The DCIT, Anand Circle, Anand V. The Gujarat Co. Op. Milk Marketing Federation Ltd., Anand

ITA 2800/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8375 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 11-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Revenue expenditure; Capital expenditure; TDS; Rule 8D
• Section: 143(3); 5(2); 14A; 195

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 2800/AHD/2017 ( ASSESSMENT YEAR : 2014-15) THE DEPUTY COMMISSIONER OF INCOME TAX ANAND CIRCLE, 204, 3 RD FLOOR, S. P. PATEL COMPLEX, NEAR OLD C. K. HALL, MAYFAIR ROAD, ANAND 388 001 / VS. M/S. GUJARAT CO-OP. MILK MARKETING FEDERATION LTD. POST BOX NO.10, AMUL DAIRY ROAD, ANAND - 388001 ./ ./ PAN/GIR NO. : AAAAG5588Q ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI O. P. SHARMA, SR.D.R. / RESPONDENT BY : SHRI SUNIL H. TALATI, A.R. DATE OF HEARING 03/10/2019 !'# / DATE OF PRONOUNCEMENT 09/10/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, VADODARA (CIT(A) IN SHORT), DATED 28.08.2017 ARISI NG IN THE ASSESSMENT ORDER DATED 29.12.2016 PASSED BY THE ASSESSING OFFI CER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCER NING AY 2014-15. ITA NO. 2800/AHD/17 [DCIT VS. M/S. GUJARAT CO-OP. MILK MARKETING FEDERATION LTD.] A.Y. 2014-15 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA DS AS UNDER:- 1.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF CO-OPERATIVE EXPENSES, INCLUDING BREED DEVELOPMENT EXPENSES, WITHOUT APPRECIATING THAT THI S EXPENDITURE IS NOT 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ' IN TERMS OF SECTION 37(1), AND IS NOT AN ALLOWABLE EXPENDITURE. 1.2 THAT ALTERNATIVELY AND WITHOUT PREJUDICE, IN TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELET ING THE DISALLOWANCE OF CO-OPERATIVE EXPENSES, INCLUDING BREED DEVELOPMENT EXPENSES, WITHOUT APPRECIATING THAT THIS EXPENDITURE RESULTS IN ENDUR ING BENEFIT, AND IS CAPITAL EXPENDITURE, AND IS THEREFORE, NOT AN ALLOWABLE EXP ENDITURE. 2.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S 14A WITHOUT FOLLOWING THE DECISION OF THE HON'BLE ITAT IN AY 2006-07 WHERE A SIMILAR DISA LLOWANCE WAS UPHELD; AND WITHOUT FOLLOWING HIS OWN DECISION IN AY 2006-0 7 CONFIRMING THE DISALLOWANCE; AND WITHOUT FOLLOWING HIS OWN DECISIO N IN AY 2010-11 WHERE THE DISALLOWANCE WAS UPHELD FOLLOWING THE DECISION OF THE HON'BLE ITAT FOR AY 2006-07. THE LD. CIT(A) ERRED IN DELETING THE DI SALLOWANCE AND IN NOT FOLLOWING THESE DECISIONS WITHOUT SPECIFYING ANY DI STINGUISHING FACTS THIS YEAR. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S 14A COMPUTED AS PER RULE 8D(2)(II) EVEN THOUGH THE ASSESSEE HAD FAILED TO DEMONSTRATE THAT INVESTMENTS WERE ACTUALLY MADE OUT OF INTEREST FREE FUNDS? 2.3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S 14A, WITHOUT SEPARATELY CONSIDERING THE DISALLOWANCE COMPUTED AS PER RULE 8D(2)(III), A ND THE DISTINCTION BETWEEN DISALLOWANCE COMPUTED AS PER RULE 8D(2)(II) AND RULE 8D(2)(III), AND WITHOUT CONSIDERING THAT DISALLOWANCE COMPUTED AS PER RULE 8D(2){III) IS NOT DEPENDENT ON INTEREST EXPENDITURE. 3.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(I) IN A MECHANICAL MANNER WITHOUT EXAMINING THE FACTS OF THE CASE. 3.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(I) WIT HOUT CONSIDERING THAT THESE PAYMENTS WERE TAXABLE IN INDIA AS FEES FOR TE CHNICAL SERVICES IN TERMS OF SECTION 9(1)(VII) AND WERE LIABLE FOR TDS. 3.3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(I) WIT HOUT CONSIDERING THAT THE ASSESSEE HAD TAILED TO FURNISH COMPLETE DETAILS AND DEMONSTRATE THAT THIS ITA NO. 2800/AHD/17 [DCIT VS. M/S. GUJARAT CO-OP. MILK MARKETING FEDERATION LTD.] A.Y. 2014-15 - 3 - INCOME WAS NOT TAXABLE IN INDIA UNDER THE INCOME TA X ACT AND THE RELEVANT DOUBLE TAXATION AVOIDANCE AGREEMENTS (DTAAS). 3. AS PER GROUND NOS. 1.1 & 1.2, THE REVENUE SEEKS TO CHALLENGE THE ACTION OF THE CIT(A) FOR DISALLOWANCE OF CO-OPERATI VE EXPENSES INCLUDING BREED DEVELOPMENT EXPENSES ETC. AS POINTED OUT ON BEHALF OF THE ASSESSEE, THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE IN ITS OWN CASE IN AY 2011-12 BY THE DECISION OF THE CO-OR DINATE BENCH OF SAME COMBINATION IN ITA NO. 3023/AHD/2014 & ORS . DATED 02.08.2018 . THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE TRI BUNAL IN ITA NO.3023/AHD/2014 CONCERNING AY 2011-12 IS REPRODUCED HEREUNDER: 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE CONTROVERSY REVOLVES AROUND MAINTAINABILITY OF BREE D IMPROVEMENT EXPENSES AS REVENUE EXPENDITURE. IT IS BROADLY THE CASE OF THE ASSESSEE THAT IT IS AN INSTITUTION CREATED BY THE M ILK PRODUCERS THEMSELVES TO SAFEGUARD THEIR INTEREST ECONOMICALLY , SOCIALLY AS WELL AS DEMOCRATICALLY. THE EXPENSES HAVE BEEN INCURRED TO OPTIMIZE THE PRODUCTIVITY AND QUALITY OF THE MILK AND MILK PRODU CTS. FOR THIS PURPOSE, THE ASSESSEE HAS INCURRED EXPENSES TOWARDS FERTILITY IMPROVEMENT PROGRAMME AND HAS INTER ALIA TAKEN EDUC ATIONAL PROGRAMME WITH THE OBJECT OF IMPARTING EDUCATION, T RAINING AND INFORMATION FOR DEVELOPMENT AND STRENGTHENING THE C O-OPERATIVE STRUCTURE AND THEREBY IMPROVING MILK PRODUCTIVITY. IN THE PROCESS TO ACHIEVE SUCH OBJECTS, THE ASSESSEE HAS INCURRED EXP ENDITURE TO THE TUNE OF RS.824.94 LAKHS WHICH IS IN THE NATURE OF R EVENUE EXPENDITURE TO IMPROVE THE QUALITY AND BRING EFFICI ENCY IN PRODUCTION AS WELL AS TO ACHIEVE UNFETTERED SUPPLY. IN THIS B ACKGROUND, THE CIT(A) OBSERVED THAT IDENTICAL ISSUE INVOLVED IN PR ECEDING ASSESSMENT YEARS HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE PREDECESSOR CIT(A) AND THE CLAIM OF SUCH EXPENDITUR E WAS ACCEPTED AS REVENUE EXPENDITURE. AS NOTICED, THE VIEW TAKEN BY THE CIT(A) HAS BEEN ENDORSED BY THE CO-ORDINATE BENCH OF ITAT IN I TA NO.3037/AHD/2010 & ORS. READ WITH M.A. NO. 07/AHD/2 017 & ORS. (SUPRA). IN CONSONANCE WITH THE ORDER OF THE CO-OR DINATE BENCH FOR EARLIER ASSESSMENT YEARS IN OWN CASE OF ASSESSEE IN OWN CASE OF ASSESSEE, WE DO NOT SEE ANY WARRANT TO INTERFERE WI TH THE ORDER OF THE CIT(A). 4. IN PARITY WITH THE CONCLUSION DRAWN IN THE EARLI ER ASSESSMENT YEARS, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A) HOLDING SUCH EXPENDITURE IN THE NATURE OF ALLOWABLE REVENUE EXPENDITURE. WE THUS DECLINE TO INTERFERE. ITA NO. 2800/AHD/17 [DCIT VS. M/S. GUJARAT CO-OP. MILK MARKETING FEDERATION LTD.] A.Y. 2014-15 - 4 - 5. GROUND NOS. 1.1 & 1.2 OF THE REVENUES APPEAL AR E DISMISSED. 6. GROUND NOS. 2.1, 2.2 & 2.3 CONCERNING DISALLOWAN CE OF EXPENDITURE UNDER S.14A READ WITH RULE 8D(2)(II) OF THE IT RULES. 7. AT THE TIME OF HEARING, THE LEARNED AR FOR THE A SSESSEE SUBMITTED THAT OWN FUNDS (RS.17586.73 LAKHS) OF THE ASSESSEE TOGETHER WITH RESERVES FAR EXCEEDS CORRESPONDING INVESTMENTS (RS. 73.47 LAKHS) GIVING RISE TO A PRESUMPTION THAT INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSES OF INVESTMENTS AND THUS NO INTERFERENCE WI TH THE ORDER OF THE CIT(A) IS CALLED FOR. FROM A PERUSAL OF THE ORDER OF THE CIT(A), WE NOTICE THAT THE CIT(A) HAS EXAMINED THE ISSUE IN PR OPER PERSPECTIVE AND GRANTED RELIEF TO THE ASSESSEE HAVING REGARD TO THE JUDICIAL APPROACH ADOPTED BY THE HONBLE GUJARAT HIGH COURT IN SEVERA L CASES ON SIMILAR FACTS. THE VALUE OF INVESTMENT BEING LOWER THAN TH E OWN AVAILABLE FUNDS, THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(II) IS NOT ATTRACTED. WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). 8. GROUND NOS. 2.1, 2.2 & 2.3 OF THE REVENUES APPE AL ARE DISMISSED. 9. GROUND NO.3 CONCERNS DISALLOWANCE UNDER S.40(A)( I) OF THE ACT ON THE GROUND THAT CERTAIN COMMISSION HAS BEEN PAID TO THE COMMISSION AGENTS OUTSIDE INDIA WITHOUT DEDUCTION OF TAX AT SO URCE. 10. ON PERUSAL OF THE ORDER OF THE CIT(A), WE NOTIC E THAT THE COMMISSION PAYMENTS HAVE BEEN MADE TO FOREIGN AGENT S OVERSEAS FOR RENDERING SERVICES OUTSIDE INDIA FOR OBTAINING EXPO RT ORDERS. THE FOREIGN AGENT IS STATED TO BE NOT CARRYING ANY BUSINESS OPE RATION IN INDIA AND THEREFORE NO INCOME CAN BE STATED TO ACCRUE OR ARIS E IN INDIA. IN THE ABSENCE OF ANY CHARGEABILITY OF INCOME UNDER S.4 RE AD WITH SECTION 5(2) OF THE ACT, PROVISIONS OF SECTION 195 OF THE ACT WI LL NOT APPLY. THUS, OBLIGATIONS FOR DEDUCTION OF WITHHOLDING TAX CANNOT BE FASTENED ON THE ITA NO. 2800/AHD/17 [DCIT VS. M/S. GUJARAT CO-OP. MILK MARKETING FEDERATION LTD.] A.Y. 2014-15 - 5 - ASSESSEE. THE CIT(A) HAS RIGHTLY DETERMINED THE IS SUE IN PERSPECTIVE AND IN ACCORDANCE WITH LAW AS INTERPRETED BY LONG L INE OF JUDICIAL PRECEDENTS. IN VIEW OF UNREBUTTED FACTS RECORDED B Y THE CIT(A), WE ARE UNABLE TO SEE ANY INFIRMITY THEREIN. WE THUS DECLI NE TO INTERFERE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 09/10/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 09/10/201 9