Deputy Commissioner of Income-tax, V. Shri makai Sahakari Sakhar Karkhana Ltd., Solapur

ITA 1929/PUN/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5798 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-05-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 28-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AND CROSS OBJECTION
• Assessee Lawyers: ARISE OUT OF
• Keywords: Set aside
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NO.1929/PUN/14 / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE-1, SOLAPUR VS. SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., BHILARWADI, A/P. JINTI, TAL. KARMALA, DIST. SOLAPUR PAN : AAAAS6400N (APPELLANT) (RESPONDENT) C.O. NO.50/PUN/16 (ARISING OUT OF ITA NO.1929/PUN/2014 / ASSESSMENT YEAR : 2010-11 SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., BHILARWADI, A/P. JINTI, TAL. KARMALA, DIST. SOLAPUR PAN : AAAAS6400N VS. DCIT, CIRCLE-1, SOLAPUR (CROSS OBJECTOR) (APPELLANT IN THE APPEAL) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE REVENUE AND CROSS-OBJECTION BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE LD. CIT(A) ON 22.08.2014 IN RELATION TO THE ASSESSMENT YEAR 2010-11. ASSESSEE BY MRS. SUBHADHA KOPPU REVENUE BY SHRI ASHOK BABU DATE OF HEARING 09-05-2019 DATE OF PRONOUNCEMENT 10-05-2019 SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 2 2. THERE IS A DELAY OF 25 DAYS IN PRESENTING THE CROS S OBJECTION BY THE ASSESSEE BEFORE THE TRIBUNAL. THE ASSESSE E HAS FILED AFFIDAVIT IN SUPPORT OF THE CONDONATION OF DELAY. WE AR E SATISFIED WITH SUCH REASONS. AS SUCH, THE DELAY IS CONDONED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ADMITTED FOR HEA RING ON MERITS. 3. THE FIRST ISSUE RAISED IN THE ASSESSEES CROSS-OBJECTION VIDE GROUND NOS. 2 TO 4 IS AGAINST THE SUSTENANCE OF ADDITION TOW ARDS EXCESSIVE SUGARCANE PRICE PAID TO MEMBERS AS WELL AS NON - MEMBERS OF THE ASSESSEE. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SUGAR AND ITS BYE-PRODUCTS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED TH AT THE ASSESSEE PAID EXCESSIVE CANE PRICE, OVER AND ABOVE THE FAIR AND REMUNERATIVE PRICE (FRP) FIXED BY THE GOVERNMENT, TO ITS MEMBERS AS WELL AS NON-MEMBERS. ON BEING CALLED UPON TO JUSTIFY SUCH DEDUCTION, THE ASSESSEE SUBMITTED 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). SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 3 RELYING ON ORDINANCE DATED 22.10.2009, SUGAR CANE CONTROL ORDER, 1966, THE AO OPINED THAT THE GOVERNMENT OF INDIA HA S NOTIFIED A FRP PAYABLE TO FARMERS FOR THEIR SUGARCANE AND AS THIS PRICE INCLUDES REASONABLE MARGINS TOWARDS THEIR RISKS A ND PROFITS, HENCE ANY PAYMENT IN EXCESS OF FRP WOULD BE IN THE NATURE OF DISTRIBUTION OF PROFITS OF THE ASSESSEE SOCIETY. T REATING FRP AS AN ALLOWABLE EXPENSE, THE AO HELD THAT THE EXCESSIVE PAYMENT OF RS.30,01,42,096/- WAS NOT WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS AND HENCE NOT ALLOWABLE. THE LD. CIT(A) SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED THEREBY, THE ASSESSEE HAS APPROACHED THE TRIBU NAL. 5. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THERE IS CONSENSUS AD IDEM BETWEEN THE RIVAL PARTIES THAT THE ISSUE OF PAYMENT OF EXCESS IVE PRICE ON PURCHASE OF SUGARCANE BY THE ASSESSEE IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT OF HONBLE SUPREME COURT IN CIT VS. TASGAON TALUKA S.S.K. LTD. (2019) 103 TAXMANN.COM 57 (SC) . THE HONBLE APEX COURT, VIDE ITS JUDGMENT DATED 05-03-2019, HAS ELABORATELY DEALT WITH THIS ISSUE. IT RECORDED THE FACTUAL MATRIX THAT THE ASSESSEE IN TH AT CASE PURCHASED AND CRUSHED SUGARCANE AND PAID PRICE F OR THE SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 4 PURCHASE DURING CRUSHING SEASON 2009-10, FIRSTLY, AT THE TI ME OF PURCHASE OF SUGARCANE AND THEN, LATER, AS PER THE MAN TRI COMMITTEE ADVICE. IT FURTHER NOTED THAT THE PRODUCTION OF SUGAR IS COVERED BY THE ESSENTIAL COMMODITIES ACT, 1955 AND THE GOVERNMENT ISSUED SUGAR CANE (CONTROL) ORDER, 1966, WHICH DEALS WITH ALL ASPECTS OF PRODUCTION OF SUGARCANE AND SALES THEREOF INCLUDING THE PRICE TO BE PAID TO THE CANE GROWERS. CLAUSE 3 OF THE SUGAR CANE (CONTROL) ORDER, 1966 AUTHORIZ ES THE GOVERNMENT TO FIX MINIMUM SUGARCANE PRICE. IN ADDITION , THE ADDITIONAL SUGARCANE PRICE IS ALSO PAYABLE AS PER CLAUSE 5A OF THE CONTROL ORDER, 1966. THE AO IN THAT CASE CONCLUD ED THAT THE DIFFERENCE BETWEEN THE PRICE PAID AS PER CLAUSE 3 OF THE CONTROL ORDER, 1966 DETERMINED BY THE CENTRAL GOVERNMENT AND THE PRICE DETERMINED BY THE STATE GOVERNMENT UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966, WAS IN THE NATURE OF `DISTRIBUTION OF PROFITS AND HENCE NOT DEDUCTIBLE AS EXPENDITURE. HE, THEREFORE, MADE AN ADDITION FOR SUCH S UM PAID TO MEMBERS AS WELL AS NON-MEMBERS. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE APEX COURT, IT NOTED THAT CLAUSE 5A WAS INSERTED IN THE YEAR 1974 ON THE BASIS OF THE RECOMMENDATIONS MADE BY THE BHARGAVA COMMISSION, WHICH RECOMMENDED PAYMENT OF ADDITIONAL PRICE AT THE END OF THE SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 5 SEASON ON 50:50 PROFIT SHARING BASIS BETWEEN THE GROWERS A ND FACTORIES, TO BE WORKED OUT IN ACCORDANCE WITH THE SECOND SCHEDULE TO THE CONTROL ORDER, 1966. THEIR LORDSHIPS NO TED THAT AT THE TIME WHEN ADDITIONAL PURCHASE PRICE IS DETERMINED/FIXED UNDER CLAUSE 5A, THE ACCOUNTS ARE SETTLED AN D THE PARTICULARS ARE PROVIDED BY THE CONCERNED CO-OPERATIVE SOCIETY AS TO WHAT WILL BE THE EXPENDITURE AND WHAT WILL BE THE PROFIT ETC. CONSIDERING THE FACT THAT STATUTORY MINIMUM PRICE (SMP), DETERMINED UNDER CLAUSE 3 OF THE CONTROL ORDER, 196 6, WHICH IS PAID AT THE BEGINNING OF THE SEASON, IS DEDUCTIBLE IN THE ENTIRETY AND THE DIFFERENCE BETWEEN SMP DETERMINED UNDER CLAUSE 3 AND SAP/ADDITIONAL PURCHASE PRICE DETERMINED UNDER CLAUSE 5A, HAS AN ELEMENT OF DISTRIBUTION OF PROFIT WHICH CANN OT BE ALLOWED AS DEDUCTION, THE HONBLE SUPREME COURT REMITTED THE MATTER TO THE FILE OF THE AO FOR CONSIDERING THE MODALITIES AND MANNER IN WHICH SAP/ADDITIONAL PURCHASE PRICE/FINAL PRICE IS DECIDED. HE HAS BEEN DIRECTED TO CARRY OUT AN EXERCIS E OF CONSIDERING ACCOUNTS/BALANCE SHEET AND THE MATERIAL SUPPLIED T O THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITIONAL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966 AND THEREAFTER DETERMINE AS TO WHAT AMOUNT WOULD FORM PART OF THE DISTRIBUTION OF PROFIT AND THE SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 6 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 C LAUSE 5A WOULD CERTAINLY BE AND/OR SAID TO BE AN APPROPRIATI ON OF PROFIT. HOWEVER, AT THE SAME TIME, THE ENTIRE/WHOLE AMOUNT OF DIFFERENCE BETWEEN THE SMP AND THE SAP PER SE CANNO T BE SAID TO BE AN APPROPRIATION OF PROFIT. AS OBSERVED HEREINABOVE, ONLY THAT PART/COMPONENT OF PROFIT, WHILE DETERMINING TH E FINAL PRICE WORKED OUT/SAP/ADDITIONAL PURCHASE PRICE WOULD BE A ND/OR CAN BE SAID TO BE AN APPROPRIATION OF PROFIT AND FOR TH AT AN EXERCISE IS TO BE DONE BY THE ASSESSING OFFICER BY CALLING UPON THE ASSESSEE TO PRODUCE THE STATEMENT OF ACCOUNTS, BALANCE SHEET AND THE MATERIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE P URPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITIONAL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966. MEREL Y BECAUSE THE HIGHER PRICE IS PAID TO BOTH, MEMBERS AND NON-M EMBERS, QUA THE MEMBERS, STILL THE QUESTION WOULD REMAIN WITH R ESPECT TO THE DISTRIBUTION OF PROFIT/SHARING OF THE PROFIT. SO F AR AS THE NON- MEMBERS ARE CONCERNED, THE SAME CAN BE DEALT WITH A ND/OR CONSIDERED APPLYING SECTION 40A (2) OF THE ACT, I.E ., THE ASSESSING OFFICER ON THE MATERIAL ON RECORD HAS TO DETERMINE WHETHER THE AMOUNT PAID IS EXCESSIVE OR UNREASONABL E OR NOT........ 9.5 THEREFORE, THE ASSESSING OFFICER WILL HAVE TO T AKE INTO ACCOUNT THE MANNER IN WHICH THE BUSINESS WORKS, THE MODALITIES AND MANNER IN WHICH SAP/ADDITIONAL PURCHASE PRICE/F INAL PRICE ARE DECIDED AND TO DETERMINE WHAT AMOUNT WOULD FORM PART OF THE PROFIT AND AFTER UNDERTAKING SUCH AN EXERCISE W HATEVER IS THE PROFIT COMPONENT IS TO BE CONSIDERED AS SHARING OF PROFIT/DISTRIBUTION OF PROFIT AND THE REST OF THE A MOUNT IS TO BE CONSIDERED AS DEDUCTIBLE AS EXPENDITURE. 6. BOTH THE SIDES ARE UNANIMOUSLY AGREEABLE THAT THE EXTANT ISSUE OF DEDUCTION FOR PAYMENT OF EXCESSIVE PRICE FOR PU RCHASE OF SUGARCANE, RAISED IN THE APPEAL UNDER CONSIDERATION, IS SQUARELY COVERED BY THE AFORESAID JUDGMENT OF THE HONBLE SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 7 SUPREME COURT. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET - ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE A.O FOR DECIDING IT AFRESH AS PER LAW IN CONSONANCE WITH THE ARTICULATION OF LAW BY THE HONBLE SUPREME COURT IN THE AFORENOTED JUDGMENT. 7. AT THIS STAGE, IT IS MADE CLEAR IN SO FAR AS THE NON-M EMBERS 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 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. ERGO, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE SECOND ISSUE RAISED IN THE ASSESSEES APPEAL VIDE GROUND NO.5 AND THE ONLY ISSUE RAISED IN THE REVENUES A PPEAL RELATES TO GIVING OF SUGAR TO MEMBERS AND NON-MEMBERS AT CONCESSIONAL RATES. 9. THE FACTS APROPOS THIS ISSUE THAT THE AO MADE ADDITION OF RS.65,82,559/-, BEING, THE DIFFERENCE BETWEEN THE MARKE T PRICE AND THE CONCESSIONAL PRICE AT WHICH SUGAR (FINAL PRODUCT) W AS GIVEN TO FARMERS AND CANE GROWERS. THE LD. CIT(A) GAV E SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 8 CERTAIN DIRECTIONS AND DIRECTED THE AO TO QUANTIFY THE DISALLOWANCE. AGGRIEVED BY THE SAME, BOTH THE PARTIES HAVE COME UP IN APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. IN THIS REGARD, IT IS OBSERVE D THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS. KRISHNA SAHAKARI SAKHAR KARKHANA LIMITED (2012) 27 TAXMANN.COM 162 (SC). VIDE JUDGMENT DATED 25-09-2012, THE HONBLE SUPREME COURT NOTICED THAT THE DIFFERENCE BETWEEN THE AVERAGE PRICE OF SUGAR SOLD IN THE MARKET AND THE PRICE OF SUGAR SOLD BY THE ASSESSEE TO ITS MEMBERS AT CONCESSIONAL RATE WAS TAXED BY THE DEPARTMENT UNDER THE HE AD APPROPRIATION OF PROFIT. THE HONBLE SUMMIT COURT REMITTED THE MATTER TO THE CIT(A) FOR CONSIDERING, INTER ALIA ,: WHETHER THE ABOVEMENTIONED PRACTICE OF SELLING SUGAR AT CONCESSIONAL RATE HAS BECOME THE PRACTICE OR CUSTOM IN THE CO-OPERATIVE SUGAR INDUSTRY?; AND WHETHER ANY RESOLUTION HAS BEEN PASSE D BY THE STATE GOVERNMENT SUPPORTING THE PRACTICE?; THE CIT(A ) WOULD ALSO CONSIDER ON WHAT BASIS THE QUANTITY OF THE FINAL PRODUCT, I.E. SUGAR, IS BEING FIXED FOR SALE TO FARMERS/CAN E GROWERS/MEMBERS EACH YEAR ON MONTH-TO-MONTH BASIS, APART SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 9 FROM OTHERS FROM DIWALI? THE ISSUE UNDER CONSIDERATION CA N BE DECIDED BY AN APPROPRIATE LOWER AUTHORITY ONLY ON THE TOUCHSTONE OF THE RELEVANT FACTORS NOTED IN THE ABOVE JUDGMEN T. IN OUR CONSIDERED OPINION, IT WOULD BE JUST AND FAIR IF THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO, INSTEAD OF TO THE CIT(A), FOR F RESH CONSIDERATION AS TO WHETHER THE DIFFERENCE BETWEEN THE AVERA GE PRICE OF SUGAR SOLD IN THE MARKET AND THAT SOLD TO MEMBERS AT CONCESSIONAL RATE IS APPROPRIATION OF PROFIT OR NOT, IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE HONBLE SUPREME COURT IN THE CASE OF KRISHNA SAHAKARI SAKHAR KARKHANA LIMITED (SUPRA) . RESTORATION TO THE AO IS NECESSITATED BECAUSE, FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TASGAON TALUKA S.S.K. LTD. (SUPRA) , WE HAVE REMITTED THE ISSUE OF PAYMENT OF EXCESSIVE PRICE TO THE FILE OF AO, AND AS SUCH, THE INSTANT ISSUE CANNOT BE SENT TO LD. CIT(A) AS IT WOULD AMOUNT T O SIMULTANEOUSLY SENDING ONE PART OF THE SAME ASSESSMENT OR DER TO THE AO AND OTHER TO THE CIT(A), WHICH IS NOT APPROPRIATE. WE ORDER ACCORDINGLY. THIS ISSUE IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 10 11. IN THE RESULT, THE REVENUES APPEAL AS WELL AS THE CRO SS OBJECTION FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MAY, 2019. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE; DATED : 10 TH MAY, 2019. / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-III, PUNE 4. 5. THE CCIT-2, PUNE , , / DR A, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE SHRI MAKAI SAHAKARI SAKHAR KARKHANA LTD., A.Y. 2010-11 11 DATE 1. DRAFT DICTATED ON 09-05-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 09-05-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *