2019 (3) TMI 906 - AT - Income Tax

Payment of excessive price on purchase of sugarcane - HELD THAT - Issue is no more res integra in view of the recent judgment of C.I.T. BOMBAY VERSUS TASGAON TALUKA S.S.K. LTD. 2019 (3) TMI 321 - SUPREME COURT - set aside the impugned orders on this score and remit the matter to the file of the respective A.Os. for deciding it afresh as per law in consonance with the articulation of law by the Hon ble Supreme Court in the aforenoted judgment. 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). Giving sugar to members at concessional rate - AO made addition of the difference between the market price and the concessional price at which sugar (final product) was given to farmers and cane growers - HELD THAT - It would be just and fair if the impugned orders on this score are set aside and the matter is restored to the file of AOs, instead of to the CITs(A), for fresh consideration as to whether the difference between the average price of sugar sold in the market and that sold to members at concessional rate is appropriation of profit or not, in the light of the directions given by the Hon ble Supreme Court in the case of Krishna Sahakari Sakhar Karkhana Limited (2012 (11) TMI 669 - SUPREME COURT). Restoration to the AO is necessitated because, following the judgment in the case of Tasgaon Taluka S.S.K. Ltd 2019 (3) TMI 321 - SUPREME COURT , we have remitted the issue of payment of excessive price to the file of AO, and as such, the instant issue cannot be sent to ld. CIT(A) as it would amount to simultaneously sending one part of the same assessment order to the AO and other to the CIT(A), which is not appropriate. Disallowance on account of contribution to Area Development Fund - HELD THAT - It is noticed that in the appeals under consideration, the ld. CITs(A) have not considered the impact of the judgment of the Hon ble Supreme Court in Siddheshwar Sahakari Sakhar Karkhana Limited 2004 (9) TMI 6 - SUPREME COURT and decided the issue without taking note of the factors directed to be considered in the aforenoted case. In view of the above decision of Hon ble Supreme Court, we set-aside such impugned orders and remit the matter to the file of the respective AOs for deciding the issue afresh. Disallowance for delayed deposit of ESI / EPF employees share - deduction as deposited albeit belatedly under the respective Acts, but before the due date of filing of return u/s 139(1) of the Act - HELD THAT - It is seen as an admitted position that the assessees in such cases deposited the employees contribution towards EPF and ESIC before the due date u/s 139(1) of the Act. Respectfully following the aforenoted judgment of AIMIL LIMITED, NIRMALA SWAMI, SPEARHEAD DIGITAL STUDIO, M/S. NET 4 INDIA LTD., MODIPON LTD., & M/S. EKTA AGRO INDUSTRIES LTD., 2009 (12) TMI 38 - DELHI HIGH COURT , we order for the deletion of the addition sustained in the first appeals on account of late deposit of employees contribution to the Provident fund. Disallowance of contribution to Vasantdada Sugar Institute (VSI) - weighted deduction at 125% u/s.35(1)(ii) to be allowed - Decided in favour of the assessee. Contribution made to Chief Minister Relief Fund - assessee claiming the entire amount as deduction in its Profit and loss account, the AO opined that the said contribution was eligible for deduction u/s. 80G(iiihf) at the rate of 50% along with other qualifying sums - CIT(A) sustained the entire addition overlooking the fact that deduction u/s.80G(iiihf) was not allowed by the AO on such contribution in the computation of total income - HELD THAT - We cannot uphold the disallowance of the entire amount claimed as deduction by the assessee in its Profit and loss account. Approving the additions made, we remit the matter to the file of the AO for granting the deduction u/s.80G(iiihf) as per law after allowing a reasonable opportunity of hearing to the assessee. Non-granting of deduction towards payment of Khodki charges - HELD THAT - It is seen that Khodki charges were incurred as per the directions of the Director of Sugar to compensate for the farmers loss for unevenly cutting of cane sugar at the time of harvesting. This issue came up for consideration before the Special Bench of the Tribunal in DCIT Vs. Manjara Shetkari SSK Ltd. 2004 (8) TMI 721 - ITAT MUMBAI which granted deduction for said expenses. On further appeal by the Revenue to the Hon ble Bombay High Court 2007 (8) TMI 260 - BOMBAY HIGH COURT , their Lordships in the aforenoted case approved the view taken by the Tribunal allowing deduction for payment of such Khodki charges. Khodki charges have been held as deductible by the Hon ble jurisdictional High Court and the recent judgment of Hon ble Supreme Court in Tasgaon Taluka Sahakari Sakhar Karkhana Ltd. 2019 (3) TMI 321 - SUPREME COURT does not cover Khodki charges, we hold that this issue needs to be decided in favour of the assessee. Deduction u/s 80P - interest and dividend received from Co-operative Society on Savings Bank accounts - HELD THAT - any amount of interest or dividend derived by a Co-operative Society from its investments with any other Co-operative Society, is deductible under clause (d) of section 80P(2) of the Act. CIT(A) has given a categorical finding that assessee is a Cooperative Society and the Co-operative Bank from which the above-mentioned income was earned, is also a Co-operative Society duly registered under Maharashtra Cooperative Societies Act. This contention has not been controverted by the ld. DR with any cogent material or evidence. Thus, it is seen that the case of the assessee is fully covered u/s.80P(2)(d). Reliance of the AO on the provisions of sub-section (4) of section 80P is misplaced. As the assessee under consideration is not a Co-operative Bank, the mandate of subsection (4) does not extend to it. We, therefore, approve the view taken by the ld. CIT(A) in granting deduction u/s.80P(2)(d) of the Act in respect of interest and dividend income earned by the assessee on such facts.

Summary

Issues Involved:
1. Excessive sugarcane price paid.
2. Addition for sugar given to members at concessional rates.
3. Disallowance of contribution to Area Development Fund.
4. Disallowance for late deposit of employees' share in EPF/ESI.
5. Provision for Vasantdada Sugar Institute (VSI) contribution.
6. Contribution to Chief Minister Relief Fund.
7. Deduction towards payment of Khodki charges.
8. Deduction u/s 80P on interest and dividend.

Detailed Analysis:

I. Excessive Sugarcane Price Paid:
The main issue in most appeals was the addition made by the Assessing Officer (AO) for excessive sugarcane price paid to members and non-members. The AO determined that the excessive price paid over the Fair and Remunerative Price (FRP) fixed by the Government was a "distribution of profits" and not deductible. This view was supported by the Hon'ble Supreme Court's judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd., which directed the AO to differentiate between the Statutory Minimum Price (SMP) and the additional purchase price under clause 5A of the Sugar Cane (Control) Order, 1966. The Tribunal remitted the matter to the AO to determine the profit component and deductible expenditure, emphasizing the need to consider accounts, balance sheets, and materials provided to the State Government.

II. Addition for Sugar Given to Members at Concessional Rates:
In some appeals, the issue was the disallowance of the price difference for sugar given to members at concessional rates. The Hon'ble Supreme Court in CIT Vs. Krishna Sahakari Sakhar Karkhana Limited remitted the matter to the CIT(A) to consider if the practice was customary in the cooperative sugar industry and supported by State Government resolutions. The Tribunal restored the issue to the AO for fresh consideration following the Supreme Court's directions.

III. Disallowance of Contribution to Area Development Fund:
The issue involved the deletion/confirmation of disallowance for contributions to the Area Development Fund. The Hon'ble Supreme Court in Siddheshwar Sahakari Sakhar Karkhana Limited Vs. CIT observed that such contributions, impressed with specific legal obligations unrelated to the business, could not be treated as income. The Tribunal remitted the matter to the AO for fresh determination in line with the Supreme Court's guidelines.

IV. Disallowance for Late Deposit of Employees' Share in EPF/ESI:
The issue was the disallowance for delayed deposits of employees' contributions to EPF and ESI. The Tribunal referred to the Hon'ble Supreme Court's judgment in CIT v. Alom Extrusions Limited and the Delhi High Court's judgment in CIT v. Aimil Limited, which allowed deductions if the contributions were deposited before the due date of filing returns. The Tribunal ordered the deletion of the additions sustained in the first appeals.

V. Provision for Vasantdada Sugar Institute (VSI) Contribution:
The issue was the disallowance of the VSI contribution provision. The Tribunal upheld the CIT(A)'s decision, which followed the Pune Tribunal's order in Bhima S.S.K. Ltd., allowing the deduction.

VI. Contribution to Chief Minister Relief Fund:
The issue was the disallowance of contributions to the Chief Minister Relief Fund. The AO allowed only 50% deduction under section 80G(iiihf). The Tribunal remitted the matter to the AO to grant the deduction as per law after a reasonable hearing.

VII. Deduction Towards Payment of Khodki Charges:
The issue was the deduction of Khodki charges paid to compensate farmers for unevenly cutting cane sugar. The Tribunal referred to the Hon'ble Bombay High Court's judgment in CIT Vs. Manjara Shetkari SSK Ltd., which allowed the deduction. The Tribunal upheld the CIT(A)'s decision, allowing the deduction.

VIII. Deduction u/s 80P on Interest and Dividend:
The issue was the deduction under section 80P(2)(d) for interest and dividend income from investments with other cooperative societies. The Tribunal upheld the CIT(A)'s decision, allowing the deduction, as the assessee was a cooperative society and the income was derived from another cooperative society.

Conclusion:
All appeals were fully or partly allowed for statistical purposes, with the Tribunal remitting several issues back to the AO for fresh consideration in line with the Supreme Court's guidelines and other relevant judgments. The order was pronounced in the Open Court on 14th March 2019.