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TMI Blog2019 (9) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of Rs. 13.45 crore and the assessment was completed at loss of Rs. 4.49 crore and odd. 3. The first ground is against the confirmation of disallowance on account of excess cane price paid to sugarcane suppliers. 4. The AO observed during the course of assessment proceedings that the assessee paid excessive cane price, over and above the Fair and remunerative price (FRP) fixed by the Government, to its members as well as non-members. On being called upon to justify such deduction, the assessee gave certain explanation by submitting that such payment was solely and exclusively in connection with the business and the entire amount was deductible u/s.37(1) of the Income-tax Act, 1961 (hereinafter also called `the Act'). The AO computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. He, therefore, made an addition for such sum paid to members as well as non-members. When the matter finally came up before the Hon'ble Apex Court, it noted that clause 5A was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission, which recommended payment of additional price at the end of the season on 50:50 profit sharing basis between the growers and factories, to be worked out in accordance with the Second Schedule to the Control Order, 1966. Their Lordships noted that at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of profit. However, at the same time, the entire/whole amount of difference between the SMP and the SAP per se cannot be 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. Merely because the higher price is paid to both, members and non-memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution 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. 7. 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 non-members are concerned, the case will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would also consider on what basis the quantity of the final product, i.e. sugar, is being fixed for sale to farmers/cane growers/Members each year on month-to-month basis, apart from others from Diwali?" The issue under consideration can be decided by an appropriate lower authority only on the touchstone of the relevant factors noted in the above judgment. 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 direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who were also members of the labour group and each group consisted of 15- 20 gents and 15-20 ladies with payment to each individual at less than Rs. 3,000/- to Rs. 4,000/- per month. The assessee further submitted that no payment during the year to such individuals exceeded Rs. 50,000/-. It is noted that the Hon'ble jurisdictional High Court in the case of CIT Vs. Dwarkadheesh Sakhar Karkhana Ltd. vide its judgment dated 08-01-2018 in ITA No.480/2015 has held that the provisions of section 194C are not attracted in respect of payments made by the assessee, a sakhar karkhana as is the assessee also under consideration, to Mukadams and Transporters. As the assessee made payment to group labourers and such annual payments did not exceed Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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