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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 ..... he M.P. Sugar (Regulation of Supply and Purchase) Act, 1958 and came to conclusion that the sugarcane price paid by the Assessee which was approved by the Managing Committee of the Assessee having representations of the State Government as per the statutory provision of State Co-operative Society Act cannot be termed as distribution of profit. In view of the above factual finding arrived at by the Tribunal, we are of the opinion that the expenditure claimed by the Assessee on payment of sugarcane price cannot be considered as distribution of profit as the addition price paid by the Assessee is an expenditure allowable u/s 37 incurred wholly and exclusively for the purpose of business carried out by the Assessee in light of the findings arrived at by the Tribunal.
Tribunal was therefore right in law in deleting the additions made by way of disallowance on the additional purchase price towards the purchase of sugarcane sanctioned by the Managing Committee of the Asseessee. No substantial questions of law. X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal has erred in holding that the case of the assessee falls under sub-clause (b) of clause-5 of Sugarcane Control Order without appreciating the legal position that the 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 SA 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)?" For Assessment Year 2014-15:- "(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. 43,71,78,605/- 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, the Appellate Tribunal has erred in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sugarcane co-operative engaged in the production of sugar separately as all the Co-operative Societies are not identical. 7. Being aggrieved by the order passed by the CIT (Appeals), the respondent-assessee preferred an appeal before the Tribunal challenging the addition made and confirmed regarding the sugarcane price paid by the asseessee in excess of the SMP. 8. Tribunal after taking into consideration the submissions made and the case was relied upon by both the sides arrived at finding of fact to the effect that Sugarcane Control Order 1966 was amended in October 2009 by inserting sub clause(g) in clause-3 which provides for giving reasonable margins to the growers of the sugarcane on account of risk and profits and therefore the FRP is nothing but another name of SMP after 2009-10. The Tribunal referred to the Sugarcane Control Order 1966 as amended from time to time and after considering the amended provisions and the procedure prescribed for determination of the FRP held as under:- "17. We find that Constitution Bench of Five Judges of Hon'ble Supreme Court in a majority decisions in U.P Cooperative Cane Federations Vs West UP Sugar Mills Association and others (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibition in that behalf to pay higher price. That would be further clear by clause 3(2) which speaks of the contract between the parties for payment of higher price of sugarcane fixed under sub-clause (1) of clause 3 pursuant to the agreement or pursuant to the minimum price fixed by the Central Government under clause 3 (1) of the Order. It was observed in paras 9 and 10 that there was no prohibition for the cane growers and occupiers of the sugar factories in entering into oral agreement through the service of the Cane Commissioner, a statutory authority, who could effect such an agreement. The agreement would not be tainted with compulsion but in novation of the minimum price fixed under the 1966 Order. Alter noticing the provisions of the M.P. Act. which are somewhat similar to U.P. Act, it was held as under in para 13 of the Reports: "13. It would thus be clear that the Cane Commissioner having power to compel the cane-growers to supply cane to the factory or khandsari unit, he has incidental power and is duty bound to ensure payment of the price of the sugarcane supplied by the sugarcane grower. The price fixed or agreed is a statutory price and bears the stamp of statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nforce the liability....." It was also observed in the same paragraph that the State Government acted in their statutory capacity to fix the higher price of the sugarcane. These cases clearly lay down that under the 1966 Order the Central Government only fixes the minimum price and it is always open to the State Government to fix a higher price. Under the enactments made by the State Legislatures areas are reserved for the sugar factories and the cane growers. therein are compelled to supply sugarcane to them and therefore the State Government has incidental power to fix the price of sugarcane which will also be statutory price. They further lay down that the Cane Commissioner can direct the cane growers and the sugar factories to enter into agreements for purchase of sugarcane at a price fixed by the State Government and such agreements cannot be branded as having been obtained by force or compulsion. 18. Thus, keeping in view of the aforesaid decision of Hon'ble Apex Court, we find convincing force in the submissions of Id Senior Counsel for the assessee that as per clause 3 (2) of Sugar Cane control order prohibits everyone from selling or purchasing sugar cane at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in Mehsana District Co-operative Milk Producers Union Ltd. (supra) while considering the question of law as to whether a claim for deduction was allowable either under section 28 or section 37 (1). The Hon'ble Court held that the assessee claimed that additional payment was made towards the price of the milk. The Assessing Officer disallowed the same on the ground of profit adjustment. The CIT (Appeals) affirmed the order of the Assessing Officer. The Tribunal allowed the assessee's claim. Various contentions were sought to be canvassed before the learned High Court. The High Court noted the legal position as to when accrual of profits can be said to have accrued. It considered the case, of CIT Vs Ashokbhai Chimanbhi [1965] 56 ITR 42 (SC) and noted that the words "accrue" and "arise" are used to contradistinguish the word 'receive'. Income is said to be received when it reaches the assessee. When the right to receive the income becomes vested in the assessee, it is said to accrue or arise. Dealing with profits, this is what the learned Court said: "Profits do not accrue from day-today or even from month-to-month and have to be ascertained by a compariso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 9. The Tribunal thus arrived at finding of fact that the payment of additional sugarcane price paid by the Asseessee with the approval of the Managing Committee is not distribution of profit and therefore, whatever price was paid by the Asseessee was allowable under Section 37 (1) of the Act. 10. Learned advocate Mr. Rudram Trivedi for the Appellant-Revenue submitted though Clause 5A is deleted from October, 2009, any amount paid in excess of the SMP or FRP would be nothing but distribution of profit by the Respondent-Assessee. It was submitted that post 2009 amendment SMP regime changed to FRP regime under which the Central Government is determining the fair and remunerative price and in the facts of the case admittedly the Respondent-Assessee has paid the sugarcane purchase price more than the SMP or FRP and therefore, the Assessing Officer was j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back to the Assessing Officer so as to reply the Circular of the CBDT. 10.6. It was therefore submitted that the Tribunal has failed to consider the above aspects and the the order passed by the Tribunal is in contradictory to the decision of the Hon'ble Apex Court in the case of CIT Vs. Tasgaon Taluka S.S.K.Ltd. (Supra). 11. Per contra, learned Senior Advocate Mr. S.N. Soparkar appearing for the Caveator submitted that the decision relied upon by the Revenue in the case of CIT Vs. Tasgaon Taluka S.S.K. Ltd. (Supra) is not applicable in the facts of the case. It was pointed out that the facts involved in the said decision pertains to year 1996-97 and 1997-98 which are prior to October 2009 when Clause 5A which was in question being additional price payable to the growers of the sugarcane as per the said clause before the Apex Court. It was therefore submitted that in the facts of the case before this Court, Assessment Years involved are 2012-2013 to 2014-15 and therefore, the decision of the Hon'ble Apex Court pertaining to the years 1996-97, 1997-98 and Clause 5A of the Sugarcane Control Order 1966 was in existence, would not be applicable and therefore, the reliance placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer could not have made any addition by substituting the business decision of the assessee to pay the sugarcane price to the sugarcane growers as agreed between them. This Court in case of Commissioner of Income-tax Vs. Mahesana District Co-operative Milk Producers Union Ltd. (Supra) while considering the dis-allowance made in the facts of said case under Sections 28 and 37 has held as under:- "16. It is necessary to take note of the fact that the Assessing Officer had made disallowance in the alternative i.e., either under section 28 or under section 37 of the Act. The law as to how profits must be ascertained before being brought to tax under section 28 of the Act is well established. Subject to any specific provision under the Act, the profits to be assessed have to be the "real profits" and are required to be determined on ordinary principles of commercial trading and commercial accounting. In other words, a claim for deduction for which there is no specific provision under the Act would be admissible under section 28 of the Act having regard to the accepted commercial practice and trading principles, if it can be said to have been incurred for the purpose of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sugarcane-growers' cooperative society. So far as the power of the Central Government is concerned, under clause 3 (1) it can fix only the "minimum price" of sugarcane to be paid by producers of sugar for the sugarcane purchased by them. This is the lowest-permissible rate. The effect of clause 3 (2) is that a producer of sugar can under no circumstances purchase sugarcane at a price lower than the minimum price fixed under clause 3 (1) and there is a similar prohibition on the canegrower and he cannot sell or agree to sell sugarcane to a producer of sugar below the said price. But the 1966 Order, in view of the definition of "price" given in clause 2 (g) and also the language used in clauses 3 and 3-A, clearly contemplates that there can be a price other than the "minimum price" of sugarcane fixed under clause 3 (1), namely, the "price agreed to between the producer and the sugarcane-grower or the sugarcane-growers' cooperative society". Clause 5-A lays down that where a producer of sugar purchases sugarcane from a grower of sugarcane during each sugar year, he shall in addition to the minimum sugarcane price fixed under clause 3 pay to the sugarcane-grower an additional ..... X X X X Extracts X X X X X X X X Extracts X X X X
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