Case Law Details
DCIT Vs Kaira District Co-op Milk Producers Union Limited (ITAT Ahmedabad)
ITAT Ahmedabad held that grant received under Sampoorna Gramin Swarojgar Yogna (SGSY) from Government of Gujarat and interest earned on such grant cannot be treated as revenue receipt. Accordingly, the same is not liable to be taxed.
Facts- The assessee is a Co-operative Society deriving income from the business of manufacturing and marketing milk and milk products. The assessee’s case was taken up for scrutiny assessment and made various disallowances and the A.O. determined the total income at Rs. 5,58,77,595/- and raised a demand of Rs. 2,62,73,660/-.
Commissioner of Income Tax (Appeals) partly allowed the assessee appeal by deleting the various disallowances made by the Ld. A.O. Aggrieved against the same, the Revenue is in appeal.
Conclusion- Held that grants received under Sampoorna Gramin Swarojgar Yogna (SGSY) from Government of Gujarat cannot be treated as revenue receipt of the assessee as it was received specifically towards attainment of objectives enumerated in the MOU between the appellant, District Rural Development Agency, Nadiad (DRDA) and Commissioner, Rural Development, Government of Gujarat, Gandhinagar and assessee had no authority to use this grant towards its normal business activities.
Further, interest earned on such grant will be treated as part of the SGSY grant. It is already held that the grant itself is not considered as the income of the assessee. The consequential interest thereon is also not liable to be taxed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Revenue as against the appellate order dated 14.08.2015 passed by the Commissioner of Income Tax(Appeals)-4, Vadodara, arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2011-12. The Cross Objection is filed by the Assessee as against the above Revenue appeal.
2. The brief facts of the case is that the assessee is a Co-operative Society deriving income from business of manufacturing and marketing of milk and milk products. For the Assessment Year 2011-12, the assessee filed its Return of Income declaring total income of Rs. 3,09,57,340/- after set off of unabsorbed depreciation of earlier assessment years. The assessee’s case was taken up for scrutiny assessment and made various disallowances and the A.O. determined the total income at Rs. 5,58,77,595/- and raised a demand of Rs. 2,62,73,660/-.
3. Aggrieved against the same, the assessee filed an appeal before Commissioner of Income Tax (Appeals) who partly allowed the assessee appeal by deleting the various disallowances made by the Ld. A.O.
4. Aggrieved against the same, the Revenue is in appeal before us raising the following Grounds of Appeal:
1. Whether on the facts and circumstances of the case and in law, the Ld. C.L.T. (A) erred in deleting the addition of Rs.1,85,04,494/- on account of grant A Desto received under Sampoorna Gramin Swarojgar Yogna from the Govt. without appreciating the fact that the assessee started its commercial activities much before the receipt of the aforesaid grant, hence the same ought to be treated as revenue receipt.
2. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the addition of Rs.1,85,04,494./-on account of grant received under Sampoorna Gramin Swarojgar Yogna from the Govt. without considering the decision of Hon’ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v/s. CIT 94 Taxman 368(SC) and (1) Kesoram Industries and Cotton Mills Ltrd. V/s.CIT 191 ITR 518 (Calc) relled upon by the A.O. in the assessment order.
3. Whether on the facts and circumstances of the case and in law the Ld. C.I.T.(A) erred in deleting addition on account of depreciation claimed on the portion of plant and machinery acquired through grant/subsidy received from NDDB under 70% loan and 30% grant scheme without appreciating that on plain reading of explanation 10 to Section 143(1) t is clear that the said explanation does not refer to assets acquired after 01-04-1999 or grant subsidy received after 01-04-1999, which finds support from the decision of Hon’ble Karnatak High Court in the case of Shree Renuka Sugars Ltd. in I.T.A. No.5006/2011 c/w ITA No. 5007/2011, vide order dated 31-08-2012,, and that the facts of the case of Shree Renuka Sugars Ltd. (Supra) are identical to the facts of the present case.
4. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting addition on account of depreciation claimed on the portion of plant and machinery acquired through grant/subsidy received from NDDB under 70% loan and 30% grant scheme by relying on the judgment of Kerala High Court in the case of C.I.T. vs. Sun Fiber Optics, ignoring the fact that the judgment of Hon’ble Supreme Court the case of CIT v. P.J. Chemicals Ltd. (1994 210 ITR 830, was in the rendered on 14-09-2014, which was much prior to the date of introduction of explanation 10 to section 43(1) of the Act w.e.f. 01-04- 1999.
5. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting addition on account of depreciation claimed on the portion of plant and machinery acquired through grant/subsidy received from NDDB under 70% loan and 30% grant scheme by relying on the judgement of Hon’ble Gujarat High Court in the case of Mahesana District Co-oerative Milk Producers Union Ltd. vs. C.I.T. without considering the aspect that the said decision of Hon’ble Gujarat High Court is not applicable to the facts of the present case in as much in that case the A.Y, involved was 1978-79, when the explanation 10 to section 43(1) w.e.f. 01-04-1999 was not in existence, whereas in the present case, the issue involved for A.Y. 2002-03 is squarely covered by the explanation 10 to section 43(1) of the Act w.e.f. 01-04-1999.
6. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T.(A) was justified in holding that deleting addition of Rs.1,88,18,927/- being disallowance u/s. 80P(2)(d) of the Act notwithstanding the fact that the interest paid by the assessee to various co-operative banks/ Societies/Bodies exceeded the income earned from its investment with Bank/Co-operative Societies nor the assessee could substantiate the claim that interest bearing funds have not been invested with Co-operative Bank.
7. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T.(A) was justified in deleting the addition of Rs. 1,88,18,927/-, by relying on the decision of Hon’ble Supreme Court of India in the case of Munjal Sales Corpn vs. C.I.T., Ludhiana reported in 168 Taxman 43(SC) and decision of Hon’ble High Court of Bombay in the case of C.I.T. vs. Reliance Utilities & Power Ltd. reported in 178 Taxman 135, without appreciating the facts of the present case is distinguishable from the facts of the said cases, in as much whereas in the instant case the issue pertained to disallowance u/s. 80P(20(d) of the Act., whereas in the said cases referred to by Hon’ble Supreme Court and Hon’ble Bombay High Court, the issue pertained to disallowance of deduction u/s. 36(11)(1) of the Act..
Relief claimed in appeal
The order of the CIT(A) on the issues raised In the aforesaid Grounds be set aside and that of the Assessing Officer be restored.
5. At the outset, Ld. Counsel Shri Yogesh Shah appearing for the assessee submitted that all the grounds raised by the Revenue are covered in favour of the assessee in assessee’s own case for the earlier assessment years. Thus the Revenue appeals are liable to be dismissed following the above decisions.
6. Per contra, the Ld. Sr. D.R. Ms. Leena Lal appearing for the Revenue could not controvent the above submissions of the assessee. However she supported the order of the Lower Authorities and prayed to allow the Revenue appeal.
7. We have perused the material available on record and the Paper Books and compilation of Case Laws filed by the assessee. Regarding Ground Nos. 1 & 2 raised by the Revenue, deletion of addition of Rs. 1.85 crores on account of grant received under Sampoorna Gramin Swarojgar Yogna (‘SGSY’) from Government. This issue is covered in favour of the assessee in assessee’s own case by the Co-ordinate Bench of this Tribunal in ITA No. 2953/Ahd/2013 dated 19-09-2016 relating to the Assessment Year 2006-07 observing as follows:
“….8. We observe that assessee being a co-operative society entered into Memoranum of Understanding in respect of the special project for “Improving the Socio economic condition of BPL families of Kheda district through Dairying and Animal Husbandry Activities”. This agreement was entered into on 11th September, 2004 between the District Rural Development Agency, Nadiad, Kaira District cooperative Milk Producers Union, Anand and the Commissioner, Rural Development, Government of Gujarat, Gandhinagar to achieve following objectives:-
a) To induct 15,000 high quality milch animals in 7,500 8PL households from two talukas of the Kheda district and to arrange good quality cattle shed for each of these families;
b) To ensure availability of proper fodder, door step artificial insemination services, mobile diagnostic lab and skill up-gradation training in cattle-, management to beneficiaries; and
c) In order to retain the quality of milk up to the international standards, to commission bulk chilling units and SS milk cans.
Further this project mainly has following components:
a) Induction of animal to the 8PL families – this component w/f | require subsidies from SGSY resources as per the normal pattern of the scheme;
b) Vaccination, Health care and Deworming services to the cattle
c) Raising green fodder & providing better seed verities for fodder at the individual and community levels;
d) Creation of drinking water facilities by digging bore wells to supply drinking water to live-stocks of BPL families;
e) Establishing mobile veterinary lab for spot treatment and-provide door step artificial insemination; and
f) Bulk chilling facilities and provision of SS cans for milk collection.
Further Ministry of Rural Development, Government of India has agreed to financially support this project vide their order no.24015/136/2003-SGSY-1 (Special Project) dated 30th January, 2004 copy of this letter will form part of the MOU.
9. We further observe that work under this project is being carried out regularly and the assessee was required to maintain a separate bank account to receive the impugned grant and all the outflows from this account are to be in conformity with the MoU and these funds are to be specifically used for the attainment of objects as referred in the MOU. Further we observe that similar type of issue came up before Hon. Punjab & Haryana High Court in the case of CIT vs. The Punjab State E-Governance Society (supra) dealing with the specified type of grant whether to be treated as revenue receipt or capital receipt.”
11. Respectfully following the decision of Hon. Punjab & Haryana High Court in the case of CIT vs. The Punjab State E-Governance Society (supra); also going through the detailed finding of ld. CIT(A) and in the given facts and circumstances of the case we are of the view that grant of Rs.7,28,12,000/- received under SGSY Scheme from Government of Gujarat cannot be treated as revenue receipt of the assessee as it was received specifically towards attainment of objectives enumerated in the MOU between the appellant, District Rural Development Agency, Nadiad (DRDA) and Commissioner, Rural Development, Government of Gujarat, Gandhinagar and assessee had no authority to use this grant towards its normal business activities. Therefore, we find no reason to interfere with the order of ld. CIT(A). We uphold the same. The ground raised by the Revenue is dismissed.”
7.1. We find that there is no change in the grant received by the assessee for the present Assessment Year 2011-12. Thus, we have no hesitation in following the decision rendered in assessee’s own case cited supra and held that the sum of Rs. 1.85 crores on account of grant under SGSY as not revenue receipt. Thus the ground nos. 1 & 2 raised by the Revenue are hereby dismissed.
8. Regarding Ground Nos. 3, 4 & 5 raised by the Revenue deleting the depreciation claimed on the portion of plant and machinery acquired through grant/subsidy received from NDDB under 70 loan and 30% grant scheme. The Ld. Counsel submitted that this issue is also covered in favour of the assessee in assessee’s own case vide order dated 05-06-2015 in ITA Nos. 563 to 567/Ahd/2011 for the Assessment Years 2002-03 to 2007-08 relying upon the judgment of the Kerala High Court in the case of Sun fiber Optics (P.) Ltd. and also assessee’s own case for the Assesment Year 2010-11 in ITA No. 3031/Ahd/2013 dated 29-092016 wherein it is held as follows:
“…7. The fourth ground confirming disallowance of claim of depreciation of Rs. 39,77,276/-on Plant and Machinery received under 70% loan and 30% grant basis. The Id. counsel contended that the Hon’ble ITAT, Ahmedabad in the earlier years has decided the identical issue in favour of the assessee for A.Y. 2002-03 to 2005-06 and 2007-08 to 2008-09 ITA No. 563/Ahd/2011 and 567/Ahd/2011. He further stated that the Hon’ble ITAT has also decided the issue in assessee’s own case for A.Y. 2009-10 in ITA No. 1337/Ahd/2013. The Id. D.R. relied on the order of the Id. CIT(A). After hearing both the parties and perused of material on record, we find in ITA Nos. 1336 and 337/Ahd/2013 for A.Y. 2007-08 and 2009-10. the Hon’ble ITAT has decided the identical issue in favour of the assessee. Keeping reliance on the decision of the Hon’ble ITAT Ahmedabad, we delete the addition confirmed by the Id. CIT(A).”
8.1. Respectfully following the above decisions of the Co-ordinate Benches, we hereby confirm the order passed by the Ld. CIT(A) on the claim of depreciation on Grant portion. Thus the Ground Nos. 3, 4 & 5 filed by the Revenue are hereby dismissed.
9. Regarding Ground Nos. 6 & 7 disallowance u/s. 80P(2)(d) of Rs. 1,88,18,927/-. The Ld. Counsel submitted the Hon’ble High Court of Gujarat in assessee’s own case for the Assessment Year 2010-11 reopened the assessment u/s. 147, which was quashed holding that there is no new tangible material on record to make the reassessments. Further in assessee’s own case for the Assessment Year 2008-09, the Revenue appeal on this ground was dismissed observing as follows:
“…8. Regarding the claim of deduction u/s. 80P(2)(d) of the act of Rs. 3640842/-the Ld. Counsel has submitted that the Hon’ble ITAT in assessee’s own case for A.Y. 1986-87 while rejecting the appeal of department for denying the deduction of interest u/s 80P(2)(d) held that assessee cannot borrow the money for temporary investment. He has also submitted that even Gujarat High Court in assessee’s own case while dealing with issue of re-opening u/s, 148 for disallowing the deduction of interest observed that AO is conscious about the claim made by the assessee and the position of interest earned on investment, vis-a-vis interest or commission paid by it, and has been treating the investment income having no relation to the interest paid in as much as it was consistent finding that no interest has been paid on borrowings for earning interest on investment. The same has been reported in 87 Taxman 144. In view of the above, in earlier years i.e. from A.Y. 1986-87 it is consistently accepted by the AO, CIT(A), ITAT and High Court in assessee’s own case that assessee has never borrowed the money for making the investment as always assessee has interest free funds more than investment. In A.Y. 91-92, section 80AB has also been considered while allowing the deduction u/s. 80P(2)(d) of the Act. In view of these facts and findings, we are inclined with the findings of the Ld.CIT(A). Accordingly, both the grounds of appeal of the revenue on this issue stands dismissed.”
9.1. In the present case, own funds to the tune of Rs. 332.41 crores available as per the balance sheet as against, this the investments by way of fixed deposits with Cooperative Banks and Societies was Rs. 68.50 crores only. Thus the said deposits is made out of own non-interest bearing funds. Therefore the disallowance u/s. 80P(2)(d) is unwarranted and liable to be allowed following the decisions of the Co-ordinate Benches in assessee’s own case. Thus the Ground Nos. 7 & 8 raised by the Revenue are hereby dismissed.
10. In the result, the appeal filed by the Revenue is hereby dismissed.
C.O. No. 19/Ahd/2016 for A.Y. 2011-12
11. The Grounds of Appeal raised by C.O. of the Assessee reads as under:
1. The Ld. CIT(A) erred in not adjudicating the ground with respect to the Interest of Rs. 2,40,043/- earned on Sampoorna Gramin Swarojgar Yogna (SGSY) taxed as revenue receipt by the Ld. A.O.. It is submitted that when grant is given for specific purpose and is kept in separate account in the bank for its utilization towards that purpose, interest earned on such grant will be part of such grant and cannot be taxed as income of the appellant particularly when grant itself of Rs. 1,82,64,951/- is not considered as the income of the appellant. It be so held now.
12. The only ground of the assessee is Ld. CIT(A) erred in not adjudicating the ground with respect to the interst of Rs. 2,40,043/- earned on Sampoorna Gramin Swarojgar Yogna (SGSY). This issue is also covered in assessee’s own case in ITA No. 2953/Ahd/2013 which is already reproduced in Para 7 of this order. It is already held that SGSY grant received from Government of Gujarat cannot be treated as revenue receipt of the assessee as it was received specifically towards attainment of objectives enumerated in the Memorandum of Understanding between the assessee and the Government of Gujarat. Further the assessee has kept separate account in the bank of the SGSY grant towards that purpose. Thus the interest of Rs. 2,40,043/- earned on such grant will be treated as part of the SGSY grant. It is already held that the grant itself is not considered as the income of the assessee. The consequential interest thereon is also not liable to be taxed. Thus the grounds raised by the assessee is hereby allowed.
13. In the result, the C.O. filed by the Assessee is allowed.
Order pronounced in the open court on 16-06-2023
Author Bio
