2025 (3) TMI 801 - AT - Income Tax

Sugar factory must prove compliance with 5kg monthly limit for concessional member sales

The Assistant Commissioner of Income Tax, Circle-1, Kolhapur. Versus Shree Tatyasaheb Kore Warana Sahakari Sakhar Karkhana Ltd.

The Assistant Commissioner of Income Tax, Circle-1, Kolhapur. Versus Shree Tatyasaheb Kore Warana Sahakari Sakhar Karkhana Ltd. - TMI ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the sale of sugar at concessional rates to members by the assessee, a cooperative society, constitutes an appropriation of profit and should be added to the total income of the society.Whether the practice of selling sugar at concessional rates is a customary practice in the cooperative sugar industry and whether it is supported by any resolution from the State Government.Whether the directions issued by the Sugar Commissioner under section 79(A) of the Maharashtra Co-operative Societies Act, 1960, regarding the sale of sugar at concessional rates, have been complied with by the assessee.Whether previous decisions by the ITAT and the High Court, particularly in the case of Terana SSK Ltd., are applicable and binding in this case.ISSUE-WISE DETAILED ANALYSIS1. Sale of Sugar at Concessional RatesRelevant Legal Framework and Precedents: The legal framework involves the Income Tax Act, 1961, and the Maharashtra Co-operative Societies Act, 1960. The relevant precedents include the Supreme Court's decision in CIT Vs. Krishna SSK and the ITAT Pune's decisions in related cases.Court's Interpretation and Reasoning: The Tribunal noted that the practice of selling sugar at concessional rates is prevalent among cooperative sugar factories and is regulated by the State Government through the Sugar Commissioner. The Tribunal also considered the Supreme Court's directions to verify whether this practice is customary and supported by a State Government resolution.Key Evidence and Findings: The Tribunal observed that the assessee had passed a resolution to sell sugar at concessional rates to its members and that this practice is customary in the cooperative sugar industry. However, the Tribunal found that the Assessing Officer failed to verify compliance with the directions issued by the Supreme Court and the Sugar Commissioner.Application of Law to Facts: The Tribunal applied the Supreme Court's directions and the Sugar Commissioner's circular to evaluate the appropriateness of the concessional sales. It found that the Assessing Officer did not adequately address whether the sales were in line with the prescribed guidelines.Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the sales should be added to the income as an appropriation of profit. It also considered the assessee's argument that the practice is customary and supported by a State Government resolution. The Tribunal found that further factual verification was needed.Conclusions: The Tribunal concluded that the matter should be remitted back to the CIT(A) for a de novo consideration, ensuring compliance with the Supreme Court's directions and the Sugar Commissioner's guidelines.2. Compliance with Directions of the Sugar CommissionerRelevant Legal Framework and Precedents: Section 79(A) of the Maharashtra Co-operative Societies Act, 1960, empowers the State Government to issue directions to cooperative societies in the public interest.Court's Interpretation and Reasoning: The Tribunal emphasized the importance of compliance with the Sugar Commissioner's circular, which outlines the conditions under which sugar can be sold at concessional rates.Key Evidence and Findings: The Tribunal noted that the Assessing Officer did not verify whether the assessee complied with the circular's conditions, such as the maximum quantity of sugar that can be sold at concessional rates and the eligibility criteria for members.Application of Law to Facts: The Tribunal found that the Assessing Officer failed to apply the circular's conditions to the facts of the case, leading to an incomplete assessment.Treatment of Competing Arguments: The Tribunal considered both the Revenue's and the assessee's arguments regarding compliance with the circular. It found that the Revenue did not adequately address the circular's requirements.Conclusions: The Tribunal remitted the case to the CIT(A) for a detailed examination of compliance with the Sugar Commissioner's circular.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted the Supreme Court's directions in CIT Vs. Krishna SSK, emphasizing the need for a re-examination of the practice of selling sugar at concessional rates.Core Principles Established: The Tribunal reinforced the principle that compliance with State Government regulations and Supreme Court directions is essential in determining the appropriateness of concessional sales.Final Determinations on Each Issue: The Tribunal set aside the CIT(A)'s order and remitted the case for a de novo examination to ensure compliance with the relevant legal framework and precedents.