DCIT, New Delhi V. M/s. Laxmi Sugar Mills Co. Ltd., New Delhi

ITA 759/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8108 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Assessee Lawyers: P N MEHTA
• Keywords: Assessment record; Revenue expenditure; Capital expenditure
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH D NEW DELHI BEFORE : SHRI C.M. GARG , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 759/DEL./2014 ASSTT. YEAR : 2006 - 07 D.C.I.T., CIRCLE 4(1), VS. LAXMI SUGAR MILLS CO. NEW DELHI. FORMERLY KNOWN AS MAHALAXMI SUGAR MILLS CO. LTD.), 704, SIDHARTH BUILDING, 96, NEHRU PLACE, NEW DELHI [PAN: AAACT0034G] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHRAVAN GOTRU, SR. DR RESPONDENT BY : SHRI P.N. MEHTA, C.A. DATE OF HEARING : 30.03.2016 DATE OF PRONOUNCEMENT : 29 .04.2016 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 04.11.2013 OF LD. CIT(A) - VIII, NEW DELHI FOR THE ASSESSMENT YEAR 2006 - 07 ON THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF RS.10,79,33,238/ - BEING CANE DEVELOPMENT EXPENSES, TREATED AS CAPITAL EXPENDITURE BY THE A.O. 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. ITA NO. 759/DEL./2014 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED U/S. 143(3) AT A LOSS OF RS.74,80,520/ - . HOW EVER, ON THE SCRUTINY OF ASSESSMENT RECORDS IT REVEALED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.10,79,33,298/ - ON ACCOUNT OF CANE DEVELOPMENT EXPENSES UNDER THE HEAD RAW MATERIAL CONSUMED. THE AO OBSERVED THAT SINCE THE SAID EXPENDITURE GIVES AN EN DURING BENEFIT TO THE ASSESSEE, IT WAS REQUIRED TO BE CAPITALIZED AND ADDED BACK TO THE INCOME OF THE ASSESSEE AND THIS MISTAKE RESULTED INTO UNDERASSESSMENT OF INCOME OF RS.10,04,52,780/ - WHICH AMOUNTS TO ESCAPEMENT OF INCOME. HE, THEREFORE, ISSUED NOTICE U/S. 148 OF THE ACT. IN REPLY TO NOTICES THE ASSESSEE S CONTENTION WAS THAT THE ABOVE EXPENDITURES WERE, IN FACT , INCURRED TOWARDS PURCHASE O F SUGARCANE FOR THE YEAR UNDER CONSIDERATION IN ORDER TO RUN ITS PRODUCTION BUSINESS OF SUGAR . THE ASSESSEE HAD PA ID ADDITIONAL PRICE OF SUGARCANE OF RS.17.48 PER QUINTAL OF SUGARCANE OVER AND ABOVE THAT FIXED BY THE GOVERNMENT, IN ORDER TO ASCERTAIN THE SUPPLY OF SUGARCANE DURING THE CRUSHING SEASON. IT, THEREFORE, CAN IN NO WAY BE SAID TO GIVE ANY ENDURING BENEFIT, AS SUCH EXPENDITURE WAS ESSENTIAL TO RUN THE BUSINESS OF THE ASSESSEE. THEREFORE, THE AMOUNT PAID AS PART OF THE COST OF RAW MATERIAL IS REVENUE EXPENDITURE AND NOT CAPITAL IN NATURE , AS THE TRUE NATURE OF ABOVE EXPENDITURE IS THE COST OF CANE OR THE COST OF RAW MATERIAL, WHICH WAS INADVERTENTLY CLASSIFIED AS CANE DEVELOPMENT EXPENDITURE IN THE ACCOUNTS. THE ITA NO. 759/DEL./2014 3 ABOVE AMOUNT WAS PAID FOR RUNNING THE BUSINESS . THE AO WAS NOT SATISFIED WITH THE REPLY OF ASSESSEE. T HEREFORE, THE ASSESSMENT OF THE ASSESSEE WAS REO PENED AND AFTER DISALLOWING THE TOTAL CANE DEVELOPMENT EXPENSES OF RS.10,79,33,238/ - TREATING THE SAME AS CAPITAL EXPENDITURE, ADDED THE SAME TO THE TAXABLE INCOME OF THE ASSESSEE. IN APPEAL BEFORE THE LD. CIT(A), THE IMPUGNED ADDITION STOOD DELETED TREATI NG THE EXPENDITURE AS REVENUE EXPENDITURE. AGGRIEVED , REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LD. DR RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE IMPUGNED PAYMENT WAS VOLUNTARY PAYMENT OVER AND ABOVE THE PRICE FIXED BY THE GOVT. WHICH IS FOR GOODWILL GENERATION OF THE ASSESSEE AND THE ASSESSEE ITSELF HAS GIVE THE NAME OF THESE EXPENSES AS CANE DEVELOPMENT EXPENSES , WHICH GOES TO SUGGEST THAT THESE EXPENDITURES GIVE ENDURING BENEFIT TO THE ASSESSEE AND ARE CAPITAL IN NATURE. THE LD. CIT( A) HAS WRONGLY DELETED THE ADDITION. 4. THE LD. AR OF THE ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE EXPENDITURE BEING THE COST OF PURCHASE OF CANE CANNOT BE HELD AS CAPITAL EXPENDITURE AS DONE BY THE AO. IT WAS SUBMITTED THAT ADDITION AL PRICE PAID TO THE FARMERS OR CRANE GROWERS OVER AND ITA NO. 759/DEL./2014 4 ABOVE THE PRICE FIXED BY THE GOVERNMENT WAS TO PURCHASE THE CANE FOR THE PURPOSE OF BUSINESS AND TO MEET THE COMPETITION AMONGST SUGAR MILLS, AND HENCE, SUCH EXPENDITURE C OMES WITHIN THE REALM OF REVENUE EXPENDITURE AND THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD BEFORE US AND WE FIND THAT MERE NOMENCLATURE GIVEN TO THE SAID EXPENDITURE IS NOT DETERMINATIVE OF NATURE OF EXPENDITURE . THE ASSESSEE HAD SUBMITTED THE LEDGER ACCOUNT BEFORE THE AUTHORITIES BELOW TO SHOW THAT THE SAID PAYMENTS WERE MADE BY THE ASSESSEE TO THE FARMERS/CANE GROWERS. THE MERE FACT THAT THE ASSESSEE HAS WRONGLY CLAS SIFIED THE EXPENDITURE AS CANE DEVELOPMENT EXPENSES , SUCH EXPENDITURE CANNOT BE CLASSIFIED AS CAPITAL EXPENDITURE. IN THE CASE OF SKYLINE CATERERS PVT. LTD. VS. ITO 116 ITD 348, RELIED BY ASSESSEE, THE TRIBUNAL HAS HELD THAT THE NOMENCLATURE GIVEN TO THE ENTRIES IN THE BOOKS OF ACCOUNT IS NOT RELEVANT FOR ASCERTAINING THE REAL NATURE OF THE TRANSACTION. THE ASSESSEE HAS ALSO GIVEN REASONS FOR MAKING EXTRA PAYMENT TO THE FARMERS FOR PURCHASE OF SUGARCANE. HON BLE SUPREME COURT ALSO IN SUTLEJ COTTON MILLS L TD. VS. CIT, 116 ITR 1 (SC) HAS OBSERVED THAT THE WAY IN WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR ITA NO. 759/DEL./2014 5 SUFFERED ANY LOSS. THE LD. DR COULD NOT BE ABLE TO ADD UCE ANY MATERIAL ON RECORD TO SHOW THAT THE ABOVE EXPENDITURES WERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OTHER THAN PURCHASE OF RAW MATERIAL TO BE CONSUMED BY THE ASSESSEE FOR RUNNING OF ITS BUSINESS. IT IS ALSO NOT THE CASE OF REVENUE THAT THE PURCHAS E OF SUGARCANE BY THE ASSESSEE IS NOT ESSENTIAL RAW MATERIAL OF ASSESSEE TO RUN ITS BUSINESS IN ORDINARY COURSE. WE, THEREFORE, ARE OF THE OPINION THAT THE IMPUGNED EXPENDITURE HAS RIGHTLY BEEN TREATED BY THE LD. CIT(A) AS REVENUE EXPENDITURE. IN SUCH STATE OF AFFAIRS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE FINDINGS REACHED BY THE LD. CIT(A) IN THE IMPUGNED ORDER. ACCORDINGLY, THE IMPUGNED ORDER DESERVES TO BE AFFIRMED AND THE APPEAL OF THE REVENUE TO BE DISMISSED, BEING DEVOID OF MERITS. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.04.2016 . SD/ - SD/ - ( C.M. GARG ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29.04.16 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI