9911796707
TMI Blog2024 (2) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the timing of the payment and not considering their inherent nature related to the appellant's activities. 2. Applicability of deduction under Section SOP on enhanced profits The learned NFAC failed to adjudicate upon the appellant's contention that any, enhanced profit, upon adding back the impugned expenses, should still be eligible for deduction under Section 80P(2) of the Income Tax Act, 1961. Without prejudice to ground number 1, it is hereby submitted before the honourable authority that despite any additions to the profits, the inherent and fundamental character of the appellant as a Cooperative society remains undiminished. Consequently, the appellant prays to the honourable authority to grant the deduction of the entire enhanced profits under Section 80P(2), considering its intact cooperative framework. 3. The appellant craves leave to add, amend, alter, omit or substitute any of the grounds of appeal at any stage before the appeal is finally heard or adjudicated upon. 2.1 Ground No.1 of the assessee's appeal is not pressed at the time of hearing and therefore, this ground of appeal of the assessee is dismissed as not pressed. 3. With regard to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as far as the taxation is concerned. Further, the ld. NFAC failed to adjudicate on the assessee's contention that the enhanced profits should be subjected to deduction u/s 80P(2)(a)(i) of the Act. 3.4 The below provisions were disallowed by the ld. AO in the assessment order passed u/s 143(3) of the Act: Particulars Amount (Rs.) NPA 12,00,000 Employee Retirement Benefit 6,00,000 Employee Leave encashment 9,70,000 Total 27,70,000 3.5 The assessee contended that the above expenses are to be debited to the Profit & Loss account in conformity with the Generally Accepted Accounting and Auditing Principles. It was further argued that even assuming these expenses are added back to the net profit, the enhanced resultant profit should still qualify for deduction u/s 80P(2) of the Act. 3.6 The ld. NFAC dismissed the claim of the assessee, holding that the said expenses fall within the ambit of Section 43B of the Act. Therefore, such expenses are to be allowed only if the amounts were paid before filing of the tax return. The ld. NFAC did not adjudicate on the assessee's contention that the enhanced profit should be fully subjected to deduction u/s 80P(2) of the Act. 3.7 Bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in that section. As Regional Rural Banks (RRB) are basically corporate entities (and not cooperative societies), they were considered to be not eligible for deduction under Section 80P when the section was originally introduced. However, as Section 22 of the Regional Rural Bank Act provides that a RRB shall be deemed to be cooperative society for the purposes of the Income-tax Act, 1961, in order to make such banks eligible for deduction under Section 80P, CBDT issued a beneficial Circular No. 319 dated 11-11982, which stated that for the purpose of Section 80P, a Regional Rural Bank shall be deemed to be a co-operative society. Section 80P was amended by the Finance Act, 2006, with effect from 1 -42007 introducing sub-section (4), which laid down specifically that the provisions of Section 80P will not apply to any co-operative bank other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Accordingly, deduction under Section 80P was no more available to any Regional Rural Bank from assessment year 2007-08 onwards. An OM dated 25-8-2006 addressed to RBI was issued by the Board clarifying that Regional Rural Banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has categorically stated that the assessee is a Co-operative society, which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. In the case of any assessee being a Co-operative society, the whole of the amounts of profits and gains of business attributable to any of other activities referred to sub-section (2) of Section 80P shall be deducted in computing the total income of the assessee. In other words, the said income is not taxable. It is a benefit given to the Co-operative society. Section 80P(4) was introduced by Finance Act, 2006 with effect from 01.04.2007 excluding the said benefit to a Co-operative Bank. The said provision reads as under:- "(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably, and if there is ambiguity, in favour of assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by revenue by adding the word 'agriculture' into section 80P(2) (a) (i) when it is not there. Further, section 80P(4) is to be read as a proviso, limited object of which is to exclude co-operative banks that function at par with other commercial banks, i.e., which lend money to members of public. Thus, if Banking Regulation Act, 1949 is to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the said Act, which means accepting, for the purpose of lending or investment, of deposits of money from public. Likewise, under section 22(1)(b) of Banking Regulation Act, 1949 as applicable to co-operative societies, no cooperative society would carry on banking business in India, unless it is a cooperative bank and holds a licence issued in that behalf by RBI. As opposed to this, a primary ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration in the appeal for AY 2013-14 & 2014-15 is that for non deduction of tax at source on payment to pigmy agents, disallowance of those payments as expenses were made by the AO u/s. 40(a)(ia) of the Act and that addition was partly sustained by the CIT(A). It is the plea of the Assessee before the Tribunal, that the said disallowance will only go to increase the income of the Assessee that is eligible for deduction u/s. 80P(2)(a)(i) of the Act and deduction on the said enhanced income should be allowed. 14. We have heard the rival submissions. There is no dispute regarding genuineness of the expenditure that was disallowed and the fact that the said expenditure is otherwise allowable as deduction in computing income from business. In such circumstances, even if the expenditure is disallowed u/s. 40(a)(i) of the Act, the result will be that the disallowance will go to increase the profits of the business which is eligible for deduction u/s. 80P(2)(a)(i) of the Act and consequently the deduction u/s. 80-P(2)(a)(i) of the Act should be allowed on such enhanced profit consequent to disallowance u/s. 40(a)(i) of the Act. In this regard, we find that two High Courts viz., H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the disallowance u/s 40a (ia) is to be made of the expenses incurred and claimed by the assessee but before the payment of which, the assessee has failed to deduct tax at source. The genuineness of the expenditure is not in dispute. The dispute is whether TDS was to be made before making the payment. Without going into the nature of the transaction, we are inclined to accept the alternate plea of the assessee that the disallowance of the expenditure would automatically enhance the taxable income of the assessee and the assessee is eligible for the deduction u/s 10A of the Income-tax Act on the enhanced income. Thus, this ground of appeal is allowed". 6. The relevant portion of the Circular No.37/2016 dated 02.11.2016 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, relating to the subject: Chapter VI-A deduction on enhanced profits, is quoted hereunder: "The issue of the claim of higher education on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to grant the exemption under Section 10A. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employee's contribution is that the business profits have to that extent been enhanced. There was, as we have already noted, an add back by the Assessing Officer to the income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to the manufacturing activity. The disallowance of the Provident Fund/ESIC payments has been made because of the statutory provisions - Section 43B in the case of the employer's contribution and Section 36(v) read with Section 2(24)(x) in the case of the employee's contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A the addition made on account of the disallowance of the Provident Fund / ESIC payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
