KRISHI UPAJ MANDI SAMITI,NARSINGPUR vs. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), JABALPUR

1. 1. 1. 1. 1. 1. Considering the fact that the income of assessee is fully exempt u/s 10(26AAB) of IT Act, learned CIT(A) grossly erred in confirming income assessed at Rs.26,95,550/- by AO by rejecting application of assessee u/s 154 for rectification of apparent mistake. Assessing and confirming income in the hands of assessee is a mistake apparent on record because income is fully exempt u/s 10(26AAB).

Assessee craves leave to add to or modify grounds of appeal.” (A.1) Appeal vide has been filed by the assessee for assessment year 2014-15 against impugned appellate order dated 15.05.2024 (DIN & Order No.ITBA/NFAC/S/250/2024-25/1064842603(1) of learned CIT(A). The grounds of appeal are as under:

Considering the fact that Section 40(a)(iib) is not applicable in the case of assessee, learned CIT(A) erred in confirming the addition of Rs.2030003/- made by ld AO towards payment of Board Fee.

Considering the fact that the income of assessee is fully exempt u/s 10(26AAB) of IT Act, learned CIT(A) grossly erred in confirming income assessed at Rs.2695550/-.

Assessment order passed by the ld AO and confirming by Ld. CIT(A) is bad in law and on facts.” (B) For the sake of convenience, these two appeals are disposed of through this consolidated order. First, is taken up. In this case, assessment order dated 10.11.2016 was passed u/s 143(3) of Income Tax Act, 1961 (“Act”, for short) whereby the following additions were made: disallowance of Rs.26,42,218/- u/s 40(a)(iib) of I.T. Act and disallowance of Rs.53,328/- u/s 43B of I.T. Act. The assessee’s appeal against the assessment order was dismissed by the Ld. CIT(A) vide impugned appellate order dated 14.05.2024. The relevant portion of the impugned order of the Ld. CIT(A) is reproduced below: - “5.2. During the appellate proceedings, the appellant claimed that the Board Sulk & Kisan Sadak Nidhi paid were not royalty, license fee, privilege fee or service fee as envisaged in the provisions of section 40(a) (iib) of the Act and hence disallowance in its case was not applicable. State Government Undertaking are separate legal entities distinct from the State Government and are liable to Income Tax. State Governments levy different kind of fees or service charges on State Government Undertakings. These fees or charges are claimed by the State Government Undertakings as expenses thereby reducing their taxable profits. In order to protect the tax base of the State Government Undertakings vis-à-vis exclusive levy of fee, charges etc. ог appropriation of amount by the State Government from its source undertakings, the Finance Act, 2013 had amended Section 40 by inserting new sub-section (iib) in section 40(a) with effect from 01/04/2014. The new sub-section (iib) provides that deduction shall not be allowed as deduction for the purposes of computation of income of such undertakings under the head 'Profits & Gains of Business or Profession' in respect of:

Royalty, license fee, service fee, privilege fee, service charge or any other name whatever called if such royalty etc. is exclusively levied on a State Government Undertaking by the State Government or 2. Any amount which is appropriated directly or indirectly from a State Government Undertaking by the State Government. Although, nomenclature of the Board Sulk and Kisan Sadak Nidhi did not resemble with royalty, license fee, service fee, privilege fee etc, the same was levied by the State Government and was appropriated directly from a State Government Undertaking thereby attracting the provisions of section 40(a)(iib) of the Act. In view of the facts discussed above, there is no need to take a divergent view from the findings of the AO. The contention of the appellant is rejected and the action of the AO making addition of Rs.26,42,218/- on account of disallowance of fees u/s 40(a)(iib) of the Act is confirmed. Accordingly, Ground No. 1 & 2 are dismissed. 5.3. Ground No.3 pertains to the single issue of addition of Rs.53,328/- on account of disallowance u/s 43B of the Act and the same is adjudicated as under:- During the assessment proceedings, on perusal of the Profit & Loss Account, the AO noted that the appellant claimed the expenses of Gratuity & Pension payable of Rs.53,328/-. The expenses were not incurred on or before the date of furnishing the return of income u/s 139(1) of the Act thereby violating the provisions of section 43B of the Act. Accordingly, the AO made addition of Rs.53,328/- on account of disallowance u/s 43B of the Act. During the appellate proceedings, the appellant claimed that it had paid the Gratuity & Pension of Rs.53,328/- before the date of furnishing the return of income u/s 139(1) of the Act and hence addition on account of disallowance u/s 43B of the Act was not warranted in its case. However the appellant did not furnish the proof of payment of gratuity & pension. Mere claim of making payment does not establish the fact. Section 43B of the Act clearly provides that any expense which is claimed and not paid before the date of furnishing the return of income u/s 139(1) of the Act is not to be allowed as expense. Therefore it is held that the AO correctly made addition of Rs.53,328/- on account of disallowance u/s 43B of the Act on account of failure of the appellant to make payment before the date of furnishing the return of income u/s 139(1) of the Act. In view of the facts discussed above, there is no need to take a divergent view from the findings of the AO. The contention of the appellant is rejected and the action of the AO making addition of Rs.53,328/- on account of disallowance u/s 43B of the Act is confirmed. Accordingly, Ground No. 3 is dismissed. 5.4. Ground No. 4, 5 & 6 are general in nature and do not require separate adjudication as the same were already dealt in detail in above paragraphs. Accordingly, Ground No. 4, 5 & 6 are dismissed.” (B.1) In the course of appellate proceedings in ITAT, the assessee filed a paper book containing the following particulars: