2021 (8) TMI 99 - AT - Income Tax

Allowability of harvesting and transport expenses paid by the Co-operative Sugar Mills to its farmers / members for purchase of sugarcane - HELD THAT - The CBDT Circular No.6/2017 dt.10.10.2017 had clarified that the expenses incurred by the Co-operative Sugar Mills on harvesting and transport expenses for procuring the sugarcane from the farmers is allowed as deduction. Hon ble jurisdictional High Court in the case CIT Vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd.. 2007 (8) TMI 260 - BOMBAY HIGH COURT held that the expenditure incurred on the consideration of business expediency should be allowed as revenue expenditure. Similarly, the Hon ble Madras High Court in the case of CIT Vs. Aruna Sunrise Hotels Ltd 2018 (5) TMI 156 - MADRAS HIGH COURT held that the payment made to sugarcane growers / members in excess of the administered price determined by the Sugarcane Control Order, 1966 is eligible to be treated as an allowable as the revenue expenditure exclusively incurred for the purpose of business. We find that the order of ld.CIT(A) is in consonance with the CBDT Circular as well as the law laid down by the Hon ble jurisdictional High Court and the Hon ble Madras High Court cited supra, no contrary position has been pointed out to us by the ld. CIT D.R. and therefore, we do not see any reason to interfere with the order of ld.CIT(A). Accordingly, the appeal filed by the Revenue is dismissed.

Summary

Issues:
Allowability of harvesting and transport expenses in the computation of taxable income for a Co-operative Society engaged in sugar manufacturing and trading.

Analysis:
The appeal involves a dispute over the allowability of harvesting and transport expenses incurred by a Co-operative Society in procuring sugarcane from farmers. The Assessing Officer disallowed an excess amount paid to sugarcane growers over the Fair Remunerative Price (FRP) as an appropriation of profits not allowable as an expenditure. The Commissioner of Income Tax (Appeal) partially upheld the disallowance but allowed harvesting and transport expenses based on commercial expediency and relevant notifications. The Revenue challenged this decision, arguing that the expenses were already included in the FRP and should not be allowed separately. The tribunal noted that the issue was only about the allowability of harvesting and transport expenses, not the difference between the FRP and actual price paid. Citing a CBDT circular and decisions of jurisdictional High Courts, the tribunal held that such expenses are deductible as they are incurred for commercial expediency and exclusively for business purposes. As no contrary position was presented, the tribunal dismissed the Revenue's appeal, affirming the decision of the Commissioner of Income Tax (Appeal).

In conclusion, the tribunal dismissed the Revenue's appeal, upholding the allowability of harvesting and transport expenses incurred by the Co-operative Society for procuring sugarcane from farmers. The decision was based on the expenses being necessary for continuous mill operations, commercially expedient, and wholly and exclusively for business purposes, in line with relevant CBDT circular and judicial precedents.