The Haryana State Co-operative Supply and Marketing Federation Ltd., Panchkula V. DCIT, Panchkula

ITA 48/CHANDI/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6682 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 21-02-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 28-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GULSHAN RAJ
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 14A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.48/CHD/2016 (ASSESSMENT YEAR : 2012-13) THE HARYANA STATE CO-OPERATIVE VS. THE D.C.I.T., AND MARKETING FEDERATION LTD., PANCHKULA CIRCLE, CORPORATE OFFICE, SECTOR 5, PANCHKULA. PANCHKULA, HARYANA. PAN: AAAJH0022R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMAN PARTI RESPONDENT BY : SHRI GULSHAN RAJ, ADDL.CIT DR DATE OF HEARING : 09.10.2017 DATE OF PRONOUNCEMENT : 30.10.2017 ORDER PER ANNAPURNA GUPTA, A.M. : THIS APPEAL FILED BY THE ASSESSEE HAS BEEN PREFERRE D AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX(APPEALS), PANCHKULA (HEREINAFTER REFERRED TO AS CIT(APPEALS)) DATED 27.11.2015 RELATING TO ASSESS MENT YEAR 2012-13. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN APEX- COOPERATIVE SOCIETY IN THE STATE OF HARYANA HAVING INCOME FROM TRADING AND MARKETING OF FOODGRAINS AND IN ITS RETURN OF INCOME FILED DURING THE YEAR IT HAD CLAIMED DEDU CTION U/S 80P(2)(D) OF THE INCOME TAX ACT, 1961 (IN SHORT TH E ACT) ON ACCOUNT OF INTEREST AND DIVIDEND INCOME EARNED AND U/S 80P(2)(E) ON ACCOUNT OF RENTAL INCOME EARNED FOR LE TTING OUT OF GODOWN, ETC. WHICH WAS DENIED BY THE ASSESSING O FFICER AND THE SAME WAS UPHELD BY THE LD.CIT(APPEALS). AG AINST 2 THESE TWO ACTIONS OF THE LD.CIT(APPEALS) THE ASSESS EE HAS PREFERRED THE PRESENT APPEAL RAISING THE FOLLOWING EFFECTIVE GROUNDS: 2.THAT THE CIT(A) ERRED IN FACTS AND IN LAW IN UPHO LDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 80P(2)(D) AMOUNTING TO RS.7,25,20,354/-BY INVOKING TH E PROVISIONS OF RULE 8D READ WITH SECTION 14A OF THE INC OME TAX ACT, 1961. THAT EVEN OTHERWISE, THE CIT(A) ERRE D 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) AMOUNTIN G TO RS 8,69,01,552/- IN RESPECT OF THE RENT DERIVED B Y 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 AR E 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 ASSESSEE U/S 80P(2)(E) OF THE ACT IN RESPECT OF REN TAL INCOME DERIVED BY IT. 4. GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST TH E ORDER OF THE LD.CIT(APPEALS) UPHOLDING THE DENIAL OF DEDU CTION CLAIMED BY THE ASSESSEE U/S 80P(2)(D) OF THE ACT AM OUNTING TO RS.7,25,20,354/- ON ACCOUNT OF INTEREST AND DIVI DEND 3 INCOME EARNED BY IT. THE ASSESSEE HAD CLAIMED 100% DEDUCTION OF THE INTEREST AND DIVIDEND INCOME EARNE D BY IT WITHOUT REDUCING ANY PROPORTIONATE EXPENDITURE AND HAD CLAIMED BEFORE THE ASSESSING OFFICER THAT NO COST HAD BEEN INCURRED ON THIS INVESTMENT. THE ASSESSING OFFICER DISALLOWED THE CLAIM AFTER COMPUTING THE DISALLOWAN CE OF EXPENDITURE AS PER SECTION 14A R.W.R. 8D OF THE INC OME TAX RULES, 1962. 