2021 (10) TMI 1357 - AT - Income Tax

Payment of e xcessive price for purchase of sugarcane - HELD THAT - 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. At this stage it is made clear that the distribution of profits can only be qua the payments made to the members. In so far as the nonmembers are concerned the case will be considered afresh by the AO by applying the provisions of section 40A(2) of the Act as has been held by the Hon ble Supreme Court Tasgaon Taluka S.S.K. Ltd. 2019 (3) TMI 321 - SUPREME COURT Needless to say the assessee will be allowed a reasonable opportunity of hearing by the AO in such fresh determination of the issue. Disallowance on account of sugar sold to members at concessional rate - In our considered opinion it would be just and fair if the impugned order on this score is set aside and the matter is restored to the file of AO instead of to the CIT(A) for fresh consideration as to whether the difference between the average price of sugar sold in the market and that sold to members at concessional rate is appropriation of profit or not in the light of the directions given by the Hon ble Supreme Court in the case of Krishna Sahakari Sakhar Karkhana Limited 2012 (11) TMI 669 - SUPREME COURT - Restoration to the AO is necessitated because following the judgment of the Hon ble Apex Court in the case of Tasgaon Taluka S.S.K. Ltd. (supra) we have remitted the issue of payment of excessive price to the file of AO and as such the instant issue cannot be sent to ld. CIT(A) as it would amount to simultaneously sending one part of the same assessment order to the AO and other to the CIT(A) which is not appropriate. Disallowance on account of VSI Contribution - assessee made provision for Vasantdada Sugar Institute (VSI) contribution and claimed deduction u/s.35(1) - HELD THAT - Ground decided in favour of the assessee.

Summary

Issues:
1. Disallowance of excess cane price paid to sugarcane suppliers.
2. Disallowance of sugar sold at concessional rates to members.
3. Disallowance of VSI Contribution.

Issue 1: Disallowance of Excess Cane Price:
The appeal concerns the confirmation of disallowance of Rs.89,71,55,742 for excessive cane price paid to sugarcane suppliers. The AO disallowed the amount as it exceeded the Fair and Remunerative Price (FRP) set by the Government. The AO relied on a Supreme Court judgment to support the disallowance. However, the ITAT Pune referred to a recent Supreme Court judgment in a similar case, directing the AO to determine the profit component embedded in the excess payment. The ITAT set aside the order and remitted the matter to the AO for a fresh decision, allowing deduction for the price paid under the Sugar Cane Control Order, 1966, and considering the profit-sharing aspect separately.

Issue 2: Disallowance of Concessional Sugar Sale:
The second issue involves the disallowance of Rs.1,64,81,286 for selling sugar to members at concessional rates. The AO treated the difference between market price and concessional rate as an appropriation of profit. The ITAT Pune referred to a Supreme Court judgment in a similar case, instructing the lower authority to consider if selling sugar at concessional rates is a common practice in the cooperative sugar industry. The ITAT set aside the order and remitted the matter to the AO for fresh examination based on the Supreme Court's directions.

Issue 3: Disallowance of VSI Contribution:
Regarding the disallowance of Rs.18,92,275 for Vasantdada Sugar Institute (VSI) contribution, the AO rejected the deduction under section 35(1) as the amount was not paid to the institute. However, the ITAT Pune noted a favorable decision by the Pune Benches of the Tribunal in a similar case, where the deduction was allowed. As there was no evidence of reversal or modification of this decision by the High Court, the ITAT decided in favor of the assessee, allowing the deduction for VSI Contribution.

In conclusion, the ITAT Pune partially allowed the appeal for statistical purposes, remitting the first two issues back to the AO for fresh consideration in line with relevant Supreme Court judgments. The ITAT decided in favor of the assessee for the VSI Contribution disallowance based on a precedent set by the Pune Benches of the Tribunal.