TaxTMI 
TaxTMI 
2018 (2) TMI 507
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....ic finding given by the assessing officer and also merely proceeding on a change of opinion, and also ignoring the settled past history, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dt. 14.03.2016 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed. 3. The ld. Pr. CIT, Ajmer erred in laws as well as on the fact of the case in misinterpreting the provision of u/s 40A(9) of the Act by holding that the claim of the assessee by transferring the funds to the General Reserve, Education Reserve and towards Gratuity Fund (which were paid to comply with the specific requirement of the relevant law, governing the appellant Cooperative Society), were not allowable claims. The deduction so claimed was fully allowable u/s 40A (9) and/or, in any case, u/s 37 (1) of the Act and hence, were rightly allowed by the Assessing Officer in the assessment order dated 13.12.2013. Therefore, the disallowance so made by the ld. Pr. CIT in the impugned order u/s 263 of the Act being contrary to the provisions of law and facts kindly be deleted full." 2. Briefly stated, the facts of the case are that assessee is ....
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....ision for gratuity are allowable expenditure within the provision of section 40A(9). It has also been argued that the Reserves were made as per the statutory requirements of the Rajasthan Cooperative Societies Act 2001. Section 40A(9) is quoted below: "(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individual, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except, where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) or clause (iva) or clause (v) of sub-section (1) of section 36, or as required by or under any other law for the time being in force." The point of the assessee that the reserves created u/s 43 & 48 of the Rajasthan Cooperative Societies Act 2001, qualify for deduction in the Income Tax Act, is not tenable because section 40A(9) specifies the funds contribution to which by the assessee as an Employer can qualify for deduction. As per section 40A(9) any some paid/contributed....
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....available at APB 28-29 and the assessee replied to the same vide its letter dated 28.10.2013 available at APB 30-32. In this regard, the ld AR drawn our reference to the findings of the AO contained in the assessment order which reads as under: "During the year under consideration, the society has shown total turnover of Rs. 10,55,05,974/-. The transactions are certified by the Local Audit and assessed by Sales Tax Authorities as per VAT annual return furnished in Form No. 10A on 15.03.2013. On the above sales a Gross Profit of Rs. 28,86,098/- and Net Profit of Rs. 15,10,265/- has been shown. On P&L Appropriation Account Rs. 377,566/- transferred to General Reserve and Rs. 15,103/- has been transferred to Education Reserve account as per by laws of Society Act, thereafter income eligible for income tax shown at Rs. 11,17,596/-. In the P&L Account income tax of Rs. 68,808/- has been debited which has been added back for computation of income. Thus a sum of Rs. 701,331/- has been shown as business income for the year." 7. The ld AR further submitted that the assessee has been claiming these deductions towards transfer to reserves since its inception and the same has been ....
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....rved out in Sec.40A(9) to the effect that deduction was allowable even if it was required by/or under any other law for the time being in force. 3.2.3 The Ld. Pr CIT failed to appreciate that the first part of Sec.40A(9) starts negatively and while disallowing certain payments by the assessee as an employer towards the setting up for formation or a contribution to any fund, trust, company etc but two exception carved out are as under: (a) Where such sum if so paid for the purposes and to the extent provided u/s 36(i),(iv),(v) (vi)(i.e. contribution towards recognized provident fund) etc. approved gratuity fund (b) .......or as required by/or under any other law for the time being in force" 3.3 The entire stress of the ld. Pr CIT has been on the upper part of Sec.40A(9). Though she took note of the second exception but however, she failed to apply the same on the facts of the present case. It is pertinent to note that the ld. Pr CIT has nowhere denied that by virtue of Sec.43 and Sec.48 of The Rajasthan Cooperative Societies Act, 2001, the appellant society was obliged to transfer every year, 25% of its profits to General Reserve Fund and 1% to Ed....
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....quirement of Warehousing Corporation Act, 1962 was allowed u/s 40A(9) which was allowed to the assessee earlier also. 4. Alternatively, all the subjected amounts if treated expenditure were allowable u/s 37(1) of the Act in as much as there is no dispute that the entire payment was made wholly and exclusively for the purposes of the business. 5.1 Diversion of income by overriding title: It is submitted that the transfer to General Reserve, Education Reserve and Provisions for Gratuity, are in fact a charge upon the income/ profit of the assessee in as much as by/under the relevant law, it has been made binding upon the appellant society to transfer its contributions as required in the relevant law without which they may lose their status of being a cooperative society and thus, such contributions are a essential part of the cost and the income to that extent is diverted before it reaches to the assessee. Therefore, even such contributions are made out of the profit yet however, the same are statutory liabilities and had and overriding charge over the income/profit of the assessee. Looking the matter from this angle, it seems that such contribution were rightly red....
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.... u/s 263 was void ab intio. In support, reliance was placed on the following decisions: Sirpur Paper Mill Ltd vs CWT (1970) 77 ITR 6 (SC) Dharmendra Kumar Bansal vs. CIT (2014) 101 DTR 0377 (JP) CIT vs Sohana Wollen Mills (2008) 296 ITR 238 (P&H) Jeewanlal (1929) Ltd. vs. Addl. CIT & Ors. (1977) 108 ITR 407 (Kol) Sartaj Singh vs Pr. CIT (2016) 179 TTJ 0017 (UO)(Asr) Jaswinder Singh vs. CIT (2013) 31 taxmann.com 80 (Chandigarh- Trib) 9. The ld DR has vehemently argued the matter and relied upon the order of the ld Pr CIT. 10. We have heard the rival contentions and perused the material available on record. Firstly, regarding the contention of the ld AR that the AO has examined the matter after various enquiries and investigation and therefore, it is a case of change of opinion, we have gone through the query letter issued by the AO dated 14.10.2013 to which our attention was drawn and available at APB Pg 28-29 and also the response of the assessee dated 28.10.2013 available at APB Pg 30- 32 and we find that there is no specific query and consequent submission regarding general and education reserves as well as provision for....
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.... these are allowable alternatively under section 40A(9) or under 37(1) or the same are divergent of income by overriding title are precisely the matters which the AO should have ordinarily examined in the regular course of assessment proceedings which the AO has failed in the instant case. The same would have been possible had the AO examined the matter at first place which the AO has failed in the instant case. It is clearly a case of non-examination and non-application of mind by the AO and the order of the AO is clearly erroneous to this extent. 12. Now coming to another contention of the ld AR that the ld. Pr CIT has not shown any special reason or a new ground or material change in the legal and factual position, which prevailed for a long period of 6 years where the assessee has been claiming these deductions towards transfer to reserves since its inception and the same has been allowed and reference was drawn to the assessment order passed for assessment year 2006-07 wherein the similar deduction has been allowed. In this regard, we find that the ld Pr CIT has given a clear reasoning and finding in her order as to why the provisions of section 40A(9) are not attracted in ....
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....s that the ld Pr CIT may call for and examine the record of any proceedings under this Act. The term "record" has been defined as to include and shall be deemed always to have included all records relating to any proceedings under this Act available at the time of examination by the Pr CIT. In the instant case, it is not disputed that the revenue audit memo is part of the records. The Pr CIT has examined the assessment records as well as revenue audit memo available on record and after examining the same and providing a detailed reasoning in the revision order come to a conclusion that the assessment order passed under section 143(3) is erroneous and prejudicial to the interest of the Revenue. It is therefore not a question of borrowed satisfaction on the part of the ld Pr CIT wherein merely on account of revenue audit memo, she has initiated the proceedings under section 263. Rather she has examined the records and independently applied her mind and has come to a conclusion that the assessment order is erroneous and prejudicial to the interest of the revenue. The decisions relied upon by the ld AR are rendered in the peculiar facts of the case and are distinguishable. 15. Regar....