Punjab & Haryana H.C : It is not necessary that when additional evidence is furnished, the matter must be remanded to A.O

High Court Of Punjab And Haryana

CIT Vs. Jind Co-Op. Sugar Mills Ltd.

Assessment Year : 2001-02

Section : 250,46A

Adarsh Kumar Goel And Ajay Kumar Mittal, Jj.

IT Appeal No. 969 Of 2008

January  6, 2011 

ORDER
 
Adarsh Kumar Goel, J. This appeal has been preferred by the revenue under section 260A of the Income-tax Act, 1961 (for short, “the Act”) against the order of the Income-tax Appellate Tribunal, New Delhi in I.T.A. No.999/Del/2005 for the assessment year 2001-02 raising following questions of law:-

“(i) Whether, on the facts and in the circumstances of the case, the Ld. ITAT is right in law in upholding the deletion of addition of Rs. 2,11,94,853 made on account of low yield of sugar particularly when the Assessing Officer gave adequate opportunity to the assessee to furnish the evidence and the fact that the assessee had not maintained quality records of sugarcane processed by it and also relying on the trading results of the assessee with the Mills at Sonepat, Panipat, Kaithal, Palwal and Karnal ignoring the fact that the matter with regard to the addition of low yield of sugar and comparison of trading results of other mills should have been remanded back to the Assessing Officer for fresh verification in view of the fact that the reserves shown by the assessee were not verifiable?

(ii) Whether, on the facts and in the circumstances of the case, the Ld. ITAT is right in law in upholding the deletion of addition of Rs. 1,40,12,702 made on account of low sale rate of sugar although, as pointed out by the Assessing Officer in his comments furnished to the Commissioner of Income-tax (Appeals), the sale rate of sugar is determined by the Sugar Syndicate which is applicable to all the sugar mills of Haryana and although, as pointed out in the assessment order, there was complete mismatch of the quantity of sugar actually sold by the assessee during the month of April, 2000?

(iii) Whether, on the facts and in the circumstances of the case, the Ld. ITAT is right in law in upholding the deletion by the Commissioner of Income-tax (Appeals) of addition of Rs. 14,69,587 made on account of subscription and contribution to Federation of Coop. Sugar Mills Ltd. when the CIT(A) had admitted the additional evidence in violation of provisions of sub-rule (2) of Rule 46A of the Income-tax Rules, 1962 as per which no additional evidence is admissible unless the CIT(A) records in writing the reasons for its admission and when the additional evidence can be admitted only for the specific reasons enumerated in sub-rule (1) of Rule 46A? and

(iv) Whether on the facts and in the circumstances of the case, the Ld. ITAT is right in law in upholding the deletion by the CIT(A) of addition of Rs. 1,43,328 made on account of penalty payable to growers when the CIT(A) had allowed the relief in violation of provisions of sub-rule (2) of Rule 46A of the Income-tax Rules, 1962 as per which no additional evidence is admissible unless the CIT(A) records in writing the reasons for its admission and when the additional evidence can be admitted only for the specific reasons enumerated in sub-rule (1) of Rule 46A?”

(v) Whether, on the facts and in the circumstances of the case, the Ld. ITAT is right in law in allowing another opportunity to the assessee to lead evidence and to furnish explanation in support of its claim of low sale rates of molasses, for which addition of Rs. 46,96,460 had been made by the Assessing Officer or before the Commissioner of Income-tax (Appeals) inspite of the ample opportunity provided to it by the Assessing Officer?

(vi) Whether on the facts and in the circumstances of the case, the Ld. ITAT is right in law in allowing another opportunity to the assessee to furnish evidence and material in support of its claim that the amount of Rs. 26,30,054 in suspense account represented disputed amounts of earlier years though the assessee had failed to furnish the same either before the Assessing Officer or before the Commissioner of Income-tax (Appeals) inspite of the ample opportunities provided to it by the Assessing Officer?

(vii) Whether, on the facts and in the circumstances of the case, the Ld. ITAT is perverse in nature as the Ld. Tribunal has not considered the evidence and material on record?”

2. The assessee is a cooperative society engaged in the manufacture and sale of sugar. During the assessment, the Assessing Officer made additions, inter alia, on account of low yield, difference in rates of sale of sugar, claim of excessive expenses, difference in sale of molasses, absence of details of parties to whom amounts were entered as payable, disallowance of expenses towards subscription and contribution, non-charging of interest on the advances made, disallowance of development expenses, disallowance of penalty payable to growers and disallowance of staff welfare expenses. The CIT(A) partly allowed the appeal of the assessee and deleted additions on account of low yield, difference in rate of sugar, expenses claimed towards contribution to federation, non-recovery of interest and penalty payable to growers but partly upheld the additions. The Tribunal affirmed the deletions and allowed the appeal of the assessee against upholding of additions by the CIT (A). On the issues raised by the assessee against the additions confirmed by the CIT(A), the matter were remanded to the Assessing Officer.

3. The observations of the Tribunal are as under:-

I. Issue of affirming deletions by the CIT(A):

(a) Low Yield:

“7. We have considered the rival submissions on this issue carefully. The assessee is a cooperative society running a sugar mill. The sugar industry is subject to supervision and control of various governmental authorities viz. excise, Directorate of sugar (Central Government), public distribution system of the government etc. Moreover, the assessee operates under the control of Registrar, Cooperative Societies. The accounts of the assessee are not only subject to audit by its own appointed auditors but also by auditors appointed by the Registrar, Cooperative Societies. Another undisputed feature in the case of the assessee is that it is maintaining complete account books which are vouched and audited. There is also no dispute that the assessee produced before the Assessing Officer the requisite details and material required to finalized the assessment. We are only pointing out this background to say ostensibly there is no charge of misfeance or undeclared business against the assessee. Moreover, the Assessing Officer has not pointed out any such discrepancy in the records maintained by the assessee. The only point made out by the Assessing Officer is that the yield declared by the assessee is low in comparison to the yield declared by another concern, M/s. Yamuna Nagar Sugar Mills. At the outset, we may say that the comparison made is unjustified for the reasons that the Assessing Officer does not bring out any features as to how the assessee and the other concern are similar. Except that the other concern is also a sugar mill there is no material referred to by the Assessing Officer to justify the comparison. Further the assessee brought to the notice of the Assessing Officer the yield ratios of other concerns in Haryana which were lower in comparison to the yield declared by the assessee. There is no reference by the Assessing Officer as to why the chose to consider the yield ratio of Yamuna Nagar Sugar Mill as more sacrosanct than the cases referred to by the assessee. For all these reasons, we reject the stand of the Assessing Officer to make the addition merely on the basis of the yield ratio of Yamuna Nagar Sugar Mill. In any case, the low yield ratio could, at best, be the reason for the Assessing Officer to carry out a verification exercise of the results declared by the assessee. Certainly the same by itself could not be the basis for making the addition. We find that there is no adverse inference by the Assessing Officer with regard to the account books and other records examined by him. Therefore, in our considered opinion, the CIT(A) was fully justified in deleting the impugned addition. We hereby affirm the same. The Revenue fails on the first Ground.”

(b) Sale Rate:

10. We have considered the rival stands on this issue. In our opinion there is no justification for the Assessing Officer to make the impugned addition by substituting the sale rate of another concern with respect to the sales declared by the assessee. There is no whisper much less a finding by the Assessing Officer that the assessee had made any sales outside the books of account or that the assessee has realised any sale proceeds of sugar outside the books of account. Apart from the above, the reasons for deleting the addition on account of low yield, in our view, are applicable herein also. In the result the decision of the CIT(A) is affirmed on this Ground. The Revenue accordingly fails on this Ground.

(c) Additional evidence on the issue of subscription and contribution:

14. After hearing the rival contentions and perusing the relevant material we find that the grievance of the Revenue as manifested in the Ground of appeal is clearly untenable for the following reasons. The plea of the Revenue is that the CIT(A) relied upon fresh evidence in violation of rule 46A of the Rules. We find that the Rule 46A provides the manner in which the CIT(A) is authorized to admit and consider evidence and material which was hitherto not before the Assessing Officer. It requires the CIT(A) to confront the material is question to the Assessing Officer before admitting and considering the same. In this case, evidently the material and other pleas taken by the assessee before the CIT(A) were confronted to the Assessing Officer. The Assessing Officer has given his comments on each of the Grounds urged before the CIT(A) by way of written communication dated 8-9-2004, a copy of which has been placed in the Paper-book. So however the argument of the Revenue is that the CIT(A) has not specifically referred to Rule 46A while calling for the comments of the Assessing Officer. In our considered opinion, the said argument is quite technical and does not substantively distract from the fact that the Assessing Officer was very much in the know of the material being relied upon by the assessee before the CIT(A). The spirit of Rule 46A is founded on the principles of natural justice which in the present case, in our view, stand fulfilled by the fact that the CIT(A) obtained and considered the remand report of the Assessing Officer with respect to the submissions and material led by the assessee before adjudicating the issue before him. We therefore do not find any reasons to interfere with the conclusion drawn by the CIT(A) on this issue. Accordingly, the Revenue fails in this Ground.

(d) Deduction of interest amount:

17. After considering the rival stands on this issue, in our view, the Assessing Officer has not appreciated the fact position in its proper perspective. Firstly, the expenditure in question is incurred towards payment of interest to bank on crop loans by way of which sugarcane seed have been provided free of cost to the farmers. The expenditure has been incurred as cane development expenditure to promote the cultivation of cane in the area. The recovery made by the assessee from the defaulting farmers is not the determinant of the allowability of the impugned expenditure and it is here that the Assessing Officer erred. The expenditure on amount of interest, in our view, is not de hors the business of the assessee. The same has been justifiably held to be an allowable expenditure by the CIT(A). The stand of the CIT(A) is hereby upheld and the Revenue fails on this Ground.

(e) Penalty from growers was not income but meant for distribution to other growers:
20. After considering the rival stands, we find the grievance of the Revenue, as manifested in the Ground of appeal is merely to the effect that the CIT(A) entertained a fresh explanation in violation of the provisions of Rule 46A of the Rules. On this aspect the fact position is identical to the fact position considered by us in Ground No.3 in the earlier paragraphs. For similar reasons, we uphold the decision of the CIT(A) on this issue also. The Revenue accordingly fails on this Ground.

II. Issues on which matter has been remanded:

(f) Rate of sale of molasses:

27. From the aforesaid it emerges that the assessee itself conceded “that the sales of molasses were made at rates lower than the market rate”. To this finding of the CIT(Appeals), there is no rebuttal by the assessee before us. Therefore, the implication is that the sale of molasses has been done by the assessee at the rates lower than the market rates. Under such situation it becomes imperative for the assessee to demonstrate that the sales declared are complete and correct. We find that in order to verify the said position, the A.O. required the assessee to produce material to explain the low rate of sales. Neither before the Assessing Officer and nor before the CIT (A), the said material has been led by the assessee. No doubt, sales effected at rates lower than the market rate by itself do not result into an addition but certainly the same have to be satisfactorily explained. We, therefore, allow an opportunity to the assessee to lead evidence in this regard. The learned counsel for the assessee has referred to the written submissions in this regard which have been placed in the paper book at pages 16-17, 55 to 92 and 388 to 392. So however, the assessee is required to substantiate the explanations on the basis of evidence and material which is not on record. Hence our decision to set aside the order of the CIT(Appeals) and remand this issue to the file of the Assessing Officer to be adjudicated afresh in the light of the material with the assessee in support of its case. Therefore, on this Ground the assessee succeeds for statistical purposes.

(g) Whether interest claimed was on loan advanced for non business purposes:

31. We have considered the rival submissions carefully. At the outset it is observed that the assessee has incurred expenditure by way of interest on loans raised from the banks. It is also a fact that the assessee had advanced Rs. 6,28,62,675 to various concerns on which no interest was charged. The detail of such advances can be seen from para 8 of the order of the CIT(Appeals). It is found that the assessee made advances to co-operative sugar mills in the past years which is doubtful of recovery and no interest was charged either in this year or in the earlier years. Similarly, it is claimed that the advance to farmers and to suppliers have also been made which is in the ordinary course of business of the assessee. It is observed from the orders of the lower authorities that there is no finding as to whether such advances were made for the purpose of business or not. A finding on this aspect would be crucial for the reason that if the advances in question have been made the purposes of business, then section 36(1)(iii) does not permit any disallowance of the nature made by the Assessing Officer in this case. So however, if the advances are for considerations which are extraneous to business, the plea of the Assessing Officer is justified in view of the judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Abhishekh Industries Ltd. [2006] 286 ITR 1. We, therefore, set aside the order of the CIT(Appeals) and direct the Assessing Officer to establish as to whether or not the advances in question have been made for business purposes or not. If the advances have been made for business purpose, no disallowance is called for. If the finding of the Assessing Officer is to the contrary, then he shall be at liberty to pass any order in accordance with law. Needless to say the Assessing Officer shall allow a reasonable opportunity to the assessee of being heard before passing an order. Thus, for statistical purpose, on this Ground the assessee succeeds.

(h) Effect of amount remaining outstanding for long:

34. After hearing the rival stands we find that the issue in question requires to be factually re-appraised. Admittedly, amounts are outstanding for a fairly long period. The plea of the assessee is that the same is under dispute in the Court of law and therefore the final adjustment shall be made on the settlement of the dispute. The said plea deserves to be examined in the light of the material led by the assessee in this regard. Therefore, for this purpose, we deem it fit and proper to set aside the order of the CIT(Appeals) and direct the Assessing Officer to adjudicate the issue afresh after allowing the assessee a reasonable opportunity to substantiate the plea that the impugned sums are subjudiced before the Court of law. Thus, on this ground the assessee succeeds for statistical purpose.

(i) Issue of subsidy received:

36. On this aspect, after considering the rival stands we find that, in principle, the plea of the assessee is sustainable, so however, whether or not the subsidy has been claimed in terms of the scheme formulated, is required to be verified. For this purpose the issue is remanded to the file of the Assessing Officer to be examined afresh. Thus, on this Ground the assessee succeeds for statistical purpose.”

4. We have heard learned counsel for the appellant.

5. Contention raised on behalf of the appellant is that since the assessee led additional evidence for the first time before the CIT(A), the matter should have been remanded to the Assessing Officer instead of considering the said evidence by the appellate authority. Thus, questions (i) to (iv) should be answered in favour of revenue. He further submitted that allowing fresh opportunity to the assessee as per paras 27, 31, 34 and 36 was arbitrary and questions (v) and (vi) should be answered in favour of the revenue. Question (vii) being consequential should be decided accordingly.

6. We are unable to accept the submission. It is not necessary that when additional evidence is furnished, the matter must be remanded to the Assessing Officer. It depends on nature of issue and nature of evidence. In an appropriate case, without any prejudice to either of the parties, the evidence can be looked into by the appellate authority itself. In such a case, it may not be necessary to remand the matter to the Assessing Officer. In the present case, as observed by the Tribunal in para 14 of its order, reproduced above, the material produced by the assessee to the CIT(A) was duly furnished to the Assessing Officer and his comments were taken by way of written communication which was due compliance of Rule 46A. The remand report of the Assessing Officer was duly considered by the CIT(A) on merits. The findings recorded by the CIT(A) have duly been considered by the Tribunal. The finding of the Tribunal has not been shown to be erroneous on merits. The Tribunal held that no adverse inference could be drawn from low yield by suspecting the accounts of the assessee. The accounts of the assessee were duly audited by its own auditors as well as by the auditor appointed by the Registrar. The account books were duly maintained in normal course of business. No discrepancy was pointed out in the records maintained. Mere fact that the yield of the assessee was not comparable to other yields, could not be a ground to doubt the results declared by the assessee. There was nothing to show that any sales were made outside the books of account. Interest paid to the Bank was duly established. Expenditure incurred on development was also duly established. Same is the position on the issue of genuineness of sale rate, evidence regarding subscription, contribution and treatment of penalty amount. Questions (i) to (iv) have, thus, to be decided against the revenue. As regards questions (v) and (vi) relating to rates of molasses non-recovery of the shortage amounts, the use of subsidy and expenditure by way of interest on loans raised from the banks, the matter has merely been remanded to the Assessing Officer to ascertain the true facts. The remand is for valid reasons mentioned in the order quoted above and no prejudice has been caused to the revenue. There is no illegality in the course so adopted.

7. Accordingly, questions (v) to (vii) have to be decided against the revenue.

8. There is, thus, no ground to interfere with the view taken by the Tribunal.

The appeal is dismissed.

[Citation : 335 ITR 43]

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