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2017 (7) TMI 1306 - AT - Income TaxCooperative Development Expenses allowability - Disallowance being assistance given to JKMPC Ltd. - whether such expenditures are wholly and exclusively for the purpose of business it does not give any enduring benefit? - HELD THAT - Expenditure incurred by way of assistance to Jammu Kashmir Milk Producers Co-operative Limited are not at all of capital in nature or of any benefit enduring nature. The same are incurred in the normal course of business activities and in furtherance of milk and Amul products. The expenditures are incurred wholly and exclusively for the purpose of business. The decision cited above in case of Valsad District Co.op. Society 2011 (1) TMI 1526 - ITAT AHMEDABAD in the ratio decided therein is fully applicable to Appellant s case we therefore hold that the expenditure incurred of 150 lakhs being the expenditure incurred as assistance to Jammu Kashmir Milk Producers Co-operative Limited are of revenue in nature and same be allowed. - Decided in favour of assessee Depreciation of Amul Parlour at 10% as against 100% depreciation claimed by the Appellant - HELD THAT - Matter was decided in favour of assessee by the Hon ble ITAT in assessee s own case for A.Y.2002-03 2010 (3) TMI 1246 - ITAT AHMEDABAD and now the same has been confirmed by the Hon ble Gujarat High Court in assesses own case 2014 (2) TMI 31 - GUJARAT HIGH COURT as held hats milk dairy procure land on lease basis and constructed temporary sheds for sale of milk products and Hon ble High Court has also cited similar decision in the case of CIT vs. TVS Lean Logistics Ltd. 2007 (6) TMI 44 - HIGH COURT MADRAS and held that construction of building on a leasehold land resulted into assessee only a business advantage and the assessee cannot be stated to have acquired any capital asset. Disallowance of expenditure of Director s visit to various Dairy plants - AO disallowed the expenditure being incurred by the Directors of this co-operative society on the ground that they are not incurred for the purpose of business - CIT (A) confirmed the disallowance in his order holding that Directors visited the plant at Jammu Kashmir from which the Appellant is getting the Pouch Milk and held that assessee could not explain how the visit of Directors at Plant of Jammu Kashmir was manifested to the assessee and how it is concerned that the standard of Plant of Federation which is situated in different States - HELD THAT - Once we have held that the expenditure incurred by the Assessee for dairy development incurred to assist JKMPC Ltd. is revenue expenditure then the expenditure incurred by the Directors of the cooperative society are also akin to the business of the society. There is no element of any capital expenditure incurred therein. The expenditure incurred accordingly are allowed as revenue expenditure. This ground of Appeal is accordingly allowed. Addition on account of reimbursement of member unions against Co-op. Development Expenses - HELD THAT - A.O. heavily relied on his argument that these are part of the dairy development expenditure and reiterated that the expenditure are fully covered by the decision of Ahmedabad ITAT in the case of Valsad District Co-Op. Society 2011 (1) TMI 1526 - ITAT AHMEDABAD . In view of this we held that the expenditure of 124.60 lakh incurred on account of emoluments of member unions are allowed as revenue expenditure. The Appeal of the Revenue is dismissed accordingly. Disallowance of Amul Yatra Expenses - business expenditure - HELD THAT - We hold that the expenditure incurred on Amul Yatra is incurred by the appellant for business purpose the same is part and parcel of the dairy development expenditure incurred in normal course of business. In view of this the expenditure incurred by the appellant are allowable expenditure. This ground of Appeal of Revenue is dismissed. Nature of expenses - expenditure claimed as repair to the damage caused to the plant - revenue or capital expenditure - HELD THAT - Expenditure incurred is to restore and repair the existing plant and commissioning the same which was stopped due to heavy damage. The fact that in subsequent year insurance receipt has been taxed as revenue income is also confirmed in the statement of income filed for A.Y.2008-09. Once the assessee and department have taken a view that insurance claim received on the damage of one big plant is a revenue income the corresponding expenditure incurred towards such insurance claim for replacement and repair expenditure incurred of 87 lakh has to be treated as revenue in nature. Particularly relying on the decision of CIT vs. Saravana Spinning Mills Limited 2007 (8) TMI 16 - SUPREME COURT . The Assessee s appeal accordingly allowed considering the expenditure of 87 lakhs as revenue Allowable revenue expenditure - Expenditure on Dairy Development are wholly and exclusively for the purpose of business and therefore are allowable as revenue expenditure - various expenditures incurred in form of Co. Op. Development expenses are not at all of capital in nature or of any benefit enduring nature. The same are incurred in the normal course of business activities and in furtherance of milk and Amul products. The expenditures are incurred wholly and exclusively for the purpose of business - Assessee appeal allowed.
Issues Involved:
1. Validity of notice issuance under Section 147 of the Income Tax Act. 2. Disallowance of expenses under Section 14A of the Income Tax Act. 3. Classification of expenses as capital or revenue in nature. 4. Treatment of security deposits written back as income. 5. Charging of interest under Section 234B of the Income Tax Act. 6. Allowance of additional depreciation under Section 32(1)(iia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of Notice Issuance under Section 147: The assessee challenged the issuance of notice under Section 147, arguing that there was no escapement of income, making the reopening invalid. However, this ground was not pressed by the appellant and was subsequently dismissed. 2. Disallowance of Expenses under Section 14A: The assessee contested the disallowance of ?72,855 and ?51,800 under Section 14A, arguing that no expenses were incurred to earn exempt dividend income. The Tribunal noted that the appellant did not press this ground due to the smallness of the amount involved, leading to the dismissal of this ground. 3. Classification of Expenses as Capital or Revenue in Nature: - Assistance to JKMPC Ltd.: The Tribunal evaluated the expenditure of ?150 lakhs given to Jammu & Kashmir Milk Producers' Co-operative Limited. The assessee argued that the expenditure was for cooperative development and was incurred wholly and exclusively for business purposes. The Tribunal, referencing past decisions and the nature of the expenditure, concluded that this was a revenue expenditure and allowed the appeal. - Repairs to Plant: An expenditure of ?87 lakhs was treated as capital by the AO but claimed as revenue by the assessee. The Tribunal, considering the nature of the repairs and the fact that the insurance claim received was treated as revenue, ruled the expenditure as revenue in nature and directed the AO to delete the disallowance. - Amul Parlours Depreciation: The AO allowed only 10% depreciation on Amul Parlours, while the assessee claimed 100%. The Tribunal, referencing past decisions, including the Gujarat High Court's ruling, allowed the appeal, granting 100% depreciation. 4. Treatment of Security Deposits Written Back as Income: The assessee argued that the security deposits written back, amounting to ?237 lakhs, should be treated as capital receipts and not income. However, this ground was not pressed by the appellant, leading to its dismissal. 5. Charging of Interest under Section 234B: The assessee contested the interest charged under Section 234B. The Tribunal upheld the charging of interest but directed that it should be recalculated after giving effect to the Tribunal's order, thereby partly allowing this ground. 6. Allowance of Additional Depreciation under Section 32(1)(iia): The Revenue challenged the deletion of additional depreciation of ?54 lakhs and ?10.99 lakhs by the CIT(A), arguing that no new identifiable product came into existence. The Tribunal, referencing its previous decisions, upheld the allowance of additional depreciation, dismissing the Revenue's appeal. Consolidated Order: The Tribunal consolidated the appeals for convenience, addressing the issues across multiple assessment years (2005-06, 2007-08, 2008-09, and 2009-10). The Tribunal rectified errors in the original order dated 30th September 2016, recalling it and passing a fresh order. Assessment Year 2005-06: - The Tribunal allowed the appeal regarding the disallowance of ?150 lakhs for assistance to JKMPC Ltd. and ?2.17 lakhs for directors' visit expenses. - The appeal regarding depreciation on Amul Parlours was allowed, granting 100% depreciation. - The appeal against the disallowance under Section 14A and interest under Section 234B was dismissed. Assessment Year 2007-08: - The Tribunal dismissed the appeal regarding the transfer to reserve fund under Section 67 of the Gujarat Co-op. Societies Act. - The appeal for 100% depreciation on Amul Parlours was allowed. - The appeal against the disallowance of ?72,855 under Section 14A was dismissed. - The Tribunal allowed the appeal regarding the ?87 lakhs repair expenses, treating them as revenue expenditure. - The appeal regarding security deposits written back was dismissed. Assessment Year 2008-09: - The Tribunal dismissed the appeal regarding the transfer to reserve fund. - The appeal for 100% depreciation on Amul Parlours was allowed. - The appeal against the disallowance of ?63,929 under Section 14A and ?24,812 interest was dismissed. - The Tribunal upheld the additional depreciation of ?10.99 lakhs and dismissed the Revenue's appeal. Assessment Year 2009-10: - The Tribunal dismissed the appeal regarding the transfer to reserve fund and the disallowance of ?5.40 crores. - The appeal for 100% depreciation on Amul Parlours was allowed. - The Tribunal dismissed the Revenue's appeal regarding Amul Yatra expenses. Conclusion: The Tribunal partly allowed the appeals filed by the assessee and dismissed the appeals filed by the Revenue, providing specific directions for each issue based on the detailed analysis of the facts and applicable legal precedents.
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