2019 (9) TMI 368 - AT - Income Tax

Taxability of Excess Sugarcane Price - excess price paid by the assessee to sugarcane suppliers i.e. the price over and above the Statutory Minimum Price (SMP) fixed by State Government for purchase of cane - HELD THAT - As considered the order of Co-ordinate Bench in the case of DCIT vs. Vasant Rao Dada Patil SSK Ltd. ( 2019 (3) TMI 1637 - ITAT PUNE ) after considering the binding judgment of Hon ble Supreme Court of India in the case of CIT Vs. Tasgaon Taluka S.S.K. Ltd. 2019 (3) TMI 321 - SUPREME COURT indentical to the issue relating to excess sugarcane price paid by the assessee the issue is restored to the file of AO and also consider the contentions of assessee with respect to SMP vis-a-vis FRP regime where ever raised. AO shall decide the issue after affording reasonable opportunity of hearing to the respective assessees in accordance with law. AO shall also give due consideration to the issues raised by the assessee with effect to applicability/non-applicability of judgment of Hon ble Apex Court as the case may be and decide the issue accordingly. Thus the issue of excess cane price paid to sugarcane suppliers is allowed for statistical purposes in the aforesaid terms. Provision for Vasantdada Sugar Institute (VSI) Contribution - HELD THAT - It is found that the ld. CIT(A) has determined this issue in favour of the assessee by following the order passed by the Pune Benches of the Tribunal in the case of Bhima S.S.K. Ltd. ( 2019 (3) TMI 906 - ITAT PUNE ) . No material has been placed on record to show that this order of the Tribunal has been reversed or modified in any manner by the Hon ble High Court. Respectfully following the precedent we decide this issue in favour of the assessee Disallowance of contribution towards Area Development Fund - HELD THAT - Both sides are unanimous in stating that the issue of disallowance of Area Development Fund in present set of appeals is identical to the one already decided by the Co-ordinate Bench. In the light of directions of Co-ordinate Bench on the issue in hand the same is restored back to the file of Assessing Officer. Deduction u/s 80P on interest income earned on deposits with Co-operative Bank - HELD THAT - Hon ble Bombay High Court in the case of Commissioner of Income Tax Vs. Reliance Utilities and Power Ltd. ( 2009 (1) TMI 4 - BOMBAY HIGH COURT ) in the context of section 36(1)(iii) held that where both interest free funds and interest bearing funds are available and interest free funds are sufficient to cover the investments made it shall be presumed that investments are made out of interest free funds available with the assessee. Same analogy was applied by Hon ble Bombay High Court in the case of HDFC Bank Ltd. ( 2014 (8) TMI 119 - BOMBAY HIGH COURT ) in respect of disallowance u/s. 14A r.w. Rule 8D(2)(ii). Extending the same principle here we find merit in the submissions of the assessee. No material is brought on record by the assessee to show availability of funds for making investment in deposits during the relevant period. Restore this issue back to the file of Assessing Officer for the limited purpose of ascertaining fund position when the deposits were made by the assessee. AO shall decide the issue de-novo in line with our above observations. Ground relating to disallowance u/s. 80P(2)(d) is allowed for statistical purpose.

Issues Involved:
1. Taxability of "Excess Sugarcane Price" paid by the assessees to sugarcane suppliers.
2. Provision for Vasantdada Sugar Institute (VSI) Contribution.
3. Disallowance of contribution towards Area Development Fund.
4. Disallowance of deduction claimed u/s. 80P(2)(d) of the Act.

Detailed Analysis:

1. Taxability of "Excess Sugarcane Price" Paid by the Assessees to Sugarcane Suppliers:
The primary issue in these appeals is the taxability of the excess sugarcane price paid by the assessees to the sugarcane suppliers, over and above the Statutory Minimum Price (SMP) fixed by the State Government. Both the representatives for the assessee and the Revenue agreed that this issue has been adjudicated by the Co-ordinate Bench of Tribunal in the case of DCIT vs. Vasant Rao Dada Patil SSK Ltd. The Tribunal, following the Supreme Court judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd., remitted the matter to the Assessing Officer (AO) to determine what constitutes taxable profits and what constitutes allowable deductions. The AO is directed to allow deductions for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966, and determine the component of distribution of profit embedded in the price paid under clause 5A. The Tribunal also noted that the Statutory Minimum Price (SMP) regime ended on 22-10-2009, and from Financial Year 2009-10, the cane price was based on Fair and Remunerative Price (FRP). The AO is to consider the facts regarding the applicability of the Supreme Court judgment to the FRP regime and decide accordingly.

2. Provision for Vasantdada Sugar Institute (VSI) Contribution:
The issue of provision for VSI contribution was decided by the Tribunal in favor of the assessee, following the precedent set in the case of Bhima S.S.K. Ltd. The Tribunal observed that the issue had already been considered and decided in favor of the assessee in several cases, and no new material was presented to reverse or modify this decision. Consequently, the ground was decided in favor of the assessee.

3. Disallowance of Contribution Towards Area Development Fund:
The Tribunal noted that the issue of disallowance of contribution towards the Area Development Fund had been considered by the Supreme Court in Siddheshwar Sahakari Sakhar Karkhana Limited Vs. CIT. The Supreme Court remitted the matter back for fresh determination, noting that the receipts in the form of the Area Development Fund always remained with the assessee and were impressed with a specific legal obligation to spend the money for specified purposes unrelated to the business of the sugar factory. The Tribunal restored this issue back to the file of the AO for fresh determination in conformity with the guidelines laid down by the Supreme Court, granting the assessee a reasonable opportunity of hearing.

4. Disallowance of Deduction Claimed u/s. 80P(2)(d) of the Act:
In ITA No. 1031/PUN/2012, the assessee raised the issue of denial of deduction under section 80P of the Act on interest income earned on deposits with a Co-operative Bank. The AO disallowed the claim on the ground that part of the investments in deposits was from borrowed funds. The Tribunal referred to the Bombay High Court's decisions in Commissioner of Income Tax Vs. Reliance Utilities and Power Ltd. and HDFC Bank Ltd., which held that where both interest-free funds and interest-bearing funds are available, and interest-free funds are sufficient to cover the investments, it shall be presumed that investments are made out of interest-free funds. The Tribunal restored this issue back to the AO for the limited purpose of ascertaining the fund position when the deposits were made, and the AO was directed to decide the issue de novo in line with these observations.

Conclusion:
The appeals of the assessees and the Department were allowed for statistical purposes, with the primary issue of excess cane price and other related issues remitted back to the AO for fresh determination, granting the assessees a reasonable opportunity of hearing and considering all relevant facts and legal precedents.

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