DCIT Cir. 1, Kolhapur V. Shri Warana Sahkari Dudh Utpadak Prakriya S. Ltd., Kolhapur

ITA 1082/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7505 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARESHWAR SHARMA
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 1082 /PN/200 9 ( ASSTT. YEAR : 200 6 - 07 ) DY. COMMISSIONER OF INCOME TAX , CIRCLE - 1, AAYKAR BHAVAN, 31/C - 2, TARABAI PARK, KOLHA PUR .. APPELLANT V. SHRI WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH LTD. A/P : WARANANAGAR, TAL : PANHALA DISTRICT : KOLHAPUR PAN : AAABS0290E . RESPONDENT APPELLANT BY : SHRI M.K. KULKARNI RESPONDENT BY : SHRI HARESHWAR S HARMA ORDER PER I.C. SUDHIR J M THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON SEVERAL GROUNDS INVOLVING THE ISSUE AS TO WHETHER LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF FINAL RATE OF DIFFERENCE IN THE PAYMENT MADE TO SUPPLIERS OF MILK INCLUDING MEMBER CO - OPERATIVE SOCIETIES. 2. AT THE OUTSET OF HEARING, THE LD. A.R. POINTED OUT THAT AN IDENTICAL ISSUE UNDER THE SIMILAR FACTS AND CIRCUMSTANCES HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE A.YS. 2004 - 05 AND 2005 - 06 IN ITA NOS. 1480 AND 1481/PN/2007 DATED 17 TH JULY 2009. A COPY THEREOF HAS BEEN SUPPLIED. 3. LD. D.R. DID NOT DISPUTE THE ABOVE SUBMISSION. HE, HOWEVER, PLACED RELIANCE ON THE ASSESSMENT ORDER. ITA NO 1082 /PN/2009 SHRI WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH LTD. A .Y. 2006 - 07 PAGE OF 5 2 4. HAVING GONE THROUGH THE SAID ORDER DATED 17 TH JULY 2009 OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF, AND THE ISSUE IN THE APPEALS FOR A.YS. 2004 - 05 AND 2005 - 06 (SUPRA), WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN THE CASE OF ASSESSEE ITSELF UNDER SIMILAR FACTS AND CIRCUMSTANCES BY THE TRIBUNAL FOLLOWING ITS EARLIER ORDER IN THE ASSESSEES OWN CASE FOR THE A.Y. 1999 - 2000 TO A.Y.2003 - 04 IN ITA NOS. 658 TO 662/PN/06 VIDE ORDER DATED 23.5.2008. FOR A REA DY REFERENCE, THE RELEVANT PARA NOS. 8 & 9 OF THE SAID ORDER DATED 23.5.2008 OF THE TRIBUNA L IS BEING REPRODUCED HEREUNDER: 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE PERUSED THE MATERIALS ON RECORD. AT THE TIME OF HEARING BEFORE US, THE L D. REPRESENTATIVES OF BOTH THE PARTIES HAVE AGREED THAT THE COMMON ISSUE INVOLVED IN THE PRESENT APPEALS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THIS BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF KOLHAPUR ZI LLA SAHAKARI DOODTH UTPADAK SANGH LTD. VIDE ITS ORDER DATED 26 - 9 - 2005 IN ITA NO. 401 TO 405/PN/2005, A COPY OF THE SAID ORDER IS ALSO PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF T HE ASSESSEE FOR THE FOLLOWING THE REASONS GIVEN IN PARA 6.1 OF ITS ORDER. 6.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE RATIO OF VARIOUS CASES PERTAINING TO SUGAR COOPERATIVE SOCIETIES MAY NOT BE STRICTLY APPLICABLE AS SUGAR IS A CONTROLLED COMMODITY WHILE THE MILK IS NOT A CONTROLLED COMMODITY. THEREFORE, IN THE CASE OF SUGAR COOPERATIVE SOCIETIES MAY HAVE TO PAY AMOUNTS HIGHER THAN THE PREVAILING PRICE BECAUSE OF GOVERNMENT RESTRICTIONS. THE LEARNED CIT (A) HAS PRIMARILY BASED HIS CASE THAT THE PROFITS HAD BEEN DETERMINED AND FINAL RATE DIFFERENCE PAYMENT WAS BASED UPON PROFITS. THE HONBLE GUJARAT HIGH COURT IN ITA NO 1082 /PN/2009 SHRI WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH LTD. A .Y. 2006 - 07 PAGE OF 5 3 THE CASE MEHASANA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD. (SUPRA) HAS CLEARLY POINTED OUT THAT PROFITS ACCRUE OR ARISE ON THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE CASE OF THE ASSESSEE THAT THE BOARD OF DIRECTORS HAD DECIDED, PRIOR TO THE CLOSE OF THE PREVIOUS YEAR, THE MATTER REGARDING PAYMENT OF FINAL RATE DIFFERENCE. THE LEARED CIT (A) HAS NOT ACCEPTED THIS POSITION AS NO SIGNED RESOLUTION WAS FILED BEFORE HIM. THE RESOLUTION TO THAT EFFECT WAS PASSED AFTER THE CLOSE OF THE PREVIOUS YEAR. THE BOOKS OF ACCOUNT WERE MADE UP AFTER THE LIABILITY ON THIS ACCOUNT WAS ASCERTAINED. THE LI ABILITY WAS ALSO DEBITED IN ACCOUNTS. THE DECISION OF HONBLE GUJARAT HIGH COURT IS THAT PROFITS ACCRUE OR ARISE ON THE LAST DAY OF THE PREVIOUS YEAR AND SUCH PROFITS CAN BE FOUND ON ASCERTAINMENT OF EXPENDITURE AGAINST THE RECEIPTS. THUS,PROFITS ARE AS CERTAINED AFTER THE ACCOUNTS HAVE BEEN MADE UP. THUS, THOUGH PROFIT ACCRUES ON THE LAST DAY OF THE PREVIOUS YEAR, ITS ASCERTAINMENT MAY TAKE SOME MORE TIME AS THE BOOKS ARE TO BE FINALIZED. IF IN THE FINAL ACCOUNTS CERTAIN AMOUNTS ARE TAKEN AS LIABILITY FOR PURCHASE OF GOODS, QUANTIFIED ON THE BASIS OF QUALITY OR QUANTITY OF GOODS PURCHASED, THEN, IT CANNOT BE SAID THAT THE PAYMENT AMOUNTS TO APPROPRIATION OF PROFITS. IT MAY BE CLARIFIED HERE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY, WHERE THE MAIN CON CERN IS TO GIVE BEST POSSIBLE PRICE TO THE ULTIMATE PRODUCERS OF MILK THROUGH THEIR PRIMARY COOPERATIVE SOCIETIES. IT IS NOT THE AIM OF A COOPERATIVE SOCIETY TO MAKE MAXIMUM PROFIT. FOR THAT MATTER, NO TRADER CAN BE OBLIGED TO MAKE MAXIUM PROFITS. AS PO INTED OUT BY THE HONBLE GUJARAT HIGH COURT, WHAT CAN BE TAXED IS REAL PROFITS AFTER MAKING DUE DEDUCTIONS UNDER SECTION 28 OR SECTION 37. IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT MILK PURCHASED FROM OUTSIDERS WAS ONLY FOR TWO YEARS AND THE QUANTITY OF MILK PURCHASED WAS RATHER MINUSCULE. THE ASSESSEE HAS NO OBLIGATION TOWARDS OUTSIDERS IN VIEW OF ITS BEING A COOPERATIVE SOCIETY. THEREFORE, NON - PAYMENT OF FINAL RATE DIFFERENT TO OUTSIDERS DOES NOT CONVERT THE PAYMENTS TO MEMBERS IN RESPECT OF MILK A S APPROPRIATION OF PROFITS. WE TEND TO AGREE WITH THIS VIEW. IT IS TRUE THAT THE ASSESSEE HAS NOT PROVIDED ANY FORMULA ON THE BASIS OF WHICH FINAL RATE DIFFERENCE WAS DETERMINED EXCEPT MAKING VAGUE AND ITA NO 1082 /PN/2009 SHRI WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH LTD. A .Y. 2006 - 07 PAGE OF 5 4 GENERAL REMARKS THAT AS PER ITS RULES AND REGULATIONS AND ALSO ITS PRACTICES, IT TENDS TO PASS ON THE MAXIMUM PRICE TO ITS PRIMARY MEMBER SOCIETIES. HOWEVER, SIMILAR SITUATION WAS OBTAINED IN THE CASE OF MEHASANA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD., DECIDED BY THE HONBLE GUJARAT HIGH COURT (SUPRA ). THAT DOES NOT LEAD TO A CONCLUSION THAT A PART OF THE AMOUNT WAS DISALLOWABLE U/S 40A(2). THEREFORE, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) ERRED WHEN HE RELIED ON VARIOUS CASE LAWS IN DECIDING THE TRUE MEANING OF THE WORD PROFITS. IN THOSE CASE S PROFITS HAD BEEN ASCERTAINED, BUT THAT IS NOT THE POSITION HERE. ACCORDINGLY, WE ARE OF THE VIEW THAT HE ERRED IN HOLDING THAT PROFITS WERE ASCERTAINED ON 31 ST MARCH OF EACH FINANCIAL YEAR. WE ARE ALSO OF THE VIEW THAT HE CONSEQUENTLY ERRED IN HOLDING T HAT THE PAYMENT OF FINAL RATE DIFFERENCE AMOUNTED TO DISTRIBUTION OF PROFITS. BEFORE PARTING, WE MAY ADD HERE THAT THE ASSESSEE HAS ACCOUNTED FOR RATE DIFFERENCE PAID IN THE YEAR IN WHICH MILK WAS PURCHASED, THOUGH PAID LATER, AND IT HAS ACCOUNTED FOR RATE DIFFERENCE RECEIVED IN THE YEAR SUBSEQUENT TO THE YEAR OF SALE OF MILK. PRIMA - FACIE THERE APPEARS TO BE SOME CONTRADICTION IN THE METHOD OF ACCOUNTING FOLLOWED FOR THESE TWO ITEMS. IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT RATE DIFFERENCE RECEIVED WA S ACCOUNTED FOR IN THE BOOKS ONLY AFTER RECEIPT OF INTIMATION FROM MAHANANDA. THEREFORE, IT APPEARS THAT IT FOLLOWED THE PRUDENT ACCOUNTING PRACTICE, NAMELY, - I) ACCOUNT FOR LIABILITY AS SOON AS IT IS INCURRED, AND II) ACCOUNT FOR THE RECEIPT WHEN IT IS ASCERTAINED. THE ISSUE REGARDING PRE - PONEMENT OF RECEIPTS WAS NOT AGITATED BEFORE US BY THE REVENUE AND, THEREFORE, WE DO NOT MAKE ANY COMMENTS IN THIS MATTER. 9. AS THE ISSUE INVOLVED IN THE PRESENT APPEALS AS WELL AS THE MATERIAL FACTS RELEVANT THERETO ARE ADMITTED SIMILAR TO THE CASE OF KOLHAPUR ZILLA SAHAKARI DOODH UTPADAK SANGH LTD (SUPRA) DECIDED BY THE TRIBUNAL, WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RENDERED IN SAID CASE AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF RATE DIFFERENCE PAYABLE TO THE MILK SUPPLIERS. ITA NO 1082 /PN/2009 SHRI WARANA SAHAKARI DUDH UTPADAK PRAKRIYA SANGH LTD. A .Y. 2006 - 07 PAGE OF 5 5 I N VIEW OF THE ABOVE DECISIONS, WE DO NOT FIND REASON TO INTERFERE WITH THE FINDING OF THE FIRST APPELLATE AUTHORITY ON THE ISSUE AS THE LD CIT(A) WAS JUSTI FIED IN ALLOWING THE CLAIM OF ASSESSEE FOR DEDUCTION ON ACCOUNT OF RATE DIFFERENCE PAYABLE TO THE MILK SUPPLIERS. THE ISSUE IS THUS DECIDED IN FAVOUR OF THE ASSESSE. THE RELATED GROUNDS ARE THUS REJECTED. 5. CONSEQUENTLY, APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY 201 1 . SD/ - SD/ - ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE , DATED THE 28 TH FEBRUARY , 20 1 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PPELLANT 2. THE RESPONDENT 3. THE CIT I /II KOLHAPUR/CIT (CENTRAL) , PUNE 4. THE CIT(A) - , KOLHAPUR 5. THE D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE