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2019 (11) TMI 346
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....17, 658/PUN/2017,2639/PUN/2017, 990/PUN/2017 991/PUN/2017, 827/PUN/2017, 828/PUN/2017 829/PUN/2017,1318/PUN/2017, 2558/PUN/2016, 394/PUN/2017, 395/PUN/2017, 1021/PUN/2017, 1022/PUN/2017, 996/PUN/2017, 997/PUN/2017, 998/PUN/2017, 999/PUN/2017, 869/PUN/2017, 870/PUN/2017 And 871/PUN/2017 For The Assessee : Shri Pramod Shingte, Shri M.K.Kulkarni, Shri Vikas Agarwal, Shri Mihir Bapat And Shri Prasanna Joshi For The Revenue : Shri Abhijit Haldar ORDER PER BENCH : These bunch of appeals preferred by the assessees and the Revenue for the various assessment years mentioned in the caption emanates from the orders of Commissioner of Income Tax (Appeals). Since most of the appeals have at least one common issue, we are, therefore, disposing them off by this consolidated order for the sake of convenience. 2. Out of the 75 appeals, some of the appeals are time barred. We have gone through the reasons given for delay in the affidavit of the appeal with which we are satisfied. As such, the delay in that appeal is condoned and the appeal is admitted for disposal on merits. 3. All the assessees in the present set of appeals are engaged in manufacturing of white sugar. The pr....
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.... of payment of excessive price on purchase of sugarcane by the assesses is no more res integra in view of the recent judgment of Hon'ble Supreme Court in CIT Vs Tasgaon SSK Ltd. (2019) 412 ITR 420 (SC). The Hon'ble Apex Court, vide its judgment dated 05-03-2019, has elaborately dealt with this issue. It recorded the factual matrix that the assessee in that case purchased and crushed sugarcane and paid price for the purchase during crushing seasons 1996-97 and 1997-98, firstly, at the time of purchase of sugarcane and then, later, as per the Mantri Committee advice. It further noted that the production of sugar is covered by the Essential Commodities Act, 1955 and the Government issued Sugar Cane (Control) Order, 1966, 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 t....
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.... observed hereinabove, only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of 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 the Control Order, 1966. Merely because the higher price is paid to both, members and non-members, qua the members, still the question would remain with respect to the distribution of profit/sharing of the profit. So far as the non-members are concerned, the same can be dealt with and/or considered applying Section 40A (2) of the Act, i.e., the assessing officer on the material on record has to determine whether the amount paid is excessive or unreasonable or not........ 9.5 Therefore, the assessing officer will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount....
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....s, even where the ld. ARs participated in proceedings before the Tribunal. Therefore, the said alternate ground in all such cases is dismissed. 9. Apart from the above issue, which is common in almost all the appeals in this batch, there are certain appeals having other issues also. We will take up such issues one by one. II. SALE OF SUGAR AT CONCESSIONAL RATES: 10. This issue has also been raised in most of the appeals under consideration. 11. On a representative basis, we are taking up the appeal filed by Manganga SSK Ltd. in ITA No.344/PUN/2017. The factual matrix of this issue is that the Assessing Officer (AO) observed during the course of assessment proceedings that the assessee had sold/supplied sugar to its members at concessional rate. On being called upon to explain as to why the difference between the Fair Market price and the Concessional price should not be disallowed as it was nothing but distribution of profit, the assessee relied on the judgment in CIT Vs. Terna Shetkari SSK Ltd. (2008) 168 Taxman 266 (Bom.) to contend that similar issue was not pressed by the ld. DR before the Hon'ble Bombay High Court, which implied that the Department acquiesced the d....
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....bers of the Society. After such transfer, the Society offered remaining income to tax, which point of view of the assessee was jettisoned by the Hon'ble High Court. Based on this panorama of facts and the legal position, the ld. CIT(A) reduced the addition to some extent. Aggrieved thereby, the assessee has approached the Tribunal. 12. The assessees under consideration were represented by various ld. Counsel, who made elaborate arguments. They, inter alia, relied on certain decisions to bolster the argument that there can be no addition on account of sale of sugar at concessional price to the members of the assessee co-operative societies. It was submitted, by mainly relying on the judgment of Hon'ble Supreme Court in the case of A. Raman and Co. (1968) 67 ITR 11 (SC), that the law does not oblige a trader to make maximum profit out of his trading transactions. Reliance was also placed on certain other decisions including CIT Vs. Calcutta Discount Co. Ltd. 91 ITR 8 (SC); H.M. Kashiparekh & Co. Ltd. Vs. CIT 39 ITR 706 (Bom.); CIT Vs. Shoorji Vallabhdas & Co. 46 ITR 144 (SC); Rogers Pyatt Shellac & Co. Vs. Secretary of State for India 1 ITC 363 (Cal.); Union of India Vs. Azadi Bac....
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....did not press this issue before the Hon'ble High Court, as a result of which such ground was dismissed. Various orders passed 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 membe....
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....mined under clause 5A has an element of 'distribution of profit', which cannot be allowed as deduction. That is how, the 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 e....
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....ra 9.4 of the judgment in Tasgaon (supra) holding excess purchase price of sugarcane to be 'certainly be and/or 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 ....
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....self which on the face of it is not only absurd but against all canons of mercantile and IT law.' The sequitur 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 Rs. 100/- and a sugar factory is purchasing sugarcane from its members at say, Rs. 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 t....
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....o 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 proposition....
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....e same being only in the nature of provision, the AO did not allow deduction u/s.35(1)(ii). The ld. CIT(A) decided this issue in favour of the assessee by following an order passed by the Pune Benches of the Tribunal in the case of Bhima S.S.K. Ltd. (ITA No.1414/PUN/2000). 27. We have heard both the sides and gone through the relevant material on record. It is found that the ld. CIT(A) has determined this issue in favour of the assessee by following the order passed by the Pune Benches of the Tribunal in the case of Bhima S.S.K. Ltd. (supra). No material has been placed on record to show that this order of the Tribunal has been reversed or modified in any manner by the Hon'ble High Court. Respectfully following the precedent, we decide this issue in favour of the assessee. IV. Disallowance of contribution towards Sakhar Sangh. 28. The Ld. AR of the assessee submitted that this issue is covered by the decision of the Co-ordinate Bench of the Tribunal, Pune dated 13.06.2019, the lead case being ACIT Vs. Shri Shankar SSK Ltd. in ITA No.382/PUN/2014 for the assessment year 2010-11. The Tribunal on this issue has held and observed as under: "31. In ITA No. 280/PUN/2017....
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.... has paid cane purchase tax of only Rs. 1,32,15,400/- whereas, the assessee has claimed as if Rs. 2,47,72,974 has been actually paid and in the computation of income, the amount to be deducted u/s.43B of the Act is Rs. 12,75,092/- as against Rs. 1,28,32,666/- claimed by the assessee. Accordingly, the Assessing Officer made an addition of Rs. 1,15,64,068/- on account of excess claim of deduction u/s.43B of the Act. 31. During First Appellate Proceedings, the Ld. CIT(A) on the basis of Tax Audit Report (TAR) observed that the assessee claims to have paid the dues of Rs. 62,49,936/- of the preceding year before filing the return for this year and therefore, deduction of Rs. 62,49,936/- claimed by the assessee in his computation is actually to be added back and a further disallowance of Rs. 33,07,638/- is to be made. Accordingly, the Ld. CIT(Appeals) deleted the disallowance of Rs. 1,15,64,048/- made by the Assessing Officer as it was supposedly only towards cane purchase tax and the Assessing Officer is directed to disallow Rs. 95,57,574/- ( Rs. 62,49,936/- + Rs. 33,07,638/-) u/s.43B of the Act. 32. At the time of hearing, the Ld. AR of the assessee submitted that the issue may ....