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2022 (9) TMI 877 - ITAT BANGALOREDisallowance u/s 14A - Expenditure on earning exempt income - HELD THAT:- Hon'ble Delhi High Court in the case of Era Infrastructure (India) Ltd. [2022 (7) TMI 1093 - DELHI HIGH COURT] has considered the issue of disallowance u/s.14A when there is no exempt income and held that no disallowance u/s 14A could be made if no exempt income was earned by the assessee - we hold that no disallowance is warranted u/s 14A and delete the disallowance made in this regard. This ground is allowed in favour of assessee. Addition towards prior period items - AO therefore disallowed the same for the reason that it is not allowable being a prior period expenditure - CIT(Appeals) confirmed the disallowance by stating that the assessee has not brought anything on record to substantiate the claim that the expenses became crystallized during the year and that these expenses are project expenses is not supported by any evidence - HELD THAT:- We notice that the AO has made the addition based on what is stated in the 3CD report and has not discussed about examine the nature of expenditure in the assessment order. CIT(Appeals) has also not considered the submissions of the assessee that the said expenditure is not debited to the P&L a/c of the assessee, but upheld the addition based on what is stated by the auditors in Form 3CD - Key issue that needs to be verified with regard to the addition made towards project expenses is, whether the said expenditure is debited to the P&L account as mentioned in Form 3CD or capitalized in work-in-progress account as contended by the assessee. We therefore remit this issue back to the AO to examine factually whether the project expenses are debited to the P&L account or kept in work-in-progress based on evidence and decide the allowability accordingly. Needless to say that the assessee may be given opportunity of being heard. Addition u/s. 56(2)(vii) - addition under the head ‘income from other sources’ - HELD THAT:- For the purpose of arriving at the fair market value of unquoted shares, the book value of the assets should be considered as prescribed in Rule 11UA(1)(c)(b). We notice that the AO has relied on the valuation report given by the CA which is based on DCF method for making the addition in the hands of the assesse u/s. 56(2)(viia). DCF method is not the prescribed method of valuation in accordance with Rule 11UA for the purpose of section 56(2)(viia) and the Act provides a separate Rule i.e., Rule 11UA(1)(c)(b) for this purpose which is the fair market value. AO therefore should have computed the fair market value of the unquoted shares based on the method prescribed as per the above Rule and should have calculated the disallowance u/s. 56(2)(viia). We therefore remit the issue back to the AO to recomputed the value of the shares of M/s. Zebra Cross Resorts P. Ltd. and M/s. Waterline Hotels P. Ltd. and arrive at the addition, if any, warranted u/s. 56(2)(viia). The assessee is directed to provide the necessary information as may be required in this regard before the AO and cooperate with the proceedings. Appeal by the assessee is partly allowed.
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