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TMI Blog2018 (4) TMI 1555X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A)in admitting the disallowance of Rs. 1,07,64,144/- made by the Assessing Officer (AO) on account of expenses claimed against animal breeding and co-operative development expenses etc. 3.2. When the matter was called for hearing, the Ld.AR for the assessee in Revenue's appeal submitted that the AO has disallowed the expenses incurred towards animal breeding and co-operative development expenses on the ground that expenses resulted in benefit of enduring nature and therefore capital in nature. In this regard, the Ld.AR submitted that the disallowance made by the AO was agitated before the CIT(A). The CIT(A) after elaborate discussion has treated the aforesaid expenses to be revenue in nature and accordingly allowed the expenditure incurred in revenue's account. The Ld.AR submitted that the CIT(A) has examined the nature of expenditure incurred in detail and found that the expenditure incurred are revenue in character. The Ld.AR thereafter adverted to the decision of the Coordinate Bench of ITAT in Gujarat Co-operative Milk Marketing Federation Ltd. for AY 2008-09 in ITA No.1977/Ahd/2012, wherein the similar addition made by the Revenue was deleted. 3.3. The Ld.DR, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; (ii) 21,72,598 VETERINARY TRANSPORT EXP. (iii) 27,46.792 1,32,53,981 Less : Recoveries 99,30,208 33,23,773 TOTAL 1,13,64,144 Less: KANYA KELAVANI NIDHI FUND (Donation) 6,00, 000 Net Amount Disallowed by A.O. 1,07,64,144 1.2 In this connection the appellant has to .respectfully submit as under: (1) Apart from marketing and distribution, the key role of the appellant is to develop, promote and support co-operative development activities and even as per the bye laws we are required to carry out co-operative development activities. Over the years the appellant has played that role efficiently and incurred sizable expenditure over the years. (2) We have to further st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have performed following activities in respect of cooperative development - * Under Co-operative Development we have implemented Interna Consultant Development (ICD) intervention of developing self leadership among member producers and thereby enabling them to manage their dairy business efficiently leading to their overall development. Under ICD, we have implemented the module on Vision Mission Strategy (VMS) for primary milk producer members & Village Dairy Co-operatives. Facilitated by specially trained consultants, Village Dairy Co-operative Societies (VDCS) have conducted their Vision Mission Strategy Workshops, prepared their Mission Statements & Business Plans for next five years. The VMS module has prompted milk producers to initiate activities at villages, which has direct impact on their milk business. Such business plan, help 'and strengthen VDCS to face the fierce competition ahead. To support and boost the progress of VDCS, yearly review of VMS is being carried out. We have formed village level core group formed of milk producers 'and Management of the VDCS and provided them various training to improve the quality of milk by carrying out cleanliness drive at v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs such as Not Even Calved Once (NECO) and Non-pregnant Dry (NPG Dry) animals, which in turn helps in future planning, making strategic and managerial decisions for growth in diary business. In order to bring these unproductive animals into milk production 'and to reduce the economic burden to the milk producers, the Appellant implemented the FIP in the F.Y. 2006-07 mainly to improve the fertility of the animals and reduce the number of unproductive animals and in turn to increase the quantity and quality of milk. Objectives of Fertility Improvement Programme (FIP) Major reasons for infertility in animals of Gujarat includes improper calf rearing, low body weight of animals, lack of important -nutrition / mineral to animals, Low priority of animals for breeding activity, poor health of animals and lack of awareness among farmers regarding improved breeding practices. Considering these aspects FIP's major objectives are as under: 1. To reduce Non-Pregnant Not Even Calved Once (NPG NECO) and Non-Pregnant Dry (NPG Dry) animal population from the selected villages. 2. To generate database of/WPG NECO animals by tagging and registration process. 3. To establish information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are small, marginal farmers and landless labourers and include a sizeable population of tribal folk and people belonging to the scheduled castes. (2)Ever since the movement was launched in 1946, Gujarat's Dairy Cooperatives have brought about a significant social and economic change to the rural people. The Dairy Cooperatives have helped in ending the exploitation of farmers and demonstrated that when our rural producers benefit, the community and nation benefits as well. (3)The Appellant cannot be viewed simply as a business enterprise. It is an institution created by the milk producers themselves to primarily safeguard - their interest economically, socially as well as democratically. The surplus generated is ploughed back to farmers through the District Unions as well as the village societies. The circulation of capital with value addition within the structure not only benefits the final beneficiary - the farmer - but eventually contributes to the development of the village community. This is the most significant contribution of the Amul Model the cooperatives of which the Appellant is the apex body. (4)To overcome the massive challenges, it became imperative to communica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the society : who completed 25 years of their service. Special Visit Allowance Exps. : At union we have emergency medical unit for catties, our Doctors required to visit the milk producers within 4-5 hours of emergency and for this Special Allowance paid to the Veterinary Doctors to visit at rural areas for medical needs. ; Veterinary Contract Labour Exps. : The union have posted semi skilled contract workers in various villages, Wages Exps of Labors engaged in Veterinary services. Veterinary Exps / Veterinary Medicine Exps. : Expenses related to Medicines which are used by doctors during general veterinary services as [well as providing emergency services. : Veterinary Staff Transport Exps. / Veterinary Transport Exps. Expenses related to transportation of Veterinary officer to the visiting places to attend the sick cattle. 1.5 Thus it can seen that the entire aforesaid expenditure are wholly and exclusively for the purpose of improving the breeding of animals collecting Semen from cattle and possess it so that more cows and buffaloes are produced to poor villagers, give training to the members of the primary society as to how to collect milk, keep in clean and maintain the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of reimbursement to member unions against co-operative development expenses and on account of expenses towards fertility improvement programme for the year under consideration) as mentioned by the A.O. in the assessment order as well as entire above submission of the appellant, have been considered. The addition of Rs. 5,82,22,000/- includes an expenditure of Rs. 1,82,68,000/- and further expenditure of Rs. 3,99,54,000/- The appellant is in the business of milk and milk products and any expenditure incurred with a view to increase the business, to develop the business, to expand the activity to increase the turnover are directly connected to the appellant's business. When the nature of expenses are directly related to trade and out of commercial expediency should be considered as "wholly and exclusively for the purpose of business". Once expenditure is incurred which results into increase in the turnover and consequently taxable profit, such benefit could not be of enduring nature of more than one year or even for one year. By incurring such expenses known new capital asset came into existents. In my opinion the test for allowance of expenditure u/s 37 is enough to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.3066/Ahd/2013 for AY 2010-11, the captioned Revenue's appeals in ITA No.2519/Ahd/2015 for AY 2008-09 and ITA No.1964/Ahd/2016 for AY 2011-12 stands dismissed. ITA No.2759/Ahd/2013 - Assessee's appeal - AY 2010-11 6. Now we shall advert to cross-appeal of the assessee in ITA No.2759/Ahd/2013 relevant to AY 2010-11. 6.1. As per its cross-appeal, the assessee is also aggrieved by the order of the CIT(A) dated 19/09/2013 relevant to AY 2010-11 for which the grounds of appeal raised by the assessee read as under:- 1. The learned C.I.T.(A) has erred in disallowing and confirming the addition of Rs. 1,49,42,167/- being expenditure claimed and suffered as misappropriation of loss of milk. It is submitted that based on the sufficient and substantial details filed and as confirmed by Co- Operative Auditor the appellant has suffered a loss of Rs. 1,49,42,467/-, quantification of which is not disputed. It is submitted that the loss having been suffered, incurred and crystallized during this year, the same be allowed and the observation and finding of the CIT(A) that the loss has not been crystallized during this year is not correct and the same be not accepted. Without prejudice to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale in the earlier year and correspondingly the amount was shown as recovery outstanding in the nature debt from the concerned employee. The AO did not find merit in the eligibility of claim of loss towards misappropriation on the ground that the matter continues to be under investigation and is not concluded. The loss is thus not crystallized. The AO also rejected the claim of the assessee on the ground that the loss, if any, pertains to Financial Year (FY) 2008-09 relevant to AY 2009-10 as pointed out by their own Special Auditors who has pointed out the short fall in sales concerning FY 2008-09 by not accounting the entire milk loaded in trucks and handed over to agents/employees and consequently directed the assessee to recover the sale proceeds and record the shortfall in sales. It was also noticed by the AO that specific amount of recoverable was identifiable to specific units/members for which the matter was still being investigated. Besides, the AO observed that the assessee has not even filed any FIR or has not initiated any legal action for alleged embezzlement loss. The AO further observed that the assessee has not even debited this alleged loss/misappropriation in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been quantified in this notice. It is also a fact that when sales have been recorded in the books of accounts, sale amount has accrued to it. 5.4 The appellant has not debited this amount of alleged misappropriation/loss in the Profit and Loss account and has directly claimed it as a deduction in the computation of income. It has not written it off by debiting it to the Profit and Loss account, rather, it has maintained its claim over the money by showing it as "Recoverable" in the balance sheet. From the above, it is clear that the loss has not crystallized during the year. 5.5 It is also clear from the events that the liability of the relevant expenditure has not accrued, since the appellant have kept his lien over the money alive by showing it as "recoverable" in balance sheet, it has not been crystallized. The appellant has itself conceded that it did not write off the amount in its Profit and Loss account because inquiries were pending and FIR and criminal action were not initiated. The cases cited by the appellant in this regard, do not apply to the facts of the appellant's case. 5.6 It is a fact that the appellant had not recorded/accounted for this sale in its bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.1. The Ld.AR thereafter admitted that the loss so claimed was in fact not debited in the P&L account as the enquiry is not concluded and the assessee has been directed by the supervisory authorities to recover the amount from the respective units/employees in due course. In the same vain, the Ld.AR submitted that not making entry in the books of accounts towards such loss is of no adverse consequence as the entries in the books or otherwise are not decisive for the purposes of determination of true income of the assessee taxable under the Act. The Ld.AR submitted that notwithstanding the transfer of loss to profit & loss account formally, for all practical purposes, the amount is not recoverable at all and thus claimed as loss towards misappropriation/ embezzlement by the employees handling the sale of milk in five villages. 10.2. On query put by the Bench, the Ld.AR for the assessee submitted that the FIR and criminal actions were admittedly not initiated by the assessee against the employees since it requires approval and sanction of the District Registrar for initiating legal action against the unscrupulous employees. The Ld.AR however submitted in the same vain that notwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10. Therefore, nothing turns on this plea of the assessee. The Ld.DR accordingly submitted that the CIT(A) has rightly refused to entertain the alternative plea of the assessee too. 12. We have carefully considered the rival submissions and perused the orders of the CIT(A) and AO. 12.1. The solitary question involved in the assessee's appeal relevant to AY 2010-11 is whether the business loss claimed by assessee towards misappropriation/embezzlement of sale proceeds of milk by its employees is justified in the facts and the circumstances of the case or not. It is the case of the assessee that the assessee co-operative society is governed by the directions of the District Registrar and subjected to independent audit by the special auditors. In the course of audit of the financial accounts, the audit deem discovered under reporting of sales in the earlier year i.e. FY 2008-09. This lead to the realization of misappropriation/embezzlement of sale proceeds of milk by its employees in various units aggregating to Rs. 1,49,42,167/-. The assessee, while computing the taxable income seeks deduction of the aforesaid business loss saddled upon the assessee owing to embezzlement discove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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