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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), Pune-2 for the Assessment Year 2006-07 dated 13.09.2019. The assessee has raised following grounds of appeal:
1. On the facts and in the circumstances of the case, the Hon. Commissioner of income tax (Appeals) has erred in confirming the addition of Rs. 3,88,87,750/- made by the AO on account of entire difference between sugarcane price paid at the rate of SAP and price payable at the rate of SMP considering it as excessive and unresponciable and as distribution of profit ignoring the decision dated 05.03.2019 of the decision dated 05.03.2019 of the Hon. Supreme Court in the less case of Tasgaon Tal. SSK Ltd in Appeal No.8890 of 2012 along with other appeals in which the Hon. Supreme Court (Civil A.Y. 2006-07 Shri Vridheshwar Sahakari Sakhar Karkhana Ltd., Vs. DCIT, Ahmednagar [A] appellate Jurisdiction) has specifically held that there is certainly element of profit in SAP however, entire difference between price paid at SAP and price payable at SMP cannot be even element of profit. The additional made, at Rs.3,88,87,750/- may therefore kindly be deleted.”
2. The ld ld.Departmental Representative(ld.DR) for the Revenue submitted that there is only one issue of excess sugar cane price paid to its members and non-members which has been disallowed by the Assessing Officer(AO). The ld.DR explained that the said issue is the covered issue.
We have heard both the parties and perused the material available on record. The only issue involved in this case is addition on account of excess sugar cane price of Rs.3,88,87,750/- paid for season 2004-05 and 2005-06 to members and non-members together. The assessee has paid sugar cane price of Rs.1100 per metric ton for season 2004-05 and 2005-06 to its members & non-members, whereas the fair and remunerative price notified by the Government for the said period was Rs.850 per metric ton. There is a difference of Rs.250 per metric ton. Therefore, the AO disallowed the payment made over and above FRP price as it was not contractual liability and it was nothing but distribution of profit.
A.Y. 2006-07 Shri Vridheshwar Sahakari Sakhar Karkhana Ltd., Vs. DCIT, Ahmednagar [A]
We find 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 Bhargava Commission, which recommended payment of additional A.Y. 2006-07 Shri Vridheshwar Sahakari Sakhar Karkhana Ltd., Vs. DCIT, Ahmednagar [A] 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 A.Y. 2006-07 Shri Vridheshwar Sahakari Sakhar Karkhana Ltd., Vs. DCIT, Ahmednagar [A] 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 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 A.Y. 2006-07 Shri Vridheshwar Sahakari Sakhar Karkhana Ltd., Vs. DCIT, Ahmednagar [A] 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.”
Respectfully following the precedent on this issue (supra), 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.