Shrikrishna Khandsari Sugar Mills, Nandurbar V. Assistant Commissioner Of Income Tax Circle, Dhule, Dhule

ITA 505/PUN/2022

AI Insights

The case involves Shrikrishna Khandsari Sugar Mills, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the Assessing Officer's decision to reduce the profit of an eligible unit by Rs. 39,30,800 on account of 'bagasse' purchase under section 80-IA(8) read with section 80-IA(10) of the Income Tax Act, 1961. The Assessing Officer had compared the 'bagasse' purchase rate of the assessee with that of another sugar factory, leading to a profit reduction. The Tribunal found that the 'bagasse' was sold at a competitive market rate, and the internal sale rate to the power unit should be considered valid for the deduction under section 80IA.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134321 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 18-04-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 03-07-2022
• Other Referred Cases: Principal Commissioner of Income-tax Vs. Harpreet Kaur [2017] 397 ITR 125
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 133(6); 250; 80IA

Judgement Text

आयकर अपीलीय अिधकरण “बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.505/PUN/2022 िनधाᭅरण वषᭅ / Assessment Year : 2013-14 Shrikrishna Khandsari Sugar Mills, S.No.153, Akkalkuwa Road, Taloda, Dist. Nandurbar – 425413. PAN: AAGFS 1508 P Vs The Assistant Commissioner of Income Tax, Circle Dhule. Appellant/ Assessee Respondent /Revenue Assessee by Shri Sharad Shah – AR Revenue by Shri M.G.Jasnani – DR Date of hearing 19/04/2023 Date of pronouncement 25/04/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], dated 05.05.2022 emanating from the order of the Assessing Officer dated 17.03.2016 under section 250 of the Income Tax Act, 1961 for the A.Y.2013-14. The Assessee has raised the following grounds of appeal : “1. The Ld. AO erred in reducing [CIT(A) erred in confirming] the profit of eligible unit by Rs. 39,30,800/- on account Baggase Purchase u/s 80-IA(8) r.w.s. 80-IA (10) ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 2 1.1 The Ld. AO ought to have considered the fact that price charged by Khandsari manufacturing unit of Baggase to Power Unit is as per the Market rate prevailing in the relevant area and quality of Baggase. 1.2 In order to reduce the profit of eligible unit, the Ld. AO ought not to have compared baggase purchase rate of Shri Kadwa Sahakari Sakhar Karkhan Ltd with our baggase purchase rate. The Ld. Ought to have considered the local baggase sale rate supplied to him and ought not to have reduced any profit of eligible unit. 2. The Ld. AO erred in reducing [CIT(A) erred in confirming] the profit of eligible unit by Rs. 1,76,320/- on account interest allocation u/s 80-IA (10).) 3. The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case.” 2. At the outset, ld.Authorised Representative(ld.AR) for the assessee submitted that assessee would not like to press the Ground No.2. Accordingly, Ground No.2 is dismissed as not pressed. Brief facts of the case: 3. The Assessee filed return of income electronically on 29.09.2013 for A.Y.2013-14 declaring total income at Rs.98,86,924/- . The assessee’s case was selected for scrutiny. It is observed by the Assessing Officer in the assessment order that assessee had claimed deduction under section 80IA amounting to Rs.97,39,747/-. The assessee firm has a power generating unit and a manufacturing unit of sugar and jaggery. The power is generated in the form of electricity and steam power. The power generated by the power unit ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 3 of the assessee is used for the manufacturing process in the manufacturing unit of the assessee. The raw material used by the power unit is “bagasse” which is a byproduct in the manufacturing process of sugar. The assessee is hence claiming deduction on the profits of power unit which is entirely maintained for captive consumption. It was seen that Net Profit Ratio of the power consuming unit i.e. the sugar manufacturing unit was very less (0.15%) compared to the net profit ratio of the power unit (35.43%), i.e. the power generation unit in respect of which deduction is being claimed under section 80IA. During the assessment proceedings, the AO observed that assessee’s manufacturing unit has sold “bagaase” to assessee’s power unit at Rs.1600/- per metric ton. The AO called information under section 133(6) of the Act from Kadwa Sahakari Sakhar Karkhana Ltd., (KSSKL). The Kadwa Sahakari Sakhar Karkhana Ltd., (KSSKL) informed AO that they have sold “bagasse” at average rate of Rs.2874/- per metric ton during F.Y.2012-13. AO also collected information regarding “bagasse” sold from Chavhan Bagasse Supplier and Satpuda Tapi Pariar SSK. The average rate was Rs.1700/- per metric ton. Therefore, AO held that assessee’s manufacturing unit has sold “bagasse” to its power unit at Rs.1600/- per metric ton which was less than the market price and according to the AO the average market price was Rs.2000/- per metric ton. ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 4 Therefore, AO recalculated the profit of the power unit and made an addition of Rs.39,30,800/-. Aggrieved by the order of the AO, assessee filed appeal before the ld.CIT(A). The ld.CIT(A) upheld the order of the AO. The relevant portion of the para 4.2 of the ld.CIT(A)’s order is as under : 4. Aggrieved by the order of the ld.CIT(A) assessee filed appeal before this Tribunal. ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 5 5. The ld.Authorised Representative(ld.AR) of the assessee filed a paper book containing 112 pages. The ld.AR submitted that assessee has sold “bagasse” to its power unit as well as to other entities. The ld.AR submitted that assessee has sold “bagasse” to its power unit at Rs.1600/- per metric ton, whereas it has sold “bagasse” to other independent third parties @Rs.1400/- per metric ton. The ld.AR filed copy of the respective ledger accounts. The ld.AR also filed a chart to demonstrate the price at which “bagasse” has been sold by assessee to third parties. The initial part of the said chart is reproduced here as under : Baggas Sales 1-Apr-2012 to 31-Marh-2013 Date Particulars Vch No. Narration Quantity Rate Value Gross Total Baggas Sales Vat % 30/11/2022 Shrikrishna Power Mill Unit No.2 Dec- 12/B/01 Being salesof Baggas 1279.00 tn @1600/- per from 18.11.2012 to 30.11.2012 on Crussing 10092.381 Tn (1 Tn Steam @0.325 Kg Basghghas) 1279.00 1600.00 20464400.00 2046400.00 2046400.00 03/12/2012 BAPU MAHAJAN Dec- 12/B/02 Bill no. Dec- 12/B/01 29.35 1400.00 41090.00 41090.00 41090.00 03/12/2012 GOLUL HANSARAJ Dec- 12/B/03 Bill no. Dec- 12/B/02 27.05 1400.00 37870.00 37870.00 37870.00 03/12/2012 NANA PANDA KUMBHAR Dec- 12/B/04 Bill no. Dec- 12/B/03 28.46 1400.00 39844.00 39844.00 39844.00 03/12/2012 PRADIP RAJARAM Dec- 12/B/05 Bill no. Dec- 12/B/04 21.76 1400.00 30464.00 30464.00 30464.00 07/12/2012 BAPU MAHAJAN Dec- 12/B/05 Bill no. Dec- 12/B/05 21.90 1400.00 30660.00 30660.00 30660.00 07/12/2012 GOKUL HANSARAJ Dec- 12/B/06 Bill no. Dec- 12/B/06 22.46 1400.00 31444.00 31444.00 31444.00 07/12/2012 NANA PANDA KUMBHAR Dec- 12/B/07 Bill no. Dec- 12/B/07 20.86 1400.00 29204.00 29204.00 29204.00 09/12/2012 PRADIP RAJARAM Dec- 12/B/08 Bill no. Dec- 12/B/08 20.73 1400.00 29022.00 29022.00 29022.00 09/12/2012 BAPU MAHAJAN Dec- 12/B/09 Bill no. Dec- 12/B/09 29.29 1400.00 41006.00 41006.00 41006.00 09/12/2012 NANA PANDA KUMBHAR Dec- 12/B/10 Bill no. Dec- 12/B/10 14.39 1400.00 20146.00 20146.00 20146.00 09/12/2012 GOKUL HANSARAJ Dec- 12/B/11 Bill no. Dec- 12/B/11 7.77 1400.00 10878.00 10878.00 10878.00 15/12/2012 BAPU MAHAJAN Dec- 12/B/12 Bill no. Dec- 12/B/12 24.09 1400.00 33726.00 33726.00 33726.00 15/12/2012 GOKUL HANSARAJ Dec- 12/B/13 Bill no. Dec- 12/B/13 22.32 1400.00 31248.00 31248.00 31248.00 18/12/2012 NANA PANDA KUMBHAR Dec- 12/B/14 Bill no. Dec- 12/B/14 22.81 1400.00 31934.00 31934.00 31934.00 ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 6 18/12/2012 PRADIP RAJARAM Dec- 12/B/15 Bill no. Dec- 12/B/15 15.84 1400.00 22176.00 22176.00 22176.00 16/12/2012 Chouhan Baggas Suppliers (Shirpur) Dec- 12/B/16 Bill no. Dec- 12/B/16 532.91 1400.00 74607400 783378.00 746074.00 37304.00 16/12/2012 Yashodhan Traders Vadhachil Dec- 12/B/17 Bill no. Dec- 12/B/17 108.92 1400.00 152488.00 160112.00 152488.00 7624.00 16/12/2012 Ekveera Traders Vadhachil Dec- 12/B/18 Bill no. Dec- 12/B/18 119.00 1400.00 166600.00 174930.00 166600.00 8330.00 16/12/2012 Chouchan Baggas Suppliers (shirpur) Dec- 12/B/19 Bill no. Dec- 12/B/19 55.07 1400.00 77098.00 80953.00 77098.00 3855.00 6. The ld.AR submitted that assessee was selling “bagasse” to independent third parties as well as its power units. Therefore, for comparison, AO should have taken the rate at which assessee has sold “bagasse” to third parties. The AO erred in comparing the rate of “bagasse” sale of some other sugar factories like Shri Satpura Tapi Parisar Sahakari Karkhana. The ld.AR also submitted that rate of “bagasse” sale depends on the timings. In the case of assessee, since both units are close to each other, the “bagasse” produced by sugar factory is easily, conveniently, transferred to its power unit. Therefore, ld.AR pleaded that AO’s order may be deleted. Submission of ld.DR : 7. The ld.DR for the Revenue strongly relied on the order of the lower authorities. Findings & Analysis : 8. We have heard both the parties and perused the records. It is an admitted position that assessee’s manufacturing unit has sold ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 7 “bagasse” to its power unit at Rs.1600/- per metric ton. We have perused the paper book filed by the assessee and specially the chart filed by the assessee. It is observed that “bagasse” has been sold by the assessee to Independent Third Parties at Rs.1400/- per metric ton. The small part of the chart is reproduced here as under : Baggas Sales 1-Apr-2012 to 31-Marh-2013 Date Particulars Vch No. Narration Quantity Rate Value Gross Total Baggas Sales Vat % 18/12/2012 NANA PANDA KUMBHAR Dec- 12/B/14 Bill no. Dec- 12/B/14 22.81 1400.00 31934.00 31934.00 31934.00 18/12/2012 PRADIP RAJARAM Dec- 12/B/15 Bill no. Dec- 12/B/15 15.84 1400.00 22176.00 22176.00 22176.00 16/12/2012 Chouhan Baggas Suppliers (Shirpur) Dec- 12/B/16 Bill no. Dec- 12/B/16 532.91 1400.00 74607400 783378.00 746074.00 37304.00 16/12/2012 Yashodhan Traders Vadhachil Dec- 12/B/17 Bill no. Dec- 12/B/17 108.92 1400.00 152488.00 160112.00 152488.00 7624.00 16/12/2012 Ekveera Traders Vadhachil Dec- 12/B/18 Bill no. Dec- 12/B/18 119.00 1400.00 166600.00 174930.00 166600.00 8330.00 16/12/2012 Chouchan Baggas Suppliers (shirpur) Dec- 12/B/19 Bill no. Dec- 12/B/19 55.07 1400.00 77098.00 80953.00 77098.00 3855.00 9. The ld.DR has not disputed this fact that assessee has sold “bagasse” to third parties at Rs.1400/- per metric ton. We specifically asked ld.DR when internal CUP is available, then why external CUP shall be used. The ld.DR could not answer it. In the assessment order and in the ld.CIT(A)’s order, both these authorities have not given any reason, why the rate at which assessee has sold “bagasse” to independent parties shall not be considered as market rate for the purpose of section 80IA(8). We are of the opinion that when assessee has sold “bagasse” to third parties at Rs.1400/- per metric ton, the said rate of Rs.1400/- per metric ton is “market rate” ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 8 qua assessee. Because, the same “bagasse” is sold to third party by the assessee and to its own unit. Therefore, the quality of the “bagasse” sold to third party by the assessee and to its own unit is same. We cannot comment on the quality of the bagasse sold by the another sugar factories like Shri Satpura Tapi Parisar SSK, or Kadwa Sahakari Sakhar Karkhana Ltd., (KSSKL), from whom the AO has collected information under section 133(6) of the Act. “Market Rate” depends on many factors like Location, Quality, Demand etc. Therefore, in these facts and circumstances of the case, we are of the opinion that the most appropriate market rate is the rate at which assessee itself has sold “bagasse” to third parties. As mentioned earlier, assessee has sold “bagasse” to third parties at Rs.1400/- per metric ton whereas it has sold “bagasse” to its power unit at Rs.1600/- per metric ton. It means assessee has sold the “bagasse” to its power unit at higher rate. It means, assessee is not trying to reduce the profit of manufacturing unit. Section 80IA(8) is reproduced here as under: Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. ******** (8) Where any goods [or services]held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 9 transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [Explanation.—For the purposes of this sub-section, "market value", in relation to any goods or services, means— (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA.] 11. The High Court of Delhi in the case of Principal Commissioner of Income-tax Vs. Harpreet Kaur [2017] 397 ITR 125 held as under : 10. Under Section 80-IA(8) of the Act, one of the pre-requisites for the AO to not grant the deduction as claimed by the Assessee in his return is where the AO finds that the consideration at which transfers were made of goods and services of the eligible business as recorded in its accounts "does not correspond to the market values of such goods." The Proviso to Section 80- IA (8) further states: "that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 10 difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit." (emphasis supplied) 11. The expression "such reasonable basis" pre-supposes that the AO has to explain with sufficient clarity why the AO is rejecting the profit figures as put forth by the Assessee which emerges from the audited accounts of the Assessee. In the present case, for instance, the AO had to explain why he was rejecting for AY 2006-07 the GP ratio of 38.05% and substituting it with a rate of 23%. What the AO appears to have done in the present case is to reject an explanation given by an Assessee as to the difference in the selling price of the products manufactured by it at its Baddi unit compared to that at Delhi unit. The AO proceeded on the basis that the sales were to related parties thus giving an unfair advantage to the Assessee. 12. The above approach of the AO was rightly found by the CIT(A) to be not justified. Without pointing out the error, if any, in the accounts or disturbing the figures of sales or purchases, to compare the trading results of business of two units and simply reject was clearly not a "reasonable basis", as contemplated by the proviso to Section 80-IA (8) of the Act. The AO's order does not explain the basis for determining the GP ratio of 23% instead of 38.05% for AY 2006-07 and 25% instead of 43.07% for AY 2007- 08. In the circumstances, the ITAT's conclusion that the AO's order was passed on conjectures and surmises cannot be said to be erroneous. 13. When there are audited accounts of an entity and the calculation of the GP ratios hinges upon their analysis, the AO should not lightly undertake an exercise that would amount to negating those accounts.” 12. In the case under consideration, we have already observed that ITA No.505/PUN/2022 Shrikrishna Khandsari Sugar Mills [A] 11 assessee has sold “bagasse” at “Market Rate” to its eligible unit. Therefore, AO has erred in recalculating the profit of eligible unit i.e. power unit, as per section 80IA(8). Therefore, the Assessing Officer is directed to delete the addition made on account of difference in the rate of “bagasse”. Accordingly, Ground No.1, 1.1 and 1.2 of the assessee are allowed. 13. Ground No.3 is general in nature, needs no adjudication, hence, ground no.3 is dismissed. 14. To sum up, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 25 th April, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 25 th April, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.