Sahakar Maharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd. v. ACIT, Ahmednagar Circle, Ahmednagar
[Citation -2019-LL-0905-88]

Citation 2019-LL-0905-88
Appellant Name Sahakar Maharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd.
Respondent Name ACIT, Ahmednagar Circle, Ahmednagar
Court ITAT-Pune
Relevant Act Income-tax
Date of Order 05/09/2019
Assessment Year 2013-14
Judgment View Judgment
Keyword Tags reasonable opportunity of being heard • additional sugarcane price • distribution of profit • co-operative society • capital receipt • membership fee
Bot Summary: 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. Their Lordships noted that at the time when additional purchase price is determined/fixed under clause 5A, the accounts are settled and the particulars are provided by the concerned Co-operative Society as to what will be the expenditure and what will be the profit etc. Considering the fact that Statutory Minimum Price, determined under clause 3 of the Control Order, 1966, which is paid at the beginning of the season, is deductible in the entirety and the difference between SMP determined under clause 3 and SAP/additional purchase price determined under clause 5A, has an element of distribution of profit which cannot be allowed as deduction, the Hon ble Supreme Court remitted the matter to the file of the AO for considering the modalities and manner in which SAP/additional purchase price/final price is decided. 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. 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. So far as the non-members are concerned, the same can be dealt with and/or considered applying Section 40A of the Act, i.e., the assessing officer on the material on record has to determine whether the amount paid is excessive or unreasonable or not....... 9.5 Therefore, the assessing officer will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of the profit and after undertaking such an exercise whatever is the profit component is to be considered as sharing of profit/distribution of profit and the rest of the amount is to be considered as deductible as expenditure. The AO would allow deduction for the price paid under clause 3 of the Sugar Cane 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 5 ITA No.1258/PUN/2017 Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under this clause.


IN INCOME TAX APPELLATE TRIBUNAL BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM. ITA No.1258/PUN/2017 Assessment Year : 2013-14 Sahakar Maharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd., At Post Amrutnagar, Tal. Sangamner, Ahmednagar-411608. PAN : AAAAS3893G Appellant V/s. ACIT, Ahmednagar Circle, Ahmednagar. Respondent Assessee by : None Revenue by : Mrs. Shabana Parveen Date of Hearing : 26.08.2019 Date of Pronouncement : 05.09.2019 ORDER PER D. KARUNAKARA RAO, AM: This appeal is filed by assessee against order of CIT(A)-2, Pune dated 22.12.2016 for Assessment Year 2013-14. 2. Despite service of notice of hearing, there was none to represent assessee. Therefore, this appeal is being decided on basis of material available on record and after hearing ld. DR for Revenue. 3. In this appeal, assessee raised 17 grounds. Out of 17 grounds, 2 grounds are main grounds and same relates to (i) addition on 2 ITA No.1258/PUN/2017 account excess sugarcane price; and, (ii) addition on account of C-class membership fee. 4. Before us, ld. DR for Revenue explaining facts submitted that assessee is Sahakari Sakhar Karkhana (SSK). assessment was completed and determined total income at Rs.85,28,35,688/- against returned income of Rs.30,02,35,610/-. 5. Mentioning that issue relating to excess sugarcane price, ld. DR for Revenue submitted that this issue is re-visited to file of Assessing Officer. In this regard, ld. DR furnished copy of order of Tribunal dated 14-03-2019 vide which bunch of 162 appeals were disposed of by Co-ordinate Bench, lead case being Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT in ITA No. 308/PUN/2018 for assessment year 2013-14. 6. Considering order of Co-ordinate Bench in case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra) etc., we observe that issue raised in present appeal has already been considered and decided by Co-ordinate Bench. Excess Cane Price Paid to Sugarcane Suppliers 7. Co-ordinate Bench after considering judgment of Hon ble Supreme Court of India in case of CIT Vs. Tasgaon Taluka S.S.K. Ltd. reported as 103 taxmann.com 57 has decided this issue as under : 3 ITA No.1258/PUN/2017 5. We have heard both sides and gone through relevant material on record. There is consensus ad idem between rival parties that issue of payment of excessive price on purchase of sugarcane by assesses is no more res integra in view of recent judgment of Hon ble Supreme Court in CIT Vs. Tasgaon Taluka S.S.K. Ltd. (2019) 103 taxmann.com 57 (SC). Hon ble Apex Court, vide its judgment dated 05- 03-2019, has elaborately dealt with this issue. It recorded factual matrix that assessee in that case purchased and crushed sugarcane and paid price for purchase during crushing seasons 1996-97 and 1997- 98, firstly, at time of purchase of sugarcane and then, later, as per Mantri Committee advice. It further noted that production of sugar is covered by Essential Commodities Act, 1955 and Government issued Sugar Cane (Control) Order, 1966, which deals with all aspects of production of sugarcane and sales thereof including price to be paid to cane growers. Clause 3 of Sugar Cane (Control) Order, 1966 authorizes Government to fix minimum sugarcane price. In addition, additional sugarcane price is also payable as per clause 5A of Control Order, 1966. AO in that case concluded that difference between price paid as per clause 3 of Control Order, 1966 determined by Central Government and price determined by State Government under clause 5A of Control Order, 1966, was in nature of `distribution of profits and hence not deductible as expenditure. He, therefore, made addition for such sum paid to members as well as non- members. When matter finally came up before Hon ble Apex Court, it noted that clause 5A was inserted in year 1974 on basis of recommendations made by Bhargava Commission, which recommended payment of additional price at end of season on 50:50 profit sharing basis between growers and factories, to be worked out in accordance with Second Schedule to Control Order, 1966. Their Lordships noted that at time when additional purchase price is determined/fixed under clause 5A, accounts are settled and particulars are provided by concerned Co-operative Society as to what will be expenditure and what will be profit etc. Considering fact that Statutory Minimum Price (SMP), determined under clause 3 of Control Order, 1966, which is paid at beginning of season, is deductible in entirety and difference between SMP determined under clause 3 and SAP/additional purchase price determined under clause 5A, has element of distribution of profit which cannot be allowed as deduction, Hon ble Supreme Court remitted matter to file of AO for considering modalities and manner in which SAP/additional purchase price/final price is decided. He has been directed to carry out exercise of considering accounts/balance sheet and material supplied to State Government for purpose of deciding/fixing final price/additional purchase price/SAP under clause 5A of Control Order, 1966 and thereafter determine as to what amount would form part of distribution of profit and other as deductible 4 ITA No.1258/PUN/2017 expenditure. relevant findings of Hon ble Apex Court are reproduced as under:- 9.4. ..... Therefore, to extent of component of profit which will be part of final determination of SAP and/or final price/additional purchase price fixed under Clause 5A would certainly be and/or said to be appropriation of profit. However, at same time, entire/whole amount of difference between SMP and SAP per se cannot be said to be appropriation of profit. As observed hereinabove, only that part/component of profit, while determining final price worked out/SAP/additional purchase price would be and/or can be said to be appropriation of profit and for that exercise is to be done by assessing officer by calling upon assessee to produce statement of accounts, balance sheet and material supplied to State Government for purpose of deciding/fixing final price/additional purchase price/SAP under Clause 5A of Control Order, 1966. Merely because higher price is paid to both, members and non-members, qua members, still question would remain with respect to distribution of profit/sharing of profit. So far as non-members are concerned, same can be dealt with and/or considered applying Section 40A (2) of Act, i.e., assessing officer on material on record has to determine whether amount paid is excessive or unreasonable or not........ 9.5 Therefore, assessing officer will have to take into account manner in which business works, modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of profit and after undertaking such exercise whatever is profit component is to be considered as sharing of profit/distribution of profit and rest of amount is to be considered as deductible as expenditure. 6. Both sides are unanimously agreeable that extant issue of deduction for payment of excessive price for purchase of sugarcane, raised in most of appeals under consideration, is squarely covered by aforesaid judgment of Hon ble Supreme Court. Respectfully following precedent, we set-aside impugned orders on this score and remit matter to file of respective A.Os. for deciding it afresh as per law in consonance with articulation of law by Hon ble Supreme Court in aforenoted judgment. AO would allow deduction for price paid under clause 3 of Sugar Cane (Control) Order, 1966 and then determine component of distribution of profit embedded in price paid under clause 5A, by considering statement of accounts, balance sheet and other relevant material supplied to State 5 ITA No.1258/PUN/2017 Government for purpose of deciding/fixing final price/additional purchase price/SAP under this clause. amount relatable to profit component or sharing of profit/distribution of profit paid by assessee, which would be appropriation of income, will not be allowed as deduction, while remaining amount, being charge against income, will be considered as deductible expenditure. At this stage, it is made clear that distribution of profits can only be qua payments made to members. In so far as non-members are concerned, case will be considered afresh by AO by applying provisions of section 40A(2) of Act, as has been held by Hon ble Supreme Court supra. Needless to say, assessee will be allowed reasonable opportunity of hearing by AO in such fresh determination of issue. 7. It is noted that in some of appeals, assessees have raised alternate ground for allowing deduction u/s.80P in respect of addition. 8. ld. ARs, in some of cases, which were represented by them, were fair enough not to press such ground as it is only alternate ground and having become infructuous in view of restoration of matter to AO. No argument was advanced in support of such ground in other cases, even where ld. ARs participated in proceedings before Tribunal. Therefore, said alternate ground in all such cases is dismissed. 8. Thus, in view of statement made by both sides that facts in present appeal are identical, issue relating to excess sugarcane price paid by assessee is restored to file of Assessing Officer with similar directions as above in case of Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra). Assessing Officer shall decide issue after affording reasonable opportunity of being heard to assessee in accordance with law. Thus, relevant grounds raised by assessee on this issue are allowed for statistical purposes. 6 ITA No.1258/PUN/2017 C-class membership fee 9. Regarding second issue of nature of C-class membership fee, it is case of assessee that fee received by assessee constitutes capital receipt and same is not taxable. After going through contents of para 6 to 7.2 of order of CIT(A) as well as para 6 to 6.3 of assessment order, we find Assessing Officer erroneously assumed that same, being collected by assessee, is of revenue nature. Whereas assessee holds same is capital nature. Without deciding nature of receipt, ld. CIT(A) confirmed addition made by Assessing Officer. 10. Considering same, in our view, said issue is required to be remitted to file of Assessing Officer for one more round of adjudication. Accordingly, Assessing Officer is directed to examine precedents on this issue and conduct of assessee in treating same as capital nature in earlier/later assessment year. Therefore, we are of opinion that this issue relates to C-class membership fee is required to be remanded to file of Assessing Officer for fresh adjudication. Assessing Officer shall grant reasonable opportunity of being heard to assessee and pass speaking order. Accordingly, relevant grounds raised by assessee on this issue are allowed for statistical purposes. 7 ITA No.1258/PUN/2017 11. In result, appeal of assessee is allowed for statistical purposes. Order pronounced on 05th day of September, 2019. Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune; Dated : 05th September, 2019. Sujeet Copy of Order forwarded to : 1. Appellant. 2. Respondent. 3. CIT(A)-2, Pune. 4. Pr. CCIT, Pune. 5. DR, ITAT, Bench, Pune. 6. Guard File. BY ORDER, True Copy Senior Private Secretary , ITAT, Pune. Sahakar Maharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd. v. ACIT, Ahmednagar Circle, Ahmednagar
Report Error