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TMI Blog2019 (6) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... , no disallowance of interest is warranted. The CIT(A) has given a factual finding that sufficient interest free funds were available with the assessee. DR was unable to distinguish the decision of the I.T.A.T. relied upon by the Ld.CIT(A) and was also unable to controvert the factual finding of the CIT(A) vis- -vis the deletion of interest expenses as per Rule 8D(2)(ii) of the Rules. As far the directions of the CIT(A) to calculate the disallowance of administrative expenses as per Rule 8D(2)(iii) of the Rules by taking into consideration only those investments which had earned interest and dividend income, we find that the CIT(A) had relied upon the decision of the I.T.A.T. in the case of the assessee itself for assessment year 2013-14 on identical issue. DR was unable to distinguish the same. In view of the same, we do not find any reason to interfere in the order of the CIT(A) in this regard also. - ITA No.1611/Chd/2018, ITA No.1612/Chd/2018, ITA No.1613/Chd/2018 - - - Dated:- 21-6-2019 - Shri Sanjay Garg, Judicial Member And Smt. Annapurna Gupta, Accountant Member For the Assessee : Shri Ashish Gupta, CIT(DR) For the Revenue : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad disallowed the deduction for the reason that the assessee had not filed evidences to substantiate its claim. The Ld.CIT(A) also noted that the assessee had infact filed all evidences. Therefore after considering the evidences filed by the assessee of the rental income earned by it, the Ld.CIT(A) found that the assessee had rightly claimed the deduction u/s 80P(2)(e) of the Act in accordance with law amounting to ₹ 8,69,01,552/-. The relevant findings of the Ld.CIT(A) at para Nos.6 and 6.2 of the order are as under: 6. I have gone through the facts of the case, the written submission filed by the appellant' and the order of the Hon'ble IT AT, Chandigarh, in ITA No.48/CHD/2016 dated 30.10.2017. I find that the Hon'ble ITAT while adjudicating on the issue of allowability of deduction u/s 80P(2)(e) amounting to ₹ 8,69,01,5527- in respect of the rent derived by the appellant from letting out the godowns for storage, processing etc. of commodities has remanded the issue back to this office and the appellant had filed evidences of having received rental income on letting out of the godowns during the period under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreements evidencing the receipt of renting of godowns for the purpose of storage, processing and facilitating the marketing of agricultural commodities was also submitted. So, the order of the AO in disallowing the deduction claimed u/s 80P(2)(e) in respect of the rent derived is erroneous as being against the facts of the case and also the judgment of the Hon'ble Punjab and Haryana High Court. 6.2 In the year under consideration, it is apparent that the appellant has derived income from storage as well as rent of warehouses. The judgment of Hon'ble Punjab Haryana High Court in appellant's own case and subsequently followed by Hon'ble ITAT, Chandigarh Bench has clearly established that the warehousing income related to storage and thereafter sale is not the same as rental income. The income on account of such storage has not been allowed/ however, with respect to the godowns which were hired out to the outsiders and not being used by the appellant for its own business, the rental income from such hiring is eligible for deduction u/s 80P(2)(e)| The appellant has filed documentary evidence in the form of copy of lease deeds in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue against the order passed by the ITAT had also been dismissed holding no error /mistake in the same. Copy of the order of the ITAT in ITA no.1269 1223/Chd/16 dated 22-01-18, and M.A No.158 159/Chd/18 dated 08-03-19, both relating to A.Y 2013-14, were filed before us. 7. Before us, the Ld. DR though relied upon the order of the A.O. , was fair enough to concede that the issue was covered in favour of the assessee in view of the decision of the Hon'ble Jurisdictional High Court in the case of the assessee itself and the decision of the I.T.A.T. in the case of the assessee for subsequent year. 8. In view of the above we find no reason to interfere in the order of the Ld.CIT(A) allowing the assesses claim of deduction u/s 80P(2)(e) amounting to ₹ 8,69,01,552/-.The Ld.CIT(A) allowed the assessee s claim u/s 80P(2)(e) of the Act noting that the Hon'ble Jurisdictional High Court in the case of assessee itself had held that the deduction u/s 80P(2)(d) of the Act was allowable on rental income earned from outsiders. It was on appreciating this legal proposition that the I.T.A.T. in the first round has restored the matter back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Brief facts relating to the issue are that during the assessment proceedings the A.O. noted that the deductions u/s 80P(2)(d) of the Act amounting to ₹ 8,12,65,860/- on dividend income and ₹ 20,44,178/- on interest income were claimed by the assessee. The A.O. observed that dividend was received by the assessee on shares held with IFFCO, Indian Potash Ltd., KRIBHCO, CWC which were the National Apex Coop. Societies and the assessee was a share holder in such societies. The funds placed in the above investments were out of the business firms of the assessee. These investments were part and parcel of carrying on the business activity of the assessee. Out of the same common funds, including interest bearing funds, purchases were made, expenses were met and the investments in shares were made. The assessee claimed 100% deduction without reduction of any proportionate expenditure. The assessee's plea that no cost was incurred on these investments was not accepted by the AO who accordingly disallowed the claim ₹ 8,33,10,038/- u/s 80P(2)(d) of the Act by reducing therefrom expenses incurred for earning the same calculated by applying the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the claim of deduction u/s 80P(2)(d), we find that the Ld. DR has rightly pointed out that the issue has already been dealt with by the honourable jurisdictional High Court in the case of Punjab State Cooperative Milk Producers Federation Ltd. vs Commissioner of Income Tax Anr. reported in 336 ITR 495 wherein the applicability of the said section has been upheld. 10. Moreover, as emerged during the course of hearing before us, the applicability of rule 8D r.w.s. 14A has been upheld in the case of the assessee by the tribunal and accepted by the assessee in preceding years. Therefore, we find no merit in the contention of the assessee that section 14A r.w.r. 8D is not to be applied for the purpose of calculating the deduction allowable u/s 80P(2)(d) of the Act. Since the facts remain the same, I am of the view that since the assessee is in receipt of income which is not chargeable to tax, the expenditure incurred in relation to earning of the said income has to be disallowed under section 14A r.w.r. 8D. Therefore, the contention of the appellant that section 14A is not applicable to the appellant is without merit. 6.1 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g interest income was incurred from out of its interest-free funds warranting no disallowance of interest expenditure u/s 14A r.w.r. 8D. The relevant findings of the honourable High Court are as under: 9. This presumption is unfounded. Merely because the interest-free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilised for the purpose of investing in assets yielding exempt income. If even after the decrease the ssessee has interest-free funds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilised for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by 'investing interest-free funds towards other assets merely on account of the interest-free funds having decreased. In that event so long as even after the decrease thereof there are sufficient interest-free funds the presumption that they would be first used to invest in assets yielding exempt income applies with equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrive at the exact disallowance of 0.5%. 14. In view of the above, we direct that the expenses to be disallowed under rule 8D(2)(iii) be calculated by taking into account only those investments which have earned income during the year. 15.. In view of the above we hold that section 14A r.w.r. 8D is applicable for working out the deduction claimed u/s 80P(2)(d) by the assesses and that no disallowance of interest expenditure is allowable as per rule 8D(2)(ii) while the expenditure to be disallowed as per rule 8D(2)(iii) is to be calculated by taking into consideration only those investments which have earned income during the year. 6.4 The above reasoning was also followed by the honourable ITAT in the case of the appellant for the A.Y. 2013-14 in ITA No No.l269 1223/CHD/2016 dated 22.01.2018. Respectfully following the same, it is held that disallowance under rule 8D(2)(iii) is to be calculated by taking into account only those investments which have earned income during the year. 13. Before us the Ld. DR though heavily relied upon the order of the A.O., fairly conceded that both the issues were covered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Revenue. 18. Ground Nos.2 and 3 raised by the Revenue read as under: 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in holding that the disallowance made on account of interest as per Rule 8d(2)(ii) of the Income Tax Rules, 1962 be deleted? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in holding that the expenditure to be disallowed as per Rule 8D(2)(ii) of the Income Tax Rules, 1962 is to be calculated by taking into consideration only those investment which have earned income during the year in completed disregard to CBDT Circular No. 5/2014 dated 11.02.2014, which clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income? 19. It was common ground between both the parties that the ground Nos.2 and 3 raised in this appeal were similar to ground Nos.2 and 3 raised in ITA No.1612/Chd/2018.Our decision rendered therein at para 15 will apply mutatis mutandis to this ground also following which we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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