M/s. Girdharilal Sugar & Allied Industries Ltd., Indore V. The DCIT 1(1), Indore

ITA 515/IND/2013

• Counselvise Citation: 51522714 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV VARSHANE
• Assessee Lawyers: S N AGRAWAL; PANKAJ MOGRA CAS
• Keywords: Depreciation; Business expenditure; Capital receipt; Revised return; Unabsorbed depreciation
• Section: 37(1); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, J.M. AND SHRI B.C.MEENA, A.M. I.T.A.NO. 560/IND/2013 A.Y. :2009-10 DY. CIT, 1(1), INDORE M/S.GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED, VS INDORE APPELLANT RESPONDENT P.A.N. NO A ABCG5514H I.T.A.NO. 515/IND/2013 A.Y. :2009-10 M/S.GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED, DY. CIT, 1(1), INDORE INDORE VS APPELLANT RESPONDENT -: 2: - 2 DEPARTMENT BY SHRI RAJEEV VARSHANE, CIT DR ASSESSEE BY SHRI S. N. AGRAWAL AND SHRI PANKAJ MOGRA, CAS DATE OF HEARING : 12.08.2015 DATE OF PRONOUNCEMENT : 30 .0 9 .2015 O R D E R PER GARASIA, J.M. THESE ARE TWO APPEALS, ONE BY THE DEPARTMENT AND OT HER BY THE ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDE R OF CIT(A)- I, INDORE, DATED 22.03.2013 RELATE TO THE ASSESSMEN T YEAR 2009-10. I.T.A.NO. 560/IND/2013 : 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE UNDER GROUND NO. 1. :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 32,37,546/- MADE BY THE AO BY DISALLOWING ADVANCES -: 3: - 3 WRITTEN OFF OF OLD CANE GROWERS OBSERVING THAT THE ADVANCES WERE GIVEN DURING BUSINESS PROCESS WHEREAS NOT A SINGLE SUGAR CANE WAS SUPPLIED BY THE SO CALLED F ARMERS DURING THE ENTIRE 20 YEARS OF PRODUCTION. 1.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 32,37,546/- MADE BY THE AO BY DISALLOWING ADVANCES WRITTEN OFF OF OLD CANE GROWERS WERE GIVEN DURING T HE COURSE OF BUSINESS ACTIVITY BY RELYING UPON THE HON . SUPREME COURT DECISION IN THE CASE OF CIR VS. MYSOR E SUGAR CO. LTD. REPORTED IN 46 ITR 649 (SC) AND MOHA N MEAKIN LTD. VS. CIT IN ITA NO. 405/2007 DATED 11.05.2011 WITHOUT APPRECIATING THE FACT THAT THE F ACTS OF AFORESAID CASES WERE QUITE DIFFERENT TO THAT OF THE ASSESSEE. 1.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 32,37,546/- MADE BY THE AO BY DISALLOWING ADVANCES WRITTEN OFF BECAUSE WHILE HOLDING SO THE ID. CIT(A) FAILED TO -: 4: - 4 APPRECIATE THAT THE CLAIM OF THE ASSESSEE MADE BEFO RE THE AO WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 36(L)(VII) READ WITH SECTION 36(2) OF THE I.T.ACT, 1961. GROUND NOS. 1, 1.1 AND 1.2 : 3. THIS IS EFFECTIVELY ONLY ONE GROUND FOR OUR ADJUDIC ATION. 4. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS A PUBLIC LIMITED COMPANY AND WAS INCORPO RATED ON 27.10.1989 AND CARRIED ON THE BUSINESS OF MANUFA CTURING OF SUGAR FROM SUGAR CANE WHICH WAS SUPPLIED BY THE CANE GROWERS. THE ASSESSEE COMPANY WAS BASICALLY DEPENDE NT ON THE SUGAR CANE SUPPLIED BY THE SUGARCANE GROWERS. THE SAID SUGAR MILL WAS SITUATED AT VILLAGE GHATWA, TEHSIL T HIKRI, DISTRICT BARWANI (MP). THE COMPANY WAS EARLIER KNOW N AS NARMADA SUGAR LIMITED AND THERE WAS LOSSES IN THE C OMPANY AND COMPANY WAS REGISTERED WITH BIFR AS SICK COMPAN Y. DURING THE YEAR UNDER APPEAL, THE ASSESSEE COMPANY HAS SOLD ITS SUGAR MILL TO M/S. OLAM EXPORT INDIA LIMITED. T HE OLAM EXPORT IS A GLOBAL LEADER IN THE SUPPLY CHAIN MANAG EMENT OF AGRICULTURAL PRODUCTS AND FOOD INGREDIENTS AND THE ASSESSEE -: 5: - 5 COMPANY WAS NOT DIRECTLY OR INDIRECTLY RELATED TO T HE BUYER COMPANY. THE ASSESSEE COMPANY WAS PUBLIC LIMITED CO MPANY BUT DUE TO HEAVY LOSSES, IT WAS SICK COMPANY AND RE GISTERED WITH BIFR COMPANY. ALL ACTIVITIES OF THE ASSESSEE COMPANY WERE DIRECT SUPERVISION OF INDEPENDENT PROFESSIONAL PERSONS DEPUTED ON BOARD. ON EXAMINATION OF PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS DEBITED THE SUM OF RS. 3,55,20,202 /- UNDER THE HEAD OLD CANE GROWER ADVANCE WRITTEN OFF. FUR THER AS PER CLAUSE 12 OF PART I UNDER THE HEAD NOTES OF ACC OUNT, THE ASSESSEE HAS WRITTEN OFF THIS AMOUNT ON ACCOUNT OF ADVANCE UN-REALIZATION. THEREFORE, THE AO HAS EXAMINED THE CLAIM OF THE ASSESSEE AND HE WAS OF THE VIEW THAT THE ADVANC E OF RS. 32,37,546/- GIVEN TO FARMERS FOR OBTAINING CANE FRO M CANE GROWERS, IT WAS NOTICED THAT NO RAW MATERIAL WAS SU PPLIED BY THEM TO THE ASSESSEE. THESE FARMERS HAD NOT SUPPLIE D RAW MATERIALS SUBSEQUENT TO PREVIOUS YEAR IN WHICH ADVA NCE WAS GIVEN. HENCE, THE ASSESSEE CANNOT CLAIM BAD DEBT. T HEREFORE, IT WAS DISALLOWED. 5. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER :- -: 6: - 6 7.3 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSIONS AND VARIOUS DOCUMENTS PLACED ON RECORD AS WELL AS VARIOUS JUDICIAL PRONOUNCEMENTS CITED BY THE APPELLANTS A/R. IT IS OBSERVED THAT THE AO DISALLOWED THE ADVANCES GIVEN TO THE CANE GROWER OF RS 32,37,546/- AND WRITTEN OFF BY THE APPELLANT BY HOLDING THAT THESE FARMERS NEVER SUPPLIED ANY MATERIAL TO THE APPELLANT COMPANY. HENCE, THE ADVANCES AS GIVEN TO THE CANE GROWER AND NOW W/OFF NEITHER TERMED AS BUSINESS ADVANCES NOR AS A DEBTORS FOR BUSINESS PURPOSES. THE APPELLANT IN ITS SUBMISSION HAS CLAIMED THAT THE AMOUNT AS ADVANCED BY HIM WAS FOR THE PURPOSE OF HIS BUSINESS. SINCE, THE MADHYA PRADESH WHERE THE APPELLANT INSTALLED ITS PLANT IS BASICALLY COTTON B ELT. THE APPELLANT ENCOURAGE FANNER OF NEARBY VILLAGE FO R GROWING OF CANE CROP. THAT FOR INITIATION OF CHANGE OF CROP FROM COTTON TO SUGAR CANE, THE APPELLANT INCURRED EXPENSES FOR TECHNICAL EDUCATION OF THE -: 7: - 7 FARMERS FOR GROWING OF SUGAR CANE AND AT THE SAME TIME ALSO PROVIDE FINANCIAL ASSISTANCE TO THE FARME RS FOR PURCHASING OF SEEDS AND FOR INCURRING REGULAR EXPENSES FOR GROWING OF THE SUGARCANE CROP. IT WAS ALSO CLAIMED THAT THE AO HIMSELF NOT DOUBTED ABOUT THE ADVANCES AS GIVEN BY THE APPELLANT BUT THE AO DISALLOWED THE CLAIM BY HOLDING THAT THESE CANE GROWER NEVER SUPPLIED ANY SUGAR CANE TO THE APPELLANT COMPANY. IT WAS EXPLAINED BY THE APPELLANT THAT DUE TO CHANGE OF CROP FROM COTTON TO SUGARCANE. SOME TIME DUE TO SOIL QUALITY AND VARIOU S OTHER REASONS. PROBABLY, THE FARMER WAS NOT ABLE TO TAKE CROP OF SUGAR CANE. FOR THIS REASON ONLY, SUCH CANE GROWER/FANNERS COULD NOT SUPPLIED CANE TO THE APPELLANT COMPANY. IT WAS CLAIMED BY THE APPELLANT THAT THE SAID AMOUNT OF ADVANCES WERE GIVEN DURING THE COURSE OF BUSINESS ITSELF. HENCE, CLAIM OF THE APPELLANT IS ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT. THE APPELLANT PLACED RELIANCE ON THE OF HONBL E APEX COURT IN THE CASE OF CIT VS MYSORE SUGAR CO -: 8: - 8 LIMITED IN 46 ITR 649 (SC). HON'BLE DELHI HIGH COUR T IN THE CASE OF MOHAN MEAKIN LIMITED V/S CIT BEING ITA NO.405/2007 DATED 1 1.05.2011 ALSO DISCUSSED THE SIMILAR FACTS IN DETAIL. CONSIDERING THE OVERAL L FACTS OF THE CASE AND DECISIONS AS RELIED BY THE APPELLANT, IT IS NOTICED THAT THE APPELLANT HAD GIV EN ADVANCES TO THE FARMERS DURING THE NORMAL COURSE OF HIS BUSINESS. THE AO HIMSELF HAS ALSO NOT DOUBTED ABOUT THE ADVANCES GIVEN BY THE APPELLANT BUT THE AMOUNT WAS DISALLOWED BY THE AO BY HOLDING THAT THESE FANNERS HAVE NEVER SUPPLIED ANY GOODS TO THE APPELLANT. HENCE, THE SAID ADVANCES AS GIVEN BY THE APPELLANT ARE NOT ALLOWABLE AS BUSINESS EXPENDITURE . IN MY CONSIDERED VIEW, THE SAID CONTENTION OF THE A O IS NOT CORRECT; THE AMOUNT AS ADVANCED BY THE APPELLANT WAS DURING THE COURSE OF ITS NORMAL BUSINESS WHICH IN ANY CASE IS ALLOWABLE AS BUSINESS EXPENDITURE OF THE APPELLANT. THE DECISION OF THE HONBLE APEX COURT AND HONBLE DELHI HIGH COURT ALS O SUPPORT THE CASE OF THE APPELLANT. I THEREFORE OF T HE -: 9: - 9 OPINION THAT THE AO WAS NOT JUSTIFIED IN DISALLOWIN G THE CLAIM OF ADVANCES WRITTEN BY THE APPELLANT. THE AMOUNT AS DISALLOWED BY THE AO OF RS. 32,37,546/- ON ACCOUNT OF ADVANCES WRITTEN OFF IS COMPLETELY UNJUSTIFIED AND INCORRECT. ACCORDINGLY THE DISALLOWANCE SO MADE BY THE LD. A.O. IS DELETED. THUS, THIS GROUND OF APPEAL IS ALLOWED. 6. THE LD. CIT D.R. RELIED ON THE ORDER OF THE AO. 7. THE LD. AUTHORIZED REPRESENTATIVE RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BA DRIDAS DAGA VS. CIT, 34 ITR 10 AND HON'BLE HIGH COURT OF D ELHI IN THE CASE OF MOHAN MEAKIN LIMITED VS. CIT, DELHI. (ITA N O. 405/2007 DATED 11.05.2011.) 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS WRITTEN OFF THIS AMOU NT OF RS. 3,55,20,202/- DUE TO SUGAR CANE GROWERS IN THE YEA R UNDER CONSIDERATION. HOWEVER, THE AO HAS DISALLOWED AMOUN T OF RS. 32,37,546/- BY STATING THAT THESE PARTIES HAVE NOT SUPPLIED -: 10: - 10 CANES TO THE ASSESSEE COMPANY. THE AO HAS NOT DOUBT ED ABOUT ADVANCE GIVEN BY THE ASSESSEE. HOWEVER, IN A BSENCE OF ANY BUSINESS TRANSACTION, THE AO DISBELIEVED AND DI SALLOWED THE AMOUNT OF RS. 32,37,546/-. THE ONLY REASON FOR DISALLOWANCE WAS THAT THEY HAVE NOT SUPPLIED ANY SU GAR CANE TO THE ASSESSEE. THE LD. CIT(A) HELD THAT MADHYA PR ADESH IS A SUGAR DEFICIT STATE. WHEN THE ASSESSEE COMPANY ESTA BLISHED ITS SUGAR MILL, THERE WAS ONLY SEVEN AND EIGHT SUGA R MILLS IN MADHYA PRADESH AND MOST OF THEM ARE RUN BY THE GOVE RNMENT OR COOPERATIVE SOCIETIES. THE ASSESSEE REQUIRED RAW MATERIAL AND HE WAS ACQUIRING THE SAME FROM MAHARASHTRA OR U TTAR PRADESH. THERE WAS LOW PRODUCTION OF SUGAR CANE, WH ERE THE ASSESSEES FACTORY WAS SITUATED. THEREFORE, THE FIN ANCIAL ASSISTANCE WAS GIVEN TO THE FARMERS FOR SEEDS, FERT ILIZERS AND OTHER EXPENSES TO GROW SUGAR CANE AND THESE ADVANCE S WERE GIVEN TO THEM WITH THE INTENTION TO SUPPLY SUGAR CA NE TO THE ASSESSEE COMPANY. WHEN THE ASSESSEE COMPANY WAS IN PROCESS OF SALE, THE ASSESSEE COMPANY TRIED TO RECO VER THE SAID ADVANCES FROM YEAR TO YEAR BASIS, BUT THE ASSESSEE COULD NOT RECOVER THIS AMOUNT AND THEY WERE NOT PAYING THE CL AIM AND IF -: 11: - 11 THE ASSESSEE SHOULD HAVE FILED ANY LEGAL ACTION AGA INST THEM, THEN THERE MAY BE ADVERSE EFFECT ON FARMERS RESULTI NG INTO NEGATIVE IMAGE OF THE ASSESSEE COMPANY. THEREFORE, THE ASSESSEE HAS WRITTEN OFF THIS AMOUNT IN ITS BOOKS O F ACCOUNT AND IT IS ALLOWABLE AS EXPENSES. THE LD. COUNSEL FO R THE ASSESSEE RELIED UPON THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF BADRIDAS DAGA VS. CIT, 34 ITR 10 AND DE CISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MOHAN MEAKI N LIMITED VS. CIT (SUPRA), WHEREIN IT IS HELD THAT WHEN THE A DVANCE WAS GIVEN TO A SUPPLIER IN ORDER TO OBTAIN A REGULAR SU PPLY, AND IF THE SUPPLIER FAILED TO DELIVER THE GOODS OR REFUND AN ADVANCE, THE ASSESSEES CLAIM AS A LOSS OR BAD DEBT U/S 36(1 )(VII) IS ALLOWED AND IT IS A BUSINESS LOSS. THEREFORE, WE A RE OF THE VIEW THAT THE LD. CIT(A) IS JUSTIFIED IN HIS ACTION. 9. FOLLOWING GROUNDS HAVE BEEN TAKEN UNDER GROUND NO. 2 , WHICH READS AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 8.50 CRORE MADE BY THE AO OUT OF NON-COMPETE FEE PAYMENT OF RS.9.50 CRORE OBSERVING THAT THE -: 12: - 12 PAYMENT WAS MADE AFTER COMPLETING ALL THE FORMALITIES. THE ID. CIT(A) IS NOT JUSTIFIED IN SAY ING SO BECAUSE THE MAIN ARGUMENT IS THAT THE CONSENT OF THE SHARE HOLDERS WAS OBTAINED THROUGH POSTAL BALLOT BEFORE THE DEAL WAS NOT APPROPRIATE AS THE SHARE HOLDERS WERE KEPT IN DARK ABOUT THE PAYMENT OF SUCH HUGE NON-COMPETE FEE TO THE PROMOTERS. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. C1T(A) ERRED IN DELETING THE ADDITION OF RS. 8.50 CRORE MADE BY THE AO OUT OF NON-COMPETE FEE PAYMENT OF RS. 9.50 CRORE HOLDING THAT THE AFORESAID TRANSACTION WAS GENUINE AS PER THE AGREEMENT DATED 26.09.2008 WITHOUT APPRECIATING THE FACT THAT IN VIEW OF THE FACTS DISCUSSED IN THE ORDER OF THE AO, THE AFORESAID AGREEMENT AND CONSEQUENTLY PAYMENT OF NON-COMPETE FEE WAS A COLORFUL DEVICE TO AVOID PAYMENT OF LEGITIMATE TAXES ON THE NON COMPETE FEE BY THE COMPANY. -: 13: - 13 2.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 8.50 CRORE MADE BY THE AO OUT OF NON-COMPETE FEE PAYMENT OF RS.9.50 CRORE HOLDING THAT THE AFORESAID NON COMPETE FEE WAS ASSESSED IN THE HANDS OF THE PROMOTERS BY THE DEPARTMENT AND ACCORDINGLY THE SAME COULD NOT BE ASSESSED ON NOTIONAL BASIS IN THE HANDS OF THE ASSESSEE IGNORING THE FACT THAT THE NON COMPETE FEE WAS CORRECTLY ASSESSED IN THE CASE OF THE ASSESSEE IN VIEW OF THE FACT OF THE CASE AND ACCORDINGLY BY RELYING UPON THE RATIO OF THE HON. SUPREME COURT AS RELIED UPON IN THE ORDER OF THE AO AND ALSO IN VIEW OF THE RATIO LAID DOWN IN THE HON. SUPREME COURT DECISION IN THE CASE OF CIT VS. PANIPAT WOOLEN & GENERAL MILLS CO. LTD. (SC) 103 ITR 66, KARANPURA DEVELOPMENT CO. LTD. VS. CIT (SC) 44 ITR 362. 2.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE -: 14: - 14 ADDITION OF RS. 8.50 CRORE MADE BY THE AO OUT OF NON-COMPETE FEE PAYMENT OF RS. 9.50 CRORE IGNORING THE FACT THAT PREMIER INDUSTRIES LTD. AND PREMIER PROTEINS LTD. (PROMOTER OF THE ASSESSEE COMPANY) WERE BIFR REGISTERED COMPANIES INCURRING HEAVY LOSSES, DID NOT CARRY OUT ANY ACTIVITY OF MANUFACTURING SUGAR OR TRADING IN THE PAST AND ACCORDINGLY THEY DID NOT POSE ANY THREAT TO THE BUYER IN THIS LINE OF BUSINESS TO BE ENTITLED FOR NON COMPETE FEE. 2.4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 8.50 CRORE MADE BY THE AO OUT OF NON-COMPETE FEE PAYMENT OF RS. 9.50 CRORE PAID TO THE PROMOTERS OF THE ASSESSEE COMPANY BECAUSE THEY WERE HAVING MERELY 35.60% HOLDING IN THE ASSESSEE COMPANY AND HAVING NO COMMERCIAL OR TECHNICAL EXPERTISE IN THIS LINE OF BUSINESS AND ALSO FINANCIAL STRENGTH TO -: 15: - 15 CARRYOUT BUSINESS AND, THEREFORE, THE AGREEMENT WAS DESIGNED TO DENY THE ACTUAL BENEFIT TO THE REMAINING SHAREHOLDERS CONSTITUTING 64.40%. 2.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 8.50 CRORE MADE BY THE AO OUT OF NON-COMPETE FEE PAYMENT OF RS.9.50 CRORE ON THE GROUND THAT PERMISSION OF THE SHARE HOLDERS WAS TAKEN THROUGH POSTAL BALLOT FOR SALE OF ASSETS WITHOUT TAKING THEIR CONSENT FOR ENTERING INTO TRANSACTION OF NON COMPETE FEE. 10. ALL THESE GROUNDS ARE INTER-CONNECTED. 11. THE SHORT FACTS OF THE CASE ARE THAT DURING THE YEA R UNDER APPEAL THE ASSESSEE COMPANY HAS SOLD ITS SUGA R MILL TO M/S OLAM EXPORT INDIA LIMITED AT A CONSIDERATION OF RS. 38,87,04,479/-. BREAK UP OF THE SAME IS AS UNDER :- -: 16: - 16 S.NO. PARTICULARS OF ASSETS AMOUNT ( RS. ) 1. LAND DIVERTED 3,10,10,700 2. OTHERS INCLUDING TREES ETC. 56,11,845 3. BUILDINGS 5,31,09,751 4. PLANT & MACHINERY EMBEDDED 1,10,00,000 5. MOVEABLE OR DISMANTLED PLANT AND MACHINERY, FURNITURE & FIXTURE, STORES, VEHICLES ETC. 28,79,72,183 38,87,04,479 THE W. D. V. OF THE ASSETS OF THE ASSESSEE COMPANY AS ON 30.06.2008 AS PER AUDITED FINAL ACCOUNT WAS OF RS. 17,14,72,630/-. THE REGISTRAR HAS ALSO NOT DISPUTE D THE VALUATION AS PRESENTED BEFORE HIM AND THE VALUATION AS AGREED BETWEEN THE ASSESSEE COMPANY AND THE BUYER WAS DULY ACCEPTED BY THE REGISTRAR. THE BUYER IN ADDITION TO THE PURCHASE CONSIDERATION FOR ASSETS AS PURCHASED BY I T ALSO PAID AN AMOUNT OF RS. 9,50,00,000/- ON ACCOUNT OF NON-CO MPETE FEE TO THE ASSESSEE COMPANY AND ITS PROMOTERS. BREA K UP OF THE SAME IS AS UNDER :- -: 17: - 17 S.NO. NAME OF THE PERSON/COMPANIES P.A.NO. AMOUNT (RS.) 1. M/S.GIRDHARILAL SUGAR AND ALLIED INDUSTRIES LIMITED (ASSESSEE ) AABCG5246R 1,00,00,000 2. RAJESH AGRAWAL ADCPA5339F 10,00,000 3. PREMIER PROTEINS LIMITED AABCM3277H 2,40,00,000 4. PREMIER INDUSTRIES (I) LTD. AABCP1890P 6,00,00,000 9,50,00,000 12. THE ASSESSEE COMPANY HAS SOLD ITS FIXED ASSETS STANDING IN THE BALANCE SHEET AS ON 30.10.2008. AN AGREEMENT WAS EXECUTED BETWEEN THE ASSESSEE AND ITS DIRECTOR RAJESH AGRAWAL WITH OLAM EXPORTS INDIA LIMITED, THE PURCHA SER OF THE COMPANY. AS PER THE AGREEMENT THE COMPANY HAS AGREE D TO PAY RS. 9.50 CRORES TO THE ASSESSEE. THE NAME OF TH E PROMOTERS ARE SHRI RAJESH AGRAWAL, GIRDHARILAL SUG AR & ALLIED INDUSTRIES LIMITED. THE COMPANY HAS PAID NON-COMPET E FEE TO SHRI RAJESH AGRAWAL, WHO IS THE MAIN DIRECTOR OF TH E ASSESSEE COMPANY AND TWO OTHER COMPANIES, WHOSE PROMOTER IS RAJESH AGRAWAL. HIS SHAREHOLDING IS ALSO OF SHRI RAJESH AG RAWAL ONLY. THEREFORE, THE AO HAS GIVEN SHOW CAUSE NOTICE AS TO WHY NON- -: 18: - 18 COMPETE WAS PAID TO THE ASSESSEE. THE AO HELD THAT NON- COMPETE FEE IS NOT GIVEN TO MAJORITY OF THE SHAREHO LDERS AND HAVE NOT BENEFITED BY THIS AGREEMENT. THE BENEFIT G OES TO THREE PROMOTERS AND THEY ONLY ARE BENEFITTED. THE AGREEME NT HAS BEEN FOUND TO BE A DECISION OF MINORITY SHAREHOLDER S WITHOUT TAKING INTO CONFIDENCE OF MAJORITY SHAREHOLDERS. TH E ASSESSEE NEVER PAID A SINGLE PENNY. RAJESH AGRAWAL HAS CARRI ED OUT THE BUSINESS BUT THESE THREE PERSONS WHO HAVE NOT CARRI ED OUT THE BUSINESS WERE THE SHAREHOLDERS OF THE ASSESSEE COMP ANY. THEY HAVE NEVER PARTICIPATED IN ANY OPERATION SIDE OF TH E ASSESSEES BUSINESS. THEREFORE, THE AO WAS OF THE VIEW THAT TH IS CANNOT BE ALLOWED. THE ASSESSEE HAS MADE THE AGREEMENT OF NON- COMPETE FEE WAS NOT AS PER THE LAW AND PREMIER INDU STRIES HAD NO GOODWILL AND THE NON-COMPETE FEE IS PAID TO DEFR AUD THE REVENUE, PARTICULARLY AS PER ARTICLE 265 OF THE CON STITUTION REQUIRES THAT ANY ACTS UNDERTAKE TO AVOID THE TAXAT ION MAY NOT BE IGNORED AND THE AO HAS HELD THAT THIS TRANSACTIO N IS NOT GENUINE AND CONSIDERING THE CIRCUMSTANCES, HE HAS D ISALLOWED THE NON-COMPETENCE FEE IN HIS PARA 4.4.25 TO 4.4.27 , WHICH READ AS UNDER :- -: 19: - 19 4.4.25 IN THE BACKDROP OF ABOVE DISCUSSION AND THE FACTS OF THE CASE ONLY ONE CONCLUSION CAN BE DRAWN THAT THE ASSESSEE HAD ADOPTED THE MODUS OPERANDI OF DIVERTING ITS OWN INCOME TO ITS PROMOTE R COMPANIES WHICH ARE ADMITTEDLY BIFR REGISTERED COMPANIES, OBVIOUSLY UNDER THE PRESSURE OF HEAVY LOSSES. THE ASSESSEES INTENTION WAS APPARENT AND CLEAR. AFTER A LONG WAIT OF SEVERAL YEARS, THE ASSE SSEE HAD COME WITHIN THE BRACKET IN WHICH IT WAS REQUIRE D TO PAY TAXES, OBVIOUSLY THIS WAS NOT HABITUAL AND CONSISTENT FOR THE ASSESSEE. THIS LEAD THE ASSESSEE TO REDUCE THE INCIDENCE OF TAX TO A BARE MINIMUM. NEEDLESS TO SAY WHEN MONEY IS RECEIVED, IT IS OUGHT TO BE ACCOUNTED FOR, WHEN ACCOUNTED FOR IT IS SUBJECTED TO TAX. THE ASSESSEE, THEREFORE, RESORTED TO DIVERT THE RECEIPT ITSELF TO ITS NEAR AND DEAR ONES , BE ITS DIRECTORS OR PROMOTERS. CONSIDERING THE LOGICS ENVISAGED IN THE DISCUSSION MADE IN THE PRECEDING PARAS IT IS QUITE EVIDENT THAT THE ASSESSEE COMPANY ALONE IS WELL VERSED WITH THE TECHNICAL AND -: 20: - 20 COMMERCIAL ASPECTS OF MANUFACTURING OF SUGAR AND IT S TRADING. THUS, IF ANYBODY WAS ENTITLED TO RECEIVE N ON- COMPETE FEE, THEN IT WAS ASSESSEE ONLY, NONE ELSE. THE AGREEMENT, THUS, BROUGHT OUT IS NOTHING BUT A S ELF SERVING DOCUMENT PREPARED AT THE BEHEST OF THE ASSESSEE WHO WAS THE ACTUAL BENEFICIARY. OBVIOUSLY, THE TRANSACTIONS WERE ARRANGED WITH A SOLE MOTIVE T O AVOID PROPER AND LEGITIMATE TAXATION. 4.4.26 THE PRINCIPLE OF COLOURABLE DEVICE AND CORPORATE VEIL WAS EXISTED IN THIS CASE. THOUGH UNSUCCESSFULLY TRIED TO RAISE THE BOGEY OF SEBI GUIDELINES, BUT THE ASSESSEE HAS ACTED AGAINST THE VERY PRINCIPLES OF COMMERCIAL PRUDENCE AND ADOPTED COLOURABLE DEVICE AND MINIMIZE THE INCIDENCE OF TAX . 4.4.27 IN VIEW OF THE FORGOING PARAS, THE NON- COMPETE FEE PAID TO M/S. PREMIER INDUSTRIES I) LIMITED, M/S. PREMIER PROTEINS LIMITED AND SHRI RAJESH AGRAWAL, AGGREGATING TO RS. 8,50,00,000/- IS ADDED TO THE ASSESSEES TOTAL INCOME I AM SATISFIE D THAT THE ASSESSEE HAS FURNISHED INACCURATE -: 21: - 21 PARTICULARS OF ABOVE INCOME, HENCE PENALTY PROCEEDINGS U/S 271(1)(C ) IS SEPARATELY INITIATED. 13. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER :- 9.6 CONSIDERING THE OVERALL FACTS OF THE CASE, WRITTEN AND VERBAL SUBMISSION AS PUT FORTH BY THE PROMOTERS OF THE APPELLANT COMPANY AND ON GOING THROUGH THE ASSESSMENT ORDER AS PASSED BY THE ASSESSING OFFICER. IT IS NOTICED THAT THE APPELLANT COMPANY HAD SOLD OUT ITS ENTIRE ASSETS WHICH INCLUDES LAND, BUILDING, PLANT AND MACHINERY AND STORES ETC. IT IS ALSO NOTICED THAT THE APPELLANT COMPANY HAS TAKEN PRIOR PERMISSION FROM THE SHARE HOLDERS THROUGH THE POSTAL BALLOT AND REPORT OF THE RESULT OF THE POSTAL BALLOTS WERE ALSO SUBMITTED BY THE PRACTICING COMPANY SECRETARY TO THE BOARD OF DIRECTORS. THE INTIMATION FOR SALE OF ASSETS ALSO F ILED WITH THE REGISTRAR OF COMPANIES AND WITH THE STOCK EXCHANGE. THE AO HIMSELF NOT DOUBTED THE -: 22: - 22 GENUINENESS OF THE SALE CONSIDERATION AS RECEIVED O N ACCOUNT OF SALE OF PLANT & MACHINERY, LAND & BUILDING. THE AO WHEN NOT DISPUTED THE SALE CONSIDERATION IN THAT CASE, THEN HIS OBSERVATION MA DE OTHERWISE IN THE ASSESSMENT ORDER FOR TAXING THE AMOUNT OF NON COMPETE FEES IN THE HANDS OF APPELLANT COMPANY AS AN ADDITIONAL AMOUNT WHICH WAS RECEIVED BY THE APPELLANT COMPANY AND PROMOTERS OF THE APPELLANT COMPANY THROUGH THE SEPARATE AGREEMENT EXECUTED BETWEEN THE APPELLANT COMPANY, PROMOTERS AND BUYER IS NOT JUSTIFIED AND CORRECT. I FIND THAT THE AMOUNT OF NON- COMPETE FEE S WERE PAID THROUGH THE SEPARATE AGREEMENT AS EXECUTED AND CONSIDERATION WERE ALSO PAID DIRECTLY BY THE BUYER COMPANY. THE PREMIER INDUSTRIES (INDIA ) LIMITED TO WHICH NON- COMPETE FEE OF RS 6 CRORES WERE PAID WAS THE MAIN PROMOTER OF THE PREMIER PROTEINS LIMITED AND M/S PREMIER PROTEINS LIMITED T O WHOM NON- COMPETE FEE OF RS 2.40 CRORES WERE PAID WAS THE PROMOTER OF THE APPELLANT COMPANY, AN -: 23: - 23 AMOUNT OF RS 1 CRORE WAS ALSO PAID TO THE APPELLANT COMPANY AND RS 0.10 CRORE WAS PAID TO SHRI RAJESH AGRAWAL, INDIVIDUAL FAMILY MEMBERS OF THE PROMOTER GROUP. THE BUYER THROUGH THIS NON- COMPETE FEE AGREEMENT RESTRICTED NOT ONLY THE APPELLANT COMPANY BUT ALSO ALL THE PROMOTER GROUP COMPANIES FOR DOING THE SIMILAR BUSINESS IN PARTICULAR TIME FRAME. THUS I AM OF THE CONSIDERED VIEW THAT NO NOTIONAL INCOME CAN BE TAXED IN THE HAND OF THE APPELLANT COMPANY ON PRESUMPTION BASIS. IN THE PRESENT APPEAL, THE AMOUNT OF NONCOMPETE FEE AS PAID BY THE BUYERS WERE ALSO ASSESSED IN THE HANDS OF THE PROMOTERS AS THEIR INCOME. IT WAS ALSO WRONG ON MERE PRESUMPTION BASIS BY TREATING THE ENTIRE AMOUNT OF AMOUNT OF NO N- COMPETE FEES AS INCOME OF THE APPELLANT. IF THE ENT IRE AMOUNT IS PAID TO THE APPELLANT COMPANY IN THAT CAS E THE PROMOTER COMPANY AND INDIVIDUAL PROMOTERS WERE FREE TO SHARE THEIR INFORMATION WITH THE OTHER COMPETITORS OR JOIN THE HANDS WITH OTHER FINANCERS FOR INSTALLATION NEW SUGAR MILLS. SINCE, THE PROMOTERS -: 24: - 24 WITH THEIR EXPERIENCE, KNOWLEDGE AND RELATION INSTALLED NEW UNITS. I THEREFORE CONSIDERED THAT IT WAS THE BUYER WHO TAKE CALL TO WHOM NON FEES HAS TO BE PAID BY IT. THAT AS REGARD THE SALE CONSIDERATION I S AD, THE ENTIRE AMOUNTS WERE PAID TO THE APPELLANT COMPANY ONLY AND NOT TO Y PROMOTERS. IT IS ALSO EQUALLY CORRECT THAT NO NOTIONAL INCOME CAN BE TAXE D ON THE BASIS OF PRESUMPTION AND SURMISES. THE AO WAS NOT CORRECT IN ADDING THE ENTIRE AMOUNT OF NON- COMPETE FEE AS INCOME OF THE APPELLANT WITHOUT CONDUCTING INQUIRY FROM THE BUYER AND GIVING HIS STAND SOME SUPPORT. THE PROMOTER COMPANY INCURRING LOSSES OR THE APPELLANT COMPANY INCURRING LOSSES WA S NOT THE CRITERIA FOR DECIDING THE TAXABILITY OF THE NON- COMPETE FEE IN PARTICULAR HAND. THE DECISION OF SAL E OF ASSETS WERE TAKEN BY THE SHARE HOLDERS AND THE AMOUNT OF NON- COMPETE FEE WAS NOT THE RIGHT OF THE SELLER BUT THE SAME IS THE CHOICE OF THE BUYER WHET HER HE WAS WILLING TO PAY OR NOT THE AMOUNT OF NON- COMPETE FEE. I THEREFORE OF THE OPINION THAT THE AO -: 25: - 25 WAS NOT CORRECT IN TAXING THE AMOUNT OF NON- COMPET E FEE AS PAID BY THE BUYER TO THE OTHER PROMOTER COMPANY AND INDIVIDUAL AS INCOME OF THE APPELLANT COMPANY. ACCORDINGLY I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS NOT JUSTIFIED IN HIS ACTION IN MAKING THE ADDITION OF NON-COMPETE FE ES IN THE APPELLANTS HAND. THUS, THE' ADDITION SO MAD E BY THE A.O. OF RS.8.50 CRORES STANDS DELETED. ACCORDINGLY THE APPELLANTS THIS GROUND OF APPEAL I S ALLOWED. 14. THE ASSESSEE AND PURCHASER COMPANY HAS AGREED TO PAY NON-COMPETE FEE AT RS. 9.50 CRORES. THE ASSESSE E IS A MAIN DIRECTOR OF THAT COMPANY, WHO HAPPENS TO BE SHAREHOLDERS OF THE COMPANY AND RAJESH AGRAWAL IS SHAREHOLDER-CUM-DIRECTOR. THEY HAVE EXECUTED THE AG REEMENT WITH THE PURCHASER COMPANY TO PAY NON-COMPETE FEE T O THE ABOVE PERSONS AMOUNTING TO RS. 9.50 CRORES. THE FAC TS SHOW THAT THE OUTGOING COMPANY, WHICH WAS SOLD BY THE AS SESSEE INCURRED HEAVY LOSSES. THEREFORE, NON-COMPETE AGREE MENT -: 26: - 26 WHILE NON-COMPETE FEE WAS EXECUTED BETWEEN THE PURC HASER PARTY AND THE OWNER OF THE PARTY. THE ASSESSEE HAS CONTENDED THAT PREMIER INDUSTRIES HAD GOODWILL AND HAD CORREL ATION WITH THE FINANCIAL INSTITUTION. THEREFORE, THEY HAD EXEC UTED A NON- COMPETE AGREEMENT. THEREFORE, THE AO HAD VERIFIED T HE ARRANGEMENT AND AFTER ARRANGEMENT, THIS NON-COMPETE FEE WAS NOTHING BUT COLOURABLE DEVICE TO AVOID TAX. 15. ON THE OTHER HAND THE LD. CIT DR RELIED UPON THE ORDER OF THE CIT(A). 16. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION HAS SOLD THE ENTIRE ASSETS WHICH INCLUDE LOANS, BUILDIN G, PLANT AND MACHINERY, STORES AT A CONSIDERATION OF RS. 38,87,0 4,479/-. THE SALE DEED EXECUTED AND REGISTERED WITH THE REGI STRAR. THE BUYER IN ADDITION TO PURCHASE CONSIDERATION OF ASSE TS ALSO PAID AN AMOUNT OF RS. 9.50 CRORES ON ACCOUNT OF NON-COMP ETE FEE TO THE ASSESSEE COMPANY AND ITS PROMOTERS. THE NON-COM PETE AGREEMENT WAS EXECUTED BETWEEN BUYER AND ASSESSEE C OMPANY AND ITS PROMOTERS. THE AO HAS NOT DISPUTED THE SALE PROCEEDS -: 27: - 27 AS REALIZED BY THE ASSESSEE ON SALE OF DIFFERENT A SSETS. THE ASSESSEE COMPANY HAS ONLY LEGAL RIGHT TO RECEIVE TH E SALE PROCEEDS. THE AO HAS ACCEPTED THE SALE PROCEEDS AS REALIZED BY THE ASSESSEE AND HE HAS NOT DISPUTED THE SAME. T HE AO ADDED RS. 8.50 CRORES RECEIVED BY THE OTHER PROMOTE R COMPANY AS INCOME OF THE ASSESSEE ON NOTIONAL BASIS, EVEN W HEN THE SAME AMOUNT WAS RECEIVED BY THESE PROMOTERS AND OTH ERS AS REVENUE INCOME IN THEIR INDIVIDUAL ASSESSMENTS. THE BUYER HAS ALSO DEDUCTED TDS ON THE AMOUNT OF NON-COMPETE FEE PAID BY DIFFERENT PROMOTERS. WE FIND THAT NO ADDITION CO ULD BE MADE ON THE BASIS OF PRESUMPTION. THE ASSESSEE HAS PRODU CED ALL THE DOCUMENTARY EVIDENCES INCLUDING SALE DEED, NON- COMPETE AGREEMENT, COPY OF RETURN OF M/S. PREMIER INDUSTRIE S, COPY OF RETURN OF M/S. PREMIER PROTEINS LIMITED, COPY OF TH E RETURN OF RAJESH AGRAWAL, COPY OF BOARDS RESOLUTION., COPY O F THE BALLET PAPER AND COPY OF LETTER ADDRESSED TO STOCK EXCHANG E. AFTER VERIFICATION OF ALL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. 17. DURING THE COURSE OF HEARING THE LD. CIT DR COULD N OT BRING ANY CONTRARY FINDING AGAINST THE LD. CIT(A). -: 28: - 28 18. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. I.T.A.NO. 515/IND/2013: (ASSESSEES APPEAL): 19. GROUND NO.1 IS NOT PRESSED. 20. GROUND NO.2 RELATES TO CONFIRMATION OF AGRICULTURAL INCOME OF RS.56,11,845/- EARNED ON SALE OF TREES A S NON- AGRICULTURE INCOME . 21. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE HAS SHOWN THE SALE OF TREES AT RS. 56,11,845/- UNDER TH E HEAD SALE OF AGRICULTURE TREE. THE ASSESSEE CLAIMED AS A GRICULTURAL INCOME. THE CLAIM OF THE ASSESSEE WAS REJECTED. THE AO FOUND THAT THE AGRICULTURAL INCOME SHOULD BE DERIVED FROM THE LAND USED FOR AGRICULTURAL PURPOSE AND RELYING UPON THIS JUDGMENT, THE LD. CIT(A) HAS DISALLOWED THE CLAIM. 22. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS DISMISSED THE APPEAL. 23. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT TH E ASSESSEE HAS NOT GROWN UP THESE TREES, BUT THESE TR EES WERE GROWN BY SEVERAL YEARS. THEREFORE, THE ASSESSEE HAS EARNED THE INCOME BY SELLING THESE TREES TO THE COMPANY. THE L D. -: 29: - 29 AUTHORIZED REPRESENTATIVE RELIED UPON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. KANAN DEVAN HILLS PRODUCE COMPANY LIMITED, (1993) 200 ITR 453 (CAL), WHEREIN IT WAS HELD THAT WHERE THE FOREST WA S GROWN BY WAY OF SPONTANEOUS GROWTH, THEN THE CONCLUSION WOUL D BE THAT INCOME WAS NOT AGRICULTURE, BUT IT WAS FOUND THAT I N SOME PORTION OF FOREST AREA, THE PROPRIETOR HAS PLANTED FRESH TREES AND PERFORMED THE OPERATION FOR NURSING TREES, THE INCOME DERIVED FROM THERE WOULD BE AGRICULTURE INCOME. SIM ILARLY, THE SALE PROCEEDS CLAIMED BY THE ASSESSEE IS OF AGRICUL TURE INCOME. THEREFORE, IT MAY BE ALLOWED. 24. ON THE OTHER HAND, THE LD. CIT DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 25. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS SOLD THE TREES, WHICH WAS STANDING ON THE COMPOUND WALL OF THE FACTORY. THE A SSESSEE IS A PUBLIC LIMITED COMPANY AND ITS EXTENSIVE LAND IN WHICH THE SUGAR CANE WAS GROWN AND WAS USED BY THE ASSESSEE F OR MANUFACTURING OF SUGAR IN HIS FACTORY. THE AO DID N OT GIVE ANY -: 30: - 30 EVIDENCE TO SHOW THAT THIS ASSESSEE HAS GROWN THESE TREES AND ANY EXPENDITURE WAS INCURRED BY THE ASSESSEE. WE FI ND THAT THE ASSESSEE COULD NOT PRODUCE THIS EVIDENCE BEFORE THE REVENUE AUTHORITIES. WE, THEREFORE, REVERSE THE FIN DING OF THE AO AND THE MATTER IS RESTORED BACK TO THE FILE OF L D. CIT(A). THE CIT(A) IS DIRECTED TO CALL FOR THE REMAND REPORT IF NECESSARY AND DECIDE THE MATTER AFRESH. THE LD. CIT(A) SHALL VERI FY AS TO WHETHER THESE TREES WERE SPONTANEOUS TREES OR THE A SSESSEE HAS INCURRED ANY EXPENSES FOR PLANNING THESE TREES OR NOT AND IF THE ASSESSEE HAS PRODUCED THE EVIDENCES, THEN TH E MATTER MAY BE DECIDED AS PER THE DECISION OF HON'BLE CALCU TTA HIGH COURT IN THE CASE OF CIT VS. KANAN DEVAN HILLS PROD UCE COMPANY LIMITED (SUPRA). GROUND NO. 2 IS ALLOWED FO R STATISTICAL PURPOSES. 26. GROUND NO.3 RELATES TO CONFIRMATION OF THE AOS ACT ION IN NOT ALLOWING SET-OFF OF BROUGHT FORWARD LOSSES O F RS. 5,64,25,746/- AS CLAIMED BY THE ASSESSEE. 27. THE ASSESSEE HAS CLAIMED SET-OFF AND CARRY FORWARD UNABSORBED DEPRECIATION. THE CLAIM WAS EXAMINED IN THE BACKGROUND OF THE ASSESSMENT COMPLETED IN THE YEAR -: 31: - 31 PERTAINING TO WHICH THE SAID CLAIM HAD BEEN MADE. T HE FIGURE AS PER THE REGULAR ASSESSMENT IN THE RETURN, WHICH HAS NOT BEEN SUBJECTED TO SCRUTINY WERE EXAMINED. IT WAS FO UND THAT THE CLAIM WHICH WAS NEVER MADE IN THE RETURN HAD BE EN BROUGHT IN COMPUTATION OF INCOME OF PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR 2009-10 AND CLAIMED SET-OF THEREOF. THERE WAS NO BASIS FOR THE SAID CLAIM. IT WAS THE MAXIMUM AMOUNT OF UNABSORBED DEPRECIATION WAS PERTAINING TO ASSESS MENT YEAR 1997-98 TO 2002-03. THE ASSESSEE HAS CLAIMED UNABSO RBED DEPRECIATION ON THE GROUND THAT SUGAR INCENTIVE CLA IM WAS CAPITAL RECEIPT. THE CLAIM HAS BEEN MADE BY WAY OF NOT APPENDED TO COMPUTATION OF INCOME AND THAT SUGAR IN CENTIVE WAS CAPITAL RECEIPT. ON THE SAME BASIS, THE ASSESSE E CLAIMING SET-OFF OF SO CALLED UNABSORBED DEPRECIATION, THE A SSESSEE HAS NOT RECEIVED THE AMOUNT OF INCENTIVE WHEN THE PLANT AND MACHINERY HAS BEEN DISPOSED OF. THEREFORE, THE AO HELD THAT ASSESSEES ACTION IN CLAIMING INCENTIVE IN CAPITAL NATURE CANNOT BE ALLOWED AND WRITTEN DOWN VALUE CANNOT BE WORKED OUT WHEN THE MACHINERY HAD BEEN SOLD. THEREFORE, HE DID NOT ALLOW THE CLAIM. -: 32: - 32 28. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS DISMISSED THIS GROUND. 29. THE LD. AUTHORIZED REPRESENTATIVE HAS FILED THE WRI TTEN SUBMISSION, WHICH READS AS UNDER :- THE INCOME TAX APPEALS AS FILED BY THE DEPARTMENT AND ALSO BY ASSESSEE IN THE CASE OF ABOVE NAMED ASSESSEE COMPANY WAS FIXED FOR HEARING ON 29.07.201 5 AND 30.07.2015 AND WAS FINALLY HEARD ON 30.07.2015. THAT AT THE TIME OF HEARING YOUR HONOUR HAVE ALLOW ED TO SUBMIT NOTE ON CLAIM OF SET- OFF OF UNABSORBED LOSS ES AS CONTENDED BY THE ASSESSEE THROUGH ITS GROUND NO3 OF THE APPEAL AS FILED BY ASSESSEE BEFORE THE HONBLE ITAT . IN PURSUANCE TO THE SAID DIRECTIONS AND FOR SAKE OF CL ARITY IN DECIDING THE SAID GROUND OF APPEAL AND IN ADDITION TO THE SYNOPSIS AS FILED DURING THE COURSE OF HEARING BEFO RE THE HONBLE BENCH ON PAGE NOS 368 TO 409-M, WE WOULD FURTHER LIKE TO SUBMIT AS UNDER:- -: 33: - 33 01] THAT IN GROUND NO. 3 OF THE APPEAL AS FILED BY THE ASSESSEE COMPANY RELATES TO NON-ALLOWANCE OF SET OF F OF BROUGHT FORWARD LOSSES TOTALING TO RS. 5,64,25,746/- PERTAINING TO THE A.Y. 1997-98 TO 2002-03. 02] THE ASSESSEE IS A PUBLIC LTD. COMPANY WHICH WA S CARRYING ON THE BUSINESS OF MANUFACTURING SUGAR FROM SUGAR CANE AT VILLAGE GHATWA DIST. BARWANI.THE GOVERNMENT AS PER THEIR SCHEME ALLOWED INCENTIVE TO THE NEW SUGAR MILLS IN THE FOR M OF EXCESS FREE SALE QUOTA TO MEET OUT CAPITAL COST OF EXPENDITURE INCURRED FOR INSTALLATION OF THE SUGAR MILL. THE EXTRA AMOUNT AS REALIZED ON ACCOUNT OF SALE OF EXCESS FREE SALE QUOTA WAS CLAIMED BY THE ASSESSEE AS CAPITAL RECEIPT BY WAY OF NOTE IN THE RETURN OF TOTAL INCOME. NOTE AS PUT WITH THE RETURN OF INCOME AS FILED FOR THE ASST YEAR 1998-99 READ AS UNDER [ COP Y OF RETURN OF INCOME WAS ENCLOSED ON PAGE NOS 127 TO 133 AND RELEVANT PAGE OF NOTE ON PAGE NO 132 OF THE -: 34: - 34 PAPERBOOK FILED BEFORE YOUR HONOUR]. THE SAME READ AS UNDER:- NOTE NO 9 : IN ACCORDANCE WITH THE SCHEME FORMULATED BY THE GOVERNMENT TO GIVE INVENTIVE FOR SETTING UP NEW SUGAR FACTORIES AND IN ORDER TO COMPENSATE THE BURDEN IMPOSED BY HIGHER CAPITAL COST, THE COMPANY WAS ALSO GRANTED RELEASE OF FREE SALE SUGAR QUOTA DURING THE YEAR . THE COMPANY HAS BEEN ADVISED THAT THE EXTRA PRICE SO REALIZED ON ACCOUNT OF THIS INCENTIVE SCHEME WAS IN THE NATURE OF CAPITAL RECEI PT FOR MEETING THE BURDEN OF HIGHER CAPITAL COST. ACCORDINGLY, THE COMPANY CLAIMS BY WAY OF THIS NOTE , THAT A SUM OF RS. 1,39,22,608/- REALIZED DURING THE YEAR ON THIS ACCOUNT, AND INCLUDED IN THE SALE PROCEEDS IS AN ITEM OF CAPITAL RECEIPTS THOUGH CREDITED IN THE P&L ACCOUNT & OFFERED AS INCOME IN THE RETURNED FILED TO AVOID ADDITIONAL TAX LIABILIT Y IN -: 35: - 35 CASE OF NON-ACCEPTANCE OF SUCH CLAIMS BY THE IT AUTHORITIES. FOR THIS CLAIM WE ALSO RELY ON THE DECISION OF ITAT CALCUTTA C BENCH. IN THE CASE VISHNU SUGAR MILLS LTD. V/S DCIT AS REPORTED IN 62 TTJ 275 (CAL) 03] THE ASSESSEE WHILE FILING ITS RETURN OF INCOME INCLUDED THE ADDITIONAL AMOUNT OF SALE AS REALIZED ON ACCOUNT OF EXCESS FREE SALE QUOTA IN ITS SALE AND A LSO BY WAY OF NOTE CLAIMED THAT THE SAID AMOUNT THOUGH INCLUDED IN THE FIGURE OF SALE BUT THE SAME WAS REQUIRES TO BE TREATED AS CAPITAL RECEIPT AND LOSS AS CLAIMED BY THE ASSESSEE WAS REQUIRES TO BE INCREASED BY THAT AMOUNT. 04] YEAR WISE DETAIL OF INCENTIVE AS CLAIMED BY TH E ASSESSEE IN ITS RETURN OF TOTAL INCOME IS AS UNDER: - -: 36: - 36 S.NO ASSESSMENT YEAR SUGAR INCENTIVE CLAIM BY WAY OF NOTE 1995-96 NIL 1996-97 NIL 1997-98 1,56,62,369 1998-99 1,39,22,608 1999-00 1,16,96,435 2000-01 86,43,938 2001-02 55,96,857 2002-03 9,03,539 2003-04 NIL TOTAL 5,64,25,746 05]. THE CASE OF THE ASSESSEE FOR THE ASST YEAR 199 7-98 WAS SELECTED FOR SCRUTINY AND CLAIM OF THE ASSESSEE WAS DULY ACCEPTED BY THE LD CIT [A] AND ALSO BY THE HONBLE ITAT. COPY OF THE DECISION OF THE LD CIT [A ] IS ENCLOSED ON PAGE NOS 191 TO 199 OF THE PAPER-BOOK AND COPY OF ORDER OF THE HONBLE ITAT IS ENCLOSED O N PAGE NOS 200 TO 217. HONBLE BENCH WHILE DECIDING THE SAID ISSUE IN A.Y. 1997-98 ALSO CONSIDERED THE -: 37: - 37 DECISION OF THE HONBLE APEX COURT IN THE CASE OF GOETZE INDIA LIMITED. THAT HONBLE APEX COURT IN TH E CASE OF PONNI SUGAR LIMITED AS REPORTED IN 306 ITR 392 HAS ALSO HELD THAT SUGAR INCENTIVES AS RECEIVED HAS TO BE TREATED AS CAPITAL RECEIPT. 6.1] THE ASSESSEE COMPANY IS INCURRING LOSSES FROM YEAR TO YEAR AND SET- OFF WAS CLAIMED IN DIFFERENT YEAR AND FINALLY IT WAS SET OFF IN THE ASST YEAR 2009-10. TH AT ENTIRE AMOUNT OF LOSSES WAS SET- OFF IN THE ASST YE AR 2009-10 I.E. THE YEAR UNDER APPEAL BEFORE THIS HONBLE BENCH WHERE THE ASSESSEE COMPANY HAD CLAIMED SET- OFF OF UNABSORBED LOSSES TO THE TUNE O F RS 238835621/-. YEAR- WISE BREAKUP OF THE SAME IS AS UNDER:- ASSESSME NT YEAR UNABSORBED DEPRECIATION LOSSES (2) SUGAR INCENTIVE CLAIM BY WAY OF NOTE TOTAL (4) -: 38: - 38 (1) (3) (2+3) 1995-96 3,64,98,457 NIL 3,64,98,457 1996-97 2,06,47,470 NIL 2,06,47,470 1997-98 4,35,03,332 1,56,62,369 5,91,65,701 1998-99 3,29,92,431 1,39,22,608 4,69,15,039 1999-00 2,22,52,990 1,16,96,435 3,39,49,425 2000-01 NIL 86,43,938 NIL 2001-02 79,23,573 55,96,857 1,35,20,430 2002-03 1,75,82,218 9,03,539 1,84,85,757 2003-04 96,53,342 NIL 96,53,342 TOTAL 19,10,53,813 5,64,25,746 23,88,35,621 6.2] THE ASSESSING OFFICER WHILE PASSING THE ASSES SMENT ORDER ALLOWED SET- OFF OF RS 238835621/- AS CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME AS CLAIMED BY THE ASSESSEE. COPY OF RETURN IS ENCLOSED ON PAGE NO S 1 TO 5. SET- OFF WAS CLAIMED ON PAGE NO 3. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE LOSS OF RS 56425746/- AS CLAIMED BY THE ASSESSEE IN ITS RETURN -: 39: - 39 OF TOTAL INCOME ON ACCOUNT OF SUGAR INCENTIVES AS CLAIMED BY THE ASSESSEE FOR THE ASST YEARS 1997-98 TO 2002-03. IT IS WORTH MENTIONING THAT CLAIM OF TH E ASSESSEE FOR THE ASST YEAR 1997-98 WAS DULY ACCEPTED BY THE LD CIT[A] AND ALSO BY THE HONBLE ITAT. HENCE, DISALLOWANCE OF RS 56425746/- WAS WRONGLY MADE IN PLACE OF RS 4,07,63,377/- [ RS. 56425746 - RS. 15662369] . 7.1] THE CLAIM OF THE ASSESSEE WAS NOT ALLOWED BY T HE ASSESSING OFFICER, THE ASSESSING OFFICER DEALT THE SAID ISSUE IN PARAS 4.3.1 TO 4.3.3. 7.2] THE ASSESSEE OFFICER IN PARA 4.3.3 OF THE ORD ER WHILE DISALLOWING THE CLAIM OF THE SET- OFF OF UNABSORBED LOSSES STATED AS UNDER:- 4.3.3 ] TO SUM UP , I DO AGREE WITH THE ASSESSEE THAT THE INCENTIVE IS CAPITAL IN -: 40: - 40 NATURE , FOLLOWING THE HONBLE SUPREME COURT DECISION RELIED UPON BY THE ASSESSEE HOWEVER, THE ASSESSEES ACTION IN CLAIMING THE SAME BY NOT GIVING TREATMENT UNDER EXPLANATION 10 OF SECTION 43 AND ULTIMATELY ADJUSTING THE WRITTEN DOWN VALUE AS ON THE DATE OF DISPOSAL OF PLANT & MACHINERY CANNOT BE TREATED TO BE IN ORDER . THE CUMULATIVE EFFECT OF THE ABOVE TWO ASPECTS WORKS OUT TO RS. 5,64,25,746/- WHICH HAS BEEN CULMINATED INTO INCREASE IN UNABSORBED DEPRECIATION BUT THE SAME IS ASSESSABLE AS DECREASE IN WRITTEN DOWN VALUE, RESULTING INTO ENHANCEMENT IN THE QUANTUM OF SHORT TERM CAPITAL GAIN WORKED U/S 50 OF THE INCOME TAX ACT. ACCORDINGLY UNABSORBED DEPRECIATION TO THE ABOVE EXTENT IS DISALLOWED. I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ABOVE INCOME, HENCE PENALTY PROCEEDINGS U/S 271(1)(C) IS SEPARATELY INITIATED.[ EMPHASIS SUPPLIED ] -: 41: - 41 7.3] THE ASSESSING OFFICER HIMSELF IN THE ASSESSME NT ORDER HAS ACCEPTED THAT THE SUGAR INCENTIVE AS RECEIVED B Y THE ASSESSEE WAS CAPITAL RECEIPT. HENCE, HERE DISPU TE IS NOT ABOUT THE NATURE OF RECEIPT BUT THE ASSESSIN G OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE BY STATING THAT THE SAID AMOUNT OF CAPITAL RECEIPT REQUIRES TO BE DEDUCTED FROM THE COST OF ASSETS AS PER EXPL 10 OF SECTION 43 OF THE INCOME TAX ACT. 7.4] THE LD CIT[A] HAS ALSO NOT DEALT THE SAID ISS UE BUT THE CLAIM OF THE ASSESSEE WAS REJECTED MERELY AFTER PLACING RELIANCE OF THE DECISION OF THE HONBLE CO- ORDINATE BENCH IN THE CASE OF THE ASSESSEE FOR THE ASST. YEAR 2006-07. 8.1] THAT IN THE ASST YEAR 2006-07 AND 2007-08 THE ISSUE BEFORE THE HONBLE BENCH WHETHER THE CLAIM AS LODGED BY THE ASSESSEE BY WAY OF NOTE WITH THE RETURN OF INCOME WAS PART OF RETURN OR NOT AND THE -: 42: - 42 SAID CLAIM BE CONSIDERED WHILE CALCULATING THE CARRIED FORWARD OF LOSSES. HOWEVER, ISSUE IN THIS Y EAR IS NOT AS WAS BEFORE THE HONBLE ITAT IN THE ASST YEARS 2006-07 AND 2007-08. THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER HIMSELF ACCEPTE D THAT THE ENTIRE AMOUNT OF SUGAR SUBSIDY AS CLAIMED BY THE ASSESSEE WAS A CAPITAL RECEIPT BUT THE ASSESSING OFFICER IN THE PRESENT CASE HAS DISPUTED THAT THE SAID AMOUNT OF CAPITAL SUBSIDY IS BE REDUC ED FROM THE COST OF THE ASSETS AS PER EXPL 10 TO SECTI ON 43 OF THE ACT. 8.2] THAT THE LD CIT[A] WHILE DECIDING THE APPEAL OF THE ASSESSEE HAD NOT DECIDED WHETHER THE AMOUNT OF SUGAR INCENTIVE AS AVAILABLE TO THE ASSESSEE TO MEE T OUT ITS HEAVY COST AS INCURRED BY THE ASSESSEE FOR INSTALLATION OF THE PLANT IS TO BE DEDUCTED FROM TH E COST OF THE ASSETS OR NOT. -: 43: - 43 8.3] THAT IN VIEW OF THE ABOVE, HONBLE BENCH IS V ERY KINDLY REQUESTED TO DECIDE THE SAID ISSUE WHETHER T HE SUGAR INCENTIVE AS RECEIVED BY THE ASSESSEE IS DEDUCTIBLE FROM THE COST OF ASSETS OF THE ASSESSEE OR NOT. SINCE, THE SAID ISSUE HAS NOT BEEN DEALT BY TH E LD CIT[A]. HENCE, HONBLE BENCH IS VERY KINDLY REQUESTED TO SET- ASIDE THE SAID ISSUE TO THE OFFIC E OF THE LD CIT[A] TO DECIDE THE SAID ISSUE AFRESH. WITHOUT PREJUDICE TO THE ABOVE 9.1] THAT DURING THE COURSE OF HEARING THE LD DR H EAVILY RELIED ON THE FINDING OF THE CO-ORDINATE BENCH IN T HE CASE OF THE ASSESSEE FOR THE ASST YEARS 2006-07 AND 2007-08. 9.2] THAT IN THE ASST YEARS 2006-07 AND 2007-08 TH E ISSUE BEFORE THE HONBLE BENCH WAS REGARDING THE SET- OFF OF LOSS ON ACCOUNT OF SUGAR INCENTIVES AS CLAIMED BY THE ASSESSEE. HOWEVER, IN THE YEAR UNDER -: 44: - 44 CONSIDERATION THE AMOUNT OF SUGAR INCENTIVES WAS ACCEPTED AS A CAPITAL RECEIPT BY THE ASSESSING OFFI CER HIMSELF AND THE ISSUE BEFORE THE HONBLE BENCH WAS WHETHER THE SAID AMOUNT OF SUGAR INCENTIVES WAS REQUIRES TO BE DEDUCTED FROM THE COST / WDV OF THE FIXED ASSETS. 9.3] THAT IN VIEW OF THE ABOVE, THE ORDER AS PASSE D BY THE HONBLE BENCH IN THE CASE OF THE ABOVE ASSESSEE FOR THE A.Y. 2006-07 AND 2007-08 WAS ON DIFFERENT FOOTING AND NOT APPLICABLE ON THE FACTS OF THE PRES ENT CASE. 9.4] THAT IN VIEW OF THE ABOVE, HONBLE BENCH IS REQUESTED TO DECIDE THE SAID ISSUE WHETHER THE SUGA R INCENTIVES AS RECEIVED BY THE ASSESSEE IS DEDUCTIBL E FROM THE COST OF FIXED ASSETS OR NOT AS PER EXPL. 1 0 OF SECTION 43 OF THE INCOME TAX ACT. -: 45: - 45 WITHOUT PREJUDICE TO THE ABOVE 10.1] THAT DURING THE COURSE OF HEARING THE LD DR H AS ALSO HEAVILY RELIED ON THE FINDING OF THE ORDER OF THE HONBLE CO-ORDINATE BENCH IN THE CASE OF THE ASSESSEE FOR THE ASST YEARS 2006-07 AND 2007-08. 10.2] COPY OF ORDER OF THE HONBLE CO-ORDINATE BEN CH IS ENCLOSED ON PAGE NOS 397 TO 409 OF THE SYNOPSIS OF THE APPEAL OF THE ASSESSEE. 10.3] THAT HONBLE BENCH WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE HAS NOT CONSIDERED THE NOTE PUT WITH THE RETURN OF TOTAL INCOME. HOWEVER, HONBLE KARNATAKA HIGH COURT IN THE CASE OF T.GOVINDAPPA SETTY VS ITO AS REPORTED IN 231 ITR 892 HAS HELD THAT [ RELEVANT PORTION OF THE SAID DECISION IS REPRODUCED AS UNDER REFER LAST LINE IN PAGE NO 500 OF THE SYNOPSIS, -: 46: - 46 WHERE COPY OF THIS DECISION IS ENCLOSED AND PARA NO 13 OF THE DECISION] 13. WHEN IT IS NOT IN DISPUTE THAT THE PETITIONER HAS ANNEXED A NOTE TO THE RETURN FILED BRINGING TO THE NOTICE OF THE FIRST RESPONDENT THAT ONE OF THE MEMB ERS OF THE HINDU UNDIVIDED FAMILY, I.E., SMT. GODAVARI BAI, HAD EXPIRED ON SEPTEMBER 19, 1991, IT WOULD BE MANIFEST THAT SMT. GODAVARI BAI HAD EXPIRED DURING THE MIDDLE OF THE ASSESSMENT YEAR 1991-92 AND THERE WAS NO HINDU UNDIVIDED FAMILY EITHER ON THE DATE OF COMPLETION OF THE ASSESSMENT OR ISSUANCE OF INTIMATIONS TO THE PETITIONER. T. GOVINDAPPA SETTY VS INCOME-TAX OFFICER AND ANOTHER ON 26 JUNE, 1997 INDIAN KANOON - HTTP://INDIANKANOON.ORG/DOC/690485/ 5 FURTHER, THE NOTE FILED CLEARLY DEMONSTRATES THAT THE HINDU UNDIVIDED FAMILY HAD CEASED TO BE AN HINDU UNDIVIDED FAMILY LONG PRIOR TO THE COMMENCEMENT OF THE ASSESSMENT YEAR 1992-93 CONSEQUENT UPON THE -: 47: - 47 DEATH OF SMT. GODAVARI BAI. WHEN A NOTE IS ANNEXED TO THE RETURN FILED, THE SAID NOTE OR A STATEMENT F ILED ALONG WITH THE RETURN MUST BE TREATED AS A PART AND PARCEL OF THE RETURN FILED, ESPECIALLY WHEN THE ASSESSING AUTHORITY PROCEEDS UNDER SECTION 143(1)(A ) OF THE ACT. IT IS NOT PERMISSIBLE FOR THE ASSESSING AUTHORITY TO IGNORE THE STATEMENT OR NOTE FILED ALO NG WITH THE RETURN OF INCOME FILED BY THE ASSESSEE AND PROCEED UNDER SECTION 143(1)(A) OF THE ACT. IT IS RELEVANT TO POINT OUT THAT THE ASSESSING AUTHORITY IS PROCEEDING TO ASSESS UNDER SECTION 143(1)(A) OF THE ACT WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSEE AND HEARING HIM. UNDER THESE CIRCUMSTANCES, THE ASSESSING AUTHORITY MUST CONSIDER THE RETURN FILED ALONG WITH THE NOTE, EXPLANATION OR STATEMENT ANNEXED TO THE RETURN FILED. FURTHER, AS STATED EAR LIER, IT IS ON RECORD THAT THE PETITIONER ALSO IN HIS LET TER ANNEXURE 'A', DATED JULY 18, 1992, ASSERTED THAT TH E ASSESSEE HAD CEASED TO BE AN HUF. THEREFORE, THE VIEW TAKEN BY THE FIRST RESPONDENT THAT THE ASSESSI NG -: 48: - 48 AUTHORITY WAS NOT REQUIRED TO CONSIDER THE NOTE OR THE STATEMENT FILED BY THE PETITIONER THAT THE HINDU UNDIVIDED FAMILY HAD CEASED TO BE AN HINDU UNDIVIDED FAMILY CONSEQUENT UPON THE DEATH OF SMT. GODAVARI BAI WAS NOT REQUIRED TO BE TAKEN INTO ACCOUNT, IS ERRONEOUS IN LAW. 10.4] THAT HONBLE CO-ORDINATE BENCH HAS NOT CONSIDERED THE SAID DECISION OF THE HONBLE KARNATAKA HIGH COURT WHILE PASSING THE ORDER FOR TH E A.Y. 2006-07 AND 2007-08. HENCE, HONBLE BENCH IS REQUESTED TO CONSIDER THE SAID DECISION WHILE DECIDING THE PRESENT APPEAL FOR A.Y. 2009-10. 11.1] IN THE PRESENT APPEAL IT WAS POINTED OUT THA T THE ASSESSEE HAD CLAIMED SUGAR INCENTIVE FOR THE ASST YEARS 1997-98 TO 2002-03. THE CLAIM OF THE ASSESSEE IN THE ASST YEAR 1997-98 WAS ACCEPTED BY THE LD CIT[A] AND ALSO BY THE HONBLE ITAT. HOWEVER, CLAIM -: 49: - 49 IN RESPECT OF ALL OTHER YEARS REMAINS TO BE QUANTIF IED EVEN WHEN THE ASSESSEE HAD LODGED SPECIFIC CLAIM FO R THE SAME IN THE RETURN OF TOTAL INCOME. 11.2] THAT HONBLE APEX COURT IN THE CASE OF CIT VS M/S SHELLY PRODUCTS AND ANOTHER AS REPORTED IN 261 ITR 367 HAS HELD THAT:- 31. WE CANNOT LOSE SIGHT OF THE FACT THAT THE FAILURE OR INABILITY OF THE REVENUE TO FRAME A FRESH ASSESSMENT SHOULD NOT PLACE THE ASSESSEE IN A MORE DISADVANTAGEOUS POSITION THAN IN WHAT HE WOULD HAVE BEEN IF A FRESH ASSESSMENT WAS MADE. IN A CASE WHERE AN ASSESSEE CHOOSES TO DEPOSIT BY WAY OF ABUNDANT CAUTION ADVANCE TAX OR SELF-ASSESSMENT TAX WHICH IS IN EXCESS OF HIS LIABILITY ON THE BASI S OF RETURN FURNISHED OR THERE IS ANY ARITHMETICAL ERROR OR INACCURACY, IT IS OPEN TO HIM TO CLAIM REFUND OF TH E EXCESS TAX PAID IN THE COURSE OF ASSESSMENT -: 50: - 50 PROCEEDING. HE CAN CERTAINLY MAKE SUCH A CLAIM ALSO BEFORE THE CONCERNED AUTHORITY CALCULATING THE REFU ND. SIMILARLY, IF HE HAS BY MISTAKE OR INADVERTENCE OR ON ACCOUNT OF IGNORANCE, INCLUDED IN HIS INCOME ANY AMOUNT WHICH IS EXEMPTED FROM PAYMENT OF INCOME- TAX, OR IS NOT INCOME WITHIN THE CONTEMPLATION OF L AW, HE MAY LIKEWISE BRING THIS TO THE NOTICE OF THE ASSESSING AUTHORITY, WHICH IF SATISFIED, MAY GRANT HIM RELIEF AND REFUND THE TAX PAID IN EXCESS, IF AN Y. SUCH MATTERS CAN BE BROUGHT TO THE NOTICE OF THE CONCERNED AUTHORITY IN A CASE WHEN REFUND IS DUE AND PAYABLE, AND THE AUTHORITY CONCERNED, ON BEING SATISFIED, SHALL GRANT APPROPRIATE RELIEF. 11.3] THAT HONBLE CBDT VIDE ITS CIRCULAR NO 14 DATED 11-04-1955 IN PARA 3 HAS STATED THAT:- (3) OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPA YER IN -: 51: - 51 EVERY REASONABLE WAY, PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD TH E OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS ATTITUDE WOULD, IN THE LONG RUN, BENEF IT THE DEPARTMENT FOR IT WOULD INSPIRE CONFIDENCE IN H IM THAT HE MAY BE SURE OF GETTING A SQUARE DEAL FROM T HE DEPARTMENT. ALTHOUGH, THEREFORE, THE RESPONSIBILITY FOR CLAIMING REFUNDS AND RELIEFS RESTS WITH ASSESSEE ON WHOM IT IS IMPOSED BY LAW, OFFICERS SHOULD (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEFS TO WHICH THEY APPEAR TO BE CLEARLY ENTITLED BUT WHICH THEY HAVE OMITTED TO CLAIM FOR SOME REASON OR OTHER ; (B) FREELY ADVISE THEM WHEN APPROACHED BY THEM AS TO THEIR RIGHTS AND LIABILITIES AND AS TO THE PROCEDURE TO BE ADOPTED FOR CLAIMING REFUNDS AND RELIEFS. -: 52: - 52 11.4] THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS K N OIL INDUSTRIES AS REPORTED IN 142 ITR 13 HAS HELD THAT [ REFER PARA NO 3 ] :- . IT IS ALSO NOT CORRECT TO SAY THAT IF THE ASSESSEE OMITS TO CLAIM A RELIEF ALLOWABLE TO HIM UNDER THE PROVISIONS OF THE INCOME-TAX ACT, HE IS N OT ENTITLED TO GET THAT RELIEF. IT IS THE DUTY OF THE ITO AND OTHER OFFICERS ADMINISTERING THE ACT TO INFORM THE ASSESSEE THAT HE IS ENTITLED TO A PARTICULAR RELIEF IF IT IS APPARENT THAT HE IS SO ENTITLED FROM THE MATERIA L AVAILABLE IN THE PROCEEDINGS OF ASSESSMENT. THIS DUTY HAS BEEN HIGHLIGHTED BY A CIRCULAR ISSUED BY T HE CBR. FOR THESE REASONS, THE GUJARAT HIGH COURT IN CHOKSHI METAL REFINERY V. CIT [1977] 107 ITR 63 (GUJ.), DISSENTED FROM THE VIEW TAKEN BY THE ALLAHABAD HIGH COURT IN THE AFORESAID CASES AND HELD THAT IF IT IS APPARENT FROM THE RECORD OF -: 53: - 53 ASSESSMENT THAT THE ASSESSEE WAS ENTITLED TO A PARTICULAR RELIEF, THE ITO CAN RECTIFY THAT MISTAKE UNDER SECTION 154 ALTHOUGH THE SAID RELIEF WAS NOT CLAIMED BY THE ASSESSEE IN THE RETURN. WE RESPECTFULLY AGREE WITH THE VIEW TAKEN BY THE GUJAR AT HIGH COURT. 11.5] THAT IN VIEW OF THE DECISIONS OF THE HONBLE APEX COURT IN THE CASE OF CIT VS SHELLY PRODUCTS , CBDT CIRCULAR AND DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT EVEN IF THE ASSESSEE HAS NOT LODGED ITS CLAIM EVEN WHEN THE ASSESSING OFFICER WA S DUTY BOUND TO ALLOW THE SAME BUT IN THE PRESENT CAS E THE ASSESSEE HAS LODGED SPECIFIC CLAIM BY WAY OF NOTE WITH THE RETURN OF TOTAL INCOME. HENCE, CLAIM OF THE ASSESSEE WAS LEGAL AND PROPER. MERELY THE DEPARTMENT NOT TAKEN THE CASE OF THE ASSESSEE IN SCRUTINY THE ASSESSEE SHOULD NOT BE PLACED ON MORE DISADVANTAGEOUS POSITION. MORE SO WHEN THE CLAIM OF THE ASSESSEE WAS LEGAL AND PROPER. -: 54: - 54 12.1] THAT IT IS ALSO NOTICED THAT QUANTIFICATION OF LOSS IS THE PRIME RESPONSIBILITY OF THE ASSESSING OFFICER AS PER PROVISION OF SECTION 157 OF THE ACT. LANGUAGE OF SECTION REPRODUCED AS UNDER:- SEC. 157. INTIMATION OF LOSS WHEN, IN THE COURSE OF THE ASSESSMENT OF THE TOTAL INCOME OF ANY ASSESSEE, IT IS ESTABLISHED THAT A LO SS HAS TAKEN PLACE WHICH THE ASSESSEE IS ENTITLED TO HAVE CARRIED FORWARD AND SET- OFF UNDER THE PROVISIONS OF SUB- SECTION (1) OF SECTION 72, SUB- SECTION (2) OF SECTION 73, [ SUB- SECTION (1) [OR S UB- SECTION(3)] OF SECTION 74 OR SUB- SECTION (3) OF SE CTION 74A], THE ASSESSING OFFICER SHALL NOTIFY TO THE ASSESSEE BY AN ORDER IN WRITING THE AMOUNT OF THE LOSS AS COMPUTED BY HIM FOR THE PURPOSES OF -: 55: - 55 SUB- SECTION (1) OF SECTION 72, SUB- SECTION (2) OF SECTION 73, [SUB- SECTION (1)[OR SUB-SECTION(3) ] O F SECTION 74 OR SUB-SECTION(3) OF SECTION 74A]. [EMPHASIS SUPPLIED ] 12.2] THAT IN THE CASE OF THE ASSESSEE SUCH INTIMA TION WAS NEVER COMMUNICATED TO THE ASSESSEE. HENCE, THE ASSESSEE HAD NO OCCASION TO OBJECT THE SAME. 13.1] THAT IN THE CASE OF THE ABOVE ASSESSEE INTIMA TION WAS PASSED FOR THE ASST YEARS 2000-01 AND 2002-03 ONLY AND NOT INTIMATION WAS PASSED FOR THE ASSESSMENT YEARS 1998-99, 1999-00 AND 2001-02. 13.2] THAT IN ABSENCE OF THE INTIMATION AS PASSED BY THE ASSESSEE THE ASSESSEE HAD NO OCCASION TO LODGED ITS CLAIM AGAIN BEFORE THE ASSESSING OFFICER. -: 56: - 56 13.3] THE ASSESSEE AGAIN SUBMIT THAT ONCE CLAIM LODGED WITH THE RETURN OF INCOME BY WAY OF NOTE. IT IS OBLIGATORY ON THE PART OF THE ASSESSING OFFICER TO CONSIDER THE SAME. SIMILAR VIEW WAS EXPRESSED BY THE HONBLE APEX COURT IN THE CASE OF SHELLY PRODUC T AND ANOTHER AS REPORTED IN 261 ITR 367. 13.4] THE ASSESSEE HAD LODGED ITS CLAIM WITH THE ORIGINAL RETURN OF INCOME. HENCE, THE ASSESSEE NEED NOT REQUIRES TO BE FILE REVISED RETURN BUT THE ASSE SSEE IN THE ORIGINAL RETURN OF INCOME ITSELF HAD LODGED ITS CLAIM FOR TREATING THE SUGAR INCENTIVES AS CAPITAL RECEIPT. 14] THAT IN VIEW OF THE ABOVE WHEN THE CLAIM OF TH E ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER HIMSELF IN PARA 4.3.3. HENCE, HONBLE BENCH IS -: 57: - 57 REQUESTED TO SET- ASIDE THIS ISSUE TO THE FILE OF T HE LD CIT[A] AS TO DECIDE WHETHER THE SAID AMOUNT OF SUGA R INCENTIVE IS TO BE DEDUCTED FROM THE COST OF ASSETS OR NOT. THE ISSUE BEFORE THE CO-ORDINATE BENCH IN THE ASST YEARS 2006-07 AND 2007-08 ARE ALTOGETHER DIFFERENT FROM THE ISSUE IN THE YEAR UNDER APPEAL. 30. ON THE OTHER HAND, THE LD. CIT DR OBJECTING TO THIS CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THIS CA SE, THE TRIBUNAL HAS DECIDED THE ISSUE FOR ASSESSMENT YEAR 2006-07 AND 2007-08 AND IN THAT YEAR THE BENCH HAS DECIDED THAT SET OFF OF LOSSES ON ACCOUNT OF SUGAR INCENTIVE WAS TO BE REQUIRED TO BE DEDUCTED FROM THE COST OF FIXED ASSETS AND IN THAT CASE, THE TRIBUNAL HAS DISMISSED THE APPEAL OF THE ASSESS EE. THEREFORE, NOTHING IS SURVIVED AND HE OBJECTED TO R EMANDING THE MATTER BACK TO THE FILE OF LD. CIT(A). THE LD. CIT DR HAS OBJECTED ON THE GROUND THAT THE MACHINERY HAS ALREA DY BEEN SOLD AND RE-WORKING OF THIS DEPRECIATION IS NOT POS SIBLE. THEREFORE, IT IS NOT NECESSARY FOR THE BENCH TO RES TORE THIS MATTER BACK TO THE FILE OF CIT(A). -: 58: - 58 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE YEAR IN ISSUE RELATES TO NON ALLOW ANCE OF SET OFF OF BROUGHT FORWARDED LOSSES PERTAINING TO ASSES SMENT YEAR 1997-98 AND 2002-03. THE ASSESSEE IS A PUBLIC LIMIT ED COMPANY AND WHILE INSTALLING THE FACTORY, THE ASSES SEE HAS RECEIVED CAPITAL RECEIPT AND ON RECEIVING THE CAPIT AL RECEIPT, THE ASSESSEE HAS RECEIVED THE INCENTIVE FOR SETTING UP THE NEW FACTORY AND THAT MAY BE TAKEN AS CAPITAL RECEIPT. T HIS CAPITAL RECEIPT WAS TREATED BY LD. CIT(A) IN SOME OF THE AS SESSMENT YEARS. DURING THE COURSE OF HEARING, THE LD. AUTHOR IZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEES CL AIM IS OF CAPITAL NATURE WAS ACCEPTED FOR ASSESSMENT YEAR 199 7-98 AND IT WAS ALSO ACCEPTED BY THE I.T.A.T. THEREFORE, WE ARE OF THE VIEW THAT THE CLAIM SHOULD HAVE BEEN REVIVED AND TH AT ISSUE HAS TO BE RELOOKED INTO BY THE LD. CIT(A) MOREOVER, WE FIND THAT THE ASSESSEE COMPANY HAS CLAIMED INCENTIVE FOR SETT ING UP THE NEW SUGAR FACTORY AS CAPITAL INCENTIVE AND IT HAS T O BE TREATED AS CAPITAL RECEIPT AND FOR THAT HE HAS RELIED UPON THE VARIOUS DECISIONS OF HON'BLE SUPREME COURT AND HIGH COURTS. -: 59: - 59 THEREFORE, WE ARE OF THE VIEW THAT THIS ISSUE TO BE RELOOKED BY THE LD. CIT(A). THEREFORE, WE RESTORE THIS ISSUE BA CK TO THE FILE OF CIT(A) AND CIT(A) IS DIRECTED TO DECIDE WHETHER THE AMOUNT OF SUGAR INCENTIVE IS TO BE DEDUCTED FROM THE COST OF ASSETS OR NOT AND LD. CIT(A) IS DIRECTED TO DECIDE THE ISSUE AS PER LAW. 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2015. SD/- (B. C. MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 30 TH SEPTEMBER, 2015. CPU* 9.9