DCIT, Nanded v. Bhaurao Chavan Sahkari Sakhar Karkhana Ltd, Nanded

ITA 171/PUN/2010 | 2006-2007
Pronouncement Date: 30-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 17124514 RSA 2010
Bench Pune
Appeal Number ITA 171/PUN/2010
Duration Of Justice 8 month(s) 1 day(s)
Appellant DCIT, Nanded
Respondent Bhaurao Chavan Sahkari Sakhar Karkhana Ltd, Nanded
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 30-09-2010
Assessment Year 2006-2007
Appeal Filed On 29-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C.SUDHIR JM AND SHRI D. KARUNAKARA RA O AM I.T.A. NO. 171/PN/2010 (ASSTT. YEAR :2006-2007 ) DY. COMMISSIONER OF INCOME TAX APPELLANT CIR.-3 NANDED VS. BHAURAO CHAVAN SAHKARI SAKHAR KARKHANA LTD. RESPONDENT LAXMI NAGAR DEGAON YELEGAON TQ. ARDHAPUR DIST. NANDED PAN : NOT AVAILABLE APPELLANT BY : SHRI A.S. SINGH RESPONDENT BY : NONE ORDER PER I.C. SUDHIR JM NONE APPEARED ON BEHALF OF THE ASSESSEE. SINCE IS SUES RAISED IN THE GROUNDS ARE COVERED BY THE CITED DECISIONS WE PREFERRED TO PROCEED FOR DISPOSAL OF THE APPEAL. THE REVENUE HAS QUESTIONED THE FIRST APPEL LATE ORDER ON THE FOLLOWING GROUNDS : 01. ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE HONB LE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2 08 10 311/- ON ACCOUNT OF EXCESS PAYMENT OF CANE PRIZE PAID TO MEMBERS AND NON-MEMBE RS RESPECTIVELY. ON THIS POINT A SPECIAL LEAVE PETITION WAS FILED BY TH E DEPARTMENT WHICH HAS BEN ADMITTED BY THE SUPREME COURT IN THE CASE OF MANJAR A SSK LTD. 02. ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE HON BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 61 01 763/- O N ACCOUNT OF SALE OF SUGAR AT CONCESSIONAL RATE AS THE DEPARTMENT HAS FILED S .L.P. BEFORE THE HOBNBLE SUPREME COURT ON THIS ISSUED IN THE CASE OF MANJARA SHETKARI S.S.K.LTD. ITA NO. 318 OF 207) DATED 14/08/2007. 03. ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE HONB LE CIT(A) HAS ERRED IN DELETING THE ADDITION OF 3 40 006/- ON ACC OUNT OF VSI CONTRIBUTION. AS THE DEPARTMENT HAS FILED S.L.P. BEFORE THE HON BLE SUPREME COURT ON THIS ISSUED IN THE CASE OF MANJARA SHETKARI S.S.K.LTD. ITA NO. 318 OF 207) DATED 14/08/2007. 04. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HON BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF 37 23 439/- ON A CCOUNT OF INTEREST FREE ADVANCE TO H & T. CONTRACTORS. BUT AS DEPARTMENT H AS FILED A SPECIAL LEAVE PETITION IN THE SUPREME COURT IN OTHER SUGAR FACTOR IES. ITA NO.171/PN/2010 (BHAURAO CHAVAN SAHKARI SAKHAR KARKHANA LTD) (ASSSTT.YEAR 2006-07 ) 2 2. GROUND NO.1 IS AGAINST THE DELETION OF ADDITION BY THE CIT(A) ON ACCOUNT OF PAYMENT OF EXCESS CANE PRICE PAID TO MEMBERS AND NON- MEMBERS. THIS ISSUE WAS DECIDED IN FAVOUR OF THE AS SESSEE IN THE CASE OF DCIT VS. MANJARA SAHAKARI SAKHAR KARKHANA LTD. (2 004) 91 ITD 361 (MUM)(SB) WHICH WAS SUBSEQUENTLY UPHELD BY THE JURI SDICTIONAL HIGH COURTS JUDGMENT IN THE SAID CASE AS REPORTED IN 301 ITR 19 1 (BOM). HONBLE HIGH COURT HELD THAT THE SECTION 40A(2) OF THE ACT DOES NOT APPLY TO A COOPERATIVE SOCIETY AND THEREFORE NO DISALLOWANCE UNDER THIS S ECTION CAN BE MADE IN THE ASSESSMENT OF COOPERATIVE SOCIETY. HOWEVER DURING THE PROCEEDINGS BEFORE LD D.R STATED THAT THE ISSUE IN QUESTION HAS BEEN E XAMINED BY THE APEX COURT IN THE CASE OF DCIT NASIK VS SHRI SATPUDA TA PI PARISAR SSK LTD IN CIVIL APPEAL NO 617 OF 2010 ARISING OUT OF SLP(C) NO 1193 0 OF 2008 AND THE HONBLE SUPREME COURT IS OF THE DIFFERENT VIEW ON T HE ISSUE AND MATTER HAS BEEN SET ASIDE. RELEVANT OBSERVATIONS ARE AS UNDER. THE APPLICABILITY OF SECTION 40A(2) OF THE INCOM E TAX ACT 1961 ['ACT' FOR SHORT] IS LINKED TO COMPUTATION UNDER S ECTION 28 AND SECTION 37 OF THE ACT. IT IS THE CASE OF THE DEPARTMENT IN ALL THESE CASES THAT THE STATE ADVISED PRICE [S.A.P.] IS DETERMINED ON THE BASIS O F THE PRICE RECOMMENDED BY THE ASSESSEE(S) AFTER THE FINALISATION OF ACCOUN TS AND THEREFORE THE DIFFERENTIAL AMOUNT BETWEEN S.A.P. AND S.M.P WOULD CONSTITUTE APPROPRIATION OF PROFITS AND NOT EXPENDITURE/EXPENS E 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 GOVERNMENT AND THE MERE FACT THA T S.A.P FIXED BY THE STATE GOVERNMENT IS BASED ON THE PRICE RECOMMENDED BY THE ASSESSEE(S) AFTER FINALISATION OF ACCOUNTS WOULD NOT CONSTITUTE APPRO PRIATION OF PROFITS BECAUSE APPROPRIATION WOULD ARISE ONLY AFTER THE PROFITS AR E DETERMINED AND PROFITS 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 REQUI RED TO BE CONSIDERED BY THE DEPARTMENT WHICH ARE AS FOLLOWS : 'WHETHER THE ABOVE-MENTIONED DIFFERENTIAL PAYMENT M ADE BY THE ASSESSEE(S) TO THE CANE GROWERS AFTER THE CLOSE OF THE FINANCIAL YEAR OR AFTER THE BALANCE-SHEET DATE WOULD CONSTITUTE AN EX PENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT 1961; AND WHETHER SUCH DIFFERENTIAL PAYMENT WOULD APPLYING THE REAL INCOME THEORY CONSTITUTE AN EXPENDITURE OR DISTRIBUTION OF PROFITS?' IN DECIDING THE ABOVE QUESTIONS THE ASSESSING OFF ICER WILL TAKE INTO ACCOUNT ITA NO.171/PN/2010 (BHAURAO CHAVAN SAHKARI SAKHAR KARKHANA LTD) (ASSSTT.YEAR 2006-07 ) 3 THE MANNER IN WHICH THE BUSINESS WORKS RESOLUTION S 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 TH E DIFFERENCE IN THE ACCOUNTING YEARS ETC. IN A GIVEN CASE IF THE ASSESSEE HAS MA DE A PROVISION IN ITS ACCOUNTS THEN THE ASSESSING OFFICER SHALL ENQUIRE WHETHER SUCH PROVISION IS MADE OUT OF PROFITS OR FROM GROSS RECEIPTS AND WHET HER SUCH DIFFERENTIAL PAYMENT IS RELATABLE TO THE COST OF THE SUGARCANE O R WHETHER IT IS RELATABLE TO THE DIVISION OF PROFITS AMONGST THE MEMBERS OF THE SOCIETY? ONE OF THE POINTS WHICH WILL ALSO ARISE FOR DETER MINATION BY THE ASSESSING OFFICER WILL BE ON THE THEORY OF OVER-RIDING TITLE IN THE MATTER OF ACCRUAL OR APPLICATION OF INCOME. THEREFORE IN EACH OF THESE CASES THE ASSESSING OF FICER WILL DECIDE THE QUESTION AS TO WHETHER THE OBLIGATION IS ATTACHED T O INCOME OR TO ITS SOURCE. NONE OF THESE QUESTIONS HAVE BEEN EXAMINED BY THE A UTHORITIES BELOW. THESE QUESTIONS ARE REQUIRED TO BE EXAMINED BECAUSE IN THESE CASE WE ARE NOT ONLY CONCERNED WITH THE APPLICABILITY OF SE CTION 40A(2) OF THE ACT BUT WE ARE PRIMARILY REQUIRED TO CONSIDER W HETHER THE SAID DIFFERENTIAL PAYMENT CONSTITUTES AN EXPENSE OR DIST RIBUTION OF PROFITS? ORDINARILY WE WOULD NOT HAVE REMITTED THESE MATTE RS PARTICULARLY WHEN THEY ARE FOR ASSESSMENT YEAR 1992-1993 BUT F OR THE FACT THAT THIS ISSUE IS GOING TO ARISE REPEATEDLY IN FUTURE. IT WI LL ALSO HELP THE ASSESSEE(S) IN A WAY THAT THEY WILL HAVE TO RE-WRITE THEIR ACCO UNTS IN FUTURE DEPENDING UPON OUTCOME OF THIS LITIGATION. THEREFORE IN THE INTEREST OF JUSTICE 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 HE OPINION THE ISSUE HAS TO BE SET ASIDE TO THE FI LES OF THE CIT(A) WITH IDENTICAL DIRECTIONS. THE CIT (A) IS DIRECTED TO EX AMINE IF THE SAID DIFFERENTIAL PAYMENTS CONSTITUTE AN EXPENSE OR DISTRIBUTION OF P ROFITS CONSIDERING ALL THE JUDGMENTS CITED ABOVE. ACCORDINGLY GROUND 2 OF THE APPEAL IS SET ASIDE . GROUND NO. 2 3. THE ISSUE IS COVERED BY THE DECISION OF PUNE BE NCH OF THE TRIBUNAL IN THE CASE OF CHHATRAPATI SHAHU SSK LTD. ITA NO. 138/PN /2007 FOR A.Y 2003-04 ORDER DATED 22.06.2007. FOR REFERENCE RELEVANT PARAGRAPHS 9.1 AND 9.2 ARE REPRODUCED BELOW: 9.1 THIS ISSUE IS IN RESPECT OF ADDITION MADE ON ACCOUNT OF SUGAR SUPPLIED TO THE FARMERS AT CONCESSIONAL RATE I.E. AT RATES LOWER THAN THE MARKET RATES. WHILE DECIDING THIS ISSUE IT IS WORTH REPRODUCTION OF THE CBDIT CIRCULAR NO. 117 DATED 22/8/1973 AS FOLLOWS: 1. AN INSTANCE HAS COME TO THE NOTICE OF THE CBDT WHEREIN THE INCOME TAX OFFICER IN THE CASE OF CONSUMER CO-OPERATIVE ST ORE HAD DISALLOWED THE CLAIM OF DEDUCTION ON ACCOUNT OF REBATE ALLOWED ON THE PURCHASES MADE BY THE MEMBERS OF THE STORE. 2. THE CBDT IN CONSULTATION WITH THE DEPARTMENT OF COMMUNITY DEVELOPMENT AND CO-OPERATION HAS DECIDED THAT REBAT E OR BONUS ITA NO.171/PN/2010 (BHAURAO CHAVAN SAHKARI SAKHAR KARKHANA LTD) (ASSSTT.YEAR 2006-07 ) 4 (WHICH IS IN THE NATURE OF DEFERRED DISCOUNT) PASSE D ON BY THE CONSUMER CO-OPERATIVE STORES TO THEIR MEMBERS ON TH E VALUE OF THE PURCHASES MADE BY THEM DURING A YEAR SHOULD BE ALLO WED AS A DEDUCTION IN COMPUTING THE BUSINESS INCOME OF SUCH A SOCIETY. 9.2 SO IT WAS HELD THAT THE A.O HAS NOT GIVEN ANY REASON AS TO WHY SUCH A CONCESSIONAL SALE OF SUGAR TO MEMBERS WAS HELD AS TAXABLE ON THE OTHER HAND THE CBDT CIRCULAR HAS CLARIFIED THAT SUCH DEDUCTION SHOULD BE ALLOWED . AFTER HEARING THE SUBMISSION OF THE LEARNED D.R. WE FIND NO FORCE BECAUSE IT HAS COME TO OUR NOTICE THAT ITAT PUNE B BENCH HAD AN OCCASION TO DISCUSS THIS MATTER IN THE CASE OF SHRI CHHATRAPATI SAHU S.S.K LTD. IN A CONSOLIDATED ORDER FOR THE A.Y. 1983-84 AND 1988-89 IN VARIOUS APPEALS INCLUDING ITA NO. 1922/PN/90 PERTAINING TO THE A.Y. 1993-94 ORDER DATED 8-8-96 VIDE PARA NO. 32 TO 39 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE RELYING UPON THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF CIT V/S. A. RAMAN & CO. 67 ITR 11. IT WAS POINTED OUT THAT THE LAW DOES NOT OBLIGE A TRADER TO MAKE MAXIMUM PROFIT THAT HE CAN MAKE OUT OF HIS TRADING TRANSACTION. HE CAN ONLY BE TAXED ON WHAT HE HAS EARNED AND NOT ON WHAT HE COULD HAVE EARNED. IN THIS MANNER THE PRI NCIPLE OF REAL INCOME WAS INVOKED AND THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. ANOTHER TWO CASES BY ITAT PUNE BENCH NAMELY SHRI CHHATRAPATI SAHU SSK LTD. KAGAR BEARING ITA NOS. 1924 TO 1926/PN/96 ORDER DATED 1- 8-96 AND SRIRAM SSK LTD. SATARA BEARING ITA NO. 304 TO 309/PN/05 A.Y . 1989-90 TO 2001-02 ORDER DATED DECEMBER 2005 WHEREIN THE SAME ISS UE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE HAVE ALSO BEEN NOTED BY US. CON SIDERING THE TOTALITY OF THE CIRCUMSTANCES AND A VIEW ALREADY BEEN TAKEN BY THE CO-ORDINATE BENCH WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A ) HAS RIGHTLY DELETED THE ADDITION. THIS GROUND OF THE REVENUE IS THEREFORE DISMISSED . THE GROUND IS ACCORDINGLY REJECTED. GROUND NO.3 & 4 4. THE ISSUE RAISED IN GROUND NO.3 IS REGARDING DIS ALLOWANCE MADE BY THE A.O ON ACCOUNT OF VSI CONTRIBUTIONS DEBITED IN THE BOOK S OF ACCOUNT ON THE BASIS THAT ACTUAL PAYMENT WAS NOT MADE TO THE INSTITUTE. THE DISALLOWANCE HAS BEEN DELETED BY THE LD CIT(A) FOLLOWING SEVERAL DECISIONS INCLUD ING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SRI PANCHGANGA SSK LTD. V/S. DCIT (2001) 250 ITR 772. THE ISSUE OF DISALLOWANCE MADE ON ACCOUNT OF INTEREST-FREE ADVANCES TO H & T CONTRACTORS BASED ON NOTIONAL INTEREST RAISED I N GROUND NO.4 HAS BEEN DELETED BY THE LD CIT(A) FOLLOWING THE DECISION OF PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF SRI VITTAL SSK LTD. IN ITA NO. 77/PN/2002 AND SANKA R SSK LTD. ITA NO. 805/PN/2005 AND OTHERS. SINCE THE ADDITIONS/DISALL OWANCE IN QUESTION HAVE BEEN DELETED BY THE LD CIT(A) ON THE STRENGTH OF THE DEC ISIONS CITED ABOVE AND OTHERS WE DO NOT FIND INFIRMITY THEREIN. THE FIRST APPELLA TE ORDER IN THIS REGARD IS UPHELD. THE GROUNDS 3 AND 4 ARE THUS REJECTED. ITA NO.171/PN/2010 (BHAURAO CHAVAN SAHKARI SAKHAR KARKHANA LTD) (ASSSTT.YEAR 2006-07 ) 5 5. CONSEQUENTLY THE APPEAL IS PARTLY ALLOWED . ORDER IS PRONOUNCED IN THE OPEN COURT ON 30TH SEP TEMBER 2010 SD/- SD/- (D. KARUNAKARA RAO) (I.C.SUDHIR) ACCOUNTANT MEMBER JUDICI AL MEMBER PUNE DATED THE 30TH SEPTEMBER 2010 US COPY OF THE ORDER IS FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A)- AURANGABAD 4. CIT AURANGABAD 5. D.R. ITAT B BENCH 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES PUNE