ACIT, ANAND CIRCLE, ANAND, ANAND V. NATIONAL DAIRY DEVELOPMENT BOARD, ANAND

ITA 742/AHD/2023

AI Insights

The case involves multiple appeals by the National Dairy Development Board (NDDB) against the assessment orders passed by the Deputy Commissioner of Income Tax (DCIT) and the Assistant Commissioner of Income Tax (ACIT) for various assessment years from 2012-13 to 2018-19. The appeals primarily contest the disallowances made under various sections of the Income Tax Act, 1961, including deductions under Section 36(1)(viii) for transfer of funds to a special reserve, disallowances under Section 14A read with Rule 8D, and the treatment of rental income as 'Income from House Property' instead of 'Profits and Gains from Business and Profession'. The Tribunal considered the submissions, previous judgments, and the specific provisions of the law applicable to the case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668642 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Other Referred Cases: Union Bank of India vs. DCIT, Effective Teleservices Pvt. Ltd. vs. PCIT, Meeraj Estate & Developers vs. CIT, Raj Dadarkar & Associates vs. ACIT
• Laws Referred To: Income Tax Act, 1961, National Dairy Development Board Act, 1987
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Business expenditure; Question of law; Bad and doubtful debts; Depreciation; Rectification of order; Earning of tax free income; Rule 8D
• Section: 147; 143(3); 37; 14A; 115JB; 37(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: DR. BRR Kumar, Vice President And Shri T. R. Senthil Kumar, Judicial Member ITA Nos & Asst. Years Appellant Respondent 722/Ahd/2023 TO 728/Ahd/2023 2012-13 To 2018-19 National Dairy Development Board Post Box No. 40, Jagnath Mahadev Mandir, Anand-388001, Gujarat Dy. CIT, Anand Circle, Anand 735/Ahd/2023 TO 740/Ahd/2023 2012-13, 2014-15 to 2018-19 & 742/Ahd/2023 2013-14 ACIT, Anand Circle, Anand National Dairy Development Board Post Box No. 40, Jagnath Mahadev Mandir, Anand-388001, Gujarat PAN AABCN2029C Assessee Represented by: Shri Milin Mehta, Shri Bhavin Marfatia & Ms. Amrin Pathan, Revenue Represented by: Shri V Nandakumar, CIT-DR & Shri Ankit Jain, Sr. D.R. Date of Hearing 07/05/2025 Date of Pronouncement 23/06/2025 आदेश/ORDER PER BENCH:- These cross appeals are filed by the Assessee and Revenue as against the separate appellate orders all dated 26-07- 2023 passed by the Commissioner of Income Tax (Appeals), I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 2 National Faceless Appeal Centre, Delhi, arising out of separate assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the respective Assessment Years 2012-13 to 2018-19. Since common issues of disallowances are involved in all these appeals, for the sake convenience the same are disposed of by this common order. 2. The assessee, the National Dairy Development Board (hereinafter referred as NDDB), is a statutory body established under the National Dairy Development Board Act, 1987, with the object of promoting, financing, supporting dairy and related rural industries. Asst. Year 2012-13 is taken as the lead case, assessee e-filed its return of income on 27.12.2012 declaring loss of Rs.84,09,26,490/. The AO passed regular assessment order u/s.143(3) of the Act on 30.03.2015 determining total income at Rs.36,11,90,670/- by making disallowances/additions as follows:  Claim of deduction u/s 36(1)(viii) of the Act in respect of transfer of funds to special reserve.  Disallowance of expenses u/s 14A r.w.r 8D  Taxing of rental income from building as ‘Income from House Property’ instead of “business income” and disallowance of depreciation on building  Disallowance of deduction of interest paid to North Kerala Project Development Fund  Disallowance of contribution to Employee’s Recreation (BOHO Club)  Disallowance of payment of monthly benefit to employees under VRS scheme after retirement – Section 35DDA, Section 37(1)  Applicability of MAT u/s 115JB  Adjustment of withdrawal from reserves and provisions to book profit u/s 115JB I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 3 2.1. Aggrieved against the assessment order, assessee filed appeal before CIT(A), Baroda which was partly allowed and partly dismissed. 3. Aggrieved against the appellate order the Assessee is in appeal in ITA No.722/Ahd/2023 for A.Y. 2012-13 as follows: The appellant being dissatisfied with the order passed by the National Faceless Appeal Centre ('NFAC) Income Tax Department, prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the NFAC is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2 The NFAC has erred on facts and in law in disallowing the appellant's claim of Rs. 5,19,29,489/- for deduction under Section 36(1) (viii) of Income- tax Act, 1961 ('the Act'). It is submitted that appellant has satisfied necessary conditions and NFAC ought to have allowed the deduction as claimed. It is submitted that it be so held now. 2.1. The NFAC has erred on facts and in law in holding that in absence of share capital, no deduction under Section 36(1)(viii) of the Act can be allowed to the appellant. It is submitted that proviso to section 36(1) (viii) of the Act limits deduction that can be allowed and in absence of share capital, such limitation would become inapplicable (rather than the whole section becoming inapplicable). It is submitted that it be so held now. 3. The NFAC has erred on facts and in law in confirming the ad-hoc disallowance capped at Rs. 10,00,000/- under Section 14A of the Act following the Hon'ble Income Tax Appellate Tribunal ('ITAT') order in the case of appellant for the AY 2008-09 as the revenue was unable to prove any expenditure directly incurred for earning exempt income. In the facts and circumstances of the case it is submitted that no disallowance under section 14A of the Act is required to be made. It is submitted that it be so held now. 3.1. The NFAC has erred in not appreciating Rule 8D, has been applied by the AO without bringing on record his dissatisfaction in respect of the I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 4 appellant's claim of expenditure Incurred for earning tax free income. It is submitted that it be so held now. 3.2. Without prejudice to the above, the disallowance should be restricted to Rs.2,63,441/-attributable for earning exempt income. It is submitted that it be so held now. 4. The NFAC has erred in directing the AO to tax the rental income from buildings given on lease as income under the head 'Income from House Property instead of 'Profits and Gains from Business and Profession and thereby denying deduction of depreciation and other expenditure on buildings. It is submitted that it be so held now. 5. The NFAC erred in holding that if the appellant first withdraws its appeal in respect years only in that case the deduction the interest returned back to North Kerala Project Development Fund of Rs.10,64,64,144/- and Rs.3,95,75,095/ be allowed. The appellant submits that NFAC erred in putting such condition of withdrawal in the order. Appellant submits that NFAC ought to have allowed the deduction without direction to AD to safeguard to avoid double deduction thereof it is submitted it be so held now. 6. The NFAC has erred on facts and in law in not granting the deduction in respect of contribution made to Employee's Recreation of Rs. 2,38,764/-. It is submitted that in the facts and circumstances of the case, no disallowance was required to be made. 7. The NFAC has erred in not granting deduction of actual monthly payment of Rs. 3,68,11,434/ on the ground that expenditure under VRS eligible under Section 35DDA cannot be claimed under Section 37(1) without appreciating that this expenditure was not eligible under Section 35DDA being post retirement monthly payment to the employees made out of the provision made in AY 2011-12 and disallowed in that year it is submitted it be so held now. 7.1 Alternatively directions be given to allow deduction of the provision as made in AY 2011-12. It is submitted it be so held now. 4. The Grounds of Appeal filed by the Revenue in ITA No. 735/Ahd/2023 for A.Y. 2012-13 reads as under: I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 5 1. \"On facts and circumstances of the case the Ld.CITA) has erred in restricting the disallowance on account of administrative expenses incurred in earning exempt income to Rs. 10,00,000/- as against Rs. Rs.1,86,46,037/-computed by A.O. in accordance with the provisions of section 144(2) read with Rule 8D(2)(iii). 1.1 On the facts and circumstances of the case, the Ld.CITIA) has erred in restricting the disallowance u/s 14A of the Income Tax Act, 1961 to Rs. 10,00,000/- ignoring the provisions of sub-section (2) of section 14A that require mandatory invoking of Rule 8D where the A.O. has duly recorded satisfaction with regard to the correctness of the claim of expenditure incurred towards earning exempt income. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in holding that the agreement entered for leasing of assets by the assessee are in the nature of operating lease without appreciating the fact that the assessee is not engaged in the business of providing of lease. 3. The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal It is prayed that the order of the CITA) on the above issues be set-side and that of the Assessing Officer be restored. 5. The Grounds of Appeal raised by rival parties are inter- connected, therefore the grounds are dealt with year-wise as follows. 5.1. Issue No. 1: Claim of deduction u/s. 36(1)(viii) in respect of transfer of funds to special reserve. Perusal of the Profit & Loss Account, the Assessing Officer noticed that the assessee claimed an amount of Rs.5,19,29,489/- being amount transferred to special reserve which has been credited to special reserve which is a component of general fund of the assessee as per Annexure-1 of balance sheet. In the computation, the sum of Rs.5.19 crores has been claimed as deduction as amount transferred to Special I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 6 Reserve under section 36(1)(viii) to qualify for deduction of 20% on profits of long-term financial activity, the following conditions are to be satisfied namely (a) It should be financial corporation. (b) It has to be engaged in providing long-term finance. (c) The finance has to be provided for industrial or agricultural development. 5.2. The assessee NDDB has been notified as a Public Financial Institution in terms of Sub-section (2) of Section 4A of the Companies Act, 1956 as per Notification dated 22-02-2004 issued by Ministry of Finance to the Department of Company Affairs. Further NDDB is providing loans to cooperative, which are repayable over a period ranging from 7 to 20 years for procuring milk and manufacturing many other milk products like cheese, butter, butter milk, paneer, etc. Further CBDT vide Notification No. SO 627E dated 04-08-1999 recognized milk and milk products as industry. Thus assessee claimed that entitled for deduction u/s. 36(1)(viii) as claimed in the Return of income. The Ld. Counsel for the Assessee submitted as follows: • The issue is decided against the Assessee for AY 2003-04 by the Gujarat High Court. The issue is contested by the Assessee before Hon’ble Supreme Court and is pending adjudication in Civil Appeal No. 10266/2024. • The Assessee is in the process of filing a declaration u/s. 158A(1) in Form No. 8 declaring that the findings of the SC may please be followed for the year under consideration. • Similar directions were issued by the ITAT for AY 2010-11 and 2011-12 in ITA No. 2004 of 2014 and others vide order dated I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 7 17.05.2024 (refer para 5 & 6). The copy of ITAT order for AY 2010- 11 & 2011-12 enclosed as Annexure – 1 (refer page no. 7 to 9). 5.3. Ld. Counsel for the assessee further submitted that this issue is decided as against the assessee by the Hon’ble Gujarat High Court relating to the Asst. Year 2004-05 in Tax Appeal No. 337 of 2012. However the assessee contested this issue before Hon’ble Supreme Court which is pending disposal in Civil Appeal No. 10266 of 2024. It is, in this context, invoking Section 158A(1) and filed Form No. 8 declaring identical question of law pending before Hon’ble Supreme Court and also submitted whatever the outcome of the Hon’ble Supreme Court will be applicable to the assessee. Therefore requested to dismiss the Ground No. 2 raised by the assessee with liberty to apply the ratio of the decision to be rendered by Hon’ble Supreme Court of India. The assessee filed Form No. 8 duly signed by its Chairman. 6. We have perused the submissions of the assessee Counsel and Ld. CIT-DR appearing for the Revenue stated that in assessee’s own case for the Asst. Years. 2010-11 & 2011-12, the Co-ordinate Bench of this Tribunal vide order dated 17-05-2024 in ITA Nos. 2004/Ahd/2014 and Ors. dismissed the ground by observing as follows: 5. In view of the admission of question of law on disallowance of assessee’s claim for deduction under Section 36(1)(viii) of the Act, following orders for A.Y. 2003-04, by the Hon’ble Supreme Court in A.Y. 2003-04 (Ground No. 2 for A.Y. 2010-11) and also regarding pendency on the ground relating to interest earned on North Kerala Diary Project Development Fund (Ground No. 6 for A.Y. 2010-11), and ground relating to non-granting of deduction in respect of contribution made to employees recreation (Ground No. 7 for A.Y. 2010-11), and pendency of such grounds before the Hon’ble Gujarat High Court the assessee I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 8 filed application under Section 158A(1) of the Act and submitted that the assessee would not raise any question of law before the Hon’ble Gujarat High Court and / or Hon’ble Supreme Court of India, in the captioned assessment year. The application made by the assessee in Form No. 8 is available on record and copies of the same were forwarded to the Department. The Assessing Officer vide letter dated 18.04.2024 has on verification of records, admitted that the question of law involved in the appeal before the Hon’ble Gujarat High Court for A.Y. 2004-05 and before Hon’ble Supreme Court in A.Y. 2003-04, were pending for decision and the assessee’s claim was found to be corrected. 6. In view thereof, the issues raised by the assessee vide Ground Nos. 2, 6 & 7 for A.Y. 2010-11 (and similarly in respect of 2, 5 & 6 relating to A.Y. 2011-12) are decided against the assessee, following the decision of Ahmedabad Tribunal which have held against assessee from A.Ys. 2003-04 to 2008-09, in respect of all the three grounds of appeal for which application under Section 158A of the Act has been submitted by the assessee, since there is no change in the facts and circumstances. However, in view of the declaration made by the assessee in prescribed Form No. 8 in terms of Section 158A(1) of the Act, the Assessing Officer is directed to apply the decision of Hon’ble Supreme Court and / or Hon’ble Gujarat High Court, once the said issues are decided in assessee’s own case, relating to A.Y. 2003-04 (in relation to claim of deduction under Section 36(1)(viii) of the Act before Hon’ble Supreme Court) and A.Y. 2004-05 (in relation to grounds relating to interest earned on North Kerala Dairy Project Development Fund and in relation to ground relating to deduction in respect of contribution made to employees recreation ) before Hon’ble Gujarat High Court, on the said issues being decided in assessee’s own case. Accordingly, Ground of Appeal Nos. 2, 6 & 7 raised by the assessee is accordingly dismissed for A.Y. 2010-11 and Ground of Appeal Nos. 2, 5 & 6 in relation to A.Y. 2011-12 are dismissed accordingly. 6.1. There is no change in the facts of the present case and the Assessing Officer already verified the records and admitted that the question of law involved in the appeal before Hon’ble Gujarat High Court for Asst. Year 2004-05 before Hon’ble Supreme Court in Asst. Year 2003-04 were pending disposal and the assessee’s claim was found to be correct, thereby dismissed the ground raised by the assessee based on the application made u/s. 158A(1) of the Act I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 9 and as prescribed in Form No. 8. Therefore this Ground No. 2 raised by the assessee in all the Asst. Years 2012-13 to 2018-19 are hereby dismissed with liberty to apply the ratio of the decision to be rendered in C.A. No. 10266 of 2024 by Hon’ble Supreme Court. 7. Issue No. 2: Disallowance of expense u/s 14A r.w.r 8D. The Assessing Officer found that the assessee has claimed exempted tax free income (from NPCIL, PFC, IIFCL, IRFC and NHB, etc.) of Rs.14,06,10,167/- and dividend amounting to Rs.4,04,89,102/- as exempt income. The Assessing Officer applied Rule 8D and computed the disallowance by Rs. 2,94,70,038/- u/s. 14A read with Rule 8D. Ld. Counsel for the assessee submitted as follows: • For AY 2010-11 and AY 2011-12 the issue of disallowance u/s 14A was restored to the file of AO. Refer para 29 to 34 of Annexure – 1 (refer page no. 21 to 23). • In AY 2008-09 and AY 2009-10 the disallowance u/s. 14A on account of interest was decided in favour of the Assessee and the issue of administrative expenses was restricted to Rs. 10.00 lacs by the ITAT vide order dated 7-11-2016 in ITA No. 1041/A/2012 & others. Refer page no. 415 to 422 of paper book wherein the order of ITAT for AY 2008-09 and AY 2009-10 is attached. • The issue of confirming addition of Rs. 10.00 lacs is contested by the Assessee before the Gujarat High Court and is pending for adjudication for AY 2008-09 in Tax Appeal No. 438 of 2017. • The Assessee has filed a Miscellaneous Application in MA No. 125 to 129 for rectifying the order of ITAT for AY 2010-11 and AY 2011-12 setting the issue of addition u/s. 14A to the AO. The MA is pending disposal and fixed for hearing on 23.05.2025. Copy of the MA is attached as Annexure – 2 (refer page no. 33 to 43). I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 10 • Since the issue is a covered issue by the order of ITAT for AY 2008-09 and AY 2009-10 wherein similar disallowance u/s. 14A was restricted to Rs. 10.00 lacs we request the ITAT to pass similar directions. The Assessee reserves it right to challenge the addition in further appeal. 8. We have perused the submissions of the assessee and Paper Book and Case laws filed by the assessee. We do not find copy of the order passed by the ITAT for the Asst. Year 2008-09 & 2009-10. Therefore the request to restrict the administrative expenses to Rs.10 lakhs is not possible. However the Co-ordinate Bench for the Asst. Year 2010-11 & 2011-12 set-aside the matter back to the file of Assessing Officer to examine the issue afresh after giving due opportunity of hearing to the assessee. Following the same, Ground No. 3 raised by the assessee for the Asst. Years 2012-13 to 2018-19 are partly allowed. 9. Issue No. 3: Taxing of rental income from building as Income from House Property instead of business income and disallowance of depreciation on building. Ld. Counsel for the assessee submitted this issue has to be assessed as income from house property not as business income as held by the Co-ordinate Bench of this Tribunal for the Asst. Years 2010-11 & 2011-12 as follows: “21. From the facts placed on record, we observe that the primary business of the assessee is to promote and organize programmes for the purpose of development of dairy and other agricultural based and allied industries. Therefore, we are of the considered view that leasing of buildings, though permitted by the objects of the assessee, are not incidental to the primary business of the assessee. It has been held in the large number of decisions that where as per the assessee’s Memorandum of Association, the main object was different from letting out of property without providing any amenities, the tenant was liable to be assessed as income from house property. I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 11 22. In the case of Raj Dadarkar & Associates vs. ACIT 81 taxmann.com 193 (SC), the Supreme Court held that where assessee having obtained a property on lease, constructed various shops and stalls on it and gave the same to various persons on sub-licencing basis, since assessee was not engaged in systematic or organized activity of providing service to occupiers of shops/stalls, income from sub-licensing was to be taxed as income from house property and not as business income. 23. In the case of Effective Teleservices Pvt. Ltd. vs. PCIT 160 taxmann.com 689 (Ahmedabad – Tribunal), the ITAT held that where assessee, engaged in IT services, earned rental income from a property which was not its business asset but an investment, such rental income would be chargeable to tax under head ‘Income from house property’ and not as ‘business income’. 24. In the case of Meeraj Estate & Developers vs. CIT 113 taxmann.com 231 (Allahabad), the High Court held that where assessee entered into an agreement to let out a premises with various amenities, as also for maintenance and up keeping of said premises, since assessee did not indulge in any kind of recurring, systematic and organized business activity and, moreover, in respect of maintenance and up keeping of let out premises, it appointed only one person, Assessing Officer was justified in treating rental income assessable as ‘income from house property’ and services receipts as ‘income from other sources’. 25. Accordingly, in view of the facts of the case, we find no infirmity in the order of Ld. CIT(A) in holding that the income earned from letting out buildings on rent qualifies as “rental income” and does not qualify as “business income of the assessee”. 26. The next issue for consideration is that whether the assessee is eligible for depreciation on such building. We are of the considered view that once the income is held to be taxable as income from “house property” and not as “business income”, and further, admittedly the assessee has given the building on rent on long term basis, with an option of renewal of agreement as well, then in our considered view, Ld. CIT(A) has not erred in facts and in law holding that the assessee is not eligible for depreciation on such building, since firstly, the building has been given on a long term lease basis to the lessee, secondly, such business are not utilized for the business of the assessee and thirdly, the income from leasing of such building on a long term basis has been held to be taxable as income from “house property”, on which appropriate standard I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 12 deduction in terms of Section 24 of the Act has also been allowed to the assessee. Accordingly, looking into the instant facts, we are of the considered view that the Ld. CIT(A) has not erred in facts and in law in holding that the assessee is not eligible for claiming depreciation on such buildings given on long term lease basis, the income of which qualifies as “income from house property”. 27. The next issue for consideration is before us whether the Ld. CIT(A) has erred in facts and in law in allowing the claim of depreciation in respect of other assets leased out by the assessee. Before us, the Ld. D.R. submitted that firstly, the Ld. CIT(A) has not disputed the fact that the assets have been given out on long term lease basis over the effective economic life of the assets. Further, the Ld. CIT(A) has not given any basis or reasoning for holding that the lease qualifies as “operating lease” and does not qualify as “finance lease”, and thereby allowing the assessee’s depreciation on such assets leased out for long term basis, over the effective economic life of the asset. Under the Income tax Act, 1961, a tax payer is eligible to claim depreciation on an asset provided the asset is owned by such person and is being used for the purpose of his business. We observe that there are plethora of precedents where the claim of depreciation has been denied by tax authorities in case either or both of these tests are not met. The twin tests of ‘ownership’ and ‘use’ for claiming depreciation become even more critical in lease transactions, wherein the owner of the assets foregoes the possession and use of the asset; whilst the assets is used by lessee for his business. The principles governing eligibility of lessor to claim tax depreciation under the lease arrangement is enunciated by administrative guidance issued by the CBDT in Circulars 9/1943 and 2/2001. These Circulars do not distinguish between the two kinds of lease arrangements and provides that in a lease, other than a hire purchase, the lessor is eligible to claim depreciation, provided the tests of ‘ownership’ and ‘use of the asset’ are satisfied. However, in the instant facts, we observed that while allowing the claim of depreciation in respect of other assets, Ld. CIT(A) has not given a categorical findings as to why the lease of assets qualifies as “operating lease” and not as “finance lease”, especially in light of the fact that the Assessing Officer has given a categorical finding that the assets have been given on a long term lease basis, there is a specific clause which allows / permits the lessee to renew the lease agreement for further period and further the lessee is in possession of and is using the asset for the effective economic life of the assessee. Though, the Ld. CIT(A) has held that the lease qualifies as “operating lease”, however, the Ld. CIT(A) has not given any basis by coming into conclusion that the lease qualifying as I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 13 “operating lease” and not “finance lease”. Further, we also observe that Ld. CIT(A) has not given any specific observation to controvert the finding given by the Assessing Officer that the assets so leased out remained with the lessee over the effective economic life of the asset and therefore, such lease should qualify a “finance lease”. Accordingly, looking into the instant facts, the matter is restored to the file of the Ld. CIT(A) to give a finding as to whether lease of assets “operating building” qualify as “operating lease” or “finance lease” looking into the instant facts. 28. In the result, these issue is restored to the file of the Ld. CIT(A). In the result, Ground No. 5 of the assessee’s appeal is dismissed and Ground No. 2 of the Department’s appeal allowed for statistical purposes.” 9.1. Respectfully following the same, Ground No. 3 raised by the Assessee is hereby dismissed. Ground No. 2 for Asst. Years 2012- 13 & 2013-14 and Ground No. 3 for Asst. Years 2014-15 to 2018- 19 raised by the Revenue are allowed for statistical purpose. 10. Issue No. 4: Disallowance of deduction of interest paid to North Kerala Project Development Fund. Ld. Counsel for the Assessee submitted as follows: • The Assessee was acting as a Nodal Agency for North Kerala Project Development Fund. The AO had added interest income accruing on the said fund as income of the Assessee for AY 2003- 04 to AY 2011-12 though the Assessee had not considered the same as its income in the profit and loss account. This addition has been confirmed by the ITAT till AY 2011-12. • During the current year the Assessee had transferred the funds including accrued interest to North Kerala Project Development Fund. Since the amount of interest was added on the ground that it is income of the Assessee, the payment of the same should be allowed as deduction to the Assessee. • The CIT(A) for the year has issued a direction that the AO would allow the deduction of interest only if the Assessee withdraws its appeal pending at different appellate authorities or the matter is decided against the Assessee and the decision is I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 14 accepted by the Assessee for all previous assessment years. Refer para 5 on page 87 of CIT(A) order for AY 2012-13. • The directions issued by ITAT for AY 2010-11 and 2011-12 (Annexure – 1) vide para 5 & 6 would not apply for the year under consideration as the issue therein concerned was with respect to addition of interest as income of the Assessee. • The assessee in the current year has claimed deduction of interest since the funds along with interest were transferred to the North Kerala Project Development fund. • Since the amount is already added in the earlier years the Assessee requests the Tribunal to allow complete deduction of interest else it would amount to double addition. 10.1. Per contra Ld. CIT-DR appearing for the Revenue pleaded that the matter be set aside back to the file of Assessing Officer and allow the deduction in accordance with law. We are satisfied with the submissions of the Ld. CIT-DR, the claim of deduction and interest for various asst. years is not readily available, thereby we deem it fit to set-aside the matter back to the file of Jurisdictional Assessing Officer to consider the submissions of the assessee and allow the deduction in accordance with law by giving proper opportunity of hearing to the assessee. In the result, this Ground No. 4 raised by the Assessee is allowed for statistical purpose. 11. Issue No. 5: Disallowance of contribution to Employee’s Recreation (BOHO Club). The Assessing Officer found that the assessee contribution of an amount of Rs.2,38,764/- towards employee’s recreation club. The amount was paid to meet the deficit between actual expenses incurred by the staff club and contribution received by the club from its member and the same be allowed u/s. 36/37 of the Act as business expenditure. The I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 15 Assessing Officer disallowed the same. Ld. Counsel for the assessee submitted as follows: • The issue is similar to AY 2004-05 wherein the issue is contested before the Gujarat High Court in Tax Appeal No. 337 of 2012. • The Assessee is in the process of filing a declaration u/s. 158A(1) in Form No. 8 declaring that the findings of the Gujarat High Court may please be followed for the year under consideration. • Similar directions were issued on the issue by the ITAT for AY 2010-11 and 2011-12. Refer para 5 & 6 of Annexure – 1 (refer page no. 7 to 9). 12. The Ld. D.R. appearing for the Revenue have no objection in following the Gujarat High Court decision pending in Tax Appeal No. 337 of 2012 relating to the Asst. Year 2004-05 as declared in Form No. 8. 13. Recording the same, Ground No. 5 raised by the Assessee is hereby dismissed with liberty to follow the decision to be rendered by Hon’ble Gujarat High Court in Tax Appeal No. 337 of 2012. 14. Issue No. 6: Disallowance of payment of monthly benefit to employees under VRS scheme after retirement – Section 35DDA, Section 37(1). The Ld. Counsel for the assessee submitted as follows: • The issue of monthly payments to employees under VRS scheme is restored back to the file of AO for verifying its allowability as deduction u/s 37 and claim of double disallowance for AY 2011- 12. Refer para 51 to 56 of Annexure – 1 (refer page no. 29 to 31). • The Assessee has filed Miscellaneous Application in MA no. 125 to 129 against the order of AY 2011-12 in ITA No. 2994 of 2016 requesting to allow the deduction on payment basis. Copy of MA is I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 16 enclosed as Annexure – 3 (refer page no. 44 to 50). The MA is pending disposal and fixed for hearing on 23-5-2025. • The Assessee requests the Hon’ble Tribunal to allow the deduction on actual payment as held by the CIT(A) for AY 2011-12. 15. Per contra Ld. D.R. appearing for the Revenue supported the order passed by the lower authorities. We found that the Co- ordinate Bench of this Tribunal in ITA No. 2994/Ahd/2016 held as follows: 51. The brief facts in relation to this ground of appeal are that certain employees of the assessee were transferred to it’s subsidiaries, Mother Diary, in respect of which the assessee introduced of VRS Scheme. During A.Y. 2011-12, the assessee offered VRS to it’s eligible employees for which payment of Rs. 39,02,99,507/- was paid. 1/5th of VRS benefit amounting to Rs. 7,80,59,901/- was claimed as deduction under Section 35DDA of the Act. The aforesaid deduction is not under dispute. In addition to the VRS benefits referred to above, the employees were also paid monthly benefits after retirement. The assessee had made provision of Rs. 21,12,16,597/- for monthly benefit payments in A.Y. 2011-12 in terms of VRS Scheme out of which monthly benefits to employees of Rs. 3,11,87,140/- were paid during the year. Accordingly, provision of Rs. 18,00,29,457/- (net of Rs. 21,12,16,597/- less 3,11,87,140/-) has been disallowed in the impugned order since the liability to pay the same has not accrued. In the A.Y. 2012- 13, the assessee has made actual payment of Rs. 3,68,11,434/- out of the provision of Rs. 18,00,29,457/- as monthly benefits paid as per the terms and conditions of VRS to these employees out of the provisions made in earlier year. The assessee submitted that since the provision was not claimed as deduction in A.Y. 2011-12, the assessee has claimed the actual payment made to the employees as a deduction in A.Y. 2012-13. However, the Assessing Officer in A.Y. 2012-13 has disallowed payment of Rs. 3,68,11,434/- towards monthly benefits, leading to double addition of the same amount both in A.Y. 2011-12 and in A.Y. 2012-13. The assessee is of the view that the aforesaid amount was allowable to the assessee under Section 37 of the Act and further, disallowance of the same amount in A.Y. 2012-13 would lead to double deduction, since the assessee has already disallowed the aforesaid amount for the impugned year under consideration (i.e. A.Y. 2011-12). 52. In appeal before Ld. CIT(A), Ld. CIT(A) directed the Assessing Officer to verify the contentions of the assessee, particularly in view of the I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 17 claim of double addition as stated by the assessee and the Ld. CIT(A) further directed the Assessing Officer to allow the requisite relief to the assessee, on payment basis after due verification. 53. The assessee is in appeal before us, and submitted that the claim of the assessee on payment basis has been disallowed by the Assessing Officer for A.Y. 2012-13, 2013-14 and 2014-15, however, the Department has allowed the claim of the assessee for subsequent assessment years under Section 37 of the Act. The Counsel for the assessee has requested that the Assessing Officer may be directed to comply with the order of Ld. CIT(A) and to give a clear findings with regards to the liability of the claim of the assessee towards monthly payment of VRS benefit to it’s employees. 54. We observe that the claim of deduction has been allowed to the assessee for A.Y. 2016-17. While for the earlier Assessment Years 2011-12 to 2014-15 similar claim of the assessee has not been allowed. Accordingly, the Assessing Officer is directed to comply with the direction issued by Ld. CIT(A) and to give a clear findings on the allowability of the claim of the assessee with regards to deduction of the aforesaid expenditure under Section 37 of the Act, more specifically with regards to the contention of the assessee that there has been double disallowance of deduction of the aforesaid amount in the hands of the assessee and also to give a clear cut findings as regards to the allowability of such claim in terms of Section 37 of the Income Tax Act. 15.1. We have no hesitation in setting aside this matter to the file of Assessing Officer to verify the claim of deduction as per the provisions of law. In the result, Ground No. 5 raised by the Assessee is allowed for statistical purpose. 16. Issue No. 7: Applicability of MAT u/s 115JB. The Ld. Counsel for the assessee submitted as follows: • The AO applied section 115JB - MAT on book profits on the ground that the Assessee is a company. • The ITAT in the Assessee’s own case vide order dated 02.05.2025 has held that provisions of section 115JB are not I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 18 applicable to the Assessee. Refer para 19 of the ITAT order. Copy attached Annexure – 4 (refer page no. 73 to 74). 17. Ld. CIT-DR could not contravent this issue since he argued this case relating to the earlier Asst. Year 2010-11 & 2011-12 in ITA No. 733/AHD/2023 and Ors. before this Tribunal, wherein this Bench held as follows; “18. The question of applicability section 115JB to Statutory Corporations pursuant to the amendment made in Sec 115JB by Finance Act 2012 effective from 01.04.2013 is no more res-integra as the same considered by the Special Bench of Mumbai Tribunal in the case of Union Bank of India - Vs- DCIT reported in [2024] 166 taxmann.com 207 vide recent decision dated 06-09-2024 held as follows: “Section 115JB, read with section 2(26), of the Income-tax Act, 1961- Minimum alternate tax. Payment of Tax (Banks) Assessment years 2013-14 to 2015-16 Assessee-bank claimed that section 115JB would not be applicable in its case Assessing Officer denied said claim on ground that amended provision of section 115JB brought by Finance Act, 2012 with effect from 1-4-2013 by insertion of clause (b) to section 115JB(2) had brought within its ambit companies governed by Companies Act and also governed by other regulating act including Banking Regulation Act, 1949 It was noted that assessee came into existence as 'corresponding new bank as per section 3(1) of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 Also new acquiring banks like assessee- bank was neither registered under Companies Act, 2013 nor under any other previous company law - Whether expression 'company' used in section 115JB(2)(b) was to be inferred to be company under Companies Act Held, yes - Whether thus, deeming fiction by way of section 11 of Acquisition Act had to be read purely in context for purpose of Income Tax Act where corresponding new bank had been deemed to be an Indian Company and a company in which public were substantially interested and this deeming section could not be extended to a company registered under Companies Act to which alone section 115JB is applicable -Held, yes Whether thus, clause (b) to sub section (2) of section 115JB inserted by Finance Act, 2012 with effect from 1-4-2013, i.e, from assessment year 2013-14 onwards, would not be applicable to I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 19 banks constituted as 'corresponding new bank' in terms of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and not registered under Companies Act, 2013 or any other previous company law Held, yes Whether thus assessee-bank would not fall under provisions of section 115JB and tax on book profits (MAT) would not be applicable - Held, yes [Paras 55, 56 and 60] [In favour of assessee]” ……………………… 60. Accordingly, the question referred to Special Bench is decided in favour of the assessee banks that clause (b) to sub section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 w.e.f. 1-4-2013, that is, from assessment year 2013-14 onwards, are not applicable to the banks constituted as \"corresponding new bank in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and therefore, the provision of Section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks. 18.1. Special Bench thus held that section 115JB of the Act is not applicable to banks formed under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, not registered under the Companies Act. Hence, MAT is not leviable on such banks even on post amendment by Finance Act 2012 effective from 01.04.2013 by insertion of clause (b) to section 115JB(2) of the Act. Summery of the Special Bench decision are as follows: A. Section 115JB applies only to companies registered under the Companies Act:  The expression \"company\" under Section 115JB must be interpreted in the context of the Companies Act, not merely by reference to the Income Tax Act.  Although Section 11 of the Acquisition Act deems a “corresponding new bank” to be an “Indian company” for income-tax purposes, this does not extend to deeming it as a company under the Companies Act. B. Union Bank of India is not a company under the Companies Act: I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 20  It was created under a special statute (the 1970 Act) and not incorporated under the Companies Act.  Thus, it is not covered by Section 129(1) second proviso of the Companies Act, 2013 – a prerequisite for Section 115JB(2)(b) to apply. C. Non-Applicability of Schedule III or Section 129 of the Companies Act:  The bank’s financials are prepared under the Banking Regulation Act, not the Companies Act, which is essential under 115JB(2)(a)/(b). D. Deeming fiction under Section 11 is limited:  It is only for income-tax purposes (i.e., for tax rate application), not to widen the scope of MAT.  The Special Bench noted that deeming provisions should be strictly construed. E. Computation mechanism fails:  Without the profit and loss account being prepared per the Companies Act or as mandated under Section 129(1), the computation mechanism of Section 115JB fails, following the principle laid down in CIT v. B.C. Srinivasa Setty. 18.2. Similarly Delhi High Court in the case of Oriental Insurance Co. Ltd - Vs- ACIT reported in [2017] 84 taxmann.com 312 held that from the reading of section 44 read with the First Schedule of the Act, that insurance companies are required to prepare accounts as per the IA and the regulations of the IRDA and not as Parts II and III of Schedule VI of the Companies Act. Insurance companies prepares its accounts as per the IRDA Regulations which governs the preparation of the auditor’s report, therefore the provisions of Section 115JB of the Act does not apply to insurance companies. 19. Thus we hold that MAT is not leviable even under the post amendment by Finance Act 2012 effective from 01.04.2013 by insertion of clause (b) to section 115JB(2) of the Act to a Statutory Corporation created under the Central Act. Therefore, the additions made thereunder by way of passing rectification order is hereby quashed. In the result the appeal I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 21 filed assessee for the Asst. Year 2013-14 in ITA No.1052/Ahd/2023 is allowed.” 17.1. In the result, this Ground No. 7 raised by the Assessee is hereby allowed. 18. Consequently Issue No. 8 namely Adjustment of withdrawal from reserves and provisions to book profit u/s 115JB and Ground No. 8 raised by the Assessee is allowed. 19. In the result, the appeals filed by the Assessee in ITA Nos. 722 to 728/Ahd/2023 are partly allowed. Revenue’s Appeal ITA No. 735/Ahd/2023 for A.Y. 2012-13. 20. Ground No. 2 for Asst. Year 2012-13 & 2013-14 and Ground No. 3 for Asst. Years 2014-15 to 2018-19 namely treating the leasing of assets as Operating Lease instead of Finance Lease and thereby allowing depreciation on assets other than Building. Ld. Counsel appearing for the assessee submitted as follows: • The ITAT for AY 2010-11 and AY 2011-12 on the issue of depreciation on other assets has set aside the issue to the file of CIT(A) for determining whether lease is operating lease or finance lease. Refer para 27 of Annexure – 1 (refer page no. 19 to 20). • The Assessee has filed Miscellaneous Application in MA no. 125 to 129 against the order of AY 2010-11 in ITA No. 1873 of 2014 and 2011-12 in ITA No. 2954 of 2016 requesting to rectify the order to the extent that the CIT(A) for AY 2006-07 has already dealt the issue in detail and held that the transactions undertaken by the Appellant are in nature of “operating lease”. Copy of MA is enclosed as Annexure – 5 (refer page no. 76 to 87). • The Assessee submit that the order of CIT(A) be upheld and depreciation on other assets be allowed as deduction. I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 22 • The CIT(A) for AY 2006-07 after verifying various lease agreements held that the Assessee is the owner of the assets and allowed depreciation on such leased assets. Refer para 6.2.2 and 6.2.3 of the order of CIT(A) for AY 2006-07. Attached as Annexure– 6 (refer page no. 116 to 117). • It is therefore requested to allow depreciation on leased assets. • The issue is also covered by the decision of SC in the case of ICDS Ltd. v. CIT 350 ITR 527 • Note – For AY 2006-07 the AO had framed the assessment u/s. 147 which was subsequently quashed by the ITAT. Therefore, there is no order on merits on this issue for AY 2006-07 except the order of the CIT(A) for AY 2006-07 allowing depreciation on leased assets. 