2019 (10) TMI 141 - AT - Income Tax

Excess cane price paid by the assessees to sugarcane suppliers/ members, i.e. the price over and above the Statutory Minimum Price (SMP) fixed by State Government for purchase of cane - HELD THAT - In view of the statement made by both the sides that the facts in the present set of appeals are identical, the issue relating to excess sugarcane price paid by the assessee is restored to the file of Assessing Officer with similar directions as above in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT 2019 (3) TMI 906 - ITAT PUNE . AO shall decide the issue after affording reasonable opportunity of hearing to the respective assessee, in accordance with law. Treating Advance Lease rent received as income for the year - HELD THAT - As perused the lease agreement and further relevant documents related to this case. The observation of the CIT(Appeals) is not correct that in the event of termination of lease agreement, the money will be retained by the assessee and therefore it needs to be taxed as income of the assessee. This is so because, first of all the termination of the lease agreement should take place and it takes place since certain important duties which were casted upon the lessee company has not been performed by them. That for non-performance, it is quite possible that some loss or damages may arise to the lessor assessee for which the relevant clause emanates the lessor company to forfeit the advance money received from the lessee company to cover up such loss or damage as the case may be. That further, on reading totality of facts along with the indemnity Clause, the advance amount paid for lease cannot be treated as income of the assessee in the given facts and circumstances.

Summary

Issues Involved:
1. Excess cane price paid by the assessee to sugarcane suppliers/members.
2. Addition on account of sale of sugar at concessional rates to members/shareholders.
3. Treating advance lease rent received as income for the year.

Detailed Analysis:

Excess Cane Price Paid to Sugarcane Suppliers/Members:
The primary issue concerns the excess cane price paid by the assessee over the Statutory Minimum Price (SMP) fixed by the State Government. The Tribunal referenced the judgment of the Hon’ble Supreme Court in CIT Vs. Tasgaon Taluka S.S.K. Ltd., which elaborated on the statutory framework under the Essential Commodities Act, 1955, and the Sugar Cane (Control) Order, 1966. The Supreme Court noted that while the SMP is deductible in its entirety, the additional price (SAP) determined under Clause 5A, which includes profit distribution, is not entirely deductible. The matter was remitted to the Assessing Officer (AO) to differentiate between the deductible expenditure and the profit component, which is not deductible. The Tribunal followed this precedent and restored the issue to the AO for fresh determination, ensuring that the AO considers the accounts, balance sheet, and other relevant materials provided to the State Government.

Sale of Sugar at Concessional Rates to Members/Shareholders:
The second issue pertains to the addition made by the AO on the difference between the market price and the concessional price at which sugar was sold to members. The Tribunal referred to the Supreme Court's decision in CIT Vs. Krishna Sahakari Sakhar Karkhana Limited, which required examining whether selling sugar at concessional rates was a customary practice in the cooperative sugar industry and supported by any State Government resolution. The Tribunal set aside the impugned orders and remitted the matter to the AO for fresh consideration, following the Supreme Court's guidelines to determine if the concessional sale price constituted an appropriation of profit.

Treating Advance Lease Rent Received as Income for the Year:
The third issue involved the AO's decision to treat the entire advance lease rent received by the assessee from its lessee, Shree Renuka Sugars, as income for the year. The lease agreement was for 18 years, and the assessee had spread the total lease rent over the lease period. The AO, however, contended that the entire amount should be recognized as income in the year of receipt. The Tribunal analyzed the lease agreement and found that the advance could only be forfeited under specific conditions of non-performance by the lessee. The Tribunal concluded that the advance lease rent should not be treated as income in the year of receipt, setting aside the CIT(A)'s order and allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal has restored the issues of excess cane price and concessional sugar sales to the AO for fresh adjudication, following the principles laid down by the Supreme Court. The issue of advance lease rent was decided in favor of the assessee, with the Tribunal ruling that it should not be treated as income in the year of receipt. The appeals were thus fully or partly allowed for statistical purposes.