2017 (8) TMI 1492 - AT - Income Tax

Disallowance on account of sugarcane development expenses - assessee company is engaged in the business of manufacturing of white crystal sugar - allowable busniss expenses u/s 37 - Held that - AO in a very summarily manner has disallowed the expenses on the ground that it is relatable to agricultural income. Expenses have to be incurred by the assessee as per the direction or mandate of the State Government; and have been debited as cane development expenses in the profit and loss account which is part of the assessee s main activity of manufacturing of sugar crystals. The cane development expenses debited to the profit & loss account and the agricultural income are completely unrelated and therefore, to say that it is directly related to assessee s agricultural income from its own land is sans any material. The similar claim of expenses have always been allowed by the Assessing Officer in the scrutiny assessments right from the assessment year 2001-02 to 2006-07. CIT (Appeals) has referred to CBDT s circular No. 578 dated 15.2.1990, wherein CBDT has clarified and upheld that the expenditure incurred by the sugar factory on cane development programmes is eligible for deduction u/s 37(1). - Decided in favour of assessee.

Summary

Issues:
Disallowance of sugarcane development expenses.

Analysis:
The appeal was filed by the Revenue against the order passed by the Ld. CIT (Appeals)- V, New Delhi for the assessment year 2007-08. The Revenue raised grounds questioning the deletion of disallowance of ?73,51,878 made by the Assessing Officer on account of sugarcane development expenses.

The brief facts revealed that the Assessing Officer disallowed the expenses related to sugarcane development, adding the entire amount to the income of the assessee. The assessee clarified that the cane development expenses were incurred on land outside its premises, unrelated to the agricultural income derived from its own land. The assessee explained the concept of a command area allotted by the State Government for cane development activities, emphasizing that these expenses were necessary for supporting the sugar industry and were allowed in previous assessments.

The Learned CIT (Appeals) considered the facts and material presented and allowed the claim of expenses, citing a wrong appreciation of facts by the Assessing Officer. He referred to a CBDT circular stating that expenses incurred by a sugar factory for cane development programs were eligible for deduction in computing taxable profits.

Despite the absence of the assessee during the proceedings, the Tribunal examined the case. It was observed that the cane development expenses were unrelated to the agricultural income shown by the assessee, as they were incurred for the development of farmers in the command area. These expenses included various items like seeds, fertilizer, transport subsidy, and staff salaries, necessary as per the State Government's directives. The Tribunal upheld the decision of the CIT (Appeals) to delete the disallowance, emphasizing the lack of connection between the expenses and the agricultural income. The Tribunal also noted that similar expenses had been allowed in previous assessments and referred to the CBDT circular supporting the deduction of such expenses.

Conclusively, the Tribunal dismissed the Revenue's appeal, affirming the decision to delete the disallowance of sugarcane development expenses.