2022 (1) TMI 1063 - AT - Income Tax

Excess payment for sugar cane over and above SMP/FRP - CIT(A) directed the assessing officer to recompute the FRP on certain formula as per the order dated 22.12.2013 of Ministry of Consumer affair, Department of Food and Public Administration - HELD THAT - We find that on identical issue and on similar set of fact in SHREE KHEDUT SAHAKARI KHAND UDYOG MANDLI LTD. VERSUS INCOME TAX OFFICER, WARD-1, BARDOLI 2019 (8) TMI 1047 - ITAT SURAT considering the decision of Hon ble Supreme Court in the case of CIT vs. Tasgaon Taluka S.S.K. Ltd., 2019 (3) TMI 321 - SUPREME COURT wherein set-aside the impugned orders on this score and remit the matter to the file of the AO for deciding it afresh as per law in consonance with the articulation of law by the Hon ble Supreme Court in the afore noted judgment. The 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) of the Act, as has been held by the Hon ble Supreme Court supra. Thus the grounds of appeal raised by assessee are restored back to the file of Assessing Officer to decide the issue afresh in accordance with law to follow the decision of coordinate Bench of this Tribunal in the case of Shree Khedut Sahakarai Khand Udyog Mandli Ltd. vs. Income Tax Officer, (supra).

Summary

Issues Involved:
1. Disallowance of excess cane price paid to sugarcane growers.
2. Recalculation of Fair and Remunerative Price (FRP).
3. Deletion of interest income addition.

Detailed Analysis:

1. Disallowance of Excess Cane Price Paid to Sugarcane Growers:
The primary issue revolves around the disallowance of ?147.21 crores from the total cane price paid to sugarcane growers by the assessee, a co-operative society. The Assessing Officer (AO) disallowed the excess price paid over the Statutory Minimum Price (SMP) declared by the Central Government, viewing it as an attempt to divert income and not admissible for deduction under Section 37 of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, leading to the assessee's appeal. The Tribunal noted that similar issues had been addressed in previous cases (e.g., Shree Khedut Sahakarai Khand Udyog Mandli Ltd. vs. ITO) and referred to the Supreme Court's decision in CIT vs. Tasgaon Taluka SSK Ltd., which mandated a detailed examination of the accounts and the material supplied to the State Government to determine the profit component in the final price.

2. Recalculation of Fair and Remunerative Price (FRP):
The CIT(A) directed the AO to recompute the FRP based on a specific formula as per the Ministry of Consumer Affairs' order. The Tribunal agreed with the CIT(A)'s direction, emphasizing the need to follow the Supreme Court's guidance to distinguish between deductible expenditure and profit appropriation. The Tribunal restored the issue back to the AO to determine the component of distribution of profit embedded in the price paid under clause 5A of the Sugar Cane (Control) Order, 1966, by considering the statement of accounts, balance sheet, and other relevant material.

3. Deletion of Interest Income Addition:
The Revenue's cross-appeal included the deletion of ?72,539/- being interest income not recorded in books of account. The Tribunal did not specifically address this issue in the detailed analysis but dismissed the Revenue's cross-appeal as infructuous due to the restoration of the main issue to the AO.

Conclusion:
The Tribunal restored the matter of disallowance of excess cane price and recalculation of FRP to the AO for fresh adjudication, following the Supreme Court's decision in CIT vs. Tasgaon Taluka SSK Ltd. The AO was directed to allow deductions for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966, and to determine the profit component in the price paid under clause 5A. The Tribunal dismissed the Revenue's cross-appeal as infructuous due to the restoration of the main issue. The appeals of the assessee were allowed for statistical purposes, and the AO was instructed to provide a fair hearing and consider any additional submissions from the assessee.