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Income Tax Appellate Tribunal, “B”
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
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)-13, Pune’s, order dated 11.07.2019 for the Assessment Year 2009-10, involving proceedings under section 143(3) of the Income Tax Act, 1961. The Assessee has raised the following grounds of appeal: “1. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals)-013, Pune has grievously erred in deciding the appeal ex-parte, without providing sufficient opportunity to appellate.
2. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals)-13, Pune has ought to have decided the appeal on merit instead of dismissing the appeal for non attendance.
A.Y.2009-10 Rayat SSK Ltd., Vs. ACIT [A]
On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals)-13, Pune has erred in disallowing and adding back an amount of Rs.4,29,016/- on account of Sale of sugar at concessional rate.
4. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals)-13, Pune has erred in enhancing disallowing and adding back an amount of Rs.21,71,504/- on account of Excess Cane Price paid to members & non members. 5. On the fact and in the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals)-13, Pune has erred in disallowing and adding back an amount of Rs.2,737/- on account of VSI Contribution. 6. The appellant craves for the leave, add, alter, amend, modify and delete any or all the above grounds of appeal
before or at the time of hearing.”
2. Brief facts of the case are that the Assessee is a Co-operative Society engaged in the business of manufacturing of White Sugar, by-product such as bagasse, molasses, press mud etc., The appellant society filed its return of income on 30.09.2009 declaring total loss of Rs.7,84,24,280/-. During the assessment proceedings, the Assessing Officer made disallowance/additions on account of concession of sugar sale Rs.4,29,016/-; Excess cane price paid of Rs.21,71,504/-; VSI Contribution of Rs.2,737/- and Chief Minister Fund of Rs.9,942/- totaling of Rs.26,13,199/-.
3. Aggrieved with the order of AO, the assessee filed appeal before the ld.CIT(A). The ld.CIT(A) partly allowed the assessment order passed by the AO.
A.Y.2009-10 Rayat SSK Ltd., Vs. ACIT [A]
Aggrieved with the order of the ld.CIT(A), the assessee filed present appeal before this Tribunal.
4.1. However, six grounds raised by the assessee, only Ground No.3 and 4 are the main substantive grounds.
Ground No.3: 5. We have heard both the sides and perused the material available on records. Regarding disallowance of sale of sugar at concessional price, it is observed that the said issue has been decided by the ITAT Pune Bench in the case of Majalgaon Sahakari Sakhar Karkhana Ltd., & Others, order dated 14.03.2019, the ITAT Pune has held as under: “In our considered opinion it would be just and fair if the impugned orders on this score are set aside and the matter is restored to the file of AOs, instead of to the CITs(A), for fresh consideration as to whether the difference between the average price of sugar sold in the market and that sold to members at concessional rate is appropriation of profit or not, in the light of the directions given by the Hon’ble Supreme Court in the case of Krishna Sahakari Sakhar Karkhana Limited (supra).”
6. Respectfully following 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 Ground No.3 appeal raised by the assessee are allowed for statistical purpose.
A.Y.2009-10 Rayat SSK Ltd., Vs. ACIT [A] Ground No.4 7. We have heard both sides. Regarding excess sugar cane price payment, we find that this issue came up for consideration before the Tribunal setting aside to the file of AO in 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 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 A.Y.2009-10 Rayat SSK Ltd., Vs. ACIT [A] 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 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 A.Y.2009-10 Rayat SSK Ltd., Vs. ACIT [A] 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 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 A.Y.2009-10 Rayat SSK Ltd., Vs. ACIT [A] 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.”
Following the precedent on this issue, we set-aside this issue to the file of AO, accordingly, the Ground No.4 is allowed for statistical purpose.
In the result, the appeal of the Assessee is Allowed for statistical purpose.
Order pronounced in the open Court on 15th July, 2022.