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TMI Blog2011 (4) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... Utilisation Report (FUR) are received, also needs verification at the end of the AO. We, therefore, set aside the order of the CIT(A) on this issue and restore the matter back to the file of AO with the direction that AO may verify both the aforesaid contentions and re-adjudicate the disallowance afresh, after giving opportunity of being heard to the assessee. The assessee is also directed to furnish complete details to Assessing Officer, in this regard, for verification - Matter restored back - I.T.A. No. 454/Ahd/2006 - - - Dated:- 21-4-2011 - Shri G.D. Agrawal, V.P. And Shri T.K. Sharma, J.M. Appellant by : S/Shri S.N.Soparkar Yogesh Shah. Respondent by : Shri Alok Johri, CIT(DR). ORDER Per Shri T.K. Sharma, Judicial Member : This appeal filed by the Assessee is against the order dated 18.01.2006 passed by the Learned Commissioner of Income Tax (Appeals)-IV, Baroda for the assessment year 20032004. 2. This appeal of the assessee was decided vide order dated 17.08.2007. Subsequently, on a petition by the assessee under section 254(2), this order was recalled vide order dated 28.08.2009 in M.A. No.214/A/2007 for disposing off re-adjudicating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative unions were not expenditure for the purpose of allowing deduction under section 36(1)(xii) of the Act but were basically grants. The Assessing Officer further observed that in the agreements, there is an in-built condition that if the utilization of disbursements made by the assessee is not as per the objectives/terms laid down in the agreement, then such grants/ disbursements would be converted either into interest free loan or interest bearing loan. He, therefore, held that there was a possibility of money coming back to the assessee and therefore such disbursements to various cooperative units were not expenditure. The Assessing Officer accordingly disallowed the claim. 4. On appeal, the Learned Commissioner of Income Tax(Appeals) called the remand report. In the remand report, the Assessing Officer stated that expenditure has to be a payment which is made irrevocably, there should not be possibility of money forming once again a part of the funds of the assessee. If this condition is not fulfilled, there was a possibility of there being a resulting trust in favour of the assessee, and therefore, the money cannot be considered to have been spent by the assessee. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act. The grants were also extended in some cases for purchase of equipments for dairy development activities. The conditions laid down in the rant agreements entered with the cooperative unions were in the nature of deterrence for achieving certain specified goals. Wherever, the funding has been done for the purchase of equipment and machinery, such assets do not stand in the name of N.D.D.B., therefore, such expenditure are not capital in nature as held by the Bombay High Court in the case of CIT Vs. State Bank of India, 260 ITR 82, wherein, the subsidy given to subsidiary banks for opening new branches, though created new assets were held to be belonging to the subsidiaries and not to the State Bank of India. The appellant has also relied on CIT Vs. T. V. Sundaram Iyengar and Sons Pvt. Lid. 186 ITR 276 (SC), wherein, it was held that the amount advanced by the assessee employer for construction of houses under subsidized industrial scheme for its employees would be in the nature of revenue expenditure. That the appellant satisfies all the conditions tor claiming deduction u/s. 6(l)(xii), the expenditure incurred was not capital in nature and it was incurred by a body co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually paid under the cash system or accounted for as such under the mercantile basis toward a liability actually existing at that time but putting aside of money which may become expenditure on happening of an event is not an expenditure [Indian Molasses Co. Pvt. Ltd. Vs. CIT, 37 ITR 66 (SC); Indian Carbons Ltd. Vs. CIT, 180 ITR 1171. Thus, expenditure covers a liability which has accrued although it may have to be discharged at a future date. A contingent liability to be discharged on a future date cannot be considered as an expenditure (Madras Industrial Investment Com. Ltd. vs. CIT, 225 ITR 802, 808 (SC), As stated above, the appellant has disbursed the grants to the cooperative unions on certain conditions. Thus, such disbursements of grants which may be converted into loans are extended on contingent liability, the happening or non happening of which is not entirely certain. Further, the amounts so disbursed do not go out of the coffers of the appellant irretrievably and absolutely. The case of CIT Vs. N. C. John Sons, 208 ITR 57 (Ker) also lays down that in order to constitute expenditure the payment has to be made irrevocably and there should not be any possibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure. He pointed out that expenditure in question is allowable under section 37(1) also. 5.2 Continuing his argument, the ld. Counsel of the assessee drew our attention to reasoning given by the Learned Commissioner of Income Tax(Appeals) for confirming the disallowance i.e. (i) it is a conditional loan (because the assessee continues to exercise control for such grant disbursement to the cooperative unions) and (ii) the grants received by the assessee are not taken to income and expenditure account of NDDB. The Counsel of the assessee pointed out that non-refundable grants are disbursed on being satisfied that it has been spent. He further pointed out that non-refundable grants given is not out of grants received and the assessee has no objection that for this purpose, the matter is restored to the file of the Assessing Officer. 6. On the other hand, Shri Alok Johri, C.I.T. (D.R.), appearing on behalf of the Revenue, vehemently supported the order of the Learned Commissioner of Income Tax(Appeals). The ld. D.R. drew our attention to clause (4) of the Grants Agreement made on 25th day of May, 2001 between the assessee and Shree Warana Sahakari Dudh Utpadak Prakriya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, relevant to the assessment year under appeal are from grants received or not needs verification at the end of the Assessing Officer. In this context, we may point out that as per decision of the ITAT, Delhi E Bench in the case of Oil Industry Development Board (supra), relied on by the ld. Counsel of the assessee, expenditure incurred by way of disbursement of grants for objects and purposes authorised by the Act is allowable as deduction under section 36(1)(xii) of the I.T. Act, 1961. The plea of the ld. Counsel of the assessee that non-refundable grants sanctioned, are claimed as deduction only when funds are already utilized/Fund Utilisation Report (FUR) are received, also needs verification at the end of the Assessing Officer. We, therefore, set aside the order of the Learned Commissioner of Income Tax(Appeals) on this issue and restore the matter back to the file of Assessing Officer with the direction that Assessing Officer may verify both the aforesaid contentions and re-adjudicate the disallowance of ₹ 10,31,34,920/- afresh, after giving opportunity of being heard to the assessee. The assessee is also directed to furnish complete details to Assessing Officer, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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