ACIT, Jaipur V. M/S RAJASTHAN COOPERATIVE DAIRY, Jaipur

ITA 555/JPR/2011

• Counselvise Citation: 55523114 RSA 2011
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JAUHRI
• Assessee Lawyers: VARUN BANSAL
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 555/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: AAAAR 0278 A A.C.I.T. CIRCLE-5, JAIPUR V M/S RAJASTHAN CO-OPER ATIVE DAIRY FEDERATION LTD. SARAS SANKUL, J.L. MARG, JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JAUHRI ASSESSEE BY: SHRI VARUN BANSAL DATE OF HEARING: 17-10-2011 DATE OF PRONOUNCEMENT: 21 -10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)- II, JAIPUR DATED 4.3.2011. THE ONLY GROUND RAISED BY THE REVENUE IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN:- DELETING THE ENTIRE ADDITION OF RS. 122,11,408/- MA DE BY THE AO ON ACCOUNT OF D.C.S DEVELOPMENT EXPENSES WITHOUT APPRE CIATING THE FACT THAT THIS AMOUNT SHOULD HAVE BEEN ADJUSTED OUT OF G RANT RECEIVED FOR SUCH PURPOSE. 2. THE ASSESSEE IS AN APEX BODY RESPONSIBLE FOR DEV ELOPMENT OF DAIRY ACTIVITIES IN COOPERATIVE SECTOR IN THE STATE OF RA JASTHAN. THE FUNDAMENTAL 2 OBJECTIVE OF THE ASSESSEE HAS BEEN MENTIONED BY THE LD. CIT(A) ON PAGE 2 OF HIS ORDER. TO MEET THE FUNDAMENTAL OBJECTIVES, THE ASSESSEE IS PROVIDING NECESSARY HELP ADVICE AND GUIDELINES TO VARIOUS DIS TRICT LEVEL AND PRIMARY LEVEL SOCIETIES ENGAGED IN PROCUREMENT OF MILK. TH E DISTRICT LEVEL SOCIETIES COLLECTED MILK FROM THE PRIMARY DAIRY COOPERATIVE S OCIETIES (D.C.S) IN THEIR MILK SHED AREA AND SELLING THE MILK AND MILK PRODUC TS TO CONSUMERS UNDER THE BRAND DEVELOPED BY THE ASSESSEE. FOR INCREASIN G THE PROCUREMENT OF MILK AND PROTECTING THE DAIRY FARMERS FROM THE THREAT OF PRIVATE MILK VENDORS, THE ASSESSEE LAUNCHED VARIOUS SCHEMES FROM TIME TO TIME FOR INDUCING MORE AND MORE MILK PRODUCERS TO JOIN PRIMARY DAIRY DEVELOPME NT COOPERATIVE SOCIETIES. THE EXPENSES INCURRED ARE FOR THE PURPO SES AS UNDER: (A) NEW REGISTRATION OF D.C.S (B) REVIVAL OF CLOSED D.C.S (C) CONTRIBUTION FOR WOMEN OR BPL FAMILIES/SC/ST F AMILIES (D) PROVIDING AUTOMATIC MILK STATION ETC. THESE EXPENSES HAVE BEEN CLAIMED BY THE ASSOCIATE E NTERPRISE AS BUSINESS EXPENDITURE. ACCORDING TO THE AO SUCH EXPENSES HAV E BEEN INCURRED ON ITS OWN SOCIAL MOTO AND THERE WAS NO BUSINESS EXPEDIENC Y FOR INCREASING SUCH EXPENSES. ACCORDING TO THE AO SUCH EXPENDITURE SHO ULD HAVE BEEN ADJUSTED AGAINST GRANT RECEIVEDFROM NDDB AND GOVT. THE AO, THEREFORE, DISALLOWED THE EXPENDITURE. 3 3. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT IT IS THE OBJECTIVE OF THE SOCIETY TO PROMOTE THE DEVELOPMENT AND MILK PRODUCT ION. THE DEVELOPMENT IS DONE BY STRENGTHENING PRIMARY DAIRY COOPERATIVE SOCIETIES. IN SUCH SOCIETIES THE INDIVIDUAL MEMBER OF THE VILLAGE BECO ME ITS MEMBER AND SUPPLY MILK TO SUCH SOCIETY. THE ASSESSEE MONITOR, GUIDE, ADVICE AND PROVIDE TECHNICAL AND MARKING SUPPORT TO THESE SOCI ETIES FOR DEVELOPMENT OF DAIRY ACTIVITIES IN THE STATE. THE EXPENDITURE IS THEREFORE, IS FOR THE PURPOSE OF BUSINESS AND TO BE ALLOWED. RELIANCE HAS BEEN P LACED ON THE FOLLOWING DECISIONS: SASSOON J. DAVID & CO. LTD. V. CIT, 118 ITR 261 (S .C) CIT V. DELHI SAFE DEPOSIT CO. LTD. 133 ITR 756 (S. C) CIT V. KARNATAKA FINANCIAL CORPORATION, 326 ITR 35 5 (KARNATAKA) 4. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT NO SUCH GRANT FROM NABARD/GOVT IS RECEIVED OR RECEIVABLE FOR THE YEAR AND THEREFORE, SUCH EXPENDITURE COULD NOT HAVE BEEN ADJUSTED AGAINST TH E GRANT. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE LD. AR DEL ETED ADDITION AFTER OBSERVING AS UNDER:- I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. ON PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE AO NOT ICED THAT ASSESSEE HAD INCURRED D.C.S DEVELOPMENT EXPENSES IN RESPECT OF PRIMARY SOCIETIES WITH WHOM ASSESSEE WAS NEITHER HAVING ANY TRANSACTION NOR ANY BUSINESS CONSIDERATION FOR INCURRING THE SAID E XPENDITURE. THESE EXPENSES WERE INCURRED BY ASSESSEE ON ITS OWN FOR S OCIAL PURPOSE AND THERE WAS NO BUSINESS EXPEDIENCY FOR INCURRING THE SAID EXPENDITURE. 4 HE FURTHER OBSERVED THAT THESE EXPENSES WERE REQUIR ED TO BE ADJUSTED AGAINST THE GRANTS RECEIVED FROM NDDB AND GOVT. AC CORDINGLY HE DISALLOWED THE ENTIRE CLAIM OF EXPENDITURE. ON THE OTHER HAND, THE COUNSEL OF THE APPELLANT HAS REFERRED TO THE OBJECT IVES OF THE ASSESSEE SOCIETY AS PER ITS BYE-LAWS AND HAS RELATED SUCH EX PENDITURE TO THE COMMERCIAL EXPEDIENCY PARTICULARLY THE FACT THAT IT WAS ALSO CHARGING CESS @ 1% OF THE SALE VALUE FROM MILK UNIONS AMOUNT ING TO RS. 9,12,27,490/- AND SAME WAS CREDITED TO THE PROFIT A ND LOSS ACCOUNT AND THEREFORE, THE AO COULD NOT HAVE DISALLOWED THE EXPENDITURE OF RS. 1.22 CRORES IN RELATION TO INCOME OF RS. 9.12 C RORES. ON CONSIDERATION OF FACTS IN ENTIRETY, I FIND THAT ONE OF THE OBJECTIVES OF THE ASSESSEE IS TO CARRY OUT SUCH ACTIVITIES AS MAY BE CONDUCIVE FOR THE PROMOTION OF THE DAIRY INDUSTRY AND IMPROVEMENT AND PROTECTION OF MILCH ANIMALS. IN PURSUANCE OF THE SAID OBJECTIVE, IT HAS TO RENDER TECHNICAL, ADMINISTRATIVE, FINANCIAL AND OTHER NECE SSARY ASSISTANCE TO THE MEMBER UNIONS. THE ASSESSEE COLLECTS MILK FROM ITS MEMBER UNIONS I.E. PRIMARY DAIRY COOPERATIVE SOCIETY (D.C. S) AND SELLS THE MILK AND MILK PRODUCTS TO CONSUMERS UNDER ITS BRAND NAME SARAS. FOR INCREASING THE PROCUREMENT OF MILK AND PROTECTI NG THE DAIRY FARMERS, IT HAS TO LAUNCH VARIOUS SCHEMES FOR INDUC ING MORE AND MORE MILK PRODUCERS TO JOIN THE PRIMARY DAIRY COOPERATIV E SOCIETY. FOR THE PURPOSE, IT HAS INCURRED EXPENDITURE TOWARDS REGIST RATION OF D.C.S, REVIVAL OF CLOSED D.C.S, PROVIDING MEMBERSHIP CONTR IBUTION, PROVIDING AUTOMATIC MILK STATIONS ETC. THUS, THESE EXPENSES ARE DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE AN D INCURRED FOR COMMERCIAL EXPEDIENCY. THE HON'BLE KARNATAKA HIGH COURT IN CIT V. KARNATAKA FINANCIAL CORPORATION (326 ITR 355) HAS H ELD THAT EXPENDITURE INCURRED AT THE INSTANCE OF STATE ON MO DEL VILLAGES TO PROMOTE INFRASTRUCTURE FACILITY AND NEW MARKET IN V ILLAGES IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINES S. APART FROM ABOVE, I FIND THAT FOR PROVIDING TECHNICAL MARKETIN G AND OTHER SUPPORT SERVICE TO THE PRIMARY LEVEL SOCIETIES, THE ASSESSE E HAS CHARGED CESS @ 1% OF THE SALE VALUE FROM MILK UNIONS FOR WHICH REC EIPTS OF RS. 9,12,27,490/- HAVE BEEN OFFERED AS INCOME BY THE AS SESSEE. IN THESE CIRCUMSTANCES, THE EXPENDITURE INCURRED ON D.C.S DE VELOPMENT IS AN ALLOWABLE BUSINESS EXPENDITURE U/S 37(1) OF THE ACT . I THEREFORE, DIRECT THE AO TO DELETE THE ADDITION OF RS. 1,22,11 ,408/-. THIS GROUND OF APPEAL IS ALLOWED. 5 5. WE HAVE HEARD BOTH THE PARTIES. THE GENUINENESS OF EXPENSES IS NOT DOUBTED BY THE REVENUE. THE ASSESSEE HAS EXPLAINED THAT THE EXPENSES HAVE BEEN INCURRED ONLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT IS THE ASSESSEE WHO HAS TO TAKE THE DECISION OF THE EXPEND ITURE TO BE INCURRED SO AS TO CONTINUE ITS BUSINESS. ALL THE EXPENSES INCURRE D ARE RELATED TO THE PRIMARY OBJECTIVE OF THE SOCIETY. WE, THEREFORE, FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ALLOW EXPENSE OF R S. 1,22,11,408/-. WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND HENCE T HE APPEAL OF THE REVENUE IS DISMISSED. 6 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 -10-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 21 /10/2011 SURESH COPY FORWARDED TO :- 1. THE A.C.I.T. CIRCLE5, JAIPUR 2. M/S RAJASTHAN CO-OPERATIVE DAIRY FEDERATION LTD. 3. THE LD. CIT 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.39/JP /11) A.R, ITAT, JAIPUR 6 7 8 9 10 11