PADAMSHREE DR. D .Y.PATIL SAHAKARI SAKHAR KARKHANA LTD,,KOLHAPUR vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 1,, KOLHAPUR

Since the identical facts and issues are involved in both the appeals, we proceed to dispose of the appeal through this consolidated order for the sake of convenience.

First, we take up the appeal in for the assessment year 2014-15.

2 & 2227/PUN/2017 4. Briefly, the facts of the case are as under :- The appellant is a cooperative society registered under the Maharashtra Co-operative Society Act. It is engaged in the business of manufacturing of white crystal sugar. The return of income for the assessment year 2014-15 was filed on 30.09.2014 declaring loss of Rs.2,80,33,642/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-1, Kolhapur (‘the Assessing Officer’) vide order dated 22.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.8,82,58,740/-. While doing so, the Assessing Officer made an addition of Rs.11,01,53,658/- being the excess price paid to members over and above the minimum remunerative price fixed by Government holding it to be an appropriation of profit. The Assessing Officer also made another disallowance on account of sale sugar at concessional rate to members of Rs.61,38,720/-.

Being aggrieved, an appeal was preferred before the ld. CIT(A) who vide impugned order confirmed the addition after adverting to the scheme of fixation of price and purchase of sugarcane and held that the excess price paid is nothing but appropriation of profits. Similarly, the ld. CIT(A) also confirmed the addition on account of sale of sugar at concessional price after referring to the decision of the Hon’ble Supreme Court in the case of CIT vs. Krishna Sahakari Sakhar Karkhana, 211 taxmann.com 109 (SC).

Being dissatisfied with the order of the ld. CIT(A), the appellant is before us in the present appeal.

As regards to the concessional rate of sugar price, the ld. AR argued that the sugar was sold at concessional rate out of the business expediency considerations. Finally, it is submitted that the issue may be restored to the file of the Assessing Officer on the lines of the decision of the Co-ordinate Bench of the Tribunal in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. vs. ACIT in ITA No.308/PUN/2018 vide order dated 14.03.2019.

On the other hand, ld. Sr. DR has no serious objection to remand the matter on the lines indicated in the decision of the Co-ordinate Bench of the Tribunal in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. (supra).

We heard the rival submissions and perused the material on record. The first issue in the present appeal relates to the allowability of sugarcane price paid over and above FRP price. The Assessing Officer disallowed the excess price so paid by holding it to be the appropriation of profits. This finding of the Assessing Officer was also confirmed by the ld. CIT(A). There can be no quarrel as to the proposition that any appropriation of profit cannot be allowed as a deduction while computing the taxable income of the cooperative society. But the question is, appropriation of profit presupposes the existence of profits, as well as the determination of profits which is a question of fact required to be determined by the Assessing Officer by calling for necessary details such as the balance sheet, profits and loss account and 4 & 2227/PUN/2017 the details furnished to the State Government Authorities for the purpose of fixing the FRP price. The onus lies on the Department to prove this allegation of appropriation of profit by leading necessary evidence on record by undertaking such an exercise of determining the existence of profit and other condition by reference to the Resolution passed by the Board of Co-operative Society or approval of the State Government to make the payment over and above excessive of FRP price. Apparently, in the present case, the Assessing Officer had not undertaken any such exercise. On perusal of the assessment order, it is clear that the alleged excess price had arisen on account of two factors (i) harvesting of transport expenses and (ii) payments of Rs.5000 per MT against such supply of sugarcane in the earlier years. Prima-facie, it is clear that the appellant society had not paid any excess price for purchase of sugarcane from its members or non-members over and above the FRP price declared by the Central Government. As stated by us earlier, the disparity between the price paid on sugar and the price payable under FRP only on account of above two factors i.e. (i) harvesting and transport expenses and (ii) payment of Rs.5000 per MT against supply made in the earlier years. Therefore, it is bounding duty of the Assessing Officer to examine the facts and circumstances under which the harvesting and transport expenses was paid to the farmers whether the payments were made over and above FRP exclusively for the purpose of business. The Assessing Officer cannot jump to a conclusion that the payments are in the nature of appropriation of profits without examining the facts and circumstances under which the said excess payments were made. The Hon’ble Bombay High Court in the case of CIT vs. Manjara Shetkari Sahakari Sakar Karkhana Ltd., (2008) 301 ITR 191 held that the differential price cannot be disallowed merely on the ground that it is appropriation of profits without giving a finding as to whether there is any resolution passed authoring the society to pay such excess price. Similarly, 5 & 2227/PUN/2017 the Hon’ble Madras High Court in the case of CIT vs. Aruna Sunrise Hotels Ltd., 93 taxmann.com 361 held that the excess price determined under sugarcane control is to be treated as allowable expenditure exclusively and for the purpose of business. Therefore, the finding of the lower authorities cannot be sustained. In our considered opinion, the matter should be remanded back to the file of the Assessing Officer in order to meet the ends of justice to give a finding whether the excess price paid over and above FRP is out of the business expediency or appropriation of profit. If it is found that the excess payment was paid only out of business expediency consideration and the same should be allowed as deduction. Thus, this ground of appeal