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Income Tax Appellate Tribunal, “B” BENCH, PUNE
BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND G.D. PADMAHSHALI, ACCOUNTANT MEMBER (Assessment Year: 2013-14) M/s. Sant Damaji Sahakari ACIT, Circle -1 Sakhar Karkhana Ltd. Aaykar Bhavan A/P. Mangalwedha Vs. Hotgi Road Tal. Mangalwedha Solapur 413003 Dist. Soalpur 413305 PAN –AAATS5265K Appellant Respondent Appellant by: None Respondent by: Shri Sardar Singh Meena Date of Hearing: 17.08.2022 Date of Pronouncement: 26.08.2022 O R D E R
Per S.S. Godara, JM
This assessee’s appeal for AY 2013-14 arises against the CIT(A) 7, Pune’s order dated 25.10.2017 passed in case No. PN/CIT (A)-7/Cir-1/10570/2016- 17, involving proceedings under Section 143(3) of the Income Tax Act, 1961 (in short the Act).
Case called twice. None appeared at assessee’s behest. It is accordingly proceeded ex-parte.
The assessee raises the following substantive grounds in the instant appeal: - “1. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals) - 7, Pune has erred in disallowing and adding back and amount of Rs.32,25,36,699/- on account of Excess Cane price to paid to members & non members. 2. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals) - 7, Pune has erred in disallowing and adding back and amount of Rs.98,65,166/- on account of Sugar Sale at Concessional rate.
M/s. Sant Damaji Sahakari Sakhar Karkhana Ltd.
On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals) - 7, Pune has erred in disallowing and adding back and amount Rs. 1,06,94,050/- on account of Cash payment made to employees made u/s. 40(A)3 of Income Tax Act 1961.
4. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals) - 7, Pune has erred in disallowing and adding back and amount Rs.59,13,350/- on account of Bigar Pavati Kharch i.e. Expenses. 5. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals) - 7, Pune has erred in disallowing and adding back an amount Rs. 1,72,16,145/- on account of Income was not offered for Tax belong to Cattle camps/ fodder depot.” 3. It emerges at the outset that the assessee’s former twin substantive grounds of excess cane price paid to members/non members as well as sale of sugar at concessional rate to them; involving disallowances of Rs.32,25,36,699/- and Rs. 98,65,166/-; respectively, are no more res-integra as the tribunal’s coordinate bench’s recent order in The Malegaon Sahakari Sakhar Karkhana Ltd. vs. ITO dated 11.10.2021 has restored the same back to the Assessing Officer for his afresh appropriate adjudication. Ordered accordingly. This assessee’s former twin substantive ground Nos. 1 & 2 are allowed for statistical purposes on the very terms.
Next comes the third substantive issue of Section 40(A)(3) cash payment disallowance amounting to Rs.1,06,94,050/- made by the assessee to it’s employees. Learned CIT-DR could hardly dispute that both the lower authorities have rejected the assessee’s impugned claim regarding regular salaries paid to employees only without even questioning the overwhelming genuineness element embedded therein. Mr. Meena quoted Attar Singh Gurmukh Singh vs ITO (1991) 191 ITR 667 (SC) and Rule 6DD of Income Tax Rules in support of the impugned disallowance. He could hardly rebut the fact that case law Anupam Teleservices Ltd. vs ITO (2014) 366 ITR 122 (Guj) has dealt with the similar question of regular & continuing relationship between payer and payee to conclude that such an overwhelming genuine instance of cash payment does not attract Section 40A(3) of the Act. We thus conclude that both the lower authorities have erred in law and on facts in M/s. Sant Damaji Sahakari Sakhar Karkhana Ltd.
disallowing assessee’s impugned salary payments under Section 40A(3) of the Act. The same is directed to be deleted.
Next comes assessee’s fourth substantive ground seeking to reverse both the lower authorities action making “Bigar Pavati Kharch” expenses of Rs.59,13,350/-. Mr. Meena strongly argued that the assessee could not file even basic supportive documents and expenditure vouchers in support of the impugned claim. The fact also remains that this assessee is running a sugar factory procuring sugarcane from remote rural areas involving various overhead expenses. That being the case, such cash expenditure cannot be altogether ruled out. We also deem it appropriate to observe that it was indeed imperative for the assessee as well to file at least some supportive documentary evidence. Faced with this situation, we hold that a lump sum disallowance @ 20% of the assessee’s impugned claim would be just and proper with a rider that the same will not be treated as a precedent. Ordered accordingly. The assessee partly succeeds in the instant fourth substantive ground.
Lastly comes cattle camps/fodder depot income of Rs.1,72,16,145/- made in the course of assessment as upheld in the CIT(A)’s order as under: -
9.3 I have carefully considered the facts of the case and law apparent from the records. The AO observed that the assessee was running cattle camps and fodder depot during the drought period. The assessee purchase fodder (sugarcane) and supplied to government cattle camps/fodder depots. The AO observed that the assessee has received compensation @ Rs. 2,000/- per tone from government whereas the assessee paid Rs. 1,500/- to Rs. 1,850/- to farmers. The assessee did not show any profit from this activity of cattle camp/fodder depots. The AO sought explanation of the assessee that income derived from camps at Rs.34,50,618/- and Rs. 97,91,319/- for depots. The assessee submitted that the final entry has not been passed in books of accounts as Chara Chavni claims are doubtful. The appellant/assessee is submitted that Amant Account is maintained and in balance sheet shown as other payable schedule. The AO rejected the explanation of the assessee being as vague and unclear. The assessee is following mercantile system of accounting and therefore, Rs. 1,72,16,145/- were added by the AO to the total income of assessee. 9.4 During the appellate proceedings the appellant reiterated its stand. The appellant submitted that a sum of Rs. 1,72,16,145/- which is payable to supplied has been added by AO. The appellant submitted
M/s. Sant Damaji Sahakari Sakhar Karkhana Ltd. that during the year this is not income of assessee/appellant. The appellant further submits that in IT return for A.Y. 2016-17 the assessee has declared total income of Rs. 3,73,36,087/- in schedule 7 of other income for the profit of Chara Chavni. 9.5 Ostensibly, the appellant has received more amount from the government then the payment made to farmer for purchase of sugarcane and thereby earned profit from activity of the Chara Chavni/depot. The AO computed income of the assessee at Rs. 1,72,16,145/- which appellant claims that the amount is reflected payable in the balance sheet. The appellant has declared income of Rs. 3,73,36,087/- on Chara Chavni/depot in A.Y. 2016-17. The appellant is maintaining books of account and following the mercantile system of accounting. Therefore, undoubtedly, the income/profit has accrued even A.Y. 2013-14. The appellant cannot get itself absolved by declaring income in A.Y. 2016-17 by taking plea that the accounts were not clear in A.Y. 2013-14 and lots of claim were doubtful resulting into non-passing of final entry in books of account. This shows that the income has accrued to the appellant during the year under consideration and income cannot be shifted to A.Y. 2016-17 in the name of finalization of entries. The Supreme Court in case of Commissioner of tax v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, 148 (SC), observed: "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account". In case of appellant the income has accrued from activity of Chara Chavni/depot which has not been shown by the appellant in the books of account. Later on the appellant itself has declared income from such activity. Therefore, the income accruing/arising during the year under consideration has to be taxed during the concerned assessment year only. The appellant has not demonstrated that how there is no income accrued during the year under consideration despite of the Chara Chavni activity. Therefore, computation of the AO in respect of profit from Chara Chavni/depot cannot be faulted with. Accordingly, the action of the AO in making addition of Rs. 1,72,16,145/- on account of Income was not offered for Tax belong to Cattle camps / fodder depot is upheld and ground No. 6 of the appeal is dismissed. 9.6 The appellant is at liberty to claim relief if any on account of addition made in A.Y. 2013-14 on account of Chara Chavni/depot in A.Y. 2016-17.
M/s. Sant Damaji Sahakari Sakhar Karkhana Ltd.
We have given our thoughtful consideration to Revenue’s vehement arguments in support of the impugned addition. It has come to record that the very income stands assessed in AY 2016-17. Mr. Meena vehemently argued that both the lower authorities have rightly invoked the assessee’s mercantile system wherein it is supposed to recognise the impugned surplus involving fodder depot income in AY 2013-14 only. All these Revenue’s arguments failed to evoke our concurrence. It has come on record that the impugned surplus had come to the assessee from the fodder grants received from the state government without any clear cut indication about the income element embedded therein. We thus quote Chaiunrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) that the principles of conservative accountancy indeed permit an assessee to recognise the anticipatory losses at the first sign of reasonable probability but the same principle does not apply regarding anticipated profits which have to be booked at the first sign of reasonable certainty only. Faced with this situation, we conclude that both the lower authorities have erred in law and on facts in making the impugned cattle camps/fodder depot addition amounting to Rs.1,72,16,145/- in assessee’s hands. The same is directed to be deleted. Necessary computation shall follow.
This assessee’s appeal is partly allowed in above terms.