1980 (4) TMI 200 - AT - Income Tax

Summary

Issues:
1. Disallowance of additional price paid to sugar cane growers.
2. Disallowance of transport subsidy paid to cane growers.
3. Disallowance of loss on diversion of sugar cane to other mills.

Detailed Analysis:
1. The first issue pertains to the disallowance of the additional price paid to sugar cane growers. The Income Tax Officer (ITO) disallowed a portion of the additional price paid under section 40A(2)(a) as he believed the payment exceeded the minimum statutory price set by the government. However, the Appellate Tribunal noted that the excess price paid over the minimum statutory price should be considered part of the price paid and allowed as per judicial precedents, including a Supreme Court decision. The Tribunal highlighted that the price paid was fair and not excessive, especially considering factors like recovery rate, cost structure, and market conditions. The Tribunal upheld the decision of the first appellate authority in favor of the assessee.

2. The second issue concerns the disallowance of transport subsidy paid to cane growers. The Tribunal found that the transport subsidy, although treated as an expense, was essentially part of the cane price paid to growers and was authorized by the State Government. The Tribunal emphasized that whether considered an expense or part of the price structure, the subsidy was an integral component of the sugar cane price. Therefore, the Tribunal agreed with the first appellate authority's decision to delete the addition, as the subsidy was a legitimate deduction and not subject to section 40A(2)(a).

3. The final issue involves the disallowance of a loss incurred by diverting sugar cane purchased by the assessee to other mills. The assessee argued that the diversion was necessary due to the lack of crushing facilities and was approved by authorities to prevent crop wastage. The Tribunal noted that similar losses were considered normal business losses for other mills. The Tribunal rejected the argument that the diversion constituted a speculative transaction, emphasizing that it was a legitimate business decision to prevent crop deterioration. The Tribunal upheld the first appellate authority's decision, stating that the loss incurred was an allowable business expense and not subject to disallowance. Consequently, the Tribunal dismissed the departmental appeal on this issue.

In conclusion, the Appellate Tribunal ITAT MADRAS-B ruled in favor of the assessee on all three issues, dismissing the departmental appeal and upholding the decisions of the first appellate authority in each instance.