The Income Tax Appellate Tribunal (ITAT), Pune bench consisting of R.S. Syal, Vice President, and Satbeer Singh Godara, Judicial Member held that additional purchase price fixed for sugarcane under clause 5A of Control Order not allowed as deduction.
During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee paid excessive sugarcane 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 a deduction, the assessee gave a certain explanation. Not satisfied with the reply, the AO opined that the excessive price paid was not deductible. This is how he computed the excessive sugarcane price paid at Rs.3,56,28,820 and made an addition for the said sum. The Commissioner of Income Tax (CIT) echoed the assessment order on this point.
The Tribunal relied on the judgment in CIT Vs. Tasgaon Taluka S.S.K. Ltd, in which 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 notdeductible as expenditure.
The Tribunal finally said that “we set aside the impugned order on this score and remit the matter to the file of the A.O for deciding it afresh as per law in consonance with the articulation of the law by the Hon‟ble Supreme Court in the aforenoted judgment. The AO would allow a deduction for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966 and then determine the component of distribution of profit embedded in the price paid under clause 5A, by considering the statement of accounts, balance sheet and other relevant material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under this clause. The amount relatable to the profit component or sharing of profit/distribution of profit paid by the assessee, which would be the appropriation of income, will not be allowed as a deduction, while the remaining amount, being a charge against the income, will be considered as deductible expenditure.”
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