Agasti Sahakari Sakhar Karkhana Ltd, Ahmednagar V. Deputy Commissioner of Income Tax, Ahmednagar

ITA 809/PUN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7220 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 05-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NANDITA KANCHAN
• Assessee Lawyers: K SRINIVASAN
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, J UDICIAL M EMBER . / ITA NO .809 /P U N/201 7 / ASSESSMENT YEAR : 20 13 - 14 A GASTI SAHAKARI SAKHAR KARKHANA LTD., AGASTI NAGAR, TALUKA : AKOLE, AHMEDNAGAR PAN : AAAAA1262B ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE , AHMEDNAGAR / RESPONDENT ASSESSEE BY : S HRI K. SRINIVASAN REVENUE BY : MS. NANDITA KANCHAN / DATE OF HEARING : 0 8 - 04 - 2019 / DATE OF PRONOUNCEMENT : 22 - 0 4 - 2019 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 2, PUNE DATED 22 - 12 - 2016 FOR THE ASSESSMENT YEAR 2013 - 14. 2. SHRI K. SRINIVASAN APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX 2 ITA NO . 809/PUN/2017, A.Y. 2013 - 14 (APPEALS) PRIMARILY ON THE GROUND OF DISALLOWANCE OF ADDITIONAL CANE PRICE PAID TO THE SUGARCANE GROWERS. THE LD. AR SUBMITTED THAT THE ASSESSEE IS RAISING ADDITIONAL GROUND OF APPEAL AGAINST DISALLOWANCE OF HARVEST ING AND TRANSPORT OF SUGARCANE PAYMENT. THE LD. AR CONTENDED THAT BOTH THE ABOVE ISSUES HAVE BEEN DECIDED BY THE TRIBUNAL IN BUNCH OF APPEALS LEAD CASE BEING DCIT VS. VASANT RAO DADA PATIL S.S.K. LTD. IN ITA NOS. 50 TO 52/PUN/2012 VIDE ORDER DATED 20 - 03 - 2019. 3. MS. NANDITA KANCHAN REPRESENTING THE DEPARTMENT FAIRLY ADMITTED THAT THE ISSUE RAISED BY THE ASSESSEE IN APPEAL HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN BUNCH OF APPEALS. 4. BOTH SIDES HEARD. ORDERS OF AUTHORITIES BELOW PERUSED. THE ASSESSEE IN APPEAL HAS RAISED 3 GROUNDS. THE GROUND NOS. 1 AND 2 OF APPEAL IS WITH RESPECT TO THE ADDITION MADE BY THE AUTHORITIES BELOW IN RESPECT OF EXCESS CANE PRICE PAID BY THE ASSESSEE TO CANE GROWERS. THIS ISSUE HAS ALREADY BEEN CONSIDERED BY THE T RIBUNAL IN THE BUNCH OF APPEALS LEAD CASE BEING DCIT VS. VASANT RAO DADA PATIL S.S.K. LTD. (SUPRA) AND HAS HELD AS UNDER : 4. THE CO - ORDINATE BENCH AFTER CONSIDERING THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. TASGAON TALUKA S.S .K. LTD. REPORTED AS 103 TAXMANN.COM 57 HAS DECIDED THIS ISSUE AS UNDER : 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 EXCESSIVE PRICE ON PURCHASE OF SUGARCANE BY THE ASSESSES IS NO MORE RES INTEGRA IN VIEW OF T HE 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 THAT CASE PURCHASED AND CRUSHED SUGARCANE AND PAID PRICE FOR THE PURCHASE DURING CRUSHING SEASONS 1996 - 97 AND 1997 - 98, FIRSTLY, AT THE TIME OF PURCHASE OF SUGARCANE AND THEN, LATER, AS PER THE MANTRI COMMITTEE ADVICE. IT FURTHER NOTED THAT TH E PRODUCTION OF SUGAR IS COVERED BY THE ESSENTIAL COMMODITIES ACT, 1955 AND THE GOVERNMENT ISSUED SUGAR 3 ITA NO . 809/PUN/2017, A.Y. 2013 - 14 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 AUTHORIZES 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 CONCLUDED 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 SUM 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 BA SIS OF THE RECOMMENDATIONS MADE BY THE BHARGAVA COMMISSION, 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 TO T HE CONTROL ORDER, 1966. THEIR LORDSHIPS NOTED THAT AT THE TIME WHEN ADDITIONAL PURCHASE PRICE IS DETERMINED/FIXED UNDER CLAUSE 5A, THE ACCOUNTS ARE SETTLED AND THE PARTICULARS ARE PROVIDED BY THE CONCERNED CO - OPERATIVE SOCIETY AS TO WHAT WILL BE THE EXPEN DITURE AND WHAT WILL BE THE PROFIT ETC. CONSIDERING THE FACT THAT STATUTORY MINIMUM PRICE (SMP), DETERMINED UNDER CLAUSE 3 OF THE CONTROL ORDER, 1966, WHICH IS PAID AT THE BEGINNING OF THE SEASON, IS DEDUCTIBLE IN THE ENTIRETY AND THE DIFFERENCE BETWEEN SM P DETERMINED UNDER CLAUSE 3 AND SAP/ADDITIONAL PURCHASE PRICE DETERMINED UNDER CLAUSE 5A, HAS AN ELEMENT OF DISTRIBUTION OF PROFIT WHICH CANNOT 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 EXERCISE OF CONSIDERING ACCOUNTS/BALANCE SHEET AND THE MATERIAL SUPPLIED TO 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 OTHER AS DEDUCTIBLE EXPENDITURE. THE RELEVANT FINDINGS OF THE HONBLE APEX COURT ARE REPRODUCED AS UNDER: - 9.4. ..... 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 S AID TO BE AN APPROPRIATION 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. AS OBSERVED HEREINABOVE, ONLY THAT PART/COMPONENT OF PROFIT, WHILE DETERMINING THE FINAL PRICE WORKED OUT/SAP/ADDITIONAL PURCHASE PRICE WOULD BE AND/OR CAN BE SAID TO BE AN APPROPRIATION OF PROFIT AND FOR THAT AN EXERCISE IS TO BE DONE BY THE ASSESSING OFFICER BY CALLING UPON THE ASSESSEE TO PRODUCE THE STATEMENT OF ACCOU NTS, BALANCE SHEET AND THE MATERIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITIONAL PURCHASE PRICE/SAP UNDER CLAUSE 5A OF THE CONTROL ORDER, 1966. MERELY BECAUSE THE HIGHER PRICE IS PAID TO BOTH, MEMBERS AND NON - 4 ITA NO . 809/PUN/2017, A.Y. 2013 - 14 MEMBERS, QUA THE MEMBERS, STILL THE QUESTION WOULD REMAIN WITH RESPECT TO THE DISTRIBUTION OF PROFIT/SHARING OF THE PROFIT. SO FAR AS THE NON - MEMBERS ARE CONCERNED, THE SAME CAN BE DEALT WITH AND/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 UNREASONABLE OR NOT........ 9.5 THEREFORE, THE ASSESSING OFFICER WILL HAVE TO TAKE INTO ACCOUNT THE MANNER IN WHICH THE BUSINESS WORKS, THE MODALIT IES AND MANNER IN WHICH SAP/ADDITIONAL PURCHASE PRICE/FINAL PRICE ARE DECIDED AND TO DETERMINE WHAT AMOUNT WOULD FORM PART OF THE PROFIT AND AFTER UNDERTAKING SUCH AN EXERCISE WHATEVER IS THE PROFIT COMPONENT IS TO BE CONSIDERED AS SHARING OF PROFIT/DISTRI BUTION OF PROFIT AND THE REST OF THE AMOUNT 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 PURCHASE OF SUGARCANE, RAISED IN MOST OF TH E APPEALS UNDER CONSIDERATION, IS SQUARELY COVERED BY THE AFORESAID JUDGMENT OF THE HONBLE SUPREME COURT. 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 DE CIDING IT AFRESH AS PER LAW IN CONSONANCE WITH THE ARTICULATION OF LAW BY THE HONBLE SUPREME COURT IN THE AFORENOTED JUDGMENT. THE AO WOULD ALLOW DEDUCTION FOR THE PRICE PAID UNDER CLAUSE 3 OF THE SUGAR CANE (CONTROL) ORDER, 1966 AND THEN DETERMINE THE COMPONENT OF DISTRIBUTION OF PROFIT EMBEDDED IN THE PRICE PAID UNDER CLAUSE 5A, BY CONSIDERING THE STATEMENT OF ACCOUNTS, BALANCE SHEET AND OTHER RELEVANT MATERIAL SUPPLIED TO THE STATE GOVERNMENT FOR THE PURPOSE OF DECIDING/FIXING THE FINAL PRICE/ADDITION AL PURCHASE PRICE/SAP UNDER THIS CLAUSE. THE AMOUNT RELATABLE TO THE PROFIT COMPONENT OR SHARING OF PROFIT/DISTRIBUTION OF PROFIT PAID BY THE ASSESSEE, WHICH WOULD BE APPROPRIATION OF INCOME, WILL NOT BE ALLOWED AS DEDUCTION, WHILE THE REMAINING AMOUNT, BE ING A CHARGE AGAINST THE INCOME, WILL BE CONSIDERED AS DEDUCTIBLE 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 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 DETERMINAT ION OF THE ISSUE. 7. IT IS NOTED THAT IN SOME OF THE APPEALS, THE ASSESSEES HAVE RAISED AN ALTERNATE GROUND FOR ALLOWING DEDUCTION U/S.80P IN RESPECT OF THE ADDITION. 8. THE LD. ARS, IN SOME OF THE CASES, WHICH WERE REPRESENTED BY THEM, WERE FAIR ENOUGH NOT TO PRESS SUCH GROUND AS IT IS ONLY AN ALTERNATE GROUND AND HAVING BECOME INFRUCTUOUS IN VIEW OF THE RESTORATION OF THE MATTER TO THE AO. NO ARGUMENT WAS ADVANCED IN SU PPORT OF SUCH GROUND IN OTHER CASES, EVEN WHERE THE LD. ARS 5 ITA NO . 809/PUN/2017, A.Y. 2013 - 14 PARTICIPATED IN PROCEEDINGS BEFORE THE TRIBUNAL. THEREFORE, THE SAID ALTERNATE GROUND IN ALL SUCH CASES IS DISMISSED. 5. SINCE, THE ISSUE IS IDENTICAL TO THE ONE ALREADY DECIDED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL , FOLLOWING THE SAME , THE ISSUE IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTIONS . 6. THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL AGAINST THE DISALLOWANCE OF HARVESTING AND TRANSPORT ATION O F SUGARCANE EXPENDITURE. THE CO - ORDINATE BENCH OF TRIBUNAL IN THE GROUP APPEALS TITLED DCIT VS. VASANT RAO DADA PATIL S.S.K. LTD. (SUPRA) AFTER TAKING NOTE OF CBDT CIRCULAR NO. 6/2007, DATED 11 - 10 - 2007 HAS ALLOWED THE CLAIM OF ASSESSEE S . THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ON THE ISSUE ARE REPRODUCED HERE - IN - BELOW : 19. IN SOME OF THE APPEALS THE ISSUE OF DISALLOWANCE OF CANE HARVESTING AND TRANSPORTATION EXPENDITURE INCURRED BY THE ASSESSEES HAS BEEN RAISED. THE EXPENDITURE HAS BEEN DIS ALLOWED BY THE ASSESSING OFFICER. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEES BY CBDT CIRCULAR NO. 6/2007, DATED 11 - 10 - 2007. FOR THE SAKE OF READY REFERENCE THE SAME IS REPRODUCED HERE - IN - BELOW : 1. INSTANCES HAVE COME TO THE NOTICE OF THE BOARD WHEREIN ASSESSING OFFICERS HAVE DISALLOWED THE CLAIM OF HARVESTING AND TRANSPORTATION EXPENSES INCURRED BY THE CO - OPERATIVE SUGAR MILLS FOR PROCURING SUGARCANE FROM FARMERS, WHO ARE MEMBERS OF SUCH CO - OPERATIVE SUGAR MILLS AND WHO ARE B OUND UNDER AN AGREEMENT TO SUPPLY THE SUGARCANE EXCLUSIVELY TO THE CONCERNED SUGAR MILL. 2. THE ISSUE OF ALLOWABILITY OF SUCH EXPENSES IN THE CASE OF CO - OPERATIVE SUGAR MILLS HAS BEEN EXAMINED BY THE BOARD. THESE EXPENSES ARE INCURRED BY THE SUGAR MILLS FO R ENSURING AN ADEQUATE AND SUSTAINED SUPPLY OF FRESHLY CUT SUGARCANE THAT IS AN ESSENTIAL INPUT FOR THE CONTINUOUS RUNNING OF SUCH MILLS. THESE EXPENSES ARE, THEREFORE; INCURRED FOR A COMMERCIAL EXPEDIENCY AND ARE PRIMA FACIE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SUCH EXPENSES ARE, THEREFORE, ALLOWABLE IN THE COMPUTATION OF THE INCOME OF THE CO - OPERATIVE SUGAR MILLS. 6 ITA NO . 809/PUN/2017, A.Y. 2013 - 14 TH E ISSUE IN PRESENT APPEAL IS IDENTICAL TO THE ONE ALREADY DECIDED BY THE TRIBUNAL . WE DEEM IT APPROPRIATE TO RESTORE THE IS SUE BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE CLAIM MADE BY ASSESSEE WITH RESPECT TO EXPENDITURE ON HARVESTING AND TRANSPORT ATION OF SUGARCANE AND ALLOW THE SAME IN LINE WITH CBDT CIRCULAR (SUPRA). 7 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 22 ND DAY OF APRIL, 201 9 . SD/ - SD/ - ( R.S. SYAL ) (VIKAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 22 ND APRIL, 2019 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 2, PUNE 4. THE PR. CIT 1, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / / / TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE