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Income Tax Appellate Tribunal, DELHI BENCH ‘H’ : NEW DELHI
Before: SHRI S.V. MEHROTRA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Assistant Commissioner of Income-tax, Circle – 2, Meerut (hereinafter referred to as the ‘revenue’), by filing the present appeal sought to set aside the impugned order dated 31.12.2013 passed by the Commissioner of Income-tax (Appeals), Meerut qua the assessment year 2009-10 on the grounds, inter alia, that :-
“1. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) is justified in deleting the addition of Rs.2,24,90,645/- made on account of difference in the sales price of sugar between that of the assessee and of another entity located in the same area and adopting the average rate of sugar sold by that entity for determining the sale value of sugar sold by the assessee.
2. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) is justified in deleting the addition of Rs.2,11,04,197/- made on account of low yield of sugar.
Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) is justified in deleting the addition of interest accrued and due on loans from the public financial institutions, to the tune of Rs.8,50,94,998/-, that was not paid before the due date for filing of return, u/s 43B(d) of the I.T. Act, 1961.
4. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) is justified in deleting the addition of Rs.14,39,583/- made on account of outstanding old sundry creditors.
5. That the appellant craves leave to add, modify and/or delete any ground(s) of appeal.
In the facts and circumstances of the case, the order of the Commissioner of Income-tax (Appeals), Meerut, may be set aside and that of the A.O. restored.”
Briefly stated facts of this case are : assessee’s case was subject to scrutiny and consequently notices under section 143 (2) and 142 (1) of the Income-tax Act, 1961 (hereinafter ‘the Act’) were issued and consequently, Shri Premjeet Kashyap CA and Shri Ajay Kumar, CA attended the proceedings, produced books of accounts and case was also discussed with them. Assessee is into the business of production and trading of sugar. The AO taking note of the average selling low rate and low yield of the sugar of the assessee in comparison to Ramala Sahakari Chini Mills Ltd. called upon the assessee to explain as to why the average selling rate and average yield of Ramala Sahakari Chini Mills Ltd. and SBEC Sugar Ltd. should not be applied. The AR of the assessee relied upon his account books and has not preferred to furnish any additional explanation. The AO by applying the average selling rate and yield of sugar of Ramala Sahakari Chini Mills Ltd. came to the conclusion that if the fixed price of the sugar and the price of the sugar taken into account, the average sale price of the sugar sold by the assessee should have been similar to the sale price of Ramala Sahakari Chini Mills Ltd. and thereby made an addition of Rs.2,24,90,645/- i.e. on account of difference of sale price. Similarly, the AO made the comparison of per quintal yield of the sugarcane of the assessee with Ramala Sahakari Chini Mills Ltd. and noticed the difference of yield to the extent of 0.33% and observed that the assessee has shown sugar production less by 12,229 quintal and consequently made an addition of Rs.2,11,04,197/-.
3. Assessee in Schedule – C of the balance sheet shown the interest accrued and due but not paid to the tune of Rs.8,50,94,998/-. The AO finding the explanation made by assessee not tenable and by invoking the provisions contained u/s 43B(d) of the Act made an addition of Rs.8,50,94,998/- on the ground that no proof of payment of this amount of interest is filed during the course of assessment proceedings. The AO made an addition of Rs.14,39,583/- on account of outstanding loan to be paid to the creditor pending for more than one year on the grounds inter alia that the assessee is into the regular business of sugar crushing and for sugar production; that sugarcane is regularly required from the farmers; and that the payment is required to be made regularly and moreover, in other cases, assessee has been making the payment to other farmers on regular basis within 15 days or a month. Since the assessee has not taken any coercive action in case of those creditors, it shows that there is no existence of any such creditors and moreover, there is no confirmation on record filed by them, consequently made an addition of Rs.14,39,583/-. The AO by making total addition of Rs.12,73,42,770/- and by taking into account brought forward losses of Rs.12,73,42,770/- assessed the income at nil.
Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has allowed the appeal. Feeling aggrieved, the revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1 & 2 6. Undisputedly, during the assessment proceedings, audited books of account have been produced and perused by the AO but have not disputed the same on any ground whatsoever. So far as the question of making comparison by the AO recording different rate of sale of sugar by the assessee as well as Ramala Sahakari Chini Mills Ltd. is concerned, the AO has lost sight of the undisputed fact that when the rate of levy sugar (rate fixed by the Government for distinction of the sugar through Public Distribution System (PDS) and the assessee was identical) but the average rate to the free sugar sale of assessee as well as Ramala Sahakari Chini Mills Ltd. were different (assessee’s average sugar rate was 1702.50 per quintal whereas average rate of sale of Ramala Sahakari Chini Mills Ltd. was 1725.175 per quintal) showing a minor variation between the average sale price of the two units.
So far as the question of cost of production is concerned, the numerous factors like interest on money borrowed for the purpose of business certainly affects the average cost of production. When the books of accounts are found to have been correctly maintained and audited in the regular course of business, exact comparability of the two entities for the purpose of profitability is not possible.
Moreover, when the assessee has duly produced sales record, sales- tax and excise record and no discrepancy have been found by the AO, the addition on account of difference in the average sale price of the sugar is not sustainable. Moreover, the assessee is at liberty to sell the goods at cheaper rates so as to enhance its sale or to meet with his liabilities and he cannot be compelled to transfer the goods by market price only.
Similarly, so far as the question of addition of Rs.2,11,04,197/- on account of low yield of sugar as made by the AO is concerned, the same has again been made by the AO on the basis of assumptions and estimation without taking into consideration the actual and factual position of both the entities i.e. assessee’s sugar mill and Ramala Sahakari Chini Mills Ltd.. The AO brought on record the fact that the assessee has shown the yield at 8.3% from 34.48 quintal of sugarcane as against yield of 8.33% from crushing of 50.03 quintal of sugarcane.
We are of the considered view that yield of any crop of one farmer cannot be compared with the yield of another farmer though adjoining to each other because it may depend on numerous factors, like, quality of seeds, pesticides and manures used, day-to- day look after of the crop, etc. Tax authorities are not entitled to make addition merely on ground of low yield shown by the assessee on the basis of guesswork particularly when the entire transactions as to sale, purchase and crushing of sugarcane has been recorded in the books of accounts in the ordinary course of business which have been duly audited and have not been disputed by the AO. So, the addition on account of yield comparability made by the AO is not sustainable in the eyes of law and CIT (A) has rightly deleted the same.
Hon’ble Supreme Court in judgment cited as Commissioner of Income-tax, West Bengal vs. Calcutta Discount Company Ltd. reported in 91 ITR 8 (SC) decided the identical issue to the effect that where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimize his tax burden. So finding no infirmity or perversity in the findings returned by the ld. CIT (A), ground nos.1 & 2 are determined against the revenue.
GROUND NO.3
The AO by invoking the provisions contained u/s 43B(d) of the Act made an addition of Rs.8,50,94,998/- on account of interest accrued and due but not paid by rejecting the contention of the assessee that the lender concerns are institutions controlled by the Government and not financial institutions. However, CIT (A) in the impugned order, by relying upon the finding returned by the CIT (A), Noida vide order dated 26.08.2013 in assessee’s own case qua the assessment year 2008-09, held that the institution of Uttar Pradesh Government are not covered in the definition of public financial institution and thereby deleted the addition made by the AO.
Undisputedly, the assessee in Schedule – C of the balance sheet has shown the interest accrued and due but not paid as under:-
Shakkar Vishesh Nidhi Rs.1,18,29,590/- State Govt. Loan Rs.5,65,34,280/- UP Cooperative Sugar Factories Federation Ltd. Rs.1,67,31,128/- Total Rs.8,50,94,998/-
Now, the sole question for determination in this case is, “as to whether the aforesaid lenders fall in the definition of public financial institution empowering the AO to invoke the provisions contained u/s 43(d)?” Identical issue has come up before the coordinate Bench of ITAT, Delhi Bench ‘H’, New Delhi in ACIT vs. Baghpat Cooperative Sugar Mills Ltd., in assessee’s own case qua the assessment year 2007-08.
The coordinate Bench proceeded to decide the issue in controversy as under:-
“6. The second issue is disallowance of interest paid to federation. The AO disallowed the amount on the ground that the payment of interest is outside the purview of business of the assessee. Ld. CIT(A) gave a finding that the assessee has taken loan from Govt. of India and UP Government, for the purpose of business and that this is evident from the sanctioned letters and hence the interest in question is allowable u/s 36(1). We have seen reason to interfere in this finding of the first appellate authority. The revenue has raised a legal argument that, the interest in question cannot be allowed, as it is hit by the provisions of section 43 B(d) of the Act.
7. Section 438(d) of the Act reads as follows :-
d) "any sum payable by the assessee as interest on any loan or borrowing from any public financial institution (or a State financial corporation or a State industrial investment 'corporation), in accordance with the term and conditions of the agreement governing such loan or borrowing.” As the interest in question is payable to Govt. of India and the statement of UP Government, section 43(B)(d) does not apply. Hence we dismiss this ground.”
No ground has come up before us to depart from the findings returned by the coordinate Bench in the aforesaid case and moreover Shakkar Vishesh Nidhi, State Govt. Loan and UP Cooperative Sugar Factories Federation Ltd. do not fall under the definition of financial institution so as to attract the provisions contained u/s 43B(d) by any stretch of imagination. So finding no illegality or infirmity in the findings returned by the ld. CIT (A), ground no.3 is determined against the revenue.
GROUND NO.4 16. The AO made an addition of Rs.14,39,583/- on account of old creditors by rejecting the contention of the assessee that the aforesaid dues have not been paid on the ground that when the assessee has been making payment to all regular farmers who are selling their crops, the old creditors appeared to be not in existence.
However, on the other hand, the CIT (A) deleted the addition.
A bare perusal of the order passed by the AO goes to prove that he has passed the assessment order without making any investigation and without providing an opportunity of being heard to the assessee. The AO has not even called the confirmation letters from the aforesaid old creditors to return the findings against the assessee but proceeded summarily to hold that the said creditors are not genuine merely on the basis of the fact that the assessee has been making payment to the current creditors regularly as required under the Act.
Even in the remand report dated 31.12.2013, the AO himself admitted that he has not obtained any confirmation of the creditors from the assessee. On the face of the admitted fact that the books of account of the assessee has never been disputed by the AO and the assessee is an Uttar Pradesh Government Undertaking and all the purchases are being made against the bills making addition on the basis of surmises and conjectures is not sustainable. So finding no illegality or infirmity in the findings returned by the ld. CIT (A), ground no.4 is also determined against the revenue.
In view of what has been discussed above, we hereby dismiss the present appeal filed by the revenue. Order pronounced in open court on this 30th day of March, 2016.