2020 (5) TMI 232 - AT - Income Tax

Excess cane price paid to sugarcane suppliers - HELD THAT - Excess sugarcane price paid by the assessee the issue is restored to the file of Assessing Officer with similar directions as above in the cases of M/s. Vasant Rao Dada Patil SSK Ltd. 2019 (3) TMI 1637 - ITAT PUNE and also consider the contentions of assessee with respect to SMP vis-a-vis FRP regime, where ever raised. The Assessing Officer shall decide the issue, after affording reasonable opportunity of hearing to the respective assessees, in accordance with law. Thus, the issue of excess cane price paid to sugarcane suppliers is allowed for statistical purposes. Disallowance of harvesting and transportation charges u/s. 37 - HELD THAT - We find that this issue is squarely covered in favour of the assessee by CBDT Circular No. 6/2007, dated 11-10-2007 issue of allowability of such expenses in the case of Co-operative Sugar Mills has been examined by the Board. These expenses are incurred by the Sugar Mills for ensuring an adequate and sustained supply of freshly cut sugarcane that is an essential input for the continuous running of such Mills. These expenses are, therefore; incurred for a commercial expediency and are prima facie wholly and exclusively for the purpose of business. Such expenses are, therefore, allowable in the computation of the income of the Co-operative Sugar Mills - Appeal of assessee is allowed for statistical purpose.

Summary

Issues Involved:
1. Addition on account of excess sugarcane price.
2. Disallowance of harvesting and transportation expenses under Section 37 of the Income Tax Act.

Detailed Analysis:

1. Addition on Account of Excess Sugarcane Price:
The primary issue revolves around the addition of ?4,46,88,714/- made by the Assessing Officer (AO) due to the excess sugarcane price paid by the assessee. The Tribunal noted that this issue had been previously addressed in similar cases, such as Majalgaon SSK Ltd. Vs. ACIT, where the Tribunal restored the matter to the AO to decide in light of the Supreme Court's decision in Commissioner of Income Tax Vs. Tasgaon Taluka S.S.K. Ltd. (412 ITR 420). The Supreme Court had ruled that the difference between the Statutory Minimum Price (SMP) and the additional price paid under clause 5A of the Sugar Cane (Control) Order, 1966, should be scrutinized to determine if it constitutes a distribution of profits, which is not deductible as expenditure. The Tribunal directed the AO to carry out a detailed examination of the accounts and materials provided to the State Government to ascertain what portion of the additional price constitutes a deductible business expense and what portion represents profit distribution.

2. Disallowance of Harvesting and Transportation Expenses under Section 37:
The second issue pertains to the disallowance of ?14,73,65,944/- claimed as harvesting and transportation expenses. The Tribunal found that this issue is covered in favor of the assessee by CBDT Circular No. 6/2007, which clarifies that such expenses incurred by Co-operative Sugar Mills for procuring sugarcane from farmers are allowable as they are incurred for commercial expediency and are wholly and exclusively for the purpose of business. Consequently, the Tribunal allowed the deduction of these expenses under Section 37 of the Income Tax Act.

Conclusion:
The Tribunal restored the issue of excess sugarcane price paid to the AO for fresh consideration in line with the Supreme Court's directives, allowing the assessee to present all relevant contentions. The disallowance of harvesting and transportation expenses was overturned, and the Tribunal allowed these expenses based on the CBDT Circular. Both appeals were allowed for statistical purposes, and the AO was directed to provide a reasonable opportunity of hearing to the assessee during the fresh determination of the issues.