National Dairy Development Board, Anand V. The Addl.CIT., Anand Range, Anand

ITA 454/AHD/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6795 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 22-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard; Revenue expenditure; Capital expenditure; Set aside
• Section: 37(1); 208; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HON'BLE SHRI G.D.AGRAWAL, V.P. & HONBL E SHRI T.K. SHARMA, J.M. ) I.T.A. NO. 454/AHD./2006 ASSESSMENT YEAR : 2003-2004 NATIONAL DAIRY DEVELOPMENT BOARD, ANAND -V S- ADDL. C.I.T., ANAND RANGE (PAN : AABCN 2029C) (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI S.N.SOPARKAR & YOGESH SHAH RESPONDENT BY : SHRI ALOK JOHRI, CIT(DR ) O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 18.01.2006 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV, BA RODA FOR THE ASSESSMENT YEAR 2003- 2004. 2. THIS APPEAL OF THE ASSESSEE WAS DECIDED VIDE ORD ER DATED 17.08.2007. SUBSEQUENTLY, ON A PETITION BY THE ASSESSEE UNDER SECTION 254(2), THIS ORDER WAS RECALLED VIDE ORDER DATED 28.08.2009 IN M.A. NO.214/A/2007 FOR DISPOSING OFF RE-ADJUDICATING THE GROUND NO.7. THE GROUND NO.7 READS AS UNDER: 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN CONFIRMING THAT GRANT OF RS.10,31,34,920/- GIVEN TO VARIOUS COOPER ATIVE SOCIETIES IS NOT DEDUCTIBLE EXPENDITURE U/S.36(1)(XII) OF THE I.T. ACT ON THE GROUND THAT THE SAME ARE NOT IN THE NATURE OF EXPENDITURE. APPELLANT SUBMITS THAT THE GRANT GIVEN WERE IN THE NATURE OF EXPENDITURE AND ALLOWABLE IN ACCORDANCE WITH SECTI ON 36(1)(XII) OF THE I.T. ACT. IT BE SO HELD NOW. 7.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS FAILED TO APPRECIATE THE OBJECT OF THE APPELLANT AND CONFIRMED THE DISALLOW ANCE. UNDER THE FACTS AND CIRCUMSTANCES GRANTS GIVEN WERE IN PURSUANCE OF TH E OBJECTS AND THEREFORE, OUGHT TO HAVE BEEN ALLOWED AS DEDUCTION U/S.36(1)(XII) OF T HE ACT. IT BE SO HELD NOW. 7.2 IN ANY EVENT THE SAME IS ALLOWABLE U/S. 28/37 OF THE I.T. ACT AND THEREFORE, THE SAME OUGHT TO HAVE BEEN ALLOWED AS DEDUCTION. IT B E SO HELD NOW. 2 ITA NO. 454-AHD-2006 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE C AME INTO EXISTENCE BY AN ACT OF PARLIAMENT CALLED NATIONAL DAIRY DEVELOPMENT BOARD ACT, 1987. AS PER THE PROVISIONS OF SECTION 44 OF NATIONAL DAIRY DEVELOPMENT BOARD ACT, THE ASSESSEE WAS EXEMPTED FROM APPLICATION OF INCOME-TAX ACT. HOWEVER, BY FINANCE ACT, 2002, SECTION 44 FOR NATIONAL DAIRY DEVELOPMENT BOARD ACT, 2002 WAS OMITTED AND T HE ASSESSEE WAS LIABLE TO TAX FROM THE FINANCIAL YEAR 2002-03, RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL I.E. 2003-04. 3.1 ONE OF THE OBJECTS OF NATIONAL DAIRY DEVELOPMEN T BOARD IS TO PROVIDE ALTERNATIVE FINANCE FOR COOPERATIVE UNIONS/STATE FEDERATIONS AN D ITS SUBSIDIARY. IN THE BOOKS OF ACCOUNTS, THE ASSESSEE CREATED SPECIAL RESERVES AND CLAIMED D EDUCTION UNDER SECTION 36(1)(VII) OF THE I.T. ACT. IN THE RETURN OF INCOME FILED, THE ELIGIB LE DEDUCTION WAS WORKED OUT AT RS.9,99,60,197/-. SINCE THE SPECIAL RESERVES WERE C REATED FOR RS.9,90,00,000/-, DEDUCTION UNDER SECTION 36(1)(VII) WAS RESTRICTED TO RS.9,90, 00,000/-. THIS WAS EXPLAINED BY THE ASSESSEE IN THE RETURN OF INCOME VIDE NOTE NO.24 OF THE NOTE FORMING PART OF RETURN OF INCOME. 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VI DE LETTER DATED 01.09.2004, THE ASSESSEE JUSTIFIED THE CLAIM. THE ASSESSING OFFICER EXAMINED THE VARIOUS CONTENTIONS ATTACHED FOR MAKING DISBURSEMENTS AND CAME TO THE C ONCLUSION THAT AMOUNT GIVEN TO VARIOUS COOPERATIVE UNIONS WERE NOT EXPENDITURE FOR THE PUR POSE OF ALLOWING DEDUCTION UNDER SECTION 36(1)(XII) OF THE ACT BUT WERE BASICALLY GRANTS. TH E ASSESSING OFFICER FURTHER OBSERVED THAT IN THE AGREEMENTS, THERE IS AN IN-BUILT CONDITION THAT IF THE UTILIZATION OF DISBURSEMENTS MADE BY THE ASSESSEE IS NOT AS PER THE OBJECTIVES/TERMS LAI D DOWN IN THE AGREEMENT, THEN SUCH GRANTS/ DISBURSEMENTS WOULD BE CONVERTED EITHER INTO INTERE ST FREE LOAN OR INTEREST BEARING LOAN. HE, THEREFORE, HELD THAT THERE WAS A POSSIBILITY OF MON EY COMING BACK TO THE ASSESSEE AND THEREFORE SUCH DISBURSEMENTS TO VARIOUS COOPERATIVE UNITS WERE NOT EXPENDITURE. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE CLAIM. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) CALLED THE REMAND REPORT. IN THE REMAND REPORT, THE ASSESSING OFFICER STATED THAT EXPENDITURE HAS TO BE A PAYMENT WHICH IS MADE IRREVOCABLY, THERE SHOULD NOT BE POSSIBILITY OF MONEY FORMING ONCE 3 ITA NO. 454-AHD-2006 AGAIN A PART OF THE FUNDS OF THE ASSESSEE. IF THIS CONDITION IS NOT FULFILLED, THERE WAS A POSSIBILITY OF THERE BEING A RESULTING TRUST IN FAV OUR OF THE ASSESSEE, AND THEREFORE, THE MONEY CANNOT BE CONSIDERED TO HAVE BEEN SPENT BY THE ASSE SSEE. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE WAS DISBURSING AMOUNTS INITIALLY AS GRANT , BUT IT RETAINED FULL CONTROL OVER THE BORROWERS IN RESPECT OF ITS (I) EXPENDITURE, (II) I N RESPECT OF THE PERFORMANCE TO BE ACHIEVED AT THE DESIRED LEVEL AS LAID DOWN BY THE NDDB AND (III ) IN RESPECT OF FURNISHING HALF YEARLY FUND UTILIZATION REPORT. OBVIOUSLY, THE ABOVE CONDITIONS LAID DOWN ON THE BORROWERS DO NOT MAKE THE AMOUNT DISBURSED AS EXPENDITURE. TO SUM UP THE CASE, THE OPINION OF THE ASSESSING OFFICER WAS THAT IT IS IN FACT A CONDITIONAL LOAN. 4.1 AFTER CONSIDERING THE ABOVE, IN THE IMPUGNED OR DER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING AS UNDER: 'I HAVE CONSIDERED THE SUBMISSIONS/REJOINDER OF TH E APPELLANT AND THE FINDINGS/COMMENTS OF THE ASSESSING OFFICER. AS STA TED ABOVE, THE APPELLANT HAS MADE DISBURSEMENT TO VARIOUS COOPERATIVE UNIONS AND FED ERATIONS FOR IMPLEMENTING DAIRY DEVELOPMENT PROGRAMME TITLED AS 'PERSPECTIVE 2010 PLAN' UNDER THE EXTENDED OPERATION FLOOD PROGRAMME. THE UNIONS WERE REQUIRE D TO SUBMIT REGULAR AUDITED FUND UTILIZATION REPORTS OF THE DISBURSED AMOUNTS. IT IS NOTICED THAT THE AFORESAID DISBURSEMENTS OF THE AMOUNTS BY THE APPELLANT WAS DONE IN THE FOLLOWING CATEGORIES:- CATEGORY PARTICULARS FUNDING PATTERN A INFRASTRUCTURE FACILITIES FOR PROCUREMENT, PROCESSING & MARKETING. LOANS/GRANTS B PRODUCTIVITY ENHANCEMENT LOANS/GRANTS C QUALITY AND P LANT MANAGEMENT LOANS /GRANTS D MARKETING DEVELOPMENT LOANS/GRANTS E INSTITUTIONAL DEVELOPMENT LOANS/ GRANTS F NOTIONAL INFORMATION NETWORK LOANS -'GRANTS G MANPOWER DEV, & TRAINING. GRANT. THE APPELLANT HAS CLAIMED THAT THOUGH THE AMOUNTS SPENT WAS SHOWN AS GRANTS BUT IN FACT THE SAME WERE EXPENDITURE INCURRED ON THE ACT IVITIES DEFINED UNDER THE N.D.B.B. ACT, HENCE, THE SAME QUALIFIES FOR DEDUCTION U/S. 36(1)(XII) OF THE ACT. THE GRANTS WERE 4 ITA NO. 454-AHD-2006 ALSO EXTENDED IN SOME CA.SES FOR PURCHASE OF EQUIP MENTS FOR DAIRY DEVELOPMENT ACTIVITIES. THE CONDITIONS LAID DOWN IN THE RANT A GREEMENTS ENTERED WITH THE COOPERATIVE UNIONS WERE IN THE NATURE OF DETERRENC E FOR ACHIEVING CERTAIN SPECIFIED GOALS. WHEREVER, THE FUNDING HAS BEEN DONE FOR THE PURCHASE OF EQUIPMENT AND MACHINERY, SUCH ASSETS DO NOT STAND IN THE NAME OF N.D.D.B., THEREFORE, SUCH EXPENDITURE ARE NOT CAPITAL IN NATURE AS HELD BY T HE BOMBAY HIGH COURT IN THE CASE OF CIT VS. STATE BANK OF INDIA, 260 ITR 82, WHEREIN, THE SUBSIDY GIVEN TO SUBSIDIARY BANKS FOR OPENING NEW BRANCHES, THOUGH CREATED NEW ASSETS WERE HELD TO BE BELONGING TO THE SUBSIDIARIES AND NOT TO THE STATE BANK OF INDIA. THE APPELLANT HAS ALSO RELIED ON CIT VS. T. V. SUNDARAM IYENGAR AND SONS PVT. LID. 186 ITR 276 (SC), WHEREIN, IT WAS HELD THAT THE AMOUNT ADVANCED BY T HE ASSESSEE EMPLOYER FOR CONSTRUCTION OF HOUSES UNDER SUBSIDIZED INDUSTRIAL SCHEME FOR ITS EMPLOYEES WOULD BE IN THE NATURE OF REVENUE EXPENDITURE. THAT THE APP ELLANT SATISFIES ALL THE CONDITIONS TOR CLAIMING DEDUCTION U/S. 6(L)(XII), THE EXPENDITUR E INCURRED WAS NOT CAPITAL IN NATURE AND IT WAS INCURRED BY A BODY CORPORATE ESTABLISHE D UNDER THE CENTRAL ACT IN RESPECT OF OBJECTS AND PURPOSES AUTHORISED BY THE RELEVANT ACT. THE MOOT QUESTION UNDER CONSIDERATION IS WHETHER T HE DISBURSEMENTS MADE BY THE APPELLANT TO VARIOUS COOPERATIVE UNIONS IN FURTHER ANCE OF ITS OBJECTIVES IS EXPENDITURE OR A GRANT. THE APPELLANT IN THE ABOVE GIVEN SUBMI SSIONS ADMITS THAT THE DISBURSEMENTS WERE CONDITIONAL BUT THE INTENTION F OR LAYING DOWN SUCH CONDITIONS WERE BASICALLY FOR TIMELY UTILIZATION OF GRANTS AN D TO PREVENT MISUSE OF FUNDS. SINCE, THE AMOUNT DISBURSED AS GRANTS COULD BE TRANSFORME D INTO INTEREST FREE LOANS OR SOFT INTEREST BEARING LOANS, THEREFORE, THERE WAS ALWAY S A POSSIBILITY OF THE MONEY SO DISBURSED TO FORM PART OF THE FUNDS OF THE APPELLA NT AGAIN. THE APPELLANT THUS CONTINUED TO EXERCISE CONTROL OVER SUCH GRANTS DIS BURSED TO THE COOPERATIVE UNIONS. THE APPELLANT'S CONTENTION THAT EVEN IN THE EVENTU ALITY OF SUCH GRANTS/DISBURSEMENTS COMING BACK TO THE APPELLANT, THE EXPENDITURE SO C LAIMED AGAINST SUCH DISBURSEMENTS COULD ALWAYS BE REVERSED IN VIEW OF THE PROVISIONS OF SECTION 41(1) OF THE ACT IS NOT TENABLE BECAUSE SUCH PROVISIONS CAN BE EXERCISED F OR LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY AN ASSESSES AND IN THE INSTA NT CASE THE VERY FOUNDATION OF THE TERM IS DISPUTED. AS PER THE ESTABLISHED PRINCIPLES OF ACCOUNTING, T HE ACT REQUIRES THE BALANCING OF PROFITS AND EXPENDITURE OF AN ENTERPRISE SO THAT E NTRIES MADE ON ONE SIDE AS INCOME RECEIPTS ARE PROPERLY BALANCED BY THE EXPENSES AGA INST THEM ON THE OTHER SIDE. SINCE, GRANTS DO NOT FORM PART OF THE INCOME RECEIPTS OF THE APPELLANT, THEREFORE, DISBURSEMENT AGAINST THEM CANNOT BE ALLOWED AS EXP ENDITURE. IT IS ON RECORD THAT THE GRANTS RECEIVED BY THE AP PELLANT FROM THE GOVERNMENT OR AGENCIES ARE INVARIABLY CREDITED DIRECTLY TO THE R ESPECTIVE PROJECT ACCOUNTS OR TO THE CONCERNED FUNDS. THUS, SUCH GRANTS RECEIVED ARE NO T TAKEN TO THE INCOME AND EXPENDITURE ACCOUNTS OF THE N.D.D.B. THE APPELLANT IS A NODAL AGENCY THROUGH WHICH SUCH GRANTS ARE DISBURSED TO THE ULTIMATE BENEFICI ARIES. SINCE, AS STATED ABOVE, THE GRANTS ARE NOT ROUTED THROUGH THE P. & L. ACCOUNT OF THE APPELLANT THEREFORE, ANY DISBURSEMENT OUT OF SUCH GRANTS LOGICALLY CANNOT B E ALLOWED AS AN EXPENDITURE. 5 ITA NO. 454-AHD-2006 EVEN OTHERWISE, THE 'EXPENDITURE' MEANS WHAT IS PA ID OUT AND IS SOMETHING THAT HAS GONE IRRETRIEVABLY. THIS COULD BE EITHER ACTUALLY PAID UNDER THE CASH SYSTEM OR ACCOUNTED FOR AS SUCH UNDER THE MERCANTILE BASIS T OWARD A LIABILITY ACTUALLY EXISTING AT THAT TIME BUT PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON HAPPENING OF AN EVENT IS NOT AN EXPENDITURE [INDIAN MOLASSES CO. PVT. LTD. VS. CIT, 37 ITR 66 (SC); INDIAN CARBONS LTD. VS. CIT, 180 ITR 1171. T HUS, EXPENDITURE COVERS A LIABILITY WHICH HAS ACCRUED ALTHOUGH IT MAY HAVE TO BE DISCH ARGED AT A FUTURE DATE. A CONTINGENT LIABILITY TO BE DISCHARGED ON A FUTURE DATE CANNOT BE CONSIDERED AS AN EXPENDITURE (MADRAS INDUSTRIAL INVESTMENT COM. LTD . VS. CIT, 225 ITR 802, 808 (SC), AS STATED ABOVE, THE APPELLANT HAS DISBURSED THE G RANTS TO THE COOPERATIVE UNIONS ON CERTAIN CONDITIONS. THUS, SUCH DISBURSEMENTS OF GR ANTS WHICH MAY BE CONVERTED INTO LOANS ARE EXTENDED ON CONTINGENT LIABILITY, THE HA PPENING OR NON HAPPENING OF WHICH IS NOT ENTIRELY CERTAIN. FURTHER, THE AMOUNTS SO D ISBURSED DO NOT GO OUT OF THE COFFERS OF THE APPELLANT IRRETRIEVABLY AND ABSOLUTELY. THE CASE OF CIT VS. N. C. JOHN & SONS, 208 ITR 57 (KER) ALSO LAYS DOWN THAT IN ORDER TO C ONSTITUTE EXPENDITURE THE PAYMENT HAS TO BE MADE IRREVOCABLY AND THERE SHOULD NOT BE ANY POSSIBILITY OF MONEY FORMING ONCE AGAIN A PART OF THE FUND'S THE ASSESSEE. HENCE, IN VIEW OF THE REASONING GIVEN ON THE PRE P AGES, I THAT THE A.O. WAS JUSTIFIED IN DISALLOWING THE DEDUCTION CLAIMED U/S. 36(L)(XII) OF THE ACT. ACCORDINGLY, THE ADDITION MADE BY THE A.O. ON THIS ACCOUNT IS SUSTAINED. 5. AT THE TIME OF HEARING BEFORE US, SHRI S.N.SOPAR KAR, A.R. APPEARED ON BEHALF OF THE ASSESSEE AND FILED A PAPER BOOK CONTAINING 47 PAGES , WHICH, INTER ALIA , INCLUDE EXTRACT OF NDDB ACT, BALANCE SHEET, PROFIT & LOSS A/C ALONGWITH ANNEXURES TO BALANCE SHEET, YEAR- WISE DETAILS OF GRANT RELEASED, LEDGER ACCOUNT OF D EVELOPMENT EXPENDITURE, NOTE ON PROCEDURE FOLLOWED FOR GRANTING LOAN, LOAN AGREEME NT DATED 25 TH MAY 2001, GRANT AGREEMENT DATED 25 TH MAY 2001, CERTIFICATE ALONGWITH UTILISATION REPO RT RECEIVED FROM SHREE WARNA SAHAKARI DUDH UTPADAK SANGH LTD., NDDB 'S LOCAL OFFICE REPORT VERIFYING THE REPORT SUBMITTED BY SHREE WARNA SAHAKARI DUDH UTAPA DAK SANGH LTD., RELEASE NOTE PREPARED BY FINANCE DEPARTMENT OF NDDB AND NDDBS V OUCHER RELEASING THE GRANT OF RS.467000/- TO SHREE WARNA SAHAKARI DUDH UTAPADAK SANGH LTD. AFTER INVITING OUR ATTENTION TO OBJECT OF THE ACT AND THREE WAYS IN WH ICH THE ASSESSEE IS PROVIDING FINANCIAL HELP, IT WAS EXPLAINED THAT THE ASSESSEE IS GIVING REFUNDABLE AND NON-REFUNDABLE GRANTS. THE REFUNDABLE GRANTS ARE SEPARATELY SHOWN AND THESE AR E NOT CLAIMED DEDUCTION UNDER SECTION 36(1)(XII). ONLY THE NON-REFUNDABLE GRANTS ARE CLAI MED AS DEDUCTION. THE LD. COUNSEL OF THE 6 ITA NO. 454-AHD-2006 ASSESSEE POINTED OUT THAT NORMALLY GRANTS WERE GIVE N IN THE FORM OF RE-IMBURSEMENT ONLY AND WHEN IT IS GIVEN IN THE FORM OF ADVANCE THEN IT WAS CHARGED TO GRANT ONLY WHEN FUND UTILIZATION REPORT (FUR) WAS RECEIVED. THE COUNSEL OF THE ASSESSEE ALSO DREW OUR ATTENTION TO LOAN AGREEMENT DATED 25.05.2001 AND GRANT AGREEM ENT IN RESPECT OF ONE PARTY, NAMELY, SHREE WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH L TD. DATED 25.05.2001. 5.1 THE LD. COUNSEL OF THE ASSESSEE ALSO RELIED ON THE DECISION OF THE ITAT, DELHI E BENCH IN THE CASE OF OIL INDUSTRY DEVELOPMENT BOARD VS- ACIT REPORTED IN [2009] 31 SOT 226 (DELHI) FOR THE PROPOSITION THAT EXPENDITURE IN CURRED BY AN ASSESSEE BY WAY OF DISBURSEMENT OF GRANTS AND ROYALTY, FOR OBJECTS AND PURPOSES AUTHORISED BY THE ACT, WOULD BE ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(XII), PR OVIDED SAME WOULD NOT BE IN NATURE OF CAPITAL EXPENDITURE. HE POINTED OUT THAT EXPENDITUR E IN QUESTION IS ALLOWABLE UNDER SECTION 37(1) ALSO. 5.2 CONTINUING HIS ARGUMENT, THE LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION TO REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) FOR CONFIRMING THE DISALLOWANCE I.E. (I) IT IS A CONDITIONAL LOAN (BEC AUSE THE ASSESSEE CONTINUES TO EXERCISE CONTROL FOR SUCH GRANT DISBURSEMENT TO THE COOPERAT IVE UNIONS) AND (II) THE GRANTS RECEIVED BY THE ASSESSEE ARE NOT TAKEN TO INCOME AND EXPENDITUR E ACCOUNT OF NDDB. THE COUNSEL OF THE ASSESSEE POINTED OUT THAT NON-REFUNDABLE GRANTS ARE DISBURSED ON BEING SATISFIED THAT IT HAS BEEN SPENT. HE FURTHER POINTED OUT THAT NON-REFUNDA BLE GRANTS GIVEN IS NOT OUT OF GRANTS RECEIVED AND THE ASSESSEE HAS NO OBJECTION THAT FOR THIS PURPOSE, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. 6. ON THE OTHER HAND, SHRI ALOK JOHRI, C.I.T. (D.R. ), APPEARING ON BEHALF OF THE REVENUE, VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS). THE LD. D.R. DREW OUR ATTENTION TO CLAUSE (4) OF THE GR ANTS AGREEMENT MADE ON 25 TH DAY OF MAY, 2001 BETWEEN THE ASSESSEE AND SHREE WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH LTD. (PAGE 35 TO 38 OF THE PAPER BOOK), WHICH READS AS U NDER: IN CASE, THE NDDB, AT IS SOLE DISCRETION, SANCTIONS THE GRANTS BY WAY OF MONEY TO BE UTILIZED FOR VARIOUS AREAS OF INVESTMENTS INSTEAD OF REIMBURSEMENT, THE BORROWER SHALL UTILIZE SUCH GRANTS WITHIN SUCH TIME LIMIT AS MAY BE SPECIFIED BY THE NDDB IN EACH 7 ITA NO. 454-AHD-2006 CASE AND UNLESS THE NDDB EXTENDS THIS TIME LIMIT, THE BORROWER SHALL BE LIABLE TO REFUND TO THE NDDB ALL THE AMOUNTS NOT UTILIZED TO THE SATISFACTION OF THE NDDB WITHIN THE TIME LIMIT WITH INTEREST AT 15% PER ANN UM FOR THE FIRST SIX MONTHS OF DEFAULT AND THEREAFTER AT A MAXIMUM OF RATES OF INTEREST B EING CHARGED FOR CASH CREDITS AND OVERDRAFTS BY THE COMMERCIAL BANKS FOR THE TIME BE ING. 6.1 THE LD. D.R. POINTED OUT THAT FROM THE PERUSAL OF THE ABOVE, IT IS CLEAR THAT IN CASE THE BORROWER FAILS TO UTILIZE THE GRANTS WITHIN TIME LI MIT AS MAY BE SPECIFIED BY THE ASSESSEE (NDDB), UNLESS THE NDDB EXTENDS THIS TIME LIMIT, TH E BORROWER SHALL BE LIABLE TO REFUND TO THE NDDB ALL THE AMOUNTS NOT UTILIZED TO THE SAT ISFACTION OF THE NDDB WITHIN THE TIME LIMIT WITH INTEREST AT 15% PER ANNUM FOR THE FIRST SIX MONTHS OF DEFAULT AND THEREAFTER AT A MAXIMUM OF RATES OF INTEREST BEING CHARGED FO R CASH CREDITS AND OVERDRAFTS BY THE COMMERCIAL BANKS FOR THE TIME BEING. THIS CLEARLY I NDICATES THAT IT IS A CONDITIONAL LOAN. HE FURTHER POINTED OUT THAT IN THE EARLIER YEARS, THE ASSESSEE BOARD WAS RECEIVING GRANTS FROM GOVERNMENT AND AS PER THE PROVISIONS OF SECTION 44 OF NATIONAL DAIRY DEVELOPMENT BOARD ACT, THE ASSESSEE WAS EXEMPT FROM APPLICATION OF IN COME-TAX ACT. ON THE BASIS OF IT, HE POINTED OUT THAT GRANTS RECEIVED BY THE ASSESSEE AR E NOT TAKEN INTO ACCOUNT IN THE INCOME & EXPENDITURE A/C. THEREFORE, ON THIS GROUND ALSO, TH ESE CONDITIONAL LOANS ARE NOT ALLOWABLE OUT OF THE CURRENT YEARS INCOME, INTEREST, ETC SHOWN I N THE INCOME & EXPENDITURE A/C. 6.2 IN REPLY, COUNSEL OF THE ASSESSEE SUBMITTED THA T HE HAS NO OBJECTION, IN CASE THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FO R VERIFICATION OF BOTH THE AFORESAID OBJECTIONS OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AS W ELL AS LD. D.R. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND CONSIDERABLE FORCE IN JUSTIFICATION OF THE LD. COUNSEL OF THE ASSESSEE WHETHER THE ALLEGED NON-REFUNDABLE GRANTS GIVEN IN THE PREV IOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL ARE FROM GRANTS RECEIVED OR NOT NEEDS VERIFICATION AT THE END OF THE ASSESSING OFFICER. IN THIS CONTEXT, WE MAY POINT OUT THAT AS PER DECISION OF THE ITAT, DELHI E BENCH IN THE CASE OF OIL INDUSTRY DEVELOPMENT BOARD ( SUPRA ), RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE, EXPENDITURE INCURRED BY WAY OF DISBURSEME NT OF GRANTS FOR OBJECTS AND PURPOSES AUTHORISED BY THE ACT IS ALLOWABLE AS DEDUCTION UND ER SECTION 36(1)(XII) OF THE I.T. ACT, 1961. THE PLEA OF THE LD. COUNSEL OF THE ASSESSEE THAT NO N-REFUNDABLE GRANTS SANCTIONED, ARE CLAIMED 8 ITA NO. 454-AHD-2006 AS DEDUCTION ONLY WHEN FUNDS ARE ALREADY UTILIZED/F UND UTILISATION REPORT (FUR) ARE RECEIVED, ALSO NEEDS VERIFICATION AT THE END OF THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH T HE DIRECTION THAT ASSESSING OFFICER MAY VERIFY BOTH THE AFORESAID CONTENTIONS AND RE-ADJUDI CATE THE DISALLOWANCE OF RS. 10,31,34,920/- AFRESH, AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO FURNISH COMPLETE DETAILS TO ASS ESSING OFFICER, IN THIS REGARD, FOR VERIFICATION. 8. IN THE RESULT, FOR STATISTICAL PURPOSES, THE GRO UND NO.7 OF APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 21.04.2011 . SD/- SD/- (G.D.AGRAWAL) (T.K. SHARMA) VICE PRESIDENT JUDICIAL MEMBER DATED : 21/04/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, 4) CIT CONCERNED, 5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIST RAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.