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TMI Blog2019 (3) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... on by him in the case of CIT V/s. M/s. Gagandeep Infrastructure P. Ltd. (Appeal No. 613 of 2014) (BHC) and CIT V/s. Green Infra Ltd. {IT Appeal No.1162 of 2014) 146 DTR 262 (2017) (BHC) have not been accepted by the Department and SLP proposals have been submitted to the Board by the Commissioner of Income Tax, concerned". iii. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that shares are stock in trade of the assessee without appreciating the fact that the assessee itself while computing the disallowance u/s. 14A. r.w. Rule 8D at Rs. 1,64,222/- had considered the shares, as its investment". iv. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in estimating the disallowance U/S.14A at Rs. 50,380/- being 20% of the exempt income of Rs. 2,51,899/- without appreciating the fact that the formula prescribed under Rule 8D does not suggest that net interest has to be considered, while computing the disallowance U/S.14A of the I.T. Act, 1961". v. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in estimating the disallowance u/s,14A at Rs. 50,380/-, being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer held that such investor company is not genuinely doing any business but is providing the accommodation entries of share premium in garb of genuine business activity. Thus, Assessing Officer treated the share capital and premium money received from M/s. Illusion Securities Pvt Ltd of Rs. 4,30,00,000/-as accommodation entry and made the addition u/s.68 of I.T. Act. 5. Upon the assessee's appeal, the ld. CIT(A) noted the following submissions of the assessee: The assessee had filed the PAN card, CIN Master Data (ROC), Certificate of incorporation and Memorandum of Association of M/s. Illusion Securities (P) Ltd which establishes the identity of the shareholder. The assessee had furnished the copies of Share Application Forms, Board Resolution and Confirmation of Account to prove the genuineness of the transaction. The assessee had filed the I.T. Acknowledgement Receipt, Balance Sheet as on 31.03.2013, Bank Statements and Assessment Order u/s 143(3) of the I T Act, 1961 for A.Y 2013-14 of M/s. Illusion Securities (P) Ltd to prove the credit worthiness of such shareholder. The Assessing Officer had not disputed the correctness of the above stated documents furnished on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share application money of Rs. 43,oo,ooo/- i.e. 4,30,000 shares of Rs. 10/- and Rs. 3,87,00,000/- as share premium received during the previous year which at a premium of Rs. 90/- per share. The Assessing Officer disputed the share capital and premium money of Rs. 4,30,00,000/-. The Assessing Officer observed that the appellant company had disclosed the losses in balance sheet and held that the projected fmancials furnished by appellant on following Discounted Cash Flow (DCF) method is not correct. Accordingly, Assessing Officer held that such investor company is not genuinely doing any business but is providing the accommodation entries of share application in garb of genuine business activity. Thus, Assessing Officer treated the share application money received from M/s. Illusion Securities Pvt Ltd of Rs. 4,30,00,000/- as accommodation entry and made the addition u/s.68 of I.T.Act. 5.8 The appellant had discharged its onus to prove the transaction. The Assessing Officer had not brought any contrary documentary evidence on record to disprove the transaction and involvement of unaccounted money belonging to the appellant. It is observed that Assessing Officer did not even is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shareholder is proved, no addition can be made u/s 68 of the IT Act, 1961- And in view of the above, the Assessing Officer was not justified in invoking the provisions of Section 68 of the IT Act, 1961 on any count. 5.12 Hon'ble Supreme Court in Lovely Export(P) Ltd (Supra) has held that if rhe share application money is received by the assessee company from alleged bogus shareholder, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company. It was held that there is no onus on the company to prove the source of money in the hands of shareholder or the persons making payment of share application money. If company identified the persons from whom money has been received, then section 68 cannot be involved in the hands of company. 