ACIT, ANAND CIRCLE, ANAND, ANAND vs. NATIONAL DAIRY DEVELOPMENT BOARD, ANAND

ITA 739/AHD/2023Status: DisposedITAT Ahmedabad23 June 2025AY 2017-18Bench: DR. BRR Kumar, Vice President\nAnd Shri T. R. Senthil Kumar (Judicial Member)25 pages
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What did the Tribunal hold?

The Tribunal addressed several issues. Regarding the claim for deduction under Section 36(1)(viii), the Tribunal noted that a coordinate bench had set aside this issue to the file of the CIT(A) for determination of whether the lease was an operating or finance lease. This matter was subject to a Miscellaneous Application that had not attained finality. Therefore, the Tribunal set aside the matter back to the AO with directions to pass an order subject to the outcome of the MA and provide an opportunity of hearing to the assessee. For the issue of disallowance under Section 14A, the Tribunal dismissed Ground No. 3 raised by the Revenue, as a coordinate bench had held that Section 115JB was not applicable to the assessee. Regarding the rental income from buildings, the Tribunal set aside the issue to the AO for re-adjudication, considering the outcome of the pending Miscellaneous Application. On the issue of bad debts written off, the Tribunal found no infirmity in the CIT(A)'s order directing the AO to verify and allow the claim in accordance with law, thus dismissing the Revenue's ground on this issue. The judgment does not explicitly state findings on all grounds raised by the assessee, particularly concerning the contribution to the Employee's Recreation Club and the VRS payments, nor does it detail the revenue's specific arguments on all points.

What were the facts?

The National Dairy Development Board (NDDB), a statutory body, filed appeals against assessment orders for Assessment Years (AYs) 2012-13 to 2018-19. The Assessing Officer (AO) made several disallowances and additions, including claims for deduction under Section 36(1)(viii), disallowance of expenses under Section 14A read with Rule 8D, taxation of rental income as 'Income from House Property' instead of 'business income', disallowance of interest paid to North Kerala Project Development Fund, disallowance of contribution to Employee's Recreation Club, disallowance of monthly benefits to employees under VRS, and applicability of Minimum Alternate Tax (MAT) under Section 115JB. The Commissioner of Income Tax (Appeals) partly allowed and partly dismissed the assessee's appeals. Both the assessee and the revenue filed cross-appeals before the Income Tax Appellate Tribunal (ITAT).

What were the issues?

The Income Tax Appellate Tribunal (ITAT) had to decide the following issues: 1. Whether the assessee is eligible for deduction under Section 36(1)(viii) of the Income Tax Act, 1961, in respect of transfer of funds to a special reserve, particularly in the absence of share capital. - Assessee's contention: The assessee argued that it satisfied the necessary conditions for the deduction and that the proviso to Section 36(1)(viii) limits the deduction, rather than making the entire section inapplicable in the absence of share capital. - Revenue's contention: Not recorded in the judgment. 2. Whether disallowance under Section 14A of the Act read with Rule 8D is warranted, and if so, to what extent. - Assessee's contention: The assessee argued that no disallowance is required as the revenue could not prove any expenditure directly incurred for earning exempt income. Alternatively, the disallowance should be restricted to Rs. 2,63,441/-, attributable to earning exempt income. The assessee also argued that Rule 8D was applied by the AO without recording his dissatisfaction. - Revenue's contention: The revenue argued that the CIT(A) erred in restricting the disallowance to Rs. 10,00,000/- as against Rs. 1,86,46,037/- computed by the AO, and that Section 14A(2) mandates invoking Rule 8D where the AO has recorded satisfaction. 3. Whether rental income from buildings leased out should be taxed as 'Income from House Property' or 'Profits and Gains from Business and Profession', and consequently, whether depreciation and other expenditure on buildings are allowable. - Assessee's contention: The assessee argued that the rental income should be treated as business income, allowing for deductions like depreciation. - Revenue's contention: The revenue argued that the CIT(A) erred in holding that agreements for leasing assets were operating leases, without appreciating that the assessee is not in the business of providing leases. 4. Whether deduction for interest paid to the North Kerala Project Development Fund should be allowed without the condition of withdrawal of appeal. - Assessee's contention: The assessee submitted that the CIT(A) erred in imposing a condition of withdrawing the appeal for allowing the deduction, and that it should be allowed without such a condition. - Revenue's contention: Not recorded in the judgment. 5. Whether contribution to the Employee's Recreation Club is allowable as a deduction. - Assessee's contention: The assessee argued that no disallowance was required in the facts and circumstances. - Revenue's contention: Not recorded in the judgment. 6. Whether monthly payments to employees under a VRS scheme after retirement are allowable as a deduction under Section 37(1) or Section 35DDA. - Assessee's contention: The assessee argued that the expenditure was not eligible under Section 35DDA as it was a post-retirement monthly payment and should be allowed under Section 37(1). Alternatively, directions should be given to allow the provision made in AY 2011-12. - Revenue's contention: Not recorded in the judgment. 7. Whether the disallowance under Section 14A should be adjusted to book profits under Section 115JB. - Assessee's contention: The assessee argued that Section 115JB is not applicable to the assessee, citing a coordinate bench decision. - Revenue's contention: Not recorded in the judgment. 8. Whether bad debts written off by the assessee, a public financial institution, are allowable as a deduction under Section 36(1)(vii) read with Section 36(2). - Assessee's contention: The assessee argued that as an approved public financial institution engaged in financing, the loan written off was in the ordinary course of money lending business and thus allowable. - Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 36(1)(viii),Section 14A,Section 8D,Section 35DDA,Section 37(1),Section 115JB,Section 36(1)(vii),Section 36(2)

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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH

Before: DR. BRR Kumar & Shri T. R. Senthil Kumar

For Appellant: Shri Milin Mehta, Shri Bhavin Marfatia & Ms. Amrin Pathan
For Respondent: Shri V Nandakumar, CIT-DR & Shri Ankit Jain, Sr. D.R
Hearing: 07/05/2025Pronounced: 23/06/2025

PER BENCH:- These cross appeals are filed by the Assessee and Revenue as against the separate appellate orders all dated 26-07-2023 passed by the Commissioner of Income Tax (Appeals),

I.T.A Nos: 722 to 728/Ahd/2023 and ors. A.Ys.2012-13 to 2018-19 Page No 2 National Faceless Appeal Centre, Delhi, arising ou

The order continues below.

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