Shri Mahankali SSK Ltd., Sangli V. DCIT, Cir. I, Sangli, Sangli

ITA 1006/PUN/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7668 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 27-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K LEUVA
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1006/PN/07 (ASSTT YEAR: 2002-03) SHRI MAHANKALI SSK LTD., APPELLANT RAJARAMBAPU NAGAR, KAVTHE MQHANKAL, SANGLI PAN AAAAS4544E VS. DY. COMMISSIONER OF INCOME-TAX, CIR. 1, SANGLI RESPONDENT APPELLANT BY : SHRI PRAMOD SHINGTE RESPONDENT BY : SHRI H. K. LEUVA ORDER PER G.S. PANNU, A.M: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), KOLHAPUR DATE D 25.4.2007 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 5.12 .2006 PASSED BY THE ASSESSING OFFICER UNDER SEC. 143(3) OF THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2002-03. 2. THE APPELLANT HAS RAISED SEVEN GROUNDS OF APPEAL WITH WHICH WE SHALL DEAL IN SERIATIM. 3. FIRST GROUND RELATES TO DISALLOWANCE OF INTEREST ON ADVANCES FOR HARVESTING AND TRANSPORT OF SUGARCANE AMOUNTING TO RS 18,30,440/-. AS PER THE ASSESSMENT ORDER, ASSESSEE HAD ADVANCED HUG E ADVANCES TO HARVESTING AND TRANSPORT CONTRACTORS ON WHICH NO IN TEREST WAS CHARGED. THE ASSESSEE EXPLAINED THAT ADVANCES WERE GIVEN ON A REGULAR BASIS AND IT WAS DIFFICULT TO FURNISH EXACT DETAILS REGAR DING AMOUNTS ADVANCED ITA NO1006/PN/07 MAHANKALI SSK LTD, SANGLI 2 AND THE PARTY TO WHICH THE MONEY WAS ADVANCED. BEFO RE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE CONT ENDED THAT ADVANCES WERE GIVEN FOR RESERVATION OF HARVESTERS A ND CONTRACTORS SO AS TO ENSURE THAT DURING THE CRUSHING SEASON, TIMELY S ERVICES WERE AVAILABLE TO THE ASSESSEE. IT WAS ALSO POINTED OUT THAT AGREEMENTS WITH THE HARVESTERS AND CONTRACTORS WERE MADE AND ADVANC E PAYMENTS GIVEN, AND IT WAS A TRADITION TO GIVE SUCH ADVANCES FREE OF INTEREST. IN THIS MANNER, INTEREST DISALLOWANCE MADE BY THE ASSE SSING OFFICER WAS SOUGHT TO BE ASSAILED. THE COMMISSIONER OF INCOME-T AX (APPEALS) HELD THAT ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THA T THE ADVANCES WERE NOT MADE FOR BUSINESS EXIGENCIES AND, ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE. 4. BEFORE US, THE LEARNED COUNSEL FOR ASSESSEE POIN TED OUT THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V SMAR THA SSK LTD. 294 ITR 540 (BOM) HAD CONSIDERED A SIMILAR SITUATION AN D HELD THAT NO INTEREST COULD BE DISALLOWED FOR THE REASON THAT AS SESSEE HAD MADE INTEREST FREE ADVANCES TO HARVESTERS AND TRANSPORT CONTRACTORS. IT WAS CONTENDED THAT THE IMPUGNED ISSUE IS FULLY COVERED BY THE PARITY OF REASONING IN THE CASE OF SAMARTH SSK LTD (SUPRA). T HE LEARNED DEPARTMENTAL REPRESENTATIVE, APPEARING FOR THE REVE NUE, HAS NOT CONTESTED THE ADMITTED FACTUAL MATRIX POINTED OUT B Y THE LEARNED COUNSEL, BUT HAS DEFENDED THE ADDITION ON THE BASIS OF ORDERS OF THE AUTHORITIES BELOW. 