A.P. Dairy Development Cooperative Federation Ltd., Hyd, Hyderabad V. ITO, Ward-1(2), Hyd, Hyderabad

ITA 741/HYD/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2477 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-04-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 02-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: B SAI PRASAD
• Keywords: Depreciation; Reasonable cause; Non compliance
• Section: 43B; 143(3); 37(1); 148

Judgement Text

ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.741 TO 744/HYD/2015 (ASSESSMENT YEARS: 2004-05 TO 2005-06, 2009-10 AND 2011-12) THE A.P. DAIRY DEVELOPMENT COOPERATIVE FEDERATION LTD HYDERABAD 500017 PAN: AABCA 7370 H VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 15 (1) HYDERABAD ITA NO.1296 TO 1298/HYD/2015 (ASSESSMENT YEARS: 2009-10, 2010-11 & 2012-13) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 15 (1), HYDERABAD VS THE A.P. DAIRY DEVELOPMENT COOPERATIVE FEDERATION LTD HYDERABAD 500017 PAN: AABCA 7370 H FOR ASSESSEE : SHRI B. SAI PRASAD FOR REVENUE : SHRI K.J. RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THESE ARE CROSS APPEALS FILED BOTH BY THE ASSESSEE AND THE REVENUE FOR THE A.YS 2004-05, 2005-06, 2009-10, 2010-11 AND 2011-12 RESPECTIVELY. ITA NOS.741, 742 AND 744/HYD/2015 2. THESE ARE ASSESSEES APPEALS FOR THE RESPECTIVE A.YS AGAINST THE ORDER OF THE CIT (A)-VII DATED 24.03.20 15 HOLDING THE RETURN OF INCOME FILED BY THE ASSESSEE AS NON-EST. DATE OF HEARING : 12.04.2017 DATE OF PRONOUNCEMENT : 02.06.2017 ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 2 OF 8 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROCESS ING AND SALE OF MILK AND MILK PRODUCTS. IT FILED ITS RETURN OF I NCOME FOR THE A.Y 2004-05 ON 20.10.2004 DECLARING A LOSS OF RS.63,43, 910. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO CALLED FOR CERTAIN INFORMATION. THE ASSESSEE S REPRESENTATIVE APPEARED AND FILED THE REQUIRED INFO RMATION. THE AO OBSERVED THAT THE ASSESSEE COMPANY IS MAINLY ENG AGED IN THE ACTIVITIES OF PROCUREMENT OF MILK FROM FARMERS IN A NDHRA PRADESH, PROCESS THE SAME INTO WHOLE MILK, STANDARDIZED MILK , TONED MILK AND MILK PRODUCTS AND SELLS THEM. FOR THIS PURPOSE, THE ASSESSEE MAINTAINS MILK SHEDS AND MILK PRODUCT FACTORIES ALL OVER THE STATE OF ANDHRA PRADESH. THE AO OBSERVED THAT THE ASSESS EE HAS FILED ITS RETURN OF INCOME ON THE BASIS OF PROVISIONAL AC COUNTS FOR THE FINANCIAL YEAR 2004-05 AND ENCLOSED THE ANNUAL REPO RT IN FORM NO.3CA. HE OBSERVED THAT AS PER THE PROVISIONS OF A .P. COOPERATIVE SOCIETIES ACT, 1964, AUDITORS FOR THE A PDDCF LTD I.E. THE ASSESSEE HEREIN, HAVE TO BE APPOINTED BY THE AD DL. REGISTRAR/CHIEF AUDITOR, OFFICE OF THE REGISTRAR OF COOP. SOCIETIES, HYDERABAD AND THE APPOINTED AUDITORS HAVE TO CONDUC T AUDIT FOR THE A.Y 2003-04. SINCE THE ASSESSEE HAS NOT FILED TH E AUDITED REPORT ALONG WITH THE RETURN OF INCOME, THE AO INFO RMED THE ASSESSEES AUTHORIZED REPRESENTATIVE THAT THE LOSS CLAIMED BY THE ASSESSEE SHALL NOT BE ALLOWED IN THE ABSENCE OF COM PLETION OF SUCH AUDIT AND FURNISHING OF THE REPORT. 4. THE AO HELD THAT IN THE ABSENCE OF AUDITED BOOKS OF ACCOUNTS, IT IS NOT POSSIBLE TO VERIFY THE VERACITY AND AUTHENTICITY OF THE QUANTUM OF EXPENDITURE CLAIMED. IN VIEW OF T HE SAME, THE ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 3 OF 8 AO COMPLETED THE ASSESSMENT DISALLOWING THE CLAIM O F LOSS AND TREATING THE INCOME AT RS.NIL. FURTHER, THE AO ALS O NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AT 50% ON PLAS TIC CANS. HOLDING THAT THE PLASTIC CANS ARE NOT IN THE NATURE OF REFILLS, THE AO RESTRICTED THE DEPRECIATION TO 25%. 5. AGGRIEVED BY BOTH THE ABOVE DISALLOWANCES, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) STA TING THAT THE DELAY IN STATUTORY AUDIT IS DUE TO THE BACKLOG OF A UDIT OF EARLIER YEARS AND UNLESS THE EARLIER YEARS AUDIT IS COMPLE TED, THE STATUTORY AUDIT FOR THE NEXT YEAR COULD NOT BE COMP LETED AND THAT THE STATUTORY AUDITS FOR THE EARLIER YEARS IS ALSO DELAYED CONSIDERABLY DUE TO CHANGE IN THE SYSTEM OF ACCOUNT ING. THE AO, THUS EXPLAINED THE REASON FOR THE DEFICIENCY. THE C IT (A) HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTION AN D HELD THAT THE ASSESSEE IS REQUIRED TO FILE THE RETURN OF INCO ME ALONG WITH THE AUDITED REPORT AND THE ASSESSEE BEING A STATE OWNED COMPANY, RUNNING WITH PUBLIC FUND SHOULD HAVE BEEN CAREFUL I N RUNNING ITS BUSINESS AS WELL AS IN COMPLYING WITH THE STATUTORY PROVISIONS OF VARIOUS ACTS. THEREFORE, HE WAS OF THE OPINION THAT THE RETURN OF INCOME FILED WITHOUT THE AUDIT REPORT IS NON-EST. A CCORDINGLY, HE DISMISSED THE ASSESSEES CASE. AGGRIEVED, THE ASSES SEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND T HE SUBMITTED THAT AO AT NO POINT OF TIME HAS HELD THE RETURNS TO BE DEFECTIVE AND NOT ISSUED ANY DEFECTIVE NOTICES FOR ANY OF THE A.YS AND ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 4 OF 8 THEREFORE, ACCORDING TO HIM, THE CIT (A) WAS IN ERR OR IN HOLDING THE RETURN OF INCOME AS NON-EST. THUS, ACCORDING TO HIM , THE CIT (A) OUGHT TO HAVE DECIDED THE APPEALS ON MERITS. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS FILED THE RETURN OF INCOME ON THE BASIS OF PROVISIONAL ACCOUNTS AND THE AO HAS REJECTED THE BOOKS AS NOT RELIABLE AND DISALLOWED THE LOSS CLAIM ED BY THE ASSESSEE. AO HAS THEREFORE, RELIED UPON THE RETURN OF INCOME, BUT HAS NOT ALLOWED THE LOSS CLAIMED. IN SUCH CIRCUMSTA NCES, IT IS NOT OPEN TO THE CIT (A) TO HOLD THE RETURNS OF INCOME A S NON-EST PARTICULARLY WHEN THE ASSESSEE, THOUGH A GOVT. AGEN CY, HAD NO POWER TO APPOINT THE AUDITORS BY ITSELF. THE ASSESS EE HAS EXPLAINED THE REASONS FOR DELAY IN AUDIT OF ACCOUNT S WHICH IS CLEARLY BEYOND THE CONTROL OF THE ASSESSEE. THEREFO RE, THE DELAY CANNOT BE ATTRIBUTABLE TO THE ASSESSEE. IN VIEW OF THE SAME, WE SET ASIDE THE ORDER OF THE CIT (A) AND REMIT THE IS SUE TO THE FILE OF THE AO WITH A DIRECTION TO RECOMPUTE THE INCOME OF THE ASSESSEE ON THE BASIS OF THE AUDITED ACCOUNTS OF THE ASSESSE E, IF THEY ARE AVAILABLE NOW. 8. IN THE RESULT, ASSESSEES APPEALS FOR THE A.YS 2 004-05, 2005-06 AND 2011-12 ARE TREATED AS ALLOWED FOR STAT ISTICAL PURPOSES. ITA NO.743/HYD/2015 9. THIS APPEAL IS AGAINST THE ORDER OF THE CIT (A)- VII DATED 21.4.2015 CONFIRMING THE PENALTY LEVIED BY THE AO U /S 271B OF THE ACT. ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 5 OF 8 10. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED THE RETURN OF INCOME ON THE BASIS OF THE PROVISIONAL AC COUNTS AUDITED BY A CHARTERED ACCOUNTANT BUT DID NOT FILE THE AUDI TED ACCOUNTS. THE AO, THEREFORE, ISSUED A NOTICE U/S 271D FOR LEV Y OF PENALTY FOR NON FILING OF THE AUDIT REPORT. THE ASSESSEE EXPLAI NED THAT THE AUDIT REPORT COULD NOT BE FILED WITHIN THE TIME AS THE DELAY TOOK PLACE BECAUSE THE APPOINTMENT OF THE AUDITORS WAS T O BE MADE BY THE REGISTRAR OF THE SOCIETIES AND THUS BEYOND THE CONTROL OF THE ASSESSEE AND THAT THE ASSESSEE SHOULD NOT BE PENALI ZED FOR NON COMPLIANCE OF SECTION 44AB OF THE ACT UNDER SUCH CI RCUMSTANCES. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ASSESSEE S EXPLANATION AND LEVIED THE PENALTY. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WHO CONFIRM ED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 11. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE BEING A GOVT. ORGANIZATION AND A REGISTERED SOCIETY, HAS TO ABIDE BY THE RULES FRAMED UNDER THE SOCIETIES ACT. AS PER THE SAID ACT, THE AUDITOR S HAVE TO BE APPOINTED BY THE REGISTRAR OF SOCIETIES AND THEREFO RE, IS BEYOND THE CONTROL OF THE ASSESSEE. WE ARE SATISFIED THAT THE ASSESSEE WAS PREVENTED BY REASONABLE CAUSE FOR NOT GETTING ITS A CCOUNTS AUDITED U/S 44AB OF THE ACT WITHIN THE PRESCRIBED TIME. THE REFORE, WE SET ASIDE THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE CIT (A). 12. IN THE RESULT, ASSESSEES APPEAL FOR THE A.Y 201 1-12 IS ALLOWED. ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 6 OF 8 ITA NOS.1296 TO 1298/HYD/2015 (REVENUES APPEALS) 13. ALL THE ABOVE APPEALS ARE FILED BY THE REVENUE FOR THE A.Y 2009-10, 2010-11 AND 2012-13 AGAINST THE ORDERS OF THE CIT (A)-VII DATED 28.8.2015 GIVING RELIEF TO THE ASSESS EE. 14. BRIEF FACTS ARE THAT DURING THE ASSESSMENT PROC EEDINGS U/S 143(3) OF THE ACT FOR ALL THE RESPECTIVE A.YS, T HE AO OBSERVED THAT THE ASSESSEE HAS DEBITED INTEREST AS PAYABLE T O GOVERNMENT LOANS, BUT THAT THESE WERE NOT PAID TO THE GOVT. AC COUNT. TO VERIFY THIS ASPECT, THE ASSESSMENT WAS REOPENED BY ISSUANC E OF A NOTICE U/S 148 OF THE ACT. THE ASSESSEE FILED THE DETAILS CALLED FOR. THE AO OBSERVED THAT THE ASSESSEE HAS DEBITED THE INTER EST AS PAID TO THE GOVT. ON LOANS TAKEN AND IN THE EARLIER YEARS, THE AO HAD DISALLOWED THE SAME U/S 43B OF THE ACT. HE ACCORDIN GLY DISALLOWED THE SAME IN THESE A.YS AS WELL. AGGRIEVED, THE ASSES SEE PREFERRED APPEALS BEFORE THE CIT (A), WHO GRANTED RELIEF TO T HE ASSESSEE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 15. THE LEARNED DR RELIED UPON THE ORDER OF THE AO, WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 16. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE INTEREST IS PA YABLE ON THE GOVT. LOAN AND SECTION 43B (D) & (E) PROVIDES FOR D ISALLOWANCE OF INTEREST PAYABLE TO PUBLIC FINANCIAL INSTITUTIONS O R A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTME NT CORPORATION OR TO ANY SCHEDULED BANKS BUT NOT PAID DURING THE ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 7 OF 8 RELEVANT PREVIOUS YEAR. THE CIT (A) OBSERVED THAT THE INTEREST PAYABLE TO GOVT. IS NOT COVERED UNDER THESE CLAUSES . HE THEREFORE, DELETED THE DISALLOWANCE AND THE REVENUE IS IN APPE AL BEFORE US. 17. THE LEARNED COUNSEL FOR THE ASSESSEE HAD ALSO SUBMITTED THAT THE INTEREST CLAIMED BY THE ASSESSEE WAS U/S 36(1)(III) AND U/S 37(1) OF THE ACT AND THEREFORE, NO DISALLOWANCE U/S 43B IS CALLED FOR. WE FIND THAT IN THE CASE BEF ORE US, THE GOVT. HAS SANCTIONED THE LOAN TO THE ASSESSEE FOR PAYMENT TO THE EMPLOYEES WHO HAVE OPTED TO RETIRE UNDER THE VRS. I T IS THEREFORE, NOT COVERED UNDER ANY OF THE CLAUSES OF SECTION 43B OF THE ACT, NOR IS THE INTEREST PAYABLE TO THE INSTITUTIONS MEN TIONED IN THE CLAUSES. IT IS NOT FEE OR TAX PAID BY THE ASSESSEE. IN VIEW OF THE SAME, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). THE REVENUES APPEALS FOR ALL THE THREE YEARS ON TH E SAME VERY SAME ISSUE ARE DISMISSED. 18. IN THE RESULT, ASSESSEES APPEALS ARE ALLOWED A ND REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 2 ND JUNE, 2017. VINODAN/SPS ITA NOS 741 TO 744 AND 1296 TO 1298 OF 2015 A.P.DAIRY DEV.COOP.FED LTD HYDERABAD PAGE 8 OF 8 COPY TO: 1 THE A.P. DAIRY DEVELOPMENT COOPERATIVE FEDERATION LTD, VIJAYA BHAVAN, LALAPET, HYDERABAD 500017 2 DY. COMMISSIONER OF INCOME TAX, CIRCLE 15(1) HYDE RABAD 3 CIT (A)-VII HYDERABAD 4 CIT VII HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER