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Issues Involved:
1. Conversion of RDF loan into grant-in-aid and its taxability under Section 28(iv) of the IT Act. 2. Disallowance of expenses related to the distillery unit. 3. Disallowance of depreciation on the distillery unit. 4. Denial of deduction under Section 80P(2)(a)(iii) of the IT Act. 5. Assessment of grant-in-aid in the year of actual receipt versus the year of conversion. Detailed Analysis: 1. Conversion of RDF Loan into Grant-in-Aid: The primary issue was whether the conversion of RDF loans into grant-in-aid should be treated as a revenue receipt under Section 28(iv) of the IT Act. The Tribunal noted that the RDF loan was initially provided to compensate the sugar mills for paying higher prices to sugarcane growers, which is a revenue expense. The conversion of this loan into grant-in-aid was intended to improve the financial position of the mills, making it a revenue receipt. The Tribunal relied on several judgments, including Sahney Steel & Press Works Ltd. vs. CIT, which held that subsidies given to assist in carrying on business are revenue receipts. It was concluded that the grant-in-aid was a trading receipt and taxable as such. 2. Disallowance of Expenses Related to the Distillery Unit: The Tribunal upheld the disallowance of Rs. 29,07,740 claimed as expenses for the distillery unit, which was non-operational during the assessment year. The Tribunal found that since the distillery unit had no business activity and separate books of accounts were maintained for it, the expenses could not be deemed as incurred wholly and exclusively for business purposes. 3. Disallowance of Depreciation on the Distillery Unit: The Tribunal agreed with the CIT(A) that depreciation of Rs. 3,87,637 on the distillery unit's plant and machinery should be disallowed as the assets were not put to use during the assessment year. The Tribunal emphasized that both ownership and actual use of the assets are essential conditions for claiming depreciation under Section 32 of the IT Act. They rejected the argument that passive use suffices for depreciation. 4. Denial of Deduction under Section 80P(2)(a)(iii): The Tribunal denied the deduction under Section 80P(2)(a)(iii), which is available to co-operative societies engaged in the marketing of agricultural produce grown by their members. It was noted that the assessee was involved in processing sugarcane into sugar, which is a manufacturing activity, not marketing of agricultural produce. This decision was based on the precedent set by Karnal Co-operative Sugar Mills Ltd. vs. CIT. 5. Assessment of Grant-in-Aid in the Year of Actual Receipt Versus the Year of Conversion: The Tribunal dismissed the argument that the grant-in-aid should be assessed in the year of actual receipt of the loan. It ruled that the grant-in-aid accrued and was received in the assessment year under consideration, and thus, it should be taxed in that year. The Tribunal referred to Section 5 of the IT Act, which defines the scope of total income, to support this conclusion. Conclusion: The Tribunal dismissed the appeals, confirming the CIT(A)'s decisions on all grounds. The conversion of RDF loans into grant-in-aid was treated as a revenue receipt taxable under Section 28(iv). Expenses related to the non-operational distillery unit and depreciation on its assets were disallowed. The deduction under Section 80P(2)(a)(iii) was denied as the assessee's activities were deemed manufacturing rather than marketing of agricultural produce. The grant-in-aid was to be assessed in the year it accrued and was received, not in the year of the original loan receipt.
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