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2019 (7) TMI 1051 - HC - Income TaxSection 14A application in respect of the income not being taxable on account of deduction under Section 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 - As relying on SURAT DISTRICT CO. OP. MILK PRODUCER UNION LTD. 2014 (6) TMI 1027 - GUJARAT HIGH COURT 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
Issues Involved:
1. Applicability of Section 14A of the Income Tax Act, 1961. 2. Deduction under Section 80P(2)(d) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Applicability of Section 14A of the Income Tax Act, 1961: The primary issue was whether Section 14A of the Income Tax Act, 1961, which deals with the disallowance of expenditure incurred in relation to income not includible in total income, is applicable to the assessee's case. The Assessing Officer (AO) applied Section 14A, arguing that the assessee's interest and dividend income should not be included in the total income, thereby warranting disallowance of related expenditures. The AO's stance was that Section 14A applies to income not included in the total income, not just exempt income. The CIT(A) countered this by distinguishing between exempt income under Chapter III and deductions under Chapter VIA of the Act. The CIT(A) noted that the interest and dividend income were part of the gross total income and not claimed as exempt. The Tribunal upheld this view, emphasizing that Section 14A does not apply to deductions under Chapter VIA, such as Section 80P(2)(d), which pertains to income from investments in other cooperative societies. 2. Deduction under Section 80P(2)(d) of the Income Tax Act, 1961: The second issue was whether the assessee was entitled to a deduction under Section 80P(2)(d) for interest and dividend income from investments in other cooperative societies. The AO disallowed this deduction, asserting that the assessee used borrowed funds for such investments, which was not substantiated. The CIT(A) allowed the deduction, noting that the assessee's investments were made from surplus funds accumulated over years and not from borrowed funds. The Tribunal agreed, citing that the investments were made long back and no new investments were made during the relevant year. It was also noted that the assessee had consistently claimed such deductions in previous years, which were allowed. The Tribunal referenced previous decisions, including the Supreme Court's ruling in Distributors (Baroda) P. Ltd. vs. Union of India, which supported the view that deductions under Chapter VIA should be calculated based on net income. The Tribunal also highlighted that the AO had erroneously applied Section 14A, as the assessee's income was eligible for deduction under Section 80P(2)(d). Conclusion: The High Court concluded that the issues raised by the Revenue were already settled by previous decisions, including those of the Supreme Court and the Gujarat High Court. It affirmed that Section 14A does not apply to deductions under Chapter VIA, and the assessee was entitled to the deduction under Section 80P(2)(d) for interest and dividend income from investments in other cooperative societies. The appeal by the Revenue was dismissed, upholding the Tribunal's decision in favor of the assessee.
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