2016 (5) TMI 924 - AT - Income Tax

Disallowance of provision on account of pay arrear payment - Held that - As find from the records that the notification was issued by the Finance Department, Govt.of Rajasthan to pay the arrear of Sixth Pay Commission to the Govt. employees in two equal instalments and the sanction was also accorded by the Registrar of Cooperative Society, Govt. of Rajasthan, Jaipur also vide its order dated 5-07-2011 in the assessee company s employees. We find that the ld. CIT(A) has rightly deleted the addition - Decided against revenue Disallowance of provision for audit fees - Held that - We find from the Income Tax Act, 1961 that Audit Fee is not covered by section 43B of the I.T. Act. The ld. CIT(A) has rightly deleted the addition made by the AO on account of Audit Fee as it is not covered by Section 43B of the Act. To this effect, the decision of Hon ble Bombay High Court in the case of CIT vs. Shree Warna Sahakari Sakhar Karkhana, (2001 (7) TMI 54 - BOMBAY High Court) is relied on wherein it is confirmed that the provisions of Section 43B do not apply to the Government Audit Charges - Decided against revenue Disallowance on account of provision for interest - Held that - We feel that when the provision for interest does not relate to this year then the ld. CIT(A) has rightly deleted the addition made by the AO.- Decided against revenue Disallowance of proposed commission in the absence of payment details - Held that - It is observed from the record that the assessee society as per its constitution and guidelines have to pay 1.5% procurement overhead expenses (proposed commission) to its member cooperative societies and proposed cooperative societies and such expenses are debited to trading and profit and loss account and credited to individual cooperative societies / proposed cooperative societies account. This amount is paid to its member cooperative societies and proposed cooperative societies as and when required as per the bye laws of assessee society. We find that the ld. CIT(A) has rightly deleted the addition made by the AO as to overhead expenses which is paid to the respective societies on passing a Resolution.- Decided against revenue Addition on account of unutilized subsidy which was treated as cessation of liability u/s 41 - Held that - It appears from the record that the subsidy is not a loss, expenditure or trading liability incurred by the assessee. The unutilized subsidy is the capital receipt from Govt. of Rajasthan at the time of the inception of organization and reconciliation of accounts as when is finalized then the same will be paid back to the Govt. Hence, it does not amount to cessation of the liability and it does not cover u/s 41 of the Act. Therefore, we find that the ld. CIT(A) has rightly deleted the addition made by the AO - Decided against revenue

Summary

Issues Involved:

1. Deletion of disallowance of provision for pay arrear payment.
2. Deletion of disallowance of provision for audit fees.
3. Deletion of disallowance of provision for interest.
4. Deletion of disallowance of proposed commission.
5. Deletion of addition on account of unutilized subsidy treated as cessation of liability under Section 41.

Detailed Analysis:

1. Deletion of Disallowance of Provision for Pay Arrear Payment:

The Revenue challenged the deletion of a disallowance of ?89,25,724/- for pay arrear payment. The Assessing Officer (AO) disallowed the provision as the amount was not paid during the year under consideration. The CIT(A) deleted the disallowance, stating the provision was made per Sixth Pay Commission recommendations and approved by the Rajasthan Cooperative Dairy Federation. The Tribunal upheld the CIT(A)'s decision, noting the provision was a clear liability and did not require actual payment within the year.

2. Deletion of Disallowance of Provision for Audit Fees:

The AO disallowed ?5,59,294/- for audit fees due to lack of payment details by the return filing date, citing Section 43B. The CIT(A) deleted the disallowance, clarifying that audit fees are not covered by Section 43B. The Tribunal supported this view, referencing the Bombay High Court decision in CIT vs. Shree Warna Sahakari Sakhar Karkhana, confirming audit fees do not fall under Section 43B.

3. Deletion of Disallowance of Provision for Interest:

The AO disallowed ?2,05,000/- for provision for interest on a government loan due to non-payment details by the return filing date. The CIT(A) deleted the disallowance, stating the provision did not relate to the current year. The Tribunal agreed, affirming the CIT(A)'s decision as the provision was for a different period.

4. Deletion of Disallowance of Proposed Commission:

The AO disallowed ?16,34,209/- for proposed commission due to non-payment during the year. The CIT(A) deleted the disallowance, explaining the commission was an allowable expenditure as per the society's guidelines, payable upon passing a resolution. The Tribunal upheld this, noting the commission was debited to the trading and profit and loss account and credited to individual cooperative societies' accounts, payable as per the society's bye-laws.

5. Deletion of Addition on Account of Unutilized Subsidy Treated as Cessation of Liability Under Section 41:

The AO treated ?8,73,729/- of unutilized subsidy as cessation of liability under Section 41, adding it to the total income. The CIT(A) deleted the addition, stating the subsidy did not relate to the current year. The Tribunal agreed, noting the unutilized subsidy was a capital receipt from the Government of Rajasthan, not a loss, expenditure, or trading liability, and thus not covered under Section 41.

Conclusion:

The Tribunal dismissed the Revenue's appeal on all grounds, supporting the CIT(A)'s deletions. Additionally, the cross-objection (C.O.) by the assessee was dismissed due to lack of specific or explicit grounds. Thus, both the Revenue's appeal and the assessee's C.O. were dismissed.