×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
12-04-2019, Sonhira Sah. Sakhar, Section 40A(2), 37(1), Tribunal Pune
This batch comprising of certain appeals by the assessees and the others by the Revenue relate to different assessment years captioned above. 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.
I. EXCESSIVE SUGARCANE PRICE PAID
2. A common issue involved in almost all the appeals is on account of the addition made by the Assessing Officer (AO) towards of excessive sugarcane price paid to members as well as non-members of the respective assessees. On a representative basis, we are espousing the facts in the case of ACIT, Circle-2, Sangli Vs. Sonhira Sahakari Sakhar Karkhana Ltd. – ITA No.2126/PUN/2012 for the assessment year 2007-08. The assessee is a Co-operative Society engaged in the business of manufacturing and sale of sugar and its bye-products. During the course of assessment proceedings, the AO observed that the assessee paid excessive cane price, over and above the Fair and remunerative price (FRP) fixed by the Government, to its members as well as non-members. On being called upon to justify such deduction, the assessee gave certain explanation by submitting that such payment was solely and exclusively in connection with the
business and the entire amount was deductible u/s.37(1) of the Income-tax Act, 1961 (hereinafter also called `the Act’). Relying on clause-3 and additional price payable as per clause 5A of the Sugarcane Control Order, 1966, the AO opined that the excessive price paid was in the nature of `distribution of profits’ and hence not deductible. This is how, he computed the excessive cane price paid both to the members and non-members at Rs.5,29,14,209.50 and made addition for the said sum. The ld. CIT(A) deleted the addition on this point.
3. Facts in all other cases qua this issue, in so far as the assessment proceedings are concerned, are mutatis mutandis similar. It is seen that in some cases, the addition got deleted by the ld. CIT(A), whilst in others the addition got sustained. This led to filing of the appeals both by the assessee as well as the Revenue before the Tribunal.
4. We have heard both the sides and gone through the relevant material on record. There is consensus ad idem between the rival parties that the issue 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 Taluka S.S.K. Ltd. (2019) 103 taxmann.com 57 (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 the Central Government and the price determined by the State Government under clause 5A of the Control Order, 1966, was in the nature of `distribution of profits’ and hence not deductible as expenditure. He, therefore, made an addition for such sum paid to members as well as non-members. When the matter finally came up before the Hon’ble Apex Court, it noted that clause 5A was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission, which recommended payment of additional price at the end of the season on 50:50 profit sharing basis between the growers and factories, to be worked out in accordance with the Second Schedule to the Control Order, 1966. Their Lordships noted that at the time when additional purchase price is determined/fixed under clause 5A, the accounts are settled and the particulars are provided by the concerned Co-operative Society as to what will be the expenditure and what will be the profit etc. Considering the fact that Statutory Minimum Price (SMP), determined under clause 3 of the Control Order, 1966, which is paid at the beginning of the season, is
deductible in the entirety and the difference between SMP determined under clause 3 and SAP/additional purchase price determined under clause 5A, has an element of distribution of profit which cannot be allowed as deduction, the Hon’ble Supreme Court remitted the matter to the file of the AO for considering the modalities and manner in which SAP/additional purchase price/final price is decided. He has been directed to carry out an