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2017 (11) TMI 1363 - AT - Income TaxAllowable expenditure - Withheld price / additional price paid to the milk producers for procuring milk - AO observed the same as tax evasion device in payment "withheld price" through equity allotment partly and through contribution to trust partly - amount which is debited to the profit & loss account, but not actually paid to the milk suppliers, taken to capital contribution and also contribution to the trust, which is not allowable expenditure hence, liable to the disallowed - principles of mutuality - Held that:- For the issue of equity shares is concerned, clause 10(b) of the Articles of Association of the assessee company provides each member shall receive initial payment as may be determined by the Board for the produce/products. Every member shall receive withheld price (remaining price) which will be disbursed in cash or in kind or by allotment of equity shares in proportion to the quantity of milk supplied to the assessee company. Even as per section 581 of the Companies Act, the price withheld may be disbursed to the seller member in cash or through allotment of equity shares in proportion to the milk supplied during the financial year to such extent as may be decided by the Board. We find that the assessee company as per section 581 of the Companies Act and also Articles of Association, passed the resolution dated 05/10/2009 and equity shares are issued. Therefore, the Assessing Officer is not correct in saying that it is a tax avoidance device adopted by the assessee to avoid the payment of tax. The ld. CIT(A) by considering all the details has correctly decided that out of withheld price, equity shares issued is in accordance with law. Insofar as contribution paid to the trust is concerned, as per Memorandum of Association of Companies Act, it is under obligation of the assessee to establish schools, colleges, training centres & hospitals. Accordingly, the assessee has already established hospital and educational institutions and out of withheld price some portion is paid to the trust and same is received by the trust. Nowhere the Assessing Officer doubted the transaction. The only doubt expressed by the Assessing Officer is that the above payments are only made to avoid taxes. In our opinion, the assessee producer company running in the lines of mutuality basis for the benefit of the members, in the interest of the members instead of payment cash, some shares are allowed and established educational institutions and also hospitals for treatment of the members of the milk suppliers and certain payments made out of withheld price as per Companies Act and also Articles of Association followed by Board resolution. The Assessing Officer is not correct in saying that the assessee adopted device for avoidance of tax. We further observe that once the milk suppliers having shares in the company, they will be having a feeling of supplying milk to their own company. Therefore, the assessee company will be able to procure milk from the milk producers continuously. Therefore, allotment of equity shares to the milk producers for the above reason has to be considered as business expediency. - Decided in favour of assessee. Sale of powder - plant machinery not erected and kept idle for six years - assessee has claimed the same as other manufacturing expenses - AO is of the opinion that it is a capital loss and accordingly he disallowed the same - assessee has submitted that once loss claimed by the assessee, is considered by the Assessing Officer as capital loss, whenever there is a capital gain, loss may be allowed to set off of against the capital gain - Held that:- We find that there is a merit in the argument of the counsel for the assessee. Therefore, we direct the Assessing Officer, whenever there is a capital gain, against the gain, the assessee‟s claim of set off may be allowed in future in accordance with law. Accordingly, this cross objection filed by the assessee is allowed for statistical purpose.
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