Appeal details
Counselvise Citation
[2019] 115 COUNSELVISE.COM (IT) 5294 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 11 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-11-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
04-11-2019
Assessment Year
2012-2013
Appeal Filed On
15-11-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO. 2586/PUN/2016 / ASSESSMENT YEAR : 2012-13 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD., GAUTAMNAGAR, POST. KOLPEWADI, TAL. KOPARGAON, DIST. AHMEDNAGAR 423602 PAN : AACAK5073C VS. ITO, WARD-3, AHMEDNAGAR (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 29-07-2016 IN RELATION TO THE ASS ESSMENT YEAR 2012-13. APPELLANT BY SHRI K. SRINIVASAN RESPONDENT BY SHRI S.P. WALIMBE DATE OF HEARING 04-11-2019 DATE OF PRONOUNCEMENT 05-11-2019 ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 2 2. GROUND NOS. 1 TO 7 RAISED IN THIS APPEAL ARE AGAINST TH E CONFIRMATION OF ADDITION ON ACCOUNT OF EXCESSIVE CANE PRICE P AID TO THE MEMBERS/NON-MEMBERS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT SIMILAR ISSUE CAM E UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN A BATCH OF 75 APPE ALS LED BY MANGANGA SAHAKARI SAKHAR KARKHANA LTD. VS. ACIT IN IT A NO.344/PUN/2017 AND OTHERS. VIDE ORDER DATED 01-10-2019, THE TRIBUNAL, ON THIS ISSUE, HAS HELD AS UNDER : 4. A COMMON ISSUE INVOLVED IN ALMOST ALL THE APPEA LS IS AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER (AO) TOW ARDS OF EXCESSIVE SUGARCANE PRICE PAID TO MEMBERS AS WELL AS NON-MEMB ERS OF THE RESPECTIVE ASSESSEES. THE FACTS COMMON TO ALMOST A LL THE APPEALS ARE THAT THE ASSESSES ARE ENGAGED IN THE BUSINESS OF MA NUFACTURING OF WHITE SUGAR. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE AO OBSERVED THAT THE ASSESSEE PAID EXCESSIVE CANE PRICE, OVER A ND ABOVE THE FAIR AND REMUNERATIVE PRICE (FRP) FIXED BY THE GOVERNMENT, T O ITS MEMBERS AS WELL AS NON-MEMBERS. ON BEING CALLED UPON TO JUSTI FY SUCH DEDUCTION, THE ASSESSEE GAVE CERTAIN EXPLANATION BY SUBMITTING THAT SUCH PAYMENT WAS SOLELY AND EXCLUSIVELY IN CONNECTION WITH THE B USINESS AND THE ENTIRE AMOUNT WAS DEDUCTIBLE U/S.37(1) OF THE INCOM E-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). RELYING ON TH E 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 `DISTRIBU TION OF PROFITS AND HENCE NOT DEDUCTIBLE. THIS IS HOW, HE COMPUTED THE EXCESSIVE CANE PRICE PAID BOTH TO THE MEMBERS AND NON-MEMBERS AND MADE ADDITION FOR THE SAID SUM. THE LD. CIT(A) IN SOME CASES DEL ETED THE ADDITION, FULLY OR PARTLY, WHILST IN OTHERS THE ADDITION GOT SUSTAINED. THIS LED TO FILING OF THE CROSS APPEALS BOTH BY THE ASSESSEE AS WELL AS THE REVENUE BEFORE THE TRIBUNAL. ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 3 5. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. THERE IS CONSENSUS AD IDEM BETWEEN THE RIVAL PARTIES THAT THE ISSUE OF PAYMENT OF EXCESSIVE PRI CE ON PURCHASE OF SUGARCANE BY THE ASSESSES IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT OF HONBLE SUPREME COURT IN CIT VS TASGAON SSK LTD. (2019) 412 ITR 420 (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 THAT CASE PURCH ASED AND CRUSHED SUGARCANE AND PAID PRICE FOR THE PURCHASE DURING CR USHING SEASONS 1996-97 AND 1997-98, FIRSTLY, AT THE TIME OF PURCHA SE OF SUGARCANE AND THEN, LATER, AS PER THE MANTRI COMMITTEE ADVICE. I T 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 SUGAR CANE AND SALES THEREOF INCLUDING THE PRICE TO BE PAID TO THE CANE GROWERS. CLAUSE 3 OF THE SUGAR CANE (CONTROL) ORDER, 1966 AUTHORIZES THE GOVERNMENT TO FIX MINIMUM SUGARCANE PRICE. IN ADDITION, THE ADDITION AL SUGARCANE PRICE IS ALSO PAYABLE AS PER CLAUSE 5A OF THE CONTROL ORD ER, 1966. THE AO IN THAT CASE CONCLUDED THAT THE DIFFERENCE BETWEEN THE PRICE PAID AS PER CLAUSE 3 OF THE CONTROL ORDER, 1966 DETERMINED BY T HE CENTRAL GOVERNMENT AND THE PRICE DETERMINED BY THE STATE GO VERNMENT UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966, WAS IN THE N ATURE OF `DISTRIBUTION OF PROFITS AND HENCE NOT DEDUCTIBLE AS EXPENDITUR E. HE, THEREFORE, MADE AN ADDITION FOR SUCH SUM PAID TO MEMBERS AS WE LL AS NON- MEMBERS. WHEN THE MATTER FINALLY CAME UP BEFORE TH E HONBLE APEX COURT, IT NOTED THAT CLAUSE 5A WAS INSERTED IN THE YEAR 1974 ON THE BASIS OF THE RECOMMENDATIONS MADE BY THE BHARGAVA COMMISS ION, WHICH RECOMMENDED PAYMENT OF ADDITIONAL PRICE AT THE END OF THE SEASON ON 50:50 PROFIT SHARING BASIS BETWEEN THE GROWERS AND FACTORIES, TO BE WORKED OUT IN ACCORDANCE WITH THE SECOND SCHEDULE T O THE CONTROL ORDER, 1966. THEIR LORDSHIPS NOTED THAT AT THE TIM E WHEN ADDITIONAL PURCHASE PRICE IS DETERMINED/FIXED UNDER CLAUSE 5A, THE ACCOUNTS ARE SETTLED AND THE PARTICULARS ARE PROVIDED BY THE CON CERNED CO-OPERATIVE SOCIETY AS TO WHAT WILL BE THE EXPENDITURE AND WHAT WILL BE THE PROFIT ETC. CONSIDERING THE FACT THAT STATUTORY MINIMUM PR ICE (SMP), DETERMINED UNDER CLAUSE 3 OF THE CONTROL ORDER, 196 6, WHICH IS PAID AT THE BEGINNING OF THE SEASON, IS DEDUCTIBLE IN THE E NTIRETY AND THE DIFFERENCE BETWEEN SMP DETERMINED UNDER CLAUSE 3 AN D SAP/ADDITIONAL PURCHASE PRICE DETERMINED UNDER CLAUSE 5A, HAS AN E LEMENT OF DISTRIBUTION OF PROFIT WHICH CANNOT BE ALLOWED AS D EDUCTION, THE HONBLE SUPREME COURT REMITTED THE MATTER TO THE FI LE 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 EXERCISE OF CONSIDERING ACCOUNTS/BALANCE SHEET A ND THE MATERIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITIONAL PURCHASE PRICE/SAP UNDER CLA USE 5A OF THE ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 4 CONTROL ORDER, 1966 AND THEREAFTER DETERMINE AS TO WHAT AMOUNT WOULD FORM PART OF THE DISTRIBUTION OF PROFIT AND THE OTH ER 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 UND ER CLAUSE 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 U PON THE ASSESSEE TO PRODUCE THE STATEMENT OF ACCOUNTS, BALA NCE SHEET AND THE MATERIAL SUPPLIED TO THE STATE GOVERNMENT F OR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITION AL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF THE CONTROL ORDER, 19 66. MERELY BECAUSE THE HIGHER PRICE IS PAID TO BOTH, ME MBERS AND NON-MEMBERS, QUA THE MEMBERS, STILL THE QUESTION WO ULD REMAIN WITH RESPECT TO THE DISTRIBUTION OF PROFIT/SHARING OF THE PROFIT. SO FAR AS THE NON-MEMBERS ARE CONCERNED, THE SAME C AN BE DEALT WITH AND/OR CONSIDERED APPLYING SECTION 40A (2) OF THE ACT, I.E., THE ASSESSING OFFICER ON THE MATERIAL ON RECO RD HAS TO DETERMINE WHETHER THE AMOUNT 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/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 PURCHA SE OF SUGARCANE, RAISED IN MOST OF THE APPEALS UNDER CONSIDERATION, IS SQUARELY COVERED BY THE AFORESAID JUDGMENT OF THE HONBLE SUPREME CO URT. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET-ASIDE THE IMPUGNED ORDERS ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE RESPECTIVE A.OS. FOR DECIDING IT AFRESH AS PER LAW IN CONSONANCE WITH THE ARTICULATI ON OF LAW BY THE HONBLE SUPREME COURT IN THE AFORENOTED JUDGMENT. THE AO WOULD ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 5 ALLOW DEDUCTION FOR THE PRICE PAID UNDER CLAUSE 3 O F THE SUGAR CANE (CONTROL) ORDER, 1966 AND THEN DETERMINE THE COMPON ENT OF DISTRIBUTION OF PROFIT EMBEDDED IN THE PRICE PAID UNDER CLAUSE 5 A, 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 THI S CLAUSE. THE AMOUNT RELATABLE TO THE PROFIT COMPONENT OR SHARING OF PRO FIT/DISTRIBUTION OF PROFIT PAID BY THE ASSESSEE, WHICH WOULD BE APPROPR IATION OF INCOME, WILL NOT BE ALLOWED AS DEDUCTION, WHILE THE REMAINI NG AMOUNT, BEING A CHARGE AGAINST THE INCOME, WILL BE CONSIDERED AS DE DUCTIBLE EXPENDITURE. AT THIS STAGE, IT IS MADE CLEAR THAT THE DISTRIBUTION OF PROFITS CAN ONLY BE QUA THE PAYMENTS MADE TO THE MEMBERS. IN SO FAR AS THE NON-MEMBERS ARE CONCERNED, THE CASE WILL BE CON SIDERED AFRESH BY THE AO BY APPLYING THE PROVISIONS OF SECTION 40A(2) OF THE ACT, AS HAS BEEN HELD BY THE HONBLE SUPREME COURT SUPRA. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F HEARING BY THE AO IN SUCH FRESH DETERMINATION OF THE ISSUE. 4. SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTANT APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE ALREADY CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE ABOVE BATCH OF APPEALS, IN THE GIVEN CIRCUMSTANCES AND FOLLOWING THE PRECEDENT, WE SET-ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF THE AO F OR DECIDING IT IN CONFORMITY WITH THE VIEW TAKEN BY THE TRIBUNAL AS EXTRACTED ABOVE. 5. THE OTHER ISSUE RAISED IN THIS APPEAL IS THROUGH GROUND NOS. 8 AND 9 ABOUT SALE OF SUGAR AT CONCESSIONAL PRICE. 6. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. IT IS OBSERVED THAT THIS ISSUE CROPPED UP FOR ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 6 CONSIDERATION BEFORE THE TRIBUNAL IN THE BATCH OF APPEALS AS DISCUSSED INFRA. THE RELEVANT DISCUSSION HAS BEEN MADE A S UNDER:- 11. ON A REPRESENTATIVE BASIS, WE ARE TAKING UP THE APPEAL FILED BY MANGANGA SSK LTD. IN ITA NO.344/PUN/2017. THE FACT UAL MATRIX OF THIS ISSUE IS THAT THE ASSESSING OFFICER (AO) OBSER VED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD SOLD/SUPPLIED SUGAR TO ITS MEMBERS AT CONCESSIONAL RATE. ON BEIN G CALLED UPON TO EXPLAIN AS TO WHY THE DIFFERENCE BETWEEN THE FAIR M ARKET PRICE AND THE CONCESSIONAL PRICE SHOULD NOT BE DISALLOWED AS IT W AS NOTHING BUT DISTRIBUTION OF PROFIT, THE ASSESSEE RELIED ON THE JUDGMENT IN CIT VS. TERNA SHETKARI SSK LTD. (2008) 168 TAXMAN 266 (BOM. ) TO CONTEND THAT SIMILAR ISSUE WAS NOT PRESSED BY THE LD. DR BE FORE THE HONBLE BOMBAY HIGH COURT, WHICH IMPLIED THAT THE DEPARTMEN T ACQUIESCED THE DECISION OF THE LOWER COURTS IN ALLOWING RELIEF . NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE AO OPINED THAT THE DISALLOWANCE IN THE CASE OF TERNA SSK LTD. (SUPRA) WAS MADE BY THE AO AS NON- BUSINESS EXPENDITURE. IN HIS OPINION, SUPPLY OF S UGAR AT CONCESSIONAL RATE AS AGAINST THE PREVALENT MARKET PRICE WAS NOTH ING BUT APPROPRIATION OF PROFIT AND IN THE NATURE OF APPLIC ATION OF INCOME. CONSIDERING THE DIFFERENCE BETWEEN THE MARKET PRICE AND THE CONCESSIONAL PRICE CHARGED VIS-A-VIS THE QUANTITY SUPPLIED BY THE ASSESSEE TO ITS MEMBER CANE-GROWERS, THE AO WORKED OUT AN ADDITION OF RS.8,32,433/-. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO NOTICED THAT SIMILAR ISSUE HAS BEEN CON SIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KRISHNA SAHAKARI SAKHAR KARKHANA LTD. AND OTHERS (2012) 254 CTR 638 (SC) IN WHICH THE MATTER HAS BEEN RESTORED FOR ASCERTAINING WHETH ER THE DIFFERENCE BETWEEN THE FAIR MARKET PRICE AND THE CONCESSIONAL PRICE OF THE SUGAR SUPPLIED TO FARMERS SHOULD OR SHOULD NOT BE ADDED T O THE TOTAL INCOME OF THE ASSESSEE ALONG WITH CONSIDERATION OF CERTAIN OTHER FACTORS. THE LD. CIT(A) TOOK NOTE OF AN ORDER DATED 01-03-2006 P ASSED BY THE COMMISSIONER OF SUGAR, MAHARASHTRA STATE, CONSIDERI NG THE DIRECTIONS ISSUED U/S.79(A) OF THE MAHARASHTRA COOPERATIVE SOC IETIES RULES, 1960 PROVIDING, INTER ALIA, THAT THE SUGAR FACTORIES SHALL SELL A MAXIMUM OF 5KG OF SUGAR PER MONTH TO ITS MEMBERS AT THE RATE OF LEVY SUGAR PLUS EXCISE DUTY ON FREE SUGAR; THE FACTORIES SHALL NOT SELL SUGAR AT CONCESSIONAL RATE IF IT HAS CRUSHED LESS THAN 50 % DURING THE LAST SEASON. IN THE LIGHT OF THE ABOVE ORDER OF COMMISS IONER OF SUGAR, MAHARASHTRA STATE, THE LD. CIT(A) HELD THAT MAXIMUM 5 KG PER MONTH PER MEMBER CAN BE ISSUED AT THE LEVY PRICE AND THE DIFFERENCE BETWEEN THE LEVY PRICE AND THE CONCESSIONAL PRICE ACTUALLY CHARGED FROM THE MEMBERS UP TO THE LIMIT OF 5 KG PER MONTH PER MEMBE R SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE; AND THE DIFFERE NCE BETWEEN THE ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 7 MARKET PRICE AND THE CONCESSIONAL PRICE ON THE QUAN TITY OF SUGAR SOLD BEYOND 5 KG PER MEMBER PER MONTH, SHOULD ALSO BE AD DED TO THE TOTAL INCOME. TO BUTTRESS HIS VIEW, HE TOOK SUPPORT FROM NAGARBAIL SALT OWNERS CO-OPERATIVE SOCIETY LTD. (2016) 238 TAXMAN 689 (KARNATAKA) IN WHICH THE SALE PROCEEDS WERE TRANSFERRED TO AN ACCOUNT CALLED DISTRIBUTABLE POOL FUND ACCOUNT FOR DISTRI BUTION AMONG THE MEMBERS OF THE SOCIETY. AFTER SUCH TRANSFER, THE SO CIETY OFFERED REMAINING INCOME TO TAX, WHICH POINT OF VIEW OF THE ASSESSEE WAS JETTISONED BY THE HONBLE HIGH COURT. BASED ON THIS PANORAMA OF FACTS AND THE LEGAL POSITION, THE LD. CIT(A) REDUCED THE ADDITION TO SOME EXTENT. AGGRIEVED THEREBY, THE ASSESSEE HAS APPROAC HED THE TRIBUNAL. 12. THE ASSESSEES UNDER CONSIDERATION WERE REPRE SENTED BY VARIOUS LD. COUNSEL, WHO MADE ELABORATE ARGUMENTS. THEY, INTER ALIA, RELIED ON CERTAIN DECISIONS TO BOLSTER THE ARGUMENT THAT THER E CAN BE NO ADDITION ON ACCOUNT OF SALE OF SUGAR AT CONCESSIONAL PRICE T O THE MEMBERS OF THE ASSESSEE CO-OPERATIVE SOCIETIES. IT WAS SUBMITTED, BY MAINLY RELYING ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF A. RAMAN AND CO. (1968) 67 ITR 11 (SC), THAT THE LAW DOES NOT OBLIGE A TRADER TO MAKE MAXIMUM PROFIT OUT OF HIS TRADING TRANSACTIONS . RELIANCE WAS ALSO PLACED ON CERTAIN OTHER DECISIONS INCLUDING CIT VS. CALCUTTA DISCOUNT CO. LTD. 91 ITR 8 (SC); H.M. KASHIPAREKH & CO. LTD. VS. CIT 39 ITR 706 (BOM.); CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC); ROGERS PYATT SHELLAC & CO. VS. SECRETARY OF STATE FOR INDIA 1 ITC 363 (CAL.); UNION OF INDIA VS. AZADI BACHAO A NDOLAN 263 ITR 706 (SC); AND VODAFONE INTERNATIONAL HOLDINGS B.V. VS. UNION OF INDIA 341 ITR 1 (SC) TO CONTEND THAT THE PROFIT CHARGED TO TAX BY THE AUTHORITIES BELOW WAS NOT IN ACCORDANCE WITH LAW AS IT AMOUNTED TO TAXING NOTIONAL INCOME. 13. PER CONTRA, THE LD. DR RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN TASGAON SSK LTD. (SUPRA) TO CONTEND THAT THE AUTHORITIES BELOW RIGHTLY TREATED THE DIFFERENCE BE TWEEN THE FAIR MARKET PRICE AND CONCESSIONAL PRICE CHARGED FROM ME MBERS OF THE ASSESSEES CO-OPERATIVE SOCIETIES AS APPROPRIATION OF PROFIT. FOR SUPPORTING THE CHARGING OF LOWER PRICE FOR SUGAR SO LD TO MEMBERS AS CONSTITUTING INCOME, THE LD. DR DREW AN ANALOGY FRO M THE CASE OF TASGAON SSK LTD. (SUPRA) BY SUBMITTING THAT, IN THAT CASE, THE PRICE PAID OVER AND ABOVE THE STATUTORY MARKET PRICE FOR PURCHASE OF SUGARCANE FROM THE MEMBERS/NON-MEMBERS OF THE SOCIE TIES HAS BEEN HELD BY THE HONBLE SUPREME COURT AS APPROPRIATION OF PROFIT AND HENCE CHARGEABLE TO TAX. HE SUBMITTED THAT THERE I S NO QUALITATIVE DIFFERENCE BETWEEN THE TWO SITUATIONS VIZ., THE FIR ST IN WHICH SUGARCANE IS PURCHASED FROM THE MEMBERS AT EXCESSIVE PRICE AN D THE DIFFERENTIAL AMOUNT IS CHARGED TO TAX AS APPROPRIATION OF PROFI T AND THE SECOND IN WHICH SUGAR IS SUPPLIED AT CONCESSIONAL PRICE AND T HE DIFFERENCE ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 8 BETWEEN THE FAIR MARKET PRICE AND THE CONCESSIONAL PRICE IS CHARGED TO TAX AGAIN AS APPROPRIATION OF PROFIT. 14. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, WE C ONSIDER IT EXPEDIENT TO MENTION THAT THE ISSUE OF SALE OF SUGA R TO MEMBERS OF A COOPERATIVE SOCIETY AT CONCESSIONAL PRICE CAME UP F OR CONSIDERATION BEFORE VARIOUS BENCHES OF THE TRIBUNAL ACROSS THE C OUNTRY. 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 T HE ASSESSEE BY RELYING ON THE JUDGMENT IN THE CASE OF A. RAMAN & COMPANY (SUPRA) . THEREAFTER, SEVERAL ORDERS CAME TO BE PASSED BY VAR IOUS BENCHES OF THE TRIBUNAL. ALL SUCH ORDERS WERE CHALLENGED BY THE R EVENUE BEFORE THE RESPECTIVE HONBLE HIGH COURTS. IN THE CASE OF TERNA SSK LTD. (SUPRA), ONE OF THE ISSUES RAISED BY THE DEPARTMENT WAS AGAI NST THE DELETION OF ADDITION MADE ON ACCOUNT OF SUGAR SUPPL Y 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 TRIBUN AL CAME UP FOR ADJUDICATION BEFORE THE CONCERNED HONBLE HIGH COUR TS. 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 J UDGMENT 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 RE VENUE APPROACHED THE HONBLE SUPREME COURT AGAINST ALL SU CH JUDGMENTS PASSED BY THE HIGH COURTS. VIDE ITS COMMON JUDGMEN T 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 DE CIDING THE QUESTION AFRESH AS TO WHETHER THE DIFFERENCE BETWEEN THE ACT UAL PRICE OF SUGAR SOLD IN THE MARKET AND THE PRICE OF SUGAR SOLD BY T HE ASSESSEE TO ITS MEMBERS AT CONCESSIONAL RATE SHOULD OR SHOULD NOT B E ADDED TO THE TOTAL INCOME OF THE ASSESSEE. APART FROM THE ABOVE QUESTION, THE HONBLE SUPREME COURT FURTHER DIRECTED THE CIT(A) T O TAKE INTO ACCOUNT WHETHER THE ABOVE MENTIONED PRACTICE OF SEL LING 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 HE LD THAT THE CIT(A) BEFORE REACHING ANY CONCLUSION WOULD ALSO CONSIDER ON WHAT BASIS THE QUANTITY OF SUGAR WAS BEING FIXED FOR SALE TO FARME RS AND ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 9 GROWERS/MEMBERS FOR EACH YEAR ON MONTH TO MONTH BAS IS APART FROM DIWALI. 15. ON AN ANALYSIS OF THE POSITION DISCUSSED ABO VE, IT CLEARLY EMERGES THAT AFTER THE ADVENT OF THE HONBLE SUPREM E COURT JUDGMENT IN KRISHNA SSK LTD. (SUPRA), THE EARLIER JUDGMENTS RENDERED BY THE HONBLE HIGH COURTS AND THE ORDERS PASSED BY THE TR IBUNAL IN FAVOUR OF THE ASSESSEE DO NOT CONTINUE TO HOLD THE FIELD A NYMORE. OUR ATTENTION HAS NOT BEEN DRAWN TOWARDS JUDGMENT OF AN Y HONBLE HIGH COURT OR ORDER OF THE TRIBUNAL IN WHICH THE ISSUE U NDER CONSIDERATION HAS BEEN DECIDED AFTER 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 RELEVANT TO NOTE THAT T HE HONBLE SUPREME COURT IN TASGAON SSK LTD. (SUPRA) HAD AN OCCASION TO DEAL WITH A CONNECTED ISSUE OF PURCHASE OF SUGARCANE BY THE SUG AR FACTORIES FROM ITS MEMBERS AT EXCESSIVE PRICE, WHICH WE HAVE DISCU SSED HEREINABOVE. THE AOS IN THAT GROUP OF MATTERS HAD OPINED THAT TH E DIFFERENCE BETWEEN THE PRICE PAID AS PER CLAUSE 3 OF THE CONTR OL ORDER, 1966 DETERMINED BY THE CENTRAL GOVERNMENT, BEING, THE ST ATUTORY MINIMUM PRICE (SMP) AND THE PRICE DETERMINED BY THE STATE G OVERNMENT UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966, BEING SAP/ADD ITIONAL PRICE, WAS IN THE NATURE OF DISTRIBUTION OF PROFITS AND HENCE, NOT DEDUCTIBLE AS EXPENDITURE. SUCH AN ISSUE CAME TO BE DECIDED B Y THE HONBLE HIGH COURTS IN FAVOUR OF THE ASSESSEE. WHEN THE RE VENUE BROUGHT 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 S EASON 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 B E ALLOWED AS DEDUCTION. THAT IS HOW, THE HONBLE SUPREME COURT REMITTED THE MATTER TO THE FILE OF AO FOR CONSIDERING THE MODALI TIES AND MANNER IN WHICH SAP/ADDITIONAL PRICE IS DECIDED AND TO CARRY OUT AN EXERCISE OF CONSIDERING THE ACCOUNTS/BALANCE SHEET AND THE MATE RIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FI XING THE FINAL PRICE/ADDITIONAL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF CONTROL ORDER, 1966 AND THEREAFTER DETERMINE AS TO WHAT PAR T OF THE DIFFERENTIAL AMOUNT WOULD FORM PART OF THE DISTRIBUTION OF PROF IT. RELEVANT DISCUSSION HAS BEEN MADE IN PARA 9.4 OF THE JUDGMEN T IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT: THEREFORE, TO THE EXTENT OF THE COMPONENT OF PROFIT WHICH WILL BE A PART OF THE FIN AL DETERMINATION OF SAP AND/OR THE FINAL PRICE/ADDITIONAL PURCHASE PRIC E FIXED UNDER CLAUSE 5A WOULD CERTAINLY BE AND/OR SAID TO BE AN APPROPRIAT ION OF PROFIT. HOWEVER, AT THE SAME TIME, THE ENTIRE/WHOLE AMOUNT OF ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 10 DIFFERENCE BETWEEN THE SMP AND THE SAP PER SE CANNO T BE SAID TO BE AN APPROPRIATION OF PROFIT. THE MATTER WAS SENT BA CK TO THE AO WITH CERTAIN DIRECTIONS TO FIND OUT THE ELEMENT OF APPRO PRIATION OF PROFITS EMBEDDED IN THE PRICE FIXED UNDER CLAUSE 5A. 17. IN VIEW OF THE ABOVE JUDGMENT IN THE CASE O F TASGAON SSK LTD.(SUPRA) , IT IS CLEAR THAT THE HONBLE APEX COURT HAS, IN P RINCIPLE, HELD THAT THE EXCESSIVE CANE PRICE PAID TO THE MEMB ERS 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 SUP REME COURT, BEING, PURCHASE OF SUGARCANE AS RAW MATERIAL 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 P ART OF THE EXCESSIVE PURCHASE PRICE OF SUGARCANE PAID HAS BEEN HELD TO B E 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 A ND ON THE SAME PARITY OF REASONING, WOULD ALSO HAVE TO BE CONSIDER ED AS APPROPRIATION OF PROFIT. 18. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE T HAT 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 T HE PREVALENT MARKET PRICE, IS NOTHING 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 ME MBERS BY MEANS OF SELLING SUGAR AT CONCESSIONAL PRICE IS BASED ON THE PREMISE THAT A CO- OPERATIVE SOCIETY AND ITS MEMBERS ARE NOT DIFFERENT FROM EACH OTHER IN THE CO-OPERATIVE STRUCTURE. 19. IN CASE WE PROCEED WITH THE PRESUMPTION THA T THE ASSESSEE AND ITS MEMBERS ARE SEPARATE FROM EACH OTHER AND THE TR ANSACTION IS BETWEEN TWO INDEPENDENT PARTIES, THEN PATENTLY, THE RE 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 AN D NOT ON LOSS OF POTENTIAL INCOME. NEITHER THE AO HAS INVOKED ANY S PECIFIC PROVISION NOR THE LD. DR HAS INVITED OUR ATTENTION TOWARDS AN Y PROVISION IN THE ACT WARRANTING THE ADDITION IN THE GIVEN CIRCUMSTAN CES. FURTHER, IT IS NOT ANYONES CASE THAT THE PROVISIONS OF SECTION 92 C ARE ATTRACTED. 20. COMING BACK TO THE AOS CASE OF `APPROPRIATI ON 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 ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 11 APPROPRIATION OF PROFIT PRE-SUPPOSES SOME PROFIT WH ICH IS APPROPRIATED DIRECTLY OR INDIRECTLY AMONGST THE MEMBERS. ONE NEE DS TO DRAW A LINE OF DISTINCTION BETWEEN TWO SITUATIONS, VIZ., THE FI RST IN WHICH PROFIT IS EARNED FROM BUSINESS OPERATIONS AND IS PASSED ON TO MEMBERS AND THE SECOND, IN WHICH POTENTIAL PROFIT IS NOT EARNED FRO M MEMBERS OR TO SIMPLY PUT, A CASE OF LOSS OF POTENTIAL PROFIT. WHE REAS, THE APPROPRIATION OF PROFIT IS POSSIBLE IN THE FIRST SI TUATION, WHICH IS AKIN TO THE PURCHASE OF SUGARCANE FROM THE MEMBERS AT EXCES SIVE PRICE RESULTING IN DIVERTING THE PROFIT EARNED FROM NORMA L BUSINESS OPERATIONS TO THE MEMBERS IN THE FORM OF EXCESS PRI CE OF SUGARCANE, THE APPROPRIATION OF PROFIT IS NOT POSSIBLE IN THE SECOND SITUATION, 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 OT HERWISE EARNED HAD SUGAR BEEN SOLD AT MARKET PRICE. AS THE SECOND SITUATION HAS THE EFFECT OF FOREGOING POTENTIAL PROFIT, IT CANNOT BE EQUATED WITH AN APPROPRIATION OF PROFIT EXCEPT WHERE THE SALE OF SU GAR IS MADE AT BELOW THE ACTUAL COST. 21. AGAIN APROPOS THE VIEW POINT OF THE AO IN TR EATING THE CO- OPERATIVE SOCIETY AND ITS MEMBERS AS ONE AND THE SA ME THING WITH THE THEORY OF APPROPRIATION OF PROFIT, WE UNDERSCORE TH E 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 SUMMI T 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 VALUED FOR THE PURPO SE OF STAMP AT THE MARKET VALUE OF THE SHARES AND SILVER BARS PREVAILI NG 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 THEREOF BY CONTENDING THAT THE MARKET VALUE O F 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-TR ADE THUS TRANSFERRED. THE INCOME TAX OFFICER DID NOT ACCEPT THIS CONTENTION AND ASSESSED THE PROFIT AT THE DIFFERENCE BETWEEN THE C OST 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 TRIBUNAL AS ALSO THE HONBLE HIGH COURT REJECTED THE CONTENTION OF THE A SSESSEE. WHEN THE MATTER WAS BROUGHT TO THE HONBLE APEX COURT, IT HE LD, BY A MAJORITY VIEW THAT : `THE APPELLANT WAS RIGHT IN ENTERING TH E COST VALUE OF THE SILVER AND SHARES AT THE DATE OF THE WITHDRAWAL, BE CAUSE IT WAS NOT A BUSINESS TRANSACTION AND BY THAT ACT THE BUSINESS M ADE NO PROFIT OR GAIN, NOR DID IT SUSTAIN A LOSS, AND THE APPELLANT DERIVED NO INCOME FROM IT. .. IN THE PRESENT CASE DISREGARDING TECHN ICALITIES IT IS IMPOSSIBLE TO GET AWAY FROM THE FACT THAT THE BUSIN ESS IS OWNED AND RUN BY THE ASSESSEE HIMSELF. IN SUCH CIRCUMSTANCES, IT IS WHOLLY UNREAL ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 12 AND ARTIFICIAL TO SEPARATE THE BUSINESS FROM ITS OW NER AND TREAT THEM AS IF THEY WERE SEPARATE ENTITIES TRADING WITH EACH OT HER AND THEN BY MEANS OF A FICTIONAL SALE INTRODUCE A FICTIONAL PRO FIT 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 CANONS 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 GO ODS FROM THE BUSINESS. SUCH WITHDRAWAL OF GOODS NEEDS TO BE VALU ED AT COST PRICE ONLY AND NOT THE MARKET PRICE. 22. REVERTING TO THE FACTS OF THE EXTANT CASE, W E 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 PROFIT WHICH CAN BE APPROPRIATE D TO THE MEMBERS OF THE CO-OPERATIVE SOCIETY. IN SO FAR AS THE PURCH ASE OF SUGARCANE FROM MEMBERS AT HIGHER PRICE IS CONCERNED, IT CLEAR LY AMOUNTS TO BUSINESS PROFIT PERCOLATING TO THE MEMBERS IN THE S HAPE OF EXCESS CANE PRICE GIVEN TO THE MEMBERS. FOR EXAMPLE, IF THE SMP OF SUGARCANE IS RS.100/- AND A SUGAR FACTORY IS PURCHASING SUGARCAN E 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 JUDGM ENT IN THE CASE OF TASGAON SSK LTD. (SUPRA.). BUT THE TRANSACTION OF SALE OF SUGAR TO MEMBERS AT CONCESSIONAL RATE CANNOT BE CONSIDERED A S APPROPRIATION OF PROFIT, BUT A CASE OF NOT EARNING SOME POTENTIAL PR OFIT. TO ILLUSTRATE, IF SUGAR IS SOLD AT CONCESSIONAL PRICE AT RS.80/- AGAI NST 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 AMOUNT 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 SA LE OF SUGAR TO ITS MEMBERS. 23. IT IS FURTHER RELEVANT TO NOTE THAT DIFFERE NCE BETWEEN THE MARKET PRICE OF SUGAR AND CONCESSIONAL SALE PRICE MAY ENTA IL TWO SITUATIONS. THE FIRST ONE IS OF SIMPLICITOR LOSS OF POTENTIAL P ROFIT AND SECOND ONE IS OF ACTUAL LOSS OF PROFIT WHEN SUGAR IS SOLD TO MEMB ERS AT BELOW ITS COST PRICE. WHEREAS, THE SIMPLICITOR LOSS OF POTENTIAL P ROFIT CANNOT BE TERMED AS APPROPRIATION OF PROFIT, SALE OF SUGAR TO MEMBERS AT BELOW ITS COST PRICE RESULTS IN APPROPRIATION OR DISTRIBU TION OF PROFITS EARNED FROM NORMAL BUSINESS OPERATIONS TO MEMBERS IN THE G ARB OF SALE AT A PRICE BELOW THE COST PRICE. THE POSITION CAN BE UND ERSTOOD WITH THE HELP OF AN EXAMPLE. SUPPOSE MARKET PRICE OF SUGAR I S RS.100/- AND THE COST PRICE IS RS.80/-. IF THE ASSESSEE SELLS SUGAR AT CONCESSIONAL RATE TO ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 13 ITS MEMBERS AT, SAY, RS.85/- PER KG., IT IS OBVIOU SLY 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 LOSS OF POTENTIAL PR OFIT 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.80/-, 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 PASS ED ON TO MEMBERS IN THE SHAPE OF SALE PRICE BELOW THE COST P RICE. 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 CANN OT BE CHARACTERIZED AS APPROPRIATION OF PROFIT SO AS TO MAGNETIZE TAXAB ILITY. 24. THE LD. AR HAS RELIED ON THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. (SUPRA) BY CONTENDING THAT THE LAW DOES NOT REQUIRE A TRADER TO MAKE MAXIMUM PROFI T AND HENCE THERE CAN BE NO TAXABILITY ON THE BASIS OF NOTIONAL PROFI T WHICH WAS NOT ACTUALLY EARNED FROM THE MEMBERS. WE DO AGREE WITH THIS PROPOSITION PROVIDED IT IS NOT A CASE OF APPROPRIATION OF PROFI T. WE HAVE DISCUSSED HEREINABOVE THAT IN CASE OF TRANSACTION BETWEEN TWO INDEPENDENT PARTIES, THE ASSESSEE IS NOT OBLIGED TO EARN MAXIMU M PROFIT. HOWEVER, THIS PROPOSITION IS NOT ATTRACTED IN CASE THE TRANS ACTION IS NOT COMMERCIAL OR GENUINE. SUCH A PROPOSITION CANNOT BE EXTENDED TO THE CASES WHERE THE AMOUNT OF PROFIT IS INTENTIONALLY A LLOWED TO BE PASSED ON TO THE MEMBERS OR OWNERS. IN THE SAME CASE OF A. RAMAN & CO. (SUPRA) AND IN THE SAME PARA NO. 8, THE IMMEDIATELY NEXT LI NE IS AN EXCEPTION TO THE GENERAL RULE WHEREBY THEIR LORDSHI PS NOTED THAT: `BY ADOPTING A DEVICE, IF IT IS MADE TO APPEAR THAT INC OME WHICH BELONGED TO THE ASSESSEE HAD BEEN EARNED BY SOME OTHER PERSO N, 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 APP ROPRIATED TO THE MEMBERS SHOULD BE BROUGHT TO TAX IN THE HANDS OF TH E 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 MUC H AS THE INCOME TO THAT EXTENT WHICH WAS EARNED BY THE ASSESSEE FRO M ITS NORMAL BUSINESS OPERATIONS SHALL BE PASSED ON TO THE MEMBE RS 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 APPEA LS HAS CONFIRMED THE ADDITION TOWARDS THE DIFFERENCE BETWEEN THE LEVY PR ICE AND THE CONCESSIONAL PRICE (UPTO 5 KG. PER MEMBER PER MONTH ) AND TO THE EXTENT OF DIFFERENCE BETWEEN THE MARKET PRICE OF SU GAR AND ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 14 CONCESSIONAL PRICE (OVER AND ABOVE 5KG. PER MEMBER PER MONTH). IN THIS PROCESS, THE ASSESSEES GOT TAXED EVEN FOR THE POTENTIAL PROFIT TO THE EXTENT OF DIFFERENCE BETWEEN THE COST PRICE AND MAR KET/LEVY PRICE, AS THE CASE MAY BE. ERGO, WE HOLD THAT SUCH A STRAIGHT WAY DIFFERENCE BETWEEN THE MARKET/LEVY PRICE AND THE CONCESSIONAL PRICE OF SUGAR CANNOT BE CONSTRUED AS APPROPRIATION OF PROFIT LEAD ING 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 T HE RESPECTIVE AOS FOR FIRST ASCERTAINING THE COST PRICE OF SUGAR TO EACH 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 SA LE PRICE WHICH IS BELOW THE COST PRICE. HOWEVER, IT IS CLARIFIED THAT IN DETERMINING COST PRICE OF SUGAR TO THE FACTORY, NOT ONLY ALL THE DIR ECT COSTS BUT ALL THE INDIRECT COSTS SHOULD ALSO BE TAKEN INTO CONSIDERAT ION. IN OTHER WORDS, ALL ITEMS OF DEBIT TO THE TRADING AND PROFIT AND LO SS ACCOUNT WOULD CONSTITUTE COST BASE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PRO CEEDINGS ON THIS ISSUE. 7. FOLLOWING THE PRECEDENT, WE SET-ASIDE THE IMPUGNED ORD ER AND REMIT THE MATTER TO THE FILE OF THE AO FOR DECIDING THIS ISSUE IN CONFORMITY WITH THE VIEW TAKEN IN THE AFORENOTED ORDER. 8. GROUND NO. 10 OF THE APPEAL IS AGAINST WRONG MENTIONING OF CERTAIN AMOUNTS BY THE LD. CIT(A) IN THE IMPUGNED ORDER. THE LD. AR, HOWEVER, SUBMITTED THAT SUCH MISTAKES IN MENTIONING OF THE AMOUNTS ARE TAX NEUTRAL. WITHOUT EXAMINING THE MISTAKES IN MENTIONING OF CERTAIN FIGURES AS CLAIMED BY THE ASSESSEE, W E DO NOT PROPOSE TO DEAL WITH THE SAME AS ADMITTEDLY IT HAS NO TAX CONSEQUENCES. ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 15 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH NOVEMBER, 2019. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S. SYAL) JUDICIAL MEMBER VICE PRESIDENT PUNE; DATED : 05 TH NOVEMBER, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-2, PUNE 4. THE PR.CIT-1, PUNE 5. , , / DR A, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO. 2586/PUN/2016 KARMAVEER SHANKARRAO KALE SAHAKARI SAKHAR KARKHANA LTD. 16 DATE 1. DRAFT DICTATED ON 04-11-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 04-11-2019 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. *
