SHREENATH MHASKOBA SSK LTD,PUNE vs. ACIT, PUNE

आदेश / ORDER PER R.S.SYAL, VP :

This appeal by the assessee arises out of the order passed by the CIT(A)-III, Pune dated 14-02-2012 in relation to the assessment year 2007-08.

2 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

sugarcane price paid to members as well as non-members of the

assessee.

a Co-operative Society engaged in the business of

manufacturing and sale of sugar. During the course of

assessment proceedings, the AO observed 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 opined that the excessive price paid was in the nature of

bonus to the cane growers, who are not the employees of the

assessee and the provisions of the Bonus Act were not attracted.

This is how, he computed the excessive cane price paid at

Rs.2,54,70,720/- and made addition for the said sum. The ld.

CIT(A) gave part relief to the assessee on this point. The

assessee is aggrieved by the confirmation of the part addition.

3 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

relevant material on record. We find 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 season, 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

4 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

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

5 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

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 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

6 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

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.”

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

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

He relied on the judgment in the case of CIT Vs. Dalmia

Cements Pvt. Ltd. (2002) 121 taxmann 706 (Delhi) in which

payment of commission at higher rate was held to be deductible

u/s.37(1) of the Act. In our considered opinion, this case does

not assist the assessee in any manner. As the issue raised

before us is fully and directly covered by the judgment in the

case of Tasgaon Taluka S.S.K. Ltd. (supra), following which

hundreds of orders have been passed by the Pune Benches of

the Tribunal, we are disinclined to deviate from the consistent

view taken by the Pune Tribunal in following the judgment in

7 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

the case of Tasgaon Taluka S.S.K. Ltd. (supra). Respectfully

following the precedent, we set-aside the impugned order on

this score and remit the matter to the file of the 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.

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.

Order pronounced in the Open Court on 08th May, 2019.

Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 08th May, 2019. सतीश

8 ITA No.1505/PUN/2012 Shreenath Mhaskoba Sakhar Karkhana Ltd.,

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 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. आयकर आयु�(अपील) / The CIT (Appeals)-III, Pune 4. The CCIT-II, Pune िवभागीय �ितिनिध, आयकर अपीलीय 5. अिधकरण, पुणे “ए” / DR ‘A’, ITAT, Pune; 6. गाड� फाईल / Guard file. // True copy //

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

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

Date 1. Draft dictated on 07-05-2019 Sr.PS 2. Draft placed before author 07-05-2019 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. *