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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI PRAMOD KUMAR & SHRI RAJPAL YADAV
-आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ - अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD – BENCH ‘A’
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER आयकर अपील सं./ ITA No.1905/Ahd/2016 �नधा�रण वष�/Asstt. Year: 2012-13 DCIT, Sabarkantha Circle Vs. Sabarkantha District Co-op. Himatnagar. Milk Producers Union Ltd. Sabar Dairy, Sub Post Boriya Himatnagar 383 006. PAN : AAAAS 5265 L
अपीलाथ�/ (Appellant) �त् यथ�/ (Respondent)
Revenue by : Shri Saurabh Singh, Sr.DR Assessee by : Shri Y.H. Shah, AR सुनवाई क� तार�ख/Date of Hearing : 15/03/2018 घोषणा क� तार�ख /Date of Pronouncement: 06 /06/2018 आदेश/O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against order of ld.CIT(A)-4, Ahmedabad dated 31.5.2016 passed for the Asstt.Year 2012-13.
In the first ground of appeal, Revenue has pleaded that the ld.CIT(A) has erred in deleting disallowance of deduction under section 80P(2)(d) of the Income tax Act, 1961 amounting to Rs.2,15,52,068/-.
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2 3. Brief facts of the case are that the assessee has filed its return of income on 30.11.2013 declaring total income at Rs.8,60,39,800/-. The assessee at the relevant time was engaged in the business of procurement of milk and its related activities from various milk co-operative societies at village level throughout Sabarkantha district, and processing the milk and manufacturing milk products, such as pasteurized milk, butter, ghee, milk powder, butter milk etc. These milk products are marketed to the Gujarat Co-operative Milk Marketing Federation Ltd., Anand under the brand name of AMUL. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed deduction under section 80P(2)(d) of the Act amounting to Rs.2,15,52,068/-. The AO directed the assessee to explain as to why expenses attributable to earning of interest income and dividend income, which were claimed as exempt under section 80P(2)(d), should not be disallowed under section 14A of the Income Tax Act. In response to the query of AO, the assessee filed a letter dated 10.9.2014. Such letter has been reproduced by the AO, which reads as under:
"In connection with the assessment proceedings going in our case , we are in receipt of your letter dated 20-08-2014 asking us furnish further information/ details in connection with the above assessment year. As desired by your goodself, we submit herewith the various information and/or explanations called for by your goodself in seriatim as under:
Your good self has requested to show cause as to why interest income claimed exempt u/s 80P(2)(d) of the IT. Act should not be disallowed. Further your good self has asked us to prove direct nexus of investment made in co-operative sector is out of non-interest bearing funds. In this regards, we submit as under:
During the year, we have claimed total exempt income u/s 80P as under:
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3 Particulars Amount Rs. Amount Rs.
Basic Exemption: 80-P(2)(c) 50,000
Interest from Co-operative 95,17,270 societies: 80P(2)(d)
Less: Interest Paid (13,202) 95,04,068
Dividend from Co-operative 1,19,98,000 societies: 80P(2)(d)
Total Exempt Income claimed 2,15,52,068 u/s SOP
The details of party wise interest and dividend received and claimed exempt u/s.80P of the Act is enclosed at Annexure -A.
Relevant portion of the section SOP is reproduced below.
80P, (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2)The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case ..... (b)in the case of a ........... (c)in the case of a ....... (d)in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other car-operative society, the Interest income of Rs.95,04,068/- which has been claimed as deduction u/s.80P(2)(d) has been earned out of the investment of amount received for sale of milk, milk products etc. from GCMMF Ltd. Similarly, the dividend of Rs.1,19,98,000/- has been claimed as deduction u/s.80P(2)(d) of the IT. Act as the amount invested in earlier years from our own funds. Please note that we have not borrowed any funds for purchase of shares on which we earned^ dividend income and claimed as deduction u/s.80P(2)(d). As the interest and dividend has been received from the Co-Operative
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4 Societies and earned out of investment made from our own funds, we are entitled to deduction u/s 80P(2)(d) of the Income-tax Act.
According to Sec.80P(2)(d) being the co-operative society, if any income receives by way of interest or dividends from its investment with any other co-operative society then whole of such income is deductible u/s. SOP. In present case interest income of Rs.95,04,068/- and dividend income of Rs.1,19,98,000/- has been earned out of the investment made with other co-operative societies. Hence same are eligible for deduction u/s.80P(2)(d).
iii) To prove the direct nexus of the investment made in the co- operative sector is out of non-interest bearing funds, we would like to submit that as per the Balance Sheet as on 31/03/2012 the own funds available are amounting to Rs.88.62crores[Rs.35.19 crores Capital, Rs.53.43 crores of Reserves and Surplus]
The investments by way of fixed deposits with Co-operative Banks and Societies as on 31/3/2012 are Rs.35.93crores(Rs.25 crores Fixed deposit+ Rs.3.01 crores call deposits^ Rs.7.92 crores investment in Co-operative society shares). Thus, since interest free funds were more than the investments made in such deposits with Co-operative banks no reduction should be made from the deduction claimed u/s 80P(2)(d) by the assessee Union.
In this regards, we rely on the Supreme Court decision in the case of Munjal Sales Corporation 298ITR 298 and Bombay High Court decision in the case of Reliance Utilities and Power Ltd. 313 ITR 340 where it is held that in case of mixed funds available i.e. interest free and interest bearing (like loan, etc.) then a presumption would arise that investments would be out of interest free funds, if interest free funds are sufficient to meet the investments and therefore, no proportionate reduction should be made from the deduction claimed u/s 80P(2) (d) by the assessee Union.
We further rely on the recent IT AT decision in our own case. (ITA2613/Ahd/2012)forA.Y. 2009-10 where disallowance u/s.80P(2)(d) was deleted and no interest was deducted from the interest received as there were sufficient interest free funds. ;
Copy of the said decisions are attached herewith at Annexure-B."
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5 4. The ld.AO has gone through the explanation of the assessee and observed that the assessee has huge borrowed funds of Rs.29.21 crores, whereas it is having capital of Rs.10.19 crores and total reserve of Rs.53.43 crores. According to the AO if accumulated profits of last 48 years is being added against the above fund, then net fixed assets’ value would be Rs.118.09 crores. He harbored a belief that the assessee must be used interest bearing funds in making investment which has given rise to dividend income as well as interest income. He therefore disallowed alleged dividend income as well as interest income from deduction under section 80P(2)(d) of the Act.
On appeal, the ld.CIT(A) has deleted the disallowance. Basically, the ld.CIT(A) has observed that similar disallowance was made by the AO in the Asstt.year 2009-10 which was deleted by the ld.CIT(A) and ITAT has upheld order of the ld.CIT(A) in ITA No.2613/Ahd/2012. Following the order of the ITAT, the ld.CIT(A) has deleted disallowance made by the AO.
Before us, the ld.counsel for the assessee at the very outset submitted that the ld.CIT(A) has not recorded any independent finding, rather based her order on order of the ITAT passed in the Asstt.Year 2009-10. In the Asstt.Year 2009-10, order of the ITAT has been upheld by the Hon’ble Gujarat High Court. On the other hand, the ld.DR relied upon the order of the AO. He further submitted that interest income, if derived from investment with nationalized banks, then such interest income will not qualify for grant of deduction under section 80P(2)(d) of the Act. For buttressing his contentions, he relied upon the decision of the
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6 Hon’ble jurisdictional High Court in the case of State Bank of India Vs. CIT 389, ITR 578.
We have duly considered rival contentions and gone through the record. As far as reliance of the ld.DR on the judgment of the Hon’ble Gujarat High Court in the case of State Bank of India (supra) is concerned, the facts are quite distinguishable. In the present case, the assessee has not derived interest from nationalized banks, rather it has earned from investment made with other cooperative societies. The assessee has earned dividend income on investment made with other cooperative societies.
