Income Tax Appellate Tribunal - Chandigarh
Dy Commissioner Of Income Tax, ... vs M/S Haryana State Coooperative Supply & ... on 22 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'A', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.1269/Chd/2016
(Assessment Year : 2013-14)
The Haryana State Co-operative Vs. The A.C.I.T.,
Supply & Marketing Federation Ltd., Panchkula Circle,
Corporate Office, Sector 5, Panchkula.
Panchkula, Haryana.
PAN: AAAJH0022R
&
ITA No.1223/Chd/2016
(Assessment Year : 2013-14)
The D.C.I.T., Vs. The Haryana State Co-operative
Panchkula Circle, Supply & Marketing Federation Ltd.,
Panchkula. Corporate Office, Sector 5,
Panchkula.
PAN: AAAJH0022R
(Appellant) (Respondent)
Assessee by : Shri Aman Parti
Department by : Shri Pawan Kumar Sharma, DR
Date of hearing : 24.10.2017
Date of Pronouncement : 22.01.2018
O RDE R
PER ANNAPURNA GUPTA, A.M.:
Th e above c r o ss appeals by th e a s s e s s ee a nd the R e v e n u e h a v e be e n p r e f e r r e d a ga i n s t t h e o r d e r o f l e a r n e d C o m m i s s i o n e r of I n c o m e Ta x ( Ap p e a l s ) , P a n c h ku l a d a t e d 3 0 . 9 . 2 0 1 6 f o r ass e s s m e n t y e a r 20 1 3 - 1 4 .
2. A t t h e o u t s et w e m a y st a t e t h a t th e i s s ue r a i s e d i n t h e a s s e s s e e s a p p e al i n I TA N o . 1 2 69 / C h d / 2 0 16 & i n G r o u nd N o . 1 o f t h e R eve n u e s a p p e al r el a t e t o d i s al l o wa n c e m a d e u / s 1 4 A o f t h e I n c o m e Ta x A c t , 1 9 6 1 , r . w .r 8 D o f t h e I n c om e Ta x R u l e s , 1 9 62. S i n c e th e i ss u e i s i n te r l i n ke d we s h a l l b e 2 d e a l i n g w i t h t h e s a m e to g e t h e r. B r i e f f ac t s re l a t i n g t o th e issue is that th e assessee h ad claimed d e d uc t i o n u/s 8 0 P ( 2 ) ( d ) o f t h e I n c o m e Ta x A c t, 1 9 6 1 ( i n s h o rt ' th e A c t ' ) on account of d i vi d e n d a n d i n t e re s t i n c o m e e a rn e d b y it a m o u n t i n g to Rs . 8 , 1 2 , 6 5, 8 0 0 / -on t h e d i v i d en d e a r n e d & R s . 9 , 4 9 , 77 0 / - o n t h e i n t e r e s t i n co m e . Th e A s s e s s i n g O f f i c er d i s a l l o we d t h e cl a i m b y a p p l y i n g t h e p r o v i s i o n s o f s e c t i o n 1 4 A r . w . r 8 D o f t h e I n co m e Ta x R u l e s , 1 9 6 2 an d t h e r e by r e d u c i n g t h e e xpe n s e s i n cu r r e d fo r e a r n i ng t h e s am e .
3. Th e matter was carried in appeal b e f o re the L d . CI T( A p p e a l s ) , who, f ol l o w i ng his o rd e r passed in a s s e s s e e 's c a se f o r a s se s s m e nt y e a r 2 00 9 - 1 0 , up h e l d th e a p p l i c a b i l i t y o f s e c t i o n 14 A r . w. r . 8 D fo r t h e p u r p o s e of c o m p u t i n g t h e di s a l l o w a n ce o f e xp e n s e s t o b e m ad e , b u t at the same t i me d i r e c te d r es t ri c t i n g the di sa l l o w a n c e, c o m p u t e d a s p e r r u l e 8 D ( 2 ) ( i i ) & ( i i i ) , b y ta k i n g i nt o a c c o u n t t h e a v e r a g e v a l u e o f o n l y t h o se i n v e s t m e n ts w h i c h h ad y i e l d e d i n t e r e st a n d d i v i de n d i nco m e d u r i ng t h e ye a r .
4. A g g r i e v e d b y t h e s a m e th e a ss e ss e e h a s c o me u p i n appeal before us in ITA No.1269/Chd challenging the a p p l i c a b i l i t y o f th e p r o v i s i o n s o f s e c t i o n 1 4 A t o d e d u c t i o n c l a i m e d u / s 8 0 P( 2 ) ( d ) a n d i n u ph o l d i n g t h e d i s a l l o w a n c e of i n t e r e s t e x p e n s es c o m p u t e d a s p e r R u l e 8 D ( 2 ) ( i i ) o f t he I n co m e Ta x R u l es , 1 9 6 2 r ai s i n g t he f o l l o wi n g g ro u nd s :
1. That the order of the Worthy CIT(A) is being challenged on the ground of it being illegal, arbitrary and having been passed in haste without considering the written submissions as well as the documentary evidence filed by the appellant during the appellate proceedings.
2. That the CIT(A) erred on facts and in law in upholding the application of provisions of section 14A to deduction claimed 3 u/s 80P(2)(d) of the Income Tax Act, 1961. Even otherwise, the CIT(A) erred in directing the Assessing Officer to re-compute the disallowance u/s 14A by applying the provisions of Rule 8D(2)(ii).
5. Th e Revenue in its cross a pp e a l in I T A . N o . 1 22 3 / C hd / 2 0 1 6 , h a s c ha l l e n g e d t he d i re c t i o n of t h e CI T( A ) to r e st r i c t th e d i s a l l o w a n c e u nd e r Rul e 8 D ( 2) ( i i ) a n d 8 D ( 2) ( i i i ) b y t a k i n g i n t o a c co u n t t h e a v e ra ge v a l u e o f o n l y t h o s e i n v est m e n t s w h i c h yi e l d d i v i d e n d a nd i n t e r e s t i n c o m e a nd h a s r a i s e d t he f o l l o wi n g g r o u nd s :
"1. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred to allowed the appeal of the assessee which is not as per law because the same is not allowable to the assessee as assessee has claimed deduction on dividend income and interest income."
6. B e f o r e us , v i s a v i s t he i s s ues r a i s e d i n a sse s s e s a p p e a l , L d . A R m a d e t h e f o l l o wi n g a r g um e n t s a g a i n s t t h e a f o r e s t a te d a c ti on o f t h e L d . CI T( A) a s u n d er :
1) T h a t d i s a l l o wa n c e u / s 1 4 A r . w. r . 8 D w a s n o t a p p l i c a b l e since the issue did not pertain to exempt income, but to incomes wh i c h we r e a l l o we d d e d u c t i o n u n d e r C h a p t e r - V I - A .
2) T h a t i n a n y c a s e , e v e n i f t h e s e c t i o n 1 4 A r . w. r . 8 D wa s a p p l i c a b l e , n o d i s a l l o wa n c e o f a n y i n t e r e s t e x p e n d i t u r e a s per r u l e 8 D ( 2 ) ( i i ) wa s t o b e m a d e s i n c e t h e a s s e s s e e h a d e n o u g h o wn f u n d s f o r t h e p u r p o s e of m a k i n g t h e s a i d i n v e s t m e n t s a n d i n any c a s e , a l l t h e i n v e s t m e n t s we r e o l d .
7. As for the restri cti on of the computati on of di sal l o wance as per secti on 14A onl y on the average val ue of i nvestments whi ch have earned i ncome and whi ch di d not form part of the total i ncome, the assessee rel i ed on the deci si on of the Hon'bl e Del hi Hi gh Court i n ACB I ndi a Ltd. vs ACI T 62 Ta xman n.com 71.
8. The Ld. DR, on t he other hand, poi nted out that as far as the appl i cabi l i t y of secti on 14A r. w.r. 8D, the same has been deal t wi th by the Ld.CI T( Appeal s) wherei n he had 4 menti oned that the assessee had admi tted to the appl i cabi l i t y of the same i n asse ssment year 200 5-06 and had been uphel d i n the case of the assessee for subsequent years al so. I t w as al so poi nted out by the Ld. D R that the Hon'bl e juri sdi cti onal Hi gh Court i n the case of Punjab State Cooperati ve Mi l k Producers Federati on Ltd. vs Commissi oner of I ncome Ta x & Anr. reported in 336 I TR 495 had uphel d the appl i cabi l i t y of secti on 14A whi l e cal cul ati ng the el i gi bl e deducti on u/s 8 0P( 2) ( d) of the Act. As far the assessee's contenti on of no di sal l o wance to be made as per rule 8D( 2) ( i i ) on acco unt of i nterest, the Ld. DR cont ended that on account of t he mi xed funds avai l abl e wi th th e assessee the provi si ons of rul e 8D( 2) ( i i ) were cl earl y appl icabl e.
9. We have heard t he contenti ons o f both the parti e s. On the fi rst contenti on rai sed by the assessee vi s-à-vi s the appl i cabi l i t y of secti on 14A r. w.r. 8D, we fi nd that thi s aspect has al rea dy been deal t wi th by the Tri bu nal i n the case of the assessee i n assessment year 2012-13 vi de thei r order i n I TA No. 48/Chd/2016 da ted 30.10.2017 wherei n the contenti on of the Ld. counsel for assessee that the provi si ons of secti on 14A r. w.r. 8D coul d not be appl i ed for the purpose of c omputi ng the e x penses rel atabl e to earni ng of i nterest and di vi dend i nco me was di smi s sed by the I . T.A. T. fol l o wi ng the deci si on of the Hon'bl e jurisdi cti onal Hi gh Court i n the case of Punjab State Cooperati ve Mi l k Producers Federati on Ltd. vs Co mmi ssi oner of I ncome Ta x & Anr. reported in 336 I TR 495 on i denti cal issue. The 5 rel evant fi ndi ngs of the I . T.A. T. at paras 9 and 10 of the order are as under:
"9. On the f irst contention raised by the assessee that s e c t i o n 1 4 A r . w. r . 8 D i s n o t a p p l i c a b l e wh i l e wo r k i n g o u t t h e c l a i m o f d e d u c t i o n u / s 8 0 P ( 2 ) ( d ) , we f i n d t h a t t h e L d . DR has rightly pointed out that the issue has al re ady bee n d e a l t wi t h b y t h e H o n ' b l e j u r i s d i c t i o n a l H i g h C o u r t i n t h e c ase of Punjab State Cooperative Milk Produce rs Fede ratio n Ltd. vs Commissio ner of Income T ax & Anr. reporte d in 336 I T R 4 9 5 wh e r e i n t h e a p p l i c a b i l i t y of t h e s a i d s e c t i o n h a s been upheld. T h e r e l e v a n t f i n d i n g s of t h e H o n ' b l e H i g h C o u r t wi t h r e g a r d t o t h e s a m e a r e a s u n d e r :
"The assessee is entitled to deduction under s. 80P(2)(d) of the Act after excluding the expenditure attributable to the earning of such income. The apex Court in Sabarkantha Zilla Kharid Vechan Sangh Ltd.'s case (supra), where the High Court while rejecting the claim of the assessee had held that the assessee who was engaged in the purchase of agricultural implements, seeds, live- stocks etc. was entitled to deduction under s. 81 of the Act from tax only in relation to net profit and not gross profits. It was held as under :
"The said provision, as seen therefrom, undoubtedly exempts an assessee-co-operative society, which carries on the business envisaged therein, from payment of income-tax on profits and gains of such business. But the controversy which relates to the said provision is, whether the income-tax not payable thereunder, falls to be calculated either with reference to the full amount of profits and gains of the co-operative society's business, as contended on behalf of the assessee or with reference to the net amount of profits and gains of the co-operative society's business, as otherwise computable under the provisions of the IT Act for the purpose of charging income-tax thereon, as contended on behalf 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 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 retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in 6 respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001 dt. 22nd Nov., 2001). In other words, s. 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of s. 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of s. 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of s. 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non- exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of s. 14A. In s. 14A, the first phrase is 'for the purposes of computing the total income under this Chapter' which makes it clear that various heads of income as prescribed under Chapter IV would fall within s. 14A. The next phrase is, 'in relation to income which does not form part of total income under the Act'. It means that if an income does not form part of total income, then 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, 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-operative Sugar Mills case (supra) was a case prior to insertion of s. 14A by Finance Act, 2001 retrospectively from 1st April, 1962 and would, thus, be of no assistance to the assessee. Further, this Court in King Export's case (supra), on consideration of facts involved therein had concluded that there was no expenditure which had been incurred by the assessee for earning the income and the same did not form part of total income. That is not the situation in the present case.
7
16. In view of the above, the substantial questions of law are answered against the assessee and in favour of the Revenue.
10. Moreover, as emerged during the course of hearing before us, the applicability of rule 8D r.w.s. 14A has been upheld in the case of the assessee by the Tribunal and accepted by the assessee in preceding years. Therefore, we find no merit in the contention of the assessee that section 14A r.w.r. 8D is not to be applied for the purpose of calculating the deduction allowable u/s 80P(2)(d) of the Act."
10. Respectful l y fol l o wi ng the sa me, we uphol d the appl i cabi l i t y of t he provi si ons of secti on 14A r. w .r. 8D for the purpose of determi ni ng the quantum of e xpenses rel atabl e to earni ng of i nterest and di vi dend i ncome whi ch are el i gi bl e for deducti on u/s 80P( 2) ( d) of the Act and whi ch have to be reduc ed from the sai d i ncomes whi l e d etermi ni ng the quantum on whi ch deducti o n u/s 80P( 2) ( d) i s avai l abl e to the assessee. The contenti on rai sed by the assessee i n thi s regard i s, therefore, di smi ssed.
11. As for the contenti on of the assessee that i n vi e w of the fact that i t had enough surpl us funds whi ch wer e i nterest free, whi ch rai ses the presumpti on that the i mpugned i nvestment has been made out of the same, we fi nd that even thi s aspect was deal t wi th by the I . T.A. T. i n i ts order for assessment year 2012-13 at paras 11 and 12 as under :
"11. As f ar the co nte ntio n of the Ld. co unsel f or assessee that in vie w of the f act that it had e nough surplus f unds wh i c h a r e i n t e r e s t f r e e a n d wh i c h i s d e m o n s t r a t e d f r o m t h e q u a n t u m o f s h a r e c a p i t a l a n d r e s e r v e s a v a i l a b l e wi t h t h e assessee over the ye ars as ref lecte d in the f inancial state ment of the ass essee, the pres ump tion ought to be that the investments had been made out of these interest f ree f u n d s a v a i l a b l e , we a r e i n a g r e e m e n t wi t h t h e L d . c o u n s e l f o r a s s e s s e e . T h e f a c t t h a t t h e a s s e s s e e h a d e n o u g h o wn f unds to make the impugned investment had not been controverted by the Ld. DR and the same stands ref lected in the B al ance Shee t o f the assessee right f rom f inancial ye ar ending 31-03-91 to the imp ugne d f inancial ye ar e nding o n 3 1 - 0 3 - 1 2 , wh i c h h a v e b e e n f i l e d b ef o r e u s i n t h e f o r m of P aper Book . Moreov er, the Ho n'ble juris dic tio nal High Co urt has held in the c ase of C IT VS. M ax Ind i a L td. IT A No.210/Chd/2013 dt.08-03-2017 that if an assessee e s t a b l i s h e s t h a t i t s i n t e r e s t f r e e f u n d s we r e e q u a l t o o r m o r e t h a n t h e i n t e r e s t b e a r i n g f u n d s i t wo u l d b e o p e n t o i t 8 to contend that presumption arises that the expenditure f or earni ng interes t i ncome was i ncurr ed f rom out of its i n t e r e s t f r e e f u n d s w a r r a n t i n g n o d i s a l l o wa n c e o f i n t e r e s t e x p e n d i t u r e u / s 1 4 A r . w. r . 8 D . . T h e r e l e v a n t f i n d i n g s o f t h e Hon'ble High Court are as under:
"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. I n v i e w o f t h e s a m e , we h o l d t h a t t h e d i s a l l o wa n c e made o n account of inte res t expe nditure as per rule 8D(2)(ii) of t h e R u l e s b e d e l e t e d . "
12. We fi nd that the I . T.A. T. had i n pri nci pl e agreed wi th the rati o that w here enough o w n funds are ava i l abl e, the presumpti on i s t hat the i nvestme nts have been m ade out of the same, fol l o wi ng the deci si on o f the Hon'bl e juri sdi cti onal Hi gh Court i n the case of CI T Vs. Ma x I ndi a Ltd. i n I TA No.210/Chd/2013 dated 8.3.2017. The I . T.A. T. h ad further found that the assessee had demonstrated the avai l abi l i t y of enough o wn surpl us funds for maki ng the i mpugned i nvestment and, therefore, hel d that no di sal l o wance of i nterest e xpenses was warranted as per rul e 8D( 2) ( ii ) of the I ncome Ta x Rul es, 1962. The pr esent case, therefore, bei ng on i denti cal i ssu e, the deci si on o f the I . T.A. T. i n assessee's case for assessment year 2012-13 wi l l squarel y apply i n the present case al so, fol l o wi ng whi ch we hol d that no di sal l o wance of i nterest i s to be made i n the fact si tuati on of avai l abi l i t y of enough o wn i nterest free funds of the assessee. But si nce the fact needs to be veri fi ed i n the 9 present case, we restore the matt er to the Assessi ng Offi cer to veri f y the av ai l abi l i t y of i nterest free o wn fu nds of the assessee for the purpose of maki ng i nvestments whi ch have earned di vi dend and i nterest duri ng the i mpugned year and further di rect t hat the i ssue thereafter be d eci ded in accordance wi th l a w.
13. The grounds of a ppeal No.1 & 2 rai sed by the assessee, i n i ts appeal i n I TA No.1269/Chd/2016 therefore, stand al l o wed for stati sti cal purposes.Si nce no other gro unds were rai sed i n the ass essees appeal ,th e appeal stands al l o wed for stati sti cal purposes
14. As for the di recti on of the CI T( A) for cal cul ati ng the di sal l o wance computed as per secti on 14A by taki ng the average val ue of onl y those i nve stments whi ch h ave earned i ncome duri ng the year, we fi nd that even thi s i ssue had been deal t by the I TAT i n i ts ord er i n I TA No.48/Chd/2016 dated 30.10.2017 and pertai ni ng to A.Y. 2012-13, i n whi ch the sai d di recti on was hel d to be correct i n vi e w of the deci si on of the speci al bench of the I TAT i n the case of ACI T vs Vi reet I nvestments Pvt. Ltd. i n I TA No.502/Del /2012 dt.16.06.17 and the deci si on of the Del hi Hi gh Court i n the case of ACB I ndi a Ltd.( supra) . The rel evant fi ndi ngs of the I TAT at para 13 o f i ts order i s as under:
"13. As f ar as the co nte ntio n of Ld. counsel f or assessee that the c alcul atio n of adminis trativ e expenses to be d i s a l l o we d a s p e r r u l e 8 D ( 2 ) ( i i ) b e r e s t r i c t e d t o i n v e s t m e n t s wh i c h h a v e e a r n e d i n c o m e d u r i n g t h e y e a r , we f i n d m e r i t i n this co nte ntio n of Ld. counsel f or ass essee. T he Special Bench of the I.T .A.T . in the c ase of A C IT v s . V i r e e t I n v e s t m e n t s P v t . L t d . IT A N o . 5 0 2 / D e l / 2 0 1 2 d t . 1 6 / 0 6 / 1 7 h a s l a i d d o wn t h e s a i d p r o p o s i t i o n a n d e v e n t h e H o n ' b l e D e l h i H i g h C o u r t i n t h e c a s e o f A C B I n d i a L t d . v s A C IT i n 10 IT A No. 615/ 2014 dt- 24. 03.2015 has held so holding as under:
"4.The AO, instead of adopting the average value of investment of which income is not part of the total income i.e. the value of tax exempt investment, chose to factor in the total investment itself. Even though the CIT(Appeals) noticed the exact value of the investment which yielded taxable income, he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of 38,61,09,287/- with the figure of `3,53,26,800/- and thereafter arrive at the exact disallowance of 05%."
15. I n vi e w of the above we hol d that the i ssue i s squarel y covered i n favour of the assessee. We, therefore, uphol d the order of the CI T( Appeal s) restri cti ng the cal cul ation of di sal l o wance u/s 14A onl y on i nvestments w hi ch have earned i nterest and di vi dend i ncome duri ng the year.
16. Ground of appeal No.1 rai sed by the Revenue i n i ts appeal i n I TA no.1223/Chd/2016 i s, therefore, di smissed
17. We shal l no w be deal i ng wi th the remai ni ng grounds rai sed by the Revenue in i ts appeal in ITA N o . 1 2 2 3 / Ch d / 20 1 6
18. G r o u n d N o . 2 ra i se d b y t h e R e v e nue r e l a t e s t o t he cl a i m o f d e d u ct i o n u /s 8 0 P ( 2) ( e ) o f the A c t o n a cc o u nt o f re n t a l i n c o m e e ar n e d by t h e a s se s s e e an d r e a d s a s u n der :
2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in allowing the appeal of the assessee and delete the addition of Rs.6,98,01,113/- u/s 80P(2)(e) which is not correct because the same is not allowable to the assessee in the A.Y. 2012-13.
19. Th e A s s e s s i n g O f f i c e r d i s a l l o we d t h e sa i d cl ai m o n a c c o u n t of t h e ju d g m e n t of t h e H o n ' b l e Pu n j a b & H a r y a n a H i g h C o u rt i n as s e s s e e ' s c a s e i n I TA N o . 15 7 o f 20 0 5 d a t e d 8 . 9 . 2 0 1 0 w h e r e i n i t w a s h e l d th a t s i n ce t h e a ss e s s e e wa s i n d u l g i n g i n p u rc h a s e a n d s a l e of g o o d s t o F CI , st o r i n g t he s a m e i n t h e g o do w n w a s p a rt o f i t s b u s i n es s a nd i n c o me e a r n e d o n a c c ou n t o f t h e s a me c o u l d n o t b e t r e a t e d as 11 h i r i n g c h a rg e s . Th e A s s e s s i n g O f f i c e r f ur t h e r fo u n d t h at t h e a s s e s s ee h ad n o t s u b s t a nt i a t e d t h i s c l a i m o f t h e s a i d i n c o m e be i n g o n a c c o u n t o f h i r i n g c h a r ge s a nd , t h e r e fo r e , d i s a l l o we d t h e c l a i m o f th e a s s ess e e .
20. Th e matter was carried in appeal b e f o re the L d . CI T( A p p e a l s ) w h o a l l o w e d t h e c l a i m fo l l o w i n g hi s o r d er i n a s s e s s e e 's c as e i n t h e p r e ce d i n g y e a r i . e . a s s es sm e n t y ea r 2012-13. Th e L d . CI T( A p p e a l s ) h e l d t h a t i n v i e w o f t h e j u d g m e n t o f t h e H o n ' b l e H i g h C o u r t i n t h e ca s e o f t he a s s e s s e e w hi c h w a s f o l l o we d b y t h e I . T. A . T. i n s u b s e q u e n t y e a r s i n t h e c as e o f t h e as s e s s ee , t h e s t o ra g e c har g e s c o u l d n o t b e tr e a t e d as r e n t a l i n c o me , b u t g o do w n o wn e d b y th e a s s e s s e e a n d h i re d t o o u ts i d e p ar t i e s a n d n o t u se d b y t he assessee, e ar n ed rental i n c o me which was eligible f or d e d u c t i o n u / s 80 P ( 2 ) ( e ) o f t h e A c t . H e f ur t h e r f o u n d on p e r u s a l o f t h e d et a i l s o f re n t a l i nc o m e f i l ed b y t he a s s e s s e e that the a s s e ss e e had ri g h t l y claimed d e du c t i o n of R s . 6 , 9 8 , 01 , 1 1 3 /- u / s 80 P ( 2 ) ( e ) of t h e A c t an d , t h e r e f o r e, a l l o w e d t h e s a me.
21. B e f o r e u s , t h e L d . D R r e l i e d up o n t h e o r d e r of t h e A s s e s s i n g O f fi c er w h i l e t h e L d .C o u n s e l f o r t h e a s s e s se e r e l i e d u po n t h e o r d e r a n d f i n d i ng s o f t h e L d . CI T( A p p e a l s) a n d p o i n t e d ou t t h a t s i n c e i t h a d b e e n a c c ept e d b y t h e I . T. A . T. i n as s e ss e e ' s o wn c a s e fo r p r e c ed i n g ye ar s t h a t t h e r e n t a l i n c o m e e ar n e d b y l e t ti n g ou t g o d o w n t o o u ts i d e r s w as entitled to de du c t i o n u/s 8 0P( 2 ) ( e ) of t he A ct and the assessee ha v i n g d e m o n s tr a te d this f ac t to the L d . CI T( A p p e a l s ) on a cc o u n t of r e n ta l i n c om e e a r ne d 12 amounting to R s . 6 , 9 8 , 01 , 1 1 3 /- which was v er i f i e d and a c c e p t e d b y t h e L d . CI T( A p p e a l s ) a l s o , t h e re w a s no i n f i r m i t y i n t h e o r d er o f th e L d . CI T( A p p e a l s ) a n d t h e sa m e n e e d e d to b e u p h e l d.
22. We have h e a rd the contentions of the l ea r n e d r e p r e s e n ta t i v e s of b o t h t h e p a r t i es . We f i nd n o i nf i r m i t y i n t h e o r d e r o f t h e L d . CI T( A p p e a l s ) . Th e A s s e s s i n g Of f i c e r h a d d e n i e d th e c l a i m o f t h e a s s es s e e f o l l o wi n g t he j ud g m e n t of t h e H o n ' b l e Hi gh C o u r t i n t h e c a s e o f t h e a s ses s e e i n t h e p r e c e d i n g y e ar i n w h i c h i t w a s h e l d t h a t t h e i n c om e e a r n ed o n a c c ou n t of s to r a g e of g o od s pu r c h a s e d a n d s ol d b y t he a s s e s s e e w o u l d n o t t a n t a m o u nt t o r e n t a l i n c o m e e l i g i b l e f or d e d u c t i o n u / s 80 P ( 2 ) ( e ) o f t h e Ac t . Th e L d . C I T( A p p e a l s ) , we f i n d h a s p oi n t e d o u t t h a t f ol l o w i n g t h e s a i d j u dg m e n t t he I . T. A . T. i n a ss e ss e e ' s o w n c a s e i n a s s e s s me n t y ea r 2 0 0 9 - 10 in I TA N o . 2 0 5/ C h d / 2 0 1 3 da te d 2 1 . 6 . 2 0 13 had a f t er a c c e p t i n g t h i s fa c t h e l d t h a t th o u g h t h e a s s es s e e i s no t e n t i t l e d t o d e d uc t i o n o n a c c o u nt o f i n c o m e e a rn e d f r o m s t o r a g e of g o o ds, i t i s e n t i t l e d to t h e s a me o n a c c o u n t of h i r i n g c h a r ge s by l e t t i n g o u t i t s g o d o w n t o o u t s i d e r s . Th e L d . CI T( A p p e a l s ) h a s f u r th e r e xam i n e d t he d e t ai l s o f th e rental i n c om e earned by the assessee a m ou n t i n g to R s . 6 , 9 8 , 01 , 1 1 3 /- a n d a ft e r v e r i f yi n g t h e s a m e f ou n d t o b e c o r r e c t . N o i n f i rm i t y i n t h e a b o ve o b s e r v a t i on s a n d f i n d i n gs o f t h e L d . CI T( A p p e a l s ) h a v e b e e n p o i n t e d o u t t o u s b y t h e Ld. DR. Th e r e fo r e , w e f i n d no r e a s o n t o i n te rf e r e i n t h e order of the L d . CI T( A p p e a l s ) who, we hold, has rightly a l l o w e d t h e a ss es s e e ' s c l a i m of d e d u c t i o n u /s 8 0 P ( 2 ) ( e ) o f 13 t h e A c t o n a cc ou n t o f r e n t a l i nc o m e e a rn e d a mo u n t i n g t o R s . 6 , 9 8 , 01 , 1 1 3 /- f o l l o w i ng t h e de c i s i o n of t h e Co o r d i n a t e B e n c h i n t h e c a se o f t h e a s s e s s e e a n d a f t e r d u e v e r i f i c a ti o n o f t h e cl a i m of t he a s s e s s ee .
23. I n v i e w o f t h e ab o v e , g r ou n d o f a p p e a l N o. 2 r a ise d b y t h e R e v e nu e s t and s d i s m i ss e d .
24. Th e R e v e n u e i n g r o u n d N o . 3 c h a l l e n g e s t h e r e l i e f g r a n t e d to t h e a s s e s s e e a m o u nt i n g t o Rs . 9 4 , 84 , 0 7 5 / - on a c c o u n t o f i n t ere s t e x p e n s e s w hi c h t h e A s s e s s i n g O f f i c er h a d c a p i t a l i z e d a s p e r t a i n i n g t o c a p i t a l w o rk i n p r o g r e s s o f t h e a s s e ss e e a nd r e a d s a s u n d e r:
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 Rs.5,94,84,075/- which is not correct because the same is not allowable to the assessee as the assessee has shown Rs.75,88,81,585/- on account of Machinery Work In Progress on other hand the assessee has incurred huge interest on various loans of Rs.7,17,94,28,40//- during the year.
25. B r i e f l y s t at e d , th e A s s e s s i n g Off i c e r f o u n d t ha t t h e a s s e s s e e h a d s ho w n m a c hi n e r y w o r k i n p r o gr e s s a t t he e n d of the y ea r am o u n t i n g to Rs . 7 5 , 8 8 , 81 , 5 8 5 /- and had incurred i n t e re st e x p e n se s of R s . 7 1 7 , 9 4, 2 8 , 4 07 / - . Th e Assessing O f f i c er , f o l l o wi n g the decision of t he Hon'ble j u r i s d i c ti o n a l H i g h C o u r t i n t h e c a s e o f C I T V s . A b h i s h e k I n du s t r i es L t d . , 2 8 6 I TR 1 , t r e at e d a l l t h e m o n e y s o f t h e assessee as com m o n k i tt y a nd t h e r e af t e r p ro c e e d e d to c a p i t a l i ze t h e i nt e r e s t e x p e ns e s @ 1 2 % o n t h e m a c h i n e r y w o r k i n p r o g r e s s s h o w n b y t h e a s s e s s e e t r e at i n g t h e s a m e a s p e r t a i n i n g to t h e m .
26. During a p p el l a t e p r o c e ed i n g s before the L d . CI T( A p p e a l s ) the assessee filed details of i n t e r e st 14 e x p e n s e s r ef l e c t i n g t h a t t h e y w ere p a i d b o t h f o r s h o r t t e rm a n d l o n g t e rm l o a n s . Th e a s s es s e e f ur t h e r d em o n s t r a t ed t h a t t h e s h or t t er m l o a n s w e re us e d f o r t h e w or ki n g c a p i t al n e e d s o f th e a s se s s e e ' s b us i n e s s w h i l e t he l o n g te r m l o a n s had been t ak e n from National C o o p e r a ti v e De v e l o p m e nt C o r p o r a t i o n ( h e re i n a f t e r r ef e r r e d t o a s ' N C D C ' ) an d u s e d by t h e a s s e s se e f o r t h e p u r p o se o f c o n s t r u c ti o n o f g o d o w n s. Th e a s s e s s e e f u rt h e r q u a n ti f i e d th e a m o u n t o f i n te r e s t p a i d on account of long term loans as a m o un t i n g to R s . 3 , 1 5 , 81 , 0 8 5 /- a n d p l e a d e d t ha t t o t h i s e x t e nt, i n t e r e s t w a s l i a b l e t o b e c a p i t a l i ze d . Th e L d . CI T( A p p e a l s) f o u n d t h e c o n t e n t i on s of the a s s e ss e e as correct and, t h e r e f o re r e s t r i c te d the di s a l l o w a nc e of interest to the extent of R s . 3 , 1 5 , 81 , 0 8 5 /-.
27. A g g r i e v e d b y t he s a m e , t h e R e v e n u e h a s r a i s ed t h e f o l l o w i ng g r o u n d b e f o r e u s . D u ri n g t h e c o ur s e o f h e a r i n g b e f o r e u s , t h e L d. D R r e l i e d u p o n t h e o r d e r o f t h e A s s e s s i n g O f f i c e r w h i l e t h e L d . c o un s e l fo r a s s e s s e e r e l i ed up o n o n hi s s u b m i s s i on s m ad e before the L d . CI T( A p p e a l s ) and the f i n d i n g s o f t h e Ld . CI T( A p p e a l s ) i n t h i s r eg a r d .
28. W e h a v e h e a r d t h e c o n t e n ti o n s o f b o t h t h e p ar t i e s. Th e i s s u e i n th e p r e s e n t g r o u n d p e r t a i n t o d i s a l l o w a n c e of i n t e r e s t e x p e n ses i n c u r r ed i n re l a t i o n to c a p i ta l w o r k i n p r o g r e s s o f t he as s e s s e e . Th e u n d i s p u t e d f ac t s a re t h a t t h e a s s e s s e e h a d sho w n R s . 7 5 , 8 8, 8 1, 5 8 5 / - o n a c c oun t o f t h e capital w o rk in progress p ert a i n i n g to g odo w n under c o n s t r u c ti o n as reflected in th e Balance S he e t of the assessee at the end of the year. Th e f a c t t h a t t h e a s s e s s e e 15 had i n c u rr e d interest expenses am o un t i n g to R s . 7 1 7 , 9 4, 2 8 , 4 07 / - is also not disputed. O n p er u s i n g t he a s s e s s m e nt o r der w e fi n d t h a t t h e A s s es s i n g Of f i c e r h a s d i s a l l o we d i n te r e s t e x pe n s es to the extent of R s . 7 5 , 8 8 ,8 1 , 5 8 5/ - c o m p ut e d @ 1 2 % o f t h e c a p i t a l w o rk i n p r o g r e s s s ho w n b y t h e a s s e s se e , h o l d i n g t h e s am e t o h a v e been i n cu r r e d in r e l a ti o n to th e said capital work in p r o g r e s s p r i m ar i l y f o r t w o r e a s on s ; a ) s i n c e t h e a s s e s s ee h a d n o t b ee n ab l e t o b i f u r c a te t h e l o a ns u s e d f o r c a p i t a l p u r p o s e s a n d o th e r p u r p os e s a nd ; b ) f ol l o w i ng th e d e c i si on o f t h e H o n ' b l e j u r i s d i c ti o n a l H i g h C o u r t i n t he c a s e o f A b h i s h e k I n d us tr i e s L t d . ( s u p ra ) t r e a t i n g t h e e n ti r e m o n e y a s t h e c o m mo n k i t t y o f t he a ss e s s e e . W e f i nd t h a t t h e L d . CI T( A p p e a l s ) h a s g i v en a f i n di n g t h a t t h e a s se s s e e h ad p r o d u c e d a l l l o an d o c u m e n t s b e fo r e i t a n d p o i n t ed o u t t h a t w h i l e s o m e p e rta i n e d t o s h o r t te r m l o a n , t h e r es t w e r e i n relation to long term loan t a ke n by the as s es s e e f ro m NCDC. Th e L d . C I T( A p p e al s ) h a s a l s o p o i n t e d o ut t h a t t h e p u r p o s e o f t a k i ng t h e s h o r t t e rm l o a n f o r w o r ki n g c a p i t a l needs of the as s e s s e e and t he long term l oa n for the c o n s t r u c ti o n o f g o d o w n s w a s al s o d e m o n s t ra t e d b e f o r e i t t h r o u g h sa n c t i o n l e t t e r of t h e s a i d l o a n . Th e a f ore s a i d f a ct s h a v e n o t b e e n c on t r o v e r t ed b y t he R e v e n u e . In view of the s a m e , i t i s c l ea r t h a t t h e a s s e s se e h a d d em o n s tr a t e d a n d b i f u r c a t ed the user of l o an s and, t h e r ef o r e , the L d . CI T( A p p e a l s ) , w e h o l d , w a s r i g h t i n h o l d i ng t h a t t h e i n t e r e s t pe r t a i ni n g t o o n l y t ho s e l o a n s w h i ch w e re t a k e n f o r the purpose of construction of godowns n e e de d to be 16 c a p i t a l i ze d a s p er t h e p r o v i s i o n s o f s e c t i o n 3 6 ( 1 ) (i i i ) o f t h e Act. E v e n o t h e r w i s e , t h e L d . DR h a s n o t c o n t r o ve r t e d t h i s f i n d i n g o f t h e Ld . CI T( A p p e a l s ) th a t t h e l o a n s t ak e n b y t he a s s e s s e e w e r e du l y b i f ur c a t e d. I n v i e w o f t he s am e , w e s e e n o r e a s on t o i n te r f e r e w i t h t h e or d e r o f t h e L d . CI T( A p p e a l s) a n d u p h o l d t h e s a m e i n r es t r i c t i n g t h e d i s a l l o w a n c e o f i n t e r e s t e x p e n ses b y c a pi t a l i ze d t h e s a me t o the e x t e n t o f R s . 3 , 1 5 , 81 , 0 8 4 /-. Th e g r ou n d of a p p e a l N o . 3 r a i s e d b y t h e R e v e n u e i s , t h ere f o r e , di s m i s s ed i n a b o v e t e r m s .
29. I n e f f e ct , t h e a p pe a l o f th e R e v enu e i s d i sm i s s e d.
30. I n the resul t, the appeal of the assessee i s all o w ed for stati sti cal purposes and the appeal of the Revenue is di smi ssed.
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 22 n d January, 2018
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)s
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh