NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT, MUMBAI V. ADDL CIT RG 3(2), MUMBAI

MA 292/MUM/2022

AI Insights

The case revolves around the National Bank for Agriculture and Rural Development (NABARD) contesting the disallowance of expenditure incurred on promotional activities amounting to Rs.82.92 crores for the assessment year 2010-11. The expenditure included Rs.44.70 crores from the Watershed Development Fund. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) disallowed the claim, stating that NABARD was recognized as an eligible entity under section 36(1)(xii) of the Income Tax Act only from the assessment year 2013-14. NABARD argued that the eligibility should apply retrospectively, citing a precedent from the Delhi High Court in Maruti Suzuki India Ltd vs. Union of India. The Tribunal initially did not accept this argument but acknowledged a factual error in their previous understanding, leading to the rectification of the mistake in paragraph 30 of their order. However, the Tribunal did not allow the retrospective application of the notification and restored the alternative claim under section 37(1) to the AO for further examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123924 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 14-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 16-10-2022
• Other Referred Cases: Maruti Suzuki India Ltd vs. Union of India (2017)(84 taxmann.com 45)(Delhi)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Diversion of income
• Section: 37(1); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘B’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Shri Kuldip Singh (JM) M.A. No. 292/Mum/2022 in I.T.A. No. 3344/Mum/2016 (A.Y. 2010-11) National Bank for Agriculture and Rural Development C-24, G-Block, BKC, Bandra East, Mumbai-400 051. PAN : AAACT4020G V s. DCIT 3(2)(2) Room No. 674 6 th Floor Aayakar Bhavan M.K. Road Mumbai-400 020. (Appellant) (Respondent) Assessee by Shri Jehangir D. Mistri & Shri Niraj Sheth Department by Dr. Samuel Pitta D ate of He a r ing 16.12.2022 D ate of P r onou nc em en t 15.06.2023 O R D E R Per B.R.Baskaran (AM) :- The assessee has filed this miscellaneous application submitting that there are mistakes apparent from record in the order dated 24.08.2022 passed in the appeal of the assessee in ITA No.3344/Mum/2016 relating to AY 2010-11. 2. The errors pointed out on the decision rendered by the Tribunal relate to the issue of “disallowance of expenditure incurred on promotional activities”. 3. The Ld A.R submitted that the assessee had claimed a sum of Rs.82.92 crores (which included a sum of Rs.44.70 crores spent out of Watershed Development Fund) as expenditure towards promotional activities u/s 36(1)(xii) of the Act. The AO noticed that the assessee was notified as an eligible entity u/s 36(1)(xii) with effect from AY 2013-14 only and hence National Bank for Agriculture and Rural Development 2 disallowed the above said claim. The Ld CIT(A) also confirmed the same. The Ld A.R submitted that the assessee had contended before the Tribunal that the notification so issued by CBDT will apply retrospectively and accordingly, it would apply to the present year under consideration, viz., AY 2010-11. In support of the above contentions, the assessee had relied upon the decision rendered by Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd vs. Union of India (2017)(84 taxmann.com 45)(Delhi), which dealt with the issue of “approval of scientific research facility” u/s 35(2AB) of the Act. The Hon’ble Delhi High Court has held that the approval of the facility subsequent to the closure of the financial year will not disentitle the assessee from claiming deduction u/s 35(2AB) of the Act. He submitted that the ratio of above said decision shall squarely apply to the deduction claimed u/s 36(1)(xii) of the Act also. However, the Tribunal has held that the above said decision rendered by Hon’ble Delhi High Court is distinguishable and refused to follow the same. The Ld A.R submitted that the same constitutes mistake apparent from record and needs rectification. 4. The Ld A.R submitted that the assessee had put up alternative contention that, if the above said expenditure is held to be not deductible u/s 36(1)(xii) of the Act, then the same should have been allowed u/s 37(1) of the Act. The Ld A.R submitted that the Tribunal has not adjudicated the alternative contention of the assessee. 5. The Ld A.R submitted that the Tribunal has confirmed the addition by making certain observations in paragraph 30 of the order, i.e.,, the expenditure incurred under Watershed Development Fund relate to the income, which has held to be a case of diversion of income by overriding title. The ld A.R submitted that it is nobody’s case that the expenditure claimed by the assessee relate to the income, which has been held to be a case of diversion of income. The Ld A.R submitted that the contribution to National Bank for Agriculture and Rural Development 3 Watershed development fund was made by both the Government and the assessee. He submitted that the assessee did not claim expenditure relating to the Contribution made by the Government, since income from Government’s contribution was held to be case of diversion of income by overriding title. Hence, the expenditure claimed by the assessee relates to its own contribution, whose income has been subjected to tax. Accordingly, he submitted that the Tribunal has committed an error in understanding this factual aspect and accordingly prayed that the observations made in Paragraph 30 constitutes mistake apparent from record. 6. Accordingly, he prayed for rectification of above said mistakes. 7. The Ld D.R, on the contrary, opposed the petition filed by the assessee. He submitted that the Tribunal has taken a view of the matter and hence the same cannot be rectified u/s 254(2) of the Act. 8. We heard rival submissions and perused the record. With regard to various submissions made by the assessee, we hold as under:- (a) With regard to the paragraph 30 of the order passed by the Tribunal, we notice that the Tribunal has made the observation out of context without correctly appreciating the facts, as submitted by the Ld A.R. As contended by him, it is nobody’s case that the promotional expenditure claimed by the assessee u/s 36(1)(xii) is attributable to Government’s contribution. Accordingly, the observations made in paragraph 30 constitutes mistake apparent from record. Accordingly, we omit paragraph 30 of the order. (c) With regard to the contention of the Ld A.R that the notification issued u/s 36(1)(xii) shall have retrospective application, we notice that the Tribunal has passed a detailed order and has expressed a view on this issue. Hence the plea of the assessee would result in review of the order so passed by the Tribunal, which is not permitted u/s 254(2) of the Act. Accordingly, we reject this contention of the assessee. (d) With regard to the alternative contention raised that the said expenditure is allowable u/s 37(1) of the Act, we notice that the Tribunal has not adjudicated the same. Accordingly, following paragraph shall be inserted as paragraph no.30 in the impugned order:- National Bank for Agriculture and Rural Development 4 “30. The assessee has raised an alternative contention that the expenditure claimed u/s 36(1)(xii) of the Act is allowable u/s 37(1) of the Act. Since the AO has not examined this issue under the provisions of sec. 37(1) of the Act, we restore this issue to the file of AO for examining the same.” 9. Accordingly, the miscellaneous petition filed by the assessee is disposed of. 10. In the result, the miscellaneous petition filed by the assessee is partly allowed. Pronounced in the open court on 15.6.2023. Sd/- Sd/- (KULDIP SINGH) (B.R. BASKARAN) Judicial Member Accountant Member Mumbai; Dated : 15/06/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(Judicial) 4. PCIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai