TaxTMI 
TaxTMI 
2015 (4) TMI 1202
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.... an entry to the tune of Rs. 2,53,23,741/- in the 'Share Deduction Account" in General Ledger and carried forward balance of Rs. 3,58,82,389/- which included the opening balance of Rs. 1,03,10,705/- of preceding year. Corresponding to the credit entry of Rs. 2,53,23,741/- in the share deduction account, the assessee had made the debit entry in the Sugarcane Account to the tune of Rs. 2,53,28,438/- with the narration "to amount of Sugarcane purchases at Rs. 9/- and others". The debit comprised of two entries being Rs. 2,53,23,741/- on account of additional price of sugarcane @ Rs. 9/- per quintal and Rs. 4697.93 in respect of "Burnt in cane PNB 10240-4240". 4. When assessee was asked to explain the above situation, it was submitted that sugarcane was purchased at an adhoc price. The Board of Director in the meeting held on 17.4.1993 decided to increase the sugarcane price by Rs. 9/- per quintal with the condition that the same be credited to the share deduction account. It was further explained that subsequently shares were issued to the Members in lieu to the additional cane price which was credited to the share deduction account. However, Assessing Officer did not find these su....
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....cal book entries. xi) That the liability, if any, had been crystallized only after 17.4.93 i.e. after the close of accounting period and that the entry was one sided act on the part of the assesses without either informing the share holders and without paying the same to them. xii) That the Board of Directors passed resolution to enhance the sugarcane price merely because the mill had earned substantial profit and the assessee wanted to apply the income toward the enhancement of share capital and not making any payment to the cane growers." 5. On the basis of above addition, penalty proceedings u/s 271(1)(c) of the Act were initiated. In response to the show cause notice it was mainly stated that there was no intention to conceal the particulars of income. The Managing Director had no personal benefit by increasing the cane price. The main purpose for such increase was to give benefit to the farmers. The payment can be made directly or the same can be invested by such farmers in the form of shares. The decision of the Board was later on ratified by general body. In fact prices had to be increased because the sale price of sugarcane was not commensurate with the....
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.... 6. Thereafter he discussed his reasoning for levy of penalty and ultimately levied a penalty @ 100% amounting to Rs. 1,00,62,526/-. 7. On appeal before CIT(A) various submissions were made which have been summarized by Ld. CIT(A) in para 2.3 which is as under:- i) That the authorized share capital of the Mill was to be increased. Which was to be contributed by individual sugarcane growers, the State Government, the Financial Institutions and the Central Government. ii) That the appellant is a semi Govt. Organization being managed by the Managing Director appointed by the Secretary, Deptt. of co-operation/the Registrar of Co-operative Societies of Punjab and all its accounts are immaculately maintained by the Chief Accounts Officer. iii) That sugarcane is a cash crop whereas the competing wheat and paddy are traditional crops. Cash crop cannot be retained or preserved for a longer period as the other crops. iv) That it has always been considered disadvantageous by the farmers to gross sugarcane since its cultivation has been far less remunerative. v) That the increase in the price of sugarcane has not been commensurate with the incr....
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.... The Tribunal also confirmed the addition on these premises which is not correct. It was contended that what was required to be seen is whether expenditure was actually incurred or not and same was for business consideration or not. 9. The Ld. CIT(A) considering all these arguments observed that assessee had failed to substantiate the reasons for enhanced payments and the explanation given was not bonafide, therefore, levy of penalty was confirmed. 10. Before us it was submitted that crop of the cane is a cash crop but cost of production for the same was much more than the price fixed by the State Government. In this background the farmers were shifting from growing cane to other crops like wheat etc. To encourage the cane crop, the government encourages sugar industries through Cooperative sector. Such Cooperatives were directed and encouraged to provide ruminative price to the cane growers. The assessee Society in this background had increased their prices during the year by Rs. 9/- per quintal and the decision was taken by the management. However, the same could be approved by the Board only on 7.4.1993 but this should not have been disallowed merely because the decision w....
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....account without any approval from the general body meeting and the farmers were never informed regarding this decision which clearly shows that assessee has merely tried to reduce its profits by showing increased expenditure of sugar cane which has never been paid to the farmers. He also strongly relied on the decision of Hon'ble Delhi High Court in the case of CIT v Zoom Communication P. Ltd. 327 ITR 510 (Delhi) 13. We have considered the rival submissions carefully in the light of material available on record as well as judgments cited by the parties. We find that when the matter was considered by the Hon'ble e Punjab & Haryana High Court while deciding the quantum proceedings in ITA No. 84 of 2006 vide order dated 16.10.2007, the Hon'ble High Court observed at pages 11 & 12 as under:- "From the perusal of the above, it would be noticed that the Tribunal after appreciating the material on record has recorded the following findings:- a) that the assessee had been fixing final price and creating additional liability on account of additional sugarcane price only in those assessment years when the assessee had earned huge profits; b) that the....
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....exercise envisaged in the clause 24 A was undertaken by the assessee for the AY 1993-94 proves that the assessee had the mens rea and this exercise was willful attempt to evade tax. There was a conscious effort on the part of the assessee to gain pecuniary advantage at the cost of exchequer. In the following paras the exercise is discussed in detail to bring about the mens rea on the part of the assessee;.." 16. Further reasons given in para 1.2.3 have already been extracted by us in para 5 of this order. It has been clearly noted that increased prices was never paid to the farmers but adjusted in the share capital account. It is also noted that such increase was granted in the years of profits. If assessee really wanted to give benefit to the farmers, we fail to understand why money was not paid to the farmers. If money was to be adjusted in the share capital account then consent of farmers should have been obtained by way of general body meeting which was never done and the decision to convert to increased price was ratified only on 26.6.1995 These factors clearly shows that assessee has merely tried to evade tax by showing extra expenditure on account of enhance price for sug....