2012 (11) TMI 744 - AT - Income Tax

Tribunal partially allows departmental appeals, directs re-examination of Arakshit Nidhi, confirms deletion of additions.

The tribunal partly allowed the departmental appeals for statistical purposes, directing the re-examination of the Arakshit Nidhi issue while confirming ... Interest on FDR from Reserve Fund - AO found that assessee claimed exemption of interest of Rs.38,69,627/- received on the funds deposited with the bank for the purpose of pension, gratuity and other retirement benefits of the employees – Held that:- Fund was not a superannuation fund - assessee did not press his claim u/ss 10(25) and 36(1)(xii) of the IT Act before the Tribunal as was the claim made before the authorities below therefore, the claim of the assessee could not be considered under those provisions - assessee received interest on the funds deposited with the bank in this regard. Since the reserve funds remained with the assessee therefore, interest earned on such funds shall be income of the assessee – Against assessee Contribution made for meeting the future liability on account of pension, gratuity etc. – Held that:- Assessee is admittedly maintaining cash system of accounting – Held that:- Authorities below has however not considered the rule referred to by ld. Counsel for assessee in his arguments and have also not given any finding if the assessee spent any actual amount on this hand under the year appeal because on provision basis this year, the assessee might have made claim in earlier year for which, the amount could have been spent by the assessee - issue requires reconsideration at the level of the AO – matter remanded to AO Disallowance on statutory payments paid under the Mandi Act - assessee claimed the above amount as deduction in the income and expenditure account in the form of board fees – alleged that it was a transfer of fund to the mother concern – Held that:- Assessee paid the election amount as per the requirements of the Act as noted above as well as per the directions of the Board, therefore, it was a statutory payment made by the assessee for the purpose of running of the activity of the assessee - assessee has debited Rs.10 lacs under the head election expenses which is also mentioned in the income and expenditure account. Therefore, the authorities below were not justified in disallowing the aforesaid expenditure which his paid by the assessee out of the market committee funds. Since the amount is incurred for the purpose of running the activity of the assessee, therefore, it was allowable deduction - Assessing Officer directed to allow the deduction Issues Involved:1. Deletion of additions made by the Assessing Officer on account of Arakshit Nidhi.2. Deletion of additions related to Kisan Sadak Nidhi, Goshala Anudhan, Adhosaranchana Nidhi, Gausanvardhan Nidhi, and Board Shulk.3. Disallowance of payment of election expenses.Detailed Analysis:1. Deletion of Additions on Account of Arakshit Nidhi:The revenue challenged the deletion of additions made by the Assessing Officer concerning Arakshit Nidhi. The ITAT Indore had previously decided on this issue in the case of Krishi Upaj Mandi Samiti, Burhanpur. The tribunal found that the assessee's claim for exemption of interest on funds deposited for pension, gratuity, and other benefits was not valid as the fund was not registered under the superannuation fund u/s 10(25) of the IT Act. The contributions to Arakshit Nidhi were also disallowed as they were considered a reserve for future liabilities and not an allowable expenditure under section 36(1)(xii). The tribunal noted that the reserve funds remained under the control of the assessee and the interest earned on such funds was income of the assessee. However, the tribunal directed the Assessing Officer to re-examine the nature and timing of the expenditure related to Arakshit Nidhi, allowing the issue for statistical purposes.2. Deletion of Additions Related to Kisan Sadak Nidhi, Goshala Anudhan, Adhosaranchana Nidhi, Gausanvardhan Nidhi, and Board Shulk:The tribunal found that the facts and circumstances of these issues were identical to the case of Krishi Upaj Mandi Samiti, Burhanpur. In that case, the tribunal had allowed the deduction of statutory payments made under the Mandi Act, noting that such payments were statutory liabilities and allowable under section 36(1)(xii) read with section 37 of the IT Act. The tribunal concluded that these payments were made to achieve the objectives of the assessee institution as mandated by the special Act under which it was established. Consequently, the tribunal found no infirmity in the orders of the CIT(A) and decided these issues in favor of the assessees.3. Disallowance of Payment of Election Expenses:The tribunal referred to its previous decision in the case of Krishi Upaj Mandi Samiti, Shujalpur, where it was established that election expenses were statutory payments made under the MP Krishi Upaj Mandi Adhiniyam. Sections 38 and 39 of the Act provided that all moneys received by the market committee should be used for statutory purposes, including election expenses. The tribunal noted that the assessee had debited the election expenses in the income and expenditure account, and these were statutory payments necessary for the running of the assessee's activities. Therefore, the tribunal directed the Assessing Officer to allow the deduction for election expenses, confirming the order of the CIT(A).Conclusion:The tribunal partly allowed the departmental appeals for statistical purposes, directing the re-examination of the Arakshit Nidhi issue while confirming the deletion of additions related to statutory payments and election expenses.