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Income Tax Appellate Tribunal, AHMEDABAD ‘B’ BENCH, AHMEDABAD
Per Pramod Kumar AM:
By way of this appeal, the assessee appellant has challenged correctness of the order dated 16th April 2014, passed by the learned CIT(A) in the matter of appeal effect order under section 143(3) r.w.s. 254 of the Income Tax Act,1961 for the assessment year 2003-04.
Grievances raised by the assessee appellant are as follows:
“1. The order passed by the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now.
ITA No.2098/Ahd/2014 Assessment Year: 2003-04 Page 2 of 6 2. The Hon’ble Commissioner of Income Tax (Appeals) has erred in law and in facts in confirming the disallowance of Rs.61,08,550/- being grant given by the appellant to Sabarmati Salt Farmers Society and claimed as deductible expenditure u/s.36(1)(xii) of the Income Tax Act. 3. In any event, the same is allowable as deduction u/s 36(1)(vii) being in the nature of bad debts written off or u/s 37/28 of the Income Tax Act. It is submitted that it be so held now.”
To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee before us is a company, though without any share capital, set up under National Dairy Development Board Act, 2017, and this is second round of proceedings before this Tribunal. In the first round of proceedings, the assessee’s claim of deduction of Rs 10,31,34,920 under section 36(1)(xii) of the Act, in respect of grants to various cooperative societies, came up for consideration before this Tribunal. The precise ground, raised by the assessee before the Tribunal, was as follows:
“7. The learned Commissioner of Income-tax (Appeals) has erred in confirming that grant of Rs.10,31,34,920/- given to various cooperative societies is not deductible expenditure u/s.36(1)(xii) of the I.T. Act on the ground that the same are not in the nature of expenditure. Appellant submits that the grant given were in the nature of expenditure and allowable in accordance with section 36(1)(xii) of the I.T. Act. It be so held now. 7.1 The learned Commissioner of Income-tax (Appeals) has failed to appreciate the object of the appellant and confirmed the disallowance. Under the facts and circumstances grants given were in pursuance of the objects and therefore, ought to have been allowed as deduction u/s.36(1)(xii) of the Act. It be so held now. 7.2 In any event the same is allowable u/s. 28/37 of the I.T. Act and therefore, the same ought to have been allowed as deduction. It be so held now.” The Tribunal, vide order dated 21st April 2011, remitted the matter to the 4. file of the Assessing Officer with the directions as below:
ITA No.2098/Ahd/2014 Assessment Year: 2003-04 Page 3 of 6 “7. Having heard both the sides, we have carefully gone through the orders of authorities below. We find considerable force in justification of the ld. Counsel of the assessee whether the alleged non-refundable grants given in the previous year, relevant to the assessment year under appeal are from grants received or not needs verification at the end of the Assessing Officer. In this context, we may point out that as per decision of the ITAT, Delhi ‘E’ Bench in the case of Oil Industry Development Board (supra), relied on by the ld. Counsel of the assessee, expenditure incurred by way of disbursement of grants for objects and purposes authorised by the Act is allowable as deduction under section 36(1)(xii) of the I.T. Act, 1961. The plea of the ld. Counsel of the assessee that non- refundable grants sanctioned, are claimed 8 ITA No. 454-AHD-2006 as deduction only when funds are already utilized/Fund Utilisation Report (FUR) are received, also needs verification at the end of the Assessing Officer. We, therefore, set aside the order of the Learned Commissioner of Income Tax(Appeals) on this issue and restore the matter back to the file of Assessing Officer with the direction that Assessing Officer may verify both the aforesaid contentions and re-adjudicate the disallowance of Rs.10,31,34,920/- afresh, after giving opportunity of being heard to the assessee. The assessee is also directed to furnish complete details to Assessing Officer, in this regard, for verification. 5. When the matter thus once again came up before the Assessing Officer, he made a disallowance of Rs.61,08,550/- in respect of perspective plan expenditure in the case of Sabarmati Salt Farmer’s Society, Dhrangandhra. His justification of the disallowance was as follows:
“3. The assessee was requested to furnish various details like to fund utilization reports (FUR), grant agreements, loan agreements, evidences as to satisfaction of spent of grant, director's report of recommendation and auditor's certificates etc. in support of the claim of perspective plan expenditure claim. However on verification, it was found that no any details as to fund utilization report (FUR), grant agreement, loan agreement, evidences as to satisfaction of spent of grant, director's report of recommendation and auditor's certificates was not produced in respect of claim of perspective plan expenditure of Rs.6108550/- in respect of Sabarmati Salt Farmers Society, Dhrangadhra inspite of various and sufficient opportunities of being heard provided. The assessee failed to furnish the sufficient evidences in justification of the claim of Rs.6108550/-. Therefore, the claim of Rs.6108550/- for perspective plan expenditure in respect of Sabarmati Salt Farmers Society, Dhrangadhra was not found to be acceptable and therefore it is disallowed and added in the total income of the assessee.”
Aggrieved by the disallowance so made, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A)’s short
ITA No.2098/Ahd/2014 Assessment Year: 2003-04 Page 4 of 6 reasoning for confirming the disallowance is reproduced below for ready reference :- “4.3.1 Thus, the issue involved before the ITAT was the claim of deduction made by the appellant u/s. 36(l)(xii) of the IT Act, 1961. The directions given by the ITAT were also in relation to this section only. In a remand proceeding undertaken in pursuance of direction of the appellate tribunal, the scope of action is limited to the matter remanded by the tribunal and it is to be carried out as per the direction issued only. Accordingly, only the applicability of section 36(l)(xii) can be decided during the proceeding undertaken as per the direction of ITAT. The appellant has tried to introduce a new argument that Rs.61,08,550/- given to M/s. Sabarmati Salt Farmers Society can be allowed as bad debt u/s. 36(1)(vii) also. This argument had never been taken during the course of original assessment proceedings and related appellate proceedings. Hence such argument is not acceptable at this stage and accordingly is not admitted. 4.3.2 So far as allowability of this amount as a deduction u/s. 36(l)(xii) is concerned, the Assessing Officer has given a categorical finding that the appellant did not submit any details like Fund Utilization Report (FUR), grant agreement, loan agreement, evidences as to satisfaction of spending of grant, Director's report of recommendation and auditor's certificate in relation to such perspective plan expenditure. The Assessing Officer had provided sufficient opportunities of being heard to the appellant. Even during the course of appellate proceedings, no such documents have been submitted by the appellant. The appellant has only submitted copy of Board's approval dated 23/05/2003. This approval also says that this amount is to be treated as grant from the date of release. Under such circumstances, as per the direction of ITAT, the appellant was required to submit utilization report of such grant. Since, no such fund utilization report is available hence the action of the Assessing Officer of disallowing this amount is upheld and this ground of appeal is dismissed.” 7. The assessee is not satisfied by the stand so taken by the CIT(A) and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position.
As we deal with the grievance of the assessee, it is essential to bear in mind the fact that the reason of disallowance, in the original assessment proceedings, was that there was, according to the Assessing Officer, a
ITA No.2098/Ahd/2014 Assessment Year: 2003-04 Page 5 of 6 possibility of the amount coming back to the assessee, and, for that reason, amount could not be treated as having been spent. This aspect of the matter will be clear from the following observations made in the Tribunal’s order dated 21st April 2011:
“3.2 During the course of assessment proceedings, vide letter dated 01.09.2004, the assessee justified the claim. The Assessing Officer examined the various contentions attached for making disbursements and came to the conclusion that amount given to various cooperative unions were not expenditure for the purpose of allowing deduction under section 36(1)(xii) of the Act but were basically grants. The Assessing Officer further observed that in the agreements, there is an in-built condition that if the utilization of disbursements made by the assessee is not as per the objectives/terms laid down in the agreement, then such grants/ disbursements would be converted either into interest free loan or interest bearing loan. He, therefore, held that there was a possibility of money coming back to the assessee and therefore such disbursements to various cooperative units were not expenditure. The Assessing Officer accordingly disallowed the claim.”
It was in this context that the Tribunal remitted the matter to the file of the Assessing Officer for primarily ensuring that the grants given by the assessee did not come back to the assessee. The directions of the Tribunal need to be seen in this perspective. Therefore, merely because the assessee has not been able to file the fund utilization report cannot be ground enough to disallow the claim of the assessee. There is no dispute that the amounts were advanced in the course of the business of the assessee, and it has not even been case of the Assessing Officer either, and, there is also no dispute that this amount is no longer recoverable from the Sabarmati Salt Farmer’s Society as it has been wound up. In these circumstances, the objection taken by the Assessing Office, in the original assessment proceedings, does not hold good any longer. In any
ITA No.2098/Ahd/2014 Assessment Year: 2003-04 Page 6 of 6 case, as the assessee rightly claims, it is at best, even going by the improvised version of the Assessing Officer, a case of bad debt or a loss incidental to business which is allowable anyway. Learned CIT(A)’s action of upholding the disallowance, for want of fund utilization report, is thus unsustainable in law and on the facts of this case. The approach adopted by the authorities below in interpreting the terms of remand is too pedantic and hyper technical to meet our approval. The directions given by the Tribunal are to be interpreted in the light of its object and context. That consistently has been approach of the Hon’ble Courts above. 11. In view of the above discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs.61,08,550/-. The assessee gets the relief accordingly. 12. In the result, the appeal is allowed. Pronounced in the open court today on 31st May, 2017.
Sd/- Sd/- Mahavir Prasad Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 31st day of May, 2017 Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad