2019 (4) TMI 857 - AT - Income Tax

Excessive sugarcane price paid to members as well as non-members of the respective assessee - appropriation of profit or not - Relying on clause-3 and additional price payable as per clause 5A of the Sugarcane Control Order, 1966, the AO opined that the excessive price paid was in the nature of distribution of profits and hence not deductible - HELD THAT - Issue of payment of excessive price on purchase of sugarcane by the assesses is no more res integra in view of the recent judgment of Hon ble Supreme Court in CIT Vs. Tasgaon Taluka S.S.K. Ltd. (2019 (3) TMI 321 - SUPREME COURT) - we 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. 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. 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. Needless to say, the assessee will be allowed a reasonable opportunity of hearing by the AO in such fresh determination of the issue. Addition of giving sugar to members at concessional rates - difference between the average price of sugar sold in the market and that sold to members is appropriation of profit or not - HELD THAT - As decided in Krishna Sahakari Sakhar Karkhana Limited 2012 (11) TMI 669 - SUPREME COURT the difference between the average price of sugar sold in the market and the price of sugar sold by the assessee to its members at concessional rate was taxed by the Department under the head Appropriation of profit . The Hon ble Summit Court remitted the matter to the CIT(A) for considering, inter alia, whether the abovementioned practice of selling sugar at concessional rate has become the practice or custom in the Cooperative sugar industry?; and whether any Resolution has been passed by the State Government supporting the practice?; The CIT(A) would also consider on what basis the quantity of the final product, i.e. sugar, is being fixed for sale to farmers/cane growers/Members each year on month-to-month basis, apart from others from Diwali? The issue under consideration can be decided by an appropriate lower authority only on the touchstone of the relevant factors noted in the above judgment. In our considered opinion, 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. Addition on account of expenses viz. purchases, power & fuel, repairs to machinery, hospitality Advertisement, Travelling Expenses, Telephone expenses - CIT-A restricted pat addition - HELD THAT - CIT(A) has categorically mentioned that the assessee is governed by the provisions of Cooperative Societies Act and under the control and supervision of various Govt. authorities. The assessee has maintained books of accounts and the same are subjected to audit. He further noted that the AO failed to verify the books of account and made addition. Under these circumstances and considering the totality of facts and circumstances of the case we are of the considered opinion that the ld. CIT(A) has taken a reasonable view. Thus, we countenance the view taken by the ld. CIT(A) on this score. Appeals are fully/partly allowed for statistical purposes.

Summary

Issues involved:
I. Excessive sugarcane price paid
II. Addition for sugar given to members at concessional rates
III. Disallowance of expenses

I. Excessive Sugarcane Price Paid:
The appeals involved a common issue regarding the addition made by the Assessing Officer (AO) towards excessive sugarcane price paid to members and non-members. The AO observed that the assessees paid excessive cane price, over and above the Fair and Remunerative Price (FRP) fixed by the Government. The AO considered the excessive price paid as 'distribution of profits' and made additions based on this. The issue was whether such payments were deductible under section 37(1) of the Income-tax Act, 1961. The ITAT Pune, citing a recent judgment by the Hon'ble Supreme Court, remitted the matter back to the respective AO for fresh consideration. The AO was directed to allow deduction for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966, and determine the profit component embedded in the price paid under clause 5A. The judgment clarified that only the profit component would not be allowed as a deduction, while the remaining amount would be considered as deductible expenditure.

II. Addition for Sugar Given to Members at Concessional Rates:
In some appeals, there was an issue of giving sugar to members at concessional rates. The AO made additions based on the difference between the market price and the concessional price at which sugar was provided to members. The ITAT Pune referred to a judgment by the Hon'ble Supreme Court in a similar case and remitted the matter back to the Assessing Officers for fresh consideration. The lower authorities were directed to assess whether the difference in prices constituted an appropriation of profit or not, based on specific factors outlined in the Supreme Court's judgment. The ITAT Pune emphasized that the issue should be decided by the AO and not the CIT(A) due to the remittance of a related issue to the AO following the Supreme Court's judgment.

III. Disallowance of Expenses:
Another issue in one of the appeals was against the reduction in the addition of expenses by the ld. CIT(A). The AO had made certain additions from various expenses on an estimation basis due to non-availability of evidence or non-verifiability of details. The ld. CIT(A) restricted the addition, leading to an appeal by the Revenue. The ITAT Pune upheld the decision of the ld. CIT(A), noting that the assessee was governed by the provisions of the Cooperative Societies Act and was subject to audit. The ITAT Pune found the ld. CIT(A)'s view reasonable and allowed the appeal for statistical purposes.

In conclusion, the ITAT Pune addressed various issues related to excessive sugarcane price payments, concessional rates for sugar given to members, and disallowance of expenses in the appeals. The judgments provided detailed analysis and directions for the Assessing Officers to reconsider the matters in accordance with the law and relevant precedents, ensuring a fair and just determination of the issues involved.