2018 (5) TMI 156 - HC - Income Tax

Payment to the cane growers in excess of the price fixed by the Government - payment for business expediency - Held that - Mere use of the word advance in the letter of the Sugarcane Growers Association by itself would not change the character of the payment, especially when the amount paid was an ascertained liability and the assessee was following mercantile system of accounting and the payment was also done during the relevant accounting year. Furthermore, the Tribunal rightly observed that the assessee could not avoid this payment in view of the business expediency, as the entire business of the assessee was depending upon the supplies of sugarcane. For the above reasons, we find, there are no merits in the appeal. - Decided in favour of assessee

Summary

Issues:
Appeal against ITAT order for assessment year 1990-91 regarding additional price paid for sugarcane.

Analysis:
The appeal revolved around the excess payment made by the assessee to cane growers beyond the government-fixed price. The assessing officer initially considered the excess payment as an advance recoverable under agreed terms, leading to its deletion from accounts. However, the Commissioner of Income-tax (Appeals) reversed this decision, stating that the excess payment was a legitimate business expense. The appellate authority viewed the liability to pay at a certain rate as an ascertained liability due to the mercantile system of accounting followed by the assessee. This decision was supported by a precedent from the case of CIT vs. Ashok Iron & Steel Rolling Mill. The Tribunal upheld the appellate authority's decision, leading to the Revenue's appeal being dismissed.

The appellant argued that there was no obligation to pay above the government-fixed price, citing a letter from the Sugarcane Growers Association. Additionally, it was contended that the Tribunal lacked sufficient evidence to conclude that the payment had crystallized in the assessment year. However, the Court agreed with the Commissioner of Income Tax (Appeals) and the Tribunal. It emphasized that the nature of the business and the ascertained liability justified treating the excess payment as an allowable expenditure. The Court noted that the mere mention of "advance" in the association's letter did not alter the payment's character, especially given the accounting system and business dependency on sugarcane supplies. Consequently, the appeal was dismissed, ruling in favor of the assessee on all substantial questions of law.