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TMI Blog2019 (4) TMI 1852X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure seems to be incurred by the assessee as it appears from the records before us. If that be so then the allocation of indirect expenses at 40% of gross profit does not seem reasonable taking into consideration the entire aspect of the matter. We, therefore, restrict the said allocation of indirect expenses at 20% of the gross profit. The Learned AO is, therefore, directed to allow deduction u/s 80(P)(2)(iv) of the Act on the balance amount. Hence assessee s this ground of appeal is partly allowed. Disallowance of deduction u/s 14A r.w.r. 8D - no expenditure incurred to earned exempt income - HELD THAT:- Since section 14A is applicable for the expenditure incurred to earned exempt income and not to the income deductible under chapter VIA of the Act respectfully relying upon the said judgment, we find no justification in disallowing the claim of deduction u/s 14A of the Act r.w.r. 8D of the Rule in the case of the assessee before us. In that view of the matter such disallowance is deleted. Hence assessee s ground of appeal is allowed. - I.T.A. Nos. 3283 & 3282/Ahd/2016 - - - Dated:- 30-4-2019 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND Ms. MADHUMITA ROY, JUDICIAL MEMBE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance amount. 4. At the time of hearing of the instant appeal the Learned Advocate appearing for the assessee submitted before us that no separate infrastructure or expenditure is required to be incurred by the assessee for selling the seeds since this is a trading activity and the assessee is only acting as an agent. The seeds are procured from the seeds growing agencies and sold to the members of the society, the member are themselves lifting the seeds from the dairy premises. It was further argued that the Learned authorities below failed to appreciate the facts in its proper prospective and thus disallowed the sum of ₹ 6,46,875/- only on the basis of assumption and estimate without their being any factual finding of the fact that the appellant has incurred any such expenditure. Factually, the seeds are supplied to societies from the centers where no additional expenditure except transportation allocation along with milk vehicles is incurred which cannot be even more than 5 to 10 % of its value. He, therefore, prays for deletion of the excessive unreasonable disallowance of ₹ 6,46,875/- in respect of sale of seeds claimed u/s 80(P)(2)(iv) of the Act. On the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 7,98,033/-. The same was confirmed by the first appellate authority. Hence the instant appeal before us. 8. At the time of hearing of the instant appeal the Learned Advocate appearing for the assessee submitted before us that the Learned AO wrongly invoked the provision of section 14A r.w.r. 8D of the Income Tax Rule. The appellant has having sufficient paid up share capital and reserves and surplus of ₹ 26,23,59,906/-. Neither the Learned AO has found any investment made out the borrowed funds. It was further submitted that if there are funds available both interest free and over draft and/or loan taken, then a presumption would arise that, investment would be out of the interest free fund generated or available with the assessee. He, further relied upon the judgment passed by the Hon ble Jurisdictional High Court in the case of CIT-vs- Banaskantha Dist. Co-Op Milk Producers Union Ltd. reported in [2014] 45 taxmann.com 152 (Gujarat) in support of his case where it has been held that Section 14A would not be applicable in relation to deductions to be made while computing total income under chapter IV. It was further contended by the Learned AR that there is clear a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Net interest paid (excluding interest income) and not on gross amount of interest paid as worked out by AO. CALCULATION OF AMOUNT DISALLOWED U/S 14A AS PER RULE 8D AY 2013-14 Further, Section 14A is applicable for the expenditure incurred to earned Exempt income and not to the income deductible under chapter Vi-A of the Act. The said has also been supported by the case laws CIT vs. Kribhco (2012) 349 ITR 618/75 DTR 265/209 Taxman 252/252 CTR 374(Delhi) (HC) In the light of the above, your appellant therefore prays that in the interest of justice, the above disallowance of ₹ 798033/- u/s 14A of the IT Act, 1961, be deleted. Ultimately, the Learned CIT(A) confirmed the order passed by the Learned AO with the following observation: 7.3 I have carefully considered the facts and circumstances of the case, the observations of the Assessing Officer, the submissions of the assessee, material available on record and the judicial pronouncements on the subject. Assessee's assertion that all the investments are made out of its own funds is not backed up by any evidence. Mere assertion is not enough. It has incurred interest expenditure of ₹ 3,52,38,585/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as provided in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any reference of deduction to be made in computing the total income as per provision of Chapter IVA in section 14A. Undoubtedly, as provided under Chapter VIA while computing the total income of the assessee from his gross total income in accordance with and subject to the provision of this chapter, the deductions specified are permissible. As a resultant effect, the taxable income of the assessee would surely get reduced and yet there is marked difference between the exempted income and the deduction provided under Chapter VIA. We notice that the investment in shares made by the assessee which earned him the dividend was from his own income. Moreover, from the very provision of section 14A, the same would have no application in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in view of the deduction ceases to be a part of the total income, was rejected by the Division Bench of this Court in CIT v. Dalmia Cement (Bharat) Ltd. [1980] 126 ITR 736 (Delhi), for the following additional reasons:- (1) The word part used in the Rule was to describe income fulfilling the description i.e. the category or class of the income. In other words it should indicate an identifiable section, category or class of income rather than mere portion or amount of such income. The question raised should be whether this income was included and not whether any deduction was allowed . The use of the word part contemplates a type of income which by its very nature does not form part of the total income. The word includible supports that reference to the general nature and class of income rather than factual inclusion. (2) It is not the actual quantification of the income which matters but whether or not income was excluded from the total income. It is the class of income rather than the amount which would determine whether or not the said class of income forms part of the total income. Incomes of the categories referred to in Chapter VI-A were to be taken int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not form part of the total income refers to the nature, character or type of income and not the quantum. 34. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words do not form part of the total income under this Act is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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