DCIT, Ludhiana V. The Ludhiana Distt. Co-op Milk Producer Union Ltd., Ludhiana

ITA 298/CHANDI/1996

• Counselvise Citation: 29821514 RSA 1996
• Duration Of Justice: 15 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-01-2012
• Assessment Year: 1992-1993
• Appeal Filed On: 15-03-1996
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Share purchase agreement; Diversion of income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 298/CHD/1996 ASSESSMENT YEAR : 1992-93 THE DCIT V THE LUDHIANA DIST COOP. SPL.RANGE, MILK PRODUCERS UNION LTD. LUDHIANA. FEROZEPUR ROAD, LUDHIANA. PAN: (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. JAISHREE SHARMA RESPONDENT BY : SHRI HARI OM ARORA DATE OF HEARING : 24.01.2012 DATE OF PRONOUNCEMENT : 17.02.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 04.12.1995 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT') FOR THE ASSESSMENT YEAR 1992-93. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.41,47,789/- MADE ON ACCOUNT OF MILK PURCHASE PRICE DIFFERENCE. 2. THAT IT IS PRAYED THAT THE ORDER OF THE LD. CI T(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2 3. THE APPELLANT REQUEST FOR LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 3. WE HAVE CAREFULLY PERUSED THE FACT-SITUATION OF THE PRESENT CASE AND RIVAL SUBMISSIONS AS ALSO RELEVANT RECORDS. A BARE PERUSAL OF THE APPELLATE ORDER DATED 4.12.19 95 PASSED BY THE CIT(A) FOR THE ASSESSMENT YEAR 1992-93 CLEAR LY REVEALS THAT THE BOARD PASSED RESOLUTION ON 7.7.1992 AND TH E TEXT AND CONTENTS OF SUCH RESOLUTION HAVE BEEN REPRODUCE D BY THE CIT(A) IN PARA 2 OF HIS ORDER, AS REPRODUCED HEREIN AFTER: THE APPELLANT RECEIVES MILK FROM SUPPLIER SOCIETIES O N THE BASIS OF MILK PRICE FIXED BY MILKFED FROM TIME-TO-TIME. THE SA ID PRICE WAS ALSO ENHANCED DURING THE YEAR OVER AND ABOVE THE INI TIAL PRICE FIX AND THE SAID PAYMENTS HAD BEEN MADE UNDER THE HEAD MILK PURCHASE PRICE DIFFERENCE. ACCORDING TO THE A.O. THE APPELLANT HAD ALSO BOOKED CERTAIN BACK DATED EXPENSES ON ACCOUNT O F MILK PURCHASE PRICE DIFFERENCE PAYABLE SUBSEQUENT TO THE CLOSING OF THE ACCOUNTING PERIOD. THIS EXPENDITURE HAD BEEN CLAIMED AS A DEDUCTION AND IT AMOUNTED TO RS. 41,47,789/-. A RESOLUTIO N WHICH WAS NO. 31 WAS PASSED ON 26.02.92 THAT IS WITHIN THE AC COUNTING YEAR WHEREIN IT HAD BEEN DECIDED THAT THE MILK PRODUC ERS WOULD BE PAID MIL PURCHASE PRICE DIFFERENCE @ RS. 2.75 PER KG. FAT FOR THE PERIOD APRIL, 1991 TO NOVEMBER, 1991. THE SAID RES OLUTION WHICH WAS PASSED IN PUNJABI CAN BE TRANSLATED INTO E NGLISH AS FOLLOWS:- IT IS UNANIMOUSLY DECIDED THAT ALL THE MILK SUPPLIERS OF THE MILK UNION WILL BE PAID THE MILK PURCHASE PRICE DIFFERENCE @ RS. 2.75 PER KG. FAT BECAUSE EARLIER THEY HAD BEEN PAID TENTA TIVE PURCHASE PRICE REGARDING DECEMBER, 1991 TILL MARCH, 1992, ANNOUNC EMENT FOR THE BALANCE MILK PURCHASE PRICE PAYABLE WILL BE M ADE IN THE NEXT MEETING, BECAUSE AT PRESENT, TENTATIVE PRICE IS BE ING PAID. APPEAL NO. 348/IT/94-95 3 THE A.O. NOTED THAT FOR THE PERIOD APRIL, 1991 TO NOVEM BER, 91, THE ASSESSEE HAD BEEN REGULARLY MAKING THE PAYMENT TO M ILK SUPPLIERS @ 3.50 PER KG. FAT AND THE TOTAL PAYMENTS HA D BEEN MADE BY THE ASSESSEE TILL THE PASSING OF THE ABOVE SA ID RESOLUTION DATED 26.03.1992. IT APPEARS THAT THE PAYMENTS MADE @ RS. 3.50 PER KG. FAT HAD BEEN MADE ON A TENTATIVE BASIS AND T HIS PRICE HAS BEEN FIXED @ RS. 2.75 PER KG. FAT VIDE THIS RESOLUTIO N DT. 26.3.1992 AND HENCE LIABILITY FOR THIS PERIOD HAD ACTUALLY DECR EASED. ANOTHER RESOLUTION NO. 19 WAS PASSED ON 7.7.92 VIDE WHI CH IT WAS CLARIFIED THAT IT WAS MISTAKE THAT THE RATE HAD BEEN MADE @ RS. 2.75 PER KG. FAT AND THE RATE SHOULD BE 3.50 PER KG. FAT . ACCORDINGLY THIS MISTAKE WAS RECTIFIED. THIS MISTAKE BEING A GENUINE ONE WAS ACCEPTED BY THE A.O. HOWEVER, HE HELD THAT FOR THE REST OF THE ACCOUNTING YEAR THAT IS DECEMBER, 91 TO MARCH, 92 NO RATE FOR MILK PURCHASE PRICE DIFFERENCE WAS FIXED OR WAS PAYABLE AS IT HAD NOT BEEN FINALIZED BEFORE THE CLOSE OF THE ACCOUNTING PERIOD. THE ASSESSEE HAD ALSO NOT MADE AN Y PROVISION FOR MAKING THIS PAYMENT BUT THE AMOUNT OF RS. 41,47,78 9/- HAD BEEN DEBITED IN THE BOOKS OF ACCOUNT UNDER THE HEAD MILK PURCHASE PRICE DIFFERENCE PAYABLE ON THE BASIS OF R ESOLUTION DATED 7.7.92. THE SAID RESOLUTION WHICH WAS ADOPTED BY THE B OARD WAS TRANSLATED AS FOLLOWS:- AGENDA ITEM NO. 19: IT IS PROPOSED THAT FOR THE AFTER DUE CONSIDERATI ON, IT IS PERIOD 1.12.91 TILL MARCH,92 IS DECIDED THAT FOR THE PERIOD THE MILK PURCHASE PRICE DIFF- APRIL, 91 TILL NOVE MBER, 91 MILK ERENCE @ RS.3.50 PER KG. FAT PURCHASE PRICE DIFF ERENCE MAY BE MAY BE GIVEN TO THE MILK SUPP- PAID @ RS. 3.50 PE R KG. FAT. LERS BECAUSE THEY HAD BEEN SIMILARLY, FOR THE PERIO D DEC. 91 TILL PAID TENTATIVE PRICE FOR THIS PRD. MARCH, 92 MILK PURCHASE PRICE DIFF- ERENCE MAY ALSO BE PAID @RS.3.50 PER KG. FAT BECAUSE FOR THIS PERIOD ALSO TENTATIVE MILK PURCHASE PRICE HA D BEEN PAID. HOWEVER IT APPEARS THAT SUM OF RS. 41,47,789/- DOES NOT REPRESENT THE MILK PURCHASE PRICE DIFFERENCE @ 3.50 P ER KG. BUT ONLY AT THE RATE OF RS. 2.50 KG. WHICH HAD BEEN DECIDED BY THE BOARD OF DIRECTORS ONLY AT THEIR MEETING HELD ON 11.9.1 992 WHEN 4 RESOLUTION WAS PASSED THAT THIS MILK PURCHASE PRICE D IFFERENCE SHOULD BE @ RS.2.50 PER KG. FAT INSTEAD OF RS. 3.50 PER KG. FAT. ACCORDINGLY THE JOURNAL VOUCHER ENTRY WAS MADE ON 31 .3.92 DEBITING THE SUM OF RS. 41,47,789/-. IT WAS ALSO FURTHER NOTED BY THE A.O. THAT THIS AMOUNT HAD NOT BEEN PAID TO THE MI LK SUPPLIERS BUT A SUM OF RS. 31,10,842/- HAD BEEN SHOWN IN THE BOO KS OF ACCOUNT ENDING ON 31.3.1992 AS MILK PURCHASE PRICE DIF FERENCE PAYABLE TO SOCIETIES UNDER THE HEAD SUNDRY CREDITORS. INFACT THE AMOUNT HAD BEEN PAID TO COOPERATIVE SOCIETIES IN TH E NEXT ACCOUNTING YEAR UPTO MAY, 1992. OUT OF THIS A SUM O F RS. 10,36,947/- HAD BEEN TRANSFERRED BY THE APPELLANT TO S HARE CAPITAL ACCOUNT OF VARIOUS SOCIETIES IN ORDER TO RAIS E SHARE CAPITAL. NECESSARY SHARE CERTIFICATES HAD BEEN ISSUED TO THE SOCIETIES IN THIS RESPECT. THE A.O. NOTED THAT INSTEAD OF MAKING THIS PAYMENT THE SHARE CAPITAL OF THE MEMBERS OF SOCIETIES HAD BEE N SUO-MOTO INCREASED WITHOUT THEIR CONSENT AND WILLINGNESS AND W ITHOUT EVEN INFORMING THEM. HE ACCORDINGLY HELD THAT THE AMOUNT OF RS. 41,47,789/- DEBITED TO THE BOOKS ON 31.3.92 WAS NOT ALLOW ABLE AS EXPENDITURE DURING THE YEAR. THE A.O. ALSO HELD THAT AS THE LIABILITY HAS NOT BEEN CRYSTALISED THE AMOUNT WAS NO T ALLOWABLE DURING THE YEAR. 3) THE APPELLANTS COUNSEL SHRI. H.O. ARORA HAS ARGUED THA T IN THIS CASE IT WAS ONLY QUANTIFICATION OF LIABILITY W HICH HAS TAKEN PLACE SUBSEQUENTLY AND THE LIABILITY WAS ACCEPTED DU RING THE ACCOUNT YEAR ITSELF AS CAN BEEN SEEN FROM THE RESOLUT ION PASSED ON 26.3.92. IT HAS SPECIFICALLY BEEN STATED IN THIS RESOLUT ION THAT AS FAR AS PAYMENT FOR THE PERIOD DEC.91 TO MARCH,92 ARE CONCERNED, ANNOUNCEMENT OF THE BALANCE MIL PURCHASE PRICE WOULD BE MADE IN THE NEXT MEETING BECAUSE PRESENTLY ONLY TENTATIVE P RICE WAS BEING PAID. INFACT EARLIER TO 26.3.92 MILK PURCHASE PRICE D IFFERENCE HAD BEEN FIXED AT RS. 3.50 PER KG. FAT TENTATIVELY FOR THE PERIOD ENDING NOV. 91 AND IT HAS BEEN ACCEPTED BY THE A.O. THAT THERE WAS MISTAKE AS FAR AS THE FIXATION OF PRICE AT RS. 2.75 PER KG. WAS CONCERNED AND THE AMOUNT OF PRICE DIFFERENCE @ 3.50 PER KG. FAT AS PER RESOLUTION DT. 7.7.92 AND INFACT THIS WAS REDUCED TO RS. 2.50 PER KG. ON 11.9.92. IT HAD BEEN HELD IN THE CASE OF MEH SANA DISTT. COOP. MILK PRODUCERS UNION LTD. (1990) 83-CTR-185 THAT A S LONG AS 5 THE LIABILITY EXISTS OR IS ACCEPTED DURING THE YEAR, I T WOULD HAVE TO BE ALLOWED EVEN THOUGH IT IS QUANTIFIED IN THE NEXT Y EAR. ALTERNATIVE PLEA WAS MADE BY THE APPELLANTS COUNSEL TH AT EVEN IF THE AMOUNT IS TO BE GIVEN ON ACTUAL PAYMENT BASIS T HEN THE AMOUNT DISALLOWED IN THE EARLIER YEAR SHOULD BE ALLOWED AS DEDUCTION IN THIS YEAR AS IT WAS PAID DURING THE YEA R AND THIS WOULD ALSO NOT LEAD TO MUCH DISTURBANCE IN THE APPELLAN TS ACCOUNTS. THE A.O. HOWEVER OBJECTED TO THIS STATING THAT DECISION TAKEN IN THE EARLIER YEAR WAS NOT ONLY THA T THE AMOUNT WAS NOT DUE TO BE PAID DURING THE YEAR BUT T HERE WAS DIVERSION OF INCOME IN THE SENSE THAT THE AMOUN T HAD BEEN PAID ONLY BECAUSE THE SOCIETY HAD MADE EXCESSI VE PROFITS. THIS PLEA OF THE A.O. IS ALSO ACCEPTED. HOWEVER ON CONSIDERATION OF THE ENTIRE MATTE R, I AM OF THE VIEW THAT DURING THIS YEAR THE FACTS ARE DIFFER ENT TO THE PRECEDING YEAR AS THE BOARD HAD PASSED A RESOLUTION WITHIN THE YEAR THAT MILK PURCHASE PRICE DIFFERENCE HAD TO BE PAID BUT THE QUANTIFICATION WOULD TAKE PLACE SUBSEQUENTL Y. INFACT FOR THE LATE PERIOD THE MILK PURCHASE PRICE DIFFERENCE WAS ULTIMATELY PAID AT A LOWER RATE THAT IS RS. 2.5 0 PER KG. RATHER THAN RS. 3.50 PER KG. IN THE EARLIER PERIOD. THEREFORE THERE COULD NOT BE ANY QUESTION OF DIVERS ION OF INCOME AND ONLY QUANTIFICATION WAS DONE IN RESPECT OF THIS PRICE DIFFERENCE ON TWO SUBSEQUENT DATES THAT IS 7. 7.92 AND 26.3.92. THIS SHOWS THAT ITS WAS NOT AN AFTER-THOUG HT BUT WITH TRUE SENSE OF MERCANTILE SYSTEM OF ACCOUNTING. HENCE THE APPELLANT WOULD BE ENTITLED TO RELIEF OF RS. 41 ,47,789/-. IT MAY ALSO BE NOTED THAT THE MODE OF PAYMENT WOULD NOT BE VERY MATERIAL TO THIS ISSUE AND EVEN IF APART OF TH E FUNDS HAD NOT ACTUALLY BEEN PAID TO THE SUPPLIERS BUT THE IR SHARE CAPITAL HAD BEEN INCREASED, IT WOULD STILL AMOUNT T O PAYMENT AS FAR AS THE ASSESSEE WAS CONCERNED. 4. THE SAID RESOLUTION, IN CLEAR TERMS STATES THAT FOR THE PERIOD OF APRIL.1991 TILL NOVEMBER,1991, MILK PURCH ASE PRICE 6 DIFFERENCE MAY BE PAID RS.3.50 PER KG FAT. SIMILAR LY, IT WAS DECIDED THAT FOR THE PERIOD DECEMBER 1991 TILL MARC H,1992, MILK PURCHASE PRICE DIFFERENCE MAY ALSO BE PAID @ R S.3.50 PER KG FAT BECAUSE FOR THIS PERIOD ALSO, TENTATIVE MILK PURCHASE PRICE HAD BEEN PAID. IN VIEW OF THIS RESO LUTION, THE INTENTION OF THE ASSESSEE APPELLANT IS EVIDENT ABOU T THE FACTUM THAT THE PRICE OF MILK, INITIALLY PAID WAS T ENTATIVE IN NATURE AND THE FINAL PRICE WAS TO BE PAID IN TERMS OF THE SAID RESOLUTION. THEREFORE, PAYMENT OF RS.41,47,789/- I S PART OF THE PURCHASE PRICE PAID BY THE ASSESSEE APPELLANT. THE FACTS OF THE PRESENT CASE ARE MATERIALLY DIFFERENT AND DI STINCT VIZ- A-VIZ THE FACTS OBTAINING FOR THE ASSESSMENT YEAR 1988-89 AND 1991-92. IN THE PRESENT CASE, THE RESOLUTION W AS PASSED ON 26.3.1992 I.E. BEFORE THE END OF THE RELEVANT AC COUNTING PERIOD. IT IS IMPERATIVE TO MENTION HERE THAT FOR THE ASSESSMENT YEAR 1988-89 AND 1991-92, THE RESOLUTION WAS PASSED AFTER THE END OF THE RELEVANT ACCOUNTING YEA RS AND AFTER THE FINALIZATION OF ACCOUNTS, WHEREBY PROFITS WERE DETERMINED BY THE ASSESSEE APPELLANT. IN THE PRESE NT CASE, THE FACTS ARE ENTIRELY DIFFERENT. THE BOOKS OF ACCO UNT OF THE APPELLANT WERE CLOSED, ON 31.3.1992, AND PURCHASE P RICE DIFFERENCE WAS ALSO CHARGED TO PROFIT & LOSS ACCOUN T WITHIN THE RELEVANT ACCOUNTING PERIOD. FURTHER, THE OBSERV ATION OF THE CIT(A) THAT PURCHASE PRICE DIFFERENCE OF MILK I S LOWER IN THE YEAR IN QUESTION THAN IN THE EARLIER YEAR, SUPP ORTS HIS FINDINGS IN THE MATTER. SIMILARLY, THE RESOLUTION PERTAINING TO THE DETERMINATION OF ADHOC/TENTATIVE OR FINAL PR ICE OF MILK WAS PASSED BEFORE THE END OF THE RELEVANT ACCOUNTIN G PERIOD. 7 IN SUCH A FACT-SITUATION, THE CIT(A) HAS RIGHTLY AL LOWED THE APPEAL OF THE ASSESSEE, AFTER A DISCUSSION OF THE C ASE OF MEHSANA COOPERATIVE MILK PRODUCERS UNION LTD. 83 CT R 185. THE ORDER PASSED BY THE LD. CIT(A) CONTAINS CLEAR F ACTUAL MATRIX AND FINDING THEREON VIZ-A-VIZ THE DIFFERENT FACT- SITUATION OBTAINED IN THE ASSESSMENT YEAR 1988-89 A ND 1991-92. THE FINDING OF THE LD. CIT(A) THAT THERE IS NO DIVERSION OF INCOME IN THE YEAR UNDER APPEAL, IS LE GALLY AND FACTUALLY CORRECT AND TENABLE. 5. HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL SIT UATION, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A), WHICH ARE WELL REASONED AND BASED ON CLEAR FACTUAL MATRIX OF THE PRESENT CASE. ACCORDINGLY, THE GROUND OF APPEA L OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH FEB.,2012. SD/- SD/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMB ER DATED: 17 TH FEB.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), CIT,DR ASSISTANT REGISTRAR ITAT, CHANDIGARH