Mula Sahakari Sakhar Karkhana Ltd, Ahmednagar V. Assistant Commissioner of Income tax, Ahmednagar

ITA 1321/PUN/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3199 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-10-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 24-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT HALDAR
• Assessee Lawyers: MIHIR BAPAT

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI ANIL CHATURVEDI, AM SHRI S.S. VISWANETHRA RAVI, JM . / ITA NO.1321/PUN/2017 / ASSESSMENT YEAR : 2013-14 MULA SAHAKARI SAKHAR KARKHANA LTD., AT POST SONAI, TAL. NEWASA, DIST. AHEMDNAGAR, PIN 414 105. PAN : AAAAM1145M. . APPELLANT. V/S THE ASST.COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . RESPONDENT. ASSESSEE BY : SHRI MIHIR BAPAT. REVENUE BY : SHRI ABHIJIT HALDAR. / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 22.12.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 2, PU NE FOR A.Y. 2013-14. 2. THE ASSESSEE RAISED AS MANY AS 14 GROUNDS INVOLVING THE SOLE ISSUE CHALLENGING THE ACTION OF CIT(A) AND CONFIRMING THE ADDITION M ADE BY THE AO ON ACCOUNT OF EXCESS CANE PRICE. / DATE OF HEARING : 16.10.2019 / DATE OF PRONOUNCEMENT: 18.11.2019 2 3. HEARD BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND A SIMILAR ISSUE ON SAME IDENTICAL FACTS HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN A BATCH OF 75 APP EALS LED BY MANGANGA SAHAKARI SAKHAR KARKHANA LTD., VS. ACIT IN ITA NO.344/PUN/2017 AND OTHERS VIDE ORDER DATED 01.10.2019 WHEREIN THE TRIBUNAL HELD AS UNDER : 4. A COMMON ISSUE INVOLVED IN ALMOST ALL THE APPEA LS IS AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER (AO) TOWARDS OF EXCES SIVE SUGARCANE PRICE PAID TO MEMBERS AS WELL AS NON-MEMBERS OF THE RESPECTIVE AS SESSEES. THE FACTS COMMON TO ALMOST ALL THE APPEALS ARE THAT THE ASSESSES ARE ENGAGED IN THE BUSINESS OF MANUFACTURING OF WHITE SUGAR. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE PAID EXCESSIVE CANE P RICE, OVER AND ABOVE THE FAIR AND REMUNERATIVE PRICE (FRP) FIXED BY THE GOVERNMEN T, TO ITS MEMBERS AS WELL AS NON-MEMBERS. ON BEING CALLED UPON TO JUSTIFY SUCH DEDUCTION, THE ASSESSEE GAVE CERTAIN EXPLANATION 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 (HEREINAFTER ALSO CALLED `THE ACT). RELYING ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF DCIT VS. SHRI SATPUDA TAPI PARISAR S.S.K. LTD. AND OTHERS (2010) 326 ITR 402, 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 T HE MEMBERS AND NON-MEMBERS AND MADE ADDITION FOR THE SAID SUM. THE LD. CIT(A) IN SOME CASES DELETED THE ADDITION, FULLY OR PARTLY, WHILST IN OTHERS THE AD DITION GOT SUSTAINED. THIS LED TO FILING OF THE CROSS APPEALS BOTH BY THE ASSESSEE AS WELL AS THE REVENUE BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. THERE IS CONSENSUS AD IDEM BETWEEN THE RIV AL PARTIES THAT THE ISSUE OF PAYMENT OF EXCESSIVE PRICE ON PURCHASE OF SUGARCAN E BY THE ASSESSES IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT OF HONB LE SUPREME COURT IN CIT VS TASGAON SSK LTD. (2019) 412 ITR 420 (SC). THE HON BLE APEX COURT, VIDE ITS JUDGMENT DATED 05-03-2019, HAS ELABORATELY DEALT W ITH THIS ISSUE. IT RECORDED THE FACTUAL MATRIX THAT THE ASSESSEE IN THAT CASE PURCH ASED AND CRUSHED SUGARCANE AND PAID PRICE FOR THE PURCHASE DURING CRUSHING SEA SONS 1996-97 AND 1997-98, FIRSTLY, AT THE TIME OF PURCHASE OF SUGARCANE AND T HEN, LATER, AS PER THE MANTRI COMMITTEE ADVICE. IT FURTHER NOTED THAT THE PRODUCT ION 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 PRODUC TION 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 GOVERNMEN T 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 C ONCLUDED THAT THE DIFFERENCE BETWEEN THE PRICE PAID AS PER CLAUSE 3 OF THE CONTR OL 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 N ATURE OF `DISTRIBUTION OF PROFITS AND HENCE NOT DEDUCTIBLE AS EXPENDITURE. HE, THER EFORE, MADE AN ADDITION FOR SUCH SUM PAID TO MEMBERS AS WELL AS NON-MEMBERS. WHEN T HE MATTER FINALLY CAME UP BEFORE THE HONBLE APEX COURT, IT NOTED THAT CLAUSE 5A WAS INSERTED IN THE YEAR 1974 ON THE BASIS OF THE RECOMMENDATIONS MADE BY TH E BHARGAVA COMMISSION, WHICH RECOMMENDED PAYMENT OF ADDITIONAL PRICE AT TH E END OF THE SEASON ON 50:50 PROFIT SHARING BASIS BETWEEN THE GROWERS AND FACTOR IES, 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 PRI CE IS DETERMINED/FIXED UNDER CLAUSE 5A, THE ACCOUNTS ARE SETTLED AND THE PARTICU LARS ARE PROVIDED BY THE 3 CONCERNED CO-OPERATIVE SOCIETY AS TO WHAT WILL BE T HE 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 DIFFE RENCE BETWEEN SMP DETERMINED UNDER CLAUSE 3 AND SAP/ADDITIONAL PURCHASE PRICE DE TERMINED 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 FI LE OF THE AO FOR CONSIDERING THE MODALITIES AND MANNER IN WHICH SAP/ADDITIONAL PURCH ASE PRICE/FINAL PRICE IS DECIDED. HE HAS BEEN DIRECTED TO CARRY OUT AN EXERC ISE OF CONSIDERING ACCOUNTS/BALANCE SHEET AND THE MATERIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITION AL 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 T HE OTHER AS DEDUCTIBLE EXPENDITURE. THE RELEVANT FINDINGS OF THE HONBLE APEX COURT ARE REPRODUCED AS UNDER:- 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 CLAUSE 5A WOULD CERTAINLY BE AND/OR SAID TO BE AN APPROPRIATION OF PROFIT. HOWEVER, AT THE SAME TIME, THE ENTIRE/WHOLE AMOUNT OF DIFFERENC E BETWEEN THE SMP AND THE SAP PER SE CANNOT BE SAID TO BE AN APPR OPRIATION OF PROFIT. AS OBSERVED HEREINABOVE, ONLY THAT PART/COMPONENT OF PROFIT, WHILE DETERMINING THE FINAL PRICE WORKED OUT/SAP/AD DITIONAL 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 TH E ASSESSING OFFICER BY CALLING UPON THE ASSESSEE TO PRODUCE THE STATEMENT OF ACCOUNTS, BALANCE SHEET AND THE MATERIAL SUPPLIED TO THE STAT E GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDI TIONAL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF THE CONTROL ORDER, 19 66. MERELY BECAUSE THE HIGHER PRICE IS PAID TO BOTH, MEMBERS A ND NON-MEMBERS, QUA THE MEMBERS, STILL THE QUESTION WOULD REMAIN WI TH RESPECT TO THE DISTRIBUTION OF PROFIT/SHARING OF THE PROFIT. SO F AR AS THE NON-MEMBERS ARE CONCERNED, THE SAME CAN BE DEALT WITH AND/OR CO NSIDERED APPLYING SECTION 40A (2) OF THE ACT, I.E., THE ASSE SSING OFFICER ON THE MATERIAL ON RECORD HAS TO DETERMINE WHETHER THE AMO UNT PAID IS EXCESSIVE OR UNREASONABLE 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/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 EXP ENDITURE. 6. BOTH THE SIDES ARE UNANIMOUSLY AGREEABLE THAT THE EXTANT ISSUE OF DEDUCTION FOR PAYMENT OF EXCESSIVE PRICE FOR PURCHASE OF SUGARCAN E, RAISED IN MOST OF THE APPEALS UNDER CONSIDERATION, IS SQUARELY COVERED BY THE AFO RESAID JUDGMENT OF THE HONBLE SUPREME COURT. RESPECTFULLY FOLLOWING THE PRECEDEN T, WE SET-ASIDE THE IMPUGNED ORDERS ON THIS SCORE AND REMIT THE MATTER TO THE FI LE OF THE RESPECTIVE A.OS. FOR DECIDING IT AFRESH AS PER LAW IN CONSONANCE WITH TH E 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 SUGAR CANE (CONTROL) ORDER, 1966 AND THEN DETERMINE THE COMPONENT OF DISTRIBUTION OF PROFIT E MBEDDED 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 PRO FIT/DISTRIBUTION OF PROFIT PAID BY THE ASSESSEE, WHICH WOULD BE APPROPRIATION OF INCOME, W ILL 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 MA DE CLEAR THAT THE DISTRIBUTION OF PROFITS CAN ONLY BE QUA THE PAYMENTS MADE TO THE ME MBERS. 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 HONBLE SUPREME 4 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. 4. IN VIEW OF THE ABOVE, WE DEEM IT PROPER TO REMAND TH E MATTER TO THE FILE OF AO FOR ITS FRESH CONSIDERATION IN TERMS OF THE OBSERVA TIONS MADE HEREINABOVE. THUS, THE GROUND NOS.1 TO 14 ARE ALLOWED FOR STATISTICAL PURPOSES. 5. REGARDING GROUND NOS.15 AND 16, LD.A.R. SHRI MIHIR BAPAT SUBMITS THAT ASSESSEE HAS NO INTEREST TO PROSECUTE AND PRAYE D TO DISMISS THE SAME AS NOT PRESSED. ACCORDINGLY, GROUND NOS. 15 AND 16 AR E DISMISSED AS NOT PRESSED. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED ON 18 TH DAY OF NOVEMBER, 2018. SD/- SD/- ( ANIL CHATURVEDI) (S.S. VISWAN ETHRA RAVI) ACCOUNTANT MEMBER J UDICIAL MEMBER PUNE; DATED : 18 TH NOVEMBER, 2019. YAMINI !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT 3. 4. 5. 6. CIT(A)-II, PUNE. PR.CIT-I, PUNE. '#$!% %&',)! !&' , / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER , ! // / TRUE COPY / / // TRUE COPY // / 01%2&3 / SR. PRIVATE SECRETARY )! !&' , / ITAT, PUNE.