2025 (3) TMI 600 - HC - Income Tax

Cooperative society's excess sugarcane purchase price allowed as business deduction under Section 37

Gujarat HC upheld ITAT's decision allowing deduction of additional sugarcane purchase price paid by assessee cooperative society. Revenue authorities had ... Additional purchase price towards the purchase of sugarcane sanctioned by the Managing Committee of the Asseessee -Disallowing the excess payment paid for purchasing of sugar cane, treating it as appropriation of profit - Assessee disallowed the sugarcane purchase price paid by the assessee being the difference between the SNP and price determining under Clause 5A of the Sugarcane Control Order 1966 - ITAT deleted addition - HELD THAT:- Tribunal has arrived at finding of fact to the effect that the Respondent-Assessee has paid the amount of sugarcane purchase price on the basis of agreed price between the parties. Tribunal has therefore rightly referred and relied upon the decision in case of State of M.P. Vs. Jaora Sugar Mills Ltd. and others [1996 (10) TMI 511 - SUPREME COURT] wherein the dispute arose on account of fixation of price under the M.P. Sugar (Regulation of Supply and Purchase) Act, 1958 and came to conclusion that the sugarcane price paid by the Assessee which was approved by the Managing Committee of the Assessee having representations of the State Government as per the statutory provision of State Co-operative Society Act cannot be termed as distribution of profit. In view of the above factual finding arrived at by the Tribunal, we are of the opinion that the expenditure claimed by the Assessee on payment of sugarcane price cannot be considered as distribution of profit as the addition price paid by the Assessee is an expenditure allowable u/s 37 incurred wholly and exclusively for the purpose of business carried out by the Assessee in light of the findings arrived at by the Tribunal. Tribunal was therefore right in law in deleting the additions made by way of disallowance on the additional purchase price towards the purchase of sugarcane sanctioned by the Managing Committee of the Asseessee. No substantial questions of law. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issues considered in this judgment were:(A) Whether the Appellate Tribunal was justified in deleting the addition made by the Assessing Officer (AO) by disallowing the excess payment for purchasing sugarcane, treating it as an appropriation of profit.(B) Whether the Tribunal erred in holding that the case falls under sub-clause (b) of clause-5 of the Sugarcane Control Order, without appreciating that the additional price was dealt through Clause 5A, which was deleted in October 2009 when shifting to the 'Fair and Remunerative Price (FRP)' regime from the 'Statutory Minimum Price (SMP)' regime.(C) Whether the Tribunal was justified in not applying the ratio of the decision of the Supreme Court in CIT vs. Tasgaon Taluka S.S.K. Ltd.2. ISSUE-WISE DETAILED ANALYSISIssue A: Justification of Deleting the Addition by AO- Relevant Legal Framework and Precedents: The Court examined the provisions under the Sugarcane Control Order 1966, particularly Clause 5A, and the transition from SMP to FRP. The Tribunal relied on precedents such as the U.P Cooperative Cane Federations case and the decision in Mehsana District Co-operative Milk Producers Union Ltd.- Court's Interpretation and Reasoning: The Tribunal found that the payment of additional sugarcane price was a business decision, not a distribution of profit. The Sugarcane Control Order allows for a price higher than the minimum price fixed by the Central Government.- Key Evidence and Findings: The Tribunal noted that the payment was approved by the managing committee of the assessee, which included state government representation, indicating it was a legitimate business expense.- Application of Law to Facts: The Tribunal applied the principle that businesses can negotiate prices above the minimum price as a commercial decision, which the revenue cannot disallow.- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that excess payment constituted profit distribution, citing the cooperative nature of the assessee and its business practices.- Conclusions: The Tribunal concluded that the payment was an allowable expense under Section 37(1) of the Income Tax Act.Issue B: Application of Clause 5A and Transition to FRP- Relevant Legal Framework and Precedents: The Tribunal reviewed the changes in the Sugarcane Control Order, particularly the deletion of Clause 5A and the introduction of FRP.- Court's Interpretation and Reasoning: It was determined that the FRP is essentially the SMP post-2009, and the Tribunal found that the cooperative's payments were in line with commercial practices.- Key Evidence and Findings: The Tribunal referenced the legislative history and policy changes in the sugarcane pricing regime.- Application of Law to Facts: The Tribunal applied the amended provisions to conclude that the cooperative's payments were justified.- Treatment of Competing Arguments: The Tribunal refuted the Revenue's reliance on outdated provisions, emphasizing the cooperative's compliance with current legal standards.- Conclusions: The Tribunal upheld the cooperative's actions as compliant with the current legal framework.Issue C: Non-Application of Tasgaon Taluka S.S.K. Ltd. Decision- Relevant Legal Framework and Precedents: The Tribunal considered the Supreme Court's decision in CIT vs. Tasgaon Taluka S.S.K. Ltd., which dealt with similar issues of sugarcane pricing.- Court's Interpretation and Reasoning: The Tribunal distinguished the facts of the present case from the Tasgaon case, noting differences in the applicable periods and legal provisions.- Key Evidence and Findings: The Tribunal found that the Tasgaon decision was not directly applicable due to changes in the legal framework post-2009.- Application of Law to Facts: The Tribunal applied the current legal provisions, finding that the cooperative's actions were justified.- Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the Tasgaon decision should apply, emphasizing the differences in legal context.- Conclusions: The Tribunal concluded that the Tasgaon decision did not apply to the facts of the present case.3. SIGNIFICANT HOLDINGS- The Tribunal held that 'there is no statutory prohibition' against paying a higher price than the minimum fixed under the Sugarcane Control Order, and such payments are legitimate business expenses.- The Tribunal emphasized that the expenditure in question was incurred wholly and exclusively for business purposes and was allowable under Section 37 of the Income Tax Act.- The Tribunal found that the cooperative's payments were not a distribution of profit but a necessary business expense, aligning with principles of commercial expediency.- The Tribunal dismissed the Revenue's reliance on outdated provisions and decisions, affirming the cooperative's compliance with current legal standards.- The Tribunal's decision was upheld, with no substantial questions of law arising from the Tribunal's findings, leading to the dismissal of the Revenue's appeals.