2019 (8) TMI 1047 - AT - Income Tax

Addition on account of excess price paid on purchase of sugarcane - Addition u/s 37 and 40A - 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 - thus we 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 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) of the Act, as has been held by the Hon ble Supreme Court supra

Summary

Issues:
Confirmation of addition on account of excess price paid on purchase of sugarcane.

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of a significant amount from the total sale price paid to sugarcane growers. The grounds of appeal included challenges to the disallowance, arguing that the excess amount paid was allowable under sections 28 and 37 of the Income Tax Act, 1961. Additionally, it was contended that previous assessments had allowed similar prices, and inconsistency by the Assessing Officer was highlighted, citing a Supreme Court judgment emphasizing the need for revenue consistency.

2. The Assessing Officer viewed the excess payment as a diversion of profit disguised as higher sugarcane prices above the Statutory Minimum Price (SMP)/Fair Remunerative Price (FRP). The AO concluded that the difference between prices set by the Central and State Governments was akin to 'distribution of profits' and hence not deductible as expenditure, leading to the addition of the excess amount paid for sugarcane.

3. The assessee's appeal to the CIT (A) was unsuccessful, leading to further appeal before the ITAT. The ITAT considered the recent Supreme Court judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd. [2019] and noted that the issue of excessive sugarcane price payments was settled by the Apex Court. The Court emphasized the need for a detailed examination to determine the profit component embedded in the excess price paid and directed the AO to consider accounts, balance sheets, and material supplied to the State Government for fixing the final price.

4. The ITAT, following the Supreme Court's guidance, set aside the previous orders and remitted the matter to the AO for fresh consideration. The AO was instructed to allow deduction for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966, and then ascertain the profit component in the excess price paid under clause 5A. The judgment clarified that only profits related to payments to members would be considered for distribution, while non-members' cases would be evaluated under section 40A(2) of the Act.

5. The ITAT allowed the appeal for statistical purposes, emphasizing the need for a thorough examination of the profit component in excess sugarcane prices paid. The assessee was granted a fair opportunity to present arguments before the AO in the fresh determination of the issue, ensuring compliance with the Supreme Court's directives and principles of income tax law.