The next question arose, whether the claim made under section 80P(2)(d) could be disallowed to the assessee on reasoning given by the ld.AO ? In the show cause, the ld.AO sought to disallow the deduction on the strength of section 14A of the Act, which contemplates that expenditure attributable to earning of exempt income will not be allowed as deduction to the assessee. The AO himself thereafter examined the issue with that angle. He ought to have identified the expenditure attributable of earning of interest income amounting to Rs.95,17,270/- as well as for earning the alleged dividend income from other cooperative societies. We have extracted the reply given by the assessee. It has already deducted interest paid of Rs.13,202/-. Meaning thereby, net interest income of Rs.95,04,068/- has been claimed as exempt under section 80P(2)(d) of the Act. The AO presumed that the assessee must have utilized interest bearing funds for making investment, therefore, the whole of income earned by way
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7 of dividend and interest deserves to be treated as disallowed with help of section 14A. The AO ought to have carved out specific expenditure relatable to the earning of such income, and thereafter worked out net dividend income as well as interest income on which deduction under section 80P(2)(d) could be allowed. He did not take such step. Nevertheless, we have examined the facts in the light of earlier years’ decisions. The assessee has demonstrated availability of funds as highlighted in sub-paragraphs (iii) and (iv) of its reply submitted before the AO vide letter dated 10.9.2014. It is pertinent to mention that the assessee has made fixed deposits with cooperate banks and societies at Rs.35.93 cores (Rs.25 crores fixed deposits plus Rs.3.01 crores call deposits plus Rs.7.92 crores investment in cooperative society shares). As against these investments, it has surplus funds of Rs.63.62 cores (Rs.10.19 crores capital plus Rs.53.43 crores reserves and surplus). The ld.AO has not examined availability of these funds with an analytical process. Rather, he made reference to the gross-figure of various years. He has to identify the availability of funds in this year. The assessee has specifically submitted the details, exhibiting nexus between the availability of funds vis-à-vis its investment. It has demonstrated that interest free funds were more than the investment, and therefore, no disallowance could be made with help of section 14A out of deduction income and interest income earned by it for claiming dividend income under section 80P(2)(d) of the Act. Respectfully following the order of the ITAT, which has been upheld by the Hon’ble High Court in the assessment year 2009-10, we do not find any merit in this ground of appeal. It is rejected.
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8 9. Ground No.2: In this ground, grievance of the Revenue is that the ld.CIT(A)) has erred in deleting disallowance of additional depreciation of Rs.33,80,446/-. It is pertinent to mention that the assessee has claimed additional depreciation on milk canes. The ld.AO has disallowed the claim of the assessee on the ground that such canes were used for transporting the milk from village to plant, and therefore, does not form part of plant & machinery. The ld.CIT(A) deleted the disallowance by observing that the AO himself treated milk cans as plant and allowed depreciation at the rate of 15%. In other words, he has allowed the depreciation at normal rates and refused to allow additional depreciation. According to the ld.CIT(A) expression “plant” has been defined in section 43(3) which reads asunder:
Section 43(3) : “Plant” includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession (but does not include tea bushes or livestock or buildings or furniture and fittings)
After considering the above definition, the ld.CIT(A) has deleted the disallowance.
With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the order of the ld.CIT(A) would indicate that there is no distinction between the expression “plant” for allowing normal depreciation vis-à-vis additional depreciation on that item. The ld.AO has created an artificial distinction on that ground. After going through the order of the ld.CIT(A) we are satisfied that the ld.CIT(A) has examined the issue with all possible angle, and thereafter held that
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9 depreciation is admissible to the assessee. Therefore, we do not find any merit in this ground of appeal. It is rejected.
Ground No.3: Grievance of the Revenues is that the ld.CIT(A) has erred in deleting disallowance of Rs.1,12,73,290/-.
Brief facts of the case are that the assessee has made addition to its plant & machinery which is eligible for grant of additional depreciation under section 32(1)(ii) of the Act. This plant & machinery was used for less than 180 days in the preceding year. The assessee claimed that the additional depreciation for remaining period of 180 days ought to be allowed in subsequent year i.e. in the present assessment year. The ld.AO was of the view that such additional depreciation is admissible one time, and therefore, the assessee should have installed the plant & machinery at the beginning of the year so that it could claim additional depreciation in the year of installation itself. Accordingly, 50% unclaimed depreciation has been disallowed to the assessee. On appeal, the ld.CIT(A) after putting reliance on the order of the ITAT allowed the claim of the assessee.
With the assistance of the ld.representatives, we have gone through the record carefully. We find that this issue has been examined by the ITAT, Delhi Bench in the case of DCIT Vs. Cosmos Films Ltd., 24 taxmann.com 189 wherein one of us (Judicial Member) is party to the order. ITAT has examined this aspect in detail and held that any claim of additional depreciation on account of non-user of the machinery over a period of 180 days or more should be claimed in the next assessment years.
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10 The discussion made by the ITAT has been reproduced by the ld.CIT(A), and it is worth to take note as under:
"17. We have heard both the sides on this issue. Section 32(1) (iia) inserted by Finance (No. 2) with effect from 1.4.2003. In speech of Finance Minister this clause was inserted to provide incentive for fresh investment in industrial sector. This clause was intended to give impetus to new investment in setting up a new industrial unit or for expanding the installed capacity of existing units by at least 25 % thereafter these provisions were amended by the Finance (No.2) Act of 2004 w.e.f. 1.4.2005 and provided that in the case of any machinery or plant which has been acquired after the 31st day of march, 2005 by an assessee engaged in the business of manufacture of production of any article or thing a further sum equal 15 % of actual cost of such machinery or plant shall be allowed as deduction under clause (ii) of section 33(1). This additional allowance u/s 32(1) (iia) is made available as certain percentage of actual cost of new machinery and plant acquired and installed. This provision has been directed to the setting up new industrial undertaking making or for expansion of the industrial undertaking by way of making more investment in capital goods. Thus, these are incentives aimed to boost new investments in setting up and expanding the units. The proviso to section 32(1) (iia) restricts the benefits in respect of following- 'Provided that no deduction shall be allowed in respect of_ (A) Any machinery or plant which, before its installation by the assesses was used either within or outside India by any other person; or (B) Any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house or (C) Any office appliances or road transport vehicle, or (D) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "profits and gains of business or profession of any previous year."
Thus, this incentive in the form of additional sum of depreciation is not available to any plant or machinery which been used either within India or outside India by any other
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11 person or such machinery and plant are installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house or any office /appliances or road transport vehicles, or any machinery or plant the whole of actual cost of which is allowable as deduction (where by way of depreciation or otherwise) in computing under the head "Profit and gains of business or profession" of any one prevision year. Thus, the intension was not to deny the benefit to the assets who have acquired or instated new machinery or plant. The second proviso to section 32(1) (ii) restricts the allowances only to 50% where the assets have been acquired and part to use for a period less than 160 days in the year of acquisition. This restriction is only on the basis of period of use. There is no restriction, that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed depreciation. This additional benefit in the form of additional allowance u/s 32(l)(iia) is one time benefit to encourage the industrialization and in view of the decision of Hon'ble Supreme Court in the case ofBajaj Tempo vs. CIT, cited supra, the provisions related to it have to be constructed reasonably, liberally and purposive to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialization and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute lo deny the benefit of balance of 50% when the new plant and machinery were acquired and use for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new plant and machinery. It has been calculated @ 15% but restricted to 50% only on account of usage of these plant & machinery in the year of acquisition. In section 32(1 (iia) the expression used is "shall be allowed". Thus the assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50% in that particular year on account of period of usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s 32(1) (iia) in an extra incentive which has been earned and calculated in the year of
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12 acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of plant machinery. In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit."
Respectfully following the order of the ITAT, we are of the view that the ld.CIT(A) has rightly deleted the disallowance and has rightly directed the AO for grant of remaining additional depreciation in this assessment year. We do not find any error in finding of ld.CIT(A) on this ground of appeal. Accordingly, it is rejected.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 6th June, 2018.
Sd/- Sd/- (PRAMOD KUMAR) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER