Commissioner Of Income-Tax v. The Jind Co-P. Sugar Mills Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Commissioner of Income-tax. Vs. The Jind Co-p. Sugar Mills Ltd. I.T.A. No.969 of 2008 Date of decision: 6.1.2011-----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Yogesh Putney, Sr. Standing Counselfor the appellant.for the appellant. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order of the Income Tax Appellate Tribunal, NewDelhi in I.T.A. No.999/Del/2005 for the assessment year 2001-02 raising following questions of law:- “(i)Whether, on the facts and in the circumstances of thecase, the Ld. ITAT is right in law in upholding thedeletion of addition of Rs.2,11,94,853/- made onaccount of low yield of sugar particularly when theAssessing Officer gave adequate opportunity to theassessee to furnish the evidence and the fact that theassessee had not maintained quality records ofsugarcane processed by it and also relying on thetrading results of the assessee with the Mills atSonepat, Panipat, Kaithal, Palwal and Karnal ignoringthe fact that the matter with regard to the addition ofcase, the Ld. ITAT is right in law in upholding thedeletion of addition of Rs.2,11,94,853/- made onaccount of low yield of sugar particularly when theAssessing Officer gave adequate opportunity to theassessee to furnish the evidence and the fact that theassessee had not maintained quality records ofsugarcane processed by it and also relying on thetrading results of the assessee with the Mills atSonepat, Panipat, Kaithal, Palwal and Karnal ignoringthe fact that the matter with regard to the addition of low yield of sugar and comparison of trading results ofother mills should have been remanded back to theAssessing Officer for fresh verification in view of thefact that the reserves shown by the assessee werenot verifiable? (ii)Whether, on the facts and in the circumstances of thecase, the Ld. ITAT is right in law in upholding thedeletion of addition of Rs.1,40,12,702/- made onaccount of low sale rate of sugar although, as pointedout by the Assessing Officer in his commentsfurnished to the Commissioner of Income Tax(Appeals), the sale rate of sugar is determined by theSugar Syndicate which is applicable to all the sugarmills of Haryana and although, as pointed out in theassessment order, there was complete mismatch ofthe quantity of sugar actually sold by the assesseeduring the month of April, 2000? Whether, on the facts and in the circumstances of thecase, the Ld. ITAT is right in law in upholding thedeletion by the Commissioner of Income Tax(Appeals) of addition of Rs.14,69,587/- made onaccount of subscription and contribution to Federationof Coop. Sugar Mills Ltd. when the CIT(A) hadadmitted the additional evidence in violation ofprovisions of sub-rule(2) of Rule 46A of the IncomeTax Rules, 1962 as per which no additional evidenceis admissible unless the CIT(A) records in writing thereasons for its admission and when the additionalevidence can be admitted only for the specificreasons enumerated in sub-rule (1) of Rule 46A? and Whether on the facts and in the circumstances of thecase, the Ld. ITAT is right in law in upholding thedeletion by the CIT(A) of addition of Rs.1,43,328/- (iii) (iv) made on account of penalty payable to growers whenthe CIT(A) had allowed the relief in violation ofprovisions of sub-rule (2) of Rule 46A of the IncomeTax Rules, 1962 as per which no additional evidenceis admissible unless the CIT(A) records in writing thereasons for its admission and when the additionalevidence can be admitted only for the specificreasons enumerated in sub-rule (1) of Rule 46A?” (iii) (iv) made on account of penalty payable to growers whenthe CIT(A) had allowed the relief in violation ofprovisions of sub-rule (2) of Rule 46A of the IncomeTax Rules, 1962 as per which no additional evidenceis admissible unless the CIT(A) records in writing thereasons for its admission and when the additionalevidence can be admitted only for the specificreasons enumerated in sub-rule (1) of Rule 46A?” Whether, on the facts and in the circumstances of thecase, the Ld. ITAT is right in law in allowing anotheropportunity to the assessee to lead evidence and tofurnish explanation in support of its claim of low salerates of molasses, for which addition ofRs.46,96,460/- had been made by the AssessingOfficer or before the Commissioner of Income tax(Appeals) inspite of the ample opportunity provided toit by the Assessing Officer? (v) (vi)Whether on the facts and in the circumstances of thecase, the Ld. ITAT is right in law in allowing anotheropportunity to the assessee to furnish evidence andmaterial in support of its claim that the amount ofRs.26,30,054/- in suspense account representeddisputed amounts of earlier years though theassessee had failed to furnish the same either beforethe Assessing Officer or before the Commissioner ofIncome tax (Appeals) inspite of the ampleopportunities provided to it by the Assessing Officer?(vii)Whether, on the facts and in the circumstances of thecase, the Ld. ITAT is perverse in nature as the Ld.Tribunal has not considered the evidence and materialon record?” 2. The assessee is a cooperative society engaged in themanufacture and sale of sugar. During the assessment, theAssessing Officer made additions, inter-alia, on account of lowyield, difference in rates of sale of sugar, claim of excessiveexpenses, difference in sale of molasses, absence of details ofparties to whom amounts were entered as payable, disallowanceof expenses towards subscription and contribution, non-chargingof interest on the advances made, disallowance of developmentexpenses, disallowance of penalty payable to growers anddisallowance of staff welfare expenses. The CIT(A) partlyallowed the appeal of the assessee and deleted additions onaccount of low yield, difference in rate of sugar, expensesclaimed towards contribution to federation, non-recovery ofinterest and penalty payable to growers but partly upheld theadditions. The Tribunal affirmed the deletions and allowed theappeal of the assessee against upholding of additions by the CIT(A). On the issues raised by the assessee against the additionsconfirmed by the CIT(A), the matter were remanded to theAssessing Officer. 3. The observations of the Tribunal are as under:- I. Issue of affirming deletions by the CIT(A): (a) Low Yield: “7.We have considered the rival submissions onthis issue carefully. The assessee is a cooperativesociety running a sugar mill. The sugar industry issubject to supervision and control of various 3. The observations of the Tribunal are as under:- I. Issue of affirming deletions by the CIT(A): (a) Low Yield: “7.We have considered the rival submissions onthis issue carefully. The assessee is a cooperativesociety running a sugar mill. The sugar industry issubject to supervision and control of various governmental authorities viz. excise, Directorate ofsugar (Central Government), public distributionsystem of the government etc. Moreover, theassessee operates under the control of Registrar,Cooperative Societies. The accounts of the assesseeare not only subject to audit by its own appointedauditors but also by auditors appointed by theRegistrar, Cooperative Societies. Another undisputedfeature in the case of the assessee is that it ismaintaining complete account books which arevouched and audited. There is also no dispute thatthe assessee produced before the Assessing Officerthe requisite details and material required to finalizedthe assessment. We are only pointing out thisbackground to say ostensibly there is no charge ofmisfeance or undeclared business against theassessee. Moreover, the Assessing Officer has notpointed out any such discrepancy in the recordsmaintained by the assessee. The only point made outby the Assessing Officer is that the yield declared bythe assessee is low in comparison to the yielddeclared by another concern, M/s Yamuna NagarSugar Mills. At the outset, we may say that thecomparison made is unjustified for the reasons thatthe Assessing Officer does not bring out any featuresas to how the assessee and the other concern aresimilar. Except that the other concern is also a sugarmill there is no material referred to by the AssessingOfficer to justify the comparison. Further the assesseebrought to the notice of the Assessing Officer the yieldratios of other concerns in Haryana which were lowerin comparison to the yield declared by the assessee.There is no reference by the Assessing Officer as to why the chose to consider the yield ratio of YamunaNagar Sugar Mill as more sacrosanct than the casesreferred to by the assessee. For all these reasons,we reject the stand of the Assessing Officer to makethe addition merely on the basis of the yield ratio ofYamuna Nagar Sugar Mill. In any case, the low yieldratio could, at best, be the reason for the AssessingOfficer to carry out a verification exercise of theresults declared by the assessee. Certainly the sameby itself could not be the basis for making theaddition. We find that there is no adverse inferenceby the Assessing Officer with regard to the accountbooks and other records examined by him. Therefore,in our considered opinion, the CIT(A) was fullyjustified in deleting the impugned addition. We herebyaffirm the same. The Revenue fails on the firstGround.” (b) Sale Rate: 10.We have considered the rival stands on thisissue. In our opinion there is no justification for theAssessing Officer to make the impugned addition bysubstituting the sale rate of another concern withrespect to the sales declared by the assessee. Thereis no whisper much less a finding by the AssessingOfficer that the assessee had made any sales outsidethe books of account or that the assessee hasrealised any sale proceeds of sugar outside the booksof account. Apart from the above, the reasons fordeleting the addition on account of low yield, in ourview, are applicable herein also. In the result thedecision of the CIT(A) is affirmed on this Ground. TheRevenue accordingly fails on this Ground. xxxx xxxxxx (c) Additional evidence on the issue of subscription andcontribution: xxxx xxxxxx (c) Additional evidence on the issue of subscription andcontribution: 14.After hearing the rival contentions and perusingthe relevant material we find that the grievance of theRevenue as manifested in the Ground of appeal isclearly untenable for the following reasons. The pleaof the Revenue is that the CIT(A) relied upon freshevidence in violation of rule 46A of the Rules. We findthat the Rule 46A provides the manner in which theCIT(A) is authorized to admit and consider evidenceand material which was hitherto not before theAssessing Officer. It requires the CIT(A) to confrontthe material is question to the Assessing Officerbefore admitting and considering the same. In thiscase, evidently the material and other pleas taken bythe assessee before the CIT(A) were confronted tothe Assessing Officer. The Assessing Officer hasgiven his comments on each of the Grounds urgedbefore the CIT(A) by way of written communicationdated 08.09.2004, a copy of which has been placed inthe Paper-book. So however the argument of theRevenue is that the CIT(A) has not specificallyreferred to Rule 46A while calling for the comments ofthe Assessing Officer. In our considered opinion, thesaid argument is quite technical and does notsubstantively distract from the fact that the AssessingOfficer was very much in the know of the materialbeing relied upon by the assessee before the CIT(A).The spirit of Rule 46A is founded on the principles ofnatural justice which in the present case, in our view,stand fulfilled by the fact that the CIT(A) obtained andconsidered the remand report of the Assessing Officer with respect to the submissions and material led bythe assessee before adjudicating the issue beforehim. We therefore do not find any reasons to interferewith the conclusion drawn by the CIT(A) on this issue.Accordingly, the Revenue fails in this Ground. xxxxxxxxxx (d) Deduction of interest amount: 17. After considering the rival stands on this issue,in our view, the Assessing Officer has not appreciatedthe fact position in its proper perspective. Firstly, theexpenditure in question is incurred towards paymentof interest to bank on crop loans by way of whichsugarcane seed have been provided free of cost tothe farmers. The expenditure has been incurred ascane development expenditure to promote thecultivation of cane in the area. The recovery made bythe assessee from the defaulting farmers is not thedeterminant of the allowability of the impugnedexpenditure and it is here that the Assessing Officererred. The expenditure on amount of interest, in ourview, is not dehors the business of the assessee. Thesame has been justifiably held to be an allowableexpenditure by the CIT(A). The stand of the CIT(A) ishereby upheld and the Revenue fails on this Ground.xxxxxxxxxx (e) Penalty from growers was not income but meant fordistribution to other growers: 20.After considering the rival stands, we find thegrievance of the Revenue, as manifested in theGround of appeal is merely to the effect that the CIT(A) entertained a fresh explanation in violation of theprovisions of Rule 46A of the Rules. On this aspectthe fact position is identical to the fact position considered by us in Ground No.3 in the earlierparagraphs. For similar reasons, we uphold thedecision of the CIT(A) on this issue also. TheRevenue accordingly fails on this Ground. xxxxxxxxxx II. Issues on which matter has been remanded: (f) Rate of sale of molasses: (e) Penalty from growers was not income but meant fordistribution to other growers: 20.After considering the rival stands, we find thegrievance of the Revenue, as manifested in theGround of appeal is merely to the effect that the CIT(A) entertained a fresh explanation in violation of theprovisions of Rule 46A of the Rules. On this aspectthe fact position is identical to the fact position considered by us in Ground No.3 in the earlierparagraphs. For similar reasons, we uphold thedecision of the CIT(A) on this issue also. TheRevenue accordingly fails on this Ground. xxxxxxxxxx II. Issues on which matter has been remanded: (f) Rate of sale of molasses: 27.From the aforesaid it emerges that the assesseeitself conceded “that the sales of molasses weremade at rates lower than the market rate”. To thisfinding of the CIT(Appeals), there is no rebuttal by theassessee before us. Therefore, the implication is thatthe sale of molasses has been done by the assesseeat the rates lower than the market rates. Under suchsituation it becomes imperative for the assessee todemonstrate that the sales declared are complete andcorrect. We find that in order to verify the saidposition, the A.O. required the assessee to producematerial to explain the low rate of sales. Neitherbefore the Assessing Officer and nor before the CIT(A), the said material has been led by the assessee.No doubt, sales effected at rates lower than themarket rate by itself do not result into an addition butcertainly the same have to be satisfactorily explained.We, therefore, allow an opportunity to the assessee tolead evidence in this regard. The learned counsel forthe assessee has referred to the written submissionsin this regard which have been placed in the paperbook at pages 16-17, 55 to 92 and 388 to 392. Sohowever, the assessee is required to substantiate theexplanations on the basis of evidence and materialwhich is not on record. Hence our decision to setaside the order of the CIT(Appeals) and remand this issue to the file of the Assessing Officer to beadjudicated afresh in the light of the material with theassessee in support of its case. Therefore, on thisGround the assessee succeeds for statisticalpurposes. xxxxxxxxxx (g) Whether interest claimed was on loan advanced for nonbusiness purposes: 31.We have considered the rival submissionscarefully. At the outset it is observed that theassessee has incurred expenditure by way of intereston loans raised from the banks. It is also a fact thatthe assessee had advanced Rs.6,28,62,675/- tovarious concerns on which no interest was charged.The detail of such advances can be seen from para 8of the order of the CIT(Appeals). It is found that theassessee made advances to co-operative sugar millsin the past years which is doubtful of recovery and nointerest was charged either in this year or in theearlier years. Similarly, it is claimed that the advanceto farmers and to suppliers have also been madewhich is in the ordinary course of business of theassessee. It is observed from the orders of the lowerauthorities that there is no finding as to whether suchadvances were made for the purpose of business ornot. A finding on this aspect would be crucial for thereason that if the advances in question have beenmade the purposes of business, then Section 36(1)(iii)does not permit any disallowance of the nature madeby the Assessing Officer in this case. So however, ifthe advances are for considerations which areextraneous to business, the plea of the AssessingOfficer is justified in view of the judgement of the Hon’ble Punjab & Haryana High Court in the case ofAbhishekh Industries Ltd., 286 ITR 1 (P&H). We,therefore, set aside the order of the CIT(Appeals) anddirect the Assessing Officer to establish as to whetheror not the advances in question have been made forbusiness purposes or not. If the advances have beenmade for business purpose, no disallowance is calledfor. if the finding of the Assessing Officer is to thecontrary, then he shall be at liberty to pass any orderin accordance with law. Needless to say theAssessing Officer shall allow a reasonable opportunityto the assessee of being heard before passing anorder. Thus, for statistical purpose, on this Groundthe assessee succeeds. xxxxxxxxxx (h) Effect of amount remaining outstanding for long: 34. After hearing the rival stands we find that theissue in question requires to be factually re-appraised.Admittedly, amounts are outstanding for a fairly longperiod. The plea of the assessee is that the same isunder dispute in the Court of law and therefore thefinal adjustment shall be made on the settlement ofthe dispute. The said plea deserves to be examinedin the light of the material led by the assessee in thisregard. Therefore, for this purpose, we deem it fit andproper to set aside the order of the CIT(Appeals) anddirect the Assessing Officer to adjudicate the issueafresh after allowing the assessee a reasonableopportunity to substantiate the plea that the impugnedsums are subjudiced before the Court of law. Thus,on this ground the assessee succeeds for statisticalpurpose. xx xxxxxxxx (i) Issue of subsidy received: 36.On this aspect, after considering the rival standswe find that, in principle, the plea of the assessee issustainable, so however, whether or not the subsidyhas been claimed in terms of the scheme formulated,is required to be verified. For this purpose the issue isremanded to the file of the Assessing Officer to beexamined afresh. Thus, on this Ground the assesseesucceeds for statistical purpose.” 4. We have heard learned counsel for the appellant. 5. Contention raised on behalf of the appellant is thatsince the assessee led additional evidence for the first timebefore the CIT(A), the matter should have been remanded to theAssessing Officer instead of considering the said evidence by theappellate authority. Thus, questions (i) to (iv) should beanswered in favour of revenue. He further submitted that allowingfresh opportunity to the assessee as per paras 27, 31, 34 and 36was arbitrary and questions (v) and (vi) should be answered infavour of the revenue. Question (vii) being consequential shouldbe decided accordingly. 6. We are unable to accept the submission. It is notnecessary that when additional evidence is furnished, the mattermust be remanded to the Assessing Officer. It depends on natureof issue and nature of evidence. In an appropriate case, withoutany prejudice to either of the parties, the evidence can be lookedinto by the appellate authority itself. In such a case, it may not be 6. We are unable to accept the submission. It is notnecessary that when additional evidence is furnished, the mattermust be remanded to the Assessing Officer. It depends on natureof issue and nature of evidence. In an appropriate case, withoutany prejudice to either of the parties, the evidence can be lookedinto by the appellate authority itself. In such a case, it may not be necessary to remand the matter to the Assessing Officer. In thepresent case, as observed by the Tribunal in para 14 of its order,reproduced above, the material produced by the assessee to theCIT(A) was duly furnished to the Assessing Officer and hiscomments were taken by way of written communication whichwas due compliance of Rule 46A. The remand report of theAssessing Officer was duly considered by the CIT(A) on merits.The findings recorded by the CIT(A) have duly been consideredby the Tribunal. The finding of the Tribunal has not been shownto be erroneous on merits. The Tribunal held that no adverseinference could be drawn from low yield by suspecting theaccounts of the assessee. The accounts of the assessee wereduly audited by its own auditors as well as by the auditorappointed by the Registrar. The account books were dulymaintained in normal course of business. No discrepancy waspointed out in the records maintained. Mere fact that the yield ofthe assessee was not comparable to other yields, could not be aground to doubt the results declared by the assessee. There wasnothing to show that any sales were made outside the books ofaccount. Interest paid to the Bank was duly established.Expenditure incurred on development was also duly established.Same is the position on the issue of genuineness of sale rate,evidence regarding subscription, contribution and treatment ofpenalty amount. Questions (i) to (iv) have, thus, to be decidedagainst the revenue. As regards questions (v) and (vi) relating to rates of molasses non-recovery of the shortage amounts, the useof subsidy and expenditure by way of interest on loans raisedfrom the banks, the matter has merely been remanded to theAssessing Officer to ascertain the true facts. The remand is forvalid reasons mentioned in the order quoted above and noprejudice has been caused to the revenue. There is no illegalityin the course so adopted. 7. Accordingly, questions (v) to (vii) have to be decidedagainst the revenue. 8. There is, thus, no ground to interfere with the viewtaken by the Tribunal. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE January 06, 2011ashwani (AJAY KUMAR MITTAL) JUDGE