2019 (7) TMI 1902 - AT - Income Tax

Excess price paid on purchase of sugarcane - Disallowance from total sale price paid to the sugarcane growers for the supply of sugarcane - HELD THAT - 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 (3) TMI 321 - SUPREME COURT . We set-aside the impugned orders on this score and remit the matter to the file of the AO 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.

Summary

Issues:
1. Disallowance of excess price paid to sugarcane growers for the supply of sugarcane.
2. Determination of whether excess price paid was diversion of profit and not allowable under section 37(1) of the Income Tax Act, 1961.
3. Allowability of total sale price under sections 28 and 37 of the Act.
4. Consistency in decision-making by the Assessing Officer in different assessment years.

Issue 1: The Assessing Officer disallowed an amount paid to sugarcane growers over and above the Statutory Minimum Price (SMP) or Fair Remunerative Price (FRP) as diversion of income. The AO viewed the additional payment as a distribution of profits and made an addition of the sum paid. The CIT (A) confirmed this addition, leading to the appeal before the Tribunal by the assessee.

Issue 2: The Tribunal considered the recent Supreme Court judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd. [2019] 103 taxmann.com 57 (SC) that dealt with a similar issue of excess price paid for sugarcane. The Supreme Court clarified that the difference between SMP and additional purchase price under clause 5A of the Control Order, 1966 could be considered as distribution of profit. The Tribunal, following the Supreme Court's decision, remitted the matter back to the AO to determine the profit component and deductible expenditure, allowing deduction for price paid under clause 3 of the Control Order, 1966.

Issue 3: The Tribunal emphasized that the distribution of profits would apply only to payments made to members, while non-members' payments would be assessed under section 40A(2) of the Act. The Tribunal directed the AO to consider the modalities of determining final prices and profit sharing, allowing deduction for legitimate expenses and disallowing amounts related to profit distribution.

Issue 4: The Tribunal highlighted the importance of consistency in decision-making by the Assessing Officer across different assessment years, citing the Supreme Court's directive for a thorough examination of accounts and balance sheets to distinguish between allowable expenses and profit-sharing components. The Tribunal allowed the appeal for statistical purposes, setting aside the previous orders and remitting the matter back to the AO for a fresh determination in line with the Supreme Court's judgment.

In conclusion, the Tribunal's decision in this case revolved around the interpretation of excess price paid for sugarcane and the distinction between deductible expenses and profit-sharing components, as per the recent Supreme Court judgment. The Tribunal emphasized the need for a meticulous assessment by the AO to ensure proper treatment of expenses and profits, maintaining consistency in decision-making across assessment years.