2007 (10) TMI 297 - HC - Income Tax

Bogus Transaction purchase of sugar payment of additional price to sugarcane growers - The assessee has decided to enhance the sugarcane price but has also unilaterally decided to credit the sum to the share deduction account, which was subsequently utilised for allotment of shares to the members. This unilateral act of the society is an indicator to the fact that the deduction claimed by the assessee was not purely a simple transaction of purchase of sugarcane and fixation of the price after the end of the previous year. The additional price is in excess of the price fixed by the Cane Commissioner for the crushing season held that - the action of the assessee was not bona fide and this device was employed to avoid payment of dues to the exchequer. The findings recorded by the Tribunal are findings of fact and do not give rise to any question of law much less a substantial question of law deduction not allowed.

Issues Involved:
1. Condonation of delay in refiling the appeal.
2. Justification of the addition sustained by the Tribunal on account of additional cane price paid to sugarcane growers.
3. Legality of the Tribunal's decision based on new and irrelevant basis not arising from the Commissioner of Income-tax (Appeals) order.
4. Jurisdictional overreach by the Tribunal in sustaining the addition on new and relevant basis.
5. Perversity and erroneous criteria in the Tribunal's findings rejecting the appeal and confirming the addition.

Detailed Analysis:

1. Condonation of Delay in Refiling the Appeal:
The court addressed an application under section 151 of the Code of Civil Procedure for condonation of a 46-day delay in refiling the appeal. Upon reviewing the application, the delay was condoned, and the application was disposed of accordingly.

2. Justification of the Addition Sustained by the Tribunal:
The primary issue in the appeal was whether the assessee was entitled to claim a deduction for additional sugarcane price as a business expenditure, especially when no payment had been made before the end of the financial year and the liability was directly credited to the share capital account. The Tribunal's findings highlighted several key points:
- The additional sugarcane price was fixed unilaterally by the assessee after the end of the previous year.
- No payment was made to the sugarcane growers; instead, the liability was credited to the share deduction account to enhance the capital base.
- The procedure for price fixation as per the society's bye-laws was not followed.
- The additional price was only fixed in years when the assessee earned significant profits, indicating an intention to enhance capital at the cost of the exchequer.

3. Legality of Tribunal's Decision Based on New and Irrelevant Basis:
The Tribunal's decision was challenged on the grounds that it was based on new and irrelevant considerations not arising from the Commissioner of Income-tax (Appeals) order. The Tribunal noted that the additional price fixation was not in accordance with the society's bye-laws or any government order, and the grower members were not informed about the price increase or the allotment of shares.

4. Jurisdictional Overreach by the Tribunal:
The assessee argued that the Tribunal exceeded its jurisdiction by sustaining the addition on a new and relevant basis not considered by the Commissioner of Income-tax (Appeals). The Tribunal's findings indicated that the enhancement of sugarcane price was a unilateral act by the society and was not a simple transaction of price fixation for sugarcane supply. The Tribunal concluded that the deduction claimed was not bona fide and was a device to avoid tax liabilities.

5. Perversity and Erroneous Criteria in Tribunal's Findings:
The assessee contended that the Tribunal's findings were perverse and influenced by irrelevant considerations. The Tribunal's decision was based on the following:
- The assessee fixed additional liability for sugarcane price only in profitable years.
- The capital base was enhanced without actual payment to the growers.
- The grower members were not informed about the price increase or share allotment.
- The resolution for price enhancement was adopted without cash payments, aiming to enhance capital without tax payments.

The Tribunal concluded that the assessee's actions were not bona fide and were aimed at avoiding tax liabilities. The findings were deemed factual and did not raise any substantial question of law. The appeal was dismissed with no order as to costs, referencing the precedent set by Shahabad Co-operative Sugar Mills Ltd. v. CIT [1997] 226 ITR 582.

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