The ACIT,GNR Circle, Gandhinagar V. Gujarat State Civil Supplies Corporation, Gandhinagar

ITA 4065/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6839 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 17-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Keywords: Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA NO.4065/AHD/2008 [ASSTT. YEAR : 2002-2003] ASSTT.COMMISSIONER OF IT GANDHINAGAR. VS. THE GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD., SECTOR 10A, GANDHINAGAR. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ALOK JOHRI ASSESSEE BY : SHRI SANJAY R. SHAH O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THIS IS REVENUES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), GANDHINAGAR ARISING OUT OF THE ORDER OF THE ASSESSI NG OFFICER PASSED UNDER SECTION 143(3) R.W.S. 147 THE INCOME TAX ACT, 1961. 2. THE FOLLOWING GROUNDS ARE RAISED IN THIS APPEAL OF THE REVENUE: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDING THE REOPENING OF THE ASSESSMENT TO BE VOID IN LAW. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.4,11,71,053/- MADE ON ACCOUNT OF PRO VISION TO SUGAR PRICE EQUALIZATION FUND. 3. AT THE TIME OF HEARING BEFORE US, IT WAS STATED BY THE LEARNED DR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) WHILE HOLDING THE REOPENING OF THE ASSESSMENT TO BE BAD IN LAW OB SERVED THAT THE NOTICE UNDER SECTION 148 WAS ISSUED AFTER EXPIRY OF FOUR Y EARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THAT ASSESSMENT YEAR UNDER CONSIDERATION IS 2002-2003 AND NOTICE UNDER SECTION 148 WAS ISSUE D ON 2-6-2006 WHICH WAS VERY MUCH WITHIN THE PERIOD OF FOUR YEARS. THA T THE CIT(A) IN HIS ITA NO.4065/AHD/2008 -2- ORDER HAS WRONGLY OBSERVED THAT THE ASSESSMENT INVO LVED IS A.Y.2001- 2002. THIS WRONG OBSERVATION BY THE CIT(A) LEAD HI M TO THE WRONG CONCLUSION THAT THE NOTICE UNDER SECTION 148 WAS IS SUED AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE CIT(A) HELD THE NOTICE UNDER SECTION 148 TO BE BAD INVALID ON THE GROUND T HAT HERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FURNISH FULLY AND TR ULY ALL THE MATERIAL FACTS. THIS CONDITION IS NECESSARY ONLY WHEN THE ASSESSMEN T WAS REOPENED AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. SINCE THE ASSESSMENT WAS REOPENED WITHIN THE PERIOD OF FOUR Y EARS, PROVISO TO SECTION 147(1) WAS NOT APPLICABLE AND IT WAS NOT NE CESSARY FOR THE REVENUE TO ESTABLISH THAT THERE WAS A FAILURE ON TH E PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. HE TH EREFORE SUBMITTED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HOLDING THE REOPENING OF THE ASSESSMENT TO BE INVALID IS BASED ON THE WRONGLY APPRECIATION OF THE FACTS, THE SAME SHOULD BE REVER SED AND REOPENING OF THE ASSESSMENT SHOULD BE HELD TO BE VALID. 4. WITH REGARD TO THE GROUND NO.2 I.E. THE MERIT OF THE ADDITION, IT IS STATED BY THE LEARNED DR THAT THIS ISSUE IS SQUAREL Y COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF KCP LTD. VS. CIT, 245 ITR 421. 5. IT IS STATED BY THE LEARNED COUNSEL THAT THE CIT (A) HELD THE REOPENING OF THE ASSESSMENT TO BE INVALID ON TWO GR OUNDS I.E. (I) THE ASSESSMENT WAS REOPENED AFTER MORE THAN FOUR YEARS, AND (II) THAT THERE WAS CHANGE OF OPINION BY THE ASSESSING OFFICER. HE FAIRLY ADMITTED THAT THE ASSESSMENT WAS REOPENED WITHIN THE PERIOD OF FO UR YEARS AND THEREFORE THE FINDINGS OF THE CIT(A) THAT THE ASSESSMENT WAS REOPENED AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS IS ERRONEOUS. HE ITA NO.4065/AHD/2008 -3- HOWEVER STATED THAT THE AO REOPENED THE ASSESSMENT ON WRONG APPRECIATION OF FACT. HE REFERRED TO THE REASONS R ECORDED FOR REOPENING OF THE ASSESSMENT WHICH IS AT PAGE NO.29 OF THE ASSESS EES PAPER BOOK AND POINTED OUT THAT THE ASSESSING OFFICER HAS RECORDED THE FINDING THAT A SUM OF RS.5,35,53,755/- DEBITED AS REVENUE EXPENDITURE UNDER THE HEAD SUGAR PRICE DIFFERENCE DUE TO EQUALIZATION OF FUND INCLU DING A SUM OF RS.4,11,71.503/- BEING THE PROVISION FOR SUGAR PRI CE EQUALISATION FUND. THAT RS.4,11,71.503/- IS NOT PART OF RS.5,35,53,755 /-. HE EXPLAINED THAT A SUM OF RS.5,35,53,755/- IS THE EXCESS AMOUNT REALIZ ED BY THE ASSESSEE, OVER AND ABOVE THE COST AT WHICH THE DISTRIBUTION O F LEVY SUGAR WAS TO BE MADE IN TERMS OF THE SCHEME OF CENTRAL GOVERNMENT F OR THE PURPOSE OF DETERMINATION OF LEVY SUGAR. AS PER THE SAID SCHEM E, THE AMOUNT REALIZED BY THE ASSESSEE OVER AND ABOVE THE COST AT WHICH TH EY WERE SUPPOSED TO SELL LEVY SUGAR HAD TO BE REFUNDED TO THE FOOD CORP ORATION OF INDIA (FCI). SINCE EXCESS AMOUNT REALIZED WAS ALWAYS REFLECTED A S SALES IN THE ACCOUNTS, THE AMOUNT WHICH WAS TO BE REFUNDED TO TH E FCI WAS DEBITED TO PROFIT & LOSS ACCOUNT. THUS, EXCESS AMOUNT REALIZE D AMOUNTING TO RS.5,35,53,755/- HAS BEEN DEBITED TO SUGAR PRICE D IFFERENCE DUE TO EQUALISATION FUND IN THE PROFIT & LOSS ACCOUNT AND CREDITED TO FCI. AS REGARDS A SUM OF RS.4,11,71,053/-, IT IS STATED THA T THIS AMOUNT WAS RECEIVED FROM FCI, WHICH WAS TO BE PAID TO THE DIST RIBUTORS OF LEVY SUGAR FOR THEIR ENTITLEMENT IN TERMS OF THE SCHEME. THIS AMOUNT IS THEREFORE, STANDING TO THE CREDIT OF SUGAR EQUALISATION FUND IN THE BALANCE SHEET IN SCHEDULE D PART B AS OTHER LIABILITY AND REPRESE NTS THE AMOUNT I.E. TO BE DISTRIBUTED AMONGST DISTRIBUTORS OF LEVY SUGAR. SA ME WAS NEVER CLAIMED AS EXPENDITURE BY THE ASSESSEE IN THE ACCOUNT. IT IS THEREFORE, SUBMITTED THAT THE QUESTION OF THIS CREDIT HAVING ESCAPED THE ASSESSMENT DID NOT ARISE NOR WAS THERE A CASE FOR TREATING THE SAME TO BE IN COME OF THE ITA NO.4065/AHD/2008 -4- CORPORATION, SINCE IT REPRESENTS LIABILITY OF THE A MOUNT TO BE PAID TO THE DISTRIBUTORS OF THE LEVY SUGAR. IT IS SUBMITTED TH AT THE ENTIRE REOPENING PROCEEDINGS RESORTED TO BY THE ASSESSING OFFICER WA S ON THE BASIS OF INCORRECT APPRECIATION OF FACTS AND INCORRECT UNDER STANDING OF THE ACCOUNTING ENTRIES AND THE HENCE THE SAME IS LIABLE TO CANCELLED. THE LEARNED COUNSEL THEN REFERRED TO THE AUDITED BALANC E SHEET AND POINTED OUT THAT RS.5,35,53,755/- IS THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD SUGAR PRICE DIFFERENCE DUE TO EQUAL ISATION OF FUND WHILE RS.4,11,71.503/- IS THE DIFFERENCE BETWEEN TH E OPENING AND CLOSING BALANCE UNDER THE HEAD CEMENT/SUGAR PRICE EQUALIZA TION ACCOUNT, WHICH IS SHOWN IN THE BALANCE SHEET UNDER THE HEAD CURRENT LIABILITY. THAT COMPLETE BREAK UP OF THIS ACCOUNT WAS ALSO GIV EN TO THE ASSESSING OFFICER AND COPY OF THE SAME IS ENCLOSED AT PAGE NO .33A OF THE ASSESSEES PAPER BOOK. HE THEREFORE SUBMITTED THAT THE REOPEN ING WHICH IS BASED UPON THE WRONG APPRECIATION OF FACTS MAY BE QUASHED . 6. WITH REGARD TO THE MERIT OF THE ADDITION, IT WAS POINTED BY THE LEARNED COUNSEL THAT ASSESSEE-CORPORATION WAS SET U P BY THE GOVERNMENT OF GUJARAT FOR THE SMOOTH FUNCTIONING OF PUBLIC DIS TRIBUTION SYSTEM (PDS) LIKE DISTRIBUTION OF FOODGRAINS, SUGAR, EDIBL E OILS AMONGST WEAKER SECTIONS OF THE SOCIETY AND ALSO PEOPLE UNDER BELOW POVERTY LINE. THE ASSESSEE-CORPORATION IN ADDITION TO THE ABOVE ACTIV ITIES, IS ALSO ACTING AS AN SUPERVISING AUTHORITY OVER OTHER DISTRIBUTORS IN THE STATE OF GUJARAT INVOLVED IN PDS. THAT THE ACTIVITY OF DISTRIBUTION AND SALE OF FOODGRAINS, SUGAR AND OTHER ITEMS IS CARRIED OUT BY THE CORPORA TION ON BEHALF OF THE STATE GOVERNMENT, THEREFORE, THE ASSESSEE-CORPORATI ON HAS NO CONTROL IN RESPECT OF ISSUE PRICE/PROCUREMENT OF PRICE OF VARI OUS ITEMS. IF THE ASSESSEE REALIZED ANY AMOUNT OVER AND ABOVE THE RAT E AT WHICH ITA NO.4065/AHD/2008 -5- DISTRIBUTION OF LEVY SUGAR IS TO BE MADE, IN TERMS OF THE SCHEME OF CENTRAL GOVERNMENT, THE EXCESS AMOUNT REALIZED IS TO BE REF UNDED TO THE FCI. THAT WHEN THE EXCESS AMOUNT IS REALIZED, THE ENTIRE REALIZATION IS SHOWN IN THE SALE. SIMILARLY, THE AMOUNT REFUNDABLE TO T HE FCI IS DEBITED TO SUGAR PRICE DIFFERENCE DUE TO EQUALIZATION OF FUND AND THE ACCOUNT OF THE FCI IS CREDITED. THE SUM OF RS.5,35,53,755/- W AS OF THIS NATURE. DURING THE COURSE OF REGULAR ASSESSMENT, THE ASSESS ING OFFICER DULY VERIFIED THIS ITEM AND ALSO ALLOWED DEDUCTION THERE FOR. EVEN AFTER REOPENING THE SUM OF RS.5,35,53,755/- CLAIMED BY WA Y OF DEBIT TO PROFIT & LOSS ACCOUNT HAS NOT BEEN DISALLOWED. THAT THE A SSESSEE IN ADDITION TO DISTRIBUTION OF GOODS BY ITSELF, IS ALSO SUPERVISIN G OTHER DISTRIBUTORS. THE EXCESS AMOUNT REALIZED BY OTHER DISTRIBUTORS IS CHA NNALISED THROUGH THE ASSESSEE, I.E. THE FCI DEALS WITH THE ASSESSEE AND IN TURN THE ASSESSEE DEALS WITH OTHER DISTRIBUTORS FOR AND ON BEHALF OF THE FC I. THEREFORE, THE EXCESS AMOUNT REALIZED BY OTHER DISTRIBUTORS AND PASSED ON TO THE ASSESSEE WAS KEPT WITH THE ASSESSEE IN TRUST FOR FCI AND WAS SHO WN UNDER THE HEAD OTHER LIABILITY IN ASSESSEES BALANCE SHEET. THIS AMOUNT IS NEITHER SHOWN AS A RECEIPT IN THE PROFIT & LOSS ACCOUNT WHEN THE AMOUNT IS RECEIVED FROM OTHER DISTRIBUTORS NOR CLAIMED AS EXPENDITURE WHEN THE AMOUNT IS PAID TO THE FCI BECAUSE THIS AMOUNT IS RECEIVED AND PAID IN TRUST FOR THE FCI/ DISTRIBUTORS. THE SUM OF RS.4,11,71.503/- IS THE D IFFERENCE BETWEEN THE OPENING BALANCE AND CLOSING BALANCE IN THE HEAD CE MENT/SUGAR PRICE EQUALIZATION ACCOUNT WHICH WAS SHOWN IN THE SCHEDU LE-D OF THE BALANCE SHEET. THEREFORE, SINCE THIS AMOUNT DOES NOT BELONG TO THE ASSESSEE AND NEVER CLAIMED AS EXPENDITURE, THE QUES TION OF DISALLOWANCE IN THIS REGARD DOES NOT ARISE. THAT THE FACTS OF T HE DECISIONS OF THE HONBLE APEX COURT RELIED UPON BY THE LEARNED DR IS ALTOGETHER DIFFERENT. ITA NO.4065/AHD/2008 -6- THERE THE AMOUNT WAS UTILIZED BY THE ASSESSEE FOR H IMSELF. HE THEREFORE SUBMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE SU STAINED. 7. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. FOR HOLDING THE REOPENING OF THE ASSESSMENT TO BE INVALID, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED AS UNDER: 2.2 THE ISSUE HAS BEEN GIVEN DUE CONSIDERATION. T HE YEAR INVOLVED IS ASSESSMENT YEAR 2001-02 AND THE NOTICE U/S.148 HAS BEEN ISSUED ON 02/06/2006 I.E. AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. HENCE IT IS COVERED BY THE PROVISO TO SECTION 147, WHICH MANDATES THAT REOPENI NG CAN BE UNDERTAKEN ONLY IF THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. IN TH IS CASE THE APPELLANT HAS DEBITED A SUM OF RS.5,35,53,755/- TO SUGAR PRI CE DIFFERENCE DUE TO EQUALISATION OF FUND AS PART OF OPERATION E XPENSES REFLECTED IN SCHEDULE 1 OF THE BALANCE SHEET. THE ORIGINAL ASSESSMENT HAS BEEN MADE KEEPING THE SAME BALANCE S HEET AND PROFIT & LOSS ACCOUNT IN FRONT. THE APPELLANTS LE TTER DATED 18/03/2005 STATES THAT THE MATTER HAS BEEN DISCUSSE D BETWEEN THE AO AND THE ASSESSEE, THE RELEVANT PORTION IS REPROD UCED AS UNDER: WE REFER TO THE ASSESSMENT PROCEEDINGS GOIN ON IN OUR CSE FOR THE ABOVE ASSESSMENT YEAR. DURING THE COURSE O F HEARING, YOUR GOODSELF HAS ASKED US TO FURNISH THE FOLLOWING DETAILS/INFORMATION/EXPLANATIONS. WE SUBMIT HEREUN DER THE DETAILS AND/OR INFORMATION AS REQUIRED BY YOUR GOOD SELF. 1. NOTE FOR GOVT. ACTIVITY : AS PER ANNEXURE 2. DETAIL NOTE ON SUGAR PRICE DIFF.: AS PER ANNEXU RE 2.3 THEREFORE, IN THE FINAL SHOW CAUSE NOTICE DATED 22/03/2005, ISSUED BY THE ASSESSING OFFICER FOR COMPLETING THE ORIGINAL ASSESSMENT, THERE IS NO REFERENCE TO THIS ISSUE. T HEREFORE, THE APPELLANT HAS A VALID POINT WHEN IT IS CLAIMED THAT IN THE ORIGINAL ASSESSMENT THE ASSESSING OFFICER SEEMED TO BE SATIS FIED WITH THE EXPLANATION PROVIDED FOR THE CLAIM. IT IS CLEAR TH AT THE ISSUE WAS RAISED, DISCUSSED AND IN THE END NO ADDITION WAS MA DE. EVEN IF IT ITA NO.4065/AHD/2008 -7- IS ASSUMED THAT IT IS A CASE OF NEGLIGENCE AND OMIS SION ON THE PART OF THE ASSESSING OFFICER PROVISO TO SECTION 147 DOE S NOT COVER SUCH SITUATION. 2.4 HENCE THE REOPENING HERE APPEARS TO BE A CLEAR CASE OF CHANGE OF OPINION, NOT ATTRIBUTABLE TO FAILURE ON T HE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERI AL FACTS. HENCE, THE REOPENING IS BAD AND THEREFORE THE ASSESSMENT F RAMED THEREON IS ALSO NOT SUSTAINABLE. THE APPELLANTS 1 ST GROUND IS ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) HELD THE REOPENING OF THE ASSESSMENT TO BE INVALID MAINLY ON THE GROUND THAT THE ASSESSMENT WAS REOPENED AFTER MORE THAN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THIS FINDING IS FACTUALLY INCORRE CT, BECAUSE THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2002-2003 WH ICH WAS REOPENED WITHIN THE PERIOD OF FOUR YEARS. THEREFORE, THIS F INDING OF THE CIT(A) CANNOT BE SUSTAINED AND WE HOLD THAT THE ASSESSMENT WAS REOPENED WITHIN FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR . HOWEVER, IT HAS BEEN CONTENDED BY THE LEARNED COUNSEL THAT THE ASSE SSING OFFICER HAS ALSO WRONGLY APPRECIATED THE FACTS WHILE REOPENING OF TH E ASSESSMENT. THEREFORE LET US EXAMINE THE ASSESSEES CONTENTION IN THIS REGARD. THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT AR E AS UNDER: ORDER SHEET DTD. 1/6/2006 ON VERIFICATION OF RECORDS, IT IS SEEN THAT DURIN G THE FY 2001-02 RELEVANT TO A.Y.2002-03, THE ASSESSEE CORPO RATION HAS DEBITED SUM OF RS.5,35,53,755/- AS REVENUE EXPENDIT URE UNDER HEAD SUGAR PRICE DIFFERENCE DUE TO EQUALIZATION OF FUND AND OUT OF THIS AMOUNT A SUM OF RS.4,11,71,053/- HAS BEEN TAKEN AS PROVISION TO SUGAR PRICE EQUALIZATION FUND. THUS, THE PROVISI ON OF RS.4,11,71,503/- IS NOT ADMISSIBLE AS A REVENUE EXP ENDITURE. UNDER THE CIRCUMSTANCES, I HAVE REASON TO BELIEVE T HAT THE INCOME TO THE EXTENT OF RS.4,11,71,-503/- HAS ESCAPED ASSE SSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT. ITA NO.4065/AHD/2008 -8- ISSUE NOTICE U/S.148 OF THE IT ACT, 1961. SD/- ACIT, GNR CIRCUE, GANDHINAGAR FROM THE ABOVE, IT IS EVIDENT THAT THE AO WAS OF TH E OPINION THAT THE SUM OF RS.4,11,71,503/- IS THE PROVISION FOR SUGAR PRIC E EQUALIZATION FUND AND THIS AMOUNT IS PART OF RS.5,35,53,755/- WHICH IS CL AIMED AS REVENUE EXPENDITURE UNDER THE HEAD SUGAR PRICE DIFFERENCE DUE TO EQUALIZATION OF FUND. THE LEARNED COUNSEL HAS REFERRED TO THE ASSESSEES BALANCE SHEET. WE FIND THAT IN THE BALANCE SHEET THE ASSES SEE HAS SHOWN CURRENT LIABILITY AND PROVISION AT RS.1,030,385,522/-. THE DETAIL OF WHICH IS GIVEN IN SCHEDULE-D OF THE BALANCE SHEET. FROM THE SCHED ULE-D, WE FIND THAT THIS CURRENT LIABILITY INCLUDED A SUM OF RS.8,91,75 ,218/- UNDER THE CEMENT/SUGAR PRICE EQUALIZATION ACCOUNT. IN THIS HEAD THE LIABILITY AS ON 31-3-2001 WAS RS.4,80,04,165/-. THE DIFFERENT B ETWEEN TWO BALANCES I.E. THE BALANCE AS ON 31-3-2001 AND 31-3-2002 IS R S.4,11,71,053/-. FROM THIS, PERHAPS, THE ASSESSING OFFICER PRESUMED THAT THIS DIFFERENCE WAS DUE TO PROVISION MADE BY THE ASSESSEE DURING THE YEAR U NDER CONSIDERATION AND THE AMOUNT WAS CLAIMED AS AN EXPENDITURE UNDER THE HEAD SUGAR PRICE DIFFERENCE DUE TO EQUALISATION OF FUND WHICH WAS CLAIMED AT RS.5,35,53,755/-. THE ASSESSEE GAVE THE COMPLETE D ETAILS WITH REGARD TO CEMENT/SUGAR EQUALIZATION ACCOUNT AT PAGE NO.33 OF THE ASSESSEES PAPER BOOK. THE SAME READS AS UNDER: THE GUJARAT STATE CIVIL SUPPLIES CORPORITION LTD., GANDHINAGAR LEDGER OF SUGAR PRICE/CEMENT PRICE EQUALISATION LIA BILITIES A/C. ASSESSMENT YEAR : 2002-2003 SR. SUGAR PRICE EQUALISATION FUND CEMENT PRICE EQUAL.FUND TOTAL LEVY SUGAR PRICE DIFFERENCE PAYABLE TO NOMINEES LEVY SUGAR PRICE PRICE INCREASE PAYABLE TO FCI RECEIVED FROM DEALER PAYABLE TO GOVT. OF GUJARAT TOTAL ITA NO.4065/AHD/2008 -9- 1. OPENING BALANCE 2568809 6393121 39042235 480044165 2. ADDITION DURING THE YEAR 64121886* 971727** 50639*** 65144251 3. LESS: PAYMENTS DURING THE YEAR 23973198**** 0 0 23973198 CLOSING BALANCE 42717497 7364848 39092874 89175218 OPENING BALANCE 48004165 RECEIVED FROM FOOD CORPN. OF INDIA TO PAY SUGAR NOMINEES 64121886 PAYABLE TO FOOD CORPN. OF INDIA FOR PRICE INCREASE 971727 RECOVERED FROM PARTY PAYABLE TO GOG 50639 113148416 LESS: PAID TO LEVY SUGAR NOMINEES 23973198 CLOSING BALANCE AS PER BALANCE SHEET 89175218 CLOSING BALANCE AS PER BALANCE SHEET 89175218 LESS: OPENING BALANCE 48004165 41171053 * AMOUNT ACTUALLY RECEIVED FROM FCI FOR DISTRIBUTIO N AMONG NOMINEES. ** ACTUAL AMOUNT RECEIVED FROM NOMINEES PAYABLE TO FCI *** ACTUAL AMOUNT RECEIVED FROM CEMENT STOCKISTS PA YABLE TO GOVT. OF GUJARAT **** AMOUNT ACTUALLY DISTRIBUTED AMONG NOMINEES. FROM THE ABOVE, IT IS EVIDENT THAT IN THIS ACCOUNT, APART FROM OPENING BALANCE, THERE IS ADDITION DURING THE YEAR AND THE PAYMENT DURING THE YEAR. IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ADDITION DURING THE YEAR IS THE AMOUNT ACTUALLY RECEIVED BY THE ASSESSE E FROM FCI FOR DISTRIBUTION AMONG THE NOMINEES. THE SIMILARLY THE PAYMENT IS THE AMOUNT ACTUALLY DISTRIBUTED AMONGST NOMINEES. THER EFORE, THE BALANCE IN THIS ACCOUNT IS THE AMOUNT RECEIVED FROM FCI WHICH REMAINED TO BE DISTRIBUTED AMONGST THE NOMINEES. IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THIS CHART AS WELL AS EXPLANATION WAS GIVEN BEFORE THE ASSESSING OFFICER DURING THE RE-ASSESSMENT PROCEEDI NGS AND THE ASSESSING OFFICER HAS NOT DISPUTED THESE FACTS. EV EN AT THE TIME OF HEARING BEFORE US ALSO THE LEARNED DR WAS UNABLE TO CONTROVERT THESE FACTS. FROM THE ABOVE IT IS EVIDENT THAT A SUM OF RS.4,11,71,503/- IS NOT ITA NO.4065/AHD/2008 -10- CLAIMED BY THE ASSESSEE AS AN EXPENDITURE. THEREFO RE, THE FINDINGS OF THE ASSESSING OFFICER THAT THIS AMOUNT IS NOT ADMISSIBL E AS REVENUE EXPENDITURES IN THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT IS NOT RELEVANT. THE WHOLE BASIS FOR REOPENING OF TH E ASSESSMENT IS THAT THERE WAS AN ESCAPEMENT OF THE INCOME TO THE TUNE O F RS.4,11,71,503/- BECAUSE THE ASSESSEE CLAIMED THE EXPENDITURE OF RS. 4,11,71.503/-, WHICH IS NOT ADMISSIBLE. SINCE THIS AMOUNT WAS NOT CLAIM ED BY THE ASSESSEE, AS AN EXPENDITURE THE QUESTION OF ESCAPEMENT OF INCOME COULD NOT ARISE. THUS THERE WAS NO ESCAPEMENT OF INCOME AND THEREFOR E THE REOPENING OF THE ASSESSMENT WAS NOT VALID. WE THEREFORE HOLD TH AT REOPENING OF THE ASSESSMENT WAS INVALID, OF COURSE FOR THE DIFFERENT REASONS THAN THE REASONS GIVEN BY THE CIT(A). WITH THIS FINDING, TH E GROUND NO.1 OF THE REVENUES APPEAL IS REJECTED. 8. WITH REGARD TO GROUND NO.2, THE CIT(A) HAS RECOR DED THE FOLLOWING FINDINGS: 4.2. THE ISSUE HAS BEEN GIVEN SERIOUS CONSIDERATIO N THE APPELLANT HAS ALSO IN DETAIL TRIED TO EXPLAIN VIA THE ACTUAL ACCOUNTING ENTRIES UNDERTAKEN IN THE CONTEXT THE APPELLANT HAS CLAIMED A SUNG OF RS.5,35,53,755/- AS 'SUGAR PRICE DIFFERENCE DUE TO EQUALIZATION FUND' AS AN EXPENSE. IT HAS CLAIMED SIMILAR NATURE OF EXPENSES IN EARLIER YEAR ALSO. TO START WITH, WE NEED TO SEE IF THERE IS ANY ELEMENT OF PROVISION IN THIS EXPENSE ACCOUNT. THE J OURNAL ENTRY PASSED IN THE CONTEXT HAS THE NARRATION 'BEING THE ENTRY PASSED FOR THE AMT. OF PRICE DIFF FROM F.C.I. AS PER DETAILS A TTACHED FOR APR 01 TO MARCH 02 ............ THE AMOUNT IN THE NARRATIO N IS RS.5,30,39,987/-. SIMILARLY ANOTHER AMOUNT IS RS.5, 13,767/BEING RELATED TO PRICE INCREASE OF RS.25 PAISE PER KG. DU E TO WHICH AMOUNT BECAME PAYABLE ON THE STOCK LYING WITH THE A PPELLANT. THE MAJOR AMOUNT OF RS.5,30,39,987/- WAS CREDITED TO 'A DVANCE PAYMENT TO F.C.I. FOR P.D. ACCOUNT' WHEREIN AMOUNTS WERE BEING REMITTED EACH MONTH TO F.C.I. AND THE PRESENT ADJUS TMENT ENTRY WAS MADE AT YEAREND TO EXACTLY CRYSTALLIZE THE LIABILIT Y. HENCE LOOKING ITA NO.4065/AHD/2008 -11- AT THE FUNCTIONING OF THE ASSESSEE, ITS ARRANGEMENT WITH F.C.I. AND THE ACCOUNTING ENTRY, IT IS CLEAR THAT, THE FIGURE OF RS.5,35,53,755/- DID NOT CONTAIN ANY PROVISION OF RS.4,11,71,053/- A S STATED BY THE ASSESSING OFFICER. INSTEAD THE EXPLANATION OF THE A UTHORISED REPRESENTATIVE THAT RS.4,11,71,053/- REPRESENTS THE NET LIABILITY ON ACCOUNT OF AMOUNT REALIZED FROM F.C.I. OR OTHER DIS TRIBUTORS TO BE PAID TO LEVY SUGAR NOMINEES IS DULY SUPPORTED BY AC COUNTING ENTRY AN BALANCE SHEET DETAILS FOR ONE TO ARRIVE AT THE D ECISION THAT THE TWO FIGURES AND AMOUNTS REPRESENT TOTALLY DIFFERENT SET OF SITUATION. HENCE THE BASIC PREMISE ON WHICH ASSESSING OFFICER HAS MADE THE ADDITION IS FACTUALLY INCORRECT AND HENCE THEREFORE THERE IS NO JUSTIFICATION FOR THE ADDITION. 9. WE HAVE ALREADY DISCUSSED THIS ISSUE WHILE CONSI DERING GROUND NO.1 AND FOR THE DETAILED DISCUSSION THEREIN WE AGR EE WITH THE ABOVE FINDINGS OF THE CIT(A) AND REJECT GROUND NO.2 OF TH E REVENUES APPEAL. 10. IN RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 15 TH APRIL, 2011 SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 15-04-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD