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2018 (1) TMI 1508 - AT - Income TaxDeduction u/s 80P(2)(d) computation - Applicability of the provisions of section 14A r.w.r. 8D for the purpose of determining the quantum of expenses relatable to earning of interest and dividend income which are eligible for deduction u/s 80P(2)(d) - HELD THAT - As in the case of the assessee in assessment year 2012-13 2017 (10) TMI 1463 - ITAT CHANDIGARH wherein the contention of assessee that the provisions of section 14A r.w.r. 8D could not be applied for the purpose of computing the expenses relatable to earning of interest and dividend income was dismissed by the I.T.A.T. following the decision of the Hon'ble jurisdictional High Court in the case of Punjab State Cooperative Milk Producers Federation Ltd. vs Commissioner of Income Tax Anr. 2011 (3) TMI 615 - PUNJAB AND HARYANA HIGH COURT on identical issue. Respectfully following the same, we uphold the applicability of the provisions of section 14A r.w.r. 8D for the purpose of determining the quantum of expenses relatable to earning of interest and dividend income which are eligible for deduction u/s 80P(2)(d) and which have to be reduced from the said incomes while determining the quantum on which deduction u/s 80P(2)(d) is available to the assessee. The contention raised by the assessee in this regard is, therefore, dismissed. Addition u/s 14A - The decision of the I.T.A.T. in assessee s case for assessment year 2012-13 will squarely apply in the present case also, following which we hold that no disallowance of interest is to be made in the fact situation of availability of enough own interest free funds of the assessee. But since the fact needs to be verified in the present case, we restore the matter to the Assessing Officer to verify the availability of interest free own funds of the assessee for the purpose of making investments which have earned dividend and interest during the impugned year and further direct that the issue thereafter be decided in accordance with law. We further uphold the order of the CIT(Appeals) restricting the calculation of disallowance u/s 14A only on investments which have earned interest and dividend income during the year. Claim of deduction u/s 80P(2)(e) on account of rental income - HELD THAT - As in assessee s own case in assessment year 2009-10 had after accepting this fact held that though the assessee is not entitled to deduction on account of income earned from storage of goods, it is entitled to the same on account of hiring charges by letting out its godown to outsiders. CIT(Appeals) has further examined the details of the rental income earned by the assessee and after verifying the same found to be correct. No infirmity in the above observations and findings of the CIT(Appeals) have been pointed out to us by the Ld. DR. We hold that CIT(A) has rightly allowed the assessee s claim of deduction u/s 80P(2)(e) on account of rental income earned Disallowance of interest expenses - loan taken for the purpose of construction of godowns - HELD THAT - The assessee had demonstrated and bifurcated the user of loans and, therefore, the Ld.CIT(Appeals), we hold, was right in holding that the interest pertaining to only those loans which were taken for the purpose of construction of godowns needed to be capitalized as per the provisions of section 36(1)(iii) of the Act. Even otherwise, the Ld. DR has not controverted this finding of the Ld.CIT(Appeals) that the loans taken by the assessee were duly bifurcated. In view of the same, we see no reason to interfere with the order of the Ld.CIT(Appeals) and uphold the same in restricting the disallowance of interest expenses by capitalized the same to the extent of ₹ 3,15,81,084/-. The ground of appeal No.3 raised by the Revenue is, therefore, dismissed in above terms.
Issues Involved:
1. Applicability of Section 14A read with Rule 8D for disallowance of expenses related to earning dividend and interest income. 2. Deduction under Section 80P(2)(e) on account of rental income. 3. Capitalization of interest expenses related to capital work in progress. Issue-wise Detailed Analysis: 1. Applicability of Section 14A read with Rule 8D: The primary issue involves the disallowance made under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The assessee challenged the applicability of these provisions to the deduction claimed under Section 80P(2)(d) for dividend and interest income. The Assessing Officer had disallowed the claim by applying Section 14A r.w.r. 8D, reducing the expenses incurred for earning such income. The CIT(A) upheld the applicability of Section 14A but directed the disallowance to be restricted by considering only those investments that yielded income during the year. The Tribunal, following its earlier decision and the jurisdictional High Court’s ruling in the case of Punjab State Cooperative Milk Producers Federation Ltd., upheld the applicability of Section 14A r.w.r. 8D for determining the quantum of expenses related to earning interest and dividend income eligible for deduction under Section 80P(2)(d). Furthermore, the Tribunal agreed with the assessee’s contention that no disallowance of interest expenditure should be made under Rule 8D(2)(ii) if the assessee had sufficient own funds, following the jurisdictional High Court’s decision in CIT vs. Max India Ltd. The matter was remanded to the Assessing Officer to verify the availability of interest-free own funds for making the investments. 2. Deduction under Section 80P(2)(e) on Account of Rental Income: The Revenue challenged the CIT(A)’s decision to allow the deduction under Section 80P(2)(e) for rental income earned by the assessee. The Assessing Officer had disallowed this claim based on a High Court judgment stating that storage charges could not be treated as rental income. However, the CIT(A) allowed the claim, distinguishing between storage charges and rental income from godowns hired to outside parties. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had demonstrated the rental income earned from letting out godowns to outsiders, which was verified and accepted by the CIT(A). The Tribunal found no infirmity in the CIT(A)’s order, which was consistent with the assessee’s case in preceding years. 3. Capitalization of Interest Expenses Related to Capital Work in Progress: The Revenue also challenged the relief granted by the CIT(A) regarding the capitalization of interest expenses related to capital work in progress. The Assessing Officer had capitalized interest expenses by treating all funds as a common kitty and applying a 12% rate on the capital work in progress. The CIT(A) restricted the disallowance to the extent of interest paid on long-term loans taken for constructing godowns, based on the assessee’s detailed submissions and loan documents. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had demonstrated and bifurcated the usage of loans for working capital and capital purposes. The Tribunal agreed that only the interest related to loans for constructing godowns should be capitalized. Conclusion: The Tribunal dismissed the Revenue’s appeal and allowed the assessee’s appeal for statistical purposes. The order pronounced in the open court upheld the applicability of Section 14A r.w.r. 8D, allowed the deduction under Section 80P(2)(e) for rental income, and restricted the capitalization of interest expenses to those related to long-term loans for godowns.
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