DCIT Cir.-2,, Sangli v. Vasantdada Shetkari SSK Ltd.,, Sangli

ITA 1169/PUN/2009 | 2006-2007
Pronouncement Date: 31-01-2011 | Result: Allowed

Appeal Details

RSA Number 116924514 RSA 2009
Bench Pune
Appeal Number ITA 1169/PUN/2009
Duration Of Justice 1 year(s) 4 month(s) 8 day(s)
Appellant DCIT Cir.-2,, Sangli
Respondent Vasantdada Shetkari SSK Ltd.,, Sangli
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 31-01-2011
Date Of Final Hearing 25-01-2011
Next Hearing Date 25-01-2011
Assessment Year 2006-2007
Appeal Filed On 22-09-2009
Judgment Text
. IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JM AND SHRI G.S. PANNU AM I.T.A. NO. 1169/PN/2009 : A.Y. 2006-07 DY. CIT CIR. 2 SANGLI APPELLANT VS. VASANTDADA SSK LTD. MADHAVNAGAR SANGLI PAN AAAAVO 137 C RESPONDENT APPELLANT BY : SHRI HARESHWAR SHARMA RESPONDENT BY: SHRI M.K. KULKARNI ORDER PER SHAILENDRA KUMAR YADAV JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) KOLHAPUR DATED 31-3-2009 FOR A.Y. 2 006-07 ON THE FOLLOWING GROUND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDIT ION RIGHTLY MADE BY THE A.O ON ACCOUNT OF PAYMENT OF EX CESS AND UNREASONABLE SUGARCANE PRICE OVER AND ABOVE TH E STATUTORY MINIMUM PRICE (SMP) TO MEMBERS AND NON- MEMBERS HOLDING THAT IT CANNOT BE DISALLOWED EITHER U/S 40A(2) OR 37(1) OF THE ACT? 2. THIS GROUND IS AGAINST THE DELETION OF ADDITION BY THE CIT(A) ON ACCOUNT OF PAYMENT OF EXCESS CANE PRICE P AID TO MEMBERS AND NON-MEMBERS. THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF DCIT VS. MANJ ARA SAHAKARI SAKHAR KARKHANA LTD. (2004) 91 ITD 361 (MUM)(SB) WHICH WAS SUBSEQUENTLY UPHELD BY THE ITA NO. 1169/PN/2009 VASANTDADA SSK LTD. A.Y. 2006-07 2 JURISDICTIONAL HIGH COURTS JUDGMENT IN THE SAID CA SE AS REPORTED IN 301 ITR 191 (BOM). HONBLE BOMBAY HIGH COURT HELD THAT THE SECTION 40A(2) OF THE ACT DOES NOT APPLY TO A CO-OPERATIVE SOCIETY AND THEREFORE NO DISALLOWANCE UNDER THIS SECTION CAN BE MADE IN THE ASSESSMENT OF CO-OPERATIVE SOCIETY. HOWEVER DURING THE PROCEEDINGS BEFORE US LD COUNSEL STATED THAT THE I SSUE IN QUESTION HAS BEEN EXAMINED BY THE APEX COURT IN THE CASE OF DCIT NASIK VS SHRI SATPUDA TAPI PARISAR SSK LTD IN CIVIL APPEAL NO 617 OF 2010 ARISING OUT OF SLP(C) N O 11930 OF 2008 AND THE HONBLE SUPREME COURT IS OF THE DIFFERENT VIEW ON THE ISSUE AND MATTER HAS BEEN SET ASIDE. RELEVANT OBSERVATIONS ARE AS UNDER. THE APPLICABILITY OF SECTION 40A(2) OF THE INCOME TAX ACT 1961 ['ACT' FOR SHORT] IS LINKED TO COMPUTATION UN DER SECTION 28 AND SECTION 37 OF THE ACT. IT IS THE C ASE OF THE DEPARTMENT IN ALL THESE CASES THAT THE STATE ADVISE D PRICE [S.A.P.] IS DETERMINED ON THE BASIS OF THE PRICE RECOMMENDED BY THE ASSESSEE(S) AFTER THE FINALIZATI ON OF ACCOUNTS AND THEREFORE THE DIFFERENTIAL AMOUNT BE TWEEN S.A.P. AND S.M.P WOULD CONSTITUTE APPROPRIATION OF PROFITS AND NOT EXPENDITURE/EXPENSE UNDER SECTION 37 OF THE ACT. ON THE OTHER HAND IT IS THE CASE OF THE ASSESSEE(S ) THAT THEY ARE BOUND TO PAY TO THE CANE GROWERS THE FINAL CANE PRICE AS PER THE S.A.P FIXED BY THE STATE GOVERNMEN T AND THE MERE FACT THAT S.A.P FIXED BY THE STATE GOVERNM ENT IS BASED ON THE PRICE RECOMMENDED BY THE ASSESSEE(S) A FTER FINALIZATION OF ACCOUNTS WOULD NOT CONSTITUTE APPROPRIATION OF PROFITS BECAUSE APPROPRIATION WOUL D ARISE ONLY AFTER THE PROFITS ARE DETERMINED AND PRO FITS CAN BE DETERMINED ONLY AFTER ALL THE EXPENSES INCURRED FOR THE BUSINESS ARE DEDUCTED FROM THE GROSS INCOME. ON THE ABOVE CONTENTIONS TWO QUESTIONS WERE REQUIR ED ITA NO. 1169/PN/2009 VASANTDADA SSK LTD. A.Y. 2006-07 3 TO BE CONSIDERED BY THE DEPARTMENT WHICH ARE AS FOLLOWS : 'WHETHER THE ABOVE-MENTIONED DIFFERENTIAL PAYMENT MADE BY THE ASSESSEE(S) TO THE CANE GROWERS AFTER T HE CLOSE OF THE FINANCIAL YEAR OR AFTER THE BALANCE-SH EET DATE WOULD CONSTITUTE AN EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT 1961; AND WHETHER SUCH DIFFERENTIAL PAYMENT WOULD APPLYING THE REAL INCOM E THEORY CONSTITUTE AN EXPENDITURE OR DISTRIBUTION O F PROFITS?' IN DECIDING THE ABOVE QUESTIONS THE ASSESSING OFF ICER WILL TAKE INTO ACCOUNT THE MANNER IN WHICH THE BUSI NESS WORKS RESOLUTIONS OF THE STATE GOVERNMENT THE MODALITIES AND THE MANNER IN WHICH S.A.P. AND S.M.P . ARE DECIDED THE TIMING DIFFERENCE WHICH WILL ARISE ON ACCOUNT OF THE DIFFERENCE IN THE ACCOUNTING YEARS ETC. IN A GIVEN CASE IF THE ASSESSEE HAS MADE A PROVISION IN ITS ACCOUNTS THEN THE ASSESSING OFFICER SHALL ENQUIRE WHETHER SUCH PROVISION IS MADE OUT OF PROFITS OR FR OM GROSS RECEIPTS AND WHETHER SUCH DIFFERENTIAL PAYMEN T IS RELATABLE TO THE COST OF THE SUGARCANE OR WHETHER I T IS RELATABLE TO THE DIVISION OF PROFITS AMONGST THE ME MBERS OF THE SOCIETY? ONE OF THE POINTS WHICH WILL ALSO ARISE FOR DETERMINATION BY THE ASSESSING OFFICER WILL BE ON T HE THEORY OF OVER-RIDING TITLE IN THE MATTER OF ACCRUA L OR APPLICATION OF INCOME. THEREFORE IN EACH OF THESE CASES THE ASSESSING OF FICER WILL DECIDE THE QUESTION AS TO WHETHER THE OBLIGATI ON IS ATTACHED TO INCOME OR TO ITS SOURCE. NONE OF THESE QUESTIONS HAVE BEEN EXAMINED BY THE AUTHORITIES BELOW. THESE QUESTIONS ARE REQUIRED TO BE EXAMINED BECAUSE IN THESE CASE WE ARE NOT ONLY CONCERNED WITH THE APPLICABILITY OF SECTION 40A(2) OF THE ACT BUT WE ARE PRIMARILY REQUIRED TO CONSIDER WHETH ER THE SAID DIFFERENTIAL PAYMENT CONSTITUTES AN EXPENSE OR DISTRIBUTION OF PROFITS? ORDINARILY WE WOULD NOT H AVE REMITTED THESE MATTERS PARTICULARLY WHEN THEY ARE FOR ASSESSMENT YEAR 1992-1993 BUT FOR THE FACT THAT T HIS ISSUE IS GOING TO ARISE REPEATEDLY IN FUTURE. IT WI LL ALSO HELP THE ASSESSEE(S) IN A WAY THAT THEY WILL HAVE T O RE- WRITE THEIR ACCOUNTS IN FUTURE DEPENDING UPON OUTCO ME ITA NO. 1169/PN/2009 VASANTDADA SSK LTD. A.Y. 2006-07 4 OF THIS LITIGATION. THEREFORE IN THE INTEREST OF J USTICE WE REMIT THESE CASES TO THE CONCERNED COMMISSIONER O F INCOME TAX (APPEALS) TAKES UP THE MATTER FOR FINAL HEARINGS. RESPECTFULLY FOLLOWING THE ABOVE CITED JUDGMENT OF THE APEX COURT WE ARE OF THE OPINION THE ISSUE HAS TO BE S ET ASIDE TO THE FILES OF THE CIT(A) WITH IDENTICAL DIRECTIONS. THE CIT (A) IS DIRECTED TO EXAMINE IF THE SAID DIFFERENTIAL PAYMEN TS CONSTITUTE AN EXPENSE OR DISTRIBUTION OF PROFITS CONSIDERING A LL THE JUDGMENTS CITED ABOVE. ACCORDINGLY GROUND 1 OF THE APPEAL IS SET ASIDE. 5. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY 2011. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 31 ST JANUARY 2011. ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (4) CIT(A)- KOLHAPUR (5) CIT KOLHAPUR (5) THE D.R. PUNE BENCH A PUNE TRUE COPY BY ORDER ASSTT. REGISTRAR INCOME-TAX APPELLATE TRIBUNAL PUNE BENCHES PUNE ITA NO. 1169/PN/2009 VASANTDADA SSK LTD. A.Y. 2006-07 5