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

ORDER \nPER BENCH:- These cross appeals are filed by the Assessee and\nRevenue as against the separate appellate orders all dated 26-07-\n2023 passed by the Commissioner of Income Tax (Appeals),\nNational Faceless Appeal Centre, Delhi, arising out of separate\nassessment orders passed under section 143(3) of the Income Tax\nAct, 1961 (hereinafter referred to as 'the Act') relating to the\nrespective Assessment Years 2012-13 to 2018-19. Since common\nissues of disallowances are involved in all these appeals, for the\nsake convenience the same are disposed of by this common order.\n2. The assessee, the National Dairy Development Board\n(hereinafter referred as NDDB), is a statutory body established\nunder the National Dairy Development Board Act, 1987, with the\nobject of promoting, financing, supporting dairy and related rural\nindustries. Asst. Year 2012-13 is taken as the lead case, assessee\ne-filed its return of income on 27.12.2012 declaring loss of\nRs.84,09,26,490/. The AO passed regular assessment order\nu/s.143(3) of the Act on 30.03.2015 determining total income at\nRs.36,11,90,670/- by making disallowances/additions as follows:\n•\n•\n•\n•\n•\n•\n•\n•\nClaim of deduction u/s 36(1)(viii) of the Act in respect of transfer of\nfunds to special reserve.\nDisallowance of expenses u/s 14A r.w.r 8D\nTaxing of rental income from building as Income from House\nProperty' instead of “business income” and disallowance of\ndepreciation on building\nDisallowance of deduction of interest paid to North Kerala Project\nDevelopment Fund\nDisallowance of contribution to Employee's Recreation (BOHO\nClub)\nDisallowance of payment of monthly benefit to employees under\nVRS scheme after retirement – Section 35DDA, Section 37(1)\nApplicability of MAT u/s 115JB\nAdjustment of withdrawal from reserves and provisions to book\nprofit u/s 115JB\n2.

1. The NFAC has erred on facts and in law in holding that in absence of\nshare capital, no deduction under Section 36(1)(viii) of the Act can be\nallowed to the appellant. It is submitted that proviso to section 36(1) (viii) of\nthe Act limits deduction that can be allowed and in absence of share capital,\nsuch limitation would become inapplicable (rather than the whole section\nbecoming inapplicable). It is submitted that it be so held now.\n3. The NFAC has erred on facts and in law in confirming the ad-hoc\ndisallowance capped at Rs.10,00,000/- under Section 14A of the Act\nfollowing the Hon'ble Income Tax Appellate Tribunal ('ITAT') order in the\ncase of appellant for the AY 2008-09 as the revenue was unable to prove any\nexpenditure directly incurred for earning exempt income. In the facts and\ncircumstances of the case it is submitted that no disallowance under section\n14A of the Act is required to be made. It is submitted that it be so held now.\n3.

1. The NFAC has erred in not appreciating Rule 8D, has been applied by\nthe AO without bringing on record his dissatisfaction in respect of the\nappellant's claim of expenditure Incurred for earning tax free income. It is\nsubmitted that it be so held now.\n3.

2. Without prejudice to the above, the disallowance should be restricted to\nRs.2,63,441/-attributable for earning exempt income. It is submitted that it\nbe so held now.\n4. The NFAC has erred in directing the AO to tax the rental income from\nbuildings given on lease as income under the head 'Income from House\nProperty instead of 'Profits and Gains from Business and Profession and\nthereby denying deduction of depreciation and other expenditure on\nbuildings. It is submitted that it be so held now.\n5. The NFAC erred in holding that if the appellant first withdraws its\nappeal in respect years only in that case the deduction the interest returned\nback to North Kerala Project Development Fund of Rs.10,64,64,144/- and\nRs.3,95,75,095/ be allowed. The appellant submits that NFAC erred in\nputting such condition of withdrawal in the order. Appellant submits that\nNFAC ought to have allowed the deduction without direction to AD to\nsafeguard to avoid double deduction thereof it is submitted it be so held\nnow.\n6. The NFAC has erred on facts and in law in not granting the deduction in\nrespect of contribution made to Employee's Recreation of Rs.2,38,764/-. It\nis submitted that in the facts and circumstances of the case, no disallowance\nwas required to be made.\n7. The NFAC has erred in not granting deduction of actual monthly\npayment of Rs.3,68,11,434/ on the ground that expenditure under VRS\neligible under Section 35DDA cannot be claimed under Section 37(1)\nwithout appreciating that this expenditure was not eligible under Section\n35DDA being post retirement monthly payment to the employees made out\nof the provision made in AY 2011-12 and disallowed in that year it is\nsubmitted it be so held now.\n7.1 Alternatively directions be given to allow deduction of the provision as\nmade in AY 2011-12. It is submitted it be so held now.\n4. The Grounds of Appeal filed by the Revenue in ITA No.\n735/Ahd/2023 for A.Y. 2012-13 reads as under:\n1. \"On facts and circumstances of the case the Ld.CITA) has erred in\nrestricting the disallowance on account of administrative expenses\nincurred in earning exempt income to Rs.10,00,000/- as against Rs.\nRs.1,86,46,037/-computed by A.O. in accordance with the provisions of\nsection 144(2) read with Rule 8D(2)(iii).\n1.1 On the facts and circumstances of the case, the Ld.CITIA) has erred in\nrestricting the disallowance u/s 14A of the Income Tax Act, 1961 to Rs.\n10,00,000/- ignoring the provisions of sub-section (2) of section 14A that\nrequire mandatory invoking of Rule 8D where the A.O. has duly recorded\nsatisfaction with regard to the correctness of the claim of expenditure\nincurred towards earning exempt income.\n2. On the facts and in the circumstances of the case and in law the learned\nCIT(A) erred in holding that the agreement entered for leasing of assets by\nthe assessee are in the nature of operating lease without appreciating the\nfact that the assessee is not engaged in the business of providing of lease.\n3. The appellant craves leaves to add, modify, amend or alter any grounds\nof appeal at the time of, or before, the hearing of appeal\nIt is prayed that the order of the CITA) on the above issues be set-side and\nthat of the Assessing Officer be restored.\n5. The Grounds of Appeal raised by rival parties are inter-\nconnected, therefore the grounds are dealt with year-wise as\nfollows.\n5.

1. Issue No. 1: Claim of deduction u/s.36(1)(viii) in respect of\ntransfer of funds to special reserve. Perusal of the Profit & Loss\nAccount, the Assessing Officer noticed that the assessee claimed an\namount of Rs.5,19,29,489/- being amount transferred to special\nreserve which has been credited to special reserve which is a\ncomponent of general fund of the assessee as per Annexure-1 of\nbalance sheet. In the computation, the sum of Rs.5.19 crores has\nbeen claimed as deduction as amount transferred to Special\nReserve under section 36(1)(viii) to qualify for deduction of 20%\non\nprofits of long-term financial activity, the following conditions are to\nbe satisfied namely\n(a) It should be financial corporation.\n(b) It has to be engaged in providing long-term finance.\n(c) The finance has to be provided for industrial or\nagricultural development.\n5.

2. The assessee NDDB has been notified as a Public Financial\nInstitution in terms of Sub-section (2) of Section 4A of the\nCompanies Act, 1956 as per Notification dated 22-02-2004 issued\nby Ministry of Finance to the Department of Company Affairs.\nFurther NDDB is providing loans to cooperative, which are\nrepayable over a period ranging from 7 to 20 years for procuring\nmilk and manufacturing many other milk products like cheese,\nbutter, butter milk, paneer, etc. Further CBDT vide Notification No.\nSO 627E dated 04-08-1999 recognized milk and milk products as\nindustry. Thus assessee claimed that entitled for deduction u/s.\n36(1)(viii) as claimed in the Return of income. The Ld. Counsel for\nthe Assessee submitted as follows:\n•\nThe issue is decided against the Assessee for AY 2003-04 by the\nGujarat High Court. The issue is contested by the Assessee before\nHon'ble Supreme Court and is pending adjudication in Civil Appeal\nNo. 10266/2024.\n• The Assessee is in the process of filing a declaration u/s.158A(1)\nin Form No. 8 declaring that the findings of the SC may please be\nfollowed for the year under consideration.\n• Similar directions were issued by the ITAT for AY 2010-11 and\n2011-12 in of 2014 and others vide order dated\n17.05.2024 (refer para 5 & 6). The copy of ITAT order for AY 2010-\n11 & 2011-12 enclosed as Annexure – 1 (refer page no. 7 to 9).\n5.

for which application under Section 158A of the Act\nhas been submitted by the assessee, since there is no change in the facts and\ncircumstances. However, in view of the declaration made by the assessee in\nprescribed Form No. 8 in terms of Section 158A(1) of the Act, the Assessing\nOfficer is directed to apply the decision of Hon'ble Supreme Court and / or\nHon'ble Gujarat High Court, once the said issues are decided in assessee's own\ncase, relating to A.Y. 2003

04. (in relation to claim of deduction under Section\n36(1)(viii) of the Act before Hon'ble Supreme Court) and A.Y. 2004

05. (in\nrelation to grounds relating to interest earned on North Kerala Dairy Project\nDevelopment Fund and in relation to ground relating to deduction in respect of\ncontribution made to employees recreation ) before Hon'ble Gujarat High Court,\non the said issues being decided in assessee's own case. Accordingly, Ground of\nAppeal Nos.2, 6 & 7 raised by the assessee is accordingly dismissed for A.Y.\n2010-11 and Ground of Appeal Nos.2, 5 & 6 in relation to A.Y. 2011-12 are\ndismissed accordingly.\n6.

1. There is no change in the facts of the present case and the\nAssessing Officer already verified the records and admitted that the\nquestion of law involved in the appeal before Hon'ble Gujarat High\nCourt for Asst. Year 2004-05 before Hon'ble Supreme Court in\nAsst. Year 2003-04 were pending disposal and the assessee's claim\nwas found to be correct, thereby dismissed the ground raised by\nthe assessee based on the application made u/s.158A(1) of the Act\nand as prescribed in Form No.

8. Therefore this Ground No. 2\nraised by the assessee in all the Asst. Years 2012-13 to 2018-19\nare hereby dismissed with liberty to apply the ratio of the decision\nto be rendered in C.A. No. 10266 of 2024 by Hon'ble Supreme\nCourt.\n7. Issue No. 2: Disallowance of expense u/s 14A r.w.r 8D. The\nAssessing Officer found that the assessee has claimed exempted\ntax free income (from NPCIL, PFC, IIFCL, IRFC and NHB, etc.) of\nRs.14,06,10,167/- and dividend amounting to Rs.4,04,89,102/- as\nexempt income. The Assessing Officer applied Rule 8D and\ncomputed the disallowance by Rs.2,94,70,038/- u/s.14A read\nwith Rule 8D. Ld. Counsel for the assessee submitted as follows:\n•\nFor AY 2010-11 and AY 2011-12 the issue of disallowance\nu/s 14A was restored to the file of AO. Refer para 29 to 34 of\nAnnexure – 1 (refer page no. 21 to 23).\n•\nIn AY 2008-09 and AY 2009-10 the disallowance u/s.14A\non account of interest was decided in favour of the Assessee and\nthe issue of administrative expenses was restricted to Rs.10.00\nlacs by the ITAT vide order dated 7-11-2016 in ITA No.\n1041/A/2012 & others. Refer page no. 415 to 422 of paper book\nwherein the order of ITAT for AY 2008-09 and AY 2009-10 is\nattached.\n•\nThe issue of confirming addition of Rs.10.00 lacs is\ncontested by the Assessee before the Gujarat High Court and is\npending for adjudication for AY 2008-09 in Tax Appeal No. 438 of\n2017.\n•\nThe Assessee has filed a Miscellaneous Application in MA No.\n125 to 129 for rectifying the order of ITAT for AY 2010-11 and AY\n2011-12 setting the issue of addition u/s.14A to the AO. The MA\nis pending disposal and fixed for hearing on 23.05.2025. Copy of\nthe MA is attached as Annexure – 2 (refer page no. 33 to 43).\n•\nSince the issue is a covered issue by the order of ITAT for AY\n2008-09 and AY 2009-10 wherein similar disallowance u/s.14A\nwas restricted to Rs.10.00 lacs we request the ITAT to pass similar\ndirections. The Assessee reserves it right to challenge the addition\nin further appeal.\n8. We have perused the submissions of the assessee and Paper\nBook and Case laws filed by the assessee. We do not find copy of\nthe order passed by the ITAT for the Asst. Year 2008-09 & 2009-10.\nTherefore the request to restrict the administrative expenses to\nRs.10 lakhs is not possible. However the Co-ordinate Bench for the\nAsst. Year 2010-11 & 2011-12 set-aside the matter back to the file\nof Assessing Officer to examine the issue afresh after giving due\nopportunity of hearing to the assessee. Following the same, Ground\nNo. 3 raised by the assessee for the Asst. Years 2012-13 to\n2018-19 are partly allowed.\n9. Issue No. 3: Taxing of rental income from building as Income\nfrom House Property instead of business income and disallowance\nof depreciation on building. Ld. Counsel for the assessee submitted\nthis issue has to be assessed as income from house property not as\nbusiness income as held by the Co-ordinate Bench of this Tribunal\nfor the Asst. Years 2010-11 & 2011-12 as follows:\n“21. From the facts placed on record, we observe that the primary\nbusiness of the assessee is to promote and organize programmes for the\npurpose of development of dairy and other agricultural based and allied\nindustries. Therefore, we are of the considered view that leasing of\nbuildings, though permitted by the objects of the assessee, are not\nincidental to the primary business of the assessee. It has been held in the\nlarge number of decisions that where as per the assessee's Memorandum\nof Association, the main object was different from letting out of property\nwithout providing any amenities, the tenant was liable to be assessed as\nincome from house property.\n22. In the case of Raj Dadarkar & Associates vs. ACIT 81\ntaxmann.com 193 (SC), the Supreme Court held that where assessee\nhaving obtained a property on lease, constructed various shops and stalls\non it and gave the same to various persons on sub-licencing basis, since\nassessee was not engaged in systematic or organized activity of providing\nservice to occupiers of shops/stalls, income from sub-licensing was to be\ntaxed as income from house property and not as business income.\n23. In the case of Effective Teleservices Pvt. Ltd. vs. PCIT 160\ntaxmann.com 689 (Ahmedabad – Tribunal), the ITAT held that where\nassessee, engaged in IT services, earned rental income from a property\nwhich was not its business asset but an investment, such rental income\nwould be chargeable to tax under head ‘Income from house property' and\nnot as 'business income'.\n24. In the case of Meeraj Estate & Developers vs. CIT 113\ntaxmann.com 231 (Allahabad), the High Court held that where assessee\nentered into an agreement to let out a premises with various amenities, as\nalso for maintenance and up keeping of said premises, since assessee did\nnot indulge in any kind of recurring, systematic and\norganized business activity and, moreover, in respect of maintenance and\nup keeping of let out premises, it appointed only one person, Assessing\nOfficer was justified in treating rental income assessable\n'income from house property' and services receipts as ‘income from other\nsources'.\nas\n25. Accordingly, in view of the facts of the case, we find no infirmity in\nthe order of Ld. CIT(A) in holding that the income earned from letting out\nbuildings on rent qualifies as “rental income\" and does not qualify as\n"business income of the assessee\".\n26. The next issue for consideration is that whether the assessee is\neligible for depreciation on such building. We are of the considered view\nthat once the income is held to be taxable as income from "house\nproperty" and not as “business income”, and further, admittedly the\nassessee has given the building on rent on long term basis, with an option\nof renewal of agreement as well, then in our considered view, Ld. CIT(A)\nhas not erred in facts and in law holding that the assessee is not eligible\nfor depreciation on such building, since firstly, the building has been\ngiven on a long term lease basis to the lessee, secondly, such business are\nnot utilized for the business of the assessee and thirdly, the income from\nleasing of such building on a long term basis has been held to be taxable\nas income from "house property", on which appropriate standard\ndeduction in terms of Section 24 of the Act has also been allowed to the\nassessee. Accordingly, looking into the instant facts, we are of the\nconsidered view that the Ld. CIT(A) has not erred in facts and in law in\nholding that the assessee is not eligible for claiming depreciation on such\nbuildings given on long term lease basis, the income of which qualifies as\n"income from house property\".\n27. The next issue for consideration is before us whether the Ld.\nCIT(A) has erred in facts and in law in allowing the claim of depreciation\nin respect of other assets leased out by the assessee. Before us, the Ld.\nD.R. submitted that firstly, the Ld. CIT(A) has not disputed the fact that\nthe assets have been given out on long term lease basis over the effective\neconomic life of the assets. Further, the Ld. CIT(A) has not given any\nbasis or reasoning for holding that the lease qualifies as “operating lease”\nand does not qualify as "finance lease”, and thereby allowing the\nassessee's depreciation on such assets leased out for long term basis, over\nthe effective economic life of the asset. Under the Income tax Act, 1961, a\ntax payer is eligible to claim depreciation on an asset provided the asset is\nowned by such person and is being used for the purpose of his business.\nWe observe that there are plethora of precedents where the claim of\ndepreciation has been denied by tax authorities in case either or both of\nthese tests are not met. The twin tests of 'ownership' and 'use' for\nclaiming depreciation become even more critical in lease transactions,\nwherein the owner of the assets foregoes the possession and use of the\nasset; whilst the assets is used by lessee for his business. The principles\ngoverning eligibility of lessor to claim tax depreciation under the lease\narrangement is enunciated by administrative guidance issued by the\nCBDT in Circulars 9/1943 and 2/2001. These Circulars do not distinguish\nbetween the two kinds of lease arrangements and provides that in a lease,\nother than a hire purchase, the lessor is eligible to claim depreciation,\nprovided the tests of ‘ownership' and 'use of the asset' are satisfied.\nHowever, in the instant facts, we observed that while allowing the claim\nof depreciation in respect of other assets, Ld. CIT(A) has not given a\ncategorical findings as to why the lease of assets qualifies as "operating\nlease" and not as “finance lease", especially in light of the fact that the\nAssessing Officer has given a categorical finding that the assets have been\ngiven on a long term lease basis, there is a specific clause which allows /\npermits the lessee to renew the lease agreement for further period and\nfurther the lessee is in possession of and is using the asset for the effective\neconomic life of the assessee. Though, the Ld. CIT(A) has held that the\nlease qualifies as “operating lease”, however, the Ld. CIT(A) has not given\nany basis by coming into conclusion that the lease qualifying as\n"operating lease” and not “finance lease". Further, we also observe that\nLd. CIT(A) has not given any specific observation to controvert the\nfinding given by the Assessing Officer that the assets so leased out\nremained with the lessee over the effective economic life of the asset and\ntherefore, such lease should qualify a "finance lease". Accordingly,\nlooking into the instant facts, the matter is restored to the file of the Ld.\nCIT(A) to give a finding as to whether lease of assets “operating building"\nqualify as "operating lease” or “finance lease" looking into the instant\nfacts.\n28. In the result, these issue is restored to the file of the Ld. CIT(A). In\nthe result, Ground No. 5 of the assessee's appeal is dismissed and Ground\nNo. 2 of the Department's appeal allowed for statistical purposes.\n9.

1. Respectfully following the same, Ground No. 3 raised by the\nAssessee is hereby dismissed. Ground No. 2 for Asst. Years 2012-\n13 & 2013-14 and Ground No. 3 for Asst. Years 2014-15 to 2018-\n19 raised by the Revenue are allowed for statistical purpose.\n10. Issue No. 4: Disallowance of deduction of interest paid to North\nKerala Project Development Fund. Ld. Counsel for the Assessee\nsubmitted as follows:\n•\nThe Assessee was acting as a Nodal Agency for North Kerala\nProject Development Fund. The AO had added interest income\naccruing on the said fund as income of the Assessee for AY 2003-\n04 to AY 2011-12 though the Assessee had not considered the\nsame as its income in the profit and loss account. This addition\nhas been confirmed by the ITAT till AY 2011-12.\n•\nDuring the current year the Assessee had transferred the\nfunds including accrued interest to North Kerala Project\nDevelopment Fund. Since the amount of interest was added on\nthe ground that it is income of the Assessee, the payment of the\nsame should be allowed as deduction to the Assessee.\n•\nThe CIT(A) for the year has issued a direction that the AO\nwould allow the deduction of interest only if the Assessee\nwithdraws its appeal pending at different appellate authorities or\nthe matter is decided against the Assessee and the decision is\naccepted by the Assessee for all previous assessment years. Refer\npara 5 on page 87 of CIT(A) order for AY 2012-13.\n•\nThe directions issued by ITAT for AY 2010-11 and 2011-12\n(Annexure – 1) vide para 5 & 6 would not apply for the year under\nconsideration as the issue therein concerned was with respect to\naddition of interest as income of the Assessee.\n•\nThe assessee in the current year has claimed deduction of\ninterest since the funds along with interest were transferred to the\nNorth Kerala Project Development fund.\n•\nSince the amount is already added in the earlier years the\nAssessee requests the Tribunal to allow complete deduction of\ninterest else it would amount to double addition.\n10.

1. Per contra Ld. CIT-DR appearing for the Revenue pleaded\nthat the matter be set aside back to the file of Assessing Officer and\nallow the deduction in accordance with law. We are satisfied with\nthe submissions of the Ld. CIT-DR, the claim of deduction and\ninterest for various asst. years is not readily available, thereby we\ndeem it fit to set-aside the matter back to the file of Jurisdictional\nAssessing Officer to consider the submissions of the assessee and\nallow the deduction in accordance with law by giving proper\nopportunity of hearing to the assessee. In the result, this Ground\nNo. 4 raised by the Assessee is allowed for statistical purpose.\n11. Issue No. 5: Disallowance of contribution to Employee's\nRecreation (BOHO Club). The Assessing Officer found that the\nassessee contribution of an amount of Rs.2,38,764/- towards\nemployee's recreation club. The amount was paid to meet the\ndeficit between actual expenses incurred by the staff club and\ncontribution received by the club from its member and the same be\nallowed u/s.36/37 of the Act as business expenditure. The\nAssessing Officer disallowed the same. Ld. Counsel for the assessee\nsubmitted as follows:\n•\nThe issue is similar to AY 2004-05 wherein the issue is\ncontested before the Gujarat High Court in Tax Appeal No. 337 of\n2012.\n•\nThe Assessee is in the process of filing a declaration u/s.\n158A(1) in Form No. 8 declaring that the findings of the Gujarat\nHigh Court may please be followed for the year under\nconsideration.\n•\nSimilar directions were issued on the issue by the ITAT for\nAY 2010-11 and 2011-12. Refer para 5 & 6 of Annexure – 1 (refer\npage no. 7 to 9).\n12. The Ld. D.R. appearing for the Revenue have no objection in\nfollowing the Gujarat High Court decision pending in Tax Appeal\nNo. 337 of 2012 relating to the Asst. Year 2004-05 as declared in\nForm No. 8.\n13. Recording the same, Ground No. 5 raised by the Assessee is\nhereby dismissed with liberty to follow the decision to be rendered\nby Hon'ble Gujarat High Court in Tax Appeal No. 337 of 2012.\n14. Issue No. 6: Disallowance of payment of monthly benefit to\nemployees under VRS scheme after retirement Section 35DDA,\nSection 37(1). The Ld. Counsel for the assessee submitted as\nfollows:\n•\nThe issue of monthly payments to employees under VRS\nscheme is restored back to the file of AO for verifying its allowability\nas deduction u/s 37 and claim of double disallowance for AY 2011-\n12. Refer para 51 to 56 of Annexure – 1 (refer page no. 29 to 31).\n•\nThe Assessee has filed Miscellaneous Application in MA no. 125\nto 129 against the order of AY 2011-12 in of 2016\nrequesting to allow the deduction on payment basis. Copy of MA is\nenclosed as Annexure\n3 (refer page no. 44 to 50). The MA is\npending disposal and fixed for hearing on 23-5-2025.\n•\nThe Assessee requests the Hon'ble Tribunal to allow the\ndeduction on actual payment as held by the CIT(A) for AY 2011-12.\n15. Per contra Ld. D.R. appearing for the Revenue supported the\norder passed by the lower authorities. We found that the Co-\nordinate Bench of this Tribunal in ITA No. 2994/Ahd/2016 held as\nfollows:\n51.\nThe brief facts in relation to this ground of appeal are that certain\nemployees of the assessee were transferred to it's subsidiaries, Mother\nDiary, in respect of which the assessee introduced of VRS Scheme. During\nA.Y. 2011-12, the assessee offered VRS to it's eligible employees for which\npayment of Rs.39,02,99,507/- was paid. 1/5th of VRS benefit amounting\nto Rs.7,80,59,901/- was claimed as deduction under Section 35DDA of the\nAct. The aforesaid deduction is not under dispute. In addition to the VRS\nbenefits referred to above, the employees were also paid monthly benefits\nafter retirement. The assessee had made provision of Rs.21,12,16,597/-\nfor monthly benefit payments in A.Y. 2011-12 in terms of VRS Scheme out\nof which monthly benefits to employees of Rs.3,11,87,140/- were paid\nduring the year. Accordingly, provision of Rs.18,00,29,457/- (net of Rs.\n21,12,16,597/- less 3,11,87,140/-) has been disallowed in the impugned\norder since the liability to pay the same has not accrued. In the A.Y. 2012-\n13, the assessee has made actual payment of Rs.3,68,11,434/- out of the\nprovision of Rs.18,00,29,457/- as monthly benefits paid as per the terms\nand conditions of VRS to these employees out of the provisions made in\nearlier year. The assessee submitted that since the provision was not\nclaimed as deduction in A.Y. 2011-12, the assessee has claimed the actual\npayment made to the employees as a deduction in A.Y. 2012-13.\nHowever, the Assessing Officer in A.Y. 2012-13 has disallowed payment\nof Rs.3,68,11,434/- towards monthly benefits, leading to double addition\nof the same amount both in A.Y. 2011-12 and in A.Υ. 2012-13. The\nassessee is of the view that the aforesaid amount was allowable to the\nassessee under Section 37 of the Act and further, disallowance of the same\namount in A.Y. 2012-13 would lead to double deduction, since the\nassessee has already disallowed the aforesaid amount for the impugned\nyear under consideration (i.e. A.Y. 2011-12).\n52. In appeal before Ld. CIT(A), Ld. CIT(A) directed the Assessing\nOfficer to verify the contentions of the assessee, particularly in view of the\nclaim of double addition as stated by the assessee and the Ld. CIT(A)\nfurther directed the Assessing Officer to allow the requisite relief to the\nassessee, on payment basis after due verification.\n53. The assessee is in appeal before us, and submitted that the claim of\nthe assessee on payment basis has been disallowed by the Assessing\nOfficer for A.Y. 2012-13, 2013-14 and 2014-15, however, the Department\nhas allowed the claim of the assessee for subsequent assessment years\nunder Section 37 of the Act. The Counsel for the assessee has requested\nthat the Assessing Officer may be directed to comply with the order of Ld.\nCIT(A) and to give a clear findings with regards to the liability of the\nclaim of the assessee towards monthly payment of VRS benefit to it's\nemployees.\n54. We observe that the claim of deduction has been allowed to the\nassessee for A.Y. 2016-17. While for the earlier Assessment Years 2011-12\nto 2014-15 similar claim of the assessee has not been allowed.\nAccordingly, the Assessing Officer is directed to comply with the\ndirection issued by Ld. CIT(A) and to give a clear findings on the\nallowability of the claim of the assessee with regards to deduction of the\naforesaid expenditure under Section 37 of the Act, more specifically with\nregards to the contention of the assessee that there has been double\ndisallowance of deduction of the aforesaid amount in the hands of the\nassessee and also to give a clear cut findings as regards to the allowability\nof such claim in terms of Section 37 of the Income Tax Act.\n15.

1. We have no hesitation in setting aside this matter to the file\nof Assessing Officer to verify the claim of deduction as per the\nprovisions of law. In the result, Ground No. 5 raised by the\nAssessee is allowed for statistical purpose.\n16. Issue No. 7: Applicability of MAT u/s 115JB. The Ld. Counsel\nfor the assessee submitted as follows:\n•\nThe AO applied section 115JB - MAT on book profits on the\nground that the Assessee is a company.\n•\nThe ITAT in the Assessee's own case vide order dated\n02.05.2025 has held that provisions of section 115JB are not\napplicable to the Assessee. Refer para 19 of the ITAT order. Copy\nattached Annexure – 4 (refer page no. 73 to 74).\n17. Ld. CIT-DR could not contravent this issue since he argued this\ncase relating to the earlier Asst. Year 2010-11 & 2011-12 in ITA No.\n733/AHD/2023 and Ors. before this Tribunal, wherein this Bench\nheld as follows;\n\"18. The question of applicability section 115JB to Statutory Corporations\npursuant to the amendment made in Sec 115JB by Finance Act 2012\neffective from 01.04.2013 is no more res-integra as the same considered by\nthe Special Bench of Mumbai Tribunal in the case of Union Bank of India\nVs- DCIT reported in [2024] 166 taxmann.com 207 vide recent decision\ndated 06-09-2024 held as follows:\n“Section 115JB, read with section 2(26), of the Income-tax Act, 1961-\nMinimum alternate tax. Payment of Tax (Banks) Assessment years\n2013-14 to 2015-16 Assessee-bank claimed that section 115JB would\nnot be applicable in its case Assessing Officer denied said claim on\nground that amended provision of section 115JB brought by\nFinance Act, 2012 with effect from 1-4-2013 by insertion of clause\n(b) to section 115JB(2) had brought within its ambit companies\ngoverned by Companies Act and also governed by other regulating\nact including Banking Regulation Act, 1949 It was noted that\nassessee came into existence as 'corresponding new bank' as per\nsection 3(1) of Banking Companies (Acquisition and Transfer of\nUndertakings) Act, 1970 Also new acquiring banks like assessee-\nbank was neither registered under Companies Act, 2013 nor under\nany other previous company law - Whether expression 'company'\nused in section 115JB(2)(b) was to be inferred to be company\nunder Companies Act Held, yes - Whether thus, deeming fiction\nby way of section 11 of Acquisition Act had to be read purely in\ncontext for purpose of Income Tax Act where corresponding new\nbank had been deemed to be an Indian Company and a company in\nwhich public were substantially interested and this deeming\nsection could not be extended to a company registered under\nCompanies Act to which alone section 115JB is applicable -Held,\nyes Whether thus, clause (b) to sub section (2) of section 115JB\ninserted by Finance Act, 2012 with effect from 1-4-2013, i.e, from\n assessment year 2013-14 onwards, would not be applicable to\nbanks constituted as 'corresponding new bank' in terms of Banking\nCompanies (Acquisition and Transfer of Undertakings) Act, 1970\nand not registered under Companies Act, 2013 or any other\nprevious company law Held, yes Whether thus assessee-bank\nwould not fall under provisions of section 115JB and tax on book\nprofits (MAT) would not be applicable - Held, yes [Paras 55, 56 and\n60] [In favour of assessee]”\n60. Accordingly, the question referred to Special Bench is decided\nin favour of the assessee banks that clause (b) to sub section (2) of\nsection 115JB of the Income-tax Act inserted by Finance Act, 2012\nw.e.f. 1-4-2013, that is, from assessment year 2013-14 onwards, are\nnot applicable to the banks constituted as \"corresponding new bank\nin terms of the Banking Companies (Acquisition and Transfer of\nUndertakings) Act, 1970 and therefore, the provision of Section\n115JB cannot be applied and consequently, the tax on book profits\n(MAT) are not applicable to such banks.\n18.

1. In the result, this Ground No. 7 raised by the Assessee is\nhereby allowed.\n18. Consequently Issue No. 8 namely Adjustment of withdrawal\nfrom reserves and provisions to book profit u/s 115JB and Ground\nNo. 8 raised by the Assessee is allowed.\n19. In the result, the appeals filed by the Assessee in ITA Nos.\n722 to 728/Ahd/2023 are partly allowed.\nRevenue's Appeal for A.Y. 2012-13.\n20. Ground No. 2 for Asst. Year 2012-13 & 2013-14 and Ground\nNo. 3 for Asst. Years 2014-15 to 2018-19 namely treating the\nleasing of assets as Operating Lease instead of Finance Lease and\nthereby allowing depreciation on assets other than Building. Ld.\nCounsel appearing for the assessee submitted as follows:\n•\nThe ITAT for AY 2010-11 and AY 2011-12 on the issue of\ndepreciation on other assets has set aside the issue to the file of\nCIT(A) for determining whether lease is operating lease or finance\nlease. Refer para 27 of Annexure – 1 (refer page no. 19 to 20).\n•\nThe Assessee has filed Miscellaneous Application in MA no.\n125 to 129 against the order of AY 2010-11 in ITA No. 1873 of\n2014 and 2011-12 in ITA No. 2954 of 2016 requesting to rectify\nthe order to the extent that the CIT(A) for AY 2006-07 has already\ndealt the issue in detail and held that the transactions undertaken\nby the Appellant are in nature of “operating lease”. Copy of MA is\nenclosed as Annexure – 5 (refer page no. 76 to 87).\n•\nThe Assessee submit that the order of CIT(A) be upheld and\ndepreciation on other assets be allowed as deduction.\n•\nThe CIT(A) for AY 2006-07 after verifying various lease\nagreements held that the Assessee is the owner of the assets and\nallowed depreciation on such leased assets. Refer para 6.2.2 and\n6.2.3 of the order of CIT(A) for AY 2006-07. Attached as Annexure-\n6 (refer page no. 116 to 117).\n•\nIt is therefore requested to allow depreciation on leased\nassets.\n•\nThe issue is also covered by the decision of SC in the case of\nICDS Ltd. v. CIT 350 ITR 527\n•\nNote For AY 2006-07 the AO had framed the assessment\nu/s.147 which was subsequently quashed by the ITAT. Therefore,\nthere is no order on merits on this issue for AY 2006-07 except the\norder of the CIT(A) for AY 2006-07 allowing depreciation on leased\nassets.\n21. Per contra Ld. D.R. appearing for the Revenue supported the\norder passed by the lower authorities.\n22. We have considered the submissions of rival parties and\nperused the materials available on record. Though Co-ordinate\nBench of This Tribunal set-aside this issue to the file of Ld. CIT(A)\nfor determining the lease is an Operating Lease or Finance Lease.\nThis order is subject matter of Miscellaneous Application which has\nnot attained finality. Therefore we deem it fit to set-aside the matter\nback to the file of Jurisdictional Assessing Officer with a direction\nto pass order subject to the outcome of M.A. Nos.125 to\n129/Ahd/2025 filed by the assessee and pass orders in accordance\nwith law by providing proper opportunity of hearing to the\nassessee.\n23. In the result, Ground Nos.2 & 3 filed by the Revenue are partly\nallowed.\n24. Ground No. 3: Adjustment of disallowance u/s 14A to book\nprofits u/s 115JB of the Act. Ld. Counsel appearing for the\nassessee submitted that Co-ordinate Bench of this Tribunal held\nthat provisions of Section 115JB are not applicable to the assessee\nas held vide its order dated 02-05-2025 in ITA No. 733/Ahd/2023\n& Ors. Therefore the additions are liable to be deleted.\n25. Since Co-ordinate Bench of this Tribunal held that the\nprovisions of Section 115JB are not applicable to the assessee as\nheld vide order dated 02-05-2025 in ITA No. 733/Ahd/2023 & Ors.\n(which extracted in Para 17 above). This Ground No. 3 raised by the\nRevenue is hereby dismissed.\n26. Ground No. 4 namely Bad debts written off, applicable for the\nAsst. Year 2014-15 only. The Ld. Counsel for the Assessee\nsubmitted as follows:\n•\nThe Appellant is a public financial institution engaged in the\nbusiness of money lending. During the year, the Appellant has\nwritten off loan given to Shri Banaskantha District Oilseeds Growers\nCo-operative Union Ltd of Rs.42.25 crores as irrecoverable.\nAccordingly, in view of the provisions of section 36(1)(vii) r.w.s 36(2)\nof the Income Tax Act, 1961, deduction was claimed.\n•\nThe AO disallowed the deduction by contending that the loan was\nnot part of profit and loss account and therefore the amount not\nrecoverable is a capital loss. The AO further held that the Appellant\nis not engaged in the business of money lending, therefore\nconditions prescribed u/s 36(2)(i) are not satisfied.\n•\nThe CIT(A) accepted the contention of the Appellant that it is\nengaged in the business of financing as per section 16(2)(k) of NDDB\nAct and thereby allowed bad debts written off as an expenditure.\n•\nSection 16 of the NDDB Act, provides powers and functions of\nNDDB. As per sub-section 2 of section 16, NDDB may take\nmeasures as provided in clause (a) to (za). Clause (k) provides for\nimparting financing activity including contribution to capital of co-\noperative federations, co-operative unions or co-operative\nenterprises or of any scheme in the co-operative or public sector\nintended to stimulate the production, preservation, distribution and\nconsumption of milk and milk-products. Copy of NDDB Act is\nenclosed as Annexure – 7 (refer page no. 134 to 137).\n•\nFurther, as per notification issued by Ministry of Finance dated\n23.02.2004 (page no. 144 to 145 of paper book), the Appellant is\nnotified as Public Financial institution.\n•\nAccordingly, the Appellant is in the business of money lending and\nprovided loan to Banaskantha District Oil Growers whose\noutstanding balance as on 31.03.2014 was Rs.43.51 crores (Rs.\n42.25 crores term loan and Rs.1.26 crore short term loan). Term\nloan of Rs.42.25 crore was written off as irrecoverable in the books\nof accounts and thereby claimed as deduction.\n•\nAs per section 36(1)(vii), subject to provisions of sub-section (2), any\namount of bad debt written off as irrecoverable in the books of\naccounts shall be allowed as deduction. Section 36(2)(i) states that\nno deduction shall be allowed unless such debt or part thereof\nrepresents money lent in ordinary course of business of banking or\nmoney lending carried on by the Assessee.\n•\nIn view of section 36(1)(vii) r.w.s 36(2)(i), since the Appellant is an\napproved public financial institution and as per the governing Act, it\ncan provide financial assistance, the loan granted to Banskantha\nDistrict Oil Growers was in the ordinary course of business of\nmoney lending and therefore amount written off as irrecoverable is\nallowable as deduction.\n•\nThe Hon'ble ITAT for AY 2003-04 in ITA No. 2098 of 2014 vide order\ndated 31.05.2017 allowed deduction of amount written off in respect\nof money advanced to Sabarmati Salt Farmers Society by\nconsidering it as bad debt or loss incidental to the business (para 5\nto 11 on page no. 130 to 133 of paper book).\n27. We have gone through the order passed by lower authorities.\nLd. CIT(A) held that the assessee has rightly contended that the\nassessee is also in the business of financing as per Section 16(2)(k)\nof the NDDB Act. Therefore bad debts written off in the book of\naccounts should be allowed as an expenditure. However Ld. CIT(A)\ndirected the Ld. A.O. to verify and allow the claim accordingly. We\ndo not find any infirmity in the order passed by Ld. CIT(A) to verify\nthe claim of bad debts and allow it in accordance with the\nprovisions of law. Thus the Ground No. 4 for the Asst. Year 2014-\n15 raised by the Revenue is devoid of merits and liable to be\ndismissed.\n28. In the result, the appeals filed by the Revenue in ITA Nos.\n735 to 740 and 742/Ahd/2023 are partly allowed.\nOrder pronounced in the open court on 23-06-2025\nSd/-\n(DR. BRR KUMAR)\nVICE PRESIDENT\nAhmedabad :\nDated\n23/06/2025\nSd/-\n(T.R. SENTHIL KUMAR)\nJUDICIAL MEMBER\nआदेश की प्रतिलिपि अग्रेषित /