ITAT Ruling: Disallowance upheld under various sections, but provision written back deemed non-taxable.

The ITAT upheld the disallowance of the claim under section 36(1)(viii) for the amount transferred to a special reserve, disallowance of grant given to Cooperative Union Federation under section 36(1)(xii), disallowance under section 14A, taxability of interest income of North Kerala Dairy Project, and disallowance of contribution to Employees Recreation Trust under section 40A(9). However, the ITAT allowed the deletion of the addition of provision written back, stating it was not taxable when made and its reversal does not result in taxable income. The assessee's appeal was partly allowed for statistical purposes, while the revenue's appeal was dismissed.

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Issues Involved:
1. Disallowance of claim u/s 36(1)(viii)
2. Disallowance of grant given to Cooperative Union Federation u/s 36(1)(xii)
3. Disallowance u/s 14A
4. Taxability of interest income of North Kerala Dairy Project
5. Disallowance of contribution to Employees Recreation Trust u/s 40A(9)
6. Deletion of addition of provision written back

Detailed Analysis:

Ground No. 1: General Nature
- This ground does not require adjudication and is dismissed.

Ground No. 2: Disallowance of claim u/s 36(1)(viii)
- The assessee claimed a deduction of Rs. 5,36,79,690/- u/s 36(1)(viii) for the amount transferred to a special reserve. The assessing officer and CIT(A) disallowed this claim, referencing ITAT's decision for AY 2003-04, which held that the assessee's activities did not qualify as long-term finance for agricultural and industrial development. The ITAT upheld this disallowance, following its previous decisions for AY 2003-04 and AY 2008-09, and dismissed the assessee's appeal.

Ground No. 3: Disallowance of Rs. 13,69,559/- being grant given to Cooperative Union Federation u/s 36(1)(xii)
- The assessing officer disallowed Rs. 13,69,559/- given to Bangalore Urban and Rural District Co-operative Milk Producers Society Union Ltd., treating it as a grant rather than deductible expenditure. CIT(A) upheld this disallowance, noting the assessee failed to prove the genuineness of the transactions. ITAT restored the matter to the assessing officer for re-adjudication, following its decision for AY 2008-09.

Ground No. 4: Disallowance u/s 14A
- The assessing officer disallowed Rs. 2,32,10,571/- u/s 14A, stating the assessee incurred expenses to earn exempt income. The CIT(A) upheld this disallowance. ITAT, referencing its decision for AY 2008-09, restricted the disallowance to Rs. 10 lacs as administrative expenditure, acknowledging that the assessee had sufficient interest-free funds and minimal reshuffling of investments.

Ground No. 5: Taxability of interest income of North Kerala Dairy Project
- The assessee argued that the interest income of Rs. 2,30,90,542/- from the North Kerala Dairy Project was not taxable, claiming it acted as a nodal agency and the income was diverted at source. The CIT(A) and ITAT, referencing previous decisions up to AY 2008-09, held that the interest income was taxable. The assessee's appeal was dismissed.

Ground No. 6: Disallowance of Rs. 3,20,775/- being contribution to Employees Recreation Trust u/s 40A(9)
- The assessing officer disallowed Rs. 3,20,775/- contributed to the Employees Recreation Trust, and CIT(A) upheld this disallowance, referencing ITAT's decision for AY 2003-04. ITAT, following its decision for AY 2007-08, dismissed the assessee's appeal.

Revenue's Appeal: Deletion of addition of Rs. 45,00,00,000/- being provision written back
- The assessing officer disallowed the provision written back, stating the assessee did not prove the provision was taxed in earlier years. CIT(A) allowed the assessee's claim, referencing similar deletions in AY 2007-08 and 2008-09. ITAT upheld CIT(A)’s decision, referencing its decision for AY 2007-08, stating the provision was not taxable when made, and its reversal does not result in taxable income.

Conclusion:
- The assessee's appeal is partly allowed for statistical purposes, and the revenue's appeal is dismissed.

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