TaxTMI 
TaxTMI 
2024 (1) TMI 596
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....rder to avoid the conflicting decision. For appreciation of facts, the appeal for the A.Y. 2012-13 in ITA No. 102/Srt/2023 is treated as a "lead case". In this appeal, the assessee has raised following grounds of appeal: "1. Ld. CIT (A) (NFAC) erred in law and on facts confirming action of AO disallowing genuine business expenditure incurred by the assessee society towards purchase of sugarcane from member farmers' u/s 37(1) of the Act. 2. Ld. CIT (A) (NFAC) erred in law and on facts in confirming addition made by AO of Rs. 58,96,71,804/- additional sugarcane price paid to the cane growers wholly and exclusively for the purpose of business. 3. Ld. CIT (A) (NFAC) erred in law and on facts to confirm action of AO in treating additional purchase price paid by the assessee co- operative society to the member farmers as appropriation of profits. 4. Ld. CIT (A) (NFAC) erred in law and on facts in confirming conclusion of AO that additional price paid will not fall under section 28 but the disallowance of expenditure was done rightly applying principles laid down u/s 37 (1) of the Act. 5. Ld. CIT (A) (NFAC) erred in law and on facts in reje....
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.... be based on its Fair and Remunerative Price (FRP)/Statutory Minimum Price (SMP). The Assessing Officer on the basis of his view worked out the following allowable expenses: Particulars Amount/Weight Sugar purchase cost for the period 01/04/2011 to 31/03/2012 (Rs.)-As per P&L Account for F.Y. 2011-12 Rs. 1,81,34,01,857/- Sugar purchased during the year (MT)-As per P&L Account for F.Y. 2011-12 667974.92 MT Average purchase price per MT 2714.78 SMP/FRP for the period 01/04/2011 to 31/03/2012 vide Notification No. G.S.R.428(E)/Ess. Com./Sugarcane dated 05/06/2012 1832.00 Excess payment over SMP/FRP (Rs.) per MT 882.78 Excess purchase expenses considering SMP/FRP price (Rs.) between the period 01/04/2011 to 30/09/2011 Rs. 58,96,71,804/- 3. On the basis of aforesaid working, the Assessing officer issued show cause notice dated 11/03/2015 as to why excess purchase expenses of Rs. 58.96 crores should not be disallowed and added to the income of assessee. The details of show cause notice is extracted in para 4.1 of assessment order. In response to such show cause notice, the assessee filed its reply dated 20/03/2015. The contents of reply furnished by....
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....such view, the assessee also relied upon the decision of Hon'ble Gujarat High Court in Mehsana District Co-operative Milk Producers Union Ltd. (2005) 146 Taxman 355/282 ITR 24 (Guj). The assessee also relied upon the decision of Hon'ble Bombay High Court in CIT Vs Solapur District Co-op Milk Producers and Process Union Ltd. (2009) 180 Taxman 533 (Mum). 4. The reply of assessee was not accepted by Assessing Officer. The Assessing Office was of the view that the assessee being a Cooperative Society (AOP) engaged in the business of manufacturing and selling of sugar and its by-products. The main raw material used by assessee for its manufacturing process is sugarcane. The Central Government has fixed SMP of sugarcane in terms of clause-3 Sugarcane Control Order, 1966 for each sugar season between 1^st October to 30^th September. The SMP was being fixed on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State Governments and associations of sugar industry and cane growers, having regard to various factors like cost of production of sugarcane, return of the growers from alternative crops and the general trend of prices of a....
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....benefit in the interest of farmers. The Assessing Officer by referring the decision of Hon'ble Apex Court in Travancore Titanium Products Ltd. [2001] 114 Taxman 249 (SC)/[2001] 247 ITR 186 (SC)/[2000] /[2001] 114 Taxman 249 (SC), wherein it was held that the nature of expenditure must be adjudged in the light of accepted commercial practice, trading principles and also that it must be necessitated or justified by commercial expediency. The Assessing Officer also referred other decisions who strengthen his view that the Assessing Officer is well within his right to come to the finding that the expenditure is not exclusively for the purpose of business. The Assessing Officer also referred the decision of Hon'ble Apex Court in Malaprabha Co-operative Sugar Factory Ltd. (1994) 1 SCC 648 wherein it was held that in the State of Maharashtra initially ex-field advance uniformly for all co-operative sugar factories. At the end of the season, the actual working results are assessed and the entire profits are passed on to the cane growers as additional cane price. Thus, the farmers get profits in the form of additional cane price and this fluctuates widely from factory to factory. By referri....
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....viewed in the light of decision of Hon'ble Supreme Court in the case of Malaprabha Co-operative Sugar Factory Ltd. (1994) 1 SCC 648, as relied by the Assessing Officer. The assessee claimed that the assessing officer has not followed the binding decision of jurisdictional High Court in Mehsana District Cooperative Milk Producers Union Ltd (2005) 282 ITR 24-Gujarat. In the said case the assessee was procuring milk from milk suppliers or primary milk cooperative union. The said decision is applicable on the facts of present case as the cooperative societies are working for welfare of farmers. The ld. CIT(A) held that under the income tax provisions, every businessman and every assessment year is not treated separately, according to fact of each case. In para 7.1. of CBDT Circular No. 18/2021, it is clarified the case of sugarcane cooperatives engaged in the production of sugar separately as all cooperative societies are not identical. The Assessing Officer in his assessment order, clearly and categorically established that the cane price decided by sugar cooperative does not entail passing on the profits of the cooperative to the cane suppliers and neither under commercial principles....
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....urther, sub-clause (2) of clause-3 prohibits everyone from selling/ purchasing sugarcane at the price lower than the fixed price under clause-3(1). This makes it abundantly clear that fair and reasonable price (FRP) earlier known as SMP fixed by Central Government for every crushing year i.e. October to September is to be safeguard the interest of farmers and is the lower limit only. However, it is always open to the party to negotiate to pay a price higher than the minimum price on commercial consideration and it is not open to the revenue to disallow it difference on the ground difference was not in law. The Sugarcane Control Order states only minimum price and not the maximum price is an accepted position as has been held by the Constitution Bench of Apex Court in UP Co-operative Cane Union Vs West UP Sugar Mills Association (supra) 8. The ld. Senior Counsel for the assessee while reading the relevant part of the said decision wherein in para 10 of the order it is noted that "a whole reading of the 1996 Order would, therefore, show that the Central Government shall fix the minimum price of sugarcane but there can be a higher than the minimum price which may be in the nature o....
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....ster Investment Ltd. 20 ITR 1 (SC) and Chandulal Keshavlal & Co. 38 ITR 601 (SC). The ld. ld. Senior Counsel for the assessee submits that his case is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of Mehsana District Co-operative Milk Producers Union Ltd. (2005) 147 Taxman 355 wherein the Hon'ble High Court was considered similar controversy i.e. payment on incremental price made by assessee, a cooperative society, to its members for purchase of an agricultural product like milk. In the said case, the Hon'ble High Court held that the amount had gone out of the coffers of the assessee and is received by milk supplying societies. The purchase price paid under each of the circulars was treated as ad-hoc payment and the final price which might increase/decrease, would be decided at the end of the year and should be intimated. Merely because the board resolved to fix the final price and paid on the last day of the accounting period it would not amount to application of profits. In past years, identical fact and situation prevailed and in absence of any change in circumstances, issue cannot be re-agitated by the department when society was working unde....
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....ing such judgment followed the decision of Gujarat High Court in Mehsana District Co-operative Milk Producers Union Ltd. (supra), thus the decision of Hon'ble Gujarat High Court stand approved by the Hon'ble Apex Court. 11. The ld. Senior Counsel for the assessee finally submits that the decision of Hon'ble Apex Court in CIT Vs Tasgaon Taluka S.S.K. Ltd. 412 ITR 420 is not applicable in all these appeals. In the said case, the issue before the Hon'ble Court was whether sugarcane price paid to the sugarcane growers by sugar cooperative society more than SMP determined under clause-3 and 5A of Sugarcane Control Order, 1966 can be said to be sharing of profit/estimation of profit or is an allowable expense. The ld. Senior Counsel for the assessee submits that it may be noted that clause 5A of Sugarcane Control Order is omitted w.e.f. 22/10/2009, thus the judgment which is based on interpretation of clause 5A of Control Order has no relevance. The issue involved in the present appeals now stand covered by the latest decision of Hon'ble Apex Court in the case of Kolhapur Zilla Sahkari Dudh Utpadak Sangh Ltd. (supra). The ld. Senior Counsel for the assessee finally submits that the is....
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.... recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State Governments and associations of sugar industry and cane growers, on considering various factors like in a scientific manner, using an accepted tools of economic and statistical analysis and is carried out by specialized government bodies consisting of specialists/experts in the field. The Sugarcane Control Order, 1966 was amended in October, 2009 by inserting sub-clause (g) in clause-3, which provides for giving reasonable margins to the growers of sugarcane on account of risk and profits. The FRP is nothing but another name of SMP after 2009-10. It was also held by the Assessing Officer further held that payment of cane price is given in two instalments around February and April. The Assessing Officer further held that even assuming that the liability to pay additional cane price was also incurred at the time of purchase of cane and only quantification of the amount payable on that account was done later on, the normal accounting practice would be to create a provision as at the end of accounting period, the said amount would constitute a present obligation as a result of past ev....
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.... commercial principles nor under the provisions of Income Tax Act, an amount paid towards sharing of profits. 16. In order to appreciate the concept of Statutory Minimum Price (SMP), State Advisory Price (SAP), Fair Market Price (FMP) and Final Cane Price. The necessary clauses of Sugarcane Control Order, 1966 is reproduced below; 2. Definitions- (a)---- (b)---- (c)---- ***(cc) "fair and remunerative price of sugarcane" means the price fixed by Central Government under clause -3, from time to time, for sugar cane; (*** inserted vide SO 2665(E) /Ess.Com/sugar cane dated 22.10.2009.) 3. Fair and remunerative price ++ of sugarcane payable by producer of sugar.- (1) The Central Government may, after consultation with such authorities, bodies or associations as it may deem fit, by notification in the Official Gazette, from time to time, fix the fair and remunerative price of sugarcane to be paid by producers of sugar or their agents for the sugarcane purchased by them having regard to- (a ) the cost of production of sugarcane; (b) the return to the grower from alternative crops and the general trend of p....
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....of such delay beyond 14 days. Where payment of interest on delayed payment is made to a cane growers' society, the society shall pass on the interest to the cane growers concerned after deducting administrative charges, if any, permitted by the rules of the said society.] (3B) (4) Where sugarcane is purchased through an agent, the producer or the agent shall pay or tender payment of such price within the period and in the manner aforesaid and if neither of them has so paid or tendered payment, each of them shall be deemed to have contravened the provisions of this clause. (5) At the time of payment at the gate of the factory or at the cane collection centre, receipts, if any, given by the purchaser, shall be surrendered by the cane grower or co-operative society. (6) Where payment has been made by transfer or deposit of the amount to the Bank account of the seller or the co-operative society, as the case may be, the receipt given by the purchaser, if any, to the grower or the co-operative society if not returned to the purchaser, shall become invalid. [(7) In case, the price of the sugarcane remains unpaid on the last day of the sugar ye....
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....in as if it were arrears of land revenue. (10) After effecting the recovery, the Collector shall intimate to the concerned growers of the sugarcane or the concerned sugarcane growers co-operative societies through a public notice to submit their claims in such a manner as he considers appropriate within thirty days: Provided that the Collector may, for the reasons to be recorded in writing allow the submission of claims after the period so specified if he is satisfied that there was sufficient cause for not submitting such claim earlier. (11) If the amount recovered is less than the amount specified in the certificate under sub-clause (8), the Collector shall distribute the amount so recovered among the concerned growers of the sugarcane or the concerned sugarcane growers co-operatives in proportion to the ratio determined by the Collector on the basis of the sugarcane supplied by the concerned growers of sugarcane or the sugarcane growers' co-operative society as the case may be. (12) If the amount recovered and distributed under sub-clause (11) is less than the amount specified in the certificate under sub-clause (8), the Collector shall procee....
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....ase may be, for [burnt cane or stale cane or dried cane or rejected varieties of cane] supplied to factories within their respective jurisdiction subject to the condition that the rebate so allowed does not exceed the reduction in price on account of the estimated shortfall in the recovery of sugar from4 [burnt cane or stale cane or dried cane or rejected varieties of cane.] (iii) where the sugarcane is brought bound in bundles and weighed as such, the Central Government, or with the approval of the Central Government, the State Government, or the Director of Agriculture, or the Cane Commissioner, or the District Magistrate, within their respective jurisdictions may allow a suitable rebate in regard to the weight of the binding material [not exceeding 1.000 kilograms per quintal of sugarcane]; (iv) The Central Government or the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate, may allow a suitable rebate in the minimum price or the agreed price as the case may be, when the cane is supplied ex-field to sugar factories within their respective jurisdictions subject to the condition that the rebate so allowed shall no....
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....metre shall be ignored while distance of half or more than a half kilometre, shall be counted as one kilometre. (ii) the Central Government or the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate may allow a suitable rebate in the fair and remunerative price or the agreed price as the case may be for [burnt cane or stale cane or dried cane or rejected varieties of cane] supplied to khandsari units within their respective jurisdictions subject to the condition that the rebate so allowed does not exceed the reduction in price on account of the estimated shortfall in the recovery of khandsari sugar from [burnt cane or stale cane or dried cane or rejected varieties of cane;] (iii) where the sugarcane is brought bound in bundles and weighed as such, the Central Government or with the approval of the Central Government, the State Government or the Director of Agriculture or the Cane Commissioner or the District Magistrate within their respective jurisdictions, may allow a suitable rebate in regard to the weight of the binding material [not exceeding 1.000 kilograms per quintal of sugarcane;] and [(iv) The Centr....
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....ith the supply of sugarcane to the factory. (5) (a) Any producer of sugar or grower of sugarcane or growers'co-operative society who or which feels aggrieved by any decision of the person or authority referred to in sub-clause (4), may, within thirty days from the date of communication of such decision under that sub-clause, appeal to the Central Government: Provided that the Central Government may, if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the aforesaid period of 30 days, admit the appeal if presented within a further period of 15 days. (b) The Central Government may, after giving an opportunity to the appellant to represent his case and after making such further enquiry as may be necessary, pass such order as it thinks fit. (c) The decision of the officer or authority referred to in sub-clause (4) where no appeal is filed, and of the Central Government where an appeal is filed, shall be final. (6) The price determined under sub-clause (4) or sub-clause (5), as the case may be, shall be paid at such time and in such manner as the Central Government may from time to time direct. ....
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....so urged that the State Government has, therefore, no power under the Act to fix any price as the field was occupied by the 1966 Order. The contention was, however, not accepted and after noticing the provisions of Clauses 3(2) and 3(3), it was held as under in para 8 of the Reports: "8. This would clearly indicate that despite the fixation of minimum price under clause 3(1), by agreement between the sugarcane grower and the purchaser of the sugarcane, they would be at liberty to agree to sell or purchase the sugarcane at a higher price than that fixed by the Central Government under clause 3(1). Only for postponement of payment beyond 14 days, there should be an agreement in writing between the parties obviously with the concurrence of the Central Government or authorised authority in that behalf. Thus, there is no statutory prohibition in that behalf to pay higher price. That would be further clear by clause 3(2) which speaks of the contract between the parties for payment of higher price of sugarcane fixed under sub-clause (1) of clause 3 pursuant to the agreement or pursuant to the minimum price fixed by the Central Government under clause 3(1) of the Order. It was obs....
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....ry. All the farmers who are cultivating sugarcane within that zone are bound by the State action to supply sugarcane to the factories within that reserved area. Consequently, the factory also is bound by the actions of the State Government. Obviously, pursuant to the obligation had by the State under the Supply Act, the meeting was convened by the State Government where at the Factory Owners' Association and farmers participated and agreed to fix the price at Rs. 20.50 per quintal of sugarcane. As a consequence, both the cane growers as well as the owners of the factory are bound by the decision. This having been agreed upon, the price fixed by the State Government in excess of the minimum price fixed by the Central Government under clause 3 of the Order would be the price fixed for supply of sugarcane and the Government would be entitled to enforce the liability....." It was also observed in the same paragraph that the State Government acted in their statutory capacity to fix the higher price of the sugarcane. These cases clearly lay down that under the 1966 Order the Central Government only fixes the minimum price and it is always open to the State Government to fix a higher ....
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.... Supreme court in Kolhapur Zilla Sahkari Dudh Utpadak Sangh Ltd. (supra) while affirming the decision of Hon'ble Bombay High Court in the case of CIT Vs Solapur District Co-op Milk Producers & Process Union Ltd. (supra), held that the addition could not be made by treating the amount paid as final rate difference as distribution of profits. It was also held that additions could not be made by treating amount paid as a final rate difference as a distribution of profit among members of the society. We find that Bombay High Court while giving such judgment followed the decision of Gujarat High Court in Mehsana District Co-operative Milk Producers Union Ltd. (supra), thus the decision of Hon'ble Gujarat High Court substantially stand approved by the Hon'ble Apex Court. 21. We find that Hon'ble jurisdictional High Court in Mehsana District Co-operative Milk Producers Union Ltd. (supra) while considering the question of law as to whether a claim for deduction was allowable either under section 28 or section 37(1). The Hon'ble Court held that the assessee claimed that additional payment was made towards the price of the milk. The Assessing Officer disallowed the same on the ground of p....