ASSISTANT COMMISSIONER OF INCOME-TAX vs. SHIVSHAKTI SHETKARI SAHAKARI SAKHAR KARKHANA LTD.,, OSMANABAD

आदेश / ORDER PER R.S.SYAL, VP : These are cross appeals – one by the assessee and the other by Revenue in relation to the assessment year 2011-12.

2 Shivshakti SSK Ltd., A.Y. 2011-12

service of notice. However, considering the covered nature of

issue and availability of ld. DR, we proceed to dispose off the

appeal on merits.

account of the addition deleted by the CIT(A) towards

excessive 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 and its bye-products. 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’). Relying on clause-3 and additional price

3 Shivshakti SSK Ltd., A.Y. 2011-12

payable as per clause 5A of the Sugarcane Control Order, 1966,

the AO opined that the excessive price paid was in the nature of

`distribution of profits’ and hence not deductible. This is how,

he computed the excessive cane price paid both to the members

and non-members at Rs.1,29,14,547/- and made addition for the

said sum. The ld. CIT(A) deleted the addition. Aggrieved

thereby, the Revenue has approached the Tribunal.

material on record. It is seen 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 season 2010-11, 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

4 Shivshakti SSK Ltd., A.Y. 2011-12

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

5 Shivshakti SSK Ltd., A.Y. 2011-12

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 expenditure. The relevant findings of the

Hon’ble Apex Court are reproduced as under:-

6 Shivshakti SSK Ltd., A.Y. 2011-12

“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.”

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 the A.O for deciding it afresh as per law in

7 Shivshakti SSK Ltd., A.Y. 2011-12

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.

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

8 Shivshakti SSK Ltd., A.Y. 2011-12

reasonable opportunity of hearing by the AO in such fresh

determination of the issue.

certain directions as enunciated above, the cross objection filed

by the assessee becomes infructuous.

statistical purposes and that of cross objection filed by the

assessee is dismissed.

Order pronounced in the Open Court on 07th May, 2019.

Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT

पुणे Pune; �दनांक Dated : 07th May, 2019. सतीश

9 Shivshakti SSK Ltd., A.Y. 2011-12

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)-2, Aurangabad 4. The Pr.CIT-2, Aurangabad ि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 06-05-2019 Sr.PS 2. Draft placed before author 06-05-2019 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. *