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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.S.SYAL, VP & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM:
This appeal preferred by the assessee emanates from the order of the Ld. CIT(Appeals)-6, Pune dated 11.12.2017 for the assessment year 2013-14 as per the following grounds of appeal on record:
“1. On the facts and in the circumstances of the case and in law of the learned Commissioner of Income Tax (Appeals)-6, Pune has erred in disallowing and adding back an amount of Rs.63,25,58,221/- on account of Excess cane price paid to sugarcane supplier.
2. On the facts and in the circumstances of the case and in law of the learned Commissioner of Income Tax (Appeals)-6, Pune has erred in disallowing and adding back an amount of Rs.1,12,38,600/- on account of sale of sugar at concessional rate.
3. On the facts and in the circumstances of the case and in law of the learned Commissioner of Income Tax (Appeals)-6, Pune has erred in disallowing and adding back an amount of Rs.12,61,374/- on account of VSI contribution.
4. On the facts and in the circumstances of the case and in law of the learned Commissioner of Income Tax (Appeals)-6, Pune has erred in disallowing and adding back an amount of Rs.12,37,350/- on account of Chief Minister Relief Fund.
5. The appellant craves for the leave, add, alter, amend, modify and delete any or all the above grounds of appeals before or at the time of hearing."
At the time of hearing, neither the assessee nor his authorized representative was present. The submissions of the Ld. DR were recorded and the case was discussed on merits.
The brief facts in this case are that the assessee is a co-operative society engaged in the business of manufacture and sale of white sugar and its by-products such as molasses, press, mud, bagasse etc. The main raw material used in the manufacturing process is sugarcane. The assessee filed its return of income for the assessment year 2013-14 on 27.09.2013 declaring total income at Rs.4,00,21,160/- after claiming deduction at Rs.6,88,55,044/- u/s.80IA(4)(iv)(a) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). The Assessing Officer completed assessment u/s.143(3) of the Act on 16.03.2016 determining the total income at Rs.68,63,16,705/-. The Assessing Officer disallowed the amount of Rs.63,25,58,221/- on account of disallowance u/s.37(1) of the Act for excessive cane price paid to members & non-members, Rs.1,12,38,600/- on account of sugar sale at concessional rate, Rs.12,61,374/- on account of VSI contribution and Rs.12,37,350/- on account of Chief Minister Relief Fund respectively.
The Ld. DR for the Revenue submitted that the issues raised in Ground No.1, 2 and 3 are covered by the decision of Co-Ordinate Bench of the Tribunal dated 14-03-2019 vide which bunch of 162 appeals were disposed of by the Co-ordinate Bench, the lead case being Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT in for the assessment year 2013-14 and also by the order of Tribunal dated 13.06.2019, the lead case being ACIT Vs. Shri Shankar SSK Ltd. in ITA No.382/PUN/2014 for the assessment year 2010-11.
After hearing the submissions of Ld. DR and after considering the orders of Co-ordinate Bench of the Tribunal, in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra) and also in the case of ACIT Vs. Shri Shankar SSK Ltd. (supra.) etc., we observe that the issues raised in the present appeal have already been considered and decided by the Co- ordinate Bench of the Tribunal Pune.
A. Ground No.1 : Excess Cane Price paid to Sugarcane supplier :
6. The Co-ordinate Bench of the Tribunal after considering the judgment of Hon‟ble Supreme Court of India in the case of CIT Vs. Tasgaon Taluka S.S.K. Ltd. reported as 103 taxmann.com 57 has decided this issue in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra) and also in the case of ACIT Vs. Shri Shankar SSK Ltd. (supra.) by observing as under :
“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 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 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........ 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 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 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 non-members 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.
7. It is noted that in some of the appeals, the assessees have raised an alternate ground for allowing deduction u/s.80P in respect of the addition.
The ld. ARs, in some of the cases, which were represented by them, were fair enough not to press such ground as it is only an alternate ground and having become infructuous in view of the restoration of the matter to the AO. No argument was advanced in support of such ground in other cases, even where the ld. ARs participated in proceedings before the Tribunal. Therefore, the said alternate ground in all such cases is dismissed.”
Thus, in view of the submissions made by the Ld. DR that the facts in the present appeal are identical, the issue relating to excess sugarcane price paid by the assessee is restored to the file of Assessing Officer with similar directions as above in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra). The Assessing Officer shall decide the issue after affording reasonable opportunity of hearing to the respective assessee, in accordance with law. Thus, Ground No.1 raised in appeal by the assessee is allowed for statistical purposes.
B. Ground No.2 : Sale of sugar at Concessional Rate :
8. We find that the issue of sale of sugar at concessional rates has also been considered by the Co-ordinate Bench in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra) and in the case of ACIT Vs. Shri Shankar SSK Ltd. (supra.) has held as under :
“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 Co-operative 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 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 ld. 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.”
Since the issue raised in the present appeal is identical to the one already decided by the Co-ordinate Bench of the aforementioned cases (supra), therefore, in view of the above order by Co-ordinate Bench of the Tribunal this issue is restored back to the file of Assessing Officer for de-novo adjudication in similar terms. The Assessing Officer shall grant reasonable opportunity of hearing to the assessee, in accordance with law. Thus, Ground No.2 raised in appeal by the assessee is allowed for statistical purposes.
C. Ground No.3 : provision for Vasantdada Sugar Institute (VSI) Contribution
The Ld. DR submitted that the issue of provision for VSI contribution has been decided by the Tribunal while adjudicating bunch of SSK appeals in Majalgaon SSK Ltd. Vs. ACIT in for assessment year 2013-14 decided on 14-03-2019. The Co-ordinate Bench followed the decision rendered in the case of Bhima S.S.K. Ltd. in ITA No. 1414/PUN/2000. We observe that the Co-ordinate Bench has decided this issue in favour of assessee by holding as under:
“18. We have heard both the sides and gone through the relevant material on record. It is found that the ld. CIT(A) has determined this issue in favour of the assessee by following the order passed by the Pune Benches of the Tribunal in the case of Bhima S.S.K. Ltd. (supra). No material has been placed on record to show that this order of the Tribunal has been reversed or modified in any manner by the Hon’ble High Court. Respectfully following the precedent, we decide this issue in favour of the assessee.”
Thus, in view of the above findings of the Tribunal, this ground is decided in favour of the assessee. Hence, Ground No.3 raised in appeal by the assessee is allowed.
D. Ground No. 4 : Disallowance on account of Chief Minister Relief Fund :
The assessee debited an amount of Rs.12,37,530/- under the head Chief Minister Relief Fund to the P & L account. The Assessing Officer observed that the same was not paid during the year under consideration and therefore, was disallowed.
It was submitted by the assessee before the Ld. CIT(Appeals) that the amount was debited as per the Government of Maharashtra order and the amount was transferred to profit and loss account. The assessee also submitted that society could not avoid making this payment and the said expenditure was solely and exclusively for the purpose of business. This amount was also paid to the Government of Maharashtra. The assessee relied on the decision in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. Vs. Commissioner of Income Tax, (2004) 191 CTR (SC) 66.
The Ld. CIT(Appeals) on this issue held that this amount was not incurred for the purpose of business and hence, not allowable u/s.37 of the Act and the same is allowable u/s.80G of the Act. As the amount has not been paid in the previous year as donation to the Chief Minister Relief Fund, the same was not allowable, as the requirement of law is that it should be paid. Therefore, the action of the Assessing Officer was upheld. We are of the considered view that once it is decided that the amount is allowable u/s.80G of the Act as donation to the Chief Minister Relief Fund, therefore, deduction allowed has to be calculated according to the provisions of the Act and also it has to be verified whether the said donation was made in the previous year or not, relevant to the assessment year. This exercise has to be done by the Assessing Officer.
The Ld. DR conceded to this observation of the Bench. In view thereof, we set aside the order of the Ld. CIT(Appeals) on this issue and remand the matter back to the file of the Assessing Officer for adjudication as per law while complying with the principles of natural justice. Thus, Ground No.4 raised in appeal by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 05th day of July, 2021.