Feedback   New User   Subscription   Demo   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

M/s Bijaynagar Kraya Vikrya Sahakari Samiti Ltd. Versus The ITO, Ward-1, Beawar

2018 (2) TMI 507 - ITAT JAIPUR

Revision u/s 263 - deduction u/s 80P allowability - change of opinion - allowability under section 40A(9), section 37(1) and diversion by overriding title - revision permissible merely on audit objection - rule of consistency - Held that:- Deduction claimed under chapter VIA is held to be allowable for the year under consideration. This shows clearly that claim of deduction under section 80P has been examined and thereafter, it has been allowed. We are therefore of the view that in absence of an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er application of mind by the AO. The AO having reproduced the entries of general and education reserve as appearing in the profit/loss appropriation account, should have applied his mind to determine firstly, whether the entries in the profit/loss appropriation account, which are below-the-line entries in the accounting parlance, are allowable at first place in the hands of the assessee and secondly, what is the nature and purpose of these reserve and how the same are allowable and under what p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- CIT has examined the assessment records as well as revenue audit memo available on record and after examining the same and providing a detailed reasoning in the revision order come to a conclusion that the assessment order passed under section 143(3) is erroneous and prejudicial to the interest of the Revenue. It is therefore not a question of borrowed satisfaction on the part of the ld Pr CIT wherein merely on account of revenue audit memo, she has initiated the proceedings under sectio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O and the assessee shall be free to raise the same before the AO. To this extent, we modify the directions of the ld Pr CIT and the same should be read to the effect that claim of the assessee regarding the claim of the deduction towards the transfer to general reserve, education reserve and the provisions for gratuity should be examined afresh as per law after providing reasonable opportunity to the assessee. - ITA. No. 330/JP/2016 - Dated:- 5-2-2018 - Shri Vijay Pal Rao, JM And Shri Vikram Sin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rroneous and prejudicial to the interest of the Revenue which is contrary to the provisions of law and facts therefore, the impugned order u/s 263 of the Act dated 14.03.2016 kindly be quashed. 2. The ld. Pr. CIT Ajmer erred in law as well as on the fact of the case in wrongly setting aside the assessment order dt. 13.12.2013 despite there being specific finding given by the assessing officer and also merely proceeding on a change of opinion, and also ignoring the settled past history, based on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fic requirement of the relevant law, governing the appellant Cooperative Society), were not allowable claims. The deduction so claimed was fully allowable u/s 40A (9) and/or, in any case, u/s 37 (1) of the Act and hence, were rightly allowed by the Assessing Officer in the assessment order dated 13.12.2013. Therefore, the disallowance so made by the ld. Pr. CIT in the impugned order u/s 263 of the Act being contrary to the provisions of law and facts kindly be deleted full. 2. Briefly stated, th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eserve - ₹ 3,77,566/- Education reserve - ₹ 15,103/- Provision for gratuity - ₹ 81,376/- ₹ 4,74,045/- 3. As per ld Pr CIT, on perusal of the above assessment records, it reveals that the total reserve debited in the profit and loss account of ₹ 4,74,045/- was not allowable expenditure u/s 37 of the Act but since the same was allowed while passing the assessment year u/s 143(3), the assessment year was considered erroneous and prejudicial to the interest of the Reven .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ake necessary action against the defaulter Society. Thus ₹ 3,77,566/- and ₹ 15,103/- have been rightly transferred to General Reserve and Education fund A/c. Further ₹ 81376/- have been transferred to Employers gratuity fund in view of the provisions of State Govt. Employees Service Rules and particularly framed Service Rules for Employees of the Rajasthan Cooperative Societies for the same as amended form time to time. Hence, total reserves created for ₹ 474,075/- in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

so been argued that the Reserves were made as per the statutory requirements of the Rajasthan Cooperative Societies Act 2001. Section 40A(9) is quoted below: (9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individual, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, exc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ployer can qualify for deduction. As per section 40A(9) any some paid/contributed by a Society registered under the Society Registration Act, 1860 shall only be allowable as a deduction where such some is so paid, for the purpose mentioned in clause (iv) or (iva) or (v) of sub-section 1 of section 36 (1) (iv), or as required by or under any other law for the time being in force. Section 36(1) (iv), (iva) & (v) pertains to contribution towards recognized provident fund or an approved superann .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eme; approved gratuity fund) (2) The Rajasthan Co-operative Society Act only allows creation of reserve but does not over rule the provisions of I.T.Act wherein actual expenditure incurred wholly and exclusively for the purpose of business is allowable not any reserve or provision which is only accumulation of income. 5. In view of the above discussion the order passed u/s 143(3) of the I.T. Act, 1961 dated 13.12.2013 is held erroneous and prejudicial to the interest of the revenue and is restor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

much as the AO has already applied his mind and formed an opinion that the claimed expenditure/reduction from the income was permissible. It was submitted that the subject assessment was completed u/s 143(3) after making various enquiries and due investigation. The ld. AR appeared before the AO on various occasions and various details, as desired by the AO, were filed. The AO raised detailed queries arising from the discussion through query letter available at APB 28-29 and the assessee replied .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

86,098/- and Net Profit of ₹ 15,10,265/- has been shown. On P&L Appropriation Account ₹ 377,566/- transferred to General Reserve and ₹ 15,103/- has been transferred to Education Reserve account as per by laws of Society Act, thereafter income eligible for income tax shown at ₹ 11,17,596/-. In the P&L Account income tax of ₹ 68,808/- has been debited which has been added back for computation of income. Thus a sum of ₹ 701,331/- has been shown as busines .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d of 6 years. It was accordingly submitted that this was a case of change of opinion by the ld. Pr CIT who has substituted her opinion with the opinion of the Assessing Officer which is not permissible within the scope of section 263. In support, reliance was placed on the decision of Hon ble Rajasthan High Court in case of CIT vs. Ganpat Ram Bishnoi (2005) 198 CTR 546 (Raj) and CIT vs. Rajasthan Financial Corporation (1996) 134 CTR 145 (Raj). 8. It was further submitted that on merits, the cont .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

provision i.e. or as required by/or under any other law for the time being in force", though she takes note of the same at pg 4 of her order. Earlier part of S.40A (9) might not have permitted the allowance of any contribution made by the assessee towards the general reserve and educational reserve but it was certainly a requirement made by/or under any other law. The last limb/second exception even does not envisage a situation that the subjected amount must have been expended/laid out by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

she again ignored the later part or the second exception carved out in Sec.40A(9) to the effect that deduction was allowable even if it was required by/or under any other law for the time being in force. 3.2.3 The Ld. Pr CIT failed to appreciate that the first part of Sec.40A(9) starts negatively and while disallowing certain payments by the assessee as an employer towards the setting up for formation or a contribution to any fund, trust, company etc but two exception carved out are as under: ( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the ld. Pr CIT has nowhere denied that by virtue of Sec.43 and Sec.48 of The Rajasthan Cooperative Societies Act, 2001, the appellant society was obliged to transfer every year, 25% of its profits to General Reserve Fund and 1% to Education Reserve Fund as per by laws of the Society, failing which the Registrar of Society would take necessary action against the defaulter Society. Accordingly, this year the assessee was directed to transfer such funds as required by the Deputy Registrar Cooperati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Rajasthan Co-operative Societies namely for the same as amended from time to time. Hence, total reserves created for ₹ 4,74,075/- in the AY 2012-13 is allowable under the provisions of s. 40A (9) of the IT Act. 3.4 Her only objection was that the provision of the said enactment only allows creation of reserve but does not overruled the provisions of IT Act …….. which is again a misconception and a clear misinterpretation of the related provision in as much as, she ignore .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. vs. D.V. Bapat ITO (1975) 101 ITR 292, wherein the decision of Hon ble Supreme Court in the case of Metal Box Company of India Ltd was followed wherein it was held that the amount paid towards an unapproved gratuity fund can be deducted u/s 37 of the IT Act, though not u/s 36(1)(v). Our submission is also supported by a direct decision in the case of ACIT vs Krishna Pharmaceuticals ltd. in ITA No. 1891/Hyd/2011 dated 12.07.2012. Also kindly refer Maharashtra State Warehousing Corporation v/s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing title: It is submitted that the transfer to General Reserve, Education Reserve and Provisions for Gratuity, are in fact a charge upon the income/ profit of the assessee in as much as by/under the relevant law, it has been made binding upon the appellant society to transfer its contributions as required in the relevant law without which they may lose their status of being a cooperative society and thus, such contributions are a essential part of the cost and the income to that extent is diver .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e society and therefore, has to be essentially reduced from its income. In support, reliance was placed on CIT vs. Pandavapura Sahakara Sakkare Karkhane Ltd. (1988) 174 ITR 0475 (Kar) and Keshkal Cooperative Marketing Society Ltd. v/s CIT (1987) 165 ITR 437 (MP). 6. It was further submitted that action u/s 264 is not permissible mainly on audit objection. It was submitted that:- 6.1 The law is well settled that for a valid assumption of jurisdiction u/s 263, the ld. CIT is required to apply his .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e initiated and this, in turn, proves that there was no application of mind by the Id. CIT as required by law hence, the impugned order kindly be quashed being without jurisdiction. 6.2 The law u/s 263 specifically requires that before taking any action, the CIT himself shall apply his mind and after examining the record of any proceeding, if satisfied than only he has to proceed. It cannot be the satisfaction of any other authority than the CIT himself. Thus, there has to be an independent appl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e memo dated 26.05.2014, the impugned proceedings have been initiated. Such a state of affair was not contemplated by the law and therefore, the very assumption of jurisdiction u/s 263 was void ab intio. In support, reliance was placed on the following decisions: Sirpur Paper Mill Ltd vs CWT (1970) 77 ITR 6 (SC) Dharmendra Kumar Bansal vs. CIT (2014) 101 DTR 0377 (JP) CIT vs Sohana Wollen Mills (2008) 296 ITR 238 (P&H) Jeewanlal (1929) Ltd. vs. Addl. CIT & Ors. (1977) 108 ITR 407 (Kol) S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ry letter issued by the AO dated 14.10.2013 to which our attention was drawn and available at APB Pg 28-29 and also the response of the assessee dated 28.10.2013 available at APB Pg 30- 32 and we find that there is no specific query and consequent submission regarding general and education reserves as well as provision for gratuity which has been claimed by the assessee. Secondly, our attention was drawn to the assessment order passed by the AO wherein it is mentioned that On P&L Appropriati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or tax purposes. In contrast, if we see the claim of deduction under section 80P, the AO, in subsequent paragraph, has stated that in computation of total income, the assessee society has claimed deduction u/s 80P of I.T. Act amounting to ₹ 1095909/- under various sub provisions. Various claims reserves and deductions have been test checked. No. discrepancy has been notice. Therefore deduction claimed under chapter VIA to the tune of ₹ 1095909/- is therefore allowable for the year un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n formed at the first place. Therefore, we are unable to accede to the contention of the ld AR regarding change in opinion. 11. It is a case where we find that there is no due and proper application of mind by the AO. The AO having reproduced the entries of general and education reserve as appearing in the profit/loss appropriation account, should have applied his mind to determine firstly, whether the entries in the profit/loss appropriation account, which are below-the-line entries in the acco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

failed in the instant case. The same would have been possible had the AO examined the matter at first place which the AO has failed in the instant case. It is clearly a case of non-examination and non-application of mind by the AO and the order of the AO is clearly erroneous to this extent. 12. Now coming to another contention of the ld AR that the ld. Pr CIT has not shown any special reason or a new ground or material change in the legal and factual position, which prevailed for a long period .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

int of the assessee that the reserves created u/s 43 & 48 of the Rajasthan Cooperative Societies Act 2001, qualify for deduction in the Income Tax Act, is not tenable because section 40A(9) specifies the funds contribution to which by the assessee as an Employer can qualify for deduction. As per section 40A(9) any some paid/contributed by a Society registered under the Society Registration Act, 1860 shall only be allowable as a deduction where such some is so paid, for the purpose mentioned .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r force mentioned in section 40A(9) has been misinterpreted by the assessee. Any other law under force means any other law under force applicable to the assessee as an Employer with respect to the specific funds (provident fund/superannuation fund; pension scheme; approved gratuity fund). 13. It is therefore not a case where the ld Pr CIT has not stated her reasoning for taking a view in the subject matter. It may so happen that such a view may be at variance to the past assessment years as clai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e perspective of section 40A(9). Hence, the above said contention of the ld AR regarding rule of consistency cannot be accepted. 14. Regarding the contention of the ld AR that the action under section 263 is not permissible merely on audit objection, we refer to the provisions of section 263 which provides that the ld Pr CIT may call for and examine the record of any proceedings under this Act. The term record has been defined as to include and shall be deemed always to have included all records .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version