SAHAKAR MAHARSHI BHAUSAHEB THORAT SAHAKARI SAKHAR KARKHANA LTD,,AHMEDNAGAR vs. ASSISTANT COMMISSIONER OF INCOME TAX,, AHMEDNAGAR

आयकर अपीलीय अिधकरण “ए” �यायपीठ पुणे म� । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE �ी डी. क�णाकरा राव, लेखा सद�य एवं �ी िवकास अव�थी, �याियक सद�य के सम� BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM आयकर अपील सं. / ITA No.1258/PUN/2017 िनधा�रण वष� / Assessment Year : 2013-14 Sahakar Maharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd., At Post – Amrutnagar, Tal. Sangamner, Ahmednagar-411608. .......अपीलाथ� / Appellant PAN : AAAAS3893G बनाम / V/s. ACIT, Ahmednagar Circle, ……��यथ� / Respondent Ahmednagar. Assessee by : None Revenue by : Mrs. Shabana Parveen सुनवाई क� तारीख / Date of Hearing : 26.08.2019 घोषणा क� तारीख / Date of Pronouncement : 05.09.2019 आदेश / ORDER PER D. KARUNAKARA RAO, AM: This appeal is filed by the assessee against the order of CIT(A)-2, Pune dated 22.12.2016 for the Assessment Year 2013-14. 2. Despite service of notice of hearing, there was none to represent the assessee. Therefore, this appeal is being decided on the basis of material available on record and after hearing the ld. DR for the Revenue. 3. In this appeal, the assessee raised 17 grounds. Out of 17 grounds, 2 grounds are the main grounds and the same relates to (i) addition on

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account excess sugarcane price; and, (ii) addition on account of C-class membership fee. 4. Before us, ld. DR for the Revenue explaining the facts submitted that the assessee is Sahakari Sakhar Karkhana (SSK). The assessment was completed and determined the total income at Rs.85,28,35,688/- against the returned income of Rs.30,02,35,610/-. 5. Mentioning that the issue relating to the excess sugarcane price, ld. DR for the Revenue submitted that this issue is re-visited to the file of the Assessing Officer. In this regard, ld. DR furnished copy of order of Tribunal dated 14-03-2019 vide which bunch of 162 appeals were disposed of by the Co-ordinate Bench, the lead case being Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT in ITA No. 308/PUN/2018 for the assessment year 2013-14. 6. Considering the order of Co-ordinate Bench in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra) etc., we observe that the issue raised in the present appeal has already been considered and decided by the Co-ordinate Bench.

Excess Cane Price Paid to Sugarcane Suppliers 7. The Co-ordinate Bench after considering the judgment of Hon’ble Supreme Court of India in the case of CIT Vs. Tasgaon Taluka S.S.K. Ltd. reported as 103 taxmann.com 57 has decided this issue as under :

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“5. We have heard both the sides and gone through the relevant material on record. There is consensus ad idem between the rival parties that 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 Hon’ble Apex Court, vide its judgment dated 05- 03-2019, 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 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 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

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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. Both the sides are unanimously agreeable that the extant issue of deduction for payment of excessive price for purchase of sugarcane, raised in most of the appeals under consideration, is squarely covered by the aforesaid judgment of the Hon’ble Supreme Court. Respectfully following the precedent, we set-aside the impugned orders on this score and remit the matter to the file of the respective A.Os. 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

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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. At this stage, it is made clear that the distribution of profits can 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. 7. It is noted that in some of the appeals, the assessees have raised an alternate ground for allowing deduction u/s.80P in respect of the addition. 8. The ld. ARs, in some of the cases, which were represented by them, were fair enough not to press such ground as it is only an alternate ground and having become infructuous in view of the restoration of the matter to the AO. No argument was advanced in support of such ground in other cases, even where the ld. ARs participated in proceedings before the Tribunal. Therefore, the said alternate ground in all such cases is dismissed.”

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C-class membership fee 9. Regarding the second issue of nature of C-class membership fee, it is the case of the assessee that the fee received by the assessee constitutes a capital receipt and the same is not taxable. After going through the contents of para 6 to 7.2 of the order of the CIT(A) as well as para 6 to 6.3 of the assessment order, we find the Assessing Officer erroneously assumed that the same, being collected by the assessee, is of revenue nature. Whereas the assessee holds the same is capital nature. Without deciding the nature of the receipt, the ld. CIT(A) confirmed the addition made by the Assessing Officer. 10. Considering the same, in our view, the said issue is required to be remitted to the file of the Assessing Officer for one more round of adjudication. Accordingly, the Assessing Officer is directed to examine the precedents on this issue and conduct of the assessee in treating the same as capital nature in the earlier/later assessment year. Therefore, we are of the opinion that this issue relates to the C-class membership fee is required to be remanded to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall grant reasonable opportunity of being heard to the assessee and pass a speaking order. Accordingly, the relevant grounds raised by the assessee on this issue are allowed for statistical purposes.

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