The Pune Bench of Income Tax Appellate Tribunal (ITAT) has held that price incurred in excess of fair and remunerative price (FRP) by sugar cooperatives for the sugarcane purchased is allowable as per the latest amendments under Section 155(19) of the Income Tax Act.
Assesses,D.Y. Patil Sahakari Sakhar Karkhana Ltd had challenging correctness of the action disallowing its alleged sugar cane purchase price paid to the cane growers in excess of the fair and remunerative price, (FRP) and sugar sold at concessional rates to them having the amount in former appeal for assessment year 2016-17 in assessment orders dated 29.11.2018 and 30.12.2019 for assessment years 2016-17 and 2017-18 respectively.
M.K. Kulkarani, on behalf of the assessee invited attention to the latest legislative developments which were not considered in the tribunal’s earlier order. He submitted that the legislature had inserted clause (xvii) to sec.36(1) of the Income Tax Act regarding such a claim of expenditure incurred by a cooperative society engaged in the business of manufacture of sugar for purchase of sugarcane at a price which was equal or less than the price fixed or approved by the government.
He then quoted CBDT’s circular number 18/2021 clarifying that the relevant phrase “price fixed or approved by the government” in the above phrase to Section 36(1)(xvii) of the Income Tax Act would also include the price fixation by the state governments through state level Acts/orders and other similar instruments, as the case may be which may also be higher than the price fixed by the central government.
He further referred to the latest statutory amendment inserting clause (19) in Section 155 of the Income Tax Act granting relief as the very issue followed by the explanatory memorandum thereto issued in very terms.
Sardar Singh Meena appeared on behalf of the revenue.
The excess price paid for the procurement of sugar cane above the SMP is in the nature of profit appropriation/distribution and is therefore not acceptable as a deductible, despite the cooperative sugar manufacturers’ claims that it was a business expense.
A new clause (xvii) was added to section 36 of the Income Tax Act to clarify this situation and promote cooperative movement in the sugar industry. It states that the amount paid by cooperative societies engaged in the manufacture of sugar for the purchase of sugarcane at a price equal to or less than the price fixed by or fixed with the approval of the Government shall be allowed as a deduction for calculating business income. The aforementioned amendment was applicable starting with the Assessment Year 2016–17 and went into effect on April 1, 2016, pursuant to the Finance Act 2015.
Section 155 of the Income Tax Act was changed by adding a new sub-section (19) to bring the matter to a logical conclusion and extend the benefit of the aforementioned relief to all applicable years.
The two member Bench of Satbeer Singh Godara, (Judicial Member) and Dipak P. Ripote, (Accountant Member) allowed the appeal considering the latest amendment in clause (19) in Section 155 of the Income Tax Act.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
