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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of CIT(A) – 4, Hyderabad, dated 11/11/2016 for AY 2012-13.
Brief facts of the case are, the assessee company, engaged in the business of seed production, research, marketing of field and vegetable crops, wind power generation, filed its return of income for the AY 2012-13 declaring a total income of Rs. 2,39,44,850/-. The AO after going through the information filed by the assessee, completed the assessment by making addition of Rs. 27,17,453/- towards disallowance of expenditure u/s 14A and assessed the total income at Rs. 2,66,62,303/-.
2 ITA No. 1718/Hyd/16 Prabhat Agri Biotech Ltd., Hyd.
2.1 The AO observed from the balance sheet filed by the assessee, that an amount of Rs. 2682.11 lakhs was shown under the head investments as on 31/03/2012 and as per the information furnished by the assessee company, it had debited financial charges of Rs. 8.03 lakhs. According to AO, for the purpose of computing total income, no deduction shall be allowed in respect of expenditure incurred by the assessee company in relation to income which does not form part of the total income. Referring to the provisions of section 14A and rule 8D, he AO computed the disallowance u/s 14A at Rs. 27,17,453/-.
When the assessee preferred an appeal against the assessment order, the CIT(A) upheld the order of AO.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: 1. The order of the learned Commissioner of Income-tax (Appeals) is against law, weight of evidence and probabilities of the case. 2. The learned Commissioner of Income-tax ( Appeals) erred in sustaining the disallowance of Rs.27,17,450 made u/s 14A r.w.r. 8D of the Income-tax Act, 1961 by the learned Assessing Officer. 3. The learned Commissioner of Income-tax (Appeals) ought to have appreciated that the business of assessee consists of two segments, viz., trading, which is taxable and agriculture, which is non-taxable as accepted by the learned Assessing Officer. 4. The learned Commissioner of Income-tax ( Appeals) ought to have considered that the proportion of income between the trading (taxable) and agriculture (non-taxable) segment is 29.09% and 70.91% respectively and ought to have appreciated that disallowance made u/s 14A for the assessee as a whole, needs to segregated between the two segments in such proportion. 5. The learned Commissioner of Income-tax (Appeals) ought to have restricted the disallowance, proportionately, to Rs.7,90,507 being 29.09% of the total disallowance of
3 ITA No. 1718/Hyd/16 Prabhat Agri Biotech Ltd., Hyd. Rs.27,17,450 arrived at u/s 14A r.w.r. 8D, since the balance amount of Rs.19,26,943 being 70.91% of the total is attributable to agricultural operations of the assessee and hence not taxable. 6. For the above grounds and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal be allowed. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”
Before us, ld. AR of the assessee submitted that assessee has filed return of income with the classification of assessee’s income from agricultural and non-agricultural activities separately. He submitted that since agricultural income is exempt, assessee has already allocated relevant cost relating to agricultural income and suo-moto disallowed.
5.1 With regard to non-agricultural income, ld. AR submitted that assessee has non-agricultural as well as other incomes, which include dividend income, which is exempt from taxes. He submitted that while disallowing expenditure relating to agricultural activities, assessee has already identified Rs. 5,63,405/- as interest expenditure relating to agricultural activities and the balance interest expenditure of Rs. 2,39,899/- is relating to non-agricultural activities. He further submitted that AO has disallowed the expenditure u/s 14A by considering the total interest expenditure of Rs. 8,03,304/-, which is not proper considering the fact that assessee has already disallowed and not claimed as expenditure relating to agricultural activities to the extent of Rs. 5,63,405/-.
5.2 He further submitted that as regards investment made by the assessee, majority of the investments are made out of agricultural income, therefore, AO should not have invoked the provisions of section 14A read with rule 8D(iii) of the Income Tax Rules by taking total investment for the purpose of administrative expenditure as well
4 ITA No. 1718/Hyd/16 Prabhat Agri Biotech Ltd., Hyd. as applying rule 8D(ii). Finally, he prayed that 14A disallowance may be deleted.
Ld. DR relied on the orders of revenue authorities.
Considered the rival submissions and perused the material on record. We notice that in the paper book filed by the assessee, as per which (page 2 of the paper book), assessee has total income of Rs. 88.81 crores, which includes agricultural income, income from trading, income from other sources (which includes dividend income) and income from wind power division. Ld. AR brought to our notice that assessee has submitted segment-wise results for agricultural and non-agricultural activities. The main dispute in the appeal filed by the assessee is 14A disallowance under rule 8D(ii) & (iii). AO has invoked rule 8D(ii) to disallow portion of financial expenditure to the extent of Rs. 8,03,304/-. However, from the segmental report, it is noticed that Rs. 5,63,405/- was already disallowed by the assessee, which is relating to agricultural activities. Assessee has actually claimed Rs. 2,38,899/- as financial expenditure for non-agricultural activities. Therefore, considering the disallowance under rule 8D(ii), the AO should have taken Rs. 2,39,899/- as the financial expenditure and not Rs. 8,03,304/-. Therefore, we direct the AO to disallow proportionate financial charges relating to dividend income taking the interest expenditure of Rs. 2,39,899/-.
7.1 With regard to disallowance u/s rule 8D(iii), we direct the AO to consider those investments, which have generated dividend income.
7.2 Coming to submission of the assessee that the investments were made out of agricultural income, we notice that there is no information in the balance sheet or any other document, which substantiate that assessee has made all these investments out of
5 ITA No. 1718/Hyd/16 Prabhat Agri Biotech Ltd., Hyd. agricultural income. In absence of such evidence, we decline to entertain the submissions of the ld. AR on this count.
7.3 Therefore, grounds raised by the assessee are partly allowed.
In the result, appeal of the assessee is partly allowed.
Pronounced in the open Court on 29th November, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 29th November, 2018 kv Copy to:- 1) Prabhat Agri Biotech Ltd., 8-2-277/45, First Floor, UBI Colony, Road No. 3, Banjara Hills, Hyderabad – 500 033. 2) ACIT, Circle – 16(2),Hyderabad 3) CIT(A) – 4, Hyderabad. 4) Pr. CIT - 4, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File