2013 (9) TMI 164 - AT - Income Tax

Deduction u/s. 80P(2)(d) - nexus between the interest/dividend income earned from the Co-op. Societies and the interest expenditure incurred by the assessee on borrowed funds on the ground - Held that - It is undisputed fact that the appellant had invested surplus fund right from 1951 with other co-operative society. On such investment the appellant had been receiving interest and dividend which had been claimed as deduction 80P(2)(d). It is not a case that appellant had either earned income or borrowed fund and invested in this investment and deposits. As claimed by the ld. Sr. D.R. that these details were submitted before ld. CIT(A) not before the A.O. is not acceptable. The appellant had given all the details before the A.O. on which ld. A.O. concluded otherwise. The balance sheet as well as p&l account were available in all the years that the A.O. gave these figures on which the ld. CIT(A) relied upon, had taken from either balance sheet or p&l account. Thus, there is no additional evidence submitted by the appellant before the CIT(A) in A.Y. 2006-07 - in the assessee s case, interest expenses were incurred for acquiring debenture, deposit with member society, Fix Deposit of member society, employee saving accounts , interest on over draft facilitate from bank and bank commission, which was claimed by the appellant u/s. 80P(2)(d)(a)(i) - Therefore, it is held that appellant had not incurred any expenditure on the earning of the dividend and interest from other co-operative society as this investment was made long back. No new investment had been made by the appellant during the year under consideration - Decided against Revenue.

Issues Involved:
1. Acceptance of fresh evidence without opportunity for rebuttal.
2. Nexus between interest/dividend income and interest expenditure.
3. Excess deduction claimed under Section 80P(2)(d).
4. Expenses incurred for earning exempt income.
5. Depreciation rate on computer peripherals.
6. Prepaid insurance expenses.

Detailed Analysis:

1. Acceptance of Fresh Evidence Without Opportunity for Rebuttal:
The Revenue contended that the CIT(A) accepted fresh evidence during the appellate proceedings for A.Y. 2006-07 without giving the Assessing Officer (A.O.) an opportunity to rebut, thus violating Rule 46A of the IT Act. However, the Tribunal found that the appellant had provided all necessary details to the A.O., and the balance sheet and profit and loss account were available for all years. Therefore, no additional evidence was submitted before the CIT(A), and the appeal on this ground was dismissed.

2. Nexus Between Interest/Dividend Income and Interest Expenditure:
The Revenue argued that the CIT(A) erred in concluding no nexus between interest/dividend income earned from co-operative societies and the interest expenditure incurred on borrowed funds. The A.O. had presumed a linkage and proportionately allocated interest expenses, leading to partial disallowance of deductions under Section 80P(2)(d). The CIT(A) found no direct or indirect nexus between the interest expenses and the income earned from investments made long back. The Tribunal upheld the CIT(A)'s decision, confirming that the appellant did not incur any expenditure on earning the dividend and interest from other co-operative societies.

3. Excess Deduction Claimed Under Section 80P(2)(d):
For A.Y. 2006-07, 2007-08, and 2008-09, the A.O. disallowed parts of the deduction claimed under Section 80P(2)(d) by applying Section 80AB, which stipulates deductions on net income. The CIT(A) allowed the appeals, stating that the appellant's investments were made from surplus funds without incurring any direct or indirect expenses. The Tribunal confirmed the CIT(A)'s order, agreeing that no new investments were made during the years under consideration and the interest expenses were unrelated to the income from these investments.

4. Expenses Incurred for Earning Exempt Income:
The A.O. applied Section 14A and Rule 8D to disallow interest expenses related to exempt income for A.Y. 2007-08 and 2008-09. The CIT(A) allowed the appeal, noting no direct or indirect expenses were incurred for earning the exempt income. The Tribunal upheld the CIT(A)'s decision, confirming that the appellant's interest expenses were related to other business activities and not the exempt income.

5. Depreciation Rate on Computer Peripherals:
For A.Y. 2007-08, the A.O. allowed depreciation at 10% on electrical items instead of 60% claimed by the appellant on computer peripherals. The CIT(A) allowed the appeal, referencing the ITAT (SB), Delhi decision in Amway India Enterprises vs. Dy. CIT, which allowed 60% depreciation on computer peripherals. The Tribunal upheld the CIT(A)'s decision, confirming that computer peripherals are part of the electronic data processing unit and eligible for 60% depreciation.

6. Prepaid Insurance Expenses:
For A.Y. 2008-09, the A.O. disallowed prepaid insurance expenses of Rs. 14,20,334, deeming them irrelevant to the assessment year. The CIT(A) allowed the appeal, stating the liability to pay insurance premium is accounted for when the notice of payment is received and had been consistently claimed by the appellant. The Tribunal upheld the CIT(A)'s decision, confirming that the expenses were crystallized during the year and consistently claimed based on the insurance company's bills.

Conclusion:
The Tribunal dismissed the Revenue's appeals for all years, confirming the CIT(A)'s decisions on all issues. The orders were pronounced in open Court on 02/08/2013.

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