PACS Development Fund Contributions not Business Expense: ITAT upholds Disallownace Citing Binding Rajasthan High Court Precedent [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) disallowed the contributions to the PACS development fund to be deducted from tax under Section 154 of the Income Tax Act. The assessee filed the appeal against an order passed by the Deputy Commissioner of Income Tax (DCIT), National Faceless Assessment Centre (NFAC), made for the assessment year (AY) 2017-18.

The assessee, Kota Central CO-OP Bank Ltd, is a co-operative bank registered with the registrar of Co-operative Societies, Cooperative Department, Govt. of Rajasthan. The assessee’s case was assessed under Section 143(3) of the Act, in which the assessee filed its return totalling ₹7 Crore, deducting an amount of ₹23 lakhs as contributions made to the Primary Agricultural Credit Societies (PACS) development funds as business expenditure.

The assessing officer (AO) passed an order disallowing the assessee's claim, relying on the decision of the High Court of Rajasthan in Churu Central Cooperative Bank Ltd. vs Commissioner of Income Tax. The Commissioner of Income Tax( Appeals) [CIT(A)] further upheld this order.

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The assessee, aggrieved by both these orders, pursued an appeal to the ITAT. The ITAT, before proceeding, further observed that the registry had pointed out a delay in filing an appeal by the assessee by 11 days to which the Managing Director of the Bank filed an affidavit and an application explaining the reasons behind the delay in appeal along with conclusive proofs. Based on such evidence, the ITAT condoned the delay.

Further, on the actual matter, the tribunal observed that a similar issue had been dealt with by the Jurisdictional High Court ( High Court of Rajasthan). The tribunal observed that while deciding the problem, the High Court relied on the decisions made by the Apex Coury in the case of M/s Associated Power Co. Ltd. vs. CIT and M/s. Liberty India Ltd. vs. CIT. Considering all these cases and their decisions, the tribunal observed that the contribution made to the PACS Development fund could not be accepted as a business transaction and that the disallowance was maintainable in the present case.

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The tribunal, consisting of Dr S. Seethalakshmi (Judicial Member) and Gagan Goyal (Accountant Member), explained that the assessee’s failure to produce any decision in its favour against the decision of the High Court further made the disallowance maintainable. The tribunal held that once the Jurisdictional High Court pronounces a position of law and time for taking action against is there with the concerned parties, such decision is binding and can be applied retrospectively.  As a result, the appeal filed by the assessee was rejected.

To Read the full text of the Order CLICK HERE

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