TMI Blog2016 (4) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... squarely applicable to the facts of the case. Even assuming that it is only re-adjustment of claim already made, such re-adjustment is not possible in the proceedings of re-assessment. The assessee can have recourse to any other provisions of the Income-tax Act, 1961. - ITA No.1372/Bang/2014 - - - Dated:- 29-2-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri Bharath L, CA. For The Respondent : Shri Sanjay Kumar, CIT(DR). ORDER Per INTURI RAMA RAO, AM : This appeal filed by the assessee-co-operative bank, is directed against the order of the learned Commissioner of Income-tax- (Appeals)-II [CIT(A)], Bangalore, dated 31/7/2014 for the assessment year 2007-08. 2. The assessee raised the following grounds of appeal: 1. The order of the Learned Appellate Authority is bad in law. 2. The Learned Appellate Authority erred in confirming the action of Learned Assessing Officer in not considering the Appellant's claim ₹ 33,93,782/- towards Rural Farmers Socio Economic Development Fund, 3. The Learned Appellate Authority erred in confirming the action of Learned Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.32,75,52,073 Total Rs.32,75,52,073 Less: Dep. As per income tax Act ₹ 1, 07,13,384 Less: 7.5% for BDDR ₹ 3,37,75,410 ₹ 4,44,89,794 Taxable Income ₹ 41,65,63,391 The assessee s returned income is only 40,77,27,150/-. Further, the assessee has claimed deduction from certain funds viz., Common Good Fund ₹ 25,00,000 Special Assistance Fund ₹ 1,00,00,000 PACS/DCCB Fund ₹ 50,00,000 Rural Farmers Social Economic Dev.Fund ₹ 1,35,00,000 The assessee is not entitled to claim the above deduction as these are the funds created out of distributed profit. Hence cannot be allowed as deduction as per the Income tax Act. I am, therefore, satisfied that income chargeable to tax has escaped assessment. Proceedings u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of contribution made to (a)Common Good Fund, (b)Special Assistance Fund, (c)Payment to PACS/DCCB Fund and (d)Rural Farmers Socio Economic Development Fund, the assessee-co-operative bank had claimed deduction of actual amounts spent out of provision created. It was submitted that it was a statutory obligation to spend money for the above purposes as the provisions of the Karnataka Co-operative Societies Act stipulates that certain percentage of profits should be spent towards the specified purposes. The amounts are spent only as a statutory obligation and it was also further submitted that the amounts were spent only to promote the business interest of the assessee-co-operative bank and therefore, they should be allowed as deduction under the provisions of sec.37(1) of the Act. As regards the additional claim of deduction on account of loss of securities of ₹ 8,28,65,052/- it was submitted that it was not a fresh claim but only re-adjustment of the already made claim in the original proceedings. Therefore, the ratio of the decision of the Hon ble Supreme Court in the case of Sun Engineering Works (supra) is not applicable. 6.2 On the other hand, ld.CIT(DR) vehemently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice during the year, it is plain that the real net profit is only 9,000. The above principle was followed subsequently by the Hon ble Supreme Court in the case of Poona Electric Supply Co. Ltd. V.s CIT (57 ITR 521) and this principle was re-iterated again by the Hon ble Supreme Court in the case of CIT vs. Travancore Sugars Chemicals Ltd. (90 ITR 307). Thus, the principle laid down in all the above cases is that though an amount of expenditure is ascertained with reference to profits, it does not lose the character of expenditure. Therefore, the reasoning adopted by the AO and the ld. CIT(A) cannot be accepted. 8. However, we have to examine the issue from the view of allowability of this expenditure under the provisions of section 37(1) of the Act. The provisions of section 57 of the Karnataka Co-operative Societies Act, 1959 stipulate that 2% of its net profit shall be contributed towards Co-operative Education Fund and it further stipulates that no dividend shall be declared without contributing to the Co-operative Education Fund and it also further stipulates that the net profit of a co-operative society shall be determined only in accordance with rules and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure or in the nature of personal expense or expenditure described in any other sections in chapter IV. The only controversy is whether the amount spent out of above funds is an expenditure laid out wholly and exclusively for the purpose of business . The expression for the purpose of business had come up for interpretation before the Hon ble Apex Court in the case of CIT vs. Malayalam Plantations Ltd. (53 ITR 140) wherein it was held that the expression for the purpose of business is wider in scope than the expression for the purpose of earning profits . It may include not only the day-today running of business but also rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. The only limitations that the purpose should be for the purpose of the business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage. In the circumstances, we hold that the expenditure incurred by the State Bank of India in giving subsidies to the State Bank of Saurashtra, the State Bank of Patiala, etc., under section 48(1) of the said Act of 1959, represented revenue expenditure. Lastly, we may mention that in the case of Empire Jute Company Ltd. v. CIT [1980] 124 ITR 1, it has been held by the Supreme Court that what may be a capital receipt in the hands of the payee, need not necessarily be capital expenditure in relation to a payer. In the circumstances, there is no merit in the argument of the Department that because the subsidy is not income in the hands of the payee, it cannot be revenue expenditure in relation to the payer. 8.5 Thus viewed from this angle, the amounts spent cannot be disallowed. The reliance placed by the ld.CIT(DR) on the decision of the Hyderabad bench of Tribunal in the case of A.P.Mahesh Cooperative Urban Bank Ltd (supra) rests on the decision of the Hon ble Supreme Court in the case of Vellore Electric Corporation Ltd. Vs. CIT (227 ITR 557). On perusal of the said decision, it is clear that the decision is relating to creation of reserve fund which always remained wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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