2018 (8) TMI 1839 - AT - Income Tax

Disallowance being amount transferred to reserve fund u/s.67 of Gujarat Co. Op. Societies Act - whether said amount be allowed as claimed? - HELD THAT - The assessee is a co-operative society registered under the Gujarat Co-operative Societies Act, 1961. As stated, it was formed as a Food Product Marketing Organization with 17 District Co-operative Milk Producers Unions as its members. The assessee is engaged in the business of marketing and manufacturing of milk and milk products. The AO in the course of scrutiny assessment inter alia noticed that the assessee has claimed deduction of ₹ 6,84,95,000/- transferred to reserve fund as a revenue expenditure. It was the case of the assessee before the lower authority that transfer to such fund is allowable expenditure being statutory obligation of the assessee and simultaneously assessee does not have any right over the said funds once the same is transferred. The AO as well as the CIT(A) held that the aforesaid transfer to reserve fund is not in the nature of charge to Profit Loss Account and is merely an appropriation of funds. Similar view has been taken in assessee s own case by the co-ordinate bench of Tribunal. Therefore, the issue is no longer res integra. In parity with the decision of the co-ordinate bench in earlier years, the appeal of the assessee on the aforesaid subject matter requires to be dismissed. Maintainability of breed improvement expenses as revenue expenditure - Addition on account of Co-op. Development Expenses which includes breed improvement expenses - Whether such expenditure is not connected with the ordinary course of business of the assessee and that the Co-operative Development Expenses are of enduring nature and therefore they are capital in nature? - HELD THAT - The expenses have been incurred to optimize the productivity and quality of the milk and milk products. For this purpose, the assessee has incurred expenses towards fertility improvement programme and has inter alia taken educational programme with the object of imparting education, training and information for development and strengthening the co-operative structure and thereby improving milk productivity. In the process to achieve such objects, the assessee has incurred expenditure to the tune of ₹ 824.94 Lakhs which is in the nature of revenue expenditure to improve the quality and bring efficiency in production as well as to achieve unfettered supply. In this background, the CIT(A) observed that identical issue involved in preceding assessment years have been decided in favour of the assessee by the predecessor CIT(A) and the claim of such expenditure was accepted as revenue expenditure.

Summary

Issues: Appeal filed by Assessee and Revenue against CIT(A) orders for AYs 2011-12 & 2012-13.

Analysis:
1. ITA No. 3023/Ahd/2014 - AY 2011-12:
- The Assessee challenged the disallowance of ?6,84,95,000 transferred to reserve fund under Gujarat Co-Op Societies Act, claiming it as allowable expenditure. However, the AO and CIT(A) held it as an appropriation of funds, not a charge to Profit & Loss Account. The Tribunal, following precedent, dismissed the appeal as the issue was already decided against the Assessee.

2. ITA No. 3220/Ahd/2014 - AY 2011-12:
- Revenue contested the deletion of ?8,24,94,000 Co-op. Development Expenses, including breed improvement expenses, arguing they were capital in nature. The Assessee justified the expenses for milk quality improvement and productivity. The CIT(A) upheld the expenses as revenue, citing previous favorable decisions. The Tribunal, in line with precedent, dismissed Revenue's appeal.

3. ITA No. 2533/Ahd/2016 - AY 2012-13:
- Revenue challenged the allowability of ?863.40 Lakhs breed improvement expenses. Following the decision in the previous appeal, the Tribunal upheld the CIT(A)'s order, considering the expenses as allowable revenue expenditure.

In all three appeals, the Tribunal upheld the CIT(A)'s orders, emphasizing the nature of expenses, previous decisions, and the purpose of expenditure in improving milk quality and productivity. The judgments were delivered on 02/08/2018.