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2016 (4) TMI 871 - ITAT BANGALORE

2016 (4) TMI 871 - ITAT BANGALORE - [2016] 46 ITR (Trib) 728 - Expenditure incurred towards fund - Held that:- The amounts spent cannot be disallowed. We, direct the AO to allow the amount spent on the above fund as deduction while computing income of the assessee-co-operative bank.

Allowance of additional claim on account of loss on sale of securities - Held that:- It is undisputed fact that this claim was made only in the return of income filed in response to notice u/s 148. The iss .....

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Hon’ble Supreme Court in the case of Sun Engineering (1992 (9) TMI 1 - SUPREME Court ) is 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 Appella .....

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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 in not considering the Appellant's claim ₹ 5,27,50,000/- towards PACS/DCCB Fund. 4. The Learned Appellate Authority erred in confirming action of Learned Assessing Officer in not considering the Appellant's claim ₹ 5,00,00,000/- towards .....

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provisions of the Karnataka State Cooperative Societies Act, 1959 and under the Banking Regulation Act, 1939. It is engaged in the business of banking. The main object for which the assessee-co-operative bank was established was to serve as a State Co-operative Bank. Return of income for the assessment year 2007-08 was filed on 31/10/2007 declaring income of ₹ 40,77,27,150/-. The said return of income was processed u/s 143(1) of the Income-tax Act, 1961 [ the Act for short]. There was no s .....

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ever, the taxable income is calculated as under from the profit and loss account available on records. Net profit as per profit and loss account … Rs.13,35,00,112 Add Provision for tax Rs.12,00,00,000 Add Depreciation ₹ 84,44,123 Add NPA Rs.12,00,00,000 Add Any Other u/s 28 to 44DA ₹ 7,91,07,95 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 … ₹ 4 .....

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re, satisfied that income chargeable to tax has escaped assessment. Proceedings u/s 147 of the Income tax initiated. Issue notice u/s 148 of the Income tax Act. 4. The assessee-co-operative bank filed return of income in response to notice u/s 148 on 13/9/2012 declaring a total income of ₹ 36,19,77,100/-. After issuing notice u/s 143(2), the assessment was completed by the AO u/s 143(3) r.w.s. 147 vide order dated 30/3/2013 at a total income of ₹ 51,71,70,670/-. While doing so, the A .....

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f ₹ 8,28,65,052/- made in the return of income filed in response to notice u/s 148 by holding that the re-assessment proceedings are only for the benefit of the revenue. In support of this proposition, reliance was placed by the AO on the decision of the Hon ble Supreme Court in the case of Sun Engineering Works (198 ITR 297). 5. Being aggrieved by the above order, an appeal was filed before the ld. CIT(A) who, vide impugned order, confirmed the additions made by the AO. The ld. CIT(A) con .....

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at during the previous year relevant to assessment year under consideration, while adding back the provisions 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-ope .....

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- 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 opposed the submissions of the learned AR of the assessee-co-operative bank and submitted that the issues in appeal are squarely covered by the decision of the Hyderabad bench of Tribunal in the cas .....

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enue that the above expenditure is capital in nature. The lower authorities had disallowed the above expenditure solely on the ground that it is only appropriation out of profits and not expenditure. The approach of the lower authorities cannot stand the test of law laid down by the Privy Council in the case of Indian Radio Cable Communications Co. Ltd. Vs. CIT (5 ITR 270) wherein it is laid down that when the assessee makes a payment which is computed in relation to profits, it is still an item .....

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on the profits of a company. It may, however, be worth pointing out that an apparent difficulty here is really caused by using the word 'profits' in more than one sense. If a company having made an apparent net profit of £10,000 has then to pay £1,000 to directors or managers as the contractual recompense for their service 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 t .....

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ine 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 .....

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sed for all or any of the following purposes namely. a) dividend on share as fixed h the Board he paid to the members. b) Of the remaining balance a sum not less than 15% shall be contributed to the Agricultural Credit Stabilisation Fund. c) Of the remaining balance, a sum not less that 15% shall be contributed to the Bad and Doubtful Debt Reserve Fund. d) Of the remaining balance, a sum not less than 2% shall be contributed to the Bad and Doubtful Debt Reserve Fund. e) Of the remaining balance, .....

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ed to Reserve Fund of the Bank. 8.2 Pursuant to the above by-law, during the year under consideration, assessee-co-operative bank has spent the above sum. From perusal of the scheme of the above funds, it is clear that the fund contributed neither remains with the Apex Co-operative Bank nor comes back to the assessee-co-operative bank in other form. The amounts are spent only out of statutory obligation. The provisions of section 37(1) provides for deduction of any expenditure laid down or expen .....

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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 .....

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only limitations that the purpose should be for the purpose of the business, that is to say, the expenditure incurred should be for the carrying on of business and the assessee should incur it in his capacity as a person carrying on the business. It cannot include sums spent for purpose unconnected with the business, Therefore, the question that requires consideration in this case is whether the contribution to the education fund under section 68 of the Maharashtra Co-operative Societies Act is .....

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penditure should result in profit. In this connection, reference may be made to the decision of the Hon ble Apex Court in the case of CIT vs. Rajendra Prasad Moody (115 ITR 519). It may be further stated that one of the objects of the assessee-co-operative bank is to develop or assist and co-operative the member district central co-operative banks and other co-operative societies and therefore the contribution was only made in further pursuance of the objects of the bank for which it was establi .....

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deduction by holding as under: Lastly, by giving subsidy to the State Bank of Patiala, the State Bank of Saurashtra, etc., for opening branches, assets were created, but these assets belonged to the subsidiaries. The assets did not belong to the State Bank of India. Similarly, profits were earned by the subsidiaries and not the State Bank of India. At the highest, by giving subsidy under section 48(1) of the Act, the State Bank of India got a business advantage. In the circumstances, we hold tha .....

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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. .....

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