TaxTMI 
TaxTMI 
2004 (11) TMI 281
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....llowance of Rs. 2,53,23,741 representing additional sugarcane price disallowed by the Assessing Officer. The relevant facts relating to the issue have been discussed by the Assessing Officer in the assessment order. In the course of inspection carried out by the Assessing Officer on 21-11-1994 u/s 131, it was observed that the assessee had made an entry to the tune of Rs. 2,53,23,741 in the share deduction account reflected in the general ledger and carried forward balance of Rs. 3,58,82,389 had been increased to which included the opening balance of Rs. 1,03,10,705 of the preceding year. Corresponding to the credit of Rs. 2,53,23,741 in the share deduction account, the assessee had made a 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. 4,697.93 in respect of "burnt cane PNB 10240-4240". On inquiry by the Assessing Officer, it was pleaded on behalf of the assessee that sugarcane had been purchased during the previous year relevant to assessment year 1993-94 at an....
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.... order to make credit entries in the individual share capital a/c of various shareholders/sugarcane suppliers. (vi) That the shareholders/sugarcane suppliers had not been informed regarding the credit to their account till then passing of the assessment order. (vii) That in some of the farmers' accounts, credit entries had been made after the issue had been raked up by the Department on 21-11-1994. According to the Assessing Officer, it was evident that no corresponding entries were made in the share deduction account. (viii) That on 5th Dec, 1994, the Managing Director of the Society in his statement had indicated the reasons for not issuing the shares in the name of sugarcane suppliers as the formalities had to be completed regarding the determination of full value of shares, addresses of the shareholders and, therefore, the entries could not be made as on 31-3-1993. (ix) That till the date of inspection u/s 131 and even till the date of finalization of the assessment proceedings, the assessee had not made specific book entries and no evidence had been produced for the dispatch of share certificates to the shareholders/farmers. (x) That the main purpose of the asse....
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....t year under appeal with the supply of sugarcane, inviting our attention to the Bye-laws of the Society, it was pointed out that clause 24A of the said bye-laws provides that the Board would fix an initial price for sugarcane/beet in accordance with the formula determined by the State Federation of Co-operative Sugar Mills in consultation with the sugar mills and Registrar. Final payment shall be made at the end of the crushing season. It was contended that immediately after the end of the previous year, a meeting of the Board of Directors was convened and a resolution passed. The said resolution was also ratified in the general meeting held on 26-7-1995. It was further contended that in the immediately preceding year, similar procedure was followed and deduction claimed by the assessee was allowed. It was contended that the said decision of the revenue authorities has become final. The ld. Counsel for the assessee pointed out that after the decision of the Board of Directors on 17-4-1993, entries were made in the books of account as on 31-3-1993 as the balance-sheet of the Society was signed subsequently i.e. on 29-10-1993. The ld. Counsel for the assessee further contended that t....
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....e of crediting the share deduction account and debiting the sugarcane price account was to enhance the share capital at the cost of the revenue. It was contended that as on 31st March, 1993, there was no liability of the assessee to pay the additional sugarcane price to the growers. The assessee had made huge profits and in order to pay less taxes, it was decided to make a provision on account of additional sugarcane price without any payment to the sugarcane growers. Entries have been made in the books of account at the end of the previous year and no payments have been made to the sugarcane growers. The credit to the share deduction account was merely to enhance the share capital of the assessee. The growers had no knowledge of the increase in the prices. Even after the expiry of one and a half years, no entries had been made in the individual accounts of the farmers who had supplied sugarcane to the assessee. The ld. D.R. relied upon the statement of the Managing Director of the Society who had admitted that additional sugarcane price was paid as the Society had made huge profits. Our attention was also invited to the Agenda of the Board's meeting held on 17-4-1993 and the comme....
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....bsp; Rs.60 per qtl. 3. Late Variety : CO-1148 & COS 767 Rs.58 per qtl. 4. The price of COJ-84 will be the same as that of COJ-64 From 1st February onwards and similarly the price of CO-1148 will also be same as of COJ-64 from 1st March onwards." These prices are fixed in consultation with the Chief Minister, Punjab. We find a reference to this in the paper placed at page 117. The relevant portion is reproduced hereunder:- "From: The Cane Commissioner, Punjab, Chandigarh. To All the Managing Directors/General Managers of the Sugar Mills in the State. No. CC/F-8/6650-71 dated 22-9-1994 Sub: Minutes of the me ting regarding sugarcane pricing Held under the Chairmanship of Sardar Beant Singh, Chief Minister, Punjab, on 8-9-1994 at 7.00 P.M. The minutes of the meeting held on 8-9-1994 under the Chairmanship of Sardar Beant Singh, Chief Minister, Punjab in which the State advised price of sugarcane for the year 1994-95 was approved are sent herewith for favour of information & necessary action please. Sd/- Encl: As above. Cane Commissioner, ....
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....ugarcane growers and instead crediting the additional price to the share deduction account? The procedure for fixation of price as provided under clause 24A of the bye-laws of the Society, reproduced elsewhere in this order, has also not been followed. In this case, it is not even the case of the assessee that the assessee that the fixation of the final price of sugarcane was also in accordance with the formula provided under clause 24A of the bye-laws of the Society or in pursuance to any order of the Govt. or any other authority. It is also noteworthy that when the assessee was running in losses, the sugarcane price had not been enhanced by fixing the final price after the end of the crushing season. The fixing of final price and creating of additional liability on account of additional sugarcane price has been only in the years in which the assessee earned huge profits. It is, therefore, evident that in effect, the assessee has enhanced its capital base at the cost of the exchequer by making a provision on account of additional sugarcane price without making such payments to the sugarcane growers, it may be pertinent to mention that the Bye-laws of the Society, copy of which is ....
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....bsp; (b) Government 448.00 448.00 458.93 453.90 453.93 (c) Societies 39.37 393.37 39.37 39.37 39.37 (d) Share Deduction 32.56 21.40 22.80 103.10 358.82 1994-95 1995-96 1996-97 1997-98 1998-99 290.25 403.45 403.91 407.35 418.76 &nbs....
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....bsp; .. .. .. 3 Additional Price (ACP) (Rs./Qtl) 1993-94 1994-95 1995-96 1996-97 9 6 10 .... 1997-98 1998-99 1999-2000 2....
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.... From cane per qtl. per qtl. price 1994-95 1995-96 1996-97 Cash @ Cash @ Nil Rs.3 Rs.7 ....
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....p; 1992-93 1993-94 1994-95 1995-96 (4) Amount of Additional 80.32 253.24 129.79 43.13" Cane Price It is evident from the above information that the share capital of the Govt. has remained static @ 453.93 lakhs since previous year 1991-92. The share capital of member societies has also remained static @ 39.37 lakhs. The share capital of individual member has increased from 58.22 in 1991-92 to 424.98 lakhs in 2002-03 (financial year). 10. In the share deduction account there is a credit of Rs. 117.10 lakhs even as on 31-3-2003. As pointed out earlier share deduction account is accumulation of additional sugarcane prices deducted by the assessee in the four financial years. Clause 24A of the bye-laws to the extent of fixation of final price seems to have operative only for ....
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....nts to the sugarcane growers was unilateral and, therefore, it cannot be viewed as a simple fixation of actual price for supply of sugarcane in the previous year. 13. It may be relevant to refer to the powers and duties of the Board of Directors as per Bye-laws of the Society. One of the powers indicated under clause 20(va) is as under:- "20(va) - To recommend to the General Body any deductions from the cane price paid to members. Such deductions to be made on voluntary basis may be used for health, education, services and for the development of co-operatives for the benefit of the area falling within the area of operation of the mills." Clause 26 also provides that the mill shall be competent to deduct any dues recoverable from the member on account of services rendered by it out of the sale proceeds of the sugarcane/beet supplied to it. There is no other clause in the bye-laws authorizing the Board of Directors to make deductions from the cane price paid to the members for allotment of shares. Therefore, the act of non-payment of additional sugarcane price fixed by the Society demonstrated its real intention behind enhancing sugarcane price with a new to enhance the shar....