Law:

Section:

Section 37(1) of the Income-tax Act, 1961, read with rule 7 of the Income-tax Rules, 1962 - Business expenditure - Allowability of - Assessee-company, a manufacturer of sugar, used as raw material (sugarcane) grown in its own farms and debited in its accounts price of said sugarcane at ex-factory gate rate fixed by Government - It further debited certain amount on account of transport expenses incurred in bringing sugarcane from farms to factory - Whether that part of aforesaid transport charges which was not included in the ex-factory gate price, was allowable as deduction from business income of assessee - Held, yes Facts The assessee-company carried on business of manufacture of sugar. It also owned two farms where sugarcane was cultivated. The sugarcane grown in the said farms were mainly utilized by the assessee as raw material for manufacture of sugar in its own factory. In the relevant accounting year, the assessee in its accounts debited a sum on account of sugarcane produced in its farms and utilised in its factory at the ex-factory gate price fixed by the Government. In addition, it claimed certain expenses on account of transport expenses incurred in bringing the sugarcane from the farms to the factory. The ITO disallowed the entire transport expenses on the ground that as the assessee had already debited the market price of sugarcane at ex-factory gate price fixed by the Government it was not entitled to any further deduction on account of transport of such sugarcane from its farms to its factory. On appeal, the Tribunal, however, held that since the assessee had an out-centre as also its farms the difference between the price fixed by the Government for the out-centres and that fixed at the factory gate should be permitted to be disallowed and nothing more. The Tribunal, therefore, directed the ITO to reduce the disallowance on account of transport expenses to the difference in the said two prices, viz., the price fixed at the factory gate and the price fixed for the out-centres. On reference: Held While construing rule 7 it was held by the Andhra Pradesh High Court in CIT v. Nizam Sugar Factory Ltd. [1979 ] 116 ITR 185 that the expenditure…

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