DEHRADYB DUGDH UTPADAK SAHKARI SANGH LTD.,DEHRADUN vs. ACIT, DEHRADUN

That on the facts and circumstances of the appellant’s case the ld. Assessing Officer has erred in adding an amount of Rs.25,00,000/- received by the appellant as grant for working capital and the Ld. Commissioner(Appeals) in confirming the addition.

The assessee has not pressed Ground No. 1 and is dismissed.

The assessee is a State Govt. enterprise, incorporated for up- liftment of poor villager, specially women of the weaker section of the society, and to provide them a chance of income generation in the field of production of milk and at the same time provide them a level playing field with other capitalist in this field. The Govt. also uses this society as its’ extended hand for directly providing assistance to the villagers/societies working in this field.

The assessee is a non-profit generating organization, therefore, time to time governments (local, state, central) provide the assessee with grant and aids (a) to meet the short fall in revenue expenditure, (b) to install new machinery, tools and technologies, to upgrade the old technologies etc. and (c) to assist villages and village level societies to encourage the villages in the field of production of Milk etc. During the year under consideration the assessee received Rs.1,82,74,989/- as grant and assistances details of which were provided to the authorities. The grant and subsidy received against revenue expenditure was debited to P & L A/c as income, grant and aids received for purchase of Machinery etc. if remained in balance at the end of the year was taken to the balance sheet and similarly the grant etc. received under the head (c) mentioned herein above remained at the end was also taken as part of balance sheet. Opening balance in the head of grant and subsidy was Rs.5,03,55,410 and closing balance was Rs.5,64,61,998.31, detail a/c of grant/subsidy received during the year was bifurcated in the annexed statement along with the copies of letters/documents showing the grant/subsidy received head-wise the same was produced before the authorities. The assessee claimed that out of total grant Rs.53,90,000/- was revenue grant under different heads and were transferred to P & L account under different heads as mentioned in the P & L a/c.

According to Assessing Officer, the assessee received grants and subsidies to tune of Rs. 1,82,74,899/-. During the course of the assessment proceedings, the assessee was asked to produce the sanction letters/government orders indicating such grants and subsidies which was duly submitted. The Assessing Officer therefore, added Rs.60,66,000/- grants/subsidies made by the government to the income of the assessee.

The CIT(A) while allowing the other subsidies and grants, has disallowed Rs.25,00,000/- government grant given by Central (IDDP) on account of working capital of Haridwar. The CIT(A) held that since this grant was attributable towards meeting working capital requirement for running the operation of the society, the nature of such grant cannot be deemed to be capital in nature. Further, this amount was not utilized during the year under consideration, hence disallowed by the CIT(A).

The Ld. AR submitted that there was a sanctioned letter from the Government which is annexed at Page 13 of the paper book and the same amount of Rs.25 lacs is a capital infusion given by the Government for working capital of the Haridwar Unit. Since, it is a capital receipt, the Assessing Officer failed to take into cognizance that the Dehradun Dugdh Utpadak Sahkari Sangh Ltd. has to run the Hardiwar Unit. Therefore, the Assessing Officer has wrongly treated it as a revenue receipt. The Ld. CIT(A) also has not taken into account the actual facts of the case that the Government grants Central (IDDP) is working capital for Haridwar Unit and not a subsidy.

The Ld. DR relied upon the Assessment order and that of CIT(A)’s order.

As relates to Ground No. 3, 4 and 5, the disallowance u/s 40(a)(ia), The Assessing Officer made addition of consultancy charges for Rs.68,500/-, Rent paid for Rs. 1,24,334/- and Legal expenses of Rs. 83,450/- under Section 40(a)(ia) of the Income Tax Act, 1961. The CIT(A) also confirmed the same.

The Ld. AR submitted case laws i.e. Jaipur Vidhyut Vitran Nigam 123 TTJ 888 wherein it was held that Section 40(a)(ia) of the Income Tax Act, 1961 is applicable only when the amount is payable i.e. due whereas the assessee when made actual payment the section does not apply to the same. In the present case, the Ld. AR submitted that the provision of Section 40(a)(ia) of the Act is attracted only in a case where tax has either not been deducted or after deduction has not been paid. It is inapplicable in a case where tax has been deducted at a lower rate and has been paid in to the credit of the Central Government. The addition consequent to the disallowance is therefore liable to be deleted.

The Ld. DR relied upon the CIT(A)’ s order as well as Assessment Order.

In respect of Ground No. 6 the set off direction was given to A.O by the Ld. CIT(A) as there was no scrutiny. The same is reflected in Page 16, Para 13.2 of the Ld. CIT(A)’s order. Therefore, the assessee prayed that A.O should be directed to carry out the direction given by the Ld. CIT(A) with proper spirit and as per the law.

The Ld. DR relied upon the Ld. CIT(A)’s order and A.O’s order.

The Ld. AR in rejoinder has submitted that at that particular time for the relevant assessment year the Haridwar Unit was run by the assessee and subsequently it was merged and thus there was only pass through entries the same is reflected in the letter given to the Assessing Officer. Hence, the working capital cannot be treated as capital.

We have perused all the records and heard both the parties. As relates to Ground No. 2, the amount of Rs.25 lacs is a capital infusion given by the Government for working capital for the Haridwar Unit which was run by the assessee. Since, it is a capital receipt, the Assessing Officer failed to take into cognizance that the Dehradun Dugdh Utpadak Sahkari Sangh Ltd. which is at Dehradun has to work towards the working condition of the Hardiwar Unit. Therefore, the Assessing Officer has wrongly treated it as a revenue receipt. The Ld. CIT(A) also has not taken into account the actual facts of the case that the Government grants Central (IDDP) is working capital for Haridwar Unit and not a subsidy. It is properly established that the same is working capital and cannot be treated as revenue receipt. The contention by the DR that the Assessee has not made any refund, cannot be sole criteria for determining, whether particular income is revenue or capital in nature. There is a vast difference between working capital provided by the Government and subsidy provided by the Government. The subsidy is for the incentives which has to be created in the regions where the low income group people are situated and there are very less avenues given to the business person to develop the business as well as generated employment the subsidies are given at various levels to boost the economy of those states. In this present case the assessee has been given a working capital to run the Haridwar Unit and it is not necessary a subsidy. Therefore, it is not proper to treat the same as revenue receipt by the Assessing Officer as well as by the Ld. CIT(A). As relates to Ground No. 3, 4 & 5 short deductions does not warrant Section 40(a)(ia) as per the ratio laid down in case of Jaipur Vidhyut Vitran Nigam 123 TTJ 888 by ITAT wherein it was held that Section 40(a)(ia) of the Income Tax Act, 1961 is not applicable when short deduction is made, therefore, these grounds are allowed in favour of the assessee. As relates to Ground No. 6, the direction given by the Ld. CIT(A) is yet to be implemented by the Assessing Officer. Therefore, we direct the Assessing Officer to carry out the directions given by the Ld. CIT(A) in proper spirit and as per the law.

In result, the appeal of the assessee is partly allowed as for the directions given hereinabove.