Deputy Commissioner of Income tax, Jalgaon V. M/s. Madhukar Sahakari Sakhar Karkhana Ltd, Jalgaon

ITA 564/PUN/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1046 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVRAJ B MOREY
• Keywords: Commercial expediency; Revenue expenditure
• Section: 143(3); 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E (THROUGH VIRTUAL COURT) BEFORE SHRI INTURI RAMA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.564/PUN/2017 / ASSESSMENT YEAR : 2012-13 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, JALGAON. . / APPELLANT V/S M/S. MADHUKAR SAHASKARI SAKHAR KARKHANA LIMITED, FAIZPUR KARKHANA SIGHT, FAIZPUR, YAWAL, JALGAON 425 502. PAN : AAAAM1574A. . / RESPONDENT ASSESSEE BY : NONE. REVENUE BY : SHRI SHIVRAJ B. MOREY. / DATE OF HEARING : 08.07.2021 / DATE OF PRONOUNCEMENT : .07.2021 / ORDER PER INTURI RAMA RAO, AM: THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL) 2, NASHIK DAT ED 16.12.2016 FOR THE ASSESSMENT YEAR 2012-13. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RESPONDENT / ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN MANUFACTURING AND TRADING OF SUGAR. THE RETURN OF INCOME FOR A.Y. 2012-13 WAS FILED ON 30.09.2012 WHIC H WAS 2 REVISED ON 18.05.2013 AT A TOTAL INCOME OF RS. NIL. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE A SSESSING OFFICER VIDE ORDER DATED 24.03.2015 PASSED U/S 143(3) OF THE INCO ME TAX ACT (HEREINAFTER REFERRED AS THE ACT) AT A TOTAL INCOME OF R S.24,49,10,402/-. WHILE DOING SO, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.24,35,03,348/- BEING THE EXCESS CANE PRICE PAID TO SUGA RCANE GROWERS / MEMBERS. ACCORDING TO THE ASSESSING OFFICER, THE SUGARC ANE PRICE PAID BY THE RESPONDENT / ASSESSEE OVER AND ABOVE THE FAIR REMUNERATIVE PRICE (FRP) FIXED AND NOTIFIED BY THE GOVERNMENT IS NOTHING BUT APPROPRIATION OF PROFITS WHICH IS NOT ALLOWABLE AS AN EXPENDITURE WHILE COMP UTING THE TAXABLE INCOME OF THE RESPONDENT / ASSESSEE CO-OPERATIV E SOCIETY. THE ASSESSING OFFICER HAD ARRIVED AT SUCH EXCESS PRICE AT RS.2 4,35,03,348/- BY DEDUCTING THE FRP NET OF HARVESTING AND TRANSPORT EXPENSES WHICH IS ARRIVED AT RS.977.37 AS AGAINST ACTUAL CANE PRICE PAID PE R M.T. AT RS.1,686.60. THE AMOUNT OF DISALLOWANCE WAS ACCORDINGLY C ALCULATED AT RS.709.23 PER M.T. BY MULTIPLYING THE QUANTITY OF THE SUGA RCANE PURCHASED. 3. BEING AGGRIEVED BY THE ABOVE DISALLOWANCE, THE ASSESSE E PREFERRED APPEAL BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER ACCEPT ED ABOVE PRINCIPLE THAT THE EXCESS PRICE PAID OVER AND ABOVE THE F.R.P SHOULD BE DISALLOWED. HOWEVER, THE LD.CIT(A) WAS OF THE OPINION THAT THE HARVESTING AND TRANSPORT EXPENSES PAID TO THE SUGARCANE GROWERS SHOULD BE ALLOWED AS A DEDUCTION OUT OF THE COMMERCIAL EXPEDIENCY BY GIVING THE FOLLOWING REASONS : 1) THE ESTABLISHED BUSINESS TRADITION OF PROCURING STANDING C ROP OF SUGARCANE FROM THE FIELD. 3 2) THE FACT THAT THE CENTRAL GOVERNMENT ORDER FIXING THE S MP IS EITHER EX-GATE OR EX-MARKET PLACE I.E., A CHOICE IS GIVEN TO THE KARKHANAS TO PROCURE THE SUGARCANE EITHER AT ITS GATE OR AT THE MARKET PRICE. 3) THE FACT THERE IS NO GOVERNMENT ORDER WHICH MAKES H & T EXPENSES A PART OF SMP, AND 4) THE FACT THAT EXPENSES IS BORNE OUT OF COMMERCIAL EXPEDIE NCY AND IS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. 5) THE EXPENDITURE IS ALLOWABLE IN VIEW OF NOTIFICATIONS ISSUED AND CIRCULAR NO.6/2017 DATED 10.10.2017 ISSUED BY CBDT. ACCORDINGLY, THE LD.CIT(A) HAD HELD THAT ONLY THE BALANCE AMOUNT OF RS.175.40 PER M.T. SHOULD BE DISALLOWED. WHILE DOING SO, THE LD.CIT(A) HAS TAKEN THE F.R.P. PRICE AT RS.1,511.20 PER M.T. AS AGAIN ST THE ACTUAL PRICE PAID AT RS.1,686.60 M.T. ACCORDINGLY, DELETED THE ADDITION TO AN EXTENT OF RS.18,32,82,389/-. 4. BEING AGGRIEVED BY THE DECISION OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. IT IS CONTENDED BY THE LD.CIT D.R. THAT LD.CIT(A) OUGHT N OT HAVE ALLOWED THE RELIEF GIVEN ON HARVESTING AND TRANSPORT EXPE NSES WHICH IS ALREADY INCLUDED AS A PART OF THE F.R.P. THUS, HE SUBMITTE D THAT THE ORDER OF LD.CIT(A) IS CONTRARY TO THE LAW AND CANNOT BE SU STAINED IN THE EYE OF LAW. 6. ON THE OTHER HAND, NONE APPEARED ON BEHALF OF RESPO NDENT / ASSESSEE CO-OPERATIVE SOCIETY DESPITE DUE SERVICE OF NOTICE. 4 7. WE HAVE HEARD THE LD.CIT D.R. AND PERUSED THE MATER IAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL RELATES TO THE ALLOWABILITY OF HARVESTING AND TRANSPOR EXPENSES PAID BY THE CO-OPERATIVE SUGAR MILLS TO ITS FARMERS / MEMBERS FOR PURCHASE OF SUGARCANE. THE UNDISPUTED FAC TS OF THE CASE ARE THAT THE FRP WHICH IS FIXED BY THE CENTRAL GOVERNME NT PER M.T. IS RS.1,511.20. IT IS THE CONTENTION OF THE DEPARTMENT THAT THE SAID PRICE IS INCLUSIVE OF HARVESTING AND TRANSPORT EXPENSES AND THERE FORE, THE COMPONENT OF HARVESTING AND TRANSPORT EXPENSES IN THE F.R.P. SHOULD BE DISALLOWED. THE OTHER CONTENTION OF THE APPELLANT IS THAT T HE DIFFERENCE BETWEEN THE F.R.P. NET OF HARVESTING AND TRANSPORT EXPE NSES AND THE ACTUAL PRICE SHOULD NOT BE ALLOWED AS A DEDUCTION WHILE COM PUTING THE TAXABLE INCOME OF THE RESPONDENT / ASSESSEE CO-OPERAT IVE SOCIETY. HOWEVER, THIS ISSUE DOES NOT ARISE IN THE PRESENT APPEAL AND HENCE, WE ARE NOT CONCERNED WITH THIS ISSUE. WE ARE ONLY CONCERN ED WITH THE ALLOWABILITY HARVESTING AND TRANSPORT EXPENSES. 8. THE CBDT CIRCULAR NO.6/2017 DT.10.10.2017 HAD CLARIFIED TH AT THE EXPENSES INCURRED BY THE CO-OPERATIVE SUGAR MILLS ON HAR VESTING AND TRANSPORT EXPENSES FOR PROCURING THE SUGARCANE FROM TH E FARMERS IS ALLOWED AS DEDUCTION AND THE SAID CIRCULAR IS EXTRACTED BE LOW FOR READY REFERENCE. INSTANCES HAVE COME TO THE NOTICE OF THE BOARD WHE REIN ASSESSING OFFICERS HAVE DISALLOWED THE CLAIM OF HARVESTING AND TRANSPO RTATION EXPENSES INCURRED BY THE CO-OPERATIVE SUGAR MILLS FOR PROCUR ING SUGARCANE FROM FARMERS, WHO ARE MEMBERS OF SUCH CO-OP. SUGAR MILLS AND WHO ARE BOUND UNDER AGREEMENT TO SUPPLY THE SUGARCANE EXCLUSIVELY TO THE CONCERNED SUGAR MILL. THE ISSUE OF ALLOWABILITY OF SUCH EXPENSES HAS BEEN EXAMINED BY THE BOARD. THESE EXPENSES ARE INCURRED BY THE SUGAR MI LLS FOR ENSURING AN ADEQUATE AND SUSTAINED SUPPLIER OF FRESHLY CUT SUGA RCANE I.E. AN ESSENTIAL INPUT FOR THE CONTINUOUS RUNNING OF SUCH MILLS. TH ESE EXPENSES ARE THEREFORE INCURRED FOR A COMMERCIAL EXPEDIENCY AND ARE PRIMA FACIE WHOLLY 5 AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SUCH EXPENSES ARE THEREFORE ALLOWABLE IN THE COMPUTATION OF INCOME OF THE CO-OP . SUGAR MILLS. 9. FURTHER, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE CIT VS. MANJARA SHETKARI SAHAKARI SAKHAR KARKHANA LTD. REPORTE D IN (2008) 166 TAXMAN 287, 301 ITR 191 (BOM) HELD THAT THE EXPENDITUR E INCURRED ON THE CONSIDERATION OF BUSINESS EXPEDIENCY SHOULD BE ALLOWED AS REVENUE EXPENDITURE. SIMILARLY, THE HONBLE MADRAS HIGH COURT IN TH E CASE OF CIT VS. ARUNA SUNRISE HOTELS LTD REPORTED IN (2018) 93 TAXMAN N.COM 361 (MADRAS) HELD THAT THE PAYMENT MADE TO SUGARCANE GROWE RS / MEMBERS IN EXCESS OF THE ADMINISTERED PRICE DETERMINED BY THE SUGA RCANE CONTROL ORDER, 1966 IS ELIGIBLE TO BE TREATED AS AN ALLOWABLE AS THE REVENUE EXPENDITURE EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINE SS. WE FIND THAT THE ORDER OF LD.CIT(A) IS IN CONSONANCE WITH THE CB DT CIRCULAR AS WELL AS THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH C OURT AND THE HONBLE MADRAS HIGH COURT CITED SUPRA, NO CONTRARY POSITION HAS BEEN POINTED OUT TO US BY THE LD. CIT D.R. AND THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). ACCORD INGLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 9 TH DAY OF JULY, 2021. SD /- SD/- (PARTHA SARATHI CHAUDHURY) (INTURI RAMA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 9 TH JULY, 2021. YAMINI 6 ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5. 6. CIT( APPEAL) 2, NASHIK. PR.CIT 2, NASHIK. , , / DR, ITAT, A PUNE; ! / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.