2016 (1) TMI 572 - AT - Income Tax

Area Development Fund not considered trading receipt by Tribunal, additions for AY 1992-93 & 1994-95 deleted.

The Tribunal concluded that the Area Development Fund (ADF) collection was not a trading receipt for the assessee. The additions made by the AO for A.Y. ... Addition on account of collection towards Area Development Fund - Held that:- The amount collected under the Area Development Fund is not a trading receipt in the hands of the assessee. The AO is accordingly directed to delete the addition. See Loknete Balasaheb Desai Sahakari Sakhar Karkhana Ltd. Vs. DCIT [2014 (9) TMI 264 - ITAT PUNE] - Decided in favour of assessee. Issues Involved:1. Confirmation of addition made by the AO on account of collection towards Area Development Fund for A.Y. 1992-93 and A.Y. 1994-95.2. Nature and treatment of the Area Development Fund in the hands of the assessee.3. Compliance with the directions of the Tribunal and the obligations under section 79A of the Maharashtra Cooperative Societies Act.Issue-Wise Detailed Analysis:1. Confirmation of Addition by AO:The assessee challenged the confirmation of the addition made by the AO regarding the Area Development Fund collection amounting to Rs. 6,95,775/- for A.Y. 1992-93 and Rs. 16,44,743/- for A.Y. 1994-95. The AO had disallowed the deduction, treating the fund as income. The CIT(A) upheld this view, leading to the present appeals.2. Nature and Treatment of the Area Development Fund:The Tribunal examined whether the Area Development Fund (ADF) collected by the assessee was a trading receipt or if it was impressed with an obligation to be spent for specified purposes. The Tribunal referred to its previous decision in the case of Loknete Balasaheb Desai Sahakari Sakhar Karkhana Ltd. Vs. DCIT, where it was held that the ADF is not a trading receipt when it is impressed with an obligation to be spent for specific purposes. The Tribunal noted that the ADF was collected following government directives and was utilized for socio-economic development projects, thus not forming part of the assessee's income. The Tribunal reiterated that the assessee acted as a trustee of the ADF, and the fund's utilization was strictly regulated by government guidelines and resolutions passed in the general meetings.3. Compliance with Tribunal Directions and Section 79A of Maharashtra Cooperative Societies Act:The AO was directed by the Tribunal to answer specific questions regarding the nature of the scheme under section 79A, the obligations attached to the collection, the resolutions by the board of directors, and whether the ADF receipts were income for the assessee. The Tribunal found that the assessee complied with these directives, maintaining separate accounts for the ADF and using the funds as per approved resolutions and government guidelines. The Tribunal observed that the fund was used for various development projects and social welfare activities, which were not connected to the growth of the sugar factory but aimed at socio-economic development in the area of operation.Conclusion:The Tribunal concluded that the ADF collection was not a trading receipt in the hands of the assessee. Consequently, the AO was directed to delete the additions of Rs. 6,95,775/- for A.Y. 1992-93 and Rs. 16,44,743/- for A.Y. 1994-95 from the assessee's income. The appeals filed by the assessee were allowed, and the Tribunal's decision in favor of the assessee was pronounced in the open court.Order:The appeals filed by the assessee were allowed, and the AO was directed to exclude the ADF amounts from the assessee's income for the respective assessment years. The Tribunal's order was pronounced in the open court on 26-10-2015.