The Karnataka State Co-operative Apex Bank Ltd, Bangalore V. Deputy Commissioner of Income tax, Bangalore

ITA 1372/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8616 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 10-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 147; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1372 / BANG/20 14 (ASSESSMENT YEAR: 2007 - 08 ) THE KARNATAKA STATE CO - OPERATIVE APEX BANK LTD., U THUNGA , NO.1, PMK ROAD, CHAMARAJPET, BANGALORE - 560018 . PAN:AABAT 0269 J VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), BANGALORE. RESPONDENT APPELLANT BY : SHRI BHARATH L, CA. RESPONDENT BY : SHRI SANJ AY KUMAR, CIT(DR). DATE OF HEARING : 03/02/2016 DATE OF PRONOUNCEMENT : 29 /02/2016 O R D E R PER I NTURI RAMA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE - CO - OPERATIVE BANK, IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX - (APPEALS) - II [CIT(A)], BANGALORE, DATED 31/7/2014 FOR THE ASSESSMENT YEAR 2007 - 08 . 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED APPELLATE AUTHORITY IS BAD IN LAW. 2. THE LEARNED APPELLATE AUTHORITY ERRED IN CONFIRMI NG THE ITA NO . 1372 /BANG/201 4 PAGE 2 OF 13 ACTION OF LEARNED ASSESSING OFFICER IN NOT CONSIDERING THE APPELLANT'S CLAIM RS. 33,93,782/ - TOWARDS RURAL FARMERS SOCIO ECONOMIC DEVELOPMENT FUND, 3. THE LEARNED APPELLATE AUTHORITY ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN NOT CO NSIDERING THE APPELLANT'S CLAIM RS.5,27,50,000/ - TOWARDS PACS/DCCB FUND. 4. THE LEARNED APPELLATE AUTHORITY ERRED IN CONFIRMING ACTION OF LEARNED ASSESSING OFFICER IN NOT CONSIDERING THE APPELLANT'S CLAIM RS. 5,00,00,000 / - TOWARDS SPECIAL ASSISTANCE FUND. 5. TH E LEARNED APPELLATE AUTHORITY ERRED IN CONFIRMING ACTION OF LEARNED ASSESSING OFFICER IN NOT CONSIDERING THE APPELLANT'S CLAIM RS. 8,28,65,052/ - TOWARDS LOSS ON SALE OF GOI SECURITIES. ON THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARI NG YOUR APPELLANT PRAYS YOUR HONOUR TO CONSIDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE PROVISIONS OF THE KARNATAKA STATE CO - OPERATIVE SO CIETIES ACT, 1959 AND UNDER THE BANKING REGULATION ACT, 1939. IT IS ENGAGED IN THE BUSINESS OF BANKING. THE MAIN OBJECT FOR WHICH THE ASSESSEE - CO - OPERATIVE BANK WAS ESTABLISHED WAS TO SERVE AS A STATE CO - OPERATIVE BANK. RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2007 - 08 WAS FILED ON 31/10/2007 DECLARING INCOME OF RS.40,77,27,150/ - . THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE INCOME - TAX ACT, 1961 [ THE ACT FOR SHORT]. THERE WAS NO SCRUTINY ASSESSMENT AGAINST THE ORIGINAL RETURN OF INCOME. HOWEVER, SUBSEQUENTLY, THE ASSESSING OFFICER [AO] AFTER NOTICING THAT THE ASSESSEE - CO - OPERATIVE BANK CLAIMED DEDUCTION OF CONTRIBUTION MADE TO CERTAIN FUND S VIZ., COMMON GOOD FUND [CGF], SPECIAL ASSISTANCE FUND, PACS/DCCB FUND, RURAL FARMERS SOCIAL ECONOMI C FUND , REOPENED THE ITA NO . 1372 /BANG/201 4 PAGE 3 OF 13 ASSESSMENT BY ISSUING NOTICE U/S 148. THE REASONS RECORDED FOR ISSUING NOTICE U/S 148 ARE AS UNDER: 'THE ASSESSEE RETURNED A TOTAL INCOME OF 40,77,27,1501 - . HOWEVER, THE TAXABLE INCOME IS CALCULATED AS UNDER FROM THE PROFIT AND LOSS ACCOUNT AVAILABLE ON RECORDS. NET PROFIT AS PER PROFIT AND LOSS ACCOUNT RS.13,35,00,11 2 ADD PROVISION FOR TAX RS.12,00,00,000 ADD DEPRECIATION RS. 84,44,123 ADD NPA RS.12,00,00,000 ADD ANY OTHER U/S 28 TO 44DA RS. 7,91,07,95 ---------- - ------- RS.32,75,52,073 TOTAL RS.32,75,52,073 LESS: DEP. AS PER INCOME TAX ACT RS. 1, 07,13,384 LESS: 7.5% FOR BDDR RS. 3,37,75,410 ------------------- RS. 4,44,89,794 ------------------- TAXABLE INCOME RS. 41,65,63,391 ========== TH E ASSESSEE S RETURNED INCOME IS ONLY 40,77,27,150/ - . FURTHER, THE ASSESSEE HAS CLAIMED DEDUCTION FROM CERTAIN FUNDS VIZ., COMMON GOOD FUND RS. 25,00,000 SPECIAL ASSISTANCE FUND RS. 1,00,00,000 PACS/DCCB FUND RS. 50,00,000 RURAL FARMERS SOCIAL ECONOMIC DEV.FUND RS. 1,35,00,000 THE ASSESSEE IS NOT ENTITLED TO CLAIM THE ABOVE DEDUCTION AS THESE ARE THE FUNDS CREATED OUT OF DISTRIBUTED PROFIT. HENCE CANNOT BE ALLOWED AS DEDUCTION AS PER THE INCOME TAX ACT. I AM, THEREFORE, SATISFIED THAT IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. PROCEEDINGS U/S 147 OF THE INCOME TAX INITIATED. ISSUE NOTICE U/S 148 OF THE INCOME TAX ACT. 4. THE ASSESSEE - CO - OPERATIVE BANK FILED RETURN OF INCOME IN RESPONSE TO NOTICE U/S 148 ON 13/9/2012 DECLARING A TOTAL INCOME OF RS.36,19,77,100/ - . AFTER ISSUING NOTICE U/S 143(2), THE ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) R.W.S. 147 VIDE ORDER DATED 30/3/2013 AT A TOTAL INCOME OF RS.51,71,70,670/ - . WHILE DOING SO, THE AO HAS DISALLOWED EXPENDI TURE CLAIMED ON ACCOUNT OF THE FOLLOWING ITA NO . 1372 /BANG/201 4 PAGE 4 OF 13 FUNDS HOLDING THAT THE AMOUNTS ARE EXPENDED ONLY AFTER APPROPRIATION OF PROFITS AND THEREFORE NOT ALLOWABLE AS DEDUCTION. A) COMMON GOOD FUND RS. 25,00,000/ - B) SPECIAL ASSISTANCE FUND RS.5,00,00,000/ - C) PAYM ENT TO PACS/DCCB FUND RS.5,27,50,000/ - D) RURAL FARMERS SOCIO ECONOMIC DEVELOPMENT FUND . RS. 33,93,782/ - -------------------- RS.10,86,43,782/ - THE AO ALSO DISALLOWED THE ADDITIONAL CLAIM ON ACCOUNT OF LOSS ON SALE OF SE CURITIES OF RS.8,28,65,052 / - MADE IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 148 BY HOLDING THAT THE RE - ASSESSMENT PROCEEDINGS ARE ONLY FOR THE BENEFIT OF THE REVENUE. IN SUPPORT OF THIS PROPOSITION, RELIANCE WAS PLACED BY THE AO ON THE DECIS ION OF THE HON BLE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS (198 ITR 297). 5. BEING AGGRIEVED BY THE ABOVE ORDER, AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WHO, VIDE IMPUGNED ORDER, CONFIRMED THE ADDITIONS MADE BY THE AO. THE LD. CIT(A) CO NCURRED WITH THE REASONING OF THE AO AND UPHELD THE ADDITIONS MADE ON ACCOUNT OF AMOUNTS SPENT ON CONTRIBUTION TO VARIOUS FUNDS. IN RESPECT OF DEDUCTION IN RESPECT OF ADDITIONAL CLAIM ON ACCOUNT OF LOSS ON SALE OF SECURITIES, THE LD. CIT(A) TOTALLY CONCUR RED WITH THE VIEWS OF THE AO. 6. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE - CO - OPERATIVE BANK IS BEFORE US WITH THE PRESENT APPEAL. ITA NO . 1372 /BANG/201 4 PAGE 5 OF 13 6.1 DURING THE COURSE OF HEARING, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE - CO - OPERATIVE BANK THA T DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, WHILE ADDING BACK THE PROVISIONS OF CONTRIBUTION MADE TO (A) COMMON GOOD FUND , (B) SPECIAL ASSISTANCE FUND , (C) PAYMENT TO PACS/DCCB FUND AND (D) RURAL FARMERS SOCIO ECONOMIC DEVELOPME NT FUND , T HE ASSESSEE - CO - OPERATIVE BANK HAD CLAIMED DEDUCTION OF ACTUAL AMOUNTS SPENT OUT OF PROVISION CREATED. IT WAS SUBMITTED THAT IT WAS A STATUTORY OBLIGATION TO SPEND MONEY FOR THE ABOVE PURPOSES AS THE PROVISIONS OF THE KARNATAKA CO - OPERATIVE SOCI ETIES ACT STIPULATES THAT CERTAIN PERCENTAGE OF PROFITS SHOULD BE SPENT TOWARDS THE SPECIFIED PURPOSES. THE AMOUNTS ARE SPENT ONLY AS A STATUTORY OBLIGATION AND IT WAS ALSO FURTHER SUBMITTED THAT THE AMOUNTS WERE SPENT ONLY TO PROMOTE THE BUSINESS INTERES T OF THE ASSESSEE - CO - OPERATIVE BANK AND THEREFORE, THEY SHOULD BE ALLOWED AS DEDUCTION UNDER THE PROVISIONS OF SEC.37(1) OF THE ACT. AS REGARDS THE ADDITIONAL CLAIM OF DEDUCTION ON ACCOUNT OF LOSS OF SECURITIES OF RS.8,28,65,052/ - IT WAS SUBMITTED THAT IT WAS NOT A FRESH CLAIM BUT ONLY RE - ADJUSTMENT OF THE ALREADY MADE CLAIM IN THE ORIGINAL PROCEEDINGS. THEREFORE, THE RATIO OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS (SUPRA) IS NOT APPLICABLE. 6.2 ON THE OTHER HAN D, LD.CIT(DR) VEHEMENTLY OPPOSED THE SUBMISSIONS OF THE LEARNED A R OF THE ASSESSEE - CO - OPERATIVE BANK AND SUBMITTED THAT THE ISSUES IN APPEAL ARE SQUARELY COVERED BY THE ITA NO . 1372 /BANG/201 4 PAGE 6 OF 13 DECISION OF THE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF A . P . MAHESH CO - OPERATIVE URBA N BANK LTD. VS. DCIT (55 TAXMAN.COM 429). 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE - CO - OPERATIVE BANK HAD S PENT AMOUNT ON THE FOLLOWING FUNDS: A) COMMON GOOD FUND RS. 25,00,000/ - B) SPECIAL ASSISTANCE FUND RS.5,00,00,000/ - C) PAYMENT TO PACS/DCCB FUND RS.5,27,50,000/ - D) RURAL FARMERS SOCIO ECONOMIC DEVELOPMENT FUND . RS. 33,93,782/ - -------------------- RS.10,86,43,782/ - IT IS NOT THE CASE OF T HE REVENUE THAT THE ABOVE EXPENDITURE IS CAPITAL IN NATURE. THE LOWER AUTHORITIES HAD DISALLOWED THE ABOVE EXPENDITURE SOLELY ON TH E GROUND THAT IT IS ONLY APPROPRIATION OUT OF PROFITS AND NOT EXPENDITURE. THE APPROACH OF THE LOWER AUTHORITIES CANNOT STA ND THE TEST OF LAW LAID DOWN BY THE PRIVY COUNCIL IN THE CASE OF INDIAN RADIO CABLE COMMUNICATIONS CO. LTD. VS. CIT (5 ITR 270) WHEREIN IT IS LAID DOWN THAT WHEN THE ASSESSEE MAKES A PAYMENT WHICH IS COMPUTED IN RELATION TO PROFITS, IT IS STILL AN ITEM OF EXPENDITURE THOUGH ASCERTAINED BY REFERENCE TO THE PROFITS. THE PAYMENT IS NOT ALLOWABLE AS DEDUCTION ONLY IN THE CASE OF DIVISION OF PROFITS. LORD MAUGHA M , SPEAKING FOR THE PRIVY COUNCIL HELD AS FOLLOWS: IT IS NOT UNIVERSALLY TRUE TO SAY THAT A PAYMEN T THE MAKING OF WHICH IS CONDITIONAL ON PROFITS BEING EARNED CANNOT PROPERLY BE DESCRIBED AS AN EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING SUCH PROFITS. THE TYPICAL EXCEPTION IS THAT OF A PAYMENT TO A DIRECTOR OR A MANAGER OF A COMMISSION ON THE PROFI TS OF A COMPANY. IT MAY, HOWEVER, BE WORTH POINTING OUT THAT AN APPARENT DIFFICULTY HERE IS REALLY ITA NO . 1372 /BANG/201 4 PAGE 7 OF 13 CAUSED BY USING THE WORD 'PROFITS' IN MORE THAN ONE SENSE. IF A COMPANY HAVING MADE AN APPARENT NET PROFIT OF 10,000 HAS THEN TO PAY 1,000 TO DIRECTORS OR MANAGERS AS THE CONTRACTUAL RECOMPENSE FOR THEIR SERVICE DURING THE YEAR, IT IS PLAIN THAT THE REAL NET PROFIT IS ONLY 9,000. THE ABOVE PRINCIPLE WAS FOLLOWED SUBSEQUENTLY BY THE HON BLE SUPREME COURT IN THE CASE OF POONA ELECTRIC SUPPLY CO. LTD. V.S CI T (57 ITR 521) AND THIS PRINCIPLE WAS RE - ITERATED AGAIN BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. TRAVANCORE SUGARS & CHEMICALS LTD. (90 ITR 307). THUS, THE PRINCIPLE LAID DOWN IN ALL THE ABOVE CASES IS THAT THOUGH AN AMOUNT OF EXPENDITURE IS AS CERTAINED WITH REFERENCE TO PROFITS, IT DOES NOT LOSE THE CHARACTER OF EXPENDITURE. THEREFORE, THE REASONING ADOPTED BY THE AO AND THE LD. CIT(A) CANNOT BE ACCEPTED. 8. HOWEVER, WE HAVE TO EXAMINE THE ISSUE FROM THE VIEW OF ALLOWABILITY OF THIS EXPEN DITURE UNDER THE PROVISIONS OF SEC TION 37(1) OF THE ACT. THE PROVISIONS OF SEC TION 57 OF THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959 STIPULATE THAT 2% OF ITS NET PROFIT SHALL BE CONTRIBUTED TOWARDS CO - OPERATIVE EDUCATION FUND AND IT FURTHER STIPULATES T HAT NO DIVIDEND SHALL BE DECLARED WITHOUT CONTRIBUTING TO THE CO - OPERATIVE EDUCATION FUND AND IT ALSO FURTHER STIPULATES THAT THE NET PROFIT OF A CO - OPERATIVE SOCIETY SHALL BE DETERMINED ONLY IN ACCORDANCE WITH RULES AND REGULATIONS AS MAY BE PRESCRIBED FO R ANY CLASS OF CO - OPERATIVE SOCIETY. PURSUANT TO THIS, BY - LAW NO.XXI OF THE ASSESSEE - CO - OPERATIVE BANK WAS FRAMED AS UNDER: ITA NO . 1372 /BANG/201 4 PAGE 8 OF 13 XXI DISTRIBUTION OF PROFITS: 1) NOT LESS THAN 25% OF THE NET PRO F IT SHALL BE CARRIED TO THE RESERVE FUND. 2) OUT OF THE BALANCE OF THE NET PROFIT, CONTRIBUTION TO THE COOPERATIVE EDUCATION FUND AND TO THE SAHAKARI KALYANA NIDHI BE PROVIDED AS LAID DOWN UNDER THE ACT. 3) THE BALANCE OF NET PROFIT MAY BE UTILISED FOR ALL OR ANY OF THE FOLLOWING PURPOSES NAMELY. A) DIVIDEND ON SHARE AS F IXED H THE BOARD HE PAID TO THE MEMBERS. B) OF THE REMAINING BALANCE A SUM NOT LESS THAN 15% SHALL BE CONTRIBUTED TO THE AGRICULTURAL CREDIT STABILISATION FUND. C) OF THE REMAINING BALANCE, A SUM NOT LESS THAT 15% SHALL BE CONTRIBUTED TO THE BAD AND DOUBTFUL D EBT RESERVE FUND. D) OF THE REMAINING BALANCE, A SUM NOT LESS THAN 2% SHALL BE CONTRIBUTED TO THE BAD AND DOUBTFUL DEBT RESERVE FUND. E) OF THE REMAINING BALANCE, A SUM NOT LESS THAN 10% TO THE BUILDING FUND. F) OF THE REMAINING BALANCE A SUM NOT LESS THAN 15% TO THE SPECIAL ASSISTANCE FUND TO THE MEMBERS OF THE BANK. G) OF THE REMAINING BALANCE A SUM NOT LESS THAN 15% TO THE PRIMARY AGRICULTURAL CREDIT SOCIETIES DEVELOPMENT FUND. H) OF THE REMAINING BALANCE A SUM NOT LESS THAN 2% TO THE DIVIDEND EQUALISATION FUND. I) OF THE REMAINING BALANCE NOT LESS THAN 5% SHALL BE CONTRIBUTED TO THE FARMERS WELFARE FUND AND J) THE REMAINING BALANCE SHALL BE TRANSFERRED TO RESERVE FUND OF THE BANK. ITA NO . 1372 /BANG/201 4 PAGE 9 OF 13 8.2 PURSUANT TO THE ABOVE BY - LAW, DURING THE YEAR UNDER CONSIDERATION, ASSESSE E - CO - OPERATIVE BANK HAS SPENT THE ABOVE SUM. FROM PERUSAL OF THE SCHEME OF THE ABOVE FUNDS, IT IS CLEAR THAT THE FUND CONTRIBUTED NEITHER REMAINS WITH THE APEX CO - OPERATIVE BANK NOR COMES BACK TO THE ASSESSEE - CO - OPERATIVE BANK IN OTHER FORM. THE AMOUNTS ARE SPENT ONLY OUT OF STATUTORY OBLIGATION. THE PROVISIONS OF SEC TION 37(1) PROVIDE S FOR DEDUCTION OF ANY EXPENDITURE LAID DOWN OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND G AINS BUSINESS OR PROFESSION . THE ONLY EXCEPTION IS THE CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE OR EXPENDITURE OF NATURE DESCRIBED IN OTHER SECTIONS OF CHAPTER IV OF THE ACT. IT IS NOT THE CASE OF THE REVENUE THAT CONTRIBUTION TO THE ABOVE FUND IS CAPITAL EXPENDITURE OR IN THE NATURE OF PERSONAL EXPENSE OR EXPENDITURE DESCRIBED IN ANY OTHER SECTIONS IN CHAPTER IV. THE ONLY CONTROVERSY IS WHETHER THE AMOUNT SPENT OUT OF ABOVE FUNDS IS AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS . THE EXPRESSION FOR THE PURPOSE OF BUSINESS HAD COME UP FOR INTERPRETATION BEFORE THE HON BLE APEX COURT IN THE CASE OF CIT VS. MALAYALAM PLANTATIONS LTD. (53 ITR 140) WHEREIN IT WAS HELD THAT THE EXPRESSION FOR THE PURPOSE O F BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS . IT MAY INCLUDE NOT ONLY THE DAY - TODAY RUNNING OF BUSINESS BUT ALSO RATIONALISATION OF ITS ADMINISTRATION AND MODERNISATION OF ITS MACHINERY ; IT MAY INCLUDE MEASURES FO R THE PRESERVATION OF THE BUSINESS AND FOR THE PROTECTION OF ITS ASSETS AND ITA NO . 1372 /BANG/201 4 PAGE 10 OF 13 PROPERTY FROM EXPROPRIATION, COERCIVE PROCESS OR ASSERTION OF HOSTILE TITLE; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPOSED AS A PRE - CONDITION TO COMMENCE OR FO R THE CARRYING ON OF A BUSINESS; IT MAY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE CARRYING ON OF A BUSINESS. THE ONLY LIMITATIONS THAT THE PURPOSE SHOULD BE FOR THE PURPOSE OF THE BUSINESS, THAT IS TO SAY, THE EXPENDITURE INCURRED SHOULD BE FOR THE CARR YING ON OF BUSINESS AND THE ASSESSEE SHOULD INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. IT CANNOT INCLUDE SUMS SPENT FOR PURPOSE UNCONNECTED WITH THE BUSINESS, THEREFORE, THE QUESTION THAT REQUIRES CONSIDERATION IN THIS CASE IS WHETHER T HE CONTRIBUTION TO THE EDUCATION FUND UNDER SECTION 68 OF THE MAHARASHTRA CO - OPERATIVE SOCIETIES ACT IS AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 8.3 UNDER THE ABOVE BY - LAW , DIFFERENT RATES OF CONT RIBUTION HAVE BEEN PRESCRIBED FOR DIFFERENT KINDS OF FUNDS, NEEDLESS TO MENTION THAT THESE BYE - LAWS ARE FRAMED PURSUANT TO THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959. THEREFORE, IT IS A STATUTORY OBLIGATION OF THE ASSESSEE - CO - OPERATIVE BANK TO CONTRIB UTE TO THE ABOVE FUND. FOR ALLOWANCE OF EXPENDITURE, IT IS SETTLED PROPOSITION OF LAW THAT THE EXPENDITURE SHOULD RESULT IN PROFIT. IN THIS CONNECTION, REFERENCE MAY BE MADE TO THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY (115 ITR 519) . IT MAY BE FURTHER STATED THAT ONE OF THE OBJECTS OF THE ASSESSEE - CO - OPERATIVE BANK IS TO DEVELOP OR ASSIST AND CO - OPERATIVE THE MEMBER DISTRICT CENTRAL CO - OPERATIVE ITA NO . 1372 /BANG/201 4 PAGE 11 OF 13 BANKS AND OTHER CO - OPERATIVE SOCIETIES AND THEREFORE THE CONTRIBUTIO N WAS ONLY MADE IN FURTHER PURSUANCE OF THE OBJECTS OF THE BANK FOR WHICH IT WAS ESTABLISHED AND THEREFORE IT CANNOT BE SAID THAT THERE IS A BUSINESS INTEREST IN INCURRING THOSE EXPENDITURE AND THE LAW LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS VS. CIT (288 ITR 1) IS SQUARELY APPLICABLE. 8.4 THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. STATE BANK OF INDIA (261 ITR 82), WHILE DEALING WITH THE ISSUE OF ALLOWABILITY OF SUBSIDY GRANTED BY IT TO ITS SUBSIDIARY BANKS, HELD T HAT BY GRANT OF SUBSIDIES IT HAS GOT THE BUSINESS ADVANTAGE AND THEREFORE, ALLOWED DEDUCTION BY HOLDING AS UNDER: LASTLY, BY GIVING SUBSIDY TO THE STATE BANK OF PATIALA, THE STATE BANK OF SAURASHTRA, ETC., FOR OPENING BRANCHES, ASSETS WERE CREATED, BUT T HESE ASSETS BELONGED TO THE SUBSIDIARIES. THE ASSETS DID NOT BELONG TO THE STATE BANK OF INDIA. SIMILARLY, PROFITS WERE EARNED BY THE SUBSI DIARIES AND NOT THE STATE BANK OF INDIA. AT THE HIGHEST, BY GIVING SUBSIDY UNDER SECTION 48(1) OF THE ACT, THE STATE BANK OF INDIA GOT A BUSINESS ADVAN TAGE. IN THE CIRCUMSTANCES, WE HOLD THAT THE EXPENDITURE INCURRED BY THE STATE BANK OF INDIA IN GIVING SUBSIDIES TO THE STATE BANK OF SAURASHTRA, THE STATE BANK OF PATIALA, ETC., UNDER SECTION 48(1) OF THE SAID ACT OF 19 59, REPRESENTED REVENUE EXPENDITURE. LASTLY, WE MAY MENTION THAT IN THE CASE OF EMPIRE JUTE COMPANY LTD. V. CIT [1980] 124 ITR 1, IT HAS BEEN HELD BY THE SUPREME COURT THAT WHAT MAY BE A CAPITAL RECEIPT IN THE HANDS OF THE PAYEE, NEED NOT NECES SARILY BE C APITAL EXPENDITURE IN RELATION TO A PAYER. IN THE CIRCUMSTANCES, THERE IS NO MERIT IN THE ARGUMENT OF THE DEPARTMENT THAT BECAUSE THE SUBSIDY IS NOT INCOME IN THE HANDS OF THE PAYEE, IT CANNOT BE REVENUE EXPENDITURE IN RELATION TO THE PAYER. 8.5 THUS VIEWED FROM THIS ANGLE, THE AMOUNTS SPENT CANNOT BE D ISALLOWED. THE RELIANCE PLACED BY THE LD.CIT(DR) ON THE DECISION OF ITA NO . 1372 /BANG/201 4 PAGE 12 OF 13 THE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF A . P . MAHESH CO - OPERATIVE URBAN BANK LTD (SUPRA) RESTS ON THE DECISION OF THE HON BLE S UPREME COURT IN THE CASE OF VELLORE ELECTRIC CORPORATION LTD. VS. CIT (227 ITR 557). ON PERUSAL OF THE SAID DECISION, IT IS CLEAR THAT THE DECISION IS RELATING TO CREATION OF RESERVE FUND WHICH ALWAYS REMAINED WITH THE ASSESSEE - CORPORATION. THEREFORE, TH E RATIO OF DECISION IN TEH CASE OF A P MAHESH CO - OPERATIVE URBAN BANK LTD (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE. WE, DIRECT THE AO TO ALLOW THE AMOUNT SPENT ON THE ABOVE FUND OF RS.10,86,43,782/ - AS DEDUCTION WHILE COMPUTING INCOME OF THE ASS ESSEE - CO - OPERATIVE BANK. 9. IN THE RESULT, GROUNDS OF APPEAL NOS.2 TO 4 ARE ALLOWED. 10. AS REGARDS GROUND NO.5 ABOUT ALLOWANCE OF ADDITIONAL CLAIM ON ACCOUNT OF LOSS ON SALE OF SECURITIES OF RS.8,28,65,052/ - IT IS UNDISPUTED FACT THAT THIS CLAIM WAS MADE ONLY IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 148. THE ISSUE IS WHETHER THE ASSESSEE IS ENTITLED TO AGITATE THE ISSUES WHICH WERE CONCLUDED IN THE ORIGINAL ASSESSMENT PROCEEDINGS? THIS ADDITIONAL CLAIM WAS OBVIOUSLY NOT MADE IN THE ORIGINAL ASSESSMENT PROCEEDINGS NOR THIS ISSUE IS ONE OF THOSE ISSUES WHICH IS SOUGHT TO BE RECONSIDERED BY THE AO DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS. THEREFORE, CONCLUDED ISSUE IN THE ORIGINAL ASSESSMENT PROCEEDINGS CANNOT BE RE - AGITA TED DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS. THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF SUN ENGINEERING (SUPRA) IS ITA NO . 1372 /BANG/201 4 PAGE 13 OF 13 SQUARELY APPLICABLE TO THE FACTS OF THE CASE. EVEN ASSUMING THAT IT IS ONLY RE - ADJUSTMENT OF CLAIM ALREADY MADE , SUCH RE - ADJUSTMEN T IS NOT POSSIBLE IN THE PROCEEDINGS OF RE - ASSESSMENT. THE ASSESSEE CAN HAVE RECOURSE TO ANY OTHER PROVISIONS OF THE INCOME - TAX ACT, 1961. HENCE, THIS GROUND OF APPEAL IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF FEBRUARY , 2016 SD/ - (V IJAY PAL RAO ) SD/ - (I NTURI R AMA R AO ) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BANGALORE D A T E D : 26 /0 2 /2016 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUA RD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE