Co.op.sco.ltd v. Asstt.commi. Of Income Tax....opponent(S

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 245 of 2002 With TAX APPEAL NO. 246 of 2002 With TAX APPEAL NO. 247 of 2002 With TAX APPEAL NO. 248 of 2002 With TAX APPEAL NO. 408 of 2003 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ DUDH SAGAR DAIRY'S EMPLOYEES CREDIT & SUPPLY CO.OP.SCO.LTD....Appellant(s) Versus ASSTT.COMMI. OF INCOME TAX....Opponent(s) ================================================================ Appearance: MR JP SHAH, ADVOCATE for the Appellant(s) No. 1MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 11/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and orders passed by the Income Tax Appellate Tribunal, Ahmedabad ‘C’ Bench (hereinafter referred to as ‘the Tribunal’) dated 15.05.2002 in ITA Nos. 3321/AHD/1996, 3115/Ahd/1996, 1222/Ahd/1996, 3320/Ahd/1996 and order dated 18.10.2003 in 2258/Ahd/1997 for the Assessment Years 1994-95, 1993-94, 1992-93, 1991-92 and 1995-96 respectively, the revenue has preferred the present Tax Appeals for consideration of the following substantial questions of law in the following appeals: Tax Appeal No. 245 of 2002 : “ (1) Whether, on the facts and in the circumstances of the case, loss of Rs. 8,43,313/- incurred by the assessee in the sale of ghee to the members of the society and the sale of notebooks to their children in accordance with the resolution of the society is the loss allowable to the assessee in the computation of its total income and is not at all covered by section 40A(2) of the Income – tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 3,20,425/- expended after giving one presentation article to every member in accordance with the resolution of the managing committee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?” Tax Appeal No. 246 of 2002 : “ (1) Whether, on the facts and in the circumstances of the case, loss of Rs. 6,79,151/- incurred by the assessee in the sale of ghee to the members of the society and the sale of notebooks to their children in accordance with the resolution of the society is the loss allowable to the assessee in the computation of its total income and is not at all covered by section 40A(2) of the Income – tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 2,79,427/- expended after giving one presentation article to every member in accordance with the resolution of the managing committee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?” Tax Appeal No. 247 of 2002 : “ (1) Whether, on the facts and in the circumstances of the case, loss of Rs. 5,26,296/- incurred by the assessee (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 2,79,427/- expended after giving one presentation article to every member in accordance with the resolution of the managing committee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?” Tax Appeal No. 247 of 2002 : “ (1) Whether, on the facts and in the circumstances of the case, loss of Rs. 5,26,296/- incurred by the assessee in the sale of ghee to the members of the society and the sale of notebooks to their children in accordance with the resolution of the society is the loss allowable to the assessee in the computation of its total income and is not at all covered by section 40A(2) of the Income – tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 2,10,127/- expended after giving one presentation article to every member in accordance with the resolution of the managing committee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?” Tax Appeal No. 248 of 2002 : “(1) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 1,41,568/- expended after giving one presentation article to every member in accordance with the resolution of the managing committee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?” Tax Appeal No. 408 of 2003 : “ (1) Whether, on the facts and in the circumstances of the case, loss of Rs. 1,79,299/- incurred by the assessee Co-operative Society in the sale of notebooks to the children of the members, in accordance with the resolution of the society is an allowable loss? (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 3,47,136/- expended after giving one presentation article to every member in accordance with the resolution of the managing committee is an allowable business expenditure under section 37(1) of the Income-tax Act, 1961?” 2.The assessee is a co-operative society and during the assessment years in question, the Assessing Officer disallowed the assessee’s claim of disallowance of expenditure on ghee, notebooks as well as presentation to the members and/or their children. The assessee filed appeal before CIT(A) and the appellate authority deleted the addition made by the A.O and allowed the appeal. On appeal before the Tribunal by the revenue, the Tribunal set aside the order of CIT(A) and confirmed the findings of the A.O. Hence the assessee is before us by way of the present appeals. 