Gujarat High Court
Sahkari Khand Udyog Mandal Ltd vs Deputy Commissioner Of Income Tax - ... on 14 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/4014/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 4014 of 2016
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SAHKARI KHAND UDYOG MANDAL LTD....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX - NAVSARI
CIRCLE....Respondent(s)
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Appearance:
MR MANISH J SHAH, ADVOCATE for the Petitioner.
MR SUDHIR M MEHTA, ADVOCATE for the Respondent
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 14/06/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) The petitioner is a sugar co-operative society and has challenged the notice for re-opening assessment issued by the Assessing Officer for the assessment year 2010-11. The Assessing Officer has recorded reasons for re-opening which read as under:
"The Assessee is a co-operative society registered under the Gujarat C0-operative Society Act, engaged in business of manufacturing and sales of sugar and its byproducts viz. Bagasse, Press mud and molasses. The assessee filed its return of income for A.Y.2010-11 on 28.9.2010, declaring total loss of (-) 21,61,459/-). The assessment was completed under section 143(3 of the I.T. Act, 1961 on 28.2.2013 by accepting returned loss i.e. Rs. (-21,61,459/-.
On perusal of the order issued by Ministry of Consumer Affairs, Food and Public Distribution, it is observed that the Statutory Minimum Price (SMP) for the F.Y.2009-10 was fixed at Rs. 1558.70 Page 1 of 4 HC-NIC Page 1 of 4 Created On Fri Jun 17 01:54:47 IST 2016 C/SCA/4014/2016 ORDER per MT. As the assessee has purchased 920082.950MT of sugarcane from its members (farmers) during the F.Y.2009-10, the cost of sugarcane purchase considering the SMP comes to Rs. 143,41,33,294/-. On perusal of P & L account, it is observed that the assessee has shown purchase of sugarcane to the tune of Rs.
278,6,2,33,571/-. Therefore, the assessee has paid excess purchase price of Rs. 135,21,00,277/- than the SMP fixed by the Government. (Rs.
278,62,33,571/- less Rs. 143,41,33,294/-.) On plain perusal of the above figures, it is noticed that the assessee has not followed system of SMP while payment for sugarcane purchase from its members. What is in fact, followed is the "Final Cane Price". The "final cane price" was determined by the assessee after completion of financial year and therefore, the entries made in the books of accounts of assessee reflecting expenditure incurred by way of purchases are not real time entries. It is further noticed that the assessee has not made provision at the end of the accounting period (31st March) but the excess payment made after the financial year by passing a Resolution of the Board. Thus, in this way, the assessee has debited entire cost of purchase after completion of financial year. Ordinarily what would be debited would be the present crystalised liability while a provision would be made in the books for contingencies (I.e the additional cane price to be given). It seems from the balance-sheet that no such provision is made.
Section 37(1) of the I.T. Act lays down the expenditure that is deductible. Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expediture or personal expenses of the assessment), laid out or expended wholly and exclusive for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession."
From the above findings, it is crystalised Page 2 of 4 HC-NIC Page 2 of 4 Created On Fri Jun 17 01:54:47 IST 2016 C/SCA/4014/2016 ORDER that methodology adopted by the assessee for determining "final cane price" clearly envisages distribution of operational profits ("surplus") from the manufacture of sugar. It is brings out that while working out the business income by the assessee, the commercial principles of accounting and "real income theory" is grossly violated. What are to be assessee in the case of the assessee is profit of the business prior to the distribution or application of any portion thereof. Accordingly, so much of the "final cane price" determined and paid by the assessee to its cane suppliers is constitutes distribution of profit/application of income and cannot be allowed as "business expenditure" under section 37 of the Act, while computing profits and gains of business or profession of the assessee.
In view of the above, I have reasons to believe that amounts of Rs. 135,21,00,277/- incurred by the assessee for purchase of sugarcane over and above the SMP determined by the Central Government is escaped assessment within the meaning of section 147 of the I.T. Act,1961."
2. However, the central question of taxability of income of the sugarcane in the background of reasons recorded had come up before this Court on couple of occasions in the past. A Division Bench of this Court in the case of Shri Chalthan Vibhag Khand Udylog Mandli Ltd. vs. Deputy Commissioner of Income-Tax, reported in 376 ITR 419, had quashed the notice for re-opening which was based on identical reasons, it was held that the difference between the price to be paid to cane growers and the purchase price declared by the Government under sugar Sugar Control Order cannot be said to be by way of distribution of profits. It was held that the Assessing Officer had not carried out any inquiry before coming to a contrary Page 3 of 4 HC-NIC Page 3 of 4 Created On Fri Jun 17 01:54:47 IST 2016 C/SCA/4014/2016 ORDER conclusion and that he should not have a reasonable belief for forming the opinion that the income chargeable to tax had escaped the assessment.
3. The said judgment of this Court in the case of Shri Chalthan Vibhag Khand Udyog Mandli Ltd. (supra) was followed in lateron judgment dated 2.2.2016 in the case of Shri Narmada Khand Udhyog Sahakari Mandli Ltd. vs. Income Tax Officer. Both sides agree that the issues are identical. Without recording separate reasons, therefore, the petition is allowed. The impugned notice is set aside. The petition disposed of accordingly.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 4 of 4 HC-NIC Page 4 of 4 Created On Fri Jun 17 01:54:47 IST 2016