21. Per contra Ld. D.R. appearing for the Revenue supported the order passed by the lower authorities. 22. We have considered the submissions of rival parties and perused the materials available on record. Though Co-ordinate Bench of This Tribunal set-aside this issue to the file of Ld. CIT(A) for determining the lease is an Operating Lease or Finance Lease. This order is subject matter of Miscellaneous Application which has not attained finality. Therefore we deem it fit to set-aside the matter back to the file of Jurisdictional Assessing Officer with a direction to pass order subject to the outcome of M.A. Nos. 125 to 129/Ahd/2025 filed by the assessee and pass orders in accordance with law by providing proper opportunity of hearing to the assessee. 23. In the result, Ground Nos. 2 & 3 filed by the Revenue are partly allowed. I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 23 24. Ground No. 3: Adjustment of disallowance u/s 14A to book profits u/s 115JB of the Act. Ld. Counsel appearing for the assessee submitted that Co-ordinate Bench of this Tribunal held that provisions of Section 115JB are not applicable to the assessee as held vide its order dated 02-05-2025 in ITA No. 733/Ahd/2023 & Ors. Therefore the additions are liable to be deleted. 25. Since Co-ordinate Bench of this Tribunal held that the provisions of Section 115JB are not applicable to the assessee as held vide order dated 02-05-2025 in ITA No. 733/Ahd/2023 & Ors. (which extracted in Para 17 above). This Ground No. 3 raised by the Revenue is hereby dismissed. 26. Ground No. 4 namely Bad debts written off, applicable for the Asst. Year 2014-15 only. The Ld. Counsel for the Assessee submitted as follows:  The Appellant is a public financial institution engaged in the business of money lending. During the year, the Appellant has written off loan given to Shri Banaskantha District Oilseeds Growers Co-operative Union Ltd of Rs. 42.25 crores as irrecoverable. Accordingly, in view of the provisions of section 36(1)(vii) r.w.s 36(2) of the Income Tax Act, 1961, deduction was claimed.  The AO disallowed the deduction by contending that the loan was not part of profit and loss account and therefore the amount not recoverable is a capital loss. The AO further held that the Appellant is not engaged in the business of money lending, therefore conditions prescribed u/s 36(2)(i) are not satisfied.  The CIT(A) accepted the contention of the Appellant that it is engaged in the business of financing as per section 16(2)(k) of NDDB Act and thereby allowed bad debts written off as an expenditure.  Section 16 of the NDDB Act, provides powers and functions of NDDB. As per sub-section 2 of section 16, NDDB may take measures as provided in clause (a) to (za). Clause (k) provides for I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 24 imparting financing activity including contribution to capital of co- operative federations, co-operative unions or co-operative enterprises or of any scheme in the co-operative or public sector intended to stimulate the production, preservation, distribution and consumption of milk and milk-products. Copy of NDDB Act is enclosed as Annexure – 7 (refer page no. 134 to 137).  Further, as per notification issued by Ministry of Finance dated 23.02.2004 (page no. 144 to 145 of paper book), the Appellant is notified as Public Financial institution.  Accordingly, the Appellant is in the business of money lending and provided loan to Banaskantha District Oil Growers whose outstanding balance as on 31.03.2014 was Rs. 43.51 crores (Rs. 42.25 crores term loan and Rs. 1.26 crore short term loan). Term loan of Rs. 42.25 crore was written off as irrecoverable in the books of accounts and thereby claimed as deduction.  As per section 36(1)(vii), subject to provisions of sub-section (2), any amount of bad debt written off as irrecoverable in the books of accounts shall be allowed as deduction. Section 36(2)(i) states that no deduction shall be allowed unless such debt or part thereof represents money lent in ordinary course of business of banking or money lending carried on by the Assessee.  In view of section 36(1)(vii) r.w.s 36(2)(i), since the Appellant is an approved public financial institution and as per the governing Act, it can provide financial assistance, the loan granted to Banskantha District Oil Growers was in the ordinary course of business of money lending and therefore amount written off as irrecoverable is allowable as deduction.  The Hon’ble ITAT for AY 2003-04 in ITA No. 2098 of 2014 vide order dated 31.05.2017 allowed deduction of amount written off in respect of money advanced to Sabarmati Salt Farmers Society by considering it as bad debt or loss incidental to the business (para 5 to 11 on page no. 130 to 133 of paper book). 27. We have gone through the order passed by lower authorities. Ld. CIT(A) held that the assessee has rightly contended that the assessee is also in the business of financing as per Section 16(2)(k) of the NDDB Act. Therefore bad debts written off in the book of I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys. 2012-13 to 2018-19 Page No National Dairy Development Boardi vs. DCIT 25 accounts should be allowed as an expenditure. However Ld. CIT(A) directed the Ld. A.O. to verify and allow the claim accordingly. We do not find any infirmity in the order passed by Ld. CIT(A) to verify the claim of bad debts and allow it in accordance with the provisions of law. Thus the Ground No. 4 for the Asst. Year 2014- 15 raised by the Revenue is devoid of merits and liable to be dismissed. 28. In the result, the appeals filed by the Revenue in ITA Nos. 735 to 740 and 742/Ahd/2023 are partly allowed. Order pronounced in the open court on 23-06-2025 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 23/06/2025 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद "