Income Tax Appellate Tribunal - Ahmedabad
Shree Khedut Sahakari Khand Udhyog ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH AT SURAT CAMP,
AHMEDABAD
Before Shri T.K. Sharma, Judicial Member, and
Shri D. C. Agrawal, Accountant Member
ITA No.4096/Ahd/2007
Assessment Year: 2004-05
Date of hearing:20.5.10 Drafted:24.5.10
Asstt. Commissioner of V/s. Shree Khedut Sahakari
Income-tax, Circle-6, Khand Udhyog Mandli
Room No.6234, Aayakr Ltd., At & Post Sardar
Bhvan, Majura Gate, Bug, Baben, Bardoli-
Surt 394602, Dist. Surt
PAN No.AAAAS455N
(Appellant) .. (Respondent)
Appellant by :- Shri Sanjeev Kashyap, SR-DR
Respondent by:- Shri Mitesh M Modi, AR
ORDER
PER D.C.Agrawal, Accountant Member:-
This is an appeal filed by the Revenue against the order of Ld. CIT(Appeals) raising following grounds:-
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A)-IV, Surat has erred in deleting the addition made on account of sugarcane quality improvement expenses of Rs.56,93,735/- made by the A.O."
2. The facts of the case are that the assessee is engaged in the business of manufacturing and selling sugarcane and its bi-product i.e. alcohol. The return of income was filed declaring a loss of Rs.1,73,05,457/-. During the course of assessment proceedings Assessing Officer found that expenses to the extent of Rs.56,93,735/- have been incurred as sugarcane quality improvement subsidy being monetary benefit provided by the assessee to its members towards ITA No.4096/Ahd/2007 A.Y. 2004-05 ACIT Cir-6 SRT v. Ssh. Khedut Sahakari Khand Udhyog Mandli Ltd. Page 2 pesticides, seeds and other items. The assessee is a society of members who produce the crops of sugarcane. The assessee provides pesticides, seeds etc. at subsided rates and purchases sugarcane crop from them. While providing pesticides, seeds etc. to the members their account is debited at a lesser amount but sales account of the company is credited with full amount. The difference is treated as subsidy or expenditure on quality improvement. As per resolution of the Managing Committee dated 05-12-2002 a subsidy of 15% on sale value of pesticides and on 50% on sale price of bio-culture package was granted. In other words, if pesticides for Rs.100/- are sold to the farmers then its account is debited by 85% of the value of pesticides. The balance being 15% is subsequently transferred to the profit and loss a/c. as sugarcane quality improvement subsidy. Similarly when pesticides are sold to the farmers then their account is debited by 50% of the sale value of bio-culture package. Balance 50% is transferred to profit and loss a/c. and thus accounts of the farmers are squared up. Thus, during this year a sum of Rs.56,93,735/- was in all transferred to profit and loss a/c. as quality improvement subsidy by squaring up the account of the farmers. Ld. Assessing Officer disallowed the claim on the ground that such amount of subsidy is not supported by any bye-law or resolution. The account treatment is faulty in the sense that assessee should have treated the deficit as bad debt and written off. The benefit of alleged subsidy is spread over a long period of time. Therefore it cannot be allowed as revenue expenditure. Further, this expenditure has no direct connection with either manufacturing or selling of sugarcane in the relevant assessment year. Finally, in any case claim of the assessee is excessive and unreasonable and has no direct nexus with the business purpose. He accordingly disallowed the claim.
3. Ld. CIT(Appeals) on the other hand allowed the claim by observing as under:-
ITA No.4096/Ahd/2007 A.Y. 2004-05ACIT Cir-6 SRT v. Ssh. Khedut Sahakari Khand Udhyog Mandli Ltd. Page 3 "I have gone through the details and the assessment order and I failed to understand the logic behind making such addition. The society has sold material, like fertilizer, pesticides, seeds etc. to each member at a subsidized rate and has realized only that much of the sale proceeds, it is not understood as to why the members account should be debited by the full amount and then the balance amount should be written off as bad debts. It is only the net sale proceeds which have been credited to P & L. account by the society and as in the nature of the trade discount given to its members who would grow sugarcane and supply the same to the society. I do not see any justification in this action of the AO in making such an addition without properly appreciating the facts of the case. The addition therefore is not sustainable and is directed to be deleted."
4. Before us Ld. SR-DR submitted that order of Ld. CIT(Appeals) is not acceptable because there is no business nexus of this expenditure as expenditure cannot be said to have been laid out wholly and exclusively for the purposes of business. The claim of the subsidy has not been duly authorized either by the bye-laws or the executive Managing Committee.
5. Against this, Ld. AR submitted that such claims were made by the assessee in preceding years which were allowed by the Assessing Officer and also such claims were allowed in subsequent assessment years. He referred to the orders for assessment year for 2001-02 which was passed u/s.143(3) and assessment year 2005-06 which was also passed u/s.143(3), wherein the claim of such subsidy was accepted. He submitted that following the principle of consistency the claim of the assessee should not be disallowed.
6. Ld. AR further submitted that claim has direct nexus with the business purpose inasmuch as pesticides and other products were sold to the farmers at subsidized rates for supporting them to improve sugarcane production.
7. We have heard the rival submissions of the parties and perused the materials on record. In our considered view, there is no case for interference in ITA No.4096/Ahd/2007 A.Y. 2004-05 ACIT Cir-6 SRT v. Ssh. Khedut Sahakari Khand Udhyog Mandli Ltd. Page 4 the order of Ld. CIT(Appeals). It is an undisputed of fact that the claim of the assessee is allowed in the earlier assessment year as well as in the subsequent assessment year. Hon'ble Supreme Court in the case of Radhasoami Satsang v. Commissioner of Income-tax [1992] 193 ITR 0321- (SC) held that in absence of material change justifying the Department to take a different view from the view taken in earlier year the question of taking different view should not have arisen. Even though principle of res judicata does not apply in income tax proceeding and each assessment year is a separate unit of assessment but a fundamental aspect permeating through different assessment years has been found as a fact one way or other and parties have been allowed to take position to be sustained then it will not be proper to allow the position to be changed in a subsequent year. The principle of consistency will not permit the Revenue to take a stand contrary to the one accepted by it unless it is shown that there is a grave error of law, or new facts have been discovered, or assessee is guilty of contumacious conduct. Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Moonlight Builders and Developers [2008] 307 ITR 197[Del] has held that for the purposes of finality in all litigation including the litigation arising out of fiscal status earlier decision on the same question should not be reopened unless some fresh fact are found in the subsequent year. It is always desirable that assessing or appellate authority, without placing on record cogent reasons to do so should not deviate from the conclusions arrived at in the case of assessee in earlier years. It is so held by ITAT in the case of K. R. Films P. Ltd. v. Income-tax Officer [2006] 287 ITR (A.T.) 1- (Mum).
8. Notwithstanding, we are of the view that the claim of the assessee is justified. The assessee is a co-operative society under Mumbai State Co- operative Act, 1925. It has 5,600 members as informed by Ld. AR. The pesticides, seeds and other items are sold at reduced price to the farmers in order to help them grow more sugarcane crop. The sale at reduced price to the farmers is directly a business purpose as it is given in relation to purchase of sugarcane ITA No.4096/Ahd/2007 A.Y. 2004-05 ACIT Cir-6 SRT v. Ssh. Khedut Sahakari Khand Udhyog Mandli Ltd. Page 5 crop which is entirely sold to the assessee. It is not a case that disallowance u/s.37 has to be made as no such case has been made out by the authorities. Sale of pesticides at reduced price is made to the members and sugarcane crop purchased from the same members. If for a business purpose, assessee grant subsidy or sales pesticides as reduced price then Revenue can not sit over their judgment unless so empowered under law. Sale at reduced price is a business decision and cannot be substituted by decision of assessing authority. There is no allegation of any contumacious conduct by revenue. One of the grounds taken for disallowance is that there is no business connection which is not considered as sound. There is a clear business connection. So far bye-laws are concerned it is for the principles to decide whether such subsidy can be granted without authority of bye-laws. In our considered view, it is not for the Revenue to disallow the claim if it is otherwise connected with the business purpose of the assessee. As result, we uphold the order of Ld. CIT(Appeals) and dismiss the appeal filed by Revenue.
9. In the result, appeal filed by Revenue is dismissed.
Order pronounced in Open Court on 28/05 /2010
Sd/- Sd/-
(T.K.Sharma) (D.C.Agrawal)
(Judicial Member) (Accountant Member)
Ahmedabad,
Dated : 28/05/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant. 4. The CIT concerns.
2. The Respondent. 5. The DR, ITAT, Ahmedabad
3. The CIT(Appeals)-IV, Surat 6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad