M/s Shahbad Co-op Sugar Mills Ltd., Kurukshetra V. ACIT, Kurukshetra

ITA 716/CHANDI/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80950 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S K MUKHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 716/CHD/2009 ASSESSMENT YEARS : 2006-07 THE SHAHBAD COOP V A.C.I.T. CIRCLE SUGAR MILLS LTD KURUKSHETRA SHAHBAD KURUKSHETRA (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.K. MUKHI RESPONDENT BY: SHRI MAHAVIR S INGH DATE OF HEARING 18.9.2014 DATE OF PRONOUNCEMENT 8.1 0.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER OF THE LD CIT(A), KARNAL DATED 29.5.2009. 2 IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1 THAT THE APPELLATE ORDERS OF LD. CIT(A) IS ILLEGAL, ARBITRARY AND UNCALLED FOR AND THUS NEEDS TO BE QUASHED BY THE IN TERFERENCE OF HIS HONBLE BENCH IN VIEW OF VARIOUS GROUNDS OF APPEAL TAKEN BY THE APPELLANT HEREIN BELOW. 2.(A) THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONCU RRING WITH THE FINDINGS OF A.O., IN MAKING AN ADDITION OF RS. 71,72,043/- O N ACCOUNT OF INTEREST CALCULATED @ 10% ON STICKY LOANS DUE FROM M/S BHUNA SUGAR MILLS WHEREIN EVEN THE PRINCIPLE AMOUNT BEING IN DOUBT AN D NOT BEING RECEIVED FOR THE PAST MANY YEARS, SO THAT SO THE QUESTION OF CHARGING OF INTEREST IS HIGHLY IMPROVABLE AND IS AGAINST THE TRITE LAW ON T HE ISSUE. (B) THAT WITHOUT PREJUDICE TO ABOVE THE APPELLANT D ISPUTES THE QUANTUM OF ADDITION. 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN BLINDLY FOLLOWING THE ORDERS OF HIS PREDECESSOR IN EARLIER YEARS APPEALS WHICH IS AGAINST THE ESTABLISHED PRINCIPLES OF LAW THAT EVERY YEAR IS AN INDEPENDENT YEAR AND THAT NO AUTHORITY IS TO FOLLOW ANY ORDER BLINDLY, S O THAT SO THE ORDERS OF THE CIT(A) ARE BAD IN LAW AND NEEDS TO BE SET ASIDE . 4(A) THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONCUR RING WITH THE FINDINGS OF A.O., IN CONFIRMING THE ADDITION 11,50,685/- BEI NG AN AMOUNT OF INTEREST ESTIMATED AT 10% ON THE AMOUNT OF RS. 1.5 CRORES BEING THE AMOUNT OF INVESTMENT BY THE APPELLANT MILL FOR THE PURCHASE OF LAND FOR THE EXTENSION WORK OF THE APPELLANT BEING INCURRED WHOLLY AND EXCLUSIVELY 2 FOR THE BUSINESS OF THE ASSESSEE MILL, SO THAT SO T HE ACTION OF THE AUTHORITIES BELOW IS PERVERSE. (B) THAT WITHOUT PREJUDICE TO ABOVE THE APPELLANT D ISPUTES THE QUANTUM OF ADDITION. 3 IN ADDITION TO ABOVE THE ASSESSEE HAS MOVED AN APPLICATION DATED 2.2.2010 THROUGH WHICH FOLLOWING ADDITIONAL GROUND IS SOUGHT TO BE RAISED: THAT IN VIEW OF THE JUDGMENT OF THE FULL BENCH OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S BUDHEW AL COOP SUGAR MILLS, IN ITA NO. 232/2003 DEDUCTION IN RESPECT OF THE INCOME OF THE APPELLANT MILL BEING A COOP SOCIETY BE CONSIDER ED AND ALLOWED U/S 80P(2)(III) OF IT ACT. 4 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE FACTS REGARDING THIS ISSUE ARE ALREADY ON RECORD AND THIS BEING A LEGAL ISSUE, THEREFORE THIS GROUND SHOULD BE ADMITT ED IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF NA TIONAL THERMAL POWER CO. LTD V. CIT, 229 ITR 383. 5 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE O PPOSED THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE . 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THE ISSUE OF ALLOWABILITY OF DEDUCTION IS PURELY A LEGA L ISSUE AND RELEVANT FACTS ARE NOTED ON RECORD. THE HON'BLE SU PREME COURT IN CASE OF NATIONAL THERMAL POWER CO. LTD V. CIT (S UPRA) HAS CLEARLY HELD THAT IF THE FACTS ARE ALREADY ON RECOR D AND THE ISSUE IS LEGAL THEN SUCH ISSUE CAN BE ADMITTED BY T HE TRIBUNAL. IN VIEW OF THIS DECISION WE ADMIT THE ADDITIONAL GR OUND. 7 GROUND NO. 1 IS OF GENERAL NATURE AND THEREFORE N O SEPARATE ADJUDICATION IS REQUIRED. 8 GROUNDS O. 2 & 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAD GIVEN CERTAIN LOANS TO OTHER SUGAR MILLS ON WHI CH NO INTEREST 3 INCOME WAS SHOWN. IN RESPONSE TO THE QUERY IT WAS MAINLY STATED THE LOANS HAVE B ECOME DOUBTFUL AND INTEREST WAS NO T RECEIVED, THEREFORE NO INTEREST HAS BEEN ACCOUNTED FOR. THE A SSESSING OFFICER NOTED THAT SIMILAR ISSUE AROSE IN THE EARLIER YEARS AND ADDITION WAS CONFIRMED BY THE TRIBUNAL ALSO. THEREFORE HE ADDED A SUM OF RS. 71,72,043/- TO THE INCOME OF THE ASSESSEE. 9 ON APPEAL IN VIEW OF THE ORDER OF THE TRIBUNAL, T HE ADDITION WAS CONFIRMED BY THE LD. CIT(A). 10 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE MADE DETAILED SUBMISSIONS. 11 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ORDER OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HON'BLE HIGH COU RT ALSO. 12 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE CAME UP FOR CONSIDERATION OF HON'BLE HIGH COU RT OF PUNJAB & HARYANA IN ASSESSEES OWN CASE IN ITA NO. 235/2009. IN THIS CASE FOLLOWING QUESTION WAS RAISED: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ITAT WAS JUSTIFIED ON FACTS AND IN LAW IN CONFIRMING THE FINDINGS OF THE AUTHORITIES BELOW WHILE DENYING DEDUCTION ON ACCOUN T OF INTEREST ON STICKY LOANS BEING THE INTEREST DOUBTFUL OF RECO VERY AND HAVING BEEN CREDITED TO SUSPENSE ACCOUNT IN VIEW OF THE ES TABLISHED PRINCIPLES OF LAW AND THAT OF ACCOUNTANCY AS SUPPOR TED BY THE JUDGMENT OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF UCO BANK V. CIT, 237 ITR 889 (S.C) 13 HON'BLE HIGH COURT HAS DECIDED THIS ISSUE VIDE DETAILED DISCUSSION IN PARAS NO. 7 TO 14 AND ULTIMATELY HELD THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING AND FURTHER DEBTS HAD NOT BEEN CLAIMED AS BAD DEBT, THEREFORE INCOME HAS TO BE ACCOUNTED FOR ON ACCRUAL BASIS. T HEREFORE FOLLOWING THIS ORDER WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. 14 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE 4 ASSESSEE HAS PURCHASED LAND AMOUNTING TO RS. 1.5 CR ORES. IN RESPONSE TO THE QUERY IT WAS STATED THAT LAND WAS P URCHASED ON 17.6.2005 FOR PUTTING UP A NEW PLANT. INVESTMENT W AS MADE OUT OF INTERNAL SOURCES. THE ASSESSING OFFICER DID NOT FIND FORCE IN THIS CONTENTION AND OBSERVED THAT SINCE LAND HAS NO T BEEN PUT TO USE AND THE ASSESSEE HAS PAID INTEREST OF RS. 1, 70,93,080/- .AND THEREFORE INTERNAL INTEREST @ 10% ON RS.1.5 CR ORES AMOUNTING TO RS. 11,50,685/- DISALLOWED. 15 ON APPEAL THIS ISSUE WAS DECIDED AGAINST THE ASS ESSEE VIDE PARA 13 WHICH IS AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUB MISSIONS OF THE ASSESSEE. WHETHER THE MOLASSES AND OTHER BYE-PRODUC TS WERE HYPOTHECATED WITH THE BANK FOR THE CC LIMIT OR NOT BUT ONCE THE MONEY RECEIVED BY THE ASSESSEE FROM SALE OF MOLASSES AND OTHER BYE-PRODUCTS IS UTILIZED FOR REPAYMENT OF THE CC LIMIT LOAN BY D EPOSITING THE SAME IN THE CC LIMIT ACCOUNT THEN THIS MONEY IS NOT AVAILAB LE TO THE ASSESSEE FOR ANY OTHER USE AND THE MONEY WHICH IS SUBSEQUENTLY D RAWN FROM THE CC LIMIT ACCOUNT FOR PAYMENT OF COST OF LAND IS DEFINI TELY OUT OF THE LOAN AMOUNT OF THE CC LIMIT ACCOUNT AND THEREFORE, THE I NTEREST PAID ON THE MONEY PAID FOR COST OF LAND IS ATTRIBUTABLE TO LAND ONLY AND THEREFORE, IT HAS BEEN RIGHTLY DISALLOWED BY THE ASSESSING OFFICE R BECAUSE THE LAND WAS NOT USED FOR BUSINESS PURPOSES DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THE GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 16 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE MAIN LY SUBMITTED THAT LAND WAS PURCHASED OUT OF INTERNAL S OURCES AND CASH CREDIT LIMIT WAS BEING USED FOR WORKING CAPITA L. IN ANY CASE LAND WAS USED FOR THE PURPOSE OF BUSINESS OF T HE ASSESSEE. THE FACTORY WAS NOT SET UP BUT THAT DOES NOT MEAN IT CANNOT BE SAID THAT THE LAND WAS NOT PUT TO USE. 17 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 18 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSING OFFICER HAS PERHAPS MADE THIS ADDITION UN DER PROVISO TO SECTION 36(1)(III). HOWEVER, IN OUR OPI NION, IN CASE OF LAND IT CAN NOT BE SAID THAT SAME HAS NOT BEEN P UT UP FOR USE 5 SIMPLY BECAUSE THE ASSESSEE HAS NOT BEEN ABLE TO CO NSTRUCT THE FACTORY. IT CAN NOT BE SAID THAT THE LAND HAS N OT BEEN USED FOR BUSINESS PURPOSES. IN ANY CASE THE LAND HAS BEE N PURCHASED FROM INTERNAL SOURCES OF THE ASSESSEE AND NO INTEREST HAS BEEN INCURRED DIRECTLY FOR PURCHASE OF LAND AND THE ADDITION HAS BEEN MADE ONLY ON NOTIONAL BASIS WHICH IS NOT JUSTIFIED. THEREFORE WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THIS ADDITION. 19 ADDITIONAL GROUND IT WAS POINTED OUT BY THE LD . COUNSEL FOR THE ASSESSEE THAT IN EARLIER YEAR THIS DEDUCTIO N WAS CLAIMED BUT THE SAME WAS REJECTED BY THE AUTHORITIES BECAUS E OF THE DECISION IN CASE OF BUDHEWAL COOP SUGAR MILLS, 253 ITR 659. LATER ON A FULL BENCH WAS CONSTITUTED BY THE HON'BL E HIGH COURT OF PUNJAB & HARYANA IN CASE OF BUDHEWAL COOP SUGAR MILLS, 315 ITR 351 IN WHICH HELD THAT THIS DEDUCTIO N WAS ALLOWABLE. 20 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE SUBMITTED THAT THE EARLIER DECISION IN CASE OF THE ASSESSEE S HOULD BE FOLLOWED. IN ANY CASE SINCE THE FACTS ARE NOT RECO RDED THE ISSUE MAY BE REMANDED TO THE FILE OF ASSESSING OFFI CER. 21 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT FULL BENCH OF HON'BLE HIGH COURT OF PUNJ AB & HARYANA IN CASE OF BUDHEWAL COOP SUGAR MILLS, 315 ITR 351 HAS MADE FOLLOWING OBSERVATION: A CO-OPERATIVE SOCIETY, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR OUT OF THE SUGARCANE GROWN BY ITS MEM BERS, CANNOT BE DENIED DEDUCTION UNDER SECTION 80P(2)(A)(III) OF TH E INCOME-TAX ACT, 1961, ON THE GROUND THAT PROCESSING INVOLVES USE OF POWER. SECTION 80 P HAS BEEN ENACTED WITH A VIEW TO ENCOUR AGE AND PROMOTE GROWTH OF THE CO-OPERATIVE SECTOR IN THE ECONOMIC L IFE OF THE COUNTRY AND IN PURSUANCE OF THE DECLARED POLICY OF THE GOVERNME NT. IT HAS TO BE LIBERALLY CONSTRUED. MARKETING IS A COMPREHENSIVE TERM. IT DOES NOT MEAN MERELY BUYING AND SELLING. IT INCLUDES PROCES SING WHICH MAY BE NECESSARY FOR MAKING THE AGRICULTURAL PRODUCE MARKE TABLE. 6 THE CORRECT WAY OF READING THE DIFFERENT HEADS OF E XEMPTION ENUMERATED IN THE SECTION WOULD BE TO TREAT EACH AS A SEPARATE AND DISTINCT HEAD OF EXEMPTION. WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGORY OF AN INCOME OF A CO-OPERATIVE SOCIETY IS EXEMPT FROM TAX, WHAT HAS TO BE SEEN IS, WHETHER THE CASE FALLS WITHIN AN Y OF THE SEVERAL HEADS OF EXEMPTION. IF IT FALLS WITHIN ANY ONE HEAD OF EX EMPTION, IT WOULD BE FREE FROM TAX NOTWITHSTANDING THAT THE CONDITIONS O F ANOTHER HEAD OF EXEMPTION ARE NOT SATISFIED AND SUCH INCOME IS NOT FREE FROM TAX UNDER THAT HEAD OF EXEMPTION. THE CASE OF THE GROWERS OF AGRICULTURAL PRODUCE IS DEALT WITH BY SECTION 80P(2)(A)(III). SUB-CLAUSE (III) HAS A WIDER SCOPE. UNDER THIS SUB-CLAUSE, THE MEMBERS HAVE TO BE GROWERS THEMSELVES, MEANING THEREBY, THAT FOR THE SOCIETY WITH MEMBERS BEING GROWERS, THE DEDUCTI ON IS AVAILABLE EVEN IF THE AGRICULTURAL PRODUCE IS MARKETED WITHOUT FUR THER PROCESSING OR EVEN IT IS PROCESSED WITH THE USE OF POWER. SUB-CLAUSE (V) OF SECTION 80P(2)(A) IS A RESTRICTIVE CLAUSE AND HAS TO BE UND ERSTOOD AS COVERING A CASE OF MEMBERS HAVING AGRICULTURAL PRODUCE NOT GRO WN BY THEM. SUB- CLAUSE (V) IS APPLICABLE ON FULFILLMENT OF THE FOLL OWING CONDITIONS: (A) SOME PROCESSING IS TO BE CARRIED OUT ON THE AGRICUL TURAL PRODUCE; AND (B) THE PROCESSING IS WITHOUT THE AID OF POWER. CLAUSE (V) IS DIFFERENT IN AS MUCH AS SUB-CLAUSE (III) APPLIES WHERE THE MEMBERS OF THE CO-OPERATIVE SOCIETIES ARE THE GROWERS OF THE AGRICULTURAL PRODU CE WHEREAS SUB-CLAUSE (V) APPLIES IN A CASE WHERE THE AGRICULTURAL PRODUC E IS NOT GROWN BY THE MEMBERS BUT MAY BELONG TO THEM. ADDITIONALLY, THERE CANNOT BE SUFFICIENT MARKET FOR PURCHASE OF SUGARCANE ITSELF AS GROWN BY THE MEMBERS. THE SUGARCANE NECESSARILY IS TO BE CONVERTED INTO SUGAR BEFORE IT CAN BE MADE MARKETABLE. THEREFORE, KEEPING IN VIEW THE LEG ISLATIVE INTENT FOR ENACTING SECTION 80P(2)(A)(III), THE BENEFIT THERE UNDER COULD NOT BE DENIED TO A SOCIETY WHICH MANUFACTURES AND SELLS SU GAR OUT OF THE SUGARCANE GROWN BY ITS MEMBERS. THEREFORE WE REMAND THIS ISSUE TO THE FILE OF ASSES SING OFFICER TO EXAMINE THE ALLOWABILITY OF DEDUCTION IN THE LIG HT OF FULL BENCH OF HON'BLE HIGH COURT . 22 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8.10.2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8.10.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 7