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Mula Sahakari Sakhar Karkhana Ltd. Versus DCIT, Ahmednagar Circle, Ahmednagar

2016 (1) TMI 572 - ITAT PUNE

Addition on account of collection towards Area Development Fund - Held that:- The amount collected under the Area Development Fund is not a trading receipt in the hands of the assessee. The AO is accordingly directed to delete the addition. See Loknete Balasaheb Desai Sahakari Sakhar Karkhana Ltd. Vs. DCIT [2014 (9) TMI 264 - ITAT PUNE] - Decided in favour of assessee. - ITA Nos.1021, 1022/PN/2014 - Dated:- 26-10-2015 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri K. Sr .....

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e CIT(A) in confirming the addition made by the AO on account of collection towards Area Development Fund amounting to ₹ 6,95,775/- in A.Y. 1992-93 and ₹ 16,44,743/- in A.Y. 1994-95. 3. First we take up ITA No.1021/PN/2014 for A.Y. 1992-93 as the lead case. Facts of the case, in brief, are that original assessment for the impugned assessment year was completed u/s.143(3) on 30-09-1994 on total income of Nil after set off of unabsorbed losses. While completing assessment the deduction .....

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the assessee and after considering the submissions concluded that the asessee Karkhana has not incurred any expenditure out of the Area Development Fund. He accordingly did not allow any deduction on account of Area Development Fund. The CIT(A) vide his order dated 11-01- 2009 upheld the view taken by the AO. On further appeal the Tribunal following the decision in the case of Loknete Balasaheb Desai Sahakari Sakhar Karkhana Ltd. Vs. DCIT reported in 148 ITD 0372 (Pune) directed the AO to decid .....

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d 4. Whether Area Development Fund receipts were at all an income of the assessee specially if it was impressed with a specific legal obligation to be spent for specified purposes. 4. The AO accordingly asked the assessee to furnish the information in the light of the aforesaid questions. After considering the various submissions made by the assessee the AO held that the collection towards Area Development Fund bears the character of income and therefore addition of ₹ 6,95,775/- made by th .....

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rder dated 27- 07-2010 wherein it has been held that Area Development Fund is to be treated as the receipts in the hands of the SSK. He further noted that it is also clear from the order of the State Government that Sugar Factories can utilize the fund for any purpose with the approval of the director of Sugar and therefore it cannot be said that the receipts are to be earmarked for any specific purposes. The SSKs concerned exercise dominion over the fund and can deal with the money subject of c .....

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e Pune Bench of the Tribunal in the case of Loknete Balasaheb Desai Sahakari Sakhar Karkhana Ltd. Vs. DCIT reported in 148 ITD 0372 (Pune) wherein it has been held that amount collected under the Area Development Fund is not trading receipt in the hands of the assessee when such fund is impressed with obligation to spend same for specified purposes. He accordingly submitted that this being a covered matter the ground raised by the assessee should be allowed. 8. The Ld. Departmental Representativ .....

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the hands of the assessee when such fund is impressed with obligation to spend the same for specified purposes. Accordingly, the Tribunal directed the AO to exclude fully the amount included towards Area Development Fund in the income of the assessee. The relevant observation of the Tribunal from para 15 onwards reads as under : 15. Before us the argument of the assessee is that the collection made by the assessee towards the ADF is impressed with the specific obligation to spend the same for sp .....

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s Directorate is obtained. In the said letter the view of the Sugar Factories were also called for. So this is a beginning when the Govt. machinery started to have the controlled and the collections made by the Sugar Factories towards ADF. The National Co-operative Development Corporation (Sugarcane Division), New Delhi vide letter dated 28-04-1977 issued to all the Co-operative Sugar Factories had made a difference in respect of Area Development Programme. It is impressed in the said letter tha .....

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nd Textile, Govt. of Maharashtra issued order dated 18-09-1989 u/s. 79A of the MCS Act and gave the directions in respect of the modality of the collection of the fund and its uses. The Sugar Co-operatives were directed that the deductions made towards the ADF are to be generally used in accordance to the guidelines from time to time issued by National Cooperative Development Corporation (NCDC), New Delhi as well as by the Govt. for following purposes as per priority decided by the Board of Dire .....

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g (e). Financial assistance for Drought Relief, Natural Calamities and various Economic Development Programmes implemented by Central and State Governments as per their policies. (f). For purposes (a) to (e) above but outside area of operation and financial assistance for other specified programmes. (g. Programmes for benefit of Members. 16. The Sugar Factories were directed to comply the following terms and conditions: (a). Members should be informed in General Meeting as to how and for what pu .....

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ldar. (c). The said fund, as far as possible, be used within one year from the time they are credit with the factory. If for any reason they cannot be so utilized, they may be utilized in next year. (d). Separate account be maintained for this fund and the same should be got audited from the auditor. (e). Every year information on utilization of this fund should be submitted to the Director of Sugar, Government of Maharashtra, Pune. (f). If the funds are to be used outside area of operation or a .....

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he balance sheet under specific head i.e. Area Development Fund. We also find that the assessee sugar factory has to get the approval of the members of the assessee society in the annual general meeting and then only the ADF can be utilized. The assessee has filed some of the resolution in the compilation from which it is seen that the ADF is used for giving incentive for primary school, incentive for wrestlers, help to persons affected by fire, incentive for wage, road developments, medical ass .....

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promoted for Socio-economic Development in the area of operation and this fund is distinct from the Cane Development Fund. 18. Now the question before us is whether this collection made towards ADF by the assessee sugar factory is impressed with the specific obligation or assessee hold this money as a trustee as held in the case of Bijlee Cotton Mills (P.) Ltd. (supra)? Our answer is yes. In this case, even if initially it was by way of discretion the Sugar Cooperative factories were collecting .....

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ual general meeting (AGM). The assessee has to submit the report every year in respect of the collection and utilization of the amount under the ADF to the Government. Nowhere, it is the case of the Revenue that any money is diverted by the assessee sugar factory for any other purpose other than approved in the AGM of the members. Merely because the amount collected is not kept separately in the bank account, the character of the amount will not change as held in the case of Bijlee Cotton Mills .....

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