Income Tax Appellate Tribunal - Delhi
National Agricultural Cooperative ... vs Department Of Income Tax on 30 March, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `F': NEW DELHI
BEFORE SHRI C.L.SETHI, JM & SHRI K.G. BANSAL, AM
I.T. A. No.2958/Del of 2010
Assessment Year: 2006-07
ACIT, Circle 32(1), vs M/s National Agricultural Coop.
New Delhi. Marketing Federation of India Ltd.
1 Nafed House, Sidhartha Enclave,
Ashram Chowk, New Delhi.
Appellant Respondent
Appellant by: Shri A.D. Mahrotra
Respondent by: Shri Sanjeev Kwatra
ORDER
PER C.L. SETHI, JM:
The revenue is in appeal against the order dated 30.3.2010 passed by the learned CIT(A) for the Asstt. Year 2006-07.
2. Ground No.1 raised by revenue is as under:
"Ld. CIT(A) has erred in deleting the addition of `7,58,47,513/- on account of unascertained liability in the form of interest payable shown by the assessee to M/s Alimenta Geneva without considering the fact that assessee itself has treated the liability as contingent and not debited to the P&L account."
3. The assessee i.e. National Agricultural Cooperative Marketing Federation of India Ltd. (hereinafter referred to as "NAFED"), is a society 2 formed with the object to organize, promote and develop marketing, processing and storage of agricultural and forest produces, wholesale trading and rendering technologic advice to its members, which are farmers' societies. It is registered under the Multi-State Cooperative Societies Act. The assessee carries out business in domestic market and also outside India. It procures and markets certain specified commodities solely and exclusively on behalf of the Government of India which can be described as 'PSS' (Price Support System) Operation. The assessee society also acts as nodal agency of Government to procure specified commodities at 'support price' fixed by the Government from time to time. The bulk of society's business is to procure and distribute agricultural produce at the behest of the Government of India under its PSS and Market Intervention Scheme ('MIS') aimed at protecting the interest of the farmers' community and consumers. At the behest of the assessee, at times, joint venture arrangements with various cooperatives or federations in the country are also entered into with regard to agricultural produce from marketing. All these agencies are working on behalf of the Government of India. NAFED prepares its annual account incorporating therein the result of account books maintained separately in respect of PSS operation carried on behalf of the Government of India. The agencies and branches of NAFED involved in price support operation are 3 advised to maintain separate identifiable accounts of the price support operations.
4. In the course of assessment proceedings, it was noticed by the AO that assessee has claimed a deduction of `7,58,47,513/- towards decretal debt as per the judgment of the Hon'ble Delhi High though the same was not debited in the profit and loss account and in the books. A show cause notice was issued by the AO as to why this amount should not be disallowed while determining the assessee's total income. Assessee filed a detailed reply vide letter dated 26.12.2008, which has been reproduced by the AO in his order at page 2 to 8. The assessee's contention made in the said reply were not found to be acceptable by the AO because of the following reasons:
(a) The cases relied upon by the assessee are in different context and not applicable to the facts of the present case;
(b) The assessee itself has treated the liability as of contingent in nature by not debiting to the Profit and Loss account;
(c) Provisions of Section 40(a)(i) are squarely applicable to the case;
(d) The order of Tribunal for Asstt. Year 2003-04 has been challenged by the department before the Hon'ble Delhi High Court.
The AO, therefore, disallowed the assessee's claim of deduction of `7,58,47,513/-.
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5. On an appeal, the assessee reiterated the submissions and contentions that were made before the AO. It was also pointed out by the assessee to the learned CIT(A) that the identical issue has been decided in favour of the assessee by the Tribunal in the Asstt. Year 2003-04, which has been followed by the Tribunal in Asstt. Year 2004-05, and, therefore, in the light of the Tribunal's order, the assessee's claim was allowable.
6. After considering the assessee's submissions, the learned CIT(A) deleted the addition after observing that the issue is squarely covered by the decision of Tribunal in assessee's own case pertaining to the Asstt. Year 2003-04 in ITA No.1998/Del/2007, which has been followed by the Tribunal in Asstt. year 2004-05 in assessee's own case in ITA No.3177/Del/2007.
7. Still aggrieved, the department is in appeal before us.
8. After hearing both the parties, and perusing the material on record, we find that the identical issue came for consideration before the Tribunal in Asstt. Year 2003-04 where the matter was decided in favour of the assessee. This fact has also been accepted by the AO in his order but he was not inclined to follow the Tribunal's order for the reason that the department has filed an appeal before the Hon'ble High Court. However, the fact remains, 5 the issue has been decided in favour of the assessee in Asstt. Year 2003-04 which has also been followed in Asstt. year 2004-05. This position that the issue involved in this year is identical to the issue involved in Asstt. years 2003-04 and 2004-05 has not been disputed by any of the party. It is also equally true that the operation of the order of the Tribunal has not been stayed by any higher appellate authority. The position as it remains today is that the issue involved has been decided in favour of the assessee notwithstanding the fact that the department might have filed an appeal before the Hon'ble High Court. Therefore, at this stage, respectfully following the Tribunal's order for the Asstt. Year 2003-04, which has been followed in Asstt. Year 2004-05, we are inclined to upheld the order of CIT(A) in deleting the addition. We, therefore, upheld the order of CIT(A)on the issue involved in Ground No.1 raised by the revenue.
9. Ground No.2 raised by the revenue is as under:
"Ld. CIT(A) has further erred in deleting the addition of `22,01,906/- made on account of prior period expenses, without considering the fact that the expenses related to the period earlier than the previous year and the assessee had not been able to discharge its onus by proving that these expenses had crystallized during the current previous year."6
10. During the year, the assessee had shown expenses relating to previous year amounting to `25,59,975/-. The AO asked the assessee to provide details for the same and to substantiate its claim for such expenses. The assessee submitted its reply dated 24.12.2008 where following expenses were reconciled:
(1) Quantity Rebate from IFFCO written off `1,85,499/-
(2) Refund of Security Deposit to Shippers for ` 25,000/-
Export of Niger seeds.
(3) Consultant charges for Sales tax appeal of ` 71,370/-
FY 1981-82 settled in this year (4) Refund against settlement of FAME Narela ` 25,506/-
Total `3,07,375/-
11. After considering the aforesaid amount of `3,07,375/-, the rest amount of `22,52,600/- was considered to be an expenditure pertaining to earlier year in respect of which assessee has not given satisfactory explanation. The AO, therefore, disallowed the expenses of `22,52,600/- as prior period expenses.
12. On an appeal, assessee furnished certain fresh details before the CIT(A) and requested the CIT(A) to admit them for consideration under rule 46A of the Income-tax Rules. These evidences were forwarded by the 7 learned CIT(A) to the AO for his comments and remand report. The AO furnished its remand report vide letter dated 3.2.2010, a copy of which was given to the assessee. The assessee then submitted a rejoinder vide letter dated 19th March, 2010.
13. In the remand report submitted by the AO before the CIT(A), AO raised a fundamental objection to the admission of addition evidence, which was replied by the assessee vide rejoinder dated 19.3.2010 stating that it is for the first time on 11.12.2008 that the details of the prior period expenses was sought by the AO and in response thereto, details were furnished vide letter dated 18.12.2008. It was submitted by the assessee before the CIT(A) by letter dated 24.11.08 that whatever details were possible, were submitted before the AO and for the remaining items of expenditure, it was stated that the assessee has many branches all across the country and since assessment was getting time barred on 31.12.2008, it was not possible for the assessee to procure the details by that date. In the light of the explanation given by the assessee, the learned CIT(A) admitted the additional evidences for his consideration.
14. After considering the various decisions and submissions of the assessee, the learned CIT(A) gave his finding on each item of expenses in 8 para 7.2 to 7.9, and in view of his finding, he deleted the addition to the extent of `22,01,906/- by sustaining the addition of `50,694/-. The department is in appeal against the CIT(A)'s order in deleting the addition of `22,01,906/-.
15. We have heard both the parties and have carefully gone through the orders of the authorities below.
16. The first item of expenses deleted by the learned CIT(A) is with regard to the sales-tax paid for 1993-94 in NAFED Bio Fertilizer, Regional Office, South Zone amounting to `2,61,901/-. In the light of the provisions of Section 43B allowing the deduction on actual payment basis, the CIT(A) deleted the addition. However, in the remand report, the AO has pointed out that no evidence whether such a sales-tax liability was existed at all in the books of accounts or whether the payment has actually been made during the year. After discussing the matter with both the parties, this issue is restored to the file of AO for his verification as to whether it has actually been made during this year or whether the sales-tax when it was collected, was included in the turnover. The AO shall verify and examine the matter and decide the matter as per law.
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17. The second item is with regard to the expenses on octroi short paid to Bombay Municipal Corporation of `14,787/-, which is also restored back to the file of AO for his verification.
18. The third item is an amount of `25,000/- written off on account of security recovered from parties. This item is a reversal of item already credited in the Profit and Loss account in the light of the explanation given by the assessee, which has been considered rightfully by the CIT(A), we are of the view that CIT(A) has rightly deleted the addition.
19. Next item is about rebates and discounts allowed to the extent of `2,10,975/-, which is nothing but a reversal of entry of income already created in the profit and loss account in the financial year 2004-05 in the nature of rebate and discount income, which should not be recovered and has written back during this year. Thus, the CIT(A)'s order in deleting this amount is upheld. The CIT(A) has examined this issue in detail and deleted this addition.
20. Next item is of `6,31,902/-, being the payment made out of the court settlement with East African Traders. This issue has been decided by CIT(A) by observing as under:
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"7.6 Regarding the out of court settlement with East African Traders, Mumbai Branch settled at 50% of the decretal amounting to `6,31,902/-, by court with the party instead of appealing further, it was pleaded that M/s East African Traders, Mumbai dealt with NAFED for some business transactions. They claimed additional commission on the BOB/CIF basis and also on the freight charges. The High Court of Bombay - (Single member bench) decided it against NAFED and asked it to pay `.12,63,000/-. It was settled out of court at about 50% and was made an order of the court in Suit No.2287 to 1983. It has been contended by the appellant that the above amount was claimed during AY 2006-07 on account of a consent decree passed by the Bombay High Court in Suit No.2287 of 1983. In the said consent decree, the appellant paid an amount of `6,31,902/- vide cheque No.047813 dated 27.5.2005 in full and final settlement.
Upon careful consideration of the above issue, I am of the view that the payment of `6,31,902/- has been made during AY 2006-07 towards full and final settlement of claim and hence the liability has actually crystallized during the assessment year under appeal and as such the aforesaid payment cannot be treated as prior period expenses, even if it may have been classified erroneously thereunder. The disallowance, therefore, stands deleted."
21. In the light of the categorical given by learned CIT(A), and in the absence of any material contradicting the CIT(A)'s finding, we find that CIT(A) has rightly deleted the addition.
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22. The CIT(A) has also deleted the addition of `10,57,340/- on account of other expenses, details of which are mentioned in para 7.9 of CIT(A)'s order. All these items have been allowed by the CIT(A) by observing as under:
"It is submission of the appellant that all the above amounts are in the nature of various expenses claimed during the AY 2006-07 in respect of TA, DA, Advertisement, cost of eatables, cost of gift items, godown rent etc. although relating to earlier assessment years. It was pleaded that the allowability of these expenses is covered by the decision of ITAT in appellant's own case for AY 1984-85 in ITA No.2296/Del/98 wherein it was held that in the case of routine expenses claimed during subsequent assessment years, no disallowance is warranted as the appellant is having 29 branches spread all across the country and there is a likelihood of overflow of information with delays.
I have considered the issue. It is seen that for AY 1984-85, the ITAT in appellant's own case in ITA No.2296/Del/98 has approved the order of CIT(A) by holding that due to so many branches spread all across the country, delay in receipt of information occurs, due to which certain claims for expenditure are entered in the books of accounts in the subsequent assessment year, although these relate to the earlier assessment year. In any event, the expenditure is of allowable nature u/s 37 and the year of allowance will not make any impact because of uniform rate of taxation. Respectfully following the ratio laid down on the peculiar facts of the appellant's case, it is held that no disallowance is warranted 12 in respect of the above expenses, which could be accounted for only later."
23. In the light of the reasons given by the CIT(A) and in the light of the decision of Tribunal in earlier years, we do not find any justifiable reasons to interfere with the order of CIT(A) in deleting the addition of `10,57,340/-.
24. The other two items amounting to `42,223/-, being excess payment over provision and `8471/-, being payment made to APMC both aggregating to `50,694/- has been upheld by the learned CIT(A) against which the assessee is not in appeal. Therefore, these two items are not the subject matter of this appeal.
25. Thus, Ground No.2 raised by the revenue stands decided in the manner indicated above. The AO shall modify the assessment order accordingly in the light of our observations made above.
26. In the result, the appeal filed by the revenue is partly allowed for statistical purposes.
27. This decision was pronounced in the Open Court on 20th August, 2010 (K.G. BANSAL) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 20th August, 2010 Vijay 13 Copy to:
1. Appellant.
2. Respondent.
3. CIT
4. CIT(A)-XXVI, New Delhi
5. DR Assistant Registrar