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TMI Blog2020 (3) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... ,33,87,256/- and at Rs. Nil for assessment year 2013-14 and 2014-15. Thereafter, the assessee's case was selected for scrutiny and assessment orders u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') was passed by making certain additions / disallowances to the total income. 4. At the very outset, the Ld. Counsel for the assessee submitted that the solitary issue raised in the present appeal is covered by the decision of the Co-ordinate Bench of the Tribunal, Pune in the case of Manganga SSK Ltd. Vs. ACIT & Others, ITA No.344/PUN/2017 and ITA No.545/PUN/2017 for the assessment years 2010-11 and 2012-13 and Others. 5. The Ld. DR has fairly conceded to the submissions made by the Ld. AR of the assessee. 6. We have perused the case records and heard the rival contentions. We have also considered the decision of the Co-ordinate Bench of the Tribunal, Pune relied on the by the Ld. AR of the assessee. The Co-ordinate Bench of the Tribunal, Pune in the case of Manganga SSK Ltd. Vs. ACIT & Others (supra.) on the issue has held as follows: "14. We have heard both the sides and gone through the relevant material on record. Before proceeding further, we conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for each year on month to month basis apart from Diwali. 15. On an analysis of the position discussed above, it clearly emerges that after the advent of the Hon'ble Supreme Court judgment in Krishna SSK Ltd. (supra), the earlier judgments rendered by the Hon'ble High Courts and the orders passed by the Tribunal in favour of the assessee do not continue to hold the field anymore. Our attention has not been drawn towards judgment of any Hon'ble High Court or order of the Tribunal in which the issue under consideration has been decided after considering the judgment of the Hon'ble Supreme Court in Krishna SSK (supra), which thereby renders the issue in question as virgin. 16. At this stage, it is relevant to note that the Hon'ble Supreme Court in Tasgaon SSK Ltd. (supra) had an occasion to deal with a connected issue of purchase of sugarcane by the sugar factories from its members at excessive price, which we have discussed hereinab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sugar industry at excessive price in juxtaposition to the sale of sugar as finished product to members at concessional price, we find that both of them directly affect the gross profit of the sugar mills. If a part of the excessive purchase price of sugarcane paid has been held to be in the nature of 'appropriation of profit', then obviously a part of the concession given to members on sale of sugar, by the same standard and on the same parity of reasoning, would also have to be considered as 'appropriation of profit'. 18. At this juncture, it is pertinent to note that the AO has held that the amount in question is disallowable not u/s 37(1) of the Act, but: `supply of sugar at concessional rate, as against the prevalent market price, is nothing but an appropriation of profit and in the nature of application of income'. Thus, the view point of the AO of `appropriation of profit' by the assessee to its members by means of selling sugar at concessional price is based on the premise that a co-operative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d legal position that no one can make profit from self. In this regard, it will be befitting to note the judgment of the Hon'ble Summit Court in Sir Kikabhai Premchand vs. CIT (1953) 24 ITR 506 (SC), in which the assessee employed the method of valuing the closing stock at the cost price. The deeds of trust were valued for the purpose of stamp at the market value of the shares and silver bars prevailing at the dates of their execution. The assessee, however, showed the transfer of these shares and silver bars to the trustees in the books of account at the cost price thereof by contending that the market value of the said shares and silver bars, on which the stamp duty was based, could not be the basis for computing his income from the stock-in-trade thus transferred. The Income Tax Officer did not accept this contention and assessed the profit at the difference between the cost price of the said shares and silver bars and the market value thereof at the date of their withdrawal from the business. The AAC, the Tribunal as also the Hon'ble High Court rejected the contention of the assessee. When the matter was brought to the Hon'ble Apex Court, it held, by a majority view that : `The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis sale made to non-members. This differential amount of Rs. 20/- is loss of potential profit and not appropriation of profit. Going by the ratio in the case of Sir Kikabhai (supra), the assessee society cannot earn profit from the sale of sugar to its members. 23. It is further relevant to note that difference between the market price of sugar and concessional sale price may entail two situations. The first one is of simplicitor loss of potential profit and second one is of actual loss of profit when sugar is sold to members at below its cost price. Whereas, the simplicitor loss of potential profit cannot be termed as appropriation of profit, sale of sugar to members at below its cost price results in appropriation or distribution of profits earned from normal business operations to members in the garb of sale at a price below the cost price. The position can be understood with the help of an example. Suppose market price of sugar is Rs. 100/- and the cost price is Rs. 80/-. If the assessee sells sugar at concessional rate to its members at, say, Rs. 85/- per kg., it is obviously recovering its cost of Rs. 80/- in addition to earning profit of Rs. 5/-. In such a situation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 25. The ld. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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