Market Committee, Gohana v. Assistant Commissioner Of Income Tax, Sonipat Circle, Sonipat

1 2Q74:PHHC:004741-DB IN THE HIGH COURT OF PUNJAB AND HARYANA|AT CHANDIGARH 204 J2Q74:PHHC:004741-DB ITA No.244 of 2011 andITA No.512 of 2017Date of Decision:18.01.2024 Market Committee, Gohana .....Appellant(s) Versus Assistant Commissioner of Income Tax, Sonipat Circle, Sonipat ...Respondent(s) CORAM: HON'BLE MR. JUSTICE G.S.SANDHAWALIAHON'BLE MS. JUSTICE LAPITA BANER JI Present:Mr. Rajesh Garg, Sr. Advocate,with Ms. Neha Matharoo, Advocate,and Mr. Mandeep Singh, Advocate,for the appellant Gn ITA-244-2011). Ms. Gauri Neo Rampal Opal, Sr. Standing Counsel,for the appellant (in ITA-512-2014),for the respondent-Department (in ITA-244-2011), Mr. S.K. Mahajan, Advocate,for the respondent-M.C., Gohana (in ITA-512-2017). G.S.SANDHAWALITA, J 1]The present judgment shall dispose of two appeals 1.e. ITA No,244 of 2011 and ITA No. 512 of 2017. | Facts of ITA No.244 of 2011 2 ITA No.244 of 2011 has been filed under Section JO0A of theIncome Tax Act, 1961 (in short 'the Act') against the order passed by theIncome Tax Appellate Tribunal, Delhi Bench in ITA No.1831/Del/2010 dated31.08.2010 (Annexure A/3) wherein the Tribunal has allowed the appeal ofShivani Gupta2024.01.19 12:57I attest to the accuracy andthe. Revenue and set aside the order of the Commissioner, Income Taintegrity of this document 2Q74:PHHC:004741-DB wherein the deletion of Rs.2,81,33,700/- was made for the assessment year2007-08 and restored the order of the Assessing Officer dated 30.11.2009(Annexure A-I) for the assessment year 2007-08. 3]The reasoning which prevailed with the Tribunal was that it wasa payment of loan taken from the Haryana State Agricultural MarketingBoard (in short 'the Board') and had been used for spending on repair work ofMandi-construction and repairs of various rural roads and development ofMandisand, therefore, the expenses incurred were not out of the own fundsbut out of borrowed funds. Resultantly, the Tribunal was of the opinion thatmaking repayment of such borrowed funds and claiming deduction asapplication of income was claiming double deduction for the sameexpenditure and, therefore, the appellant (Committee herein) was not eligiblefor double deduction on account of the same expenditure incurred based onthe construction of rural roads and development of|Mands. 4The appeal was admitted on 07.05.2012 on the followingsubstantial question of law:- “()Whether the learned Income Tax Tribunalhas gravely erred in law in maintaining thedisallowance ofRs.2,81,33,700/- on the ground that it 1sa repayment of loan to Haryana Mandi Board whereasfrom the record it 1s lucid that the payment was madefor achievement ofobjects prescribed under the Act.” 5 A perusal of the paper book would go on to show that return ofincome under the Act was filed on 29.10.2007 claiming exemption underSection Il of the Act which was duly processed under Section 143 on27.02.2008. The case was selected tor compulsory scrutiny under theShivani Gupta2024.01.19 12:57I attest to the accuracy and(BDT's Instructions. Notice dated 19.03.2008 under Section 143(2) of theintegrity of this document ITA No.244 of 2011 and ITA No.512 of 2017 , 2Q74:PHHC:004741-DB 5 A perusal of the paper book would go on to show that return ofincome under the Act was filed on 29.10.2007 claiming exemption underSection Il of the Act which was duly processed under Section 143 on27.02.2008. The case was selected tor compulsory scrutiny under theShivani Gupta2024.01.19 12:57I attest to the accuracy and(BDT's Instructions. Notice dated 19.03.2008 under Section 143(2) of theintegrity of this document ITA No.244 of 2011 and ITA No.512 of 2017 , 2Q74:PHHC:004741-DB Act and under Section 142(1) dated 21.05.2009 were issued and served andthe authorized representatives accordingly attended the proceedings andproduced the books of accounts. The assessment was then framed underSection 143(3) of the Act on 30.11.2009 and the assessee claimed therepayment of liabilities of Rs.2,81,33,700/- as application of income whichwas construed as repayment of loan taken from the Marketing Board forconstruction of rural roads and development of Mandis.The AssessingOfficer came to the conclusion that the assessee had not shown increase in theamount of loan taken from the Board while calculating its income in relevantyears and, therefore, discharge of liability of loan was not allowable forapplication of fund to the assessee. Reliance was placed upon the judgmentof the Apex Court in.Escorts Ltd. and another vs. UOI and others, 199 ITR4>that double deduction for an item should not be inferred and, therefore, thepayment of liability of old loan was not allowed as application of income andpenalty proceedings under Section 271(1)(c) of the Act were also initiated forclaiming inaccurate expenditure and concealment of income ofRs.2,81,33,700/-. Facts of ITA No.512 of 2017 6.ITA No. 512 of 2017 has been filed by the Revenue which arisesout of the order of the Tribunal dated 28.03.2017 (Annexure A-IV) wherein,it was held that it does not amount to filing of inaccurate particulars and thesame were present before the Assessing Officer during the assessmentproceedings and it was not a valid reason for passing the penalty order whenthe same was properly disallowed by the Assessing Officer and afterverifying the relevant records. Thus, a finding was recorded that the assessee|Shivani Gupta2024.01.19 12:57I attest to the accuracy andintegrity of this document ITA No.244 of 2011 and ITA No.512 of 2017 A 2Q74:PHHC:004741-DB had not furnished any inaccurate particulars and the Assessing Officer as wellas the Commissioner of Income Tax were incorrect in holding to that effectand resultantly, the appeal of the assessee had been allowed and the penaltyof Rs.1,19,26,437/- was deleted which had been imposed vide order dated28.03.2011 (Annexure A-II) and upheld by the Commissioner on 31.10.2011(Annexure A-III). The Revenue is, thus, in appeal against the said reasoning|of the Tribunal which had been ordered to be heard with the appeal filed bythe Market Committee. | Our Findings ITA No.244 of 2011 and ITA No.512 of 2017 A 2Q74:PHHC:004741-DB had not furnished any inaccurate particulars and the Assessing Officer as wellas the Commissioner of Income Tax were incorrect in holding to that effectand resultantly, the appeal of the assessee had been allowed and the penaltyof Rs.1,19,26,437/- was deleted which had been imposed vide order dated28.03.2011 (Annexure A-II) and upheld by the Commissioner on 31.10.2011(Annexure A-III). The Revenue is, thus, in appeal against the said reasoning|of the Tribunal which had been ordered to be heard with the appeal filed bythe Market Committee. | Our Findings vaThe Commissioner had come to the conclusion vide order dated05.02.2010 (Annexure A/2 in ITA No. 244 of 2011) that the sources ofincome of the Market Committee were specified and the items on which theincome is to be applied are also mentioned in the Act. The amount had beenpaid to the Board for the expenditure which the Board had incurred on behalfof the Market Committee and the same was allowable as application ofincome and, therefore, the addition made by the Assessing Officer had beendeleted. The same was done by accepting the argument that the source ofincome of the Committee is from license fee, market fees and sale of plotsand the expenditure is made on the items mentioned under Section 28 of thePunjab Agricultural Produce Markets Act, 1961 (in short ‘the Markets Act’),The Board was carrying on the activity in the notified area of the MarketCommittee and had incurred an expenditure which otherwise the MarketCommittee would have incurred and the same is shown as liability in theaccounts of the Market Committee and when the amount is returned to theBoard by the Market Committee, the liability is reduced to that extent in theShivani Gupta2024.01.19 12:57I attest to the accuracy andintegrity of this document 5 2Q74:PHHC:004741-DB books. The money had been spent to achieve the objects of the Act and theaction of the Assessing Officer was, thus, not held to be in order which hasbeen apparently wrongly as such set aside by the Tribunal. 8 It is not disputed that the assessee-Market Committee is applyingits funds as per the statutory provisions provided under the Markets Act,Section 28 of the said Act reads thus:- “28. Purposes for which the market committeefunds may be expended.- Subject to the provisionsofSection 27, the Market Committee funds shall beexpendedfor thefollowing purposes:(i) acquisition ofsitesfor the market; (ii) maintenance and improvement ofthe market; (i111) construction and repair of buildings which arnecessary for the purposes of the market and for thehealth, convenience and safety ofthe persons using it;(iv) provision and maintenance ofStandard weights andMe€aASUTES (v) pay, leave allowances, gratuities, compassionateallowances and contributions towards leave allowances,compensation for injuries and death resulting fromaccidents while on duty, medical aid, pension orprovident fund of the persons employed by thecommittee ; (v1) payment of interest on loans that may be raisedforpurposes of the market and the provisions of a sinkingfund in respect ofsuch loans ; (vil) collection and dissemination of informationregarding all matters relating to crop Statistics andmarketing in respect of the agricultural produceconcerned ; 2Q74:PHHC:004741-DB (vill) providing comforts and facilities, such as shelter,shade, parking accommodation and water for thepersons, drought cattle, vehicles and pack animalscoming or being brought to the market or onconstruction and repair of link roads, approach roads,culverts, bridges and other such purposes , (ix) expenses incurred in the maintenance of the officesand in auditing the accounts ofthe committees ; (x) propaganda in favour of agricultural improvementsand thrift ; (x1) production and betterment ofagricultural produce ;(xil) meeting any legal expenses incurred by theCommittee ; (xi1l) imparting education in marketing or agricultural ; 2Q74:PHHC:004741-DB (vill) providing comforts and facilities, such as shelter,shade, parking accommodation and water for thepersons, drought cattle, vehicles and pack animalscoming or being brought to the market or onconstruction and repair of link roads, approach roads,culverts, bridges and other such purposes , (ix) expenses incurred in the maintenance of the officesand in auditing the accounts ofthe committees ; (x) propaganda in favour of agricultural improvementsand thrift ; (x1) production and betterment ofagricultural produce ;(xil) meeting any legal expenses incurred by theCommittee ; (xi1l) imparting education in marketing or agricultural ; (xiv) payments of travelling and other allowances to themembers and employees of the committee, asprescribed; (xv) loans and advances to the employees ; (xv1) expenses ofand incidental to elections ; and (xvil) with the previous sanction of the Board, any otherpurpose which is calculated to promote the generalinterest of the committee or the notified market area orwith the previous sanction of the State Government, anypurpose calculated to promote the national or publicinterest.” Q A perusal of the above said provision would go on to show thatthe purposes for which the funds are available are for the maintenance andimprovement of the Market Committees which are necessary tor the purposesof the existing market and for the health, convenience and safety of thepeEsONS using it. The Market Committee is vested with the responsibility of ITA No.244 of 2011 and ITA No.512 of 2017 7 2Q74:PHHC:004741-DB effecting improvements besides ensuring that there is repair and maintenanceof the existing infrastructure and the whole purpose as such is to providebetter facilities in the rural areas and for the safety, health and convenience ofpersons who visit the market area for the sale of agricultural produce and forthe general interest of the persons associated with the activities connectedtherewith. Section 26 of the Markets Act further provides the purpose forwhich the market development fund may be expended by the MarketingBoard whereas Section 27 provides that part of the funds earned by a MarketCommittee has to pay to Marketing Board as contribution and the same canbe utilized by the Marketing Board for the purposes enumerated in theStatute. The said Sections reads thus:-| >26. Purpose for which the market developmentfund may be expended.The marketing developmentfundshall be utilised out offollowing purposes: (i) better marketing ofagricultural produce ; (ii) marketing of agricultural produce on co-operativelines ; (iii) collection and dissemination of market rates andIlEWS (iv) grading and_ standardisation of agriculturaproduce; (v) general improvements in the markets or_ theirespective notified market areas; (vi) maintenance of the office of the Board andconstruction and repair of its office buildings, rest-house and staffquarters ; (vil) giving aid to financially weak committees in theshape ofloans and grants ; 2Q74:PHHC:004741-DB (vila) repayment of loans and payment of interestthereon. (vill) payment of salary, leave allowance, gratuity,|compassionate allowance, compensation for injuries ordeath resulting trom accidents while on duty, medicalaid, pension or providentfund to the persons employedby the Board and leave and pension contribution toGovernment servants on deputation ; (ix) travelling and other allowances to the employees ofthe Board, its members and members of advisorycommittees ; (x) propaganda, demonstration and publicity in favourofagricultural improvements, (x1) production and betterment ofagricultural produce;(xil) meeting any legal expenses incurred by the Board;(xill) imparting education in marketing or agriculturedirectly by the Board or through Punjab AgriculturalUniversity, Ludhiana or other body as may be specifiedby the State Government by notification. (xiv) construction of godowns and construction orrepair of link roads, approach roads, culverts, bridgesand other such purposes, (ix) travelling and other allowances to the employees ofthe Board, its members and members of advisorycommittees ; (x) propaganda, demonstration and publicity in favourofagricultural improvements, (x1) production and betterment ofagricultural produce;(xil) meeting any legal expenses incurred by the Board;(xill) imparting education in marketing or agriculturedirectly by the Board or through Punjab AgriculturalUniversity, Ludhiana or other body as may be specifiedby the State Government by notification. (xiv) construction of godowns and construction orrepair of link roads, approach roads, culverts, bridgesand other such purposes, (xv) loans and advances to the employees; (xvi) expenses incurred in auditing the accounts of theBoard; (xvii) with the previous sanction of the _ StaGovernment, any other purposes which 1s calculated topromote the general interests of the Board and thecommittee or the national or public interest. Provided that if the Board decides to give aid of morethan five thousands rupees to a _ financially we 2Q74:PHHC:004741-DB committees under Clause (vii), the prior approval of theState Government to such payment shall be obtained. 27 Market Committee Fund (1) All moneys received by a Committee shall bepaid into a fund to be called the Market CommitteeFund and all expenditure incurred by the Committeeunder or for the purposes of this Act shall be defrayedout of such fund, and any surplus remaining after suchexpenditure has been met shall be invested in suchmanner as may be prescribed. (2)(a) Every Committee shall, out of its funds payto the Board as contribution such percentage of itsincome derived from licence fee, market fee and fineslevied by the Courts as is specified below to defrayexpenses of the office establishment of the Board andsuch other expenses incurred by it in the interest of theCommittees generally and also pay to the StateGovernment the cost of any special or additional staffemployed by the State Government in consultation withthe Committee for giving effect to the provisions of thisAct.| I [() ifthe annual income ofa Twenty per centumCommittee does not exceedRs. 20,00, 000 (ii) if the annual income of a Committee exceeds Rs.20,00, 000; (a) on thefirst ofRs. 20,00, 000/- Twenty per centum(b) on the next Rs. 20,00,000/- Forty per centum and(c) on the remaining incomeFifty per centum/. (b) The State Government shall determine the costof such special or additional staff and shall, where the 2Q74:PHHC:004741-DB staff is employed for the purposes of more Committeesthan one, apportion such cost among the Committeesconcerned in such manner as it thinks fit. The decisionof the State Government determining the amountpayable by any committee shall befinal.” 10.Thus, the role as such of the Market Committee is to utilize itsfunds for allied purposes and it is inter linked with the Marketing Board assuch as well and the responsibility of the Marketing Board is also to collectinformation in connection with agricultural activities besides the function ofeducating agriculturists so that they can get better yields and higher returnsand, therefore, market development fund is also to be used for constructionof link roads, approach roads, culverts and bridges, which is part of thewelfare activities which is done by the two agencies. The appellant, in orderto show that the said action was erroneously taken as a repayment of loanamount, has given the details of the progressive payments given to theHaryana State Agricultural Marketing Board from the year 2006 onwards tillthe year 2009. The said table reads thus:- ITA No.244 of 2011 and ITA No.512 of 2017 1] 2Q74:PHHC:004741-DB ITA No.244 of 2011 and ITA No.512 of 2017 1] 2Q74:PHHC:004741-DB 11)It is the case of the assessee that it had a opening balance ofRs.5,78,74,454/- which had been carried forward and a payment ofRs.4,50,00,000/- had been made to the Apex Body on account ofdevelopment works. The necessary receipts showing the payments madehave also been appended as Annexures A-5 to A-8 wherein, the sum of theabove said amount was disbursed in four installments on account ofdevelopment works and the receipts have been issued by the Haryana StateAgricultural Marketing Board which are dated 21.06.2006, 22.09.2006,08.03.2007 and 22.08.2006. The said receipts would go on to show that thesaid amounts were deposited for development works. It was accordinglypointed out that as per the table, the Board had incurred expenditure ofRs.1,68,66,300/- on development works on account of the assessee. For theassessment year in question, an excess payment of Rs.2,81,33,700/- had beenmade and, thus, it was the case of the assessee that the excess payment hadbeen made of the said amount leaving a balance of Rs.8,60,08,154/- towardsShivani Guptadevelopment works which was carried forward to the next financial year2024.01.19 12:57I attest to the accuracy andintegrity of this document ITA No.244 of 2011 and ITA No.512 of 2017 12 2Q74:PHHC:004741-DB 2008-09. The balance sheet was also appended in support of the said casewhich had been appended with the return of income duly attested by theChartered Accountant wherein, the sum of Rs.8,60,08,154/- was shown ascapital works. 12.Thus, it is apparent that the findings recorded by theCommissioner of Income Tax (Appeals) were correct to the extent that thepayment was made by the assessee to the Marketing Board towards theStatutory functions of application of money for the objects provided in theStatute and it was not for repayment of any loan and, therefore, both theAssessing Authority and the Tribunal wrongly came to the said conclusionregarding this aspect. It is in such circumstances we are of the consideredopinion that the Tribunal has wrongly reversed the well reasoned orderpassed by the Commissioner of Income Tax and the record as such would goon to show that the payment which was made was for the achievement of theobjects prescribed under the Act and, therefore, the disallowance could nothave been done on the ground that it was a loan to the Marketing Board,Rather, it was the expense as such for the purpose given in the objects of theAct as such and, therefore, the Assessing Officer was wrong in holding that itwas a payment of liability of old loan. Conclusion 13.Resultantly, we allow ITA No. 244 of 201 filed by the Assesseeand restore the order of the Commissioner dated 05.02.2010 (Annexure A/2in ITA No. 244 of 2011) by answering the substantial question of law in itsfavour on the basis of the material placed on record that the disallowancemade was on a wrong reasoning. Accordingly, as a consequential effect, theShivani Gupta2024.01.19 12:57I attest to the accuracy andintegrity of this document ITA No.244 of 2011 and ITA No.512 of 2017 13 2Q74:PHHC:004741-DB appeal filed by the Revenue i.e. ITA No. 512 of 2017 whereby penaltyproceedings were initiated is liable to be dismissed and is accordingly orderedas such. (G.S. SANDHAWALIA)JUDGE 18.01.2024shivani (LAPITA BANERJI)JUDGE Whether reasoned/speakingWhether reportable YesYes