5. THE LD.CIT(APPEALS) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOLLOWING HIS ORDER IN THE CA SE OF ASSESSEE FOR ASSESSMENT YEAR 2011-12. FURTHER THE LD. CIT(A) EMPHASIZED THE ISSUE OF APPLICABILITY OF SE CTION 14A R.W.R. 8D IN THE CASE OF THE ASSESSEE, POINTING OUT THAT THE ISSUE CAME UP BEFORE THE I.T.A.T. IN ASSESSMENT YEA RS 2004- 05 AND 2005-06 ALSO WHEREIN THE I.T.A.T. RESTORED T HE MATTER TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFT ER RECOGNIZING THE LD. DRS CONTENTION THAT IT REQUIRE S EXAMINATION IN PURSUANCE TO RULE 8D OF THE INCOME T AX RULES. THE LD.CIT(APPEALS) FURTHER POINTED OUT THA T THE LD.CIT(APPEALS) WHILE DECIDING THE APPEAL AGAINST THE ASSESSMENT ORDER PASSED AFTER THE AFORESAID DIRECTI ON OF THE I.T.A.T. MENTIONED THAT THE ASSESSEE ACCEPTED THAT THE DISALLOWANCE NEEDED TO BE MADE AS PER RULE 8D AND ACCORDINGLY, THE LD.CIT(APPEALS) DIRECTED THE ASSES SING OFFICER TO REWORK THE DISALLOWANCE. THIS VIEW WAS FOLLOWED IN SUBSEQUENT YEARS ALSO. THEREFORE, THE LD.CIT(AP PEALS) HELD THAT THE ASSESSEES SUBMISSION OF NON APPLICAB ILITY OF 4 SECTION 14A WAS NOT ACCEPTABLE SINCE THERE WAS NO C HANGE IN FACTS AS COMPARED TO THE PRECEDING YEARS. 6. BEFORE US, THE LD. COUNSEL FOR ASSESSEE RAISED S EVERAL CONTENTIONS AS UNDER: 1) THAT DISALLOWANCE U/S 14A R.W.R. 8D WAS NOT APPLICABLE SINCE THE ISSUE DID NOT PERTAIN TO EXEMP T INCOME BUT TO INCOMES WHICH WERE ALLOWED DEDUCTION UNDER CHAPTER-VI-A. 2) THAT IN ANY CASE, EVEN IF THE SECTION 14A R.W.R. 8D WAS APPLICABLE, NO DISALLOWANCE OF ANY INTEREST EXPENDITURE AS PER RULE 8D(2)(II) WAS TO BE MADE SI NCE THE ASSESSEE HAD ENOUGH OWN FUNDS FOR THE PURPOSE O F MAKING THE SAID INVESTMENTS AND IN ANY CASE, ALL TH E INVESTMENTS WERE OLD. 3) THAT THE DISALLOWANCE UNDER RUE 8D(2)(III) ON ACCOUNT OF ADMINISTRATIVE EXPENSES WAS TO BE RESTRI CTED TO INVESTMENTS WHICH HAD ACTUALLY EARNED INCOME DURING THE YEAR. RELIANCE WAS PLACED ON A NUMBER O F CASE LAWS WITH REGARD TO THE ABOVE CONTENTION OF TH E 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 H AD MENTIONED THAT THE ASSESSEE HAD ADMITTED TO THE APPLICABILITY OF THE SAME IN ASSESSMENT YEAR 2005-0 6 AND HAD BEEN FOLLOWED IN THE CASE OF THE ASSESSEE FOR S UBSEQUENT 5 YEARS ALSO. IT WAS ALSO POINTED OUT BY THE LD. DR THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PU NJAB STATE COOPERATIVE MILK PRODUCERS FEDERATION LTD. VS COMMI SSIONER OF INCOME TAX & ANR. REPORTED IN 336 ITR 495 HAD UP HELD THE APPLICABILITY OF SECTION 14A WHILE CALCULATING THE ELIGIBLE DEDUCTION U/S 80P(2)(D) OF THE ACT. AS FAR THE ASS ESSEES CONTENTION OF NO DISALLOWANCE TO BE MADE AS PER RUL E 8D(2)(II) ON ACCOUNT OF INTEREST, THE LD. DR CONTEN DED THAT ON ACCOUNT OF THE MIXED FUNDS AVAILABLE WITH THE AS SESSEE THE PROVISIONS OF RULE 8D(2)(II) WERE CLEARLY APPLI CABLE. 8. WE HAVE HEARD CONTENTIONS OF BOTH THE PARTIES, P ERUSED THE ORDERS OF AUTHORITIES BELOW AND ALSO GONE THROU GH THE DOCUMENTS PLACED BEFORE US. 9. ON THE FIRST CONTENTION RAISED BY THE ASSESSEE T HAT SECTION 14A R.W.R. 8D IS NOT APPLICABLE WHILE WORKI NG OUT THE CLAIM OF DEDUCTION U/S 80P(2)(D), WE FIND THAT THE LD. DR HAS RIGHTLY POINTED OUT THAT THE ISSUE HAS ALREADY BEEN DEALT WITH BY THE HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF PUNJAB STATE COOPERATIVE MILK PRODUCERS FEDERATION LTD. VS COMMISSIONER OF INCOME TAX & ANR. REPORTED IN 336 I TR 495 WHEREIN THE APPLICABILITY OF THE SAID SECTION HAS B EEN UPHELD. THE RELEVANT FINDINGS OF THE HON'BLE HIGH COURT WITH REGARD TO THE SAME ARE AS UNDER: THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER S. 80P(2)(D ) OF THE ACT AFTER EXCLUDING THE EXPENDITURE ATTRIBUTABLE TO T HE EARNING OF SUCH INCOME. THE APEX COURT IN SABARKANTHA ZILLA K HARID 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 IMPLEME NTS, 6 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 E XEMPTS AN ASSESSEE-CO-OPERATIVE SOCIETY, WHICH CARRIES ON THE BUSINESS ENVISAGED THEREIN, FROM PAYMENT OF INCOME-T AX ON PROFITS AND GAINS OF SUCH BUSINESS. BUT THE CONTROVE RSY WHICH RELATES TO THE SAID PROVISION IS, WHETHER THE INCOM E-TAX NOT PAYABLE THEREUNDER, FALLS TO BE CALCULATED EITHER WITH REFERENCE TO THE FULL AMOUNT OF PROFITS AND GAINS OF THE CO- OPERATIVE SOCIETYS BUSINESS, AS CONTENDED ON BEHALF OF THE ASSESSEE OR WITH REFERENCE TO THE NET AMOUNT OF PROF ITS AND GAINS OF THE CO-OPERATIVE SOCIETYS BUSINESS, AS OTHER WISE COMPUTABLE UNDER THE PROVISIONS OF THE IT ACT FOR TH E PURPOSE OF CHARGING INCOME-TAX THEREON, AS CONTENDED ON BEHA LF OF THE REVENUE. IF THE RELEVANT PROVISIONS OF THE IT ACT PRO VIDING FOR CHARGING A PERSON INCLUDING A CO-OPERATIVE SOCIETY WIT H INCOME-TAX ON 'PROFIT AND GAINS' OF SUCH PERSONS BU SINESS SHOW THAT IT IS THE NET PROFITS AND GAINS, I.E., INCOME OF SUCH BUSINESS COMPUTED IN ACCORDANCE WITH THE PROVISIONS O F THE IT ACT, WHICH IS INCLUDIBLE IN SUCH PERSONS TOTAL INCOME LIA BLE TO CHARGE OF INCOME-TAX, IT MUST FLOW THEREFROM, AS A NEC ESSARY COROLLARY THEREOF, THAT THE 'PROFITS AND GAINS' FOR W HICH 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 O F THE IT ACT WHICH IS INCLUDIBLE IN SUCH PERSONS TOTAL INCOME F OR CHARGING INCOME-TAX THEREON.' 13. IT MAY BE NOTICED THAT S. 80P WAS INSERTED IN PLACE O F 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 AC T, 2001 W.E.F. 1ST APRIL, 1962. THE SAID SECTION PROVIDES THAT ANY EXPENSES INCURRED BY THE ASSESSEE FOR EARNING INCOM E WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT, SHA LL NOT BE AN ALLOWABLE EXPENDITURE. THE APEX COURT IN WALFORT SHAR E & STOCK BROKERSS 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 DED UCTION IN 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. 14 A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE I NCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE A SSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PAR TLY TO THE TAXABLE INCOME. IN THE ABSENCE OF S. 14A, THE EXPENDITUR E INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIM ED 7 AGAINST TAXABLE INCOME. THE MANDATE OF S. 14A IS CLEAR . IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF E XPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXAB LE 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 E XEMPT INCOME. THE BASIC REASON FOR INSERTION OF S. 14A IS T HAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOM E AS THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE AC T. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS B EEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT W OULD MEAN THAT TAX INCENTIVES TO CERTAIN INCOMES WAS BEING US ED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DE BITING THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGA INST 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 INCOM E. 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 I NCOME UNDER THIS CHAPTER WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UNDER CHAPTER IV WOULD FALL WITHI N S. 14A. THE NEXT PHRASE IS, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. IT MEANS TH AT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE R ELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF S. 14A. FURTHER, S. 14 SPECIFIES FIVE HEADS OF INCOME WHICH A RE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECS. 15 TO 5 9 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 PERMI SSIBLE 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 INCOM E LIKE DIVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, T HE 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 LEARNE D COUNSEL FOR THE ASSESSEE, THE SAME DO NOT ADVANCE ITS CASE. SUFFICE IT TO NOTICE THAT THE DOABA CO-OPERATIVE SUG AR 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, TH IS COURT IN KING EXPORTS CASE (SUPRA), ON CONSIDERATION OF FAC TS INVOLVED THEREIN HAD CONCLUDED THAT THERE WAS NO EXPE NDITURE 8 WHICH HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING THE INCOME AND THE SAME DID NOT FORM PART OF TOTAL INCO ME. THAT IS NOT THE SITUATION IN THE PRESENT CASE. 16. IN VIEW OF THE ABOVE, THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REV ENUE. 10. MOREOVER, AS EMERGED DURING THE COURSE OF HEARI NG 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. THERE FORE, WE FIND NO MERIT IN THE CONTENTION OF THE ASSESSEE THA T SECTION 14A R.W.R. 8D IS NOT TO BE APPLIED FOR THE PURPOSE OF CALCULATING THE DEDUCTION ALLOWABLE U/S 80P(2)(D) O F THE ACT. 11. AS FAR THE CONTENTION OF THE LD. COUNSEL FOR AS SESSEE THAT IN VIEW OF THE FACT THAT IT HAD ENOUGH SURPLUS FUNDS WHICH ARE INTEREST FREE AND WHICH IS DEMONSTRATED F ROM THE QUANTUM OF SHARE CAPITAL AND RESERVES AVAILABLE WIT H THE ASSESSEE OVER THE YEARS AS REFLECTED IN THE FINANCI AL STATEMENT OF THE ASSESSEE, THE PRESUMPTION OUGHT TO BE THAT THE INVESTMENTS HAD BEEN MADE OUT OF THESE INTEREST FREE