ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 4(3), MUMBAI, MUMBAI vs. THE MALEGAON SAHAKARI SAKHAR KARKHANA LIMITED, PUNE

आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: These four appeals are filed by the Revenue against separate orders passed by the learned Commissioner of Income Tax (Appeals)-54, Mumbai [for A.Ys. 2014-15, 2016-17 and 2017-18] and learned Commissioner of Income Tax (Appeals)-52, Mumbai [for A.Y. 2018-19][hereinafter referred to as "CIT(A)"], all dated 24.01.2026, arising from assessments framed under section 143(3) of the Income-tax Act, 1961 [hereinafter referred to as "the Act"]. Since common issues arise in all the appeals and the facts are substantially identical, these appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience and brevity. Facts of the Case 2. The assessee is a co-operative sugar factory registered under the Maharashtra Co-operative Societies Act, 1960 and is engaged in the business of manufacture and sale of sugar and its by- products. The assessee is also engaged in distillery and co- generation activities. The principal controversy involved in the present appeals relates to the allowability of expenditure claimed towards Khodki Charges, concessional sale of sugar to members and employees and deduction claimed in respect of contribution to Vasantdada Sugar Institute ("VSI").

3 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 3. The particulars of the assessment years involved, the authorities below and the orders impugned before us are summarized as under: Assessment Assessing Officer Date of Assessment Year Order 2014-15 ITO, Ward-14(5), Pune 02.12.2016 2016-17 ITO, Ward-14(5), Pune 30.12.2018 2017-18 ITO, Ward-14(1), Pune 29.12.2019 2018-19 ACIT, Central Circle- 11.06.2021 4(3), Mumbai

4 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited assessee contended that such expenditure was incurred pursuant to directions of the Sugar Commissioner and formed part of the sugarcane development programme followed by co- operative sugar factories, the assessee failed to establish the business necessity and genuineness of the expenditure with satisfactory evidence. The Assessing Officers further observed that the proposal for such payments emanated from the assessee itself and that no corresponding quantity of sugarcane was received in consideration thereof. The expenditure was accordingly treated as application of income and disallowed. 6. The Assessing Officers further noticed that the assessee had supplied sugar to its members and certain other persons at concessional rates. The explanation of the assessee was that such concessional supply constituted a long-standing co-operative practice intended to maintain cordial relations with members and cane growers and to ensure continued supply of sugarcane to the factory. The Assessing Officers, however, held that the concession represented benefit extended to members and therefore partook the character of distribution or application of income. The additions were accordingly made by computing the difference between the concessional rates and the rates which, according to the Assessing Officers, ought to have been charged. 7. The Assessing Officers also examined the deduction claimed by the assessee in respect of contribution payable to Vasantdada Sugar Institute. According to the Assessing Officers, deduction under section 35(1)(ii) of the Act is allowable only in respect of

5 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited sums actually paid to an approved research institution. Since, according to the Assessing Officers, the assessee had merely created a provision without making actual payment during the relevant previous year, the claim was disallowed. 8. Aggrieved by the additions and disallowances so made, the assessee carried the matter in appeal before the learned CIT(A). During the appellate proceedings, the assessee submitted that Khodki Charges represented expenditure incurred in connection with sugarcane development activities and were directly connected with the business operations of the sugar factory. It was contended that such expenditure was consistently incurred by co-operative sugar factories in Maharashtra and had been allowed in earlier years. The assessee further submitted that the expenditure was wholly and exclusively incurred for the purposes of business and therefore allowable under section 37(1) of the Act. 9. In relation to concessional sale of sugar, the assessee contended before the learned CIT(A) that the issue was covered by judicial precedents rendered in the context of co-operative sugar factories. It was submitted that concessional sale of sugar to members and cane growers was a recognised incident of the co- operative structure and constituted expenditure incurred in the course of carrying on the business of the assessee. It was further submitted that similar claims had been accepted in earlier years.

6 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 10. In respect of VSI contribution, the assessee submitted that the liability to contribute arose pursuant to directions issued by the State Government and constituted a crystallised business liability. The assessee further relied upon various judicial precedents including the judgment of the Hon'ble Bombay High Court in CIT v. Sai Ambika Sahakari Sakhar Karkhana Ltd. and decisions of the Pune Bench of the Tribunal to contend that the deduction was allowable notwithstanding the fact that payment had not been made during the relevant previous year. 11. The learned CIT(A), after considering the assessment orders, written submissions filed by the assessee, remand material available on record and the judicial precedents cited before him, accepted the contentions of the assessee and granted relief in respect of the additions/disallowances made on account of Khodki Charges, concessional sale of sugar and VSI contribution. The learned CIT(A) held that the claims were allowable in the light of the factual material and judicial precedents relied upon by the assessee. 12. Being aggrieved by the relief granted by the learned CIT(A), the Revenue is in appeal before us.Since the Revenue has raised identical grounds in all four appeals and the issues relate to (i) Khodki Charges, (ii) concessional sale of sugar and (iii) VSI contribution, the grounds for the A.Y. 2018-19 are reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to

7 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited delete the disallowance of Rs.5,36,82,006/- made on account of Khodki charges, without appreciating the fact that the assessee failed to substantiate the genuineness and necessity of such expenditure with proper documentary evidence as required under the provisions of the Income-tax Act, 1961. 2. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in accepting the explanation of the assessee that Khodki charges were paid for clearing stubs of sugarcane without conducting proper verification or calling for corroborative evidence to establish that such expenditure was actually incurred wholly and exclusively for the purposes of business as required under section 37(1) of the Income-tax Act, 1961. 3. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate the fact that the assessee did not furnish verifiable details such as identity of recipients, supporting vouchers, labour records or confirmations in respect of the Khodki charges and therefore the Assessing Officer was justified in disallowing the said expenditure. 4. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance merely on the basis of submissions of the Authorised Representative without properly examining the evidences on record and without addressing the deficiencies pointed out by the Assessing Officer during assessment proceedings. 5. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing the assessee's claim in respect of sale of sugar at concessional rates to members by placing heavy reliance upon the decision of the Hon'ble Supreme Court in the case of CIT v. Krishna SSK (2012) 211 Taxman 109 (SC). The learned CIT(A) failed to appreciate that the Hon'ble Supreme Court in the said decision had not rendered any conclusive finding approving the allowability of sale of sugar at concessional rates on the occasion of Diwali or otherwise, but had merely remitted the matter to the file of the CIT(A) for de novo adjudication while keeping all questions of fact and law open. 6. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in misinterpreting the observations of the Hon'ble

8 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited Supreme Court in the aforesaid decision as laying down a binding ratio permitting concessional sale of sugar to members. The Hon'ble Supreme Court had specifically directed the concerned ld. CIT(A) to verify the basis on which the quantity of sugar was fixed for sale to members/cane growers/farmers, both during Diwali and on a month-to-month basis, and to examine the relevant accounts and supporting material. The ld. CIT(A), instead of undertaking such verification in the spirit directed by the Hon'ble Supreme Court, treated the remand order as a precedent in favour of the assessee, which is legally unsustainable. 7. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in not properly appreciating the scope and limitations contained in the Government of Maharashtra Circular dated 01.03.2006 (Outward No. CS/Admin-1/Circular/05), which clearly prescribes that concessional sale of sugar is restricted to a maximum of 5 kg per member per month, at specified rates, and is applicable only to members and employees, and further only to those members who have supplied cane to the factory as per rules. The ld. CIT(A) failed to consider that any sale beyond the limits and conditions prescribed in the said Circular cannot be treated as allowable business expenditure. 8. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that extension of concessional sales to non-members in a non-discriminatory manner would render the deduction allowable. Such finding is contrary to the express language of the Government Circular and contrary to settled principles of law. The ld. CIT(A) ought to have upheld the disallowance made by the Assessing Officer in full, as the concessional sale extended beyond the permissible class of beneficiaries and beyond the prescribed conditions amounts to application of income and not allowable business expenditure under the provisions of the Income-tax Act, 1961. The order of the learned CIT(A) is therefore erroneous and liable to be set aside. 9. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction of provision for VSI contribution under section 35(1)(ii) of the Income-tax Act, 1961, ignoring the fact that no actual payment was made by the assessee to the said institution during the relevant previous year.

9 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 10. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate that deduction under section 35(1)(ii) of the Income-tax Act, 1961 is allowable only in respect of sum actually paid to an approved research association or institution and therefore a mere provision or book entry cannot be treated as eligible deduction. 11. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the liability to contribute to VSI arose due to State Government direction and therefore deduction can be allowed on accrual basis, ignoring the specific statutory requirement of payment prescribed under section 35(1)(ii) of the Income-tax Act, 1961. 12. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in relying upon the judgment of CIT v. Sai Ambika Sahakari Sakhar Karkhana Ltd. and certain decisions of the ITAT, without properly appreciating that the facts of the present case are distinguishable and that the assessee had not actually made payment of contribution to VSI during the relevant year. 13. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the claim of expenditure without establishing that the said expenditure was wholly and exclusively incurred for the purposes of business as required under section 37(1) of the Income-tax Act, 1961. 14. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate that the burden of proving the genuineness, necessity, and business nexus of the expenditure lies upon the assessee, which the assessee failed to discharge during the assessment as well as appellate proceedings. 15. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in accepting the explanation of the assessee at the appellate stage without calling for corroborative evidence or remanding the matter to the Assessing Officer for verification. 16. Whether the deletion of the addition by the ld. CIT(A) has resulted in incorrect allowance of undue benefit to the assessee, thereby causing loss of revenue, which is contrary to law and judicial principles.

10 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 17. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate that section 35(1)(ii) of the Income-tax Act, 1961 specifically allows deduction only in respect of any sum actually paid to an approved research association or institution, and that mere provision or accrual of liability does not satisfy the statutory requirement. 18. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that mercantile accounting principles justify allowing deduction on a provision basis, whereas the statutory provision requires actual payment and mercantile accounting cannot override the clear mandate of law. 19. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has failed to consider that contribution to VSI is not a routine business expenditure and becomes deductible only under section 35(1)(ii), and therefore, strict compliance with the conditions of the section, including actual payment, is mandatory. 20. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in relying upon the judgments of the Hon'ble Bombay High Court in CIT v. Sai Ambika Sahakari Sakhar Karkhana Ltd. and ITAT Pune Bench decisions in The Malegaon Sahakari Sakhar Karkhana Ltd. and Bhima Sahakari Sakhar Karkhana Ltd., without considering the factual matrix of the present case where no payment was actually made. 13. During the course of hearing, the learned Authorised Representative (AR) submitted that all the issues arising in the present appeals stand concluded in favour of the assessee by a series of binding judicial precedents rendered by the Hon'ble Jurisdictional High Court as well as the coordinate Benches of the Tribunal. The learned AR invited our attention to the written submissions filed before us and submitted that the learned CIT(A), after duly appreciating the facts of the case and the settled legal position, was justified in granting relief to the assessee.Per contra, the learned Departmental Representative

11 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited (DR) relied upon the findings recorded by the Assessing Officers in the respective assessment orders. 14. We find that the grounds substantially relate to three common issues, namely, (i) allowability of Khodki Charges, (ii) allowability of expenditure arising on account of concessional sale of sugar to members and employees and (iii) allowability of deduction claimed towards contribution to Vasantdada Sugar Institute (VSI). The factual matrix as well as the arguments advanced by both sides are substantially identical in all the years, the only variation being in the quantum involved. The year- wise quantum involved under each issue shall, wherever necessary, be referred to separately. 15. Issue No. I: Deletion of disallowance on account of Khodki Charges(Ground Nos. 1 to 4 of the Revenue's appeals) Assessment Year Amount Disallowed by AO 2014-15 Rs.5,36,82,006/- 2016-17 Rs.5,99,50,244/- 2017-18 Rs.4,62,54,606/- 2018-19 Rs.5,38,22,450/-

12 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited payments were in the nature of application of income. The learned CIT(A), however, deleted the disallowance by holding that the issue was covered in favour of the assessee by binding judicial precedents. 17. The learned AR submitted that Khodki Charges are paid to sugarcane cultivators for post-harvesting activity of cleaning the agricultural field after the cane is cut and supplied to the sugar factory. It was explained that while harvesting, a portion of the cane stem remains in the field along with dried leaves and residual waste, which is required to be removed for proper cultivation and soil maintenance. The activity is carried out by the farmers themselves and the payment made is in the nature of compensation or labour charges for such agricultural operations. The learned AR submitted that such expenditure is directly connected with procurement of sugarcane and forms part of the cane price structure paid to members and non-members. It was therefore submitted that the expenditure was incurred wholly and exclusively for the purposes of business. 18. The learned AR placed strong reliance on the judgment of the Hon'ble Bombay High Court in the case of CIT v. ManjaraSahakari Sakhar Karkhana Ltd. (2008) 301 ITR 191 (Bom.), wherein the Hon'ble Jurisdictional High Court has upheld the allowability of Khodki Charges.The learned AR also relied upon the judgment of the Hon'ble Bombay High Court in CIT v. Shree PanchagangaSahakari Sakhar Karkhana Ltd. (2002) 254 ITR 572 (Bom.). The learned AR further submitted

13 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited that the Pune Bench of the Tribunal, in assessee's own case for A.Y. 2011-12 in ITA No. 2874/PUN/2016 order dated 13.06.2019, has decided the identical issue in favour of the assessee. It was also submitted that similar view has been taken by the Pune Bench of the Tribunal in the cases of several co- operative sugar factories by following the aforesaid judgments of the Hon'ble Bombay High Court. According to the learned AR, no contrary judgment of the Hon'ble Supreme Court reversing the aforesaid judgments of the Hon'ble Bombay High Court has been brought on record. 19. We have carefully considered the rival submissions and perused the material available on record. Though the Revenue has raised multiple grounds, the substance of the challenge is that the learned CIT(A) erred in treating the expenditure as allowable business expenditure and in relying upon judicial precedents while deleting the addition. Therefore, all the grounds are being dealt with together. 20. Before adverting to the contentions of the parties, it would be appropriate to briefly understand the nature of the expenditure. The assessee has explained that Khodki Charges are paid to sugarcane cultivators towards post-harvesting operations undertaken after sugarcane is cut and supplied to the sugar factory. The expenditure is incurred for cleaning the agricultural field, removal of cane stubbles, dried leaves and residual waste and for restoring the field for future cultivation. According to the assessee, such expenditure is directly connected with

14 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited procurement of sugarcane, which constitutes the principal raw material used in its manufacturing activity.

"Question No. 5 : Whether labour charges paid to the labourers of the members by the Karkhana could be disallowed on the ground that such charges were paid to non-members amounting to gratuitous payment ? Answer : The Sakhar Karkhana has incurred khodaki charges. They are paid to the labourers. These labourers help the members of the society who are the farmers. It cannot be said that such khodaki charges are not for business purposes. Hence, the department erred in disallowing khodaki charges. Accordingly, question No. 5 is also answered in favour of the assessee and against the department." 22. The aforesaid finding directly answers the principal objection of the Revenue. The Hon'ble Jurisdictional High Court has categorically held that Khodki Charges are incurred for business purposes and, therefore, the Department was not justified in disallowing the same. Once such a finding has been rendered by the Hon'ble Jurisdictional High Court, the same is binding upon us.

15 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited and, therefore, is not allowable as deduction. This contention also stands negatived by the judgment of the Hon'ble Bombay High Court in CIT v. ManjaraShetkariSahakari Sakhar Karkhana Ltd., wherein identical issues relating to sugarcane price and Khodki Charges were considered. The Hon'ble High Court noticed that the CIT(A) had treated Khodki Charges as appropriation of profits and agricultural expenditure and recorded the following facts:

"However, the CIT(A) held that the excess payment of sugarcane price was in the nature of appropriation of profits and the same would be 'bonus' within the meaning of section 2(4) of the Maharashtra Co- operative Societies Act, 1960 and such incentive bonus would not be allowable expenditure. For the same reasons, the CIT(A) held that the Khodki charges are also liable to be disallowed. The CIT(A) further held that the Khodki charges is an agricultural expenditure and since the assessee is not engaged in the agricultural activity the disallowance of Khodki charges is liable to be upheld." 24. The Hon'ble High Court thereafter approved the decision of the Special Bench of the Tribunal which had held that Khodki Charges could not be disallowed and while framing the substantial question of law specifically included the issue:

"Whether on the facts and in the circumstances of the case, cane price/Khodki charges paid by the assessee was not 'Bonus' within the meaning of section 2(4) of the Maharashtra Co-op. Societies Act, 1960 and it was allowable as business expenditure?" 25. Most significantly, while discussing the issue, the Hon'ble High Court expressly relied upon its earlier judgment in Shree PanchagangaSahakari Sakhar Karkhana Ltd. and recorded:

16 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited "Since Khodki charges were paid by the assessee as per direction of Director of Sugar to clean out farmer's land and to compensate farmer for unevenly cut cane sugar at time of harvesting, said expenses were allowable as business expenditure." 26. The learned AR has also drawn our attention to paragraph 24 of the judgment in ManjaraShetkariSahakari Sakhar Karkhana Ltd., which has been reproduced in the written submissions and reads as under:

"Similarly, the Khodki charges are incurred as per the directions of Director of Sugar to clean out the farmers land and to compensate the farmer for the unevenly cut cane sugar at the time of harvesting. This Court in the case of CIT v. Shree PanchagangaSahakari Sakhar Karkhana Ltd. has held that Khodki charges are incurred for the business purposes and hence the said expenses are allowable." 27. Thus, the Hon'ble Jurisdictional High Court has not only held that Khodki Charges are incurred for business purposes but has further held that such expenditure is allowable as deduction. The ratio is directly applicable to the facts of the present case.

17 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 29. Coming now to the individual grounds raised by the Revenue, we find that: (i) Ground challenging deletion of the addition on merits fails because the issue is squarely covered by the judgments of the Hon'ble Bombay High Court in Shree PanchagangaSahakari Sakhar Karkhana Ltd. and ManjaraShetkariSahakari Sakhar Karkhana Ltd.; (ii) Ground alleging absence of business nexus fails because the Hon'ble Jurisdictional High Court has specifically held that Khodki Charges are incurred for business purposes; (iii) Ground alleging that the expenditure constitutes appropriation of profits or gratuitous payment fails because the Hon'ble High Court has rejected the very same contention; (iv) Ground challenging reliance placed by the learned CIT(A) on judicial precedents also fails because the learned CIT(A) has merely followed binding judgments of the Hon'ble Jurisdictional High Court, which were required to be followed. 30. The Revenue has not brought to our notice any decision of the Hon'ble Supreme Court or any larger Bench taking a contrary view or reversing the judgments of the Hon'ble Bombay High Court. On the contrary, the material placed before us shows that the issue has consistently been decided in favour of co-operative sugar factories and the legal position remains unchanged.

18 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 31. In view of the binding decisions of the Hon'ble Bombay High Court in CIT v. Shree PanchagangaSahakari Sakhar Karkhana Ltd. and CIT v. ManjaraShetkariSahakari Sakhar Karkhana Ltd., and respectfully following the same, we find no infirmity in the order of the learned CIT(A) deleting the disallowance made on account of Khodki Charges. Accordingly, the order of the learned CIT(A) is upheld. 32. Ground Nos. 1 to 4 raised by the Revenue in all the assessment years are dismissed. Issue No. II: Concessional Sale of Sugar - (Ground Nos. 5 to 8) 33. During the course of assessment proceedings, the Assessing Officers noticed that the assessee had sold sugar to its members and employees at rates lower than the prevailing market price. The Assessing Officers were of the view that the difference between the market price and the concessional price represented a benefit extended by the assessee and was not incurred wholly and exclusively for the purposes of business. The Assessing Officers accordingly treated the differential amount as appropriation/application of income and made additions in the respective assessment years. 34. Before the learned CIT(A), the assessee submitted that concessional sale of sugar to members and employees was a long- standing and recognised practice followed by co-operative sugar factories. It was contended that such concession was intrinsically linked with the co-operative character of the assessee and

19 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited constituted business expenditure incurred in the ordinary course of carrying on its activities. Reliance was placed on various judicial precedents including the decision of the Hon'ble Supreme Court in CIT v. Krishna Sahakari Sakhar Karkhana Ltd.(2012)211 taxmann.com 109 (SC)and subsequent decisions rendered by the Co-ordinate Benches while deciding similar issues in the case of co-operative sugar factories. 35. After considering the submissions and judicial precedents relied upon by the assessee, the learned CIT(A) deleted the additions as mentioned below: Assessment Year Addition made by AO 2014-15 Rs.1,75,44,522/- 2016-17 Rs.81,51,558/- 2017-18 Rs.84,02,445/- 2018-19 Rs.88,24,998/-

20 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited concessional sale amounted to application or appropriation of income and that the benefit extended beyond the permissible limits prescribed by the Government Circular dated 01.03.2006. 37. The learned Authorised Representative (AR) strongly supported the order of the learned CIT(A) and submitted that the issue relating to sale of sugar at concessional rates stands covered in favour of the assessee by judicial precedents. Referring to the written submissions filed before us, the learned AR submitted that the learned CIT(A), after appreciating the facts of the case and the settled legal position, has rightly deleted the addition made by the Assessing Officer and therefore no interference is called for. 38. The learned AR submitted that the principal decision governing the controversy is that of the Hon'ble Supreme Court in the case of CIT v. Krishna Sahakari Sakhar Karkhana Ltd. & Ors. reported in (2012) 211 Taxman 109 (SC). It was contended that the Hon'ble Supreme Court never held that sale of sugar at concessional rates is automatically taxable in the hands of a co- operative sugar factory. On the contrary, the Hon'ble Supreme Court remitted the matter to the appellate authority for verification of relevant factual aspects and specifically directed examination of the following issues: "The question, whether the above difference between the fair market price and the concessional price should or should not be added to the total income of the assessee(s) Society, needs to be re-looked by Commissioner of Income Tax (Appeals)."

21 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 39. The Hon'ble Supreme Court further directed the appellate authority to examine: "(a) whether the above-mentioned practice of selling sugar at concessional rate has become the practice or custom in the Co-operative Sugar Industry; (b) whether any Resolution has been passed by the State Government supporting the practice; (c) on what basis the quantity of the final product, i.e., sugar, is being fixed for sale to farmers/cane growers/Members each year on month-to- month basis, apart from Diwali." 40. The learned AR submitted that the first and foremost issue identified by the Hon'ble Supreme Court itself was whether the differential amount between the market price and the concessional sale price could at all be brought to tax in the hands of the assessee. According to the learned AR, unless this foundational issue is answered against the assessee, the question of determining the quantum of addition does not arise.

22 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 42. The learned AR contended that the addition made by the Assessing Officer is entirely based upon notional and hypothetical income. It was submitted that the assessee neither received the differential amount nor acquired any enforceable right to recover the same from its members or cane growers. According to the learned AR, what has been brought to tax is merely an amount which the assessee could have earned had it sold sugar at a higher price. Such hypothetical income, it was argued, falls outside the scope of taxation under the Act. 43. In support of the aforesaid proposition, reliance was placed upon the judgments of the Hon'ble Supreme Court in CIT v. ShoorjiVallabhdas& Co. (46 ITR 144), Godhra Electricity Co. Ltd. v. CIT (225 ITR 746) and Poona Electric Supply Co. Ltd. v. CIT (57 ITR 521). Referring to these decisions, the learned AR submitted that the Act taxes only real income and not hypothetical or notional income and therefore the differential amount sought to be taxed by the Assessing Officer could not be regarded as income accruing to the assessee. 44. The learned AR further submitted that sale of sugar at concessional rates is a long-standing and recognized trade practice prevailing in the co-operative sugar industry in the State of Maharashtra and is duly supported by Government policy issued under section 79A of the Maharashtra Co-operative Societies Act. According to the learned AR, such concessional sales form part of the ordinary trading operations of co-operative

23 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited sugar factories and therefore cannot be characterized as appropriation or distribution of profits. 45. Elaborating the aforesaid contention, the learned AR submitted that the concessional price is determined at the very stage of sale itself. Consequently, the sale consideration realized by the assessee stands reduced at the inception of the transaction. No profit first arises and is thereafter distributed amongst the members. Therefore, the transaction is a direct trading transaction and not an instance of appropriation of profits. It was submitted that appropriation of profits can arise only after determination of profits, such as by way of dividend, bonus, distribution from reserves or application of surplus. In the present case, no such event has occurred. 46. The learned AR further submitted that an assessee is under no legal obligation to maximize its profits. Reliance was placed upon the judgment of the Hon'ble Supreme Court in CIT v. A. Raman & Co. (67 ITR 11) for the proposition that merely because a trader could have earned a larger profit, the difference cannot be brought to tax. It was contended that the Assessing Officer has sought to substitute the actual sale consideration with a hypothetical market value on the premise that the assessee should have earned a higher profit, which is impermissible in law. 47. Without prejudice, the learned AR submitted that even the provisions of section 40A(2) have no application to the present

24 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited case. Reliance was placed upon the decision of the Pune Bench of the Tribunal in ShivamrutDudhUtpadak Sahakari Sangh Maryadit v. DCIT (71 ITD 157), which was stated to have been affirmed by the Hon'ble Bombay High Court, to contend that the provisions dealing with excessive or unreasonable payments are not attracted in the manner suggested by the Revenue. 48. The learned AR also submitted that transfer pricing provisions and section 92BA relating to specified domestic transactions have no application to sale of sugar by a co- operative sugar factory to its members. Therefore, no arm's length price adjustment can be made in respect of the impugned transactions. 49. The learned AR further relied upon the recent decision of the Pune Bench of the Tribunal in Shri Vitthal Sahakari Sakhar Karkhana Ltd. v. ACIT, ITA No.1540/PUN/2024, order dated 31.12.2024, wherein the Tribunal held that concessional sale of sugar is not an expenditure debited to the Profit & Loss Account and therefore no disallowance could be made by substituting the actual sale price with an alleged market value. According to the learned AR, the ratio of the said decision squarely applies to the facts of the present case. 50. Summarising his submissions, the learned AR contended that: (i) no taxable income accrued to the assessee in respect of the differential amount; (ii) the addition is founded entirely on hypothetical income; (iii) concessional sale of sugar forms part of

25 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited the trading operations of the assessee and not appropriation of profits; (iv) there exists no statutory provision authorizing such addition; and (v) the learned CIT(A), after considering the directions of the Hon'ble Supreme Court in Krishna Sahakari Sakhar Karkhana Ltd. and the decisions of the Tribunal on identical facts, has rightly deleted the additions. The learned AR therefore prayed that the orders of the learned CIT(A) be upheld and the grounds raised by the Revenue be dismissed. Ground No. 5 - Whether the learned CIT(A) erred in deleting the addition by relying upon the decision of the Hon'ble Supreme Court in Krishna Sahakari Sakhar Karkhana Ltd. 51. We have carefully considered the rival submissions and perused the material available on record. The Assessing Officers proceeded on the footing that sugar sold by the assessee to its members and employees at concessional rates ought to have been sold at market price and, therefore, the difference between the market price and the actual sale price represented income liable to tax. The learned CIT(A), after considering the facts and the judicial precedents governing the issue, deleted the addition. 52. We find that the controversy regarding concessional sale of sugar by co-operative sugar factories was considered by the Hon'ble Supreme Court in CIT vs. Krishna Sahakari Sakhar Karkhana Ltd. & Ors. [(2012) 211 Taxman 109 (SC)]. The Hon'ble Supreme Court observed as under:

26 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited "The question, whether the above difference between the fair market price and the concessional price should or should not be added to the total income of the assessee(s) Society, needs to be re-looked by Commissioner of Income Tax (Appeals)." 53. The Hon'ble Supreme Court further directed the appellate authority to examine:

"whether the above-mentioned practice of selling sugar at concessional rate has become the practice or custom in the Co-operative Sugar Industry; and whether any Resolution has been passed by the State Government supporting the practice? The CIT(A) would also consider on what basis the quantity of the final product, i.e., sugar, is being fixed for sale to farmers/cane growers/Members each year on month-to-month basis, apart from Diwali?" 54. Thus, the Hon'ble Supreme Court did not lay down any proposition that every concessional sale of sugar necessarily results in taxable income. On the contrary, the Hon'ble Supreme Court specifically remitted the matter for examination of the foundational question whether the difference between market price and concessional price at all constitutes taxable income. The directions of the Hon'ble Supreme Court clearly recognize that the issue is fact-dependent and requires examination of the prevailing trade practice, State Government policy and the basis of such sales.

27 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited infirmity in the approach adopted by the learned CIT(A).Accordingly, Ground No. 5 raised by the Revenue is dismissed. Ground No. 6 - Whether the learned CIT(A) erred in holding that no taxable income accrued to the assessee on account of concessional sale of sugar 56. We find considerable force in the submission of the learned AR that the entire addition is founded upon a hypothetical assumption that the assessee could have earned a higher amount had sugar been sold at market price. Admittedly, the assessee neither received the differential amount nor acquired any enforceable right to recover such amount from the purchasers. 57. The Hon'ble Supreme Court in CIT vs. ShoorjiVallabhdas& Co. laid down the settled principle that income-tax is levied on real income and not on hypothetical income. The same principle was reiterated in Godhra Electricity Co. Ltd. vs. CIT and Poona Electric Supply Co. Ltd. vs. CIT. 58. We also find support from the judgment of the Hon'ble Supreme Court in CIT vs. A. Raman & Co. [67 ITR 11 (SC)], wherein the Hon'ble Supreme Court held: "The law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him."

28 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 59. The aforesaid principle squarely applies to the facts before us. The Assessing Officers have sought to tax the amount which, according to them, the assessee could have earned by selling sugar at a higher price. Such notional income cannot be brought to tax unless specifically authorised by a charging or deeming provision of the Act. 60. We therefore concur with the finding of the learned CIT(A) that no real income accrued to the assessee in respect of the alleged differential amount.Ground No. 6 raised by the Revenue is accordingly dismissed. Ground No. 7 - Whether concessional sale of sugar constitutes appropriation of profits 61. The next contention of the Revenue is that the difference between the market price and concessional sale price represents appropriation or distribution of profits.We are unable to accept the aforesaid contention. A distinction must be maintained between a trading transaction and appropriation of profits. Appropriation of profits necessarily presupposes that profits have first arisen and thereafter are distributed or applied. Typical instances of appropriation are dividend, bonus, distribution from reserves or application of accumulated surplus. 62. In the present case, the concessional price is fixed at the very stage of sale. The sale consideration itself stands determined at such concessional price. Therefore, no profit first accrues to the assessee which is subsequently distributed. The transaction

29 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited itself is a trading transaction undertaken in the ordinary course of business.Significantly, the Hon'ble Supreme Court in Krishna Sahakari Sakhar Karkhana Ltd. did not hold that every concessional sale necessarily amounts to appropriation of profits. Rather, the issue was remitted for examining the relevant facts and industry practice.Once it is accepted that the sale consideration itself is fixed at the concessional rate and the assessee never earns the differential amount, the theory of appropriation of profits loses its very foundation. 63. We therefore hold that the learned CIT(A) was justified in rejecting the allegation that concessional sale of sugar amounted to appropriation of profits.Ground No. 7 is dismissed. Ground No. 8 - Whether the addition could be sustained under section 40A(2) or any analogous provision 64. We further find merit in the submission of the learned AR that the Assessing Officers have not invoked any statutory provision authorizing substitution of the actual sale consideration with an alleged market value. Neither section 28 nor section 37 nor any deeming provision has been invoked.Even otherwise, reliance placed by the learned AR on the decision of the Pune Bench of the Tribunal in ShivamrutDudhUtpadak Sahakari Sangh Maryadit vs. DCIT [(1999) 71 ITD 157 (Pune)] is well founded. The Tribunal, after examining the statutory provisions, held:

30 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 6. We have considered the rival submissions and perused the facts on record. A plain reading of section40A(2)(a) reveals that the provision applies to "any person referred to in clause (b) of this sub-section" and insub-section (b) the persons mentioned are a company, firm, association of persons or Hindu undivided family.Thus, it is very clear that in its wisdom the Legislature specifically left out a "co-operative society" from thepurview of section 40A(2)(a). A co-operative society enjoys a special status with its own individuality anddistinctness in the scheme of the Income-tax Act. A co-operative society is a voluntary Association ofPersons, it is an economic institution formed for social purpose and not motivated by entrepreneurial profits.In other words, it is a democratic organization owned and controlled by those utilising the services. It isdistinct from Association of Persons and while a Co- operative Society is defined in the Act, there is nodefinition of Association of Persons in the Act. The Hon'ble Supreme Court in the case of CIT v. IndiraBalkrishna [1960] 39 ITR 546 had an occasion to go into the definition of Association of Persons in theabsence of definition in the Act. According to the Hon'ble Apex Court, the word " associate" means "to join incommon purpose, or to join in an action". Therefore, "Association of Persons" as used in section 3 of theIndian Income-tax Act, 1922 means an association in which two or more persons join in a common purpose orcommon action, and as the words occur in a section which imposes a tax on income, the association must beone the object of which is to produce income, profits or gains. As against the above definition of Associationof Persons as stated above, a co-operative society is a voluntary association of persons not motivated bybusiness consideration. The Income-tax Act itself distinguishes between AOP and a co-operative society inthe following manner : (a) Section 2(19) of the Act defines a co-operative society. There is no definition of AOP in the Act. (b) The rates of income-tax prescribed for a co-operative society are different from the rates applicableto AOP. (c) A co-operative society having been mainly formed on doctrine of mutuality, section 80P prescribesvarious exemptions or deduction in respect of income which arise applying the principles ofmutuality. No such exemption is available to an AOP. (d) Co-operative societies are distinctly referred to in various sections of the Act, e.g. sections 2(18)(ad), 2(24)(vii), 27(iii ),

31 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 36(1)(i)( a), 40(na), 45(3), 80-I(a)(5), 80-I(6)( i), 80-L(1)(ii), (vi), (via),(viii ) and (ix), 80P, 139(1)(b)(i ), 193(ii)( b), 194A(i), (v), (vi ), 269T and 269UA. In these sections,the co-operative society is given treatment separate from AOP establishing its distinctness. 7. In the light of above discussion, we do not agree with the argument of the learned D.R. that a co-operativesociety may be treated at par with an Association of Persons. Since the co-operative society has beenspecifically excluded by the Legislature from the purview of section 40A(2)(a), we hold that the authoritiesbelow were not justified in invoking the provisions of section 40A(2)(a) of the Act to the case of the assessee. 65. We also find that the recent decision of the Pune Bench in Shri Vitthal Sahakari Sakhar Karkhana Ltd. vs. ACIT dated 31.12.2024 has examined an identical issue. The Tribunal noticed that the Assessing Officer had made an addition on account of sugar sold at concessional rates to non-members. The Tribunal held that section 37 could not be invoked because the impugned amount did not represent an expenditure debited to the Profit & Loss Account andobserved:

3.5 On perusal of the Assessment order it is observed that the Assessing Officer as per the directions of Hon’ble Supreme Court has noted in the Assessment order that it is a customary practice to sale sugar at concessional rate , the Government of Maharashtra has directed that 5 kg sugar per month can be sold at concessional rate per member. The AO has noted in the assessment order that Assessee has sold 5 kg per month to its members. However, the AO noted that the Assessee has also sold 5 kg per month sugar at concessional rate to non-members. Therefore, the AO addedRs.41,17,967/-which was on account of sugar sold at concessional rate to Non-Members. However, AO has not given any reason formaking such addition as admittedly the sale was to non-members. The AO has added the impugned amount u/s 37 of the Act. Section 37 of the Act is about expenses claimed by the assessee. However, the impugned amount is not an expenditure. The amount has not been debited to P&L account. Therefore, the AO had no

32 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited jurisdiction to added the said amount u/s 37 of the Act. Hence, we direct the AO to delete the addition of Rs. 41, 17,967/-. Accordingly, the ground number 2 is allowed. 66. The ratio of the aforesaid decision equally supports the assessee's case. What is sought to be taxed here is not an expenditure claimed by the assessee but merely a differential amount computed by substituting the actual sale consideration with a hypothetical market value. 67. In the absence of any charging provision, deeming provision or statutory mechanism authorizing such substitution, the impugned additions cannot be sustained.Accordingly, Ground No. 8 raised by the Revenue is also dismissed. Issue No. III - Grounds Nos. 9 to 20 concerning VSI Contribution (Vasantdada Sugar Institute Contribution). 68. Ground Nos. 9 and 10 of the Revenue's appeal relate to the allowability of contribution made by the assessee to Vasantdada Sugar Institute (VSI), Pune. During the respective assessment years, the assessee claimed deduction of the contribution payable to VSI, an institution approved for scientific research activities. The Assessing Officer held that the amounts represented only a provision made in the books of account and, since the same had not been actually paid during the relevant previous year, deduction was not admissible. Accordingly, the Assessing Officer disallowed the claim in each of the years under consideration and added the same to the income of the assessee. The learned CIT(A), however, accepted the contention of the assessee that the liability

33 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited towards VSI contribution had crystallized during the relevant previous year and that, under the mercantile system of accounting, the deduction could not be denied merely because the payment was made subsequently. Following the judicial precedents relied upon by the assessee, the learned CIT(A) directed deletion of the disallowances. Year-wise Details of VSI Contribution are : Assessment Year Amount Disallowed by AO 2014-15 Rs.12,11,087/- 2016-17 Rs.18,42,575/- 2017-18 Rs.15,70,100/- 2018-19 Rs.14,76,300/-

34 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited previous year is required to be recognized in the books of account of that year. It was contended that the contribution payable to VSI had crystallized during the relevant previous year and was accordingly provided for in the books of account. According to the learned AR, once the liability had accrued and was recognized under the mercantile system, the deduction could not be denied merely because the actual remittance was made subsequently. 71. The learned AR further submitted that VSI is a recognized scientific research institution approved under section 35(1)(ii) of the Income-tax Act, 1961 read with Rules 5C and 5D of the Income-tax Rules, 1962. It was submitted that the institution has been enjoying approval under section 35(1)(ii) through various notifications issued by the Central Government from time to time and that the approval stood operative during the years under consideration. Therefore, the contribution made or provided for by the assessee towards VSI was eligible for deduction under section 35(1)(ii) of the Act. 72. Inviting our attention to section 43(2) of the Act, the learned AR submitted that the expression "paid" has been specifically defined to mean not only an amount actually paid but also an amount incurred according to the method of accounting upon the basis of which profits and gains are computed. It was therefore contended that where an assessee follows the mercantile system of accounting, a liability duly accrued and provided for in the books is deemed to have been "paid" for the purposes of the Act. Accordingly, the provision made towards VSI contribution in the

35 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited books of account was required to be treated as payment within the meaning of section 43(2). 73. The learned AR placed strong reliance upon the judgment of the Hon'ble Bombay High Court in CIT vs. Jai Ambika Sahakari Sakhar Karkhana Ltd.(Tax Appeal No. 17 of 2008), wherein an identical issue came up for consideration. Drawing our attention to the relevant observations of the Hon'ble High Court, the learned AR submitted that the Hon'ble Court specifically held that the definition of the word "paid" under section 43(2) includes not only actual payment but also liability incurred and provided for in the books of account where the assessee follows the mercantile system of accounting. According to the learned AR, the Hon'ble High Court categorically held that contribution provided for in the books towards VSI was allowable as deduction under section 35(1)(ii). 74. The learned AR further referred to paragraphs 8 and 9 of the judgment of the Hon'ble Bombay High Court wherein it was held that the liability provided for by the assessee in respect of contribution payable to VSI, a recognized scientific research institution, was eligible for deduction under section 35(1)(ii) of the Act and that the Tribunal had committed no error in allowing the deduction. It was submitted that the ratio of the aforesaid decision directly governs the controversy before us. 75. The learned AR further submitted that the aforesaid legal position was subsequently reiterated by the Hon'ble Bombay High

36 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited Court in CIT vs. ShetkariSahakari Sakhar Karkhana Ltd. (Tax Appeal No. 25 of 2008 decided on 10.02.2012), wherein the Hon'ble Court observed that the issue already stood concluded by its earlier judgment in Jai Ambika Sahakari Sakhar Karkhana Ltd. The learned AR submitted that the Revenue has not brought on record any decision of the Hon'ble Supreme Court or any larger Bench taking a contrary view. 76. The learned AR also submitted that the issue stands covered in favour of the assessee in its own case by the order of the Pune Bench of the Tribunal dated 04.07.2022 in ITA No. 1790/PUN/2018 for A.Y. 2015-16. Reliance was also placed upon various orders of the Pune Benches of the Tribunal rendered in the cases of several co-operative sugar factories, including the group matters decided on 14.03.2019, 20.03.2019, 13.06.2019 and 21.08.2019, wherein similar disallowances were deleted by following the judgments of the Hon'ble Bombay High Court. 77. Summarising his submissions, the learned AR contended that: (i) the assessee follows the mercantile system of accounting; (ii) the liability towards VSI contribution had crystallized during the relevant previous year and was duly provided for in the books; (iii) VSI is a recognized scientific research institution approved under section 35(1)(ii) of the Act; (iv) in view of the definition of the term "paid" contained in section 43(2), actual payment is not a condition precedent where the assessee follows the mercantile system of accounting; and (v) the issue is squarely covered by the judgments of the Hon'ble Bombay High Court in

37 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited Jai Ambika Sahakari Sakhar Karkhana Ltd. and ShetkariSahakari Sakhar Karkhana Ltd. as well as by the decisions of the Tribunal including the assessee's own case. The learned AR therefore submitted that the orders of the learned CIT(A) deleting the additions deserve to be upheld and the grounds raised by the Revenue deserve to be dismissed. 78. We have carefully considered the orders of the authorities below and the rival submissions. The sole grievance of the Revenue is against the deletion of disallowance of VSI contribution claimed by the assessee under section 35(1)(ii) of the Act on the ground that the amount had not been actually paid during the relevant previous year and only a provision had been made in the books of account. 79. There is no dispute regarding the factual position that the assessee follows the mercantile system of accounting and that the liability towards contribution to Vasantdada Sugar Institute (VSI) had accrued during the relevant previous year. It is also not in dispute that VSI is a recognised research association engaged in scientific research relating to sugar and sugarcane and contributions made thereto are otherwise eligible for deduction under section 35(1)(ii) of the Act. The only objection of the Assessing Officer is that the amount was not actually paid during the year. 80. We find that the issue is no longer res integra. The Hon'ble Bombay High Court in the case of CIT v. Jai Ambika Sahakari

38 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited Sakhar Karkhana Ltd. was concerned with an identical question as to whether a provision made in the books of account towards contribution to VSI, though not actually paid during the relevant year, would qualify for deduction under section 35(1)(ii) of the Act. The Hon'ble High Court answered the issue in favour of the assessee and held as under:

"The word 'Paid' appearing in sub clause (ii) of Section 35(1) does not mean that the amount must be actually spent but it includes the amount which has been provided for as a liability incurred in the books of accounts of the assessee if the assessee maintains the books of accounts on a mercantile basis." (para 6) 81. The Hon'ble High Court further held:

"Consequently, the amount which has been provided for as a liability to be paid to a scientific research institute by the assessee is to be allowed as a deduction under section 35 of I.T. Act in a case where the assessee maintains its accounts on mercantile basis." (para 8) 82. The Hon'ble Court ultimately concluded:

"Hence, even a book entry made by the assessee in its books of accounts as a liability for making contribution to VSI, a Research Institute, would be covered by section 35(1)(ii) of the I.T. Act." (para 9) 83. We further find that the Pune Bench in the case of The Malegaon Sahakari Sakhar Karkhana Ltd. v. DCIT (ITA No.1790/PUN/2018 dated 04.07.2022) dealing with an identical issue of VSI contribution, after considering the aforesaid judgment of the Hon'ble Bombay High Court, allowed the claim of deduction and held that even a provision made in the books of account is allowable where the assessee follows the mercantile system of accounting.

39 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited 84. The learned DR could not bring to our notice any contrary decision of the Hon'ble Jurisdictional High Court or any distinguishing feature in the facts of the present case. Since the issue is squarely covered by the binding decision of the Hon'ble Bombay High Court, we see no infirmity in the order of the learned CIT(A) in deleting the disallowance. 85. Accordingly, we uphold the order of the learned CIT(A) deleting the disallowance of VSI contribution. The grounds raised by the Revenue are dismissed. 86. Before parting, we consider it necessary to address the issue relating to territorial jurisdiction. The issues involved in all the assessment years are common and, since elaborate arguments were advanced by both the parties and detailed written submissions were placed on record, we have discussed the issues in detail hereinabove. However, while examining the maintainability of the appeals before this Bench, we find that the assessment orders for Assessment Years 2014-15, 2016-17 and 2017-18 were passed by the Income-tax Officer, Ward-14(5), Pune and Income-tax Officer, Ward-14(1), Pune under section 143(3) of the Act. 87. The Hon'ble Supreme Court in Principal Commissioner of Income-tax vs. ABC Papers Ltd. [(2022) 447 ITR 1 (SC)] has explained that the appellate hierarchy under the Income-tax Act constitutes a lineal progression commencing from the Assessing Officer and culminating in the appellate forum exercising

40 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited jurisdiction over the authority which passed the assessment order. The Hon'ble Supreme Court has further clarified that the power of transfer under section 127 of the Act is confined to the jurisdiction of the Income-tax authorities and does not determine or alter the jurisdiction of the appellate forums. The jurisdiction of the appellate forum continues to be governed by the situs of the Assessing Officer who passed the assessment order. 88. Applying the aforesaid principles to the facts of the present case, we find that the appeals pertaining to Assessment Years 2014-15, 2016-17 and 2017-18 arise from assessment orders passed by Assessing Officers stationed at Pune. Consequently, the jurisdiction to entertain and adjudicate those appeals vests in the Pune Bench of the Tribunal. Therefore, notwithstanding the fact that the impugned orders have been passed by the learned CIT(A), Mumbai and notwithstanding our discussion on the common issues involved in these appeals, we deem it proper to decline jurisdiction over the said appeals. 89. Accordingly, the Revenue's appeals for Assessment Years 2014-15, 2016-17 and 2017-18 are dismissed in limine for want of territorial jurisdiction, with liberty to the Revenue to institute appropriate proceedings before the Tribunal having proper territorial jurisdiction, namely the Pune Bench, if so advised and in accordance with law. 90. In so far as Assessment Year 2018-19 is concerned, the assessment order dated 11.06.2021 was passed by the ACIT,

41 ITA No. 3194 to 3197/Mum/2026 The Malegaon Sahakari Sakhar Karkhana Limited Central Circle-4(3), Mumbai. The appeal for that year, therefore, falls within the territorial jurisdiction of this Bench and has accordingly been adjudicated on merits.

Order pronounced in the open court on 17.06.2026.

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 17/06/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई/ DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai