Assistant Commissioner of Income-tax, V. Shri Warana Sah. Dudh Utadak Prakriya Sangh Ltd., Kolhapur

ITA 1094/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2592 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-08-2018
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NOS. 1094 TO 1096/PUN/2016 / ASSESSMENT YEARS : 2007-08, 2009-10 & 2011-12 ACIT, CIRCLE-1, KOLHAPUR ....... / APPELLANT / V/S. SHRI WARANA SAH. DUDH UTPADAK PRAKRIYA SANGH LTD., A/P. WARNANAGAR, TAL. PANHALA, DIST. KOLHAPUR PAN : AAABS0290E / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI RAJESH GAWALI / DATE OF HEARING : 16.08.2018 / DATE OF PRONOUNCEMENT : 17.08.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE 3 APPEALS UNDER CONSIDERATION INVOLVING THE A .YRS. 2007-08, 2009-10 & 2011-12. ALL THESE 3 APPEALS ARE FILED BY THE REVENUE AGAINST THE COMMON ORDER OF CIT(A)-1, KOLHAPUR, DATED 07-03-2016. 2. THE COMMON ISSUE RAISED IN THESE APPEALS RELATE TO TH E ADDITION MADE BY THE AO ON ACCOUNT OF DISTRIBUTION OF PROFITS IN THE GARB OF PAYMENT OF ADDITIONAL PRICE FOR PURCHASE OF MILK. IN THE ASSESSMENT, T HE AO ADDED RS.2,83,79,660/-, RS.1,45,20,711/- AND RS.4,02,52,810/- FOR THE A .YRS. 2007-08, 2009-10 AND 2011-12 RESPECTIVELY. CIT(A) GRAN TED RELIEF TO THE 2 ITA NOS. 1094 TO 1096/PUN/2016 SHRI WARANA SAH. DUDH UTPADAK PRAKRIYA SANGH LTD., ASSESSEE RELYING ON THE JURISDICTIONAL HIGH COURT JUDGMEN T IN THE CASE OF CIT VS. SOLAPUR DISTRICT CO-OP. MILK PRODUCERS & PROCESS UNION LTD. REPORTED IN 315 ITR 0304. AGGRIEVED WITH THE SAME, THE REVENUE IS IN APPEAL WITH THE FOLLOWING GROUNDS/ADDITIONAL GROUNDS. THE SAME ARE EXTRACTED AS UN DER : GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WHETHER THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIO N OF RS.2,83,79,660/- MADE ON ACCOUNT OF DISTRIBUTION OF PROFIT IN THE GARB OF PAYMENT OF ADDITIONAL PRICE FOR PURCHASE OF MILK. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD.CIT(A) WAS CORRECT IN APPRECIATING THE FACT THAT ADDITIONAL PURCHASE PRICE WAS PAID ONLY TO THE MEMBERS OF THE SOCIETY AFTER DETERMINATION OF PROFIT EARNED BY THE ASSESSEE SOCIETY AT THE END OF THE FI NANCIAL YEAR, WHICH AMOUNTS TO DISTRIBUTION OF PROFITS IN TERMS OF BYE-LAWS OF THE ASSESSEE SOCIETY. ADDITIONAL GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE CIT(A)-1, KOLHAPUR HAS ERRED IN DELETING THE ADDITI ON OF RS.4,02,52,810/- MADE ON ACCOUNT OF DISTRIBUTION OF PROFIT BEING PROVISIO N FOR PAYMENT OF ADDITIONAL PRICE FOR PURCHASE OF MILK, WITHOUT TAKING NOTE AND DIRECTION OF HONBLE SUPREME COURT OF INDIA IN JUDGMENT DATED 23-08-2011 IN ASSESSEES OWN CASE IN CIVIL APPEAL NO.7227. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY ANY OF THE GROUNDS OR RAISE ANY OTHER GROUND AT THE TIME OF PR OCEEDINGS BEFORE THE HONBLE TRIBUNAL WHICH MAY PLEASE BE GRANTED. 3. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE FACT THAT THE CIT(A) IN HIS CONSOLIDATED ORDER GRANTE D RELIEF TO THE ASSESSEE AND DELETED THE ADDITION RELYING ON THE J UDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SOLAPUR DIS TRICT CO-OP. MILK PRODUCERS & PROCESS UNION LTD. REPORTED IN 315 ITR 030 4. LD. COUNSEL ALSO SUBMITTED THAT, ON THE SAME ISSUE, RELIEF WAS GRANTED IN AS SESSEES OWN CASE FOR THE A.Y. 2004-05 AND EARLIER ASSESSMENT YEARS. STATI NG THAT IT IS A 3 ITA NOS. 1094 TO 1096/PUN/2016 SHRI WARANA SAH. DUDH UTPADAK PRAKRIYA SANGH LTD., COVERED CASE IN FAVOUR OF THE ASSESSEE, LD. COUNSEL SUBMIT TED THAT THE ADDITIONAL PRICE PAID BY THE ASSESSEE TO THE SUPPLIERS OF M ILK, THE MEMBERS OF THE SOCIETY, DO NOT CONSTITUTE DISTRIBUTION OF PROFITS. AS S UCH, THE ASSESSEE IS ENTITLED TO RELIEF ON ACCOUNT OF THIS ADDITIONAL PRICE PAID TO THE SUPPLIERS. LD. COUNSEL BROUGHT OUR ATTENTION TO PARA NOS. 7 AND 8 OF T HE ORDER OF TRIBUNAL IN THE CASE OF SOLAPUR DISTRICT CO-OP. MILK PRODUCERS & PR OCESS UNION LTD.(SUPRA) WHICH HAS BEEN APPROVED BY THE HIGH COURT. WE FIND IT RELEVANT TO REPRODUCE THE SAID PARAS OF THE TRIBUNAL AND THE SAME READ AS UN DER : 7. THE ASSESSEES AGGRIEVED PREFERRED AN APPEAL TO THE TRIBUNAL IN RESPECT OF THE FINDINGS RECORDED BY THE AO WHICH WE HAVE REPRO DUCED EARLIER AND WHICH ARE AFFIRMED BY THE CIT(A), THE TRIBUNAL RECO RDED AS UNDER: (I) THE BASIC PRICE ITSELF WAS BASED ON QUALITY, AN Y INCREASE IN BASIC PRICE WHICH WAS PROVISIONAL WAS AUTOMATICALLY LINKED WITH QUALITY E.G. IF PRICE PAID ON THE BASIS OF FAT AND SNF CONTENT WAS X AND Y FINAL RATE DIFFERENCE OF SAY 25 PAISE INCREASED THE PRICE AS X+ 25 PAISE AND Y +25 PAISE. (II) THE SUPPLY BY NON-MEMBERS WAS MINISCULE AND TH AT TOO ONLY FOR TWO YEARS. THEREFORE, NON PAYMENT OF FINAL RATE DIFFERE NCE TO OUTSIDERS DOES NOT CONVERT THE PAYMENTS TO MEMBERS IN RESPECT OF MILK AS APPROPRIATION OF PROFITS. HERE, WE MAY MENTION THE CASE OF SOLAPUR D ISTRICT CO- OPERATIVE MILK PRODUCERS & PROCESS UNION LTD., A FINDING HAS BEEN RECORDED THAT PAYMENT IS MADE TO MEMBERS AS WELL AS NON-MEMBERS. (III) THE GOVERNMENT ONLY FIXES MINIMUM PRICE TO BE PAID. THE BOARD HAS AUTHORITY UNDER BYE LAWS TO FIX THE PRICE OF THE MI LK PURCHASED FROM TIME TO TIME. IN VIEW OF THE CO-OPERATIVE PRINCIPLES, ASSES SEE TEND TO PASS ON THE MAXIMUM PRICE TO ITS MEMBER SOCIETIES. SIMILAR SITUA TION WAS OBTAINING IN CIT VS. MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCER S UNION LTD. (2005) 195 CTR (GUJ) 385 : (2006) 282 ITR 24 (GUJ) WHEREIN GUJ ARAT HIGH COURT HAS ANSWERED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. (IV) THE RESOLUTIONS TO PAY FINAL RATE DIFFERENCE W ERE ALWAYS PASSED IN THE MONTH OF MARCH EVERY YEAR I.E., BEFORE THE END OF P REVIOUS YEAR AND ONLY THE RESOLUTIONS TO DISBURSE THE AMOUNTS WERE PASSED AFT ER THE YEAR END. RATE DIFFERENCE WAS PAID ONLY ON THE BASIS OF QUANTITY O F MILK SUPPLIED DURING YEAR NOT IN PROPORTION OF SHAREHOLDING SO AS TO AMO UNT TO DISTRIBUTION OF PROFITS. THE DATES ON WHICH THE RESOLUTION IS TO PA Y THE FINAL MILK RATE DIFFERENCE ARE RECORDED BEFORE THE END OF THE YEAR. IT ACCORDINGLY ALLOWED THE APPEAL AND ALLOWED DEDUCTIONS OF FINAL RATE. 8. AT THE HEARING OF THESE APPEALS, ON BEHALF OF TH E REVENUE, LEARNED COUNSEL SUBMITS THAT THERE IS MATERIAL ON RECORD TO SHOW TH AT THE FINAL RATE DIFFERENCE WAS PAID AFTER ACCRUAL OF THE NET PROFITS AND OUT O F THE NET PROFITS. THE TRANSACTIONS WHICH WERE RECORDED AND NOTED DURING T HE COURSE OF SURVEY SHOWS THAT THE FINAL MILK RATE DIFFERENCE WAS PAID A FTER ACCRUAL OF NET PROFIT 4 ITA NOS. 1094 TO 1096/PUN/2016 SHRI WARANA SAH. DUDH UTPADAK PRAKRIYA SANGH LTD., AND PAYMENT OF FINAL MILK RATE DIFFERENCE WAS NOT I NCLUDED IN THE TOTAL PER LITRE PRODUCTION OF COST OF MILK. THIS WAS CORROBOR ATED IN THE STATEMENT RECORDED OF THE FINANCE MANAGER OF THE SOCIETY. IT IS ALSO SET OUT THAT THE RESOLUTION OF FINAL RATE DIFFERENCE IN THE SAME CAS E WAS PASSED AFTER EXPIRY OF THE RELEVANT FINANCIAL YEAR. THERE WAS NO LEGAL OBL IGATION ON THE ASSESSEE SOCIETY TO MAKE PAYMENT OF FINAL RATE DIFFERENCE TO MEMBER CO-OPERATIVE SOCIETIES. OUR ATTENTION IS DRAWN TO THE FACT THAT THE CIT(A) HAS RECORDED A FINDING THAT IN SOME CASES THE ASSESSEE PAID COMMER CIAL PURCHASE PRICE BY EVEN EXCLUDING THE AMOUNT OF FINAL RATE DIFFERENCE TO MILK PRODUCERS AS COMPARED BY THE PURCHASE PRICE OF MILK TO GOVERNMEN T AND SOME OTHER CO- OPERATIVE SOCIETIES. IT IS SUBMITTED THAT THERE IS ALSO A FINDING OF CIT(A), THAT IN SOME CASES THE APEX SOCIETIES PURCHASED MILK UND ER CONSIDERATION AT A FIXED PURCHASE PRICE AND NOT AT PROVISIONAL PRICE. FOR THESE REASONS, THE APPEALS OUGHT TO BE DISMISSED. FURTHER, LD. COUNSEL REQUESTED FOR REMANDING THE ISSUE TO THE FILE OF CIT(A) IN VIEW OF THE JUDGMENT OF JURISDICTION HIGH COURT IN THE CASE OF CIT VS. SOLAPUR DISTRICT CO-OP. MILK PRODUCERS & PROCESS UNION LTD. (SUPRA) AS WELL AS THE JUDGMENT OF HONBLE APEX COURT DATED 23-08- 2011 IN THE ASSESSEES OWN CASE. 4. LD. DR FOR THE REVENUE BROUGHT OUR ATTENTION TO THE ADDITIONAL GROUNDS AND SUBMITTED THAT THE ISSUE RAISED IS ESSENTIALL Y THE SAME AS THAT OF THE ORIGINAL GROUNDS BUT FOR THE REFERENCE TO SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. WARANA SAHAKARI DUDH UTPADAK PRAKR IYA SANGH LTD. IN SPECIAL CIVIL APPEAL NO.11120/2010 DATED 23-08-2011 (FROM T HE JUDGMENT AND ORDER DATED 04-04-2009 IN ITA NO.1361/2008) AND C IVIL APPEAL NO.7227 OF 2011 (ARISING OUT OF SLP (C) NO.11120 OF 2010. HE SUBMIT TED THAT THE HONBLE APEX COURT IN THE ASSESSEES OWN CASE REMITTED THE MATTER TO THE FILE OF CIT(A) FOR ADJUDICATION IN VIEW OF THE IDENTICAL DIRECTION GIVE N BY THE APEX COURT IN THE CASE OF DCIT VS. SHRI SATPUDA TAPI PARISAR SSK LTD. REPORTED IN 326 ITR 42 (SC). FOR THE SAKE OF COMPLETENESS, WE REPROD UCE THE FINDING THE APEX COURT AND THE SAME READS AS UNDER : 2. ON THE ABOVE CONTENTIONS, TWO QUESTIONS WERE RE QUIRED TO BE CONSIDERED BY THE DEPARTMENT, WHICH ARE AS FOLLOWS : 5 ITA NOS. 1094 TO 1096/PUN/2016 SHRI WARANA SAH. DUDH UTPADAK PRAKRIYA SANGH LTD., '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, CON STITUTE AN EXPENDITURE OR DISTRIBUTION OF PROFITS?' 3. IN DECIDING THE ABOVE QUESTIONS THE ASSESSING OF FICER WILL TAKE INTO ACCOUNT THE MANNER IN WHICH THE BUSINESS WORKS, RESOLUTIONS OF THE STATE GOVERNMENT, THE MODALITIES AND THE MANNER IN WHICH SAP AND SMP ARE DECIDED, THE TIMING DIFFERENCE WHICH WILL ARISE ON ACCOUNT OF THE DIFFE RENCE IN THE ACCOUNTING YEARS, ETC. IN A GIVEN CASE, IF THE ASSESSEE HAS MADE A PROVISION IN ITS ACCOUNTS, THEN THE ASSESSING OFFICER SHALL ENQUIRE WHETHER SUCH PR OVISION IS MADE OUT OF PROFITS OR FROM GROSS RECEIPTS AND WHETHER SUCH DIFFERENTIA L PAYMENT IS RELATABLE TO THE COST OF THE SUGARCANE OR WHETHER IT IS RELATABLE TO THE DIVISION OF PRO TITS AMONGST THE MEMBERS OF THE SOCIETY? ONE OF THE POINTS WHICH WILL ALSO ARISE FOR DETERMI NATION BY THE ASSESSING OFFICER WILL BE ON THE THEORY OF OVERRIDING TITLE IN THE MA TTER OF ACCRUAL OR APPLICATION OF INCOME. THEREFORE, IN EACH OF THESE CASES, THE ASSE SSING OFFICER WILL DECIDE THE QUESTION AS TO WHETHER THE OBLIGATION IS ATTACHED T O INCOME OR TO ITS SOURCE. 4. NONE OF THESE QUESTIONS HAVE BEEN EXAMINED BY TH E AUTHORITIES BELOW. 'THESE QUESTIONS ARE REQUIRED TO BE EXAMINED BECAUSE, IN T HESE CASES, WE ARE NOT ONLY CONCERNED WITH THE APPLICABILITY OF SECTION 40A(2) OF THE ACT BUT WE ARE PRIMARILY REQUIRED TO CONSIDER WHETHER THE SAID DIFFERENTIAL PAYMENT CONSTITUTES AN EXPENSE OR DISTRIBUTION OF PROFITS? ORDINARILY, WE WOULD NOT HAVE REMITTED THESE MATTERS, PARTICULARLY WHEN THEY ARC FOR ASSESSMENT YEAR 1992-93, BUT, FOR THE FACT THAT THIS ISSUE IS GOING TO ARISE REPEATEDLY I N FUTURE. IT WILL ALSO HELP THE ASSESSEE (S) IN A WAY THAT THEY WILL HAVE TO RE-WRI TE THEIR ACCOUNTS IN FUTURE DEPENDING UPON THE OUTCOME OF THIS LITIGATION. THEREFORE, IN THE INTEREST OF JUSTICE, WE REMIT THESE CASES TO THE CONCERNED COMM ISSIONER OF INCOME- TAX (APPEALS). WE MAKE IT CLEAR THAT BOTH THE PARTIES ARE GIVEN L IBERTY TO AMEND THEIR PLEADINGS BEFORE THE COMMISSIONER OF INCOME-T AX (APPEALS) TAKES UP THE MATTER FOR FINAL HEARING. WE EXPRESS NO OPINION ON THE MERITS OF THE CASE. 'THE PARTIES ARE AT LIBERTY TO ARGUE THEIR RESPECTIVE PO INTS UNINFLUENCED BY ANY OBSERVATIONS MADE IN THE IMPUGNED JUDGMENTS ON THE APPLICABILITY OF SECTION 28 OR SECTION 37 OF THE ACT. THE CIVIL APPEALS FILED B Y THE DEPARTMENT, ACCORDINGLY, STAND DISPOSED OF WITH NO ORDER AS TO COSTS. 5. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF T HE REVENUE AND THE JUDGMENT OF HONBLE SUPREME COURT DATED 23-08-2 011 IN THE ASSESSEES OWN CASE REMANDING THE ISSUE TO THE FILE OF CIT(A). ON PERU SING THE FACTS OF THE CASE, WE FIND THE SAID JUDGMENT OF HONBLE APEX COUR T DATED 23-08-2011 WAS NOT REFERRED BY THE ASSESSEE WHILE ADJUDICATION OF TH E ISSUE BEFORE THE CIT(A). CIT(A) PASSED THE ORDER ON 07-03-2016. CONSIDERIN G THE JUDGMENT OF HONBLE APEX COURT IN ASSESSEES OWN CASE, WHICH WAS NO T CONSIDERED AT ALL, 6 ITA NOS. 1094 TO 1096/PUN/2016 SHRI WARANA SAH. DUDH UTPADAK PRAKRIYA SANGH LTD., WE ARE OF THE OPINION THAT THE ISSUE SHOULD BE REFERRED BACK TO THE FILE OF CIT(A) AS REQUESTED BY THE LD. COUNSEL FOR THE ASSESSE E. CIT(A) IS DIRECTED TO EXAMINE THE ISSUE AND THE PECULIAR FACTS OF THE PRESENT C ASE AND APPLY THE RATIO LAID DOWN BY THE HONBLE APEX COURT DATED 23-08-2 011 IN THE ASSESSEE OWN CASE AS WELL AS THE JURISDICTIONAL HIGH COURT JUDGMEN T IN THE CASE OF CIT VS. SOLAPUR DISTRICT CO-OP. MILK PRODUCERS & PROCESS UNION LTD. (SUPRA). CIT(A) SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE ADJUDICATING THE 3 APPEALS FILED BY THE REVENUE. ACCO RDINGLY, THE GROUNDS/ADDITIONAL GROUNDS RAISED BY THE REVENUE ARE ALLO WED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, ALL THE 3 APPEALS OF THE REVENUE ARE ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 17 TH DAY OF AUGUST, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . / D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 17 TH AUGUST, 2018. SATISH # # # # / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-1, KOLHAPUR 4. THE CIT-1, KOLHAPUR 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE.