ACIT, Jaipur v. M/S RAJASTHAN STATE CO-OPERATIVE, Jaipur

ITA 1277/JPR/2010 | 2007-2008
Pronouncement Date: 22-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 127723114 RSA 2010
Assessee PAN AAAAT0824G
Bench Jaipur
Appeal Number ITA 1277/JPR/2010
Duration Of Justice 8 month(s) 21 day(s)
Appellant ACIT, Jaipur
Respondent M/S RAJASTHAN STATE CO-OPERATIVE, Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 22-07-2011
Assessment Year 2007-2008
Appeal Filed On 01-11-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1277/ JP/2010 ASSESSMENT YEAR 2007-08 PAN: AAAAT 0824 G THE ACIT VS. M/S. RAJASTHAN STATE COOPERATIVE BA NK LTD. CIRCLE- 1 NEHRU BAZAR JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SUNIL MATHUR ASSESSEE BY : SHRI G.G. MUNDRA ORDER PER N.L. KALRA AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)- 1 JAIPUR DATED 16-08-2010 FOR THE ASSESSMENT YEAR 2007-08. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1 18 99 651/- HOLDING THAT AS PER ACT THERE IS NO RESTRICTION THAT THE PROVISIONS SHOULD ALWAYS BE ROUTED THROUGH P & L A/C WITHOUT APPRECIATING THE FACT THAT IN EARLI ER YEARS EXCESS PROVISIONS MADE WERE REVERSED IN THE P & L A/C AND THUS IN THE YEAR OF APPEAL THE SAME SHOULD HAVE BEEN DONE IN VIEW OF CONSISTENCY PRINCI PLE IN THE METHOD OF ACCOUNTING AS PER PROVISIONS OF SECTION 145(1) OF T HE ACT. 2 2.2 THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE PROVISIONS ARE MADE AT THE END OF THE YEAR IN RESPE CT OF CERTAIN EXPENSES AND SUBSEQUENTLY IF IT IS FOUND THAT AFTER PAYMENT THER E ARE EXCESS PROVISIONS THEN THE EXCESS AMOUNT IS CREDITED TO P & L A/C . T HIS BEING THE METHOD OF ACCOUNTING FOLLOWED REGULARLY BY THE ASSESSEE AND THEREFORE THE EXCESS PROVISIONS MADE IN EARLIER YEAR WAS ALSO REQUIRED T O BE CREDITED TO THE P & L A/C AS PER THE METHOD REGULARLY FOLLOWED BY THE ASS ESSEE. FROM THE BALANCE SHEET THE AO NOTICED THAT CERTAIN AMOUNTS WERE CRE DITED DURING PREVIOUS YEAR UNDER STATUTORY RESERVE DIRECTLY WITHOUT ROUTI NG THEM THROUGH THE P & L A/C . THE DETAILS AS MENTIONED BY THE AO IN HIS ORD ER ARE AS UNDER:- (A) STATUTORY RESERVE: OPENING BALANCE AS ON 1-04-2006 80 99 16 594.42 ADD. AMOUNT RECEIVED ON SALE OF ABSOLUTE ITEMS 7 578.00 TRANSFERRED FROM OLD BALANCE OF PROVISIONS OF BRANCHES MADE BEFORE 31-03-06 73 393.25 OLD PROVISIONS AMOUNT OF ESTABLISHMENT A/C (11202832.40+696819.42) 1 18 99 651.82 MEMBERSHIP FEE 4 339.00 2.3 BEFORE THE AO IT WAS SUBMITTED THAT SINCE THE ABOVE PROVISIONS PERTAIN TO EARLIER YEAR WHEN THE INCOME WAS EXEMPT THEREFORE REVERSING OF PROVISIONS MADE IN EARLIER YEAR CANNOT BE SAID TO B E THE INCOME OF YEAR IN QUESTION. THE CONTENTION OF THE ASSESSEE WAS NOT F OUND ACCEPTABLE BY THE AO. THE ABOVE PROVISIONS HAVE BEEN MADE OUT OF THE PROFIT AND THEREFORE 3 THE EXCESS PROVISIONS IF ANY HAS TO BE ACCOUNTED FOR AS PER THE METHOD OF ACCOUNTING OF THE ASSESSEE. THE AO THEREFORE HELD THAT A SUM OF RS. 1 18 99 651/- IS ADDED BACK TO THE INCOME OF THE AS SESSEE. 2.4 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT IN COME OF THE ASSESSEE WAS EXEMPTED U/S 80P(2) IN ALL THE EARLIER YEARS AN D INCOME FROM BANKING BUSINESS BECAME TAXABLE ON WITHDRAWAL OF EXEMPTION BY INSERTION OF SECTION 80P(4) BY THE FINANCE ACT 2006 W.E.F. 1-04-2007. TH E BANK HAS CARRIED FORWARD RESERVES AND PROVISIONS UNDER VARIOUS HEADS CREATED FROM THE PROFITS OF THE ASSESSMENT YEARS. THE PROVISIONS FOR ESTABLISHMENT OF RS. 1 18 99 651/- WERE NO LONGER REQUIRED AND THEREFORE THESE WERE TRANSFERRED TO STATUTORY RESERVES IN THIS YEAR. THE PROVISIONS WHETHER MADE OUT OF EXEMPTED RESERVES OR FROM TAXABLE PROFIT IS NOT REL EVANT AT ALL. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT THERE IS NO RE QUIREMENT IN LAW THAT EXCESS PROVISIONS WHEN WRITTEN BACK SHOULD BE ROUT ED ONLY THROUGH P & L A/C AND CANNOT BE DIRECTLY TRANSFERRED TO ANY RESER VE ACCOUNT. 2.5 THE LD. CIT(A) AFTER CONSIDERING THE CONTENTION S OF THE ASSESSEE DELETED THE ADDITION AFTER OBSERVING AS UNDER:- CONTENTION OF THE AR IS CONSIDERED. THE AO HAS OBJECTED THE ACTION OF APPELLANT TO TRANSFER THE PR OVISIONS OF ESTABLISHMENT EXPENSES BROUGHT FORWARD FROM EARLIER YEARS TO 4 STATUTORY RESERVE FUNDS. THERE IS NO RESTRICTION TH AT THE PROVISIONS SHOULD BE ALWAYS THROUGH P & L ACCOUNT. THE AO IS A LSO NOT CORRECT IN HIS OBSERVATION THAT THIS METHOD OF ACCO UNTING WAS FOLLOWED REGULARLY BY THE ASSESSEE AS DIFFERENT MET HOD OF ENTERING TRANSACTION AND EXCESS PROVISIONS MADE IN EARLIER Y EARS EVEN IF IT IS CREDITED TO P & L ACCOUNT IT WILL NOT EFFECT THE C OMPUTATION OF INCOME FOR THE YEAR AS TO COMPUTE INCOME OF THIS YE AR INCOME OF EARLIER YEARS IS NECESSARY TO BE EXCLUDED. THE ADDI TION MADE BY THE AO IS NOT JUSTIFIED AND THEREFORE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 1 18 99 651/-. 2.6 BEFORE US THE LD. DR STATED THAT EXCESS PROVIS IONS WERE BEING CREDITED IN THE P & L A/C IN EARLIER YEAR. THE ASSESSEE HAS CHANGED THE SYSTEM BECAUSE THE INCOME DURING THE YEAR HAS BECOME TAXAB LE. INSTEAD OF CREDITING THE EXCESS PROVISIONS MADE IN EARLIER YEAR IN THE P & L A/C THE ASSESSEE HAS CREDITED IN THE BALANCE SHEET. THE ASSESSEE IS REQU IRED TO FOLLOW THE PRINCIPLE OF CONSISTENCY. THE EXCESS PROVISIONS SO CREDITED A RE TO BE CONSIDERED AS PART OF THE INCOME. 2.7 BEFORE US THE LD. AR HAS MADE THE FOLLOWING SU BMISSIONS. IN THIS CONNECTION IT IS SUBMITTED THAT IT IS EVI DENT THAT THE SAID PROVISION WAS MADE OUT FROM EARLIER YEARS PROF ITS OF THE ASSESSEE BANK. THE PROVISION IS NOT ALLOWABLE AS DE DUCTION WHEN MADE EITHER FROM EXEMPT INCOME OR TAXABLE INCOME AN D NOT 5 INCLUDIBLE AS INCOME WHEN WRITTEN OFF OR TRANSFERRE D IN ANY RESERVE AS IT DOES NOT PARTAKE CHARACTER OF INCOME OF THE Y EAR. IN THE CASE OF ASSESSEE ALSO THE PROVISION BROUGHT FORWARD FROM EA RLIER YEAR WHICH IS TRANSFERRED IN STATUTORY RESERVE CANNOT BE CONSI DERED AND ASSESSED AS INCOME OF THE YEAR. THE PROVISION WHETHER MADE O UT OF EXEMPTED PROFITS OR FROM TAXABLE PROFITS IS NOT RELEVANT AT ALL. IT IS ALSO NOT REQUIRED IN LAW THAT EXCESS PROVISION WHEN WRITTEN BACK SHOULD BE ROUTED ONLY THROUGH P & L A/C AND CANNOT BE DIRECTL Y TRANSFERRED TO ANY RESERVE ACCOUNT OF ASSESSEE. EVEN FOR ARGUMENT SAKE IF IT IS TAKEN THAT EXCESS PROVISION IS TO BE WRITTEN BACK T HROUGH P & L A/C IN THAT CASE ALSO IT HAS TO BE EXCLUDED FOR COMPUTA TION OF INCOME FOR THE YEAR BEING NOT PERTAINING TO THE YEAR. IN NO CA SE AN OLD PROVISION MADE IN EARLIER YEARS AND BROUGHT FORWARD IN BOOKS OF ACCOUNTS OF THE YEAR CAN BE CONSIDERED OR ASSESSED AS INCOME OF ASSESSEE OF THE YEAR OR OF ANY FUTURE YEAR. 2.8 WE HAVE HEARD BOTH THE PARTIES. BEFORE US THE LD. AR HAS FILED THE PAGE 1 OF COPY OF THE RETURN FORM AND THE STATEMENT OF ASSESSABLE INCOME FOR THE ASSESSMENT YEAR 2006-07. IN THE STATEMENT OF AS SESSABLE INCOME IT IS MENTIONED AS UNDER : THE INCOME FROM BANKING BUSINESS IS WHOLLY EXEMPT U /S 80P(2)(A)(1) OF THE INCOME TAX ACT 1961 AND AS SUC H IT HAS NOT BEEN CONSIDERED NECESSARY TO DISTURB AND ADD BACK T HE ITEMS OF P & L A/C IN CONFORMITY WITH INCOME TAX ACT/ I.T. RULES 1961 INCLUDING APPROPRIATION OF PROFIT IN RESERVE/ FUNDS. 6 THE INTENTION OF THE ASSESSEE IS THAT THE AMOUNTS WHICH HAVE NOW BEEN TRANSFERRED FROM PROVISIONS TO RESERVE FUNDS WERE A DDED BACK IN EARLIER YEAR. HOWEVER THE AMOUNT CREDITED TO RESERVE FROM THE PR OVISIONS HAS NOT BEEN IDENTIFIED IN RESPECT OF THE PROVISIONS CREDITED F OR A PARTICULAR ASSESSMENT YEAR. THE CARRIED FORWARD PROVISION HAS BEEN DEBITE D AND RESERVE FUND HAS BEEN CREDITED. IN CASE THE AMOUNTS WHICH HAVE NOW B EEN TRANSFERRED FROM PROVISION TO RESERVE HAS BEEN ADDED BACK IN THE YEA R IN WHICH SUCH PROVISION WAS CREDITED THEN THE SAME CANNOT BE TAXED NOW IN T HE ASSESSMENT YEAR WHEN THE SAME IS BEING TRANSFERRED FROM PROVISION TO RES ERVE. THERE MUST BE SOME CORRESPONDENCE TO SHOW AS TO WHY PROVISIONS IS BEI NG TRANSFERRED TO RESERVE AS IT IS NOT REQUIRED FOR MEETING THE LIABILITY. WE ARE NEITHER HAVING THE NECESSARY DETAILS NOR THE DETAILS OF QUANTUM OF PR OVISIONS WHICH HAS BEEN TRANSFERRED DURING THE YEAR WAS DEBITED IN THE P & L A/C OF WHICH YEAR. WE ARE ALSO NOT AWARE AS TO WHETHER THE PROVISIONS ARE BEING ENTERED BELOW THE NET PROFIT. IF IT IS A PART OF P & L A/C APPROPRIAT ION THEN IT IS TO BE CONSIDERED AS ADDED BACK BECAUSE THE APPROPRIATION FROM P & L A/C CANNOT BE CONSIDERED AS AN ADMISSIBLE EXPENDITURE. THE HON'BL E APEX COURT IN THE CASE OF CIT VS. STATE BANK OF PATIALA 219 ITR 706 HAD AN OCCASION TO CONSIDER THE DISTINCTION BETWEEN THE PROVISION AND RESERVE. IF THE TRANSFER OF AMOUNT IS MADE ADHOC WHERE THERE IS NO INFORMATION OR ANTICIPATED LIABILITY 7 SUCH FUND CAN ONLY BE TREATED AS RESERVE THAT WHERE A FUND HAS BEEN CREDITED TO MEET THE LIABILITY WHICH HAS ACTUALLY ARISEN AND IS KNOWN ON THE DATE OF PREPARATION OF THE BALANCE SHEET IT WOULD OBVIOUS LY BE A PROVISION. PROVISIONS MADE AGAINST THE ANTICIPATED LOSS AND C ONTINGENCIES ARE CHARGES AGAINST PROFITS AND TO BE TAKEN INTO ACCOUNT IN COU RSE OF RECEIPT AND P & L A/C IN THE BALANCE SHEET WHILE RESERVES ARE APPROPR IATION OF PROFITS. WE ARE NOT AWARE AS TO HOW THE ASSESSEES IS CREDITING AMOU NT UNDER RESERVE AND PROVISIONS BY THE ASSESSEE. SINCE THE ACCOUNTS ARE BEING AUDITED AND ARE BEING PREPARED AS PER RESERVE BANK OF INDIA GUIDELI NES THEREFORE WE FEEL THAT THE RESERVE AND SURPLUS ARE MADE BY THE ASSESS EE AS UNDERSTOOD IN COMMERCIAL PARLANCE. 2.9 IT IS WELL SETTLED LAW THAT ENTRIES IN THE BOOK S OF ACCOUNTS ARE NOT CONCLUSIVE. ONE HAS TO ASCERTAIN THE TAXABILITY ON THE BASIS OF THE PROVISIONS OF INCOME TAX ACT. CREDITING THE AMOUNT IN THE BALA NCE SHEET WILL NOT DECIDE THE ISSUE THAT SUCH CREDITS CANNOT BE ADDED TO THE INCOME. THE HON'BLE APEX COURT IN THE FOLLOWING CASES HAVE HELD THAT BOOK ENTRIES ARE NOT CONCLUSIVE. 1.KEDARNATH JUTE MFG. CO. LTD. VS. CIT 82 ITR 3 63 (SC) 2. CIT VS. INDIAN DISCOUNT CO. LTD. 75 ITR 191 (SC) 3. SATLUJ COTTON MILLS LTD. VS. CIT 116 ITR 1 (S C) 8 4. CIT VS. TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. 227 ITR 172 SC 5. CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC) 6. CIT VS. TRIVENI ENGINEERNG & INDUSTRIES LTD. 181 TA XMAN 5 (DEL.) THUS THE ISSUE IS NOT TO BE DECIDED SIMPLY ON THE B ASIS THAT THE ENTRIRES HAVE BEEN MADE IN THE BALANCE SHEET AND NOT IN THE P & L A/C. WE ARE NOT HAVING SUFFICIENT DETAILS TO DECIDE THE ISSUE BEFORE US AS TO WHETHER THE AMOUNT COULD HAVE BEEN ADDED OR NOT AND THEREFORE WE REST ORE BACK THE ISSUE ON THE FILE OF THE AO. THE AO WILL ASCERTAIN THE NATURE O F THE PROVISIONS WHICH HAS BEEN WRITTEN BACK DURING THE YEAR AND WILL ALSO ASC ERTAIN AS TO WHETHER SUCH PROVISION WAS ADDED BACK IN THE YEAR IN WHICH SUCH PROVISION WAS CREDITED IN THE BALANCE SHEET. THUS THIS ISSUE IS RESTORED B ACK ON THE FILE OF THE AO AND AO WILL DECIDE AS TO WHETHER PROVISION WRITTEN BACK WAS INCLUDED IN EXPENSES CLAIMED IN THE YEAR IN WHICH SUCH PROVISIO N CREATED. IF IT WAS CLAIMED THEN AMOUNT WRITTEN BACK WILL BE INCOME. 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1 00 21 000/- HOLDING THAT PACS MANAGER SALARY IS NOT CONTINGENT LIABILITY BUT A ST ATUTORY LIABILITY. WHEREAS AS PER THE PROVISIONS IT IS IN THE NATURE OF CONTIN GENT/ DISPUTED LIABILITY AS NO DISBURSEMENT OUT OF THE SAID LIABILITIES WAS MADE. 9 3.2 THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 1 00 21 000/- IN RESPECT OF PACS MANAGERS SALARY. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SALARY HAS NOT BEEN DISBUR SED DESPITE MAKING THE PROVISION ON THIS ACCOUNT. THE ASSESSEE IN HIS REPL Y STATED THE AMOUNT LYING IN THE SAID ACCOUNT IS OF THE REGISTRAR OF COOPERAT IVE SOCIETY RAJASTHAN AND THE SAID AUTHORITY CAN WITHDRAW THE SAME AT ANY TIM E AS PER THEIR REQUIREMENT. THE ACCOUNT IN ASSESSEE BANKS BOOK IS LIKE OTHER LIABILITIES FOR EXPENSES ACCOUNT AND THE ASSESSEE BANK HAS NO RIGHT TO UTILIZE THE SAID AMOUNT FOR ITS OWN PURPOSES. THE AO WAS NOT SATISFI ED ABOUT THE CONTENTION OF THE ASSESSEE AND THEREFORE ADDED BACK A SUM OF RS. 1 00 21 000/- TO THE INCOME OF THE ASSESSEE. 3.3 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE COOPERATIVE BANK WAS STATUTORILY REQUIRED BY THE REGISTRAR OF C OOPERATIVE SOCIETIES UNDER PRIMARY AGRICULTURAL COOPERATIVE SOCIETY MANA GERS SELECTION APPOINTMENT AND SERVICE CONDITION RULES 2003 TO CO NTRIBUTE 0.15% OF AVERAGE OUTSTANDING LOANS OF LAST YEAR. THE COPY OF THIS RULES WERE MADE AVAILABLE TO THE LD. CIT(A). SUCH CONTRIBUTION IS C OMPULSORY AND CONTRIBUTED FUND WILL BE HELD BY APEX BANK FOR AND ON BEHALF OF REGISTRAR OF COOPERATIVE SOCIETIES. THE LIABILITY OF CONTRIBUTIO N FOR PAC MANAGERS SALARY IS A STATUTORY LIABILITY BEING CRYSTALLIZED AT CLO SE OF EVERY YEAR AND THE 10 CONTRIBUTION IS PAYABLE AS AND WHEN DEMANDED BY REG ISTRAR OF COOPERATIVE SOCIETY. THE LD. CIT(A) AFTER CONSIDERING THE CONTE NTION OF THE ASSESSEE ALLOWED THE LIABILITY AFTER OBSERVING AS UNDER:- ALLOWABILITY OF CONTRIBUTION BY THE APEX BANK FOR PAC MANAGERS SALARY IS A STATUTORY LIABILITY WHICH IS C RYSTALLIZED AT THE END OF EVERY YEAR. THE CONTRIBUTION HOWEVER ONC E MADE BECOME AT THE DISPOSAL OF REGISTRAR OF COOPERATIVE SOCIETY WHICH IS PAYABLE AS AND WHEN DEMANDED BY REGISTRAR OF COOPERATIVE SOCIETY ALONGWITH INTEREST ON IT. THUS IT IS NOT CONTINGENT LIABILITY BUT A STATUTORY LIABILITY WHIC H IS CRYSTALLIZED AT THE END OF EVERY YEAR AND HENCE THE LIABILITY IS ALLOWABLE. 3.4 DURING THE COURSE OF PROCEEDING BEFORE US THE LD. DR DREW OUR ATTENTION TO THE COPY OF RULES OF THE COOPERATIVE S OCIETIES SELECTION OF MANAGERS FILED B THE LD. AR THE LD. DR DREW OUR AT TENTION TO PAGE 14 OF THE PAPER BOOK. IF THE AMOUNT OF SALARY PAID TO THE MAN AGERS OR SAMITI IS LESS THAN 75% OF THE INCOME OF THE SAMITI THEN THE SALAR Y IS TO BE PAID FROM THE FUNDS TO WHICH THE BANKS HAVE TO MAKE CONTRIBUTION. SUCH PAYMENT IS FROM THE FUND AS LOAN TO THE SAMITI AT A INTEREST OF 4% AND THE AMOUNT IS RECEIVABLE WITHIN A MAXIMUM PERIOD OF 10 YEARS. IT WAS THEREFO RE ARGUED BY THE LD. DR THAT THE AMOUNT FROM THE FUND IS TO BE GIVEN AS A L OAN AND NOT AS A CONTRIBUTION TO THE SAMITI. IT WAS THEREFORE ARGUE D BY THE LD. DR THAT IT IS AN APPLICATION OF INCOME. THE LD. DR RELIED UPON THE D ECISION OF HON'BLE APEX 11 COURT IN THE CASE OF ASSOCIATED POWER CO. LTD. VS. CIT 218 ITR 195. IN THIS CASE THE AMOUNTS WERE CREDITED TO CONTINGENCY RESERVE FUND UNDER STATUTORY PROVISIONS. THE AMOUNTS BELONG TO ELECTRI CITY SUPPLY UNDERTAKING AND THE AMOUNT IS NOT DIVERTED BY OVERRIDING TITLE. THE HON'BLE APEX COURT HELD THAT CONTRIBUTION IS NOT AN EXPENDITURE. 3.5 BEFORE US THE LD. AR HAS FILED THE WRITTEN SUB MISSION. THE FACTS OF THE CASE ARE THAT THE ASSESSEE CO-OP ERATIVE BANK WAS STATUTORILY REQUIRED BY REGISTRAR CO-OPERA TIVE SOCIETIES UNDER PRIMARY AGRICULTURAL CO-OP. SOCIETY MANAGERS SELECTION APPOINTMENT & SERVICE CONDITION RULES 2 003 (PAC MANAGERS SALARY) TO CONTRIBUTE 0.15% OF AVERAGE OUT STANDING LOANS OF LAST YEAR (THE COPY OF SAID RULES ARE PLAC ED IN P.B. PAGE 5 20 PARTICULAR PAGE 13 HEREWITH). THE MAK ING OF CONTRIBUTION BY ASSESSEE BANK IS COMPULSORY AND CON TRIBUTED FUND WILL BE HELD BY APEX BANK FOR AND ON BEHALF OF REGISTRAR OF CO-OP. SOCIETIES. THE REGISTRAR OF CO-OP. SOCIET Y IS TO USE THE FUND FOR PAYMENT OF PAC MANAGERS SALARY IN CASE OF SUFFICIENT FUNDS ARE NOT AVAILABLE FOR THEIR SALARY. THE PAC M ANAGERS ARE APPOINTED BY AUTHORITY FOR SAFEGUARDING THE RECOVER Y OF LOANS ADVANCED BY OTHER CO-OPERATIVE BANKS AND APEX BANK. THUS THE MEASURE IS FOR COMMERCIAL BENEFIT OF ASSESSEE B ANK WHO ADVANCES LOANS TO SUCH PACS. THUS THE LIABILITY OF CONTRIBUTION FOR PAC MANAGERS SALARY IS A STATUTORY LIABILITY BE ING CRYSTALISED AT CLOSE OF EVERY YEAR AND THE CONTRIB UTION AFTER IT IS MADE BECOMES AT THE DISPOSAL OF REGISTRAR CO-OPERAT IVE SOCIETY 12 WHICH IS PAYABLE AS AND WHEN DEMANDED BY REGISTRAR CO- OPERATIVE SOCIETY. IT WILL BE CLEAR AND EVIDENT FRO M COPY OF RULES SUBMITTED THAT LIABILITY OF CONTRIBUTION IS S TATUTORY LIABILITY CRYSTALYSING AT THE END OF EVERY YEAR AND NOT IN A NATURE OF DISPUTED/CONTINGENT LIABILITY. THE CONTRIBUTION OF ASSESSEE BANK TO PAC MANAGERS SALARY AMOUNTING TO RS. 1 00 21 000 /- DURING THE YEAR IS THUS ALLOWABLE DEDUCTION AND LD. A.O. I S WRONG AND HAS ERRED IN LAW IN DISALLOWING THE SAME HOLDING IT AS DISPUTED/CONTINGENT LIABILITY. 3.6 WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE APE X COURT IN THE CASE OF SRI VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT 223 ITR 101 HAS STATED THAT IT IS TO BE SEEN AS TO WHETHER THE PAYMENT IS COMPULSORY FOR THE ASSESSEE TO MAKE OR NOT BUT WHETHER IT WAS EXPENDED OUT OF CONSIDERATION OF COMMERCIAL EXPEDIENCY. ANY CONTRIB UTION MADE BY THE ASSESSEE TO A FUND WHICH DIRECTLY CONNECTED OR RELA TED TO CARRYING ON ASSESSEES BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSEE'S BUSINESS HAS TO BE REGARDED AS DEDUCTION ALLOWABLE U/S 37 OF THE ACT. THE DECISION OF HON'BLE APEX COURT IN THE CASE OF ASSOCIATED POWER CO. LTD. VS. CIT (SUPRA) IS NOT APPLICABLE. THE HON'BLE APEX COURT HELD THAT APPLICATION OF THE DOCTRINE OF DIVERSION OF INCOME BY REASON OF OV ERRIDING TITLE IS NOT APPLICABLE IN THAT CASE AS THE RESERVE IS OUT OF TH E REVENUES OF THE UNDERTAKING AND REACH THE ELECTRICITY COMPANY AND I S NOT DIVERTED AWAY FROM 13 IT. HOWEVER IN THE INSTANT CASE THE AMOUNT IS TO BE CONTRIBUTED TO A FUND AND THE FUND IS NOT BEING MANAGED BY THE ASSESSEE. THE ASSESSEE MAY BE TRUSTEE OF THAT FUND BUT IT CANNOT APPLY THE FUND AS PER H IS OWN WILL. THE INTEREST IF ANY EARNED ON THIS FUND IS ALSO TO BE CREDITED TO THAT FUND. IT IS THEREFORE CLEAR THAT FUNDS STAND DIVERTED AT THE SOURCE AND T HEREFORE THIS CANNOT BE CONSIDERED AS AN APPROPRIATION OF INCOME BUT IT IS AN EXPENDITURE. THUS THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 4. IN THE RESULT THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22-07 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 22/07/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT CIRCLE- 1 JAIPUR 2. M/S.RAJASTHAN STATE COOPERATIVE BANK LTD. JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1227/JP /10) A.R ITAT JAIPUR 14 15