2014 (6) TMI 1027 - HC - Income Tax

Applicability of section 14A for making disallowance out of income which eligible for deduction u/s. 80P(2)(d) - no nexus between the interest /dividend income earned from the Cooperative Societies and the interest expenditure incurred by the assessee on borrowed funds on the ground that there is no proof of the investment of such interest bearing funds to earn the said income without appreciating the fact that the assessee has failed to substantiate the above in full measure with proper evidences? HELD THAT - In view of decision decision of the Hon'ble Supreme Court in the case of Distributors (Baroda) P. Ltd vs. Union of India 1985 (7) TMI 1 - SUPREME COURT we are in complete agreement with the view taken by the learned Tribunal allowing the deduction to the assessee under Section 80P(2)(d) of the Act on the amount of interest and dividend earned on the investment / deposits with the other cooperative societies. We see no reason to interfere with the impugned judgment and order passed by the learned Tribunal. Under the circumstances, in all these appeals with respect to grant of deduction under Section 80P(2)(d) of the Act is held against the revenue Admission of additional evidence - appeal of the revenue against the order of learned CIT(A) being bad in law, being passed against the natural justice, where new claim was accepted by him and against Rule 46 A and without even confronting it to the Assessing Officer - HELD THAT - Tribunal in the impugned order has specifically observed and has given specific findings that all the details, which came to be considered by the learned CIT(A) were as such before the learned AO, on which, learned AO concluded otherwise. The learned Tribunal also observed that balance sheet and P I Account were available in all the years that the AO gave the figures on which the learned CIT(A) relied upon. The learned Tribunal has specifically observed that thus there is no additional evidence submitted by the appellant before the learned CIT(A) in A.Y. 2006- 07. Under the circumstances and in view of the aforesaid factual findings recorded by the learned Tribunal, we dismiss present appeal on the said ground also.

Summary

Issues:
- Deduction under Section 80P(2)(d) of the Income Tax Act
- Natural justice and Rule 46 A compliance in appellate proceedings

Deduction under Section 80P(2)(d) of the Income Tax Act:
The case involved appeals by the appellant revenue challenging the deduction claimed by the assessee under Section 80P(2)(d) of the Income Tax Act for various assessment years. The dispute centered around the nexus between interest/dividend income earned from Cooperative Societies and the interest expenditure incurred by the assessee on borrowed funds. The Appellate Tribunal upheld the deduction claimed by the assessee, noting that the assessee had invested surplus funds with cooperative societies since 1951, earning interest and dividends without incurring any additional expenditure. The Tribunal emphasized that no new investments were made during the relevant years. The judgment referenced the Supreme Court decision in Distributors (Baroda) P. Ltd vs. Union of India, emphasizing that deductions under Section 80P(2)(d) are to be allowed on the net income. Ultimately, the Tribunal confirmed the deduction under Section 80P(2)(d) for the assessee, dismissing the revenue's appeals.

Natural justice and Rule 46 A compliance in appellate proceedings:
Another issue raised in the appeals was whether the Appellate Tribunal erred in deciding against the revenue's appeal on grounds of natural justice and Rule 46 A compliance. The Tribunal found that all details considered by the Appellate Commissioner were already before the Assessing Officer, who reached a different conclusion. The Tribunal noted that the balance sheet and Profit & Loss Account were available in all relevant years, indicating that the Commissioner's reliance on these figures was justified. The Tribunal concluded that no additional evidence was submitted before the Commissioner for one of the assessment years. Consequently, the appeals challenging the Tribunal's decision on these grounds were dismissed.

In summary, the High Court upheld the deduction claimed by the assessee under Section 80P(2)(d) of the Income Tax Act, emphasizing the long-standing investments with cooperative societies and the absence of new expenditures. Additionally, the Court dismissed the revenue's appeals challenging the Tribunal's decision on the grounds of natural justice and Rule 46 A compliance, stating that all relevant details were already before the Assessing Officer and the Appellate Commissioner.