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TMI Blog2022 (3) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Level Co-operative Societies to raise their sales invoices on the appellant on a similar basis which the Govt. of India (GOI) has prescribed for the appellant i.e. cost plus a fixed gross margin. In fact even the market/mandi charges and other taxes etc. are also charged as a percentage. The State Level Cooperatives raise their sale bills on NAFED giving various components of the direct costs like basic price, purchase tax, marketing fees, packing charges etc. as well as their margin of profit for meeting their own administrative costs etc. Pricing mechanism fixed by the Government of India, it is clear that the assessee has merely paid the purchase price as agreed. However, only to monitor the pricing, the cost components are separately shown so as to reimburse the assessee for any loss incurred by it in execution of PSS/MIS - Since the amount paid by the assessee to the Dist/State Level Cooperatives is only the purchase price and not in the nature of commission, no disallowance under section 40(a)(ia)is called for. Disallowance of Expenses u/s. 40(a)(ia) - HELD THAT:- Disallowance u/s. 40(a)(ia) was made by the AO for late deposit of TDS deducted u/s. 194C during De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee and not reimbursed by the GOI/Railways on account of Price Support Scheme and Market Intervention Scheme. These expenses are not penal in nature and hence claimed u/s. 37 - Since, the expenses are incurred in connection with the business of the assessee, no disallowance is called for. Disallowance u/s. 37 - assessee has claimed in the P L Account an amount towards Reimbursement of Deficit/Surplus from/to business associates on account of reimbursement as per the terms of Memorandum of Understanding dated 11th April 2008 between the said entity and the assessee - HELD THAT:- Recorded sales and purchases/costs (though made/incurred by the business associate) in the books of the assessee, as the result an amount of ₹ 10,03,22,868/- is shown as the difference between the sale and the purchase in the books of the assessee which was payable to the business associate after deducting the service charges of ₹ 53,33,813/- being income of the assessee. Thus, the balance amount of ₹ 9,49,89,055/- payable to the business associate namely M/s. R. Piyarelal Global Impex Ltd. was recorded as an expense in the books and the account of the business ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per Dr. B. R. R. Kumar , Accountant Member The present appeal has been filed by the Revenue against the order of ld. CIT(A)-18, New Delhi dated 30.03.2015. 2. The assessee is a cooperative society registered under Cooperative Societies Act, 1912 and is a nodal organization for purchase of agriculture produce under price system scheme and market intervention scheme of Government of India. Interest liability relating to M/s. Alimenta, Geneva: 3. The assessee has claimed the deduction on account of interest payment based on the judgment of decree passed against the appellant by the Hon'ble Delhi High Court. This deduction of payment of interest was claimed in the computation of income. The grievance of the department is that though the same has been claimed in the computation of income, but the same has not been charged as an expense in the audited accounts/books. Apart from this since the appellant follows Mercantile accounting system, therefore, the impugned amount only is a provision of liability which is-not ascertained and is therefore in the nature of contingent liabilities only. 4. We find that the issue stands examined in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m various primary societies and/or the State Level Co-operative Agricultural Marketing Federation on a parallel method. 7. The State level Cooperative Societies purchases goods from the farmers and discharges the price payable to the farmers themselves. The purchases are packed at its own cost and after payment of Market/Mandi fee and purchase tax, supplies the same to the assessee. The assessee purchases the goods from such District/State level Cooperatives against their sales bill/invoice. 8. In order to enable the Govt. of India (GOI) to verify the costs etc., the appellant requires the Societies to raise their sales bills/invoices on the appellant indicating various components of cost and their mark up properly. The State level Society prepares the invoices by mentioning the basic price determined by the Government and after collecting Market/Mandi fee and their handling charges loosely called as commission and after charging sales tax/VAT on the entire costs raises the invoice on the assessee. The appellant also maintains its purchase books/registers in a manner to depict all the components of cost for enabling the GOI to audit/verify the efficacy of the PSS/MIS operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trative costs etc. 13. In view of the above stated facts and the pricing mechanism fixed by the Government of India, it is clear that the assessee has merely paid the purchase price as agreed. However, only to monitor the pricing, the cost components are separately shown so as to reimburse the assessee for any loss incurred by it in execution of PSS/MIS. 14. Therefore, since the amount paid by the assessee to the Dist/State Level Cooperatives is only the purchase price and not in the nature of commission, no disallowance under section 40(a)(ia)is called for. Disallowance u/s. 40(a)(ia): 15. Disallowance u/s. 40(a)(ia) was made by the AO for late deposit of TDS deducted u/s. 194C during December 2008 and February 2009 for payments made. TDS was deposited in the government treasury on 25.05.2009 which was before the due date of filing of return u/s. 139(1) of the Income Tax Act, 1961. No disallowance is called for u/s. 40(a)(ia) owing to the decision of the Income Tax Appellate Tribunal, Delhi 'H' Bench, in the case of Taru Leading Edge (P) Ltd., New vs ITO dated 22 May, 2012 in ITA no. 3592/Del/2011 for Assessment year 2008-09. Depreciation u/s. 32: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the P L Account an amount of ₹ 9,49,89,055/- towards Reimbursement of Deficit/Surplus from/to business associates on account of reimbursement to M/s. R. Piyarelall Global Impex Ltd. (RGPIL) as per the terms of Memorandum of Understanding dated 11th April 2008 between the said entity and the assessee. 21. Under this model the purchase and sales are booked in the books of the assessee as normal sales and purchase of the commodity and the difference between the purchase and sales after reducing the amount of service charges is booked to the party account being the amount due/receivable from the party who is called the business associate of the assessee. 22. Total export sales made by the business associates which was recorded in the books of NAFED is ₹ 43,19,58,813/-. Against the said sales the purchase cost and other expenses incurred which is also recorded in the books of NAFED is ₹ 33,16,35,813/-, as a result an amount of ₹ 10,03,22,868/- is sitting as the difference between the sale and the purchase. The said amount after reducing the actual service charges of ₹ 53,33,813/- which is the income of the assessee, the balance of ₹ 9,49, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee who during the year under assessment has suffered operating loss of ₹ 46,98,33,553 crores which also include the loss of ₹ 9,49,89,056/- crore on account of purported passing of profits to M/s. RIPGL and the inference drawn erroneously that the transaction with RPGIL appears to be in the nature of collusive payment made by the assessee to its associate exporter alleging that in the name of back to back arrangement. (g) The A.O. laid emphasis mainly on that The NAFED already had opening stock of 66414.80 MT rice in the hand in addition to stock in transit of 7801.40 MT Parboiled rice required for export; The entire fund for execution of shipment of 12500 MT has been invested by NAFED to RPGIL (as per terms of MOU); Expenses on packing and forwarding amounting to ₹ 43,66,620- has been incurred and paid by NAFED; Apparently not a single panny investment has been made by the associate exporter R. Piyarelel Global Impex Ltd.; All the risks and liabilities since opening of LC and payment of P L charges has been undertaking by NAFED and no liability towards that has been assigned to RPGIL; All and entire efforts and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent the revenue is recognized in the books of the assessee. Correspondingly the purchase cost/expenses incurred by the business associates were also debited by the assessee in its books of accounts and to that extent the cost is recorded. 30. Thus, the difference is sitting in the books of the assessee after reducing the service charges being the true income of the assessee, was nullified by debiting the profit Loss account under the head Reimbursement of Deficit/Surplus from/to business associates . 31. Hence, we decline to interfere with the order of the ld. CIT(A). Disallowance of prior period adjustments: 32. During the course of assessment proceedings, based upon the amount classified as Prior Period Adjustments in the audited accounts, the Ld. AO made the aforesaid disallowance by holding that the liability of these expenses were crystallized in previous years. 33. The same has been deleted by the ld. CIT(A). 34. As per the details furnished the audited accounts contain the prior period expenses aggregating to ₹ 52,81,079/-. The submissions of the assessee briefly are as under: From the details of the respective branches it will be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NAFED on account of its diversification of business had undertaken trading activities under Tie-up arrangement as per Clause 3(A) of bye- laws of NAFED duly approved by Central Registrar of Cooperative, GOI. 40. Copies of MOU/Agreements entered into by NAFED with parties for tie-up business reveal that in order to tap international market, NAFED has diversified into import/export business for various Agricultural/Non-agricultural Commodities. 41. It was argued that the business activity with the parties, known as tie-up parties was undertaken with an objective to earn income. 42. The business activity with the parties, known as tie-up parties was undertaken since A.Y. 2003-04. And for A.Y. 2004-05 to A.Y. 2006-07 when the transactions of sales with tie-up parties were at large scale. Out of outstanding recoverable from tie-up parties aggregating to ₹ 1123.98 crores as on 31.03.2011 and ₹ 1191.56 as on 31.03.2012 the advance of ₹ 428.55 crores are secured against stocks. The security in the form of stocks against these advances proves itself that the same were towards business purposes. It is uncontroverted that these tie-up advances were given by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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