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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI S.S. VISWANETHRA RAVI & SHRI G.D. PADMAHSHALI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 05-09-2018 passed by the Commissioner of Income Tax (Appeals)-2, Pune [‘CIT(A)’] for assessment year 2015-16.
This case was heard on 12-10-2022 in part and due to paucity of time, adjourned to 13-10-2022 i.e. today. On 12-10-2022, the ld. AR, Shri K. Srinivasan submitted that the ground Nos. I and II are covered by the
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order of this Tribunal in batch of appeals, following the decision of Hon’ble Supreme Court remanded the issue to the file of AO. Further, ground Nos. III to V are also covered, wherein, the AO made addition u/s. 40(a)(ia) of the Act for violation of non-deduction of TDS. He prayed to remand the issue to the file of AO for verification, as to whether the payee recognized the receipt from assessee as income in its income or not and placed reliance on the decision of Hon’ble High Court of Delhi in the case of Ansal Land Mark Township P. Ltd. reported in 377 ITR 635 (Delhi). He prayed that his appearance may be dispensed with on 13-10-2022 i.e. today, due to personal inconvenience.
Ground Nos. I and II raised by the assessee is against the addition on account of payment of excess cane price paid by the assessee to the members and non-members, i.e. the price over and above the Fair Remunerative Price (FRP) fixed by Central Government for purchase of cane.
Heard ld. DR and perused the material available on record. We note that the assessee is a Co-operative Society engaged in the business of manufacturing and sale of sugar. We note that the issue raised in present appeal has already been considered and adjudicated by the Co-ordinate Bench of Tribunal in batch of appeals vide order dated 14-03-2019 out of which the lead case being Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT in ITA No. 308/PUN/2018 for the assessment year 2013-14.
The Co-ordinate Bench after considering the judgment of Hon’ble Supreme Court 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 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
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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.”
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 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.
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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.”
In the light of the above the facts in the present appeal is identical, the issue relating to excess sugarcane price paid by the assessee is restored to the file of Assessing Officer with similar directions as above in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra). The Assessing Officer shall decide the issue after affording reasonable opportunity of hearing to the assessee and decide the issue as indicated above. Accordingly, ground Nos. I and II raised by the assessee are allowed for statistical purpose.
Ground Nos. III to V raised by the assessee challenging the action of CIT(A) in confirming the addition of Rs.12,76,269/- u/s. 40(a)(ia) of the Act.
We note that the assessee paid interest of Rs.42,54,229/- but no tax was deducted. According to the AO, the assessee was under obligation to deduct the tax at source u/s. 194A of the Act. Since, no tax was deducted, the AO made addition of Rs.12,76,269/- @ 30% of Rs.42,54,229/- u/s. 40(a)(ia) of the Act. A contention was raised before the CIT(A) that the Finance Act, 2012 has made an amendment to the section 40(a)(ia) which is applicable w.e.f. 01-04-2013. It was argued in view of the second proviso, the assessee is not treated as assessee in default under first proviso of section 201(1)(1) if the payee had filed its return and had paid tax on such receipt. It was argued that the assessee is ready to produce all the evidences regarding accounts of payee to show that the said payee
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recognized the interest receipt from the assessee as its income in its accounts and paid taxes on the same. Since, no evidences before us filed and it requires examination of such details, we deem it proper to remand the matter to the file of AO for verification as to whether the payee recognized the interest received from the assessee as its income or not. The assessee is directed to produce all the relevant evidences, if any, in support of its claim. Thus, ground Nos. III to V raised by the assessee are allowed for statistical purpose.
In the result, the appeal of assessee is allowed for statistical purpose.
Order pronounced in the open court on 17th November, 2022.
Sd/- Sd/- (G.D. Padmahshali) (S.S. Viswanethra Ravi) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ददिांक / Dated : 17th November, 2022. रवि
आदेश की प्रनतनलनप अग्रेनर्त / Copy of the Order forwarded to : अपीलार्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The CIT(A)-2, Pune 4. The Pr. CIT-1, Pune नवभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, “ए” बेंच, 5. पुणे / DR, ITAT, “A” Bench, Pune. गार्ा फ़ाइल / Guard File. 6. //सत्यानपत प्रनत// True Copy// आदेशािुसार / BY ORDER,
िररष्ठ विजी सविि / Sr. Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune