U.P. State Sugar Corporation Ltd., Lucknow v. Addl. CIT, Lucknow

ITA 203/LKW/2009 | 2005-2006
Pronouncement Date: 28-02-2011 | Result: Allowed

Appeal Details

RSA Number 20323714 RSA 2009
Assessee PAN INITR1971V
Bench Lucknow
Appeal Number ITA 203/LKW/2009
Duration Of Justice 1 year(s) 10 month(s) 19 day(s)
Appellant U.P. State Sugar Corporation Ltd., Lucknow
Respondent Addl. CIT, Lucknow
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-02-2011
Date Of Final Hearing 01-02-2011
Next Hearing Date 01-02-2011
Assessment Year 2005-2006
Appeal Filed On 09-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B : LUCKNOW BEFORE SHRI H. L. KARWA HONBLE VICE PRESIDENT AND SHRI N. K. SAINI ACCOUNTANT MEMBER I.T.A. NO.203/LUC/09 ASSESSMENT YEAR:2005-2006 U.P. STATE SUGAR CORPN. LTD. VS. ADDL. C. I .T. VIPIN KHAND GOMTI NAGAR RANGE-2 LUCKNOW. LUCKNOW. PAN:AAACU3394C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K. R. RASTOGI F.C.A. RESPONDENT BY: SHRI VIVEK MISHRA SR. D. R. ORDER PER N. K. SAINI: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 29/01/2009 OF CIT(A)-I LUCKNOW RELEVANT TO ASSESSM ENT YEAR 2005-2006. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS: 1. BECAUSE WITHOUT CONSIDERING THE FACTS THAT NURS ERY OF CANE IS ESTABLISHED FOR ARRANGING THE GOOD QUALITY SEEDS TO THE FARMERS WITHOUT TAKING ANY PROFIT FROM THEM. THE ADDITION OF `4 38 916/- HAS BEEN MADE IN THE INCOME OF THE APPELLANT. 2. BECAUSE WITHOUT CONSIDERING FACT THAT THE DEPREC IATION IS CLAIMED ON TUBE WELLS AND PIPE LINES AS PER INC OME TAX ACT THE DEPRECIATION TO THE TUNE OF ` 2 26 403/- HAS 2 BEEN DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 3. BECAUSE OF RESERVE IS CREATED FOR STORING THE MO LASSES AS PER ORDER OF GOVERNMENT OF U.P. AND SAID RESERVE IS UTILIZED FOR ARRANGING AND MARINATING THE STORAGE FACILITIES OF MOLASSES WHICH IS FOR THE PURPOSE OF CORPORATION BUSINESS. HENCE THE DISALLOWANCES OF ` 13 93 112/- BY THE CIT(A) IS UNCALLED FOR. 4. BECAUSE THE EXPENSES CLAIMED UNDER THE HEAD CAN E DEVELOPMENT EXPENSES BY THE APPELLANT ARE QUIET GENUINE AND REASONABLE AND NOT IN THE NATURE OF AGRICULTURE. SUCH EXPENSES ARE INCURRED FOR DEVELOPMENT ACTIVITIES RELATED TO SUGAR CANE IN THE FORM OF BETTER QUALITY SEED PESTICIDES ETC FOR GETTING BETTER QUALITY OF CANE RESULTING GOOD PERCENTAGE OF SUGAR AND ARE IN THE NATURE OF SUBSIDY TO THE CANE GROWERS. H ENCE DISALLOWANCE OF ` 23 06 685/- BY THE CIT(A) IS UNCALLED FOR. 5. BECAUSE WITHOUT CONSIDERING FACT THAT THE LEASE RENT IS PROVIDED IN THE BOOKS OF ACCOUNT AS PER LAW THE ADDITION TO THE TUNE OF ` 56 000/- HAS BEEN MADE UNDER THE HEAD AMORTIZATION OF LEASE HOLD LAND IS UNCALLE D FOR. 6. BECAUSE WITHOUT CONSIDERING THE FACT OF THE CASE THE ADDITION TO THE TUNE OF ` 25 96 53 345/- HAS BEEN MADE UNDER THE HEAD EXPENSES RELATED TO PRIOR YEAR. 7. BECAUSE WITHOUT CONSIDERING THE FACT THAT THE EXPENDITURE TO THE TUNE OF ` 7 06 85 942/- HAD NOT BEEN CLAIMED BY THE APPELLANT IN EARLIER YEAR. THE ADDIT ION TO THE TUNE OF ` 7 06 85 942/- HAS BEEN MADE UNDER THE HEAD EXPENSES RELATED TO PRIOR YEAR. 2. FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE ADD ITION OF ` 4 38 916/-. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED THE 3 RETURN OF INCOME ON 29/10/2005. THE CASE WAS SELEC TED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE IN ITS COMPUTATION OF IN COME HAD CLAIMED THAT ITS INCOME FROM CANE NURSERY FARM AT ` 4 38 916/- WAS EXEMPT. WHEN ASKED AS TO HOW THIS INCOME COULD BE TREATED AS EXE MPT THE ASSESSEE STATED THAT THE NURSERY OF CANE IS ESTABLISHED FOR ARRANGING THE GOOD QUALITY SEEDS TO THE FARMERS BUT AS THERE WAS NO I NCOME/EXPENDITURE HENCE IT WAS NOT INCLUDED IN THE INCOME OF THE ASSE SSEE. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE ABOVE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT THE INCOME FROM THE NURSERY AND EXPE NSES THEREON HAD BEEN SHOWN IN THE COMPUTATION OF INCOME AND THEN IN EXPLICABLY THE INCOME HAS BEEN REDUCED FROM TAXABLE INCOME. HE AC CORDINGLY MADE THE ADDITION OF ` 4 38 916/-. 3. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND SUBMITTED THAT THE ASSESSEE WAS DEALING IN MANUFACTURE AND SA LE OF SUGAR AND ITS BY-PRODUCTS AND THAT A NURSERY FARM WAS MAINTAINED FOR DEVELOPING NEW VARIETIES OF SUGARCANE BROUGHT FROM GOVERNMENT SUGA RCANE NURSERY FARM VIZ. SHAHJAHANPUR INDIAN SUGARCANE RESEARCH INSTIT UTE LUCKNOW ETC. AND THEN THE PLANT SO DEVELOPED WAS SOLD TO FARMERS FOR PLANTING SUGARCANE IN THEIR FIELD SO AS TO ACHIEVE GOOD RECOVERY BY THE U NIT. IT WAS SUBMITTED THAT 4 IT WAS PURELY AN AGRICULTURAL INCOME AND THUS THE INCOME EARNED COULD NOT BE ADDED TO THE ASSESSABLE INCOME OF THE ASSESSEE. THEREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ADDING THE I NCOME OF NURSERY FARM. 3.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE COULD NOT BE S AID TO BE ENGAGED IN THE AGRICULTURAL ACTIVITIES AND WAS CARRYING OUT TH E BUSINESS OF MANUFACTURE AND SALE OF SUGAR AND ITS BY-PRODUCTS. SO IT COUL D NOT BE SAID THAT THE INCOME ARISING FROM CANE NURSERY FARM WAS IN THE NA TURE OF AGRICULTURAL INCOME. HE ACCORDINGLY HELD THAT THE ASSESSING OF FICER RIGHTLY HELD THE SAID INCOME AS TAXABLE. NOW THE ASSESSEE IS IN APP EAL. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW WHILE THE LEARNED D. R. IN HIS RIVAL SUBMISSIONS STRONGLY SUPPORTED THE ORDERS OF THE AU THORITIES BELOW. 5. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES IT APPEARS THAT THE ASSESSEE ITSELF HAD SHOWN THE INCOME AS WELL AS EXPENSES FROM THE SUGAR CANE IN ITS PROFIT & LOSS ACCOUNT AND WAS NOT AN AGRICULTURIST. THE ASSESSEE EARNED THE INCOME FROM THE SALE OF THE SUG ARCANE WHICH WAS ITS BUSINESS ACTIVITY. THEREFORE THE ASSESSING OFFICE R WAS JUSTIFIED IN REFUSING THE CLAIM OF THE ASSESSEE THAT THE SAID INCOME WAS EXEMPT AND 5 THE LEARNED CIT (A) RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE ASSES SEES APPEAL. 6. VIDE GROUND NO. 2 OF THE APPEAL THE GRIEVANCE O F THE ASSESSEE RELATES TO THE DISALLOWANCE ON ACCOUNT OF DEPRECIAT ION. 7. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE T HAT THE ASSESSEE CLAIMED DEPRECIATION ON TUBEWELL @15%. THE ASSESSING OFFIC ER POINTED OUT TO THE ASSESSEE THAT SINCE THE ALLOWABLE DEPRECIATION UNDE R THE INCOME-TAX ACT AND ADMITTED BY THE ASSESSEE VIDE ITS SUBMISSIONS D ATED 12/11/2007 WAS 10% THEN WHY THE EXTRA DEPRECIATION WAS CLAIMED. T HE ASSESSEE REPLIED THAT 90% EFFICIENCY OF THE TUBEWELL WAS USED BY UNI TS AND TO CARRY THE WATER TO UNITS A NUMBER OF PIPELINES WERE USED. F OR THAT REASON THE HIGHER DEPRECIATION HAD BEEN CLAIMED. THE ASSESSIN G OFFICER DID NOT ACCEPT THIS EXPLANATION OF THE ASSESSEE BY OBSERVIN G THAT TUBEWELLS WERE MEANT TO PULL OUT WATER AND THAT KEEPING IN VIEW TH E EXTENT OF USAGE OF TUBEWELL THE I.T. ACT HAD PROVIDED FOR 10% DEPRECI ATION. HE ACCORDINGLY ALLOWED THE DEPRECIATION TO THE EXTENT OF 10% INSTE AD OF 15% CLAIMED BY THE ASSESSEE AND THUS A DISALLOWANCE OF ` 2 22 326/- WAS MADE. 8. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A ) AND SUBMITTED THAT THE I.T. ACT HAS PROVIDED 15% RATE OF DEPRECIA TION AND THAT THE 6 ASSESSING OFFICER HAD NOT CONSIDERED THE FACT THAT RULES OF INCOME TAX PROVIDED THAT PLANT AND MACHINERY INCLUDES PIPELINE S NEEDED FOR DELIVERY FROM THE SOURCE OF SUPPLY OF RAW WATER TO THE PLANT AND FROM THE PLANT TO THE STORAGE FACILITY. IT WAS FURTHER SUBMITTED THA T IN SUGAR INDUSTRY WITHOUT USE OF WATER THE MANUFACTURE OF SUGAR IS NOT POSSI BLE THEREFORE DEPRECIATION @15% HAD BEEN CHARGED BY THE ASSESSEE ON TUBEWELL AND THE PIPELINE TREATING THE SAME AS PLANT AND MACHINE RY. 8.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT THE SCHEDULE OF DEPRECIATIO N IN THE I.T. RULES PRESCRIBES THAT THE TUBEWELLS ARE ENTITLED TO A SPE CIFIC RATE OF 10% OF DEPRECIATION THEREFORE THE CLAIM OF THE ASSESSEE WAS NOT BASED ON ANY RATE OF DEPRECIATION PROVIDED BY THE RULES. HE ACC ORDINGLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL. 9. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT THE PRESCRIBED RATE OF DEPRECIATION ON THE TUBEWELL IN INCOME-TAX RULES IS 15% AND NOT 10%. HE ACCORDINGLY REQUESTED THAT THE DEP RECIATION @15% BE ALLOWED. 7 10. IN HIS RIVAL SUBMISSIONS THE LEARNED D. R. STRO NGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND THE MATERIAL ON RECORD IT APPEARS THAT THE DEPRECIATIO N WAS ALLOWED @10% BY THE ASSESSING OFFICER ON THIS BASIS THAT THE SCHEDU LE OF DEPRECIATION IN THE I.T. RULES PRESCRIBES THAT THE TUBEWELLS ARE ENTITL ED TO A SPECIFIC RATE OF 10% OF DEPRECIATION. ON THE OTHER HAND THE CLAIM O F THE ASSESSEE IS THAT THE SCHEDULE OF DEPRECIATION IN I.T. RULES PRESCRIB ES THE RATE OF DEPRECIATION AT 15%. WE THEREFORE CONSIDERING TH E CONTRADICTORY STAND TAKEN BY BOTH THE PARTIES THINK IT APPROPRIATE TO REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFR ESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND BY MAKING VERIFICATION OF THE RATE OF DEPRECIATION AVAILABLE AT THE RELEVANT TIME FROM THE SCHEDULE OF DEPRECIATION PRESCRIBED IN I.T. RULES. 12. THE NEXT ISSUE VIDE GROUND NO. 3 RELATES TO THE DISALLOWANCE ON ACCOUNT OF RESERVE CREATED FOR STORING THE MOLASSES . 13. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE CLAIMED AN AMOUNT OF ` 13 93 112/- UNDER THE HEAD MOLASSES STORAGE RESERV E. 8 THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM BY OB SERVING THAT IT WAS IN THE NATURE OF PROVISION ONLY. 14. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND SUBMITTED THAT THE EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER 'MOLASSES FACILITIES RESERVE FUND' IS BASED ON U.P. GOVERNMEN T ORDER. IT WAS FURTHER STATED THAT THE AMOUNT SO DEBITED WAS KEPT IN RESER VE FUND FOR REPAIR AND MAINTENANCE OF MOLASSES TANK ITS PIPELINE ETC. AS AND WHEN NECESSITY WAS FELT FOR REPAIR OF EQUIPMENTS LIKE TANK PIPELINE E TC. AND THAT THE AMOUNT WAS DRAWN AND EXPENDITURE SO INCURRED WAS NOT DEBIT ED TO THE PROFIT AND LOSS ACCOUNT BUT TO THIS RESERVE FUND. IT WAS CONT ENDED THAT IF THIS EXPENDITURE WAS DISALLOWED THE ASSESSEE WOULD BE D EBARRED FROM TAKING RELIEF OF EXPENSES SO INCURRED. IT WAS CONTENDED T HAT THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE WITHOUT CONSIDERING THE F ACT THAT THIS WAS NOT MERELY A PROVISION BUT THE AMOUNT PAYABLE FOR ABOVE MENTIONED EXPENDITURE AND WAS ONLY ONCE DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. 14.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE OBSERVED THAT THE SAID CLAIM WAS IN THE N ATURE OF PROVISION AND THERE WAS NO MATERIAL IN FAVOUR OF THE ASSESSEE TO SHOW THAT THE ABOVE 9 FUND WAS AN ALLOWABLE DEDUCTION. ACCORDINGLY THE ADDITION MADE BY THE ASSESSING OFFICER WAS CONFIRMED. NOW THE ASSESSEE IS IN APPEAL. 15. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT THE MAINTENANCE OF MOLASSES STORAGE FUND FOR REGULATION OF ADEQUATE STORAGE FACILITIES WAS PROVIDED U/S 10A OF THE UTTAR PRADES H SHEERA NIYANTRAN ADHINIYAM 1964 (U.P. ACT NO. XIV OF 1974) AND EVER Y OCCUPIER OF SUGAR FACTORY HAS TO SET APART CERTAIN AMOUNT AS PRESCRI BED TOWARDS THE MOLASSES RESERVATION FUND WHICH WAS TO BE UTILIZED FOR THE PROVISION AND MAINTENANCE OF ADEQUATE STORAGE FACILITIES FOR MOLA SSES IN ACCEPTANCE WITH GENERAL OR SPECIAL ORDER ISSUED FROM TIME TO TIME B Y THE MOLASSES CONTROLLER. IT WAS FURTHER SUBMITTED THAT CLAUSE 3 OF THE MOLASSES CONTROL (REGULATION OF FUND FOR ERECTION OF STORAGE FACILIT IES) ORDER 1976 PROVIDES ABOUT THE MAINTENANCE OF THE FUNDS AND THE SAID FUND IS TO BE UTILIZED ONLY FOR THE MAINTENANCE OF ADEQUATE STORA GE FACILITIES WITH THE PERMISSION OF THE MOLASSES CONTROLLER. THE COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD. IT WAS FURTH ER STATED THAT THE ISSUE IS COVERED BY THE JUDGMENT OF HON'BLE ALLAHABAD HIGH C OURT IN THE CASE OF SIMBHOLI SUGAR MILLS LIMITED VS. CIT IN I.T.R. NO. 4 OF 1985 ORDER DATED 10 20/09/2005 COPY OF THE SAID ORDER WAS FURNISHED WH ICH IS PLACED ON RECORD. 16. IN HIS RIVAL SUBMISSIONS THE LEARNED D. R. STRO NGLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 17. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES IT IS NOTICED THAT THE ISSUE UNDER CONSIDERATION HAS BEEN SETTLED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SIMBHOLI S UGAR MILLS LIMITED VS. CIT (SUPRA) WHEREIN THE JUDGMENT OF HON'BLE APEX C OURT IN THE CASE OF LAKSHMI SUGAR MILLS CO. PVT. LTD. VS. CIT [1971] 82 ITR 376 HAS BEEN FOLLOWED AND THE CLAIM OF THE ASSESSEE IS ALLOWED. THE RELEVANT FINDING GIVEN IN THE SAID ORDER READ AS UNDER: WE HAVE CONSIDERED THE SUBMISSIONS AND THE PROVISI ONS REFERRED TO ABOVE. MOLASSES STORAGE MAINTENANCE FU ND WAS CREATED PURSUANT TO THE STATUTORY PROVISIONS AND IT IS THE STATUTORY DUTY OF THE ASSESSEE DEALING WITH THE MA NUFACTURE AND SALE OF SUGAR TO SET APART SUCH FUND WHICH CA N BE WITHDRAWN AND SPENT ONLY WITH THE PERMISSION OF SUG AR CONTROLLER. THE ASSESSEE CARRYING ON BUSINESS OF MA NUFACTURE AND SALE OF SUGAR HAS TO SET APART AMOUNT AS PROVI DED IN THE ACT FOR THE MOLASSES STORAGE MAINTENANCE FUND AND THUS IT HAS STATUTORY REQUIREMENT. FURTHER THE AMOUNT SO D EPOSITED IN THE AFORESAID FUND CAN ONLY BE UTILIZED FOR PROVISI ON AND MAINTENANCE ON ADEQUATE STORAGE FACILITIES FOR MOLA SSES SUBJECT TO PERMISSION OF MOLASSES CONTROLLER. IN THE CASE OF LAKSHMI SUGAR MILLS CO. P. LTD. VERSUS COMMISSIONER OF INCOME TAX NEW DELHI REPORTED IN ITR 1971 VOL. 82 PAGE 376 11 THE HON'BLE APEX COURT HELD THAT WHERE THE EXPENDIT URE IS INCURRED WHILE THE BUSINESS IS BEING CARRIED ON AND NOT FOR ITS EXTENSION OR FOR THE SUBSTANTIAL REPLACEMENT OF ITS EQUIPMENT IS A REVENUE EXPENDITURE AND SHOULD HAVE BEEN ALLOW ED AS AN ADMISSIBLE DEDUCTION AND ACCORDINGLY ANSWERED THE Q UESTION IN FAVOUR OF THE ASSESSEE. BESIDES THAT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NEW HORIZON SUGAR MI LLS. PVT. LTD. (SUPRA) THIS QUESTION IS ANSWERED IN FAVO UR OF THE ASSESSEE. 17.1 WE ACCORDINGLY KEEPING IN VIEW THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO ORDER DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 18. THE NEXT ISSUE VIDE GROUND NO. 4 RELATES TO T HE DISALLOWANCE ON ACCOUNT OF CANE DEVELOPMENT EXPENSES. THE FACTS R ELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE DEBITED A SUM OF ` 23 06 685/- IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD CANE DEVELOPMENT EXPEN SES. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE EXP ENSES ON CANE DEVELOPMENT EXPENSES WERE ON ACCOUNT OF THE ACTIVI TIES RELATED TO SUGARCANE IN THE FORM OF BETTER QUALITY SEED PESTI CIDE ETC. FOR GETTING BETTER QUALITY OF CANE RESULTING IN GOOD PERCENTAGE OF SUG AR AND IN THE NATURE OF SUBSIDY TO THE CANE GROWER. THE ASSESSING OFFICER DID NOT ACCEPT THIS ASSERTION OF THE ASSESSEE BY OBSERVING THAT GIVING SUBSIDY FOR BETTER QUALITY SEEDS ETC. CANNOT FORM PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. ACCORDINGLY THE DISALLOWANCE OF ` 23 06 685/- WAS MADE. 12 19. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND SUBMITTED THAT THE CANE DEVELOPMENT EXPENSES REFLECTED THE AM OUNT PAID TO CANE DEVELOPMENT SOCIETY IN THE FORM OF SUBSIDY TO GROWE RS FOR PESTICIDES UREA SPRAY ETC. WHICH ULTIMATELY HELPS IN PRODUCTION OF GOOD VARIETY OF CANE TO BE SUPPLIED TO THE FACTORY FOR ACHIEVING BETTER REC OVERY AND THIS EXPENDITURE HAS A DIRECT LINK WITH THE ACTIVITY OF ASSESSEE'S BUSINESS. 19.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE OBSERVED THAT THE COOPERATIVE CANE DEVELO PMENT SOCIETY CARRIES OUT CANE DEVELOPMENT AND THE ASSESSEE CONTR IBUTES TOWARDS THIS DEVELOPMENT NOT AS PART OF THE ASSESSEE'S BUSINESS ACTIVITY. HE THEREFORE DID NOT AGREE WITH THE SUBMISSIONS OF TH E ASSESSEE THAT GIVING SUBSIDY FOR BETTER QUALITY SEEDS FORMS PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. ACCORDING TO HIM THE ASSESSEE WAS ENG AGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR AND ITS BY-PRODUCT S AND BY NO STRETCH OF IMAGINATION COULD BE SAID TO BE ENGAGED IN THE BUSI NESS OF DEVELOPMENT OF CANE AND THAT IT WAS RATHER A FAR-FETCHED ARGUME NT ON THE PART OF THE ASSESSEE THAT GIVING SUBSIDY EVENTUALLY RESULTS IN THE BETTER QUALITY SEEDS GIVING RISE TO BETTER QUALITY OF CANE AND BETTER PE RCENTAGE OF SUGAR. HE 13 ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING O FFICER. NOW THE ASSESSEE IS IN APPEAL. 20. DURING THE COURSE OF HEARING THE LEARNED COUNSE L FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUAR ELY COVERED BY THE EARLIER DECISION OF THE ITAT B BENCH LUCKNOW IN I.T.A. NO .487/LUC/08 FOR THE ASSESSMENT YEAR 2004-2005 IN ASSESSEES OWN CASE VI DE ORDER DATED 28/08/2008 AND THE ISSUE HAS BEEN REMANDED BACK TO THE ASSESSING OFFICER TO REDO DENOVO. HE THEREFORE REQUESTED T HAT THE SAME COURSE TO BE ADOPTED FOR THIS YEAR ALSO. 21. THE LEARNED D. R. IN HIS RIVAL SUBMISSIONS CO ULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE AND STATED THAT HE HAS NO OBJECTION IF THE ISSUE IS REMANDED B ACK TO THE ASSESSING OFFICER. 22. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES WE REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICE R TO BE TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING A DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 14 23. THE NEXT ISSUE VIDE GROUND NO. 5 RELATES TO T HE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LEASE RENT. TH E FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DU RING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE ACQUIRED LEASEHOLD RIGHTS OVER LAND BY PAYING WHAT WAS CALLED PREMIUM AND THAT THE ENTIRE PREMIUM DUE ON THE LEASEHOLD LAND WAS PAID BY THE A SSESSEE AND CAPITALIZED IN ITS BOOKS OF ACCOUNT. HOWEVER SIMU LTANEOUSLY THE ASSESSEE WAS ALSO CLAIMING REVENUE EXPENSES AT THE RATE PERCENTAGE OF COST ON THE SAME ABOVE CAPITALIZED AMOUNT AND WAS D EBITING IT TO THE PROFIT & LOSS ACCOUNT WHICH WAS NOT ALLOWABLE. ACC ORDING TO HIM THE PAYMENT OF PREMIUM WAS TOWARDS ACQUISITION OF A CAP ITAL ASSET AND THEREFORE WAS NOT ALLOWED TO BE WRITTEN OFF AS A RE VENUE EXPENSE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (I) ASSAM BENGAL CEMENT CO. LTD. [1955] 27 ITR 34 (SC) (II) CIT VS. HEMRAJ MAHABIR PRASAD (P.) LTD. [1989] 179 ITR 73 (CAL) 24. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND SUBMITTED THAT IT ACQUIRED LAND ON LEASE FOR CONSTRUCTION OF OWN BUILDING AND THAT THE LAND WAS A LEASEHOLD PROPERTY AND THE LEASE AMOUNT WAS DEBITED EVERY YEAR IN THE PROFIT & LOSS ACCOUNT BY CREDITING THE FIXED ASSETS THEREFORE THE EXPENDITURE WAS ALLOWABLE. 15 24.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE OBSERVED THAT THE EXPENSES WERE ON ACCOUN T OF PAYMENT OF PREMIUM TOWARDS ACQUISITION OF A CAPITAL ASSET AND THEREFORE COULD NOT BE ALLOWED TO BE WRITTEN OFF AS REVENUE EXPENSES. HE THEREFORE DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND CONFIR MED THE ORDER OF THE ASSESSING OFFICER. 25. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES IT APPEARS THAT THE ASSESSEE ITSELF CAPITALIZED THE PREMIUM PAID ON THE LEASEHOLD LAND AND ONCE THE ASSET IS ACQUIRED AND THE EXPENSES ARE DEB ITED CONSIDERING THE SAME AS CAPITAL IN NATURE SO THIS CANNOT BE CONSIDE RED AS REVENUE EXPENSES. WE THEREFORE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LEARNED CIT (A) ON THIS ISSUE. 26. VIDE GROUND NO. 6 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F EXPENSES RELATED TO THE PRIOR YEARS. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE CLAIMED PRIOR PERIOD EXPENSES WHICH INCLUD ED A SUM OF ` 25 96 53 345/- SHOWN AS INTEREST ON GOVERNMENT AND SVN. THE SUBMISSION OF THE ASSESSEE BEFORE THE ASSESSING OFF ICER WAS AS UNDER: 16 THE SUBSIDIARY COMPANY ARE PROVIDED THE LOAN FOR W ORKING CAPITAL FROM THE STATE GOVERNMENT AND ALSO FROM THE HEAD OFFICE. THE INTEREST ON THE SAID LOAN ARE PROVIDED BY THE CORPORATION BY DEBITING THE HEAD 'INTEREST ACCRUED AND DUE ON LOANS & ADVANCES' AND CREDIT THE HEAD 'INTEREST RECEIVED ACCOUNT'. THE STATE GOVERNMENT HAS DECIDED TO CONV ERT THE LOAN MADE TO CHHATA SUGAR COMPANY (A SUBSIDIARY OF SUGAR CORPORATION) TO EQUITY SHARE CAPITAL AND WRITE OFF THE INTEREST DUE THEREON. THUS THE ENTRY MADE IN THE BOOKS FOR THE YEAR 2004-05 BY CREDITING THE HEAD INTEREST ACCRUED AND DUE ON LOANS AND ADVANCES AND DEBITING THE HEAD PRIOR PE RIOD EXPENSES. 26.1 THE ASSESSING OFFICER AFTER CONSIDERING THE A BOVE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE INTEREST DEBITED BY THE ASSESSEE IN EARLIER YEARS WAS ON ACCOUNT OF LOAN RECEIVED BY IT FROM TH E GOVERNMENT AND SUBSEQUENTLY THE LOAN AND THE INTEREST ACCRUED HAD BEEN CONVERTED INTO EQUITY. THEREFORE THE CONVERSION OF THIS UNPAID I NTEREST LIABILITY INTO SHARE CAPITAL HAS RESULTED IN THE CESSATION OF A TRADING LIABILITY U/S41(1) AND THE SAME WAS TO BE CONSIDERED AS INCOME OF THE ASSESSEE . THE ASSESSING OFFICER ALSO OBSERVED THAT IN CONVERTING THE ACCRUE D INTEREST INTO EQUITY THE ASSESSEE WAS ROUTING A PART OF THE SHARE CAPITAL TH ROUGH THE PROFIT & LOSS ACCOUNT BY CLAIMING IT AS PRIOR PERIOD EXPENSES. T HEREFORE EITHER THE CESSATION OF TRADING LIABILITY U/S 41(1) WAS TO BE ADDED AS INCOME OR THE PRIOR PERIOD EXPENSES ON INTEREST AS CLAIMED BY THE ASSESSEE WAS TO BE 17 DISALLOWED EITHER WAY THE EFFECT WAS THE SAME. H E THEREFORE DISALLOWED THE IMPUGNED AMOUNT OF THE PRIOR PERIOD EXPENSES. 27. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND SUBMITTED THAT THE ASSESSEE HAD TAKEN LOAN FROM THE GOVERNMEN T AND INTEREST THEREON HAD BEEN REGULARLY DEBITED TO THE PROFIT & LOSS ACCOUNT AS PER STANDARD ACCOUNTING PRACTICE. LATER ON THE LOAN A LONG WITH INTEREST HAD BEEN CONVERTED INTO EQUITY SHARE CAPITAL AND ACCORD INGLY SHARES HAVE BEEN ALLOTTED TO THE GOVERNMENT. IT WAS STATED THAT THE RE WAS NO REMISSION OF THE LIABILITY BY THE GOVERNMENT BECAUSE REPAYMENT OF LOAN AND INTEREST HAS BEEN MADE BY THE ASSESSEE BY ISSUING SHARE CAPI TAL TO THE GOVERNMENT INSTEAD OF BANK PAYMENT SO IT WAS NOT T HE REMISSION OF LOAN BUT PAYMENT TO THE GOVERNMENT BY ISSUING SHARE CAPI TAL. AS SUCH THE ADDITION MADE BY THE ASSESSING OFFICER WAS LIABLE T O BE DELETED. 27.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE OBSERVED THAT THE LOANS FROM THE GOVERNME NT WERE CONVERTED INTO SHARE CAPITAL AND THE INTEREST WAS SPECIFICALL Y WAIVED OFF BY THE GOVERNMENT THEREFORE THE CONVERSION OF THE UNPAID INTEREST LIABILITY INTO SHARE CAPITAL HAS NO DOUBT RESULTED IN THE CESSATIO N OF THIS TRADING LIABILITY U/S 41(1). THE LEARNED CIT (A) WAS OF THE VIEW THA T THE ASSESSING OFFICER 18 RIGHTLY TREATED THE SAME AS INCOME OF THE ASSESSEE. NOW THE ASSESSEE IS IN APPEAL. 28. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT THE EXPENDITURE IN QUESTION WAS NOT OF EARLIER YEAR ON THE CONTRARY THIS WAS THE ACCRUED INTEREST WHICH WAS WRITTEN OFF AS UNREC OVERABLE AND THE SAME WAS TREATED AS INCOME IN EARLIER YEARS. IT WAS FUR THER STATED THAT THE STATE GOVERNMENT HAD ORDERED TO CONVERT THE LOAN MADE TO CHHATA SUGAR COMPANY (A SUBSIDIARY OF SUGAR CORPORATION) INTO TH E EQUITY SHARE CAPITAL AND ORDERED FOR WRITE OFF THE 'INTEREST DUE' THEREO N WHICH HAD BEEN SHOWN UNDER THE HEAD 'INTEREST ACCRUED AND DUE ON LOANS A ND ADVANCES' IN THE BALANCE SHEET. ACCORDINGLY DURING THIS YEAR THE ASSESSEE COMPANY DEBITED ` 25 96 53 345.00 AS TOTAL ACCRUED INTEREST OF THE EA RLIER YEAR IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD EXPENSES OF EARLIER YEAR AND CREDITED THE HEAD INTEREST ACCRUED AND DUE ON LOAN S AND ADVANCES. THUS THE TOTAL ACCRUED INTEREST INCOME WHICH HAS A LREADY BEEN SHOWN AS INCOME IN EARLIER YEAR HAS BEEN WRITTEN OFF AS NOT REALIZABLE IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD EARLIER YEAR EXPENSES . HOWEVER THE ASSESSING OFFICER TREATED IT AS CESSATION OF TRADIN G LIABILITY U/S 41(1) OF THE I.T. ACT AND ADDED IN THE INCOME OF THE ASSESSEE. 19 29. IN HIS RIVAL SUBMISSIONS THE LEARNED D. R. STRO NGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 30. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES IT APPEARS THAT THE ASSESSING OFFICER CONSIDERED THE IMPUGNED AMOUN T AS CESSATION OF THE TRADING LIABILITY U/S 41(1) OF THE I.T. ACT. ON TH E CONTRARY THE CLAIM OF THE ASSESSEE IS THAT IT WAS NOT A CESSATION OF LIABILIT Y RATHER THE INTEREST INCOME WHICH HAD ALREADY BEEN SHOWN IN THE EARLIER YEARS HAS BEEN WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT. SINCE TH E STAND OF BOTH THE PARTIES IS CONTRADICTORY AND THE FACTS ARE NOT CLEAR WE T HEREFORE DEEM IT APPROPRIATE TO REMAND THIS ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW AFTER PROV IDING A DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 31. THE LAST ISSUE VIDE GROUND NO. 7 RELATES TO T HE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PRIOR YEAR EXPE NSES. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFF ICER POINTED OUT THAT THE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES AMOUNTIN G TO ` 7 06 85 948/-. THE DETAIL OF THE SAID EXPENSES HAVE BEEN GIVEN BY THE ASSESSING OFFICER AT PAGE NO. 5 AND 6 OF THE ASSESSMENT ORDER DATED 2 8/12/2007. FOR THE COST OF REPETITION THE SAME IS NOT REPEATED HERE. THE ASSESSING OFFICER 20 WAS OF THE VIEW THAT THOSE EXPENSES HAVE BEEN INCUR RED FRUCTIFIED AND FINALIZED IN THE EARLIER RELEVANT YEARS SO DO NOT P ERTAIN TO THE PRESENT FINANCIAL YEAR AND HENCE COULD NOT BE ALLOWED IN T HE ASSESSMENT YEAR UNDER CONSIDERATION. HE ACCORDINGLY MADE THE DISAL LOWANCE. 32. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER HAD MADE AN AD DITION ` 7 06 85 942/- ON ACCOUNT OF PRIOR PERIOD EXPENDITURE WITHOUT CONS IDERING THE FACT THAT THIS EXPENDITURE WAS NOT BOOKED/CLAIMED BY THE ASSESSEE IN EARLIER YEAR. IT WAS FURTHER STATED THAT THE NATURE OF EXPENDITURE C AME TO LIGHT IN THE RELEVANT ASSESSMENT YEAR THEREFORE THE EXPENDITUR E WAS BOOKED IN THE ASSESSMENT YEAR UNDER REVIEW AND WAS THEREFORE LIA BLE TO BE ALLOWED. 32.1 THE LEARNED CIT(A) HOWEVER DID NOT FIND MERIT IN THE ABOVE SUBMISSIONS OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL. 33. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VE RY OUTSET STATED THAT THE ISSUE IS COVERED BY THE EARLIER ORDER OF THE IT AT A BENCH LUCKNOW IN I.T.A. NO.487/LUC/08 FOR THE ASSESSMENT YEAR 2004-2 005 IN ASSESSEES OWN CASE VIDE PARA 4 OF THE ORDER DATED 28/08/2008. 21 34. THE LEARNED D. R. COULD NOT CONTROVERT THE AFOR ESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 35. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD IT IS NOTICED THAT THIS ISSUE WAS REMANDED BACK TO THE ASSESSING OFFICER IN THE EARLIER YEAR VIDE ORDER DATED 28/08/2008 IN ASS ESSEES OWN CASE IN I.T.A. NO.487/LUC/08 AND THE RELEVANT FINDING AS GI VEN IN PARA 4 OF THE SAID ORDER READ AS UNDER: 4. WE FIND THAT THERE IS NO DISCUSSION BY EITHER O F THE REVENUE AUTHORITIES ON THE POINT. AT THE SAME TIME THE LD . REPRESENTATIVE OF THE ASSESSEE PRODUCED AN ORDER OF THE TRIBUNAL DATE D 29.6.2007 FOR ASSESSMENT YEAR 2002-03 IN ASSESSEE'S OWN CASE IN I .T.A. NO. 1215/LUC/2006 WHEREIN THE ISSUE WAS REMANDED BACK T O THE FILE OF THE ASSESSING OFFICER TO REDO THE ASSESSMENT ON SIM ILAR SET OF FACTS FOLLOWING THE BOARD'S INSTRUCTION NO. 1348 DATED 30 .8.1980 OBSERVING AS UNDER: '5. FROM THE ABOVE IT IS EVIDENT THAT ACCOUNTS WER E REJECTED SOLELY ON THE GROUND THAT PROVISIONAL BALA NCE SHEET HAD BEEN FILED SINCE STATUTORY AUDIT HAD NOT BEEN DONE. THE ASSESSMENT ORDER HAD BEEN PASSED ON 28.2.2005. AT PAGES 8 TO 54 OF THE PAPER BOOK THE ASSESSEE HAS FILED THE COPY OF STATUTORY AUDIT REPO RT WHICH IS DATED 20.11.2004. THE LD. COUNSEL POINTED OUT THAT THIS REPORT HAD NOT BEEN RECEIVED BY THE ASSES SEE AND THEREFORE COULD NOT BE FILED. THE ASSESSING OFFICER MADE VARIOUS DISALLOWANCES AFTER REJECTING THE BOOKS OF ACCOUNT. IN OUR OPINION THE BOOKS OF ACC OUNT COULD NOT BE REJECTED SOLELY ON THE GROUND THAT ASSESSEE HAD FILED A PROVISIONAL AUDIT REPORT ALONG WITH THE RETURN OF INCOME. THE ASSESSING OFFICER COULD R EJECT THE BOOKS OF ACCOUNT ONLY IN TERMS OF SECTION 145(3 ) WHEREIN THERE IS NO REQUIREMENT OF REJECTION OF BOO KS OF 22 ACCOUNT IF THE RETURN IS NOT ACCOMPANIED WITH THE STATUTORY AUDIT REPORT. FURTHER THE LD. COUNSEL HA S REFERRED TO C.B.D.T. INSTRUCTION NO.1348 DATED 30.8.1980 WHEREIN IT IS MENTIONED THAT IF THE RETUR N INDICATES THAT THE AUDIT HAS NOT BEEN COMPLETED AND HENCE AUDITED ACCOUNTS AND AUDITORS REPORT COULD NO T BE ENCLOSED THE RETURN SHOULD NOT BE TREATED AS DEFECTIVE. WE THEREFORE SET ASIDE THE ORDER OF TH E LD. C.I.T.(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR PASSING THE ASSESSMENT ORDER DE NOVO.' 35.1 IN VIEW OF THE ABOVE THIS ISSUE IS REMANDED B ACK TO THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING A DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. 36. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28/0 2/2011) SD/. SD/. ( H. L. KARWA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 28/02/2011 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR