The ACIT, Circle-6,, Surat v. Shree Khedut Sahakari Khand Udhyog Mandli Ltd.,,

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AT SURAT CAMP AHMEDABAD BEFORE SHRI T.K. SHARMA JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.4096/AHD/2007 ASSESSMENT YEAR: 2004-05 DATE OF HEARING:20.5.10 DRAFTED:24.5.10 ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-6 ROOM NO.6234 AAYAKR BHVAN MAJURA GATE SURT V/S . SHREE KHEDUT SAHAKARI KHAND UDHYOG MANDLI LTD. AT & POST SARDAR BUG BABEN BARDOLI- 394602 DIST. SURT PAN NO.AAAAS455N (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SANJEEV KASHYAP SR-DR RESPONDENT BY:- SHRI MITESH M MODI AR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER:- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF LD. CIT(APPEALS) RAISING FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-IV SURAT HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF SUGARCANE QUALITY IMPROVEMENT EXPENSES O F RS.56 93 735/- MADE BY THE A.O. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING SUGARCANE AND ITS BI-PROD UCT I.E. ALCOHOL. THE RETURN OF INCOME WAS FILED DECLARING A LOSS OF RS.1 73 05 457/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER FOUND THAT EXPENSES TO THE EXTENT OF RS.56 93 735/- HAVE BEEN INCURRED AS SUGARCANE QUAL ITY IMPROVEMENT SUBSIDY BEING MONETARY BENEFIT PROVIDED BY THE ASSESSEE TO ITS MEMBERS TOWARDS ITA NO.4096/AHD/2007 A.Y. 2004-05 ACIT CIR-6 SRT V. SSH. KHEDUT SAHAKARI KHAND UDHYOG MA NDLI LTD. PAGE 2 PESTICIDES SEEDS AND OTHER ITEMS. THE ASSESSEE IS A SOCIETY OF MEMBERS WHO PRODUCE THE CROPS OF SUGARCANE. THE ASSESSEE PROVID ES PESTICIDES SEEDS ETC. AT SUBSIDED RATES AND PURCHASES SUGARCANE CROP FROM TH EM. WHILE PROVIDING PESTICIDES SEEDS ETC. TO THE MEMBERS THEIR ACCOUNT IS DEBITED AT A LESSER AMOUNT BUT SALES ACCOUNT OF THE COMPANY IS CREDITED WITH F ULL AMOUNT. THE DIFFERENCE IS TREATED AS SUBSIDY OR EXPENDITURE ON QUALITY IMPROV EMENT. AS PER RESOLUTION OF THE MANAGING COMMITTEE DATED 05-12-2002 A SUBSIDY O F 15% ON SALE VALUE OF PESTICIDES AND ON 50% ON SALE PRICE OF BIO-CULTURE PACKAGE WAS GRANTED. IN OTHER WORDS IF PESTICIDES FOR RS.100/- ARE SOLD TO THE F ARMERS THEN ITS ACCOUNT IS DEBITED BY 85% OF THE VALUE OF PESTICIDES. THE BAL ANCE BEING 15% IS SUBSEQUENTLY TRANSFERRED TO THE PROFIT AND LOSS A/C . AS SUGARCANE QUALITY IMPROVEMENT SUBSIDY. SIMILARLY WHEN PESTICIDES ARE SOLD TO THE FARMERS THEN THEIR ACCOUNT IS DEBITED BY 50% OF THE SALE VALUE O F BIO-CULTURE PACKAGE. BALANCE 50% IS TRANSFERRED TO PROFIT AND LOSS A/C. AND THUS ACCOUNTS OF THE FARMERS ARE SQUARED UP. THUS DURING THIS YEAR A SU M OF RS.56 93 735/- WAS IN ALL TRANSFERRED TO PROFIT AND LOSS A/C. AS QUALITY IMPROVEMENT SUBSIDY BY SQUARING UP THE ACCOUNT OF THE FARMERS. LD. ASSESSING OFFICE R DISALLOWED THE CLAIM ON THE GROUND THAT SUCH AMOUNT OF SUBSIDY IS NOT SUPPORTED BY ANY BYE-LAW OR RESOLUTION. THE ACCOUNT TREATMENT IS FAULTY IN THE SENSE THAT ASSESSEE SHOULD HAVE TREATED THE DEFICIT AS BAD DEBT AND WRITTEN OFF. T HE BENEFIT OF ALLEGED SUBSIDY IS SPREAD OVER A LONG PERIOD OF TIME. THEREFORE IT CAN NOT BE ALLOWED AS REVENUE EXPENDITURE. FURTHER THIS EXPENDITURE HAS NO DIREC T CONNECTION WITH EITHER MANUFACTURING OR SELLING OF SUGARCANE IN THE RELEVA NT ASSESSMENT YEAR. FINALLY IN ANY CASE CLAIM OF THE ASSESSEE IS EXCESSIVE AND UNREASONABLE AND HAS NO DIRECT NEXUS WITH THE BUSINESS PURPOSE. HE ACCORDI NGLY DISALLOWED THE CLAIM. 3. LD. CIT(APPEALS) ON THE OTHER HAND ALLOWED THE C LAIM BY OBSERVING AS UNDER:- ITA NO.4096/AHD/2007 A.Y. 2004-05 ACIT CIR-6 SRT V. SSH. KHEDUT SAHAKARI KHAND UDHYOG MA NDLI LTD. PAGE 3 I HAVE GONE THROUGH THE DETAILS AND THE ASSESSMENT ORDER AND I FAILED TO UNDERSTAND THE LOGIC BEHIND MAKING SUCH ADDITION. T HE SOCIETY HAS SOLD MATERIAL LIKE FERTILIZER PESTICIDES SEEDS ETC. T O EACH MEMBER AT A SUBSIDIZED RATE AND HAS REALIZED ONLY THAT MUCH OF THE SALE PROCEEDS IT IS NOT UNDERSTOOD AS TO WHY THE MEMBERS ACCOUNT SHOULD BE DEBITED BY THE FULL AMOUNT AND THEN THE BALANCE AMOUNT SHOULD BE W RITTEN OFF AS BAD DEBTS. IT IS ONLY THE NET SALE PROCEEDS WHICH HAVE BEEN CREDITED TO P & L. ACCOUNT BY THE SOCIETY AND AS IN THE NATURE OF THE TRADE DISCOUNT GIVEN TO ITS MEMBERS WHO WOULD GROW SUGARCANE AND SUPPLY THE SAME TO THE SOCIETY. I DO NOT SEE ANY JUSTIFICATION IN THIS ACT ION OF THE AO IN MAKING SUCH AN ADDITION WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE. THE ADDITION THEREFORE IS NOT SUSTAINABLE AND IS DIRECT ED TO BE DELETED. 4. BEFORE US LD. SR-DR SUBMITTED THAT ORDER OF LD. CIT(APPEALS) IS NOT ACCEPTABLE BECAUSE THERE IS NO BUSINESS NEXUS OF TH IS EXPENDITURE AS EXPENDITURE CANNOT BE SAID TO HAVE BEEN LAID OUT WHOLLY AND EXC LUSIVELY FOR THE PURPOSES OF BUSINESS. THE CLAIM OF THE SUBSIDY HAS NOT BEEN DUL Y AUTHORIZED EITHER BY THE BYE-LAWS OR THE EXECUTIVE MANAGING COMMITTEE. 5. AGAINST THIS LD. AR SUBMITTED THAT SUCH CLAIMS WERE MADE BY THE ASSESSEE IN PRECEDING YEARS WHICH WERE ALLOWED BY T HE ASSESSING OFFICER AND ALSO SUCH CLAIMS WERE ALLOWED IN SUBSEQUENT ASSESSM ENT YEARS. HE REFERRED TO THE ORDERS FOR ASSESSMENT YEAR FOR 2001-02 WHICH WA S PASSED U/S.143(3) AND ASSESSMENT YEAR 2005-06 WHICH WAS ALSO PASSED U/S.1 43(3) WHEREIN THE CLAIM OF SUCH SUBSIDY WAS ACCEPTED. HE SUBMITTED THAT FO LLOWING THE PRINCIPLE OF CONSISTENCY THE CLAIM OF THE ASSESSEE SHOULD NOT BE DISALLOWED. 6. LD. AR FURTHER SUBMITTED THAT CLAIM HAS DIRECT N EXUS WITH THE BUSINESS PURPOSE INASMUCH AS PESTICIDES AND OTHER PRODUCTS W ERE SOLD TO THE FARMERS AT SUBSIDIZED RATES FOR SUPPORTING THEM TO IMPROVE SUG ARCANE PRODUCTION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN ITA NO.4096/AHD/2007 A.Y. 2004-05 ACIT CIR-6 SRT V. SSH. KHEDUT SAHAKARI KHAND UDHYOG MA NDLI LTD. PAGE 4 THE ORDER OF LD. CIT(APPEALS). IT IS AN UNDISPUTED OF FACT THAT THE CLAIM OF THE ASSESSEE IS ALLOWED IN THE EARLIER ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. COMMISSIONER OF INCOME-TAX [1992] 193 ITR 0321 - (SC) HELD THAT IN ABSENCE OF MATERIAL CHANGE JUSTIFYING THE DEPARTMENT TO TAKE A DIFFERENT VIEW FROM THE VIEW TAKEN IN EARLIER YEAR THE QUESTION OF TAKING D IFFERENT VIEW SHOULD NOT HAVE ARISEN. EVEN THOUGH PRINCIPLE OF RES JUDICATA DOES NOT APPLY IN INCOME TAX PROCEEDING AND EACH ASSESSMENT YEAR IS A SEPARATE U NIT OF ASSESSMENT BUT A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASS ESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR OTHER AND PARTIES HAVE B EEN ALLOWED TO TAKE POSITION TO BE SUSTAINED THEN IT WILL NOT BE PROPER TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. THE PRINCIPLE OF CONSISTENCY WILL NOT PERMIT THE REVENUE TO TAKE A STAND CONTRARY TO THE ONE ACCEPTED BY IT UNL ESS IT IS SHOWN THAT THERE IS A GRAVE ERROR OF LAW OR NEW FACTS HAVE BEEN DISCOVER ED OR ASSESSEE IS GUILTY OF CONTUMACIOUS CONDUCT. HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. MOONLIGHT BUILDERS AND DEVELOPERS [2008] 307 ITR 197[DEL] HAS HELD THAT FOR THE PURPOSES OF FINALITY IN ALL L ITIGATION INCLUDING THE LITIGATION ARISING OUT OF FISCAL STATUS EARLIER DECISION ON TH E SAME QUESTION SHOULD NOT BE REOPENED UNLESS SOME FRESH FACT ARE FOUND IN THE SU BSEQUENT YEAR. IT IS ALWAYS DESIRABLE THAT ASSESSING OR APPELLATE AUTHORITY WI THOUT PLACING ON RECORD COGENT REASONS TO DO SO SHOULD NOT DEVIATE FROM THE CONCLU SIONS ARRIVED AT IN THE CASE OF ASSESSEE IN EARLIER YEARS. IT IS SO HELD BY ITAT IN THE CASE OF K. R. FILMS P. LTD. V. INCOME-TAX OFFICER [2006] 287 ITR (A.T.) 1- (MUM). 8. NOTWITHSTANDING WE ARE OF THE VIEW THAT THE CLA IM OF THE ASSESSEE IS JUSTIFIED. THE ASSESSEE IS A CO-OPERATIVE SOCIETY U NDER MUMBAI STATE CO- OPERATIVE ACT 1925. IT HAS 5 600 MEMBERS AS INFOR MED BY LD. AR. THE PESTICIDES SEEDS AND OTHER ITEMS ARE SOLD AT REDUC ED PRICE TO THE FARMERS IN ORDER TO HELP THEM GROW MORE SUGARCANE CROP. THE SALE AT REDUCED PRICE TO THE FARMERS IS DIRECTLY A BUSINESS PURPOSE AS IT IS GIVEN IN RE LATION TO PURCHASE OF SUGARCANE ITA NO.4096/AHD/2007 A.Y. 2004-05 ACIT CIR-6 SRT V. SSH. KHEDUT SAHAKARI KHAND UDHYOG MA NDLI LTD. PAGE 5 CROP WHICH IS ENTIRELY SOLD TO THE ASSESSEE. IT IS NOT A CASE THAT DISALLOWANCE U/S.37 HAS TO BE MADE AS NO SUCH CASE HAS BEEN MADE OUT BY THE AUTHORITIES. SALE OF PESTICIDES AT REDUCED PRICE IS MADE TO THE MEMBE RS AND SUGARCANE CROP PURCHASED FROM THE SAME MEMBERS. IF FOR A BUSINESS PURPOSE ASSESSEE GRANT SUBSIDY OR SALES PESTICIDES AS REDUCED PRICE THEN R EVENUE CAN NOT SIT OVER THEIR JUDGMENT UNLESS SO EMPOWERED UNDER LAW. SALE AT RED UCED PRICE IS A BUSINESS DECISION AND CANNOT BE SUBSTITUTED BY DECISION OF A SSESSING AUTHORITY. THERE IS NO ALLEGATION OF ANY CONTUMACIOUS CONDUCT BY REVENU E. ONE OF THE GROUNDS TAKEN FOR DISALLOWANCE IS THAT THERE IS NO BUSINESS CONNECTION WHICH IS NOT CONSIDERED AS SOUND. THERE IS A CLEAR BUSINESS CON NECTION. SO FAR BYE-LAWS ARE CONCERNED IT IS FOR THE PRINCIPLES TO DECIDE WHETHE R SUCH SUBSIDY CAN BE GRANTED WITHOUT AUTHORITY OF BYE-LAWS. IN OUR CONSIDERED V IEW IT IS NOT FOR THE REVENUE TO DISALLOW THE CLAIM IF IT IS OTHERWISE CONNECTED WITH THE BUSINESS PURPOSE OF THE ASSESSEE. AS RESULT WE UPHOLD THE ORDER OF LD . CIT(APPEALS) AND DISMISS THE APPEAL FILED BY REVENUE. 9. IN THE RESULT APPEAL FILED BY REVENUE IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON 28/05 /2010 SD/- SD/- (T.K.SHARMA) (D.C.AGRAWAL) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD DATED : 28/05/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 4. THE CIT CONCERNS. 2. THE RESPONDENT. 5. THE DR ITAT AHMEDABAD 3. THE CIT(APPEALS)-IV SURAT 6. G UARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD