2019 (6) TMI 1399 - AT - Income Tax

Taxability of Excess Sugarcane Price paid by the assessees to sugarcane suppliers - the price over and above the Statutory Minimum Price (SMP) fixed by State Government for purchase of cane - HELD THAT - In view of the assertions made by both the sides that the facts in the present set of appeals being identical to the issue relating to excess sugarcane price paid by the assessee the issue is restored to the file of Assessing Officer with similar directions as above in the cases of M/s. Vasant Rao Dada Patil SSK Ltd. 2019 (3) TMI 1637 - ITAT PUNE and also consider the contentions of assessee with respect to SMP vis-a-vis FRP regime, where ever raised. The Assessing Officer shall decide the issue, after affording reasonable opportunity of hearing to the respective assessees, in accordance with law. Thus, the issue of excess cane price paid to sugarcane suppliers is allowed for statistical purposes in the aforesaid terms. Taxability of Concessional Sugar Price qua the levy price and the manner of giving effect to the directions of the Hon ble Apex Court in the case of CIT vs. Krishna SSK 2004 (9) TMI 6 - SUPREME COURT - HELD THAT - We find there is merit in the submissions of the AR. In all these appeals, the CIT(A) has failed to decide the appeals of the assessees in consonance with the above discussed direction of Hon‟ble Apex Court in the case of Krishna SSK Ltd. (supra). Accordingly, in these bunch of appeals the issue of sale of sugar at concessional price to the members should be ideally remanded to the file of Assessing Officer for fresh consideration and adjudication of the issue on merits and law. In fact, the Hon‟ble Supreme Court remanded the issue to the file of the CIT(A) for complying its direction in the case of Krishna SSK Ltd. (supra). However, in order to avoid multiplicity of the proceeding before different officers, and to be in tune with our findings given in para 7 of this order, we find, remanding to the file of the Assessing Officer is appropriate. Thus, we order accordingly. The Assessing Officer shall grant reasonable opportunity of hearing to the assessees, in accordance with law. Accordingly, the grounds raised in the appeals of the Revenue and the assessee are allowed for statistical purposes. Disallowance of carried forward business loss and unabsorbed depreciation - HELD THAT - We observe that the assessee in appeal before the CIT (Appeals) has raised specific ground qua allowability of carried forward losses and unabsorbed depreciation. However, the same was not adjudicate by the CIT(Appeals). In the facts of the case we deem it appropriate to restore this issue back to the file of Commissioner of Income Tax (Appeals) to adjudicate the ground raised by the assessee in first appeal. The issue of unabsorbed depreciation and carried forward business loss was also raised in some of the other appeals mentioned in the title. We find that this issue is consequential to the core issues of excessive cane price and sale of sugar at concessional rate. The outcome of the findings on the core issues will have bearing on the allowability of unabsorbed depreciation and carried forward business loss. Consequently, we deem it appropriate to restore this issue back to the file of Assessing Officer for reconsideration Provision for Vasantdada Sugar Institute (VSI) Contribution - HELD THAT - CIT(A) has determined this issue in favour of the assessee Disallowance of Cane Harvesting and Transportation Expenditure - HELD THAT - In view of CBDT Circular No. 6/2007, dated 11-10-2007 harvesting and transportation expenditure are allowable. Consequently, the issue is decided in favour of the assessees. Disallowance of prior period expenditure - HELD THAT - AR submitted that if an opportunity is granted, the assessee would furnish necessary documents before the Commissioner of Income Tax (Appeals) in support of his contentions. In view of the prayer made by the assessee, this ground of appeal is restored to the file of Assessing Officer. The assessee shall furnish relevant documentary evidence to support its contentions and the Assessing Officer after considering the same shall decide this issue afresh after affording reasonable opportunity of hearing to the assessee, in accordance with law. Consequently, this ground is allowed for statistical purpose. Sale of bio-compost at concessional rate - HELD THAT - We observe that this addition is akin to one of the core issues i.e. sale of sugar at concessional rate to the members. Since, we have restored the said issue to the file of Assessing Officer, we deem it appropriate to restore this issue as well to the file of Assessing Officer for deciding it afresh by applying the same principle. Accordingly, this ground of appeal by the assessee is allowed for statistical purpose. Disallowance of advertisement expenditure - HELD THAT - With respect to nature of expenditure and have also perused the decision on which the ld. AR has placed reliance. The Tribunal in the case of Commissioner of Income Tax Vs. Shri Panchganga S.S.K. Ltd.had allowed the advertisement expenditure on account of Subhechcha greetings holding that the expenditure was necessary to maintain cordial relations with the members. The Department assailed the findings of Tribunal before the Hon‟ble High Court. The Hon‟ble High Court upheld the findings of Tribunal by following the earlier decision rendered in the case of Commissioner of Income Tax Vs. Shri Panchganga S.S.K. Ltd. 2001 (6) TMI 61 - BOMBAY HIGH COURT Disallowance of Sabha Samarambh expenses - HELD THAT - In the instant case the authorities below in the absence of complete set of documents has disallowed 10% of such expenditure. We are of considered view that disallowance of 10% is fair and reasonable. We find no reason to interfere with the impugned findings. Thus, ground of appeal by assessee is dismissed. Disallowance of late payment of Provident Fund - HELD THAT - The assessee‟s eligibility to claim deduction on delayed deposit of employees share in Provident Fund scheme but before due date of filing return of income is no more res integra. The Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. Ghatge Patil Transports Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT following the ratio laid down in the case of Commissioner of Income Tax Vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT held that deduction to the assessees in respect of statutory payment of Provident Fund is to be allowed only on actual payment before the due date of filing return of income. In the present set of appeals it is not disputed by the Revenue that the contribution was made before the due date of filing return of income. Thus, in view of well settled law and undisputed facts, this issue is decided in favour of the assessees. Disallowance of Government Guarantee Fee - HELD THAT - The Hon‟ble Rajasthan High Court in the case of Commissioner of Income Tax Vs. Udaipur Distillery Co. Ltd. 2003 (9) TMI 23 - RAJASTHAN HIGH COURT has held that tax‟, duty‟, cess‟ or fee‟ constituting a class, denotes various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied - merely levy of charge as tax or fee is not conclusive of its character. It is only if any amount becomes payable by way of tax, duty, cess or fee, it falls within the purview of section 43B of the Act. Thus, in the light of above, we hold that the Government Guarantee Fee cannot be put in same bracket as tax, cess or duty and hence, no disallowance u/s. 43B in respect of non-payment of such fee can be made. Accordingly, this issue is decided in favour of the assessee. Addition on account of contribution towards Chief Minister relief fund - HELD THAT - We find that this issue has been considered by Co-ordinate Bench in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT 2019 (3) TMI 906 - ITAT PUNE there is no dispute that the assessee did make contribution to the Chief Minister Relief Fund. As against the assessee claiming the entire amount as deduction in its Profit and loss account, the AO opined that the said contribution was eligible for deduction u/s. 80G(iiihf) of the Act at the rate of 50% along with other qualifying sums. The ld. CIT(A) sustained the entire addition overlooking the fact that deduction u/s.80G(iiihf) was not allowed by the AO on such contribution in the computation of total income. Under these circumstances, we cannot uphold the disallowance of the entire amount claimed as deduction by the assessee in its Profit and loss account. Approving the additions made, we remit the matter to the file of the AO for granting the deduction u/s.80G(iiihf) as per law Loan refund - HELD THAT - A perusal of the assessment order reveal that the Managing Director of the assessee Sahakari Sakhar Karkhana had agreed for the addition. Thereafter, the assessee assailed the said addition before the Commissioner of Income Tax (Appeals). In First Appellate proceedings again the Counsel for the assessee made statement that the assessee does not wish to press this ground of appeal. Once, the ground has not been contested before the First Appellate Authority and the addition has been made on the basis of concession made before the Assessing Officer, the assessee cannot be granted liberty to assail the same addition before the Second Appellate Authority. It is not the case of assessee that the concession was wrongly recorded. We find no reason to interfere with the findings of lower authorities. Accordingly, the addition made on account of loan refund fund is upheld. Disallowance of unpaid professional tax u/s. 43B - HELD THAT - A perusal of impugned order shows that the Commissioner of Income Tax (Appeals) has granted relief to the assessee on the ground that the assessee has not claimed any amount as deduction in respect of Unpaid Professional Tax. If the amount has not been claimed by the assessee as deduction, no disallowance can be made. We do not find any infirmity in the impugned order. Accordingly, the findings of Commissioner of Income Tax (Appeals) on this issue are confirmed. Disallowance of VAT - HELD THAT - A perusal of impugned order reveal that the CIT (Appeals) has allowed part relief to the assessee in respect of above said disallowance after appreciating the facts and examining the books of assessee. CIT (Appeals) has deleted the addition only to the extent of amount that was outstanding in the beginning of year and did not form part of debits to the Profit and Loss Account during the relevant previous year. DR has failed to controvert the well reasoned findings of CIT (Appeals). We find no infirmity in the impugned order in deleting the addition. Accordingly, the findings of CIT (Appeals) on this issue are confirmed and the grounds raised by the Revenue in its appeal are dismissed. Disallowance of Khodki charges - HELD THAT - This issue had came up for consideration in DCIT Vs. Manjara Shetkari SSK Ltd. 2007 (8) TMI 260 - BOMBAY HIGH COURT in allowing deduction for payment of Khodki Charges. CIT(A) has recorded that the SLP filed by the Department in the case of Jadamba SSK Ltd., on similar issue, has been dismissed by the Hon‟ble Supreme Court on 23-03-2009. In view of the fact that Khodki charges have been held as deductible by the Hon‟ble Jurisdictional High Court, this issue has to be decided in favour of the assessee. We hold and direct accordingly. Disallowance of contribution towards Area Development Fund - HELD THAT - Contention of the assessee in para 45 that the realisations made towards the Area Development Fund were impressed with the specific legal obligation to spend the money for specified purposes which were unrelated to the business of the sugar factory and hence, could not be treated as income of the assessee. Eventually, the Hon‟ble Supreme Court remitted the matter back for fresh determination. It is noticed that in the appeals under consideration, the ld. CITs(A) have not considered the impact of the judgment of the Hon‟ble Supreme Court in Siddheshwar Sahakari Sakhar Karkhana Limited 2004 (9) TMI 6 - SUPREME COURT and decided the issue without taking note of the factors directed to be considered in the aforenoted case. In view of the above decision of Hon‟ble Supreme Court, we set-aside such impugned orders and remit the matter to the file of the respective AOs for deciding the issue afresh in conformity with the guidelines laid down by the Hon‟ble Apex Court in the above judgment Disallowance of contribution towards Sakhar Sangh - HELD THAT - No infirmity in the directions given by the Commissioner of Income Tax (Appeals) in allowing the claim of assessee u/s. 35(1) subject to verification. We further observe that in view of directions given by the Commissioner of Income Tax (Appeals) the ground raised by the assessee assailing disallowance and adding back of contribution on account of Sakhar Sangh is misconceived. The same is dismissed, accordingly. Disallowance of vehicle and repair expenditure - HELD THAT - After examining the impugned order and taking into consideration the submissions of assessee, we hold that in the absence proper supporting vouchers/record and complete details of expenditure, some disallowance has to be made. To meet the ends of justice it would be fair and reasonable to restrict the disallowance to 5% of total expenditure claimed under the impugned head. We hold and direct accordingly. The ground is partly allowed in the terms aforesaid.

Summary

Issues Involved
1. Taxability of "Excess Sugarcane Price" paid by the assessees to sugarcane suppliers.
2. Taxability of "Concessional Sugar Price" and the manner of giving effect to the directions of the Hon'ble Apex Court in the case of CIT vs. Krishna SSK.
3. Disallowance of carried forward business loss and unabsorbed depreciation.
4. Provision for Vasantdada Sugar Institute (VSI) Contribution.
5. Disallowance of Cane Harvesting and Transportation Expenditure.
6. Disallowance of prior period expenditure.
7. Sale of bio-compost at concessional rate.
8. Disallowance of advertisement expenditure.
9. Disallowance of Sabha Samarambh expenses.
10. Disallowance of late payment of Provident Fund.
11. Disallowance of Government Guarantee Fee.
12. Addition on account of contribution towards Chief Minister relief fund.
13. Loan refund.
14. Disallowance of unpaid professional tax u/s. 43B.
15. Disallowance of VAT.
16. Disallowance of Khodki charges.
17. Disallowance of contribution towards Area Development Fund.
18. Disallowance of contribution towards Sakhar Sangh.
19. Disallowance of vehicle and repair expenditure.

Detailed Analysis

A. Excess Sugarcane Price Paid to Sugarcane Suppliers
The core issue of "Excess Sugarcane Price" involves the statutory minimum price (SMP) fixed under the Essential Commodities Act, 1955, and the additional price under clause 5A of the Sugarcane (Control) Order, 1966. The assessees paid a final price exceeding the SMP and the price under clause 5A. The Assessing Officer (AO) viewed this excess as a distribution of profits, not deductible as expenditure, and alternatively disallowed it under section 40A(2)(a) as excessive and unreasonable. The CIT(A) allowed the price paid as business expenditure. The Tribunal, following the Supreme Court's judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd., remitted the issue to the AO to determine the component of distribution of profit and deductible expenditure.

B. Taxability of Concessional Sugar Price
The issue involves the sale of sugar at concessional rates to members/shareholders, which was deemed income by the AO. The Supreme Court in CIT vs. Krishna SSK directed the CIT(A) to consider whether the difference between market price and concessional price should be added to the total income, the practice of selling sugar at concessional rates, any supporting resolution by the State Government, and the basis for monthly sales. The Tribunal found that the CIT(A) failed to comply with these directions and remanded the issue to the AO for fresh adjudication.

Disallowance of Carried Forward Business Loss and Unabsorbed Depreciation
The issue was raised in ITA No. 178/PUN/2012 but not adjudicated by the CIT(A). The Tribunal restored the issue to the CIT(A) for adjudication. In other appeals, the issue was deemed consequential to the core issues and restored to the AO for reconsideration.

Provision for Vasantdada Sugar Institute (VSI) Contribution
The Tribunal, following the decision in Bhima S.S.K. Ltd., allowed the provision for VSI contribution as deductible expenditure.

Disallowance of Cane Harvesting and Transportation Expenditure
The Tribunal allowed the expenditure as deductible based on CBDT Circular No. 6/2007, which states that such expenses are incurred for commercial expediency and are wholly and exclusively for business purposes.

Disallowance of Prior Period Expenditure
The Tribunal restored the issue to the AO for fresh adjudication, allowing the assessee to furnish necessary documents.

Sale of Bio-Compost at Concessional Rate
The issue was restored to the AO for fresh consideration, applying the same principles as the sale of sugar at concessional rates.

Disallowance of Advertisement Expenditure
The Tribunal allowed the expenditure based on the Bombay High Court's decision in Commissioner of Income Tax Vs. Shri Panchganga S.S.K. Ltd., which held that such expenditure is necessary to maintain cordial relations with members.

Disallowance of Sabha Samarambh Expenses
The Tribunal upheld the 10% disallowance as fair and reasonable.

Disallowance of Late Payment of Provident Fund
The Tribunal allowed the deduction, following the Supreme Court's decision in Commissioner of Income Tax Vs. Alom Extrusions Ltd., as the payment was made before the due date of filing the return.

Disallowance of Government Guarantee Fee
The Tribunal held that the Government Guarantee Fee is not akin to tax, cess, or duty and thus not disallowable under section 43B.

Addition on Account of Contribution Towards Chief Minister Relief Fund
The Tribunal restored the issue to the AO for granting deduction under section 80G(iiihf) as per law.

Loan Refund
The Tribunal upheld the addition as the ground was not contested before the First Appellate Authority.

Disallowance of Unpaid Professional Tax u/s. 43B
The Tribunal confirmed the CIT(A)'s finding that no disallowance can be made if the amount was not claimed as deduction.

Disallowance of VAT
The Tribunal confirmed the CIT(A)'s deletion of the addition, finding no infirmity in the order.

Disallowance of Khodki Charges
The Tribunal allowed the deduction, following the Bombay High Court's decision in CIT Vs. Manjara Shetkari SSK Ltd.

Disallowance of Contribution Towards Area Development Fund
The Tribunal restored the issue to the AO for fresh determination in conformity with the Supreme Court's guidelines in Siddheshwar Sahakari Sakhar Karkhana Limited.

Disallowance of Contribution Towards Sakhar Sangh
The Tribunal found no infirmity in the CIT(A)'s direction to allow the claim subject to verification.

Disallowance of Vehicle and Repair Expenditure
The Tribunal restricted the disallowance to 5% of the total expenditure claimed, finding it fair and reasonable.

Conclusion
The Tribunal allowed the appeals of the assessees and the Department partly for statistical purposes, directing fresh adjudication on several issues by the AO and CIT(A) as per the law and the guidelines provided.