TMI Blog2016 (4) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... in [2009 (8) TMI 126 - ITAT DELHI-B ] had held that disallowance u/s 14A could be made even in a year in which no exempt income was earned or received by the assessee. But this decision has been overruled by Bangalore Tribunal, Hon'ble Gujarat High Court and Hon'ble Allahabad High Court as stated supra. Moreover, we also find that the Special Bench decision in Cheminvest Ltd. (supra) has been overruled by the recent decision of the Hon'ble Delhi High Court in Cheminvest Ltd. (supra) case itself and hence it is no longer good law. Hence, we hold in favour of the assessee the alternative argument of the Ld. AR that only investments yielding dividend income during the year should be considered for disallowance u/s. 14A of the Act. Respectfully following the aforesaid judicial precedents, we have no hesitation in directing the AO to delete the addition made u/s. 14A of the Act. Disallowance u/s. 14A made to book profit computed u/s.115JB - Held that:- We find lot of force in the argument of the Ld AR that computation of disallowance under Rule 8D of the IT Rules can be used only for computation of income under normal provisions of the Act and not for book profits u/s. 115JB of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt term Capital Gain, on the sale of Land and Building situated at Village Chandweparganna, Ranchi, at ₹ 3,09,90,729 as against the Long Term Capital Gain of ₹ 2,23,19,195 declared by the Assessee Company. 5) That the learned Commissioner of Income Tax (Appeals) erred in arbitrarily holding that the whole amount of consideration being sum of ₹ 16,50,000 in respect of sale of two properties situated at Rajkot are liable to be taxed under the head Capital Gains as against the claim of the Assessee Appellant that no amount was chargeable to tax, inasmuch as the Appellant did not incur any cost for acquiring the said property. 6) That the learned Commissioner of Income Tax (Appeals) erred in disallowing a sum of ₹ 6,41,09,892 under section 14A of the Income Tax Act, 1961 as against the sum of ₹ 40,73,686 disallowed by the Assessee Company in its return of income. 7) That the learned Commissioner of Income Tax (Appeals) was not justified in adding a sum of ₹ 6,41,09,892 to the net profit as per Profit Loss Account, which sum represented the amount disallowed under section 14A of the Income Tax Act, 1961 while determining the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AR submitted that Assessing Officer has not appreciated the facts of the case and has wrongly relied upon the aforesaid two decisions to disallow the loss of ₹ 56,76,211/-. The transaction for sale of shares was within the ambit of law and it was between the genuine parties. The sale proceeds were utilized in the repayment of debts in order to reduce the burden of the interest. There is no prohibition under any law to prevent transactions of sale and purchase of shares in group companies. Ld. AR further stated that only reason for disallowance of loss was alleged colorable device to reduce the burden of tax . Now, the question that has to be considered is as to whether the genuine and legal transactions resulting in reduction of taxes could be considered as colorable transaction. In the aforesaid decision of the Hon'ble Supreme Court in the case of McDowell And Co. Ltd.(supra) held that tax planning was allowed if it is within the frame work of law. The planning of the tax can be held as colorable if it is resorted to dubious methods which are not allowed by the law. However, Ld. CIT(A) found that the book value of the share is much higher than the sale price. As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court held that avoiding taxes by means of illegal transactions adopting dubious method giving them the shape of legality would be colorable device. Further, Ld. AR submitted that it is for the assessee to arrange its affairs in a manner which reduces its tax liability. So far the assessee does not violate the provisions of any statute, the transactions resulting in reduction of taxes could not be termed as colorable devise as envisaged in the case of McDowell And Co Ltd. (supra). 6. On the other hand, Ld. DR vehemently relied on the orders of authorities below. 7. From the aforesaid discussion, we find that assessee has sold shares to its group company and booked a loss of ₹ 56,76,211/- under the head capital gains . The Assessing Officer found that the purpose of selling share at a price less than market value/ book value was to escape from the tax liability therefore, it was disallowed by AO. However, from the above facts, we understand that genuineness of the transaction of sale and purchase of share with assessee and buyer-company has not been doubted by AO. The ld. DR could not bring anything on record that the transaction was a colorable device to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold by the assessee, in our opinion, was not correct. We are of the view that the Tribunal rightly upheld the finding of the Commissioner of Income-tax (Appeals). It is not a case where any understatement of value or misstatement of value of the shares sold was made by the assessee. This is a case where the assessee had sold the shares at a value admittedly lower than the market price. Yet the shares could not be assessed on the difference amount being her income because no inference can be drawn in the facts and circumstances of the case that the design of the assessee was such that she concealed certain facts and she received the difference of the value by fraudulent means There was no evidence direct or inferential, nor was there any finding by any income-tax authority that the assessee indulged in such a practice. We are fortified in our view by a judgment of the Supreme Court in the case of CIT v. Shivakami Co. Pvt. Ltd. [1986] 159 ITR 71 (SC). We also find support in our view from a Division bench judgment of the Bombay High Court in the case of India Finance and Construction Co. Pvt. Ltd. v. B.N.Panda, Dy. CTT [1993] 200 ITR 710. Taking a consistent view of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct loan used for investment purpose. On 5th December the assessee has given another submission of the core contention of which is borrowed fund used and whole lot of other calculation. The above submission of the assessee is perused but the assessee is itself confused as to the method to be used for disallowing expenditure which is used to earn income which does not form part of the total income. It is not understandable as to why the assessee has submitted different method for calculation of disallowance u/s. 14A when the statute has given a simple method for calculation of such expenditure. On perusal of the Balance sheet and P L account and Tax audit report as well as submission during scrutiny proceedings the following was noted. The AO further observed that own fund of assessee is ₹ 51.43 crores and loan fund of ₹ 48.99 crores. The assessee made investment in securities at ₹ 69.46 crores besides the money invested in fixed assets and current assets. Therefore, AO opined that substantial portion of the borrowed fund has been invested in share (quoted share and unquoted share) and mutual fund. Accordingly, AO invoked the provision of Sec. 14A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act then the only course available for working out the amount disallowable is the application of Rule 8D of the IT Rules. Before the Ld. CIT(A) the assessee submitted that the AO has without recording his satisfaction regarding the working of the assessee has directly invoked the provisions of rule 8D which is not correct. The assessee submitted that .5% of the average value of investment should be considered as reasonable for the working of disallowable interest. The assessee also submitted that the amount of disallowance, in any case, should be calculated with reference to the amount of borrowed funds used for acquiring investments. The quantum of borrowed funds used for such investments could be arrived at by reference to the following decisions: i) CIT vs Reliance Utilities Power Ltd. (2009) 178 Taxman 135 (Bom) ii) CIT vs. Dhampur Sugar Mills Ltd. 274 ITR 370 (All) iii) Britannia Industries Ltd. vs. JCIT 271 ITR 123 (Cal) iv) Bunge Agribusiness (India) (P) Ltd. v. Dy. CIT (2011) 64 DTR 201 (Mum.) (Trib.) In the above cases it was held that the available funds of the company should be treated as invested in tax free securities. Thus only balance am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch lot of administrative expenses are incurred. The ld. CIT(A) relied on the following decisions in support of his contentions : (a) ACIT vs. Champion Commercial Co. Ltd. ITAT Kolkata Bench in ITA No. 644/Kol/2012 for A.Y 2008-09 (b) ISG Traders Ltd. v. CIT in - 2011-TOIL-621-HC-KOL-IT dated 29.05.2002 (c) Dhanuka Sons v. CIT (2011) 339 ITR 319 (Cal) (d) Technopak Advisors (P) Ltd. v. ACIT ITAT Delhi Bench (e) Cheminvest Ltd. v. ITO 121 ITD 318 (Del) (SB) (f) Sonata Information Technology Ltd. v. DCIT ITA No.1507/Mum/2012 dated 07.09.2012 (g) Hindustan Construction Co. Ltd. v. DCIT ITA No. 6438 to 6441/Mum/2008 dated 28.09.2012 (h) DCIT v. M/s Trade Apartment Ltd. ITA No. 1277/Kol/2011 dated 31.03.2012 ITAT Kolkata Bench (i) M/s Gillette Group India Pvt. Ltd. v. ACIT ITA No. 267/Del/2012 dated 23.03.2012 (j) M/s Search Enviro Ltd. v. ACIT ITA No. 3464/Mum/2011 dated 02.03.2012. Finally the ld. CIT(A) has worked out the disallowance under section 14A read with rule 8D by observing as under : 51. The Assessing Officer has calculated the interest under Rule 8D(2)(ii) by taking the value of the net assets rather than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich does not or shall not form part of the total income As on 01.04.08: ₹ 67,72,23,027/- As on 31.03.09 ₹ 69,46,46,129/- Average value of investments Rs.68,59,34,578 x 0.5% = ₹ 34,29,673/- 8(D) (iii) = ₹ 34,29,673/----------B Total= A=B=C = 3,46,670 + 6,03,34,549 + 34,29,673+ = ₹ 66,41,09,892/- Ld. CIT(A) has sustained the disallowance of ₹ 6,41,09,892/- under the provisions of section 14A of the Act. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 10. Before us Ld. AR submitted that the finding given by the Ld. CIT(A) that the AO had recorded his satisfaction in terms of Rule 8D(1) of the IT Rules is based on incorrect facts. Ld. AR further argued that the recording of satisfaction in terms of Sec. 14A of the Act read with Rule 8D(1) of the IT Rules is mandatory for the AO before resorting to Rule 8D(2). In this connection, Ld AR relied on the following decisions with regard to his contentions:- CIT vs Ashish Jhunjhunwala in GA No. 2990 of 2013 in ITAT No. 157 of 2013 dated 08.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.2013 rendered by Calcutta High Court. The Assessing Officer also disallowed the expenditure under section 14A of the Income Tax Act, 1961 without first recording that he was not satisfied with the correctness of the claim as regards the claim that 'no expenditure' was made by the assessee. Challenging the order of the tribunal, the present appeal has been filed. We have heard Mr. Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed. The aforesaid two decisions by the Hon'ble jurisdictional High Court are binding on this Tribunal. We find that the facts in the above-stated case of law are totally different from the facts of the instant case and moreover, when there are two conflicting decisions of the same court or different courts on the same issue, then the decision favorable to the assessee has to be followed. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products (1973) 88 ITR 192 (SC) hence, we hold that the action of the AO in directly embarking on Rule 8D(2) of the IT rules is not appreciated and hence no disallowance und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee the alternative argument of the Ld. AR that only investments yielding dividend income during the year should be considered for disallowance u/s. 14A of the Act. Respectfully following the aforesaid judicial precedents, we have no hesitation in directing the AO to delete the addition made u/s. 14A of the Act. Accordingly, this ground raised by assessee is allowed. 13. Coming to last ground raised by assessee is that whether the disallowance u/s. 14A of the Act should be made to book profit computed u/s.115JB of the Act. 14. We have heard rival submissions and perused the materials available on record. Before us, Ld. DR vehemently relied on the orders of authorities below. Ld. AR submitted that Rule 8D of the IT Rules is meant only for computation of income under normal provisions of the Act and not for book profit u/s. 115JB of the Act. On the contrary, Ld. DR argued that the disallowance u/s 14A of the Act would automatically fall in clause (f) of Explanation to Sec. 115JB of the Act and hence needs to be added back for computation of book profits u/s. 115JB of the Act. We find lot of force in the argument of the Ld AR that computation of disallowance under Rule 8D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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