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TMI Blog2019 (11) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... , has held as under : "11. On a representative basis, we are taking up the appeal filed by Manganga SSK Ltd. in ITA No.344/PUN/2017. The factual matrix of this issue is that the Assessing Officer (AO) observed during the course of assessment proceedings that the assessee had sold/supplied sugar to its members at concessional rate. On being called upon to explain as to why the difference between the Fair Market price and the Concessional price should not be disallowed as it was nothing but distribution of profit, the assessee relied on the judgment in CIT Vs. Terna Shetkari SSK Ltd. (2008) 168 Taxman 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 nonbusiness 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te arguments. They, inter alia, relied on certain decisions to bolster the argument that there can be no addition on account of sale of sugar at concessional price to the members of the assessee co-operative societies. It was submitted, by mainly relying on the judgment of Hon'ble Supreme Court in the case of A. Raman and Co. (1968) 67 ITR 11 (SC), that the law does not oblige a trader to make maximum profit out of his trading transactions. Reliance was also placed on certain other decisions including CIT Vs. Calcutta Discount Co. Ltd. 91 ITR 8 (SC); H.M. Kashiparekh & Co. Ltd. Vs. CIT 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 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Sakhar Karkhana Ltd. (ITA No.225/2009), the Hon'ble Bombay High Court again decided this issue in favour of the assessee vide its judgment dated 30-06-2009. The Revenue approached the Hon'ble Supreme Court against all such judgments passed by the High Courts. Vide its common judgment dated 25.09.2012 in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (supra), as a lead matter and covering several other cases in which similar issue was decided in favour of the assessee, the Hon'ble Supreme Court set-aside the judgments passed by the Hon'ble High Courts and restored 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 furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice/additional purchase price/SAP under clause 5A of Control Order, 1966 and thereafter determine as to what part of the differential amount would form part of the 'distribution of profit.' Relevant discussion has been made in Para 9.4 of the judgment in which it has been categorically held that: "Therefore, to the extent of the component of profit which will be a part of the final determination of SAP and/or the final price/additional purchase price fixed under Clause 5A would certainly be and/or said to be an appropriation 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.' 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 transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on to members and the second, in which potential profit is not earned from members or to simply put, a case of loss of potential profit. Whereas, the appropriation of profit is possible in the first situation, which is akin to the purchase of sugarcane from the members at excessive price resulting in diverting the profit earned from normal business operations to the members in the form of excess price of sugarcane, the appropriation of profit is not possible in the second 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priation of profit on sale of sugar to members at concessional rate. We have noted above that the appropriation of profit pre-supposes profit which can be appropriated to the members of the co-operative society. In so far as the purchase of sugarcane from members at higher price is concerned, it clearly amounts to business profit percolating to the members in the shape of excess cane price given to the members. For example, if the SMP of sugarcane is Rs. 100/- and a sugar factory is purchasing sugarcane from its members at say, Rs. 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 Rs. 80/- against the prevalent price of Rs. 100/-, what the sugar mill is doing is that it is charging its members less by Rs. 20/-, vis-a-vis sale made to non-members. This differential amount of Rs. 20/- is loss of potenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinabove that in case of transaction between two independent parties, the assessee is not obliged to earn maximum profit. However, this proposition is not attracted in case the transaction is not commercial or genuine. Such a proposition cannot be extended to the cases where the amount of profit is intentionally allowed to be passed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal rate, which aspect we have discussed supra on merits. The assessee remained unsuccessful before the ld. CIT(A) on initiation of re-assessment proceedings. Now the assessee has approached the Tribunal against the impugned order on this score. 7. We have heard both the sides and gone through the relevant material on record. There is no doubt that the original assessment in this case was completed u/s.143(3) on 05-11-2009. However, within a period of less than 4 years from the end of the relevant assessment year, the AO initiated re-assessment proceedings on the ground that the sugar supplied to members free of cost was liable to be considered as 'Appropriation of income'. We have gone through the original assessment order which is only one paged order. There is no discussion whatsoever on the issue much less the formation of any opinion on it. The declared revised loss of Rs. 2.11 crore was accepted by the AO in the assessment completed u/s.143(3) of the Act. In view of the foregoing discussion, it is clear that the contention of the assessee about the change of opinion by the AO through the re-assessment proceedings, is unwarranted in asmuchas the AO did not examine this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to filing of the cross appeals both by the assessee as well as the Revenue before the Tribunal. 5. We have heard both the sides and gone through the relevant material on record. There is consensus ad idem between the rival parties that the issue of payment of excessive price on purchase of sugarcane by the assesses is no more res integra in view of the recent judgment of Hon'ble Supreme Court in CIT Vs Tasgaon SSK Ltd. (2019) 412 ITR 420 (SC). The Hon'ble Apex Court, vide its judgment dated 05-03-2019, has elaborately dealt with this issue. It recorded the factual matrix that the assessee in that case purchased and crushed sugarcane and paid price for the purchase during crushing seasons 1996-97 and 1997-98, firstly, at the time of purchase of sugarcane and then, later, as per the Mantri Committee advice. It further noted that the production of sugar is covered by the Essential Commodities Act, 1955 and the Government issued Sugar Cane (Control) Order, 1966, which deals with all aspects of production of sugarcane and sales thereof including the price to be paid to the cane growers. Clause 3 of the Sugar Cane (Control) Order, 1966 authorizes the Government to fix minimum sugarca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fixed under Clause 5A would certainly be and/or said to be an appropriation 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-members, qua the members, still the question would remain with respect to the distribution of profit/sharing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the precedent, we set-aside the impugned order and remit the matter to the file of the AO for deciding it in conformity with the view taken by the Tribunal as extracted above. 12. No argument was advanced qua the ground challenging the initiation of reassessment for the year under consideration. This ground, is therefore, dismissed. 13. In the result, the appeal is partly allowed for statistical purposes. A.Y. 2012-13 : 14. Ground Nos. 1 to 5 are against the Excessive Sugarcane Price paid by the assessee to its Members/Non-Members. 15. The facts of these grounds are similar to the issue discussed in the appeal for the A.Y. 2009-10. Following the view taken herein above, we set-aside the impugned order and remit the matter to the file of AO for deciding it in accordance with the directions given above. 16. Ground nos. 6 to 8 are against the confirmation of addition on account of sale of sugar at concessional price. 17. Having heard both the sides and gone through the relevant material on record, we find that the facts and circumstances of these grounds are similar to those of A.Y. 2007-08 discussed above. Following the view, we set aside the impugned order and remit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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