S.V.S.S. Prasad, CIT (DR)
Date of Hearing : 19.08.2015
Date of Pronouncement : 04.09.2015
ORDER
Per Smt.P. Madhavi Devi, J.M.
Both are cross appeals for A.Y 2011-12 against the order of the CIT (A)-V, Hyderabad dated 14.07.2014.
2. Brief facts of the case are that the assessee company, engaged in the business of development, maintenance and consultancy in respect of infrastructure facilities for information technology and related activities, furnished its return of income for A.Y 2011-12 on 29.09.2011 admitting total income of Rs.152,09,93,529. The return was initially processed u/s 143(1) Page 1 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad of the Act. Subsequetly the case was taken up for scrutiny by issuance of notice u/s 143(2) of the I.T. Act on 1.8.2012. Thereafter notice u/s 142(1) of the Act dated 6.8.2013 was also issued to the assessee alongwith the questionaire calling for various information. Assessee appeared and filed the required documents. On perusal of the said documents, the AO observed that the assessee has claimed deduction u/s 80IA of the Act on the income received during the previous year from the projects Phase-II and Phase-III. It was observed that the deduction u/s 80IA of the Act in respect of Phase-II has been allowed based on the CBDT notification dated 13.02.2004 and in Phase-III, assessee has constructed Built to Suit ('BTS') projects for the following 5 Units:
i) HSBC EDP India Pvt Ltd (2,36,776 sft) ii) Motorola India Pvt Ltd (1,52,917 sft)
iii) Deloitte Consulting India Pvt Ltd (1,28,200 sft)
iv) Deloitte Touche Audit Services India Pvt Ltd (47,680 sft)
v) Deloitte Support Services India Pvt. Ltd (10,070 sft)
3) AO observed that as per the Industrial Park Scheme, the project (Phase-III) shall have a minimum of 30 Units and no single unit shall occupy more than 50% of the allocable industrial area/park. He observed that in assessee's case, there are only 5 units in total and further that the said units occupy all the three towers of the project. He observed that while HSBC & Motorola occuppied one tower each, the third tower is occuppied by the 3 Deloittee group of companies. Therefore, he was of the opinion that the assessee has not fulfilled the conditions of the Industrial Park Scheme. He accordingly disallowed the claim of deduction u/s 80IA of the Act and the entire income of Rs.23,05,93,536 was added to the returned income of the assessee. Further, he also observed that the Page 2 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad assessee has earned dividend income to the tune of Rs.7,10,16,692 from mutual fund and Rs.37,44,000 from subsidiary companies during the previous year. He observed that the assessee has claimed these receipts as exempt from tax u/s 10(35) and 10(34) of the Act respectively. He observed that the assessee has not disallowed any expenditure u/s 14A of the Act, even though such exempt income does not form part of the total income. He therefore, applied the provisions of section 2 of section 14A of the Act read with Rule 8D of the I.T Rules and disallowed an amount of Rs.14,79,388 and brought it to tax.
4. Aggrieved, assessee preferred an appeal before the CIT (A), who confirmed the disallowance of the claim of deduction u/s 80IA of the Act, but granted relief as regards the disallowance of u/s 14A is concerned. Aggrieved by the confirmation of the disallowance by the CIT (A), assessee is in appeal before us, while on deletion of the disallowance made by the AO u/s 14A of the Act Revenue is in appeal before us.
ITA No.1627/Hyd/2014 (Assessee's Appeal):5. The Ld DR relied upon the orders of the authorities below. At the time of hearing, the learned Counsel for the assessee drew our attention to the fact that the CIT (A) had relied upon his own order for the A.Y 2009-10 to deny claim, but the Tribunal in assessee's own case for A.Y 2009-10 has deleted the disallowance under section 80IA of the Act. Copy of the said order is filed before us.
Page 3 of 12ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad
6. Having regard to the rival contentions and the material on record, we find that the CIT (A) has considered his own orders for the earlier A.Y to confirm the disallowance of the claim of deduction u/s 80IA of the Act. Therefore, the decision of the Tribunal for A.Y 2009-10 would be very much applicable to the year under consideration before us. A copy of the order of the Tribunal for A.Y 2009-10 (ITA Nos.1515/Hyd/2011 & Others) is filed before us. On going through the same, we find that the Tribunal has considered the issue at length to delete the disallowance u/s 80IA of the Act and allowed the claim of the assessee. The Tribunal has considered this issue at Paras 8 and 9 of its order which is reproduced hereunder for ready reference.
"8. Ground No.4 pertains to disallowance of deduction u/s.80IA of the Act in respect of the profits earned from eligible and notified BTS Project.
This issue arises as the Assessing Officer disallowed claim u/s.80IA on the infrastructure project of the assessee. Facts of the case are that Assessee-Company has been granted deduction U/s 80IA in the earlier asst year for Phase-I and Phase-II of its infrastructure projects based on the CBDT notification dated 13.02.2004. In phase-III, the assessee has constructed three towers with infrastructure facilities which have been let out to five companies viz, HSBC EDP India Pvt Ltd (2,36,776 sft), Motorola India Pvt Ltd (1,52,917 sft), Deloittee Consulting India Pvt Ltd(1,28,200 sft), Deloitte Touche Audit Services India Pvt Ltd (47,680 sft) and Deloitte Support Services India Pvt. Ltd., (10,070sft). The phase-III has been completed in the previous year relevant to the asst. year 2007-08. In phase-Ill, three towers have been developed as three separate, built to suit (BTS projects) infrastructure projects. HSBC occupies one tower fully. Motorola India occupies one tower of project fully. The third one is occupied by the three Deloitte Group of companies. AO was of the opinion that CBDT has issued notification No.246/2007 in F.No.178/79/2007 -ITA-I dated 28.09.2007 for the Industrial Park consisting of the above said three towers and the notification appears to have been obtained on an 'automatic approval' route. AO was of further opinion that as per the scheme of 'automatic approval' (vide SO354 (E) dated 01.04.2002), each industrial park shall have minimum 30 no. of units and no single unit shall occupy more than 50% of the allocable industrial area / park. As company has developed three Page 4 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad separate towers and leased out to three separate undertakings viz, HSBC, Motorola and Deloitte and as each has been developed as a separate undertaking, the notification should have been obtained separately for the three undertakings. AO considered the condition that there should be a minimum of 30 units has not been fulfilled by the company. Further condition that each unit shall not occupy more than 50% of the allocable area has also not been fulfilled. Therefore, AO held that the profits of the BTS projects are not eligible for deduction u/s 80IA. Accordingly, income from the BTS projects amounting to Rs.58,57,542/- was treated as taxable.
8.1 Assessee contended before the Ld.CIT(A) that 'allocable area' referred to in the above Notification pertains to the allocable area of total industrial park and not building-wise or tower wise allocable area. For processing and approving an application for development of Industrial park as envisaged u/s 80IA, the assessee has complied with the conditions as stipulated and got the approval from the Ministry of Commerce. The approval by Central Government (a) refers to only development of industrial park and (b) Para 4 of the notification stipulates a condition that not more than 50% of the allocable area of the industrial park shall be allotted to one unit. Therefore, as per the terms of the approval of the Central Government the company shall not as a whole allot more than 50% of the allocable area of the industrial park, that is more than 2,87,731,50 sq feet (50% of 5,75,643 square feet) to one single unit. As can be seen from the details, no single unit has been allotted more than 2,87,731.50 square feet. Therefore, it was submitted that the total allocable area of the industrial park developed by the company shall be considered for the purpose of verifying the compliance to the condition whether one single unit has been allotted more than 50% of the allocable area and not tower wise occupancy in the light of the intent of the notification itself and not otherwise. Further, the Government machinery supervising the development of the industrial park has also never disputed the allocation made by the Company, which clearly supports the claim made by the company. Further it was submitted that assessee has applied under Non-automatic route and its application was processed and approved by Ministry, therefore AO wrongly considered the same as under Automatic route.
2 The Ld.CIT(A), however, without examining any of the issue rejected the contention of assessee by briefly stating as under:
8.2 Without going into other details, I find that the fundamental conditions that there should be a minimum of 30 units has not been fulfilled by the appellant. The second condition that each unit shall not occupy more than 50% of the allocable area was also not been fulfilled by the appellant. The Assessing Officer has clearly written these facts in his order quoted above. Since the appellant has not fulfilled the essential requirement, I confirm the denial of deduction under section 80IA.Page 5 of 12
ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad 8.3 It was the contention of the Ld.Counsel that there are two methods of getting approval from Ministry of Commerce and Industry. Automatic route where the stipulation of 30 units is prescribed and Non-automatic route where such stipulation was not there. High Power Committee in which CBDT Chairman is also a Member, examined the issue and granted approval to the assessee. Referring to the scheme and letter of allotment vide order dt.11-04-2007 by the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, Infrastructure Development Desk, it was submitted that Govt. of India has conveyed its approval for claiming Income tax benefit under the Industrial Park Scheme, 2002. Ld.Counsel referred to the scheme and specifically to para 6 where proposed number of industrial units are specified as five units. It was submitted that both the Assessing Officer and CIT(A) considered it as an 'automatic approval route' wherein under that scheme, there should be minimum of thirty units as specified in para 6 of the scheme. However, such condition does not apply for the non- automatic route under para 7 of the scheme wherein Empowered Committee examines the application on a case to case basis and grants approval. Since the approval was not withdrawn, Assessing Officer is bound to grant deduction u/s.80IA, when Chairman of CBDT is a Member of the Empowered Committee which granted approval.
Ld.Counsel placed on record the copy of application filed before the Department of Industrial Policy, approval received from Central Government dt.11-04-2007, notification by CBDT dt.28- 09-2007 and the Industrial Policy Scheme 2002 to explain the facts pertained to assessee and how the Assessing Officer and CIT(A) wrongly considered them. Moreover, it is also submitted that deduction in earlier years was granted on similar issue on Phase-1 and Phase-2 of the project.
8.4 Ld.DR, however, submitted that assessee has not satisfied the conditions as prescribed under the Industrial Park Scheme.
9. We have considered the issue and examined the documents placed on record. As far as fact of the approval is concerned, assessee has made an application under non-automatic route as provided under Industrial Park Scheme 2002. The Automatic Approval Scheme as contended by the Assessing Officer and CIT(A) has these conditions:
"5. Automatic approval - (1) An undertaking shall make an application in the Form-IPS-1 along with an affidavit certifying the details given in such application for obtaining approval for setting up an industrial park.
(2) An application under sub-paragraph (1) shall be made to the Entrepreneurial Assistance Unit of the Secretariat for Industrial Assistance, Department of Industrial Policy and Promotion in Page 6 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad the Ministry of Commerce & Industry, Udyhog Bhawan, New Delhi- 110011.
(3) The Secretariat for Industrial Assistance referred to in sub-
paragraph (2) shall, upon receipt of application, give acknowledgement for receipt of such applications along with, registration number allotted by such Secretariat.
(4) Every application under sub-paragraph (1) shall be accompanied by a fee of six thousand rupees payable by a demand draft drawn in favour of Pay and Accounts Officer, Department of Industrial Development payable at State Bank of India, Nirman Bhawan Branch, New Delhi-110011.
(5) All applications made under sub-paragraph (1) and eligible for Automatic approval in accordance with paragraph 6 shall be disposed of within fifteen days of making such application and the decision for such approval shall be communicated to the applicant immediately on disposal of such application.
6. Criteria for automatic approval - An undertaking which seeks approval under paragraph 5, shall fulfil the following conditions, namely:-
(a) The minimum area required to be developed for an Industrial Model Town shall be 1000 acres:
Provided that minimum area for specified industrial park referred to in clause (b) and (c) of paragraph 4 may vary depending upon their activities;
(b) The project referred to in clauses (a), (b) and (c) of paragraph 4 shall have provision for the location of minimum number of industrial units as follows:-
Type of Industrial Park Minimum No. of Units to be provided in the Industrial Model Town/Industrial Park/ Growth Centre
i) Industrial Model Town 50 Units referred to in clause
(a) of Para 4
ii) Industrial Park referred 30 Units to in clause (b) of Para 4
iii) Growth centre referred to 30 Units in clause (c) of Para 4
(c) The minimum percentage of the area to be allocated for industrial use shall not be less than sixty six percent of the total allocable area.Page 7 of 12
ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad Explanation: For the purpose of this clause, the Industrial use shall include any activity defined in the National Industrial Classification 1987 Code issued by Central Statistical Organisation, Department of Statistics, Ministry of Planning and Programme Implementation, except the following:
Section 0 Section 8 excluding Group 892, 893, 894, 895 Section 1 Section 9 Section 5 Section X Section 7 Section XI Excluding Division 75
(d) The percentage of land to be earmarked for commercial use shall not be more than ten per cent of the allocable area;
(e) In case of an Industrial Model Town, Industrial Park and Growth Centre, the minimum investment on infrastructure development shall not be less than 50% of the total project cost. In the case of an Industrial Park and Growth Centre which provides built up space for industrial use, the minimum expenditure on infrastructure development including cost of construction of industrial space, shall not be less than 60% of the total project cost;
(f) No single unit referred to in column (2) of the Table given in the sub-paragraph (b) of paragraph 6 shall occupy more than fifty per cent of the allocable industrial area of an industrial model town or industrial park or Growth Centre;
(g) Every undertaking being an industrial park shall obtain approval for Foreign Direct Investment or nonresident Indian investment from the Foreign Investment Promotion Board or Reserve Bank of India, or any authority specified under any law for the time being in force, as the case may be.
However, assessee's application is not under Automatic Approval Scheme whereas the same was under Non-automatic Approval Scheme under para 7. Para 7 is as under:
7. Non Automatic Approval: (1) All applications not eligible for Automatic approval under paragraph 6 shall require the approval of Empowered Committee, constitute by the Central Government and all such applications shall be placed before the Empowered Committee within fifteen days of receipt of applications.
(2) The Empowered Committee shall consist of the following, namely:-
(a) Secretary, Department of Industrial Policy and Promotion, Government of India Chairman
(b) Chairman, Central Board of Direct Taxes, Member Government of India, or his representative Page 8 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad
(c) Secretary, Department of Urban Development, Government of India, or his representative Member
(d) A representative of the State Government to which the project relates Member
(e) Joint Secretary, Department of Industrial Policy and Promotion, Government of India Member Secretary Provided that the Empowered Committee may co-opt other Secretaries to the Government of India and officials of financial institutions, banks and professional experts from Industry and Commerce as Co-
opted members of the Committee and such co- opted members, however, shall not have any voting right.
(3) The Empowered Committee shall consider each application on a case to case basis, subject to its complying with the statutory requirements as prescribed by the Ministry of Finance under the Income Tax, 1961, and other applicable statutory rules/obligations. The Committee will consider each case on its merit and grant approval subject to such other conditions as may be deemed fit by it. However, in all cases of rejection of proposals, the applicants shall be afforded an opportunity of being heard by the Committee and the orders shall be passed and communicated within twelve weeks. The Committee may also periodically review implementation of the approved proposals.
(4) The Empowered Committee will hold meetings whenever necessary. All Industrial Model Town/Industrial Park/Growth Centre proposal received shall be placed before the Committee within 15 days of receipt. The Committee, as far as possible, would ensure that the Government decision on each proposal is communicated to the applicant within six weeks. The Committee will adopt its own mode and working procedure, keeping in view the requirement of each proposal.
Thus, as can be seen, the conditions as specified under Automatic Approval Scheme are not specified under Non-automatic Scheme and assessee having applied separately and Empowered Committee having examined the proposal 'case by case' has granted the sanction vide letter dt.11-04-2007 in which it was clearly specified as under:
This is to convey the approval of the Government of India to your proposal for claiming Income Tax benefit of your Industrial Park, in terms of the Industrial Park Scheme, 2002, notified by this Department in exercise of power under section 80 IA, Sub Section 4(iii) of the Income Tax Act, 1961, subject to the following terms and conditions:
i) Name of the Industrial undertaking M/s. L&T Infocity Ltd, Hyderabad Address of the proposed location of the Madhapur Village, Industrial Serilingampalli Municipality, Ranga Park Reddy 500033 Page 9 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad
ii) Proposed Areas of the Industrial Park 9.16 Acres
iii) Proposed Activities
iv) Section Div. Group Class A 8 89 892 -
B 8 89 893 -
C 8 89 894 -
v) Percentage of allocable area earmarked 100%
for industrial use
vi) Percentage of allocable area earmarked Nil
for commercial use
vii) Proposed No. of Industrial Units 5 Units
viii) Total investment proposed Rs.1,69,00,19,108
ix) Investment on built up space for Rs.1,55,29,28,658
industrial use
x) Investment on infrastructure Rs.1,60,79,28,65
Development including investment on 8
built up space for industrial use
xi) Expected date of commencement of the 31-03-2006
Industrial Park
Not only that, the CBDT has also notified vide notification dt.28th September, 2007, extracting the same table, which was in the approval letter, with a further condition as under:
"4. No single unit referred to in column (2) of the Table given in sub- paragraph (b) of paragraph 6 of S.O.354(E) dated the 1st April, 2002, shall occupy more than fifty percent of the allocable industrial area of an industrial park. For this purpose a unit means any separate and distinct enty for the purpose of one and more state or Central tax laws".
Since both the Assessing Officer and the Ld.CIT(A) considered the application under automatic rule, they have raised objection whereas assessee's application does not fall under Automatic Approval Scheme, but under Non-automatic Approval Scheme. In view of this, since there is already approval from the relevant authorities and also from the CBDT, we direct the Assessing Officer to grant the deduction u/s.80IA subject to verification of computation. Assessee's ground on this issue is allowed".
7. Since the facts and circumstances of the case before us are similar, we find no reason to take a different view from the decision of the earlier Bench in assessee's own case. Therefore, respectfully following the same, we direct the AO to grant Page 10 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad deduction u/s 80IA of the Act subject to verification of the computation as directed by the Tribunal in the A.Y 2009-10.
8. In the Result, assessee's grounds of appeal is allowed.
ITA No. 1591/Hyd/2014 (Revenue's Appeal):9. As regards disallowance u/s 14A of the Act is concerned, we find that the CIT (A) has followed his own order for the earlier A.Y for deleting the disallowance. We find that the CIT (A) to delete the disallowance has followed the decision of the ITAT Kolkata Bench in the case of DCIT vs. Ashish Jhunjhunwala (2013) in ITA No.1809/Kol/2012 dated, 14.05.2013 and also the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd vs. DCIT (2010 (328 ITR 100) wherein it has been held that the satisfication envisaged by sub-section of 2 of section 14A is an objective satisfaction that has to be arrived at by the AO having regard to the accounts of the assessee and must be, therefore, scrupulously followed. We find that the CIT (A) after considering the submission of the assessee at length has come to the conclusion that for the application of Rule 8 D r.w.s 14A of the Act, there should be objective satisfaction of the AO that the claim made by the assessee is incorrect and that in the instant case, the AO has not arrived at such satisfaction having regard to assessee's books of account. From the perusal of the assessment order, we find that the AO has not verified the books of accounts of the assessee to determine the correctness or otherwise of the assessee's claim. Even during the hearing of the appeal, the Learned DR has not been able to rebut this finding of the CIT (A). The CIT (A) has followed judicial precedents on the issue. Therefore, we see no reason to interfere Page 11 of 12 ITA Nos 1627 and 1591 of 2014 L&T Infocity Ltd Hyderabad with the order of the CIT (A) on this issue. Therefore Revenue's appeal is dismissed.
10. In the result, assessee's appeal is allowed and the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 4th September, 2015.
Sd/- Sd/-
(B. Ramakotaiah) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 4th September, 2015.
Vnodan/sps
Copy to:
1. M/s. L&T Infocity Ltd, 1-Q4-A First Floor, Cyber Towers, Hi- tech City, Madhapur, Hyderabad
2. Dy. Commissioner of Income Tax, Circle 16(1), Room No.612, 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad
3. CIT(A)-V, Hyderabad
4. CIT-IV Hyderabad
5. The DR, ITAT, Hyderabad
6. Guard File By Order Page 12 of 12