AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD., Ajmer V. ITO, Ajmer

ITA 989/JPR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5637 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 10-11-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DHK
• Assessee Lawyers: G C JAIN
• Keywords: Business expenditure; Period of limitation; Reasonable cause; Condonation of delay; 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 BENCHES (SMC), JAIPUR JH FOT; IKY JKO ] U;KF;D LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 989, 990,991 & 992/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10, 2010-11,2011-12 & 2013-14 AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. APNA BAZAR, PARAO, AJMER. CUKE VS. INCOME TAX OFFICER, WARD 1(2), AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAAA0383R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.C. JAIN (ADV.) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM RAI (D.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 29/11/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 30/11/2017 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THESE FOUR APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST FOR FOUR SEPARATE ORDERS OF LD. CIT(A), AJMER DATED 24.08.20 16 FOR THE A.Y. 2009- 10, 2010-11, 2011-12 & 2013-14 RESPECTIVELY. 2. THERE IS DELAY OF 06 DAYS IN FILING OF ALL FOUR APPEALS. THE ASSESSEE HAS FILED A PETITION FOR CONDONATION OF DELAY AND W HICH IS SUPPORTED BY AN AFFIDAVIT. THE ASSESSEE HAS ALSO FILED THE AFFIDAVI T OF THE COUNSELS/ ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 2 REPRESENTATIVES TO EXPLAIN THE DELAY IN FILING THE APPEAL. I HAVE HEARD THE LD. AR AS WELL AS LD. DR ON THE CONDONATION OF DELA Y OF 6 DAYS IN FILING THE APPEALS. THE ASSESSEE HAS EXPLAINED THAT DUE TO NON AVAILABILITY OF THE CONSULTANT WHO WAS BUSY IN TIME BARROWING AUDIT WOR K AND BECAUSE OF THE BUSY SCHEDULED THE APPEALS COULD NOT BE FILED WITHI N THE PERIOD OF LIMITATION. HENCE, THERE IS A DELAY OF 6 DAYS CAUSE D DUE TO ENGAGING THE OTHER CONSULTANT FOR PREPARING AND FILING OF THE AP PEAL. THIS REASON OF DELAY HAS BEEN SUPPORTED BY THE AFFIDAVITS OF THE A SSESSEE SIGNED BY ITS GENERAL MANAGER AS WELL AS THE AFFIDAVIT OF THE REP RESENTATIVE. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAREFUL PERUSA L OF AFFIDAVITS FILED BY THE ASSESSEE I AM SATISFIED THAT THE ASSESSEE WAS H AVING REASONABLE CAUSED FOR NOT FILING THE APPEALS WITHIN THE PERIOD OF LIMITATION. ACCORDINGLY, THE DELAY OF 6 DAYS IN FILING THESE AP PEALS IS CONDONED. THE ASSESSEE HAS RAISED THE COMMON GROUNDS IN THESE APPEAL. THE GROUND FOR THE A.Y. 2009-10 READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED-IN-LAW AND ON FACTS IN CONFIRMING DISALLOWANC E OF RS. 5,67,425.00/-, IN RESPECT OF CONTRIBUTION TO RESERV E FUND, MADE BY THE INCOME TAX OFFICER, WARD 1(2), AJMER. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED-IN-LAW AND ON FACTS IN CONFIRMING DISALLOWANC E OF RS. 23030.00/-, IN RESPECT OF DEDUCTION UNDER SECTION 2 4(A). 3. THE ORDER CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD-IN- LAW, BASED ON SURMISES & CONJE CTURES, ARBITRARY ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 3 & CAPRICIOUS, INJUDICIOUS, AGAINST THE SETTLED PRIN CIPLES OF LAW, AS SUCH THE SAME DESERVED TO BE AMENDED. 3. FURTHER, THERE WAS A MISTAKE IN THE VERIFICATIO N OF GROUNDS OF APPEAL AND TO RECTIFY THE SAID MISTAKE THE ASSESSEE FILED AN AFFIDAVIT IN WHICH CLARIFIED THAT THE DATE WRITTEN IN THE VERIFICATIO N AS 05 TH NOVEMBER, 2015 IS ACTUALLY 5 TH NOVEMBER, 2016 AND DUE TO TYPOGRAPHICAL MISTAKE WHICH WAS WRONGLY MENTIONED AS 5 TH NOVEMBER, 2015. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS APPARENT THAT THIS MISTAKE IN THE DATE OF VERIFICATION IS A TYPOGRAPHICAL MISTAKE AND WRITTEN AS 5 TH NOVEMBER, 2015 INSTEAD OF 5 TH NOVEMBER, 2016. IT MISTAKE IS OTHERWISE APPARENT BECAUSE THE ORDERS OF THE LD. CIT(A) ARE DATED 24.0 8.2016 AND THEREFORE, IT IS IMPOSSIBLE TO VERIFY THE APPEALS ON 5 TH NOVERMBER, 2015. THUS, THE EXPLANATION AND RECTIFICATION OF THE ASSESSEE VIDE AFFIDAVIT DATED 23.10.2017 IS ACCEPTED. 4. GROUND NO. 1 REGARDING DISALLOWANCE OF THE AMOUN T TRANSFERRED TO GENERAL RESERVE FUND. THE ASSESSEE IS A COOPERATIVE SOCIETIES REGISTERED UNDER THE RAJASTHAN COOPERATIVE SOCIETIES ACT, 2001 . DURING THE ASSESSMENT YEAR, THE AO NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 5,67,425/- FOR THE A.Y. 2009-10 IN THE PROFI T AND LOSS ACCOUNT BEING RESERVE FUND. THE SIMILAR AMOUNTS THOUGH THE QUANTU M VARIES WERE FOUND DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HE AD RESERVE FUND. THE ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 4 AO ASKED THE ASSESSEE TO EXPLAIN HOW THE RESERVE FU ND CAN BE ALLOWED TO BE DEBATED IN THE PROFIT AND LOSS ACCOUNT. THE ASSE SSEE EXPLAIN THAT AS PER SECTION 48 OF THE COOPERATIVE SOCIETIES ACT, 2001, THE SOCIETY IS REQUIRED TO TRANSFER MINIMUM 25% OF PROFIT TO RESERVE FUND BEING CREATED. THUS, THE ASSESSEE CONTENDED THAT SINCE IT IS REQUIREMENT OF THE STATUTE AND NOT IN THE CONTROL OF THE ASSESSEE, THEREFORE, THE SAID TRANSFER OF 25% OF THE PROFIT TO THE RESERVE FUND IS ALLOWABLE DEDUCTION. THE AO DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE AND GIVEN THE REASO NS THAT THE ASSESSEE DO NOT FALL IN ANY OF THE SPECIFIED ENTITIES UNDER SEC TION 36(1)(VIII) OF THE ACT AND THEREFORE, THE AMOUNT TRANSFER TO THE RESERVE F UND IS NOT AN ALLOWABLE DEDUCTION. THE AO HAS FURTHER OBSERVED THAT ON THE BASIS OF THE STATUS BEING A CONSUMER COOPERATIVE SOCIETIES THE ASSESSEE HAS ALREADY CLAIMED DEDUCTION OF RS. 1,00,000/- U/S 80P (2) (C) (I) OF THE ACT WHICH WAS ALLOWED. HENCE, THE ASSESSING OFFICER DISALLOWED TH E CLAIM OF THE ASSESSEE FOR ALL THESE FOUR YEARS. ON APPEAL, THE ASSESSEE H AS REITERATED ITS CONTENTION AND ALSO RELIED UPON THE DECISION OF HON BLE MP HIGH IN CASE OF KESHKAL COOPERATIVE MARKETING SOCIETY LTD. VS. COM MISSIONER OF INCOME 165 ITR 437 (MP). THE LD. CIT(A) WAS NOT IMXPRESSED WITH THE ARGUMENT OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT IT IS AN APPROPRIATION OF PROFIT AND N OT EXPENDITURE AND THEREFORE, THE SAME IS NOT ALLOWABLE CLAIM. ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 5 5. BEFORE THE TRIBUNAL, THE LD. AR OF THE ASSESSEE HAS CONTENDED THAT AS PER THE PROVISIONS OF SECTION 48 R.W.R. 69 OF RA JASTHAN COOPERATIVE SOCIETIES ACT THE ASSESSEES SOCIETY IS REQUIRED T O TRANSFER A SUM EQUIVALENT TO 25% OF PROFIT TO THE RESERVE FUND WHI CH IS AT THE DISPOSAL OF REGISTRAR OF COOPERATIVE SOCIETIES AND NOT IN THE CONTROL OF THE ASSESSEE COOPERATIVE SOCIETY. THEREFORE, THE AMOUNTS TRANSFE R TO RESERVE FUND FOR THESE FOUR YEARS ARE IN THE NATURE OF CHARGE TO THE PROFIT OF THE ASSESSEE AS NOT AVAILABLE WITH THE ASSESSEE TO USE AS PER TH E DISCRETION OF THE ASSESSEE COOPERATIVE SOCIETY. FURTHER, THESE FUNDS WERE THEN THE TRANSFER TO THE BANK FDRS AND ALL THESE RECORDS HAVE BEEN PR ODUCED BEFORE THE AUTHORITIES BELOW TO SHOW THAT THE FUND TRANSFER TO THE RESERVE FUND IS BEYOND THE CONTROL OF THE ASSESSEES SOCIETY AND T HEREFORE, THE SAME CEASED TO REMAIN WITH THE ASSESEE. THE ASSESSEE CAN NOT WITHDRAW THE SAID FUND WITHOUT PRIOR PERMISSION OF REGISTRAR OF COOPE RATIVE SOCIETIES AND FOR SPECIFIC PURPOSE. THUS, THE 25% OF THE PROFIT TO TH E RESERVE FUND ACCOUNT DOES NOT REALLY BECOME THE INCOME OF THE SOCIETY IN THE SENSE IN WHICH THE INCOME IS UNDERSTOOD. THE AMOUNT TRANSFERRED TO THE RESERVE FUND CREATED UNDER STATUTORY REGULATION AT THE INSTANCE OF THE R EGISTRAR COOPERATIVE SOCIETIES IS AN AMOUNT DIVERTED AT SOURCE BY OVERRI DING CHARGE CREATED UNDER THE ACT. THEREFORE, IT IS STATUTORY OBLIGATIO N OF THE SOCIETY AND THE SAME IS LIABLE TO DEDUCTION IN VIEW DECISION OF HO NBLE MP HIGH COURT IN ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 6 CASE OF KESHKAL COOPERATIVE MARKETING SOCIETY LTD. VS. COMMISSIONER OF INCOME 165 ITR 437. THE AR HAS ALSO RELIED UPON THE FOLLOWING DECISIONS:- CIT VS. PANDAVAPURA SAHAKARA SAKKARE KHARKANE LTD. 198 ITR 690 (KAR). CIT VS. PANDAVAPURA SAHAKARA SAKKARE KHARKANE LTD. 174 ITR 475. COCHIN STATE POWER AND LIGHT CORPORATION LTD. VS. C IT 97 ITR (BOMBAY). CIT VS. DARBHANGA LAHERIASARAI ELECTRIC SUPPLY CORP ORATION LTD. 169 ITR (PATNA) 6. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT WH EN THE STATUTE HAS SPECIFICALLY ALLOWED THE DEDUCTION IN THE NATURE O F TRANSFER OF RESERVE FUND U/S 36(1)(VIII) THEN THE ASSESSEE UNDISPUTEDLY NOT FOLLOWING IN THE SPECIFIED ENTITIES AS PER THE SAID PROVISION IS NOT ILLEGIBLE FOR ANY DEDUCTION ON ACCOUNT OF TRANSFER OF THE AMOUNT TO THE RESERVE FU ND. THE LD. DR HAS FURTHER CONTENDED THAT IT IS IN FACT APPROPRIATION OF PROFIT AND NOT AN EXPENDITURE FOR EARNING THE PROFIT, THEREFORE, THIS CLAIM OF THE ASSESSEE IS NOT ALLOWABLE. ALTERNATIVELY THE LD. DR HAS SUBMITT ED THAT EVEN AS PER THE PROVISION OF SECTION 48 OF RAJASTHAN COOPERATIVE SO CIETIES ACT WHAT IS TO BE TRANSFERRED IN THE RESERVE FUND IS 25% OF NET P ROFIT AND NOT 25% OF GROSS PROFIT AS CLAIMED BY THE ASSESSEE. THE LD. DR HAS FURTHER CONTENDED THAT AS PER THE DETAILS FILED BY THE ASSESSEE REGAR DING THE TRANSFER OF THE ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 7 AMOUNT TO THE RESERVE FUND AND THEN TO THE BANK FDR S THE ASSESSEE HAS WITHDRAWN VARIOUS AMOUNTS FROM THE FDRS ACCOUNT AND THEREFORE, THIS CLAIM OF THE ASSESSEE IS CONTRARY TO THE RECORD THA T ONCE THE TRANSFER TO THE GENERAL RESERVE IS BEYOND THE CONTROL OF THE ASSESS EE. THE LD. DR HAS REFERRED TO PAGE NOS. 10, 15 & 17 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE HAS WITHDRAWN A SUM OF RS. 65,00,000/- FROM THE FIXED DEPOSIT ACCOUNT DURING THE MONTH OF MAY, 2010 AND F URTHER RS. 20,00,000/- IN THE MONTH OF