7. Thereafter, he referred to several case laws and granted relief to the assessee by holding as under: 5.18 Respectfully following the Jurisdictional High Court Bombay's decision in the cases namely; (a) Vodafone India Services Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess and genuineness of the transaction has been duly submitted to the A.O. He submitted that the A.O. has not found any fault in these documents. He submitted that the A.O. has solely based the addition on the basis that valuation of share was done in earlier year and, hence, it was not applicable for the current assessment year. The learned counsel of the assessee submitted that identical share application with similar valuation along with premium were accepted by the assessee from the same sister concern in the earlier assessment year. He submitted that the addition of share capital and share premium for that year was duly deleted by the Ld. CIT(A) and the same was confirmed by the ITAT vide order dated 14.02.2018. The ld. Counsel of the assessee submitted that the facts and circumstances are identical. Hence, the ld. Counsel of the assessee submitted that in identical circumstances, the ITAT in assessee's own case has upheld the ld. CIT(A)'s order deleting the addition for share premium from the same concern. He submitted that addition for the present year has rightly been deleted by the ld. CIT(A). In this regard, the learned counsel of the assessee further placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en Infra Ltd. vs. ITO (in ITA No. 7762/Mum/2012 dated 23.08.2013 for A.Y. 2009-10); 2. ACIT vs. M/s. Gagandeep Infrastructure Pvt. Ltd. 2014 TIOL 656 ITAT Mum 3. Lovely Exports Pvt. Ltd. 317 ITR 218 [2008] ITOL 238 (SC)(IT) 4. M/s. Vodafone India Services Pvt. Ltd. vs. Addl. CIT 368 ITR 001 (Bom) 5. CIT vs. Goa Sponge and Power Ltd. (Tax Appeal No. 16 of 2012); 6. CIT vs. Gagandeep Infrastructure (Pvt.) Ltd. (Appeal No. 613 of 2014) 7. CIT vs. Green Infra Ltd. (IT Appeal No. 1162 of 2014) 146 DTR (Bom) 262 (2017) (A.Y. 2011-12) 15. We find that ITAT in assessee's own case for earlier assessment year for similar addition for share capital and share premium from the same sister concern has upheld the order of the ld. CIT(A) deleting the said addition. 16. We further note that the ITAT in the case of Piramal Realty Pvt. Ltd. (supra) has held as under: 14. The Ld. Counsel for the assessee made another argument that the power of carrying valuation is not envisaged by the Legislature for the purpose of Section 68 of the Act. He argued that, wherever the Legislature intended to give the power to determine the value to the AO, it either prescribes Rule for valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation of share premium. This is further evident from a parallel amendment in section 56(2) of the Act which brings in its ambit so much of the share premium as charged by a company, not being a company in which the public are substantially interested, as it exceeds the fair market value of the shares. If one accepts the Ld CIT-DR's contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) of the Act redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time. In view of the matter, the Ld Counsel explained that it is a settled law that where two views are possible, the view favorable to the assesse should be adopted as held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by the ld. DR are not applicable on the facts of the present case, as all the necessary documents in support of the identity, creditworthiness and genuineness are on record. Hence, the addition by the A.O. u/s. 68 is only based upon surmise and conjucutre and has rightly been deleted by the ld. CIT(A). Hence, we upohold the order of the ld. CIT(A). Apropos deduction u/s. 14A: 20 Brief facts of the case are as under: During the course of assessment proceedings, the AO has observed that the appellant had claimed income of Rs. 2,51,899/- as exempt income u/s 10 of the IT Act and also claimed expenses against earning this exempt income and hence it called for disallowance u/s 14A r.w.r. 8D. the AO has recomputed the disallowance of Rs. 3,14,339/- u/r 8D(2)(ii) and Rs. 87,649/- u/r 8D(2)(iii) and thus made disallowance of Rs. 4,01,988/- u/s 14A of the IT Act. 21. Upon the assessee's appeal, the ld. CIT(A) noted the following submissions: The appellant has not made any investment in shares for the purpose of earning dividend income. The appellant has used the borrowed funds from IIFL (NBFC) for the purpose of earning divided income. Interest of Rs. 3,35,376/- has been paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e language "expenditure incurred in relation to income which does not form part of the total income under the Act" appears to have wider implications as the word "in relation to income" has not been defined under the IT Act. The expression "in relation to" used by the legislature in section 14A of the Act is a broader expression having regard to the object behind the introduction of the provisions of section 14A, which is inserted with an object (i) to disallow expenditure incurred in respect of exempt income against taxable income, (ii) to allow the expenses incurred only to the extent they are relatable to the earning of taxable income and (Hi) to allow the exemption in respect of the net income. The expression "in relation to" used in section 14A of the Act has both direct significance as well as indirect significance having regard to the context in which it is used." 6.4 The provisions of section 14A do confirm the disallowance, whereas if we consider the formula in computing the disallowance u/r 8D(2)(ii) and (iii) needs Average Investment which in the case of the stock-in-trade yielding Nil disallowance. To overcome such situation and the fact that the appellant has not ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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