DCIT, Nanded V. Jai Jawan Jai Kisan Sahakari Sakhar Karkhana Ltd., Latur

ITA 564/PUN/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3207 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 11 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: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Keywords: Set aside
• 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. 564/PN/10 (ASST. YEAR 2006-07) DCIT, CIRCLE-3, NANDED .... APPELLANT VS. JAI JAWAN JAI KISAN SAHAKARI SAKHAR KARKHANA LTD, NALEGAON TQ. CHAKUR DIST. LATUR PAN NO. AAAAJO714F . RESPONDENT APPELLANT BY : SHRI A.S. SINGH RESPONDENT BY : NONE ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE CIT (A), AURANGABAD DATED 18/01/2010 FOR A.Y 2006-07. THE GROUNDS RAISED A RE DECIDED AS FOLLOWS:- 2. GROUND NO. 1 IS AS FOLLOWS:- 1) THE HONBLE CIT(A)-II, AURANGABAD HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS CANE PRICE PAID OF RS. 4,59,36,502/-. ON THIS POINT A SPECIAL LEAVE PETITION WAS FILED BY THE DEPARTMENT, WHICH HAS BEEN ADMITTED BY THE S UPREME COURT IN THE CASE OF MANJARA SSK LTD. THE HONBLE SUPREME COURT VIDE ITS DECISION DTD. 2 0.01.2010 IN THE CASE OF SHRI SATPUDA TAPI PARISAR SSK LTD (SLP NO. 11930 /2008) AND SEVERAL OTHER CASES, THIS ISSUE HAS BEEN REFERRED BACK TO T HE PANEL OF CIT(A) FOR RECONSIDERATION. 3. THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE 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. 564/PN/10 A.Y: 2006-07 PAGE 2 OF 5 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. 564/PN/10 A.Y: 2006-07 PAGE 3 OF 5 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 . ACCORDINGLY, THIS GROUND IS DISMISSED. 4. GROUND NO. 2 IS AS FOLLOWS:- 2) THE HONBLE CIT(A)-II, AURANGABAD HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F SUGAR SALE AT CONCESSIONAL RATE OF RS. 5,37,350/-, AS THE DEPARTMENT HAS FILED SLP BEFORE THE HONBLE SUPREME COURT ON THIS ISSUE IN THE CASE OF MANJARA SAHAKARI SAKHAR KARKHANA LTD. ITA NO. 31 8 OF 2007 DATED 19/08/2007. IN RESPECT OF THE ISSUE RAISED THE OBSERVATION OF T HE CIT(A) IS WORTH REPRODUCTION:- IN VIEW OF THE DECISION OF HONBLE ITAT, IN THE C ASE OF SHRI CHHATRAPATI SHAHU SAHAKARI SAKHAR KARKHANA LIMITED, KAGAL, IN ITA NO. 1924 ETC/PN/1990, DATED 08.09.1996 AND DECISION OF THE SPECIAL BENCH, MUMBAI, IN THE CASE OF MANJARA SAHAK ARI SAKHAR KARKHANA LIMITED (2004) (SUPRA), THE AFORESAID EXPE NDITURE IS AN ALLOWABLE DEDUCTION. THE ISSUE HAS BEEN DECIDED IN THE FAVOUR OF SUGAR FACTORY BY HONBLE ITAT, PUNE IN ITA NO. 720/ PN/07 IN THE CASE OF ITO, WD. 1(4) PARBHANI VS. PURNA SSK LTD. H INGOLI FOR A.Y 2004-05 AND IN ITA NO. 706/PN/07 IN THE CASE OF ITO , WD. 3(4), LATUR VS. SHREE VITTHAL SAHAKARI SAKHAR KARKHANA, M URUM FOR A.Y. 2003-04. ITA NO. 564/PN/10 A.Y: 2006-07 PAGE 4 OF 5 RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS, I HERE BY DELETE THE ADDITION OF RS. 5,37,350/- MADE BY THE AO ON THIS A CCOUNT. IN THE RESULT, APPELLANTS GROUND OF APPEAL IN THIS RESPEC T IS ACCEPTED. 5. ON HEARING THE SUBMISSIONS WE ARE OF THE VIEW TH AT THE ISSUE STOOD DIRECTLY COVERED BY SEVERAL DECISIONS OF THIS VERY TRIBUNAL FOR INSTANCE IN THE CASE OF MANJARA SAHAKARI SAKHAR KARKHANA LTD. (91 ITD 361) AS WELL AS IN THE CASE OF SHREE CHHATRAPATI SHAHU SSK LTD. IN ITA NO. 1924- 26/PN/1990 DATED 1-8-1996 WHICH HAS BEEN FOLLOWED B Y B OF I.T.A.T. PUNE IN THE CASE OF KRISHNA SSK LTD. SATARA IN ITA NO. 712 TO 715/PN/2005 AND 925 AND 926/PN/2005 DECIDED IN THE MONTH OF DECEMBER, 2006. RESPECTFULLY FOLLOWING THE PRECEDEN TS, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THI S GROUND IS DISMISSED . 6. GROUND NO. 3 IS AS FOLLOWS:- 3) THE HONBLE CIT(A), AURANGABAD HAS ERRED IN DEL ETION THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F VSI CONTRIBUTION OF RS. 1,02,001/-. ON THIS POINT, THE DEPARTMENT HAS FILED SLP BEFORE THE HONBLE SUPREME COURT IN THE C ASE OF MANJARA SSK LTD . FACTS OF THE CASE HAVE REVEALED THAT THE ISSUE NOW RAKE UP IN THIS APPEAL HAD EARLIER GONE UP TO THE STAGE OF SECOND APPEAL AND T HE RESPECTED CO ORDINATE BENCH OF ITAT, PUNE VIDE AN ORDER DATED 18-09-2007 HAD RESTORED THE MATTER BACK TO A.O. CONSEQUENCE THEREUPON, DURING THE ASSE SSMENT PROCEEDINGS IT WAS PLEADED THAT THE ASSESSEE HAD REGULARLY ADOPTED THE MERCANTILE SYSTEM OF ACCOUNTING THEREFORE THE SAID CONTRIBUTION BE HELD AS PAID AS DEFINED U/S. 43(2) OF THE ACT. LD. CIT (A) HAS ALLOWED THE CLAIM IN THE F OLLOWING MANNER:- THIS ISSUE OF CONTRIBUTION TO VSI IS COVERED BY TH E HONBLE PUNE TRIBUNALS DECISION IN THE CASE OF SHRI PANCHAGANGA SSK LTD. VS. DCIT IN ITA NO. 491 AND 1365/PN/1991 WHICH WAS SUBSEQUENTLY FOLLOWED IN VARIOUS PRONOUNCEMENTS SUCH AS- I) ITA NO. 901 & 902/PN/95 DATED 15.10.2003 IN VIGH NAHAR SSK LTD., VS. DCIT, CIRCLE-1, PUNE, ITA NO. 297 II) ITA NO. 297/PN/97 DATED 18.11.2003 IN THE CASE OF SHRI DOODHGANGA VEDGANGA SSK LTD., VS. DCIT III) ITA NO. 440/PN/07 DATED 31.08.2007 IN THE CASE OF PURNA SAHAKARI SAKHAR KARKHANA LTD. VS. ACIT, CIRCLE-3, NANDED ITA NO. 564/PN/10 A.Y: 2006-07 PAGE 5 OF 5 IV) ITA NO. 805/PN/2005 DATED 20.08.2007 IN THE CAS E OF ACIT CIRCLE-3 , NANDED VS SHANKAR SSK LTD., AND V) ITA NO. 434/PN/2006 DATED 12.10.2007 IN THE CASE OF HUTAMTMA JAYANTRAO PATIL SSK LTD., VS. ACIT, CIRCLE-3, NANDE D. RESPECTFULLY FOLLOWING THE ABOVE REFERRED JUDICIAL PRO NOUNCEMENTS, I DELETE THE ADDITION OF RS. 1,02,001/-. 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTI ES WE FIND THAT THIS ISSUE OF CONTRIBUTION TOWARDS VASANT DADA SUGAR INSTIT UTE (VSI), APPEARED TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF I.T.A.T. PUNE IN THE CASE OF SHRI PANCHGANGA SSK LTD. IN ITA NO. 491 AND 1365/PN/ 1991 FOR A.Y. 1989-90 AND 1984-85 DATED 20-7-1994 WHEREIN IT HAS BEEN HEL D THAT SUCH CONTRIBUTION IS ALLOWABLE AS DEDUCTION. THE ASSESSEE IS MAINTAININ G MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, DISALLOWANCE IS NOT ATTRAC TED. WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) IS JUSTIFIED IN DELE TING THE ADDITION. WE CONFIRM HIS ORDER. THIS GROUND IS REJECTED . 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT 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, CIRCLE-3, NANDED 2. ASSESSEE 3. CIT(A), AURANGABAD 4. CIT, AURANGABAD 5. D.R. ITAT B BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE