“Section 32AB is a Self-Contained Code; Income Tax Authorities Have No Power to Adjust Profits Shown in Audited Accounts” Bombay High Court delivered a clear and authoritative answer to a long-disputed issue in taxation of manufacturing companies. The division bench of Chief Justice Alok Aradhe and Justice Sandeep V. Marne categorically held that, for purposes of Section 32AB of the Income Tax Act, the profits must be those “computed in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act,” and cannot be reduced by post-closing adjustments, such as additional cane price paid after the close of the year.
The ruling sets aside the approach of the Assessing Officer, Commissioner of Income Tax (Appeals), and Income Tax Appellate Tribunal (ITAT), who had altered the profits by deducting such post-year-end payments, thus shrinking the quantum of the 20% Section 32AB deduction available to the assessed. The High Court’s emphatic answer is that the statutory language and settled judicial authority leave no scope for such alterations: “There can be no two incomes, one for the purpose of Companies Act and another for the purpose of Income Tax Act for the purpose of applicability of provisions of Section 32AB.”
The Court concluded with a clear restatement of the governing law:
“While computing the benefit under Section 32AB… the profit of the eligible business computed as per the requirement of Parts-II and III of Schedule-VI to the Companies Act can alone be taken into consideration and the additional sugarcane price paid could not have been deducted as expenditure while considering the profits for the purpose of grant of benefit under Section 32AB.” The orders of the Assessing Officer, CIT(A), and ITAT were accordingly set aside, and the appeal allowed.
