2015 (3) TMI 265 - AT - Income Tax

Disallowance made under section 40(a)(ia) - entire amount has actually been paid during the previous year itself - CIT(A) upheld the order of the Assessing Officer in making the disallowance - Held that - We are in conformity with the order of the CIT(A) in disallowing the advertisement expenses for non-deduction of tax at source under the provisions of section 194C of the Act. Consequently, expenditure is not allowable in the hands of the assessee for the instant assessment year in view of the provisions of section 40(a)(ia) of the Act. - Decided against assessee. Addition to Process, Project and Research Fund - assessee was unable to explain the source of addition to the said fund and consequently a sum of ₹ 40,71,516/- was treated as income of the assessee society - Held that - he money held by the assessee under the Process, Project and Research Fund was with a specific obligation to purchase milk testing machines and milking machines for its primary cooperative societies who in turn were contributing to the cost of the purchase of the said machines. The amount collected by the assessee do not constitute the income of the assessee as the said collection has been made for the specific purpose of purchasing the milk testing machines and milking machines at village centre level. Accordingly, we hold that the amount reflected in the Process, Project and Research Fund is not the income of the assessee and there is no merit in holding the same as income of the assessee. Accordingly, we direct the AO to delete the addition of ₹ 40,71,516/-. - Decided in favour of assessee. Treatment of the subsidy received from the Central Government - whether the said amount is a capital receipt in the hands of the assessee? - Held that - In the facts of present case, the subsidy received by the assessee is capital subsidy. In the totality of the above said facts and circumstances, we direct the Assessing Officer to allow the depreciation on the bulk coolers purchased by the assessee without reducing the amount of subsidy from the cost of the asset for computing the depreciation under section 32(1) of the Act - Decided in favour of assessee. Deduction under section 80P(2)(d) - Gross amount of interest received v/s net amount of income received - Held that - As relying on CIT Vs. Daoba Cooperative Sugar Mills Ltd. 1997 (4) TMI 49 - PUNJAB AND HARYANA High Court direct the Assessing Officer to allow the deduction under section 80P(2)(d) of the Act on the gross amount of interest income. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Act.
2. Addition of Rs. 40,71,516/- to the income of the assessee.
3. Treatment of subsidy received from the Central Government.
4. Rejection of exemption under Section 80P(2)(d) of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Act:
The assessee incurred advertisement expenses totaling Rs. 16,06,040/- without deducting tax at source as required under Section 194C. The Assessing Officer (AO) disallowed the expenses under Section 40(a)(ia), which was upheld by the CIT(A). The assessee argued that the entire amount was paid during the year and relied on the Allahabad High Court decision in Vector Shipping Pvt. Ltd., which held that disallowance under Section 40(a)(ia) applies only to amounts payable at the year-end. However, the Tribunal referred to the decisions of the Gujarat and Calcutta High Courts, which held that Section 40(a)(ia) applies to all amounts payable during the year, not just those outstanding at year-end. Consequently, the Tribunal upheld the disallowance, dismissing the assessee's appeal.

2. Addition of Rs. 40,71,516/- to the income of the assessee:
The AO added Rs. 40,71,516/- to the income, representing contributions from primary cooperative societies to the Process, Project, and Research Fund. The CIT(A) upheld the addition, stating that the contributions constituted income as the repayment to societies was discretionary. The assessee argued that the amount was collected for purchasing milk testing and milking machines and was not income. The Tribunal found that the collections were identified and credited to the respective societies, and the purpose was to purchase machines for the societies. Therefore, the Tribunal held that the collections did not constitute income and directed the AO to delete the addition.

3. Treatment of subsidy received from the Central Government:
The assessee received a grant of Rs. 1.35 crores from the Central Government under a scheme for strengthening infrastructure for quality and clean milk production. The AO reduced the subsidy from the cost of bulk coolers and disallowed excess depreciation of Rs. 10,12,500/-. The CIT(A) upheld the AO's decision. The assessee argued that the subsidy was a capital receipt and not specifically for the cost of bulk coolers. The Tribunal found that the subsidy was not for a specific asset but for overall infrastructure development. Therefore, the Tribunal directed the AO to allow depreciation on the full cost of the bulk coolers without reducing the subsidy.

4. Rejection of exemption under Section 80P(2)(d) of the Act:
The assessee claimed exemption under Section 80P(2)(d) on interest income of Rs. 56,37,310/- from investments in cooperative banks. The AO allowed the exemption on the net interest income after deducting interest expenditure of Rs. 8,24,156/-. The CIT(A) upheld the AO's decision. The assessee argued that the exemption should be on the gross interest income. The Tribunal referred to the Punjab & Haryana High Court decision in Daoba Cooperative Sugar Mills Ltd., which allowed exemption on gross interest income. Accordingly, the Tribunal directed the AO to allow the exemption on the gross interest income.

Conclusion:
The Tribunal dismissed the appeal on the disallowance under Section 40(a)(ia), allowed the appeal on the addition of Rs. 40,71,516/- and the treatment of subsidy, and directed the AO to allow exemption under Section 80P(2)(d) on the gross interest income. The appeal was partly allowed.