2021 (8) TMI 23 - AT - Income Tax

Allowability of sugarcane price paid over and above FRP price - AO disallowed the excess price so paid by holding it to be the appropriation of profits - HELD THAT - It is bounding duty of the Assessing Officer to examine the facts and circumstances under which the harvesting and transport expenses was paid to the farmers whether the payments were made over and above FRP exclusively for the purpose of business. The Assessing Officer cannot jump to a conclusion that the payments are in the nature of appropriation of profits without examining the facts and circumstances under which the said excess payments were made. The Hon'ble Bombay High Court in the case of CIT vs. Manjara Shetkari Sahakari Sakar Karkhana Ltd. 2007 (8) TMI 260 - BOMBAY HIGH COURT held that the differential price cannot be disallowed merely on the ground that it is appropriation of profits without giving a finding as to whether there is any resolution passed authoring the society to pay such excess price. Also in the case of CIT vs. Aruna Sunrise Hotels Ltd., 2018 (5) TMI 156 - MADRAS HIGH COURT held that the excess price determined under sugarcane control is to be treated as allowable expenditure exclusively and for the purpose of business. Therefore, the finding of the lower authorities cannot be sustained. In our considered opinion, the matter should be remanded back to the file of the Assessing Officer in order to meet the ends of justice to give a finding whether the excess price paid over and above FRP is out of the business expediency or appropriation of profit. If it is found that the excess payment was paid only out of business expediency consideration and the same should be allowed as deduction. Thus, this ground of appeal is remanded to the file of the Assessing Officer for fresh adjudication on the lines indicated above. Accordingly, this ground of appeal stands partly allowed for statistical purposes. Disallowance of sale of sugar at concession rates to the members - The issue of disallowance on account of sale of sugar at concession rate to the members is covered by the decision of the Hon'ble Apex Court in the case of Krishna Sahakari Sakhar Karkhana 2012 (11) TMI 669 - SUPREME COURT wherein the issue was remanded back to the file of the Ld. CIT(A) with a direction to address the question raised by the Hon'ble Supreme Court. The Ld. CIT(A) though adverted to the decision of the Hon'ble Apex Court in the case of Krishna Sahakari Sakhar Karkhana (supra) had not addressed the question raised therein with reference to material on record. Therefore, this issue also requires to be remanded to the file of the Assessing Officer with a direction to address the question raised by the Hon'ble Apex Court in the case of Krishna Sahakari Sakhar Karkhana (supra) after calling for requisite information from assessee society. Thus, this ground appeal also stands partly allowed for statistical purposes.

Summary

Issues:
- Allowability of sugarcane price paid over and above FRP price
- Disallowance of sale of sugar at concession rates to members

Analysis:
1. Allowability of Sugarcane Price Paid Over and Above FRP Price:
The appellant, a cooperative society engaged in sugar manufacturing, appealed against the addition made by the Assessing Officer for excess price paid to members over the minimum remunerative price fixed by the Government. The Assessing Officer considered this excess payment as an appropriation of profit. The CIT(A) upheld this addition, citing the scheme of price fixation and purchase of sugarcane. However, the ITAT Pune found that the Assessing Officer did not provide evidence to support the allegation of profit appropriation. The Tribunal noted that the excess payment was due to harvesting and transport expenses, as well as past payments, not exceeding the FRP price. Referring to legal precedents, the ITAT emphasized that the Assessing Officer must determine if the excess payment was for business expediency or profit appropriation. Consequently, the matter was remanded to the Assessing Officer for further examination.

2. Disallowance of Sale of Sugar at Concession Rates to Members:
The second issue involved the disallowance of selling sugar at concessional rates to members. The ITAT Pune observed that this issue was similar to a case decided by the Supreme Court, where the matter was remanded for further consideration. The CIT(A) did not adequately address the Supreme Court's directive in the present case. Therefore, the ITAT directed the issue to be sent back to the Assessing Officer for a thorough review, in line with the Supreme Court's query. As a result, both appeals were partly allowed for statistical purposes, with the matters remanded for fresh adjudication.

In conclusion, the ITAT Pune's judgment focused on the need for proper examination and evidence before disallowing expenses as profit appropriations. The Tribunal emphasized the importance of assessing whether expenditures were made for business purposes or as undue appropriations. The decision underscored the significance of legal precedents and directed the Assessing Officer to conduct a detailed review in both cases to ensure justice and compliance with legal standards.