2020 (4) TMI 113 - AT - Income Tax

Deduction in respect of sale of seeds claimed u/s 80P(2)(IV) - as alleged assessee has claimed gross profit in excess - HELD THAT - Firstly, we find that assessee has claimed gross profit of ₹ 6,07,354/- on sale of seeds. However, as per the trading account submitted by the assessee and examined by the Revenue authorities showed GP of ₹ 4,57,875/-, therefore, the assessee has claimed excess amount to the extent of ₹ 1,49,479/-. To this effect, no explanation was given by the assessee nor any details available on record. Therefore, disallowance made by the Revenue authorities to this extent is confirmed. So far as the balance amount of ₹ 1,83,150/- is concerned, we find that ITAT in the assessee s own case for the A.Ys.2013-14 and 2012-12 2019 (4) TMI 1852 - ITAT AHMEDABAD has given further relief at 20% on the balance amount of the disallowance. Therefore, since facts are similar in the present year also, we would take this line of finding recorded by the Coordinate Bench, and allow similar relief to the assessee in this year also. Accordingly, we allow further relief to the extent of 20% on the balance sum of ₹ 1,83,150/-, and allow this ground partly. Disallowance u/s 14A r.w. rule 8D - as explained by the assessee that the investments had been made out of own funds - HELD THAT - In the case of CIT Vs. Corrtech Energy P.Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT has held that if there is no exempt income claimed by the assessee, then there could not be any disallowance under section 14A of the Income Tax Act. We find that the assessee has not debited any expenditure or has not claimed any expenditure for earning exempt income, then on presumptive basis expenditure cannot be calculated for disallowance. By applying formula given in Rule 8D read with section 14A of the Act, the AO has worked out an estimated disallowance at ₹ 4,40,120/-. It is difficult to comprehend, rationality of estimating an expenditure of ₹ 4,40,120/- for earning a meager dividend income of ₹ 16,362/-. Therefore, considering the facts and circumstances of the case of the assessee, and also following the ratio of the case law cited (supra), we are of the view that disallowance under section 14A cannot exceed the exempt income. Hence, we direct the assessing officer to restrict disallowance under section 14A to the extent of exempt income earned by the assessee i.e. ₹ 16,362/-. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of deduction under section 80P(2)(IV) of the Income Tax Act, 1961 in respect of sale of seeds.
2. Disallowance under section 14A of the Income Tax Act, 1961.

Issue 1 - Disallowance of deduction under section 80P(2)(IV) of the Income Tax Act, 1961:
The assessee, a cooperative society engaged in milk processing and seed sales, claimed a deduction of ?6,07,354 under section 80P(2)(IV) for the sale of seeds. The Assessing Officer (AO) found discrepancies in the claimed profit on seed sales. The AO restricted the deduction due to lack of expenses incurred by the assessee, estimating indirect expenses at 40%. The first appellate authority upheld the disallowance. The Tribunal noted the excess claim by the assessee and confirmed the disallowance to that extent. However, based on a previous ITAT ruling in the assessee's favor for other assessment years, a 20% relief on the balance disallowance was allowed, partially favoring the assessee.

Issue 2 - Disallowance under section 14A of the Income Tax Act, 1961:
The AO disallowed ?4,40,120 under section 14A as the assessee had earned exempt dividend income of ?16,362. The assessee argued that section 14A did not apply as investments were made from own funds. The Tribunal, considering the assessee's financial position and absence of borrowed funds for investments, held that the provisions of section 14A were not applicable. Citing a Gujarat High Court decision, it ruled that if no exempt income was claimed, no disallowance under section 14A should be made. The Tribunal directed the AO to restrict the disallowance under section 14A to the extent of the exempt income earned, i.e., ?16,362.

In conclusion, the Tribunal partly allowed the assessee's appeal, providing relief on both issues and directing the AO to restrict the disallowance under section 14A to the exempt income earned.