3.Mr. Manish Shah, learned advocate appearing for the assessee in these appeals contended that the Tribunal erred in holding that though the society had in fact incurred loss in selling Ghee and note books to the members and their children respectively, the same is not allowable in the computation of its total income. He submitted that ghee was sold to the members at concessional rate only on two or three festive occasions in a year and not round the year. He submitted that the Tribunal also erred in holding that expenditure incurred in giving presents to the members is not an allowable business expenditure. 3.1Mr. Shah has also relied upon a decision of the Apex Court in the case of Madras Industrial Investment Corporation Ltd. vs. Commissioner of Income-Tax reported in 225 ITR 802 and submitted that question no. 2 in Tax Appeals No. 245 to 247 of 2002 and 408 of 2003 as well as the sole question in Tax Appeal No. 248 of 2002 are squarely covered by the said decision and therefore the same may be answered in favour of the assessee. 3.1Mr. Shah has also relied upon a decision of the Apex Court in the case of Madras Industrial Investment Corporation Ltd. vs. Commissioner of Income-Tax reported in 225 ITR 802 and submitted that question no. 2 in Tax Appeals No. 245 to 247 of 2002 and 408 of 2003 as well as the sole question in Tax Appeal No. 248 of 2002 are squarely covered by the said decision and therefore the same may be answered in favour of the assessee. 4.Mr. Mehta, learned advocate appearing for the revenue strongly supported the impugned orders passed by the Tribunal and submitted that in view of the observations made by the Tribunal in the impugned orders the expenditures incurred shall not be admissible under the Act. 5.Having heard learned advocates for the parties we are of the opinion that the assessee being a co-operative society has incurred the expenditure on ghee and notebooks as a part of welfare measure. As per resolution of the society, it was resolved that each members as well as employee of the society will be supplied one dozen note book at the sale price of Rs. 25 per dozen subject to the condition that not more than two dozen note books will be given to any member or employee of the society. Similarly, it was also resolved that concession be allowed to members of the society so far as ghee tins are concerned. We have also gone through the decision cited by the learned advocate for the asessee in the case of Madras Industrial Investment Corporation (supra). 5.1The Tribunal in paras 12(ii) has discussed the issue and observed as under: “(ii) Issue relating to Ghee and Note Books12.We have considered the rival contentions of the parties and perused the records and orders of the revenue authorities. This ground involves two issues. The first is sale of ghee on concessional price to members and employees and another issue is sale of note books to members on concessional rate. For the purpose of the first issue, the relevant provisions in the IT Act are sec. 37(1) and sec. 40A(2). After considering the totality of the facts, we are of the considered view that the first issue i.e. sale of ghee on concessional rate is neither covered by sec. 37(1) not a business loss, but it is covered by applicability of sec. 40A(2). Since the applicability of sec. 40A(2) has come for the first time before us and this issue was not before the revenue authorities, we consider it just and proper to send the matter to the file of the AO to decide the issue afresh in accordance with law after giving a reasonable opportunity of being heard to the assessee.” 5.2The Tribunal came to the conclusion that sale of ghee on concessional rate is neither covered u/s 37(1) nor a business loss but it is covered u/s 40A(2). We find that the Tribunal has wrongly invoked section 40(A)(2) of the Act. Section 40(A) (2) was for the first time invoked by the Tribunal. We are of the opinion that the Tribunal has committed an error in not allowing disallowance of expenditure incurred on sale of notebooks and ghee to the members of the society as allowance of such loss against business profit ought to have been permitted. The same is an allowable business expenditure. 6.In the premises aforesaid, we answer both the questions in favour of the assessee and against the revenue. The impugned order passed by the Tribunal is hereby set aside. The order passed by CIT(A) is confirmed. Appeals are allowed accordingly. divya (K.S.JHAVERI, J.) (K.J.THAKER, J)