M/S. THE CENTRAL COOPERATIVE BANK LTD.,BHILWARA vs. ACIT, CIRCLE, BHILWARA

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ITA 152/JODH/2019Status: DisposedITAT Jodhpur30 August 2021AY 2014-1510 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the matter is covered in favour of the assessee by the decision of the Hon'ble Rajasthan High Court in its own case (DBIT Appeal No. 290/2016 dated 5.09.2017). The High Court had held that the expenses mandated by the PAC Development Fund Rules, 2003, are mandatory in nature and required to be kept in a reserve fund, thus constituting expenses under Rule 28. The Tribunal noted that the fact that the Revenue had not accepted the High Court's decision and had filed an SLP before the Supreme Court cannot be a basis to hold the AO's order as erroneous, as the jurisdictional High Court's order, especially in the assessee's own case, is binding on the AO. The Tribunal further observed that the decision in M/s Churu Central Cooperative Bank was rendered earlier than the decision in the assessee's own case, and the latter decision would take precedence. Even if two views were possible, the AO following the later binding decision could not be considered erroneous. The Tribunal also highlighted that the CIT(A) had consistently decided in favour of the assessee for earlier assessment years, following the High Court's decision, and the AO had followed the rule of consistency. Therefore, the order passed by the Pr. CIT under Section 263 was set aside, and the AO's order was sustained. The Tribunal expressly left undecided any issue related to the pending SLP before the Supreme Court.

What were the facts?

The assessee, The Central Co-operative Bank Ltd., filed an appeal against an order passed by the Principal Commissioner of Income Tax (Pr. CIT), Ajmer, under Section 263 of the Income Tax Act, 1961, for Assessment Year 2014-15. The original assessment was completed under Section 143(3). The Pr. CIT initiated proceedings under Section 263, alleging that the assessee had incorrectly debited Rs. 35,93,215/- in its profit and loss account for PAC Development Fund under 'Other expenses'. The Pr. CIT considered this not an actual business expenditure and thus not allowable. The Pr. CIT set aside the Assessing Officer's (AO) order, deeming it erroneous and prejudicial to the revenue, directing a fresh assessment. The assessee is challenging this revisionary order.

What were the issues?

1. Whether the contribution made by the assessee co-operative bank to the PAC Development Fund, as per the Rajasthan Co-operative Societies Rules, constitutes a business expenditure allowable under Section 37(1) of the Income Tax Act, 1961, or is it a non-allowable application of profit? Assessee's Contentions: - The contribution to the PAC Development Fund is obligatory under the PAC Development Fund Rules, 2003, framed by the Co-operative Department, Government of Rajasthan. - The fund's objectives include assisting Primary Agricultural Credit Co-operative Societies (PACS) financially, training managers, contributing to hazard funds, and supporting office building construction. - The fund is administered by a committee and the assessee has no control over its utilization, making it a 'Business Expediency' and thus a business expenditure under Section 37(1). - Relied on the Rajasthan High Court decision in CIT Jaipur II V/s M/s Rajasthan State Co-operative Bank Ltd., Jaipur, which was upheld by the Supreme Court dismissing the Revenue's SLP. - Cited decisions in CIT vs. Gokuldas Exports, CIT vs. G.M. Mittal Stainless Steel (P) Ltd., and Meghalaya Plywood Ltd. vs. CIT, stating that revision under Section 263 is not permissible when another view is possible or facts are clear. - The CIT(A) had also decided in favour of the assessee for earlier assessment years. Revenue's Contentions: - The Pr. CIT relied on his findings that the assessee failed to explain how the contribution was incurred wholly and exclusively for the purpose of business or profession as required by Section 37(1). - While the Rajasthan High Court dismissed the Revenue's appeal in M/s Rajasthan State Co-operative Bank Ltd., Jaipur, the Revenue had not accepted this decision and had preferred an SLP before the Supreme Court, which was pending at the time of the Pr. CIT's order. - The fund is part of the bank's own fund and administered for the benefit of other societies, not the assessee bank itself, hence not an actual expenditure allowable under Section 37(1). - The setting aside of funds is not a prerequisite for the bank to function, but a subsequent event, and actual expenses therefrom would be a matter of enquiry. - Referred to the Hon'ble High Court's decision in M/s Churu Central Co-operative Bank Ltd. V/s CIT, Jaipur, which favoured the department.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 263,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR

Before: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM

For Respondent: Smt Sanchita Kumar CIT- DR
Pronounced: 31/08/2021

Date of Hearing : - 09/08/2021 Date of Pronouncement : 31/08/2021 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld. Pr. CIT, Ajmer dated 22.02.2019 wherein the assessee has challenged the order passed by the ld. Pr. CIT u/s 263 of the Act pertaining to A.Y 2014-15.

2.

Briefly stated facts of the case are that the assessment in this case was originally completed u/s 143(3) vide order dated 04.11.2016. Subsequently, the assessment records were examined and a show cause dated 07.02.2019 u/s 263 of the Act was issued by the ld. Pr. CIT stating that assessee has incorrectly debited a sum of Rs. 35,93,215/- in its profit and loss account on account of PAC Development Fund under 2 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara the head ‘Other expenses’ which is not an actual expenditure towards business activities and thus not allowable in the hands of the assessee. In response, the assessee filed its submissions which were considered but not found acceptable and the order passed by the Assessing Officer was considered as erroneous in so far as it is prejudicial to the interest of the Revenue and the same was set aside to the file of the Assessing Officer for making afresh assessment after carrying out necessary enquiries. Against the said, the assessee is in appeal before us.

3.

During the course of hearing, the ld AR submitted that it is obligatory for the assessee co-operative bank to follow the rules and regulations of Co-operative department, Government of Rajasthan. It was submitted that the corporate department has framed the PAC development Fund Rules 2003. The main aim and objects of such fund are as follows: (i) The object of constitution Primary Agricultural Credit Co-operative Society Development Fund is to assist PACSLAMPS/MSS financially to enable them to emerge / develop as full-fledged multipurpose co- operative society. (ii) The training compo near for the PACS, MSS managers is important. To develop the PACS as multipurpose society, a trained manager should work there. For this therefore the fees for training the PACS / MSS manager of a weak PACS / MSS will be paid out from the PACS development fund. (iii) Contribution for Hazard fund will be made from the PACS development fund for the weak PACS. (iv) For the proper development of PACS, the PACS manager may be paid incentives from this fund as per guidelines issued by the Registrar.

3 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara (v) The fund can also be used for construction / completion / repaid of the office building / godowns of PACS / Lamps / MSS. (vi) Any other development purpose approved by registrar.

4.

It was submitted that the fund will be maintained at two levels at DCCB Level and at RSCB Level. The fund will be established crediting the amount received as stipulated contribution from RSCB/ CCB/ Other co-operative institutions as per details given below. It was submitted that as regard the procedure for utilizing the fund, at DCCB level, a committee of followings persons is constituted to issue sanction and supervise the utilization of fund:- 1. Managing Director of Concerned CCB Chairperson 2. Chairperson of the concerned society Member 3. Deputy registrar / assistant registrar Member 4. Executive officer of DCCB Member

5.

It was submitted that the above committee should meet at least once in a quarter to take decision on all the proposals. It was submitted that as the fund shall be the part of bank’s own fund, it will be administered by M.D. RSCB/MD of concerned DCCB as the case may be. Thus from above, it is clear that PAC development fund are contribution by bank to government agency. All administration, utilization of fund shall be governed by a committee formed as per rules & assessee will have no control thereon. Thus contribution to fund is a “Business Expediency” & is thus a business expenditure in terms of section 37(1) of Income Tax Act, 1961. Based on “Business Expediency” & Legal decision on issue, the Hon’ble Rajasthan High Court, Jaipur in case of 4 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara CIT Jaipur II V/s M/s Rajasthan State Co-operative Bank Ltd., Jaipur in DBT No. 290/2016 has dismissed the Revenue’s appeal. Later, SLP filed by Ld. PCIT – 2, Jaipur in composite order in DBIT, Appeal No. 18/2012, 233/2012, 294/2016 & 290/2019 dated 05.09.2017 in Hon’ble Supreme Court further, vide SLP(C)No. 027725/2018 filed on 19.06.2018 (Diary No. 22624/2018 filed on 19.06.2018) has disposed & dismissed the said SLP on order dated 24.09.2018. It was submitted that the SLP was dismissed on 24.09.2018 itself, whereas Ld. PCIT, Ajmer has passed the order u/sec. 263 of Act on 22.02.2019 ignoring the same.

6.

It was submitted that Ld. PCIT, Ajmer has however referred the matter of M/s Churu Central Co.-operative Bank Ltd. V/s CIT, Jaipur (D.B. No. 254/2011 order dated 20.04.2017, whereby the Hon’ble Court has decided that till the amount credited to the contingencies reserve is not diverted by reason of an overdiding obligation or title and determining the business profits of the assessee, it is not a provision for know existing liabilities whereas as discussed above, the PAC development fund is purely an “Ascertained Liability” & “Administration & Utilization Thereof” is not with the assessee and not for the benefit of assessee & thus is an ascertained liability/ provision & is thus a business expenditure. Thus when facts are clear, or where another view is possible, the revision u/sec. 263 of Act is not permissible as held in following decisions:

• CIT vs. Gokuldas Exports (2011) 333 ITR 214 (Kar.) • CIT vs. G.M. Mittal Stainless Steel (P) Ltd. (2003) 130 taxman 67 (SC) • Meghalaya Plywood Ltd. vs. CIT (2007) 160 taxman 89 (Gauhati)

5 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara 7. It was further submitted that under similar circumstances & following Rajasthan High Court decision, the Ld. CIT(A) for A.Y. 2013- 14 and A.Y. 2016-17 has also decided the matter in favour of the assessee & no second appeal has been preferred by department. It was accordingly submitted that the order of the ld PCIT may be set-aside and the order of the AO be sustained.

8.

Per contra, the ld. CIT/DR relied on the findings of the ld. Pr.CIT and our reference was drawn to his findings which read as under:-

“6. The written submission put forth by the assessee have been considered whereby it has been contended that the contribution to PACS Development Fund is obligatory to the assessee bank and it is an obligation of the Co-operative Bank to transfer the amount and charge on business as may be necessary as per PAC Development Fund Rules 2003.

The section 37(1) of the I.T. Act, 1961, provides as under: "37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession."

As provided by the section 37(1) of the I.T. Act, 1961, the expenditure which has been expended wholly and exclusively for the purpose of the business or 6 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara profession, is only allowable as deduction under the head 'Profits and gains of business or profession'. In its submission, the assessee bank merely reiterated that the contribution to PACS Development Fund is obligator to the assessee bank. However, the assessee bank has failed to explain that the contribution towards PACS Development Fund is actually an expenditure which has been incurred wholly and exclusively for the purpose of the business or profession.

6.1 Further, in the case of CIT, Jaipur-II Vs M/s Rajasthan State C-operative Bank Ltd., Jaipur in DBIT Appeal No. 290/2016, the Hon'ble High Court, Jaipur has dismissed the appeal of the Revenue.

However, as informed by office of the PC1T-2, Jaipur vide their letter dated 07.01.2019, the decision of the Hon'ble High Court, Jaipur's composite order in DBIT appeals No. 18/2012, 233/2012, 294/2016 and 290/2016 decided on 05.09.2017, has not been accepted by the Revenue and SLP has been preferred before the Hon'ble Supreme Court which as per information enclosed to said letter, is pending.

6.2 It has further been observed that the said Fund is part of bank's own fund and is administered by MD of the concerned Central Co-operative Bank for not the benefit of the assessee co-operative bank but other primary agricultural

7 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara credit co-operative societies. Setting aside the money to the fund is not the actual expenses allowable u/s 37(1) of the I.T. Act, 1961. The actual expenses therefrom or utilisation therefrom is separate and subsequent. Fund being part of the bank's fund is therefore, not separate. The expenses or utilisation therefrom being a subsequent event, therefore, it is not actual expenses at the time of setting aside of the fund.

Also that setting aside of fund is not a pre-requisite for the assessee co-operative bank to function as such or get registration to function as District Central Co-operative Bank but a subsequent event. If that is considered for the sake of it, only actual expenses when incurred and whether it is eligible u/s 37 would be a matter of enquiry.

6.3 On examination of records, it is observed that the AO also failed to enquire into the admissibility of the PACS fund.

6.4 Moreover, in the case of M/s Churu Central Co- operative Bank Ltd. Vs. CIT, Jaipur in DBIT appeal No. 254/2011, the Hon'ble High Court, Jaipur vide its order dated 20.04.2017 answered the issue in favour of department and against the assessee.

7.

In view of above discussion, the assessment order passed by the AO is considered erroneous in so far as it is prejudicial to 8 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara the interest of the Revenue, hence, set aside to the file of the AO to the aforesaid extent for making afresh after carrying out enquiries, if required, and after giving opportunity of being heard to the assessee. “

9.

We have heard the rival contentions and perused the material available on record. We find that the matter is covered in favour of the assessee in its own case by the decision of the Hon’ble Rajasthan High Court in DBIT Appeal No. 290/2016 dated 5.09.2017 wherein the Hon’ble High Court was pleased to held as under: “15. We have heard counsel for both the sides. 16. 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. 17. 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. 18. 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. 19. 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. 20. Hence, the first issue is required to be answered in favour of the assessee against the department.”

9 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara 10. The fact that the decision of the Hon’ble Rajasthan High Court has not been accepted by the Revenue and further SLP has been preferred before the Hon’ble Supreme Court cannot be a basis to hold that the order so passed by the Assessing officer allowing such claim is erroneous in nature as such an order passed by the jurisdictional High Court and that too, in assessee’s own case is binding on the Assessing officer. The decision in case of M/s Churu Central Cooperative Bank has been rendered by the Hon’ble Rajasthan High Court on 20.04.2017 and therefore, where the decision in assessee’s own case has been rendered subsequently by the Hon’ble Rajasthan High Court on 5.09.2017, the latter decision shall clearly take precedence over the former decision and even where two views are possible and where the AO has followed the later decision while allowing the claim of the assessee, the view so taken by the AO cannot be held to be erroneous in nature.

11.

It is also interesting to note that just prior to issuance of show- cause u/s 263 on 7.02.2019 by the ld PCIT, the ld CIT(A) vide its order dated 6.02.2019 in assessee’s own case for A.Y 2013-14 and A.Y 2016- 17 has allowed the claim of the assessee towards such contribution towards PAC development fund following the decision of the Hon’ble Rajasthan High Court referred supra. These orders so passed by the ld CIT(A) thus form part of the records and therefore, where the matter is consistently decided in favour of the assessee earlier by the Hon’ble Rajasthan High Court which is subsequently followed by the ld CIT(A) and where the AO decide to follow the same binding decisions and follow the rule of consistency and the settled position in the earlier years, the order passed by the AO cannot be held as erroneous in nature.

10 The Central Co-operative Bank Ltd. vs. ACIT, Bhilwara 12. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the order so passed by the ld Pr.CIT is hereby set-aside and the order of the AO is sustained.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 31/08/2021.

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