TMI Blog2019 (11) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in 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. It is noted that in some of the appeals, the assessees have raised an alternate ground for allowing deduction u/s.80P in respect of the addition. ARs, in some of the cases, which were represented by them, were fair enough not to press such ground as it is only an alternate ground and having become infructuous in view of the restoration of the matter to the AO. No argument was advanced in support of such ground in other cases, even where the ld. ARs participated in proceedings before the Tribunal. Therefore, the said alternate ground in all such cases is dismissed. Sale of sugar to members of a cooperative society at concessional price - HELD THAT:- CIT(A) in the instant batch of appeals has confirmed the addition towards the difference between the Levy price and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit report in form 3CD) - HELD THAT:- We have also given considerable thought to the orders of the Ld. CIT(Appeals) as well as the Assessing Officer. We are of considered view that this issue needs verification regarding computation of income and Tax Audit Report regarding working of disallowance and also classification on quantum. Thus, in view of the facts and circumstances, we set aside the order of the Ld. CIT(Appeals) and remit the matter back to the file of Assessing Officer for verification and for determination of quantum in compliance with the principle of natural justice. Thus, this part of the ground raised by the assessee is allowed for statistical purposes. Addition on account of interest received - HELD THAT:- We have also given considerable thought to the orders of the Ld. CIT(Appeals) as well as the AO. We are of considered view that this issue needs verification regarding credit of TDS as well as whether the interest income has been offered to tax or not. Thus, in view of the facts and circumstances, we set aside the order of the Ld. CIT(Appeals) and remit the matter back to the file of AO for verification and for determination of quantum in compliance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce paid by the assessees to sugarcane suppliers, i.e. the price over and above the Statutory Minimum Price (SMP) fixed by State Government for purchase of cane. ii. Addition on account of sale of sugar at concessional rate to the members/shareholders by the assessees. Apart from the above two primary issues following issues have also emerged in some of the appeals: i. Provision for Vasantdada Sugar Institute (VSI) Contribution. ii. Disallowance of contribution towards Sakhar Sangh. iii. Disallowance u/s.43B of the Income Tax Act, 1961 (hereinafter referred to as the Act ) iv. Addition on account of interest received. I. EXCESSIVE SUGARCANE PRICE PAID : 4. A common issue involved in almost all the appeals is against the addition made by the Assessing Officer (AO) towards of excessive sugarcane price paid to members as well as non-members of the respective assessees. The facts common to almost all the appeals are that the assesses are engaged in the business of manufacturing of white sugar. During the course of assessment proceedings, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 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 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 (SMP), determined under clause 3 of the Control Order, 1966, which is paid at the beginning of the season, is deductible in the entirety an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase 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. 6. Both the sides are unanimously agreeable that the extant issue of deduction for payment of excessive price for purchase of sugarcane, raised in most of the appeals under consideration, is squarely covered by the aforesaid judgment of the Hon ble Supreme Court. Respectfully following the precedent, we set-aside the impugned orders on this score and remit the matter to the file of the respective A.Os. for deciding it afresh as per law in consonance with the articulation of law by the Hon ble Supreme Court in the aforenoted judgment. The 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 266 (Bom.) to contend that similar issue was not pressed by the ld. DR before the Hon ble Bombay High Court, which implied that the Department acquiesced the decision of the lower courts in allowing relief. Not convinced with the assessee s submissions, the AO opined that the disallowance in the case of Terna SSK Ltd. (supra) was made by the AO as non-business expenditure. In his opinion, supply of sugar at concessional rate as against the prevalent market price was nothing but appropriation of profit and in the nature of application of income. Considering the difference between the market price and the concessional price charged vis-a-vis the quantity supplied by the assessee to its member cane-growers, the AO worked out an addition of ₹ 8,32,433/-. The assessee carried the matter before the ld. CIT(A), who noticed that similar issue has been considered by the Hon ble Supreme Court in the case of CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. and others (2012) 254 CTR 638 (SC) in which the matter has been restored for ascertaining whether the difference between the Fair Market price and the Concessional price of the sugar supplied to farmers should or should not be added to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39 ITR 706 (Bom.); CIT Vs. Shoorji Vallabhdas Co. 46 ITR 144 (SC); Rogers Pyatt Shellac Co. Vs. Secretary of State for India 1 ITC 363 (Cal.); Union of India Vs. Azadi Bachao Andolan 263 ITR 706 (SC); and Vodafone International Holdings B.V. Vs. Union of India 341 ITR 1 (SC) to contend that the profit charged to tax by the authorities below was not in accordance with law as it amounted to taxing notional income. 13. Per Contra, the ld. DR relied on the judgment of Hon ble Supreme Court in Tasgaon SSK Ltd. (supra) to contend that the authorities below rightly treated the difference between the Fair Market price and Concessional price charged from members of the assessees co-operative societies as appropriation of profit . For supporting the charging of lower price for sugar sold to members as constituting income, the ld. DR drew an analogy from the case of Tasgaon SSK Ltd. (supra) by submitting that, in that case, the price paid over and above the statutory market price for purchase of sugarcane from the members/non-members of the societies has been held by the Hon ble Supreme Court as appropriation of profit and hence chargeable to tax. He submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tored the matter to the CIT(A) for deciding the question afresh as to whether the difference between the actual price of sugar sold in the market and the price of sugar sold by the assessee to its members at concessional rate should or should not be added to the total income of the assessee. Apart from the above question, the Hon ble Supreme Court further directed the CIT(A) to take into account whether the above mentioned practice of selling sugar at concessional rate has become the practice or custom in the sugarcane industry ?; whether any resolution has been passed by the State Government supporting the practice ? It further held that the CIT(A) before reaching any conclusion would also consider on what basis the quantity of sugar was being fixed for sale to farmers and growers/members for each year on month to month basis apart from Diwali. 15. On an analysis of the position discussed above, it clearly emerges that after the advent of the Hon ble Supreme Court judgment in Krishna SSK Ltd. (supra), the earlier judgments rendered by the Hon ble High Courts and the orders passed by the Tribunal in favour of the assessee do not continue to hold the field anymore. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. The matter was sent back to the AO with certain directions to find out the element of appropriation of profits embedded in the price fixed under clause 5A. 17. In view of the above judgment in the case of Tasgaon SSK Ltd.(supra), it is clear that the Hon ble Apex Court has, in principle, held that the excessive cane price paid to the members is, to some extent, in the nature of appropriation of profit which should be charged to tax in the hands of the assessee. When we consider the nature of transaction dealt with by the Hon ble Supreme Court, being, purchase of sugarcane as raw material in the sugar industry at excessive price in juxtaposition to the sale of sugar as finished product to members at concessional price, we find that both of them directly affect the gross profit of the sugar mills. If a part of the excessive purchase price of sugarcane paid has been held to be in the nature of appropriation of profit , then obviously a part of the concession given to members on sale of sugar, by the same standard and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d situation, which is akin to the sale of sugar at concessional rate. The second situation of selling sugar at concessional rate is in the nature of foregoing potential profit which would have been otherwise earned had sugar been sold at market price. As the second situation has the effect of foregoing potential profit, it cannot be equated with an appropriation of profit except where the sale of sugar is made at below the actual cost. 21. Again apropos the view point of the AO in treating the co-operative society and its members as one and the same thing with the theory of appropriation of profit, we underscore the settled legal position that no one can make profit from self. In this regard, it will be befitting to note the judgment of the Hon ble Summit Court in Sir Kikabhai Premchand vs. CIT (1953) 24 ITR 506 (SC), in which the assessee employed the method of valuing the closing stock at the cost price. The deeds of trust were valued for the purpose of stamp at the market value of the shares and silver bars prevailing at the dates of their execution. The assessee, however, showed the transfer of these shares and silver bars to the trustees in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 100/- and a sugar factory is purchasing sugarcane from its members at say, ₹ 120/-, in a way it is passing on its profit earned from normal business transactions to its members to the extent of excess price paid. This is the essence of the judgment in the case of Tasgaon SSK Ltd. (supra.). But the transaction of sale of sugar to members at concessional rate cannot be considered as appropriation of profit, but a case of not earning some potential profit. To illustrate, if sugar is sold at concessional price at ₹ 80/- against the prevalent price of ₹ 100/-, what the sugar mill is doing is that it is charging its members less by ₹ 20/-, vis-a-vis sale made to non-members. This differential amount of ₹ 20/- is loss of potential profit and not appropriation of profit. Going by the ratio in the case of Sir Kikabhai (supra), the assessee society cannot earn profit from the sale of sugar to its members. 23. It is further relevant to note that difference between the market price of sugar and concessional sale price may entail two situations. The first one is of simplicitor loss of potential profit and second one is of actual loss of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the members or owners. In the same case of A. Raman Co. (supra) and in the same para no. 8, the immediately next line is an exception to the general rule whereby their Lordships noted that: By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee. Precisely, this is the proposition in the case of Tasgaon SSK Ltd. (supra) as well that an income belonging to the assessee which has been appropriated to the members should be brought to tax in the hands of the assessee only. Similar is the position in so far as sale of sugar at concessional rate to members below the cost price is concerned in as much as the income to that extent which was earned by the assessee from its normal business operations shall be passed on to the members in the form of sale of sugar at a rate lower than its cost price. 25. The ld. CIT(A) in the instant batch of appeals has confirmed the addition towards the difference between the Levy price and the concessional price (upto 5 kg. per member per month) and to the extent of difference between the Market pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the precedent, we decide this issue in favour of the assessee. IV. Disallowance of contribution towards Sakhar Sangh. 28. The Ld. AR of the assessee submitted that this issue is covered by the decision of the Co-ordinate Bench of the Tribunal, Pune dated 13.06.2019, the lead case being ACIT Vs. Shri Shankar SSK Ltd. in ITA No.382/PUN/2014 for the assessment year 2010-11. The Tribunal on this issue has held and observed as under: 31. In ITA No. 280/PUN/2017 (at Sr. No. 42) the assessee has assailed addition of ₹ 13,35,270/- on account of contribution made to Sakhar Sangh. The contentions of the assessee is that Maharashtra Sakhar Sangh is a federal body of all the sugar factories. The Sangh is rendering various services to all sugar factories such as acting as intermediary for purchase of Gunny bags, making available to sugar factories imported sulphar and other such items required by various sugar factories. The contentions of the assessee is that the contribution to Sakhar Sangh is not voluntary but are in accordance with the instructions issued by Commissioner of Sugar, Maharashtra State. The Assessing Officer disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 62,49,936/- of the preceding year before filing the return for this year and therefore, deduction of ₹ 62,49,936/- claimed by the assessee in his computation is actually to be added back and a further disallowance of ₹ 33,07,638/- is to be made. Accordingly, the Ld. CIT(Appeals) deleted the disallowance of ₹ 1,15,64,048/- made by the Assessing Officer as it was supposedly only towards cane purchase tax and the Assessing Officer is directed to disallow ₹ 95,57,574/- ( ₹ 62,49,936/- + ₹ 33,07,638/-) u/s.43B of the Act. 32. At the time of hearing, the Ld. AR of the assessee submitted that the issue may be restored to the file of Assessing Officer for verification and for determination of quantum. 33. The Ld. DR has not raised any objection regarding restoring the issue to the file of Assessing Officer for verification and determination of quantum. 34. We have perused the case records and heard the rival contentions. We have also given considerable thought to the orders of the Ld. CIT(Appeals) as well as the Assessing Officer. We are of considered view that this issue needs verification regardi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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