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TMI Blog2019 (8) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act,1961 (in short 'the Act') by the Income Tax Officer, Ward-1, Bardoli (in short "the AO"). 2. The grounds of appeal raised by the assessee are as under: (1) The CIT (Appeals) erred in upholding the Assessing Officer's disallowance of Rs. 242,12,52,595/- from total sale price paid to the sugarcane growers for the supply of sugarcane. (2) The CIT (A) erred in holding that the above amount being the excess over FRP is inflated price amounting to diversion of profit, and therefore, was not allowable u/s. 37(1)of I.T. Act, 1961. (3) The CIT (Appeals) failed to appreciate that the total sale price including the above amount of Rs. 242,12,52,595/- was allowable both under section 28 and section 37 and the disallowance thereof re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f higher sugarcane price over and above SMP/FRP. The AO has concluded that the difference between the price paid as per clause 3 of the Control Order, 1966 determined by the Central Government and the price determined by the State Government under clause 5A of the Control Order, 1966, was in the nature of 'distribution of profits' and hence not deductible as expenditure. He, therefore, made an addition for such sum paid to members as well as nonmembers. Accordingly, the AO made addition of Rs. 242,12,52,600/- is on account of excess sugar cane price paid. 5. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The Ld. CIT (A) has confirmed this addition against which the assessee has come up in appeal before the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price to be paid to the cane growers. Clause 3 of the Sugar Cane (Control) Order, 1966 authorizes the Government to fix minimum sugarcane price. In addition, the additional sugarcane price is also payable as per clause 5A of the Control Order, 1966. The AO in that case concluded that the difference between the price paid as per clause 3 of the Control Order, 1966 determined by the Central Government and the price determined by the State Government under clause 5A of the Control Order, 1966, was in the nature of 'distribution of profits' and hence not deductible as expenditure. He, therefore, made an addition for such sum paid to members as well as nonmembers. When the matter finally came up before the Hon'ble Apex Court, it noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distribution of profit and the other as deductible expenditure. The relevant findings of the Hon'ble Apex Court are reproduced as under:- "9.4. ..... Therefore, to the extent of the component of profit which will be a part of the final determination of SAP and/or the final price/additional purchase price fixed under Clause 5A would certainly be and/or said to be an appropriation of profit. However, at the same time, the entire/whole amount of difference between the SMP and the SAP per se cannot be said to be an appropriation of profit. As observed hereinabove, only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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. 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, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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