Shree Narmada Khand Udyog Sahkari Mandali Ltd., Narmada V. Income Tax Officer, Ward - 2(1), Bharuch

ITA 104/SRT/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5741 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-10-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 08-02-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: REFERRING CLAUSE
• Keywords: Business expenditure; Question of law; Commercial expediency
• Section: 37; 28; 271(1)(c); 143(3); 37(1); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA Nos. 102, 103 & 104/Srt /2023 (Assessment Years: 2012-13, 2013-14 & 2014-15) (Virtual hearing) Shree Narmada Khand Udyog Sahkari Mandli Ltd., Village-Dharikheda, PO-Timbi, Taluka-Nandod, District-Narmada (Gujarat)-393140. PAN No. AAAAS 2249 E Vs. I.T.O., Ward-2(1), Bharuch. Appellant/ Assessee Respondent/ Revenue Assessee represented by Shri Saurabh Soparkar, Senior Advocate with Ms. Urvashi Shodhan, Advocate. Revenue represented by Shri Airiju Jaikaran, CIT-DR Date of Institution of Appeals 09/02/2023 Date of hearing 09/10/2023 Date of pronouncement 31/10/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These three appeals by the assessee are directed against the separate orders of learned National Faceless Appeal Centre, Delhi (in Short NFAC)/learned Commissioner of Income Tax (in short, the ld. CIT(A) all dated 14/12/2022 for the Assessment Years (AY) 2012-13, 2013-14 and 2014-15 respectively. In all these appeals, the assessee has raised certain common grounds of appeal. Facts in all these years are common except variation of figures of addition of additional sugar ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 2 cane price, therefore, with the consent of parties all these appeals were clubbed, heard together and are being decided by this consolidated order to avoid the conflicting decision. For appreciation of facts, the appeal for the A.Y. 2012-13 in ITA No. 102/Srt/2023 is treated as a “lead case”. In this appeal, the assessee has raised following grounds of appeal: “1. Ld. CIT (A) (NFAC) erred in law and on facts confirming action of AO disallowing genuine business expenditure incurred by the assessee society towards purchase of sugarcane from member farmers' u/s 37(1) of the Act. 2. Ld. CIT (A) (NFAC) erred in law and on facts in confirming addition made by AO of Rs. 58, 96, 71, 804/- additional sugarcane price paid to the cane growers wholly and exclusively for the purpose of business. 3. Ld. CIT (A) (NFAC) erred in law and on facts to confirm action of AO in treating additional purchase price paid by the assessee co- operative society to the member farmers as appropriation of profits. 4. Ld. CIT (A) (NFAC) erred in law and on facts in confirming conclusion of AO that additional price paid will not fall under section 28 but the disallowance of expenditure was done rightly applying principles laid down u/s 37 (1) of the Act. 5. Ld. CIT (A) (NFAC) erred in law and on facts in rejecting the submissions of the assessee that payment of final sugarcane price to the members after completion of the sugarcane season is consistently followed by the assessee society since last 25 years and is accepted by the revenue authorities till date. 6. Ld. CIT (A) (NFAC) erred in law and on facts confirming that AO was justified in holding that only the Statutory Minimum Price (SMP) / Fair and Remunerative Price (FRP) represents the amount of expenditure actually allowable as a deduction under IT Act. 7. Ld. CIT (A) (NFAC) erred in law and on facts in concurring with finding of AO that the payment to the farmers is not a genuine business expense but profit sharing in nature not allowable under IT Act. ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 3 8. Ld. CIT (A) (NFAC) further erred in law and on facts in not appreciating the ratio of Jurisdictional High Court in Mehsana District Co-operative Milk Producers Union Ltd. (282 ITR 24) on identical facts holding in favour of the assessee by inferring that functioning of sugar mill is different from milk cooperative. 9. Levy of interest u/s 234A, 234B, 234C & 234D of the Act is unjustified. 10. Initiation of penalty proceedings u/s 271(1)(c) of the Act is unjustified.” 2. Brief facts of the case are that the assessee is a cooperative society, engaged in the business of manufacture and sale of white sugar and its by-products such as molasses, press-mud, bagasse and etcetera. The assessee filed its return of income for A.Y. 2012-13 on 29/09/2012 declaring NIL income. The case was selected for scrutiny. During the year under consideration, the assessee has shown turnover of Rs. 225.31 crores and declared gross profit of Rs. 17.30 crores which is 7.68% and net profit of Rs. 6.36 crores being 2.82%. The Assessing Officer noted that in the immediate preceeding year on a total turnover of Rs. 179.21 crores, the assessee has declared gross profit at the rate of 3.96% and net profit at the rate of 1.41%. On the basis of such discrepancies, the Assessing Officer made basis for verification of books of account and details, furnished by the assessee in the assessment proceedings. The Assessing officer noted that the assessee has debited sugarcane purchase expenses of Rs. 181.34 crores based on sugarcane price. The Assessing Officer was of the view that the actual allowable expenses on account of sugarcane ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 4 purchase should be based on its Fair and Remunerative Price (FRP)/Statutory Minimum Price (SMP). The Assessing Officer on the basis of his view worked out the following allowable expenses: Particulars Amount/Weight Sugar purchase cost for the period 01/04/2011 to 31/03/2012 (Rs.)-As per P&L Account for F.Y. 2011-12 Rs. 1,81,34,01,857/- Sugar purchased during the year (MT)-As per P&L Account for F.Y. 2011-12 667974.92 MT Average purchase price per MT 2714.78 SMP/FRP for the period 01/04/2011 to 31/03/2012 vide Notification No. G.S.R.428(E)/Ess. Com./Sugarcane dated 05/06/2012 1832.00 Excess payment over SMP/FRP (Rs.) per MT 882.78 Excess purchase expenses considering SMP/FRP price (Rs.) between the period 01/04/2011 to 30/09/2011 Rs. 58,96,71,804/- 3. On the basis of aforesaid working, the Assessing officer issued show cause notice dated 11/03/2015 as to why excess purchase expenses of Rs. 58.96 crores should not be disallowed and added to the income of assessee. The details of show cause notice is extracted in para 4.1 of assessment order. In response to such show cause notice, the assessee filed its reply dated 20/03/2015. The contents of reply furnished by assessee is extracted in para 5 of assessment order. In the reply, the assessee stated that as per show cause notice the government has fixed a Statutory Limit Price (SMP) for sugarcane at Rs. 1832.00 per metric ton (MT) and assessee has paid excess amount of Rs. 882.78 per MT and accordingly excess amount of Rs. 58.96 crores have been paid by assessee to its Members. And that the claim of expenditure which in fact, is distribution of profit to the tune of Rs. 58.96 crores which has been paid over and above SMP which ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 5 was not cane price but diversion of profit and is not allowable as business expenditure under Section 37 of the Income Tax Act, 1961 (in short, the Act). The assessee also referred various other contents of show cause notice and submitted that to understand the concept of Statutory Minimum Price (SMP), State Advisory Price (SAP), Fair Market Price (FMP) and Final Cane Price. It is necessary to understand the provision of Sugarcane Control Order, 1966. In order to seek answer to the questions like; first Sugarcane Control Order-1966 came into being and what is exact arrangement between the cooperative sugar factory and cane grower members. For appreciation of such concept, the assessee furnished copy of Sugarcane Control Order- 1966. The assessee further explained that first part is about sanctity of SMP fixed under Sugarcane Control Order, in the sense that whether anything paid over and above SMP is an appropriation of profit or not. The second part is whether the additional price paid over and above SMP/SAP is expenditure in terms of Section 28 or 37 of the Act or an appropriation of profit and liable to tax. Third part is whether additional price paid after finalization of account is expenses or appropriation of profit. The assessee in order to answer all these questions, relied upon the judgment of Constitutional Bench of Hon’ble Supreme Court in the case of UP Co-operative Cane Union Vs West UP Sugar Mills Association in Civil Appeal No. 460-61 of 1997. ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 6 The assessee also extracted the relevant part of afforesaid decision of Hon’ble Supreme Court in its reply. On the basis of aforesaid decision, the assessee claimed that as per judgment that SMP as well as SAP are not final price but Board of Directors of Sugar factory can fix even higher price by giving additional price or rate difference at the time of finalization of account. To support such view, the assessee also relied upon the decision of Hon’ble Gujarat High Court in Mehsana District Co-operative Milk Producers Union Ltd. (2005) 146 Taxman 355/282 ITR 24 (Guj). The assessee also relied upon the decision of Hon’ble Bombay High Court in CIT Vs Solapur District Co-op Milk Producers and Process Union Ltd. (2009) 180 Taxman 533 (Mum). 4. The reply of assessee was not accepted by Assessing Officer. The Assessing Office was of the view that the assessee being a Cooperative Society (AOP) engaged in the business of manufacturing and selling of sugar and its by-products. The main raw material used by assessee for its manufacturing process is sugarcane. The Central Government has fixed SMP of sugarcane in terms of clause-3 Sugarcane Control Order, 1966 for each sugar season between 1 st October to 30 th September. The SMP was being fixed on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State Governments and associations of sugar industry and cane growers, having regard to various factors like ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 7 cost of production of sugarcane, return of the growers from alternative crops and the general trend of prices of agricultural commodities, availability of sugar to consumers at a fair price, price at which sugar produced from sugarcane is sold by sugar producers, recovery of sugar from sugarcane and other by-products. The exercise of determination of SMP of sugarcane is undertaken in a scientific manner, using an accepted tools of economic and statistical analysis and is carried out by specialized government bodies consisting of specialists/experts in the field. It takes into account costs of production and other factors. The Sugarcane Control Order, 1966 was amended in October, 2009 by inserting sub-clause (g) in clause-3, which provides for giving reasonable margins to the growers of sugarcane on account of risk and profits. Powers are vested with Central Government to determine fair and remunerative price (FRP) from 2009-10 effective from 01/10/2009. Thus, the FRP is nothing but another name of SMP after 2009-10. The Assessing Officer further held that payment of cane price is given in two instalments around February and April. The financial year for income tax purposes closed in March. At that point, the accounts are not closed instead of purchase amount is kept open till September/October of that year when “final cane price” is issued. This final cane price is nothing but a price based on operational profit. The purchase account (which is ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 8 called cane advance account) was kept open all the while is re-debited with the additional cane price i.e. paid as per ‘final cane price’ order. The Assessing Officer further held that even assuming that the liability to pay additional cane price was also incurred at the time of purchase of cane and only quantification of the amount payable on that account was done later on, the normal accounting practice would be to create a provision as at the end of accounting period, the said amount would constitute a present obligation as a result of past even and that requires the outflow of resources to settle the obligation. No provision was made by assessee in its books of account. The assessee has consistently been following the practice of actually debiting the amount payable on the basis of final cane price order under ‘purchases’, although the accounting period is over long back. Such payment is not an allowable business expenditure rather than have some other motive other than the business expediency. The assessee claimed it for the benefit in the interest of farmers. The Assessing Officer by referring the decision of Hon’ble Apex Court in Travancore Titanium Products Ltd. [2001] 114 Taxman 249 (SC)/[2001] 247 ITR 186 (SC)/[2000] /[2001] 114 Taxman 249 (SC), wherein it was held that the nature of expenditure must be adjudged in the light of accepted commercial practice, trading principles and also that it must be necessitated or justified by commercial expediency. The Assessing ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 9 Officer also referred other decisions who strengthen his view that the Assessing Officer is well within his right to come to the finding that the expenditure is not exclusively for the purpose of business. The Assessing Officer also referred the decision of Hon’ble Apex Court in Malaprabha Co-operative Sugar Factory Ltd. (1994) 1 SCC 648 wherein it was held that in the State of Maharashtra initially ex-field advance uniformly for all co-operative sugar factories. At the end of the season, the actual working results are assessed and the entire profits are passed on to the cane growers as additional cane price. Thus, the farmers get profits in the form of additional cane price and this fluctuates widely from factory to factory. By referring such decision, the Assessing Officer held that it is a profit sharing nature. On the assertion of assessee that they are cooperative society set up by farmers coming together to ensure a ready and assured market for their cane at a remunerative price. The object of the co-operative sugar factory is not to earn profits for itself, but to give the best remunerative prices to farmers for the sugarcane supplied by them. While considering such contention, the Assessing Officer was of the view; whether the provisions of Income Tax Act warrant any differential or special treatment to a cooperative society. The Assessing Officer while referring some decisions of CIT(A)-3, Pune while dealing the appeal of M/s Samarth SSK limited in the year 1996, ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 10 held that the income of cooperative society is to be determined on the same basis as of other business organizations. The Assessing Officer by referring the aforesaid various decisions, held ultimately that neither the commercial principle nor under provisions of Income Tax Act, an amount paid towards sharing of profit constitute and allowable deduction in computation of income. The Income Tax Act is a self- contained Code, the taxability of a receipt as well as the allowability of any item of expenditure in the computation of income, has to be determined on the basis of provisions of the Act itself. Hence, the Assessing Officer disallowed an amount of payment of Rs. 58.96 crores as identify in the show cause notice, on account of excess claim of purchase of sugarcane and added to the income of assessee in the assessment order dated 23/05/2015 passed under Section 143(3) of the Act. 5. Aggrieved by the disallowance of such sugarcane price, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed statement of facts. Statement of facts of assessee are recorded in para 3 at page No. 2 of order of ld. CIT(A). The assessee in nutshell reiterated the similar submission as made in the reply to show cause notice before the Assessing Officer. The assessee also relied on various case laws as relied by the Assessing Officer. ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 11 6. The ld. CIT(A) after considering the contents of assessment order, statement of fact and submission of assessee, upheld the order of Assessing officer by taking view that there is no dispute that the payment was actually made by assessee. The payment should be viewed in the light of decision of Hon’ble Supreme Court in the case of Malaprabha Co-operative Sugar Factory Ltd. (1994) 1 SCC 648, as relied by the Assessing Officer. The assessee claimed that the assessing officer has not followed the binding decision of jurisdictional High Court in Mehsana District Cooperative Milk Producers Union Ltd (2005) 282 ITR 24-Gujarat. In the said case the assessee was procuring milk from milk suppliers or primary milk cooperative union. The said decision is applicable on the facts of present case as the cooperative societies are working for welfare of farmers. The ld. CIT(A) held that under the income tax provisions, every businessman and every assessment year is not treated separately, according to fact of each case. In para 7.1. of CBDT Circular No. 18/2021, it is clarified the case of sugarcane cooperatives engaged in the production of sugar separately as all cooperative societies are not identical. The Assessing Officer in his assessment order, clearly and categorically established that the cane price decided by sugar cooperative does not entail passing on the profits of the cooperative to the cane suppliers and neither under commercial principles nor under the provisions of ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 12 Income Tax Act, an amount paid towards sharing of profits. On such observation, the ld. CIT(A) dismissed the appeal of assessee. Further aggrieved, the assessee has filed present appeal before this Tribunal. 7. We have heard the submissions of the Shri Saurabh N Soparkar, learned Senior Advocate (in short, the ld. Sr. Counsel) assisted by Ms. Urvashi Shodhan learned Advocate for the assessee and Shri Airiju Jaikaran, learned Commissioner of Income Tax-Departmental Representative (in short, ld. CIT-DR) for the revenue. The ld. Sr. Counsel for the assessee submits that the assessee is a cooperative society, engaged in the business of manufacture and sale of white sugar and various by-products. As per provisions of State Cooperative Societies Act, the assessee the board of directors of assessee/ managing committee consist of four Senior State Government officers as nominees. The details of office bearers and managing committee members are given on page No. 91 of paper book, showing four government nominees as office bearers. The main raw material for manufacturing process is sugarcane. Hence, all the actions and the decisions taken by the managing committee is having the sanction of state Government. The Assessing Officer made addition of Rs. 58.96 crores by disallowing additional sugarcane price paid to sugarcane growers which was claimed by assessee under Section 37(1) and in alternative under Section 28 of the Act. Similar treatment was made in ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 13 all three years. The main controversy between the assessee and the Assessing Officer is the interpretation of Sugarcane Control Order, 1966. As per the assessee, clause-3 of Sugarcane Control Order-1966, which prescribed payment of minimum price and it is always open to the assessee to negotiate with the suppliers/farmers to pay higher price on commercial consideration. However, the Assessing Officer was of the view that the amount prescribed under clause-3 of Sugarcane Control Order, is the maximum and the amount paid in excess of the said price is to be disallowed. The ld. Senior Counsel for the assessee carried us through various clauses of Sugarcane Control Order framed by the Central Government under the provisions of Essential Commodities Act-1955 and would submit that it basically empowered the Union Government to fix SMP to sugarcane growers in order to protect their interest. Further, sub-clause (2) of clause-3 prohibits everyone from selling/ purchasing sugarcane at the price lower than the fixed price under clause-3(1). This makes it abundantly clear that fair and reasonable price (FRP) earlier known as SMP fixed by Central Government for every crushing year i.e. October to September is to be safeguard the interest of farmers and is the lower limit only. However, it is always open to the party to negotiate to pay a price higher than the minimum price on commercial consideration and it is not open to the revenue to disallow it difference on the ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 14 ground difference was not in law. The Sugarcane Control Order states only minimum price and not the maximum price is an accepted position as has been held by the Constitution Bench of Apex Court in UP Co-operative Cane Union Vs West UP Sugar Mills Association (supra) 8. The ld. Senior Counsel for the assessee while reading the relevant part of the said decision wherein in para 10 of the order it is noted that “a whole reading of the 1996 Order would, therefore, show that the Central Government shall fix the minimum price of sugarcane but there can be a higher than the minimum price which may be in the nature of agreed price between the producer of sugar and sugarcane grower or the sugarcane growers’ cooperative society. So, the field for a price higher than minimum price is clearly left open in the 1996 Order made by the Central Government.” The ld. Senior Counsel for the assessee by referring the decision submits that in the said case law in case of State of M.P. Vs Jaora Sugar Mills Ltd and others ( xxx) wherein it is held that there is no statutory prohibition to pay higher price. Clause-3(2) which speaks of the contract between the parties for payment of higher price of sugarcane fixed under clause 3(1) pursuant to the agreement or pursuant to minimum price fixed by the Central Government. ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 15 9. The ld. Senior Counsel for the assessee further submits that clause-3 of Sugarcane Control Order deals with the minimum price and not the maximum price which is also evident from clause- 5 of the said order. The ld. Senior Counsel for the assessee by referring clause -5, which deals with additional price of sugarcane purchased where a producer of sugar or his agent purchases any sugarcane from a grower of sugarcane or a growers’ cooperative society during each of four successive years beginning on first day of November, 1958, the producer shall, in addition to the fair and remunerative price of sugarcane fixed under sub-clause (1) of clause 3, pay to the grower or the cooperative society, as the case may be, an additional price, if found due, in accordance with the provisions of the first schedule. In the facts of present case, there was no need for a separate determination of additional price under clause 5(1), because the purchases were made from members of the assessee society and under clause 5(2)(b) in such a case separate determination of additional price as per mechanism prescribed under clause 5(1) is not necessary. This would necessary mean that it is always open to the assessee to negotiate and decide additional price that needs to be paid to the suppliers of sugarcane, who happened to be members of the assessee on commercial principle. The ld. Senior Counsel for the assessee further submits that the commercial necessity of ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 16 expenditure, that claim has to be seen from the view point of assessee and not the revenue. To support such view, the ld. AR of the assessee relied upon the decisions of Hon’ble Supreme Court in the case of S.A. Builders 288 ITR 1 (SC), Easter Investment Ltd. 20 ITR 1 (SC) and Chandulal Keshavlal & Co. 38 ITR 601 (SC). The ld. ld. Senior Counsel for the assessee submits that his case is squarely covered by the decision of Hon’ble Jurisdictional High Court in the case of Mehsana District Co-operative Milk Producers Union Ltd. (2005) 147 Taxman 355 wherein the Hon’ble High Court was considered similar controversy i.e. payment on incremental price made by assessee, a cooperative society, to its members for purchase of an agricultural product like milk. In the said case, the Hon’ble High Court held that the amount had gone out of the coffers of the assessee and is received by milk supplying societies. The purchase price paid under each of the circulars was treated as ad-hoc payment and the final price which might increase/decrease, would be decided at the end of the year and should be intimated. Merely because the board resolved to fix the final price and paid on the last day of the accounting period it would not amount to application of profits. In past years, identical fact and situation prevailed and in absence of any change in circumstances, issue cannot be re-agitated by the department when society was working under superintendence of various Government ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 17 organizations and there were nominee directors of the State Government. Payment made on the last day of accounting year is allowable under section 28 of the Act to ascertain