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2018 (12) TMI 1734

..... hese shares through the stock exchange then the impugned loss could have been avoided. Accordingly, the learned DR contended that the loss claimed by the assessee is nothing but generated through the use of a colorable device. Held that:- if the assessee would have sold these shares through the network of the stock exchange, the possibility of the reduction in the value of shares in the market would not have been avoided. It is because at that relevant time the daily average number of shares traded in the stock exchange namely BSE & NSE were 4,87,085 and 9,56,701 respectively. The relevant details showing the average number of shares traded in the stock exchange is placed on pages 54 to 55 of the paper book. Thus the sudden supply of 30 lacks shares, that too by the promoter of the assessee company in the stock exchange would have adversely affected the price of the shares of Arvind Ltd. There is no provision under the Act prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. - As per the provisions of section 50CA of the Act, the sale price of shares other t .....

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..... n of the assessee then it could have booked such loss in the more planned manner so that there should not have been any doubt. We are forming our view on the basis that the assessee did not set off such loss till the date of passing the order by the learned CIT-A. Had there been any malafide intention of the assessee, then it could have claimed the set off of such loss in the same financial year or the subsequent financial year. Similarly, we also note that the future income under the head capital gain cannot be predicted for claiming the set off of such loss. Moreover, there was no allegation of the Revenue that such loss was created to claim the set off of the future income. The future income is unseen and unpredictable and it was not possible to design the same in the relevant year. Therefore, we are of the view that such loss cannot be disallowed keeping in mind the future income of the assessee. The above the loss of ₹ 3,50 crores cannot be treated as generated through the use of colrable decvice. - Decided in favor of assessee. - ITA No. 218/AHD/2016, ITA Nos. 247 & 248/AHD/2016, ITA Nos. 1760 & 2857/AHD/2016 - 31-12-2018 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER And MS MA .....

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..... l market-related activities. The assessee belongs to Lalbhai Dalpatbhai Group. The assessee in the year under consideration has shown long-term capital loss of ₹ 7,95,59,183.00 on the sale of shares of a company namely Arvind Ltd which belongs to the same group as discussed above. The assessee sold the shares of Arvind Ltd off-market though the shares of the company were listed on NSE as well as on BSE. The assessee sold these shares off-market to Shri Sanjay S. Lalbhai who is director of Arvind Ltd as well as in the assessee company. 3.2 The necessary details of the long-term capital loss claimed by the assessee on the sale of shares of M/s Arvind Ltd stand as under: Sr. No. Name of Security Date of Investm ents No. of Shares purchases Purchase Value Price/s Hares Date of Sales No. of share sold Value of Sales Sales value per unit Indexed Cost Profit/ Loss 1 Arvind Ltd 31/03/08 3000000 143407500 47.80 25/03/10 3000000 164489183 28.31 164489183 - 79559183 3.3 The assessee sold these shares off-market at the rate of ₹ 28.31 per share whereas the share price listed on the stock exchange at that relevant time was ₹ 33.30 per share. 3.4 The assessee submitted that dur .....

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..... esult of business expediency. Accordingly, the AO treated the loss of rupees 4.99 per share being the difference of the market price ₹ 33.30 and the actual price ₹ 28.31 per share aggregating to ₹ 1,49,70,000.00 as the result of the colorable device and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to learned CIT-A. The assessee before the ld. CIT-A submitted as under: i) The shares were sold off-market to avoid the bulk supply of these shares in the stock exchange otherwise there was very high possibility that the price listed on the stock exchange would have fallen drastically. As a result of the supply of these shares through the stock exchange, the lower circuit would have been triggered by the stock exchange. ii) The impugned loss was not set off against any income till date. Moreover, it was also not possible to predict the future income which would be set off against such loss. Therefore the allegation of the AO that the impugned loss has been generated through the use of the colorable device is baseless. iii)The shares were sold as a matter of commercial expediency. The assessee was free to sell these shares at a rate .....

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..... 3 per share which is less than the price listed on the stock exchange by ₹ 4.99 per share. The assessee has sold 30 Lacs shares of Arvind Ltd which resulted in the long-term capital loss of ₹ 1,49,70,000/- on account of the difference in the price as discussed above. The assessee sold these shares to Shri Sanjay Lalbhai who is the director in assessee company as well as Arvind Ltd. Accordingly, the AO was of the view that the loss claimed by the assessee has been generated through the use of a colorable device. 10.1 Therefore, the same was disallowed. The view taken by the AO was subsequently confirmed by the learned CIT (A). 10.2 Now the controversy arises whether the loss claimed by the assessee in the given facts and circumstances is based on business expediency or it was used as a tool of a colorable device to generate such loss. 10.3 It is an undisputed fact that all the parties which carried out such transaction were identifiable and there was also a consideration among such parties. The limited issue before us is that whether the assessee can sale listed shares off-market at a price lesser than the price listed on the stock exchange. 10.4 The price prevailing on .....

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..... s less than the fair market value of such share determined in such manner as may be prescribed 40a , the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Explanation.-For the purposes of this section, "quoted share" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.] 10.8 From the plain reading of the above provision we note that the law was amended to bring the transaction of unquoted sale and purchase of shares under the net of income tax concerning the sale price of the shares. As per the provisions of section 50CA of the Act, the sale price of shares other than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. 10.9 From the above provisions it is clear that the lawmakers have not brought any mechanism to determine the sale price of quoted shares if sold off-market. Thus it is transpired that the sale price of the quoted shares shall be the .....

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..... alue of consideration by itself would not justify invoking the said Section. The aforesaid ratio has been followed by the Supreme Court in CIT v. Shivakami Co. (P.) Ltd. [1986] 25 Taxman 80K/159 ITR 71, which observes that the provision would apply only when there was consideration and which consideration actually received was more than the consideration disclosed or declared. Further, onus was on the Revenue to prove under-statement of the said consideration. Section 52 was not meant to apply to tax capital gains on the basis that the assessee might have gained or could have gained a higher price which in fact was not received. Reference can be also made to CITv. Godavari Corpn. Ltd. [1993] 68 Taxman 344/200 ITR 567 (SC) and judgments of this Court in CIT v. Dinesh Jain, HUF [2012] 25 taxmann.com 550/211 Taxman 23/[2013] 352 ITR 629 and CIT v. Gulshan Kumar [2002] 123 Taxman 111/257 ITR 703 (Del). 25. As noted above, Section 52 of the Act was omitted by Finance Act, 1987 with effect from 1st April, 1988. The said provision, therefore, was not applicable in the Assessment Year 1999-2000. We have referred to the aforesaid judgment in K.P. Vearghese case (supra) as this judgment was .....

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..... di Bachao Andolan (263 ITR 705) discussed the case McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail and distinguished from it by observing as under: We may in this connection usefully refer to the judgment of the Madras High Court in M.V.Vallipappan and others v. ITO , which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corporation Ltd., and did not have the benefit of the House of Lords's pronouncement in Craven, the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. 11.3 Further, we also note that Hon ble Jurisdictional High Court in case of Banyan And Berry Vs. Commissioner Of Income Tax (222 ITR 831) held that tax planning within the law is permissible and only if any transaction which is reducing the tax liability can .....

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..... ning assigned to 'colorable' in Brown's Judicial Dictionary has been defined as 'reverse of bona fide'. Black's Law Dictionary explain 'colorable' to mean 'that which is in appearance only, and not in reality, what it purports to be, hence, counterfeit, feigned having the appearance of truth'. So also a device. The context in which the expression device has been used in its ordinary dictionary meaning as per Shorter Oxford Dictionary means 'inneuity, something device, arrangement, plan, contrivance, a plot or a trick. Black's Dictionary refers to device as contrivance, a scheme, trick. Subterfuge - according to ordinary meaning as per the Shorter Oxford English Dictionary - means that to which one refers for escape or concealment. Subterfuge on historical principles means, an article or device to which a person refers in order to escape the force of an argument, an excuse with which conceals a clue. So also the expression dubious refers to a doubtful or of questionable character. That is to say what has been deprecated as tax planning for avoidance of tax are those acts which have doubtful, or questionable character as to their bona f .....

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..... ssing the order as claimed by the assessee. The Learned DR before us has not brought any iota of evidence against the argument of the learned counsel for the assessee. Thus we feel that had the loss claimed by the assessee been colorable device then, the assessee should have claimed set off of such loss against the income as per the provisions of the Act. As the assessee has not claimed the set off of such loss, we are of the view that the same cannot be held as the result of the colorable device. 11.7 We also note that the purchase and sale of the shares by the assessee of the shares of Arvind Ltd were duly supported with the relevant shreds of evidence which are placed on pages 50 to 53 of the paper book. It is also pertinent to note that the lower authorities did not doubt the details of the purchases and sales of the securities. 11.8 In view of the above, we are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 12. The 2nd issue of the assessee and the first issue in Revenue appeal are interconnected, and the l .....

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..... t did not acquire the shares against share warrants. Accordingly, Arvind Ltd forfeited the share warrants issued to the assessee resulting capital loss of ₹ 36,19,050 which was claimed as a short-term capital loss. 12.7 However, the AO was of the view that the loss claimed by the assessee is a colorable device and show caused the assessee vide letter dated 25th February 2013 for its explanation. 12.8 In compliance to it the assessee vide letter dated 5th March 2013 submitted that the shares were sold at a higher price than the fair market value. Therefore, the same cannot be disallowed. 12.9 Similarly, the assessee submitted that all the details of shares warrants forfeited by Arvind Ltd were duly filed vide letter dated 18th December 2012 which justifies the loss incurred on account of forfeiture of share warrants. 12.10 In view of above the assessee claimed that the loss incurred by it as discussed above could not be treated as the colorable device on the ground that the shares were purchased at the abnormally high price and sold at the less price. Similarly, the loss on account of the forfeiture of share warrants was the result of the commercial expediency. 12.11 However, .....

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..... rdingly, the ld. CIT(A) upheld the order of AO to the extent of ₹ 3,50,00,000/- representing the short-term loss on the sale of shares. 14.1 However, ld. CIT(A) deleted the addition made by AO on account of the transfer of share warrants of Arvind Ltd by observing that had the intention of the assessee to create the loss through these warrants it would not have converted the 96,00,000 warrants into shares which were initially acquired. Further, the AO has accepted the loss on account of forfeiture of 4,00,000 warrants amounting to ₹ 4,59,949.00 on earlier occasion. Therefore the loss of the forfeiture of 4,06,00,000 warrants should also be accepted as it also pertains to the same company. Accordingly, ld. CIT(A) deleted the addition to the extent of ₹ 36,19,050/- on account of forfeiture of share warrant. 15. Being aggrieved by the order of ld. CIT(A), both the assessee and Revenue are in appeal before us. The assessee is in appeal before us against the confirmation made by the ld. CIT(A) for the loss of ₹ 3.5 crores on the sale of shares whereas the Revenue is in appeal before us against the deletion made by the ld. CIT(A) for the loss of ₹ 36,19,050/ .....

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..... ercise his right to acquire shares against the share warrants on the due date. Therefore, Arvind Ltd forfeited the amount advanced by the assessee. As per the assessee, such transaction was an extinguishment of his right, therefore, qualify within the definition of the transfer. Accordingly, the value of such extinguishment of right was determined by the assessee at ₹ 36,19,050/-. However, the AO treated the same as a colorable device on the ground that the transaction was carried out among the related parties which were belonging to the same group. Accordingly, the loss on account of forfeiture of shares as discussed above claimed by the assessee was disallowed by the AO. However, the view taken by the AO was subsequently reversed by the learned 19.2 Now the controversy before us arises whether the loss claimed by the assessee on the sale of shares of AKAL is generated as a tool of a colorable device. It is an undisputed the fact that all the parties involved in such transaction were identifiable and the whole transaction was based on the documentary evidence. Now the question arises to determine the price at which the assessee sold these shares. It is an undisputed fact tha .....

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..... gregate fair market value of such property; (B) For a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: 19.6 A plain reading of the above provision reveals that the person being the recipient is subject to tax if it acquires anything at a value lesser than the fair market price. These provisions have been brought under the statute with effect from 01.04.2017. We also note that the same provision was also there in the old provision under clause (vii) to section 56(2) of the Act. However, on reading the same, we note that the tax liability, if any arises will be applicable in the hands of the recipient and no liability, can be imposed on the transferor. Therefore, we are of the view that the assessee being the transferor of shares cannot be subject to tax in the instant case. 19.7 In holding so, we also find support and guidance from the judgment of Asara Sales and Investments Private Limited (ITA No. 1345/PUN/2014) wherein it was held as under: 19. Another aspect of the issue is the allegation of Assessing Officer that as agains .....

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..... remium. The act of acquiring the shares at a premium by the assessee does not result in any income in its hands. Thus there cannot be any tax in the hands of the assessee on account of the investment in shares in AKAL at a premium. In this regard, we draw the principles from the order of Mumbai Tribunal in the case of Pratik Syntex Pvt. Ltd. Vs. ITO reported in 94 taxmann.com 12 wherein the headnote reads as under: Section 68 of the Income-tax Act, 1961 - Cash credits (Share capital) - Assessment year 2012-13 - During relevant year, assessee received huge amount from three companies as share capital - Assessing Officer taking a view that transaction of issue of share capital was bogus, added said amount to assessee's taxable income under section 68 - It was noted that even though shares had been issued at a very high premium to new shareholders, yet assessee could not even give correct addresses of three applicant companies where they were located - Further, assessee did not file any cogent material/evidences to justify chargeability of such a huge share premium from three new shareholders vis-a-vis issuing shares at par to original promoters within same relevant year under con .....

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..... the shares, there is no question of working out any taxable income in the hands of the assessee. Thus the value of the investment shown by the assessee in its balance sheet will certainly be accepted by the Revenue. There cannot be any question of any income in the hands of Mr. X on account of investment in ABC Ltd. at a premium. 20.2 However, the provisions of the Act requires ABC Ltd. to justify the share capital & share premium in its hands. ABC Ltd. is required to explain the source of share capital and premium under section 68 of the Act. Similarly, ABC Ltd. is also required to explain the source of share premium in its hands under section 56(2) of the Act. Thus if ABC Ltd. fails to justify the same under the relevant section 68/ 56(2) of the Act, then it will be subject to tax in the hands of ABC Ltd. Thus the value of share price along with premium at the most can be brought to tax in the hands of the ABC Ltd if it fails to justify the same. 20.3 Now Mr. X sales the shares in the financial year 2012-13 say at ₹150 per share. The sale price of the shares was determined as per the provisions of rule 11UA of Income Tax Rule. Accordingly, the assessee shall claim the .....

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..... t for the expiry of such financial year. The assessee could have planned such transaction by splitting into 2 different financial years as it was the matter of few days only. Thus the action of the assessee does not show any malafide intention to use the sale of shares as the colourable device in creating such a loss. Accordingly, we are of the view that had there been any malafide intention of the assessee then it could have booked such loss in the more planned manner so that there should not have been any doubt. We are forming our view on the basis that the assessee did not set off such loss till the date of passing the order by the learned CIT-A. Had there been any malafide intention of the assessee, then it could have claimed the set off of such loss in the same financial year or the subsequent financial year. 20.7 Similarly, we also note that the future income under the head capital gain cannot be predicted for claiming the set off of such loss. Moreover, there was no allegation of the Revenue that such loss was created to claim the set off of the future income. The future income is unseen and unpredictable and it was not possible to design the same in the relevant year. There .....

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..... using the record we find that ld. CIT(A) has given relief to the assessee by holding that the case of the assessee is squarely covered by the Hon'ble Calcutta High Court decision in the case of CIT vs. Smt. Nandini Nopany (230 ITR 679), the relevant portion of which reads as under:- "The genuineness of the transaction of the sale and purchase of the shares between the assessee and Vishwa Mangal Trading Co. Pvt. Ltd., has not been doubted by the Assessing Officer. This has 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 shares were 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 understateme .....

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..... d shares of Rustom Mills and Industries Ltd for a sum of ₹ 4,01,000/- on which transaction, the assessee claimed long term capital loss of ₹ 8,38,790/-. During the same period, the assessee also sold certain shares of Rustom Spinners Ltd. and showed long term capital gain of ₹ 1,46,792 and short term capital gain of ₹ 7,41,563/-. It is also not in dispute that the shares of Rustom Mills and Industries Ltd. were pledged by the assessee with IDBI Bank. The original share certificates along with the transfer form duly signed by the assessee were in possession of the IDBI Bank. The assessee had also undertaken not to transfer such shares. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of t .....

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..... f the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 19. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and the observations made in the later decision in the case of Vodafone International Holdingss B.V. (supra), we do not find that this a case which would fall within the parameters of the decision in the case of McDowell & Ltd (supra). 21.5 In view the above the loss of ₹ 3,50 crores cannot be treated as generated through the use of colrable decvice. The only alleagation of the Revenue was that the loss was generated as a device of coulorable tool. However, we disagree with the reasoning of lower authorities. 21.6 Regarding the ground of Revenue, we note that the assessee did not utilize his right to acquire the shares against the share warrant on the ground that the price of Arvind Ltd was fallen substantially. As such the assessee was under the obligation to acquire the shares at the rate of 52 per share which was quite high in comparison to the market rate. There is no doubt about the market rate of the share of Arvin .....

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..... t off the loss as discussed above till the date of passing the order. 21.11 Therefore, we are not inclined to uphold the order of authorities below for short-term capital loss on sale of shares of AKAL for ₹ 3,50,00,000/- and uphold the order of ld. CIT(A) for the loss on sale of the warrant of ₹ 36,19,050/-. Accordingly, we direct the AO to delete the addition for ₹ 3,86,19,050/-. Hence the ground of appeal of the assessee is allowed, and ground of appeal of the Revenue is dismissed. 22. The 3rd issue of the assessee and the 2nd issue in Revenue appeal are interconnected, and the ld. CIT(A) passed common order. Therefore, we have clubbed them together for adjudication and convenience. 22.1 The issue raised by the assessee in ground No. 3 is that learned CIT(A) erred in confirming the disallowance of ₹ 11,82,418.00 out of the total disallowance of ₹58,77,294.00 under section 14A read with rule 8D of Income Tax Rule whereas the Revenue is in appeal against the deletion of the addition made by the AO for ₹ 46,94,876.00 under section 14A read with rule 8D of Income Tax Rule. 22.2 The assessee during the year has earned dividend income of ₹ 31, .....

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..... f the assessee. 23. Aggrieved assessee preferred an appeal to ld. CIT(A). The assessee before the learned CIT(A) submitted that its funds are more than the amount of investment. Therefore, there cannot be any disallowance on account of interest expenses. 23.1 Besides the above the assessee before ld. CIT(A) also submitted that if any disallowance needs to be made on account of interest expenses, then interest expenses net of interest income should be considered. 23.2 The assessee regarding administrative expenses submitted that it has claimed expenses of ₹ 15,07,418.00 only in its profit & loss account. Therefore, the disallowance cannot exceed such amount of the expenses claimed in the income tax return. The assessee also claimed that it has suomoto disallowed a sum of 3,25,000.00 and no defect was pointed out by the AO regarding this. 23.3 The learned CIT(A) after considering the submission of the assessee deleted the addition made by the AO in part by observing as under: So far as disallowance of administrative expenditure under Rule 8D(2)(iii) is" concerned, if is observed that Assessing Officer has computed such d/sa/towance at ₹ 62,02,294 being 0.5% of av .....

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..... respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act] [Provided that nothing contained in this[-$Qctiofr shall empower th& Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1 days of April 2001] 6. From the above, it is evident that as per sub section of Sect/on f 4A, no deduction is to be allowed in respect of expenditure, incurred by the assesses in relation to income. Sub-section (2) of Section 14A provides the procedure for determination of such expenditure by the Assessing Officer.-The Begird has a/so prescribed Rule 8D for determining the expenditure incurred by the assesses for earning of exempt income. Thus, the disallowance expenditure can be made under sub-section (1) for the expenditu .....

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..... nd of the assessee exceeds the amount of investment shown by the assessee in its financial statement. Any of the authority below has not disputed this fact. Therefore, there is no question of making the disallowance on account of interest expenses. In this regard we find support and guidance from the judgment of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under: The principle therefore would be that if there are funds available both interestfree and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal 25.1 Similarly, we also rely on the judgment of the Hon ble Bombay High Court in the case of CIT vs HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below: Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free secur .....

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..... ard to the books of accounts of the assessee. But in the instant case, we note that the AO has made the disallowance under rule 8D mechanically without referring to the expenses claimed by the assessee in its books of accounts. The expenses claimed by the assessee are only to the tune of ₹ 15,07,418/- under the head administrative expenses in the profit & loss account. This fact has not been disputed by the authorities below. Thus in our considered view, the disallowance cannot exceed the actual expenses claimed by the assessee in its accounts. Thus we are of the view that the AO has not made any reference to the books of accounts of the assessee as required under rule 8D of Income Tax Rule. 25.8 In addition to the above we also note that the assessee has made suomoto disallowance on account of administrative expenses amounting to ₹ 3,25,000/- but the AO without rejecting the claim of the assessee has invoked the provisions of section 14A read with rule 8D. The relevant details of the disallowance made by the assessee are placed on pages 33 to 34 of the paper book and reproduced the same as under: ENCLOSURE-7 Items Debited to Profit and Loss Account being amounts in .....

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..... ve we also find important to refer the provisions of section 14A of the Act which reads as under: [Expenditure incurred in relation to income not includible in total income85. 86 14A. 87[(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred88 by the assessee in relation to88 income which does not form part of the total income88 under this Act.] 87[(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed89, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] 25.11 A plain reading of the above provisions reveals that the .....

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..... n on BMW car as per Assessment Order of A.Y. 2009-10. It is pertinent to note that identical issue is decided against the Appellant by the predecessor CIT(Appeals)-VI vide his order dated 23"* May, 2012 wherein he has held as under. "I have considered the facts of the case; Assessment Order and Appellant's written submission, The basic fact is that director of the company purchased motor cars in his name and the bills for the said purchase are also in the name of director. Therefore, Appellant Company is not the legal owner of the motor care. For claim of depreciation the two conditions are to be fulfilled namely - Appellant must be owner of the asset and it must: be used for the purpose of Appellant's business. In this case appellant is not the owner since the ownership vests with the directors who are separate entity than the Appellate Company. As regards use of these cars for the purpose of business, the same were not furnished. Therefore, use of car for the purpose of company's business is not established by the Appellant, Although the onus to prove the user of asset was on the Appellant, the same was not discharged either before the Assessing Officer or b .....

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..... 39;s/on of Supreme Court, claim of depreciation on assets standing in others' name cannot be allowed. The decisions of other High Court have been considered, in all those decisions the user of asset name/y transport buses, ere., were by the companies and the companies were disclosing the income from hiring those vehicles. The user of asset for me purpose of business was proved in all these cases beyond doubt with the user of asset, dominion and control is also proved. Therefore, claim of depreciation in these cases were a//owed by various high Courts. However, in the Appellant's case use for the purpose of business is not at all proved and the dominion and control also remained unproved, therefore, these decisions do not help the Appellant. Considering the larger bench decision of apex court and the Delhi High Court decision in the case of MM Fisheries private Ltd, the decision of jurisdictional ITAT is not followed which has not considered mess decisions, it is, therefore, held that the depreciation claimed by the Appellant is correctly disallowed by the Assessing Officer. As the entire issue is adjudicated against the Appellant by my predecessor CIT | (Appeals), following .....

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..... owance of capital loss of ₹ 36,19,050/- made on forfeiture of warrants of Arvind Ltd. 2.The Ld.CIT(A) has erred in law and on facts in directing to restrict the disallowance under section 14A r.w Rule 8D at ₹ 11,82,418 as against ₹ 62,02,294/- made by the AO. 3.The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 17,01,370/- made by AO on account of short charging of interest on the advances given to Radiant Urja Limited. 32. The 1st issue raised by the Revenue is that learned CIT-A erred in deleting the disallowance made by the AO for ₹ 36,19,050.00 on account of forfeiture of warrants of Arvind Ltd. 32.1 This issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For a detailed discussion, please refer to Para number 10 of this order. Hence the ground of appeal of the Revenue is dismissed. 33. The 2nd issue raised by Revenue is that ld. CIT-A erred in restricting the disallowance at ₹ 11,82,418/- under section 14A read with rule 8D of Income Tax Rule against the addition made by the AO ₹ 62,02,094.00 only. 33.1 This issue has already been considered by us while a .....

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..... bearing funds available with Appellant. In this regard, reliance is placed on decision of- (i) Hon'ble Gujarat High Court in the case of CIT V/s Raghuvir Synthetics Limited [ 2013] 36 taxmann.com 275 (Gujarat), the relevant portion of which reads as under: "As can be noted from the order of the Tribunal, the Assessing Officer disallowed the interest solely on the ground that the assessee had given interest free loans to the associate concerns, viz., R. R. Family Trust and Sagar Texile Mills and this disallowance, in appeal the CIT (Appeals) deleted by holding that the amount advanced to both R. R. Family Trust and Sagar Textiles Mils were not given during the year under consideration, but the same was given in the earlier years. CIT (Appeals) had also taken note of the fact that there was sufficient funds available with the assessee-respondent on which there was no interest liability that had been incurred. In such circumstances, relying on the case of Torrent Financiers Ltd. (supra), it found that the disallowance was not justifiable. The Tribunal on noting these details, in terms held that there was nothing contrary that could be brought on record by the Department. The .....

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..... case of Commissioner of Income-Tax vs Gujarat State Fertilizers and Chemicals Ltd. reported in [2013] 358 ITR 323 [Guj]. Applying the ratio/law laid down by the Bombay High Court in the case of Reliance Utilities and Power Ltd. (Supra) as well as Division Bench of this Court in the case of Gujarat State Fertilizers and Chemicals Ltd. (Supra) to the facts of the case on hand and when it has been found that the assessee was having interest-free funds far in excess of investments and therefore, it can be said that the investments are made out of interest-free funds and therefore, the AO was not justified in making additions and/or making disallowance under Section 36(1)(iii) of the IT Act. Under the circumstances, no error and/or illegality has been committed by the learned IT AT in deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act. No question of law much less substantial question of law arise with respect to deletion of the disallowance made by the AO under section 36(1)(iii) of the IT Act." Considering the facts discussed herein above, addition made by Assessing Officer for ₹ 17,01,370 is deleted. This ground of appeal is allowed. 36. Being .....

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..... version of the fund. Hence, we do not find any reason to interfere in the order of ld. CIT-A. Accordingly, the AO is directed to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. 38. In the result, the appeal of the assessee is allowed, and the appeal of the Revenue is dismissed. 39. Now coming to the Revenue appeal in ITA 248/AHD/2016, the Revenue has raised the following grounds of appeal. The ld.CIT(A) has erred in law and on facts in directing to restrict the disallowance under section 14A r.w. Rule 8D at ₹ 15,41,073/- as against ₹ 1,00,07,145/- worked out by the Assessing Officer." On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 40. The only issue raised by Revenue is that ld. CIT-A erred in restri .....

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..... on the addition of ₹ 1,04,87,720.00 under section 14A read with rule 8D of Income Tax Rules. 43.1 The identical issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion, please refer to Para number 14&15 of this order. As the issue involved is identical to the issue raised in ITA 218/AHD/2016, therefore, respectfully following the same, the ground of appeal of the Revenue is dismissed. 44. The 3rd issue raised by Revenue is that ld. CIT-A erred in deletion the addition of ₹ 10,80,572.00 under section 36(1)(iii) of the Act. 44.1 The identical issue has already been considered by us while adjudicating the appeal of the Revenue in ITA 247/AHD/2016. For detailed discussion, please refer to Para number 26&27 of this order. As the issue involved is identical to the issue raised in ITA 247/AHD/2016, therefore respectfully following the same, the ground of appeal of the Revenue is dismissed. 45. The 4th issue raised by Revenue is that the learned CIT-A erred in deleting the addition made by the AO of ₹97,224/- under section 35D of the Act. 45.1 The assessee in the year under consideration ha .....

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..... pellant has not incurred such expenditure in year under consideration but claimed in earlier assessment year. The above claim is allowed by Assessing Officer consistently in earlier assessment years including the assessment year in which it is incurred hence Assessing Officer is not justified in denying such claim in current year. The decision of Hon'ble Gujarat High court in the case of DCIT vs. Gujarat Narmada Valley Co. Ltd. 356 ITR 460 squarely applies to present case. Considering the facts discussed herein above, disallowance made by Assessing Officer for ₹ 97,224/- is deleted. This ground of appeal is allowed. 48. Being aggrieved by the order of learned CIT-A, Revenue is in appeal before us. The learned DR before us relied on the order of AO whereas the ld. AR for the assessee before us reiterated the submission made before the ld. CIT-A and supported his order. 49. We have heard the rival contentions and perused the materials available on record. It is an undisputed fact that the assessee has claimed 1/5th of demerger expenses in the earlier years and there was no disallowance made by the AO in the assessment framed under section 143(3) of the Act. Thus there remai .....

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..... d. The assessee explained that in case any sales made through the credit card the payment of the same is credited in its bank account on its due date. But to enhance the financial liquidity, it has taken early payment from the bank before the due date. Accordingly, the bank released the payment to the assessee before the due date after charging certain charges which were termed as credit card commission. The assessee also claimed that such credit card commission is nothing but representing the interest paid to the bank. Therefore, there is no liability for deducting the TDS under section 194H of the Act. 50.2 However, the AO did not agree with the contention of the assessee and treated the same as commission to the bank which is subject to the provisions of TDS. Accordingly, the AO disallowed the same due to non-deduction of TDS and added to the total income of the assessee. 51. Aggrieved assessee preferred an appeal to learned CIT-A, who has deleted the addition made by the AO by observing as under: 8.3 I have carefully considered the Assessment Order and the submission filed by the Appellant. The brief facts of present case are that merchant bankers had provided card swiping mach .....

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..... mmission paid by the assessee against the early recovery from the bank is against the sales made by it through the use of credit card. As per the assessee, such charges paid to the bank are in the nature of bank interest. Therefore, the same cannot be subject to TDS under section 194H of the Act. However, the AO was of the view that the impugned payment is representing the commission paid to the bank. Therefore there has to be the deduction of TDS under section 194H of the Act. However, the view of the AO was subsequently reversed by the learned CIT (A). 52.2 Now the controversy before us arises to decide whether the commission paid against the sales effected through the use of credit card by the customers is liable for deduction of TDS. There is no ambiguity that the banks levy certain charges if the assessee expects payment from the bank before the due date. If we see the nature of the transaction, it is clear that the assessee pays the charges for availing the fund from the bank before the due date. Thus these charges are representing the interest paid to the bank. 52.3 We also note that there is no role of the bank for the sales made by the assessee to the customers. The bank u .....

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..... nds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 55. The 1st issue raised by Revenue is that ld. CIT(A) erred in deleting the addition made by the AO for disallowing the depreciation amounting to ₹ 8,12,864.00 only. 55.1 The identical issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion please referred to Para number 19 of this order. As the issue involved is identical to the issue raised in ITA 218/AHD/2016, therefore respectfully following the same, the ground of appeal of the Revenue is dismissed. 56. The 2nd issue raised by Revenue is that ld. CIT-A erred in deletion the addition of ₹ 1,54,26,525.00 under section 14A read with rule 8D of Income Tax Rules. 56.1 The identical issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion please referred to Para number 14&15 of this order. As the issue involved is identical to the issue raised in ITA 218/AHD/2016, therefore respectful .....

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