TMI Blog2020 (3) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... ct costs but all the indirect costs should also be taken into consideration. In other words, all items of debit to the Trading and Profit and loss account would constitute cost base. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh proceedings on this issue - Appeal of assessee are allowed for statistical purposes. - ITA No. 1766/PUN/2017 - - - Dated:- 16-3-2020 - Shri R.S. Syal, VP And Shri Partha Sarathi Chaudhury, JM For the Assessee : Ms. Shubhadra Koppa For the Revenue : Shri Deepak Garg ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the assessee emanates from the order of the Ld. CIT(Appeal)-1, Kolhapur dated 27.04.2017 for the assessment year 2013-14 as per the grounds of appeal on record. 2. Though the assessee has raised multiple grounds of appeal, the crux of the grievance of the assessee is with regard to addition on account of sale of sugar at concessional rate to the members/ other farmers by the assessee . 3. The brief facts of the case are that the assessee is engaged in the business of manufacture and sale of sugar and its by products at its manufacturing units loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Tribunal came up for adjudication before the concerned Hon ble High Courts. The Hon ble Bombay High Court in CIT Vs. Kisanveer Satara Sahkar Karkhana Ltd. in ITA No.930/2008 vide its judgment dated 30.6.2009 decided this issue in favour of the assessee. In another judgment in CIT Vs. Krishna Sahakari 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Supreme Court remitted the matter to the file of AO for considering the modalities and manner in which SAP/Additional price is decided and to carry out an exercise of considering the 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r said to be an appropriation of profit , we find that such a condition of appropriation of profit pre-supposes some profit which is appropriated directly or indirectly amongst the members. One needs to draw a line of distinction between two situations, viz., the first in which profit is earned from business operations and is 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that no person can earn profit from himself and there can be no contemplation of profit when the owner withdraws goods from the business. Such withdrawal of goods needs to be valued at cost price only and not the market price. 22. Reverting to the facts of the extant case, we find that the AO has made out a case of appropriation 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit so as to magnetize taxability. 24. The ld. AR has relied on the judgment of Hon ble Supreme Court in the case of A. Raman Co. (supra) by contending that the law does not require a trader to make maximum profit and hence there can be no taxability on the basis of notional profit which was not actually earned from the members. We do agree with this proposition provided it is not a case of appropriation of profit. We have discussed hereinabove 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 prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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