2016 (6) TMI 746 - HC - Income Tax

Reopening of assessment - taxability of income of the sugarcane - Held that - A Division Bench of this Court in the case of Shri Chalthan Vibhag Khand Udylog Mandli Ltd. vs. Deputy Commissioner of Income-Tax, reported in 2015 (7) TMI 297 - GUJARAT HIGH COURT , had quashed the notice for re-opening which was based on identical reasons, it was held that the difference between the price to be paid to cane growers and the purchase price declared by the Government under sugar Sugar Control Order cannot be said to be by way of distribution of profits. It was held that the Assessing Officer had not carried out any inquiry before coming to a contrary conclusion and that he should not have a reasonable belief for forming the opinion that the income chargeable to tax had escaped the assessment. Also see Shri Narmada Khand Udhyog Sahakari Mandli Ltd. vs. Income Tax Officer 2016 (2) TMI 385 - GUJARAT HIGH COURT - Decided in favour of assessee

Summary

Issues:
Challenge to notice for re-opening assessment for the assessment year 2010-11 by a sugar co-operative society based on reasons recorded by the Assessing Officer. Taxability of income of sugarcane purchased by the co-operative society. Application of section 147 of the Income Tax Act. Interpretation of the Sugarcane (Control) Order 1966. Judicial precedent regarding taxability of income from sugarcane purchases by co-operative societies.

Analysis:

1. The petitioner, a sugar co-operative society, contested a notice for re-opening assessment issued by the Assessing Officer for the assessment year 2010-11. The reasons for re-opening assessment included the practice of deciding sugarcane purchase prices after finalizing accounts to distribute profits among sugarcane growers without paying income tax on the profits earned. The Assessing Officer believed that the excess payments made by the society to its members represented the "Real Income" of the society and should have been taxed. The Assessing Officer concluded that income had escaped assessment, justifying action under section 147 of the Income Tax Act.

2. The central question of taxability of income from sugarcane purchases had been addressed in previous judgments. A Division Bench of the High Court, in a similar case involving a sugar factory, had quashed a notice for re-opening assessment based on identical reasons. The court held that the difference between payments to cane growers and the government-declared purchase price did not constitute distribution of profits. The Assessing Officer was criticized for not conducting a proper inquiry before alleging income tax evasion, lacking a reasonable belief for initiating re-assessment proceedings.

3. Following the precedent set by the earlier judgment, the High Court allowed the petition challenging the notice for re-opening assessment. The court cited consistency with previous rulings and set aside the impugned notice. The judgment emphasized that without recording separate reasons, the petition was disposed of in favor of the petitioner, reinforcing the interpretation that the income from sugarcane purchases by co-operative societies did not amount to tax evasion.

This detailed analysis covers the issues raised in the legal judgment, including the challenge to the notice for re-opening assessment, the taxability of income from sugarcane purchases, the application of section 147 of the Income Tax Act, the interpretation of the Sugarcane (Control) Order 1966, and the significance of judicial precedents in determining tax liabilities for co-operative societies involved in sugarcane production.