2022 (5) TMI 1058 - AT - Income Tax

Tribunal: Inclusion of Cooperatives' Income Upheld, Ceremonial Expense Disallowance Reduced

M/s. Bhima Sahakari Sahkar Karkhana Ltd. Versus JCIT, Special Range – 3 Pune

The Tribunal upheld the inclusion of the amount received from other sugar cooperatives as taxable income, directing the AO to rectify the assessment ... Taxable income - amount received from other sugar co-operatives - HELD THAT:- CIT (A)’s second round order in issue said contention of the appellant that the amount received on the sale of sugar cane to other sugar factories is transferred to sugar cane developmental fund and therefore the same is not taxable, is not an acceptable argument. The excess cane available with the appellant was sold to other sugar factories and therefore the same is a revenue receipt which should have been included as revenue receipt by the appellant. The transfer of such receipt to cane development fund is immaterial and the same is nothing but appropriation of income - amount has been rightly included by the AO in the income of the appellant. The order of the AO is accordingly found in order and the same is confirmed. However; it is observed that. the AO has omitted to add the amount in the computation of total income forming part of the assessment order, The AO is accordingly directed to rectify this mistake and add the same to the total income while giving effect to this order. Mr. Walimbe vehemently could hardly rebut the clinging fact that the CIT(A)’s detailed discussion has failed to comply with their lordships directions in explicit terms. We thus restore the instant issue once again back to the CIT (A) for his afresh adjudication on merits as contemplated under Section 250(6) of the Act. The assessee succeeds in its first substantive ground for statistical purposes. Ceremonial expenses disallowance - Disallowance restricted @ 25% - HELD THAT:- We are of the opinion that such an estimation of routine day-do-day expeses; not doubted in principle but disallowed on adhoc basis, does not always form a binding judicial precedent. More so when the CIT (A) has not even discussed the evidence on record. Faced with this situation, we hold that larger interest of justice would be met in case the impugned disallowance is restricted @ 10% only subject to the condition that the same shall not be treated as a precedent. Ordered accordingly. Issues:1. Treatment of amount received from other sugar cooperatives as income.2. Disallowance of ceremonial expenses.Issue 1: Treatment of amount received from other sugar cooperatives as incomeThe appeal for AY 1997-98 concerns the treatment of an amount received from other sugar cooperatives as income. The appellant's substantial ground sought to reverse the lower authorities' decision to treat the amount as taxable income. The Tribunal noted that this was the second round of proceedings, with the High Court directing a fresh adjudication in light of relevant legal precedents. The appellant argued that the amount was not taxable, citing specific circumstances and agreements with other sugar factories. However, the Tribunal upheld the AO's inclusion of the amount in the appellant's income, emphasizing that the transfer to a development fund did not alter its nature as a revenue receipt. The Tribunal directed the AO to rectify the omission of adding the amount to the total income in the assessment order, and the issue was remanded back to the CIT(A) for further adjudication.Issue 2: Disallowance of ceremonial expensesThe second issue pertained to the disallowance of ceremonial expenses amounting to Rs. 5,93,711, which was restricted to 25% by the CIT(A). The Tribunal noted that the CIT(A) relied on a previous tribunal order for the restriction. However, the Tribunal found that such ad hoc disallowances should not always be binding as judicial precedents, especially when evidence on record is not adequately discussed. In the interest of justice, the Tribunal reduced the disallowance to 10% without setting it as a precedent. The appellant's appeal was partly allowed on this issue.In conclusion, the Tribunal's judgment addressed the issues of treating the amount received from other sugar cooperatives as income and the disallowance of ceremonial expenses. The decision provided detailed analysis, considering legal precedents and specific arguments presented by the parties. The judgment remanded the first issue back to the CIT(A) for further adjudication and adjusted the disallowance of ceremonial expenses.