TaxTMI 
TaxTMI 
2008 (3) TMI 389
X X X X Extracts X X X X
X X X X Extracts X X X X
....to others. The assessee collects milk from its members, which are primary co-operative societies, and which in turn collect milk from their members, who are cattle owners. The return for asst. yr. 1993-94 was filed on 31st Oct., 1993 showing loss of Rs. 3,20,305. In the assessment order passed under s. 143(3) on 22nd March, 1996, the AO, assessed the total income at Rs. 1,85,70,887 after making, inter alia, three disallowances/additions as under: -------------------------------------------- S.No. Disallowance / Addition -------------------------------------------- Particulars Amount -------------------------------------------- 1. Animal husbandry expenses 1,26,21,236 -------------------------------------------- 2. Cattle feed unit-Loss 28,61,328 -------------------------------------------- 3. Advertisement expenses 1,35,287 ------....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1993-94. - that the guidelines issued by the NDDB cover areas of activities, inter alia, as under: -- Animal health -- Artificial insemination -- Feeds and fodder development * Extension activities -- Central diagnostic laboratory -- Frozen semen production and supply -- Liquid nitrogen production and delivery system -- Centralized publication unit - that the expenses were incurred in terms of cl. 6 of Bye Law No. 6, which says, "making available facilities regarding veterinary, medical help and artificial fertilization and making available medicine and to make arrangement for animal insurance". - that the letter issued by the Ministry of Agriculture, Government of India, says that "the State Government, Federations and Union(s) will comply with all the terms and conditions specified by the Government of India, the NDDB and the World Bank, the EEC and other funding agencies for release of grants and/or loans under Operation Flood II for the project area." - that reliance was placed on the decisions in the following cases. (i) State of Madras vs. G.J. Coelho (1964) 53 ITR 186 (SC); (ii) Dy. CIT vs. Churu Zila Sahakari Dugdh Utpadak Sang Ltd. (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ------------------------------------------------------- * The amount includes Rs. 25,17,849 recovered through the primary societies ------------------------------------------------------- 7. It was explained by Shri Inamdar, the learned Authorised Representative that the assessee society was chosen as part of the 'Operation Flood II' programme initiated by the Government of India through the National Dairy Development Board (NDDB) and the Indian Dairy Corporation (IDC). The NDDB was headed by Dr. Verghese Kurian, who had successfully implemented a similar programme for Kaira District Co-operative Milk Union in Anand, Gujarat. The assessee society received soft loans and other financial assistance from NDDB/IDC for implementing the programme, and its Board had nominees of the NDDB and the State Government for overseeing the implementation of the above programme. 8. The CIT(A), in para 3.4 of his order, has referred to the procurement and input manual circulated by the NDDB. The Chapter 28 of this manual, titled, Package and Implementation of Technical Input Programmes deals with milk production enhancement programme, considered as 'one of the major component of An....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erwise the tests laid down by law. In our considered opinion, the issue involved in this case is covered, in favour of the assessee, by this decision of the Supreme Court. 13. A similar view was taken by the Supreme Court in the case of Eastern Investments Ltd. vs. CIT, as under: "Held, (1) that the only question that should be considered was whether the transaction was voluntarily entered into in order indirectly to facilitate the carrying on of the business of the assessee and was made on the ground of commercial expediency; (2) that as the transaction was of such a nature, it fell within the purview of s. 12(2) and the interest paid was a permissible deduction under that sub-section. In dealing with a question of income-tax, the inquiry whether the transaction could be brought within the functions of an investment company is not relevant." 14. In the case of State of Madras vs. G.J. Coelho, the assessee claimed that in computing his agricultural income from plantation, the entire interest paid by him on monies borrowed for the purpose of purchasing the plantations should be deducted as expenditure laid out or expended wholly and exclusively for the purpose the pla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uction/profits. 17. Now, we proceed to examine the facts of the present case in the light of the legal position, with regard to s. 37(1) of the Act, as discussed in the above paras. 18. In the present case the AO appears to have proceeded on the basis that the impugned expenditure benefited the cattle owners and not the business of the assessee, particularly because the assessee society was not buying milk directly from the cattle owners. He has noted in para 3 of his order that the assessee society did not own any cattle, that it did not procure milk directly from the cattle owners, that the assessee collected milk from the primary societies, that providing services for 'animal husbandry' was not a business activity of the assessee, and therefore, the expenditure was 'not incidental' to the business of the assessee. 19. The CIT(A), while disagreeing with the AO has noted that the assessee was participating in a programme (Operation Flood II) of the Government of India through NDDB and was getting financial support for this participation, and that the impugned expenditure incurred by the assessee resulted in increasing the quality and productivity of milk which the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity cattle feed to the primary societies. The assessee claimed to have incurred a loss of Rs. 28,61,328 in this unit. The AO, while disallowing this claim observed in para 2 of his order, inter alia, that the cattle feed unit was being run on no-profit no-loss basis and hence, there was no question of any loss, that the assessee had to bear heavy interest burden to supply cattle feed, that the expenditure/loss relating to cattle feed unit could not be allowed as it was not its business activity, that the assessee had purchased cattle feed from the market at a higher price and supplied it to consumers at lower price, that if there was a loss, it had to be distributed amongst the consumers. The CIT(A) allowed the claim and his order has been challenged by the Department in this appeal. 23. It was pointed out by Shri Inamdar, the learned Authorised Representative that this issue was covered in favour of the assessee by the decision of Punjab & Haryana High Court in the case of CIT vs. Panipat Co-operative Sugar Mills Ltd. (2002) 176 CTR (P&H) 83 : (2002) 256 ITR 371 (P&H). 24. In the case of Panipat Co-operative Sugar Mills Ltd. the assessee, a co-operative society, was running ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Court in the case of CIT vs. Shree Panchaganga Sahakari Sakhar Karkhana Ltd. (2001) 170 CTR (Bom) 202 : (2001) 250 ITR 772 (Bom). 28. In the case of Shree Panchaganga Sahakari Sakhar Karkhana Ltd. the assessee incurred a sum of Rs. 1.60 lakhs on account of "Shubhechha" greeting issued in a Marathi newspaper on the occasion of Diwali. The AO disallowed the advertisement expenses. The Tribunal, on an examination of the advertisement, came to the conclusion that it was an expenditure necessary to maintain cordial relationship between the assessee and its members and that the amount constituted revenue expenditure. The Bombay High Court held that the finding of the Tribunal was a pure finding of facts and no question of law arose from his order. Therefore, the expenses incurred by the assessee on account of "Shubhechha" greetings constituted revenue expenditure. 29. We have considered the rival submissions in the light of material on record and the precedent cited. The CIT(A) allowed the assessee's claim for the reasons given in paras 8.2 and 8.3 of his order. It was submitted on behalf of the assessee that the so-called 'good wishes' were in the nature of advertisements pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has erred in allowing audit fees though the fact does not define the term "duty" and/or "fees". 33. The assessee had shown audit fee payable as on 31st March, 1995 at Rs. 17,25,000. It was noticed by the AO that it included Rs. 3,75,000 payable for earlier years. The AO disallowed this amount under s. 43B of the Act. The CIT(A) deleted this addition for the reasons given in para 15 of his order as under: "15. The AO made impugned disallowance by invoking the provisions of s. 43B. I find that the issue is covered by the decision of the Hon'ble Tribunal, Pune Bench, Pune in the appellant's own case for asst. yr. 1989-90. In terms of the said decision, it has been held that the provisions of s. 43B do not apply to audit fees. The impugned disallowance is therefore, deleted. The appellant is entitled to a relief of Rs. 3,75,000 in respect of this ground." 34. We find that this issue is covered in favour of the assessee by the decision of the Bombay High Court in the case of CIT vs. Shree Warna Sahakari Sakhar Karkhana Ltd. (2002) 173 CTR (Bom) 188 : (2002) 253 ITR 226 (Bom). In that case the Bombay High Court held as under: "Held, that the concept of "fees" referred to in ....