INCOME TAX OFFICER, WARD-1, BARDOLI, INCOME TAX OFFICE, BARDOLI vs. SHREE KHEDUT SAHAKARI KHAND UDYOG MANDALI LTD, BABEN, BARDOLI

However, while the necessity of a disallowance in principle is thus upheld, the quantification made in the impugned assessment order is not in consonance with the method indicated by the Hon'ble Supreme Court in Tasgaon Taluka (supra) nor with the structured approach adopted in comparable matters, including the order of the CIT(A) in the case of Sahakari Khand Udhyog Mandali Ltd. (supra), wherein the profit- embedded portion was isolated by taking the effective rate to non-members as the commercial benchmark and treating only the differential per MT paid to members as embedded surplus (e.g. Rs. 75 per MT x quantity procured from members). A similar approach was also recognized by the Pune Bench in the case of Mohanrao Shinde Sahakari Sakhar Karkhana Ltd., (AY 2012-13), dated 17.07.2019, where the price paid to non-members was regarded as a purely commercial deal, non-members having no claim on surplus of the co-operative. Guided by these principles, we are of the considered view that the correct method is: (i) to identify, on the basis of the assessee's books and records, the rates paid to members, non-members/nominal members and outside factories; (ii) to treat the rate paid to non-members/outsiders as the commercial benchmark; (iii) to compute the differential per MT between the member's rate and such benchmark; and (iv) to multiply this differential by the quantity of cane purchased from members to arrive at the prima facie profit-embedded component liable for disallowance, subject to any further reduction to the extent the assessee, by cogent contemporaneous evidence, demonstrates that a part of such differential is directly attributable to demonstrable commercial factors (such as quality or recovery) rather than to membership In the absence of complete computations and supporting material before us, it is neither feasible nor proper to undertake this exercise at the appellate stage. We, therefore, restore the matter to the file of the AO for the limited purpose of recomputing the Asst. Years: 2011-12 & 2013-14 - 3– disallowance strictly in the above manner and in line with the legal principles flowing from the aforesaid judicial precedents, after affording the assessee a final effective opportunity to place all relevant workings and evidence on record. To this extent, Grounds Nos. 6 to 14 are treated as partly allowed, with the ultimate quantification left to be redetermined by the AO in accordance with law. This methodology shall apply mutas mutandis for determination of similar issues arising in the remaining connected appeals forming part of this consolidated adjudication, subject to necessary factual adaptation.