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2015 (10) TMI 404 - PUNJAB & HARYANA HIGH COURT

2015 (10) TMI 404 - PUNJAB & HARYANA HIGH COURT - TMI - Annual subscription for education fund disallowed - Held that:- The assessee had been following mercantile system of accounting and therefore, the expenses claimed on account of annual subscription for education fund relating to the assessment years 1994-95, 1995-96 and 1996-97 were not permissible in the current assessment year 1999-2000. It was not disputed by the learned counsel for the parties that similar issue had been decided against .....

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ich was created for the benefit of all the mills including the assessee in case of need. The payment made to the said fund was in the nature of insurance and directly related to the business of the assessee. In such circumstances, the contribution of amount equivalent to 5% of the net profits towards rehabilitation fund was held to be expended wholly and exclusively for business purposes and admissible under Section 37 of the Act. Learned counsel for the revenue could not demonstrate any error o .....

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f Cooperative Sugar Mills Limited, Chandigarh is allowable as a revenue expenditure and the tax authorities below erred in disallowing the same and hence their orders in this regard are set aside. Accordingly, assessee's appeal is allowed

Addition of business expenditure paid to the farmers - whether resulting in double deduction on the same head - Held that:- The assessee had received penalty imposed on the farmers who had failed to supply the contracted quantity of the sugarcane to .....

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1999-2000 as it was revenue receipt in the hands of the assessee. The Tribunal was, thus, in error in reversing the orders of the Assessing Officer as well as the CIT(A). The issue before the Madras High Court in Salem Cooperative Sugar Mills Limited's case (1996 (9) TMI 40 - MADRAS High Court) was that where the Central Government had by way of a Molasses Control Order directed that certain amount had to be kept in a fund and it did not belong to the assessee. The assessee could not utilize the .....

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Adv JUDGMENT Ajay Kumar Mittal, J. 1. The revenue has filed this appeal under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 30.5.2008, Annexure A.3 passed by the Income Tax Appellate Tribunal, Delhi Bench (in short, "the Tribunal") in ITA No.1866/D/2002 for the assessment year 1999-2000, claiming following substantial questions of law:- i) Whether on the facts and in the circumstances of the case, the learned ITAT is right in law in al .....

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case, the learned ITAT is right in holding that amount of ₹ 10,05,000/- paid by the assessee on account of contribution towards rehabilitation fund is a business expenditure allowable under section 37(1) of the I.T.Act, 1961? iii) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in allowing the disallowance of ₹ 5,00,000/- on account of contribution made specifically for the construction of office building of the Apex body i.e. Haryana Stat .....

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) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in allowing the appeal of the assessee thereby deleting the addition of ₹ 57,28,554/- when already business expenditure of ₹ 39.80 lacs paid to the farmers this year had been allowed, thereby resulting in double deduction on the same head?" 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The assessee had paid a sum of ͅ .....

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e disallowance to the extent of ₹ 2,25,000/-. On appeal before the Tribunal, relying upon its own decision in the case of Shahbad Cooperative Sugar Mills limited, for the assessment year 1994-95, decided the issue in favour of the assessee. 3. Next, the assessee had paid an amount of ₹ 10,05,000/- towards creation of a rehabilitation fund for providing assistance to the weak sugar mills. Since this amount was not found to be spent wholly and exclusively for the business purposes as p .....

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50,000/- on account of contribution to the building fund treating the same as pertaining to the earlier years as the assessee had been maintaining its accounts on mercantile basis. The CIT(A) held that the said contribution was utilization of income of the assessee company in the form of making contribution towards the construction of the office building. Thus, the amount of ₹ 5 lacs instead of ₹ 2,50,000/- was disallowed enhancing the income of the assessee. The Tribunal relying upo .....

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se of the assessee in the assessment year 1993-94 wherein addition made on account of penalty imposed on the farmers was confirmed by the CIT(A). The CIT(A) vide order dated 27.2.2002, Annexure A.2 decided the appeal by holding that the amount actually paid by the assessee will be allowed as expenditure on cash basis. Accordingly, a sum of ₹ 39,80,482/- claimed by the assessee on account of cane penalty paid during the relevant previous years was allowed by the Assessing officer. Penalty r .....

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e system of accounting and therefore, the expenses claimed on account of annual subscription for education fund relating to the assessment years 1994-95, 1995-96 and 1996-97 were not permissible in the current assessment year 1999-2000. It was not disputed by the learned counsel for the parties that similar issue had been decided against the assessee in ITA Nos.515 of 2008 (The Commissioner of Income Tax Vs. The Shahbad Coop. Sugar Mills Limited) decided on 17.12.2010. Accordingly, question (i) .....

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e Sugar Mills Limited to demonstrate that the amount was claimed as a matter of right. In the said letter, it was mentioned that rehabilitation fund at the rate of 5% of net profits w.e.f the year 1996-97 had been created for providing financial assistance and relief to weak cooperative sugar mills so that these mills could improve their functioning. 9. Opposing the prayer, learned counsel for the assessee relied upon findings of the Tribunal to urge that the Tribunal had categorically held the .....

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of insurance and directly related to the business of the assessee. In such circumstances, the contribution of amount equivalent to 5% of the net profits towards rehabilitation fund was held to be expended wholly and exclusively for business purposes and admissible under Section 37 of the Act. It was recorded as under:- "15. Briefly, the facts relating to the issue involved in ground no.3 are that according to the assessee Cooperative Sugar Mills Limited, it paid an amount of ₹ 100500 .....

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insurance. The expenditure therefor is directly relatable to the business of the assessee and so the same is allowable to the assessee. 16. The Assessing officer disallowed the deduction claimed under section 37 by the assessee on the reasoning that the amount sent by the assessee cannot be said to be an expenditure laid out wholly and exclusively for the business purpose of the assessee. The CIT(A) similarly relying upon various case laws reported in the case of Ishwari Khetyan Sugar Mills (P) .....

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n incurred for the purpose of business of assessee and hence assessee's claim amounting to ₹ 1005000/- is not an allowable expenditure and therefore, the CIT(A) upheld the disallowance made by the Assessing Officer. 17, Before us learned AR for the assessee reiterating the submission made before the tax authorities below further submitted that the assessee cooperative sugar mills has to work under the rules and guidelines issued by Haryana State Federation Cooperative Sugar Mills Limit .....

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uding the assessee in case of need, so the payment was like an insurance and was therefore,directly related to the business of the assessee and was allowable as deduction." Learned counsel for the revenue could not demonstrate any error or perversity in the approach of the Tribunal warranting interference by this Court. Accordingly, question No.(ii) is answered in favour of the assessee and against the revenue. Re:(iii) 11. Adverting to question No.(iii), similar issue had come up for consi .....

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on'ble Supreme Court. This being so, the principle laid down therein was rightly applied by the Tribunal to the present case. Accordingly, question No.2 has to be answered in favour of the assessee and against the revenue." Further, the Tribunal while adjudicating the said issue had observed as under:- "24. Briefly the facts relating to the issue involved in this ground of appeal are that the tax authorities below disallowed the entire contribution of ₹ 5 lakhs made by the as .....

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e apex body could be said to be incidental to the busienss of the assessee company. 25. Before us, learned AR for the assessee referring to the case of M/s Shahbad Cooperative Sugar Mills Limited vs. JCIT decided by ITAT Delhi Bench 'F' in ITA No.4830/Del/2002 dated 23rd June 2006 (copy of which has been placed on record in paper book pages nos. 19 to 21) submitted that an identical issue on identical facts as involved in the instant case of the assessee, came up for consideration before .....

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us year relevant to assessment year 1996-97. It was further observed that the expenditure claimed by the assessee is not at all commensurate with the profits earned by the assessee and hence the claim is not justified and cannot be allowed as deduction under section 37 of the Act. The decision of the departmental authorities on this issue does not appear to be in conformity with the law laid down by the Supreme court in the case of CIT vs. Bombay Dyeing Manufacturing co. Limited 219 ITR 521. It .....

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diture.' 26. The learned DR for the revenue was not able to controvert the above submission of learned AR for the assessee and thus impliedly conceded to the submission of learned AR for the assessee. 27. On going through the facts of the instant case of the assessee under consideration as well as that of case (supra) decided by the Tribunal we find that in both the cases facts and issue involved is identical. Hence judicial propriety demands that we respect and follow the judicial decisions .....

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of the assessee's appeal is allowed." Accordingly, question No.(iii) is answered in favour of the assessee and against the revenue. Re:(iv) 12. Considering question No.(iv), learned counsel for the revenue submitted that the cane penalty which was received by the assessee amounting to ₹ 57,28,554/- was income relating to assessment year 1999- 2000 and had been rightly brought to tax by the Assessing Officer and upheld by the CIT(A). It was urged that the Tribunal on wrong premise .....

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