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Income Tax Appellate Tribunal, DELHI BENCH “H”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
Date of Hearing : 08-02-2016 Date of Order : 04-04-2016
ORDER PER H.S. SIDHU : JM These four cross Appeals by Assessee and Revenue emanate from the orders of the Ld. CIT(A), Muzaffarnagar dated 30.11.2005 & 12.12.2006 respectively relevant for the assessment years 2001-02 & 2003-04. Since the issues involved in these Cross Appeals are identical and common, hence, these appeals are being consolidated and disposed of by this common order for the sake of convenience.
The grounds raised in Assessee’s Appeal No. 63/Del/2006 (AY 2001-02) reads as under:-
“1. That the Authorities below have erred in law and on facts in rejecting assessee’s claim of Rs. 2,64,49,347/- being incentive which was of capital nature. That the Ld. CIT(A) has not properly appreciated the evidence on record in this regard and has summarily rejected the contention of the assessee.
2. That the Authorities below have further erred in not allowing claim of Rs. 2,85,000/- which amount was contributed towards construction of dam which resulted in improving the quality of cane vis-à-vis yield of sugar.”
The grounds raised in Revenue’s Appeal No. 443/Del/2006 (AY 2001-2) reads as under:-
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,68,310/- made by the AO on account of creation of reserve fund for molasses storage tank holding that claim of the assessee for construction/ provision of expenses in respect of molasses tank is a capital expenditure.
1.1 That the order of the CIT(A) be set aside and that of the AO be restored.”
The grounds raised in Revenue’s Appeal No. 116/Del/2007 (AY 2003-04) reads as under:-
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 27,65,640/- made by the AO on account of treating the incentive of Rs. 27,65,640/- on sale of levy sugar as free sugar as revenue receipts as against capital receipts claimed by the assessee.
2. On the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 3,33,767/- made by the AO on account of provision made for storage of Molasses Storage tank.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of miscellaneous expenses of Rs. 20,000/- made by the AO.
4. The order of the CIT(A) be set aside and that of AO is restored.”
The grounds raised in Assessee’s Appeal No. 924/Del/2007 (AY 2003-04) reads as under:-
1. That the authorities below have erred in law and on facts in not all owing assessee’s claim of Rs. 1,50,000/- being contribution towards construction of dam. The expenditure / contribution was made for the benefit of company’s business, hence the same is allowable expenditure.
ASSESSEE’S APPEAL (AY 2001-02) - APPEAL NO. 63/DEL/2006
6. Briefly stated, the facts of the case are the assessee company is running sugar mill and had filed its return on 31.10.2011 declaring loss of Rs. 9,51,92,580/-. The return was processed u/s. 143(1)(a) on the declared loss on 31.12.2004. Later on the case was taken up for scrutiny and notice u/s. 143(2) was issued on 9.4.2002 and notices u/s. 142(1) and 143(2) were issued alongwith questionnaire. Assessee’s Authorised Representative attended the proceedings on behalf of the assessee and filed the details alongwith written explanations as required from time to time. The books were produced and checked on test basis. Thereafter, the AO made the various additions and completed the assessment on total loss of Rs. 6,80,52,380/- vide his order dated 27.2.2004 passed u/s. 143(3) of the I.T. Act, 1961. Aggrieved with the additions, assessee appealed before the Ld. CIT(A) who vide impugned order dated 30.11.2015 has partly allowed the Appeal of the Assessee. Against the aforesaid order dated 30.11.2015 of the Ld. CIT(A), both Assessee and Revenue are in cross appeals before the tribunal.
7. Apropos Ground No. 1 raised in Assessee’s Appeal is concerned, Ld. Counsel of the assessee has stated that this issue is squarely covered by the Tribunal’s decision dated 21.1.2016 wherein similar issue has been dealt in the assessee’s own case for the assessment year 2000-01 and requested that the same may be followed. Ld. DR relied upon the order of the authorities below.
We have heard both the parties and perused the records especially the orders of the revenue authorities and decision of the Tribunal dated 21.1.2016 in assessee’s own case. We find that the Tribunal vide its order dated 21.1.2016 has dealt the similar issue in the assesseee’s own case for the assessment year 2000-01 vide para no. 5 to 7 at pages 5 to 9. For the sake of clarity, we are reproducing the para no. 5 to 7 at pages 5 to 9 of the tribunal’s order dated 21.1.2016 in assessee’s own case for the assessment year 2000-01 as under:-
“5. The first reason taken by the AO for initiating reassessment is treating the sale of additional quota of sugar in free market amounting to Rs.35,11,976/- as revenue receipt against the assessee’s claim of capital receipt. The assessee earned profit of Rs.35.11 lac from the sale of additional free sugar under Incentive scheme of the Government of India, which amount was not offered for taxation on the ground that it was a receipt of capital nature.
The assessee was called upon to show cause as to why this amount be not treated as a revenue receipt in the light of the judgment of the Hon’ble Supreme Court in the case of KCP Ltd. 245 ITR 421 (SC). The assessee submitted that the facts of the case of KCP Ltd. (supra) were distinguishable. It was further explained that the said amount of Rs.35.11 lac was in the nature of incentive given by the Government for repayment of term loans. The assessee relied on certain judgments in support of its contention that the amount was not a revenue receipt. Not convinced with the assessee’s contentions, the AO came to hold that since the said receipt was to be used for the running of business and, hence, constituted a trading receipt. The ld. CIT(A) upheld the action of the AO by noticing that the assessee did not produce any evidence to show that the amount of Rs.35.11 lac was utilized for repayment of loan during the year.
We have heard the rival submissions and perused the relevant material on record. It is noticed that the Government of India came out with an Incentive scheme for setting up of new sugar factories and expansion projects licensed/to be licensed during the period 7.9.1990 to 31.3.1994, a copy of which has been placed at page 22 of the paper book. The object of this scheme is `augmenting indigenous sugar production’ and providing assistance to the entrepreneurs in setting up sugar factories ‘through higher free sale quota for repayment of term loans advanced by the Central financial institutions.’ Clause 12 of this Scheme provides that the beneficiaries of the Incentive scheme shall ensure that the surplus funds generated through sale of the incentive sugar are utilized for the repayment of term loans, if any, outstanding from the Central financial institutions/Sugar Development Fund. It further provides that the sugar factories shall submit utilization certificate annually from a Chartered/Cost Accountant. The above clause of the scheme fairly indicates that higher free sale quota was granted to new sugar factories licensed between 7.9.1990 to 31.3.1994 for enabling them to repay the term loans advanced by the central financial institutions for their setting up. This shows that the object of this scheme is to encourage the setting up of new sugar factories and higher free sale quota is a mode of giving incentive for repayment of term loans utilized for their setting up. It is a settled legal position that if subsidy or incentive is given for setting up new units, then, it is a capital receipt. The decisive factor in this regard is to see the `object’ of the incentive and not the source or mode of payment. So long as the object of an incentive scheme remains to encourage the setting up of new units, the incentive given in any shape or at any time, whether before or after the commencement of business, retains its capital nature. If, on the other hand, subsidy is given to incentivize the running of business more appropriately, whose object is not to encourage the setting up of units, but, to facilitate the carrying on of business, it assumes the character of a revenue receipt. The Hon’ble Supreme Court in CIT vs. Ponni Sugar and Chemicals Ltd. and Ors. (2008) 306 ITR 392 (SC) has held that the subsidy for setting up sugar mills, to be utilized for repayment of term loans undertaken for setting up new units/expansion of existing 7 business, is a capital receipt and not chargeable to tax. Adverting to the facts of the instant case, we find that the assessee is covered under the Incentive scheme dated 10.3.1993 as it was set up in 7.3.1994. It is so borne out from the letter dated 10.7.2000 issued to the assessee by the Government of India, Ministry of Food, Directorate of Sugar, a copy of which is placed at page 175 of the paper book, giving licence and covering it under the Incentive scheme dated 10.3.1993. Pursuant to the requirement of submission of Utilization certificate from a Chartered Accountant, the assessee submitted such certificate, a copy of which is available at pages 38 and 39 of the paper book. Such certificate indicates repayment of interest on loan to the financial institutions to the tune of Rs.2.65 crore against which the amount of subsidy is only a sum of Rs.35.11 lac. This exhibits that the object of subsidy given to the assessee is setting up of sugar mill and the mode of discharge of subsidy is free sale of additional quota, which is meant to be utilized for the repayment of term loans taken from the financial institutions etc.
The reliance of the AO on the judgment of the Hon’ble Supreme Court in KCP Ltd. vs. CIT (2000) 245 ITR 421 (SC) is misconceived. In that case, the excess amount was realized and retained though the right to realize the amount was subject of dispute. Interim order was passed by the Hon’ble High Court pursuant to which the excess realization was made. It was under those circumstances that the Hon’ble Supreme Court held that the price of sugar realized by the sugar manufacturer in excess of levy price fixed by the Government and retained as such was trading receipt liable to tax. In contrast to the factual position prevailing in KCP Ltd. (supra), we find that in the instant case, the assessee has simply realized excess price in terms of Incentive scheme dated 10.3.1992 and there is no excess realization over and above the sanctioned realizable amount. Thus, it is manifest that the facts of the instant case are strictly governed by the judgment in the case of Ponni Sugar rather than KCP Ltd. We, therefore, overturn the impugned order on this issue.”
8.1 Respectfully, following the Coordinate Bench decision dated 21.1.2016 in assessee’s own case, as aforesaid, we decide the issue in dispute in favour of the assessee and accordingly, allow the Ground No. 1 raised in the Assessee’s Appeal.
9. Apropos Ground No. 2 raised in Assessee’s Appeal is concerned, we find that the assessee has made this payment to Baba Jagtar Singhji Dera Ganga Bandh, Ramraj. The assessee’s claim was that the it will also be benefited by construction of the Dam because recovery of sugar cane from Khadar area will increase. The AO disallowed the claim of the assessee on the ground that there was no obligation on the assessee company to make such contribution and thus, it is not for the business purposes. We also find that similar contentions were raised before the Ld. CIT(A) during appellate proceedings, which were not acceptable to the Ld. CIT(A), hence, Ld. CIT(A) confirmed the addition in dispute made by the AO. We note that the contribution has been clearly made to a religious body, apparently for religious / charitable purposes. The payment was not made by any obligation, but rather it has been made voluntarily. No payment was made to any government body or any organization approved by the Govt. / Cane Commissioner for the purpose of construction of Dam. The assessee has also failed to prove the nexus between the payment made to Baba Jagtar Singhji and Development work of the area. The assessee was unable to produce any sufficient evidence to show that in case these payments were not made, the area would have been assigned to some other factory. In view of the above, Ld. CIT(A) has rightly confirmed the addition in dispute and passed a well reasoned order on this issue, which does not need any interference on our part, hence, we uphold the same and dismiss the Ground No. 2 raised by the assessee in its Appeal. As a result, the Appeal of the Assessee is partly allowed.
ASSESSEE’S APPEAL (AY- 2003-04)- APPEAL NO. 924/DEL/2007
Apropos Ground No. 1 raised in Assessee’s Appeal (AY 2003-04) is concerned. This is a similar issue dealt by us in the assessment year 2001-02 in assessee’s own case, as aforesaid vide para no. 9 of this order wherein we upheld the order of the ld. CIT(A) and dismiss the ground raised by the Assessee. Therefore, following the consistent view, we dismiss the ground no. 1 raised by the Assessee in the Assessment year 2003-04. As a result, the Appeal of the Assessee is dismissed.
REVENUE’S APPEAL (AY- 2001-02)- APPEAL NO. 443/DEL/2006
Apropos Ground No. 1 raised in the Revenue’s Appeal is concerned, Ld. Counsel of the assessee has stated that this issue is squarely covered by the Tribunal’s decision dated 21.1.2016 wherein similar issue has been dealt in the assessee’s own case for the assessment year 2000-01 and requested that the same may be followed and Ld. CIT(A)’s order may be upheld. Ld. DR relied upon the order of the authorities below.
We have heard both the parties and perused the records especially the orders of the revenue authorities and decision of the Tribunal dated 21.1.2016 in assessee’s own case. We find that the Tribunal vide its order dated 21.1.2016 has dealt the similar issue in the assesseee’s own case for the assessment year 2000-01 vide para no. 8 to 9 at pages 10 to 11. For the sake of clarity, we are reproducing the para no. 8 to 9 at pages 10 to 11 of the tribunal’s order dated 21.1.2016 in assessee’s own case for the assessment year 2000-01 as under:-
“8. The second reason taken by the AO for issuing notice u/s 148 is that the assessee created a reserve fund for construction of Molasses Storage Tank during the year at Rs.1,30,625/- which was credited to Reserve account after debiting the same to the Profit & Loss Account. In the opinion of the AO, this was not an allowable expenditure. The assessee’s contention that the said amount was an allowable deduction in terms of several decisions cited before him, did not convince the AO in granting deduction. He, therefore, disallowed a sum of Rs.1,30,625/-. The ld. CIT(A), after considering the assessee’s contentions and the case law relied before him, allowed deduction. The Revenue is aggrieved against the grant of deduction.
We have heard the rival submissions and perused the relevant material on record. The undisputed facts are that the assessee created Molasses reserve fund for construction of molasses storage tank by crediting a sum of Rs.1,30,625/- to this account in accordance with UP Sheera Niyantran Niyamavali.
The Hon’ble Calcutta High Court in CIT vs. Upper Ganges Sugar Mills Ltd. (1994) 206 ITR 215 (Cal) has held that contribution towards Molasses Storage Fund is eligible for deduction as business expenditure. Similar view has been taken by the Hon’ble Madras High Court in certain decisions including CIT vs. Salem Cooperative Sugar Mills Ltd., 229 ITR 285 (Mad). In view of several decisions taken note of by the ld. CIT(A) in the impugned order supporting the assessee’s contention, which have not been controverted by the ld. DR with any contrary decision, we are of the considered opinion that the ld. first appellate authority has taken an unimpeachable view on this issue. We, therefore, uphold the impugned order on this score.”
12.1 Respectfully, following the Coordinate Bench decision dated 21.1.2016 in assessee’s own case, as aforesaid, we decide the issue in dispute in favour of the assessee and accordingly, dismiss the Ground No. 1 raised in the Revenue’s Appeal by upholding the order of the Ld. CIT(A) on this issue. As a result, the Revenue’s Appeal is dismissed.
REVENUE’S APPEAL (AY 2003-04)- APPEAL NO. 116/DEL/2007
Apropos Ground no. 1 raised in the Revenue’s appeal is concerned.
This is a similar issue which we have dealt in Assessee’s Appeal for the assessment year 2001-02, as aforesaid vide para no. 8 to 8.1. Since we have allowed the similar issue in favour of the Assessee, as aforesaid, by respectfully following the decision of the Tribunal dated 21.1.2016 passed in assessee’s own case for the assessment year 2000-01, as aforesaid. Following the consistent view, we allow this issue in favour of the assessee and against the Revenue and dismiss the ground no. 1 raised in the Revenue’s Appeal and also uphold the order of the Ld. CIT(A) on this issue.
Apropos Ground No. 2 raised in Revenue’s Appeal (AY 2001-02) is concerned. This is a similar issue dealt by us in the assessment year 2001-02 in Assessee’s own case in the Revenue’s Appeal, as aforesaid vide para no. 12 to 12.1 of this order wherein we upheld the order of the ld. CIT(A) by respectfully following the Coordinate Bench order dated 21.1.2016 in assessee’s own case for the assessment year 2001-02. Therefore, following the consistent view, we dismiss the ground no. 2 raised by the Revenue in the Assessment year 2003-04.
Apropos Ground no. 3 raised in Revenue’s Appeal is concerned, we find that the disallowance of Rs. 20,000/- has virtually virtually been made out of Misc. Expenses of Rs. 31,414/- and we are of the view that considering the magnitude of the business of the assessee company, the miscellaneous expenses claimed at Rs. 31,414/- appear to be reasonable and no disallowance out of the same is called for. Accordingly, the Ld. CIT(A) has rightly deleted the addition in dispute, which in our opinion needs no interference on our part, hence, we uphold the same and accordingly, dismiss the ground no. 3 raised in the Revenue’s Appeal. As a result, the Revenue’s Appeal is dismissed.
In the result, the Assessee’s Appeal No. 63/Del/2006 (AY 2001-02) is partly allowed and Revenue’s Appeal No. 443/Del/2006 is dismissed and Assessee’s Appeal No. 924/Del/2007 (AY 2003-04) is dismissed and Revenue’s Appeal No. 116/Del/2007 (AY 2003-04) is dismissed.
Order pronounced in the Open Court on 04/04/2016.