real profits on the principle of commercial accounting and the law requires to consider the purpose for which, and not the motive with which, the expenditure incurred under section 37 of the Act. The ld. Senior Counsel for the assessee submits that the facts of this case is similar more specifically there are three nominees of State Government in the Board of Directors/Managing Committee of assessee. Final price of crushing season is fixed by Board’s resolution and the amount has been gone out of coffers of assessee received by growers. The accounting method regarding preparation of annual accounts is followed consistently since many years which has been accepted by the department. The Hon’ble Apex Court in Excel Industries 358 ITR 295 held that once accounting method which is followed and accepted by the department cannot be now open to challenge the same. In case of assessee also, the assessee paid the difference because as per provisions of Section 43(2) paid means actually paid or incurred according to method of accounting upon the basis of which the profits and gains are computed under the head “Profits and gains of business or profession”. The assessee is following mercantile system of accounting. Final price of sugarcane was fixed by Board vide their ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 18 Resolution on 27/08/2012, much before finalization of account on 29/09/2012. Therefore, it is not as if the assessee has paid additional price after profit came to be quantified. The additional price paid on finalization of accounts under Section 43(2) is an allowable expense in mercantile system of accounting. 10. The ld. Senior Counsel for the assessee further submits that the Hon’ble Supreme Court recently in Kolhapur Zilla Sahkari Dudh Utpadak Sangh Ltd. [2023] 152 taxmann.com 129 (SC)/[2023] 293 Taxman 603 (SC), while affirming the decision of Hon’ble Bombay High Court in the case of CIT Vs Solapur District Co-op Milk Producers & Process Union Ltd. (2009) 180 TAXMAN 533 (Bom), held that the addition could not be made by treating the amount paid as final rate difference as distribution of profits. The ld. Senior Counsel for the assessee submits that the Hon’ble Bombay High Court while giving such judgment followed the decision of Gujarat High Court in Mehsana District Co-operative Milk Producers Union Ltd. (supra), thus the decision of Hon’ble Gujarat High Court stand approved by the Hon’ble Apex Court. 11. The ld. Senior Counsel for the assessee finally submits that the decision of Hon’ble Apex Court in CIT Vs Tasgaon Taluka S.S.K. Ltd. 412 ITR 420 is not applicable in all these appeals. In the said case, the issue before the Hon’ble Court was whether sugarcane price paid ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 19 to the sugarcane growers by sugar cooperative society more than SMP determined under clause-3 and 5A of Sugarcane Control Order, 1966 can be said to be sharing of profit/estimation of profit or is an allowable expense. The ld. Senior Counsel for the assessee submits that it may be noted that clause 5A of Sugarcane Control Order is omitted w.e.f. 22/10/2009, thus the judgment which is based on interpretation of clause 5A of Control Order has no relevance. The issue involved in the present appeals now stand covered by the latest decision of Hon’ble Apex Court in the case of Kolhapur Zilla Sahkari Dudh Utpadak Sangh Ltd. (supra). The ld. Senior Counsel for the assessee finally submits that the issue involved in all three appeals are identical except variation in figure of disallowance of additional payment to sugarcane growers. 12. On the other hand, the ld. CIT-DR for the revenue supported the orders of lower authorities. The ld. CIT-DR for the revenue submits that the extra payment paid by the assessee is an appropriation of profit and not allowable as deduction. The assessee has not claimed such expenditure under Section 37 of the Act at all. The submission of assessee than final cane price is nothing but a price and is allowable expenses under Section 28 to arrive at a taxable profit. The recourse is to be made to ascertain nature of business and character of transaction and realities and peculiarities of the situation. The ld. CIT- ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 20 DR for the revenue submits that the Tribunal is required to see the case at 360 degrees. There is no ambiguity in the fact that the price was paid after financial year. The CBDT in its Circular No. 18/2021 has clarified the said issue and clarified that the cooperative society engaged in manufacturing of sugar shall be entitled to deduction of expenditure equal or less than the price fixed by the Government. Though, such Circular is effective from A.Y. 2016-17, however, the similar principle will apply to other assessment years. 13. In short rejoinder, the ld. Senior Counsel for the assessee submits that the Circular referred by the ld. CIT-DR is not applicable on the facts of the present appeals as the CBDT itself clarified that such clarification is applicable from A.Y. 2016-17 and subsequent assessment year. To support his view, the ld. Sr. Counsel for the assessee relied upon the decision of Hon’ble Supreme Court in the case of Vatika Township 367 ITR 466 (SC). 14. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by the lower authorities as well as by the ld. Senior Counsel for the assessee. The assessing officer while passing the assessment order made addition of Rs. 58.96 crore by taking view that the payment made by the assessee @ Rs. 882.78 per MT, over and above the SMP determined by the ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 21 Government to its member is in fact distribution of profit and is not allowable expenses under section 37(1) of the Act. The assessing officer also held that SMP was fixed on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State Governments and associations of sugar industry and cane growers, on considering various factors like in a scientific manner, using an accepted tools of economic and statistical analysis and is carried out by specialized government bodies consisting of specialists/experts in the field. The Sugarcane Control Order, 1966 was amended in October, 2009 by inserting sub-clause (g) in clause-3, which provides for giving reasonable margins to the growers of sugarcane on account of risk and profits. The FRP is nothing but another name of SMP after 2009-10. It was also held by the Assessing Officer further held that payment of cane price is given in two instalments around February and April. The Assessing Officer further held that even assuming that the liability to pay additional cane price was also incurred at the time of purchase of cane and only quantification of the amount payable on that account was done later on, the normal accounting practice would be to create a provision as at the end of accounting period, the said amount would constitute a present obligation as a result of past even and that requires the outflow of resources to settle the obligation and no provision was ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 22 made by assessee in its books of account. The assessee has consistently following such practice of actually debiting the amount payable on the basis of final cane price order under ‘purchases’, although the accounting period is over long back, and that such payment is not an allowable business expenditure rather than have some other motive other than the business expediency. The assessing officer was of the view that the nature of expenditure must be adjudged on the accepted commercial practice, trading principles and also that it must be necessitated or justified by commercial expediency. On the contention of assessee that they are cooperative society set up by farmers coming together to ensure a ready and assured market for their cane at a remunerative price and that object of the co-operative sugar factory is not to earn profits for itself, but to give the best remunerative prices to farmers for the sugarcane supplied by them. While rejecting such contention, the Assessing Officer was of the view the provisions of Income Tax Act does not provided any differential or special treatment to a cooperative society. 15. We find that the ld CIT(A) upheld the action of the assessing officer by taking view that there is no dispute that the payment was actually made by assessee. The payment should be viewed in the light of decision of Hon’ble Supreme Court in the case of Malaprabha Co- operative Sugar Factory Ltd. (1994) 1 SCC 648, as relied by the ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 23 Assessing Officer. The assessee claimed that the assessing officer has not followed the binding decision of jurisdictional High Court in Mehsana District Cooperative Milk Producers Union Ltd (2005) 282 ITR 24-Gujarat. In the said case the assessee was procuring milk from milk suppliers or primary milk cooperative union. The said decision is applicable on the facts of present case as the cooperative societies are working for welfare of farmers. The ld. CIT(A) held that under the income tax provisions, every businessman and every assessment year is not treated separately, according to fact of each case. The Assessing Officer in his assessment order, clearly and categorically established that the cane price decided by sugar cooperative does not entail passing on the profits of the cooperative to the cane suppliers and neither under commercial principles nor under the provisions of Income Tax Act, an amount paid towards sharing of profits. 16. In order to appreciate the concept of Statutory Minimum Price (SMP), State Advisory Price (SAP), Fair Market Price (FMP) and Final Cane Price. The necessary clauses of Sugarcane Control Order, 1966 is reproduced below; 2. Definitions- (a)---- (b)---- (c)---- ***(cc) “fair and remunerative price of sugarcane” means the price fixed by Central Government under clause -3, from time to time, for sugar cane; (*** inserted vide SO 2665(E) /Ess.Com/sugar cane dated 22.10.2009.) ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 24 3. Fair and remunerative price ++ of sugarcane payable by producer of sugar.— (1) 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 fair and remunerative price of sugarcane to be paid by producers of sugar or their agents for 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: (f) the realization made from sale of by products viz. molasses, bagasse and press mud of their imputed value (g) reasonable margins for the growers of sugarcane on account of risk and profits [Provided that the Central Government or with the approval of the Central Government, the State Government, may, in such circumstances and subject to such conditions as specified in Clause 3-A, allow a suitable rebate in the price so fixed.] [Explanation. (1) Different prices may be fixed for different areas or different qualities or varieties of sugarcane. Explanation (2) When a sugar factory produces ethanol from B-Heavy molasses, the recovery rate in case of such sugar factory shall be determined by considering every 600 litres of ethanol so produced as equivalent to 1 tonne of production of sugar; Explanation (3) Production of ethanol directly from sugarcane juice shall not be allowed.” (2) No person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause (1). * [(3) Where a producer of sugar purchases any sugarcane from a grower of sugarcane or from a sugarcane growers’ co-operative society, the producer shall, unless there is an agreement in writing to the contrary between the parties, pay within fourteen days from the date of delivery of the sugarcane to the seller or tender to him the price of the cane sold at the rate agreed to between the producer and the sugarcane grower or the sugarcane growers’ co-operative society or that fixed under sub-clause (1), as the case may be, either at the gate of the factory or at the cane collection centre or transfer or deposit the necessary ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 25 amount in the Bank account of the seller or the co-operative society, as the case may be.] ^[(3-A) Where a producer of sugar or his agent fails to make payment for the sugarcane purchased within 14 days of the date of delivery, he shall pay interest on the amount due at the rate of 15 per cent per annum for the period of such delay beyond 14 days. Where payment of interest on delayed payment is made to a cane growers’ society, the society shall pass on the interest to the cane growers concerned after deducting administrative charges, if any, permitted by the rules of the said society.] ^^(3B) (4) Where sugarcane is purchased through an agent, the producer or the agent shall pay or tender payment of such price within the period and in the manner aforesaid and if neither of them has so paid or tendered payment, each of them shall be deemed to have contravened the provisions of this clause. (5) At the time of payment at the gate of the factory or at the cane collection centre, receipts, if any, given by the purchaser, shall be surrendered by the cane grower or co-operative society. (6) Where payment has been made by transfer or deposit of the amount to the Bank account of the seller or the co-operative society, as the case may be, the receipt given by the purchaser, if any, to the grower or the co-operative society if not returned to the purchaser, shall become invalid. ^[(7) In case, the price of the sugarcane remains unpaid on the last day of the sugar year in which cane supply was made to the factory on account of the suppliers of cane not coming forward with their claims therefor, it shall be deposited by the producer of sugar with the Collector of the district in which the factory is situated, within three months of the close of the sugar year. The Collector shall pay, out of the amount so deposited, all claims considered payable by him and preferred before him within three years of the close of the sugar year in which the cane was supplied to the factory. The amount still remaining undisbursed with the Collector, after meeting the claims from the suppliers, shall be credited by him to the Consolidated Fund of the State, immediately after the expiry of the time limit of three years within which claims therefor could be preferred by the suppliers. The State Government shall, as far as possible utilize such amounts for development of sugarcane in the State. ^(8) Where any producer of sugar or his agent has defaulted in furnishing information under Clause 9 of this Order or has defaulted in paying the whole or any part of the price of sugarcane to a grower of sugarcane or a sugarcane growers’ co-operative society within fourteen days from the date of delivery of sugarcane, or where there is an agreement in writing between the parties for payment of price within a specified time and any producer or his agent has defaulted in making payment within the agreed time specified therein, the Central Government or an officer authorised by the Central Government in this behalf or the State Government or an officer authorised by the State Government in this behalf may either on the basis of information made available by the producer of ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 26 sugar or his agent or on the basis of claims, if any, made to it or him regarding non- payment of prices or arrears thereof by the concerned grower of sugarcane or the sugarcane growers’ co-operative society as the case may be, or on the basis of such enquiry that it or he deems fit, shall forward to the Collector of the district in which the factory is located, a certificate specifying the amount of price of sugarcane and interest due thereon from the producer of sugar or his agent for its recovery as arrears of the land revenue. (9) The Collector on receipt of such certificate, shall proceed to recover from such producer of sugar or his agent the amount specified therein as if it were arrears of land revenue. (10) After effecting the recovery, the Collector shall intimate to the concerned growers of the sugarcane or the concerned sugarcane growers co-operative societies through a public notice to submit their claims in such a manner as he considers appropriate within thirty days: Provided that the Collector may, for the reasons to be recorded in writing allow the submission of claims after the period so specified if he is satisfied that there was sufficient cause for not submitting such claim earlier. (11) If the amount recovered is less than the amount specified in the certificate under sub-clause (8), the Collector shall distribute the amount so recovered among the concerned growers of the sugarcane or the concerned sugarcane growers co-operatives in proportion to the ratio determined by the Collector on the basis of the sugarcane supplied by the concerned growers of sugarcane or the sugarcane growers’ co-operative society as the case may be. (12) If the amount recovered and distributed under sub-clause (11) is less than the amount specified in the certificate under sub-clause (8), the Collector shall proceed to recover the remaining amount, as if it were arrears of land revenue till the full amount is recovered and distributed to satisfy the remaining claims. (13) If the amount is given to the concerned sugarcane growers co-operative societies, it shall distribute the amount through cheque/draft/or any other recognised banking instrument on any Scheduled Bank to the concerned sugarcane growers within ten days of the receipt of the amount from the Collector. (14) If the concerned sugarcane grower or the concerned sugarcane growers co- operative society do not come forward to claim or collect the amount so recovered by the Collector within three years from the date of the public notice referred to in sub-clause (10), the unclaimed amount shall be deposited by the Collector in the Consolidated Fund of the State. ** Explanation(4) ** Explanation(5) [3-A. Rebate that can be deducted from the price paid for sugarcane. A producer of sugar or his agent shall pay for the sugarcane purchased by him to the sugarcane grower or the sugarcane growers’ co-operative society, either the ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 27 fair and remunerative price ++ of sugarcane fixed under Clause 3, or the price agreed to between the producer or his agent and the sugarcane grower or the sugarcane growers’ co-operative society as the case may be (hereinafter referred to as the agreed price): Provided that.— (i) in the case of sugarcane delivered at any purchasing centre and the same being transported to the factory by the factory owner by rail or by road using his own transport a rebate shall be made from the minimum price or the agreed price as the case may be and such rebate shall be fixed by the Central Government having regard to the actual cost of transportation in the area after consultation with such body or bodies as it may deem fit by notification in the Official Gazette from time to time and the owner shall accordingly make the rebate;] Explanation: The distance of less than half a kilometre shall be ignored while distance or half or more than half kilometre, shall be counted as one kilometre. (ii) the Central Government or the State Government, or the Director of Agriculture, or the Cane Commissioner, or the District Magistrate may allow a suitable rebate in the fair and remunerative price ++ price or the agreed price as the case may be, for [burnt cane or stale cane or dried cane or rejected varieties of cane] supplied to factories within their respective jurisdiction subject to the condition that the rebate so allowed does not exceed the reduction in price on account of the estimated shortfall in the recovery of sugar from4 [burnt cane or stale cane or dried cane or rejected varieties of cane.] (iii) where the sugarcane is brought bound in bundles and weighed as such, the Central Government, or with the approval of the Central Government, the State Government, or the Director of Agriculture, or the Cane Commissioner, or the District Magistrate, within their respective jurisdictions may allow a suitable rebate in regard to the weight of the binding material [not exceeding 1.000 kilograms per quintal of sugarcane]; (iv) The Central Government or the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate, may allow a suitable rebate in the minimum price or the agreed price as the case may be, when the cane is supplied ex-field to sugar factories within their respective jurisdictions subject to the condition that the rebate so allowed shall not exceed the estimated expenditure on harvesting and transportation. 4. Fair and remunerative price of sugarcane payable by producers of khandsari sugar.— The Central Government or a State Government, with the concurrence of the Central Government, may, by notification in the Official Gazette, from time to time, fix the fair and remunerative price or the price of sugarcane to be paid by producers of khandsari sugar or their agents for the sugarcane purchased by them: Provided that the fair and remunerative] price or the price of sugarcane so fixed shall not exceed the fair price of sugarcane fixed for payment by producers of sugar in the region: ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 28 [Provided further that no person shall sell or agree to sell sugarcane to a producer of khandsari sugar or his agent, and no such producer or his agent shall purchase or agree to purchase sugarcane at a price lower than that fixed under Clause 4. [Provided also that the Central Government or with the approval of the Central Government, the State Government, may in such circumstances and subject to such conditions as specified in Clause 4- A, allow a suitable rebate in the price so fixed.] 4-A. Rebate that can be deducted from the price paid for sugarcane by producers of khandsari sugar. A producer of khandsari sugar or his agent shall pay for the sugarcane purchased by him to the sugarcane grower or the sugarcane growers’ co-operative society, either the fair and remunerative price of sugarcane fixed under Clause 4, or the price agreed to between the producer or his agent and the sugarcane grower or the sugarcane growers’ co-operative society, as the case may be (hereinafter referred to as the agreed price): Provided that— *** [(i) in the case of sugarcane delivered at any purchasing centre and the same being transported to the khandasari unit by the unit owner by rail or by road using his own transport, a rebate shall be made from the fair and remunerative price or the agreed price as the case may be, and such rebate shall be fixed by the Central Government having regard to the actual cost of transportation in the area, after consultation with such body or bodies as it may deem fit by notification in the Official Gazette from time to time and the owner shall accordingly make the rebate; Explanation: The distance of less than half a kilometre shall be ignored while distance of half or more than a half kilometre, shall be counted as one kilometre. (ii) the Central Government or the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate may allow a suitable rebate in the fair and remunerative price or the agreed price as the case may be for [burnt cane or stale cane or dried cane or rejected varieties of cane] supplied to khandsari units within their respective jurisdictions subject to the condition that the rebate so allowed does not exceed the reduction in price on account of the estimated shortfall in the recovery of khandsari sugar from [burnt cane or stale cane or dried cane or rejected varieties of cane;] (iii) where the sugarcane is brought bound in bundles and weighed as such, the Central Government or with the approval of the Central Government, the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate within their respective jurisdictions, may allow a suitable rebate in regard to the weight of the binding material [not exceeding 1.000 kilograms per quintal of sugarcane;] and [(iv) The Central Government or the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate may allow a suitable rebate in the fair and remunerative price or the agreed price, as the case ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 29 may be, when cane is supplied ex-field to khandsari units within their respective jurisdictions subject to the condition that the rebate so allowed shall not exceed the estimated expenditure on harvesting and transportation within their respective jurisdiction subject to the condition that the rebate so allowed shall not.. 5. Additional price for sugarcane purchased.— (1) Where a producer of sugar or his agent purchases any sugarcane from a grower of sugarcane or a growers’ co-operative society during each of the four successive years beginning on the 1st day of November, 1958, the producer shall, in addition to the minimum price of sugarcane fixed under sub-clause (1) of Clause 3 pay to the grower or the cooperative society, as the case may be, an additional price, if found, due, in accordance with the provisions of the [First Schedule] hereto annexed. (2) Nothing in sub-clause (1) shall apply to the purchase of sugarcane,— (a) where such sugarcane is used for the production of sugar in a newly established factory until the expiry of three years commencing from the year in which the factory is so established; (b) where the purchase is made by a producer of sugar, which is a co-operative society, from the members of that co-operative society. (3) If the Central Government is satisfied that during any year a factory has made no profit or has made inadequate profit, that Government, may by order in writing, exempt either wholly or partially, any producer of sugar from payment of the additional price due from him under sub-clause (1) in respect of sugarcane purchased for that factory during that year. (4) The Central Government may appoint any person or authority as it thinks fit for the purpose of determining the additional price due from a producer of sugar under sub-clause (1) for each of the successive four years beginning on the 1st day of November, 1958 and when the price is so determined, the person or authority, as the case may be, shall intimate the same in writing to the producer and to the growers’ co-operative societies or the local growers’ associations, if any, connected with the supply of sugarcane to the factory. (5) (a) Any producer of sugar or grower of sugarcane or growers’co-operative society who or which feels aggrieved by any decision of the person or authority referred to in sub-clause (4), may, within thirty days from the date of communication of such decision under that sub-clause, appeal to the Central Government: Provided that the Central Government may, if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the aforesaid period of 30 days, admit the appeal if presented within a further period of 15 days. (b) The Central Government may, after giving an opportunity to the appellant to represent his case and after making such further enquiry as may be necessary, pass such order as it thinks fit. ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 30 (c) The decision of the officer or authority referred to in sub-clause (4) where no appeal is filed, and of the Central Government where an appeal is filed, shall be final. (6) The price determined under sub-clause (4) or sub-clause (5), as the case may be, shall be paid at such time and in such manner as the Central Government may from time to time direct. ( 7) Where any payment has been made in accordance with the directions issued by the Central Government under sub-clause (2) of Clause 5 as it stood immediately before the commencement of the Sugarcane (Control) (Amendment) Order, 1962, then, notwithstanding anything contained in the foregoing provisions of this clause, such payment shall be deemed to have been made in lieu of the payment provided for in this clause as if that sub-clause were in force when the direction was issued or payment was made. **5-A. Additional price for sugarcane purchased on or after 1st October, 1974. (** omitted vide So No2665(E) /Ess.Com/Sugarcane dated 22 October 2009.) 17. We find that Constitution Bench of Five Judges of Hon’ble Supreme Court in a majority decisions in U.P Cooperative Cane Federations Vs West UP Sugar Mills Association and others (supra) while considering the question of law on competence of State Government to fix the State advice price for purchase of sugarcane by an occupier of sugar factory over and above the minimum price fixed by the Central Government and the procedure adopted for ensuring the payment of aforesaid to the sugar cane grower; held that a reading of the 1996 Order would, therefore, show that the Central Government shall fix the minimum price of sugarcane but there can be a higher than the minimum price which may be in the nature of agreed price between the producer of sugar and sugarcane grower or the sugarcane growers’ cooperative society. So, the field for a price higher than ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 31 minimum price is clearly left open in the 1966 Order made by the Central Government. The Hon’ble Court also referred its earlier decisions of division bench in State of M.P. Vs Jaora Sugar Mills Ltd and others (dated 10.10.1996), wherein the dispute arose on account of fixation of price under the M.P. Sugar (Regulation of Supply and Purchase) Act, 1958. The contention on behalf of the sugar factories was that Clauses 3 and 5-A of the 1966 Order determine the liability to pay the price and additional price and the Central Government having determined the price of the sugarcane under the aforesaid Order, there is no power with the State Government de hors the Order to fix any agreed price. The concept of agreed price came into force on 19.9.1976 by virtue of Clause 3-A of the said Order and until then there was no power to fix an agreed price. It was also urged that the State Government has, therefore, no power under the Act to fix any price as the field was occupied by the 1966 Order. The contention was, however, not accepted and after noticing the provisions of Clauses 3(2) and 3(3), it was held as under in para 8 of the Reports: "8. This would clearly indicate that despite the fixation of minimum price under clause 3(1), by agreement between the sugarcane grower and the purchaser of the sugarcane, they would be at liberty to agree to sell or purchase the sugarcane at a higher price than that fixed by the Central Government under clause 3(1). Only for ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 32 postponement of payment beyond 14 days, there should be an agreement in writing between the parties obviously with the concurrence of the Central Government or authorised authority in that behalf. Thus, there is no statutory prohibition in that behalf to pay higher price. That would be further clear by clause 3(2) which speaks of the contract between the parties for payment of higher price of sugarcane fixed under sub-clause (1) of clause 3 pursuant to the agreement or pursuant to the minimum price fixed by the Central Government under clause 3(1) of the Order. It was observed in paras 9 and 10 that there was no prohibition for the cane growers and occupiers of the sugar factories in entering into oral agreement through the service of the Cane Commissioner, a statutory authority, who could effect such an agreement. The agreement would not be tainted with compulsion but in novation of the minimum price fixed under the 1966 Order. After noticing the provisions of the M.P. Act, which are somewhat similar to U.P. Act, it was held as under in para 13 of the Reports: "13. It would thus be clear that the Cane Commissioner having power to compel the cane-growers to supply cane to the factory or khandsari unit, he has incidental power and is duty bound to ensure payment of the price of the sugarcane supplied by the sugarcane grower. The price fixed or agreed is a statutory price and bears the stamp of statutory first charge on the sugar and ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 33 assets of the factory over any other contracted liabilities to recover the price of the sugarcane supplied to the factory or khandsari unit." SKG Sugar Ltd. v. State of Bihar is a decision by the Bench of three judges and deals with the effect of 1966 Control Order and the Bihar Sugarcane (Regulation of Supply and Purchase) Act, 1981. It was clearly ruled that the provisions of 1966 Order do not show that there is any prohibition on the factory or the association of factories entering into an agreement to pay higher price than the minimum price prescribed under the Order and the object of the Order is to ensure that the cane growers should not be compelled to sell their sugarcane at a price lower than the minimum price fixed by the Central Government under Clause 3. In this case an agreement had been arrived at between Sugar Factories Owners Association and sugarcane growers, wherein a higher price was agreed to be paid but this was sought to be resiled by the appellant on the ground that it was a Company, which was an independent entity in the eye of law and was, therefore, not bound by any such agreement. After noticing the provisions of the Act and the earlier decision rendered in State of M.P. v. Jaora Sugar Mills Ltd. (supra) it was held as under in para 6 of the reports : "It is not in dispute that under Section 31 of the Supply Act, the State Government has power to fix the reserved area, in other words, zone was carved out for the appellant for the supply of ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 34 sugarcane to the factory. All the farmers who are cultivating sugarcane within that zone are bound by the State action to supply sugarcane to the factories within that reserved area. Consequently, the factory also is bound by the actions of the State Government. Obviously, pursuant to the obligation had by the State under the Supply Act, the meeting was convened by the State Government where at the Factory Owners' Association and farmers participated and agreed to fix the price at Rs.20.50 per quintal of sugarcane. As a consequence, both the cane growers as well as the owners of the factory are bound by the decision. This having been agreed upon, the price fixed by the State Government in excess of the minimum price fixed by the Central Government under clause 3 of the Order would be the price fixed for supply of sugarcane and the Government would be entitled to enforce the liability....." It was also observed in the same paragraph that the State Government acted in their statutory capacity to fix the higher price of the sugarcane. These cases clearly lay down that under the 1966 Order the Central Government only fixes the minimum price and it is always open to the State Government to fix a higher price. Under the enactments made by the State Legislatures areas are reserved for the sugar factories and the cane growers therein are compelled to supply sugarcane to them and therefore the State Government has incidental power to fix the price of sugarcane ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 35 which will also be statutory price. They further lay down that the Cane Commissioner can direct the cane growers and the sugar factories to enter into agreements for purchase of sugarcane at a price fixed by the State Government and such agreements cannot be branded as having been obtained by force or compulsion. 18. Thus, keeping in view of the aforesaid decision of Hon’ble Apex Court, we find convincing force in the submissions of ld Senior Counsel for the assessee that as per clause 3(2) of Sugar Cane control order prohibits everyone from selling or purchasing sugar cane at the ‘lower than’ fixed under clause 3(1). Further it is clear FRP which was earlier known as SMP fixed by the Central Government every cursing year is to safeguard the interest of the farmers and is the lower limit only. We are also convinced that it is always open to the party to negotiate to pay a price higher than the minimum price on commercial consideration and it is not open to the revenue to disallow it difference on the ground difference was not in law. 19. We also find that in the present case the purchases are made by the assessee, which is the cooperative society of its sugar cane grower. Thus, the case of assessee is falls under sub-clause (b) of clause 5 of Sugar Cane Control order, which empowered them to pay to the producer of sugar cane, in addition to the fair and remunerative of sugar cane fixed under clause-3(1), as an additional price in ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 36 accordance with first schedule. Thus, the additional price of payment of sugar cane to the grower, for purchase of raw material (sugarcane) which was approved by the managing committee of the assessee, who is also having representation of State Government as per the statutory provision of State Cooperative Society Act, cannot be termed as a distribution of profit. Such additional payment is made to the members of the Co-operative society who are the supplier of sugarcane and to none other persons. Such payment was made for the purpose of business against the payment of raw material and not for any other purpose. 20. We further find that in a recent decision, the Hon’ble Supreme court in Kolhapur Zilla Sahkari Dudh Utpadak Sangh Ltd. (supra) while affirming the decision of Hon’ble Bombay High Court in the case of CIT Vs Solapur District Co-op Milk Producers & Process Union Ltd. (supra), held that the addition could not be made by treating the amount paid as final rate difference as distribution of profits. It was also held that additions could not be made by treating amount paid as a final rate difference as a distribution of profit among members of the society. We find that Bombay High Court while giving such judgment followed the decision of Gujarat High Court in Mehsana District Co-operative Milk Producers Union Ltd. (supra), thus the ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 37 decision of Hon’ble Gujarat High Court substantially stand approved by the Hon’ble Apex Court. 21. We find that Hon’ble jurisdictional High Court in Mehsana District Co- operative Milk Producers Union Ltd. (supra) while considering the question of law as to whether a claim for deduction was allowable either under section 28 or section 37(1). The Hon’ble Court held that the assessee claimed that additional payment was made towards the price of the milk. The Assessing Officer disallowed the same on the ground of profit adjustment. The CIT (Appeals) affirmed the order of the Assessing Officer. The Tribunal allowed the assessee's claim. Various contentions were sought to be canvassed before the learned High Court. The High Court noted the legal position as to when accrual of profits can be said to have accrued. It considered the case of CIT Vs Ashokbhai Chimanbhi [1965] 56 ITR 42 (SC) and noted that the words "accrue" and "arise" are used to contradistinguish the word 'receive'. Income is said to be received when it reaches the assessee. When the right to receive the income becomes vested in the assessee, it is said to accrue or arise. Dealing with profits, this is what the learned Court said: "Profits do not accrue from day-to-day or even from month-to-month and have to be ascertained by a comparison of assets at two stated points. Unless the right to profits comes into existence there is no accrual of profits and the destination of profits ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 38 must be determined by the title thereto on the day on which they arise." Applying the test, the learned Court held that because the board resolved to fix the final purchase price and pay on the last day of the accounting period it would not amount to application of profits. The Court also noted that the profits to be assessed have to be the "real profits" and are required to be determined on the ordinary principles of commercial trading and commercial accounting. The Court further noted that the expenditure in question cannot be termed to be application of income in absence of any evidence as to accrual of profits in light of settled legal position; the payment of additional/final price made on the last day of the accounting year is allowable under section 28 of the Act being a necessary deduction for ascertaining the real profits on principles of commercial accounting and the payment in question is alternatively allowable under section 37 of the Act having been incurred wholly and exclusively for the purpose of business carried on by the assessee in light of the evidence which has come on record. 22. The Hon’ble Apex Court in S.A. Builder (supra) held that the expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 39 expenditure, if it was incurred on grounds of commercial expediency. The Apex Court also refereed the decision of Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377, wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 23. Thus, in view of the afforesaid factual and legal position narrated above, we find that the payment of additional sugarcane price, with the approval of the managing committee of the assessee for payment ITA No. 102 to 104/Srt/2023 Shree Narmada Khan Udyog Sahkari Mandali Ltd. Vs ITO 40 of sugarcane is not distribution of profit. In the result, the grounds of appeal raised by the assesse are allowed. 24. In the result, the appeal of the assessee is allowed. ITA No. 103 & 104/Srt/2023 for AY 2013-14 and 2014-15. 25. Considering the facts that the facts that the assessee has raised similar grounds of appeal as raised in ITA No. 102Srt/2023, which we have allowed, therefore, following the principles of consistency the appeals for these two years are also allowed with similar directions. 26. In the result, these appeals are also allowed. Order pronounced in the open court on 31 st October 2023. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 31/10/2023 *Ranjan Copy to: 1. Assessee 2. Revenue 3. CIT 4. DR 5. Guard File By order Sr.Private Secretary, ITAT, Surat