SEPTEMBER, 2014. SIMILA RLY A SUM OF RS. 4,02,799/- WAS WITHDRAWN IN THE MONTH OF MARCH, 201 3. THUS, THE LD. DR HAS POINTED OUT THAT THERE ARE VARIOUS WITHDRAWALS BY THE ASSESSEE FROM THE RESERVE FUND/ FDRS ACCOUNT. THE LD. DR HAS SUBM ITTED THAT EVEN THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF RA JASTHAN COOPERATIVE SOCIETIES ACT AND THEREFORE, THE CLAIM IS NOT ALLOW ABLE. 7. IN THE REJOINDER THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT APART FROM THE PROVISIONS OF RAJASTHAN COOPERATIVE SOCIET IES ACT, THE BYE- LAWS OF THE ASSESSEE ALSO REQUIRE A TRANSFER OF 25% OF T HE PROFIT TO RESERVE FUND. HE HAS FURTHER SUBMITTED THAT THE AMOUNT TRAN SFERRED TO RESERVE FUND IS EQUIVALENT TO 25% OF THE NET PROFIT. THE L D. AR HAS FURTHER SUBMITTED THAT THE WITHDRAWAL FROM THE FIXED DEPOSI T ACCOUNT IS NOT FROM THE AMOUNT WHICH RELATES TO THE RESERVE FUND BUT IT WAS THE FIXED DEPOSIT ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 8 MADE BY THE ASSESSEE OVER AND ABOVE THE AMOUNT TRAN SFERRED TO THE RESERVE FUND. 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 SO CIETY IS REQUIRED TO TRANSFER 25% OF THE PROFIT TO THE RESERVE FUND WITH IN SUCH PERIOD AS MAY BE PRESCRIBED. FOR READY REFERENCE SECTION 48 OF RA JASTHAN COOPERATIVE SOCIETIES 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; 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 MEET OU T 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. ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 9 THEREFORE, IT IS STATUTORY PROVISION WHICH CONTEMPL ATES THE TRANSFER OF 25% PROFIT OF THE COOPERATIVE SOCIETIES TO THE RESERVE FUND. HOWEVER, NEITHER THE AO NOR LD. CIT(A) HAS PROCEEDED TO EXAMINE THE PROVISIONS OF RAJASTHAN COOPERATIVE SOCIETIES ACT, 2001 REQUIRING THE ASSESSEE TO TRANSFER THE PROFIT EQUIVALENT 25% TO THE RESERVE F UND. FURTHER, THE CORRENTNESS OF THE QUANTUM AS CLAIMED BY THE ASSESS EE AND ALSO THE DEPOSIT IN THE FDRS AS WELL AS WITHDRAWAL OF THE AM OUNT 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 COOPERATIVE MARKET ING 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 CONDITIONS, V IZ., ( I)THAT THE AMOUNT MUST BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF THE BUSINESS, AND (II)THAT IT SHOULD NOT BE EXPENSES OF CAPITAL NATURE. BOTH THESE CONDITIONS MUST BE COMPLIED WITH BEFORE THE A SSESSEE CLAIMS DEDUCTION FROM THE INCOME. IN THE INSTANT CASE, AS STATED AFORESAID, THE SAID AMOUNT OF RS. 1,66,763 DOES NOT COMPRISE I NCOME OF THE ASSESSEE ON ACCOUNT OF ITS BEING DIVERTED UNDER THE STATUTORY PROVISIONS OF SECTION 43(2), THEN 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 ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 10 PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'.' 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 CORP N. [1977] 106 ITR 303 (BOM.) , IT HAS BEEN HELD THAT THE CONTRIBUTIONS MADE UNDE R A LEGAL OBLIGATION CAST UPON A STATUTORY ORGANIZATION UNDER A STATUTORY PROVISION, THE SUM WILL HAVE TO BE ALLOWED AS DEDUC TION 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 INCOME OF THE ASSESSEE BECAUSE THE SAME HAVING BEEN DIVERTED UNDER THE PROVISIONS OF SECTION 43(2) AND CAN ONLY BE INVESTED OR UTILISED IN SUCH MANNER AND ON SUCH TERMS AND CONDITIONS AS MAY BE LAID DOWN BY THE REGISTRAR IN THIS BEHALF, AS REQUIRED UNDER CLAUSE (2) OF SECTION 44. AS SUCH TH E SAID AMOUNT IS NOT AVAILABLE FOR THE USE OF THE ASSESSEE-SOCIETY AT IT S OPTION. THEREFORE, THE REAL TEST FOR SUCH DEDUCTIBLE SUM IS THAT IF BY MAKING STATUTORY DEPOSITS, THE ASSESSEE LOSES CONTROL OVER THE SAID AMOUNT, BEING NOT AVAILABLE FOR ITS USE, THEN SUCH AMOUNT IS CERTAINL Y DEDUCTIBLE FROM THE INCOME 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 RETI REMENT GRATUITY, AND (C) FOR PROPOSED DIVIDENDS FROM OUT OF PROFITS AND OTHER SURPLUS, COULD BE CONSIDERED AS 'OTHER RESERVES' WITHIN THE MEANIN G OF RULE 1 OF THE SECOND SCHEDULE TO THE SUPER PROFITS TAX ACT, 1963 FOR INCLUSION IN THE CAPITAL COMPUTATION OF THE COMPANY FOR THE PURPOSE OF LEVYING SUPER ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 11 TAX. THEIR LORDSHIPS OF THE SUPREME COURT REMANDED VAZIR SULTAN TOBACCO CO. LTD.'S CASE (SUPRA) AS WAS FOUND THAT T HERE WAS NO SUFFICIENT MATERIAL ON RECORD REGARDING WHETHER THE APPROPRIATION MADE BY THE VAZIR SULTAN TOBACCO CO. TOWARDS GRATUI TY RESERVE WAS BASED ON ANY ACTUARIAL VALUATION OF WHETHER IT WAS APPROPRIATION OF AN AD HOC AMOUNT. SUCH IS NOT THE POSITION IN THE I NSTANT CASE WHEREIN SECTION 43(2)(A) SPECIALLY SPEAKS OF 'TRANSFER OF A N AMOUNT NOT LESS THAN 25 PER CENT OF SUCH PROFITS TO THE RE SERVE FUND' AND ACCORDING TO SECTION 44(2) THE SAID AMOUNT IS NOT A VAILABLE FOR THE USE OF THE ASSESSEE AND THUS THE FACTS OF VAZIR SULTAN TOBACCO CO. LTD.'S CASE (SUPRA) REFERRED TO BY THE REVENUE, ARE QUITE DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE, HENCE, OF NO AVAIL TO THE REVENUE. 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 UNDER THE STATUT ORY PROVISIONS, IS LIABLE TO BE DEDUCTED AS BUSINESS EXPENDITURE. 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 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 EITHER 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 COOPERATIVE MARKET ING SOCIETY LTD. VS. ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 12 COMMISSIONER OF INCOME (SUPRA). NO CONTRARY PRECEDE NT HAS BEEN BROUGHT TO THE NOTICE OF THE TRIBUNAL. ACCORDINGLY BY FOLLO WING THE DECISION OF THE HONBLE MP HIGH COURT THE AO IS DIRECTED THE ALLOWE D THE CLAIM OF THE ASSESSEE SUBJECT TO THE VERIFICATION OF THE QUANTUM BEING 25% OF NET PROFIT AND FURTHER TO VERIFY WHETHER THE ASSESSEE HAS COMP LIED WITH THE PROVISIONS OF RAJASTHAN COOPERATIVE SOCIETIES ACT O R NOT BY CONSIDERING THE WITHDRAWAL FROM THE SAID AMOUNT TRANSFER TO THE RES ERVE FUND AND THEN TO FDR. NEEDLESS TO SAY WHILE VERIFYING THE FACTUAL DE TAILS THE AO TO GIVE OPPORTUNITY TO THE ASSESSEE. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/11/2017. SD/- FOT; IKY JKO (VIJAY PAL RAO) U;KF;D LNL; @ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 30 /11/2017 *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. APNA BAZAR, PARAO, AJMER. 2. IZR;FKH @ THE RESPONDENT- THE ITO, WARD 1(2), AJMER. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR ITA 989 TO 992/JP/16_ AJMER SAHKARI UPBHOKTA WHOLESALE BHANDAR LTD. VS. I TO 13 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 989 TO 992/JP/16) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR