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Income Tax Appellate Tribunal, “B”
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
आयकर अपीलीय अिधकरण “बी” �ायपीठ पुणेम�। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No.317/PUN/2019 िनधा�रणवष� / Assessment Year : 2013-14 Shree Shankar Sahakari Sakhar The Asst.CIT, Circle-1, Karkhan Ltd., Vs Solapur. Sadashivnagar, Tal-Malshiras, Dist.Solapur – 413111. PAN: AAAAS 3735 M Appellant/ Assessee Respondent / Revenue Assessee by Shri Prasanna Joshi – AR Revenue by Shri Sardar Singh Meena – DR Date of hearing 14/07/2022 Date of pronouncement 21/07/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals)-7, Pune for the A.Y. 2013-14 dated 02.01.2018, emanating out of order under section 143(3) of the Income Tax Act, 1961[in short “the Act”]. The assessee has raised following grounds of appeal: (A) Disallowance out of Sugarcane Purchases: 1. From 2011 to 2016 appellant suffered cash losses of Rs 87.58 crores eroding its Net Worth many times over; Farmers were not paid their FRP for cane supplied in 2014-15 and 2015-16; Sugar factory could start or operate in 2016-17; Workers were not paid salaries for 27 months and stopped attending office; State Govt, appointed an Administrator on 7/12/2016 whose office was located at Solapur over 100 Kms from appellant’s factory; and
ITA No.317/PUN/2019 for A.Y. 2013-14 Shree Shankar Sahakari Sakhar Karkhana Ltd., Vs. ACIT, Circle-1 [A]
lastly appellant’s office was virtually closed; in view of the above circumstances, notice of CIT(A) for hearing fixed on 28/12/2017, if at all it was received, was not forwarded to the appellant’s AR and hence submissions could not be made to CIT(A) and not filing these submissions to CIT(A) may not be held against the appellant.
Without prejudice to the above AO erred in making disallowances for: a) Season 2011-12 Rs 7,68,91,960 being Rs 899.70/Mt out of price paid of Rs 2062/Mt for 85,464 Mt of sugarcane purchased from farmers, both members and non-members; and b) Season 2012-13 Rs 32,05,67,697 being Rs 712.80/Mt out of price paid of Rs 2279/Mt for 4,49,680 Mt of sugarcane purchased from farmers, both members and non-members aggregating to Rs 39,74,23,864 and reasons given by Ld. CIT(A) for confirming above disallowances are wrong and incorrect. 3. Ld. CIT(A) erred in ignoring facts for the year under appeal and further erred in following an order of a CIT(A) for an earlier year even though the facts in the relevant year were different and rationale in order of the earlier year was not applicable to the year under appeal.
Justification relied upon by Ld. CIT(A) is totally out of place and is factually incorrect for the year under appeal.
On the facts and in the circumstances of the case, it may be held that cane payments to farmers were wholly and exclusively incurred for the purposes of business of the appellant.
Ld. CIT(A) ought to have followed judgement of ITAT, Mumbai dated 16/5/1968 in Pravara SSK in ITA No. 10939-42 upheld by Hon’ble Supreme Court, 94 ITR 321, accepted by IT Dept, for over 3 decades, and as held by Supreme Court in Radhasoami Satsang, 193 ITR 321, it would be inappropriate to
ITA No.317/PUN/2019 for A.Y. 2013-14 Shree Shankar Sahakari Sakhar Karkhana Ltd., Vs. ACIT, Circle-1 [A]
allow this position to be changed in subsequent year, as re- confirmed by Supreme Court in Municipal Corporation of Thane v. Vidyut Metalics (2007) 8 SCC 688.
Ld. CIT(A) ought to have held that while computing profits of appellant society, the price to be allowed as a deduction for sugarcane supplied by farmers is the price fixed on co-operative principles as is required to be paid as per its bye laws and the same cannot be restricted to the notified statutory minimum price called Fair and Remunerative Price (FRP) which is a support price.
The Ld. CIT(A) erred in holding that payment of the same cane price, to its members and to non-members, in excess of the notified FRP was a distribution of the assessee society’s profits.
Ld. CIT(A) erred in ignoring the fact that the same AO had allowed comparable cane prices paid by private sector sugar mills as deductions in their assessments but cane price in excess of FRP was disallowed in the hands of co-operative sugar factories.
B) Concession in Sugar Sales to Members: 1. CIT(A) erred in holding that difference between market price for 6,982 Qtls of sugar sold to members at Rs 2500/Qtl during the year and the average price realised during the year of Rs 3094.01/Qtl aggregating to Rs 41,47,448 was to be taxed as “income” of the appellant though the same was not earned by the appellant.”
The ld.Authorised Representative(ld.AR) of the assessee submitted that there is only one issue of excess sugar cane price paid to the farmers which has been disallowed by the Assessing Officer(AO). The ld.AR of the assessee explained that the said issue is the covered issue.
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The ld.Departmental Representative(ld.DR) for the Revenue relied on the orders of the Lower Authorities.
We have heard both the parties and perused the material available on record. There is a delay in filing the appeal. The assessee has filed petition for condonation of delay. On going through the petition, we found that there was reasonable cause for delay. Accordingly, the delay is condoned.
The only issue involving in this case is that assessee has paid sugar cane price of Rs.2062 per metric ton for season 2011-12 and Rs.2279 for season 2012-13, whereas the fair and remunerative price notified by the Government for the said period was Rs.1618.30 per metric ton and Rs.2022.20 per metric ton, respectively. Therefore, the AO disallowed the payment made over and above FRP price as it was not contractual liability.
We find this issue came up for consideration before the Tribunal setting aside to the file of AO in ITA No.308/PUN/2018, Majalgaon Sahakari Sakhar Karkhana Ltd., & Others order dated 14.03.2019. For the sake of convenience, the relevant finding is reproduced below: “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
ITA No.317/PUN/2019 for A.Y. 2013-14 Shree Shankar Sahakari Sakhar Karkhana Ltd., Vs. ACIT, Circle-1 [A]
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
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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 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........
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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 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.”
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Respectfully following the precedent on this issue on the above decision, we set aside this issue to the file of Assessing Officer for re-adjudication in the light of the Hon’ble Supreme Court’s decision in the case of Krishna Sahakari Sakhar Karkhana Ltd., (2012) 27 taxmann.com 162 (SC), order dated 25.09.2012. Accordingly, the grounds of appeal raised by the assessee are allowed for statistical purpose.
In the result, appeal of the assessee is allowed for statistical purpose. Order pronounced in the open Court on 21st July, 2022.
Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 21st July, 2022/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकरअपीलीयअिधकरण, पुणे/ITAT, Pune.