Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 2861 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 7 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-03-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2013-2014
Appeal Filed On
21-07-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI R.S.SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY , JM . / I TA NO. 1766 /PUN/20 17 / ASSESSMENT YEAR : 2013 - 14 RAJARAMBAPU PATIL SSK LTD. SAKHARALE, ISLAMPUR, DIST. SANGLI, PIN - 415 414 PAN : AAAAR0790D ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2, SANGLI. / RESPONDENT A SSESSEE BY : MS. SHUBHADRA KOPPA REVENUE BY : SHRI DEEPAK GARG / DATE OF HEARING : 16 .03 .2020 / DATE OF PRONOUNCEMENT : 16 .0 3 .2020 / ORDER PER PARTHA SARATHI CHAUDHU RY, JM : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(APPEAL) - 1, KOLHAPUR DATED 27.04.2017 FOR THE ASSESSMENT YEAR 2013 - 14 AS PER THE GROUNDS OF APPEAL ON RECOR D. 2 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 2. THOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL , THE CRUX OF THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO ADDITION ON ACCOUNT OF SALE OF SUGAR AT CONCESSIONAL RATE TO THE M EMBERS/ OTHER FARMERS BY THE ASSESSEE . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR AND ITS B Y PRODUCT S AT ITS MANUFACTURING UNITS LOCATED AT SAKH RALE, WATEGAON, SARVODAYA AND KARANDWADI. THE ASSESSEE HAS FILED ITS OR IGINAL RETURN OF INCOME FOR THE YEARS UNDER CONSIDERATION ON 30.09.2013 AND 22.11.2014 WHEREIN TOTAL INCOME WAS DECLARED AT RS.5,33,87,256/ - AND AT RS. NIL FOR ASSESS MENT YEAR 2013 - 14 AND 2014 - 15. THEREAFTER, THE ASSESSEE S CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT ORDERS U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) WAS PASSED BY MAKING CERTAIN ADDITIONS / DISALLOWANCES TO THE TOTAL INCOME. 4. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SOLITARY ISSUE RAISED IN THE PRESENT APPEAL IS COVERED BY THE DECISION OF TH E CO - ORDINATE BENCH OF THE TRIBUNAL, PUNE IN THE CASE OF MANGANGA SSK LTD. VS. ACIT & OTHERS, ITA NO.344/PUN/2017 AND ITA NO.545/PUN/2017 FOR THE ASSESSMENT YEARS 2010 - 11 AND 2012 - 13 AND OTHERS. 5. THE LD. DR HAS FAIRLY CONCEDED TO THE SU BMISSIONS MADE BY THE LD. AR OF THE ASSESSEE. 6. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO CONSIDERED THE DECISION OF THE CO - ORDINATE BEN CH OF THE TRIBUNAL, PUNE RELIED ON THE BY THE LD. AR OF THE ASSESSEE. THE CO - ORDINATE BENCH OF 3 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 THE TRIBUNAL, PUNE IN THE CASE OF MANGANGA SSK LTD. VS. ACIT & OTHERS (SUPRA.) ON THE ISSUE HAS HELD AS FOLLOWS: 14. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, WE CONSIDER IT EXPEDIENT TO MENTION THAT THE ISSUE OF SALE OF SUGAR TO MEMBERS OF A COOPERATIVE SOCIETY AT CONCESSIONAL PRICE CAME UP FOR CONSID ERATION BEFORE VARIOUS BENCHES OF THE TRIBUNAL ACROSS THE COUNTRY. THE PUNE BENCHES OF THE TRIBUNAL VIDE ITS ORDER DATED 08 - 08 - 1996 IN CHHATRAPATI SAHU SSK LTD. VS. DCIT (ITA NO.1924/PN/1990), A COPY PLACED ON RECORD, DECIDED THIS ISSUE IN FAVOUR OF THE A SSESSEE BY RELYING ON THE JUDGMENT IN THE CASE OF A. RAMAN & COMPANY (SUPRA) . THEREAFTER, SEVERAL ORDERS CAME TO BE PASSED BY VARIOUS BENCHES OF THE TRIBUNAL. ALL SUCH ORDERS WERE CHALLENGED BY THE REVENUE BEFORE THE RESPECTIVE HONBLE HIGH COURTS. IN T HE CASE OF TERNA SSK LTD. (SUPRA), ONE OF THE ISSUES RAISED BY THE DEPARTMENT WAS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF SUGAR SUPPLY TO MEMBERS AT CONCESSIONAL RATE. THE LD. COUNSEL FOR THE REVENUE DID NOT PRESS THIS ISSUE BEFORE THE HONBLE HIGH COURT, AS A RESULT OF WHICH SUCH GROUND WAS DISMISSED. VARIOUS ORDERS PASSED BY THE TRIBUNAL CAME UP FOR ADJUDICATION BEFORE THE CONCERNED HONBLE HIGH COURTS. THE HONBLE BOMBAY HIGH COURT IN CIT VS. KISANVEER SATARA SAHKAR KARKHANA LTD. IN ITA NO .930/2008 VIDE ITS JUDGMENT DATED 30.6.2009 DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN ANOTHER JUDGMENT IN CIT VS. KRISHNA SAHAKARI SAKHAR KARKHANA LTD. (ITA NO.225/2009) , THE HONBLE BOMBAY HIGH COURT AGAIN DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE VIDE ITS JUDGMENT DATED 30 - 06 - 2009. THE REVENUE APPROACHED THE HONBLE SUPREME COURT AGAINST ALL SUCH JUDGMENTS PASSED BY THE HIGH COURTS. VIDE ITS COMMON JUDGMENT DATED 25 .09.2012 IN CIT VS. KRISHNA SAHAKARI SAKHAR KARKHANA LTD. (SUPRA) , AS A LEAD MATTER AND COVERING SEVERAL OTHER CASES IN WHICH SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE, THE HONBLE SUPREME COURT SET - ASIDE THE JUDGMENTS PASSED BY THE HONBLE HIGH COURTS AND RESTORED THE MATTER TO THE CIT(A) FOR DECIDING THE QUESTION AFRESH AS TO WHETHER THE DIFFERENCE BETWEEN THE ACTUAL PRICE OF SUGAR SOLD IN THE MARKET AND THE PRICE OF SUGAR SOLD BY THE ASSESSEE TO ITS MEMBERS AT CONCESSIONAL RATE SHOULD OR SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. APART FROM THE ABOVE QUESTION, THE HONBLE SUPREME COURT FURTHER DIRECTED THE CIT(A) TO TAKE INTO ACCOUNT WHETHER THE ABOVE MENTIONED PRACTICE OF SELLING SUGAR AT CONCESSIONAL RATE HAS BECOME THE PRACTICE OR CUSTOM IN THE SUGARCANE INDUSTRY ?; WHETHER ANY RESOLUTION HAS BEEN PASSED BY THE STATE GOVERNMENT SUPPORTING THE PRACTICE ? IT FURTHER HELD THAT THE CIT(A) BEFORE REACHING ANY CONCLUSION WOULD ALSO CONSIDER ON WHAT BASIS THE QUANTITY OF SUGAR WAS BEI NG FIXED FOR SALE TO FARMERS AND GROWERS/MEMBERS FOR EACH YEAR ON MONTH TO MONTH BASIS APART FROM DIWALI. 15. ON AN ANALYSIS OF THE POSITION DISCUSSED ABOVE, IT CLEARLY EMERGES THAT AFTER THE ADVENT OF THE HONBLE SUPREME COURT JUDGMENT IN KRISHNA SSK LTD. (SUPRA), THE EARLIER JUDGMENTS RENDERED BY THE HONBLE HIGH COURTS AND THE ORDERS PASSED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE DO NOT CONTINUE TO HOLD THE FIELD ANYMORE . OUR ATTENTION HAS NOT BEEN DRAWN TOWARDS JUDGMENT OF ANY HONBLE HIGH COURT OR ORDER OF THE TRIBUNAL IN WHICH THE ISSUE UNDER CONSIDERATION HAS BEEN DECIDED AFTER 4 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 CONSIDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN KRISHNA SSK (SUPRA), WHICH THEREBY RENDERS THE ISSUE IN QUESTION AS VIRGIN. 16. AT THIS STAGE, IT IS RELEVA NT TO NOTE THAT THE HONBLE SUPREME COURT IN TASGAON SSK LTD. (SUPRA) HAD AN OCCASION TO DEAL WITH A CONNECTED ISSUE OF PURCHASE OF SUGARCANE BY THE SUGAR FACTORIES FROM ITS MEMBERS AT EXCESSIVE PRICE, WHICH WE HAVE DISCUSSED HEREINABOVE. THE AOS IN THAT GROUP OF MATTERS HAD OPINED THAT THE DIFFERENCE BETWEEN THE PRICE PAID AS PER CLAUSE 3 OF THE CONTROL ORDER, 1966 DETERMINED BY THE CENTRAL GOVERNMENT, BEING, THE STATUTORY MINIMUM PRICE (SMP) AND THE PRICE DETERMINED BY THE STATE GOVERNMENT UNDER CLAUSE 5 A OF THE CONTROL ORDER, 1966, BEING SAP/ADDITIONAL PRICE, WAS IN THE NATURE OF DISTRIBUTION OF PROFITS AND HENCE, NOT DEDUCTIBLE AS EXPENDITURE. SUCH AN ISSUE CAME TO BE DECIDED BY THE HONBLE HIGH COURTS IN FAVOUR OF THE ASSESSEE. WHEN THE REVENUE BRO UGHT THE MATTER FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT, THEIR LORDSHIPS HELD THAT THE SMP DETERMINED UNDER CLAUSE 3 OF THE CONTROL ORDER, 1966 WHICH IS PAID AT THE BEGINNING OF THE SEASON IS DEDUCTIBLE IN THE ENTIRETY BUT THE DIFFERENCE BETWEEN THE SMP DETERMINED UNDER CLAUSE 3 AND SAP/ADDITIONAL PRICE DETERMINED UNDER CLAUSE 5A HAS AN ELEMENT OF DISTRIBUTION OF PROFIT, WHICH CANNOT BE ALLOWED AS DEDUCTION. THAT IS HOW, THE HONBLE SUPREME COURT REMITTED THE MATTER TO THE FILE OF AO FOR CONS IDERING THE MODALITIES AND MANNER IN WHICH SAP/ADDITIONAL PRICE IS DECIDED AND TO CARRY OUT AN EXERCISE OF CONSIDERING THE ACCOUNTS/BALANCE SHEET AND THE MATERIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITIONA L PURCHASE PRICE/SAP UNDER CLAUSE 5A OF CONTROL ORDER, 1966 AND THEREAFTER DETERMINE AS TO WHAT PART OF THE DIFFERENTIAL AMOUNT WOULD FORM PART OF THE DISTRIBUTION OF PROFIT. RELEVANT DISCUSSION HAS BEEN MADE IN PARA 9.4 OF THE JUDGMENT IN WHICH IT HAS B EEN CATEGORICALLY HELD THAT: THEREFORE, TO THE EXTENT OF THE COMPONENT OF PROFIT WHICH WILL BE A PART OF THE FINAL DETERMINATION OF SAP AND/OR THE FINAL PRICE/ADDITIONAL PURCHASE PRICE FIXED UNDER CLAUSE 5A WOULD CERTAINLY BE AND/OR SAID TO BE AN APPROPRI ATION OF PROFIT. HOWEVER, AT THE SAME TIME, THE ENTIRE/WHOLE AMOUNT OF DIFFERENCE BETWEEN THE SMP AND THE SAP PER SE CANNOT BE SAID TO BE AN APPROPRIATION OF PROFIT. THE MATTER WAS SENT BACK TO THE AO WITH CERTAIN DIRECTIONS TO FIND OUT THE ELEMENT OF APP ROPRIATION OF PROFITS EMBEDDED IN THE PRICE FIXED UNDER CLAUSE 5A. 17. IN VIEW OF THE ABOVE JUDGMENT IN THE CASE OF TASGAON SSK LTD.(SUPRA) , IT IS CLEAR THAT THE HONBLE APEX COURT HAS, IN PRINCIPLE, HELD THAT THE EXCESSIVE CANE PRICE PAID TO THE MEM BERS IS, TO SOME EXTENT, IN THE NATURE OF APPROPRIATION OF PROFIT WHICH SHOULD BE CHARGED TO TAX IN THE HANDS OF THE ASSESSEE. WHEN WE CONSIDER THE NATURE OF TRANSACTION DEALT WITH BY THE HONBLE SUPREME COURT, BEING, PURCHASE OF SUGARCANE AS RAW MATERI AL IN THE SUGAR INDUSTRY AT EXCESSIVE PRICE IN JUXTAPOSITION TO THE SALE OF SUGAR AS FINISHED PRODUCT TO MEMBERS AT CONCESSIONAL PRICE, WE FIND THAT BOTH OF THEM DIRECTLY AFFECT THE GROSS PROFIT OF THE SUGAR MILLS. IF A PART OF THE EXCESSIVE PURCHASE PRIC E OF SUGARCANE PAID HAS BEEN HELD TO BE IN THE NATURE OF APPROPRIATION OF PROFIT, THEN OBVIOUSLY A PART OF THE CONCESSION GIVEN TO MEMBERS ON SALE OF SUGAR, BY THE SAME STANDARD AND ON THE SAME PARITY OF REASONING, WOULD ALSO HAVE TO BE CONSIDERED AS AP PROPRIATION OF PROFIT. 18. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THAT THE AO HAS HELD THAT THE AMOUNT IN QUESTION IS DISALLOWABLE NOT U/S 37(1) OF THE ACT, BUT: `SUPPLY OF SUGAR AT CONCESSIONAL RATE, AS AGAINST THE PREVALENT MARKET PRICE, IS 5 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 NOT HING BUT AN APPROPRIATION OF PROFIT AND IN THE NATURE OF APPLICATION OF INCOME . THUS, THE VIEW POINT OF THE AO OF `APPROPRIATION OF PROFIT BY THE ASSESSEE TO ITS MEMBERS BY MEANS OF SELLING SUGAR AT CONCESSIONAL PRICE IS BASED ON THE PREMISE THAT A CO - OP ERATIVE SOCIETY AND ITS MEMBERS ARE NOT DIFFERENT FROM EACH OTHER IN THE CO - OPERATIVE STRUCTURE. 19. IN CASE WE PROCEED WITH THE PRESUMPTION THAT THE ASSESSEE AND ITS MEMBERS ARE SEPARATE FROM EACH OTHER AND THE TRANSACTION IS BETWEEN TWO INDEPENDENT PARTIES, THEN PATENTLY, THERE CAN BE NO QUESTION OF EARNING ANY INCOME BY SELLING SUGAR AT A PRICE LOWER THAN THE MARKET PRICE. TAX IS LEVIED ON INCOME EARNED AND NOT ON LOSS OF POTENTIAL INCOME. NEITHER THE AO HAS INVOKED ANY SPECIFIC PROVISION NOR THE LD. DR HAS INVITED OUR ATTENTION TOWARDS ANY PROVISION IN THE ACT WARRANTING THE ADDITION IN THE GIVEN CIRCUMSTANCES. FURTHER, IT IS NOT ANYONES CASE THAT THE PROVISIONS OF SECTION 92C ARE ATTRACTED. 20. COMING BACK TO THE AOS CASE OF `APPROPRIATION OF PROFITS, WHICH POINT OF VIEW HAS BEEN NOTED WITH APPROVAL BY THE HONBLE SUPREME COURT IN PARA 9.4 OF THE JUDGMENT IN TASGAON (SUPRA) HOLDING EXCESS PURCHASE PRICE OF SUGARCANE TO BE ` CERTAINLY BE AND/OR SAID TO BE AN APPROPRIATION OF PROFIT, WE FIND THAT SUCH A CONDITION OF APPROPRIATION OF PROFIT PRE - SUPPOSES SOME PROFIT WHICH IS APPROPRIATED DIRECTLY OR INDIRECTLY AMONGST THE MEMBERS. ONE NEEDS TO DRAW A LINE OF DISTINCTION BETWEEN TWO SITUATIONS, VIZ., THE FIRST IN WHICH PROFIT IS EARNED FROM BUSI NESS OPERATIONS AND IS PASSED ON TO MEMBERS AND THE SECOND, IN WHICH POTENTIAL PROFIT IS NOT EARNED FROM MEMBERS OR TO SIMPLY PUT, A CASE OF LOSS OF POTENTIAL PROFIT. WHEREAS, THE APPROPRIATION OF PROFIT IS POSSIBLE IN THE FIRST SITUATION, WHICH IS AKIN TO THE PURCHASE OF SUGARCANE FROM THE MEMBERS AT EXCESSIVE PRICE RESULTING IN DIVERTING THE PROFIT EARNED FROM NORMAL BUSINESS OPERATIONS TO THE MEMBERS IN THE FORM OF EXCESS PRICE OF SUGARCANE, THE APPROPRIATION OF PROFIT IS NOT POSSIBLE IN THE SECOND SITUA TION, WHICH IS AKIN TO THE SALE OF SUGAR AT CONCESSIONAL RATE. THE SECOND SITUATION OF SELLING SUGAR AT CONCESSIONAL RATE IS IN THE NATURE OF FOREGOING POTENTIAL PROFIT WHICH WOULD HAVE BEEN OTHERWISE EARNED HAD SUGAR BEEN SOLD AT MARKET PRICE. AS THE SECO ND SITUATION HAS THE EFFECT OF FOREGOING POTENTIAL PROFIT, IT CANNOT BE EQUATED WITH AN APPROPRIATION OF PROFIT EXCEPT WHERE THE SALE OF SUGAR IS MADE AT BELOW THE ACTUAL COST. 21. AGAIN APROPOS THE VIEW POINT OF THE AO IN TREATING THE CO - OPERATIVE SOCIETY AND ITS MEMBERS AS ONE AND THE SAME THING WITH THE THEORY OF APPROPRIATION OF PROFIT, WE UNDERSCORE THE SETTLED LEGAL POSITION THAT NO ONE CAN MAKE PROFIT FROM SELF. IN THIS REGARD, IT WILL BE BEFITTING TO NOTE THE JUDGMENT OF THE HONBLE SUMMIT COURT IN SIR KIKABHAI PREMCHAND VS. CIT (1953) 24 ITR 506 (SC), IN WHICH THE ASSESSEE EMPLOYED THE METHOD OF VALUING THE CLOSING STOCK AT THE COST PRICE. THE DEEDS OF TRUST WERE VALUE D FOR THE PURPOSE OF STAMP AT THE MARKET VALUE OF THE SHARES AND SILVER BARS PREVAILING AT THE DATES OF THEIR EXECUTION. THE ASSESSEE, HOWEVER, SHOWED THE TRANSFER OF THESE SHARES AND SILVER BARS TO THE TRUSTEES IN THE BOOKS OF ACCOUNT AT THE COST PRICE TH EREOF BY CONTENDING THAT THE MARKET VALUE OF THE SAID SHARES AND SILVER BARS, ON WHICH THE STAMP DUTY WAS BASED, COULD NOT BE THE BASIS FOR COMPUTING HIS INCOME FROM THE STOCK - IN - TRADE THUS TRANSFERRED. THE INCOME TAX OFFICER DID NOT ACCEPT THIS CONTENTION AND ASSESSED THE PROFIT AT THE DIFFERENCE BETWEEN THE COST PRICE OF THE SAID SHARES AND SILVER BARS AND THE MARKET VALUE THEREOF AT THE DATE OF THEIR WITHDRAWAL FROM THE BUSINESS. THE AAC, THE 6 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 TRIBUNAL AS ALSO THE HONBLE HIGH COURT REJECTED THE CONTENTIO N OF THE ASSESSEE. WHEN THE MATTER WAS BROUGHT TO THE HONBLE APEX COURT, IT HELD, BY A MAJORITY VIEW THAT : `THE APPELLANT WAS RIGHT IN ENTERING THE COST VALUE OF THE SILVER AND SHARES AT THE DATE OF THE WITHDRAWAL, BECAUSE IT WAS NOT A BUSINESS TRANSACTI ON AND BY THAT ACT THE BUSINESS MADE NO PROFIT OR GAIN, NOR DID IT SUSTAIN A LOSS, AND THE APPELLANT DERIVED NO INCOME FROM IT. .. IN THE PRESENT CASE DISREGARDING TECHNICALITIES IT IS IMPOSSIBLE TO GET AWAY FROM THE FACT THAT THE BUSINESS IS OWNED AND RU N BY THE ASSESSEE HIMSELF. IN SUCH CIRCUMSTANCES, IT IS WHOLLY UNREAL AND ARTIFICIAL TO SEPARATE THE BUSINESS FROM ITS OWNER AND TREAT THEM AS IF THEY WERE SEPARATE ENTITIES TRADING WITH EACH OTHER AND THEN BY MEANS OF A FICTIONAL SALE INTRODUCE A FICTIONA L PROFIT WHICH IN TRUTH AND IN FACT IS NON - EXISTENT. CUT AWAY THE FICTIONS AND YOU REACH THE POSITION THAT THE MAN IS SUPPOSED TO BE SELLING TO HIMSELF AND THEREBY MAKING A PROFIT OUT OF HIMSELF WHICH ON THE FACE OF IT IS NOT ONLY ABSURD BUT AGAINST ALL CA NONS OF MERCANTILE AND IT LAW . THE SEQUITUR IS THAT NO PERSON CAN EARN PROFIT FROM HIMSELF AND THERE CAN BE NO CONTEMPLATION OF PROFIT WHEN THE OWNER WITHDRAWS GOODS FROM THE BUSINESS. SUCH WITHDRAWAL OF GOODS NEEDS TO BE VALUED AT COST PRICE ONLY AND NOT THE MARKET PRICE. 22. REVERTING TO THE FACTS OF THE EXTANT CASE, WE FIND THAT THE AO HAS MADE OUT A CASE OF APPROPRIATION OF PROFIT ON SALE OF SUGAR TO MEMBERS AT CONCESSIONAL RATE. WE HAVE NOTED ABOVE THAT THE APPROPRIATION OF PROFIT PRE - SUPPOSES PR OFIT WHICH CAN BE APPROPRIATED TO THE MEMBERS OF THE CO - OPERATIVE SOCIETY. I N SO FAR AS THE PURCHASE OF SUGARCANE FROM MEMBERS AT HIGHER PRICE IS CONCERNED, IT CLEARLY AMOUNTS TO BUSINESS PROFIT PERCOLATING TO THE MEMBERS IN THE SHAPE OF EXCESS CANE PRICE GIVEN TO THE MEMBERS. FOR EXAMPLE, IF THE SMP OF SUGARCANE IS RS.100/ - AND A SUGAR FACTORY IS PURCHASING SUGARCANE FROM ITS MEMBERS AT SAY, RS.120/ - , IN A WAY IT IS PASSING ON ITS PROFIT EARNED FROM NORMAL BUSINESS TRANSACTIONS TO ITS MEMBERS TO THE EXTENT OF EXCESS PRICE PAID. THIS IS THE ESSENCE OF THE JUDGMENT IN THE CASE OF TASGAON SSK LTD. (SUPRA.). BUT THE TRANSACTION OF SALE OF SUGAR TO MEMBERS AT CONCESSIONAL RATE CANNOT BE CONSIDERED AS APPROPRIATION OF PROFIT, BUT A CASE OF NOT EARNING SOME POTEN TIAL PROFIT. TO ILLUSTRATE, IF SUGAR IS SOLD AT CONCESSIONAL PRICE AT RS.80/ - AGAINST THE PREVALENT PRICE OF RS.100/ - , WHAT THE SUGAR MILL IS DOING IS THAT IT IS CHARGING ITS MEMBERS LESS BY RS.20/ - , VIS - A - VIS SALE MADE TO NON - MEMBERS. THIS DIFFERENTIAL AM OUNT OF RS.20/ - IS LOSS OF POTENTIAL PROFIT AND NOT APPROPRIATION OF PROFIT. GOING BY THE RATIO IN THE CASE OF SIR KIKABHAI (SUPRA), THE ASSESSEE SOCIETY CANNOT EARN PROFIT FROM THE SALE OF SUGAR TO ITS MEMBERS. 23. IT IS FURTHER RELEVANT TO NOTE THAT DIFFERENCE BETWEEN THE MARKET PRICE OF SUGAR AND CONCESSIONAL SALE PRICE MAY ENTAIL TWO SITUATIONS. THE FIRST ONE IS OF SIMPLICITOR LOSS OF POTENTIAL PROFIT AND SECOND ONE IS OF ACTUAL LOSS OF PROFIT WHEN SUGAR I S SOLD TO MEMBERS AT BELOW ITS COST PRICE. WHEREAS, THE SIMPLICITOR LOSS OF POTENTIAL PROFIT CANNOT BE TERMED AS APPROPRIATION OF PROFIT, SALE OF SUGAR TO MEMBERS AT BELOW ITS COST PRICE RESULTS IN APPROPRIATION OR DISTRIBUTION OF PROFITS EARNED FROM NORMA L BUSINESS OPERATIONS TO MEMBERS IN THE GARB OF SALE AT A PRICE BELOW THE COST PRICE. THE POSITION CAN BE UNDERSTOOD WITH THE HELP OF AN EXAMPLE. SUPPOSE MARKET PRICE OF SUGAR IS RS.100/ - AND THE COST PRICE IS RS.80/ - . IF THE ASSESSEE SELLS SUGAR AT CONCES SIONAL RATE TO ITS MEMBERS AT, SAY, RS.85/ - PER KG., IT IS OBVIOUSLY RECOVERING ITS COST OF RS.80/ - IN ADDITION TO EARNING PROFIT OF RS.5/ - . IN SUCH A SITUATION, THE DIFFERENTIAL AMOUNT OF RS.15/ - (RS.100 RS.85) CANNOT BE CHARGED TO TAX BECAUSE IT IS A CASE OF 7 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 LOSS OF POTENTIAL PROFIT AND NOT APPROPRIATION OF PROFIT. IF, ON THE OTHER HAND, IN THE GIVEN SCENARIO OF MARKET PRICE OF SUGAR AT RS.100, THE ASSESSEE SELLS SUGAR AT CONCESSIONAL RATE OF RS.75/ - TO ITS MEMBERS, WHICH IS BELOW ITS OWN COST OF RS.8 0/ - , THEN THE DIFFERENTIAL AMOUNT OF RS.5/ - (RS. 80 MINUS RS.75) WOULD OBVIOUSLY BE `APPROPRIATION OF PROFIT TO MEMBERS THAT WAS EARNED FROM NORMAL BUSINESS OPERATIONS AND PASSED ON TO MEMBERS IN THE SHAPE OF SALE PRICE BELOW THE COST PRICE. WHEREAS SUCH DIFFERENTIAL AMOUNT OF RS.5/ - IS APPROPRIATION OF PROFIT TO MEMBERS WHICH SHOULD BE CHARGED TO TAX, THE DIFFERENCE OF RS.15 (RS.100 MINUS RS.85) IS LOSS OF POTENTIAL PROFIT WHICH CANNOT BE CHARACTERIZED AS APPROPRIATION OF PROFIT SO AS TO MAGNETIZE TAXA BILITY. 24. THE LD. AR HAS RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. (SUPRA) BY CONTENDING THAT THE LAW DOES NOT REQUIRE A TRADER TO MAKE MAXIMUM PROFIT AND HENCE THERE CAN BE NO TAXABILITY ON THE BASIS OF NOTIONAL PROFIT WHICH WAS NOT ACTUALLY EARNED FROM THE MEMBERS. WE DO AGREE WITH THIS PROPOSITION PROVIDED IT IS NOT A CASE OF APPROPRIATION OF PROFIT. WE HAVE DISCUSSED HEREINABOVE THAT IN CASE OF TRANSACTION BETWEEN TWO INDEPENDENT PARTIES, THE ASSESSEE IS NOT OB LIGED TO EARN MAXIMUM PROFIT. HOWEVER, THIS PROPOSITION IS NOT ATTRACTED IN CASE THE TRANSACTION IS NOT COMMERCIAL OR GENUINE. SUCH A PROPOSITION CANNOT BE EXTENDED TO THE CASES WHERE THE AMOUNT OF PROFIT IS INTENTIONALLY ALLOWED TO BE PASSED ON TO THE MEM BERS OR OWNERS. IN THE SAME CASE OF A. RAMAN & CO. (SUPRA) AND IN THE SAME PARA NO. 8, THE IMMEDIATELY NEXT LINE IS AN EXCEPTION TO THE GENERAL RULE WHEREBY THEIR LORDSHIPS NOTED THAT: `BY ADOPTING A DEVICE, IF IT IS MADE TO APPEAR THAT INCOME WHICH BELONG ED TO THE ASSESSEE HAD BEEN EARNED BY SOME OTHER PERSON, THAT INCOME MAY BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. PRECISELY, THIS IS THE PROPOSITION IN THE CASE OF TASGAON SSK LTD. (SUPRA) AS WELL THAT AN INCOME BELONGING TO THE ASSESSEE WHICH HAS BEEN APPROPRIATED TO THE MEMBERS SHOULD BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE ONLY. SIMILAR IS THE POSITION IN SO FAR AS SALE OF SUGAR AT CONCESSIONAL RATE TO MEMBERS BELOW THE COST PRICE IS CONCERNED IN AS MUCH AS THE INCOME TO THAT EXTENT WHICH WAS EARNED BY THE ASSESSEE FROM ITS NORMAL BUSINESS OPERATIONS SHALL BE PASSED ON TO THE MEMBERS IN THE FORM OF SALE OF SUGAR AT A RATE LOWER THAN ITS COST PRICE. 25. THE LD. CIT(A) IN THE INSTANT BATCH OF APPEALS HAS CONFIRMED THE ADDITION TOWARDS T HE DIFFERENCE BETWEEN THE LEVY PRICE AND THE CONCESSIONAL PRICE (UPTO 5 KG. PER MEMBER PER MONTH) AND TO THE EXTENT OF DIFFERENCE BETWEEN THE MARKET PRICE OF SUGAR AND CONCESSIONAL PRICE (OVER AND ABOVE 5KG. PER MEMBER PER MONTH). IN THIS PROCESS, THE ASSE SSEES GOT TAXED EVEN FOR THE POTENTIAL PROFIT TO THE EXTENT OF DIFFERENCE BETWEEN THE COST PRICE AND MARKET/LEVY PRICE, AS THE CASE MAY BE. ERGO, W E HOLD THAT SUCH A STRAIGHTWAY DIFFERENCE BETWEEN THE MARKET/LEVY PRICE AND THE CONCESSIONAL PRICE OF SUGAR C ANNOT BE CONSTRUED AS APPROPRIATION OF PROFIT LEADING TO ADDITION AS HAS BEEN EXTANTLY DONE. THE IMPUGNED ORDERS TO THIS EXTENT ARE SET ASIDE AND THE MATTERS ARE RESTORED TO THE FILE OF THE RESPECTIVE AOS FOR FIRST ASCERTAINING THE COST PRICE OF SUGAR TO E ACH ASSESSEE AND THEN MAKE ADDITION ON THIS ISSUE BY TREATING IT IS AS A CASE OF APPROPRIATION OF PROFIT ONLY TO THE EXTENT OF THE CONCESSIONAL SALE PRICE WHICH IS BELOW THE COST PRICE. HOWEVER, IT IS CLARIFIED THAT IN DETERMINING COST PRICE OF SUGAR TO TH E FACTORY, NOT ONLY ALL THE DIRECT COSTS BUT ALL THE INDIRECT COSTS SHOULD ALSO BE TAKEN INTO CONSIDERATION. IN OTHER WORDS, ALL ITEMS OF DEBIT TO THE TRADING AND PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE COST BASE. NEEDLESS 8 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 TO SAY, THE ASSESSEE WILL BE ALL OWED REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS ON THIS ISSUE. FOLLOWING THE SAME PARITY OF REASONING AS MENTIONED IN THE DECISION REFERRED HEREINABOVE, WE SET ASIDE THE ORDER O F THE LD. CIT(APPEALS) ON THE ISSUE AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS MENTIONED IN THE DECISIO N M ENTIONED HEREINABOVE. THUS, G ROUN DS RAISED IN APPEAL BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RES ULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED ON 16 TH DAY OF MARCH , 20 20 . SD/ - SD/ - R.S.SYAL PARTHA SARATHI CHAUDHURY VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 16 TH MARCH , 2020. SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 1, KOLHAPUR. 4. THE PR. CIT - 1, KOLHAPUR. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, / PRIVATE SECRETARY , / ITAT, PUNE . 9 ITA NO. 1766 /PUN/20 2017 A.Y. 2013 - 14 DATE 1 DRAFT DICTATED ON 16 .03 .2020 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16 .03 .2020 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER
