Banaskantha Dist. Co.Operative Milk Producer's Union Ltd., Banaskantha V. The ACIT.,B.K.Circle, Palanpur

ITA 1090/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5884 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA AGA
• Assessee Lawyers: M K PATEL; TALATI
• Keywords: Earning of tax free income; Source of fund; Question of law
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE, SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 1891/AHD/2014 & 2987/AHD/2015 (ASSESSMENT YEARS : 2011-12 & 2012-13) THE PEOPLES CO-OPERATIVE CREDIT SOCIETY LTD., GROUND FLOOR, RISALA CHOWK, FIRE FIGHTER BUILDING, AT. DEESA-385 535, DIST. BANASKANTHA APPELLANT VS. ACIT, B. K. CIRCLE, C/O. INCOME TAX OFFICE, 2 ND FLOOR, SHRI. HARI COMPLEX, ABU HIGHWAY, PALANPUR 385 001 RESPONDENT PAN: AAAAT1739J & ITA NO. 1090 & 1582/AHD/2015 (ASSESSMENT YEAR : 2011-12) M/S. BANASKANTHA DIST. CO-OPERATIVE MILK PRODUCERS UNION LTD., BANAS DAIRY PALANPUR, BANASKANTHA 385001 APPELLANT/RESPONDENT VS. ACIT, B. K. CIRCLE, PALANPUR RESPON DENT/APPELLANT PAN: AAAAB0575E ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 2 - / BY ASSESSEE : SHRI M. K. PATEL & SHRI S.H. T ALATI, A.R. / BY REVENUE : SHRI PRASOON KABRA, SR. D.R. & S MT. APARNA AGARWAL, CIT.D.R. /DATE OF HEARING : 19.03.2018 /DATE OF PRONOUNCEMENT : 23.03.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS BATCH OF FOUR APPEALS PERTAINS TO TWO DIFFEREN T ASSESSEES NAMELY THE PEOPLES CO-OPERATIVE CREDIT SOCIETY LTD. AND M/S. BANASKANTHA DIST. CO-OPERATIVE MILK PRODUCERS UNION LTD. FORMER ASSESSEE HAS FILE D ITS TWO APPEALS ITA NOS. 1891/AHD/2014 & ITA NO.2987/AHD/2015 FOR ASSESSMENT YEARS 2011-12 & 2012- 13 AGAINST THE CIT(A)-XX & CIT(A)-IV, AHMEDABADS O RDERS DATED 07.05.2014 & 03.08.2015 IN CASE NOS. CIT(A)-XX/242/13-14 & CIT( A)-4/381/ACIT/BK CIR/PLNPR/14-15; RESPECTIVELY. LATTER ASSESSEE AND REVENUE HAVE FILED THEIR CROSS APPEALS ITA NOS. 1090 & 1582/AHD/2015 FOR ASSESSMENT YEAR 2011-12 AGAINST T HE CIT(A)-4, AHMEDABADS ORDER DATED 30.03.2015 IN CASE NO. CIT(A)-4/298/ACI T/B.K/14-15. RELEVANT PROCEEDINGS IN ALL CASES ARE U/S. 143(3) OF THE INC OME TAX ACT, 1961; IN SHORT THE ACT. 2. WE HEARD THESE FOUR CASES ON 19.03.2018. LEARNE D REPRESENTATIVES APPEARING ON BEHALF OF THESE TWO ASSESSEES AS WELL AS THE REV ENUE ARE AD IDEM THAT THE TAX PAYERS APPEAL HEREIN RAISE A COMMON ISSUE OF SECTI ON 80P DEDUCTION QUA RESPECTIVE SUMS IN THE NATURE OF INTEREST INCOME DERIVED FROM PARKING OF SURPLUS FUNDS IN THE PAYER/CO-OPERATIVE BANKS IN QUESTION. WE THUS TREA T FORMER ASSESSEES FIRST APPEAL ITA NO. 1891/AHD/2014 FOR ASSESSMENT YEAR 2011-12 A S THE LEAD CASE RAISING FOLLOWING SUBSTANTIVE GROUNDS: 1) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XX, AHMEDABAD HAS ERRED IN DIRECTING THE AO TO VERIFY WHETHER ANY INTEREST WAS RECEIVED BY THE APPELLANT ON ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 3 - SHORT TERM DEPOSITS AND GOVERNMENT SECURITIES WHICH IS NOT PERMITTED U/S. 251(1) OF THE I.T.ACT, 1961. 2) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - X X, AHMEDABAD HAS ERRED IN NOT ALLOWING THE DEDUCTION DIRECTLY U/S. 80P(2)( A)(I) OF THE I.T.ACT, 1961 AMOUNTING OF RS. 6,65,683=00 AND ERRED IN NOT PROPE RLY APPRECIATING THE EXPLANATION AND SUBMISSION OF THE APPELLANT. 3) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - X X, AHMEDABAD HAS ERRED IN NOT ALLOWING THE DEDUCTION U/S. 80P(2)(D) OF THE I.T.ACT, 1961 AMOUNTING TO RS. 27,97,019=00 AND ERRED IN NOT PROPERLY APPRECIATING THE EXPLANATION AND SUBMISSION OF THE APPELLANT. 4) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XX, AHMEDABAD HAS ERRED IN NOT APPRECIATING THE FACT, THAT THE PROVISIONS O F SECTION 80P(4) BEING NOT APPLICABLE, CONSIDERING THE FACTS OF THE CASE OF TH E APPELLANT, AND AS SUCH ERRED IN NOT GRANTING THE DEDUCTION U/S. 80P(2)(A)(I) AND U/ S. 80P(2)(D) AS CLAIMED AND ALSO IN NOT PROPERLY APPRECIATING THE JUDGEMENT OF HON'B LE GUJ. HIGH COURT GIVEN IN THE CASE OF CIT GANDHINAGAR V. JAFRI MOMIN VIKAS CO-OPE RATIVE CREDIT SOCIETY LTD PASSED VIDE ORDER DATED 15/01/2014. 5) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - X X, AHMEDABAD HAS ERRED IN STATING THAT BANAS BANK IS NOT A CO-OPERATIVE SO CIETY WITHOUT CRINGING ANY CORROBORATIVE EVIDENCE ON RECORD AND FAILED TO APPR ECIATE THE FACT THAT STATUS OF CO- OPERATIVE BANK IS CO-OPERATIVE SOCIETY AND AS SUCH DEDUCTION U/S. 80P(2)(D) IS ADMISSIBLE IN THE CASE OF THE APPELLANT. 6) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE L D. COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHMEDABAD MAY BE SET-ASIDE AND THE RE TURN OF INCOME OF THE APPELLANT BE ACCEPTED. 3. MR. PATEL SUBMITS FIRST OF ALL THAT HE IS NOT PR ESSING FOR ASSESSEES 1 ST , 4 TH TO 7 TH SUBSTANTIVE GROUNDS BEING GENERAL IN NATURE. HE T HEN INVITES OUR ATTENTION TO ASSESSEES SECOND SUBSTANTIVE GROUND CHALLENGING CO RRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DISALLOWING / ADDING SECTION 80 P(2)(A)(I) DEDUCTION OF RS.6,65,683/- OUT OF ITS TOTAL CLAIM OF RS.34,62,70 0/-. THE CIT(A) QUOTES HONBLE APEX COURTS DECISION IN TOTAGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283 (SC) IN DIRECTING THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSESSEE HAS RECEIVED ANY INCOME FROM SHORT TERM DE POSITS AND GOVERNMENT SECURITIES. HE MAKES IT CLEAR THAT THE ASSESSING A UTHORITY SHALL TREAT THE CORRESPONDING INCOME UNDER THE HEAD INCOME FROM OT HER SOURCES IN CASE THE FINAL OUTCOME OF THE FORMER DIRECTION IS IN AFFIRMATIVE. LEARNED COUNSEL REPRESENTING ASSESSEE FAILS TO PINPOINT ANY DISTINCTION ON FACTS OR LAW THEREIN. WE THUS FIND NO ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 4 - REASON TO INTERFERE WITH LEARNED CIT(A)S DIRECTION S UNDER CHALLENGE. THIS SECOND SUBSTANTIVE GROUND IS THEREFORE DECLINED. 