FUNDS AVAILABLE, WE ARE IN AGREEMENT WITH THE LD. C OUNSEL FOR ASSESSEE. THE FACT THAT THE ASSESSEE HAD ENOUGH OW N FUNDS TO MAKE THE IMPUGNED INVESTMENT HAD NOT BEEN CONTRO VERTED BY THE LD. DR AND THE SAME STANDS REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE RIGHT FROM FINANCIAL YEAR END ING 31- 03-91 TO THE IMPUGNED FINANCIAL YEAR ENDING ON 31-0 3-12, WHICH HAVE BEEN FILED BEFORE US IN THE FORM OF PAPE R BOOK .MOREOVER, THE HON'BLE JURISDICTIONAL HIGH COURT HA S HELD IN THE CASE OF CIT VS. MAX INDIA LTD.ITA NO.210/CHD/20 13 DT.08-03-2017 THAT IF AN ASSESSEE ESTABLISHES THAT ITS 9 INTEREST FREE FUNDS WERE EQUAL TO OR MORE THAN THE INTEREST BEARING FUNDS IT WOULD BE OPEN TO IT TO CONTEND THA T PRESUMPTION ARISES THAT THE EXPENDITURE FOR EARNING INTEREST INCOME WAS INCURRED FROM OUT OF ITS INTEREST FREE F UNDS WARRANTING NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A R.W.R. 8D.. THE RELEVANT FINDINGS OF THE HONBLE HI GH COURT ARE AS UNDER: 9. THIS PRESUMPTION IS UNFOUNDED. MERELY BECAUSE THE INTEREST FREE FUNDS WITH THE ASSESSEE HAVE DECREASE D 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 TH E 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 UTILIZE D FOR THE SAID INVESTMENT REMAINS. THERE IS NO REASON FOR IT N OT TO. THE BASIS OF THE PRESUMPTION AS WE WILL ELABORATE LATER IS THAT AN ASSESSEE WOULD INVEST ITS FUNDS TO ITS ADVANTAGE. IT GAI NS NOTHING BY INVESTING INTEREST FREE FUNDS TOWARDS OT HER ASSETS MERELY ON ACCOUNT OF THE INTEREST FREE FUNDS HAVING DECREASED. IN THAT EVENT SO LONG AS EVEN AFTER THE DECREASE THE REOF THERE ARE SUFFICIENT INTEREST FREE FUNDS THE PRESUMPTION THAT THEY WOULD BE FIRST USED TO INVEST IN ASSETS YIELDING EXEM PT INCOME APPLIES WITH EQUAL FORCE. 12. IN VIEW OF THE SAME, WE HOLD THAT THE DISALLOWA NCE 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 ASS ESSEE THAT THE CALCULATION OF ADMINISTRATIVE EXPENSES TO BE DISALLOWED AS PER RULE 8D(2)(II) BE RESTRICTED TO I NVESTMENTS WHICH HAVE EARNED INCOME DURING THE YEAR, WE FIND MERIT IN THIS CONTENTION OF LD. COUNSEL FOR ASSESSEE. THE S PECIAL BENCH OF THE I.T.A.T. IN THE CASE OF ACIT VS. VIRE ET INVESTMENTS PVT. LTD. ITA NO.502/DEL/2012 DT.16/06/ 17 HAS LAID DOWN THE SAID PROPOSITION AND EVEN THE HON'BLE DELHI 10 HIGH COURT IN THE CASE OF ACB INDIA LTD.VS ACIT IN ITA NO.615/2014 DT-24.03.2015 HAS HELD SO HOLDING AS UN DER: 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 I N THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE CIT(APPEALS) NOTICED THE EXACT VALUE OF THE INVESTMENT WHICH YIELDED TAXABLE INC OME, 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%. 14. IN VIEW OF THE ABOVE, WE DIRECT THAT THE EXPENS ES TO BE DISALLOWED UNDER RULE 8D(2)(II) BE CALCULATED BY TA KING INTO ACCOUNT ONLY THOSE INVESTMENTS WHICH HAVE EARNED IN COME DURING THE YEAR. 15. IN VIEW OF THE ABOVE WE HOLD THAT SECTION 14A R .W.R. 8D IS APPLICABLE FOR WORKING OUT THE DEDUCTION CLAIMED U/S 80P(2)(D) BY THE ASSESSEE AND THAT NO DISALLOWANCE OF INTEREST EXPENDITURE IS ALLOWABLE AS PER RULE 8D(2) (II) WHILE THE EXPENDITURE TO BE DISALLOWED AS PER RULE 8D(2)( III) IS TO BE CALCULATED BY TAKING INTO CONSIDERATION ONLY THO SE INVESTMENTS WHICH HAVE EARNED INCOME DURING THE YEA R. 16. IN VIEW OF THE ABOVE, GROUND NO.2 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 17. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DENIAL OF DEDUCTION CLAIMED U/S 80P(2)(E) OF THE ACT AMOUN TING TO RS.8,69,01,552/- ON ACCOUNT OF RENTAL INCOME EARNED BY IT FROM LETTING OUT OF GODOWNS FOR STORAGE PROCESSING ETC. 18. BRIEFLY STATED, DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD DERIVED RENTAL INCOME FROM LETTING OUT OF 11 GODOWNS TO NATIONAL COLLATERAL MANAGEMENT SERVICES LTD. CENTRAL WAREHOUSING CORPORATION MUMBAI, IFFCO, KRIBHCO, ETC. AND HAD CLAIMED DEDUCTION U/S 80P(2)( E) OF RS.8,69,01,552/- FROM THIS RENTAL INCOME. THE ASSE SSING OFFICER DENIED THE SAID CLAIM OF THE ASSESSEE FOR T HE 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 DISTIN GUISHABLE SINCE THE ASSESSEE HAD FILED EVIDENCE IN THIS REGAR D. 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 ASSESSEES GROUND HAD BEEN DIS MISSED. THE SAME IS REPRODUCED HEREUNDER: I HAVE GONE THOUGH THE FACTS OF THE CASE, WRITTEN SUBMISSION FILED BY THE APPELLANT AND REPORT SUBMITTED BY AO D URING APPELLANT PROCEEDINGS. FOLLOWING THE DECISION BY MY PREDECESSOR FOR ASSESSMENT YEAR 2008-09 AND BY HON' BLE ITAT FOR THE A.Y. 2009-10. AS THE FACTS REMAIN SAME , THE 12 UNDERSIGNED SEES NO REASON TO DIFFER WITH TH E ORDER PASSED BY MY PREDECESSOR IN THE APPELLANT'S OWN CASE FOR THE A.Y. 2008-09. SINCE, THE DUE OPPORTUNITY FOR COMPUTATION OF DEDUC TION WAS PROVIDED BY THE AO TO THE APPELLANT DURING REMAND P ROCEEDINGS BUT NO REPLY WAS SUBMITTED BY THE APPELLANT, IT IS FOUND THAT THERE IS NO INCOME ON ACCOUNT OF LETTING OUT OF GODOWNS W HICH IS AVAILABLE FOR DEDUCTION U/S 80P(2)(E) OF THE ACT. T HE AO WAS JUSTIFIED IN DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80P(2)(E) OF THE ACT. AS A RESULT, THIS GROUND OF APPEAL IS DISMISSE D. ' 20. THEREAFTER THE LD. COUNSEL FOR ASSESSEE DREW OU R ATTENTION TO THE FACTS AS MENTIONED BY THE LD.CIT(A PPEALS) IN HIS ORDER AT PARA 8.1 MENTIONING THAT THE DOCUME NTARY EVIDENCE IN SUPPORT OF LETTING OUT OF GODOWNS WAS F URNISHED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS WITH THE DETAILS OF CALCULATION BASED ON WHICH DEDUCTION HAS BEEN CLAIMED. THE SAME ARE REPRODUCED HEREUNDER: 8.1 DURING THE APPELLATE PROCEEDINGS, THE COUNSEL FOR THE APPELLANT SUBMITTED THAT THE APPELLANT DURING THE Y EAR UNDER CONSIDERATION RECEIVED INCOME ON ACCOUNT OF RENTING OF ITS GODOWNS FOR THE PURPOSE OF STORAGE, PROCESSING AND FACILITA TING THE MARKETING OF AGRICULTURAL COMMODITIES. DEDUCTION CLAIMED U/S 80P (2)(E) HAS BEEN DISALLOWED BY THE AO RELYING UPON THE RATIO LAID DO WN BY THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE APPELLANT'S OW N CASE IN ITA NO. 157, 159, 664 OF 2005, 477 OF 2006, 419 OF 2007 , 275 OF 2009 AND 246, 251 OF 2010. THE APPELLANT FURTHER SUBMITT ED THAT THE DEDUCTION IN RESPECT OF THE INCOME DERIVED BY THE A PPELLANT BY WAY OF RENTING OF GODOWNS FOR THE PURPOSE OF STORAGE, P ROCESSING AND FACILITATING THE MARKETING OF AGRICULTURAL COMMODIT IES HAS BEEN SPECIFICALLY HELD TO BE ADMISSIBLE U/S 80P(2)(E). I N THE PRESENT CASE, THE APPELLANT HAD LET OUT SOME OF ITS GODOWNS WHERE FROM RENT WAS RECEIVED. DOCUMENTARY EVIDENCE IN SUPPORT OF LETTIN G OUT OF GODOWNS ON RENT HAD BEEN FURNISHED BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. DETAILS OF THE CALCULATIONS BASED ON WHICH THE DEDUCTION HAD BEEN CLAIMED BY THE APPELLANT HAD ALSO BEEN FURNISHED BY THE APPELLANT DURING THE ASSESSMENT PR OCEEDINGS. COPY OF SOME OF THE AGREEMENTS EVIDENCING THE RECEI PT OF RENTING OF GODOWNS FOR THE PURPOSE OF STORAGE, PROCESSING AND FACILITATING THE MARKETING OF AGRICULTURAL COMMODITIES WAS ALSO SUBM ITTED. SO, THE ORDER OF THE AO IN DISALLOWING THE DEDUCTION CLAIME D U/S 80P(2)(E) IN RESPECT OF THE RENT DERIVED IS ERRONEOUS AS BEING A GAINST THE FACTS OF THE CASE AND ALSO THE JUDGMENT OF THE HON'BLE PUNJAB AN D HARYANA HIGH COURT. 13 21. THE LD.COUNSEL FOR THE ASSESSEE ,ON THE BASIS O F THE ABOVE, STATED THAT THE LD.CIT(APPEALS) HAD ERRED IN DISMISSING THE GROUND RAISED BY THE ASSESSEE FOR WA NT OF EVIDENCE FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 20 11-12. 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 A ND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE FIND M ERIT 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(AP PEALS) FOLLOWING THE ORDER OF THE LD.CIT(APPEALS) IN ASSES SEES CASE FOR ASSESSMENT YEAR 2011-12. AS RIGHTLY POINTED OU T BY THE LD. COUNSEL FOR ASSESSEE IN THE SAID ORDER THE ASSE SSEE HAD BEEN DENIED DEDUCTION FOR WANT OF EVIDENCE SUBSTANT IATING HIS CLAIM OF HAVING EARNED RENTAL INCOME BY LETTING OUT OF GODOWNS, WAREHOUSING, ETC. AS ALSO RIGHTLY POINTED OUT BY THE LD.COUNSEL FOR THE ASSESSEE THE SAID EVIDENCE I N THE PRESENT CASE HAD ADMITTEDLY BEEN FILED BEFORE THE LD.CIT(APPEALS). CLEARLY, THEREFORE, THE LD.CIT(AP PEALS) HAD ERRED IN FOLLOWING HIS ORDER FOR ASSESSMENT YEA R 2011- 12 AND DISMISSING ASSESSEES CLAIM FOR DEDUCTION FO R WANT OF EVIDENCE WHEN THE SAME HAD ACTUALLY BEEN FILED B EFORE HIM. IN VIEW OF THE SAME, THEREFORE, WE CONSIDER I T FIT TO RESTORE THE MATTER BACK TO THE FILE OF THE LD.CIT(A PPEALS) TO ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF EVIDENC ES FILED BY THE ASSESSEE SUBSTANTIATING HIS CLAIM AND IN ACCORD ANCE 14 WITH LAW AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUND OF APPEAL NO.3 RAISED BY THE ASSE SSEE, THEREFORE, STANDS ALLOWED FOR STATISTICAL PURPOSES. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH OCTOBER, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)S 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH