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2019 (5) TMI 628 - AT - Income TaxAddition u/s 40A(2) - Excessive sugarcane price paid to members as well as non-members of the assessee - HELD THAT - Set-aside the impugned order on this score and remit the matter to the file of the A.O for deciding it afresh as per law in consonance with the articulation of law by the TASGAON TALUKA S.S.K. LTD. 2019 (3) TMI 321 - SUPREME COURT AO would allow deduction for the price paid under clause 3 of the Sugar Cane (Control) 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 Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under this clause. The amount relatable to the profit component or sharing of profit/distribution of profit paid by the assessee, which would be appropriation of income, will not be allowed as deduction, while the remaining amount, being a charge against the income, will be considered as deductible expenditure. It is made clear that the distribution 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) 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. Since we have remitted the matter to the file of AO with certain directions as enunciated above, the cross objection filed by the assessee becomes infructuous. - Revenue s appeal is allowed for statistical purposes
Issues:
Cross appeals by the assessee and Revenue regarding excessive sugarcane price paid to members and non-members. Analysis: 1. The Revenue's appeal concerns the addition deleted by the CIT(A) for excessive sugarcane price paid by the assessee to members and non-members. The AO observed that the assessee paid above the Fair and remunerative price (FRP) fixed by the Government. The AO considered the excessive price as 'distribution of profits' and disallowed it. The CIT(A) deleted the addition, leading the Revenue to approach the Tribunal. 2. The Tribunal referred to a recent Supreme Court judgment, CIT Vs. Tasgaon Taluka S.S.K. Ltd., which extensively addressed the issue of excessive sugarcane price payments. The Court highlighted the statutory provisions under the Sugar Cane (Control) Order, 1966, regarding minimum sugarcane price and additional price payable. It emphasized that the difference between the price paid under different clauses is crucial in determining profit distribution. 3. The Supreme Court directed the AO to examine the accounts, balance sheet, and material submitted to fix the final price under the Control Order. It clarified that only the profit component embedded in the price paid under certain clauses would be considered as non-deductible profit appropriation. The Court differentiated between deductible expenditure and profit-sharing components in sugarcane price payments. 4. In line with the Supreme Court's ruling, the Tribunal set aside the previous order and remitted the matter to the AO for fresh consideration. The AO was instructed to allow deduction for payments under specific clauses of the Control Order and determine the profit-sharing component separately. The Tribunal highlighted that profit distribution considerations apply only to payments made to members, while non-members' payments would be reviewed under section 40A(2) of the Income-tax Act. 5. As the matter was remitted to the AO with specific directions, the cross objection filed by the assessee was deemed infructuous. Consequently, the Revenue's appeal was allowed for statistical purposes, and the assessee's cross objection was dismissed. The Tribunal emphasized providing the assessee with a fair hearing during the fresh determination of the issue.
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