TMI Blog2008 (3) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are primary co-operative societies, and which in turn collect milk from their members, who are cattle owners. The return for asst. yr. 1993-94 was filed on 31st Oct., 1993 showing loss of Rs. 3,20,305. In the assessment order passed under s. 143(3) on 22nd March, 1996, the AO, assessed the total income at Rs. 1,85,70,887 after making, inter alia, three disallowances/additions as under: -------------------------------------------- S.No. Disallowance / Addition -------------------------------------------- Particulars Amount -------------------------------------------- 1. Animal husbandry expenses 1,26,21,236 -------------------------------------------- 2. Cattle feed unit-Loss 28,61,328 -------------------------------------------- 3. Advertisement expenses 1,35,287 -------------------------------------------- 3. The CIT(A) deleted the above disallowances/additions and his order has been challenged by the Department in the present appeal. The grounds of appeal filed by the Department with Form No. 36 on 24th June. 1998 were subsequently concised/redrafted vide letter dt. 29th July, 2005. Ground No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blication unit - that the expenses were incurred in terms of cl. 6 of Bye Law No. 6, which says, "making available facilities regarding veterinary, medical help and artificial fertilization and making available medicine and to make arrangement for animal insurance". - that the letter issued by the Ministry of Agriculture, Government of India, says that "the State Government, Federations and Union(s) will comply with all the terms and conditions specified by the Government of India, the NDDB and the World Bank, the EEC and other funding agencies for release of grants and/or loans under Operation Flood II for the project area." - that reliance was placed on the decisions in the following cases. (i) State of Madras vs. G.J. Coelho (1964) 53 ITR 186 (SC); (ii) Dy. CIT vs. Churu Zila Sahakari Dugdh Utpadak Sang Ltd. (2004) 82 TTJ (Jd) 446; (iii) Kaira District Co-operative Milk Producers Union Ltd. vs. CIT (2002) 172 CTR (Guj) 212. 5. Shri Pradeep Sharma, the learned Departmental Representative supported the order of the AO. He vehemently argued saying that the order of the CIT(A) be reversed and that of the AO be upheld. 6. We have considered the rival submissions in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as Operation Flood II. 9. The CIT(A) has, inter alia, noted in para 3.12 of his order that the assessee provided free/subsidized technical support services to the farmers/producers in the area of animal health, as per the guidelines laid down by the NDDB, that the expenditure was aimed at strengthening of infrastructure which was to contribute in increasing the collection of milk, that the overall turnover of the assessee had gone up considerably over earlier years, that the nexus between the appellant's business arid the health of the cattle owned by the farmers could not be lost sight of, that there was no material on record to show that the genuineness of the impugned expenditure could be doubted. He therefore, held that the expenditure relating to animal husbandry was one which was laid out wholly and exclusively for the purposes of the assessee's business. 10. The CIT(A), while allowing the assessee's claim placed reliance, inter alia, on the decisions in the following cases: (i) Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC); (ii) CIT vs. Delhi Safe Deposit Co. Ltd. (1982) 26 CTR (SC) 411 : (1982) 133 ITR 756 (SC); (iii) State of Madras vs. G.J. Coelho. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, when the whole transaction of purchase and the working of the plantations was viewed as an integrated whole, was so closely related to the plantations that the expenditure could be said to be laid out or expended wholly and exclusively for the purpose of the plantation. In principle there was no distinction between interest paid on capital borrowed for the acquisition of a plantation and interest paid on capital borrowed for the purpose of an existing plantation; both are for the purpose of the plantation. 15. In the case of CIT vs. Delhi Safe Deposit Co. Ltd., the Supreme Court held as under: "The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. The expenditure incurred on the preservation of a profit-earning asset of a business is always a deductible expenditure." 16. In the case of Dy. CIT vs. Churu Zila Sahakari Dugdh Utpadak Sang Ltd., the activity of the assessee society was to collect milk from member societies at a reasonable rate, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curring the above expenditure and that it was not 'necessary' for the assessee to incur this expenditure in order to carry on its business of purchase and sale of milk. But such an argument is not relevant for deciding the question whether an expenditure is allowable under s. 37(1) of the Act. The expression 'wholly and exclusively', used in s. 37(1) of the Act, does not mean 'necessarily'. It is for the assessee to decide whether an expenditure should be incurred in the course of his business, An expenditure may be incurred 'voluntarily' and without any 'necessity' and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 37(1) of the Act even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 37(1) of the Act. 21. Further, it is nobody's case that the impugned expenditure incurred by the assessee society was either benefiting the cattle owners of Punjab or the apple growers of Himachal Pradesh. The expenditure did benefit the assessee's bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain expenses incurred on supply of pesticides to sugarcane growers at a concessional rate. The AO did not accept the claim of the society, but the Tribunal accepted it. The Punjab Haryana High Court, while upholding the Tribunals decision, observed that it could not be disputed that the assessee needed sugarcane, that there was not even an iota of evidence which might indicate that the sugarcane was being supplied by the concerned farmers to any other sugar mill, that if sugarcane was the basic raw material for production of sugar, the expense on supply of pesticides at concessional rates was directly connected with the assessee's business, and was deductible. 25. We have considered the rival submissions in the light of material on record and the precedent cited. The C1T(A) while allowing the assessee's claim observed in para 4.9 of his order, saying, inter alia, that profit motive could not be the sole criteria for incurring expenses pertaining to business, that in earlier years the assessee had shown profits from the cattle feed unit and the AO had included the same in the computation of income of the assessee. In view of the facts and circumstances discussed above we agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heques/drafts. and that the genuineness of the payment was not in doubt. The CIT(A) allowed the claim and we see no infirmity in his order. Also, this view gets support from the decision of the Bombay High Court in the case of Shree Panchaganga Sahakari Sokhar Karkhana Ltd. The ground No. 3 is accordingly rejected. 30. In the result the appeal filed by the Department for asst. yr. 1993-94 is dismissed. C.O. No. 19/Pn/1999: Asst. yr. 1993-94 31. Shri S.N. Inamdar, the learned Authorised Representative did not press the cross-objection filed by the assessee and therefore it is rejected. ITA No. 693/Pn/2001: Asst. yr. 1995-96 Ground Nos. 1 and 2 1. Animal husbandry (i) On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the expenditure on Animal Husbandry made by the assessee to the non-members which was not incidental to the business of the assessee society, particularly when the assessee is a federal society engaged in collection of milk from primary societies and the primary societies are its members and not of the cattle owners. (ii) On the facts and in the circumstances of the case and in law, CIT(A) erred in allowing the Ani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee loosely, in general commercial sense as normally understood in the trading society, since payments were made to the co-operative Department of the State through the Registrar in exchange for the services of the auditors availed of by the assessee. Levy of audit charges was nothing but the price required or demanded for the services rendered by Government auditors. The provisions of s. 43B do not apply to Government audit charges. Thus, disallowance of Rs. 1,63,925 on account of outstanding Government audit fees could not have been done by the AO nor could the same have been affirmed by the CIT. The Tribunal rightly allowed the same." 35. The facts of the case in the present appeal are identical and therefore we follow the precedent and reject the ground No. 3. 36. In the result the appeal filed by the Department for asst. yr. 1995-96 is dismissed. ITA No. 862/Pn/2001: Asst. yr. 1996-97; ITA No. 863/Pn/2001 : Asst. yr. 1997-98; ITA No. 864/Pn/2001 : Asst. yr. 1998-99; ITA No. 20/Pn/2003: Asst. yr. 1999-2000 and ITA No. 955/Pn/2005 : Asst. yr. 2001-02. 37. In these appeals by the Department an identical ground has been raised as under: 1. Animal husbandry ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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