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2017 (11) TMI 453 - HC - Income TaxAllowable business expenditure - Disallowing the contribution to Primary Agricultural Credit Cooperative Society Development Fund being non business expenditure - Held that - Before proceeding, it will not be out of place to mention that respondent is statutory authority registered under the Rajasthan Cooperative Society Act and they are required to follow the rules which are mandatory in nature and if incur disqualification either they will be superseded or they will incur disqualification. In that view of the matter, while interpreting local act, the court has very guarded under the Income Tax Act whether the deduction or the expenses which are incurred are admissible under Section 37 or not. Looking to the provisions of the Rule 2003 referred hereinabove, the expenses are mandatory in nature, thus, they are required to be deducted to be kept in reserve fund and they are expenses as stated under Rule 28. In that view of the matter, it is to be kept reserve fund and the view taken by the AO is very conservative and considering the opinion neither the Tribunal nor the CIT(A) has committed any error. Hence, the first issue is required to be answered in favour of the assessee against the department.
Issues Involved:
1. Justification of ITAT in deleting the addition of ?1,00,21,000/- as PACs Manager Salary. 2. Justification of ITAT in deleting the addition of ?1,13,38,000/- as PACs Manager Salary. 3. Justification of ITAT in deleting the addition of ?50,24,076/- as contribution to Primary Agricultural Credit Cooperative Society Development Fund. 4. Justification of ITAT in deleting the addition of ?53,73,914/- on account of depositing PF/ESI payments beyond the prescribed time limit. 5. Justification of ITAT in deleting the addition of ?28,27,116/- as contribution to Primary Agricultural Credit Cooperative Society Development Fund. Issue-wise Detailed Analysis: 1. Justification of ITAT in deleting the addition of ?1,00,21,000/- as PACs Manager Salary: The appellant challenged the Tribunal's decision to delete the addition of ?1,00,21,000/-, arguing that the PACs Manager Salary is a contingent liability. The Tribunal, however, held that it is a statutory liability, crystallized at the end of each year, and thus allowable under Section 37 of the Income Tax Act. The Tribunal relied on the Supreme Court's decision in Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, which states that contributions made for commercial expediency are allowable deductions. The Tribunal also noted that the fund is managed by the Registrar of Co-operative Society and not by the assessee, thus qualifying as an expenditure. 2. Justification of ITAT in deleting the addition of ?1,13,38,000/- as PACs Manager Salary: Similar to the first issue, the Tribunal deleted the addition of ?1,13,38,000/-, holding that the PACs Manager Salary is a statutory liability. The appellant argued that it is a contingent liability with no commercial expediency established. The Tribunal, however, reiterated that the liability is statutory and crystallized annually, making it an allowable deduction under Section 37 of the Income Tax Act. 3. Justification of ITAT in deleting the addition of ?50,24,076/- as contribution to Primary Agricultural Credit Cooperative Society Development Fund: The Tribunal deleted the addition of ?50,24,076/- made by the Assessing Officer, who had disallowed the contribution to the Primary Agricultural Credit Cooperative Society Development Fund as non-business expenditure. The Tribunal held that the contribution is directly connected to the assessee’s business and results in a benefit to the business, thus qualifying as an allowable deduction under Section 37 of the Income Tax Act. 4. Justification of ITAT in deleting the addition of ?53,73,914/- on account of depositing PF/ESI payments beyond the prescribed time limit: The Tribunal deleted the addition of ?53,73,914/- made due to late deposits of PF/ESI payments, arguing that these payments fall under Section 43B of the Income Tax Act, which allows deductions for payments made before the due date of filing the return. The appellant contended that the employee’s contribution is governed by Section 36(1)(va) read with Section 2(24)(x), which mandates timely deposits. The Tribunal, however, sided with the interpretation that Section 43B applies, allowing the deduction. 5. Justification of ITAT in deleting the addition of ?28,27,116/- as contribution to Primary Agricultural Credit Cooperative Society Development Fund: The Tribunal deleted the addition of ?28,27,116/-, holding that the contribution to the Primary Agricultural Credit Cooperative Society Development Fund is a statutory requirement and thus an allowable deduction under Section 37 of the Income Tax Act. The Tribunal emphasized that the assessee is a statutory authority required to follow mandatory rules, and failure to do so could result in disqualification or supersession. Conclusion: The Tribunal's decisions were based on the interpretation that the liabilities in question were statutory and mandatory, thus qualifying as allowable deductions under Section 37 of the Income Tax Act. The Tribunal's reliance on previous Supreme Court rulings and the statutory nature of the contributions played a crucial role in their judgments. The appeals were dismissed, affirming the Tribunal's decisions in favor of the assessee.
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