TMI Blog2018 (1) TMI 1508X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest and dividend income which are eligible for deduction u/s 80P(2)(d) and which have to be reduced from the said incomes while determining the quantum on which deduction u/s 80P(2)(d) is available to the assessee. The contention raised by the assessee in this regard is, therefore, dismissed. Addition u/s 14A - The decision of the I.T.A.T. in assessee s case for assessment year 2012-13 will squarely apply in the present case also, following which we hold that no disallowance of interest is to be made in the fact situation of availability of enough own interest free funds of the assessee. But since the fact needs to be verified in the present case, we restore the matter to the Assessing Officer to verify the availability of interest free own funds of the assessee for the purpose of making investments which have earned dividend and interest during the impugned year and further direct that the issue thereafter be decided in accordance with law. We further uphold the order of the CIT(Appeals) restricting the calculation of disallowance u/s 14A only on investments which have earned interest and dividend income during the year. Claim of deduction u/s 80P(2)(e) on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogether. Brief facts relating to the issue is that the assessee had claimed deduction u/s 80P(2)(d) of the Income Tax Act, 1961 (in short the Act ) on account of dividend and interest income earned by it amounting to ₹ 8,12,65,800/-on the dividend earned ₹ 9,49,770/-on the interest income. The Assessing Officer disallowed the claim by applying the provisions of section 14A r.w.r 8D of the Income Tax Rules,1962 and thereby reducing the expenses incurred for earning the same. 3. The matter was carried in appeal before the Ld.CIT(Appeals), who, following his order passed in assessee s case for assessment year 2009-10, upheld the applicability of section 14A r.w.r. 8D for the purpose of computing the disallowance of expenses to be made ,but at the same time directed restricting the disallowance, computed as per rule 8D(2)(ii) (iii), by taking into account the average value of only those investments which had yielded interest and dividend income during the year. 4. Aggrieved by the same the assessee has come up in appeal before us in ITA No.1269/Chd challenging the applicability of the provisions of section 14A to deduction claimed u/s 80P(2)(d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of section 14A r.w.r. 8D, the same has been dealt with by the Ld.CIT(Appeals) wherein he had mentioned that the assessee had admitted to the applicability of the same in assessment year 2005-06 and had been upheld in the case of the assessee for subsequent years also. It was also pointed out by the Ld. DR that the Hon'ble jurisdictional High Court in the case of Punjab State Cooperative Milk Producers Federation Ltd. vs Commissioner of Income Tax Anr. reported in 336 ITR 495 had upheld the applicability of section 14A while calculating the eligible deduction u/s 80P(2)(d) of the Act. As far the assessee s contention of no disallowance to be made as per rule 8D(2)(ii) on account of interest, the Ld. DR contended that on account of the mixed funds available with the assessee the provisions of rule 8D(2)(ii) were clearly applicable. 9. We have heard the contentions of both the parties. On the first contention raised by the assessee vis- -vis the applicability of section 14A r.w.r. 8D, we find that this aspect has already been dealt with by the Tribunal in the case of the assessee in assessment year 2012-13 vide their order in ITA No.48/Chd/2016 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the Revenue. If the relevant provisions of the IT Act providing for charging a person including a co-operative society with income-tax on profit and gains of such person s business show that it is the net profits and gains, i.e., income of such business computed in accordance with the provisions of the IT Act, which is includible in such person s total income liable to charge of incometax, it must flow therefrom, as a necessary corollary thereof, that the profits and gains for which exemption from income-tax is envisaged under s. 81(i)(d) of the IT Act, ought to be net profits and gains, i.e. income of business computed in accordance with the provisions of the IT Act which is includible in such person s total income for charging income-tax thereon. 13. It may be noticed that s. 80P was inserted in place of s. 81 which was simultaneously deleted by Finance (No. 2) Act, 1967, w.e.f. 1st April, 1968. 14. Further, s. 14A was inserted in the Act by Finance Act, 2001 w.e.f. 1st April, 1962. The said section provides that any expenses incurred by the assessee for earning income which does not form part of total income under the Act, shall not be an allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the related expenditure is outside the ambit of the applicability of s. 14A. Further, s. 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Secs. 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Secs. 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in ss. 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in ss. 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under s. 14A. Reading s. 14 in juxtaposition with ss. 15 to 59, it is clear that the words expenditure incurred in s. 14A refers to expenditure on rent, taxes, salaries, interest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears as reflected in the financial statement of the assessee, the presumption ought to be that the investments had been made out of these interest free funds available, we are in agreement with the Ld. counsel for assessee. The fact that the assessee had enough own funds to make the impugned investment had not been controverted by the Ld. DR and the same stands reflected in the Balance Sheet of the assessee right from financial year ending 31-03-91 to the impugned financial year ending on 31-03-12, which have been filed before us in the form of Paper Book .Moreover, the Hon'ble jurisdictional High Court has held in the case of CIT VS. Max India Ltd.ITA No.210/Chd/2013 dt.08-03-2017 that if an assessee establishes that its interest free funds were equal to or more than the interest bearing funds it would be open to it to contend that presumption arises that the expenditure for earning interest income was incurred from out of its interest free funds warranting no disallowance of interest expenditure u/s 14A r.w.r. 8D.. The relevant findings of the Hon ble High Court are as under: 9. This presumption is unfounded. Merely because the interest free funds with the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 2 raised by the assessee, in its appeal in ITA No.1269/Chd/2016 therefore, stand allowed for statistical purposes.Since no other grounds were raised in the assessees appeal ,the appeal stands allowed for statistical purposes 14. As for the direction of the CIT(A) for calculating the disallowance computed as per section 14A by taking the average value of only those investments which have earned income during the year, we find that even this issue had been dealt by the ITAT in its order in ITA No.48/Chd/2016 dated 30.10.2017 and pertaining to A.Y. 2012-13, in which the said direction was held to be correct in view of the decision of the special bench of the ITAT in the case of ACIT vs Vireet Investments Pvt. Ltd. in ITA No.502/Del/2012 dt.16.06.17 and the decision of the Delhi High Court in the case of ACB India Ltd.(supra). The relevant findings of the ITAT at para 13 of its order is as under: 13. As far as the contention of Ld. counsel for assessee that the calculation of administrative expenses to be disallowed as per rule 8D(2)(ii) be restricted to investments which have earned income during the year, we find merit in this contention of Ld. counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on account of hiring charges and, therefore, disallowed the claim of the assessee. 20. The matter was carried in appeal before the Ld.CIT(Appeals) who allowed the claim following his order in assessee s case in the preceding year i.e. assessment year 2012-13. The Ld.CIT(Appeals) held that in view of the judgment of the Hon'ble High Court in the case of the assessee which was followed by the I.T.A.T. in subsequent years in the case of the assessee, the storage charges could not be treated as rental income, but godown owned by the assessee and hired to outside parties and not used by the assessee, earned rental income which was eligible for deduction u/s 80P(2)(e) of the Act. He further found on perusal of the details of rental income filed by the assessee that the assessee had rightly claimed deduction of ₹ 6,98,01,113/- u/s 80P(2)(e) of the Act and, therefore, allowed the same. 21. Before us, the Ld. DR relied upon the order of the Assessing Officer while the Ld.Counsel for the assessee relied upon the order and findings of the Ld.CIT(Appeals) and pointed out that since it had been accepted by the I.T.A.T. in assessee s own case for preceding year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in allowing the appeal of the assessee and given relief to the assessee amounting to ₹ 5,94,84,075/- which is not correct because the same is not allowable to the assessee as the assessee has shown ₹ 75,88,81,585/- on account of Machinery Work In Progress on other hand the assessee has incurred huge interest on various loans of ₹ 7,17,94,28,40//- during the year. 25. Briefly stated, the Assessing Officer found that the assessee had shown machinery work in progress at the end of the year amounting to ₹ 75,88,81,585/- and had incurred interest expenses of ₹ 717,94,28,407/-. The Assessing Officer, following the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1, treated all the moneys of the assessee as common kitty and thereafter proceeded to capitalize the interest expenses @ 12% on the machinery work in progress shown by the assessee treating the same as pertaining to them. 26. During appellate proceedings before the Ld.CIT(Appeals) the assessee filed details of interest expenses reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pointed out that while some pertained to short term loan, the rest were in relation to long term loan taken by the assessee from NCDC. The Ld.CIT(Appeals) has also pointed out that the purpose of taking the short term loan for working capital needs of the assessee and the long term loan for the construction of godowns was also demonstrated before it through sanction letter of the said loan. The aforesaid facts have not been controverted by the Revenue . In view of the same, it is clear that the assessee had demonstrated and bifurcated the user of loans and, therefore, the Ld.CIT(Appeals), we hold, was right in holding that the interest pertaining to only those loans which were taken for the purpose of construction of godowns needed to be capitalized as per the provisions of section 36(1)(iii) of the Act. Even otherwise, the Ld. DR has not controverted this finding of the Ld.CIT(Appeals) that the loans taken by the assessee were duly bifurcated. In view of the same, we see no reason to interfere with the order of the Ld.CIT(Appeals) and uphold the same in restricting the disallowance of interest expenses by capitalized the same to the extent of ₹ 3,15,81,084/-. The gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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