DCIT, Ahmednagar V. Shree Ganesh Sahakari Sakhar Karkhana Ltd., Ahmednagar

ITA 530/PUN/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3217 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Keywords: Business income
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 530/PN/10 (ASSTT. YEAR 2006-07) DY.CIT AHMEDNAGAR CIRCLE, AHMEDNAGAR .... APPELLANT VS. SHREE GANESH SAHAKARI SAKHAR KARKHANA LTD. GANESHNAGAR, PO. RANJANGAON KHURD TA. RAHATA, DIST. AHMEDNAGAR PAN NO. AADCS9082L . RESPONDENT APPELLANT BY : SHRI A.S. SINGH RESPONDENT BY : SHRI NONE ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF THE CIT(A)-I, PUNE DATED 30/10/2009 FOR THE ASSESSMENT YEAR 2006-07. NON E APPEARED ON BEHALF OF THE ASSESSEE, SINCE THE ISSUED RAISED IN THE GROUNDS ARE COVERED BY THE DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT, WE DECI DED TO PROCEED FOR DISPOSAL OF THE APPEAL. 2. GROUND NO.1 RELATES TO SALE OF SUGAR AT CONCESSIONAL RATE TO MEMBERS. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESS EE AS NOTED BY THE A.O IN THE CASE OF CIT V. TTD CO-OP STORES LTD. [1998] 101 TAXMAN 273, 232 ITR 109 (AP) AND ALSO NOTED BY THE LD CIT(A) ABOUT ITAT, PU NE DECISION IN THE CASE OF CHHATRAPATI SHAHU SSK LTD., BEARING ITA NO. 138/PN/20 07 FOR A.Y 2003-04 ORDER DATED 22.06.2007. FOR REFERENCE RELEVANT PARAGRAPHS 9 .1 AND 9.2 ARE REPRODUCED BELOW: ITA NO. 530/PN/10 A.Y: 2006-07 PAGE 2 OF 4 9.1 THIS ISSUE IS IN RESPECT OF ADDITION MADE ON ACCOUNT OF SUGAR SUPPLIED TO THE FARMERS AT CONCESSIONAL RATE I.E. AT RATES LOWER THAN THE MARKET RATES. WHILE DECIDING THIS ISSUE, IT IS WOR TH REPRODUCTION OF THE CBDIT CIRCULAR NO. 117 DATED 22/8/1973 AS FOLLOWS: 1. AN INSTANCE HAS COME TO THE NOTICE OF THE CBDT WHEREIN THE INCOME TAX OFFICER IN THE CASE OF CONSUMER CO-OPERA TIVE STORE HAD DISALLOWED THE CLAIM OF DEDUCTION ON ACCOUNT OF REB ATE ALLOWED ON THE PURCHASES MADE BY THE MEMBERS OF THE STORE. 2. THE CBDT IN CONSULTATION WITH THE DEPARTMENT OF COMMUNITY DEVELOPMENT AND CO-OPERATION HAS DECIDED THAT REBAT E OR BONUS (WHICH IS IN THE NATURE OF DEFERRED DISCOUNT) PASSE D ON BY THE CONSUMER CO-OPERATIVE STORES TO THEIR MEMBERS ON TH E VALUE OF THE PURCHASES MADE BY THEM DURING A YEAR SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTING THE BUSINESS INCOME OF SUCH A SOCIETY. 9.2 SO, IT WAS HELD THAT THE A.O HAS NOT GIVEN ANY REASON AS TO WHY SUCH A CONCESSIONAL SALE OF SUGAR TO MEMBERS WAS HE LD AS TAXABLE, ON THE OTHER HAND, THE CBDT CIRCULAR HAS CLARIFIED THAT SUCH DEDUCTION SHOULD BE ALLOWED . AFTER HEARING THE SUBMISSION OF THE LEARNED D.R., WE FIND NO FORCE BECAUSE IT HAS COME TO OUR NOTICE THA T ITAT PUNE, B BENCH, HAD AN OCCASION TO DISCUSS THIS MATTER IN THE CASE OF SHRI CHHATRAPATI SAHU S.S.K LTD., IN A CONSOLIDATED ORDE R FOR THE A.Y. 1983-84 AND 1988-89 IN VARIOUS APPEALS INCLUDING ITA NO. 19 22/PN/90 PERTAINING TO THE A.Y. 1993-94, ORDER DATED 8-8-96 VIDE PARA N O. 32 TO 39 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V/S. A. R AMAN & CO., 67 ITR 11. IT WAS POINTED OUT THAT THE LAW DOES NOT OBLIG E A TRADER TO MAKE MAXIMUM PROFIT THAT HE CAN MAKE OUT OF HIS TRADING TRANSACTION. HE CAN ONLY BE TAXED ON WHAT HE HAS EARNED AND NOT ON WHAT HE COULD HAVE EARNED. IN THIS MANNER, THE PRINCIPLE OF REAL INCO ME WAS INVOKED AND THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. ANOTH ER TWO CASES, BY ITAT PUNE BENCH, NAMELY SHRI CHHATRAPATI SAHU SSK LTD., KAGAR, BEARING ITA NOS. 1924 TO 1926/PN/96, ORDER DATED 1-8-96 AND S RIRAM SSK LTD., SATARA, BEARING ITA NO. 304 TO 309/PN/05, A.Y. 1989 -90 TO 2001-02, ORDER DATED DECEMBER, 2005, WHEREIN THE SAME ISS UE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE, HAVE ALSO BEEN NOTED BY US. CONSIDERING THE TOTALITY OF THE CIRCUMSTANCES AND A VIEW ALREADY BEEN TAKEN BY THE CO- ORDINATE BENCH, WE ARE OF THE CONSIDERED OPINION TH AT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. THIS GROUND OF THE R EVENUE IS, THEREFORE, DISMISSED . 3. GROUND NO.2 IS AGAINST THE DELETION OF ADDITION BY THE CIT(A) ON ACCOUNT OF PAYMENT OF EXCESS CANE PRICE PAID TO MEMBERS AND NON- MEMBERS. THIS ISSUE WAS DECIDED IN FAVOUR OF THE AS SESSEE IN THE CASE OF DCIT VS. MANJARA SAHAKARI SAKHAR KARKHANA LTD., (2 004) 91 ITD 361 (MUM)(SB) WHICH WAS SUBSEQUENTLY UPHELD BY THE JURI SDICTIONAL HIGH COURTS JUDGMENT IN THE SAID CASE AS REPORTED IN 30 1 ITR 191 (BOM). HONBLE HIGH COURT HELD THAT THE SECTION 40A(2) OF THE ACT DOES NOT APPLY TO A COOPERATIVE SOCIETY AND THEREFORE, NO DISALLOW ANCE UNDER THIS SECTION ITA NO. 530/PN/10 A.Y: 2006-07 PAGE 3 OF 4 CAN BE MADE IN THE ASSESSMENT OF COOPERATIVE SOCIET Y. HOWEVER, DURING THE PROCEEDINGS BEFORE, LD COUNSEL STATED THAT THE ISSUE IN QUESTION HAS BEEN EXAMINED BY THE APEX COURT IN THE CASE OF DCIT , NASIK VS SHRI SATPUDA TAPI PARISAR SSK LTD IN CIVIL APPEAL NO 617 OF 2010 ARISING OUT OF SLP(C) NO 11930 OF 2008 AND THE HONBLE SUPREME CO URT IS OF THE DIFFERENT VIEW ON THE ISSUE AND MATTER HAS BEEN SET ASIDE. RELEVANT OBSERVATIONS ARE AS UNDER. THE APPLICABILITY OF SECTION 40A(2) OF THE INCOM E TAX ACT, 1961 ['ACT', FOR SHORT] IS LINKED TO COMPUTATION UNDER S ECTION 28 AND SECTION 37 OF THE ACT. IT IS THE CASE OF THE DEPARTMENT IN A LL THESE CASES THAT THE STATE ADVISED PRICE [S.A.P.] IS DETERMINED ON THE B ASIS OF THE PRICE RECOMMENDED BY THE ASSESSEE(S) AFTER THE FINALISATI ON OF ACCOUNTS AND, THEREFORE, THE DIFFERENTIAL AMOUNT BETWEEN S.A.P. A ND S.M.P WOULD CONSTITUTE APPROPRIATION OF PROFITS AND NOT EXPENDI TURE/EXPENSE UNDER SECTION 37 OF THE ACT. ON THE OTHER HAND, IT IS THE CASE OF THE ASSESSEE(S) THAT THEY ARE BOUND TO PAY TO THE CANE GROWERS THE FINAL CANE PRICE AS PER THE S.A.P FIXED BY THE STATE GOVERNMEN T AND THE MERE FACT THAT S.A.P FIXED BY THE STATE GOVERNMENT IS BASED O N THE PRICE RECOMMENDED BY THE ASSESSEE(S) AFTER FINALISATION O F ACCOUNTS WOULD NOT CONSTITUTE APPROPRIATION OF PROFITS BECAUSE APPROPR IATION WOULD ARISE ONLY AFTER THE PROFITS ARE DETERMINED AND PROFITS CAN BE DETERMINED ONLY AFTER ALL THE EXPENSES INCURRED FOR THE BUSINESS ARE DEDU CTED FROM THE GROSS INCOME. ON THE ABOVE CONTENTIONS, TWO QUESTIONS WERE REQUI RED TO BE CONSIDERED BY THE DEPARTMENT, WHICH ARE AS FOLLOWS : 'WHETHER THE ABOVE-MENTIONED DIFFERENTIAL PAYMENT M ADE BY THE ASSESSEE(S) TO THE CANE GROWERS AFTER THE CLOSE OF THE FINANCIAL YEAR OR AFTER THE BALANCE-SHEET DATE WOULD CONSTITUTE AN EX PENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961; AND WHETHER SUCH DIFFERENTIAL PAYMENT WOULD, APPLYING THE REAL INCOME THEORY, CONSTITUTE AN EXPENDITURE OR DISTRIBUTION OF PROFITS?' IN DECIDING THE ABOVE QUESTIONS, THE ASSESSING OFF ICER WILL TAKE INTO ACCOUNT THE MANNER IN WHICH THE BUSINESS WORKS, RE SOLUTIONS OF THE STATE GOVERNMENT, THE MODALITIES AND THE MANNER IN WHICH S.A.P. AND S.M.P. ARE DECIDED, THE TIMING DIFFERENCE WHICH WILL ARISE ON ACCOUNT OF THE DIFFERENCE IN THE ACCOUNTING YEARS, ETC. IN A GIVEN CASE, IF T HE ASSESSEE HAS MADE A PROVISION IN ITS ACCOUNTS, THEN THE ASSESSING OFFIC ER SHALL ENQUIRE WHETHER SUCH PROVISION IS MADE OUT OF PROFITS OR FROM GROSS RECEIPTS AND WHETHER SUCH DIFFERENTIAL PAYMENT IS RELATABLE TO THE COST OF THE SUGARCANE OR WHETHER IT IS RELATABLE TO THE DIVISION OF PROFITS AMONGST THE MEMBERS OF THE SOCIETY? ONE OF THE POINTS WHICH WILL ALSO ARISE FOR DETER MINATION BY THE ASSESSING OFFICER WILL BE ON THE THEORY OF OVER-RID ING TITLE IN THE MATTER OF ACCRUAL OR APPLICATION OF INCOME. ITA NO. 530/PN/10 A.Y: 2006-07 PAGE 4 OF 4 THEREFORE, IN EACH OF THESE CASES, THE ASSESSING OF FICER WILL DECIDE THE QUESTION AS TO WHETHER THE OBLIGATION IS ATTACHED T O INCOME OR TO ITS SOURCE. NONE OF THESE QUESTIONS HAVE BEEN EXAMINED BY THE A UTHORITIES BELOW. THESE QUESTIONS ARE REQUIRED TO BE EXAMINED BECAUSE , IN THESE CASE, WE ARE NOT ONLY CONCERNED WITH THE APPLICABILITY OF SECTION 40A(2) OF THE ACT BUT WE ARE PRIMARILY REQUIRED TO CONSIDER WHETHER THE SAID DIFFERENTIAL PAYMENT CONSTITUTES A N EXPENSE OR DISTRIBUTION OF PROFITS? ORDINARILY, WE WOULD NOT HAVE REMITTED THESE MATTERS, PARTICULARLY WHEN THEY ARE FOR ASSESSMENT YEAR 1992-1993, BUT, FOR THE FACT THAT THIS ISSUE IS GOING TO ARISE REPE ATEDLY IN FUTURE. IT WILL ALSO HELP THE ASSESSEE(S) IN A WAY THAT THEY WILL H AVE TO RE-WRITE THEIR ACCOUNTS IN FUTURE DEPENDING UPON OUTCOME OF THIS L ITIGATION. THEREFORE, IN THE INTEREST OF JUSTICE, WE REMIT THESE CASES T O THE CONCERNED COMMISSIONER OF INCOME TAX (APPEALS) TAKES UP THE M ATTER FOR FINAL HEARINGS. RESPECTFULLY FOLLOWING THE ABOVE CITED JUDGMENT OF THE APEX COURT, WE ARE OF HE OPINION, THE ISSUE HAS TO BE SET ASIDE TO THE FILES OF THE CIT(A) WITH IDENTICAL DIRECTIONS. THE CIT (A) IS DIRECTED TO EX AMINE IF THE SAID DIFFERENTIAL PAYMENTS CONSTITUTE AN EXPENSE OR DIST RIBUTION OF PROFITS CONSIDERING ALL THE JUDGMENTS CITED ABOVE. ACCORDIN GLY, GROUND 2 OF THE APPEAL IS SET ASIDE . 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON 28 TH OCTOBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 28 TH OCTOBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. DCIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR 2. ASSESSEE 3. CIT(A)-I, PUNE 4. CIT-I, PUNE 5. D.R. ITAT B BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE