DCIT, Cir-2. Sangli, V. Sarvodaya SSK Ltd., Sangli,

ITA 663/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3328 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-06-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A S SINGHMS MANJU AJWANI
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER I.T.A. NO. 663/PN/2009 ( ASSTT.YEAR. 2006-07 ) THE DY. COMMISSIONER OF INCOME TAX, APPELLA NT CIRCLE-2, AAYAKAR BHAVAN SOUTH SHIVAJINAGAR, SANGLI VS. SARVODAYA S.S.K.LTD, RE SPONDENT KARANDAWADI, TAL-WALWA, DIST. SANGLI PAN : AAFCS4934G APPELLANT BY: SHRI A.S. SINGH/MS.MANJU AJWANI ASSESSEE BY: NONE ORDER PER D. KARUNAKARA RAO, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE IMPUGNED ORDER OF THE CIT(A)-, KOLHAPUR DT. 27.02.2009 FOR T HE A.Y. 2006-07. GROUNDS RAISED READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN DELETING THE ADDITION RIGHTLY MADE BY THE AO ON ACCOUNT OF PAYMENT OF EXCESS AND UNREASONABLE SUGARCANE PRICE , OVER AND ABOVE THE STATUTORY MINIMUM PRICE (SMP) TO MEMBERS AND NON MEMBERS HOLDING THAT IT CAN NOT BE DISALLOWED EITHER U/S. 40A(2) OR37(1) OF THE I.T. ACT 1961? 2. GROUND IS AGAINST THE DELETION OF ADDITION BY TH E CIT(A) ON ACCOUNT OF PAYMENT OF EXCESS CANE PRICE PAID TO MEMBERS AND NON-MEMBERS. THIS ISSUE WAS DECIDED IN THE CASE OF DCIT VS. MAN JARA SAHAKARI SAKHAR KARKHANA LTD., (2004) 91 ITD 361 (MUM)(SB) WHICH WA S SUBSEQUENTLY UPHELD BY THE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE SAID CASE AS REPORTED IN 301 ITR 191 (BOM). HONBLE HIGH COURT H ELD THAT THE SECTION 40A(2) OF THE ACT DOES NOT APPLY TO A COOPERATIVE S OCIETY AND THEREFORE, PAGE 2 OF 4 ITA NO.663/PN/2009 SARVODAYA SSK LTD., SANGLI, A.Y. 1999-2000 NO DISALLOWANCE UNDER THIS SECTION CAN BE MADE IN T HE ASSESSMENT OF COOPERATIVE SOCIETY. HOWEVER, DURING THE PROCEEDING S 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 PARISA R SSK LTD IN CIVIL APPEAL NO 617 OF 2010 ARISING OUT OF SLP(C) NO 1193 0 OF 2008 AND THE HONBLE SUPREME COURT IS OF THE DIFFERENT VIEW ON T HE ISSUE AND MATTER HAS BEEN SET ASIDE. RELEVANT OBSERVATIONS ARE AS UN DER. 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. PAGE 3 OF 4 ITA NO.663/PN/2009 SARVODAYA SSK LTD., SANGLI, A.Y. 1999-2000 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 TO THE CONCERNED COMMISSIONER OF INCOME TAX (APPEALS) TAKES UP THE MATTER FOR FINAL HEARINGS. 3. 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 DI RECTED TO EXAMINE IF THE SAID DIFFERENTIAL PAYMENTS CONSTITUTE AN EXPENSE OR DISTRIBUTION OF PROFITS CONSIDERING ALL THE JUDGMENTS CITED ABOVE. ACCORDIN GLY, GROUND 1 OF THE APPEAL IS SET ASIDE . 4. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED ON THE 9TH SEPTEMBER 2010. SD/- SD/- ( I.C. SUDHIR) JUDICIAL MEMBER (D. KARUNAKARA RAO ) ACCOUNTANT MEMBER PUNE DATED THE 9TH SEPTEMBER 2010 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)- , KOLHAPUR 4. THE CIT- I/II, KOLHAPUR/CIT (CENTRAL), PUNE 5. THE D.R, B BENCH, PUNE 6. GUARD FILE PAGE 4 OF 4 ITA NO.663/PN/2009 SARVODAYA SSK LTD., SANGLI, A.Y. 1999-2000 BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE