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2014 (12) TMI 139 - AT - Income TaxDisallowance u/s 14A – Computation of average interest under Rule 8D @ 0.5% - Held that:- The assessee is mainly engaged in the hotel business - It has made investment in the shares and mutual funds on which it has earned dividend income - surplus funds were sufficient to cover the investments - the assessee has also given the nature of utilization of loan and details of interest paid which has been incorporated - for the purpose of indirect expenses, the assessee has given the calculation of expenditure from its account which can be said to be attributable for the purpose of earning of the exempt income – once all these details were made available along with the entire accounts of the assessee, the AO was required to record his “satisfaction” or satisfied himself that having regard to the accounts of the assessee, the claim of the assessee in respect of expenditure debited is not correct and there could have been certain other expenditures which can be said to have been incurred in relation to the earning of exempt income. The A.O. has straight away proceeded to apply Rule 8-D for the purpose of disallowance u/s 14A without satisfying or complying with the mandatory requirement of section 14A(2) or Rule 8-D(1) - once the AO has failed to comply the statutory requirement, then he cannot proceed to make the disallowance u/s 14A(1) and the disallowance made by the AO and partly sustained by the CIT(A) over and above the disallowance made by the assessee is deleted – Decided in favour of assessee. Computation of book profits u/s 115JB – Held that:- As admitted by both the parties, once the disallowance u/s 14A has been made, then the same disallowance shall also form part of the computation while calculating the book profit u/s 115JB of the Act - Thus the disallowance as made by the assessee in its computation of income will be the disallowance while computing the book profit u/s 115JB – Decided partly in favour of assessee. Treatment of forfeiture of share application money for equity warrants – Capital receipt or revenue receipt – Applicability of the SC’s decision in Commissioner of Income-Tax Versus TV Sundaram Iyengar And Sons Limited [1996 (9) TMI 1 - SUPREME Court] - Held that:- During the FY 2007-08, the assessee company had issued equity warrants convertible into equity shares under preferential issue to the public in accordance with SEBI Guidelines, 2000 - the assessee treated it as capital receipt and therefore it was not offered as income - In the case of T.V. Sundaram Iyengar & Sons Ltd., the Hon’ble Supreme Court held that the money was received by the assessee in the course of carrying on the business and although it was treated as deposits and was in the nature of capital receipt at that point of time, however by efflux of time, money has become own money of the assessee because the claim of the customers have become barred by limitation - Since the assessee itself has treated its own money and taken the money into P&L account, therefore, it was held that by assessee’s own admission it has become income of the assessee. The ratio decindi laid down by the Hon’ble Supreme Court will not be applicable on the present case, firstly, the assessee has not received any deposits during the course of trading transaction from the customers but in the form of warrant convertible into equity share which was a capital account; secondly, the assessee has not forfeited the amount and transferred to the P&L account, but directly to the capital reserve under the head “warrant forfeited account” - The assessee is not in the business of raising money through issue of share warrant and it is not a receipt in the normal course of business - If a particular amount is not received as trading receipt or during the course of trading transaction, it cannot be later on treated as arising out of trading transaction so as to hold as revenue receipt – thus, the amount of forfeited share application money transferred to “warrant, forfeiture account” in the capital reserve, is a capital receipt only and cannot be taxed as income of the assessee, either u/s 28(iv) or u/s 41(1) – Decided in favour of assessee.
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