AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD., Ajmer V. INCOME TAX OFFICER, WARD-1-2, Ajmer

ITA 830/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3601 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 09-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G C JAIN
• Keywords: Business expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 830/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2014-15 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD., APNA BAZAR, PARAO, AJMER. CUKE VS. THE ITO, WARD-1(2), AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAAA 0383 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDEN T FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI G.C. JAIN (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 16/05/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 22/05/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 10.08.2017 OF LD. CIT(A), AJMER FOR THE ASSESSMENT YEAR 2014-15. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND UNDER AS U NDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED-IN LAW AND ON FACTS IN CONFIRMING DISALLOWANC E OF RS. 370454.00, IN RESPECT OF CONTRIBUTION TO RESERVE FU ND, MADE BY THE INCOME TAX OFFICER, WARD-1(2), AJMER. ITA NO. 830/JP/2017 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 2 2. THE ORDER CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD-IN-LAW, BASED ON SURMISES & CO NJECTURES, ARBITRARY & CAPRICIOUS, INJUDICIOUS, AGAINST THE SE TTLED PRINCIPLES OF LAW, AS SUCH THE SAME DESERVED TO BE AMENDED. 2. THE ONLY ISSUE ARISES IN THIS APPEAL OF THE ASSE SSEE IS REGARDING DISALLOWANCE OF RS. 3,70,454/- IN RESPECT OF CONTRI BUTION TO THE RESERVE FUND WHICH WAS CONFIRMED BY THE LD. CIT(A). 3. WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE N OTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 TO 2013-14 IN ITA NO. 989 TO 992/JP/2016 VIDE ORDER DATED 30.11.2017 AND HELD IN PARA 8 AND 9 AS UNDER:- 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT AS PER SECTION 48(1) OF THE RAJASTHAN COOPERATIVE SOCIETIES ACT, 2001, THE COOPERATIVE SOCIETY IS REQUIRED TO TRANSFER 25% OF THE PROFIT T O THE RESERVE FUND WITHIN SUCH PERIOD AS MAY BE PRESCRIBED. FOR R EADY REFERENCE SECTION 48 OF RAJASTHAN COOPERATIVE SOCIE TIES ACT, 2001 IS REPRODUCED AS UNDER:- SECTION 48 (1) A COOPERATIVE SOCIETY SHALL, OUT OF ITS NET PROFIT AND WITHIN SUCH PERIOD AS MAY BE PRESCRIBED: A) TRANSFER TO THE RESERVE FUND, SUCH TWENTY FIVE P ERCENT OF ITS PROFITS AND WITHIN SUCH PERIOD AS MAY BE PRESCRIBE D; ITA NO. 830/JP/2017 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 3 B) CREDIT ONE PORTION OF THE PROFITS, AS MAY BE PRE SCRIBED TO THE COOPERATIVE EDUCATION AND TRAINING FUND CONSTITUTED UNDER THE RULES; C) CREDIT SUCH PORTION OF THE PROFITS AS MAY BE PRE SCRIBED IN THE BYE-LAWS, IN THE FUND CREATED UNDER BYE-LAWS TO MEE T OUT THE LOSSES, IF ANY , AND D) PAY DIVIDEND TO MEMBERS ON THEIR PAID UP SHARE C APITAL AT SUCH RATE, AS MAY BE PRESCRIBED; (2) THE BALANCE OF THE NET PROFIT MAY BE UTILIZED F OR ALL OR ANY OF THE FOLLOWING PURPOSES NAMELY: A) PAYMENT OF INCENTIVE TO MEMBER. B) CONSTITUTION OF, OR CONTRIBUTION TO, SUCH SPECIA L FUND AS MAY BE SPECIFIED IN THE BYE-LAWS; C) DONATIONS OF AMOUNT NOT EXCEEDING 10% OF THE NET PROFIT D) PAYMENT OF BONUS TO EMPLOYEES. THEREFORE, IT IS STATUTORY PROVISION WHICH CONTEMPL ATES THE TRANSFER OF 25% PROFIT OF THE COOPERATIVE SOCIETIES TO THE R ESERVE FUND. HOWEVER, NEITHER THE AO NOR LD. CIT(A) HAS PROCEED ED TO EXAMINE THE PROVISIONS OF RAJASTHAN COOPERATIVE SOCIETIES A CT, 2001 REQUIRING THE ASSESSEE TO TRANSFER THE PROFIT EQUIV ALENT 25% TO THE RESERVE FUND. FURTHER, THE CORRECTNESS OF THE QUANT UM AS CLAIMED BY THE ASSESSEE AND ALSO THE DEPOSIT IN THE FDRS AS WE LL AS WITHDRAWAL OF THE AMOUNT HAS NOT BEEN EXAMINED AND VERIFIED BY THE AUTHORITIES BELOW. 9. AS REGARDS THE ALLOWABILITY OF SUCH TRANSFER TO THE RESERVE FUND AS REQUIRED UNDER THE STATUTE THE ISSUE HAS BEEN CONSI DERED BY THE HONBLE MP HIGH COURT IN CASE OF KESHKAL COOPERATIV E MARKETING SOCIETY LTD. VS. COMMISSIONER OF INCOME (SUPRA) IN PARAS 11 TO 16 IS AS UNDER:- 11. IT IS SETTLED LAW THAT IN ORDER TO CLAIM DEDUCTIBLE AMOUNT FROM THE INCOME, IT MUST FULFILL TWO ESSENTIAL CONDITION S, VIZ., ( I)THAT THE AMOUNT MUST BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, AND (II)THAT IT SHOULD NOT BE EXPENSE S OF CAPITAL ITA NO. 830/JP/2017 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 4 NATURE. BOTH THESE CONDITIONS MUST BE COMPLIED WITH BEFORE THE ASSESSEE CLAIMS DEDUCTION FROM THE INCOME. IN THE I NSTANT CASE, AS STATED AFORESAID, THE SAID AMOUNT OF RS. 1,66,763 D OES NOT COMPRISE INCOME OF THE ASSESSEE ON ACCOUNT OF ITS B EING DIVERTED UNDER THE STATUTORY PROVISIONS OF SECTION 43(2), TH EN CERTAINLY, IN OUR OPINION, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 37(1) WHICH READS AS UNDER : '(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND SECTION 80VV AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INC OME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'.' 12. THE VIEW TAKEN IN POONA ELECTRIC SUPPLY CO. LTD.'S CASE (SUPRA) WAS FOLLOWED BY THE BOMBAY HIGH COURT IN AMALGAMATE D ELECTRICITY CO. LTD. V. CIT [1974] 97 ITR 334 AND REITERATED BY THE SUPREME COURT IN CIT V. TRAVANCORE SUGARS & CHEMICALS LTD. [1973] 88 ITR 1 . FURTHER, IN CIT V. BOMBAY STATE ROAD TRANSPORT CO RPN. [1977] 106 ITR 303 (BOM.) , IT HAS BEEN HELD THAT THE CONTRIBUTIONS MADE UNDER A LEGAL OBLIGATION CAST UPON A STATUTORY ORGA NIZATION UNDER A STATUTORY PROVISION, THE SUM WILL HAVE TO BE ALLOWE D AS DEDUCTION IN COMPUTING ITS PROFITS. 13. THEREFORE, IN THE INSTANT CASE ALSO, THE DEDUCTION AS CLAIMED BY THE ASSESSEE-SOCIETY AMOUNTING TO RS. 1,66,763 IS A LLOWABLE DEDUCTION, AS THE SAID AMOUNT DOES NOT COMPRISE INC OME OF THE ASSESSEE BECAUSE THE SAME HAVING BEEN DIVERTED UNDE R THE PROVISIONS OF SECTION 43(2) AND CAN ONLY BE INVESTE D OR UTILISED IN SUCH MANNER AND ON SUCH TERMS AND CONDITIONS AS MAY BE LAID DOWN BY THE REGISTRAR IN THIS BEHALF, AS REQUIRED U NDER CLAUSE (2) OF SECTION 44. AS SUCH THE SAID AMOUNT IS NOT AVAILABL E FOR THE USE OF THE ASSESSEE-SOCIETY AT ITS OPTION. THEREFORE, THE REAL TEST FOR SUCH DEDUCTIBLE SUM IS THAT IF BY MAKING STATUTORY DEPOS ITS, THE ASSESSEE LOSES CONTROL OVER THE SAID AMOUNT, BEING NOT AVAIL ABLE FOR ITS USE, ITA NO. 830/JP/2017 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 5 THEN SUCH AMOUNT IS CERTAINLY DEDUCTIBLE FROM THE I NCOME AS CON TEMPLATED UNDER SECTIONS 36 AND 37. 14. ON BEHALF OF THE REVENUE, SHRI B.K. RAWAT, THE LEAR NED COUNSEL, RELYING UPON THE DECISION OF VAZIR SULTAN TOBACCO C O. LTD. V. CIT [1981] 132 ITR 559 (SC) , ARGUED THAT THE SAID AMOUNT IS NOT LIABLE TO DEDUCTION. IN VAZIR SULTAN TOBACCO CO . LTD.'S CASE (SUPRA) , THE MAIN QUESTION RAISED WAS WHETHER AMOU NTS RETAINED OR APPORTIONED OR SET APART BY THE CONCERNED ASSESSEE- COMPANY BY WAY OF MAKING PROVISIONS (A) FOR TAXATION, (B) FOR RETIREMENT GRATUITY, AND (C) FOR PROPOSED DIVIDENDS FROM OUT O F PROFITS AND OTHER SURPLUS, COULD BE CONSIDERED AS 'OTHER RESERV ES' WITHIN THE MEANING OF RULE 1 OF THE SECOND SCHEDULE TO THE SUP ER PROFITS TAX ACT, 1963 FOR INCLUSION IN THE CAPITAL COMPUTATION OF THE COMPANY FOR THE PURPOSE OF LEVYING SUPER TAX. THEIR LORDSHI PS OF THE SUPREME COURT REMANDED VAZIR SULTAN TOBACCO CO. LTD .'S CASE (SUPRA) AS WAS FOUND THAT THERE WAS NO SUFFICIENT M ATERIAL ON RECORD REGARDING WHETHER THE APPROPRIATION MADE BY THE VAZ IR SULTAN TOBACCO CO. TOWARDS GRATUITY RESERVE WAS BASED ON A NY ACTUARIAL VALUATION OF WHETHER IT WAS APPROPRIATION OF AN AD HOC AMOUNT. SUCH IS NOT THE POSITION IN THE INSTANT CASE WHEREI N SECTION 43(2)(A) SPECIALLY SPEAKS OF 'TRANSFER OF AN AMOUNT NOT LESS THAN 25 PER CENT OF SUCH PROFITS TO THE RESERVE FUND' AND ACCORDING TO SECTION 44(2) THE SAID AMOUNT IS NOT AVAILABLE FOR THE USE OF THE ASSESSEE AND THUS THE FACTS OF VAZIR SULTAN TOBACCO CO. LTD.'S C ASE (SUPRA) REFERRED TO BY THE REVENUE, ARE QUITE DISTINGUISHAB LE FROM THE FACTS OF THE INSTANT CASE, HENCE, OF NO AVAIL TO THE REVE NUE. 15. FROM THE DISCUSSION AFORESAID, OUR ANSWER TO QUESTI ON NO. 2 IS IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSESSEE THAT THE AMOUNT REQUIRED TO BE TRANSFERRED TO THE RESERVE FUND UNDE R THE STATUTORY PROVISIONS, IS LIABLE TO BE DEDUCTED AS BUSINESS EX PENDITURE. 16. WE, THEREFORE, ANSWER THE QUESTIONS OF LAW REFERRED TO US THUS : QUESTION NO. 1 IS ANSWERED IN FAVOUR OF THE REVENUE THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ACTIVITY OF PURCHASING PADDY ITA NO. 830/JP/2017 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 6 FROM THE MEMBERS, MILLING IT AND SELLING THE SAME D ID NOT AMOUNT TO THE MARKETING OF THE AGRICULTURAL PRODUCE OF THE ME MBERS AS CONTEMPLATED UNDER SECTION 80P(2)(A)(III ) OF THE I NCOME-TAX ACT, 1961. QUESTION NO. 2 IS ANSWERED IN FAVOUR OF THE ASSESSE E THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE AMOUNT OF R S. 1,66,763 REQUIRED TO BE TRANSFERRED TO THE RESERVE FUND UNDE R SECTION 43(2) OF THE SOCIETIES ACT WAS AN ALLOWABLE DEDUCTION EIT HER AS A BUSINESS EXPENDITURE OR HAVING BEEN DIVERTED BY AN OVERRIDIN G TITLE. THERE WILL BE NO ORDER AS TO COSTS IN THIS REFERENCE. THEREFORE, ON PRINCIPLES THIS ISSUE IS COVERED BY T HE DECISION OF THE HONBLE MP HIGH COURT IN CASE OF KESHKAL COOPERATIV E MARKETING SOCIETY LTD. VS. COMMISSIONER OF INCOME (SUPRA). N O CONTRARY PRECEDENT HAS BEEN BROUGHT TO THE NOTICE OF THE TRI BUNAL. ACCORDINGLY BY FOLLOWING THE DECISION OF THE HONBL E MP HIGH COURT THE AO IS DIRECTED THE ALLOWED THE CLAIM OF THE ASS ESSEE SUBJECT TO THE VERIFICATION OF THE QUANTUM BEING 25% OF NET PR OFIT AND FURTHER TO VERIFY WHETHER THE ASSESSEE HAS COMPLIED WITH TH E PROVISIONS OF RAJASTHAN COOPERATIVE SOCIETIES ACT OR NOT BY CONSI DERING THE WITHDRAWAL FROM THE SAID AMOUNT TRANSFER TO THE RES ERVE FUND AND THEN TO FDR. NEEDLESS TO SAY WHILE VERIFYING THE FA CTUAL DETAILS THE AO TO GIVE OPPORTUNITY TO THE ASSESSEE. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASS ESSEES OWN CASE WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE SU BJECT TO VERIFY OF QUANTUM BEING 25% NET PROFIT AND FURTHER TO VERIFY WHERE THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF RAJASTHAN COOPE RATIVE SOCIETY ACT OR NOT. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED IN ABOVE TERM. ITA NO. 830/JP/2017 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 7 ORDER PRONOUNCED IN THE OPEN COURT ON 22/05/2018. SD/- SD/- HKKXPAN FOT; IKY JKO ( BHAGCHAND) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 22/05/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD., AJMER. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-1(2), AJMER. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 830/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR