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Shriram Retail Holdings Private Limited Versus The Deputy Commissioner of Income Tax, Company Circle VI (2) , Chennai

2016 (9) TMI 905 - ITAT CHENNAI

Disallowance under Sec. 14A Rule 8D - Held that:- We have considered the business activities, financial statements and judicial decisions, there seems to be a realistic approach on acquisition of shares by the assessee company and the above expenditure was incurred purely on the investment strategies of the Business. Therefore, the ld. Assessing Officer should have considered the expenditure from the assessee business objects and activities and the calculate the disallowance under Sec. 14A Rule .....

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of warrants - Held that:- All documents or transactions have to be given effect to even though they resulted in reduction of tax liability, provided that they are genuine and bona fide and it cannot be called as colourable device. In case, a transaction took place with the sole intention to defraud Revenue and that resulted in deduction of tax liability, it can be called as a dubious method followed by the assessee, as the parties involved therein have no right to indulge any tax evasion and it .....

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ccounting system. Therefore, we set aside order of the Commissioner of Income Tax (Appeals) order and remit the disputed issue to the file of ld. Assessing Officer for re-examination based on the information submitted on warrants and financial statement of Shriram City Union Finance Limited and the Assessing Officer shall pass the order on merits after providing opportunity of being heard in accordance with law. The ground of the assessee is allowed for statistical purpose. - Exclude additio .....

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-14, dated 18.02.2015 for the assessment year 2010- 2011 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as the Act ). 2. The assessee has raised three substantive grounds, for the sake of convenience the grounds are concised (i) the ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance u/s.14A r.w.r. 8D :1,42,32,769/- applying the provisions u/sec. 14A r.w. Rule 8D(2) (ii) the ld. Commissioner of Income Tax (Appeals) erred in confirming no .....

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6,595/-. The assessee filed revised Return of income on 29.09.2011 admitting total income of :1,10,92,230/- after claiming set off of brought forward business of earlier years. The Return of income was processed u/s.143(1) of the Act and case was selected for scrutiny and notice u/s.142(1) and 143(2) of the Act were issued. In compliance to notices, the ld. Authorised Representative of assessee appeared from time to time and filed the information. The ld. Assessing Officer on perusal of financia .....

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ructuring was included in Professional charges. Further, the assessee company paid :1,20,00,000/- towards Escrow Management fee. The ld. Assessing Officer issued letter dated 17.12.2010 requesting to provide details of Professional Charges and Management charges and the ld. Authorised Representative explained and filed the letter referred at page 2 of the assessment order as under:- ••••.•••• Fee for restructuring ₹ 2,48,175 related to business activ .....

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from Shriram City Union Finance limited. The Dividend was credited to our account under ECS. Hence, no expense was incurred to collect the dividend. However, We have already disallowed ₹ 51,220 u/s 14A. Hence we request you not to disallow". The ld. Assessing Officer based on the assessee s submissions found that the amount paid to DSP Merrill Lynch Limited and Standard Chartered Bank are for the purpose of open offer for issue of shares of Shriram City Union Finance Limited and this .....

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me cannot be allowed and added to the Retuned income. Similarly, the ld. Assessing Officer disallowed restructuring advisory fee of :2,48,175/- relating to the business activity is not allowable as expenditure. The ld. Assessing Officer found that the assessee has filed original Return of income on 15.10.2010 with disallowance of expenditure under Rule 8D :1,42,83,989/-. Subsequently, the assessee filed Revised return on 29.09.2011 and reduced disallowance under Rule 8D to :51,220/-. The expendi .....

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ology and expenditure is purely business expenditure and same be allowed. The ld. Assessing Officer referred at page 5, para 4.1 of the order. But the ld. Assessing Officer has worked out disallowance under Rule 8D(2) under three limbs relying on the Tribunal decision in the case of ITO vs. Daga Capital Management (P) Limited 117 ITD 169 (Mumbai) were it was held that were the assessee engaged in the business of dealing in shares and securities, the disallowances are mandatorily required to be c .....

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pellate proceedings, the ld. Commissioner of Income Tax (Appeals) considered the findings of the ld. Assessing Officer at page 3 to 6 of his order and written submissions filed by the assessee at page 7 referring similar business activity of group concern M/s. Shriram Capital Limited in ITA No.638/Mds/2012, assessment year 2005-06 and ITA No.639/Mds/2012 for assessment year 2007-08, on the concept of business expediency and commercial operations and non applicable of provisions of Sec. 14A, the .....

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he four disallowances relating to the exempted income and gave a categorical findings comparing with profit and loss account with earlier years at para 5.2.2 at page 11 to 16 and relied on the judicial decisions and functional applicability and Rejected the grounds of the assessee and confirmed the addition of the ld. Assessing Officer. Aggrieved by the order, the assessee assailed an appeal before Tribunal. 5. Before us, the ld. Authorised Representative reiterated the submissions made in the a .....

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, the advisory fees paid to Ernst & Young Pvt. Ld is for restructuring and takes the characteristic of business expenditure and the assessee company has not incurred any expenditure for receiving the dividend income of :3,34,37,502/- and the assessee has disallowed :.51,220/-. Further, the ld. Assessing Officer has disallowed :6,84,284/- in addition to above disallowances made in the assessment order. The ld. Commissioner of Income Tax (Appeals) has confirmed the order of the ld. Assessing O .....

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on the orders of Commissioner of Income Tax (Appeals) and vehemently opposed to the grounds. 7. We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Authorised Representative emphasized that the assessee company has incurred expenditure for acquisition of shares in open offer of Shriram City Union Finance Limited and also restructuring fees :2,48,175/- and lead management fees of :13,00,300/- paid to DSP Merrill Lynch Limited and :1,20,00,000/- wa .....

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were considered in respect of expenditure incidental to the business of investment promotion. Further, we perused the order of Karnataka High Court of CCI Ltd vs. JCIT. (2012) 20 taxman.com 196(Kar) where it was held as under:- When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63 per cent of the shares, which .....

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the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to its business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the .....

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e disallowance under Sec. 14A Rule 8D. We, therefore are of the opinion that the disputed issue has to be re-examined in line with the investment activity by the ld. Assessing Officer and we set aside the order of the Commissioner of Income Tax (Appeals) to the file of the ld. Assessing Officer for examination and the assessee shall be provided adequate opportunity of hearing before passing the orders on merits and the ground of the assessee is allowed for statistical purpose. 8. The next ground .....

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ital Gains as per Sec. 48 of the Act. There is no sale consideration received by the assessee and ld. Authorised Representative explained that share warrants are purchased for :14,00,00,000/- and assessee company relinquished rights to buy shares of Shriram City Union Finance Limited and taken the consideration as Zero observed at page 5.1 of ld. Assessing Officer order as under:- "Shriram City Union Finance Limited issued 35,00,000 warrants to us on 16.05.2008 convertible within 18 months .....

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e the amount already paid is only a loss. You have stated that in the absence of any value being assigned to the consideration received on transfer of warrants, the capital loss cannot be computed u/s 45 r.w.s.48 and hence we are not entitled to claim short term capital loss. We submit that we lost the amount invested as the option was not exercised and the balance amount was not paid. Hence the sale consideration has to be taken as "Zero", Therefore, we request that our claim may be a .....

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r of Income Tax (Appeals). 8.2 In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) on the basis of the arguments of the ld. Authorised Representative on the grounds and findings of the ld. Assessing Officer and written submissions and other materials in the appellate proceedings observed at page 18 to 22 of his order at para 5.3.2 as under:- I have considered the findings of the AO and also the submissions of the AR of the appellant carefully. There is no dispute about the .....

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AR of the appellant relied on the ratio of the decision of the Hon'ble Delhi High Court in the case of CIT v. Chand Rattan Bagri [329 ITR 356] and ratio of the decision of the Kanataka High Court in the case of DCIT v. BPL Sanyo Finance Ltd. [312 ITR 63]. On the other hand, the AO relied upon the ratio of the decision of the Honble ITAT, Ahmadabad "B" Bench in the case of Ajay Singh Mehta v. DCIT [114 ITD 628]. In the case cited by the AO, the Hon'ble ITAT Ahmadabad 'B' .....

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e to the facts of the present case as the decisions rendered by High Court of Karnataka and High Court of Delhi cited supra, did not consider the ratio of the decision rendered by Supreme Court of India in the case of CIT v. B.C.Sreenivasa Setty [1981] [128 ITR 294]. There being no jurisdictional Tribunal or High Court decision on this issue, I am of the considered view that the AO-rs legally correct in coming to the conclusion that the claim of the assessee towards short term capital loss is no .....

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and paid :14,00,00,000/- but could not pay balance amount within the stipulated period due to financial constrains and loss was claimed as Short Term loss and relied on the judicial decisions and prayed for allowing the appeal. 8.4 Contra, ld. Departmental Representative relied on the orders of Commissioner of Income Tax (Appeals) and vehemently opposed to the grounds. 8.5 We heard the rival submissions, perused the material on record and judicial decisions. The crux of the issue being claim of .....

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-ordinate Bench decision of the Tribunal on forfeiture of shares in the case of K.P.D. Sigamani, Shri. K.P. Ramasamy and Shri. P Nataraj vs. ACIT in ITA No.412/Mds/2010 in assessment year 2007-2008, dated 30.07.2010 were the Tribunal held and gave a finding that the assessee is entitled to claim Short Term Capital Loss, on account of forfeiture of shares, if it is not sham or colourable device. We perused the assessment order and Commissioner of Income Tax (Appeals) orders on the transaction of .....

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the subscribers except Shriram Retail Holdings Pvt. Ltd (SRHPL) exercised their option and converted the warrants into equity shares at a price of Rs. 400/- per share (Rs. 40/- on allotment and balance on conversion of warrants into equity shares). The non conversion of warrants into shares by SRHPL resulted in forfeiture of money paid by them . Further, the ld. Authorised Representative drew our attention to the page 44 of the Annual Report at Schedule 3 Reserves and Surplus were the forfeiture .....

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ect to merely because of steps taken as component parts of arrangement are legally correct or valid. All documents or transactions have to be given effect to even though they resulted in reduction of tax liability, provided that they are genuine and bona fide and it cannot be called as colourable device. In case, a transaction took place with the sole intention to defraud Revenue and that resulted in deduction of tax liability, it can be called as a dubious method followed by the assessee, as th .....

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nsaction of financial statement of Shriram City Union Finance Limited and accounting system. Therefore, we set aside order of the Commissioner of Income Tax (Appeals) order and remit the disputed issue to the file of ld. Assessing Officer for re-examination based on the information submitted on warrants and financial statement of Shriram City Union Finance Limited and the Assessing Officer shall pass the order on merits after providing opportunity of being heard in accordance with law. The groun .....

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Profits and assessee company. Aggrieved the assessee has filed an appeal before Commissioner of Income Tax (Appeals). 9.2 The ld. Commissioner of Income Tax (Appeals) confirmed the action of the ld. Assessing Officer of disallowance of Sec 14A expenditure while calculating Bok profits. Aggrieved by the Commissioner of Income Tax (Appeals) order, the assessee assailed an appeal before Tribunal. 9.3 Before us, the ld. Authorised Representative argued that the disallowance u/s.14A r.w.r. 8D of the .....

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