4. WE NOW ADVERT TO THE LEAD ISSUE OF SECTION 80(P) (2) DISALLOWANCE OF RS.27,97,019/- IN RESPECT OF ASSESSEES INTEREST IN COME DERIVED FROM ITS DEPOSITS WITH THE BANAS CO-OPERATIVE BANK. BOTH THE LOWER A UTHORITIES QUOTE THE LEGISLATIVE AMENDMENT VIDE FINANCE ACT, 2006 W.E.F. 01.04.2007 INSERTING SUBSECTION 4 IN SECTION 80P AS WELL AS CBDTS EXPLANATORY NOTES TO THE ABOVE FINANCE ACT DATED 28.122006 IN HOLDING THAT THE IMPUGNED INTEREST INC OME DERIVED FROM CO-OPERATIVE BANK IS NOT ELIGIBLE FOR DEDUCTION. LEARNED DEPART MENTAL REPRESENTATIVE VEHEMENTLY CONTENDS THAT HONBLE KARNATAKA HIGH COU RTS RECENT DECISION IN (2017) 83 TAXMANN.COM 140 (KARNATAKA) PCIT VS. TOTAGARS CO -OPERATIVE SALE SOCIETY HAS SETTLED THE LAW THAT SUCH AN INCOME IS NOT ALLOWABL E AS SECTION 80P DEDUCTION IN VIEW OF THE LEGISLATIVE AMENDMENT HEREINABOVE. MR. KABRA THEREAFTER FILES HONBLE APEX COURTS JUDGMENT IN (2017) 397 ITR 1 (SC). TH E CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT SETTLING SECTION 80P DEDUCTION ISSUE IN RESPECT OF ORDINARY AND NOMINAL MEMBERS. WE HOWEVER FIND THAT THE ABOVE FO RMER DECISION GOES CONTRARY TO HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN TAX APPEAL NO. 473 OF 2014 CIT VS. SABARKANTHA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD. DECLINING REVENUES IDENTICAL QUESTION OF LAW CHALLENGING TRI BUNALS DECISION ALLOWING SECTION 80P DEDUCTION IN RESPECT OF INTEREST EARNED ON FIXED DEPOSITS WITH A COOPERATIVE BANK IN ASSESSMENT YEAR 2009-10 I.E. PO ST SECTION 80P(4) AMENDMENT W.E.F. 01.04.2007. THEIR LORDSHIPS REASONING TO TH IS EFFECT READS AS UNDER: 4.0. NOW, SO FAR AS PROPOSED QUESTION NO. B I.E. W HETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALLY ERRED IN UPHOLDING THE ORDER OF T HE CIT(A) IN DELETING THE DISALLOWANCES OF RS.1,42,19,5157- UNDER SECTION 80( P)(2)(D) OF THE ACT IS CONCERNED, IT IS REQUIRED TO BE NOTED THAT THE ASSE SSEE CLAIMED DEDUCTION UNDER SECTION 80(P)(2)(D) OF THE ACT ON THE INTEREST EARN ED ON THE FIXED DEPOSIT WITH COOPERATIVE BANK AND THE SOCIETIES AND IT HAS BEEN FOUND THAT AS SUCH THE INCOME WAS RECEIVED FROM THE INVESTMENT IN COOPERATIVE SOC IETIES AND COOPERATIVE BANK. CONSIDERING SECTION 80(P)(2)(D) OF THE ACT WHEN THE ONLY REQUIREMENT WAS THAT THE INCOME SHOULD BE RECEIVED FROM INVESTMENT IN COOPER ATIVE SOCIETIES AND THE COOPERATIVE BANK WHICH IN THE PRESENT CASE HAS BEEN FULFILLED, IT CANNOT BE SAID THAT THE LEARNED TRIBUNAL HAS COMMITTED ANY ERROR I N DELETING DISALLOWANCE OF RS.1,42,19,515/- UNDER SECTION 80(P)(2)(D) OF THE A CT. WE ARE IN COMPLETE ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 5 - AGREEMENT WITH THE VIEW TAKEN BY THE LEARNED TRIBUN AL. UNDER THE CIRCUMSTANCES, PROPOSED QUESTION B IS ALSO ANSWERED AGAINST THE RE VENUE. WE THEREFORE FOLLOW HONBLE JURISDICTIONAL HIGH CO URTS JUDGMENT THAN HONBLE KARNATAKA HIGH COURTS DECISION. COMING TO HONBLE APEX COURTS DECISION IN THE CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA), WE FIND THAT THERE IS NO DISPUTE ABOUT THE CATEGORY OF MEMBERS AS IT WAS BEFORE THEI R LORDSHIPS. WE THUS CONCLUDE IN VIEW OF ALL THESE FACTS AND CIRCUMSTANCES THAT H ONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IS BINDING ON US. WE ACCORDINGLY DELETE T HE IMPUGNED DISALLOWANCE OF RS.27,97,019/- IN QUESTION. THIS LEAD APPEAL ITA N O. 1891/AHD/2014 IS PARTLY ACCEPTED. 5. FORMER ASSESSEES REMAINING APPEAL ITA NO. 2987/ AHD/2015 ALSO RAISES ASSESSEES SOLE SUBSTANTIVE GROUND OF DISALLOWANCE OF 80P DEDUCTION OF RS.13,53,864/- QUA INTEREST INCOME DERIVED FROM THE COOPERATIVE BANK IN QUESTION. WE FOLLOW OUR PRECEDING REASONING TO HOLD THAT THE ASSESSEE IS ENTITLED FOR THE IMPUGNED DEDUCTION. THIS LATTER APPEAL ITA NO. 298 7/AHD/2015 IS THEREFORE ACCEPTED. 6. WE NOW ADVERT TO CROSS APPEALS PERTAINING TO LAT TER ASSESSEE M/S. BANASKANTHA DIST. COOPERATIVE MILK PRODUCERS UNION LTD. BOTH THE PARTIES ARE AD IDEM THAT ASSESSEES SOLE SUBSTANTIVE GRIEVANCE HER EIN CHALLENGES THE CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DISALLOWING SECT ION 80P DEDUCTION OF RS.7,19,41,260/- ON THE SAME REASONING THAT IT IS I N THE NATURE OF INTEREST INCOME DERIVED FROM COOPERATIVE BANKS. LEARNED COUNSEL SE EKS TO DRAW A DISTINCTION THAT THE AMOUNT OF RS.1,39,11,275/- IS IN THE NATURE OF DIVIDEND RECEIVED FROM VARIOUS COOPERATIVE SOCIETIES. WE OBSERVE THAT THIS ISSUE IS RENDERED ACADEMIC SINCE WE HAVE ALREADY DECIDED THE ISSUE OF ALLOWABILITY OF S ECTION 80P DEDUCTION IN PRINCIPLE AGAINST THE REVENUE HEREINABOVE. THE ASSESSEES IN STANT APPEAL ITA NO.1090/AHD/2015 THUS SUCCEEDS ACCORDINGLY. 7. WE NOW ADVERT TO THE REVENUES CROSS APPEAL ITA NO. 1582/AHD/2015. ITS SOLE SUBSTANTIVE GROUND IS THAT THE CIT(A) HAS ERRE D IN LAW AS WELL AS ON FACTS IN ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 6 - REVERSING ASSESSING OFFICERS ACTION MAKING SECTION 14A DISALLOWANCE OF RS.3,91,35,065/- IN RELATION TO THE ABOVE DIVIDEND INCOME WITH THE FOLLOWING DETAILED DISCUSSION: 5. THE SECOND AND THE THIRD GROUND OF APPEAL RELAT ES TO ADDITION OF RS.3,91,35,065/-MADE BY THE AO U/S 14A OF THE ACT. THE AO NOTED THAT APPELLANT HAS DEDUCTED INTEREST OF RS.43,53,44,446/-. THE A O ASKED THE APPELLANT TO EXPLAIN WHY DISALLOWANCE SHOULD NOT BE MADE U/S 14A AS APPE LLANT WAS PAYING INTEREST ON FUNDS WHICH WERE UTILIZED FOR EARNING INCOME CLAIME D AS EXEMPTED U/S 80P & 80IB. THE APPELLANT EXPLAINED THAT THE INTEREST PAYMENT W AS MADE FOR WORKING CAPITAL FACILITY AVAILED FOR DAY TO DAY OPERATIONAL PURPOSE AND BORROWED FUNDS WERE EXCLUSIVELY USED FOR PURPOSE OF MILK PAYMENT AND DA Y TO DAY WORKING CAPITAL REQUIREMENTS ONLY. THERE WAS NO DEVIATION IN USAGE OF LOANS FROM THE PURPOSES FOR WHICH THE LOANS WERE TAKEN AND NO BORROWED FUNDS WE RE USED FOR MAKING THE INVESTMENT. THE ABOVE EXPLANATION WAS NO ACCEPTED B Y THE AO WHO NOTED THAT APPELLANT, ON ONE HAND, BORROWED FUNDS FOR WORKING CAPITAL AND ON THE OTHER HAND MADE INVESTMENTS AND EARNED DIVIDEND WHICH WAS NOT FORMING PART OF THE TOTAL INCOME. ACCORDINGLY, THE AO CALCULATED DISALLOWANCE U/S 14A AS PER RULE 8D OF THE INCOME TAX RULES AMOUNTING TO RS.3,91,35,065/-. HOW EVER, NO SEPARATE ADDITION WAS MADE BY THE AO OF THIS AMOUNT AS IT WAS TREATED AS MERGED WITH THE DISALLOWANCE MADE U/S 80P(2)(D). THE AO HAS HELD TH AT IF AT ANY STAGE DEDUCTION U/S 80P(2)(D) IS FOUND ALLOWABLE, DISALLOWANCE OF R S.3,91,35,065/- MADE U/S 14A WOULD COME TO EFFECT. 5.1 THE RELEVANT PART OF THE SUBMISSION FURNISHED B Y THE APPELLANT IS REPRODUCED AS BELOW : 'THE SECOND GROUND OF APPEAL IS WITH REGARD TO AN A DDITION OF RS. 3,91,35,067/- U/S. 14A OF THE INCOME TAX ACT. HOWEVER THE A.O. HAS STA TED IN PARA 3.2 OF THE ORDER ' BUT AS DEDUCTION CLAIMED U/S 80P(2) HAS ALREADY BEE N DISALLOWED, THIS DISALLOWANCE U/S 14A WILL BE TREATED AS MERGED WITH THE DISALLOW ANCE U/S 80P2(D) AND WILL BECOME EFFECTIVE ONLY IF DEDUCTION CLAIMED U/S 80P( 2)(D) IS FOUND ALLOWABLE AT LATER STAGE. THE LD. A.O. HAS MADE AN ADDITION INVOKING T HE PROVISION OF SECTION 14A OF THE ACT READ WITH RULE 8D STATING IN PARA 3.3. OF T HE ORDER ' THE ASSESSEE HAS ON ONE HAND BORROWED FUNDS FOR WORKING CAPITAL DURING THE YEAR AND ON OTHER HAND MADE INVESTMENTS AND IS EARNING DIVIDEND WHICH IS N OT PART OF TOTAL INCOME. THUS SECTION 14A IS SQUARELY APPLICABLE. 'DURING THE COU RSE OF ASSESSMENT, THE APPELLANT HAS SUBMITTED THE COMPLETE DETAILS REGARDING THE IN TEREST EXPENSES WAS GIVEN AND ALSO THE PURPOSE AND APPLICATION OF SUCH INTEREST B EARING FUNDS WAS PROVIDED TO THE AO. THE SOCIETY HAD BEEN INVESTING THE SURPLUS FUND S IN FIXED DEPOSITS AND SHARES OF COOPERATIVE SOCIETIES SINCE LONG AND OUT OF ITS OWN FUNDS ONLY. DURING THE YEAR UNDER CONSIDERATION AO DID NOT FOUND ANY MATERIAL O N THE RECORD WHICH PROVES THAT THE BORROWED FUNDS WERE USED FOR THE PURPOSE OF MAK ING INVESTMENT IN DEPOSITS AND SHARES OF COOPERATIVE SOCIETIES. THE LD. A.O. HAS C LEARLY FAILED TO PROVE THE NEXUS BETWEEN THE BORROWED FUNDS AND USE OF BORROWED FUND S FOR THE INVESTMENT IN CO. OPERATIVE SOCIETY. ON OTHER SIDE THE ASSESSEE HAD C LEARLY SHOWED THE NEXUS OF FUNDS USED IN INVESTMENTS IN DEPOSITS AND SHARES OF CO. OPERATIVE SOCIETIES BY CLEARLY SHOWING THE SOURCE OF FUNDS FOR INVESTMENT IN DEPOSITS AND SHARES OF ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 7 - COOPERATIVE SOCIETIES IS FUNDS RECEIVED FROM FEDERA TION FOR SALE OF MILK BILL ON VARIOUS DATES. THOUGH THE APPLICATION OF RULE 8D IS NOT APPLICABLE UNLESS THE NEXUS HAS BEEN PROVED THAT THE BORROWED FUNDS BEING USED FOR EARNI NG EXEMPT INCOME OR INCOME NOT BEING PART OF TOTAL TAXABLE INCOME. THE LD. AO HAS INVOKED SEC. 14A READ WITH RULE 8D INCORRECTLY AND CALCULATED THE AMOUNT OF DI SALLOWANCE. IT IS SUBMITTED THAT THE APPELLANT HAS HUGE OWN FUNDS OUT OF WHICH THE I NVESTMENT HAS BEEN MADE DURING THE YEAR AS WELL IN ALL EARLIER YEARS. IT CA N BE SEEN FROM THE COPIES OF AUDITED ACCOUNT FOR THE A.Y. 2011-12 ALONG WITH STA TEMENT ( INVESTMENT CHART) ENCLOSED ON PAGE 59 TO 63 SHOWING THE HUGE INTEREST FREE FUNDS AVAILABLE WITH APPELLANT SINCE A.Y. 2002-03 TILL THE DATE AND OUT OF WHICH ONLY 15% FUNDS HAVE BEEN USED FOR MAKING THE INVESTMENT REFLECTED IN B/ S AS ON 31/03/2011. SECONDLY, THE APPELLANT HAS TO SUBMIT THAT PROVISIO NS OF SECTION 14A ARE JUST NOT APPLICABLE INASMUCH AS ON THE PREPOSITION THAT PROV ISION OF SECTION 14A HAVE NO APPLICATION TO THE INTEREST AND DIVIDEND INCOME CLA IMED TO BE DEDUCTIBLE UNDER CHAPTER VIA OF THE ACT, WE RELY ON THE DECISION OF HON'BLE IT AT CHENNAI IN THE CASE OF TAMIL NADU SILK PRODUCERS FEDERATION LTD. R EPORTED AT 105 ITD 623 WHEREIN IT WAS HELD AS ' THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED TO THE PROVISIONS OF CHAPTER VI-A (SECTIONS 80A TO SOU) WH ERE DEDUCTIONS ARE TO BE MADE IN COMPUTING THE TOTAL INCOME AND IN NO WAY THAT CA N BE COMPARED WITH THE EXEMPTED INCOME WHICH DOES NOT FORM PART OF THE TOT AL INCOME AS PROVIDED, IN CHAPTER III, CONTAINING SECTIONS 10 TO 13 A. THE RI GHT TO EXEMPTION IN RESPECT OF THE ITEMS LISTED UNDER SECTIONS 10 TO 13A IS ABSOLUTE. THE PROVISIONS OF SECTION 14A WERE INTRODUCED RETROSPECTIVELY WITH EFFECT FROM 1- 4-1962 BY THE FINANCE ACT, 2001 FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHAPTER IV AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH EXEMPTED INCOME. BUT THE PROVISIONS OF SECTION 14A DO NOT SPEAK ABOUT THE DEDUCTIONS TO BE MADE IN COMPUTING THE TOTAL INCOME AS PER THE PROVISIONS OF CHAPTER VI-A (SECTION 80A TO 80U), EVEN THOUGH, AS A RESULT OF SUCH DEDUCTIONS, THE TAXABLE INCOME IS REDUCED WHOLLY AND PARTIALLY. ' IN ANY EVENT IN THE APPELLANT'S OWN CASE IN THE ASS T. YEAR 2008-09 HON'BLE I.T.A.T. BENCH A, AHMEDABAD IN IT A NO. 2630/AHD72011 HAD CL EARLY HELD AS UNDER : 'RESPECTFULLY FOLLOWING THIS DECISION AS ALSO CONSI DERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT LEARNED CIT(A) HAS RIGHTLY HELD THAT THE PROVISIONS OF SECTION 14A HAVE WRONGLY BEEN INVOKED IN THIS CASE. IN THE RESULT, WE HEREBY AFFIRMED THE FI NDING OF LEARNED CIT(A) AND DISMISS THIS GROUND OF THE REVENUE.' FURTHER THE CIT (A) HAS ALSO DECIDED THE MATTER IN FAVOR OF THE ASSESSEE IN ALL EARLIER YEARS INCLUDING A.Y.2009-10 AS WELL AS A.Y. 2010-11 AND DELETED THE DISALLOWANCE BY LD . A.O. THE COPIES OF ORDER PASSE D BY HON'BLE IT AT IN ASSESSE'S OWN CASE FOR A.Y.2008-09 AND BY HON'BLE CIT(A) IN A .Y.2009-10 & 2010-11 ARE ENCLOSED HEREWITH AS PER PAGE NO 64 TO 71, 71 TO 92 & 93 TO 118 FOR YOUR VERIFICATION. THE APPELLANT ALSO RELIES ON THE DECI SION OF HON'BLE GUJARAT IN CASE OF CIT VS. TORRENT POWER LTD. , WHEREIN IT IS CLEARLY HELD THAT ' WHERE IT WAS APPARENT FROM RECORDS THAT ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENTS IN SHARES AND INTEREST FREE BONDS AND IT HAD NOT USED BORROWE D FUNDS FOR SUCH PURPOSE, ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 8 - ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING PRO VISIONS OF SECTION 14A IN ORDER TO DISALLOW ONE PER CENT OF INTEREST EXPENSES INCURRED FOR EARNING EXEMPT INCOME ' THE COPY OF DECISION IS ALSO ENCLOSED HEREWITH AS P ER PAGE NO. 119 TO 120 FOR YOUR VERIFICATION. IN VIEW OF THE ABOVE SUBMISSION AS WELL AS THE MATT ER IS FULLY COVERED IN FAVOR OF APPELLANT'S IN ITS OWN CASE AS WELL AS IN OTHER CAS ES, THE ADDITION MADE U7S. 14A OF RS. 3,91,35,065/-SHOULD NOT BE CONFIRMED AND THE SA ME BE DELETED.' 5.2 I HAVE CONSIDERED THE FACTS AS REPORTED IN THE ASSESSMENT ORDER AND THE SUBMISSIONS FILED BY THE APPELLANT. 5.2.1 THE AO HAS MADE THE DISALLOWANCE OF THE INTER EST AND EXPENSES INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AMOUNTING TO RS.3,91,35,065/-. THE AO CONCLUDED THAT THE APPELLANT HAD RECEIVED INTEREST AND DIVIDEND OF RS.7,19,41,260/- AND THOSE INCOMES HAVE BEEN CLAIME D AS DEDUCTION U/S.80P(2)(D) OF THE ACT. ON THE OTHER SIDE, THE APPELLANT HAD TH E INTEREST EXPENSES OF RS.42,53,44,446/-. SO, AO WAS OF THE VIEW THE INTER EST BEARING FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE TO EARN THE EXEMPTED INCOM E. IN THE TABLE, AT PAGE NO.7 OF ASSESSMENT ORDER THE WORKING OF THE DISALLOWANCE U/ S14A HAS BEEN MADE. IT HAS BEEN FOUND THAT THE AO HAS TAKEN THE FIGURE OF SHAR E INVESTMENT, OF RS.8,17,57,000/- AND THE DEPOSITS WITH BDCC BANK AT RS. 1,31,00,00,0 00/- AND THE AVERAGE INVESTMENTS WERE WORKED AT RS.84,79,62,26 /- FOR WO RKING OUT THE DISALLOWANCE IN THE FORMULA PROVIDED UNDER RULE-8D OF I.T. RULES. 5.2.2 THE APPELLANT SUBMITTED THAT NO INVESTMENTS D URING THE YEAR UNDER CONSIDERATION IN SHARE HAVE BEEN MADE AND THE ENTIR E SHARE INVESTMENT OF RS.8,17,57,000/- WAS VERY OLD AS IS APPARENT FROM T HE BALANCE SHEETS AND THE DECISION OF THE HON'BLE ITAT, AHMEDABAD IN APPELLAN T'S OWN CASE IN ITA NO.2630/AHD/2011 AND 182/AHD/273 FOR A.Y. 2008-09. SO, THE SAME INVESTMENT WAS ALSO IN A.Y. 2008-09 AND THEREAFTER NO NEW INVESTME NT TILL END OF THE YEAR UNDER CONSIDERATION HAVE BEEN MADE. THE APPELLANT ALSO CO NTENDED THAT ON THE SIMILAR FACTS, THE HON'BLE ITAT IN A.Y. 2008-09 HAS OBSERVE D THAT THE APPELLANT HAD THE SHARE CAPITAL OF RS.37,05,88,000/- AND THE RESERVES AND OTHER FUNDS AT RS.20,43,06,246/- TOTALING TO RS.57,48,94,246/- WHI LE THE INVESTMENTS OUT OF THEM WERE ONLY AT RS.8,17,57,010/-. SO, THE INTEREST FRE E FUNDS WERE MUCH HIGHER THAN THE INVESTMENT IN SHARES. CONSIDERING THE AVAILABILITY OF INTEREST FREE FUNDS AVAILABLE AND THE DECISION OF THE HON'BLE ITAT, CHENNAI BENCH IN THE CASE OF TAMILNADU SILK PRODUCERS FEDERATIONS LTD. THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 14A WAS DELETED IN A.Y. 2008-09 BY THE HON'BLE ITAT IN APPELLANTS O WN CASE. 8. WE HAVE HEARD RIVAL CONTENTIONS. CASE FILE PERU SED. LEARNED COUNSEL REPRESENTING ASSESSEE URGES US TO ADOPT JUDICIAL CO NSISTENCY AS THIS TRIBUNAL HAS DECIDED THE VERY ISSUE AGAINST THE REVENUE IN PRECE DING ASSESSMENT YEARS. LEARNED DEPARTMENTAL REPRESENTATIVE FIRST OF ALL QUOTES HON BLE PUNJAB & HARYANA HIGH COURTS JUDGMENT (2016) 67 TAXMANN.COM 27 (PUNJAB & HARYANA) PUNJAB STATE COOPERATIVE MILK PRODUCERS FEDERATION LTD. VS. CIT DECIDING THE ISSUE IN ITA NO. 1891/AHD/14 & 3 ORS. [THE PEOPLES CO-OP. CR EDIT SOCIETY LTD. & ANOTHER ] - 9 - REVENUES FAVOUR THAT SECTION 14A DISALLOWANCE PROV ISION IS APPLICABLE EVEN TO INCOME CLAIMED AS DEDUCTION U/S.80P(2)(D) OF THE AC T. MR. KABRA THEN CITES HONBLE APEX COURTS LATEST JUDGMENT IN MAXOPP INVESTMENT L TD. VS. CIT IN CIVIL APPEAL NOS. 104-109 OF 2015 SETTLING THE LAW THAT THE IMPU GNED DISALLOWANCE HAS TO BE MADE IN CASE AN ASSESSEE HAS DERIVED ANY EXEMPT INC OME REGARDLESS OF ITS PURPOSE TEST. WE THUS ACCEPT REVENUES INSTANT SUBSTANTIVE GROUND IN PRINCIPLE AND DIRECT THE ASSESSING OFFICER TO FRAME CONSEQUENTIAL COMPUT ATION AS PER LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. R EVENUES INSTANT SOLE SUBSTANTIVE GROUND AND MAIN APPEAL ITA NO. 1582/AHD/2015 IS ACC EPTED FOR STATISTICAL PURPOSES. 9. WE QUOTE OUR ABOVE DETAILED DISCUSSION TO PARTLY ALLOW FORMER ASSESSEES APPEAL ITA NOS. 1891/AHD/2014 AND ALLOW ITS APPEAL ITA NO.2987/AHD/2015 & LATTER ASSESSEES APPEAL ITA NO.1090/AHD/2015. REV ENUES APPEAL ITA NO.1582/AHD/2015 IN CASE OF LATTER ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. [PRONOUNCED IN THE OPEN COURT ON THIS THE 23 RD DAY OF MARCH, 2018.] SD/- SD/- ( N. K. BILLAIYA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIA L MEMBER AHMEDABAD: DATED 23/03/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )* + ,--. . /0 / DR, ITAT, AHMEDABAD 1 + 23 4 5 / GUARD FILE. BY ORDER / . // . /0