Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: SHRI SATBEER SINGH GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], Delhi dated 16.11.2023 emanating from the assessment order under section 143(3) r.w.s 254 r.w.s 144B of the Income Tax Act, 1961 dated 29.09.2021. The grounds of appeal
raised by the assessee are as under : Loknete Sunderraoji Solanke SSK Ltd. [A] “1. On the fact and in the circumstance of the case and in law of the learned NFAC - Commissioner of Income Tax (Appeals) Delhi, has erred in disallowing and adding back an amount of Rs.37,95,09,131/- on account of Excess payment of sugarcane price.
2. On the fact and in the circumstance of the case and in law of the learned NFAC - Commissioner of Income Tax (Appeals) Delhi, has erred in disallowing and adding back an amount of Rs. 13.57.000/- on account of Sugar Sale at Concessional rate
3. On the fact and in the circumstance of the case and in law of the learned NFAC - Commissioner of Income Tax (Appeals) Delhi, has erred in disallowing and adding back an amount of Rs.21.33.025/- on account of Temporary Shed write of expenses.” Findings & Analysis :
2. We have heard both the parties and perused the records.
2.1 The Assessee is a Co-operative Society and engaged in the business of manufacturing and sale of sugar. The assessee had filed its Return of Income for A.Y.2010-11 on 21.09.2010 declaring total income at Rs.Nil. Original Assessment Order under section 143(3) was passed on 15.02.2013. Following additions were made to the total income of the assessee in the assessment order : On account of excess sugar cane price paid Rs.55,48,01,688/-. Sale of sugar cane at concessional rate Rs.13,57,000/- Disallowance of Advertisement Expenses of Rs.13,70,550/-. Penal Rent Rs.1,63,275/-. Temporary Shed written off Rs.21,33,025/-.
2 Loknete Sunderraoji Solanke SSK Ltd. [A] Provision towards interest Rs.11,60,203/-.
Thus, the assessed income was Rs.66,58,76,790/-. Assessee has filed copy of the said order in the paper book at page no.203 to 224. 4 Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A).
4.1 The ld.CIT(A)-Aurangabad decided the appeal vide order dated 28.03.2014. Aggrieved by the order of the ld.CIT(A), assessee filed appeal before ITAT, ITA No.1252/PUN/2014.
The ITAT in vide a common order dated 14.03.2019 set-aside the issue of excess sugar cane price paid and sugar given to members at concessional rate to the Assessing Officer. The relevant paragraphs of the ITAT order in ITA No.1252/PUN/2014 are reproduced here as under : “6. 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 3 Loknete Sunderraoji Solanke SSK Ltd. [A] 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. [II. ADDITION FOR SUGAR GIVEN TO MEMBERS AT CONCESSIONAL RATES - [Appeals in which Krishna Sahakari Sakhar Karkhana Limited (SC) not considered by lower authorities] ……………….
11. Having heard both the sides and gone through the relevant material on record, it is observed that the AO made addition of the difference between the market price and the concessional price at which sugar (final product) was given to farmers and cane growers. In this regard, it is observed that this issue has been considered by the Hon'ble Supreme Court in the case of CIT Vs. Krishna Sahakari Sakhar Karkhana Limited (2012) 27 taxmann.com 162 (SC). Vide judgment dated 25-09-2012, the Hon’ble Supreme Court noticed that the difference between the average price of sugar sold in the market and the price of sugar sold by the assessee to its members at concessional rate was taxed by the Department under the head “Appropriation of profit”. The Hon’ble Summit Court remitted the matter to the CIT(A) for considering, inter alia,: “whether the abovementioned practice of selling sugar at concessional rate has become the practice or custom in the Cooperative sugar industry?; and whether any Resolution has been passed by the State Government supporting the practice?; The CIT(A) would also consider on what basis the quantity of the final product, i.e. sugar, is being fixed for sale to farmers/cane growers/Members each year on month-to-month basis, apart from others from Diwali?” The issue under consideration can be decided by an appropriate lower authority only on the touchstone of the relevant factors noted in the above judgment. 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 4 Loknete Sunderraoji Solanke SSK Ltd. [A] 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). Restoration to the AO is necessitated because, following the judgment of the Hon’ble Apex Court in the case of Tasgaon Taluka S.S.K. Ltd. (supra), we have remitted the issue of payment of excessive price to the file of AO, and as such, the instant issue cannot be sent to Id. CIT(A) as it would amount to simultaneously sending one part of the same assessment order to the AO and other to the CIT(A), which is not appropriate. We order accordingly.”
Subsequent to the ITAT’s order in dated 14.03.2019, AO passed assessment order on 29.09.2021. Assessing Officer held that in spite of giving opportunity to the assessee, assessee failed to submit the relevant details called-for as per the directions of ITAT. Therefore, Assessing Officer in para 10 of the assessment order made the addition of Rs.55,48,01,688/- under the head “Excessive Sugarcane Price Paid” which is same as per original assessment order. In para 9.13, the AO observed as under : “9.13 But the assessee has furnished only the write up of modalities on cane price and has neither substantiated the same with any documentary proof nor furnished the methodology and working statement of the additional cane purchase price so fixed.”
Regarding the issue of sugar sold at concessional price, the AO observed that assessee failed to submit the require document and hence made addition of Rs.13,57,000/- which is similar to the addition made in the original assessment order. In addition 5 Loknete Sunderraoji Solanke SSK Ltd. [A] to this, Assessing Officer made addition of Rs.21,33,025/- on account of temporary shed written off expenses and other additions made in the original assessment order.
Aggrieved by the same, assessee filed appeal before the ld.CIT(A).The Ld.CIT(A) held as under “4.27 As per Maharashtra government’s order dated 31.10.2011 (in Marathi language), issued by Section Officer (Kaksha Adhikari), Panan & Vastrodyog Vibhag, to Sugar Commissioner, Pune, the ‘antimusdar’ or final rate per quintal was Rs.2111/- for FY 2009-10 out of which SMP was Rs. 1353/- (including Harvesting & Transport charges reimbursement Rs. 299.10) and additional purchase price Rs.758/- (as mentioned in assessment order). This is the same rate at which assessee claimed deduction. So, no addition is called for this period. 4.28 As far as period of 22.10.2009 to 31.3.2010 is concerned, purchase price (FRP) fixed by the government for the assessee, Majalgaon SSK Ltd, as mentioned supra, was Rs. 135.32 per quintal which comes to Rs. 1353.20 per MT. But assessee claimed deduction for this period also @ Rs. 2111/- per MT, i.e., Rs. 757.20/- (2111 - 1353.20) more than admissible rate. Total comes to Rs.31,32,67,153/- (Rs. 135.32 x 2,31,501 MT).Therefore, the disallowable mount for this period comes to Rs. 757.20” 5.3. As mentioned in Para 5 supra, ITAT "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. What the ITAT mentioned is average price of sugar sold in the market and not ‘price of levy sugar’ which the assessee mentioned in its reply. In fact, the very word, ‘levy’ is absent in ITAT’s order. After answering the queries raised by the Supreme Court, I find that in Para 10.1 of his order, AO has made addition of difference between the average price of sugar sold in the market and that sold to members at concessional rate only. Hence, I do not find any infirmity in this addition. Hence this ground is dismissed.
6 Loknete Sunderraoji Solanke SSK Ltd. [A]
Thus, Ld.CIT(A) in para 4.28 has considered the Price Fixed by Government of Maharashtra vide Government Order dated 18/03/2011 and 31/10/2011. As it can be seen the Government of Maharashtra had fixed the price for Purchase of Sugar Cane on 18/03/2011 and 31/10/2011 for F.Y.2009-10. It means the Government of Maharashtra had fixed the Price for Purchase of Sugar Cane after the season, meaning by it is the Price which is as per Clause 5A of the Sugar Cane Control Order 1966. The Price fixed under sub clause 5A has a component of Profit embedded in it.
The Hon’ble Supreme Court in the case of CIT Vs. Tasgaon Taluka S.S.K Ltd., 412 ITR 420(SC) had held as under: Quote, “9.4 At this stage, it is required to be noted that Clause 5A was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission. As observed by this Court in the case of Maharashtra Rajya Sahkari Sakkar Karkhana Sangh Ltd.(supra), the Bhargava Commission had recommended payment of additional price at the end of the season on 50:50 profit sharing basis between growers and factories, to be worked out in accordance with Second Schedule to the Control Order, 1966. It is also required to be noted that the additional price is fixed/determined under Clause 5A at the end of the season and as per Second Schedule to the Control Order, 1966. Therefore, at the time when the additional purchase price is determined/fixed under Clause 5A, the accounts are settled and the particulars are provided by the concerned cooperative society what will be the expenditure; what can be the profit etc. It is required to be noted that so far as the SMP determined under Clause 3 of the Control Order, 1966 by the Central Government is concerned, it is at the beginning of the season and while determining/fixing the SMP by 7 Loknete Sunderraoji Solanke SSK Ltd. [A] the Central Government, the afore-stated things are required to be considered. Therefore, the difference of amount between the SMP determined under Clause 3 and the SAP/additional purchase price determined under Clause 5A has an element of profit and/or one of the components would be the profit. The entire scheme/mechanism while determining the additional purchase price under Clause 5A has been dealt with and considered by this Court in detail in the case of Maharashtra Rajya Sahkari Sakkar Karkhana Sangh Ltd. (supra). In the said decision, it is observed that the additional purchase price/SAP is paid at the end of the season; the Bhargava Commission had recommended payment of additional price at the end of season on 50:50 profit sharing basis between the growers and factories to be worked out in accordance with Second Schedule to the Control Order, 1966; that the additional purchase price comprises of not only the cost of cultivation, but profit as well; the price thus being paid on recovery of canes and profits made from sale of sugar is not minimum but optimum price which is paid to a cane grower. The additional cane price or additional State fixed price are paid as a matter of incentive. The entire price structure of cane is founded on two basic factors, one, therecovery percentage and other the incentive for sharing profit arrived at by working out receipt minus expenditure. 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 determine whether the amount paid is excessive or unreasonable or not. However, this is not the subject matter in the present appeals. We are restricting the present appeals qua the sugarcane purchase price paid by the society to the 8 Loknete Sunderraoji Solanke SSK Ltd. [A] cane growers above the SMP determined under Clause 3 and the difference of sugarcane purchase price between the price determined under Clause 3 and Clause 5A of the Control Order, 1966. 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.
10. In view of the above and for the reasons stated above, the question of law is answered accordingly, partly in favour of the department and partly in favour of the assessee. The impugned orders passed by the High Court, ITAT, CIT(A) as well as the Assessing Officers are hereby quashed and set aside and the matters are remitted to the respective Assessing Officers to undertake the exercise as stated hereinabove and after giving an opportunity to the respective assessees.” Unquote.
Thus, the Hon’ble Supreme Court had categorically observed that the Assessing Officer had to obtain the details from the assessee and then determine what amount would form part of the profit.
In this case the ITAT in its order in had directed to obtain the details from the assessee to arrive at the Price. However, it has been mentioned by the Assessing Officer that Assessee had not filed the required details though the Assessing Officer had given sufficient opportunities. From the paper book of the assessee it is observed 9 Loknete Sunderraoji Solanke SSK Ltd. [A] that the Assessee had not filed the details as called for by the Assessing Officer.
In these facts and circumstances of the case, in the interest of justice, we are constrained to Set Aside the issue to the CIT(A) for de-novo adjudication as per the Directions of Hon’ble Supreme Court in the case of CIT Vs. Tasagon Taluka SSK Ltd (supra). The Ld.CIT(A) shall give opportunity to the assessee . The Assessee shall file all necessary details at the earliest before the Ld.CIT(A).
In the result, Ground Number 1 and 2 of the Assessee are allowed for Statistical purpose.
Regarding the Ground Number 3 with refer to disallowance of Rs.21,33,025/-. The Assessee had not filed any details before the AO as well as CIT(A). The assessee has not filed any details regarding the Write off. The assessee has to prove that the amount is eligible for write off as per the provisions of the Act. However, no submission made by the assessee on this issue. Therefore, we confirm the addition of Rs.21,33,025/-. Accordingly, Ground Number 3 of the assessee is dismissed.
10 Loknete Sunderraoji Solanke SSK Ltd. [A]
In the result, appeal of the assessee is partly allowed for statistical purpose.