Income Tax Appellate Tribunal - Panji
Sri Vijaya Visakha Milk Producers Co ... vs The Acit,, Visakhapatnam on 27 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
VISAKHAPATNAM BENCH, VISAKHAPATNAM
BEFORE SHRI V. DURGA RAO, HON'BLE JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, HON'BLE ACCOUNTANT MEMBER
ITA No. 288/VIZ/2014
(Asst. Year : 2010-11)
ACIT, Circle-4(1), vs. M/s. Vijaya Visakha Milk
Visakhapatnam. Producer Company Ltd.,
Visakha Dairy, NH-5,
Opp. BHPV, Natayyapalem,
Visakhapatnam.
PAN No. AAJCS 7398 P
(Appellant) (Respondent)
C.O.No. 43/VIZ/2014
(ITA No. 288/VIZ/2014)
(Asst. Year : 2010-11)
M/s. Vijaya Visakha Milk vs. ACIT, Circle-4(1),
Producer Company Ltd., Visakhapatnam.
Visakha Dairy, NH-5,
Opp. BHPV, Natayyapalem,
Visakhapatnam.
PAN No. AAJCS 7398 P
(Appellant) (Respondent)
Assessee by : Shri S. Rama Rao - Advocate.
Department By : Shri T.S.N. Murthy - CIT DR
Date of hearing : 01/08/2017.
Date of pronouncement : 27/09/2017.
ORDER
PER V. DURGA RAO, JUDICIAL MEMBER
This appeal by the revenue and the Cross Objection by the assessee are directed against the order of Commissioner of Income Tax 2 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) (Appeals), Visakhapatnam, dated 26/03/2014 for the Assessment Year 2010-11.
2. Facts of the case, in brief, are that the assessee-company is in the business of selling milk and milk products. The assessee-company was originally registered in the year 1977 under AP State Cooperative Societies Act, 1964, for the purpose of procuring milk trhough milk societies which are established in various villages of Visakhapatnam, Srikakulam and Vizianagaram districts. The milk societies were formed as societies with the milk producers as its members and in turn, societies become the members in the assessee-company. Subsequently, the assessee-company has been converted as Sri Vijaya Visakha District Milk Producers Mutually Aided Cooperative Union Ltd., under AP State Mutually Aided Cooperative Society Act, 1995, which was further been converted into Producers company in the year 2006 and registered under the Companies Act 1956 as M/s. Vijaya Visakha Milk Producer Company Ltd. The main objective of the company is to procure milk from farmers through the societies situated in village of Srikakulam, Vizianagaram, Visakhapatnam, East Godavari and West Godavari Districts of Andhra Pradesh. The suppliers are the members of the assessee-company, from which milk is being procured every day. The milk procured from farmers through their cooperative societies is primarily being stored in bulk coolers provided by the assessee at the places of milk societies. The assessee-company procures milk from the 3 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) bulk coolers and transports the milk through milk tankers to the main factory at Visakhapatnam, where milk is processed. The processed milk is packed in pouches and supplied to the consumers of above five districts and also other places including other states. The main activity of the company is collection, processing of wholesome milk. In this process, bye-products like butter, curd, ghee, ice cream are obtained and all such bye-products and the milk are sold. The assessee filed its return of income for the year under consideration admitting total income of ₹ 1,93,00,233/-. Subsequently, case of the assessee was selected for scrutiny and after following due procedure, assessment was completed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') by disallowing an amount of ₹46,96,02,293/- on account of withheld price.
3. In the assessment order, the Assessing Officer has observed that the assessee-company procures buffalo & cow milk from milk producers. The price of such milk procured is paid by the assessee at the end of the each fortnight based on the price published in the circulars issued by the assessee from time to time. The Assessing Officer also tabulated the details of circulars on the procurement price for the various periods during the Financial Year 2009-10 as under:-
Circular Dt. Area pertain to Price w.e.f. Price per Kg. Fat Buffalo Cow 27/06/2009 Visakhapatnam, 01/06/2009 ₹ 305/- ₹ 112/-
Vizianagaram &
Srikakulam
09/03/2010 -do- 01/03/2010 ₹ 305/- ₹ 105/-
15/05/2009 West Godavari 16/05/2009 ₹ 303/- ₹ 114/-
4
ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) 07/10/2009 -do- 01/10/2009 ₹ 300/- ₹ 104/-
27/06/2009 East Godavari 01/06/2009 ₹ 315/- ₹ 111/-
09/03/2010 -do- 01/03/2010
4. From the above, the Assessing Officer has noted that the assessee has been making upward revision of the procurement price of milk from time to time. The Assessing Officer also noted that none of the circulars mentioned that the procurement price declared was an adhoc price and that the circulars do not give any indication of any additional price or bonus price to be paid at a later date. Therefore, the Assessing Officer took the view that the price declared in the circular is final and not adhoc. The Assessing Officer further noted that the payments made as per the price declared in the circular for the purchases during the year was as follows:-
Procurement price as per circulars Buffalo Milk ₹ 1,75,34,54,590/-
Cow Milk ₹ 1,13,10,63,892/-
Total ₹ 2,88,45,18,482/-
However, the Assessing Officer noted that the price of milk procured debited to profit & loss account is much higher by an amount of ₹ 96,60,12,828/-. On query, it was explained to the Assessing Officer that in addition to the above procurement price the milk producers were also piaid additional price/withheld price on 28/03/2010 and the details of such additional price paid was submitted to the Assessing Officer vide letter dated 18/10/2013 as follows:-5 ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) Withheld price Buffalo Milk ₹ 49,27,19,254/-
Cow Milk ₹ 47,32,93,574/-
Total ₹ 96,60,12,828
5. The Assessing Officer called upon the assessee to explain why such additional or withheld price was paid and what is the basis. It was submitted before the Assessing Officer that Board considers various factors such as; (i) Rate per kg on buffalo milk and total solids for cow milk paid by competitors, (ii) Rate per kg fat and total solids paid by cooperative dairies in AP and other states and (iii) Competition prevailing in the market and producers demand for prices before finalization of the final price for payment of milk price from farmers. In this regard, the assessee had also provided the comparative prices from website of NDDB. The assessee also filed letter dated 31/10/2012 wherein the copies of certain board resolutions (in Telugu) was filed and the Assessing Officer noted that in two of such resolutions it was mentioned that the tentative price is enhanced to Rs. xxxx w.e.f. xxxx.
6. The Assessing Officer also asked the assessee to furnish the details of payment of withheld price of ₹ 96,60,12,828/-. From the perusal of the same, the Assessing Officer noted that only a part of the same amount was actually paid to the farmers and the balance amount was said to be taken to the equity capital by issuing equity shares to the concerned suppliers and the rest was paid as contribution to a trust as milk producers are stated to be availing health and educational benefits from the trust. In the assessment order, the Assessing Officer 6 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) has further observed that nomenclature given by the assessee to the additional price as „withheld price‟ is in fact a misnomer. The fact remains that the price declared in circulars issued by the assessee is final price prevailing and agreed to be paid as on that day/period. The said circulars did not contain even a whisper about any such amount as withheld nor did the circulars assure the suppliers of any additional payments. Thus, the additional price is on the own violation of the assessee and there is no obligation on the part of the assessee since there is no express request or demand from the suppliers. Moreover, there is no arithmetic or statistical basis for fixing/determining the additional price. In view of this, the additional price appears to be absolutely unreasonable and highly disproportionate even going by the principles of commercial prudency and expediency domain over which lies with the assessee. On query raised by the Assessing Officer, the assessee has filed the details of the milk price. The relevant portion of the Board resolution No. 12 dated 31/08/2010 is extracted below:-
"..........
D: From-out of the withhold price amount of "C" (Srikakulam, Vizianagsram and Visakhapatnam Districts), considering the request made by the Members and authorization given by them, it is resolved to allot equity shares equivalent to the value of Rs. 59/- per-KG Fat of Buffaloes Milk and Rs. 19/- per KG total solids of Cow Milk supplied by the milk producers (share holders) out of the total proceeds of final purchase price as the company required funds to meet the capital expenditure to acquire machinery and equipment and to meet expenditure on the extension activities under procurement and marketing of the milk.
E: In view of the request made by the members and considering the authorization given by them it is resolved to deduct Rs. 5/per kg fat on buffalo milk and Rs. 2.75/kg total solids on cow milk out of the withheld price payable to milk producers in West Godavari, East Godavari, Visakhapatnam Vizianagaram and Srikakularn Dist. As contribution to M.P 7 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) & E.E.H. & M.W. Trust, Sheelanagar, Visakhapatnam since the milk producers of these districts are availing education and health care facilities provided by the Trust and pay directly to the said Trust by way of Cheque /Demand Draft upon the unanimous request of the members present at the Annual General Meeting.
F: Resolved that the remaining portion of the withheld price, after deducting value of equity shares allotted to shareholders and amount payable to Trust as contribution shall be paid to producers by way of crossed Demand Draft/Cheque/ transfer to their respective accounts. "
The break up is as follows:
Amount claimed to had been actually paid Rs. 49,64,10,534.61 Amount said to be capitalized by issue of equity shares Rs. 41,23,18,509.91 Contribution to the trust Rs. 5,72,83,783.48 Total Withheld Price Rs. 96,60,12,828.00
7. From the above, the Assessing Officer came to a conclusion that the actual out go is only to the extent of ₹ 49,64,10,534.61 while an amount of ₹ 41,23,18,509.91 claimed as expenditure is in fact capitalized and an amount of ₹ 5,72,83,783.48 is contribution to a trust. While the amount actually paid by the assessee can be held as made on commercial line to ensure claimed suppliers and there by aid in furthering of the business of the assessee, the amounts not actually paid but debited to profit & loss account only to be capitalized or contributed without actual payment cannot be held so. It is a clear case of the assessee employing a device to increase its capital without paying taxes which are due to the exchequer. The Assessing Officer further observed that the amount debited to the profit & loss account as withheld price of milk is added to capital unilaterally by the assessee and not at the instance of the suppliers who in fact had not made may 8 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) such demand/request/application. Hence, this cannot be considered as paid to the supplier against the suppliers, least to ensure continuous suppliers.
8. In view of the above, the Assessing Officer held that so much of the amount that is debited to the profit & loss account under the grab of purchases but not actually paid, is a device employed by the assessee to increase its capital without paying the taxes which are due to the exchequer. The Assessing Officer has also considered the decision in the case of Shahabad Cooperative Sugar Mills Ltd. Vs. CIT (226 ITR
582) and Budhewal Cooperative Sugar Mills Ltd. Vs. CIT (316 ITR 461) and held that the alleged expenditure of ₹ 41,23,18,509.91 and ₹5,72,83,783.48 = ₹ 46,96,02,293/- claimed as withheld price but in fact is taken to capital / contributed to trust on own volition without actually incurring it is hereby disallowed. Indeed this additional sum deemed as capital contribution of participating shareholders should be view as part of profits or rather application of profits which cannot be a deductible expenditure. Accordingly, the Assessing Officer has disallowed an amount of ₹ 46,96,02,293/- which is debited to the profit & loss account, but had not been actually paid to the milk suppliers and taken to the capital / contributed to the trust is not allowable and so hereby disallowed. Accordingly, assessment is completed.
9. On being aggrieved, assessee carried the matter in appeal before the ld. CIT(A). During the course of appellate proceedings, the 9 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) assessee filed a petition for admission of additional evidence vide letter dated 29/11/2013, the same is extracted as under:-
Additional evidences:
1. Copy of the Board Resolution with subject No.29 dtd,28.02.2007 for withheld price for the financial year 2006-07 both in Telugu and true translation of the same in English.
2. Copy of the Board Resolution with subject No.13 dated 06.02.2008 for withheld price for the financial year 2007-08 both in Telugu and true translation of the same in English.
3. Copy of the Board Resolution with subject No.20 dated 27.12.2008 for withheld for the financial year 2008-09 both in Telugu and true translation of the same in English.
4. Copy of the Board Resolution with subject No.8 dated 05.10.2009 for withheld price for the financial year 2009-10 both in Telugu and true translation of the same in English
5. Form No.2 filed with Registrar of Companies for the year 2007-08 for allotment of Share Capital of Rs.25,58,05,500/- for Board Resolution No. 17 dated 27.12.2008 and statement of withheld price allocation and list of shares allotted filed with Registrar of Companies.
6. Form No.2 filed with Registrar of Companies for the year 2008-09 for allotment of Share Capital of Rs.40,63,42,000/- for Board Resolution No. 19 dated 30.12.2009 and statement of withheld price allocation and list of shares allotted filed with Registrar of Companies.
7. Form No.2 filed with Registrar of Companies for the year 2009-10 for allotment of Share Capita! of Rs.41,20,66,000/- for Board Resolution No. 16 dated 12/10/2010 and statement of withheld price allocation and list of shares allotted filed with Registrar of Companies.
Further we enclose herewith Journal entries passed in the month of March as regular accounting practice for providing withheld price payable for the accounting years 2007-08, 2008-09 and 2009-10, and also enclose copies of journal entries and bank payment vouchers which are passed at the time of release of withheld price subsequently for the financial years 2007-08, 2008- 09 & 2009-10.
10. The ld. CIT(A) has forwarded the additional evidence filed by the assessee to the Assessing Officer for his comments vide his office letter dated 31/12/2013. The Assessing Officer filed his report dated 10/03/2012. On the Assessing Officer‟s comments, the assessee has 10 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) filed its written submissions dated 21/03/2014 and 25/03/2014. The ld.CIT(A) has considered and admitted as additional evidence.
11. It was submitted before the ld. CIT(A) that the main object of the assessee company is to procure milk from farmers through the milk cooperative societies situated in village of Srikakulam, Vizianagaram, Visakhapatnam, East Godavari and West Godavari Districts of Andhra Pradesh. The suppliers are the members of the assessee company from whom milk is being procured every day.
12 It was further submitted before the ld. CIT(A) that the Board of Directors in the meetings held from time to time decide the procurement price for kg fat content and SNF of milk content considering the availability of milk; price being paid by the competitors and requirement of milk for processing. The price so fixed is circulated among the members of the society, who would in turn circulate among the milk producers from time to time. The assessee company also published the procurement price of milk in the local newspapers for information of all the concerned including the milk producers. The amount so fixed shall be the amount payable and such liability accrues at the time of supply of milk. However, the entire amount payable as per the procurement price would not be paid immediately at the time of supply. A part of the amount payable would be retained or withheld for the benefit for the suppliers. Such amount payable is known as withheld 11 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) price and shall be dealt in separately with the concurrence of the suppliers.
13 It was further submitted that the Board of Management conducts meetings not only at its registered office but also in the villages, where milk societies are functioning so as to motivate and to encourage supply of milk to the assessee company. The assessee company explains the suppliers the need of participation of the milk producers. The assessee company also explained to the milk producers that the price paid at the end of the year, would bring in an advantage as it would amount to saving. The assessee also would explain the need of retaining a part of the price under „withheld price‟. The payment of additional price is made in accordance with the resolutions passed in the Board meetings. In other words, the member producers would be informed in the beginning and the same information would be materialized once resolutions are passed in the governing body. The payment of differential price at the end of the year is common in the case of producers companies which run at par with the principles of mutuality as defined in the Companies Act as per section 581K, 581L, 581M of the Companies Act. That all existing arrangements which had been made by the societies prior to conversion will all continue and also all fiscal and other concessions granted to the erstwhile society shall continue and shall be deemed to have been granted to the producers company. Therefore, the assessee company with a view to provide substantial 12 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) amounts to the suppliers at the end of the year and with a view to bring in sense of participation among the suppliers retains a part of the consideration and would be paying at the end of the year either in cash or in kind.
14 It was submitted that the assessee company in retaning a part of the sale price is supported by the clause 10(b) of the Article of Association of the assessee company according to which, each member shall receive initial payment as may be determined by the Board for the produce/products. Every member shall receive withheld price (remaining price) which will be disbursed in cash or in kind or by allotment of equity shares in proportion to the quantity of milk supplied to the assessee company.
15 It was submitted before the ld. CIT(A) that as per section 581 of the Companies Act, the Articles of Producer Company shall stipulate how the consideration for the produce delivered by a member shall be settled and paid. Every member (producer or farmer) shall initially receive such value for the produce supplied as the Board of Producers Company may determine. The price withheld may be disbursed to the seller member in cash or through allotment of equity shares in proportion to the milk supplied during the financial year to such extent as may be decided by the Board.
16 It was further submitted before the ld. CIT(A) that by paying differential price/ withheld price at the end of the year, the assessee 13 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) company would be gaining an advantage of receiving continuous supply of milk from the producers. Such producers of milk would be continuously supply milk only to the assessee. If the producers are allotted equity shares, they will have the sense of participation and the assessee would have better liquidity. The milk producers would get a lump sum amount at the end of the year which can be utilized by them for purchase of buffaloes or for improvement of their infrastructure for the development of dairy. In other words, indirectly a habit of small savings is cultivated among the milk producers by payment of differential price/ withheld price at a time. Therefore, it is a win situation for both the assessee and the milk producers. 17 It was further submitted that assessee-company makes the payment to the member societies every fortnight through their bank accounts. In turn, the concerned societies would make the payments to the milk producers in proportion to their supply of milk depending on the rate of kg FAT & SNF contents. The balance of consideration would be retained and based on the resolutions passed the same would be either paid in cash or paid in kind.
18 During the appellate proceedings, the Authorized Representative for the assessee represented that the assessee is a producer company and is governed by Chapter 50 of the Companies Act. The certificate of incorporation showing that it was a producer-company was also filed. The assessee also filed copy of its memorandum of association wherein 14 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) the various objectives of the company asre incorporated. The Authorized Representative for the assessee specifically pointed out the following objects of its memorandum of association relevant for discussion:-
(i) To convert the existing Sri Vijaya Visakha District Milk Producers Manually Aided Co-operative Union Limited into a producer company under Part IXA of the Act as a going concern will all its assets and liabilities and without affecting (a) any of its obligations towards its erstwhile shareholders, (b) existing arrangements which had been made by the society prior to conversion, (c) fiscal and other concessions granted to erstwhile society.
(ii) To own, establish, organize dairies and carry on the business of procuring, handling, processing, preserving, packaging, marketing, selling and export of all kinds of milk and products.
(iii) To make donations either in cash or kind for such objects or causes as may be directly or indirectly conductive to nay of the company's objects or otherwise expedient.
(iv) To serve the members of the company by procuring milk and other produce from them at the cost as determined by the Board from time to time and also rendering veterinary services to the cattle, development of fodder and relative allied services and to strengthen the socio and economic development of the members of the company and import of goods or services for the benefit of members and to take up such welfare measures for the benefit on its members and employees.
(v) To establish, run, administer, manage schools, colleges, training centres, universities in the field of animal husbandry, dairy development, run, own, manage, administer diagnostic centres, scan centres, nursing homes, general and veterinary hospitals, clinics, dispensaries, child welfare and family planning centres, clinical, pathological testing laboratories, X-ray and ECG Clinics for the benefit of community at large and in particular to the dairy farmers and their families, and milk cattle.
19 The Authorized Representative for the assessee also filed copy of Articles of Association where in withheld price defined "withheld price means part of the price due and payable for goods supplied by any member to the producer company; and as withheld by the producer company for payment on a subsequent date."
15ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) 20 In this regard, the Authorized Representative for the assessee also referred to the definition of „Producer Company‟, and „withheld price‟ in the Companies Act. The Authorized Representative for the assessee also referred to section 581E and 581D of the Companies Act. The same is reproduced by the ld. CIT(A) as under:-
MUTUTAL ASSISTANCE PRINCIPLES Sub-section (2) of section 581G provides that the Articles shall contain the following mutual assistance principles, namely:
a. The membership shall be voluntary and be available to individual producers and producer Institutions who can participate or avail of the facilities or services of the producer company and are willing to accept the duties of membership.
b. Each member shall have only a single vote irrespective of shareholding, unless other-wise provided. c. The Producer-Company shall be administered by a Board of Directors as per provisions of Par IXA (namely section 581A to 581 ZT of the Act) and the Board shall be accountable to the members.
d. There shall be only limited return on capital as provided in the said Part.
e. The surplus arising out of the operations after meeting the limited return shall be distributed in an equitable manner in the following manner.
i. Providing for development of the business of the company.
ii. Providing for common facilities of members iii. Providing amongst the members in proportion to their participation in the business of the company. f. Provision shall be made for education of members, employees and others on the principles of mutuality and techniques of mutual assistance.
g. The producer company shall cooperative with other producer companies, local, national or international level so as to serve the interest of its members and the community its serves.
[Section 581 E and 581D] The Articles of a Producer company shall stipulate how the consideration for the produce delivered by a member will be settled 16 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) and paid. Every member shall initially receive such value for the produce supplied as the Board of the Producer Company may determine.
Price withheld The price withheld may be disbursed to the seller-member in cash or by allotment of equity shares in proportion to the produce supplied during the concerned financial year to such extent as may be decided by the Board.
[Section 581R ] Subject to the provisions of the Act and the Articles of the company, the Board of Directors of a Producer Company shall exercise all such powers and to do all such acts and things as the company is authorized to do. The powers of the Board include the following:
(a) Determination of the dividend payable;
(b) Matters regarding withheld price to be done as per provision in the Article.
Board shall exercise certain powers only after approval at General Meetings.
The following powers shall be exercised by the Board only after approval by the annual general meeting by passing resolutions:
a. Approval of budget and adoption of annual accounts. b. Approval of patronage bonus c. Issue of bonus shares.
7.12 With reference to the above legislative provisions/ the AR brought to my attention the following Articles of Association of the Company:-
10. The Board of Directors may determine from time to time the benefits that may be conferred on members by way of Limited return, Patronage Bonus and determination of withheld price and such other benefits as the Board may deem fit in the larger interest of members of the company.
(a) Limited return The members shall receive limited return on the share capital contributed and the board, on basis of available profit will determine such return for each year at the end of each financial year.
(b) Withheld price Each member shall receive initial payment of such amount as may be determined by the Board for the produce or products pooled and supplied by them.17
ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) Every member shall receive withheld price (remaining price) which will be disbursed later in cash or kind or allotment of Equity Shares in proportion to the produce supplied to the company during the financial year to such extern in such manner or subject to such condition as may be decided by the Board.
(c) Bonus Shares Every member shall be entitled to bonus shares as per the provisions of section 581 ZJ and subject to the requirements of Article 27 of the Articles of Association of the company as and when decided by the Board subject to approval of the members.
(d) Patronage Bonus If any surplus remaining after making provision for payment of limited return and reserves as may be disbursed as patronage bonus amongst members in proportion to their participation in business of the company either in cash or by way of allotment of additional purchase price or both as may be decided by the members in General Meeting.
(e) Surplus:
The surplus arising out of the .operations of the company certain reserve may be created as recommended by the Board and also a limited return shall be distributed in a equitable manner, further the Annual General Meeting (AGM) may declare such allocation of funds for the following purposes.
a. The development of the business of the company. b. Providing for common facilities.
c. Distributing amongst members as may be admissible in proportion to their respective participation in the business as may be determined by the Board.
d. Providing for education of members or employees or others on mutual assistance principles.
e. The Board may allot from time to time equity shares of the company to its members for consideration other than cash in lieu of the sale proceeds of the produce or products supplied by the members of the company. f.The Benefits to members as mentioned in Articles 10(a) to (e).
Clause-15 of the Articles of Association relevant to our discussion reads as under:-18
ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) 15 The Board of Directors of the company shall exercise such powers and functions, at its meeting which are authorised by the Act and these Articles. The Board can exercise powers like:
a. Determination of dividend payable.
b. Determination of quantum of withheld price and recommend patronage to be approved at general meeting.
Clause-26 of the Articles of Association relevant to our discussion reads as under:-
26. The company may make donation or subscription to any institution or individual by passing special resolution.
The donation or subscription may be made for the purpose of promoting the social and economic welfare of Producer Members or Producers or general public or assistance principles.
The ceiling limit for all such donation and subscription in any financial year shall not exceed 3% of the net profits of the company in the financial year immediately preceding the donation or subscription was made.
The company shall not make directly or indirectly to any political party or for any political purpose to any person, any contribution or subscription or make available any facilities, material.
The provisions of Section 581ZH of the. Companies Act, 1956 shall apply to this company.
21 With reference to the above legislative provisions and its Articles of Association, it was submitted that the entire procurement price would not be paid immediately at the time of supply; part of the procurement price is withheld and paid at a later stage as per Board Resolution and 19 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) this is authorized under the statute and under its Articles of Associatio; the payment of the withheld price through allotment of equity shares / donation is also authorized in the statute and the Articles of Association of the company. The Authorized Representative for the assessee also contended that the assessee has not adopted any tax evasion device in payment „withheld price‟ through equity allotment partly and through contribution to trust partly.
22 The Authorized Representative for the assessee has referred to the resolution passed by the Board regarding fixation of price, which reads as under:-
Board of Directors Meeting held on 05/10/2009 Subject No.5 : Action taken by the Managing Director with prior permission of the Chairman in increasing the adhoc price for purchase of milk in West Godavari District for acceptance and Ratification sought. Resolution : Resolved to fix and pay adhoc/temporary price for procurement of milk as follows with effect from 01/10/2009 having been considered the prevailing conditions in the market and price being paid by the private dairies in West Godavari District.
Area Type Existing Rate Increased rate
West Godavari Dist Buffalo (Kg fat) ₹ 305.00 ₹ 330.00
West Godavari Dist Cow (Total solids) ₹ 105.00 ₹ 114.00
Similar resolutions to the above effect dated 30/05/2009 and
22/03/2010 were also filed.
23 From the above, it was submitted before the ld. CIT(A) that it is a
normal practice to pay adhoc price initially and to pay the withheld price at the later end of the year. The Authorized Representative for the assessee further referred to the resolutions passed on 28/02/2007, 06/02/2008, 27/12/2008 & 05/10/2009 to show that the payment of 20 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) withheld price is decided in the Board meeting every year. He also furnished details of the shareholders of the company as on 31/03/2010 and as on 31/03/2011 to show that the withheld price has been ultimately disbursed as equity shares to the shareholders. For the purpose, he also filed Form No.2 of the companies Act wherein the details of the allotment of shares to the tune of ₹ 41,20,66,000/- was given. The Board resolution held on 12/10/2010 resolving to allot 824132 additional shares to 976 shareholders @ 500/- per share, amounting to ₹ 41,20,66,000/- was also filed. He also filed copies of the price fixed during the year entire year for buffalo and cow milk in the three Districts. Besides, he also filed copies of the comparative price position in other states for the buffalo milk of the similar quality. 24 It was further submitted before the ld. CIT(A) that the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Mehsana District Cooperative Milk Producers Union Ltd. (282 ITR 024) is squarely applicable to the facts of the assessee‟s case. The assessee also given a comparative chart to demonstrate that decision of the Gujarat High Court is squarely applicable to the assessee‟s case. 25 The ld. CIT(A) by considering the details given by the assessee directed the Assessing Officer to delete the addition. The relevant portion of the order is extracted as under:-
7.17 I have considered the various submissions and details filed. It is to be noted that out of the total withheld price of Rs.96,60,12,828/-, the AO had disallowed Rs.46,96,02,293/- which pertain to payment said to be capitalized of Rs.41,23,18,509/- and contribution to trust of Rs,5,72,83,783/-. The AO had taken a view that these payments are 21 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) not for commercial reasons, and that the amounts have been unilaterally capitalized without offering to taxation. However, the payments made to farmers/milk producers out of the withheld price of Rs.49,64,10,534/- was found to be on commercial lines. In this background it has to be seen whether the disallowance of Rs.46,96,02,293/- is justified.
7.18 At the outset, it is to be noted, from the documents and details filed, that the assessee-company is a producer company functioning on cooperative principles for the mutual benefit of the milk producers. It was formed as a company from its earlier status as a Mutually Aided Cooperative Society in terms of section 5813 of the Companies Act and pursues its earlier objectives. Its share holders are the producers cooperative societies in the three districts in which the milk producers are the members.
7.19 The concept of withheld price is defined in the Companies Act as under:
Withheld Price means part of the price due and payable for goods supplied by any member to the producer company; and as withheld by the producer company for payment on a subsequent date.
It is noted that the same definition is incorporated in the Articles of Association of the assessee-company. As per section 581E of the Companies Act, the Articles of a producer company shall stipulate how the consideration for the produce delivered by a member will be settled and paid; and every member shall initially receive such value for the produce supplied as the Board of the producer company may determine. The section further provides that the price withheld may;, be disbursed to seller-member in cash or by allotment of equity share in proportion to the produce supplied during the concerned financial years to such extent as may be decided by the Board. Thus, the concept of 'withheld price' is not alien in the conduct of business of a producer company. In this context, it is relevant to refer to the Articles of Association of the assessee-company, the relevant extract reads as under:-
10. The Board of Directors may determine from time to time the benefits that may be conferred on members by way of Limited return, Patronage Bonus and determination of withheld price and such other benefits as the Board may deem nor interest of members of the company.
(b) Withheld price Every member shall receive withheld price (remaining price) which will be disbursed later in cash or kind or allotment of Equity Shares in proportion to the produce supplied to the company during the financial year to such extent in such 22 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) manner or subject to such condition as may be decided by the Board.
15 The Board of Directors of the company shall exercise such powers and functions, at its meeting which are authorized by the Act and these Articles. The Board can exercise powers like:
a. Determination of dividend payable.
b. Determination of quantum of withheld price and recommend patronage to be approved at general meeting.
7.20 Thus it is evident that the procurement price normally comprise an initial payment and withheld price, the latter price may be paid in cash or in kind or allotment of equity of shares as determined by the Board.
The copies of resolutions filed by the assessee also show that the payment made initially is on a tentative/adhoc price. The AO also refers to such resolutions in his assessment order. Further the AR has filed details showing that procurement price was paid by way of initial payment and withheld price in the earlier years also. In the light of these discussions with reference to the details filed, I am of the view that there was no infirmity in the assessee's practice of procuring milk through initial payment and withheld price, and such practice is consistent with its Articles of Association and relevant statutory provisions governing the producer company. The payment of withheld price is also consistent with the principles of cooperative societies. It can also be said as seen from the assessment order that the AO has also accepted such practice adopted by the assessee-company; however the AO's objection relates to the mode of payment and the want of commercial element in such mode of payment.
7.21 The assessee has submitted that the fixation of procurement price or the final price is based on market conditions taking into account the comparative price position prevailing in the area, and prices paid by the competitors in the business. The AR also submitted that by paying withheld price, the company ensures continuous supply of milk from the producers, and that by allotment of equity shares the members will have the sense of participation; this also provides liquidity to the company and cultivates indirectly saving habit among the milk producers. It was also submitted that the M/s. Milk Producers & Employees Educational Health and Medical Welfare Trust (MPEEHMWT) provides educational and medical facilities to the members and employees of the assessee-company and it has approval u/s 12A of the I.T. Act, 1961. It was also submitted that the trust runs a hospital and educational institutions to cater to the needs of the milk producers and employees of the assessee company. I find merit in these submissions. It is also noted that the final price/withheld price is determined in the board resolution after discussion with the members. Hence it cannot be said that the withheld price or its mode of payment are decided unilaterally by the assessee-company. In the light of the above discussion I do not agree with the, view taken by the AO that the payment made by way of allotment of shares or contribution to Trust is without commercial basis.
23ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) 7.22 The next issue for consideration would be whether the payment of price by allotment of shares would amount to employing a device by the assessee company to increase its capital without paying taxes which are due to the exchequer. At the outset, it is relevant to note that the AO has not questioned the quantum of withheld price determined by the assesse company. There was no discussion in the order that the withheld price/final price fixed was not in accordance with market price and higher than any comparable price. It is in this context, the payment made to the producers directly was accepted and allowed. I find that as no infirmity has been found out on the quantum of withheld price determined, an alternative mode of payment of such price cannot be a ground for its disallowance. The assessee. has filed details of shares allotted to the individual members of the society with reference to the additional withheld price of Rs.41,20,66,000/-. The copy of form-2 filed with Registrar for such allotment was filed. The AR also submitted the relevant extract of the bank statement of the assessee showing the payment of contribution of Rs.5,72,83,783/- to the trust, and also extract of bank statement of the MPEEAMWT-trust showing receipt of the said amount. It was also submitted that the amount is utilized by the trust to expand the hospital facilities and educational facilities rendered to the member of the assessee company. In the light of these details, I find that the genuineness of the payment is established. I have also perused the details submitted relating to the comparative price position in the industry in the nearby areas. The price paid by the assessee do not appear to be excessive or unreasonable. The payment of withheld price is authorized under the articles of association and is done as per resolution passed by the Board and hence it cannot be said to be a tax avoidance device. 7.23 The next issue for consideration would be whether the decision in the case of CIT Vs. Mehsana District Cooperative Milk Producers Union Ltd 282 ITR 24, would be applicable to the facts of the case or whether the decision relied on by the Assessing Officer in the case of Budhewal Cooperative Sugar Mills Ltd and Shahabad Cooperative Sugar Mills Ltd. would be applicable. The AR has filed a detailed comparative analysis to substantiate that the decision in the case of CIT vs. Mehsana District Cooperative Milk Producers Union Ltd would be applicable to the facts of the case, I have gone through the above case-laws and also considered the submissions made. It is seen that in the case of Shahabad Cooperative Sugar Mills Ltd the increase in cane sugar price was found to be beyond the price fixed by Government and the transaction was found to be not bonafide. Out of increase of Rs.20 per quintal only Rs.2/- was paid to the members. In the case of Budhewal Cooperative Sugar Mills Ltd, there was unilateral enhancement of price which the members were not aware, no payment was made to the farmers, the bye-laws relating to fixation of additional sugar cane price was not complied with and was not in accordance with the formula provided in the bye-laws there was no cash payment to the sugar cane producers indicating that the sole purpose was to enhance the capital, the additional price was fixed-in only those years when the assessee had earned huge profits. However in the assessee's case the facts are different. The payment of procurement price by way of initial payment and additional price/withheld price is in 24 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) accordance with the articles of association, substantial portion of the withheld price was paid to the milk producers; the amount transferred to the equity account has resulted in actual allotment of shares to the milk producers indicating that transaction was genuine. The practice of payment of withheld price was found to be followed in the earlier years. Another distinguishing feature is that the assessee is a producer company governed by the provisions of the Companies Act, which allow payment of withheld price and allotment of equity shares out of the withheld price/ The fixation of withheld price and allotment of equity shares out of withheld price is as per Board's resolution which are published and was not unilateral act of the company. Thus decisions in the case of Shahabad Co-operative Sugar Mills Ltd and Budhewal Cooperative Sugar Mills Ltd are distinguishable" and are not applicable to the factual matrix of the assessee's case.
7.24 The AO also noted that the decision in the case of CIT Vs. Mehsana District Cooperative Milk Producers Union Ltd is distinguishable for the reasons (a) that the entire additional price was paid to the milk producers; (b) price notifying circulars have clearly mentioned that price is adhoc and provisional. In the assessee's case also, as already discussed some of the resolutions passed for price fixation have clearly stated that the price fixed was tentative. The AO also referred to such resolution in the assessment order. Further it is dearly stated in the articles of association that every member shall receive initial payment of such amount as determined by the Board and the withheld price shall be disbursed later in cash or kind or allotment of equity shares. In the assessee's case the additional price was paid only partly to the milk producers and partly by way of share allotment contribution to the MPEEHMWT Trust rendering educational and medical facilities to the members of the assessee company. It is noted as a matter of fact that shares were allotted to the individual milk producers in the immediate succeeding year in proportion to the withheld price. Thus the milk producers have become equity holders to the extent of such additional purchase price, which evidences that the amount has gone out of the coffers of the assessee-company. The contribution made to the Trust is based on the Mutual Assistance Principles enumerated in section 581G of the Companies Act and which is also one of the objectives of the company. In this scenario also the details filed show that there was outgo of the impugned amount from the coffers of the company. Thus, in my view, the principle laid down in the decision of CIT Vs. Mehsana District Cooperative Milk Producers Union Ltd would apply to the assessee's case.
7.25 In the light of the above discussion, I am of the view that the AO is not justified in making the disallowance of Rs.46,96,02,293/-. Accordingly the AO is directed to delete the impugned addition of Rs. 46,96,02,293/-. The grounds raised in this regard are allowed. 25 ITA No.288/VIZ/2014
(M/s. Vijaya Visakha Milk Producer Company Ltd.) 26 On being aggrieved, the revenue carried the matter in appeal before the Tribunal.
27 Ld Departmental Representative has submitted that the assessee company already paid amounts to the members of the society, who supplied milk to the assessee and subsequently assessee has paid certain amounts to the suppliers and also issued equity share and certain amounts diverted to trust. It is a device employed by the assessee to increase its capital without paying the taxes, which are due to exchequer. It has further been submitted that withheld price paid to the farmers/milk producers subsequently is a clear device adopted by the assessee to avoid the payment of taxes which is not permissible in law. He strongly supported the order passed by the Assessing Officer. 28 On the other hand, Learned counsel for the assessee has submitted that the assessee had paid initial adhoc payments to the milk suppliers and subsequently, the assessee company certain amounts paid from the withheld price equity shares also issued according to section 581E & 581E of the Companies Act to distribute the withheld price as per companies Act and also Articles of association, the assessee company passed resolutions according to payments are made. Therefore, he submitted that withheld price paid to the farmers/milk producers is in accordance with law.
29 In support of his arguments, he drew our attention to page No. 53 of the paper book which is Board of Directors Meeting held on 26 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) 05/10/2009, 22/03/2010, 30/05/2009 & 28/02/2007. It is also submitted that it is not first time, the assessee company has paid withheld price to the milk suppliers even earlier assessment years also, it was paid and same was allowed by the Assessing Officer. For the first time, it was not accepted by the Assessing Officer . It has further been submitted that the assessee company has paid some amounts to the suppliers, equity shares are issued and contribution towards trust, out of which cash payment made to the suppliers was allowed by the Assessing Officer.
30 It has further been submitted that it is not correct to allow some of the amount out of withheld price and disallowed other part of the amount. It is further submitted that the entire withheld price has to be allowed. He further submitted that the ld. CIT(A) by considering all the details and also by admitting additional evidence and calling the remand report from the Assessing Officer, the treatment adopted bfy the assessee company has accepted and directed the Assessing Officer to deleted the addition and therefore, prayed that the order passed by the ld. CIT(A) may be upheld.
31 We have heard both the sides, perused the material available on record and orders of the authorities below.
32 The assessee company M/s. Vijaya Visakha Milk Producers Company Ltd. incorporated under the Companies Act, 1956 as a producers company. The main object of the company is to procure milk 27 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) from the farmers through the societies situated in villages of Srikakulam, Vizianagaram, Visakhapatnam, East Godavari and West Godavari Districts of Andhra Pradesh. The suppliers are the members of the assessee-company, from which milk is being procured every day. The company has been working on the cooperative principles even after it was registered under the Companies Act as Producer Company. In the assessment order, the Assessing Officer has noted that the assessee procures buffalo and cow milk from milk producers, the price of such milk is paid by the assessee at the end of each fortnight based on the price published in the circulars issued. The assessee company paid amounts as per the price declared in the circular for the purchasing during the year as follows:-
Procurement price as per circulars Buffalo Milk ₹ 1,75,34,54,590/-
Cow Milk ₹ 1,13,10,63,892/-
Total ₹ 2,88,45,18,482/-
However, the assessee company has debited to the profit & loss account for price procured much higher by an amount of ₹ 96,60,12,828/-. On query, it was explained to the Assessing Officer that in addition to the above procurement price, the milk producers were also paid additional price/withheld price on 28/03/2010 and submitted the details of such additional price to the Assessing Officer vide letter dated 18/10/2013 that withheld price for buffalo milk ₹ 49,27,19,254/-, for cow milk ₹ 47,32,93,574/-, totalling to ₹ 96,60,12,828/-. The Assessing Officer 28 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) asked the assessee what is the basis for the withheld price paid by the assessee. It was submitted before the Assessing Officer that rate per kg for buffalo milk and total solids for cow milk paid by competitors, rate per kg fat and total solids paid by cooperative dairies in AP and other states and the competition prevailing in the market and producers demand for prices before finalization of the final price for payment of milk price from farmers. The assessee also filed a comparative prices from website of NABARD. Thereafter, the Assessing Officer has asked the assessee company to furnish the details of the withheld price of ₹ 96,60,12,828/- paid to the milk producers that the amount actually paid to the suppliers of milk of ₹ 49,64,10,534.61, equity shares issued in the name of the milk suppliers of ₹ 41,23,18,509.91, contribution to the trust of ₹ 5,72,83,783.48. The above breakup filed by the assessee has been considered by the Assessing Officer and observed that out of total withheld price of ₹ 96,60,12,828/-, the actual amount paid to the milk suppliers only of ₹ 49,64,10,534.61, the amount of ₹ 41,23,18,509.91 claimed as expenditure was in fact capitalized and the amount of ₹5,72,83,783/- was taken as contribution to the trust. Accordingly, the Assessing Officer took the view that the amount actually paid by the assessee can be held as made on commercial line to ensure clamed supplies that thereby aid in furthering of the business of the assessee, the amounts not actually paid but debited to profit & loss account to be capitalized or contributed cannot said to have been based on 29 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) commercial line. The Assessing Officer also took a view that the assessee is employing device to increase its capital without paying taxes which are due to exchequer. The Assessing Officer by considering the decisions of the Shahabad Cooperative Sugar Mills Ltd. Vs. CIT (226 ITR 582) and Budhewal Cooperative Sugar Mills Ltd. Vs. CIT (316 ITR
461) and held that the amount of ₹ 96,60,12,828/- which is debited to the profit & loss account, but not actually paid to the milk suppliers, taken to capital contribution and also contribution to the trust, which is not allowable expenditure hence, liable to the disallowed. Accordingly, the addition of ₹ 46,96,02,293/- was added to the total income of the assessee.
33. On appeal before the ld. CIT(A), the assessee has filed an additional evidence such as Board resolutions in respect of withheld price for the Assessment Years 2007-08, 2008-09, 2009-10 & 2010-11 and other relevant documents and the ld. CIT(A) called the comments of the Assessing Officer vide letter dated 03/12/2013 and the Assessing Officer has also filed its report dated 10/03/2014. On the comments of the Assessing Officer, the assessee filed written submissions dated 21/03/2014 & 2503/2014. The ld. CIT(A) by considering section 581E & 581D, 581R & 581S and also Articles of association of the company 10(a) to 10(f) and also clause 15 of the Articles of Assocaition has observed that the concept of withheld price as defined by the Companies Act that "withheld price means part of the price due and 30 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) payable for goods supplied by any member to the producer company; and as withheld by the producer company for payment on a subsequent date.". The above definition is incorporated in the Articles of Association of assessee Company. As per section 581E of the Companies Act the Articles of a producer company shall stipulate how the consideration for the produce delivered by a member will be settled and paid; and every member shall initially received such value for the produce supplied as the Board of the producer company may determine. The section further provides that the price withheld may be disbursed to seller member in cash or by allotment of equity share in proportion to the produce supplied during the concerned financial years to such extent as may be decided by the Board. Thus, the concept of withheld price is not alien in the conduct of business of a producer company. As per the Articles of Association of the assessee company, Board of Directors may determine from time to time the benefits that may be conferred on members by way of limited return, patronage bonus and determination of withheld price and such other benefits as the Board may deem fit in the larger interest of the members of the company. It is further observed by the ld. CIT(A) that the procurement price normal price normally comprise an initial payment and withheld price, the latter price may be paid in cash or in kind or allotment of equity shares as determined by the Board. The copies of resolutions filed by the assessee also show that the payment made initially is on a tentative/adhoc price and the 31 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) ld.CIT(A) is of the opinion that there is no infirmity in the assessee‟s practice of procuring milk through initial payment and withheld price, and such practice is consistent with its Articles of Association and relevant statutory provisions governing the producer company. The payment of withheld price is also consistent with the principles of cooperative societies. The ld. CIT(A) has also considered that the equity shares allotted to the members, contribution to the M/s. Milk Producers & Employees Educational Health and Medical Welfare Trust , which provides educational and medical facilities to the members and employees of the assessee company and it is approved under section 12A of the Act and it cannot be said that the above payments made by the assessee from the withheld price not in commercial lines as decided by the Assessing Officer is not correct. The ld. CIT(A) has further observed that the assessee company has allotted the shares from the withheld price to the tune of ₹ 41,20,66,000/-. Copy of Form No.2 filed with Registrar for such allotment was filed and payment to the contribution made to the Trust of ₹ 5,72,83,783/-, bank statement also filed, which shows receipt of the said amount. The amount is utilized by the trust to expand the hospital facilities provided to the members of the company. The ld. CIT(A) came to a conclusion that withheld price paid to the members by way of equity shares and also contribution to the trust, cannot be said to be excessive and also cannot be said that this practice is to avoid the tax. We find that the ld. CIT(A) has 32 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) considered the objects of the assessee company and also the provisions of Companies Act section 581E, 581D, 581R & 581S and Articles of Association of the assessee particularly 10 & 15, he came to a conclusion that withheld price paid by the assessee company to the milk suppliers is according to law. We also gone through the provisions of Articles of Association and also paper book at page Nos. 53 to 64 and find that assessee company decided the withheld price after resolution passed by the Board of Directors and accordingly the amount of ₹ 49,64,10,534.61 cash payment made to the milk suppliers was not objected by the Assessing Officer. The only objection raised by the Assessing Officer in respect of equity shares issued to the tune of ₹41,23,18,509.91, contribution to the assessee‟s trust of ₹5,72,83,783.48. Insofar as, the issue of equity shares is concerned, clause 10(b) of the Articles of Association of the assessee company provides each member shall receive initial payment as may be determined by the Board for the produce/products. Every member shall receive withheld price (remaining price) which will be disbursed in cash or in kind or by allotment of equity shares in proportion to the quantity of milk supplied to the assessee company. Even as per section 581 of the Companies Act, the price withheld may be disbursed to the seller member in cash or through allotment of equity shares in proportion to the milk supplied during the financial year to such extent as may be decided by the Board. We find that the assessee company as per 33 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) section 581 of the Companies Act and also Articles of Association, passed the resolution dated 05/10/2009 and equity shares are issued. Therefore, the Assessing Officer is not correct in saying that it is a tax avoidance device adopted by the assessee to avoid the payment of tax. The ld. CIT(A) by considering all the details has correctly decided that out of withheld price, equity shares issued is in accordance with law. 34 Insofar as contribution paid to the trust is concerned, as per Memorandum of Association of Companies Act, it is under obligation of the assessee to establish schools, colleges, training centres & hospitals. Accordingly, the assessee has already established hospital and educational institutions and out of withheld price some portion is paid to the trust and same is received by the trust. Nowhere the Assessing Officer doubted the transaction. The only doubt expressed by the Assessing Officer is that the above payments are only made to avoid taxes. In our opinion, the assessee producer company running in the lines of mutuality basis for the benefit of the members, in the interest of the members instead of payment cash, some shares are allowed and established educational institutions and also hospitals for treatment of the members of the milk suppliers and certain payments made out of withheld price as per Companies Act and also Articles of Association followed by Board resolution. The Assessing Officer is not correct in saying that the assessee adopted device for avoidance of tax. We further observe that once the milk suppliers having shares in the 34 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) company, they will be having a feeling of supplying milk to their own company. Therefore, the assessee company will be able to procure milk from the milk producers continuously. Therefore, allotment of equity shares to the milk producers for the above reason has to be considered as business expediency. So far as case-laws relied on by the Assessing Officer are concerned, they have no relevancy to the facts and circumstances of the case. Keeping in view of the above, we find no infirmity in the order passed by the ld.CIT(A) and uphold the same. C.O.No. 43/VIZ/2014 35 In the assessment order, the Assessing Officer has noted that the assessee company purchased podwer plant machinery from M/s. LYNJEF International Pvt. Ltd., Australia, in the year 2003 for ₹ 4,90,41,337/-. However, the plant was not erected and kept idle for six years and in the Financial Year 2009-10, the same was sold off to Ranger Foods Pvt. Ltd., Chandigarh for an amount of ₹ 2,65,20,000/- and the assessee has claimed the same as other manufacturing expenses. However, the Assessing Officer is of the opinion that it is a capital loss and accordingly he disallowed the same. On appeal, ld. CIT(A) confirmed the order of the Assessing Officer.
36 Before us, learned counsel for the assessee has submitted that once loss claimed by the assessee, is considered by the Assessing Officer as capital loss, whenever there is a capital gain, loss may be allowed to set off of against the capital gains. We find that there is a 35 ITA No.288/VIZ/2014 (M/s. Vijaya Visakha Milk Producer Company Ltd.) merit in the argument of the counsel for the assessee. Therefore, we direct the Assessing Officer, whenever there is a capital gain, against the gain, the assessee‟s claim of set off may be allowed in future in accordance with law. Accordingly, this cross objection filed by the assessee is allowed for statistical purpose.
37. In the result, appeal filed by the revenue is dismissed and the Cross objection filed by the assessee is allowed for statistical purposes. Order Pronounced in the open Court on this 27th day of Sep., 2017.
Sd/- sd/-
(D.S. SUNDER SINGH) (V. DURGA RAO)
Accountant Member Judicial Member
Dated : 27 t h September , 2017.
vr/-
Copy to:
1. The Assessee - M/s. Vijaya Visakha Milk Producer Company Ltd., Visakha Dairy, NH-5, Opp. BHPV, Natayyapalem, Visakhapatnam.
2. The Revenue - ACIT, Circle -4(1), Visakhapatnam.
3. The CCIT, Visakhapatnam.
4. The CIT(A), Visakhapatnam.
5. The D.R., Visakhapatnam.
6. Guard file.
By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.