2018 (8) TMI 1855 - AT - Income Tax

Tribunal clarifies Section 14A on exempt income vs. deductions under Chapter VI-A

The Assistant Commissioner of Income Tax, Circle-9, Surat. Versus The Surat Dist. Coop. Milk Producers Union Ltd.,

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO under Section 14A, emphasizing the distinction between exempt income and ... Disallowance u/s.14A(3) r.w.r. 8D on which deduction is allowed u/s.80P - HELD THAT:- As in the case of CIT vs Kribhco [2012 (7) TMI 591 - DELHI HIGH COURT] held that no disallowance can be made u/s.14A in respect of income on which deduction is allowed u/s.80P. Section 14A is no applicable in case of special deduction given under chapter VI-A. In the case of Punjab State Federation Co-operative Housing Building Societies Ltd. vs. ITO [2006 (4) TMI 188 - ITAT CHANDIGARH-A] wherein it was held that interest received on saving bank deposits that another co-operative societies have qualified for deduction as income from investment as contemplated in section 80P(2)(d) held “Yes”. In view of these facts, we are of the considered opinion that the AO has erroneously applied the provisions of section 14A for making disallowance out of income which eligible for deduction u/s.80P(2)(d) of the Act. Department has not made any disallowance u/s.14A for the assessment year 2013-14 & 2014-15 in the assessment made u/s.143(3) dated 22.03.2016 and dated 07.12.2016 respectively. Appeal of the Revenue is therefore dismissed. Issues Involved:1. Deletion of addition made by the Assessing Officer under Section 14A.2. Distinction between exempt income under Section 10 and deductions under Chapter VI-A.3. Application of Section 14A in cases of income eligible for deduction under Section 80P(2)(d).Detailed Analysis:1. Deletion of Addition Made by the Assessing Officer Under Section 14A:The Revenue challenged the deletion of an addition of Rs. 2,04,008,629 made by the AO under Section 14A. The AO argued that the assessee had claimed deductions under Section 80P(2)(d) for interest and dividend income without incurring any expenditure to earn such income. The AO applied Section 14A read with Rule 8D, asserting that the income should not be included in the total income.The CIT(A) observed that there is a distinction between exempt income under Section 10 and deductions under Chapter VI-A. The CIT(A) noted that the interest and dividend income were already part of the gross total income and not claimed as exempt. Thus, Rule 8D read with Section 14A was not applicable. The CIT(A) relied on previous judgments and concluded that there was no lawful ground to apply Section 14A in this case.2. Distinction Between Exempt Income Under Section 10 and Deductions Under Chapter VI-A:The CIT(A) emphasized the distinction between exempt income under Section 10 and deductions under Chapter VI-A. The AO failed to understand this distinction and wrongly applied Section 14A. The interest and dividend income from investments with other co-operative societies were credited as income in the profit and loss account, forming part of the gross total income. The CIT(A) held that Section 14A was not applicable as the income was not exempt but eligible for deduction under Section 80P(2)(d).3. Application of Section 14A in Cases of Income Eligible for Deduction Under Section 80P(2)(d):The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by previous Tribunal decisions in the assessee's favor. The Tribunal cited the case of CIT vs. Kribhco, where it was held that no disallowance can be made under Section 14A for income eligible for deduction under Section 80P. The Tribunal also referenced other judgments supporting the non-applicability of Section 14A in such cases.The Tribunal concluded that the AO had erroneously applied Section 14A, and the CIT(A) correctly deleted the addition. The Tribunal dismissed the Revenue's appeal for both assessment years 2009-10 and 2010-11 and allowed the assessee's appeal for the assessment year 2010-11, confirming that no disallowance under Section 14A should be made for income eligible for deduction under Section 80P(2)(d).Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO under Section 14A, emphasizing the distinction between exempt income and deductions under Chapter VI-A. The Tribunal confirmed that Section 14A was not applicable to income eligible for deduction under Section 80P(2)(d), dismissing the Revenue's appeals and allowing the assessee's appeal.