2016 (5) TMI 924 - AT - Income Tax

Tribunal upholds CIT(A) decisions on disallowances of provisions, audit fees, interest, commission, and subsidy.

The ACIT, Circle- 1, Kota Versus M/s. Kota Zila Dugdh Utpadak Sahakari Sangh Ltd. and Vica-Versa

The ACIT, Circle- 1, Kota Versus M/s. Kota Zila Dugdh Utpadak Sahakari Sangh Ltd. and Vica-Versa - TMI Issues Involved:1. Deletion of disallowance of provision for pay arrear payment.2. Deletion of disallowance of provision for audit fees.3. Deletion of disallowance of provision for interest.4. Deletion of disallowance of proposed commission.5. Deletion of addition on account of unutilized subsidy treated as cessation of liability under Section 41.Detailed Analysis:1. Deletion of Disallowance of Provision for Pay Arrear Payment:The Revenue challenged the deletion of a disallowance of Rs. 89,25,724/- for pay arrear payment. The Assessing Officer (AO) disallowed the provision as the amount was not paid during the year under consideration. The CIT(A) deleted the disallowance, stating the provision was made per Sixth Pay Commission recommendations and approved by the Rajasthan Cooperative Dairy Federation. The Tribunal upheld the CIT(A)'s decision, noting the provision was a clear liability and did not require actual payment within the year.2. Deletion of Disallowance of Provision for Audit Fees:The AO disallowed Rs. 5,59,294/- for audit fees due to lack of payment details by the return filing date, citing Section 43B. The CIT(A) deleted the disallowance, clarifying that audit fees are not covered by Section 43B. The Tribunal supported this view, referencing the Bombay High Court decision in CIT vs. Shree Warna Sahakari Sakhar Karkhana, confirming audit fees do not fall under Section 43B.3. Deletion of Disallowance of Provision for Interest:The AO disallowed Rs. 2,05,000/- for provision for interest on a government loan due to non-payment details by the return filing date. The CIT(A) deleted the disallowance, stating the provision did not relate to the current year. The Tribunal agreed, affirming the CIT(A)'s decision as the provision was for a different period.4. Deletion of Disallowance of Proposed Commission:The AO disallowed Rs. 16,34,209/- for proposed commission due to non-payment during the year. The CIT(A) deleted the disallowance, explaining the commission was an allowable expenditure as per the society's guidelines, payable upon passing a resolution. The Tribunal upheld this, noting the commission was debited to the trading and profit and loss account and credited to individual cooperative societies' accounts, payable as per the society's bye-laws.5. Deletion of Addition on Account of Unutilized Subsidy Treated as Cessation of Liability Under Section 41:The AO treated Rs. 8,73,729/- of unutilized subsidy as cessation of liability under Section 41, adding it to the total income. The CIT(A) deleted the addition, stating the subsidy did not relate to the current year. The Tribunal agreed, noting the unutilized subsidy was a capital receipt from the Government of Rajasthan, not a loss, expenditure, or trading liability, and thus not covered under Section 41.Conclusion:The Tribunal dismissed the Revenue's appeal on all grounds, supporting the CIT(A)'s deletions. Additionally, the cross-objection (C.O.) by the assessee was dismissed due to lack of specific or explicit grounds. Thus, both the Revenue's appeal and the assessee's C.O. were dismissed.