1988 (7) TMI 103 - AT - Income Tax

Issues Involved:

1. Whether the CIT (Appeals) was justified in allowing the deduction of Rs. 31,70,412 as the additional cane price payable during the assessment year 1981-82.
2. Whether the CIT (Appeals) erred in deleting the addition of Rs. 94,63,092 on account of excess levy of sugar price.
3. Whether the CIT (Appeals) erred in deleting the addition of Rs. 17,95,409 being the interest on excess levy of sugar price.
4. Whether the CIT (Appeals) erred in deleting the disallowance of Rs. 1,23,113 being the ex gratia payment to the employees.
5. Whether the CIT (Appeals) erred in deleting the addition of Rs. 3,50,000 for not charging interest on loans given to subsidiary companies.

Issue-Wise Analysis:

1. Deduction of Rs. 31,70,412 as Additional Cane Price:

The primary issue was whether the additional cane price of Rs. 31,70,412 should be allowed as a deduction for the assessment year 1981-82. The CIT (Appeals) allowed this deduction, stating that the liability had accrued during the previous year as the assessee followed the mercantile system of accounting. The additional cane price was considered qualitatively similar to the normal price of sugarcane, and thus a liability against the income of the year in which the sugarcane was purchased. The CIT (Appeals) cited the Supreme Court's decision in Kedar Nath Jute Mills (82 ITR 363) to support this view. However, the department argued that the liability did not accrue during the previous year since it depended on the fulfillment of certain conditions and the determination by a competent authority. The Tribunal initially reversed the CIT (Appeals) decision, stating that the liability did not accrue until the competent authority determined the additional cane price. However, upon referring the matter to a Third Member, it was concluded that the view of the Judicial Member was correct. The liability to pay the additional cane price accrued when the sugarcane grower supplied more than 85% of the agreed quantity, and the quantification by the competent authority did not postpone the accrual of liability.

2. Deletion of Rs. 94,63,092 on Account of Excess Levy of Sugar Price:

The second issue was the deletion of Rs. 94,63,092, which the IAC (Asst.) added on account of excess levy of sugar price. This point was covered by the Tribunal's orders in the assessee's own case for the assessment years 1975-76 and 1980-81. The CIT (Appeals) decision to delete this addition was confirmed, as no new facts or reasons were presented by the revenue to challenge the earlier decisions.

3. Deletion of Rs. 17,95,409 as Interest on Excess Levy of Sugar Price:

The third issue involved the deletion of Rs. 17,95,409, which was added as interest on the excess levy of sugar price. Similar to the second issue, this point was also covered by the Tribunal's previous orders in the assessee's own case. The CIT (Appeals) decision to delete this addition was upheld for the same reasons as the deletion of the excess levy of sugar price.

4. Deletion of Rs. 1,23,113 as Ex Gratia Payment to Employees:

The fourth issue was the deletion of Rs. 1,23,113, which the IAC (Asst.) disallowed, treating it as bonus not in accordance with the Payment of Bonus Act. The CIT (Appeals) allowed this amount, stating it was an ad hoc payment linked to the attendance of the workers, not a bonus under the Bonus Act. The Tribunal confirmed the CIT (Appeals) decision, agreeing that the payment was related to attendance and allowable under Section 37 of the IT Act, 1961.

5. Deletion of Rs. 3,50,000 for Not Charging Interest on Loans to Subsidiary Companies:

The fifth issue was the deletion of Rs. 3,50,000, which was added because the assessee did not charge interest on loans given to subsidiary companies. The Tribunal had previously decided this issue against the revenue in the assessee's own case for the assessment year 1978-79. The CIT (Appeals) decision was in line with the Tribunal's earlier findings, and no new facts or reasons were presented to warrant a departure from the previous decision.

Conclusion:

The departmental appeal was partly allowed. The Tribunal upheld the CIT (Appeals) decisions on the deletion of additions related to excess levy of sugar price, interest on excess levy, ex gratia payment to employees, and non-charging of interest on loans to subsidiary companies. However, the initial decision to allow the deduction of Rs. 31,70,412 as additional cane price was reversed by the Tribunal but ultimately upheld by the Third Member, confirming that the liability had accrued during the assessment year 1981-82.

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