Income Tax Appellate Tribunal - Pune
Mula Sahakari Sakhar Karkhana Ltd. vs Income Tax Officer. on 29 March, 1995
Equivalent citations: (1996)55TTJ(PUNE)375
ORDER
G. K. ISRANI, J. M. :
These two appeals are directed against the consolidated order of the learned CIT(A) in respect of the asst. yrs. 1984-85 and 1985-86. Since the appeal raise common issue of law and fact, they were heard together and are being disposed of by this common order.
2. The first common ground raised in these appeals relates to the disallowance of contribution to education fund. It was claimed by the learned counsel for the assessee and not disputed by the learned Departmental Representative and was found on a study of the decision that the issue involved in this common ground stands concluded against (sic) Bench of the Tribunal in the case of Panzarakan S. S. K. Ltd. vs. ITO (1985) 4SOT 90 (Pune) (SB). This common ground of appeal thus fails.
3. The second common ground relates to the disallowance of Molasses Storage Fund. A Molasses Storage Fund is created under the orders of the State Government. The collection is on the basis of the molasses sales whereby 1/3rd of the sale prices are credited to the Fund. This amount is then spent on the work of construction of molasses teak. The Assessing Officer (AO) declined to allow the deduction of outgo on the ground that the sales are reduced to the extant of 1/3rd when the amount is credited to the fund, such transfer of fund cannot be held to be expenditure. The CIT(A) has upheld the disallowance.
4. We were informed that the issue involved in this common ground stands covered in favour of the assessee by the decision of the Bombay High Court in the case of Somaiya Organo Chemicals Ltd. vs. CIT (1994) 117 CTR (Bom) 1. From a study of this decision, we find that the issue stands concluded in favour of the assessee. This ground of appeal is, therefore, allowed.
5. The third common ground relating to disallowance of guest house expenses was not pressed by the learned counsel and shall, therefore stand rejected.
6. The fourth ground raised in appeal for the asst. yr. 1984-85 reads as under :
"Sugarcane purchase tax Rs. 47,96,110. That is not a tax amount but it is only loan amount. The State Govt. GR No. PTK 1083/229/3 C Bombay dt. 14th Aug., 1984 declaring the above purchase tax amount is transferred to the interest free loan and hence it is not tax liability. It is only a loan amount given by the State Govt. Hence it is allowable deduction not a Govt. dues."
This issue has been dealt with by the learned CIT(A) in para 6 of his impugned order in the following manner.
"The next issue is about disallowance of sugarcane purchase tax of Rs. 47,96,110 in asst. yr. 1984-85 and Rs. 38,36,854 in asst. yr. 1995-86 under s. 43B. It was admitted by the authorised representative that the said tax were not paid within the due dates and that the Karkhana has already sent proposal to the Director of Sugar asking to convert purchase tax into the interest free loan. Since the payment has not been made within the statutory time limit and there is no adjustment done during this assessment year by way of any set off, etc. the disallowance made by the ITO under s. 43B is upheld."
On this issue, it was submitted by the learned counsel for the assessee that the Government of Maharashtra vide its Notification PTX/1083/229/3C dt. 14th Aug., 1985 had sanctioned interest free loan totalling Rs. 1,541.60 lakhs to 20 co-operative societies (the assessee being one of them). The loan amounts were to be adjusted against the liability in respect of payment of purchase tax of these co-operative sugar factories. It was further directed that the repayment instalments of this loan shall be decided by the Directorate of Sugar, Maharashtra, on considering the financial position of the respective co-operative sugar factories. On the basis of this Notification, the learned counsel urged that the amount of purchase tax shall be deemed to have been paid and, therefore, s. 43B is not attracted. In the case of the present assessee. the amounts at serial No. 10 purchase tax liability amounting to Rs. 51.53 lakhs, Rs. 44.88 lakhs and Rs. 48.63 lakhs pertaining respectively to the co-operative years 1980-81 (sic). The co-operative year ended on 30th of September, each year. The learned counsel contended that in view of the aforesaid Govt. order and the circular of the CBDT bearing No. 496, dt. 25th Sept., 1987 appearing at page 1988 of the Income-tax Commentary by Chaturvedi & Pithisaria, 4th Edn. no disallowance under s. 43B can be made. This plea was opposed by the learned Departmental Representative that the assessees case does not fall within the purview of the CBDT Circular No. 496, dt. 25th Sept., 1987 in as much as no amendment in the Sales-tax Act of the State has been made. The State Govt. order cannot confer any benefit intended by the CBDT circular on the present assessee.
7. In the assessees appeal for the asst. yr. 1985-86, identical ground being ground being ground No. 4 relating to this issue has been raised.
8. We have considered the respective contentions and find that the assessee is entitled to succeed on this issue for both the years under appeal. The liability of purchase tax was towards the State Govt. The tax dues could be paid either to the State Govt. in cash or by way of adjustment. We agree with the learned Departmental Representative that this case does not fall in the ambit of the CBDT Circular, but independently of that, the tax liability shall stand paid by way of adjustment consequent upon the grant of loan and, therefore, the dues shall be deemed to have been paid. The State Govt. in exercise of its executive power has sanctioned a loan and directed that the tax liability be adjusted against the loan. No amendment of the sales-tax law as is referred to by the CBDT Circular therefore appears to be necessary in the present case. This common ground of appeal thus succeeds.
9. The ground No. 5 for the asst. yr. 1984-85 relating to disallowance of preliminary expenses of Rs. 1,97,980 was not pressed by the learned counsel and shall, therefore, stand rejected.
10. The ground No. 6 in the appeal for the asst. yr. 1984-85 and ground No. 7 in the appeal for the year 1985-86 relate to the disallowance of subscription paid to Deccan Sugar Institute. The AO held it to be a donation and disallowed the same. The learned CIT(A) has sustained the disallowance. We were informed that an identical issue in respect of donation by sugar co-operative to Deccan Sugar Institute was agitated before this Tribunal in the case of Shri Panchaganga S. S. K. Ltd. and has been concluded in favour of the assessee.
11. From reading of our order passed in the ITAs No. 491/PN/91 and 1365/PN/91 pertaining to Panchaganga S. S. K. Ltd., we find that similar issue has been adjudicated in favour of the assessee. This common ground of appeal thus succeeds.
12. The ground No. 7 in the appeal for 1984-85 and ground No. 8 in the appeal for 1985-86 relate to the disallowance of Ganesh Nidhi. In the years under appeal sums amounting to Rs. 47,422 and Rs. 39,998 realised on account of sugarcane fees were transferred to Ganesh Nidhi Fund Account to be used for charitable purposes. The deduction on account of transfer has been disallowed by both the Revenue authorities for the reason that the amounts did not represent expenditure wholly and exclusively for the purpose of the assessees business.
13. We were informed that an identical issue was agitated before the Tribunal in the case of Madhukar S. S. K. Ltd. in ITAs No. 241/Pune/1990, 333/Pune/1992 and 83/Pune/1993 and was concluded in favour of the assessee. Following the ratio of that decision, we allow this common ground of appeals.
14. Ground No. 8 raised in the appeal for the year 1984-85 relating to reserve of Rs. 16,907 was not pressed by the learned counsel and shall, therefore, stand rejected.
15. Ground No. 5 raised in the appeal for the asst. yr. 1985-86 relates to the disallowance of area development fund of Rs. 16,75,937. Both the learned counsel for the assessee and the learned Departmental Representative agreed and we also find from a study that this issue stands covered in favour of the assessee by the decision of the Special Bench of the Tribunal in the case of Shri Chatrapati S. S. K. Ltd. vs. Dy. CIT (1992) 93 TTJ (Pune) (SB) : (1992) 198 ITR 78 (AT). The assessee thus succeeds on this issue.
16. In the appeal for the asst. yr. 19985-86, ground No. 6 reads as under :
"The other grounds are Rs. 1,80,640 it is a allowable deduction."
The assessees counsel by his application has sought to substitute this ground in the following manner :
"On the facts and in the circumstances of the case, the expenditure of Rs. 1,80,639.69 claimed in P&L account for tear and wear written off be allowed as business expenditure, which has been disallowed by the lower authorities treating the same as preliminary expenses."
17. This issue has been dealt with by the learned CIT(A) in para 7 of his impugned order in the following manner :
"A sum of Rs. 1,97,980 in asst. yr. 1984-85 and Rs. 1,80,640 for asst. yr. 1985-86 was disallowed on account of preliminary expenses debited to P&L account. During appellate proceedings I asked the counsel to state as to how these expenses were allowable as business expenditure. He could not explain it. He also could not file any account as to how these expenses have been debited to the P&L account. Without this, it is not possible for me to allow any relief on this issue in both these years."
The assessment order does not contain discussion of this addition. There is only description to the effect that the addition is on account of preliminary expenses debited to the P&L account. As would be evident from the above, in the first appellate proceedings, the learned CIT(A) had asked the assessees counsel to state as to how these expenses were allowable as business expenditure. He could not explain it. Now, by way of modifying the ground of appeal, the assessee is attempting to alter the nature and character of the ground of appeal and in this manner he is trying to raise before us a new ground which would require fresh/further enquiry and investigation into facts. We see no good reason for allowing this at this stage of the proceedings. We also see no reason for our interference in this part of the impugned order of the learned CIT(A). We, therefore, reject this ground.
18. In the result, both the appeals partly succeed and are allowed as above.