TMI Blog2021 (10) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, will not be allowed as deduction, while the remaining amount, being a charge against the income, will be considered as deductible expenditure. 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 nonmembers are concerned, the case will be considered afresh by the AO by applying the provisions of section 40A(2) of the Act, as has been held by the Hon ble Supreme Court 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. Disallowance on account of sugar sold to members at concessional rate - In our conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-10-2017 in relation to the assessment year 2013-14. 2. The first issue raised in this appeal is against the confirmation of disallowance of Rs.89,71,55,742/- on account of excess can price paid to sugarcane suppliers. 3. Briefly stated, the facts of the case are that the assessee is a Cooperative society engaged in the business of manufacturing and sale of sugar. The assessee filed its return of income declaring income at Nil. During the course of assessment proceedings, the AO observed 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 explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sugarcane price. In addition, the additional sugarcane price is also payable as per clause 5A of the Control Order, 1966. The AO in that case concluded that the difference between the price paid as per clause 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 nonme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereafter determine as to what amount would form part of the distribution of profit and the other as deductible expenditure. The relevant findings of the Hon ble Apex Court are reproduced as under:- 9.4. ..... 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. As observed hereinabove, only that part/component of profit, while determining the final price worked out/SAP/additional purchase price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. Respectfully following the precedent, we set-aside the impugned order on this score and remit the matter to the file of the A.O 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 purpose of deciding/fixing the final price/additional purchase price/SAP under this clause. The amount relatable to the profit component or sharing of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate was taxed by the Department under the head Appropriation of profit . The Hon ble Summit Court remitted the matter to the CIT(A) for considering, inter alia,: whether the abovementioned practice of selling sugar at concessional rate has become the practice or custom in the Co-operative sugar industry?; and whether any Resolution has been passed by the State Government supporting the practice?; The CIT(A) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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