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Usha Martin Ventures Ltd. Versus DCIT, Circle-6, Kolkata

2016 (4) TMI 300 - ITAT KOLKATA

Long Term Capital Gain - loss claimed by the assessee - Held 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 buy .....

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llowance u/s 14A - Held that:- Special Bench of the Tribunal in the case of Cheminveste Ltd. v. CIT reported 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 .....

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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 Act. Unless an item is debited in the profit and loss account, the same cannot be the subject-matter of addition to book profits under clause (f) of explanation to Sec. 115JB of the Ac .....

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o. 847/Kol/2013 - Dated:- 29-2-2016 - Mahavir Singh, JM And Waseem Ahmed, AM For the Appellant : Shri A K Tibrewal, FCA For the Respondent : Shri Sandeep Choube, CIT-DR ORDER Per Waseem Ahmed, Accountant Member This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-VI, Kolkata in appeal No.218/CIT(A)-VI/Cir-6/11-12/Kol dated 27.02.2013. Assessment was framed by DCIT, Circle-6, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the .....

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lue. 2) That the learned Commissioner of Income Tax (Appeals) erred in arbitrarily determining the Long Term Capital Gain at ₹ 1,03,636 on the sale of 349,658 equity shares of Usha Breco Ltd as against the Long Term Capital Loss of ₹ 56,76,211 declared by the Assessee Company. 3) That the learned Commissioner of Income Tax (Appeals) erred in arbitrarily holding that the profit in respect of the sale of Land and Building situated at Village Chandweparganna, Ranchi, has to be assessed .....

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f 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 th .....

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rofit & Loss A/c. nor relatable to income not chargeable to tax." Shri A.K.Tibrewal, Ld. Authorized Representative appearing on behalf of assessee and Shri Sandeep Choube, Ld. Departmental Representative appearing on behalf of Revenue. 2. At the time of hearing Ld. AR fairly stated that he has been instructed by assessee not to press grounds No. 3 to 5 and Ld. DR has not objected on the same. Hence, we dismiss the grounds No. 3 to 5 as not pressed. 3. The common issue in ground No. 1 an .....

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Estate Pvt. Ltd. As a result of sale the assessee declared LTCG loss of ₹ 56,76,211/-after claiming the indexation benefit as per the provisions of section 48 of the Act. The AO during the assessment proceedings observed that the assessee has generated LTCG from sale of the immovable properties. The AO also observed that the company to whom the shares were sold was part of the group company of the assessee as the address of the buyer company was also the same as of the assessee. From the a .....

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434/2009) has also held that these factors could have been relevant had the tribunal found the transactions undertaken by the assessee company were a colorable device with a view to cause a loss to the Revenue. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The 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 w .....

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ansactions 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 per the calculat .....

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ed the materials available on record. Ld. AR submitted paper book which is running at pages 1 to 71 and index of case laws which is running at pages 1 to 43. On analyzing the case decision of Hon'ble Supreme Court in the case of McDowell & Co Ltd. (supra) it would be found that "tax planning may be legitimate provided it is within the framework of law". In the case on hand, the genuineness of the transactions is not doubted. There is no allegation that the losses incurred on sa .....

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ion of income from tax would be considered as colorable devise. In such cases, even the transactions of LTCG on sale of STT paid shares & securities resulting in exempt capital gains would be treated as "colorable devise" since the LTCG would result in reduction/avoidance of taxes. The assessee submits that the AO was not justified in alleging that the sale of shares resulting in loses was "colorable devise" to disallow the same following the two decision relied by Ld. CI .....

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ng 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 authorit .....

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er-company has not been doubted by AO. The ld. DR could not bring anything on record that the transaction was a colorable device to reduce the tax liability. There has to be cogent reasons for holding a transaction as colorable device to reduce the tax liability. In the instant case the transaction was with the group company and at the price less than the book value. In our view this observation of the AO does not make the transaction as colorable device to reduce the tax burden. We are also rel .....

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8377; 20,67,876 and thus held that the assessee had earned an income of ₹ 7,57,382. Being aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who after considering the facts and circumstances of the case reversed the order of the Assessing Officer being of the opinion that there was no case for substituting the disclosed value of consideration on transfer by the shares and he accordingly deleted the addition made on that account in the income of the asse .....

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as not even been questioned by the Department. It is not disputed that the assessee had transferred those shares at the book value cost maintained by her. It is also not disputed that the book value cost was lower than the market value of the shares. In fact it is admitted that the market value of those shares was to the tune of ₹ 20,67,876 Under those circumstances, holding that the assessee had derived any income, being the difference between the market value and the price on which the s .....

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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 .....

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he next issue raised by the assessee in ground no. 6 is that the ld. CIT(A) confirmed the order of AO by sustaining the disallowance under section 14A of the Act. 8.1 The assessee has earned dividend income amounting to ₹ 2,55,97,302/- during the assessment year 2009-10. The investment was made in various companies but all the investments have not generated the dividend income in the year of assessment. The assessee has voluntarily disallowed the following expenses in terms of Sec. 14A of .....

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e Act and applied Rule 8D of the I.T. Rules, 1962. The relevant extract of the AO's order is extracted below for the sake of clarity:- "It is noted that during the year the assessee earned tax free income by way of dividend, rent and interest form bond of ₹ 2,55,97,302/- against which the assessee has adjusted a sum of ₹ 40,73,686 u/s. 14A of Income-Tax Act. Here interest disallowance is calculated at 34,29,673/-, other expenses is on the basis of 5% of administrative expens .....

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ssee 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 metho .....

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fund has been invested in share (quoted share and unquoted share) and mutual fund. Accordingly, AO invoked the provision of Sec. 14A of the Act and made the disallowance as under :- 8(D) (i) Direct charge = 3,44,932 + 738 = 3,45,670/-A a In case where assessee has incurred expenditure by way of interest during the previous which are not directly attributable to any particular income or receipt Interest paid 15,25,10,586/- b The average of the value of investment income from which does not or sha .....

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s on 31.03.09: Fixed Assets; 64,96,447 Investments: 69,46,46,129/- Current Assets: 30,30,80,091 100,42,22,667/- 8(D) (ii) = a x b/c = 15,25,10,586 x 68,59,34,578 = 8,16,27,233/-C 128,15,85,573 8(D) (iii): An amount equal to 0.5% of the average value of investment, income from which does not or shall not form part of the total income As on 01.04.08: ₹ 67,72,23,027/- 67,72,23,027/- 68.59.3457 x 0.5% As on 31.03.09 : ₹ 69,46,46,129/- 69,46,46,129/- 8(D) (iii) = 34,29,673/-B Total =A + B .....

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vailable 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 disallowan .....

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ib.) 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 amount of investment may be treated as having been made out of borrowed funds. Accordingly, interest on such amount only could be considered as disallowable u/s. 14A of the Act. The assessee further submitted without the prejudice of above that the disallowance u/s. 14A could not exceed the amount of tax free income earned during the year. No disallo .....

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stment Ltd. vs. CIT in [(2011) 203 Taxman 364 (Del)]. The assessee further added that the disallowance of Interest u/s. 14A should be recalculated. While making calculation of average of investments as on the beginning of year and at the end of year should be those shares and securities on which the company has received exempt dividend during the year. The value of those shares on which no dividend has been received during the relevant year should be excluded in as much as there could be a case .....

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utta High Court in the case of Mukti Properties Pvt. Ltd. vs. CIT in ITA No. 95 of 2009. However the ld. CIT(A) observed that there are numerous kind of expenses which are incurred in an organization. The provisions of section 14A cover all those expenses provided they have the connection with the exempted income. The organization requires lot of management expertise as the decision for making the investments are very complex in nature. There is lot of fund involvement. Many board meetings of th .....

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8 (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 u .....

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s' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. It does not provide that only current asserts, loans and advances are to be taken but it provides that 'total assets' as appearing in the balance sheet are to be taken for the purposes of calculation in Rule 8D. The Assessing Officer is directed to take the total assets as appearing in the balance shee .....

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(net) 14,38,16,937/- b The average of the value of investment As on 01.04.08 : ₹ 67,72,23,027/- As on 31.03.09: ₹ 69,46,46,129/- Average Value of investments ₹ 68,59,34,578/- c Average of the total assets as appearing in the balance sheet on the first day and last day of previous year As on 01.04.08: Fixed assets. 3,60,73,135/- Investment: 67,72,23,027/- Current Assets: 1,52,43,31,249/- Total Assets= ₹ 2,23,76,27,411/- As on 31.03.09: Fixed Assets: 64,96,447 Investments: .....

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3/-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 recor .....

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risdictional High Court Ld. AR further argued that investments which have not given any yield in the form of dividend income during the year needs to be excluded for the purpose of disallowance u/s 14A of the Act. The investment made in group companies should be constituted as strategic investment, hence, the provision of Sec. 14A of the Act should not be applied. 11. On the other hand Ld. DR simply relied on the orders of authorities below. 12. We have heard rival contentions and perused the ma .....

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diture in relation to exempt income, AO has to indicate cogent reasons for the same. We find that the AO had straight away computed disallowance under Rule 8D(2) of the IT Rules. We find that the case laws relied upon by Ld AR on the decision of the jurisdictional High Court are directly on this point and is in favour of assessee:- CIT v. Ashish Jhunjhunwala in G.A. No.2990 of 2013 in ITAT No. 157 of 2013 dated 08.01.2014 rendered by Hon'ble Calcutta High Court, where Hon'ble court has h .....

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e above and respectfully following the coordinate bench decision in the case of J.K. Investors (Bombay) Ltd., supra, we uphold the order of CIT(A)." CIT vs. R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 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 expenditu .....

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cisions 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 under section 14A of the Act could be made in the facts of the case. We also find that .....

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by the AO. We also find that the investments which did not yield any dividend income needs to be excluded from the computation of disallowance, if any, u/s. 14A of the Act read with Rule 8D of the IT Rules as the basic intention behind introduction of section 14A of the Act itself is only to disallow the expenditure incurred for earning an income which does not form part of the total income. When there is no income which is claimed as exempt, then there is no scope for provisions of Sec. 14A of .....

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ITA No. 970 of 2008 rendered by Punjab & Haryana High Court. • CIT vs. Delite Enterprises in ITA No. 110 of 2009 rendered by Bombay High Court. We find that the decision of special Bench of the Tribunal in the case of Cheminveste Ltd. v. CIT reported in 121 ITD 318 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 .....

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