Shivshakti Shetkari Sahakari Sakhar Karkhana Ltd., Osmanabad V. Deputy Commissioner of Income-tax, Circle - 3, Nanded

CO 48/PUN/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6439 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-05-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 02-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AND OTHER

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NO.315/PUN/16 / ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-3, NANDED VS. SHIVSHAKTI SHETKARI SAHAKARI SAKHAR KARKHANA LTD., A/P. TANDULWADI, TAL. WASHI, DIST. OSMANABAD PAN : AACTS1082Q (APPELLANT) (RESPONDENT) C.O. NO.48/PUN/18 (ARISING OUT OF ITA NO.315/PUN/2016 / ASSESSMENT YEAR : 2011-12 SHIVSHAKTI SHETKARI SAHAKARI SAKHAR KARKHANA LTD., A/P. TANDULWADI, TAL. WASHI, DIST. OSMANABAD PAN : AACTS1082Q VS. DCIT, CIRCLE-3, NANDED (CROSS OBJECTOR) (APPELLANT IN THE APPEAL) / ORDER PER R.S.SYAL, VP : THESE ARE CROSS APPEALS ONE BY THE ASSESSEE AND TH E OTHER BY REVENUE IN RELATION TO THE ASSESSMENT YEAR 2011-1 2. ASSESSEE BY NONE REVENUE BY SHRI RAJESH GAWALI DATE OF HEARING 06-05-2019 DATE OF PRONOUNCEMENT 07-05-2019 SHIVSHAKTI SSK LTD., A.Y. 2011-12 2 2. NONE APPEARED ON BEHALF OF THE ASSESSEE BEFORE US, DESPITE SERVICE OF NOTICE. HOWEVER, CONSIDERING THE COVERED NATUR E OF ISSUE AND AVAILABILITY OF LD. DR, WE PROCEED TO DISPOSE OFF THE APPEAL ON MERITS. 3. THE ONLY ISSUE INVOLVED IN THE REVENUES APPEAL IS ON ACCOUNT OF THE ADDITION DELETED BY THE CIT(A) TOWARDS EXCESSIVE SUGARCANE PRICE PAID TO MEMBERS AS WELL AS NON - MEMBERS OF THE ASSESSEE. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SUGAR AND ITS BYE-PRODUCTS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED TH AT THE ASSESSEE PAID EXCESSIVE CANE PRICE, OVER AND ABOVE THE FAIR AND REMUNERATIVE PRICE (FRP) FIXED BY THE GOVERNMENT, TO ITS MEMBERS AS WELL AS NON-MEMBERS. ON BEING CALLED UPON TO JUSTIFY SUCH DEDUCTION, THE ASSESSEE GAVE CERTAIN EXPLANATIO N BY SUBMITTING THAT SUCH PAYMENT WAS SOLELY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS AND THE ENTIRE AMOUNT WAS DEDUCTIBLE U/S.37(1) OF THE INCOME-TAX ACT, 1961 (HEREINAF TER ALSO CALLED `THE ACT). RELYING ON CLAUSE-3 AND ADDITIONAL P RICE SHIVSHAKTI SSK LTD., A.Y. 2011-12 3 PAYABLE AS PER CLAUSE 5A OF THE SUGARCANE CONTROL ORDER, 1966, THE AO OPINED THAT THE EXCESSIVE PRICE PAID WAS IN THE NATURE OF `DISTRIBUTION OF PROFITS AND HENCE NOT DEDUCTIBLE. THIS IS HOW, HE COMPUTED THE EXCESSIVE CANE PRICE PAID BOTH TO THE MEM BERS AND NON-MEMBERS AT RS.1,29,14,547/- AND MADE ADDITION FO R THE SAID SUM. THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED THEREBY, THE REVENUE HAS APPROACHED THE TRIBUNAL. 5. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE RELEVA NT MATERIAL ON RECORD. IT IS SEEN THAT THE ISSUE OF PAYMENT O F EXCESSIVE PRICE ON PURCHASE OF SUGARCANE BY THE ASSES SES IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT OF HONBLE SUPREME COURT IN CIT VS. TASGAON TALUKA S.S.K. LTD. (2019) 103 TAXMANN.COM 57 (SC) . THE HONBLE APEX COURT, VIDE ITS JUDGMENT DATED 05-03-2019, HAS ELABORATELY DEALT WITH THIS ISSUE. IT RECORDED THE FACTUAL MATRIX THAT THE ASSESSEE IN TH AT CASE PURCHASED AND CRUSHED SUGARCANE AND PAID PRICE F OR THE PURCHASE DURING CRUSHING SEASON 2010-11, FIRSTLY, AT THE TI ME OF PURCHASE OF SUGARCANE AND THEN, LATER, AS PER THE MAN TRI 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 SHIVSHAKTI SSK LTD., A.Y. 2011-12 4 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 AUTHORIZ ES 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 CONCLUD ED 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 CLAUS E 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 S UM PAID TO MEMBERS AS WELL AS NON-MEMBERS. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE APEX COURT, IT NOTED THAT CLAUSE 5A WAS INSERTED IN THE YEAR 1974 ON THE BASIS OF TH E 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 A ND FACTORIES, TO BE WORKED OUT IN ACCORDANCE WITH THE SECOND SCHEDULE TO THE CONTROL ORDER, 1966. THEIR LORDSHIPS NO TED THAT AT THE TIME WHEN ADDITIONAL PURCHASE PRICE IS SHIVSHAKTI SSK LTD., A.Y. 2011-12 5 DETERMINED/FIXED UNDER CLAUSE 5A, THE ACCOUNTS ARE SETTLED AN D 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, 196 6, 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 CANN OT BE ALLOWED AS DEDUCTION, THE HONBLE 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 EXERCIS E OF CONSIDERING ACCOUNTS/BALANCE SHEET AND THE MATERIAL SUPPLIED T O 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 HONBLE APEX COURT ARE REPRODUCED AS UNDER:- SHIVSHAKTI SSK LTD., A.Y. 2011-12 6 9.4. ..... THEREFORE, TO THE EXTENT OF THE COMPON ENT OF PROFIT WHICH WILL BE A PART OF THE FINAL DETERMINATION OF SAP AND/OR THE FINAL PRICE/ADDITIONAL PURCHASE PRICE FIXED UNDER C LAUSE 5A WOULD CERTAINLY BE AND/OR SAID TO BE AN APPROPRIATI ON OF PROFIT. HOWEVER, AT THE SAME TIME, THE ENTIRE/WHOLE AMOUNT OF DIFFERENCE BETWEEN THE SMP AND THE SAP PER SE CANNO T BE SAID TO BE AN APPROPRIATION OF PROFIT. AS OBSERVED HEREINABOVE, ONLY THAT PART/COMPONENT OF PROFIT, WHILE DETERMINING TH E FINAL PRICE WORKED OUT/SAP/ADDITIONAL PURCHASE PRICE WOULD BE A ND/OR CAN BE SAID TO BE AN APPROPRIATION OF PROFIT AND FOR TH AT 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 P URPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITIONAL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966. MEREL Y BECAUSE THE HIGHER PRICE IS PAID TO BOTH, MEMBERS AND NON-M EMBERS, QUA THE MEMBERS, STILL THE QUESTION WOULD REMAIN WITH R ESPECT TO THE DISTRIBUTION OF PROFIT/SHARING OF THE PROFIT. SO F AR AS THE NON- MEMBERS ARE CONCERNED, THE SAME CAN BE DEALT WITH A ND/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 UNREASONABL E OR NOT........ 9.5 THEREFORE, THE ASSESSING OFFICER WILL HAVE TO T AKE INTO ACCOUNT THE MANNER IN WHICH THE BUSINESS WORKS, THE MODALITIES AND MANNER IN WHICH SAP/ADDITIONAL PURCHASE PRICE/F INAL PRICE ARE DECIDED AND TO DETERMINE WHAT AMOUNT WOULD FORM PART OF THE PROFIT AND AFTER UNDERTAKING SUCH AN EXERCISE W HATEVER IS THE PROFIT COMPONENT IS TO BE CONSIDERED AS SHARING OF PROFIT/DISTRIBUTION OF PROFIT AND THE REST OF THE A MOUNT IS TO BE CONSIDERED AS DEDUCTIBLE AS EXPENDITURE. 6. THE ISSUE OF DEDUCTION FOR PAYMENT OF EXCESSIVE PR ICE FOR PURCHASE OF SUGARCANE, RAISED IN THE APPEAL UNDER CONS IDERATION, IS SQUARELY COVERED BY THE AFORESAID JUDGMENT OF THE HONB LE SUPREME COURT. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET - ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE A.O FOR DECIDING IT AFRESH AS PER LAW IN SHIVSHAKTI SSK LTD., A.Y. 2011-12 7 CONSONANCE WITH THE ARTICULATION OF LAW BY THE HONBLE SUPREME COURT IN THE AFORENOTED JUDGMENT. THE AO WOULD ALLOW DEDUCTION FOR THE PRICE PAID UNDER CLAUSE 3 OF THE SU GAR CANE (CONTROL) ORDER, 1966 AND THEN DETERMINE THE COMPONE NT OF DISTRIBUTION OF PROFIT EMBEDDED IN THE PRICE PAID UNDER CLA USE 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 TH E ASSESSEE, WHICH WOULD BE APPROPRIATION OF INCOME, WILL NOT B E ALLOWED AS DEDUCTION, WHILE THE REMAINING AMOUNT, BEING A CHARGE AGAINST THE INCOME, WILL BE CONSIDERED AS DEDUCTIBLE EXPENDITURE. 7. AT THIS STAGE, IT IS MADE CLEAR THAT THE DISTRIBUTION OF PROF ITS CAN ONLY BE QUA THE PAYMENTS MADE TO THE MEMBERS. IN SO FAR AS THE NON-MEMBERS ARE CONCERNED, THE CASE WILL BE CON SIDERED AFRESH BY THE AO BY APPLYING THE PROVISIONS OF SECTION 40A( 2) OF THE ACT, AS HAS BEEN HELD BY THE HONBLE SUPREME COUR T SUPRA. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A SHIVSHAKTI SSK LTD., A.Y. 2011-12 8 REASONABLE OPPORTUNITY OF HEARING BY THE AO IN SUCH FRESH DETERMINATION OF THE ISSUE. 8. SINCE WE HAVE REMITTED THE MATTER TO THE FILE OF AO WITH CERTAIN DIRECTIONS AS ENUNCIATED ABOVE, THE CROSS OBJECTION FILE D BY THE ASSESSEE BECOMES INFRUCTUOUS. 9. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND THAT OF CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH MAY, 2019. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE; DATED : 07 TH MAY, 2019. SHIVSHAKTI SSK LTD., A.Y. 2011-12 9 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-2, AURANGABAD 4. 5. THE PR.CIT-2, AURANGABAD , , / DR A, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 06-05-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 06-05-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *