The Principal Commissioner Of Income-Tax-Ii, Amritsar v. M/S The Gurdaspur Co-Operative Sugar Mills Ltd., Paniar, Gurdaspur

ITA No. 266 of 2015 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 266 of 2015 Date of Decision: 1.3.2016 The Principal Commissioner of Income-Tax-II, Amritsar ....Appellant. Versus M/s The Gurdaspur Co-operative Sugar Mills Ltd., Paniar, Gurdaspur ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? 3.Whether the judgment should be reported in the Digest?3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Mr. Denesh Goyal, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 19.2.2015 (Annexure A-3) passed by the Income TaxAppellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in ITA No. 474(ASR)/2014, for the assessment year 2010- 11, claiming the following substantial questions of law:- i)Whether on the facts and law the Hon'ble ITAT,Amritsar Bench, Amritsar is right in deletingaddition of ` 27,81,468/- as the same paymentwas in nature of fine/penalty for infraction ofAmritsar Bench, Amritsar is right in deletingaddition of ` 27,81,468/- as the same paymentwas in nature of fine/penalty for infraction of ITA No. 266 of 2015 law? ii)Whether on the facts and law the Hon'ble ITAT,Amritsar Bench, Amritsar is right in deletingaddition of ` 68,18,000/- on the ground that theRural Development Fund is not covered u/s 43Bof the Income Tax Act, 1961?Amritsar Bench, Amritsar is right in deletingaddition of ` 68,18,000/- on the ground that theRural Development Fund is not covered u/s 43Bof the Income Tax Act, 1961? iii)Whether on the facts and law the Hon'ble ITAT,Amritsar Bench, Amritsar is right in deletingaddition of ` 3,93,343/- cess payable to parentbody. However, the fact is that the said parentbody levies cess which is based on purchase/production of the member society. This amountis payable to sugarfed which is a GovernmentBody?Amritsar Bench, Amritsar is right in deletingaddition of ` 3,93,343/- cess payable to parentbody. However, the fact is that the said parentbody levies cess which is based on purchase/production of the member society. This amountis payable to sugarfed which is a GovernmentBody? 2.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filedits return of income on 30.9.2010 in the status of Cooperative Society(AOP) at nil income after adjusting the profit of ` 2,95,67,923/- withbrought forward loss. The said return was processed on 17.4.2011under Section 143(1) of the Act. The Assessing Officer framed theassessment under Section 143(3) of the Act vide order dated 19.3.2013(Annexure A-1) at an income of ` 1,63,05,901/- by making an addition of` 1,05,42,387/- on various accounts i.e., ` 5,29,890/- on account ofdisallowance of contribution to share redemption fund; ` 27,81,468/- onaccount of damages of Provident Fund; ` 68,18,000/- on account ofdisallowance of expenditure; ` 3,93,343/- on account of production cessunder Section 43B of the Act and ` 19,686/- on account of depreciation on agriculture implements. Feeling aggrieved, the assessee filed anappeal before the Commissioner of Income Tax (Appeals) [for brevity“the CIT(A)”]. The CIT(A) vide order dated 5.5.2014 (Annexure A-2)partly allowed the appeal of the assessee and deleted some of theadditions amounting to ` 99,92,811/-, i.e. ` 27,81,468/- on account ofpayment of damages of Provident Fund; ` 68,18,000/- on account ofinterest claimed by the assessee on Government Loan and RuralDevelopment Fund (RDF) Loan given by the Punjab Government toCooperative Sugar Mills and ` 3,93,343/- on account of production cess.Against the order, Annexure A-2, the revenue filed an appeal before theTribunal who vide order dated 19.2.2015 (Annexure A-3) upheld theorder of the CIT(A) and dismissed the appeal. Hence, the presentappeal. 3.After hearing learned counsel for the revenue, we do notfind any merit in the appeal. 4.The following additions made by the Assessing Officer anddeleted by the CIT(A) and upheld by the Tribunal arise for considerationin this appeal:- (i)addition of ` 27,81,468/- being the amount of damages recovered by provident funddepartment during the year;department during the year; (ii)disallowance of ` 68,18,000/- on account ofinterest claimed on RDF loan by invokingSection 43B of the Act; interest claimed on RDF loan by invokingSection 43B of the Act; (iii)disallowance of ` 3,93,343/- on account of cesspayable in view of Section 43B of the Act.payable in view of Section 43B of the Act. Taking up the first addition of ` 27,81,468/-, the CIT(A) had deleted the said addition by noticing that the assessee had neverclaimed expenses in the profit and loss account and, therefore, the samecould not be disallowed under the Act. The relevant findings recordedare quoted as under:- “A sum of ` 27,81,468/- has been added back onaccount of Provident Fund Damages recovered by theDepartment. It is submitted that this sum of` 27,81,468/- was never claimed by the assessee in P& L A/c. In fact it was shown as claims recoverable inthe Balance Sheet. As such there was no occasionfor the Assessing Officer to disallow the same. Thecopy of the Balance Sheet is enclosed to support thiscontention. The copy of A/c of claims recoverableappearing in Schedule VI is also enclosed. The copyof voucher is also enclosed.”account of Provident Fund Damages recovered by theDepartment. It is submitted that this sum of` 27,81,468/- was never claimed by the assessee in P& L A/c. In fact it was shown as claims recoverable inthe Balance Sheet. As such there was no occasionfor the Assessing Officer to disallow the same. Thecopy of the Balance Sheet is enclosed to support thiscontention. The copy of A/c of claims recoverableappearing in Schedule VI is also enclosed. The copyof voucher is also enclosed.” 6. The Tribunal affirmed it with the following observations:- ““9.We have heard the rival contentions andperused the facts of the case. As regards groundNo.1 with regard to the deletion of addition ofRs.27,81,468/- on account of Provident Funddamages recovered by the Provident FundDepartment during the year, the Assessing Officermade the assumption that the amount must havepassed through the Profit & Loss account and,therefore, the said amount was disallowed by the AO.On perusal of the balance sheet and profit & lossaccount on record, the said amount has never beenperused the facts of the case. As regards groundNo.1 with regard to the deletion of addition ofRs.27,81,468/- on account of Provident Funddamages recovered by the Provident FundDepartment during the year, the Assessing Officermade the assumption that the amount must havepassed through the Profit & Loss account and,therefore, the said amount was disallowed by the AO.On perusal of the balance sheet and profit & lossaccount on record, the said amount has never been ITA No. 266 of 2015-5- ITA No. 266 of 2015-5- claimed by the assessee in the P&L account. Thus,the AO is not justified in disallowing the same underthe Act. Accordingly, we find no infirmity in the orderof the ld. CIT(A), who has rightly deleted the additionmade by the AO. Thus, ground No.1 of the Revenueis dismissed. 7.Learned counsel for the revenue was unable to demonstratethat the conclusion of the CIT(A) and the Tribunal was erroneous orperverse in any manner. 8.Further, while deleting the addition of ` 68,18,000/- onaccount of interest claimed by the assessee on Government Loan andRDF Loan given by the Punjab Government to the Cooperative SugarMills, the CIT(A) held that the Assessing Officer had not provedanywhere as to how RDF is a Public Financial Institution covered underSection 43B(a) or 43B(e) of the Act and in view of the clear listpublished by the Government of Public Financial Institutions, RDF loanreceived from the Punjab Government could not be considered as PublicFinancial Institution. That being so, Section 43B of the Act was notapplicable. It was upheld by the Tribunal as under:- “9.1. As regards ground No.2 with regard to deletionof addition of Rs.68,18,000/- on account of interestclaimed by the assessee on Govt. Loan and RDF loangiven by the Punjab Government to Co-operativeSugar Mills, it was submitted before the Ld. CIT(A)that such loan does not fall under Section 43B(d) orsection 43B(e). The provision of section 43B(d)applies to Public Financial Institutions or State Financial Corporation or State Industrial DevelopmentCorporation. Such Public Financial Institutions areheld by the Government and with regard to section43B(e), the same covers loan taken from ScheduledBanks. Therefore, in view of the findings given by theAO himself that RDF is a Govt. body, constitutedunder Punjab Rural Development Act, 1987, and inthe absence of anything on record by the AO that howRDF is a Public Financial Institutions, we find noinfirmity in the order of the ld. CIT(A) that the saidRDF cannot be considered as a Public FinancialInstitution and accordingly section 43B(d) & section43B(e) are not applicable. Therefore, in the facts andcircumstances of the case, we find no infirmity in theorder of the Ld. CIT(A), who has rightly deleted theaddition so made by the AO. Thus, ground No.2 ofthe Revenue is dismissed.” 9.No infirmity or illegality could be pointed out by the learnedcounsel for the revenue so as to call for interference by this Court. 10.Adverting to deletion of addition of ` 3,93,343/- on accountof cess, the CIT(A) observed that the production cess collected by M/sSugarfed was utilized for the benefit of Cooperative Sugar Mills and,therefore, could not be disallowed under Section 43B of the Act beingnot covered under Section 43B(a) of the Act. Accordingly, the CIT(A)deleted the aforesaid additions made by the department which on appealwere affirmed by the Tribunal by recording as under:- “9.2. As regards ground No.3 of the Revenue with regard to deletion of addition of Rs.3,93,343/- onaccount of 'Cess' collected by M/s Sugarfed byapplying provision of section 43B, it was submittedbefore the ld.CIT(A) and before us that M/s Sugarfedis a parent body which collects 'cess' from all SugarMills and cess is not a tax or a levy but it is acontribution to its parent body. It is utilised for the useof Co-operative Bodies. Accordingly, we do not findany infirmity in the order of the ld. CIT(A), deletingsaid addition, since the same is not covered u/s 43Bof the Act. Accordingly, ground No.3 of the Revenueis dismissed.” “9.2. As regards ground No.3 of the Revenue with regard to deletion of addition of Rs.3,93,343/- onaccount of 'Cess' collected by M/s Sugarfed byapplying provision of section 43B, it was submittedbefore the ld.CIT(A) and before us that M/s Sugarfedis a parent body which collects 'cess' from all SugarMills and cess is not a tax or a levy but it is acontribution to its parent body. It is utilised for the useof Co-operative Bodies. Accordingly, we do not findany infirmity in the order of the ld. CIT(A), deletingsaid addition, since the same is not covered u/s 43Bof the Act. Accordingly, ground No.3 of the Revenueis dismissed.” 11.The CIT(A) and the Tribunal on appreciation of material onrecord have deleted the aforesaid additions made by the AssessingOfficer. Learned counsel for the revenue was not able to establish thatthe approach of the CIT(A) and the Tribunal was erroneous or perverseor that the findings of fact recorded were based on misreading ormisappreciation of evidence on record. The view of the CIT(A) and theTribunal is a plausible view and deletion of the aforesaid additions wasjustified. 12.In view of the above, no substantial question of law arises inthis appeal. Accordingly, the instant appeal is dismissed. (AJAY KUMAR MITTAL)JUDGE March 1, 2016 gbs (RAJ RAHUL GARG)JUDGE