The Income Tax Appellate Tribunal (ITAT), Pune Bench ruled that the amount relatable to the profit component which is the appropriation of income, can not be allowed as deduction.
The assessee, Shri Ganpati Zilla Krishi Audyogik Sar Seva Sahakari Society is a cooperative society engaged in the business of manufacture and sale of sugar and its by-products. All the appeals rotate around the confirmation of addition on account of Excessive cane Price paid to the Members/Non-Members.
A common issue involved in almost all the appeals is against the addition made by the Assessing Officer (AO) towards excessive sugarcane price paid to members as well as non-members of the respective assessees. The facts common to almost all the appeals are that the assesses are engaged in the business of manufacturing white sugar. 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.
The CIT(A) in some cases deleted the addition, fully or partly, whilst in others, the addition got sustained. This led to the filing of the cross-appeals both by the assessee as well as the Revenue before the Tribunal.
The Coram headed by the Vice President R.S.Syal The amount relatable to the profit component or sharing of profit/distribution of profit paid by the assessee, which would be an 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. At this stage, it is made clear that the distribution of profits can only be qua the payments made to the members.
The ITAT ruled that in so far as the non-members are concerned, the case will be considered afresh by the AO by applying the provisions of section 40A(2) of the Act. Needless to say, the assessee will be allowed a reasonable opportunity of hearing by the AO in such fresh determination of the issue.
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