The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) after observing the deduction under Section 36(1)(xii) of Income Tax Act, 1961 can only claim with respect to expenditure incurred on Promotional Activities “notified entities” directs readjudication for examining the alternative claim in Assessment Year 2011-12 and 2012-13.
The Assessee National Bank for Agriculture & Rural Development is engaged in development of agricultural and rural activities throughout the Country. The assessee has incurred certain expenditure on promotional activities and claimed the same as deduction under Section 36(1)(xii) of the Income Tax Act. As per the provisions of sec.36(1)(xii), the deduction under that section is allowable only to “notified entities”. The assessee herein was notified from assessment year 2013-14 onwards.
Accordingly the assessee claimed deduction under Section 36(1)(xii) of the Income Tax Act for AY 2011-12 and 2012-13 also.During the assessment proceedings the AO rejected the above said claim of the assessee in AY 2011-12 and 2012-13 on the reasoning that the assessee herein is not a “notified entity”.
Aggrieved by the order the assessee filed an appeal before the CIT(A) who directed the AO in AY 2014-15 and 2015-16 to verify the fact relating to notification issued by CBDT notifying the assessee as an eligible assessee for the purposes of sec.36(1)(xii) of the Act and then allow the expenditure. Hence the revenue is in appeal.
Jehangir D. Mistry, the counsel for assessee submitted that the RIDF/STCRC are schemes framed by the Government of India and it has appointed the assessee as implementing agency. As per the scheme, the scheduled commercial banks would deposit money with the assessee equivalent to the shortfall in the priority sector lending and the said money was credited to the RIDF account.
Further the assessee is directed to lend this amount to State Governments /NRRDA for carrying out various rural development schemes. The rate of interest to be given to the banks on the deposits made by them and the rate of interest to be collected on the loan given by the assessee are fixed by GOI/RBI.
The counsel for assessee further submitted that the assessee is only a nodal agency for implementing the above said scheme of Government of India. As per the directions given by GOI/RBI, it has transferred the surplus fund/relative margin to TDF account and held the said funds as trustee of GOI.
S. Srinivasu,counsel for revenue supported the order of assessing officer submitted that the assessee is only trustee of funds and cannot bind the revenue.
It was observed by the tribunal that the assessee was notified as an eligible entity u/s 36(1)(xii) of the Act from AY 2013-14 onwards. An identical issue of claim for deduction of expenditure incurred on Promotional activities was examined by the coordinate bench of the Tribunal in AY 2010-11, i.e, “Pre-notification” period. The claim of the assessee was rejected on the reasoning that the assessee became a notified entity with effect from AY 2013-14 only.
However, the alternative contention of the assessee that the relevant expenses should be allowed u/s 37(1) of the Act was accepted by the Tribunal and the matter was restored to the file of the AO for examining the alternative contention.
Further it was observed that the Tribunal did not adjudicate the alternative ground raised by the assessee for allowing the claim u/s 37(1) of the Income Tax Act.
After reviewing the facts the ITAT bench of Justice (Retd.) C.V. Bhadang, ( President)and B.R. Baskaran,(Accountant Member)reject the contentions of the assessee to allow deduction u/s 36(1)(xii) of the Act in AY 2011-12 and 2012-13, since it was held by the Tribunal in AY 2010-11 that the notification issued by the CBDT recognizing the assessee from AY 2013-14 cannot be applied retrospectively.
However the bench admitted the alternative contentions of the assessee for these two years that the expenditure incurred on promotional activities may be allowed as deduction u/s 37(1) of the Act and restore the same to the file of AO for examining the alternative claim in AY 2011-12 and 2012-13.
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