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

ITA 182/AHD/2013

• Counselvise Citation: 18220514 RSA 2013
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: SUNIL H TOLOTI
• Keywords: Earning of tax free income
• Section: 14A; 80IB; 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.2630/AHD/2011 & 182/AHD/2013 A.YS: 2008-09 ACIT, B.K. CIRCLE PALANPUR VS THE BANASKANTHA DIST CO. OP. MILK PRODUCERS UNION LTD. PAN: AAAAB 0575E (REVENUE) (ASSESSEE) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. ASSESSEE(S) BY : SHRI SUNIL H. TOLOTI, A.R.. / // / DATE OF HEARING : 26/08/2013 / DATE OF PRONOUNCEMENT: 30/08/2013 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE TWO APPEALS PERTAINING TO THE SAME ASSESSEE, HENCE, CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDE R. A. ITA 2630/AHD/2011 FOR A.Y.2008-09 (REVENUES APPEAL ) 2. GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS: THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.87,39,536/- MADE BY THE ASSESSING OFFICER U/S. 1 4A R.W.R 8D. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED UNDER SECTION 143(3), DATED 31.12.2010 WERE THAT THE ASSESSEE CO-OPERATIVE SOCIETY IS IN T HE BUSINESS OF PROCURING OF MILK AND MANUFACTURING OF MILK PRODUCT S. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD CLAIMED DEDUC TION OF RS.2,28,90,110/- U/S. 80P(2)(D) OF IT ACT ON ACCOUN T OF INTEREST ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 2 - RECEIPT. THE ASSESSEE HAS ALSO CLAIMED DEDUCTION U/ S. 80P(2)(D) OF RS.82,44,575/- ON ACCOUNT OF DIVIDEND RECEIVED. IT HAS ALSO BEEN NOTED BY THE AO THAT THE ASSESSEE HAD DEBITED AN IN TEREST OF RS.7,64,45,713/-. THE QUERY OF THE AO WAS THAT THE INTEREST PAID ON LOANS BORROWED BY THE ASSESSEE WAS MORE THAN THE INTEREST RECEIVED ON LOANS ADVANCED, THEREFORE, A DISALLOWAN CE U/S.14A 36(1)(III) WAS REQUIRED TO BE MADE. IN COMPLIANCE, IT WAS SUBMITTED THAT THE DIVIDEND WAS RECEIVED FROM INV ESTMENT MADE FROM OWN FUNDS AND NOT FROM THE BORROWED FUNDS. HOW EVER, THE AO WAS NOT CONVINCED AND BY INVOKING THE PROVISIONS OF SECTION 14A AN ADDITION OF RS.18,21,203/- WAS MADE. 3.1 WHEN THE MATTER WAS CARRIED BEFORE THE FIRST AP PELLATE AUTHORITY, THE ASSESSEE HAS SUBMITTED AS UNDER, ONL Y RELEVANT PORTION IS REPRODUCED BELOW: THE APPELLANT IS A CO-OPERATIVE SOCIETY AND IS ELI GIBLE AND CLAIMING DEDUCTION OF INTEREST AND DIVIDEND INCOME U/S. 80)( 2)(D). DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CLAIMED A DED UCTION OF RS.82,44,575/- IN RESPECT OF INTEREST INCOME U/S. 8 0P(2)(D). THE AO ALSO OBSERVED THAT THE ASSESSEE IS PAYING AN INTERE ST OF RS.7,64,45,713/- ON THE WORKING CAPITAL FACILITIES AVAILED FROM VARIOUS BANKS. THUS THE LEARNED AO DISALLOWED RS.18 ,21,203/- OUT OF INTEREST PAID U/S. READ WITH RULE 8D HOLDING THAT T HE ASSESSEE IS PAYING INTEREST TO BANKS ON THE BORROWED FUND AND O N THE OTHER HAND IS EARNING INTEREST AND DIVIDEND INCOME FROM THE IN VESTMENTS MADE IN SHARES OF CO-OPERATIVE SOCIETIES WHICH ARE IN TURN NOT TAXABLE AS DEDUCTION IS AVAILABLE FOR THE SAME U/S. 80P(2)(D). .. ON THE PREPOSITION THAT PROVISION OF SECTION 14A HA VE NO APPLICATION TO THE INTEREST AND DIVIDEND INCOME CLAIMED TO BE D EDUCTIBLE UNDER CHAPTER VIA OF THE ACT, WE RELY ON THE DECISION OF HONBLE ITAT CHENNAI IN THE CASE OF TAMIL NADU SILK PRODUCERS FEDERATION LTD . REPORTED AT 105 ITD 623 WHEREIN IT WAS HELD THAT:- THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED TO THE PROVISIONS OF CHAPTER VI-A (SECTIONS 80A TO 80U) WHERE DEDUCTIONS ARE TO BE MADE IN COMPUTING THE TOTAL INCOME AND IN NO WAY THAT CA N BE COMPARED ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 3 - WITH THE EXEMPTED INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS PROVIDED, IN CHAPTER III, CONTAINING SECT IONS 10 TO 13A. THE RIGHT TO EXEMPTION IN RESPECT OF THE ITEMS LIST ED UNDER SECTIONS 10 TO 13A IS ABSOLUTE. THE PROVISIONS OF SECTION 14A W ERE INTRODUCED RETROSPECTIVELY WITH EFFECT FROM 1-4-1962 BY THE FI NANCE ACT, 2001 FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHA PTER IV AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO SUCH EXEMPTED INCOME. BUT T HE 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 (SECTIONS 80A TO 80U), EVEN THOUGH, AS A RESULT OF SUCH DEDUCTIONS, THE TAXABLE INCOME IS REDUCED WHOLLY OR PARTIALLY. THE COPY OF ABOVE DECISIONS OF CHENNAI TRIBUNAL ARE DISCLOSED HEREWIT H VIDE EXHIBIT D. 3.2 ON DUE CONSIDERATION OF THOSE FACTS, IT WAS HEL D THAT THE AO HAD FAILED TO ESTABLISH ANY NEXUS BETWEEN BORROWED FUNDS AND THE INVESTMENT MADE TO EARN EXEMPT INCOME. LEARNED CIT( A) HAS FURTHER OBSERVED THAT IT WAS FOUND THAT THE ASSESSE E HAD SURPLUS FUNDS. THE ACTION OF THE AO WAS REVERSED AND HELD T HAT NO DISALLOWANCE U/S 14A SHOULD HAVE BEEN MADE BY THE A O. 4. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH T HE SIDES. OUR ATTENTION HAS BEEN DRAWN ON THE BALANCE SHEET O F THE ASSESSEE DRAWN AS ON 31 ST OF MARCH, 2008, WHEREIN IT WAS FOUND THAT THE PAID UP SHARE CAPITAL WAS TO THE TUNE OF RS.37,05,8 8,000/- OUR ATTENTION HAS ALSO BEEN DRAWN THAT THE ASSESSEE HAD RESERVES ANOTHER FUNDS OF RS.20,43,06,246/- AS AGAINST THAT THE INVESTMENT IN SHARES, NSC, KVP WERE AT RS.8,17,57,010. ON THE BASIS OF THESE FIGURES, THE VEHEMENT CONTENTION IS THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS AND, THEREFORE, THERE WAS NO R EASON TO INVOKE THE PROVISIONS OF SECTION 14A OF THE IT ACT. THE OT HER PLANK OF ARGUMENT BEFORE US IS THAT THE ASSESSEE HAS NOT CLA IMED THAT ANY ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 4 - PART OF INCOME WAS TOTALLY EXEMPT FROM THE INCOME T AX. BUT THE FACT WAS THAT THE PROFIT AS PER P & L A/C WAS RS.7, 80,29,871/- AGAINST WHICH THE ASSESSEE HAS CLAIMED DEDUCTION U/ S 80IB AND U/S. 80P(2)(D) OF IT ACT. THE TOTAL ASSESSABLE INCO ME WAS COMPUTED AT RS.4,00,68,881/-. THE ASSESSEE HAS, THE REFORE, ARGUED BEFORE US THAT THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED TO THE PROVISIONS OF CHAPTER-VIA, I.E., IN RESPECT OF DEDUCTIONS U/S. 80A TO SECTION 80U OF THE IT ACT. THE ARGUMENT OF T HE ASSESSEE IS THAT THE DEDUCTION UNDER THE SAID CHAPTER IS TO BE MADE OUT OF THE COMPUTATION OF THE TOTAL INCOME. THOSE DEDUCTIONS A RE NOT LIKE EXEMPTED INCOME. SO THE ARGUMENT IS THAT THE PROVIS IONS OF SECTION 14A ARE TO BE ATTRACTED IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, I.E., AN INCOME EXEMPT UNDER THE ACT. IN THIS REGARD, A DECISION OF ITAT CHENNAI BEN CH PRONOUNCED IN THE CASE OF TAMIL NADU SILK PRODUCERS FEDERATION LTD. (SUPRA) HAS BEEN CITED. RESPECTFULLY FOLLOWING THIS DECISION AS ALSO CONSIDERING THE TOTALITY OF T HE 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 RESU LT, WE HEREBY AFFIRMED THE FINDING OF LEARNED CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 5. GROUND NO.2 IS REPRODUCED BELOW: THE LD. COMMISSIONER OF INCOME-TAX(A)-XV, AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION OF RS.1,5 6,21,478/- U/S. 80IB OF THE ACT IN RESPECT OF BANAS-II PLANT. ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 5 - 6. AT THE OUTSET, WE HAVE BEEN INFORMED THAT THIS I SSUE WAS REPEATEDLY CONSIDERED IN THE PAST YEARS IN ASSESSEE S FAVOUR AS IS EVIDENT FROM THE FOLLOWING PARAGRAPH OF THE CIT(A) ORDER: BRIEFLY STATED THE CONTENTIONS OF THE LEARNED AR A RE THAT FOR THE A.YS.2004-05, 2006-07 AND 2007-08, THE ORDER OF THE CIT(A) ALLOWING THE DEDUCTION WERE UPHELD BY THE TRIBUNAL; THE ENTI RE ACTIVITY OF MILK PROCESSING WAS CARRIED OUT AT THE APPELLANTS PLANT ONLY; THE PROCESSED MILK IS SENT TO DIFFERENT LOCATIONS WHERE THE BULK MILK IS PACKED IN SMALL POUCHES FOR SELLING IT TO THE CONSU MERS; THEREFORE, AOS OBSERVATION THAT 50% OF THE PROCESSING OF MILK WAS GIVEN ON JOB WORK TO OUTSIDERS IS FACTUALLY INCORRECT; THE ALLOC ATION OF EXPENDITURE BETWEEN TWO UNITS OF THE APPELLANT NAMELY BANAS-I A ND BANAS-II WAS DONE SCIENTIFICALLY BASED ON PRODUCTION CAPACITY AN D ACTUAL PRODUCTION DONE FOR DEDUCTION IS NOT WARRANTED. I A M DECLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT. FOLLOWING THE APPELLATE ORDERS FOR THE ASSESSMENT YEARS AS MENTIONED ABOVE, I HOLD THAT APPELLANT IS ENTITLED TO DEDUCTION U/S. 80IB. 6.1 THE ASSESSEE HAS SUBMITTED FEW ORDERS OF THE TR IBUNAL PRONOUNCED IN ASSESSEES OWN CASE LISTED AS FOLLOWS : (I) ITAT AHMEDABAD, BENCH D AHMEDABAD, IN ITA NO. 1163 & 1188/AHD/2008 FOR A.Y. 2004-05, ORDER DATED 7.11.20 08. (II) ITAT AHMEDABAD, BENCH A AHMEDABAD, IN ITA NO.1362/AHD/2009 FOR A.Y. 2006-07, ORDER DATED 22/0 1/2010. (III) ITAT AHMEDABAD, BENCH A AHMEDABAD IN ITA NO.2047/AHD/2010 FOR A.Y.2007-08, ORDER DATED 09.11 .2012. 7. A CONSISTENT VIEW HAS BEEN TAKEN THAT THE ASSESS EE IS PRIMARILY ENTITLED TO CLAIM THE DEDUCTION U/S. 80IB IN RESPECT OF THE UNITS UNDER CONSIDERATION. HOWEVER, IT WAS DIRE CTED THAT THE ASSESSEE IS REQUIRED TO FURNISH CERTAIN INFORMATION IN RESPECT OF COMPUTATION OF THE PROFIT. WE HAVE NOTED THAT FOR T HE YEAR UNDER CONSIDERATION EVEN LEARNED CIT(A) HAS ALSO ADDRESSE D THE ISSUE OF QUANTIFICATION OF ADMISSIBLE DEDUCTION BY REFERRING FEW DECISIONS OF THE TRIBUNAL. HE HAS DIRECTED THE AO TO WORKOUT THE QUANTUM OF THE DEDUCTION IN ACCORDANCE WITH THE FINDINGS OF THE TRIBUNAL. ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 6 - THEREFORE, WE FIND NO REASON TO INTERFERE WITH THOS E FINDINGS OF LEARNED CIT(A). HENCE DISMISS THIS GROUND OF THE RE VENUE. 8. IN THE RESULT, REVENUES APPEAL IS HEREBY DISMIS SED. B. ITA NO. 182/AHD/2013 A.Y. 2008-09 (ASSESSEES APPEA L) 9. THE ASSESSEE HAS FILED THIS APPEAL AGAINST AN OR DER OF LEARNED CIT(A)-XX, AHMEDABAD, DATED 17 TH OF NOVEMBER, 2012 AND THE MAIN GROUNDS WHICH ARE CONTESTED BEFORE US ARE REPRODUCED BELOW: THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING THE ADDITIONAL DISALLOWANCE OF RS.69,18,333/- U/S. 14A OF THE INCO ME TAX IN RESPECT OF INTEREST INCOME FROM DEPOSITS WITH CO-OP. BANK. IT IS SUBMITTED THAT THERE IS NO MISTAKE SIMPLICITOR ON RECORD IN CALCUL ATION OF DISALLOWANCE U/S. 14A READ WITH RULE 8D. VARIOUS DE TAILS OF INCOME AND INVESTMENTS WERE CALLED FROM THE ASSESSEE AND T HE LEARNED CIT(A) HAS ERRED TO APPRECIATE AND ALLOW THE SAME. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT THE LEARNED CIT(A) ERRED IN APPRECIATING THAT THE RECTIFICATION COULD NOT BE MADE OF MISTAKE APPARENT ON RECORDS AND WHERE THERE ARE NO TWO OR MORE VIEWS ARE POSSIBLE. IT HAS BEEN HELD BY VARIOUS TRI BUNALS THAT DISALLOWANCE U/S. 14A DOES NOT APPLIES TO INCOME FO R WHICH DEDUCTION U/S. 80P(2)(D) IS AVAILABLE. 10. AN ORDER UNDER SECTION 154 WAS PASSED BY THE AO DATED 14.3.2011 ACCORDING TO WHICH THE TOTAL DISALLOWANCE U/S.14 READ WITH RULE 8D WAS COMPUTED AT RS.87,39,536/-. THAT A CTION OF THE AO WAS CONTESTED BEFORE LEARNED CIT(A). 10.1 IT WAS HELD BY LEARNED CIT(A) THAT THE MAIN OR DER UNDER SECTION 154 WAS PASSED BY THE AO ON 14.3.2011 WHERE AS THE LEARNED CIT(A) HAS PASSED THE ORDER ON 4.8.2011. AC CORDING TO ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 7 - HIM THE AO HAD PASSED THE ORDER WHEN THERE WAS NO M ATTER SUB- JUDIS IN APPEAL. IT WAS ALSO NOTED BY LEARNED CIT(A ) THAT THE RELIEF GRANTED BY HIS PREDECESSOR WAS NOW CONTESTED BY THE REVENUE DEPARTMENT BEFORE THE HONBLE TRIBUNAL. IN HIS OPIN ION THE MERIT OF DISALLOWANCE U/S 14A WAS NOT REQUIRED TO BE CONS IDERED BY HIM BUT HE HAS TO DECIDE PRIMARILY THAT THE RECTIFICATI ON WAS RIGHTLY MADE BY THE AO U/S 154 OF THE IT ACT OR NOT. IT WAS HELD THAT THE PROVISIONS OF SECTION 154 WERE CORRECTLY INVOKED BY THE AO. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. 11. ON HEARING THE SUBMISSION OF BOTH THE SIDES, WE HEREBY HOLD THAT THE VIEW TAKEN BY LEARNED CIT(A) WAS NOT CORRECT. FIRSTLY, BECAUSE OF THE FACT THAT THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A WAS A DISPUTED ISSUE HENCE NOT RECTI FIABLE U/S 154 OF THE IT ACT. SECONDLY, THE IMPUGNED ADDITION BY T HE INVOCATION OF SECTION 14A DID NOT SURVIVE AT ALL IN VIEW OF OU R DECISION PRONOUNCED (SUPRA). WE HEREBY REVERSE THE FINDING O F LEARNED CIT(A) AND ALLOW THIS GROUND OF THE ASSESSEE. 12. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D AND ASSESSEES APPEAL IS ALLOWED. SD/- SD/- (A.K. GARODIA ) (MUK UL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMB ER AHMEDABAD; DATED 30/08/2013 PRABHAT KR. KESARWANI, SR. P.S. TRUE COPY ITA NO.2630/AHD/2011 & 182/AHD/2013 ACIT VS. BANASKANTHA DIST. CO. OP. M ILK PRODUCERS UNION LTD. A.YS. 2008-09 - 8 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD