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TMI Blog2019 (11) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied sugar to its members at concessional rate. On being called upon to explain as to why the difference between the Fair Market price and the Concessional price should not be disallowed as it was nothing but distribution of profit, the assessee relied on the judgment in CIT Vs. Terna Shetkari SSK Ltd. (2008) 168 Taxman 266 (Bom.) to contend that similar issue was not pressed by the ld. DR before the Hon ble Bombay High Court, which implied that the Department acquiesced the decision of the lower courts in allowing relief. Not convinced with the assessee s submissions, the AO opined that the disallowance in the case of Terna SSK Ltd. (supra) was made by the AO as nonbusiness expenditure. In his opinion, supply of sugar at concessional rate as against the prevalent market price was nothing but appropriation of profit and in the nature of application of income. Considering the difference between the market price and the concessional price charged vis-a-vis the quantity supplied by the assessee to its member cane-growers, the AO worked out an addition of ₹ 8,32,433/-. The assessee carried the matter before the ld. CIT(A), who noticed that similar issue ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mainly relying on the judgment of Hon ble Supreme Court in the case of A. Raman and Co. (1968) 67 ITR 11 (SC), that the law does not oblige a trader to make maximum profit out of his trading transactions. Reliance was also placed on certain other decisions including CIT Vs. Calcutta Discount Co. Ltd. 91 ITR 8 (SC); H.M. Kashiparekh Co. Ltd. Vs. CIT 39 ITR 706 (Bom.); CIT Vs. Shoorji Vallabhdas Co. 46 ITR 144 (SC); Rogers Pyatt Shellac Co. Vs. Secretary of State for India 1 ITC 363 (Cal.); Union of India Vs. Azadi Bachao Andolan 263 ITR 706 (SC); and Vodafone International Holdings B.V. Vs. Union of India 341 ITR 1 (SC) to contend that the profit charged to tax by the authorities below was not in accordance with law as it amounted to taxing notional income. 13. Per Contra, the ld. DR relied on the judgment of Hon ble Supreme Court in Tasgaon SSK Ltd. (supra) to contend that the authorities below rightly treated the difference between the Fair Market price and Concessional price charged from members of the assessees co-operative societies as appropriation of profit . For supporting the charging of lower price for sugar sold to members as constituting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approached the Hon ble Supreme Court against all such judgments passed by the High Courts. Vide its common judgment dated 25.09.2012 in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (supra) , as a lead matter and covering several other cases in which similar issue was decided in favour of the assessee, the Hon ble Supreme Court set-aside the judgments passed by the Hon ble High Courts and restored the matter to the CIT(A) for deciding the question afresh as to whether the difference between the actual price of sugar sold in the market and the price of sugar sold by the assessee to its members at concessional rate should or should not be added to the total income of the assessee. Apart from the above question, the Hon ble Supreme Court further directed the CIT(A) to take into account whether the above mentioned practice of selling sugar at concessional rate has become the practice or custom in the sugarcane industry ?; whether any resolution has been passed by the State Government supporting the practice ? It further held that the CIT(A) before reaching any conclusion would also consider on what basis the quantity of sugar was being fixed for sale to farmers and growers/members fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he differential amount would form part of the distribution of profit. Relevant discussion has been made in Para 9.4 of the judgment in which it has been categorically held that: 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. The matter was sent back to the AO with certain directions to find out the element of appropriation of profits embedded in the price fixed under clause 5A. 17. In view of the above judgment in the case of Tasgaon SSK Ltd.(supra) , it is clear that the Hon ble Apex Court has, in principle, held that the excessive cane price paid to the members is, to some extent, in the nature of appropriation of profit which should be charged to tax in the hands of the assessee. When we consider the nature of transaction dealt with by the Hon ble Supreme Court, being, purchase of sugarcane as raw material in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... potential profit is not earned from members or to simply put, a case of loss of potential profit. Whereas, the appropriation of profit is possible in the first situation, which is akin to the purchase of sugarcane from the members at excessive price resulting in diverting the profit earned from normal business operations to the members in the form of excess price of sugarcane, the appropriation of profit is not possible in the second situation, which is akin to the sale of sugar at concessional rate. The second situation of selling sugar at concessional rate is in the nature of foregoing potential profit which would have been otherwise earned had sugar been sold at market price. As the second situation has the effect of foregoing potential profit, it cannot be equated with an appropriation of profit except where the sale of sugar is made at below the actual cost. 21. Again apropos the view point of the AO in treating the co-operative society and its members as one and the same thing with the theory of appropriation of profit, we underscore the settled legal position that no one can make profit from self. In this regard, it will be befitting to note the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit on sale of sugar to members at concessional rate. We have noted above that the appropriation of profit pre-supposes profit which can be appropriated to the members of the co-operative society. In so far as the purchase of sugarcane from members at higher price is concerned, it clearly amounts to business profit percolating to the members in the shape of excess cane price given to the members. For example, if the SMP of sugarcane is ₹ 100/- and a sugar factory is purchasing sugarcane from its members at say, ₹ 120/-, in a way it is passing on its profit earned from normal business transactions to its members to the extent of excess price paid. This is the essence of the judgment in the case of Tasgaon SSK Ltd. (supra.). But the transaction of sale of sugar to members at concessional rate cannot be considered as appropriation of profit, but a case of not earning some potential profit. To illustrate, if sugar is sold at concessional price at ₹ 80/- against the prevalent price of ₹ 100/-, what the sugar mill is doing is that it is charging its members less by ₹ 20/-, vis-a-vis sale made to non-members. This differential amount of ₹ 20/- is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually earned from the members. We do agree with this proposition provided it is not a case of appropriation of profit. We have discussed hereinabove that in case of transaction between two independent parties, the assessee is not obliged to earn maximum profit. However, this proposition is not attracted in case the transaction is not commercial or genuine. Such a proposition cannot be extended to the cases where the amount of profit is intentionally allowed to be passed on to the members or owners. In the same case of A. Raman Co. (supra) and in the same para no. 8, the immediately next line is an exception to the general rule whereby their Lordships noted that: `By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee. Precisely, this is the proposition in the case of Tasgaon SSK Ltd. (supra) as well that an income belonging to the assessee which has been appropriated to the members should be brought to tax in the hands of the assessee only. Similar is the position in so far as sale of sugar at concessional rate to members b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 54,41,283/-. The AO opined that the income chargeable to tax escaped assessment. He, therefore, issued notice u/s.148 on 14-03-2012 and eventually made the addition of ₹ 54.41 lakh on account of sale of sugar at concessional rate, which aspect we have discussed supra on merits. The assessee remained unsuccessful before the ld. CIT(A) on initiation of re-assessment proceedings. Now the assessee has approached the Tribunal against the impugned order on this score. 7. We have heard both the sides and gone through the relevant material on record. 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve price paid was in the nature of `distribution of profits and hence not deductible. This is how, he computed the excessive cane price paid both to the members and non-members and made addition for the said sum. The ld. CIT(A) in some cases deleted the addition, fully or partly, whilst in others the addition got sustained. This led to filing of the cross appeals both by the assessee as well as the Revenue before the Tribunal. 5. We have heard both the sides and gone through the relevant material on record. There is consensus ad idem between the rival parties that the 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 SSK Ltd. (2019) 412 ITR 420 (SC) . The Hon ble Apex Court, vide its judgment dated 05-03-2019, has elaborately dealt with this issue. It recorded the factual matrix that the assessee in that case purchased and crushed sugarcane and paid price for the purchase during crushing seasons 1996-97 and 1997-98, firstly, at the time of purchase of sugarcane and then, later, as per the Mantri Committee advice. It further noted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thereafter determine as to what amount would form part of 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 for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of accounts, balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under Clause 5A of the Control Order, 1966. Merely because the higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO by applying the provisions of section 40A(2) of the Act, as has been held by the Hon ble Supreme Court supra. Needless to say, the assessee will be allowed a reasonable opportunity of hearing by the AO in such fresh determination of the issue. 11. Since the facts and circumstances of the instant appeal are mutatis mutandis similar to those already considered and decided by the Tribunal in the above batch of appeals, in the given circumstances and following the precedent, we set-aside the impugned order and remit the matter to the file of the AO for deciding it in conformity with the view taken by the Tribunal as extracted above. 12. No argument was advanced qua the ground challenging the initiation of reassessment for the year under consideration. This ground, is therefore, dismissed. 13. In the result, the appeal is partly allowed for statistical purposes. A.Y. 2012-13 : 14. Ground Nos. 1 to 5 are against the Excessive Sugarcane Price paid by the assessee to its Members/Non-Members. 15. The facts of these grounds are similar to the issue discussed in the appeal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83,063/-. These grounds are not allowed. 21. Ground Nos. 11 to 13 are against the deduction u/s.80P(2)(c), 80P(2)(d) and not allowing the set off of carry forward losses properly. 22. Having heard both the sides and gone through the relevant material on record, 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. 23. Ground Nos. 14 of the appeal is against wrong mentioning of certain amounts by the ld. CIT(A) in the impugned order. The ld. AR, however, submitted that such mistakes in mentioning of the amounts are tax neutral. Without examining ..... X X X X Extracts X X X X X X X X Extracts X X X X
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