2019 (11) TMI 363 - AT - Income Tax

Addition being sale of sugar at concessional rate to Members/Non-members - HELD THAT - 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. 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. In other words, all items of debit to the Trading and Profit and loss account would constitute cost base. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh proceedings on this issue. Initiation of re-assessment proceedings - HELD THAT - There is no doubt that the original assessment in this case was completed u/s.143(3) on 05-11-2009. However, within a period of less than 4 years from the end of the relevant assessment year, the AO initiated re-assessment proceedings on the ground that the sugar supplied to members free of cost was liable to be considered as Appropriation of income . We have gone through the original assessment order which is only one paged order. There is no discussion whatsoever on the issue much less the formation of any opinion on it. The declared revised loss of ₹ 2.11 crore was accepted by the AO in the assessment completed u/s.143(3).It is clear that the contention of the assessee about the change of opinion by the AO through the re-assessment proceedings, is unwarranted in asmuchas the AO did not examine this issue in the original assessment proceedings and there was no question of formation of any opinion at the first instance. On a specific query, the ld. AR could not point out any material indicating the examination of this issue by the AO in the course of original assessment proceedings. We, therefore, hold that the ld. CIT(A) was right in upholding the initiation of re-assessment proceedings in the given circumstances by relying on the relevant precedent and the germane position of law. This ground is, therefore, dismissed. Addition on account of Excessive Sugarcane Price paid to Members/Non-Members - 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. Unexplained agricultural income - HELD THAT - The entire premise of the assessee about the genuineness of agricultural income is based on offering of ₹ 7.38 lakh as agricultural income. When called upon to furnish the evidence of sale of agricultural produce and agricultural expenses, the assessee failed to furnish the same before the Assessing Officer. This position continued even at the First Appellate stage. There is no change in the circumstances in sofaras the appeal before the Tribunal is concerned. Here again, the assessee could not place on record any evidence to show the sale of agricultural produce or incurring of agricultural expenses - we are not inclined to tinker with the findings returned in the first appeal in restricting the agricultural income to ₹ 4.00 lakh thereby making addition of ₹ 3,83,063/-. Deduction u/s.80P(2)(c), 80P(2)(d) and not allowing the set off of carry forward losses properly - HELD THAT - It is seen that the ld. CIT(A) has discussed these issues and remitted the matter to the file of AO for proper verification. Since the ld. CIT(A) has no power to remit the matter to the file of AO for fresh examination, the ld. AR submitted that the assessee would be satisfied if such a direction is given by the Tribunal. We, therefore, set-aside the impugned order on the above score and remit the matter to the file of AO for examining the assessee s claim in respect of allowing deduction u/s.80P(2)(c) and 80P(2)(d) and set off of carry forward losses as per law after allowing reasonable opportunity of hearing to the assessee.

Summary

Issues Involved:
1. Addition due to sale of sugar at concessional rate to members/non-members.
2. Initiation of re-assessment proceedings.
3. Addition due to excessive sugarcane price paid to members/non-members.
4. Addition of unexplained agricultural income.
5. Deduction under sections 80P(2)(c), 80P(2)(d), and set off of carry forward losses.

Detailed Analysis:

1. Addition Due to Sale of Sugar at Concessional Rate to Members/Non-Members:
The Tribunal addressed the issue of the addition of ?54,41,283/- for the sale of sugar at a concessional rate. The Assessing Officer (AO) considered this as an appropriation of profit, equating the difference between the Fair Market Price and the Concessional Price to a distribution of profit. The Tribunal referred to the Supreme Court's judgment in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd., which necessitated examining whether such practices were customary in the sugarcane industry and supported by state resolutions. The Tribunal emphasized that selling sugar below cost price constitutes appropriation of profit and should be taxed, whereas selling at a price above cost but below market price is a loss of potential profit and not taxable. The matter was remitted to the AO to ascertain the cost price and determine the taxability accordingly.

2. Initiation of Re-assessment Proceedings:
The Tribunal upheld the initiation of re-assessment proceedings. The original assessment was completed under section 143(3) without discussing the issue of sugar supplied at concessional rates. The AO initiated re-assessment within four years, observing that the income chargeable to tax had escaped assessment. The Tribunal found no evidence of the AO examining this issue during the original assessment, thus rejecting the assessee's contention of a change of opinion.

3. Addition Due to Excessive Sugarcane Price Paid to Members/Non-Members:
The Tribunal addressed the issue of excessive sugarcane price paid over and above the Fair and Remunerative Price (FRP). Referring to the Supreme Court's judgment in CIT Vs Tasgaon SSK Ltd., the Tribunal noted that the difference between the Statutory Minimum Price (SMP) and the additional price paid under clause 5A of the Sugar Cane (Control) Order, 1966, includes an element of profit distribution. The AO was directed to determine the profit component and allow only the deductible expenditure. The case was remitted to the AO for fresh determination, considering the accounts and materials supplied to the State Government.

4. Addition of Unexplained Agricultural Income:
The assessee declared agricultural income of ?7,83,063/-, but failed to provide evidence of sales and expenses. The AO estimated the income at ?4.00 lakh, treating the remaining ?3,83,063/- as income from undisclosed sources. The Tribunal upheld the AO's decision due to the lack of evidence from the assessee.

5. Deduction Under Sections 80P(2)(c), 80P(2)(d), and Set Off of Carry Forward Losses:
The Tribunal noted that the CIT(A) had remitted these issues to the AO for verification. Since the CIT(A) lacks the power to remit, the Tribunal set aside the impugned order and directed the AO to examine the claims for deductions under sections 80P(2)(c) and 80P(2)(d) and the set off of carry forward losses, allowing reasonable opportunity for the assessee to present their case.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific issues remitted to the AO for fresh determination in accordance with the Tribunal's directions. The Tribunal emphasized the need for detailed examination and adherence to legal precedents, ensuring that only actual appropriation of profit is taxed, and potential profit loss is not.