Indian Farmers Fertilizer Cooperation Ltd. v. ACIT

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The Tax Publishers2015 TaxPub(DT) 4583 (Del-Trib)div class=Section1> Indian Farmers Fertilizer Cooperation Ltd. v. ACIT INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomeApplicability of decision in Maxopp Investment's case--In the facts of the present case, it was a common stand of the parties that the issue had to go back to the AO as his satisfaction in terms of the decision of the jurisdictional High Court in the case of Maxopp Investment. v. CIT (2012) 347 ITR 272 (Del) had not been recorded. The AR submitted that in the circumstances, Ground Nos. 13 & 14 raised would become infructuous. *Held:* The benefit of the decision of the jurisdictional High Court in the case of Maxopp Investment was not available to the AO. In view of the same, considering the request of the parties on record it was deemed appropriate to restore the issue back to the file of the AO with the direction to pass a speaking order considering the mandate of the High Court in Maxopp Investment. Needless to say that before passing of the order he would give a reasonable opportunity to the assessee of being heard. The decision, it was seen, is fortified by the decision of the Delhi High Court in the case of assessee itself wherein their Lordships clarified their earlier order dated 2-2-2012 in ITA No.1293/Del/2011 vide their order dated 17-4-2012 by stating that the necessary working and computation of the deduction under section 14A and the appeal effect has to be given/undertaken by the AO following Maxopp Investment Ltd. v. CIT in ITA No-687/2009. Accordingly, the AO in view of the above direction would pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. Income Tax Act, 1961 Section 14A *REFERRED :* Maxopp Investment. v. CIT (2012) 347 ITR 272 (Del). FAVOUR : Matter remanded. A.Y. : 2007-08 INCOME TAX ACT, 1961 --Business expenditure--AllowabilityContribution to Cooperative Education Fund--The assessee over the years had been claiming deduction on account of contribution made to the Cooperative Education Fund on payment basis. As per the published audited Balance Sheet & P/L Account, the net profit in accordance to Multi-State Cooperative Societies Act, 2002 had been shown at Rs.174.57 crores. In the P&L Appropriation Account, the assessee had debited an amount of Rs.1.75 crore on account of contribution payable to Co-operative Education Fund. Considering the explanation of the assessee, the AO was of the view that the claim of the assessee could not be allowed as it was not wholly and exclusively incurred for the purpose of business. He further held that it was an application of income and rejected the assessee's contention that it was allowable under section 43B on the basis of payment which is applicable only to deductible expenditure. The AO further held that it is neither cess nor tax and relying on CIT v. Jodhpur Co-op. Marketing Society (2004) 275 ITR 372 (Raj.) disallowed the same under section 37(1). The CIT(A) relying upon the orders of the ITAT for 2005-06 and 2006-07 assessment years deleted the addition made. *Held:* In the instant case for the first time, the Revenue had taken plea that contribution to Cooperative Education Fund was appropriation of income and not expended wholly and exclusively for the purpose of business. The assessee had made provision of 1 % of its net profits under rule 25 of Multi-State Coop. Society Rules, 2002, to be credited as contribution to Cooperative. Education Fund which is maintained by National Cooperative. Union of India Ltd., New Delhi. It is statutory requirement to contribute 1 % of its net-profits to Cooperative. Education Fund. The amount of 1 % of net profit was, therefore, not in control of the assessee. The funds had been vested in third party outside corpus of assessee itself. Therefore, the amount contributed to Cooperative Education Fund was diversion of profits at source which was eligible for deduction under section 37. The amount claimed as diversion of income remained with the assessee and formed' part of the corpus of the assessee. The AO had allowed deduction in respect of Cooperative Education Fund in earlier years. Following the decision of Supreme Court in the case Radhasoami Satsang (supra), it was held that Revenue was not permitted to take a different stand in the year under consideration. Accordingly, there was no infirmity in the order of the CIT(A) deleting the addition. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 4583 (Del-Trib)div class=Section1>

Indian Farmers Fertilizer Cooperation Ltd. v. ACIT

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeApplicability of decision in Maxopp Investment's case--In the facts of the present case, it was a common stand of the parties that the issue had to go back to the AO as his satisfaction in terms of the decision of the jurisdictional High Court in the case of Maxopp Investment. v. CIT (2012) 347 ITR 272 (Del) had not been recorded. The AR submitted that in the circumstances, Ground Nos. 13 & 14 raised would become infructuous. Held: The benefit of the decision of the jurisdictional High Court in the case of Maxopp Investment was not available to the AO. In view of the same, considering the request of the parties on record it was deemed appropriate to restore the issue back to the file of the AO with the direction to pass a speaking order considering the mandate of the High Court in Maxopp Investment. Needless to say that before passing of the order he would give a reasonable opportunity to the assessee of being heard. The decision, it was seen, is fortified by the decision of the Delhi High Court in the case of assessee itself wherein their Lordships clarified their earlier order dated 2-2-2012 in ITA No.1293/Del/2011 vide their order dated 17-4-2012 by stating that the necessary working and computation of the deduction under section 14A and the appeal effect has to be given/undertaken by the AO following Maxopp Investment Ltd. v. CIT in ITA No-687/2009. Accordingly, the AO in view of the above direction would pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

Income Tax Act, 1961 Section 14A

REFERRED : Maxopp Investment. v. CIT (2012) 347 ITR 272 (Del).

FAVOUR : Matter remanded.

A.Y. : 2007-08

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityContribution to Cooperative Education Fund--The assessee over the years had been claiming deduction on account of contribution made to the Cooperative Education Fund on payment basis. As per the published audited Balance Sheet & P/L Account, the net profit in accordance to Multi-State Cooperative Societies Act, 2002 had been shown at Rs.174.57 crores. In the P&L Appropriation Account, the assessee had debited an amount of Rs.1.75 crore on account of contribution payable to Co-operative Education Fund. Considering the explanation of the assessee, the AO was of the view that the claim of the assessee could not be allowed as it was not wholly and exclusively incurred for the purpose of business. He further held that it was an application of income and rejected the assessee's contention that it was allowable under section 43B on the basis of payment which is applicable only to deductible expenditure. The AO further held that it is neither cess nor tax and relying on CIT v. Jodhpur Co-op. Marketing Society (2004) 275 ITR 372 (Raj.) disallowed the same under section 37(1). The CIT(A) relying upon the orders of the ITAT for 2005-06 and 2006-07 assessment years deleted the addition made. Held: In the instant case for the first time, the Revenue had taken plea that contribution to Cooperative Education Fund was appropriation of income and not expended wholly and exclusively for the purpose of business. The assessee had made provision of 1 % of its net profits under rule 25 of Multi-State Coop. Society Rules, 2002, to be credited as contribution to Cooperative. Education Fund which is maintained by National Cooperative. Union of India Ltd., New Delhi. It is statutory requirement to contribute 1 % of its net-profits to Cooperative. Education Fund. The amount of 1 % of net profit was, therefore, not in control of the assessee. The funds had been vested in third party outside corpus of assessee itself. Therefore, the amount contributed to Cooperative Education Fund was diversion of profits at source which was eligible for deduction under section 37. The amount claimed as diversion of income remained with the assessee and formed' part of the corpus of the assessee. The AO had allowed deduction in respect of Cooperative Education Fund in earlier years. Following the decision of Supreme Court in the case Radhasoami Satsang (supra), it was held that Revenue was not permitted to take a different stand in the year under consideration. Accordingly, there was no infirmity in the order of the CIT(A) deleting the addition.