Profits for deduction under Section 32AB of the Income Tax Act must be computed based on accounts in accordance with the Companies Act, not the Income Tax provisions.

JUDGMENT :

Sandeep V. Marne, J.

1) The Assessee has preferred this Appeal under Section 260A of the INCOME TAX ACT , 1961 (the Act) assailing the order dated 24 January 2003 passed by Income Tax Appellate Tribunal, Mumbai Bench (ITAT) in I.T.A. No. 871/Bom/94, by which the Appeal preferred by the Assessee has been dismissed. The Assessee had challenged the order of Commissioner of Income Tax (Appeals) upholding the order of the Assessing Officer deducting the additional cane price of Rs.78,86,857/- from the profits of the Assessee for AY 1990-91 while allowing the benefit under Section 32AB of the Act.

2) The issue involved in the appeal is whether it is permissible for an Assessee to seek benefit of 20% deduction under Section 32AB of the Act on profits as reflected in the Profit & Loss Account finalized under Part II and III of the VI Schedule of the Companies Act, 1956 (Companies Act) or whether they must be determined with reference to the actual profits for the purposes of the INCOME TAX ACT . The issue arises in the peculiar circumstances where the additional sugarcane price is required to be paid by the Assessee (as determined by the Director of Sugar) after finalization of the accounts under Parts II and III of the VI Schedule of the Companies Act, but the Assessee can still claim the said amount as expenses while filing the return on income. The Assessing Officer has proceeded to deduct the said additional amount of sugarcane from the amount of profits for the relevant AY while computing the 20% deduction admissible under Section 32AB of the Act.

3) The Assessee is a manufacturing company carrying on the business of manufacturing toffees, confectionery and sugar candy. The Assessee is required to purchase sugarcane from farmers for the purpose of manufacturing toffees, confectionery and sugar candy. For various Co-operative Sugar Factories, the Director of Sugar, State of Maharashtra, determines the final price of sugarcane to be paid to farmers, which is decided after the end of sugarcane season by taking into account various factors like production cost of sugarcane, cost of sugarcane to farmers, etc. In order to incentivize the farmers to sell sugarcane, the Assessee had formed a policy of paying them certain amount in addition to the final price of sugarcane determined by the Director of Sugar for the neighboring Co-operative sugar factories (M/s. Vasantdada Patil Sahkari Sakhar Karkhana Ltd. and M/s. Girna Co-operative Sakhar Karkhana Ltd.). For sugarcane seasons of 1988- 89, 1989-90 and 1990-91, the Assessee announced the policy of paying Rs. 15/- per metric ton which was in addition to the final price of sugarcane determined by the Director of Sugar.

4) The Director of Sugar determined the final price of sugarcane for the season of 1989-90 at Rs.376.50 per metric ton vide letter dated 4 October 1990. The Assessee had paid price of sugarcane as per tentative price determined by the Government at the time of purchase of sugarcane during every season. On determination of final price by the Director of Sugar, the Assessee used to pay additional sugarcane price to the farmers as per its policy of paying more than the final price determined by the Director of Sugar.

5) During the year commencing from 1 October 1987 and ending on 31 March 1989 (18 months) relevant to the Assessment Year 1989-90, the Assessee had paid additional sugarcane price of Rs.30,56,352/- on the sugarcane purchased for the season 1986-87. Therefore, while computing the total income for Assessment Year 1989-90, the said amount of additional sugarcane price o