2019 (11) TMI 362 - AT - Income Tax

Addition on account of Excessive sugarcane price paid - Difference in price paid to members as well as non-members of Sahakari Sakhar Karkhana - sale of sugar at Concessional price - HELD THAT - The extant issue of deduction for payment of excessive price for purchase of sugarcane, raised in most of the appeals under consideration, is squarely covered by the aforesaid judgment of the Hon ble Supreme Court. Respectfully following the precedent, 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 SHRI SATPUDA TAPI PARISAR SSK LIMITED 2010 (1) TMI 117 - SUPREME COURT - 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) Similar is the position in so far as sale of sugar at concessional rate to members below the cost price is concerned in as much as the income to that extent which was earned by the assessee from its normal business operations shall be passed on to the members in the form of sale of sugar at a rate lower than its cost price. CIT(A) in the instant batch of appeals has confirmed the addition towards the difference between the Levy price and the concessional price (upto 5 kg. per member per month) and to the extent of difference between the Market price of sugar and Concessional price (over and above 5kg. per member per month). In this process, the assessees got taxed even for the potential profit to the extent of difference between the cost price and market/levy price, as the case may be. Ergo, we hold that such a straightway difference between the market/levy price and the concessional price of sugar cannot be construed as appropriation of profit leading to addition as has been extantly done. The impugned orders to this extent are set aside and the matters are restored to the file of the respective AOs for first ascertaining the cost price of sugar to each assessee and then make addition on this issue by treating it is as a case of appropriation of profit only to the extent of the concessional sale price which is below the cost price. However, it is clarified that in determining cost price of sugar to the factory, not only all the direct costs but all the indirect costs should also be taken into consideration. All items of debit to the Trading and Profit and loss account would constitute cost base. - Appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of excessive sugarcane price paid.
2. Restriction of addition in respect of sale of sugar at concessional price.

Detailed Analysis:

1. Deletion of Addition on Account of Excessive Sugarcane Price Paid:

The first issue concerns the deletion of an addition amounting to ?90,62,25,959/- on account of excessive sugarcane price paid. The Tribunal noted that a similar issue had been previously addressed in a batch of 75 appeals led by Manganga Sahakari Sakhar Karkhana Ltd. Vs. ACIT. The Tribunal had referred to the judgment of the Hon’ble Supreme Court in CIT Vs Tasgaon SSK Ltd. (2019) 412 ITR 420 (SC), which dealt extensively with the issue of excessive sugarcane price paid over and above the Fair and Remunerative Price (FRP) fixed by the Government. The Supreme Court had directed that the difference between the Statutory Minimum Price (SMP) and the State Advised Price (SAP) should be examined to determine the component of profit appropriation. The Tribunal, following this precedent, remitted the matter to the Assessing Officer (AO) to carry out an exercise to determine the profit component and deductible expenditure based on the accounts, balance sheet, and material supplied to the State Government. The AO was directed to allow deduction for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966, and determine the component of distribution of profit embedded in the price paid under clause 5A.

2. Restriction of Addition in Respect of Sale of Sugar at Concessional Price:

The second issue pertains to the restriction of addition concerning the sale of sugar at a concessional price. The Tribunal observed that this issue had also been previously considered in the batch of appeals led by Manganga SSK Ltd. The AO had noted that the assessee sold sugar to its members at a concessional rate, which was considered as distribution of profit and not deductible as expenditure. The Tribunal referred to the judgment in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (2012) 254 CTR 638 (SC), where the Supreme Court had restored the matter to the CIT(A) to determine whether the difference between the market price and the concessional price should be added to the total income. The Tribunal reiterated that the difference between the market price and the concessional price could be considered as appropriation of profit only if the sale price was below the cost price. The Tribunal directed the AO to ascertain the cost price of sugar and make an addition only to the extent of the concessional sale price below the cost price. The AO was instructed to consider all direct and indirect costs in determining the cost price.

Conclusion:

The Tribunal set aside the impugned orders and remitted the matters to the AO for fresh determination in line with the Supreme Court's judgments. The AO was directed to provide a reasonable opportunity of hearing to the assessee in the fresh proceedings. The appeal was allowed for statistical purposes, and the order was pronounced in the Open Court on 05th November 2019.