ITO, WARD-1, BARDOLI, BARDOLI vs. SHREE MAHUVA PRADESH SAHAKARI KHAND UDYOG MANDLI LTD, BARDOLLI

Assessee by Shri Akshay Modi, CA Revenue by Shri H.P.Meena, CIT-DR Date of hearing 01.07.2022 Date of pronouncement 01.07.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-1,Surat [for short to as “CIT(A)”] dated 28.08.2020 for assessment year (AY) 2008-09, which in turn arise out assessment order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 28.12.2015. The Revenue has raised the following grounds of appeal:-

1. On the facts and in circumstances of the case and in law, the CIT(A) has failed to appreciate N.A the fact that AO has correctly reopened the case after getting the statutory approval from (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. the respective commissioner under section 151 after recording the reasons properly that how the assessee has failed to submit truly and fully the entire process of fixing final sugarcane price during the original assessment proceedings

2. On the facts and in circumstances of the case and in law, the CIT(A) has failed to appreciate N.A the fact that the AO has correctly reopened this case as the assessee has failed to disclose fully and truly all the materials regarding the details of purchase made during the regular assessment proceedings and also failed to produce the details of determination of the final price of cane which is paid over and above SMP (Statutory Minimum Price) according to clause 5A of control order,1966

3. On the facts and in circumstances of the case and in law, the CIT(A) has erred in deleting the Rs.8,30,81,920/- disallowance of Rs.24,43,56,633/- mad in the assessment order on account of non business expenditure and transfer of profits by payment of sugarcane purchase which is ought to have paid tax and then distributed it among the farmers.

4. On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting Rs.8,30,81,920/- the excess payment made over and above SMP to sugarcane farmers will leads to disallowance under section 37(1) of the Act.

5. On the facts and circumstances of the case and in law, the Ld. Commissioner (Appeals) has Rs.8,30,81,920/- erred in deleting the addition of Rs.24,43,56,633/- contrary to the facts of the assessee and without considering the fact that the amount deleted is not an admissible item of expenditure.

6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate As per Sr. No. 1 the fact that during the course of the above. assessment proceedings as well as in the remand proceedings, the assessee did not furnish any details or computations to explain the basis of determination of final cane price on purchase of sugarcane from member as well as nominal member farmers. 2 (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. 7 It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that the order of the AO N.A be restored. 8 The appellant craves to add, modify or alter any grounds during the course of appeal N.A proceedings. Total tax effect 8,30,81,920/-

raised by Revenue is covered by the decision of Hon'ble jurisdictional High Court in assessee’s own case for assessment year(s) 2009-10 and 2010-11 respectively. The Ld. AR for the assessee further submits that the case for assessment year(s) 2009-10 & 2010-11 was also re-opened by the Assessing Officer on similar grounds/ reasons of re-opening. The validity of re-assessment was also challenged by various other co-operative sugar mills, whose cases were also re-opened, including assessee before Hon'ble Jurisdictional High Court, wherein the re-opening was quashed vide order dated 12.06.2015. The assessee’s case was registered before the Hon'ble jurisdictional High Court as Special Civil Applications (SCA) No.18784/2014, for assessment year 2007-08 and SCA No. 2373/2015 & 2375/2015 for assessment year(s) 2009-10 and 2010-11. The Ld. CIT(A) while granting the relief to (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. the assessee followed the order of Hon'ble jurisdictional High Court (supra) and quashed the assessment order. The Ld. AR for the assessee submits that he has placed on record copy of order of Hon'ble High Court in SCA No. 18784/2014, for assessment year 2007-08 and SCA No. 2373/2015 & 2375/2015 dated 12.06.2015.

3. On the other hand, Ld. Commissioner of Income-tax Departmental Representative (Ld. CIT-DR) for the Revenue after going through the order of Ld. CIT(A) and SCA SCA No. 18784/2014, for assessment year 2007-08 and SCA No. 2373/2015 & 2375/2015 dated 12.06.2015 submits that he relied on the order of Assessing Officer.

4. We have considered the rival submissions of both the parties and have gone through the order of lower authorities. We find that the Assessing Officer re-opened the assessee’s case under section 147 issued notice under section 148 dated 18.03.2015 was served upon the assessee. The case of assessee was re-opened on similar set of fact as re-opened for assessment year 2007-08, which has already been quashed by Hon'ble jurisdictional High Court in SCA dated 12.06.2015 by passing the following order:- 4 (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. [9.0] Now, so far as the initiation of impugned reassessment proceedings and the impugned notice under Section 148 of the Act within. 4 years is concerned, it appears that the reopening has taken place only on one ground that the assessee has paid price of sugarcane more than the SMP. It is required to be noted that in all these cases the assessments were completed under Section 143(3) of the Ace after holding necessary inquiry by the Assessing Officer, it also appears that the inquiry was made and the issue was gone into detail. It is also required to be noted that in some of the cases the practice of paying more prices" to the cane growers than the SMP declared by the Government has been consistently followed since many years and the same has been accepted and no objection has been raised at any point of time earlier. It appears that the reason to believe and/or formation of the opinion by the Assessing Officer that the income chargeable to tax has escaped assessment is on the ground that the assessee has paid more price than the price determined / declared by the Government and therefore, the same is nothing but distribution of profits and/or passing of profits on the basis of the decision of the Hon'ble Supreme Court in the case of Shri Satpuda Tapi Parishar SSK Ltd. (Supra). However it is required to be noted that once at the time of original assessment under Section 143(3) of the Act the Assessing Officer after applying the mind accepted the return, thereafter reopening of the assessment can be said to be on mere change of opinion of the Assessing Officer and as per the catena of decisions of the Hon'ble Supreme Court as well as this Court mere on change of opinion of the Assessing Officer, reassessment proceedings are not permissible.

(A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. [9.1] If any decisions are required to be referred to on the point, they are the decision of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (Supra), decisions of this Court in the case of Cliantha Research Ltd. (Supra), Sarla Raj Verma (Supra) and Niko Resources Ltd. (Supra). In the case of Kelvinator of India Ltd. (Supra), the Hon'ble Supreme Court in para. 6 has held as under: "6. ON going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone, conferred jurisdiction on the Assessing Officer to make, a back assessment, but in section 147 of the Act (with effect from Ist April , 1989), they are given a go-by and only one condition has remained., viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post- 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power .to reassess. But reassessment has to be based on fulfillment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after ls! April, 1989, the 6 (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the. word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No.549 dated October 31, 1989 1(1990) 182 ITR (St.) I, 29), which reads as follows; "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe' in section 147. - A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out the meaning of die expression, 'reason to believe' had been explained in a number of court rulings in the past and was welt settled and its. omission from section 147 would give arbitrary powers.to/the Assessing Officer to reopen past assessments on mere change of opinion, To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression has ‘reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however remain the same." [9.2] Even otherwise it is required to be noted that the reasons to believe must necessarily show, indicate and 7 (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. communicate why and on what grounds/ cause any income has escaped assessment. Reasons recorded must be germane, prudent and disclose prima facie belief that income has escaped assessment. Even for formation of the opinion and/or reason to believe that any income has escaped assessment, there must be some tangible new material available with the Assessing Officer on the basis of which the reassessment proceedings are permissible. In the present case as such except the allegation that cane price / price has been paid -to the cane growers more than the purchase price determined / declared by the Government under the Control Order and therefore, the difference between the same is distributing the profits and therefore, the income liable to tax has escaped assessment. However, mere payment of cane price paid in excess to the SMP cannot by ipso facto and/or per se can be said to be distributing the profits. There must be tangible material, available with the Assessing Officer, such as the amount or cane price paid to the cane growers in excess to the SMP either is exorbitant or too excessive and is not justifiable at all and on I the basis of the material available with the Assessing Officer with respect to the cane price paid by other societies it is found that amount of cane price paid by a particular assessee/cooperative society is not justifiable at all, as either it is exorbitant and/or unreasonable, then and then only it can be said that such excess payment of cane price is nothing but distributing the profits and/or passing of the profits. However, for that and for reopening of the assessment on the aforesaid ground, there must be some tangible material available with the Assessing Officer to have a reasonable belief and/or form (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. such an opinion and in that case only the reassessment is permissible At this stage it is required to be noted that as such the SMP declared by the Government, declared under the Control Order is as such in the larger interest of the cane growers and so as to see that the cane growers are not exploited and therefore, it is mandated that the sugar cooperative societies to pay the purchase price of the cane not less than the SMP declared by the Government. Under the Control Order as such there is no restriction and/or ban not to pay more amount than the SMP declared. Even in the case of Shri Satpuda Tapi Parishar SSK Ltd. (Supra), the Hon'ble Supreme Court has observed that in deciding the questions whether the differential payment made by the assessee to the cane growers after the close of the financial year or after the balance-sheet date would constitute an expenditure under Section 37 of the Act and whether such differential payment would, applying the real income theory, constitute an expenditure or distribution of profits, the Assessing Officer is required to take into account the manner in which the business works, resolutions of the State Government, the modalities and the manner in which SAP and SMP are decided, the timing difference which will arise on account of the difference in the accounting years etc. Therefore, while considering the aforesaid question, number of questions are required to be examined by the Assessing Officer, before even forming an opinion and/or a reason to believe that: the income chargeable to tax has escaped assessment. Mere payment of any amount of cane price / purchase price in excess to SAP / SMP per se cannot be said to be distribution of profits. For 9 (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. which a detailed inquiry is required to be conducted by the Assessing Officer. In the present case no such inquiry has been done and/or conducted by the Assessing Officer before having a reasonable belief and/or forming an opinion that the income chargeable to tax has escaped assessment on the aforesaid ground.

[9.3] At this stage it is required to be noted that in some of the cases the Assessing Officer has formed an opinion on the basis of the order passed by the learned GIT (Appeals) which were pursuant to the order of Hon'ble Supreme Court in the case of Shri Satpuda Tapi Parishar SSK Ltd. (Supra), However, it is- required to be noted that on the basis of the order passed by the learned-CIT(Appeals) in the case of some other assessee the satisfaction of the Assessing Officer and formation of opinion in the case of present assessee cannot be sustained and the same can be said to be a borrowed satisfaction from another officer. Such borrowed satisfaction iii absence of any application of mind and any real finding in the case of the assessee do not constitute valid reason to believe that the income has escaped assessment. Under the circumstances on the aforesaid ground also the impugned reassessment proceedings within 4 years and beyond 4 years deserves to be quashed and set aside.

[9.4] At this stage even the provisions of Sugarcane Control Order, 1966 are also required to be referred to. Clause 3 provides for minimum price of sugarcane payable by the producer of the sugar and it provides that the Central Government may, after consultation with such authorities, bodies or associations as it may deem fit, by notification in the Official Gazette, from time to time, fix the minimum price of sugarcane to be paid by producers of sugar or their agents for 10 (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. the sugarcane purchased by them, having regard to (a) the cost of production of sugarcane; (b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities; (c) the availability of sugar to the consumer at a fair price; (d) the price at which sugar produced from sugarcane is sold by producers of sugar; and (e) the recovery of sugar from sugarcane. It is also required to be noted that even the Control Order provides for additional price for sugarcane purchased and it also further provides that no additional price determined under sub-clause (2) or sub-clause (3) of Section 5A shall become payable by a producer of' sugar who pays a price higher than the minimum sugarcane price fixed under Clause (3) to the sugarcane growers, provided that the price so paid shall in no case be less than the total price comprising the minimum sugarcane price fixed .under clause (3) and the additional price determined under sub-clause (2) or sub-clause (3) as the case may be: of Clause 5A. Therefore, even in the Control Order itself there is a reference to the additional purchase price which can be more than, the purchase price fixed under clause (3). However, as observed hereinabove, in a given case after holding inquiry if it is found that the purchase price paid in excess to the SMP is so exorbitant and/or unreasonable it can be said to be distributing the profits and/or passing of the profits. However, for that purpose there must be some further inquiry and/or tangible material with the Assessing Officer.

[9.5] Under the circumstances, the impugned notices under Section 148 of the Act to reopen the proceedings beyond 4 years and within 4 years on the aforesaid ground i.e. on the ground that the payment of purchase price in excess to the SMP has (A.Y.08-09) Shree Mahuva Pradesh S.K.U.M Ltd. escaped the assessment cannot be sustained and the same deserves to be quashed and set aside.