SOP for making application for re-computation of total income for sugar factories

The Government by inserting a new sub section (19) after Section 155 of the Income Tax Act, 1961 (Act) vide Finance Act, 2023 ended a biggest debate involved in outstanding demands for various past years of co-operative society engaged in the business of manufacture of sugar.

Background:

The huge demand of past years arose mainly due to following reasons –

1. Sugar Factories in co-operative sectors offers amount to farmers for the purchase of sugarcane as Final Cane Price (FCP) which is over and above Statutory Minimum Price (SMP) fixed by the Central Government under the Sugarcane Control Order, 1996.

2. The price offered by sugar factories are due local scenarios involved in various state.

3. The payment of FCP over and above the SMP for purchase of sugarcane was disallowed by Tax Authorities and that’s the main reason for arose of tax litigations

4. The matter has been reached to Supreme Court but the Hon’ble Supreme Court remanded back the matter and again the same cycle started.

5. There are various landmark judgements given by supreme court in relation to this issue. In case of CIT v. Shri Satpuda Tapi Parisar SSK Ltd.  (2010) 033 (I) ITCL 0489the matter was remanded back to AO for fresh hearing by giving directions.

6. In case of CIT v. Tasgaon Taluka S.S.K. Ltd. (2019) 412 ITR 0420 again the matter was remanded back by the Hon’ble SC.

7. Due to the decisions of the Supreme Court all this old matters are still in disputes.

8. In order to provide relief to manufacture of sugar co-operative societies and to boost the industry amendment in Section 36 (1) (xvii) was inserted by the Finance Act, 2015.

9. Which allows the price fixed by Central Government for purchase of sugarcane or the price at which sugarcane is actually purchased, whichever is lower to be allowed as deduction while computing the business income.

10. Unfortunately, the same was made applicable w.e.f. 01.04.2016 and was applicable from AY 2016-17 prospectively. But the huge demands and litigation for prior years still persists for AYs prior to AY 2016.17

Relief for Sugar Manufacturers: Budget 2023 Amendment

Finally, in budget 2023 our Hon’ble FM introduce new sub section (19) after section 155 of the Income Tax Act, 1961 which gives ends to the huge demands and pending litigations of last so many years and gives boost to the struggling co-operative societies engage in the manufacturing of Sugar.

The amendment states that for the previous year commencing on or before 01/04/2014 i.e. for AY 2015-16 or prior AYs.

• The amount disallowed for purchase of sugarcane on or above SMPs will be allowed as business deductions but it was restricted to price fixed by the government for respective years.
• For this the sugar Co-operative societies have to make application u/s 154 of the Act to the Assessing Officer for recomputation of income but the expenditure for purchase of sugarcane will be allowed only to the extent of the of the price equal to or less than as approved by the government for that previous year.
• However, section 154(7) of the Act restricts the application to be made under this section for 4 years. But for the making application under this section for sugar factories the period of 4 years will start from the end of P.Y. 2022-23 i.e. the last day of making application is 31.03.2027.

Standard Operating Procedure (SOP) for Recomputation of Total Income for Sugar Factories

CBDT on 27th July, 2023 issued a Circular No. 14/2023 for Standard Operating procedure (SOP) for making application for recomputation of total income. The SOPs are as under –

1. Objective: To facilitate the re-computation of total income for sugar factories in light of the amendments introduced in subsection (19) after Section 155 of the Income Tax Act, 1961.

2. Scope: This SOP applies to cooperative societies engaged in the business of manufacturing sugar and looking to recompute their income based on the recent tax amendments.

3. Eligibility for Application:

• • The applicant must qualify as a cooperative society as described under section 2(19) of the Income Tax Act, 1961.
  • The primary business of the society should be the manufacturing of sugar.

4. Application Process:

• • The application, under section 155(19), must be filed with the respective Jurisdictional Assessing Officer.
  • The application can be submitted for Assessment Year (AY) 2015-16 or for any prior years.

5. Required Documentation: Upon applying for re-computation, the sugar cooperative society should be prepared to furnish the following documents:

• • Computation of income for the relevant years.
  • Audit Report as stipulated under section 44AB of the Act.
  • Audited Profit & Loss Account and Balance Sheet for the concerned years.
  • Assessment order/Appellate Order(s), relevant to the discussed disallowance.
  • Notice of Demand as issued under section 156 of the Act.
  • Challans indicating taxes paid (if any).
  • Official documents indicating fixation of excess price over SMP by the Government.
  • Certificate showcasing registration as a cooperative society under respective State/Central Act.
  • Any other documentation as might be requested by the Jurisdictional Assessing Officer.

6. Assessment & Decision:

• • Upon receiving the application, the Jurisdictional Assessing Officer is obligated to pass an order under section 155(19) read with section 154 of the Act.
  • The decision regarding the re-computation must be arrived at within six months from the end of the month in which the application was submitted.

7. Time Limit for Application: Given the restrictions under section 154(7) of the Act, the application for sugar factories can be made up to 4 years starting from the end of P.Y. 2022-23. The absolute deadline for application submission is 31.03.2027.

Conclusion: The introduction of the new SOP for recomputation of total income is a significant stride towards resolving long-standing tax disputes for sugar factories. It’s imperative for sugar cooperative societies to adhere to the prescribed SOP for ensuring a hassle-free re-computation process. By meticulously following the steps and being prompt with documentation, societies can benefit from the recent tax amendments, bringing closure to long-standing disputes. By ensuring a clear and streamlined process, the government has showcased its commitment to fostering a more conducive business environment for the sugar industry.