TMI Blog2023 (8) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... on on expenditure actually incurred and capitalized will be allowed in accordance with the provisions of the Act. Therefore, we partly allow this ground of the assessee to reduce the addition made to the extent of eligible depreciation. Disallowance of provision for contribution/subscription to District Union - HELD THAT:- The understanding of the revenue authorities that the funds were in the control of the assessee cannot be accepted, on the contrary, the funds were set apart and kept for contributing according to the direction of the regulatory authorities. Therefore, the funds were not at all freely available in the hands of the assessee s bank. Hence, respectfully following the ratio of decision of CIT v. M/s.Krishi Upaj Mandi Samiti [ 2013 (6) TMI 75 - MADHYA PRADESH HIGH COURT] we do not find any hesitation to hold that the contributions made in accordance with the binding by-laws of Regulatory Cooperative Society Act, which is in the nature of statutory liabilities of the assessee and the funds kept aside were never available to be used at its disposal. Decided in favour of assessee. Disallowance of depreciation - HELD THAT:- Admittedly, there was a mistake on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the assessee s bank, which is mandatory for the assessee and after creation of such funds, the control thereof is fully transferred in the hands of Registrar and the assessee does not remain the beneficiary of the same. Respectfully following the judgement of Krishi Upaj Mandi Samiti Seon [ 2013 (6) TMI 75 - MADHYA PRADESH HIGH COURT] we are of the considered opinion that reserve funds so created for which amount is transferred under the statutory obligation over which the assessee loses control, diverted overriding title is eligible for deduction and therefore, the same does not form part of the assessee income, accordingly, we set aside the order of the Ld.CIT(A) and vacate the addition made by the AO on this count. Decided in favour of assessee. - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Appellant : Mr.R.B.Doshi, CA For the Respondent : Mr.S.K.Meena, CIT-DR ORDER PER ARUN KHODPIA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-1, Jabalpur, dated 05.03.2018 and pertains to assessment year 2013-14. 2. The assessee has rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rutiny under CASS. Statutory notices were issued kin due course. In response, the Ld. Counsel of the assessee has attended proceedings and filed copy of return along with computation of income, audit report, Form 26AS, produced books of accounts, bills and vouchers, which were verified through test check basis. While verifying the P L A/c of the assessee, the Ld.AO has observed that the assessee has debited an amount of Rs. 40,74,46,277/- for various provisions/reserves. The assessee was asked to furnish details pertaining those provisions/reserves. After examination. it was observed by the Ld AO that an amount of Rs. 1,23,61,720/- was already added back in the computation of income by the assessee. For remaining provisions/reserves, the assessee submitted that the provisions are created for business purposes of the assessee bank and represents its actual liabilities. Further, the impugned provisions also includes various statutory provisions created as per Income Tax Act, RBI NABARD. The AO has not found substances in the submissions of the assessee and has made certain disallowances to the tune of Rs. 26,52,16,905/-. The Ld.AO also made another disallowance on account of cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Ld.CIT(A) has mentioned in his observation that the assessee is entitled for deduction of expenditure on computerization out of reserve as and when it is incurred, the expenditure to the extent of Rs. 2,88,73,080/- incurred during the year should be allowed, without making any addition on this count. 5.1 The Ld.DR, on the other hand, submitted that since the expenditure incurred was capitalized by the assessee, nature of expenditure was supposed to be capital in nature only. On the contrary, since nothing was brought on record by the assessee that the expenditure is liable as revenue expenditure. It was the submission that the amount should not be allowed during this year. However, depreciation as allowable under the provisions of the Act, may be allowed to the assessee, for which, the assessee is entitled to. 5.2 We have heard the rival contentions, perused the materials available on record and have gone through the facts of the issue. Admittedly, the assessee has created reserve for computerization of its operations which were manual earlier and has undoubtedly incurred an expenditure of Rs. 2,88,73,080/-. It is also the fact that such expenditure was capitalized by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserve funds, unless the society has been, by general or special order, partially or wholly exempted in this behalf by the Registrar, according to the provisions of sec.43(2)(b), the society is required to pay to the Madhya Pradesh Cooperative Union Ltd., and to such other institutions or unions as may be specified by the Registrar in this behalf, such contribution as may be prescribed, but cooperative credit structure shall not be required to pay any contribution. It was the submission of the Ld.AR that the society bank is covered under Chhattisgarh Co-operative Societies Act, 1960 as per notification No.2050-9940-16, 05.04.1972. The Ld.AR further demonstrated that the sum of Rs. 27,94,800/- set apart by the assessee were duly paid to the respective institutions on various dates. Therefore, it cannot be said that the assessee was having control over such funds. Such details were placed before at Page No.5 of the assessee s Paper Book, which are extracted as under: Particulars Amount (Rs. In lakhs) Amount (Rs.) Agricultural loans disbursed during the year- Short Term Loans Medium T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the same. The issue is also covered by the decision of the Coordinate Bench in the case of Burhanpur Mandi Samiti, 12 ITJ 12, wherein statutory payment to the Board has been held to be an allowable deduction. 6.2 The Ld.AR also relied upon decision of the Hon ble Madhya Pradesh High Court in the case of CIT v. M/s.Krishi Upaj Mandi Samiti, dated 04.04.2013, wherein, the Hon ble Madya Pradesh High Court has held as under: .So far as the contribution by the respondent towards the payment of pension fund is concerned, it is submitted that the aforesaid liability is statutory in nature and the aforesaid payment towards the pension fund has been rightly allowed by the Income Tax Appellate Tribunal. So far as the interest accrued thereon is concerned, it is submitted by the learned counsel for the respondent that it was taxable and has rightly been held so by the Tribunal .. . 6.3 The Ld.AR relied upon decision of ITAT Delhi Bench, New Delhi, in the case of ACIT v. Indian Farmer Fertilizers Coop. Ltd., in ITA Nos.3350/Del/2009 1194/Del/2011 for the AYs 2005-06 2006-07, dated 31.05.2011, wherein, the Tribunal has held as under: 12. In the instant case for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition. 6.4 In the backdrop of aforesaid submissions, the Ld.AR has submitted that the funds set apart assessee s bank are eligible for deduction. Therefore, the same may be allowed. 6.5 The Ld.DR vehemently supporting the order of the revenue authorities and strongly recommended to sustain the addition. 6.6 We have heard both the parties, perused the materials available on record and the order of the ITAT and the decisions of the Hon ble High Courts on this issue. On perusal of the facts an amount of Rs. 27,94,800/- by the assessee s bank as provision for contribution of subscription to District Union which were later in the due course were transferred to the respective authorities i.e. Raipur Jila Shakari Sangh Maryadit Mudralaya (District Union) and Chhattisgarh Rajya Sahakari Sangh Maryadit (Madhya Pradesh Union). Therefore, the understanding of the revenue authorities that the funds were in the control of the assessee cannot be accepted, on the contrary, the funds were set apart and kept for contributing according to the direction of the regulatory authorities. Therefore, the funds were not at all freely available in the hands of the assessee s bank. Hence, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l verifications, may be by way of a remand report from The Ld AO, we restore this issue and direct the Ld AO to follow the direction of Ld CIT(A), which we are also having concurrence with. In the result ground no 4 of the appeal of the assessee is partly allowed for statistical purposes. 8. Ground No.5 is pertaining to double disallowance on account of advance tax and TDS: The Ld.AR submitted that the assessee has made a payment of advance tax and TDS of Rs. 1,52,40,896/-. This issue was raised before the Ld.CIT(A) that the assessee has suo moto added back the amount of Rs. 1,53,96,634/- to the profit while computing total income for the AY 2013-14. However, the AO has added this amount again in the income of the assessee while framing the assessment order, therefore, the disallowance which the assessee has already suo moto made in the computation, was added double by the AO. The Ld. CIT(A) has appreciated this fact but instead of adjudicating the matter as directed, the AO to verify the claim and allow the appropriate relief. The assessee was aggrieved with such decision of the Ld.CIT(A). It was the contentions of the assessee that the Ld.CIT(A) should have verified the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Apex Bank and is not actually received by the assessee. It was therefore submitted that such interest should be allowed as expenditure to the assessee. 9.1 The Ld. DR on the contrary submitted that sec.43A(1) reiterating the observation of the Ld.CIT(A) in Para (iii) in Page No.23 of the order of the Ld.CIT(A) that Sec.43A(1) of Madhya Pradesh Cooperative Societies deals with appropriation of profit of a co-operative society and such appropriations are not the charge over profit i.e. even after the appropriation made u/s.43A(1) with Chhattisgarh Co-operative Societies Act, 1960. With such observations, the Ld.CIT(A) has rightly confirmed the addition made by the AO by following the judgments of ITAT Jabalpur Bench in the case of Krishi Upaj Mandi Samiti Seoni v ACIT (supra). 9.2 We have heard both the parties, perused the materials available on record with regard to interest on the reserve funds by the assessee s bank, the observation of the Hon ble Madhya Pradesh High Court in the case of CIT v. M/s.Krishi Upaj Mandi Samiti (supra), wherein, it has been held that assessee s interest incurred consists on such reserve fund, it was taxable and has rightly held by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As such the said amount is not available for the use of the assessee Society, at its option. Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC): TC 13R.287 and CIT v. Bombay State Road Transport Corporation (1977) 106 ITR 303 (Bom) : TC16R.183 applied; Vazir Sultan Tobacco Co. Ltd. vs. CIT (1981) 25 CTR (SC) 186 : (1981) 132 ITR 559 (SC) distinguished. 10.1 It was the submission of the Ld.AR that the creation of funds and control there of fully remains with the Registrar and the assessee does not remain beneficiary. It does not comprise income of the assessee, as it is diverted. The Ld.AR submitted that the addition made by the AO and confirmed by the Ld.CIT(A) is therefore illegal, arbitrary, and unjustified. 10.2 The Ld.CIT-DR on the contrary relied upon the order of the Ld.CIT(A) and has reiterated the observations of the Ld.CIT(A). This was only appropriation of profit of the Cooperative Society and such appropriations are not charge over the profit. Since, the assessee was having control over the funds so appropriated, therefore, the same cannot be allowed as an expenditure for the relevant year under consideration. It was, therefore, the prayer that the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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