2024 (10) TMI 767 - SCH - Income Tax

Section 40A (2) applicability to a co-operative society - additional payment over and above the statutory minimum price (SMP) was cane price and not diversion of profit and as such allowable as business expenditure under section 37(1) - whether part of the cane price paid to the sugar cane suppliers and the khodki charges incurred by the assessee could be disallowed on the ground that the said expenditure constitute appropriation of profits / bonus under the provisions of M.C.S. Act, 1960 ? - HC 2009 (5) TMI 1026 - BOMBAY HIGH COURT decided issue in favour of assessee. HELD THAT - The present case is covered by a decision TASGAON TALUKA S.S.K. LTD. 2019 (3) TMI 321 - SUPREME COURT wherein held to the extent of the component of profit which will be a part of the final determination of SAP and/or the final price/additional purchase price fixed under Clause 5A would certainly be and/or said to be an appropriation of profit. However, at the same time, the entire/whole amount of difference between the SMP and the SAP per se cannot be said to be an appropriation of profit. Only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of accounts, balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under Clause 5A of the Control Order, 1966. Merely because the higher price is paid to both, members and non-members, qua the members, still the question would remain with respect to the distribution of profit/sharing of the profit. AO will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of the profit and after undertaking such an exercise whatever is the profit component is to be considered as sharing of profit/distribution of profit and the rest of the amount is to be considered as deductible as expenditure. The question of law is answered accordingly, partly in favour of the department and partly in favour of the assessee. The impugned orders passed by the High Court, ITAT, CIT(A) as well as the assessing officers are hereby quashed and set aside and the matters are remitted to the respective assessing officers to undertake the exercise as stated hereinabove and after giving an opportunity to the respective assessee's.

Summary

The Supreme Court granted leave in the absence of the respondent. The case was disposed of in line with a previous judgment, quashing previous orders and remitting the matter back to assessing officers for further action.