2016 (4) TMI 871 - AT - Income Tax

Expenditure incurred towards fund - Held that - The amounts spent cannot be disallowed. We, direct the AO to allow the amount spent on the above fund as deduction while computing income of the assessee-co-operative bank. Allowance of additional claim on account of loss on sale of securities - Held that - It is undisputed fact that this claim was made only in the return of income filed in response to notice u/s 148. The issue is whether the assessee is entitled to agitate the issues which were concluded in the original assessment proceedings? This additional claim was obviously not made in the original assessment proceedings nor this issue is one of those issues which is sought to be reconsidered by the AO during the course of re-assessment proceedings. Therefore, concluded issue in the original assessment proceedings cannot be re-agitated during the course of re-assessment proceedings. The ratio laid down by the Hon ble Supreme Court in the case of Sun Engineering (1992 (9) TMI 1 - SUPREME Court ) is squarely applicable to the facts of the case. Even assuming that it is only re-adjustment of claim already made, such re-adjustment is not possible in the proceedings of re-assessment. The assessee can have recourse to any other provisions of the Income-tax Act, 1961.

Issues Involved:

1. Legality of the appellate authority's order.
2. Disallowance of Rs. 33,93,782 towards Rural Farmers Socio Economic Development Fund.
3. Disallowance of Rs. 5,27,50,000 towards PACS/DCCB Fund.
4. Disallowance of Rs. 5,00,00,000 towards Special Assistance Fund.
5. Disallowance of Rs. 8,28,65,052 towards loss on sale of GOI securities.

Issue-Wise Detailed Analysis:

1. Legality of the Appellate Authority's Order:
The appellant claimed that the order of the Learned Appellate Authority is "bad in law." However, the judgment does not provide a detailed analysis or specific arguments regarding the legality of the appellate authority's order.

2. Disallowance of Rs. 33,93,782 towards Rural Farmers Socio Economic Development Fund:
The assessee-co-operative bank argued that the contributions to various funds, including the Rural Farmers Socio Economic Development Fund, were statutory obligations under the Karnataka Co-operative Societies Act, 1959, and were made to promote the business interests of the bank. The Tribunal held that the amounts spent were not capital in nature and should be allowed as deductions under Section 37(1) of the Income-tax Act, 1961. The Tribunal emphasized that the contributions were statutory obligations and were expended wholly and exclusively for the purpose of business. The Tribunal directed the AO to allow the amount spent on the above fund as a deduction.

3. Disallowance of Rs. 5,27,50,000 towards PACS/DCCB Fund:
Similar to the Rural Farmers Socio Economic Development Fund, the contributions to the PACS/DCCB Fund were argued to be statutory obligations. The Tribunal reiterated that the amounts spent were not capital in nature and should be allowed as deductions under Section 37(1) of the Income-tax Act, 1961. The Tribunal directed the AO to allow the amount spent on this fund as a deduction.

4. Disallowance of Rs. 5,00,00,000 towards Special Assistance Fund:
The assessee-co-operative bank contended that the contributions to the Special Assistance Fund were made as a statutory obligation and were necessary for the business. The Tribunal held that the contributions were statutory obligations and were expended wholly and exclusively for the purpose of business. The Tribunal directed the AO to allow the amount spent on this fund as a deduction.

5. Disallowance of Rs. 8,28,65,052 towards loss on sale of GOI securities:
The assessee-co-operative bank made an additional claim for deduction on account of loss on sale of securities in the return of income filed in response to notice u/s 148. The Tribunal held that the re-assessment proceedings are only for the benefit of the revenue, and concluded issues in the original assessment proceedings cannot be re-agitated during the course of re-assessment proceedings. The Tribunal cited the decision of the Hon'ble Supreme Court in the case of Sun Engineering Works (198 ITR 297) to support this view. Consequently, the Tribunal dismissed this ground of appeal.

Conclusion:
The Tribunal allowed the appeal in part, directing the AO to allow the amounts spent on various funds as deductions while dismissing the ground related to the additional claim for loss on sale of securities. The order was pronounced in the open court on February 29, 2016.

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