2019 (5) TMI 1776 - AT - Income Tax

Excess payment of cane price - HELD THAT - As pointed out that this issue was not considered by the Hon ble Supreme Court but the said deduction is to be allowed in the hands of assessee which admittedly is not covered by SMP price. Since the matter has been set aside to the file of Assessing Officer then in the hands of relevant assessee this issue may be looked into by the Assessing Officer. It was pointed out that in such cases SMP would not have any role to pay. Consequently such appeals are not governed by the ratio laid down by the Hon ble Supreme Court in CIT Vs. Tasgaon Taluka S.S.K. Ltd. 2019 (3) TMI 321 - SUPREME COURT The Assessing Officer is directed to decide the issue after allowing reasonable opportunity of hearing to assessee. Sale of sugar at concessional rate to Members - Tribunal in Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT 2019 (3) TMI 906 - ITAT PUNE have remitted the issue back to the file of Assessing Officer vide its deliberations of order to apply the ratio laid down in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. 2012 (11) TMI 669 - SUPREME COURT and determine whether difference between average price of sugar sold in the market and that sold to the Members at concessional rate was the appropriation of profits or not. Following the same parity of reasoning this issue is also remitted back to the Assessing Officer to decide in line with same directions. Further in some cases sugar is given at particular quantity free of cost as per Government approval instead of monthly concessional sugar. Such cases are to be decided independent of Krishna S.S.K. Ltd. ratio. The Assessing Officer is directed to take note of the Government approval in this regard while deciding the issue. Area Development Fund - HELD THAT - Assessee is entitled to the claim of Area Development Fund and same is to be allowed in the hands of assessee. See LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX 2014 (9) TMI 264 - ITAT PUNE Deduction on account of provision of VSI contribution stands decided in favour of assessee by earlier decision of Tribunal and even in Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT 2019 (3) TMI 906 - ITAT PUNE - direct the Assessing Officer to treat the VSI contribution as business expenditure by allowing deduction @ 125% under section 35(1)(ii) of the Act. Contribution to Chief Minister s Fund - though the addition needs to be confirmed in the hands of assessee but the matter is set aside to the file of Assessing Officer to allow the consequent deduction under section 80G - See MAJALGAON SAHAKARI SAKHAR KARKHANA LTD. VERSUS ACIT SHRI CHHATRAPATI SHAHU DCIT ITO 2019 (3) TMI 906 - ITAT PUNE - direct the Assessing Officer to disallow the claim made as business expenditure but allow the claim of deduction under section 80G of the Act on verification. Khodki charges Allowability - allowable revenue expenditure - HELD THAT - Khodki charges were incurred as per the directions of the Director of Sugar to compensate for the farmers loss for unevenly cutting of cane sugar at the time of harvesting. This issue came up for consideration before the Special Bench of the Tribunal in DCIT Vs. Manjara Shetkari SSK Ltd. 2004 (8) TMI 721 - ITAT MUMBAI which granted deduction for said expenses. On further appeal by the Revenue to the Hon ble Bombay High Court their Lordships in the aforenoted case approved the view taken by the Tribual. Deduction u/s 80P(2)(d) on account of interest and dividend - HELD THAT - Issue needs to be allowed in favour of assessee as allowed by the Tribunal in Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT 2019 (3) TMI 906 - ITAT PUNE . Allowability of deduction on account of employees contribution to PF / ESIC - late deposit of the said amounts - HELD THAT - The said issue stands covered by the ratio laid down by Hon ble Supreme Court in CIT v. Alom Extrusions Limited 2009 (11) TMI 27 - SUPREME COURT and Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT 2019 (3) TMI 906 - ITAT PUNE has directed the Assessing Officer to allow the same. H T expenses - Allowable business expenses - HELD THAT - CBDT vide its Circular No.6/2007 dated 11.10.2007 had noted the instances of Assessing Officer in disallowing the claim of Harvesting and Transportation (H T) expenses incurred by Co-operative Sugar Mills for procuring sugarcane from farmers who are members of Co-operative Sugar Mills. As per the said Circular it was held that expenses were incurred by Sugar Mills for ensuring an adequate and sustained supply of freshly cut sugarcane which was an essential input for continuous running of such mills and hence expenses were for commercial expediency. In view thereof we hold that H T expenses paid by the assessee are to be allowed as expenditure incurred wholly and exclusively for the purpose of business. Status of assessee to be adopted - assessee had claimed itself to be Cooperative Society and the authorities below have assessed the status as Association of Persons - HELD THAT - AR pointed out that status to be adopted is Co-operative Society and not AOP. We find merit in the plea of assessee and the said issue raised is thus allowed. Allowability of cane grant - Allowable business expenditure - HELD THAT - Assessee claimed the said expenditure as deductible as the same was compensation paid to the cane suppliers for not crushing their cane after cutting and harvesting as per agreement entered into with the aforesaid parties. In view of the settled terms of agreement the assessee in order to protect its supply of cane had entered into such an agreement with cane suppliers and the same being incurred during the course of carrying on of its business is to be allowed as business expenditure. Addition on account of value of closing molassis in process - assessee pointed out that molassis if any were not valued and the said principle has been followed consistently whereas the Assessing Officer made the addition in the hands of assessee in the present year - HELD THAT - Because of recognized practice which has been consistently followed by the assessee there is no merit in the orders of authorities below in assessing the value of molassis in process as closing stock in the hands of assessee. We direct deletion of said addition in the hands of assessee. Consequently the ground of appeal raised by assessee is thus allowed. Disallowance of 10% out of telephone expenses and vehicle maintenance expenses and 50% out of ceremony expenses - HELD THAT - Assessee has failed to bring on record any evidence to prove to the contrary. Hence the disallowance confirmed by CIT(A) under the respective heads is confirmed.

Summary

Issues Involved:
1. Excess Cane Price
2. Sale of sugar at concessional rates to members
3. Area Development Fund
4. Late deposit of Employees Contribution to PF, ESIC, etc.
5. Provision of VSI Contribution
6. Contribution to Chief Minister’s Fund
7. Khodki Charges
8. Deduction u/s. 80P(2)(d) on Interest and Dividend

Detailed Analysis:

1. Excess Cane Price:
The issue of excess cane price paid by sugarcane suppliers was referred back to the Assessing Officer (AO) following the Supreme Court's decision in CIT Vs. Tasgaon Taluka S.S.K. Ltd. The AO is directed to determine the component of distribution of profit and deductible expenditure by examining the accounts, balance sheet, and other relevant materials.

2. Sale of Sugar at Concessional Rates to Members:
The matter of selling sugar at concessional rates to members was also remitted back to the AO. This follows the Supreme Court’s decision in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd., which requires the AO to determine if the difference between the market price and concessional rate represents an appropriation of profits.

3. Area Development Fund:
The Tribunal found that the collection towards the Area Development Fund (ADF) was impressed with an obligation to spend it for specified purposes, making the assessee a trustee of the fund. The collection and utilization were regulated by government orders, and the Tribunal directed the exclusion of the ADF amount from the income of the assessee.

4. Late Deposit of Employees Contribution to PF, ESIC, etc.:
The Tribunal allowed the deduction of employees' contributions to PF/ESIC if deposited before the due date for filing the return under section 139(1) of the Act, following the Supreme Court's decision in CIT v. Alom Extrusions Limited.

5. Provision of VSI Contribution:
The contribution to Vasantdada Sugar Institute (VSI) was allowed as a business expenditure, with a deduction of 125% under section 35(1)(ii) of the Act, following the Tribunal's decision in Bhima S.S.K. Ltd.

6. Contribution to Chief Minister’s Fund:
The addition on account of contribution to the Chief Minister’s Fund was confirmed, but the matter was set aside to the AO to allow the deduction under section 80G of the Act after verification.

7. Khodki Charges:
Khodki charges were allowed as deductible expenses, as per the Tribunal's decision in DCIT Vs. Manjara Shetkari SSK Ltd., which was upheld by the Bombay High Court.

8. Deduction u/s. 80P(2)(d) on Interest and Dividend:
The deduction under section 80P(2)(d) for interest and dividend income earned from investments with other cooperative societies was allowed, as the assessee is a cooperative society and the cooperative bank is also registered under the Maharashtra Cooperative Societies Act.

Other Issues:
- The Tribunal condoned the delay of 49 days in appeal 242/PUN/2013.
- The status of the assessee was confirmed as a Cooperative Society, not an Association of Persons (AOP).
- The claim for cane grant and the value of closing molasses in process were allowed.
- Disallowances of telephone, vehicle maintenance, and ceremony expenses were confirmed due to lack of contrary evidence.
- The issue of deductibility of Cane Development Fund was remitted back to the AO.
- The appeals of both the assessee and Revenue were allowed as indicated.

Conclusion:
The Tribunal's judgment involved remitting several issues back to the AO for fresh consideration based on Supreme Court guidelines and previous Tribunal decisions. The judgment emphasized the need for detailed verification and adherence to legal precedents in determining the allowability of various deductions and expenses claimed by the assesses.