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Income Tax Appellate Tribunal, “A”
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER Per S.S.Godara, JM: 1. These assessee’s three appeal for assessment years 2001-02, 2004-05 & 2007-08 arise against the CIT(A)-13, Pune’s common order dated 07.08.2018 passed in case No:CIT(A)-13/06-07/143, CIT(A)-13/10-11/84 and CIT(A)-13/09-10/633 involving proceedings u/s.143(3) r.w.s 147, u/s.143(3) r.w.s 254 and u/s.143(3) of the Income Tax Act, 1961 [in short “the Act”]; assessment-year wise, respectively.
Heard both the parties. Case files perused.
We come to the assessee’s first and foremost appeal A.Y. 2001-02 raising its sole substantive grievance that both the lower authorities have erred in law and on ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd., facts in making addition of Rs.38,83,175/- by valuing stock the “molasses in process” thereby quantifying it at 425.75 MT.
Both the learned representatives vehemently reiterated their respective stands against and in support of the impugned “molasses in process” quantification addition. It transpires during the course of hearing that this tribunal’s co-ordinate bench’s order in dated 24.05.2012 Sahyadri Sahakari Shakkar Karkhana Ltd. Vs. DCIT has upheld the very addition in principle with directions to the Assessing Officer for his afresh computation as follows: “6. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. From the details furnished by the assessee during the course of assessment proceedings, we find the molasses-stock-in-process as on 31-03-2000 was 959.522 M.T. and the molasses-in-process as on 31-03-2001 was 841.907 M.T. No doubt, the assessee has not followed correct method of accounting by not accounting for the closing stock of molasses-in- process. However, at the same time for determining the correct income for the impugned assessment year, the AO should have given credit to the opening stock of molasses-in-process. Since the opening stock of molasses- in-process is more than the closing stock of molasses in process, therefore we find merit in the submission of the Id. Counsel for the assessee that it becomes revenue neutral and no addition is called for. Had it been less than the closing stock of molasses-in-process then of course the difference would have been added to the taxable income of the assessee. Since in the instant case, the opening stock of molasses-
ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd., in-process at 959.522 M.T. is more than the closing stock of molasses-in-process at 841.907 M.T., therefore, we agree with the submission of the learned counsel for the assessee that no addition is called for. In this view of the matter, we set-aside the order of the CIT(A) and direct the AO to delete the addition.”
Learned Counsel could hardly pin point any distinction on facts or law regarding the impugned addition. Faced with this situation, we adopt foregoing reasoning of the learned co-ordinate bench in principle and direct the Assessing Officer to frame his afresh computation of assessee’s opening stock vis-à-vis the closing stock of the molasses in process as per in very terms. Ordered accordingly.
The assessee’s instant first and foremost appeal in is allowed for statistical purpose in above terms.
Learned counsel next states that the assessee does not wish to press for its second appeal in for A.Y.2004- 05. Rejected accordingly.
6. Lastly comes the assessee’s appeal for A.Y.2007-08 raising the twin issues of excess cane price payments and sale of sugar at concessional rates; both to ITS members, involving disallowances of Rs.3,23,49,540/-and Rs.81,75,815/-; respectively.
ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd.,
It transpires during the course of hearing that the former issue of alleged excess cane price payments to members is no more res- integra in light of this tribunal’s recent directions in Majalgaon Sahakari Sakhar Karkhana Ltd., & Others order dated 14.03.2019 as follows:- “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 ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd.,
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 ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd., 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 nonmembers, 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
ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd.,
Supreme Court. Respectfully following the precedent, we setaside 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 nonmembers 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.”
7.1 The very factual position continues for the latter issue of sale of sugar by assessee to its members at alleged concessional rates wherein this tribunal’s yet another co-ordinate bench in The Malegaon Sahakari Sakhar Karkhana dated 21.04.2021 has set aside the same to the Assessing Officer for his afresh adjudication as per law. We thus restore the assessee’s instant
ITA No’s.1830 to 1832/PUN/2018 for A.Y. 2001-02, 04-05 & 07-08 (A) Ajinkyatara Sahakari Sakhar Karkhana Ltd., twin substantive grounds as well to the Assessing Officer for his afresh adjudication in very terms. Ordered accordingly. The assessee’s instant third appeal in is allowed for statistical purpose.
To sum up, the assessee twin appeals & 1832/PUN/2018 are allowed for statistical purpose and ITA No.1831/PUN/2018 is dismissed as not pressed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 29th August, 2022.