The Commissioner of Income Tax vs Siddheshwar Sahakari Sakhar Karkhana Ltd.

A.I.S. Cheema, J.—This Appeal is filed by the Commissioner of Income Tax, Aurangabad against order of the Income Tax Appellate Tribunal, Pune in I.T.A. No.1298/PN/2009 dated 30th November 2009, vide which order the Appellate Tribunal confirmed the order dated 10th August, 2009 of the Commissioner of Income Tax (Appeals), Aurangabad in ABD/CIT(A)/195/2008-09.

The Appeal filed before the Commissioner of Income Tax (Appeals) was against the orders dated 24th December 2008 passed by Assistant Commissioner of Income Tax, Circle-1, Aurangabad, u/s 143(3) of the Income Tax Act, 1961, relating to the assessment year 2006-2007.

The facts of the case show that the Assessee, Siddheshwar Sahakari Sakhar Karkhana Ltd., a sugar factory had given advances to Harvesting and Transporting Contractors (H and T Contractors). Interest was not charged on the advances, whereas the Karkhana was paying heavy interest to the other Banks/Institutes from whom the loan/advances had been taken. The Assessing Officer disallowed and brought to tax Rs.41,30,672/- on account of notional interest incurred on advances made to the H and T Contractors. The submission of the Assessee that the Karkhana was not charging interest on the advances to H and T Contractors because, if they charge interest on the advances to H and T Contractors, the contractors would not turn up to render proper services in future, was not accepted. The Assessing Officer held that the interest @ 12% as per prevailing rate of interest was disallowed and he treated the same as diversion of borrowed funds for non business purposes.

In the Appeal carried to Commissioner of Income Tax (Appeals), it was claimed by the Assessee that the advances are given to the cane transport and harvesting contractors for wholly and exclusively for business purpose and so the Assessing Officer was not justified in making addition of notional interest on such advances. The Assessee placed reliance on the case of the The Commissioner of Income Tax Vs. Samarth Sahakari Sakhar Karkhana Ltd., Commissioner of Income Tax (Appeals) found that the appeal deserved to succeed. Reliance was placed on order dated 20th August, 2007 in ITA No.805/PN/2005 in the case of ACIT Circle-3, Nanded vs. Shankar SSK Ltd., Nanded A.Y.1993-94. Commissioner of Income Tax (Appeals) deleted the addition of Rs.41,30,672/- made by the Assessing Officer.

The matter was carried by the Revenue to Income Tax Appellate Tribunal and the Appellate Tribunal relied on the decision in the case of ACIT vs. Tuljabhavani SSK Ltd. in ITA No.1743 to 1745/PN/2004 dated 30th May, 2007. The Tribunal reproduced following paragraphs from that order of 30th May, 2007:

"It is well known that the Cane Harvesting and Transport is carried out by the sugar factories to schedule fresh cane of desired quantity and quality. This increases the yield of sugar from sugarcane. The advances are made by the sugar factory to the Cane Harvesting and Transport Contractors in the course of carrying on their business activities of purchasing fresh cane of desired quality and quantity. Therefore, whatever advances made by the assessee to harvesting and transport contractors can be said to have been made only for business purposes. The disallowance of interest on the amount of advances to the harvesting and transport contractors is, thus, not called for. Therefore, this ground is decided against the revenue."

� Following the earlier decision the appeal was dismissed.

Against the above concurrent Judgments, present Appeal has been tendered u/s 260A of the Income Tax Act, 1961. In the Appeal questions of law proposed by Revenue are:

"(1) Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the advances to Harvesting and Transport contractors are in the nature of business advances?

(2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing interest on borrowed funds, which have been utilized towards interest free advances for non business purpose?

We have heard the learned Standing Counsel for the Appellant. Reference needs to be made to the Judgment of this Court in the matter of the The Commissioner of Income Tax Vs. Samarth Sahakari Sakhar Karkhana Ltd., This Judgment was relied by the Assessee before the Commissioner of Income Tax (Appeals). In that matter, substantial question of law raised was :

"A) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the advances paid to the harvesting transport contractors was in the nature of business interest of the respondent and not a diversion of borrowed funds for non business purposes, even though such advance was not made in the normal course of business and was made without any specific contractual obligations and such payments were made out of the borrowings on which the respondent was paying higher interest to the financial institutions?"

This Court found in that matter, that the assessee had given advances to H and T contractors at lower rate of interest and that the same could not be ground to hold that the borrowed funds had been diverted for non business purposes. The substantial question of law framed, was answered in favour of the assessee for the reasons recorded in the Judgment. In that matter, the advance given was on less rate of interest. The difference in present matter is that here the advance has been given without charging interest on the advances given to H and T contractors. This however, is not material as the important question is whether the advance paid to H and T contractors is in the nature of business purpose of the Assessee and not a diversion of borrowed funds for non business purpose. This question is already answered by this Court in the Judgment referred above of the Commissioner of Income Tax vs. Samarth Sahakari Sakhar Karkhana Ltd. We find that question of law tried to be raised in this Appeal has already been decided by this Court and the Revenue has unnecessarily pursued the matter. The orders of this Court were binding on the Assessing Officer also but the same were ignored and inspite of concurrent decisions of Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal, the present Appeal has been tendered. In fact, Revenue is aware of the binding nature of the Judgment of this Court. In the ground of Appeal too, it is mentioned as under:

"With due respect, the said decision of the Hon''ble Bombay High Court was not acceptable and proposal for filing SLP before the Hon''ble Supreme Court on the above said issue has already been submitted to the Board. In this connection, it is also submitted that the department is agitating the aforesaid issue in number of other Sugar Factory cases also. Hence, to maintain the consistency and to keep the above issue alive, filing of further appeal to High Court u/s. 260A is considered necessary in the present case on account of interest on advances to H and T contractors."

We find the above ground to be adamant attitude. The Judgment of this Court, as long it stands, cannot be disregarded or ignored and has to be obeyed. If the Revenue did not file SLP to the Hon''ble Supreme Court or take up the matter in Review, etc. and did not get the Judgment dated 17th September 2007 set aside till now, the Revenue cannot ignore binding effect of the Judgment of this Court. Revenue cannot escape by saying that the decision of the High Court was not acceptable and could not ignore the same on the ground that there is a proposal to file SLP.

We find the approach of the Revenue to the binding Judgment of this Court objectionable. We refrain from passing adverse orders on this occasion, with the expectation that in future such litigations would be avoided by Revenue and will not add to unnecessary burden of Judiciary.

There is no substantial question of law involved.

The Appeal is dismissed.