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIND THAT THE ISSUE IS FULLY COVERED IN TERMS OF THE JUDGMENT OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF SAMARTH SSK LTD. (SUPRA), INASMUCH A S NO PART OF INTEREST PAID BY ASSESSEE ON BORROWED FUNDS CAN BE DISALLOWE D ON THE GROUND THAT SUMS HAVE BEEN DIVERTED TO HARVESTING AND TRAN SPORT CONTRACTOR FREE OF INTEREST, BECAUSE SUCH ADVANCES WERE MADE TO MEE T THE EXIGENCIES ITA NO1006/PN/07 MAHANKALI SSK LTD, SANGLI 3 OF THE CONTRACTORS, WHICH WAS CERTAINLY IN THE BUSI NESS INTERESTS OF ASSESSEE. AS PER THE HONBLE HIGH COURT, IN A SUCH LIKE SITUATION, THE ADVANCES WERE MADE TO ENSURE THAT CONTRACTORS SUPPL IED HARVESTED SUGARCANE PROMPTLY AND EFFICIENTLY, WHICH WAS IN TH E INTEREST OF ASSESSEES BUSINESS. FOLLOWING THE AFORESAID JUDGME NT, WE HEREBY SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. HENCE ON THIS GROUND, ASSESSEE SUCCEEDS. 6. SECOND GROUND IS WITH REGARD TO A DISALLOWANCE O F RS 1,05,550/- ON ACCOUNT OF EXPENSES INCURRED FOR INSERTING GREET INGS TO POLITICAL FUNCTIONARIES AND POLITICAL PARTIES ON VARIOUS OCCA SIONS, SUCH AS ANNIVERSARIES, BIRTH DAYS ETC. THE ASSESSING OFFICE R AS WELL AS THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS MADE THE D ISALLOWANCE ON THE GROUND THAT IT DOES NOT REFLECT ANY BUSINESS NE ED. ON THE CONTRARY, AS PER THE ASSESSING OFFICER, THE EXPENDITURE APPEA RED TO BE FOR TRAVEL PURPOSE TO THE BOARD OF DIRECTORS OF THE SOCIETY A S WELL AS SENIOR FUNCTIONARIES. 7. BEFORE US, THE LEARNED COUNSEL FOR ASSESSEE HAS NOT POINTED OUT ANY COGENT MATERIAL OR EVIDENCE TO NEGATE THE OBSER VATIONS OF THE AUTHORITIES BELOW THAT THE IMPUGNED EXPENSES ARE IN CURRED FOR PERSONAL PURPOSES OF THE BOARD OF DIRECTORS OF THE SOCIETY A S WELL AS OTHER SENIOR FUNCTIONARIES. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW AND ACCORDINGLY DISALLOWANCE OF R S 1,05,550/- IS HEREBY CONFIRMED. 8. THE THIRD DISALLOWANCE IS WITH REGARD TO A SUM O F RS 94,160/- ON ACCOUNT OF CANE DEVELOPMENT EXPENSES. THE DISALLOWA NCE HAS BEEN MADE ON THE GROUND THAT THE SAME WAS NOT OBLIGATORY ON THE PART OF THE ASSESSEE AND, THEREFORE, IT COULD NOT CONSTITUTE AN EXPENDITURE INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE CLAIM OF THE ASSESSEE WAS ITA NO1006/PN/07 MAHANKALI SSK LTD, SANGLI 4 THAT SUCH EXPENDITURE HAS BEEN INCURRED BY WAY OF S UPPLY OF HIGH YIELDING SEEDS, FERTILIZERS AND SUBSIDY TO THE FARM ERS, SINCE ASSESSEE WAS FULLY DEPENDENT ON THE QUALITY AND QUANTITY OF THE SUGARCANE PRODUCED BY THE AGRICULTURISTS IN THE AREA. THUS, ENCOURAGING GROWTH AND HIGH YIELDING VARIETIES OF SUGARCANE WAS A BUSI NESS NECESSITY AND, HENCE THE EXPENDITURE CONSTITUTED A GENUINE BUSINES S EXPENDITURE. THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF IN COME-TAX (APPEALS) HAVE DIS-AGREED WITH THE ASSESSEE AND THE EXPENDITU RE HAS BEEN DISALLOWED. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IMPUGNED EXPENDITURE NEEDS TO BE ALLOWED SINCE THE ADDITION TO CANE DEVELOPMENT FUND IS TREATED AS INCOME AS PER T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SIDDHESHWAR SS K LTD. 270 ITR 1 (SC) AND, THEREFORE, ANY EXPENDITURE ON CANE DEVELO PMENT SHALL BE ALLOWED. A REFERENCE HAS ALSO BEEN MADE TO A DECISI ON OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF JAI JAWAN JAI KISAN SSK LTD. V. DCIT VIDE ITA NO 551/PN/09 DATED 27.10.2009. 10. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUPPORTED THE CASE OF THE REVENUE. 11. ON THIS ASPECT, WE FIND THAT THE ISSUE RELATING TO CANE DEVELOPMENT FUND IS COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SIDDHESHWAR SKK LTD. (SUPRA), WHEREBY IT HAS BEEN HELD THAT THE AMOUNT COLLECTED TOWARDS CANE DEVELOP MENT FUND SHALL BE TREATED AS INCOME OF THE ASSESSEE AND ANY CLAIM FOR DEDUCTION THEREOF IS LIABLE TO BE DECIDED AFTER EXAMINING THE RELEVAN T MATERIAL AND PARTICULARS THEREOF. IN THIS CONTEXT, OUR CO-ORDINA TE BENCH IN THE CASE OF JAI JAWAN JAI KISAN SSK LTD V DCIT (SUPRA) OBSERVED THAT NO DOUBT EXPENDITURE INCURRED TOWARDS CANE DEVELOPMENT IS TO BE ALLOWED AS A ITA NO1006/PN/07 MAHANKALI SSK LTD, SANGLI 5 DEDUCTION, BUT THE SAME CAN BE ALLOWED ONLY AFTER E XAMINING THE DETAILS AND PARTICULARS THEREOF AS TO WHETHER EXPENDITURE W AS ACTUALLY INCURRED TOWARDS CANE DEVELOPMENT. FOR THE AFORESAID PURPOSE , WE DEEM IT FIT AND PROPER TO RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ASSESSEES CLAIM IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE HONBLE SUPREME COURT IN THE CASE OF SIDDHESHWA R SSK LTD. (SUPRA) AND THEREAFTER TO ADJUDICATE AFRESH IN ACCORDANCE W ITH LAW AND AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD ACCORDINGLY. 12. THE NEXT ISSUE RELATES TO DISALLOWANCE OF GENER AL MEETING EXPENSES OF RS 50,000/-. AFTER HEARING BOTH THE PAR TIES, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE BY THE D ECISION OF OUR CO- ORDINATE BENCH IN THE CASE OF INDAPUR SSK LTD. V. A CIT VIDE ITA NO 597/PN/08 DATED 31.8.2009. FOLLOWING THE PARITY OF REASONING, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND OF APPEAL IS ALLOWED. 13. THE NEXT ISSUE RELATES TO DISALLOWANCE OF TELEP HONE EXPENSES OF RS 50,000/-. AFTER HEARING BOTH THE PARTIES, HERE A GAIN, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE BY THE D ECISION OF OUR CO- ORDINATE BENCH IN THE CASE OF INDAPUR SSK LTD. V. A CIT VIDE ITA NO 597/PN/08 DATED 31.8.2009. FOLLOWING THE PARITY OF REASONING, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND OF APPEAL IS ALLOWED. 14. THE NEXT ISSUE RELATES TO DISALLOWANCE OF VEHI CLE EXPENSES OF RS 1,00,000/-. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF OU R CO-ORDINATE BENCH IN THE CASE OF INDAPUR SSK LTD. V. ACIT VIDE ITA NO 597/PN/08 DATED ITA NO1006/PN/07 MAHANKALI SSK LTD, SANGLI 6 31.8.2009 AS ALSO BY THE JUDGMENT OF THE HONBLE GU JARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG.CO. 253 ITR 740 (G UJ) FOLLOWING THE PARITY OF REASONING, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE AND DIRECT THE A SSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND OF APP EAL IS ALLOWED. 15. THE LAST ISSUE RELATES TO DISALLOWANCE OF ADVE RTISEMENT EXPENSES OF RS 50,000/-. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE BY THE DECISIO N OF OUR CO-ORDINATE BENCH IN THE CASE OF INDAPUR SSK LTD. V. ACIT VIDE ITA NO 597/PN/08 DATED 31.8.2009. FOLLOWING THE PARITY OF REASONING, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) O N THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND OF APPEAL IS ALLOWED. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 25TH DAY OF J ANUARY, 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANN U) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25TH JANUARY, 2011 COPY TO:- 1) SHRI MAHANKALI SSK LTD.SANGLI 2) THE DCIT CIR. 1 SANGLI, 3) THE CIT (A) KOHAPR 4) THE CIT-I, KOLHAPUR 5) THE D R, B BENCH, ITAT, PUNE. BY ORDER TRUE COPY ASSTT.REGISTRAR,I.T.A.T., PUNE B