Income Tax Appellate Tribunal - Delhi
Gulshan Mercantile Urban Co-Operative ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI,
DELHI, BENCH ' C ',, NEW DELHI
BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER
AND SHRI K. D. RANJAN, ACCOUNTANT MEMBER
ITA No. 4981/Del/2010
(Assessment Year 2007-08)
Addl. CIT, Range 2, Vs. M/s. Gulshan Mercantile
Muzaffarnagar Urban Cooperative Bank Ltd.,
45-B, New Mandi,
Muzaffarnagar
(Appellant) (Respondent)
PAN AAAJG0808L
Appellant by: Smt. Mona Mohanty, Sr. DR
Respondent by: Shri Anil Jain, Adv.
ORDER
PER K. D. RANJAN, AM:
1. This appeal by the Revenue for the Assessment Year 2007-08 arises out of the order of Ld. CIT(A) Muzaffarnagar.
2. The 1st issue for consideration relates deleting of addition of ` 10,23,246/- on account of unclaimed dividend. The relevant ground of appeal is reproduced as under:
"The Ld. CIT(A) erred in law and on fact in deleting the addition of ` 10,23,246/- made by the Assessing Officer on account of unclaimed dividend by ignoring the fact that the amount of unclaimed dividend was neither deposited by the assessee in Govt. account nor paid to the shareholders."
3. The facts of the case stated in brief are that the assessee is a cooperative society registered under Cooperative Societies Act 1965. During the course of assessment proceedings, the Assessing Officer noted that the assessee had shown unclaimed dividend of ` 10,23,246/- for different years. According to the Assessing Officer, whenever loan was given to a person, he was made member of the society and shares were issued to the loanee. On such shares, the 2 I.T.A.No. 4981/Del/2010 dividend was payable by the bank. The amount of ` 10,23,246/- was dividend which remained unclaimed. In view of these facts the Assessing Officer required the assessee to explain as to why the amount of unclaimed dividend shall not be added to the income of the assessee. It was explained by the assessee that dividend paid by the bank to its shareholders was a part of profit distribution. It was post liability and not part of the income. However this contention of the assessee was rejected by the Assessing Officer. He added the amount of ` 10,23,246/-.
3. On appeal before CIT(A), it was submitted that the dividend paid was not charged or a debt was not charged to P & L account. It was not a debt on the assessee. Therefore, it had no limitation period. It was also submitted that the assessee is a cooperative society and therefore, provisions of Section 205A of the Companies Act were not applicable. It was also submitted that a bad debt presupposed the existence of a debt and relationship of a debtor and creditor. But in the case of the assessee, there was no such relationship between the bank and the shareholders. Ld. CIT(A) on consideration of the facts, accepted the contention of the assessee and deleted the addition.
4. Before us, Ld. Sr. D.R. supported the order of the Assessing Officer. On the other hand, Ld. A.R. for the assessee supported the order of Ld. CIT(A).
5. We have hard both the parties and gone through the material available on record as well as the order of Ld. CIT(A). The Assessing Officer had made addition on the ground that the amount of unpaid dividend was to be deposited in the Government account after certain period. In this case, there is no dispute that the amount of dividend paid has not been charged to P & L account. It forms part of appropriation of income. Therefore, when the assessee paid dividend to the shareholders, the amount was not debited to P & L 3 I.T.A.No. 4981/Del/2010 account and, therefore, the provisions of Section 41(1) are not applicable as there is no cessation of liability. Therefore, in our considered opinion, Ld. CIT(A) was justified in deleting the addition.
6. The next issue for consideration relates to deleting of addition of ` 1,51,236/- made by the Assessing Officer on account of charity and donation. In the course of assessment proceedings the Assessing Officer noted that the amount of ` 1,84,336/- was shown under the head 'charity', research and development and defence funds. The assessee had shown the amount payable in the balance sheet. It was explained by the assessee that as per U P Cooperative Society Act, 1965, the net profit of the society was to be appropriated under different head. It was also submitted that the amount was not charged to P & L account. Therefore it was not a liability incurred on account of business transaction. However, this contention of the assessee was rejected by the Assessing Officer on the ground that if the liability was not genuine, it was liable to be added as income u/s 68 of the Income tax Act, 1961. He further noted that the liability under the head 'charity and donation' was similar to the amount under the head 'unclaimed dividend'. The Assessing Officer rejected the contention of the assessee and added the amount of ` 1,51,336/- under the head 'charity & donations'.
7. On appeal, Ld. CIT(A) deleted the addition on the ground that the net profits of the society were to be utilized for various purposes. Donation of amount not exceeding for any charitable purposes as defined in Section 2 of Charitable Endowment Act 1890 was to be allocated and showing of such amount under the head 'charity payable' in the balance sheet was the method adopted under cooperative audit system as the amount of donation and charity was to be sent to the Government of U.P. as the Act. Therefore, addition on account of reserve made for charity & donation could not be added as income of the assessee. He accordingly deleted the addition.
4 I.T.A.No. 4981/Del/20108. Before us, Ld. A.R. for the assessee submitted that after computation of net profit, the amount is appropriated by way of dividend, defence fund, building fund, depreciation of investment, charity fund etc. The amount is not charged to P & L account and therefore, amount payable to the Government shown in the balance sheet cannot be added as income of the assessee. On the other hand, Ld. Sr. DR supported the order of the Assessing Officer.
9. We have hard both the parties and gone through the material available on record. There is no dispute that the amount of charity shown in the balance sheet has not been charged to P & L account. The net profit is to be appropriated under various heads one of which is charity fund which is to be paid to U P Government as per requirement of law. Therefore the amount of ` 1,52,336/- cannot be added as income of the assessee as the same has not been charged to P & L account. In view of these provisions, Ld. CIT(A) was justified in deleting the addition. Accordingly, we do not find any infirmity in the order passed by Ld. CIT(A) in deleting the addition.
10. In the result, appeal filed by the Revenue is dismissed.
11. Order pronounced in the open court on 29th Apr., 2011.
Sd./- Sd./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:29th Apr., 2011 Sp. Copy forwarded to 1. Appellant 2. Respondent 3. CIT True copy: By order 4. CIT(A) 5. DR Dy. Registrar, ITAT, New Delhi