ACIT Vs Shree Tatyasaheb Kore Warana Sahakari Sakhar Karkhana Ltd. (ITAT Pune)
Conclusion: Tribunal held that the differential amount between the levy price of sugar and the concessional price at which it was sold by a co-operative factory to its members and non-members constitutes an unallowable appropriation of profit to be added to business income, or a valid business practice could not be decided without examining the factual parameters mandated by the Supreme Court in Krishna Sahakari Karkhana Ltd. regarding industry practice, Government directions, eligibility of members, and pricing mechanism, accordingly, the matter was restored to the CIT(A) for fresh adjudication after examining all relevant facts and legal requirements.
Held: Assessee, a co-operative sugar factory, sold sugar to its members at concessional rates and claimed that such practice was a long-standing custom prevailing in the co-operative sugar industry. During assessment, AO treated the difference between the levy/market price and the concessional price charged from members as appropriation of profits and added the same to the assessee’s income. In earlier rounds of litigation, Tribunal had restored the matter to AO following the decision of the Supreme Court in CIT v. Krishna Sahakari Karkhana Ltd., directing examination of whether sale of sugar at concessional rates constituted an accepted industry practice, whether the State Government had approved such practice, and the basis for determining the quantity of sugar distributed at concessional rates. However, in the consequential proceedings, AO repeated the addition without carrying out the specific verification directed by the Tribunal and the Supreme Court. CIT(A) deleted the addition by relying on earlier decisions of the Bombay High Court in favour of sugar factories. Revenue contended that the concessional sale of sugar was regulated by directions issued under Section 79A of the Maharashtra Co-operative Societies Act, 1960 and by the Sugar Commissioner’s Circular dated 1 March 2006, which prescribed conditions regarding quantity, rate and eligibility of members. It was argued that neither AO nor CIT(A) had examined these statutory directions or complied with the remand directions issued by the Supreme Court in Krishna Sahakari Karkhana Ltd. Assessee, on the other hand, submitted that the issue stood covered by earlier Bombay High Court decisions in its own case and in other co-operative sugar factories, wherein sale of sugar at concessional rates had been accepted as an allowable business practice. It was held that both AO and the CIT(A) failed to comply with the specific directions issued by the Supreme Court and reiterated by the Tribunal in earlier proceedings. Neither authority examined crucial factual aspects such as the number of members receiving concessional sugar, whether such members had supplied sugarcane to the factory, compliance with the Sugar Commissioner’s Circular issued under Section 79A, the quantity of sugar distributed, or the basis for fixing concessional rates. Tribunal further held that the reliance placed by the CIT(A) on earlier Bombay High Court decisions was misplaced, as those decisions related to earlier assessment years and were rendered without considering the subsequent Supreme Court judgment in Krishna Sahakari Karkhana Ltd. and the statutory circular issued by the Sugar Commissioner. Since the relevant factual and legal parameters remained unexamined, the issue required fresh adjudication.
