KANORIA SUGAR & GENERAL MFG. LTD., Jaipur V. ITO, Jaipur

ITA 241/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54087 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 18-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Keywords: Revised return; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.241/ JP/2011 ASSESSMENT YEAR 2001-02 PAN: AAACK 7952 J M/S. KANORIA SUGAR & GENERAL MANUFACTURING LTD. VS . ITO 411, 2 ND FLOOR, SHALIMAR COMPLEX WARD 2(2) CHURCH ROAD, JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ITA NO.272/ JP/2011 ASSESSMENT YEAR 2001-02 PAN: AAACK 7952 J ITO VS M/S. KANORIA SUGAR & GENERAL MANUFACTURI NG LTD. WARD 2 (2) 411, 2 ND FLOOR, SHALIMAR COMPLEX JAIPUR CHURCH ROAD, JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY : SHRI VINOD JOHRI ORDER PER N.L. KALRA, AM:- THE ASSESSEE AS WELL AS REVENUE HAVE FILED THE APP EALS AGAINST THE ORDER OF THE LD. CIT(A)-I JAIPUR DATED 18-01-2011 F OR THE ASSESSMENT YEAR 2001-02. 2.0 FIRST OF ALL, WE TAKE UP THE APPEAL OF THE ASSE SSEE. 2 2.1 THE FIRST GROUND OF THE ASSESSEE IS THAT THE LD . CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF CANE DE VELOPMENT EXPENSES OF RS. 25,98915/- BY TREATING IT AS CAPITAL EXPENDITUR E. 2.2 THE AO NOTICED THAT THE ASSESSEE HAS DEFERRED T HE CANE DEVELOPMENT EXPENSES TO THE EXTENT OF RS. 25,98,915/- IN THE BO OKS OF ACCOUNT BUT CLAIMED THE SAME AS REVENUE EXPENDITURE IN THE RETURN OF IN COME. THE ASSESSEE SUBMITTED BEFORE THE AO THAT CANE DEVELOPMENT EXPEN SES ARE ALLOWABLE U/S 37 OF THE ACT BY TREATING IT SUCH EXPENSES AS REVEN UE EXPENDITURE. THE AO OBSERVED THAT THE ASSESSEE ITSELF HAS TREATED THE E XPENDITURE AS CAPITAL IN THE BOOKS OF ACCOUNT AND THEREFORE, IT IS TO BE TREATED AS CAPITAL EXPENDITURE. 2.3 THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO A FTER OBSERVING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE.AT THE OUTSET, IT MAY BE MENTIONED THAT NO DETAILS OF THE NATURE OF EXPENDITURE WERE FURNISHED, TO ENABLE THE EXAMINATION OF THE CLAIM O F THE APPELLANT. SECONDLY, THE APPELLANT ITSELF HAD TREATED THE EXPENDITURE TO BE CAPITAL IN NATURE. THIRDLY, THE JUDICIAL DECISION RELIED UPON BY THE A/R ARE FACTUA LLY DISTINGUISHABLE. IN THE RELIED DECISIONS THE ISSUE WAS OF ADVERTISEMENT & BRANDING EXPENSES, WHEREAS HERE THEY PERTAIN TO CANE DEVELOPMENT EXPENSES. THE SAME APPA RENTLY WERE USHERING IN ENDURING BENEFIT. HOW THE BENEFIT OF THE SAME WAS S PREAD OVER SUBSEQUENT YEARS WAS NOT EXPLAINED. THUS, THE DISALLOWANCE WAS JUSTI FIED AND, THEREFORE, SUSTAINED. 3 2.4 WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS MENTIONED IN HIS ORDER THAT NO DETAILS OF NATURE OF THE EXPENSES WER E FURNISHED TO ENABLE THE EXAMINATION OF THE CLAIM OF THE ASSESSEE . HOWEVER, THE LD. AR DREW OUR ATTENTION TO PAGE 28 OF THE PAPER BOOK. THIS PAGE C ONTAINS THE COPY OF LETTER DATED 7 TH OCT. 2003 IN THIS LETTER, IT IS MENTIONED THAT CERTAIN EXPEN SES ARE ENCLOSED. HOWEVER, NO SUCH DETAILS HAVE BEEN FILED BEFORE US AND NO EVIDENCE IS ON RECORD TO SUGGEST THAT SUCH DETAILS WERE FILED BEFORE THE LD. CIT(A). IT IS TRUE THAT TEST OF TREATING THE EXPEND ITURE AS CAPITAL ON THE BASIS OF ENDURING BENEFIT CAN BE APPLIED. HOWEVER, IT CAN NOT BE SAID THAT TEST OF ENDURING BENEFIT WILL INVARIABLY RESULT INTO HOLDIN G THAT EXPENDITURE IS CAPITAL. IF NO ASSET IS CREATED ON THE BASIS OF THE EXPENSES THEN EXPENDITURE CANNOT BE TREATED AS CAPITAL. IN ABSENCE OF DETAILS OF CANE DEVELOPMENT EXPENSES, WE ARE NOT IN A POSITION TO ASCERTAIN THE ALLOWABILITY OF THE EXPENSES. THE ASSESSEE WILL FILE THE DETAILS BEFORE THE LD. CIT(A) AND THE LD. CIT(A) AFTER GIVING OPPORTUNITY TO THE AO WILL DECI DE THIS ISSUE AFRESH. 3.1 THE SECOND GROUND OF THE ASSESSEE IS THAT THE L D. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF LEVY SUGAR PRICE DIF FERENCE AMOUNTING TO RS. 27,07,509/- BY HOLDING THAT THE LIABILITY HAS NOT C RYSTALLIZED DURING THE YEAR. 4 3.2 THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED PA YMENT OF LEVY SUGAR PRICE DIFFERENCE OF RS. 27,07,509/-. DURING THE YEA R UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS PAID LEVY SUGAR PRICE DIFFEREN CE OF RS. 25,18,232/- AND INTEREST THEREUPON AMOUNTING TO RS. 56,89,047/- TOTALING TO RS. 82,07,280/- PERTAINING TO SEASON 1982-83 CONSEQUENT UPON THE DEMAND RAISED BY CENTRAL GOVT. BASED ON ADVERSE JUDGMENT G IVEN BY THE COURT AGAINST THE ASSESSEE. THE LEVY SUGAR PRICE DIFFEREN CE OF RS. 25,18,232/- WAS NOT CONSIDERED AS INCOME AND THEREFORE, THE PAYMENT OF THIS SUM WAS NOT ALLOWABLE. THE ASSESSEE FILED THE REVISED RETURN VI DE WHICH CLAIM OFRS 25,18,232/- WAS WITHDRAWN. SIMILARLY, INTEREST AMOU NTING TO RS. 29,81,538/- ON THE ABOVE REFERRED LEVY SUGAR PRICE DIFFERENCE P ROVIDED UPTO FINANCIAL YEAR 1992-93 HAS ALREADY BEEN CLAIMED AS REVENUE EX PENDITURE IN THE PAST PENDING DECISION OF HON'BLE HIGH COURT AND THEREFOR E, THE AMOUNT OF RS. 29,81,538/- IS NOT ALLOWABLE AS EXPENSES IN THE YEA R OF ACTUAL PAYMENT. ACCORDINGLY THE AO WAS OF THE OPINION THAT THE ASSE SSEE SHOULD HAVE MADE CLAIM FOR DEDUCTION OF RS. 27,078,509/-. THE AO NOT ICED THAT THE COURT DECISION HAS NOT COME IN THE YEAR UNDER CONSIDERATI ON. THE ASSESSEE HAS NOT FILED THE COPY OF THE COURT ORDER. HOWEVER, THE ASS ESSEE FILED THE COPY OF THE LETTER DATED 15-02-1999 ISSUED BY THE MINISTRY OF F OOD & CONSUMER AFFAIRS, NEW DELHI VIDE WHICH ASSESSEE WAS ASKED TO FOR PAYM ENT OF LEVY SUGAR PRICE 5 DIFFERENCE. IT MEANS THAT DECISION OF THE COURT WAS MADE PRIOR TO 15-02-1999. THE AO HELD THAT THE LIABILITY DID NOT PERTAIN TO T HE YEAR 2001-02 AND IS THEREFORE, NOT ALLOWABLE. 3.3 THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO A FTER OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE. FROM THE PERUSAL OF THE LETTER OF FOOD & CONSUMER A FFAIRS IT IS EVIDENT THAT THE AMOUNT IN QUESTION REPRESENTS EXCESS REALI ZATION OF PRICE & EXCISE DUTY. IT IS ALSO STATED IN THE LETTER THAT THE DEMA ND WAS MADE AROUND 26.10.1998. THUS, THE CLAIM OF THE A/R THAT IT WAS INCURRED IN THE CURRENT YEAR IS NOT TENABLE IN VIEW OF THE MERCANTILE METHO D OF ACCOUNTING FOLLOWED BY THE APPELLANT. THE LIABILITY GOT CRYSTA LLIZED MUCH EARLIER THAN THE YEAR UNDER CONSIDERATION. THE A/R DID NOT FURNI SH A COPY OF HIGH COURT ORDERS ALSO. IN ANY CASE, THE ACTION OF THE A O WAS JUSTIFIED AND, THEREFORE, SUSTAINED. 3.4 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. AR SUBMITTED THAT THE LETTER OF GOVT. OF INDIA, MINISTRY OF FOOD & CO NSUMER AFFAIRS, NEW DELHI REQUIRED THE ASSESSEE FOR PAYMENT OF LEVY SUG AR PRICE DIFFERENCE. THE ASSESSEE, VIDE LETTER DATED 25-06-1999 ISSUED BY TH E MINISTRY OF CONSUMER AFFAIRS, NEW DELHI, WAS REMINDED FOR PAYMENT OF LE VY SUGAR PRICE DIFFERENCE. THE ASSESSEE COMPANY AFTER VERIFYING TH E CALCULATION MADE THE SAID PAYMENT VIDE LETTER DATED 11-08-2000. ACCORDIN G TO THE LD. AR, THE 6 LIABILITY HAS BEEN CRYSRALIZED DURING THE YEAR UNDE R CONSIDERATION. THE LD. AR HAS RELIED UPON THE DECISION OF HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS H.P. STATE FOREST CORPORATION LT D. 2010-TIOL-415-HC- HP-IT. IN THAT CASE CERTAIN AMOUNTS TO THE FOREST D EPARTMENT BECAME PAYABLE AND AFTER CORRECT RECONCILIATION OF THE ACC OUNTS WITH THE FOREST DEPARTMENT, THE ASSESSEE MADE THE PAYMENTS. 3.5 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES. 3.6 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S NOT FILED THE COPY OF THE DECISION OF HON'BLE DELHI HIGH COURT AND HAS ON LY FILED THE COPY OF LETTER DATED 15-02-1999 VIDE WHICH MINISTRY OF FOOD & CONSUMER AFFAIRS REQUIRED THE ASSESSEE TO PAY THE AMOUNT IN RESPECT OF LEVY SUGAR PRICE DIFFERENCE. IT WILL BE USEFUL TO REPRODUCE THE RELE VANT EXTRACT FROM THE LETTER DATED 15-02-1999. I AM TO REFER TO THIS OFFICE LETTER OF EVEN NUMBE R DATED 26 TH OCTOBER, 1998 ON THE ABOVE MENTIONED SUBJECT. IN THE SAID LETTER THE SUGAR MILL WAS REQUESTED TO CREDIT THE ENTIRE AMOUNT OF PRINCIPAL EXCESS REALIZ ATION (BOTH ON ACCOUNT OF EXCESS PRICE AND EXCESS EXCISE DUTY) ALONG WITH INTEREST T HEREON INTO THE LSPE FUND. THE AMOUNT RECEIVED FROM THE BANK BY WAY OF ENCASHMENT OF BGS HAVE BEEN ADJUSTED AGAINST THE DUES OF SUGAR MILL AS DETAILED BELOW:- I. AMOUNT RECOVERABLE FROM SUGAR MILL A) ER(P) = RS.25,18,232.50 B) INTEREST UPTO 14.12.1998 @15% = RS.56,89,04 7.52 7 TOTAL = RS.82,07,280.02 II. LESS: AMOUNT RECEIVED FROM (-) RS.2 5,20,591.50 BANK TOWARDS ENCASHMENT OF BGS BALANCE DUE RS.56,86,688.52 IT IS THEREFORE REQUESTED THAT AN AMOUNT OF RS.56,8 6,688.52 AS WELL AS EXCESS EXCISE DUTY OF REALIZED FROM SALE OF LEVY SU GAR OF THE 1982-83 SEASON DULY VERIFIED BY THE STATUTORY AUTHORITY, MAY BE REMITTE D BY MEANS OF DEMAND DRAFT DRAWN IN FAVOUR OF CONTROLLER OF ACCOUNTS, MINISTRY OF FOOD AND CONSUMER AFFAIRS, NEW DELHI PAYABLE AT NEW DELHI FAILING WHI CH ACTION WILL BE TAKEN AGAINST YOUR MILL IN TERMS OF LSPEF ACT, 1976 (AS A MENDED IN 1984) BESIDES RECOVERING THE AMOUNT THROUGH OTHER SOURCES. 3.7 FROM THE ABOVE LETTER, IT IS CLEAR THAT THE PRI NCIPAL AMOUNT STANDS RECOVERED BECAUSE INTEREST IS PAYABLE ONLY UPTO 14 TH DEC. 1998. IT IS ALSO MENTIONED IN LETTER DATED 26 TH OCT. 1998 THAT THE INTEREST PAYABLE IS STATUTORY AND DATE UPTO WHICH INTEREST PAYABLE IS MENTIONED I N THE LETTER. IN CASE OF FAILURE BY THE ASSESSEE TO MAKE PAYMENT, THE LIABI LITY CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION BY RAISING NON-BELIE VABLE PLEA THAT SOME RECONCILIATION WAS REQUIRED. THE DECISION OF HON'BL E HIMACHAL PRADESH HIGH COURT FOR FOREST CORPORATION IS NOT APPLICABLE AND AS NO RECONCILIATION WAS ACTUALLY NEEDED. UNDER MERCANTILE SYSTEM OF ACCOUNT ING, THE ASSESSEE HAS TO MAKE CLAIM FOR LIABILITY ACCRUING DURING THE YEAR. THE LIABILITY OF PAYMENT OF DIFFERENCE DUE TO LEVY SUGAR PRICE FOR THE SEASON 1 982-83 STANDS CRYSTALLIZED 8 BY THE DECISION OF HON'BLE DELHI HIGH COURT. AFTER DECISION OF HON'BLE DELHI HIGH COURT, THE LIABILITY STANDS CRYSTALLIZED AND IT CANNOT BE ALLOWED ON THE BASIS OF THE PAYMENT. BEFORE US, THE LD. AR HAS NOT FILED ANY EVIDENCE TO SUGGEST THAT ANY RECONCILIATION WAS NEEDED OR AN Y STEP WAS TAKEN TO GET THE RECONCILIATION WITH MINISTRY OF FOOD & CONSUMER AFFAIRS, NEW DELHI. THE REMINDER DATED 25-06-1998 DOES NOT REFER TO ANY CORRESPONDENCE MADE BY THE ASSESSEE FOR RECONCILIATION. THE ANOTHER ASP ECT WHICH IS RELEVANT FOR DECIDING THE ISSUE IS THAT ASSESSEE WAS DISCHARGED OF THE LIABILITY OF RS. 23,20,591/- BY THE MINISTRY OF FOOD & CONSUMER AFFA IRS, NEW DELHI AS THE SAME WAS RECEIVED FROM BANK TOWARDS ENCASHMENT OF B ANK GUARANTEE. SUCH PAYMENT STANDS MADE BEFORE 15-02-1999 BECAUSE THE S AME IS MENTIONED IN THE LETTER DATED 15-02-1999. THE LEVY SUGAR PRICE D IFFERENCE WAS FOR THE SUGAR SEASON 1982-83. UPTO FINANCIAL YEAR 1992-93, THE ASSESSEE HAS CLAIMED INTEREST AS REVENUE EXPENDITURE. THERE IS NOTHING O N RECORD AS TO WHY THE INTEREST CLAIMED HAS NOT BEEN MADE FROM THE FINANCI AL YEAR 1992-93 TILL THE DATE OF PAYMENT AS LIABILITY REMAINED THE SAME AS E XISTED UPTO FINANCIAL YEAR 1992-93. THE HON'BLE APEX COURT IN THE CASE OF BHAR AT EARTH MOVERS VS CIT, 245 ITR 428 HAS HELD THAT IF A BUSINESS LIABIL ITY HAS DEFINITELY ARISEN THEN THE DEDUCTION IS TO BE ALLOWED ALTHOUGH THE LI ABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. THERE S HOULD BE CERTAINTY OF THE 9 INCURRING OF THE LIABILITY AND SUCH LIABILITY SHOUL D BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTU AL QUANTIFICATION MAY NOT BE POSSIBLE. IN THE INSTANT CASE, THE INTEREST PAYA BLE WAS STATUTORY AND THEREFORE, CERTAINTY OF INCURRING OF THE LIABILITY WAS THERE. THEREFORE, SUCH LIABILITY WAS CAPABLE OF BEING ESTIMATED AND HENCE THE INTEREST FOR THE PERIOD UPTO 14 TH DEC. 1998 COULD NOT BE CONSIDERED AS ALLOWABLE FOR THE FINANCIAL YEAR 2001-02. HENCE, THE LD. CIT(A) WAS JUSTIFIED I N CONFIRMING THE DISALLOWANCE OF RS. 27,07,509/- 4.0 NOW WE TAKE UP THE APPEAL OF THE REVENUE. 4.1 THE FIRST GROUND OF THE REVENUE IS THAT THE LD . CIT(A) HAS ERRED IN DELETING THE INTEREST PAID ON FUNDS FOR EXPANSION A ND MODERNIZATION AMOUNTING TO RS. 22,53,267/- 4.2 THE LD. CIT(A) HAS DELETED THE ADDITION AFTER F OLLOWING THE DECISION DATED 22-09-2006 OF THE TRIBUNAL, JAIPUR. 4.3 WE HAVE HEARD BOTH THE PARTIES. SINCE THE ISSUE STANDS DECIDED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE EARLIE R ASSESSMENT YEAR, THEREFORE, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETI NG THE ADDITION. THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE ASSESSME NT YEAR 1994-95 HELD THAT INTEREST PAID ON BORROWINGS FOR EXPANSION OF THE EX ISTING BUSINESS IS ALLOWABLE U/S 36(1)(III) OF THE ACT. THE HON'BLE RA JASTHAN HIGH COURT IN THE 10 CASE OF CIT VS HINDUSTAN ZINC LTD. 269 ITR 369 HAS HELD THAT PROVISO INSERTED TO SECTION 36(1)(III) IS APPLICABLE FROM T HE ASSESSMENT YEAR 2004-05. THUS CONSIDERING THE DECISION OF THE TRIBUNAL FOR T HE ASSESSMENT YEAR 1994- 95, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DE LETING THE ADDITION OF RS. 22,53,467/- 5.1 THE SECOND GROUND OF THE REVENUE IS THAT THE LD . CIT(A) HAS ERRED IN DELETING THE EXPENSES OF RS. 2,71,87,089/- FOR SETT ING UP OF THE NEW UNIT. 5.2 WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1994-95 TO 1996-97 VIDE ORDER DATED 22 ND SEPT 2006. THE TRIBUNAL VIDE ORDER DATED 22-09-200 6 HAS GIVEN ITS FINDING THAT THE ASSESSEE WAS NOT SETTING UP A NEW UNIT BUT WAS MERELY MODERNIZING THE EXISTING UNIT WHICH WAS ALREADY IN PRODUCTION. HENCE, THE EXPENDITURE INCURRED CANNOT BE CONSIDERED FOR SETTI NG UP OF THE NEW UNIT AS PER FINDINGS RECORDED BY THE TRIBUNAL IN THE CASE O F THE ASSESSEE FOR EARLIER YEARS. HENCE, THE LD. CIT(A) WAS JUSTIFIED IN DELET ING THE ADDITION OF RS. 2,71,87,089/- 11 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 05-08 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 05/08/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. KANORIA SUGAR & GENERAL MANUFACTURING LTD. , JAIPUR 2. THE ITO , WARD 2(2),, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.241/JP /11) A.R, ITAT, JAIPUR 12 13