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2013 (9) TMI 38 - ITAT JAIPURMethod of accounting - Routing of provisions through P & L A/c - Transfer of excess provision made earlier years directly to Statutory reserve - CIT deleted addition made by AO holding that as per Act, there is no restriction that the provisions should always be routed through P & L A/c - Held that:- The intention of the assessee is that the amounts which have now been transferred from provisions to reserve funds were added back in earlier year. However, the amount credited to reserve from the provisions has not been identified in respect of the provisions credited for a particular assessment year. The carried forward provision has been debited and reserve fund has been credited. In case the amounts which have now been transferred from provision to reserve has been added back in the year in which such provision was credited then the same cannot be taxed now in the assessment year when the same is being transferred from provision to reserve. There must be some correspondence to show as to why provisions is being transferred to reserve as it is not required for meeting the liability. We are not aware as to how the assessees is crediting amount under reserve and provisions by the assessee. Since the accounts are being audited and are being prepared as per Reserve Bank of India guidelines therefore, we feel that the reserve and surplus are made by the assessee as understood in commercial parlance - Following decision of CIT Vs. State Bank of Patiala [1996 (3) TMI 128 - SUPREME Court] - Sufficient details not available - matter remanded back to AO to re adjudicate the issue. PACS (Primary Agricultural Cooperative Society) Manager salary - contingent liability or statutory liability - diversion of income by overriding title - Held that:- The Hon'ble Apex Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. Vs. CIT, [1996 (10) TMI 2 - SUPREME Court] has stated that it is to be seen as to whether the payment is compulsory for the assessee to make or not but whether it was expended out of consideration of commercial expediency. Any contribution made by the assessee to a fund which directly connected or related to carrying on assessee’s business or which results in benefit to the assessee's business has to be regarded as deduction allowable u/s 37 of the Act. The decision of Hon'ble Apex Court in the case of Associated Power Co. Ltd. Vs. CIT, (1995 (11) TMI 5 - SUPREME Court) is not applicable. Application of the doctrine of diversion of income by reason of overriding title is not applicable in that case as the reserve is out of the revenues of the undertaking and reach the electricity company and is not diverted away from it. However, in the instant case, the amount is to be contributed to a fund and the fund is not being managed by the assessee. The assessee may be trustee of that fund but it cannot apply the fund as per his own will. The interest, if any, earned on this fund is also to be credited to that fund. It is therefore, clear that funds stand diverted at the source and therefore, this cannot be considered as an appropriation of income but it is an expenditure. - Decided against the revenue.
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