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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 ..... ere in the nature of expenditure and allowable in accordance with section 36(1)(xii) of the I.T. Act. It be so held now. 7.1 The learned Commissioner of Income-tax (Appeals) has failed to appreciate the object of the appellant and confirmed the disallowance. Under the facts and circumstances grants given were in pursuance of the objects and therefore, ought to have been allowed as deduction u/s.36(1)(xii) of the Act. It be so held now. 7.2 In any event the same is allowable u/s. 28/37 of the I.T. Act and therefore, the same ought to have been allowed as deduction. It be so held now." 3. Briefly stated the facts are that the assessee came into existence by an Act of Parliament called National Dairy Development Board Act, 1987. As per the provisions of section 44 of National Dairy Development Board Act, the assessee was exempted from application of Income-tax Act. However, by Finance Act, 2002, section 44 for National Dairy Development Board Act, 2002 was omitted and the assessee was liable to tax from the financial year 2002-03, relevant to the assessment year under appeal i.e. 2003-04. 3.1 One of the objects of National Dairy Development Board is to provide alternative fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not make the amount disbursed as expenditure. To sum up the case, the opinion of the Assessing Officer was that it is in fact a conditional loan. 4.1 After considering the above, in the impugned order, the Learned Commissioner of Income Tax(Appeals) sustained the addition made by the Assessing Officer observing as under: "I have considered the submissions/rejoinder of the appellant and the findings/comments of the assessing officer. As stated above, the appellant has made disbursement to various cooperative unions and federations for implementing dairy development programme titled as "Perspective 2010 Plan" under the extended Operation Flood Programme. The unions were required to submit regular audited fund utilization reports of the disbursed amounts. It is noticed that the aforesaid disbursements of the amounts by the appellant was done in the following categories:- Category Particulars Funding pattern A Infrastructure facilities for Procurement, Processing & Marketing. Loans/Grants B Productivity Enhancement Loans/Grants C Quality and Plant Management Loans /Grants D Marketing Development Loans/Grants E I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such grants disbursed to the cooperative unions. The appellant's contention that even in the eventuality of such grants/disbursements coming back to the appellant, the expenditure so claimed against such disbursements could always be reversed in view of the provisions of section 41(1) of the Act is not tenable because such provisions can be exercised for loss, expenditure or trading liability incurred by an assesses and in the instant case the very foundation of the term is disputed. As per the established principles of accounting, the Act requires the balancing of profits and expenditure of an enterprise so that entries made on one side as income receipts are properly balanced by the expenses against them on the other side. Since, grants do not form part of the income receipts of the appellant, therefore, disbursement against them cannot be allowed as expenditure. It is on record that the grants received by the appellant from the Government or Agencies are invariably credited directly to the respective project accounts or to the concerned funds. Thus, such grants received are not taken to the Income and Expenditure accounts of the N.D.D.B. The appellant is a nodal agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Shree Warna Sahakari Dudh Utpadak Sangh Ltd., NDDB's local office report verifying the report submitted by Shree Warna Sahakari Dudh Utapadak Sangh Ltd., Release note prepared by Finance Department of NDDB and NDDB's voucher releasing the grant of Rs. 467000/- to Shree Warna Sahakari Dudh Utapadak Sangh Ltd. After inviting our attention to object of the Act and three ways in which the assessee is providing financial help, it was explained that the assessee is giving refundable and non-refundable grants. The refundable grants are separately shown and these are not claimed deduction under section 36(1)(xii). Only the non-refundable grants are claimed as deduction. The ld. Counsel of the assessee pointed out that normally grants were given in the form of re-imbursement only and when it is given in the form of advance then it was charged to grant only when Fund Utilization Report (FUR) was received. The Counsel of the assessee also drew our attention to Loan agreement dated 25.05.2001 and Grant Agreement in respect of one party, namely, Shree Warana Sahakari Dudh Utpadak Prakriya Sangh Ltd. dated 25.05.2001. 5.1 The ld. Counsel of the assessee also relied on the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o utilize the grants within time limit as may be specified by the assessee (NDDB), unless the NDDB extends this time limit, the Borrower shall be liable to refund to the NDDB all the amounts not utilized to the satisfaction of the NDDB within the time limit with interest at 15% per annum for the first six months of default and thereafter at a maximum of rates of interest being charged for cash credits and overdrafts by the commercial banks for the time being. This clearly indicates that it is a conditional loan. He further pointed out that in the earlier years, the assessee board was receiving grants from government and as per the provisions of section 44 of National Dairy Development Board Act, the assessee was exempt from application of Income-tax Act. On the basis of it, he pointed out that grants received by the assessee are not taken into account in the Income & Expenditure a/c. Therefore, on this ground also, these conditional loans are not allowable out of the current year's income, interest, etc shown in the Income & Expenditure a/c. 6.2 In reply, Counsel of the assessee submitted that he has no objection, in case the matter is restored to the file of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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