TaxTMI 
TaxTMI 
2017 (10) TMI 1463
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....cer and the same was upheld by the Ld.CIT(Appeals). Against these two actions of the Ld.CIT(Appeals) the assessee has preferred the present appeal raising the following effective grounds: 2.That the CIT(A) erred in facts and in law in upholding the disallowance made by the Assessing Officer u/s 80P(2)(d) amounting to Rs. 7,25,20,354/-by invoking the provisions of Rule 8D read with section 14A of the Income Tax Act, 1961. That even otherwise, the CIT(A) erred in upholding the quantum of disallowance worked out by the AssessingOfficeru/s14Aread with Rule 8D of the Income Tax Rules, 1962. 3. That the Worthy CIT(A) erred in facts as well as in law in upholding disallowance u/s 80P(2)(e) amounting to Rs. 8,69,01,552/- in respect of the rent derived by the appellant from letting out of godowns for storage, processing etc. of commodities and therefore the said order be set aside. 3. The only issues arising in the present appeal are therefore two fold; i) the disallowance of deduction claimed by the assessee u/s 80P(2)(d) of the Act on account of interest and dividend income earned by it and ii) the disallowance of deduction claimed by the....
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....essee had enough own funds for the purpose of making the said investments and in any case, all the investments were old. 3) That the disallowance under rue 8D(2)(iii) on account of administrative expenses was to be restricted to investments which had actually earned income during the year. Reliance was placed on a number of case laws with regard to the above contention of the assessee. 7. The Ld. DR, on the other hand, pointed out that as far as the 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 followed 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 accoun....
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....ncome 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 income-tax, 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 allowable expenditure. The apex Court in Walfort Share & Stock Brokers's case (supra), defining the scope of s. 14A of the Act, incorporated retrospectively from 1st April, 1962, had laid down as under : "The insertion of s. 14A with retros....
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....s. 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 nontaxable 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, etc. in respect of which allowances are provided for (see ss. 30 to 37)." 15. Adverting to the judgments relied upon by the learned counsel for the assessee, the same do not advance its case. Suffice it to notice that the Doaba Co-ope....
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....9. This presumption is unfounded. Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interest free funds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interest free funds towards other assets merely on account of the interest free funds having decreased. In that event so long as even after the decrease thereof there are sufficient interest free funds the presumption that they would be first used to invest in assets yielding exempt income applies with equal force." 12. In view of the same, we hold that the disallowance made on account of interest expenditure as per rule 8D(2)(ii) of the Rules be deleted. 13. As far as the contention of Ld. counsel for assessee that t....
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....e assessee for the reason that the Hon'ble Punjab & Haryana High Court had in earlier year disallowed the claim of the assessee, for the reason there was no provision in the objects of the assessee company to let out godowns on rent and further for the reason that no evidence to substantiate the claim, had been filed by the assessee. The Ld.CIT(Appeals) in his turn upheld the disallowance following his order in the case of the assessee for assessment year 2011-12. 19. Before us, the Ld. counsel for assessee pointed out that while in assessment year 2011-12, the assessee's appeal on this issue had been dismissed for want of evidence that the income had been earned by letting out of godowns, in the present case, the facts were distinguishable since the assessee had filed evidence in this regard. The Ld. counsel for the assessee drew our attention to para 5.5 of the Ld.CIT(Appeals)'s order for assessment year 2011-12 pointing out the fact that in assessment year 2011-12 for want of evidence the assessee's ground had been dismissed. The same is reproduced hereunder: "I have gone though the facts of the case, written submission filed by t....
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....ions based on which the deduction had been claimed by the appellant had also been furnished by the appellant during the assessment proceedings. Copy of some of the agreements evidencing the receipt of renting of godowns for the purpose of storage, processing and facilitating the marketing of agricultural commodities was also submitted. So, the order of the AO in disallowing the deduction claimed u/s 80P(2)(e) in respect of the rent derived is erroneous as being against the facts of the case and also the judgment of the Hon'ble Punjab and Haryana High Court. 21. The Ld.Counsel for the assessee ,on the basis of the above, stated that the Ld.CIT(Appeals) had erred in dismissing the ground raised by the assessee for want of evidence following his order for assessment year 2011-12. 22. The Ld. DR, on the other hand, relied upon the order of the Ld.CIT(Appeals). 23. We have heard contentions of both the parties and perused the orders of authorities below. We find merit in the contention of the Ld. counsel for assessee. Undoubtedly, the assessee had been denied claim of deduction u/s 80P(2)(e) of the Act by the Ld.CIT(Appeals) following the order of the Ld.CIT(App....