9911796707
TMI Blog2019 (3) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as a lead case, and therefore, the facts from the said appeal are narrated and considered. 3.1 The assessee (respondent herein) is a Co-operative Society engaged in the business of production of sugarcane and sale thereof. The assessee filed its return of income for the Assessment Year 1998-99 declaring 'NIL; income. In the return, the assessee computed carry forward loss of Rs. 40,00,339/- and unabsorbed depreciation of Rs. 1,67,26,665/-. The return was processed under Section 143(1) (a) of the Income Tax Act, (hereinafter referred to as the 'Act'), making adjustment of Rs. 2,02,242-/ relatable to Section 40A (3) of the Act. Thereafter the assessee filed a revised return wherein business loss was shown to the tune of Rs. 3,32,42,426/-. 3.2 A notice under Section 143(2()/142(1) of the Act was issued to the assessee. The assessee was having manufacturing activities of white sugar. It had shown the income from business of manufacturing sugar, petrol pump station and also interest under the head "income from other sources". 3.3 After scrutiny of final accounts details along with return of income and details furnished during the course of assessment proceedings, an issue ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 for sugarcane season 1996-97 and Rs. 646.50 for sugarcane season 1997-98. Therefore, the assessee was given an opportunity to explain why price paid by it to members/non-members for purchase of sugarcane, in excess of what was payable as per Clause 3 and Clause 5A of the Control Order, 1966, be not held as excessive. 3.8 In response thereto, the assessee filed written submissions. It claimed that the payment has been made as per the rate fixed by Commissionerate of Sugar, Maharashtra State, Pune, and the same is as per guidelines given by the Mantri Committee. With regard to the purchase made from non-members and members, it was the case of the assessee that payment has been made as per price agreed to at the time of purchase. It was submitted that a contract for the purchase of sugarcane has been entered into at the time of start of sugarcane and since the price is agreed at the time of purchase itself, the same is required to be allowed as deduction. It was, therefore, claimed that no disallowance be made either under Section 40A (2) of the Act or otherwise. 4. The Assessing Officer did not agree with the submissions on behalf of the assessee. The ultimate conclusion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l prices accordingly, this, however, is done at the specific request of the assessee. It is worthwhile to mention here that the society sends proposals to the Commissioner of Sugar for fixation of final cane payment. If there is higher profit available society proposes for higher payments. If available profit is less. Then proposed payment is accordingly less. This makes it clear that final payment of cane price includes profit of the society which gets distributed among the members in the form of additional cane price. The arguments of the society that regarding state advised price, it is mandatory for them to follow the same as correct to a limited extent which means that for the society it is must to pay initial advance' price which is fixed by the Commissioner of Sugar irrespective of actual profits. However, after the end of the season, it is the society "who sends the statement of surplus to the Commissioner of Sugar in which cost of the cane is taken on the basis of initial advance price and remaining surplus is proposed to be distributed on the basis of total cane quantity purchases in the season. On being proposed by society, the Commissioner of Sugar gives consent to it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P price/price determined under Clauses 3 & 5A of the Control Order, 1966, as income. 5. On an appeal, the learned Commissioner of Income Tax (Appeals), relying upon and considering the decision of a Special Bench, Mumbai ITAT in the case of Manjara Shetkari Sakhar Karkhana Limited dated 19.08.2004 allowed the appeal preferred by the assessee and held that the price actually paid for the procurement of the sugarcane is to be allowed as business expenditure. The learned CIT(A) also observed and held that the excess payment of cane price as fixed by the State Government (SAP) over and above SMP for sugarcane to members and non-members cannot be disallowed either under Section 40A(2)(b) of the Act, despite the fact that profit is one of the component in asserting the price. The CIT(A) observed that just because profit is one of the component in asserting the price, it cannot be said that profit is separately distributed in the guise of additional price. The learned CIT(A) observed that the amount paid by the assessee - cooperative society to the sugarcane growers is considered for the procurement of the sugarcane and it cannot be construed to be appropriation of profits. Consequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d analysis of the manner and method in which the sugarcane purchase price is determined under Clauses 3 & 5A of the Control Order, 1966. 7.2 It is vehemently submitted by the learned counsel appearing on behalf of the department that there are different considerations/criterias to be applied while determining the sugarcane purchase price at the stage of Clause 3 and at the stage of Clause 5A. It is submitted that even the stages are also different while determining the sugarcane purchase price at the stage of Clause 3 and determined at the stage of Clause 5A. 7.3 It is vehemently submitted by the learned counsel appearing on behalf of the department that while determining the sugarcane purchase price under Clause 5A of the Control Order, 1966, firstly, it is at the conclusion of the financial year and when the accounts are settled, and secondly, there is an element of profit. It is submitted that one of the components while dealing with the sugarcane purchase price under Clause 5A is the profit, and whatever is paid to the cane growers under Clause 5A is therefore sharing of profit. 7.4 It is further submitted by the learned counsel appearing on behalf of the department that how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in holding that the excess amount of expenditure on sugarcane purchase price was a charge of profit, i.e., diversion of profit and appropriation of profit. 7.7 Making the above submissions, it is prayed to allow the present appeals and set aside the impugned judgments and orders passed by the High Court and consequently the orders passed by the ITAT as well as CIT(As) and to restore the respective orders passed by the assessing officers. 8. Shri P. Chidambaram, learned senior advocate, Shri Shekhar Naphade, learned senior advocate have appeared on behalf of respective assesses. 8.1 Learned counsel appearing on behalf of the respective assesses have vehemently submitted that as rightly observed and held by the High Court, merely because there is an element and/or one of the components while determining the SAP under Clause 5A of the Control Order, 1966 is profit, it cannot be said that there is a sharing of profit. 8.2 It is vehemently submitted by the learned counsel appearing on behalf of the respective assesses that under the Control Order, 1966, a sugarcane society has no other alternative but to pay to the cane growers the sugarcane purchase price as determined by the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile fixing/determining the SMP under Clause 3 of the Control Order, 1966, the Central Government is required to consider the following aspects: "(a) the cost of production of sugarcane; (b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities; c the availability of sugar to the consumer at a fair price; d the price at which sugar produced from sugarcane is sold by producers of sugar; and e the recovery of sugar from sugarcane." 9.3 As per Explanation, different prices may be fixed for different areas or different qualities or varieties of sugarcane. As per sub-clause 2 of Clause 3, no person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause 1 of Clause 3. Clause 5A, which has been inserted in the year 1974 provides for an additional price to be paid for sugarcane purchased on or after 01.10.1974. It provides that where a producer of sugar or his agent purchases sugarcane, from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be noted that Clause 5A was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission. As observed by this Court in the case of Maharashtra Rajya Sahkari Sakkar Karkhana Sangh Limited (supra), the Bhargava Commission had recommended payment of additional price at the end of the season on 50:50 profit sharing basis between growers and factories, to be worked out in accordance with Second Schedule to the Control Order, 1966. It is also required to be noted that the additional price is fixed/determined under Clause 5A at the end of the season and as per Second Schedule to the Control Order, 1966. Therefore, at the time when the additional purchase price is determined/fixed under Clause 5A, the accounts are settled and the particulars are provided by the concerned cooperative society what will be the expenditure; what can be the profit etc. It is required to be noted that so far as the SMP determined under Clause 3 of the Control Order, 1966 by the Central Government is concerned, it is at the beginning of the season and while determining/fixing the SMP by the Central Government, the afore-stated things are required to be considered. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profit. So far as the non-members are concerned, the same can be dealt with and/or considered applying Section 40A (2) 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. However, this is not the subject matter in the present appeals. We are restricting the present appeals qua the sugarcane purchase price paid by the society to the cane growers above the SMP determined under Clause 3 and the difference of sugarcane purchase price between the price determined under Clause 3 and Clause 5A of the Control Order, 1966. 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. 10. In view of the above and for the reasons stated above, the question of law is answered accordingly, partly ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
