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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI S.S.GODARA, JM & SHRI DR. DIPAK P. RIPOTE, AM
आदेश / ORDER
PER S. S. GODARA, JM :
This assessee’s appeal for A.Y. 1992-93 is directed against the CIT(A) - 2, Pune’s order dated 27/09/2019 passed in case No. PN/CIT(A)-2/DCIT Cir /AN/Set Aside/118/2013-14 involving proceeding u/s. 143(3) of the Income Tax Act, 1961 ; in short "the Act”.
Karmaveer Shankarrao Kale SSK Ltd.,
Case called twice. None appears at the assessee’s behest. It is accordingly proceeded ex-parte.
The assessee pleads the following substantive grounds in the instant appeal. “1) On the facts and in the circumstances of the case the Id CIT (A) has erred in holding that the payment of Rs.3,65,51,571/- made by the appellant towards the purchase of sugarcane in excess of the FRP of the Sugarcane Control Order, 1966 constitutes the distribution of profits and is not allowable as business expenditure u/s 37 of the Income Tax Act, 1961 and while arriving at this decision the Id CIT(A) has erred in 1) Adding to income Rs.3,65,51,571/- being excess sugar cane price u/s.40A(2) of the Income Tax Act. The addition made by the Assessing Officer be deleted. 2) not appreciating the fundamental base on which the appellant society is incorporated under the provisions of the Maharashtra Co-op Societies Act, 1960 and the objects specifically incorporated in the bylaws of the appellant society and in the process has disregarded the ratio decidendi of the Bombay Bench of ITAT Judgment in the case of Pravara SSK Ltd. vide it's order in 10940, 10941, 10942 of 1966-67 for Assessment Years 1957-58, 1958-59, 1959-60 & 1960-61 dated 16th May, 1968 and ignored in particular para 17 & 18 of the said judgment though abundantly clear nonetheless observing that the reasons for dismissal of the departmental appeal in that case are not entirely clear from the order of the Apex Court which has been reported and not following respectfully the said judgment of the Bombay ITAT.
Karmaveer Shankarrao Kale SSK Ltd.,
3) not appreciating the fact that in case of Pravara SSK Ltd an action of the Bombay High Court in accepting the reference made by the Commissioner of Income Tax for subsequent assessment years 1961-62 to 1963-64 was held to be not justified by the Apex court by its order dated 16th April 1973 reported in 94 ITR 321 specifically stating that such an application made by the Commissioner on the identical issue for the earlier assessment years 1957-58 to 1960-61 has been rejected by the Supreme court under Article 136 of the Constitution of India. 4) not appreciating the legal position as stated in above (i) & (ii) under the Principle / Doctrine of Consistency. 5) not appreciating the fact that the State Advised Price or the price approved by the Council of Ministers which is binding on the Karkhana constituted the price as referred in section 9 of the Sale of Goods Act, 1930 and hence the same is allowable as deduction. 6) not appreciating the nature and purpose of the appellant's business and particularly the principles and the policies on which the business is being run and has also erred in not appreciating in the proper perspective the regulatory framework and the control both of the Central Government and the State Government the policies or directions of which are binding upon he appellant society to such an extreme extent that on failure to abide by hose policies/directions shall entail the appellant society in losing it's existence besides plenary actions against the management and employees. 7) On the facts and in the circumstances the Id CIT(A) has erred in interpreting the judgments of Supreme Court in Maharashtra Rajya Sahakari Sakhar Karkhana Sangh Ltd. V State of Maharashtra & others (1995) as well as in Shri. Malaprabha Co-op Sugar Factory Ltd. V. Union of India
Karmaveer Shankarrao Kale SSK Ltd.,
(1994) 1 SCC 648 in erroneously holding that the ratio decidendi in those cases justify his inference or view that the said amount of cane purchase price constitutes the distribution of profits. 8) Adding to income Rs.48,373/- being C. M. Fund. The addition made by the Assessing Officer be deleted. 9) Adding to income Rs.24,189/- being Hutment Fund. The addition made by the Assessing Officer be deleted. 10) Adding to income Rs.4,84,028/- being Education Fund. The addition made by the Assessing Officer be deleted. 11) Adding to income Rs.1,11,171/- being Area Development Fund. The addition made by the Assessing Officer be deleted. 12) Adding to income Rs.2,81,700/- being Drought & Famine Fund. The addition made by the Assessing Officer be deleted. 13) Adding to income Rs.5,05,924/- being DSI contribution. The addition made by the Assessing Officer be deleted.”
Coming to the assessee’s first and foremost issue of excess sugarcane payment made to its members and disallowed to the extent of Rs.3,65,51,571, we note that the same is hardly res integra between the parties in light of the tribunal’s co-ordinate bench’s common order in twelve appeals ITA 308/pun/18 and Majalgaon Sahakari Sakhar Karkhana Ltd. v/s ACIT and 11 other such assessee’s, dated 14.03.2019 has restored it back to the Assessing Officer as under.
“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 Karmaveer Shankarrao Kale SSK Ltd., 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
Karmaveer Shankarrao Kale SSK Ltd., 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 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 Karmaveer Shankarrao Kale SSK Ltd., 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
Karmaveer Shankarrao Kale SSK Ltd.,
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.”
Ordered accordingly.
The factual position this hardly any different qua assessee’s 8th to 13th substantive grounds wherein it could not file all the required details before the lower authorities as evident from the CIT(A)’s order in para 6.4.5. The assessee is directed to file the requisite details; if so advised which shall be considered as per law in consequential proceedings.
6. This assessee’s appeal is allowed for statistical purposes in above terms.
Order pronounced in the Open Court on this 11th day of July, 2022.