INCOME TAX ACT, 1961

Section 40A(2)(b)

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - Excessive price paid for purchase of sugarcane by assessee society being manufacturer of white sugar -

Assessee society engaged in manufacturing of white sugar. AO noticed that assessee paid excessive cane price, over and above the fair and remunerative price (FRP) fixed by Govt. Accordingly, AO made disallowance under section 40A(2)(b). towards of excessive sugarcane price paid to members as well as non-members.Held: AO would allow deduction for the price paid under clause 3 of the Sugar Cane (Control) Order, 1966 and then determine component of distribution of profit embedded in the price paid under clause 5A, by considering statement of accounts, balance sheet and other relevant material supplied to State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under this clause. The amount relatable to profit component or sharing of profit/distribution of profit paid by assessee, being appropriation of income, would not be allowed as deduction, while remaining amount, being a charge against income, would be considered as deductible expenditure. However, distribution of profits could only be qua the payments made to the members. In so far as non-members were concerned, the case would be considered afresh by AO by applying section 40A(2). Therefore, matter was remanded.

Applied:CIT v. Tasgaon Taluka S.S.K. Ltd. (2019) 103 TAxmann.com 57 (SC) : 2019 TaxPub(DT) 1651 (SC).

REFERRED :

FAVOUR : Matter remanded.

A.Y. :

INCOME TAX ACT, 1961

Section 40A(2)(b)

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