Income Tax Appellate Tribunal - Jaipur
Rajasthan Co-Ooperative Dairy ... vs Department Of Income Tax on 6 May, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 79, 80 & 81/JP/2015
fu/kZkj.k o"kZ@Assessment Years : 2010-11,11-12 & 12-13.
Dy. Commissioner of Income Tax, cuke M/s. Rajasthan Co-operative
Circle-6, Vs. Dairy Federation Ltd.,
Jaipur. Saras Sankul, J.L.N. Marg,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAAAR 0278 A
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri S.K. Jain (DCIT)
/kZkfjrh dh vksj ls@ Assessee by : Shri Varun Bansal (C.A.)
lquokbZ dh rkjh[k@ Date of Hearing : 03.05.2016.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/05/2016.
vkns'k@ ORDER
PER SHRI LALIET KUMAR, J.M.
These are three appeals filed by the Revenue against the separate orders of ld. CIT (Appeals)-II, Jaipur dated 14.11.2014 for the A.Ys. 2010-11, 2011-12 & 2012-13.
2. Ground no. 1 in all the appeals is against deleting the addition made by the AO on account of disallowance of prior period expenses. Since this ground is common in all the years except in figures, we dispose this ground for all the assessment years together.
2.1. The AO while making the assessment, has noticed that the assessee has claimed a sum of Rs. 23,060/- on account of expenses related to previous year. The AO considering that these expenses related to prior period, prima facie, the same 2 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
are not deductible expenditure while computing the profits of the business of current year. He, however, affording an opportunity to the assessee, requested to show cause as to why such expenses should not be disallowed. In compliance, the assessee filed reply dated 17.10.2012 as under :-
" It is submitted that federation has its units spread over at various places in the State of Rajasthan and therefore, looking to the volume of the transactions and activity involved some expenditure remains unadjusted for want of proper and timely information. The rate of tax being the same, it does not matter whether it is allowed as deduction in the year in which the expenditure is booked or in earlier year. We may also submit that federation is State government Undertaking.
Since all these prior period expenses has been accounted after obtaining all the supporting documents, vouchers and obtaining approval of concerned higher authority, hence same has been crystallized during the year and allowable as current year expenses."
Before the AO, the ld. A/R further pleaded that the claim of the assessee is supported by the decision of ITAT Jaipur Bench in the case of RIICO Ltd., Instrumentation Ltd. and many other public sector undertakings. Alternative, the ld. A/R requested the AO to allow prior period expenses debited in subsequent financial year as those expenses are pertain to the year under consideration. 2.2. The AO considered the reply of the assessee, but he could not found it acceptable. He held that the assessee is following mercantile system of accounting, according to which, an expenditure is booked as soon as it is incurred or liability to pay arises irrespective of the time when it is actually paid. If some expenditure remains unadjusted for want of proper and timely information, it is a fault on the part of the assessee. The AO further held that the receipts related to a particular 3 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
year only are chargeable in that year. Similarly, the expenditure relating to that particular year only can be claimed against those receipts. Any deviation from this rule will not depict the true and correct profits of the business. On this principle, the receipts or expenses not pertaining to the year under consideration should be excluded while computing income of this year. The prior period expenses can neither be allowed as per accounting principle nor as per legal provisions. The AO further rejected the assessee's alternative plea to allow the prior period expenses of subsequent year in this year and thus disallowed the prior period expenses of Rs. 23,060/-.
3. Being aggrieved, the assessee filed appeal before ld. CIT (A), who allowed the claim of the assessee by directing the AO to delete the addition on account of disallowance of prior period expenditure, by observing as under :-
" 2.3. I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee has its units spread at various places in the State of Rajasthan. It accounts for expenditure after getting approval from higher authorities. This system of accounting of expenditure has been regularly followed by the appellant. The genuineness of these expenses has not been doubted by the Assessing Officer. Nothing has been brought on record to show that there has been a distortion of profits or that the books of accounts do not reflect the correct picture. This issue is covered in favour of appellant by the order of CIT (A)-II, Jaipur for A.Y. 2007-08 (Appeal No. 444/9-10), A.Y. 2008-09 (Appeal No. 268/10-11) and A.Y. 2009-10 (Appeal No. 380/11-12, in the appellant's own case. In view of the above discussion and following the above orders of the Cit (A)-II, Jaipur, it is held that prior period expenses are allowable in this year. The Assessing Officer is directed to delete the addition on account of disallowance of prior period expenditure. With this direction, the issue of allowing prior period expenses of A.Y. 11-12 in this year, does not arise."
4. Now the revenue is in appeal before us.
4
ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
4.1. The ld. D/R for the revenue supported the order of AO and requested that the order of ld. CIT (A) be set aside and that of the AO may be confirmed. 4.2. On the other hand, the ld. A/R for the assessee vehemently submitted that similar disallowance of prior period expenses was made by the AO in assessee's own case in A.Y. 2007-08 to A.Y. 2009-10. The disallowance was deleted by the ld. CIT(A) vide appeal no. 444/09-10, 268/10-11 and 380/11-12 respectively. The Revenue has not filed any appeal before the ITAT against the order of ld. CIT (A) thereby accepted the decision of the ld. CIT (A). The ld. A/R for the assessee has reproduced the finding of the ld. CIT (A) in Appeal No. 380/11-12 order dated 24.09.2012, in his written submission as under :-
" It is seen that through order dt. 24.10.2011, my predecessor has allowed prior period expenses of Rs. 90,977/- in A.Y. 08-09. Facts remain same this year as well. The assessee federation has its units spread at various places in the State of Rajasthan and looking to the volume of the transactions and the activity involved, some expenses remain unadjusted for want of necessary approval. The expenses have been incurred and their genuineness has not been doubted by the AO, in the interest of justice such expenditure should be allowed even if pertaining to the prior period as necessary approval for the same came during the year under consideration, this includes approval for salary reimbursement expenses of Rs. 13,97,207/- to Jaipur Dairy during this year. The AO is directed to delete disallowance of Rs. 15,66,047/- as approval of these prior period expenses whose genuineness is not doubted by the AO, was received during the year by the appellant and without approval it was not possible for the appellant to make the payment."
In support of his submission, the ld. A/R has placed reliance on the following decisions :-
CIT vs. Excel Industries Ltd.
358 ITR 295 (SC) Saurashtra Cement & Chemical Industries Ltd. vs. CIT 213 ITR 523 (Guj.HC) 5 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
Rajasthan State Industrial Development & Inv. Corpn. Ltd. vs. ACIT, (ITA No. 66 & 354/JP/08, dated 30.09.2008 & ITA Nos. 138 & 235/JP/09 dated 08.01.2010).
Instrumentation Ltd. vs. IAC (ITA No. 1163/JP/82 dated 28.09.1984) Therefore, he prayed that the order of ld. CIT (A) be confirmed. 4.3. We have heard the rival contentions and perused the material available on record. We find that the issue of prior period expenses has earlier decided by the ld. CIT (A) in assessee's own case for the A.Ys. 2007-08 to A.Y. 2009-10 in appeal nos. 444/09-10, 268/10-11 and 380/11-12 vide order dated 24.09.2012 whereby the disallowance was deleted by the ld. CIT(A) and no appeal against the same was preferred by the revenue. Considering that the issue involved in the years under consideration is same and also in view of the judicial precedents, we find no infirmity in the order of ld. CIT (A) and the same is confirmed. The ground of the revenue for all the three assessment years is dismissed.
5. Ground No. 2 in the appeals for the assessment years 2010-11 and 2011-12 is against deleting the addition made by the AO being contribution made by the assessee to rehabilitation fund by not treating the same as business related expenditure. Since this ground is common in both the years except in figures, we dispose off this ground for the assessment years under consideration together. 5.1. The AO while making the assessment, noted that the assessee has made contribution towards rehabilitation fund to milk unions. To justify the contribution to rehabilitation fund, the assessee was asked to show cause as to why these expenses may not be disallowed while computing the total income of the assessee. In 6 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
compliance, the ld. A/R for the assessee vide his letter dated 17.10.2012 has stated that the levy charges to the rehabilitation fund had been paid by the four cattle feed plants which are the units of the assessee federation. The federation has set up a fund for providing financial assistance and revival of Milk Unions and District Co- operative Societies. The ld. A/R further submitted that during the year, all the cattle feed plants have incurred expenses for the purpose of revival/setting up of milk unions and district co-operative societies. The finished goods of cattle feed plant is purchased by these societies and hence the assessee is incurring expenses on welfare of them so that assessee may increase its business. The AO considered the reply of the assessee but he found no merit in it. The AO disallowed the claim of expenses on the ground that it is not an expenditure actually incurred, contribution is in the nature of subsidy or grant for welfare of the concerned entities and contribution made to any fund is not an allowable expenditure except for certain specific purposes funds which are approved by the competent authority under the IT Act and admittedly no such approval is there in case of the fund for which contribution has been made by the assessee.
6. Being aggrieved by the order of AO, the assessee carried the matter before ld. CIT (A) who allowed the appeal of the assessee by directing the AO to delete the disallowance by observing as under :-
"3.3.2. The appellant is a federal society operating at the apex level of the dairy cooperative structure in the State of Rajasthan. The milk is collected by the village level, primary societies and supplied to societies at the district level to process the milk. This milk is marketed by the appellant. The RCDF rehabilitation and development fund has been set up to provide financial assistance to the member cooperative societies to help them achieve the breakeven point and expand into rural areas. This enables the appellant to get an uninterrupted supply of milk from its member societies and reduces the threat from private 7 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
milk producers. This fund has been granted registration u/s 12AA by the CIT-II, Jaipur on 31.01.2008.
The facts of this issue are different from the facts in A.Y. 2007- 08 and 2008-09 wherein no expenditure had been incurred but only a provision had been made towards the rehabilitation fund. Even the fund had not been established. However, in this year, expenditure has been incurred, the fund has already been created and it has got registration u/s12AA of the IT Act.
3.3.3. This expenditure has been incurred to provide financial assistance to the member cooperative societies so as to ensure an uninterrupted and timely supply of milk. This contribution made by the appellant to the fund is directly connected with the carrying on the assessee's business and results in benefits to the assessee's business. This expenditure has been incurred wholly and exclusively for the purposes of the assessee's business. Following, the decision of the Rajasthan High Court in the case of CIT vs. Rajasthan Spinning & Weaving Mills Ltd. 274 ITR 465, it is held that the above expenditure is allowable as a deduction u/s 37(1) of the I.T. Act. The Assessing Officer is directed to delete the above disallowance. This ground of appeal is allowed."
7. Now the revenue is before us.
7.1. The ld. D/R for the revenue supported the order of the AO and requested to set aside the order of ld. CIT (A) and confirm the order of AO. 7.2. On the other hand, the ld. A/R for the assessee submitted that Dairy Co- operatives in Rajasthan follow vertical integrated three tier structure as under :-
- Primary Society i.e. Village Dairy Co-operative at the bottom level.
- Union i.e. District processing union at the middle/centre level.
- Federal Society i.e. State Co-operative Dairy Federation.
Each of these societies is having different functional responsibilities. The village level primary societies are responsible for collection of milk, district processing unions process the milk collected by the primary societies/village level societies. The federal society/State level society i.e. RCDF (assessee) is an apex body which market the 8 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
milk and milk products of their members union like, Jaipur Zila Dugdh Utpadak Sangh (Jaipur Milk Union) and other union. In this system, assessee is an apex body.
These societies are structured for giving co-operative momentum to white revolution. These societies cannot work in isolation and work cumulatively for a common objective i.e. maximizing milk producer's share. All the primary level societies and district level societies are members of the RCDF i.e. assessee.
7.3. The ld. A/R submitted that RCDF, as an apex body, along with its member primary societies and milk union constituted 'RCDF Rehabilitation and Development Fund' on 05.10.2004 wherein contribution is made by the assessee as well as other members milk unions. Thereafter, a separate trust was created on 26.03.2008 with the object of providing interest free financial assistance to the loss making dairy co-
operative members societies to help them to achieve their breakeven point and to expand/explore existing/new rural market. This trust is also registered u/s 12AA w.e.f. 02.05.2008. In pursuance to these objectives, the fund is providing interest free loans in accordance with the approved scheme of the fund to the needy milk unions and cattle feed plants, which are members of the assessee, so as to enable the loss making milk unions to help/achieve their breakeven point or to help push milk unions into a profit making zone from their threshold level of profit/loss making, exploration of new rural markets, expansion of the existing ones and providing long term finances for investment in fixed assets, mainly plant and machinery at dairy plants/ cattle feed plants. The working of all the members milk unions as well as members primary societies are interconnected with the assessee. The assessee is getting the milk from these member societies/unions. Therefore, to procure the uninterrupted and timely supply of milk and to resolve the chronic problem i.e. 9 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
threat from private milk producers, assessee makes such contribution as per the scheme of the fund. Thus, the expenditure incurred by assessee by way of contribution is directly connected with the business of assessee. 7.4. The ld. A/R further submitted that for claiming of deduction u/s 37(1), the expenditure should be incurred wholly and exclusively for the purpose of business. The term 'wholly' refers to quantum of expenditure and the term 'exclusively' refers to motive, object and purpose of expenditure. The Supreme Court in case of Sasson J David & Co P. Limited V. CIT 118 ITR 261 held that the expression 'Wholly and Exclusively" does not mean necessarily. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of deduction if it satisfy otherwise the test laid down by law. If the expenditure is incurred voluntarily, even without necessity, but if it is for promoting the business, the deduction would be permissible. In present case the contribution made by the assessee to the fund is utilized in providing financial help to needy members milk unions/societies. From these members milk unions/societies, assessee procures milk. This helps in uninterrupted and timely supply of milk to the assessee. Thus, expenditure is wholly and exclusively for the purpose of business and allowable u/s 37(1). For this reliance is placed on the following cases:-
CIT Vs. Rajasthan Spinning and Weaving Mills Ltd. 274 ITR 465 (Raj.) CIT Vs. Shri Rajasthan Sales Tax Ltd. 221 CTR 410 (Raj) 7.5. The ld. A/R fairly admitted that in the A.Ys. 07-08 and 08-09, contribution to RCDF Rehabilitation Fund was disallowed because in that year no separate trust was created and the amount contributed to 'RCDF Rehabilitation and Development Fund' 10 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
remained with RCDF. However, in the years under consideration, RCDF Rehabilitation and Development Fund has been created as a separate trust on 26.03.2008 which was registered u/s 12AA w.e.f. 02.05.2008 and actual contribution was made to the fund which is directly connected with the business of assessee and results into benefit. Similar contribution made in A.Y. 12-13 has been allowed by the AO. Considering these facts, the Hon'ble ITAT in case of Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. in ITA No. 128 & 142/JP/13 for A.Y. 09-10 has given the following findings vide Para 7 of its order dt. 17.07.2015 :-
"We find merit in the alternative contention of the Ld. Counsel for the assessee. In view of the fact that assessee created a separate Rehabilitation Trust which is registered u/s 12AA of the IT Act and in the case of RCDF on these facts the claim has been allowed in A.Y. 10- 11, we set aside the matter to decide the same afresh in accordance with law after giving assessee an opportunity of being heard."
The ld. A/R concluded his submission stating that in view of above finding, the ld. CIT(A) has rightly deleted the disallowance and thus the grounds of the department be dismissed.
7.6. We have heard the rival contentions and perused the material available on record. We find that for the years under consideration, RCDF Rehabilitation and Development Fund was created as a separate trust on 26.03.2008 and was duly registered under section 12AA w.e.f. 02.05.2008 and the actual contribution made to the fund is directly connected with the business of the assessee which has resulted into benefit. Similar contribution made in A.Y. 2012-13 has been allowed by the AO. Recently, the coordinate Bench of the Tribunal in the case of Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. in ITA No. 128 & 142/JP/2013 for A.Y. 2009-10 has 11 ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
remanded the matter to the departmental authorities to decide the matter afresh by observing as under :-
"We find merit in the alternative contention of the ld. Counsel for the assessee. In view of the fact that assessee created a separate Rehabilitation Trust which is registered u/s 12AA of the IT Act and in the case of RCDF on these facts the claim has been allowed in A.Y. 10- 11, we set aside the matter to decide the same afresh in accordance with law after giving assessee an opportunity of being heard."
In the light of above, we find no infirmity in the order of ld. CIT (A), the same is confirmed. The ground of the revenue for both the years is dismissed.
8. Ground No. 2 (a) and 2 (b) for the assessment year 2012-13 relates to deletion of addition of Rs. 6,70,168/- made for depositing the employee's contribution to PF and ESI beyond the prescribed time limit and holding that employee's contribution to PF and ESI are governed by provisions of sec. 43B and not by sec. 36(1)(va) read with section 2(24)(x) of the IT Act. 8.1. The AO at the time of assessment proceedings, noticed that the assessee has made the payments of employee's contribution to PF and ESI after the due date of payment relevant to PF & ESI Acts. On being asked to justify the late payment, the assessee vide its letter dated 12.02.2014 submitted that -
" the contribution on account of P.F. received from the employee has been deposited before due date of submission of the return even within the financial year itself. It is further submitted that it is well decided matter by various court that deduction of statutory liability towards PF and other fund referred to in clause (b) of section 43B and section 36(1)(va) read with section 2(24)(x) is permissible if the payment are made by assessee before due date of submission of return u/s 139(1) even if contribution are paid beyond the due dates under respective enactments. We refer some of judicial decision as under :-12
ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
The Rajasthan High Court in the case of Udaipur Dugdh Utpadak 217 Taxmann 64.
The Karnataka High Court in case of CIT vs. Sabari Enterprises 213 CTR 269 ....minor delay in deposit of employee's contribution to ESI which has been deposited with some delay is not liable to be disallowed under the provisions of the Income Tax Act, 1961."
The AO being not satisfied with the reply, made the addition of Rs. 6,70,168/- on the ground that the assessee has not made the payments within due dates of the respective laws. He held that as per the provisions of section 36(va) of the IT Act, 1961 these payments can not be allowed as such and liable to be disallowed u/s 36(va) of the Act.
9. Being aggrieved, the assessee preferred appeal before ld. CIT (A), who allowed the claim of the assessee by observing as under :-
" 4.3. I have perused the facts of the case, assessment order and the submissions of the appellant. Admittedly, employee's contribution towards PF has been paid before the due date of filing of return of income u/s 139(1). This fact is therefore not in dispute. In view of the judgments of the Rajasthan High Court in the case of Jaipur Vidhyut Vithran Nigam Ltd., 265 CTR 62 (Raj.), CIT vs. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.), and other case laws on this issue, the claim of the appellant is allowable. Accordingly, the addition made by the Assessing Officer is directed to be deleted. Ground No. 3 is allowed."
10. Now the revenue is before us.
10.1. The ld. D/R for the revenue placed reliance on the order of the AO and requested to reverse the order of ld. CIT (A) and confirm the order of AO. 13
ITA Nos. 79-81/JP/2015 DCIT vs. Rajasthan Coop. Dairy Fed.
10.2. On the other hand, the ld. A/R for the assessee contended that there is no dispute as to the fact that assessee has deposited the PF before filing of the return. The various High Courts including the Rajasthan High Court has held that if the employees contribution to PF is deposited before the due date of filing of the return, the same is allowable. In support of his submissions, he placed reliance on the following judgments :-
CIT vs. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.HC) CIT vs. Jaipur Vidyut Vitran Nigam Ltd.
98 DTR 105 (Raj.HC) CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd.
(2013) 98 DTR 109 (Raj.HC) The ld. A/R therefore prayed that the order of ld. CIT (A) be confirmed. 10.3. We have heard rival contentions and perused the material available on record. After going through the orders of the lower authorities, and also various case laws cited by the ld. A/R, we find no infirmity in the order of ld. CIT (A), the same is confirmed. The ground of the revenue is dismissed.
11. In the result, Revenue's appeals are dismissed.
Order pronounced in the open court on 06/05/2016.
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(T.R. Meena) (Laliet Kumar)
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14
ITA Nos. 79-81/JP/2015
DCIT vs. Rajasthan Coop. Dairy Fed.
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT, Circle-6, Jaipur.
2. izR;FkhZ@ The Respondent- M/s. Rajasthan Cooperative Dairy Federation Ltd., Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.79-81/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar