DCIT, Circle-4(1), Bhubaneswar V. M/s. The Orissa State Co-operative Milk Producers Federation Ltd., Bhubaneswar

ITA 318/CTK/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9645 (ITAT-CUTTACK)
• Duration Of Justice: 4 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2000-2001
• Appeal Filed On: 15-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S. B.K.MAHAPATRAA.K.SABAT
• Keywords: Bogus purchase; Set aside
• Section: 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BEFORE AND ARUN KHODPIA, ACCOUNTANT MEMBER DCIT, Circle - Bhubaneswar PAN/GIR No. (Appellant Per Bench This is an appeal filed by the -2, Bhubaneswar 2. The revenue has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.3,46,97,000/ bogus purchases, when the assessee has received the SMP and WMP from 2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of s.3,46,97,000/ purchases from OMFED Trust, when the Trust was not in IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI GEORGE MATHAN, JUDICIAL AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.318/CTK/2017 Assessment Year : 2000-2001 -4(1), Bhubaneswar Vs. The Orissa State Co Producers Federation ltd. (OMFED), D Bhubaneswar. No.AABTT 3220 G (Appellant) .. ( Respondent Assessee by : S./Shri B.K.Mahapatra/A.K.Sabat Revenue by : Shri M.K.Gautam, CIT ( Date of Hearing : 7/7 Date of Pronouncement : 7/7 O R D E R This is an appeal filed by the revenue against the order of the CIT(A) Bhubaneswar dated 31.5.2017 for the assessment year The revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.3,46,97,000/- made by the AO on account of bogus purchases, when the assessee has received the SMP and WMP from NDDB as free of cost. 2. On the facts and in the circumstances of the case, the Ld. A) is not justified in law as well as on facts in deleting the addition of s.3,46,97,000/- made by the AO booked under purchases from OMFED Trust, when the Trust was not in Page1 | 9 IN THE INCOME TAX APPELLATE TRIBUNAL, JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER 2001 The Orissa State Co-op. Milk Producers Federation ltd. (OMFED), D-2, Sahid Nagar, Bhubaneswar. Respondent) B.K.Mahapatra/A.K.Sabat , ARs CIT (DR) 7/ 2022 7/2022 ainst the order of the CIT(A) for the assessment year 2000-2001. The revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the made by the AO on account of bogus purchases, when the assessee has received the SMP and 2. On the facts and in the circumstances of the case, the Ld. A) is not justified in law as well as on facts in deleting the made by the AO booked under purchases from OMFED Trust, when the Trust was not in ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page2 | 9 existence at the time of receipt of materials and the materials were received by the assessee itself directly from NDDB. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.22,30,000/- received from CARE, when the assessee could not establish the genuineness of business expenditure.” 3. Shri M.K,.Gautam, ld CIT DR appeared for the revenue and S/Shri B.K.Mahapatra and A.K.Sabat, ld ARs appeared for the assessee. 4. It was submitted by ld CIT DR that original assessment had been completed u/s. 143(3) of the Act on 24.3.2003. The same was reopened u/s.147 vide order passed on 26.12.2007. It was the submission that in the said assessment, an income of Rs.4,02,19,263 was assessed. The matter reached to the Tribunal. Before the Tribunal, an argument had been raised that certain funds which were assessed in the hands of the assessee, are the income of the Trust namely OMFED Trust. The said trust had been granted registration u/s.12A of the Act. It was the submission that the issue in the appeal was restored to the file of the AO to examine whether there was income assessable in the hands of the assessee or the income related to OMFED Trust. It was the submission that OMFED Trust was formed on 1.3.2000 and said Trust had been granted registration by the ld CIT, Bhubaneswar on 25.3.2000. It was the submission that as the AO was not satisfied regarding the income being offered in the hands of OMFED Trust, he proceeded to add the income in the hands of the assessee. ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page3 | 9 5. It was the submission that on 31.10.1999, there was a severe super cyclone which hit the Odisha. The super cyclone caused substantial damage in Odisha and as a consequence of the said cyclone, the milk production in the State was severely affected. To mitigate the calamity, National Diary Development Board (NDDB) had allotted 149 MTs of whole milk powder and 385 MTs of skim milk power to the State of Odisha through the assessee for the purpose of rehabilitation of the milk producers. It was the submission that the said milk powder was provided free of cost by NDDB. On receipt of the said milk powder, the assessee valued the same at the market price and passed the journal entry showing the cost at Rs.3,46,97,000/-. As the said milk powder could not be distributed to the farmers, who are the milk producers who had suffered damage on account of super cyclone, the milk powder was turn into milk and sold to normal customers. It was the submission of ld CIT DR that the milk so produced was not given to the super cyclone victims but was sold to the general public. The sale receipts in respect of said milk was Rs.4,01,37,351/- and this was shown in the books of the assessee. It was the submission that the assessee by filing its return had claimed that the sale proceeds belonged to OMFED Trust. It was the submission that the milk powder was supplied in November, 1999 and the milk was made and sold in December, 1999. The trust was created only on 1.3.2000 and consequently, it cannot be said that the money belonged to OMFED Trust. It was the further ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page4 | 9 submission that the assessment in the case of the assessee came to be completed on 24.3.2003 originally and immediately thereafter 10BB report had been prepared by OMFED Trust on 29.3.2003 for a period of 13 months i.e. from 1.3.2000 to 31.3.2001. It was the submission that in the said report, OMFED fund has been shown at Rs.3,69,28,001. It was the submission that the assessee had also received an amount of Rs.22,30,000/ from CARE Foundation for the super cyclone victims. It was the submission that the assessee had utilised the funds of Rs.22,30,000/- for its business and the amount received from CARE Foundation was shown as sundry creditors. It was the further submission that before the ld CIT(A), the assessee had submitted that the total surplus available from the whole transaction was only Rs.8,66,135/-. It was the submission that at the outset, the cost of milk powder was liable to be taken as Zero and the entire sale consideration was liable to be assessed in the hands of the assessee insofar as no portion had been transferred to the Trust during the relevant assessment year. It was the further submission that as against funds received from CARE Foundation, the assessee had claimed expenditure in respect of conversion of the milk powder into milk and the packing charges. It was the submission that the ld CIT(A) had misunderstood the whole facts and had taken the view that the amount of Rs.3,69,27,000/-, which is the value of milk powder receipts was not liable to assessed in the hands of the assessee but in the hands of OMFED Trust. ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page5 | 9 It was also the submission that ld CIT(A) also erred in saying that the assessee had not debited the amount received from CARE Foundation to its profit and loss account. It was the submission that the amount received from CARE Foundation had been utilised for the business of the assessee and no specific entry has been made. It was the submission that the order of the ld CIT(A) is liable to be reversed. 6. In reply, ld AR submitted that the facts are that the assessee had received specific amount of milk powder. The value of milk powder was also recorded in the books of the assessee as journal entr. Milk powder was converted to liquid mil with the expenses of Rs.10,62,000/- and packing cost of Rs.12,81,000/- and same was sold for a total consideration of Rs.4,01,37,351/-. It was the submission that the assessee had transferred an amount of Rs.3698,28,001/- to OMFED Trust. This amount comprises of Rs.3,69,27,000/- and an amount of Rs.1001/- representing corpus fund. It was the submission that the amount of Rs.3,69,27,000/- comprises of Rs.3,46,97,000/- being the cost of milk powder provided by NDDB and Rs.22,30,000/- representing the funds received from CARE Foundation. It was the submission that the intention to create the Trust was done as early as November, 1999 but being the Government Organisation and on account of movement of files, consultation with the appropriate authority and forum, the trust was created only on 1.3.2000. The registration u/s.12A had been granted by the ld CIT, Bhubaneswar vide order dated 14.2.2011 granting ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page6 | 9 the trust registration with retrospective effect from 25.3.2000 being the date of the application. It was the submission that the assessee being a Government Undertaking and the assessee having received milk powder in kind, it was compulsory for the assessee to value the same and bring it into the books failing which possibility of pilferage was high. It was the submission that the expenditure incurred by the assessee for conversion of milk powder to liquid milk, packaging the same and selling the same have been absorbed by the assessee itself. It was the submission that the assessee was the trustee of the amount. The amount was to be distributed and put to use for the benefit of the super cyclone affected milk farmers. As the milk powder and the milk were perishable items, the same had to be disposed of and the sale consideration had been put into fixed deposits. It was the submission that as on 31.3.2000 all the funds in respect of cost of the milk powder received from NDDB and the CARE Foundation funds were transferred to OMFED Trust. It was specifically admitted that the physical transfer of the funds took place during 1.4.2000 to 31.3.2001 as when FD’s were matured. It was the further submission that what was transferred on the maturity of the FD’s were the fixed deposits and interest thereon. A portion what was transferred physically also included certain loans which had been granted to some farmers who were doing the cattle farming. This was to an extent of Rs.68,71,162/-. It was the submission that the assessee was neither the owner of the said milk powder but was only a ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page7 | 9 caretaker for the same. The milk powder was provided for the benefit of the super cyclone affected farmers. It was the submission that no portion of the amount received by the assessee in respect of super cyclone relief from NDDB or Care Foundation was liable to be assessed in the hands of the assessee. Ld AR placed before us balance sheet of OMFED Trust as on 31.3.2001 to submit that the capital funds which showed an amount of Rs.3,69,27,001 and on the asset aside was bank balance and fixed deposit of Rs.3,67,58,341/- and further loans and advance representing the cattle loans and rehabilitation loan is also shown in the asset side of the said balance sheet. It was the submission that no addition is called for in the hands of the assessee. 7. We have considered the rival submissions. At the outset, what is to be understood here is that NDDB has provided relief in kind being milk powder to the super cyclone affected farmers and different cattle farming. The relief in kind has been routed through Nodal Government Agency being the assessee as the assessee is dealing with such farmers who are doing the activity of milk products. The relief is not granted by NDDB to the assessee but to the super cyclone victims and cattle farmers through the assessee. As this was a relief being provided by NDDB to the Nodal Agency of Government, for proper maintenance of accounts and demarcation of activities, the assessee has created the trust. As the relief provided was a perishable item, the assessee had to encash the same. Admittedly, the sale ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page8 | 9 proceeds on the sale of milk produced from the milk powder provided by NDDB has been kept separately in fixed deposits with various banks. The cost incurred by the assessee for the conversion of milk powder to milk and its package have also not been claimed by the assessee against the said sale proceeds. It has been absorbed by the assessee itself and the profit generated from the sale has been offered to tax. In fact, the AO himself has disallowed conversion expenses of Rs.10,62,660/-. This shows that the AO was very much convinced that the milk powder nor the milk sale proceeds belonged to the assessee but was in fact that the assessee was only the custodian of the said funds. Though the AO has missed out in disallowing Rs.12,00,000/- representing packing and sale expenses is not issue before us. Perusal of the balance sheet of OMFED as on 31.3.2001 also clearly showed that physical funds have been moved from the assessee to the trust for which milk powder was provided in the form of relief. This is clearly the relief provided by the NDDB in the form of milk powder but was not an income in the hands of the assessee and same has rightly been deleted by the ld CIT(A). Perusal of the balance sheet of OFMED Trust also clearly shows that the amount of Rs.22,30,000/- provided by CARE Foundation has also been moved to OMFED Trust and the assessee has not used any portion of the said funds on its behalf. This being so, we find no error in the order of the ld CIT(A), which calls for any interference. ITA No.318/CTK/2017 Assessment Year : 2000-2001 Page9 | 9 8. Though it would have been appropriate for the entire sale consideration of the milk after reduction of the expenses thereon to be transferred to the trust, in which event the same would have become completely exempt, we are of the view that the assessee has offered the profit generated from the conversion of the milk powder to milk and the sale thereof in the hands of the assessee and has transferred the value of the relief provided by both NDDB and CARE Foundation to the OMFED Trust which was the agency assigned with the duty of distribution of the relief to the cattle farmers who were the victim affected by the super cyclone. 9. In the result, appeal of the revenue stands dismissed. Order dictated and pronounced in the open court on 7/7/2022. Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 7/7/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : By order Sr.Pvt.secretary ITAT, Cuttack 1. The Appellant : DCIT, Circle -4(1), Bhubaneswar 2. The Respondent. The Orissa State Co-op. Milk Producers Federation ltd. (OMFED), D-2, Sahid Nagar, Bhubaneswar 3. The CIT(A)-2, Bhubaneswar 4. Pr.CIT-2, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//