2022 (10) TMI 820 - AT - Income Tax

Payment disallowance for members upheld as profits, not business expense. Sugar sale rates remanded. Appeal delay condoned.

Shri Bhogwati Sahakari Sakhar Kharkhana Ltd. Versus ACIT, Cir-1, Kolhapur

The tribunal upheld the disallowance of payments to members as an application of profits, not deductible as business expenditures. The issue of sale of ... Methodology of fixing the final cane price by the appellant - determining the ‘net surplus’, the cane price as per FRP is deducted as cost of cane and the remaining surplus worked out - HELD THAT:- FRP of sugarcane determined by the Central Government through methodology adopted by factoring in ‘a reasonable margin for the growers of sugarcane on account of risk and profit’ by introducing sub-clause (g) in clause 3(1) of the Sugar Control Order, 1966 and by simultaneously deleting clause 5A of the SCO, whereby profits of the SSK were earlier being distributed and simultaneously declaring under Explanation II of clause 3(3C) of the ECA that 'minimum price’ excludes additional payments under the clause 5A or any other payment made is the most appropriate cane purchase price and fits into the concept of purchase price as per ordinary commercial principles and is in accordance with the provision of section 37(1) of the Income-tax Act. Therefore, any amount paid over and above FRP on the basis of operational profits minus expenses and reserves is not business expenditure under section 37(1) of the Income-tax Act. Accordingly, it is held that the assessing officer was justified in treating the amount paid by the appellant over and above the FRP as distribution of surplus and therefore, such excess payments cannot be allowed as ‘business expenditure’ while computing business profits under the provision of the Income-tax Act. Payment of alleged excess sugarcane price is no more res integra as the tribunal’s latest co-ordinate bench order in Shree Chhatrapati SSK Ltd.. [2022 (7) TMI 1332 - ITAT PUNE] Disallowance representing assessee’s sale of sugar to its members at concessional rates - There is hardly any issue that the very co-ordinate bench has restored the instant issue as well back to the Assessing Officer for his afresh appropriate adjudication. Learned CIT DR could not dispute both the lower authorities have adopted the identical reasoning as it was the issue before the tribunal hereinabove. We thus direct the assessing authority to re-decide the instant latter issue as well in very terms. Issues Involved:1. Disallowance of payment to members termed as application of profits.2. Disallowance of sale of sugar to members at concessional rates.3. Delay in filing the appeal.Issue-wise Detailed Analysis:1. Disallowance of Payment to Members Termed as Application of Profits:The assessee argued that the lower authorities erred in disallowing payments of Rs. 1,89,488/- to its members, considering it as an application of profits. The CIT(A) affirmed the assessment findings, emphasizing that the Fair and Remunerative Price (FRP) mechanism adequately compensates farmers, including margins for risk and profits. The CIT(A) concluded that payments over and above the FRP are merely a distribution of surplus from the sale of sugar and not related to the price of cane. The CIT(A) further discussed the concept of diversion of income by overriding title versus application of income, concluding that the payments in question were an application of income, not a diversion by overriding title. The CIT(A) also referenced a Karnataka High Court decision in a similar case, reinforcing that such payments are not deductible as business expenditures under section 37(1) of the Income-tax Act.2. Disallowance of Sale of Sugar to Members at Concessional Rates:The tribunal noted that the issue of disallowance of Rs. 6,007,880 for the sale of sugar to members at concessional rates had been addressed in previous tribunal decisions. Specifically, the tribunal's co-ordinate bench in ITA Nos. 313 to 316/PUN/2019 had restored the issue to the assessing authority for fresh adjudication. The tribunal adopted the same course of action, directing the Assessing Officer to re-decide the issue afresh.3. Delay in Filing the Appeal:The assessee's appeal suffered from a 504-day delay in filing, attributed to the outbreak of the COVID-19 pandemic and procedural approvals. The tribunal referenced the Hon'ble Supreme Court's decision in Collector Land Acquisition V/s Mst. Katiji & Others, which emphasizes that the cause of substantial justice should prevail over technicalities. Consequently, the tribunal condoned the delay, allowing the appeal for statistical purposes.Conclusion:The tribunal restored both the issues of excess cane price payment and sale of sugar at concessional rates to the Assessing Officer for fresh adjudication. The delay in filing the appeal was condoned, and the appeal was allowed for statistical purposes. The order was pronounced in the Open Court on August 29, 2022.