Gujarat State Seeds Corporation, ... vs Department Of Income Tax

ITA No.1666/Ahd/2012 Asst. Year 2009-10 ITA Nos.2955, 2057 & 1666 2 Asst. Years 2007-08, 2008-09 & 2009-10

Dy. CIT, GNR Circle, Vs Gujarat State Seeds Gandhinagar, Block No.14, Corpn, 4th floor, Udyog Bhavan, Beej Bhavan, Sector- Sector-11, Gandhinagar. 10A, Gandhinagar (Appellant) (Respondent)

Appellant by Smt. Sonia Kumar, Sr. DR Respondent by Shri Sunil Talati & Shri J. P. Shah, A.R.

Date of hearing: 01.06.2015 Date of pronouncement:29/06/2015

ORDER

PER Shailendra Kumar Yadav, Judicial Member.

All these appeals of Revenue pertain to the same assessee and the issues involved are similar, so they were heard together and they are being disposed of by this common order for the sake of convenience.

2. In ITA No.2955/Ahd/2010, Asst. Year 2007-08:

ITA Nos.2955, 2057 & 1666 3 Asst. Years 2007-08, 2008-09 & 2009-10

Ground No.1:

The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of closing stock of Rs.1,61,88,935/- being 50% of the value of seeds procured by it.

3. The facts are that the AO made an addition of Rs.1,61,88,935/- being 50% of the value of seeds purchased on 'Jangad' basis. The assessee is a State Government Company engaged in production processing and marketing of seeds. The Assessing Officer noted that the seeds procured from farmers are excluded by the assessee from the inventory of the corporation until certification from concerned agency is obtained. The assessee clarified that seeds are procured from farmers under contract farming. The payment of 50% of approximate market value of seeds brought by farmers to assessee is made to the farmers. Then the seeds are sent for certification for quality. Once the seeds are certified by Gujarat State Seeds Certifying Agency then only the seeds are shown in the purchases. Until then this remains 'jangad stock' kept on behalf of the farmers with corporation and payment made to farmers is shown as advance to farmers'. The assessee further claimed that the above system was being consistently ITA Nos.2955, 2057 & 1666 4 Asst. Years 2007-08, 2008-09 & 2009-10

followed by it over the years. The Assessing Officer rejected the assessee's claim observing as under :-

''As per the significant accounting policies, purchases of seeds procured from farmers under seed production programmes are accounted for as purchases only after necessary certification from the concerned agency. Pending such certification, the stock received from farmers are treated as goods received on behalf of the farmers and are also excluded from the inventory of the Corporation. Thus, the assessee has neither shown such seeds amounting to Rs.3,23,77,870/- as its purchases nor has included such seeds in its closing stock. As per assessee's submissions, it has made an adhoc payment of 50% of such stock to the farms and such payment is shown as advances to farmers. On perusal of the balance sheet of the assessee, it is seen that the assessee has not shown any such advances to the farmers on the asset side of the balance sheet. Therefore, 50% of the value of seeds amounting to Rs.1,61,88,935/- shall be added to the assessee's income.''

3.1. The matter was carried in appeal before the first appellate authority wherein detailed submissions were made on behalf of the assessee. The ld. CIT(A) after considered the submissions of the assessee and the contention of the Assessing Officer granted relief to the assessee. The same has been opposed.

3.2. Before us the ld. DR reiterated the stand of the Assessing Officer and submitted that Assessing Officer had rightly observed that the assessee has neither shown such seeds amounting to ITA Nos.2955, 2057 & 1666 5 Asst. Years 2007-08, 2008-09 & 2009-10

Rs.3,23,77,870/- as its purchases nor has included such seeds in its closing stock. Therefore, he made addition of 50% of the value of seeds amounting to Rs.1,61,88,935/-. On the other hand, the ld.

ARs. on behalf of the assessee supported the order of ld. CIT(A) and submitted that the Assessing Officer erred in making addition of Rs.1,61,88,935/- as income on value of seeds procured on 'jangad' basis. Seeds are procured from farmers subject to approval and certification from Gujarat State Seeds Certifying Agency. The Assessing Officer erred in not considering the seeds procured from farmers on approval basis. The assessee has been adopting this practice for last one year. But no disallowance has been made in earlier years. In a nut shell the ld. AR submitted that order of the ld. CIT(A) be upheld.

3.3. After going through the material on record, we find that Assessing Officer has added Rs.1,61,88,935/- i.e. 50% of 'jangad' stock of Rs.3,23,77,870/- He observed that the assessee has neither shown seeds of Rs.3,23,77,870/- as purchases nor has included in its closing stock. The stand of the assessee has been that goods are received on approval basis. Till the goods are certified to be of reliable quality, the same remains property of farmers and are kept in the godown of assessee. Only after certification of the seeds by the concerned certifying agencies, the above seeds are taken into ITA Nos.2955, 2057 & 1666 6 Asst. Years 2007-08, 2008-09 & 2009-10

purchase account of assessee. Only then that would form closing stock at the end of the year. The Assessing Officer has further observed that assessee was making adhoc payment of 50% of the stock to the farmers as advances on receipt of goods on approval while as per the balance sheet, the assessee has not shown such advances on the asset side of the balance sheet. The assessee gave detailed bifurcation in this regard and had stated that it is evident from the annual accounts of the assessee. As per Schedule ''J'' of loans and advances, advances recoverable in cash or kind are shown at Rs.3,18,56,035/- in balance sheet. The grouping of Sch. ''J'' shows advances to producers (farmers against Jangad purchases) at Rs.56,64,882/- which is supported by the detailed statement of part payment made of 'Jangad Stock'farmer-wise. The assessee fully explained its stand as taken in its account. The assessee has been following this system of accounting in a consistent manner. Same has been accepted by the department as evident from the orders passed u/s 143(3) of the Act in the earlier years. The books of the assessee are audited by tax auditors, government auditors and statutory auditors. The assessee's reliance on provisions of Section 24 of the Sale of Goods Act and Accounting Standards in this regard was found appropriate. Keeping in view of our discussion, we find that CIT(A) was justified in deleting the addition of Rs.1,61,88,935/-. No ITA Nos.2955, 2057 & 1666 7 Asst. Years 2007-08, 2008-09 & 2009-10

interference is called for in the well reasoned order of CIT(A). Accordingly same is upheld.

4. The similar issue arose in ITA No.2057/Ahd/2011 Asst. Year 2008-09 being ground No.5 as is involved in AY 2007-08. The facts and circumstances of this case are identical to that of AY 2007-08 which has been approved by us vide para No.3 above of this order. Therefore, we are not inclined to interfere in the order of ld. CIT(A) on this issue. The same is upheld.

5. Next issue as raised in the ground No.4 in ITA No.2057/Ahd/2011 for AY 2008-09 (and ground No.3 of ITA No.1666/Ahd/2009-10 are common regarding deletion of addition of Rs.40,00,000/- made on account of revolving fund). The addition of Rs.40 lakhs treating the receipts from Government of Gujarat as revenue receipts, the Assessing Officer decided the same in assessment order as under :-

''4.1 From the above discussion, it is clear that Government of Gujarat has regularly given financial assistance to the assessee for various purposes as under :

i) To strengthen the process of purchasing, storage of seeds;

ITA Nos.2955, 2057 & 1666 8 Asst. Years 2007-08, 2008-09 & 2009-10

ii) To give financial support to Gujarat State Seeds Corporation Ltd., so that the good quality seeds are available to the farmers at reasonable rates;

iii) To meet the working capital requirement of the Gujarat State Seeds Corporation Ltd.

It is found that the Assessee company has fully utilized the fund for these purposes.

4.2 It is also clear that while other subsidies are received by the assessee as a nodal agency for disbursement to various other concerns belonging to government of Gujarat Rs.40 lac received under revolving fund partake the character of revenue receipt for the assessee company. The fact that the assessee has not returned back to amount, under revolving fund, to the Government in spite of having surplus under this head. Strengthen the fact that it is indeed revenue receipt in the hands of the assessee.

4.3 The Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. & Others 228 ITR 253 has held that if some subsidy is given to the assessee for assisting him in carrying out the business operation such subsidy must be treated as assistance for the purpose of trade and hence classified as revenue receipts.

In the present case too, during the year, Rs.40 lac is received for the purpose of day-to-day business viz. purchasing, procuring, processing, storage of seeds and meeting the working capital requirement. The assessee has utilized the grant for this purpose only.

4.4 In view of the facts brought out as above Rs.40 lac received from the Government of Gujarat under the head "revolving fund'' ITA Nos.2955, 2057 & 1666 9 Asst. Years 2007-08, 2008-09 & 2009-10

during F.Y. 2007-08 is treated as revenue receipt in the hands of the assessee and added to the total income for the year under consideration.''

5.1 The matter was carried before the first appellate authority where in the contentions on behalf of the assessee are as mentioned in para 4.2 of the order of CIT(A) and after considering the facts and circumstances of the case CIT(A) has deleted the addition holding the fund not to be of the nature of income.

5.2 The ld. DR submitted that CIT(A) erred in deleting the addition of Rs.40 lakh because the same was not utilized for the purpose of which it was given. The order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand the ld. counsel for the assessee supported the order of CIT(A).

5.3 After considering the rival submissions and going through the material on record we find that the issue before us is treatment of revolving funds received from Government of Gujarat. The purpose of the funds is to augment the trading activity of the assessee meaning thereby if it was a case of non returnable grant or subsidy it would have been a revenue receipt. The Assessing Officer failed to appreciate that the fund is returnable on demand.

ITA Nos.2955, 2057 & 1666 10 Asst. Years 2007-08, 2008-09 & 2009-10

The nature of this fund is that of a loan without interest. A loan can never partake the form of income. The amount given was neither returnable and nor a liability. It is utilized for the purpose it is given. So, this cannot be held to be of the nature of income. In this background, the addition made by the Assessing Officer was rightly deleted by the CIT(A). Same is upheld. This take care of this issue in both years i.e. Asst. Years 2008-09 & Asst. Year 2009-10.

6. Next issue as raised in ground No.4 In ITA No.1666/Ahd/2012 for AY 2009-10 is as under :-

4. The ld. CIT(A) has erred in law and on facts in deleting the addition made by the AO towards enhancement of Closing Stock amounting to Rs.12,71,103/-

7. The facts are that Assessing Officer made the addition of Rs.12,71,103 stating that the expenses incurred under the head Carriage Inward, Processing, Inspection, Seed Testing, Loading & Unloading charges, Octroi etc. attributable to closing stock of seeds have not been considered by the assessee. He therefore, modified the closing stock upwards by Rs.12,71,103/- and made the corresponding trading addition.

ITA Nos.2955, 2057 & 1666 11 Asst. Years 2007-08, 2008-09 & 2009-10

7.1 The matter was carried in appeal to the CIT(A) where the

contentions were raised as recorded in para 5.1 of CIT(A)'s order.

Having considered the same the CIT(A) has granted relief to the

assessee. Similar addition was made by the Assessing Officer in

the preceding assessment year without confronting the issue to the

assessee. However, when the facts were remanded to the Assessing

Officer, the mistake was accepted and the addition was deleted.

This year also, the addition has been made ignoring the fact that

the Audit Report annexed with the return as well as the specific

author's certificate in this regard before the Assessing Officer vide

Annex.E to its letter dated 14/10/2011 in the assessment

proceedings. The CIT(A) observed that it is clear from the above

that the assessee has already considered the expenses under four

heads i.e. Carriage Inward, Processing Inspection, Seed Testing,

Loading and Unloading charges and octroi for seed purchase.

Therefore, there remains no further scope for addition of

Rs.12,71,103/- as made in the assessment order. Therefore, the

addition made is uncalled for and was directed to be deleted.

ITA Nos.2955, 2057 & 1666 12 Asst. Years 2007-08, 2008-09 & 2009-10

7.2 The DR supported the order of Assessing Officer and the ld.

Authorized Representative supported the order of CIT(A).

7.3 After considering the rival submissions and going through

the material on record, in our opinion there is no need to interfere

in the well reasoned order of CIT(A) because the assessee has

already considered the expenses under the head Carriage Inward,

Processing, Inspection, Seed Testing, Loading & Unloading

charges and seeds purchase. No such disallowance was desirable.

Therefore, we uphold the same.

8. Ground No.5 in ITA No.1666/Ahd/2012 for AY 2009-10

reads as under :-

The ld. CIT(A) has erred in law and on facts in deleting the additions made by the AO in the value of seeds purchased amounting to Rs.57,79,414/-.

9. An identical issue came up before us for AY 2007-08 for our

consideration and after detailed discussion we have decided the ITA Nos.2955, 2057 & 1666 13 Asst. Years 2007-08, 2008-09 & 2009-10

same vide para-3.3 above. The facts being similar, this issue is

taken care of by our above decision. Nothing contrary has been

brought to our notice by the Revenue, so, we find no infirmity in

the order of CIT(A) who has deleted the impugned addition.

10. In the result, all the appeals filed by the Revenue are

dismissed.

Order pronounced in the open Court on 29/6/15

Sd/- Sd/-

(Anil Chaturvedi) (Shailendra Kumar Yadav) Accountant Member Judicial Member

Dated :_29/6/2015

Mahata/-

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad ITA Nos.2955, 2057 & 1666 14 Asst. Years 2007-08, 2008-09 & 2009-10

1. Date of dictation: 1/6/2015

2. Date on which the typed draft is placed before the Dictating Member: 3/6/2015 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk: 29/6/15

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: