DCIT, CIRCLE-6, JAIPUR V. M/S. RAJASTHAN STATE COOPERATIVE BANK LTD., JAIPUR

ITA 1364/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4942 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 16-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Diversion of income; Commercial expediency; Revenue expenditure
• Section: 37; 143(3); 101

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES A, JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA -@ ITA NO. 1364/JP/2019 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2016-17 D.C.I.T., CIRCLE-6, JAIPUR. C UKE VS. M/S THE RAJASTHAN STATE COOPERATIVE BANK LTD., DC-1, LAL KOTHI, TONK ROAD, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO. AAAAT 0824 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY: SHRI K.C. GUPTA (JCIT) FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI S.R. SHARMA (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20/02/2020 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 21/02/2020 VKNS'K@ ORDER PER: R.C. SHARMA, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 23/10/2019 OF LD. CIT(A)-2, JAIPUR FOR THE A.Y. 2016-17 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). THE GROUNDS TAKEN BY THE REVENUE READS AS UNDER: (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) IS JUSTIFIED IN DELETING THE DISALLOWANCE, OF RS. 1,60,17,916/- MADE BY THE A.O. ON ACCOUNT OF CONTRIBUTION TO PRIMARY AGRICULTURE CREDIT CO-OPERATIVE SOCIETY (PACS) DEVELOPMENT FUND WITHOUT APPRECIATING THE FACT THAT NO COMMERCIAL EXPEDIENCY HAS BEEN ESTABLISHED. (II) WHETHER THE LD. CIT(A) IS JUSTIFIED IN NOT TAKING INTO CONSIDERATION THE ORDER OF HON'BLE RAJASTHAN HIGH COURT IN ITA NO. 254/2011, DATED 20-04-2017 IN THE CASE OF M/S CHURU CENTRAL CO-OPERATIVE BANK LTD., WHEREIN IT HAS BEEN HELD THAT ITA NO. 1364/JP/2019 DCIT VS. M/S THE RAJASTHAN STATE CO.OP BANK LTD. 2 THE CONTRIBUTION TO THE PAC'S DEVELOPMENT FUND IS NOT ALLOWABLE. (III) THE APPELLANT CRAVES ITS RIGHT TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS APEX CO-OP. BANK OF RAJASTHAN DERIVING INCOME FROM BANKING BUSINESS. THE ASSESSEE BANK IS A CO-OPERATIVE SOCIETY AND IS GOVERNED BY RAJASTHAN CO-OPERATIVE SOCIETIES ACT, 2001 ADMINISTERED BY REGISTRAR CO-OPERATIVE SOCIETIES, RAJASTHAN. THE ASSESSEE CO-OPERATIVE BANK WAS STATUTORILY REQUIRED BY REGISTRAR CO-OPERATIVE SOCIETIES UNDER PACS DEVELOPMENT FUND RULES TO CONTRIBUTE ANNUAL CONTRIBUTION @ 2 PAISE PER 100 RS ON SHORT TERM CROP LOAN ADVANCED TO DISTRICT CREDIT CO-OP. BANKS (DCCB) FOR ON LENDING THROUGH PRIMAL . ) AGRICULTURE CO-OP. SOCIETIES (PACB) TO ULTIMATE FARMERS. THE ASSESSEE DURING THE YEAR MADE SAID CONTRIBUTION AMOUNTING TO RS. 1,60,17,916/- AND CLAIMED IT AS REVENUE EXPENDITURE IN P & L A/C. THE A.O. DISALLOWED THE SAID CLAIM OF EXPENDITURE OF RS. 1,60,17,916/- BEING CONTRIBUTION TO PAC DEVELOPMENT FUND BY HOLDING THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS SIMPLY MADE THE CONTRIBUTION TO FUND. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE DISALLOWANCE BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL ITA NO. 1364/JP/2019 DCIT VS. M/S THE RAJASTHAN STATE CO.OP BANK LTD. 3 HIGH COURT VIDE ITS ORDER DATED 05/09/2007. THE PRECISE OBSERVATION OF THE LD. CIT(A) WAS AS UNDER: 2.3 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ISSUE RELATING TO CLAIM OF EXPENDITURE OF RS. 1,60,17,916/- BEING CONTRIBUTION TO THE PAC DEVELOPMENT FUND HAS NOW BEEN DECIDED BY THE HON'BLE RAJASTHAN HIGH COURT VIDE ITS ORDER DATED 05-09-2007 IN FAVOUR OF ASSESSEE. SIMILAR ISSUE HAS BEEN DECIDED BY CIT(A) VIDE ORDER NO. E-188/16-17 DATED 08.12.2017 FOR A.Y. 2014-15 BY GIVING THE FOLLOWING FINDINGS WHICH IS REPRODUCED AS UNDER:- THE ISSUE RELATING TO CLAIM OF EXPENDITURE OF RS. 1,07,25,060/-BEING CONTRIBUTION TO THE PAC DEVELOPMENT FUND HAS NOW BEEN DECIDED BY THE HON'BLE RAJASTHAN HIGH COURT VIDE ITS ORDER DATED 05.09.2017 WHEREIN THE ISSUE HAS BEEN DECIDED AS FOLLOWS:- '16. BEFORE PROCEEDING, IT WILL NOT BE OUT OF PLACE TO MENTION THAT RESPONDENT IS STATUTORY REGISTERED UNDER THE RAJASTHAN CO- OPERATIVE SOCIETY ACT AND THEY ARE REQUIRED TO FOLLOW THE RULES WHICH ARE MANDATORY IN NATURE AND IF INCUR DISQUALIFICATION EITHER THEY WILL BE SUPERSEDED OR THEY WILL INCUR DISQUALIFICATION. 17. IN THAT VIEW OF THE MATTER, WHILE INTERPRETING LOCAL ACT, THE COURT HAS VERY GUARDED UNDER THE INCOME TAX ACT WHETHER THE DEDUCTION OR THE EXPENSES WHICH ARE INCURRED ARC ADMISSIBLE UNDER SECTION 37 OR NOT. 18. LOOKING TO THE PROVISIONS OF THE RULE 2003 REFERRED HEREINABOVE, THE EXPENSES ARE MANDATORY IN NATURE, THUS; THEY ARE REQUIRED TO BE DEDUCTED TO BE KEPT IN RESERVE FUND AND THEY ARE EXPENSES AS STATED UNDER RULE 28. 19. IN THAT VIEW OF THE MATTER, IT IS TO BE KEPT RESERVE FUND AND THE VIEW TAKEN BY THE AO IS VERY CONSERVATIVE AND CONSIDERING THE ITA NO. 1364/JP/2019 DCIT VS. M/S THE RAJASTHAN STATE CO.OP BANK LTD. 4 OPINION NEITHER THE TRIBUNAL NOR THE CIT(A) HAS COMMITTED ANY ERROR. 20. HENCE, THE FIRST ISSUE IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AGAINST THE DEPARTMENT.' FOLLOWING THE ABOVE JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS ALLOWED.' FOLLOWING THE ABOVE JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT, THE APPEAL IS ALLOWED. 4. AGAINST THE ABOVE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE ITAT. 5. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 WHEREIN EXACTLY SAME ISSUE HAS BEEN DECIDED VIDE ORDER DATED 22/07/2010 IN ITA NO. 1277/JP/2010. 6. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAD CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AND FOUND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE OWN CASE FOR THE A.Y. 2007-08 TO 2009-10. THE COORDINATE BENCH WHILE DECIDING APPEAL OF DEPARTMENT FOR A.Y. 2007-08 ON THE SAID ISSUE HELD IN PARA 3.6 OF SAID APPEAL ORDER REPRODUCED IN APPEAL ORDER FOR A.Y. 2010-11 IN PARA 3 AS UNDER: - ITA NO. 1364/JP/2019 DCIT VS. M/S THE RAJASTHAN STATE CO.OP BANK LTD. 5 'WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE APEX COURT IN THE CASE OF SRI VENKAM SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT, (1997) 223 1TR 101 (SC) HAS STATED THAT IT IS TO BE SEEN AS TO WHETHER THE PAYMENT IS COMPULSORY FOR THE ASSESSEE TO MAKE OR NOT BUT WHETHER IT WAS EXPENDED OUT OF CONSIDERATION OF COMMERCIAL EXPEDIENCY ANY CONTRIBUTION MADE BY THE ASSESSEE TO A FUND WHICH DIRECTLY CONNECTED OR RELATED TO CARRYING ON ASSESSEE'S BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSEE'S BUSINESS HAS TO BE REGARDED AS DEDUCTION ALLOWABLE U/S 37 OF THE ACT. THE DECISION OF HON'BLE APEX COURT IN THE CASE OF ASSOCIATED POWER CO. LTD. VS. CIT (1996) 218 ITR 198 (SC) IS NOT APPLICABLE. THE HON'BLE APEX COURT HELD THAT APPLICATION OF THE DOCTRINE OF DIVERSION OF INCOME BY REASON OF OVERRIDING TITLE IS NOT APPLICABLE IN THAT CASE AS THE RESERVE IS OUT OF THE REVENUES OF THE UNDERTAKING AND REACH THE ELECTRICITY COMPANY AND IS NOT DIVERTED AWAY FROM IT. HOWEVER, IN THE INSTANT CASE, THE AMOUNT IS TO BE CONTRIBUTED TO A FUND AND THE FUND IS NOT BEING MANAGED BY THE ASSESSEE. THE ASSESSEE MAY BE TRUSTEE OF THAT FUND BUT IT CANNOT APPLY THE FUND AS PER HIS OWN WILL. THE INTEREST, IF ANY, EARNED ON THIS FUND IS ALSO TO BE CREDITED TO THAT FUND. IT IS THEREFORE, CLEAR THAT FUNDS STAND DIVERTED AT THE SOURCE AND THEREFORE, THIS CANNOT HE CONSIDERED AS AN APPROPRIATION OF INCOME BUT IT IS AN EXPENDITURE. THUS THE ID. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION.' THE BENCH FOLLOWING THESE APPEAL ORDER(S) OF EARLIER YEAR ALLOWED THE APPEAL(S) OF ASSESSEE FOR ALL EARLIER YEARS WHICH APPEAL ORDERS NOW STAND CONFIRMED BY RAJASTHAN HIGH COURT WHILE DECIDING APPEALS OF DEPARTMENT AGAINST APPEAL ORDERS OF HON'BLE BENCH FOR ALL THE YEARS. THE FINDINGS OF HON'BLE HIGH COURT ARE REPRODUCED IN PARA 2.3 OF IMPUGNED APPEAL ORDER PASSED BY CIT(A) FOR A.Y. 2016-17. IN VIEW OF THE ABOVE APPEAL ORDER OF CIT (A) IS CORRECT IN ITA NO. 1364/JP/2019 DCIT VS. M/S THE RAJASTHAN STATE CO.OP BANK LTD. 6 LAW AND IS BY FOLLOWING APPEAL ORDER OF HON'BLE HIGH COURT FOR A.Y. 2013-14 AND THUS HAS NO INFIRMITY WHICH DESERVES TO BE CONFIRMED. THE GROUND OF APPEAL RAISED BY DEPARTMENT HAS NO MERIT AND DESERVES TO BE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST FEBRUARY, 2020. SD/- SD/- FOT; IKY JKO JES'K LH 'KEKZ (VIJAY PAL RAO) (RAMESH C SHARMA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKA D@ DATED:- 21/02/2020 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT-THE D.C.I.T., CIRCLE-6, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S THE RAJASTHAN STATE COOPERATIVE BANK LTD., JAIPUR. 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 1364/JP/2019) VKNS 'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR