2019 (6) TMI 1295 - AT - Income Tax

Disallowance of payment of excess price of sugarcane - deduction for payment of excessive price for purchase of sugarcane - HELD 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 (3) TMI 321 - SUPREME COURT to 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. We set-aside the impugned orders on this score and remit the matter to the file of the AO, He 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. It is further made clear that the assessee will be at liberty to raise any other argument concerning the issue before the AO. Addition understatement of sale - HELD THAT - Assessee admittedly sold sugar to JJSD at a concessional rate of ₹ 1,080/- per bag on the understanding that the same was meant for export by the latter. JJSD did not export the sugar. Rather, they sold the sugar obtained from the assessee under quota in the domestic market at the prevailing market prices. It has been brought to our notice that the assessee took up civil proceedings against JJSD and some arbitration award was also passed. AR submitted that the Hon ble Bombay High Court has cancelled the award directing the payment of some compensation to the assessee. Be that as it may, in our considered opinion, compensation, if any, which the assessee eventually receives from JJSD will be subjected to tax in its hand when it acquires the right to receive the same. In sofaras the year under consideration is concerned, the assessee has neither recovered excess over quota price from JJSD nor acquired right to receive any compensation. We, therefore, hold that the ld. CIT(A) was justified in deleting the addition. Deduction of expenditure claimed on salaries and wages - HELD THAT - CIT(A) has not granted any relief in respect of the expenditure claimed. He simply directed the AO to verify the assessee s claim and then allow relief. In other words, if on verification, the AO finds that the relief is not due, he will deny the same and vice versa . The mere fact of restoring the matter to the file of AO, in our considered opinion, does not constitute any cause of grievance to the Revenue in asmuch as the ball has again come back to the court of the AO, who can decide the issue as per law. We are, therefore, not inclined to disturb the impugned order on this score. Addition towards sale of sugar at concessional rate - HELD THAT - Following the precedent MAJALGAON SAHAKARI, SAKHAR KARKHANA LTD. VERSUS ACIT, SHRI CHHATRAPATI SHAHU, DCIT, ITO 2019 (3) TMI 906 - ITAT PUNE we set-aside the impugned order to this extent and remit the matter to the file of AO for its fresh determination in accordance with law.

Summary

Issues Involved:
1. Deletion of disallowance of ?1,66,31,744/- on account of excess price of sugarcane.
2. Deletion of addition of ?3,22,58,450/- on account of understatement of sale.
3. Entitlement to deduction on account of expenditure claimed on salaries and wages amounting to ?2,72,51,072/-.
4. Confirmation of addition on account of excess price paid on purchase of sugarcane amounting to ?13,55,67,049/-.
5. Confirmation of addition towards sale of sugar at concessional rate.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of ?1,66,31,744/- on Account of Excess Price of Sugarcane:
The Revenue challenged the deletion of disallowance made by the Assessing Officer (AO) on account of excess price paid for sugarcane. The Tribunal referenced the Supreme Court judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd., which clarified the treatment of sugarcane pricing under the Essential Commodities Act, 1955, and the Sugar Cane (Control) Order, 1966. The Supreme Court directed that the AO must differentiate between the Statutory Minimum Price (SMP) and the State Advised Price (SAP), identifying the profit component in SAP that constitutes profit distribution and is not deductible. The Tribunal remitted the matter to the AO to reassess the deduction by examining the accounts and material provided to the State Government for fixing the final price under Clause 5A of the Control Order, 1966.

2. Deletion of Addition of ?3,22,58,450/- on Account of Understatement of Sale:
The AO added ?3,22,58,450/- to the assessee's income, alleging understatement of sales because sugar sold to M/s. Jai Jagdish Sugar Export/Import (JJSD) at a concessional rate for export was sold in the local market. The Tribunal noted that the assessee correctly recorded the sale price received from JJSD and that JJSD's failure to export the sugar did not constitute an understatement by the assessee. The Tribunal upheld the CIT(A)'s deletion of the addition, stating that any compensation received by the assessee from JJSD would be taxed when the right to receive it arises.

3. Entitlement to Deduction on Account of Expenditure Claimed on Salaries and Wages Amounting to ?2,72,51,072/-:
The assessee claimed a deduction for salary arrears based on a registered agreement, which was omitted in the Profit and Loss account. The CIT(A) directed the AO to verify the claim and allow relief if justified. The Tribunal found no cause for grievance for the Revenue since the AO was tasked with verifying the claim and deciding as per law.

4. Confirmation of Addition on Account of Excess Price Paid on Purchase of Sugarcane Amounting to ?13,55,67,049/-:
Similar to the first issue, the Tribunal remitted the matter to the AO for fresh determination in line with the Supreme Court's judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd. The AO was directed to reassess the deduction by examining the relevant accounts and material provided for fixing the final price under Clause 5A of the Control Order, 1966.

5. Confirmation of Addition Towards Sale of Sugar at Concessional Rate:
The issue involved the addition of the difference between the market price and the concessional price at which sugar was sold to farmers and cane growers. The Tribunal referenced the Supreme Court's judgment in CIT Vs. Krishna Sahakari Sakhar Karkhana Limited, which required examining whether selling sugar at a concessional rate was a customary practice in the cooperative sugar industry. The Tribunal remitted the matter to the AO for fresh consideration, directing an assessment of whether the difference constituted profit appropriation.

Conclusion:
The Tribunal remitted the matters involving the excess price of sugarcane and concessional sugar sales to the AO for fresh determination based on Supreme Court precedents. It upheld the deletion of the addition for understatement of sales and directed the AO to verify the deduction claim for salary arrears. The appeals were partly allowed for statistical purposes, ensuring a comprehensive reassessment by the AO.