Rajarambapu Patil SSK , Sangli V. Assistant Commissioner of Income-tax, Circle - 2, Sangli

MA 16/PUN/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3849 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 28-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, PUNE SHRI R.S. SYAL, VICE PRESIDENT AND PARTHA SARATHI CHAUDHURY, JM M.A. No. 16/PUN/2022 Arising out of ITA No. 1766/PUN/2017 Assessment Year : 2013-14 Rajarambapu Patil SSK Ltd., Sakharale, Islampur Dist. Sangli – 415 414 PAN: AAAAR0790D Applicant Vs. The Asstt. CIT Cir. 2 Sangli Respondent Applicant by : Shri Prasanna Joshi Respondent by : Shri Arvind Desai Date of Hearing : 17-06-2022 Date of Pronouncement : 21-06-2022 ORDER PER PARTHA SARATHI CHAUDHURY, JM : This Miscellaneous Application has been filed by the assessee arising out of ITA No. 1766/PUN/2017 for assessment year 2013-14 u/s. 254(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. The contention of the assessee is that the issue of excessive sugar cane price paid to Members as well as Non-members was not considered by the Tribunal in its order dated 16-03-2020 and thereby grounds No. 1 to 10 of grounds of appeal remained to be adjudicated. 3. The ld. D.R conceded to the arguments forwarded by the ld. Counsel for the assessee. 4. We find that the issue of excessive sugar cane price paid on the basis of sugar cane purchases has been adjudicated in several cases of Pune Tribunal and the issue has been restored to the file of the A.O following the judgment of Hon’ble Supreme Court in the case of CIT Vs. Tasgaon Taluka SSK Ltd. (2019) 103 taxmann.com 57 (SC). We also notice that inadvertently grounds No. 1 to 10 of grounds of appeal on this issue were not adjudicated upon by the Tribunal in its order dated 16-03-2020. Instead of recalling the order, since the 2 M.A. No. 16/PUN/2022 Arising out of ITA No. 1766/PUN/2017 A.Y. 2013-14 issue is well settled on the basis of Hon’ble Supreme Court in the case of Tasgaon Taluka SSK Ltd (supra), we decide this case on merits. 5. We find that the issue of sugar cane purchases made and excessive sugar cane price paid to Members has come up for consideration before Coordinate Bench in ITA No. 308/PUN/2018 and others dated 14-03-2019 where it was observed and held as follows: “3. A common issue involved in almost all the appeals is on account of the addition made by the Assessing Officer (AO) towards of excessive sugarcane price paid to members as well as non-members of the respective assessees. On a representative basis, we are espousing the facts in the case of Majalgaon Sahakari Sakhar Karkhana Limited Vs. ACIT, Circle-3, Aurangabad – ITA No.308/PUN/2018 for the assessment year 2013-14. The assessee is engaged in the business of manufacturing of white sugar. During the course of assessment proceedings, the AO observed that 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 gave certain explanation by submitting 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’). Relying on the judgment of Hon’ble 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 `distribution of profits’ and hence not deductible. This is how, he computed the excessive cane price paid both to the members and non-members at Rs.22,02,95,387/- and made addition for the said sum. The ld. CIT(A) echoed the assessment order on this point. 4. Facts in all other cases qua this issue, in so far as the assessment proceedings are concerned, are mutatis mutandis similar. It is seen that in some cases, the addition got deleted, fully or partly by the ld. CIT(A), 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. 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 the recent judgment of Hon’ble Supreme Court in CIT Vs. Tasgaon Taluka S.S.K. Ltd. (2019) 103 taxmann.com 57 (SC). The Hon’ble 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 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 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 3 M.A. No. 16/PUN/2022 Arising out of ITA No. 1766/PUN/2017 A.Y. 2013-14 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 Hon’ble 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 season on 50:50 profit sharing basis between the growers and factories, to be worked out in accordance with the Second Schedule to the 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 expenditure 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 SMP 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 Hon’ble 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 Hon’ble 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 said 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 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. Merely because the higher price is paid to both, members and non-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 modalities 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/distribution of profit and the rest of the amount is to be considered as deductible as expenditure.” 4 M.A. No. 16/PUN/2022 Arising out of ITA No. 1766/PUN/2017 A.Y. 2013-14 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 the appeals under consideration, is squarely covered by the aforesaid judgment of the Hon’ble 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 deciding it afresh as per law in consonance with the articulation of law by the Hon’ble 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/additional 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, being 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 Hon’ble 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.” 6. Respectfully following the aforesaid decision on the same parity of reasoning and facts and circumstances, Grounds No. 1 to 10 in I.T.A No. 1766/PUN/2017 are remanded back to the file of the A.O. As per the same directions contained in our order in ITA No. 308/PUN/2017, these grounds are allowed for statistical purposes. 7. In the result, the M.A. filed by the assessee is allowed. Order pronounced in the open Court on this 21 st June 2022 Sd/- sd/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE PRESIDENT JUDICIAL MEMBER Pune; Dated : 21 st June 2022 Ankam Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT -1 Kolhapur 4. The CIT(A)-1 Kolhapur 5. The D.R. ITAT ‘B’ Bench Pune. 5. Guard File BY ORDER, Sr. Private Secretary ITAT, Pune. 5 M.A. No. 16/PUN/2022 Arising out of ITA No. 1766/PUN/2017 A.Y. 2013-14 Date 1 Draft dictated on 17-06-2022 Sr.PS/PS 2 Draft placed before author 17-06-2022 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 21-06-2022 Sr.PS/PS 7 Date of uploading of order 21-06-2022 Sr.PS/PS 8 File sent to Bench Clerk 21-06-2022 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