SHIVAJIRAO NILANGEKAR PATIL SSK LTD.,LATUR vs. DEPUTY COMMISSIONER OF INCOME-TAX,

PER R.S.SYAL, VP :

This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals), Aurangabad on 15-01- 2014 in relation to the assessment year 2006-07.

2 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

account of excess cane price paid to sugarcane suppliers.

that the assessee paid excessive cane price, over and above the Fair

and remunerative price (FRP) fixed by the Government, to its

members as well as non-members. On being called upon to justify

such deduction, the assessee gave certain explanation by submitting

that such payment was solely and exclusively in connection with the

business and the entire amount was deductible u/s.37(1) of the

Income-tax Act, 1961 (hereinafter also called `the Act’). The AO

computed excessive cane price paid both to the members and non-

members at Rs.6,26,25,768 and made addition for the said sum.

The ld. CIT(A) restricted the said addition on this score to

Rs.96,54,850/-, against which the assessee has approached the

Tribunal.

material on record. The issue of payment of excessive price on

purchase of sugarcane by the assesses is no more res integra in view

of the recent judgment of Hon’ble Supreme Court in CIT Vs.

Tasgaon Taluka S.S.K. Ltd. (2019) 103 taxmann.com 57 (SC). The

3 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

Hon’ble Apex Court has elaborately dealt with this issue. It

recorded the factual matrix that the assessee in that case purchased

and crushed sugarcane and paid price for the purchase during

crushing seasons 1996-97 and 1997-98, firstly, at the time of

purchase of sugarcane and then, later, as per the Mantri Committee

advice. It further noted that the production of sugar is covered by

the Essential Commodities Act, 1955 and the Government issued

Sugar Cane (Control) Order, 1966, which deals with all aspects of

production of sugarcane and sales thereof including the price to be

paid to the cane growers. Clause 3 of the Sugar Cane (Control)

Order, 1966 authorizes the Government to fix minimum sugarcane

price. In addition, the additional sugarcane price is also payable as

per clause 5A of the Control Order, 1966. The AO in that case

concluded that the difference between the price paid as per clause 3

of the Control Order, 1966 determined by the Central Government

and the price determined by the State Government under clause 5A

of the Control Order, 1966, was in the nature of `distribution of

profits’ and hence not deductible as expenditure. He, therefore,

made an addition for such sum paid to members as well as non-

members. When the matter finally came up before the Hon’ble

4 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

Apex Court, it noted that clause 5A was inserted in the year 1974 on

the basis of the recommendations made by the Bhargava

Commission, which recommended payment of additional price at

the end of the season on 50:50 profit sharing basis between the

growers and factories, to be worked out in accordance with the

Second Schedule to the Control Order, 1966. Their Lordships noted

that at the time when additional purchase price is determined/fixed

under clause 5A, the accounts are settled and the particulars are

provided by the concerned Co-operative Society as to what will be

the expenditure and what will be the profit etc. Considering the fact

that Statutory Minimum Price (SMP), determined under clause 3 of

the Control Order, 1966, which is paid at the beginning of the

season, is deductible in the entirety and the difference between SMP

determined under clause 3 and SAP/additional purchase price

determined under clause 5A, has an element of distribution of profit

which cannot be allowed as deduction, the Hon’ble Supreme Court

remitted the matter to the file of the AO for considering the

modalities and manner in which SAP/additional purchase price/final

price is decided. He has been directed to carry out an exercise of

considering accounts/balance sheet and the material supplied to the

ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

State Government for the purpose of deciding/fixing the final

price/additional purchase price/SAP under clause 5A of the Control

Order, 1966 and thereafter determine as to what amount would form

part of the distribution of profit and the other as deductible

expenditure. The relevant findings of the Hon’ble Apex Court are

reproduced as under:-

“9.4. ..... Therefore, to the extent of the component of profit which will be a part of the final determination of SAP and/or the final price/additional purchase price fixed under Clause 5A would certainly be and/or said to be an appropriation of profit. However, at the same time, the entire/whole amount of difference between the SMP and the SAP per se cannot be said to be an appropriation of profit. As observed hereinabove, only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of accounts, balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under Clause 5A of the Control Order, 1966. Merely because the higher price is paid to both, members and non-members, qua the members, still the question would remain with respect to the distribution of profit/sharing of the profit. So far as the non-members are concerned, the same can be dealt with and/or considered applying Section 40A (2) of the Act, i.e., the assessing officer on the material on record has to determine whether the amount paid is excessive or unreasonable or not........ 9.5 Therefore, the assessing officer will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of the profit and after undertaking such an exercise whatever is the profit component is to be considered as sharing of profit/distribution of profit and the rest of the amount is to be considered as deductible as expenditure.”

6 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

of payment of excessive price for purchase of sugarcane, raised in

the appeal under consideration, is squarely covered by the aforesaid

judgment of the Hon’ble Supreme Court. Respectfully following

the precedent, we set-aside the impugned order on this score and

remit the matter to the file of A.O for deciding it afresh as per law in

consonance with the articulation of law by the Hon’ble Supreme

Court in the aforenoted judgment. The AO would allow deduction

for the price paid under clause 3 of the Sugar Cane (Control) Order,

1966 and then determine the component of distribution of profit

embedded in the price paid under clause 5A, by considering the

statement of accounts, balance sheet and other relevant material

supplied to the State Government for the purpose of deciding/fixing

the final price/additional purchase price/SAP under this clause. The

amount relatable to the profit component or sharing of

profit/distribution of profit paid by the assessee, which would be

appropriation of income, will not be allowed as deduction, while the

remaining amount, being a charge against the income, will be

considered as deductible expenditure.

7 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

only be qua the payments made to the members. In so far as the

non-members are concerned, the case will be considered afresh by

the AO by applying the provisions of section 40A(2) of the Act, as

has been held by the Hon’ble Supreme Court supra. Needless to

say, the assessee will be allowed a reasonable opportunity of

hearing by the AO in such fresh determination of the issue.

of Rs.36,294/- on account of sugar sold to members at concessional

price.

material on record, it is observed that the AO made addition of the

difference between the market price and the concessional price at

which sugar (final product) was given to farmers and cane growers.

In this regard, it is observed that this issue has been considered by

the Hon’ble Supreme Court in the case of CIT Vs. Krishna Sahakari

Sakhar Karkhana Limited (2012) 27 taxmann.com 162 (SC). Vide

judgment dated 25-09-2012, the Hon’ble Supreme Court noticed

that the difference between the average price of sugar sold in the

market and the price of sugar sold by the assessee to its members at

8 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

concessional rate was taxed by the Department under the head

“Appropriation of profit”. The Hon’ble Summit Court remitted the

matter to the CIT(A) for considering, inter alia,: “whether the

abovementioned 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 others from Diwali?” The issue

under consideration can be decided by an appropriate lower

authority only on the touchstone of the relevant factors noted in the

above judgment. In our considered opinion, it would be just and fair

if the impugned order on this score is set aside and the matter is

restored to the file of AO, instead of to the CIT(A), for fresh

consideration as to whether the difference between the average price

of sugar sold in the market and that sold to members at concessional

rate is appropriation of profit or not, in the light of the directions

given by the Hon’ble Supreme Court in the case of Krishna

Sahakari Sakhar Karkhana Limited (supra). Restoration to the AO

9 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

is necessitated because, following the judgment of the Hon’ble

Apex Court in the case of Tasgaon Taluka S.S.K. Ltd. (supra), we

have remitted the issue of payment of excessive price to the file of

AO, and as such, the instant issue cannot be sent to ld. CIT(A) as it

would amount to simultaneously sending one part of the same

assessment order to the AO and other to the CIT(A), which is not

appropriate. We order accordingly.

the confirmation of disallowance of Rs.2,64,35,713/- on account of

disallowance u/s.40(a)(ia) of the Act.

Rs.2.64 crore odd on account of H & T payment made to Harvestors

and Transporters. The Assessing Officer (AO) observed that such

payments were made without deduction of tax at source. On being

called upon to explain its stand, the assessee submitted that payment

made to each harvestor and transporter was below the stipulated

limit. The AO invoked the provisions of section 40(a)(ia) and made

the above disallowance. The ld. CIT(A) affirmed the same.

10 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

material on record, it is seen from the submissions made before the

lower authorities that the assessee claimed to have made payment to

various labourers and harvesters through group leaders, who were

also members of the labour group and each group consisted of 15-

20 gents and 15-20 ladies with payment to each individual at less

than Rs.3,000/- to Rs.4,000/- per month. The assessee further

submitted that no payment during the year to such individuals

exceeded Rs.50,000/-. It is noted that the Hon’ble jurisdictional

High Court in the case of CIT Vs. Dwarkadheesh Sakhar Karkhana

Ltd. vide its judgment dated 08-01-2018 in ITA No.480/2015 has

held that the provisions of section 194C are not attracted in respect

of payments made by the assessee, a sakhar karkhana as is the

assessee also under consideration, to Mukadams and Transporters.

As the assessee made payment to group labourers and such annual

payments did not exceed Rs.50,000/- per individual, which at the

material time was the threshold for invocation of section 194C,

respectfully following the judgment in the case of CIT Vs.

Dwarkadheesh Sakhar Karkhana Ltd. (supra), we hold that the

11 ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

disallowance u/s.40(a)(ia) has been wrongly sustained. We,

therefore, order to delete the disallowance.

Order pronounced in the Open Court on 16th September, 2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 16th September, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A), Aurangabad 4. The CIT, Aurangabad िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “बी” / DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.668/PUN/2014 Shivajirao Nilangekar Patil Sahakari Sakhar Karkhana Ltd.,

Date 1. Draft dictated on 13-09-2019 Sr.PS 2. Draft placed before author 16-09-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *