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2013 (11) TMI 229 - AT - Income TaxAddition on account of share deduction money - Assessee has not made payment of Rs. 59,81,538.84 to the Cane Growers as money was retained for the purpose of issuing share of the Society to such growers - Share deduction money account reflected in the balance sheet under the head share capital Held that - The amount added by the Assessing Officer is Rs.1/- per quintal of sugarcane out of deduction from the payment made. The amount remains as share deduction money and when it reaches Rs. 1,000/- in each case, it is transferred to share capital account. The share capital is accordingly increased and this practice has been followed by the appellant for the last so many years. It is not the case of the department that the liability is ceased, rather the money -paid is to be converted into share capital and it cannot be said that it has become income of the appellant Addition deleted Decided against the Revenue. Addition on account of retention money Held that - The retention money is basically the money retained to be set off against the penalty imposed, if the requisite supply is not made by the cane grower. If any penalty is levied on the cane grower, the same is squared up by way of transferring money from retention money account and the balance amount is paid to the members. It cannot be said that this amount, in any way, is income of the appellant Decided against the Revenue.
Issues:
1. Addition of share deduction money. 2. Addition of retention money. 3. Disallowance under Section 14A of the IT Act. Issue 1 - Addition of Share Deduction Money: The Assessing Officer added an amount to the income of the assessee as share deduction money for not making a payment to Cane Growers. The ld. CIT(A) found in favor of the assessee, stating that the money retained for issuing shares to growers ultimately increased the liability of the assessee. The Tribunal upheld the decision, emphasizing that the money payable to growers was adjusted by issuing shares, increasing the share capital. The Tribunal confirmed the order of the ld. CIT(A) and dismissed the appeal. Issue 2 - Addition of Retention Money: The Assessing Officer disallowed a sum of money retained by the assessee, considering it as income. The ld. CIT(A) reversed this decision, stating that the retention money was held to set off against penalties for shortfalls in supply by farmers. The Tribunal agreed with the ld. CIT(A), confirming that the retention money was not income but a mechanism to adjust penalties, thus dismissing the appeal of the revenue. Issue 3 - Disallowance under Section 14A of the IT Act: The AO disallowed an amount under Section 14A of the IT Act concerning dividend income earned from shares. The ld. CIT(A) dismissed the issue, stating that the assessee did not press the ground. The Tribunal disagreed with this finding, citing a Bombay High Court decision that Rule 8D did not apply retrospectively. The Tribunal directed a reasonable disallowance of Rs. 25,000 against the dividend income, setting aside the order of the ld. CIT(A). In another appeal under the same issue, the AO made a disallowance under Section 14A for dividend income earned from shares. The ld. CIT(A) remitted the matter to the AO for working out the disallowance under Rule 8D(2)(i). The Tribunal upheld the decision of the ld. CIT(A), confirming the application of Section 14A and Rule 8D, and dismissing the appeal of the assessee. In conclusion, the Tribunal dismissed both appeals of the revenue, partly allowed the assessee's appeal in one case, and dismissed the other appeal of the assessee. The judgments were pronounced on 6.9.2013.
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