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TMI Blog2025 (3) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... -15. "(A) Whether on the facts and in the circumstances of case and in law, the Appellate Tribunal was justified in deleting the addition of Rs.58,96,71,804/-made by the AO by disallowing the excess payment paid for purchasing of sugar cane, treating it as appropriation of profit? (B) Whether on the facts and in the circumstances of case and in law, of Income Tax Control Order without appreciating the legal position that the Appellate Tribunal has erred in holding that the case of the assessee falls under sub-clause (b) of clause-5 of Sugarcane Clause 5 dealt with only 4 years with effect from 01.11.1958 till the Sugarcane Control Order (1962) came into operation, while post October, 1974, additional price was dealt through Clause 5A which has also been deleted in October, 2009 while shifting to the "Fair and Remunerative Price (FRP)" from "Statutory Minimum Price (SMP)" regime? (C) Whether on the facts and in the circumstances of case and in law, the Appellate Tribunal was justified in not applying the ratio of the decision of the Hon'ble Apex Court in CIT vs. Tasgaon Taluka S.S.K. Ltd. [2019] 103 taxmann.com 57 (SC)? 3. The above questions are for the Assessment Yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tasgaon Taluka S.S.K. Ltd. [2019] 104 taxmann.com 57 (SC)?" 4. The respondent-assessee is engaged in the business of manufacture and sale of White Sugar. The case of assessee was selected for scrutiny. The Assessing Officer was of the view that the actual allowable expenses on account of the sugarcane purchase should be based on its Fair and Remunerative Price (FRP)/Statutory Minimum Price (SMP) and made addition for excess purchase expenses on the ground that the respondent-assessee adopted a device to reduce the taxable income by transferring the profit to the sugarcane growers who are agriculturists and in their end the purchase price paid by the assessee would be exempt being agricultural income. 5. The Assessing Officer after considering the submissions and reply filed by the Assessee disallowed the sugarcane purchase price paid by the assessee being the difference between the SNP and price determining under Clause 5A of the Sugarcane Control Order 1966 6. Being aggrieved by the dis-allowance of the sugarcane price, the Assessee filed appeal before the CIT (Appeals). The CIT (Appeals) after considering the contents of the Assessment Order and the submissions of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han minimum price is clearly left open in the 1966 Order made by the Central Government. The Hon'ble Court also referred its earlier decisions of division bench in State of M.P. Vs Jaora Sugar Mills Ltd and others (dated 10.10.1996), wherein the dispute arose on account of fixation of price under the M.P. Sugar (Regulation of Supply and Purchase) Act, 1958. The contention on behalf of the sugar factories was that Clauses 3 and 5-A of the 1966 Order determine the liability to pay the price and additional price and the Central Government having determined the price of the sugarcane under the aforesaid Order, there is no power with the State Government de hors the Order to fix any agreed price. The concept of agreed price came into force on 19.9.1976 by virtue of Clause 3-A of the said Order and until then there was no power to fix an agreed price. It was also urged that the State Government has, therefore, no power under the Act to fix any price as the field was occupied by the 1966 Order. The contention was, however, not accepted and after noticing the provisions of Clauses 3 (2) and 3 (3), it was held as under in para 8 of the Reports: "8. This would clearly indicate that de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be compelled to sell their sugarcane at a price lower than the minimum price fixed by the Central Government under Clause 3. In this case an agreement had been arrived at between Sugar Factories Owners Association and sugarcane growers, wherein a higher price was agreed to be paid but this was sought to be resiled by the appellant on the ground that it was a Company, which was an independent entity in the eye of law and was, therefore, not bound by any such agreement. After noticing the provisions of the Act and the earlier decision rendered in State of M.P. v. Jaora Sugar Mills Ltd. (supra) it was held as under in para 6 of the reports: "It is not in dispute that under Section 31 of the Supply Act, the State Government has power to fix the reserved area, in other words, zone was carved out for the appellant for the supply of sugarcane to the factory. All the farmers who are cultivating sugarcane within that zone are bound by the State action to supply sugarcane to the factories within that reserved Consequently, the factory also is bound by the actions of the State Government Obviously, pursuant to the obligation had by the State under the Supply Act, the meeting was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 5 of Sugar Cane Control order, which empowered them to pay to the producer of sugar cane, in addition to the fair and remunerative of sugar cane fixed under clause-3 (1), as an additional price in accordance with first schedule. Thus, the additional price of payment of sugar cane to the grower, for purchase of raw material (sugarcane) which was approved by the managing committee of the assessee, who is also having representation of State Government as per the statutory provision of State Cooperative Society Act, cannot be termed as a distribution of profit. Such additional payment is made to the members of the Co-operative society who are the supplier of sugarcane and to none other persons. Such payment was made for the purpose of business against the payment of raw material and not for any other purpose. 20. We further find that in a recent decision, the Hon'ble Supreme court in Kolhapur Zilla Sahkari Dudh Utpadak Sangh Ltd. (supra) while affirming the decision of Hon'ble Bombay High Court in the case of CIT Vs Solapur District Co-op Milk Producers & Process Union Ltd. (supra), held that the addition could not be made by treating the amount paid as final rate differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be termed to be application of income in absence of any evidence as to accrual of in profits light of settled legal position; the payment of additional/final price made on the last day of the accounting year is allowable under section 28 of the Act being a necessary deduction for ascertaining the real profits on principles of commercial accounting and the payment in question is alternatively allowable under section 37 of the Act having been incurred wholly and exclusively for the purpose of business carried on by the assessee in light of the evidence which has come on record. 22. The Hon'ble Apex Court in S.A. Builder (supra) held that the expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency. The Apex Court also refereed the decision of Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377, wherein it was held that once it is established that there was nexus between the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 1966. 10.3 Learned advocate Mr. Rudram Trivedi further referred to and relied upon the Circular dated 14 of 2023 dated 27.07.2023 issued by the Central Board of Direct Taxes. He submits that the issue of payment of sugarcane price in excess of over and above SMP and being in the nature of appropriation/distribution of profit and hence was not allowable as deduction by the Revenue, there was an amendment by inserting a new Clause (xvii) in Section 36 (1) of the Act to provide that the amount paid for purchase of sugarcane by the co-operative societies engaged in the manufacture of sugar at a price which is equal to or less than the price fixed by or fixed with the approval of the Government shall be allowed as deduction for computing business income of the sugar co-operative factories. The said amendment came into force from Assessment Year 2016-17 onwards. It was submitted that as per the said Circular for the year prior to both the years i.e. prior to A.Y.2016, the Assessee is required to make an application before the Assessing Officer to get the benefit of the provision of Section 36 (1) (xvii) of the Act and the suitable amendments were made in Section 155 by inserting Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erations Vs. West U.P.Sugar Mills Association and others reported in (2004) 5 SCC 430 has held that as agreed to between the producers and the Sugarcane Growers Co-operative Society is any contractual agreement, such price can be a price higher than the minimum price being in nature of agreed price. It was therefore submitted that as the Tribunal has arrived at finding of fact regarding payment of the sugarcane price by the Assessee to the Sugarcane Growers, the Assessing Officer could not have made addition on account of difference between the SMP and the additional price determined under Clause 5A of the Sugarcane Control Order,1966 though the same was not applicable for the year under consideration. 12. Having heard learned advocates appearing for the respective parties, it appears that the Tribunal after considering the decision of the Apex Court in case of U.P. Co-operative Cane Unions Federations (Supra) as well as decision of this Court in case of Commissioner of Income-tax Vs. Mahesana District Cooperative Milk Producers Union Ltd. (Supra) has arrived at and findings of fact that the sugarcane price paid by the Assessee is a purely business decision and there is no element ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the Act, such outlay cannot be disallowed. A subjective standard of reasonableness cannot be adopted by the assessing authority to disallow a part of business expenditure. Similarly, it is not open to the authority to decide what type of expenditure should an assessee incur and in what circumstances. The jurisdiction of the Assessing Officer is confined to deciding the reality of the expenditure, namely, whether the amount claimed as a deduction was actually incurred or not? In the present case, admittedly, the payment in question has been treated as a bona fide and genuine payment as recorded by the Tribunal. 13. The Hon'ble Apex Court in case of U.P. Co-operative Cane Unions Federations Vs. West U.P. Sugar Mills Association and others (Supra) has also held while analyzing 1966 order as under:- "12. The 1966 Order has been amended several times by the Central Government, Sub-clause (3) of clause 3 was substituted on 18-5-1968, clause 3-A relating to rebate that can be deducted from the price paid for the sugarcane was inserted on 24-9-1976 and clause 5-A was inserted on 25-9-1974, The definition of "price" given in clause 2 (g) shows that it can either be the price or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision again contemplates payment of price higher than the minimum price fixed under clause 3 (1). A whole reading of the 1966 Order would, therefore, show that the Central Government shall fix the minimum price of sugarcane but there can be a price higher than the minimum price which may be in the nature of agreed price between the producer of sugar and the sugarcane-grower or the sugarcane-growers' cooperative society. So the field for a price higher than the minimum price is clearly left open in the 1966 Order made by the Central Government." 14. The reliance placed by learned advocate for the Revenue on the Circular No. 14 of 2023 is misplaced as the said Circular would not be applicable in the facts of the case because the Assessing Officer making addition of the difference between the SMP and additional price defined under Clause 5A of the Sugarcane Control Order 1966, is contrary to any provisions of the said order as clause 5A has been deleted since October, 2009. Moreover, the Tribunal has arrived at finding of fact to the effect that the Respondent-Assessee has paid the amount of sugarcane purchase price on the basis of agreed price between the parties. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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