TMI Blog2013 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g them through the P L A/c . The details as mentioned by the AO in his order are as under:- (a) Statutory reserve: Opening balance as on 1-04-2006 80,99,16,594.42 Add. Amount received on sale of absolute items 7,578.00 Transferred from old balance of provisions of Branches made before 31-03-06 73,393.25 Old provisions amount of establishment a/c (11202832.40+696819.42) 1,18,99,651.82 Membership fee 4,339.00 2.3 Before the AO, it was submitted that since the above provisions pertain to earlier year when the income was exempt, therefore, reversing of provisions made in earlier year cannot be said to be the income of year in question. The contention of the assessee was not found acceptable by the AO. The above provisions have been made out of the profit and therefore, the excess provisions ,if any, has to be accounted for as per the method of accounting of the assessee. The AO therefore, held that a sum of Rs. 1,18,99,651/- is added back to the income of the assessee. 2.4 Before the ld. CIT(A), it was submitted that income of the assessee was exempted u/s 80P(2) in all the earlier years and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from exempt income or taxable income and not includible as income when written off or transferred in any Reserve as it does not partake character of income of the year. In the case of assessee also the provision brought forward from earlier year which is transferred in Statutory Reserve cannot be considered and assessed as income of the year. The provision whether made out of exempted profits or from taxable profits is not relevant at all. It is also not required in law that excess provision when written back should be routed only through P L A/c and cannot be directly transferred to any Reserve account of assessee. Even for argument sake if it is taken that excess provision is to be written back through P L A/c in that case also it has to be excluded for computation of income for the year being not pertaining to the year. In no case an old provision made in earlier years and, brought forward in books of accounts of the year can be considered or assessed as income of assessee of the year or of any future year. 2.8 We have heard both the parties. Before us, the ld. AR has filed the page 1 of copy of the return form and the statement of assessable income for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions 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. 2.9 It is well settled law that entries in the books of accounts are not conclusive. One has to ascertain the taxability on the basis of the provisions of Income Tax Act. Crediting the amount in the balance sheet will not decide the issue that such credits cannot be added to the income. The Hon'ble Apex Court in the following cases have held that book entries are not conclusive. 1. Kedarnath Jute Mfg. Co. Ltd. Vs. CIT,, 82 ITR 363 (SC) 2. CIT Vs. Indian Discount Co. Ltd. 75 ITR 191 (SC) 3. Satluj Cotton Mills Ltd. Vs. CIT, 116 ITR 1 (SC) 4. CIT Vs. Tuticorin Alkali Chemicals Fertilizers Ltd. 227 ITR 172 SC 5. CIT Vs. Shoorji Vallabhdas Co. , 46 ITR 144 (SC) 6. CIT Vs. Triveni Engineerng Industries Ltd. 181 Taxman 5 (Del.) Thus the issue is not to be decided simply on the basis that the entrires have been made in the balance sheet and not in the P L A/c. We are not having sufficient details to decide the issue before us as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Registrar of Cooperative Society. The ld. CIT(A) after considering the contention of the assessee allowed the liability after observing as under:- Allowability of contribution by the Apex Bank for PAC Managers salary is a statutory liability which is crystallized at the end of every year. The contribution however once made become at the disposal of Registrar of Cooperative Society which is payable as and when demanded by Registrar of Cooperative Society alongwith interest on it. Thus, it is not contingent liability but a statutory liability which is crystallized at the end of every year and hence the liability is allowable. 3.4 During the course of proceeding before us, the ld. DR drew our attention to the copy of Rules of the Cooperative Societies, selection of managers filed b the ld. AR The ld. DR drew our attention to page 14 of the paper book. If the amount of salary paid to the Managers or Samiti is less than 75% of the income of the samiti then the salary is to be paid from the funds to which the banks have to make contribution. Such payment is from the fund as loan to the samiti at a interest of 4% and the amount is receivable within a maximum period of 10 years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. Vs. CIT, 223 ITR 101 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, (Supra) is not applicable. The Hon'ble Apex Court held that 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 therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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