Db Income Tax Appeal v. M/S. Rajasthan Co-Operative Dairy Federation Ltd

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR **** (1)DB Income Tax Appeal No.75/2012Commissioner of Income Tax. Vs. M/s. Rajasthan Co-operative Dairy Federation Ltd. (2)D.B. Income Tax Appeal No.245/2012Commissioner of Income Tax.Commissioner of Income Tax. Vs. M/s. Rajasthan Co-operative Dairy Federation Ltd. (3)DB Income Tax Appeal No.13/2014Commissioner of Income Tax.Commissioner of Income Tax. Vs. M/s. Rajasthan Co-operative Dairy Federation Ltd. Date of Order :- 25/08/2014 HON'BLE MR. JUSTICE AJAY RASTOGI.HON'BLE MR. JUSTICE J.K. RANKA. Mr. Y.S. Meena, Dy. Commissioner of Income Tax, present inperson. BY THE COURT (Per Hon'ble Ranka, J.): 1.These three Income Tax Appeals filed by the appellant-revenue u/s 260A of the Income Tax Act (for short, “IT Act”) aredirected against the order passed by the Income Tax AppellateTribunal, Jaipur Bench 'A', Jaipur (for short, “ITAT”) by whichthe ITAT, while affirming the order passed by the Commissionerof Income Tax (Appeal) (for short, “CIT(A)”), has dismissed theappeal filed by the appellant-revenue. Where Dairy Co-operative Society Development charges (DCS) stands allowed. DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 2 It relates to Assessment Year 2007-08, 2008-09 & 2009-10respectively.. 2.Since the facts and controversy involved is identical, allthese three appeals are decided by this common order. 3.The brief facts, as emerging on the face of record, arethat the respondent-assessee is an Apex body of thecooperative society and is engaged in the business ofpromotion, production, procurement, processing and marketingof milk products and in addition to the sale of the milk products,it is also having other income. The respondent-assessee,during the course of its business, claimed Dairy Co-operativeSociety (DCS) Development Expenses at Rs. 1,22,11,408/- inthe assessment year 2007-08 and other amounts in otherassessment years which has been incurred for development ofdairy business and such amount was paid to the variousprimary societies and inter-alia, was in the nature of registrationof new DCS (dairy cooperative society) by contributingexpenses, revival of DCS, membership contribution forregistering members as women/BPL families/ SC/ ST, purchaseof automatic milk collection system etc. During the course ofscrutiny of the assessment proceedings, when this fact wasnoticed by the Assessing Officer (for short, “AO”), he came, DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 3 prima-facie, to the conclusion that such claim is not allowableas the respondent-assessee has incurred expenses in respectof primary societies from whom the respondent-assessee wasneither having any transaction nor any businessconnection/consideration and thus the said expenses wereincurred on its own and without any business expediency andaccordingly a show cause notice was issued as to why the saidamount may not be disallowed. 4.The respondent-assessee reiterated that the saidexpenses are required to be incurred for business expediencyand the said expenses are incurred wholly and exclusively forthe purpose of business of the respondent-assessee. It wasfurther submitted that to maintain the business and goodrelations with the dairy cooperative societies, such expenseswere required to be made and thus are allowable. However, theAO disallowed the same. 5.The matter was carried in appeal by the respondent-assessee by filing appeal before the CIT(A) and a detailedexplanation was submitted by the respondent-assessee and itwas contended that the respondent-assessee is an Apex bodyresponsible for development of dairy activities in cooperativesector in the State of Rajasthan and on perusal of the bye-laws, DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 4 5.The matter was carried in appeal by the respondent-assessee by filing appeal before the CIT(A) and a detailedexplanation was submitted by the respondent-assessee and itwas contended that the respondent-assessee is an Apex bodyresponsible for development of dairy activities in cooperativesector in the State of Rajasthan and on perusal of the bye-laws, DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 4 it can be noticed that the respondent-assessee is providingnecessary help, advise and guidance to various district leveland primary level societies engaged in procurement of milk. Itwas further contended that the district level societies collectmilk from the primary dairy cooperative societies (DCS) in theirmilk shed area and selling the milk products to the consumersunder the brand developed by the respondent-assessee forincreasing, procurement of milk and for protecting the dairyfarmers from the threat of private milk vendors, the respondent-assessee has launched various schemes from time to time forinducing more and more milk producers to join primary dairydevelopment cooperative societies in furtherance of itsfundamental objectives and reiterated the fact that theexpenses are incurred for new registration of DCS, revival ofclosed DCS, membership, contribution for women/ BPLfamilies/ SC/ ST families, providing automatic milk stations etcand these allowable u/s 37 (1) of the Act. 6.The CIT(A), after analyzing the evidence on record andfinding this fact that the amount paid has not been doubted bythe AO. He further came to the conclusion that the expensesare directly related to the business of the respondent-assesseeand incurred for commercial expediency and accordinglydirected that the said expenses are allowable expenses u/s 37 DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 5 (1) of the IT Act. The CIT(A), while allowing the deduction,relied upon the judgments rendered by the Hon'ble Apex Courtin the case of Sassoon J. David & Co. Ltd. Vs. CIT: (1979) 118ITR 261(SC) and CIT Vs. Delhi Safe Deposit Co. Ltd.: (1982)133 ITR 756 (SC) so also the judgment rendered by theKarnataka High Court in the case of CIT Vs. KarnatakaFinancial Corporation: (2010) 326 ITR 355 (Kar.). 7.Aggrieved with the deletion of the said amounts, theappellant-revenue preferred appeals before the ITAT and theITAT also vide order impugned has held that the genuinenessof the expenses is not doubted by the appellant-revenue andfurther held that the expenses were incurred wholly andexclusively for the purpose of business and accordinglydismissed the appeal of the appellant-revenue. This order ofITAT has been assailed by the appellant-revenue before us forall the years. 8.Mr. Y.S. Meena, Dy. Commissioner of Income Tax,present in person on behalf of the appellant-revenue, submittedthat there was no connection/ co-relation of incurring such hugeamount by the respondent-assessee on the various activities.He further contended that the respondent-assessee is receivinghuge grant from the National Dairy Development Board (NDDB) DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 6 and there is no justification for allowing the said amount asexpenditure and in the alternate such expense should havebeen first adjusted against the grant received from NDDB. Hesubmitted that it is an expenditure which is not relatable tobusiness considerations/expediency and the AO has rightlydisallowed the same and contended that substantial question oflaw arise out of the order of the ITAT for consideration of thisCourt. He also placed reliance on judgment of Kerala HighCourt rendered in the case of Season Rubber Ltd. Vs. CITreported in (2009) 311 ITR 15 (Ker) 9.We have considered the submissions of the ld. officer,appearing on behalf of the appellant-revenue and gone throughthe impugned order as also the order of the lower authorities. 6 and there is no justification for allowing the said amount asexpenditure and in the alternate such expense should havebeen first adjusted against the grant received from NDDB. Hesubmitted that it is an expenditure which is not relatable tobusiness considerations/expediency and the AO has rightlydisallowed the same and contended that substantial question oflaw arise out of the order of the ITAT for consideration of thisCourt. He also placed reliance on judgment of Kerala HighCourt rendered in the case of Season Rubber Ltd. Vs. CITreported in (2009) 311 ITR 15 (Ker) 9.We have considered the submissions of the ld. officer,appearing on behalf of the appellant-revenue and gone throughthe impugned order as also the order of the lower authorities. 10.In our view, the ITAT as well as CIT(A) have arrived at afinding of fact that the genuineness of the expenses is notdoubted by the appellant-revenue and thus, when genuinenessof the expenses has not been doubted by the appellant-revenue, then it is a finding of fact. We may further add that therespondent-assessee, as referred to herein above, is an apexbody responsible for development of dairy activities incooperative sector in the State of Rajasthan and thefundamental objectives of the respondent-assessee, as per its bye-laws, are as under:- “3.1.To carry out activities for promotingproduction, procurement, processing andmarketing of the milk and milk products foreconomic development of the animalhusbandry/farming community. 3.2.Development and expansion of such otherapplied activities as may be conducive for thepromotion of the Dairy Industry, improvement andprotection of such milch animals and economicbetterment of those engaged in milk production. 3.2.(7)advise, guide, assist and control themember milk unions in all respects ofmanagement, supervision and audit functions;3.2.(8)purchase or assist in purchasing rawmaterial, processing material etc; or tocollaborate with some one if need arises; 3.2(12)promote the organization of primarysocieties and assist members in organization ofthe primary societies; 3.2(13)plan development strategies andprogramme to increase the volume of production,procurement of federation and its member unionsand for effective marketing of the same; 3.2(14)render technical, administrative, financialand other necessary assistance to the memberunions and enter into collaboration agreementwith some one if the need arises.” DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 8 primary duty of the respondent-assessee is to take intoconsideration the amount incurred towards the primary levelsocieties from which it is engaged in procurement of milk. Therespondent-assessee has incurred the said amount forincreasing the procurement of milk and protecting the dairyfarmers from the threat of the private milk vendors, launchedvarious schemes from time to time for inducing more and moremilk producers to join milk development cooperative societies infurtherance of its fundamental objectives, which, in our opinion,is certainly in the nature of business expenses. It is also afinding of fact that one of the objectives of the respondent-assessee is to carry out such activities as may be conducive forthe promotion of the dairy industry and improvement andprotection of milch animals and in pursuance of the saidobjective, it has to run technical, administrative, financial andother necessary support to the societies. The respondent-assessee collects milk from its member unions i.e. primary dairycooperative society (DCS) and sells the milk and milk productsto the consumers under its brand name “SARAS”. Forincreasing the procurement of milk and protecting the dairyfarmers, it has to launch various schemes for inducing moreand more milk producers to join the primary dairy co-operativesociety and for this purpose, it has incurred expenditure andthus, in our view, these expenses are directly related to the DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 9 business of the respondent-assessee and incurred forcommercial expediency. It is also a finding of fact that therespondent-assessee has also charged 'Cess' @1% of the salevalue from milk unions for which receipts of Rs.9,12,27,490/-have been offered as income by the assessee and whenincome has been offered by the respondent-assessee, then thesaid expenditure is certainly allowable as business expenditure.Further more, when such income of Rs.9,12,27,490/- is alreadyoffered for taxation then question of adjustment against grantfrom NDDB does not arise. 12.We have also gone through the judgment relied by theofficer of Kerala High Court in Season Rubber Ltd. (supra),however, the said judgment is totally distinguishable and noteven remotely applicable to the facts of the instant case. 13.In view of what we have observed herein above and thesame being essentially a concurrent finding of fact by both theauthorities below that the said expenditure has been incurredwholly and exclusively for the purpose of business, in our view,no substantial question of law can be said to arise out of thefindings arrived at by both the authorities below whenparticularly the genuineness of the expenditure is not doubtedby the appellant-revenue at all. We find no perversity or DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014 illegality in the order of ITAT. 10 14.Consequently, all the three appeals, being devoid of any merits, are hereby dismissed. [J.K. RANKA],J. ,J. Raghu/p.10/ Certificate:All corrections made in the judgment/order have been incorporated in thejudgment/order being e-mailed. Raghu, Sr. PA. DB ITA- 75/2012 DB ITA- 245/2012DB ITA- 13/2014