To end litigations with sugar mills operating in the cooperative sectors, the Income Tax department has finalised the Standard Operating Procedure (SoP) to recompute income. This would implement the budget and proposal and accordingly changes made in the Income Tax Act through Finance Act 2023.

While announcing budget for FY 24, Finance Minister Nirmala Sitharaman said: “I propose to provide an opportunity to sugar cooperatives to claim payments made to sugarcane farmers for the period prior to assessment year 2016-17 as expenditure. This is expected to provide them with a relief of almost ₹10,000 crore.” According to the Department of Food and Public Distribution, there are 732 installed sugar factories in the country as on July 31, 2017, out of which 327 are in cooperative sectors.

The amendment provides re-computation of the income in case of deduction with respect to any expenditure incurred for the purchase of sugarcane disallowed wholly or partly in any previous year commencing on or before April 1, 2014. Further, the Assessing Officer will allow such deduction to the extent that such expenditure is incurred at a price which is equal to or less than the price fixed or approved by the Government for that previous year.

Now, the SoP says the application by a cooperative society can be filed for AY 2015-16 or any earlier assessment year (AY). The Jurisdictional Assessing Officer may seek documents such as computation of tax, audit report, audited Profit and Loss Account and Balance Sheet. Other documents include Assessment Order/Appellate Order(s) of various appellate fora, with respect to the disallowance made on account of excess price paid for purchase of sugarcane above the SMP. The assesee may also be asked to present the demand notice, challan of taxes paid, copy of order or legal instrument(s) regarding price fixation by Government based on which excess price was paid.

In practice, sugar mills pay to sugarcane growers the final cane price (FCP), which is over and above the statutory minimum price (SMP) fixed by the Central Government. The payment of FCP by the cooperative sugar factories over and above the SMP for the purchase of sugarcane has resulted in tax litigation. The cooperative sugar factories were claiming this excess payment as business expenditure whereas the same has been disallowed in the assessment on the ground that the excess price paid for the purchase of sugarcane over and above SMP is in the nature of appropriation/distribution of profit and hence not allowable as a deduction.

To end this dispute, deduction was earlier allowed from AY 2016-17. But pending demands and litigation still persisted for assessment years prior to 2016-17. Now, the amendment in Finance Act 2023 aims to resolve disputes related to Fiscal Year 2014-15 and before.

The SoP says, post filing of application, the Jurisdictional Assessing Officer will recompute the total income of cooperative sugar mills. The order can be issued within 6 months. The procedure also says the rectification can be made till March 31, 2027.

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