2019 (11) TMI 346 - AT - Income Tax

Excess cane price paid by the assessees 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 - 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) as has been held in TASGAON TALUKA S.S.K. LTD. 2019 (3) TMI 321 - SUPREME COURT 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 noted that in some of the appeals, the assessees have raised an alternate ground for allowing deduction u/s.80P in respect of the addition. ARs, in some of the cases, which were represented by them, were fair enough not to press such ground as it is only an alternate ground and having become infructuous in view of the restoration of the matter to the AO. No argument was advanced in support of such ground in other cases, even where the ld. ARs participated in proceedings before the Tribunal. Therefore, the said alternate ground in all such cases is dismissed. Sale of sugar to members of a cooperative society at concessional price - HELD THAT - CIT(A) in the instant batch of appeals has confirmed the addition towards the difference between the Levy price and the concessional price (upto 5 kg. per member per month) and to the extent of difference between the Market price of sugar and Concessional price (over and above 5kg. per member per month). In this process, the assessees got taxed even for the potential profit to the extent of difference between the cost price and market/levy price, as the case may be. Ergo, we hold that such a straightway difference between the market/levy price and the concessional price of sugar cannot be construed as appropriation of profit leading to addition as has been extantly done. The impugned orders to this extent are set aside and the matters are restored to the file of the respective AOs for first ascertaining the cost price of sugar to each assessee and then make addition on this issue by treating it is as a case of appropriation of profit only to the extent of the concessional sale price which is below the cost price. However, it is clarified that in determining cost price of sugar to the factory, not only all the direct costs but all the indirect costs should also be taken into consideration. In other words, all items of debit to the Trading and Profit and loss account would constitute cost base. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh proceedings on this issue. Disallowance of contribution to Vasantdada Sugar Institute (VSI) - AO observed that the assessee made provision for Vasantdada Sugar Institute (VSI) contribution and claimed weighted deduction at 125% u/s.35(1)(ii) - HELD THAT - It is found that the ld. CIT(A) has determined this issue in favour of the assessee. 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 Sakhar Sangh - HELD THAT - We do not find any 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. Computation of deduction allowable u/s.43B (schedule to the audit report in form 3CD) - HELD THAT - We have also given considerable thought to the orders of the Ld. CIT(Appeals) as well as the Assessing Officer. We are of considered view that this issue needs verification regarding computation of income and Tax Audit Report regarding working of disallowance and also classification on quantum. Thus, in view of the facts and circumstances, we set aside the order of the Ld. CIT(Appeals) and remit the matter back to the file of Assessing Officer for verification and for determination of quantum in compliance with the principle of natural justice. Thus, this part of the ground raised by the assessee is allowed for statistical purposes. Addition on account of interest received - HELD THAT - We have also given considerable thought to the orders of the Ld. CIT(Appeals) as well as the AO. We are of considered view that this issue needs verification regarding credit of TDS as well as whether the interest income has been offered to tax or not. Thus, in view of the facts and circumstances, we set aside the order of the Ld. CIT(Appeals) and remit the matter back to the file of AO for verification and for determination of quantum in compliance with the principle of natural justice. Thus, this part of the ground raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Excess cane price paid by the assessees.
2. Addition on account of sale of sugar at concessional rates to members/shareholders.
3. Provision for Vasantdada Sugar Institute (VSI) Contribution.
4. Disallowance of contribution towards Sakhar Sangh.
5. Disallowance under Section 43B of the Income Tax Act, 1961.
6. Addition on account of interest received.

Detailed Analysis:

I. Excessive Sugarcane Price Paid:
The primary issue in almost all appeals was the addition made by the Assessing Officer (AO) for excessive sugarcane prices paid to members and non-members over the Fair and Remunerative Price (FRP) fixed by the Government. The AO relied on the Supreme Court's judgment in DCIT Vs. Shri Satpuda Tapi Parisar S.S.K. Ltd., treating the excess payment as 'distribution of profits' and non-deductible. The Tribunal referred to the Supreme Court's recent judgment in CIT Vs. Tasgaon SSK Ltd. (2019) 412 ITR 420 (SC), which mandated that the AO must determine the profit component in the price paid under clause 5A of the Sugar Cane (Control) Order, 1966. The Tribunal remitted the matter to the AO for fresh determination in line with the Supreme Court's directives.

II. Sale of Sugar at Concessional Rates:
This issue was also common in most appeals. The AO treated the difference between the Fair Market Price and the Concessional Price as 'appropriation of profit'. The Tribunal referred to the Supreme Court's judgment in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (2012) 254 CTR 638 (SC), which required the CIT(A) to consider whether the concessional sale was a customary practice and supported by a State Government resolution. The Tribunal held that only the difference between the cost price and the concessional price below the cost price should be treated as 'appropriation of profit' and taxable. The matter was remitted to the AO to ascertain the cost price and make the necessary additions.

III. Provision for Vasantdada Sugar Institute (VSI) Contribution:
The AO disallowed the provision for VSI contribution as it was not paid, but only provisioned. The CIT(A) allowed the deduction based on a precedent from the Pune Tribunal in Bhima S.S.K. Ltd. The Tribunal upheld the CIT(A)'s decision, finding no reversal or modification of the precedent by the High Court.

IV. Disallowance of Contribution towards Sakhar Sangh:
The AO disallowed the contribution to Sakhar Sangh. The CIT(A) directed the AO to verify if the deduction claimed under Section 35(1) was supported by a Central Government notification. The Tribunal upheld the CIT(A)'s directions, requiring verification by the AO.

V. Disallowance under Section 43B of the Income Tax Act, 1961:
The AO observed discrepancies in the cane purchase tax claimed under Section 43B. The CIT(A) found that the assessee claimed deductions for payments made in the preceding year and directed disallowance of ?95,57,574. The Tribunal remitted the matter to the AO for verification and determination of the correct quantum.

VI. Addition on Account of Interest Received:
The AO added interest income reflected in Form 26AS but not in the Profit & Loss account. The CIT(A) upheld this addition as the assessee did not provide evidence of offering the interest to tax in the subsequent year. The Tribunal remitted the matter to the AO for verification of TDS credit and whether the interest was offered to tax.

Conclusion:
The appeals were fully or partly allowed for statistical purposes, with the matters remitted to the AO for fresh determination and verification in compliance with the principles of natural justice. The Tribunal emphasized the need for reasonable opportunity for the assessees in the fresh proceedings. The order was pronounced on 01st October 2019.