Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home

2018 (12) TMI 1734

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... res 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 than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. - 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 price as agreed between two parties if it is sold off-market. Whether this transaction is a colorable device to reduce its future tax liability - Held that:- whenever assessee has two options, any layman will always go for one which reduces its tax liability but to hold that the transaction as a colorable device Revenue needs to see it in entirety, as held by the Hon’ble Gujarat high court [1995 (12) TMI 12 - GUJARAT HIGH COURT] We are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) and dire .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ure 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 - Dated:- 31-12-2018 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER And MS MADHIMITA ROY, JUDICIAL MEMBER For the Appellant : Shri Vartik Choksi & Ms. Ira Kapoor, A.Rs For the Respondent : Shri S.K. Dev, Sr. D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: These are a bunch of five appeals by the assessee and the Revenue against respective orders of the ld CIT-A out of which the assessee files one appeal and the Revenue files four appeals. Assessment years involved in these appeals are 2010-2011 to 2013-2014. Since issues involved in all these appeals are interconnected with each other, therefore for the sake of convenience we proceed to dispose of all these appeals by way of this common order. 2. First, we take up assessee appeal bearing No. 218/Ahd/2016 pertaining to the assessment year 2010-11. The assessee has raised the following grounds: 1. On the facts and in the circumstances of the appellant's case, the, CIT(A) erred in confir .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 during the period from 1st February 2010 to 31st March 2010 there was an average daily quantum of trading of shares in Arvind Ltd for 4,87,085 shares and 9,56,701 shares on NSE and BSE respectively. However, the assessee wanted to sell 30 lacs shares which were almost 6 times more in BSE and 3 times more in NSE than the average daily quantum of trading of shares on stock exchanges. Accordingly, the assessee was under the apprehension that if it supplies 30 lacs shares in the market through the stock exchange, then the value per share prevailing in the stock market will fall drastically. As per the assessee, the price of a share in the stock market is determined by demand and supply. Thus there was very high possibility for getting the lower circuit breaker triggered on the sale of shares of the company due to substantial fall in the price of Arvind Ltd on account of su .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... sible 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 which, commercially justifies to it. iv) There is no provision under the Act to determine the sale price of the shares, unlike the provisions as specified under section 50C of the Act. 6. However, the learned CIT (A) disregarded the contention of the assessee by observing that had the assessee sold these shares gradually over a period of time then it could have fetched the price listed on the stock exchange. 6.1 There was no compulsion on the assessee to sell the shares to the group concern at a price lower than the price listed on the stock exchange. Accordingly, the learned CIT (A) upheld the order of the AO. 7. Being aggrieved by the order of learned CIT (A) assessee is in appeal before us. 8. The learned AR before us filed a paper book running from pages 1 to 114 and submitted that there is no provision under the income tax Act to determine the sale price of th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... uted 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 the stock exchange at the relevant time was ₹ 33.30 per share. It is an undisputed fact that among other things the price at the stock exchange is decided by demand and supply of the shares. It means if there is more supply of the shares in the market, the price of the share will fall and vice versa. Thus, 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 assess .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ate 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 price as agreed between two parties if it is sold off-market. 10.10 We also note that there is no provision under the head capital gain which empowered AO to determine the fair sale or purchase price of the quoted shares between the related parties unlike the provisions of section 40A(2) of the Act under the head business & profession. 10.11 Thus after considering the above facts, we are of the opinion that AO is not correct in challenging the sales consideration decided by the parties. There is no mechanism in the law, as discussed above, which allows AO to take the listed price of a share in place of actual sales consideration. 10.12 We also note that it is not the case of the Revenue that there was some inflow of money from the buyer of the shares to the assessee which is unaccounted. As there is no dispute about the nature of the transaction and the conside .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 referred to and distinguished by the tribunal in the impugned order. We have also referred to K.P. Varghese case (supra) to elucidate that the legal ratio propounded with reference to then applicable Section 52 of the Act would be against the Revenue even if the said Section was applicable. It is obvious that when Section 52 of the Act itself was not applicable, the Assessing Officer could not have substituted the actual sale consideration received by the Assessee with another figure stating that this was the fair market value. The aforesaid discussion would also take care of the argument that M/s GIPL had paid for foreign travel of the assessee. The fact that M/s GIPL had incurred any such expenditure would not be a ground and reason to substitute the actual consideration received with the figure relying upon the market quotation of the share as the fair market val .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... rt 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 cannot be regarded as a colorable device. The court also discussed the meaning of colorable device and case of McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail. The relevant extract of the order is read as under: From the aforesaid, it is apparent that on the factual aspect the Court was considering the case where in a going business a liability to pay duty which was legally of the assessee and which on such payment was to become part of its cost of commodity sold by it and to become part of its selling price to the buyers, was as a result of arrangement between the seller and buyer split into two, namely - duty so far paid separately directly to the tax authorities and the balance so paid to the seller; the arrangement was existing solely for the purpose of not paying the tax and it is not a transaction in reality of receiving less price than the on .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 fide and righteousness. Not all legitimate acts of a taxpayer which in ordinary course of conducting his affairs a person does and are under law he is entitled to do, can be branded of questionable character on the anvil of McDowell (supra). We are unable to read in the aforesaid decision that any act of an assessee which results in reduction of his tax liability or expectation of tax benefit in future amounts to colorable device, a dubious method or subterfuge to avoid tax and can be ignored if the acts are unambiguous and bona fide, merely on the ground that treating those as deliberate would result in tax liability in future. While the planning adopted as a device to avoid tax had been deprecated, principle cannot be read as laying down the law that a person is to arrange his affairs so as to attract maximum tax liability, and every act which results in tax reduct .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 ld. CIT-A passed common order. Therefore, we have clubbed them together for the adjudication and convenience. 12.1 The issue raised by the assessee is that learned CIT (A) erred in confirming the disallowance of short-term capital loss of ₹ 3.50 crores on the sale of shares of M/s Anagram knowledge Academy Ltd (for short AKAL) whereas the Revenue is in appeal against the deletion of the addition made by the AO on account of loss on the forfeiture of warrants. 12.2 The assessee has claimed a short-term capital loss in the year under consideration amounting to ₹ 3.50 crores on sale of shares of AKAL and ₹ 36,19,050/- on account of forfeiture of share warrants. The necessary details of such loss stand as under: Sr. No. Name of Security Date of investments No. shares purchase Purchase value Price/ shares Date of sale No. share sold Value of sales Sales .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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, the AO disagreed with the contention of the assessee by observing that the whole of the transaction for the purchase and sale of shares as well as share forfeiture of share warrants was carried out among the related parties and belonging to the same group. Accordingly, the AO held that assessee used this sale & purchase of shares and forfeiture of warrants as a colorable device to reduce its tax liability and disallowed the same and added to the total income of the assessee. 13. Aggrieved assessee preferred an appeal to learned CIT(A). The assessee before the ld. CIT(A) submitted as under: i) The transaction cannot be classified as a colorable device merely on the ground that sale & purchase of shares is within the same group, to which assessee also belongs. The other relevant facts and pieces of evidence which justify the business expediency of transaction .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... (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/- on the forfeiture of shares warrant. 16. The ld. AR before us submitted that the transaction for the sale and purchase of shares of AKAL was carried out through banking channel and the same was disclosed in the books of accounts. 16.1 The transaction was carried out between the related parties, but that cannot be the basis for treating the transaction as a colorable device. There was no defect pointed out by the authorities below regarding the purchase price of the shares of AKAL which was inclusive of the premium. Therefore the loss incurred on the sale of shares cannot be treated as a colorable device. 16.2 The learned AR also submitted that if the company in which public is not substantial interested issues shares at a premium exceeding the fair market value, then it shall be treated as income of the company and not of the shareholder. Moreover, such provision .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 that the assessee acquired shares of AKAL at a premium of ₹ 490 per share having face value at ₹ 10 per share only. These shares were sold at a price of 150 per share which is in excess than the fair market value of the shares determined as per rule 11UA of Income Tax rule. As per rule 11UA, the value of the share comes at ₹ 109 per share. Therefore, there remains no doubt that the price of the share sold was at a higher price than the fair market value. 19.3 Under the income tax provision, we note that there was no mechanism to determine the purchase & sale price of the share at that the relevant time. The lawmakers to determine the transfer value of unquoted share brought special provision by introducing Section 50CA of the Act which reads as under: [Special provision for full value of consideration for transfer of share other than quoted share. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nsferor 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 against book value of share as on 31.03.2008 at ₹ 59.61 per share, the shares of GGDL were sold at ₹ 48/- per share to another group concern BVHPL. These shares were acquired by the assessee @ ₹ 74.25 in December, 2006. The said transaction as per the Assessing Officer suggested colorable device so that by selling the shares to its own subsidiary, at prices above or below the book value, the assessee was manipulating the income to reduce its tax liability. First of all, as decided in the paras hereinabove, the shares have not been sold to subsidiary of the assessee but to a concern from whom the assessee has raised loan to the extent of ₹ 18 crores and the decision was taken to repay the loan and arrest the payment of interest on such loans, the shares of the group concern were sold in off market transaction to BVHPL. The said transaction is not a .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ld 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 consideration - It was also undisputed that three companies paying huge amount to assessee, had miniscule paid up capital and earned very small profits and, thus, they were not in a financial condition to subscribe to assessee's shares at such a high premium - Whether, in aforesaid circumstances, Assessing Officer rightly concluded that assessee failed to prove identity of parties and genuineness of share transactions and, thus, impugned addition was to be confirmed - Held, yes [Para 6] [In favour of revenue] 19.9 We also feel to clarify that the issue of shares at a premium is the prerogative of AKAL which cannot be questioned. Similarly, the decision of the assessee to subscribe the shares of AKAL at a premium is its prerogative which cannot be questioned. The only test to treat the sum of share capital as income under section 68 of the Act or 56 of the Act and t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e 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 loss of ₹ 3,500.00 ( ₹ 5000- 1500 ) in its books of accounts. The question arises whether the loss claimed by the assessee is allowable. The answer is yes. It is because the purchase value cannot be disputed and the sale price of the shares was determined as per the provisions of Income Tax Rule. Therefore the loss claimed by the assessee is within the provisions of the Income Tax Act. 20.4 In our considered view the same logic can be applied to the case on hand. However, the facts of the case in hand are a bit different from the example given above. In the case on hand, the shares were sold within 5 days from the date of acquisition. Accordingly, the loss was incurred in the same financial year in which the assessee acquired the shares. The transaction resulting the loss creates suspicion in the mind that it was generated for the purpose of the loss in .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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. 20.8 Thus simply the transaction was carried out among the related parties can not the ground to hold that the loss claimed by the assessee is bogus. The taxability of the transaction has to be seen as per the provision of the Act. It cannot be decided based on emotions and the moral of the assessee. In this regard we find support & guidance from the judgment of Hon ble Apex Court in the case of CIT Vs. A. Raman & Co. reported in 67 ITR 11 wherein it was held as under: Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but o .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 understatement of value or misstatement of value of the shares sold was made by the assessee. This is a case where the assessee had sold the shares at a value admittedly lower than the market price. Yet the shares could not be assessed on the difference amount being her income because no inference can be drawn in the facts and circumstances of the case that the design of the assessee was such that she concealed certain facts and she received the difference of the value by fraudulent means. There was no evidence direct or inferential, nor was there any finding by any income-tax authority that the assessee indulged in such a practice. We are fortified in our view by a judgment of the Supreme Court in the case of CIT v. Shivakami Co. Pvt. Ltd. [1986] 159 ITR 71 (SC). We also find support in our view from a Division Bench judgment of the Bombay High Court in the case of India Finan .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nt. 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 tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ire 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 Arvind Ltd as discussed above in detail. Therefore, the assessee did not exercise his right to acquire the shares against the share warrant otherwise the assessee would have invested more money by acquiring shares at a higher value. The transaction carried out among the parties has not been doubted, and the same is supported on the basis of supporting pieces of evidence. Therefore, we are of the view that the loss claimed by the assessee is within the purview of law. 21.7 We also note that during the year under consideration there was another forfeiture of the warrant of Arvind Ltd on which assessee incurred a longterm loss of ₹ 4,59,949/- which was allowed by the AO. But, no addition was made by the AO. The relevant extract of the AO order is reproduced as under: Sr. No. Name of Security Date of Investments No. of Shares Purchases Purchase Value Price/ shares Date .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ce 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 ₹ 31,25,760/- which was claimed as exempt income under section 10(34) of the Act. The assessee in respect of such income has made the following disallowances in its income tax return. 1. Interest expenses 1,47,18,116.00 2. administrative expenses 3,25,000.00 22.3 However, the AO vide order sheet entry dated 23rd November 2012 proposed to make the disallowance as per the provisions of section 14A read with rule 8D of Income Tax Rule. 22.4 The assessee in response to the notice issued by the AO inter-alia submitted vide letter dated 18th of December 2012 that its funds exceed the amount of investment as on 31st March 2010. As per the assessee, its funds as on 31st March 2010 is of ₹ 1,89,06,41,542/- whereas its investment as on 31st March 2010 stands at ₹ 1,37,30,44,257/- only. Thus the assessee claimed that no disallowance of interest expenses could be made. 2 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... T(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 average investments. On careful consideration of Profit & Loss Account submitted by Appellant is observed that Appellant was debited operating and other expenses as well as loan processing fee of Rs,98,78,058 in Profit & Loss Account out of which major expenditure in form of fees for increase in authorized share capital for ₹ 63,97,821, donation of ₹ 12,50,000 and loss on state of asset for ₹ 1,21,101, etc., are already disallowed, while filing Return of income and only expenditure of ₹ 15,07,415 are claimed. It is settled legal law that disallowance under Section 14A cannot exceed expenditure deb/ted and claimed in Profit & Loss Account The Hon'ble Anmedabad ITAT In identical cake of Adani Port Infrastructure Pvt. Ltd, (I.TA No. l383/Ahd/2013) has held as under: Further our attention has also been drawn on the P &LI A/c dra .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ion (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 expenditure incurred for earning of exempt income in the case under appeal before us, from the perusal of the assessee s profit & loss account, it is evident that the total expenditure incurred was Rs,49,04,028/- only. Thus, the assesses claimed the deduction for the expenditure of R$.49,04,028/- which is debited to the profit & loss account. The disallowance cannot exceed the expenditure actually claimed by the assesses. We, therefore, accept the assessee s contentions that the disallowance made by the Assessing Officer and sustained.by the learned CIT(A) in excess of total expenditure debited to profit & loss account was unjustified. Accordingly, we restrict the disallowance to the extent of expenditure actually claimed by the assesses i.e. ₹ 49,04,028/- 5.3 Therefore on merits as wet! we can hold that in such situation a disallowance u/s. 14A cannot exce .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... rly, 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 securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A. 25.2 Similarly, we also find support from the judgment of Hon ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A 25.3 Because of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investment in the securities under section 8D r.w.s. 14A of the Act. 25.4 However, we note that the assessee has made the disallowance of the interest expenses for the amount of &# .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e 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 inadmissible under Section 14A: [vide Part-B Clause No.17(i)] Note: Expenditure incurred in relation to income which does not form part of the total income is computed at up ₹ 1,50,43,116/- and such inadmissible amount has been computed as under : Sr. No. Account Head Amount Remarks 1 Direct Expenses - 2 Interest Expenses 1 47 18 116 See note(i) below 3 Other Expenses: 0.5% of Average Investments 3 25 000 Subject to observation pint(ii) below Total 1 50 43 116 Note: (i) In the opinion of the assessee, the disallowance on account of interest in the proportion of Average Investment to Average Assets should be restricted to ₹ 83,90,734/- (i.e Interest Expenditure ₹ 1 99 186/- less Interest income ₹ 1 15 50 452/-) (ii) In the opinion of the assessee, the allowable administrative expenditure comes to ₹ 15 07 419/- as depicted hereunder as agai .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... otal 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 AO before making the disallowance under section 14A read with rule 8D was to record his satisfaction, but in the case, before us, we note that the AO failed to record any satisfaction as mandated under the provisions of section 14A of the Act. Therefore, we are of the view that no disallowance under section 14A read with rule 8D can be made other than the amount disallowed by the assessee in its income tax return. In this regard we find support and guidance from the judgment of Hon ble Bombay High Court in the case of PCIT Vs. Reliance capital assets Management Ltd. reported in 400 ITR 217 wherein it was held as under: 20. It is that mistake committed by the Assessing Officer which was partially corrected by the First Appellate Authority. The First Appellate Authority agreed with the assessee that the Assessing Officer has not commented upon the correctness or othe .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... s 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 before the undersigned. Claim of an expense in the company account is not an evidence to prove that asset was used for the business of the company. In absence of any tangible evidnece to prove the Business use of the motor cars purchased in the name of directors, it is held that the motor cars were not used for the purpose of Appellant's business. Coming to the Appellant's argument of beneficial ownership, Appellant submitted that payment for the car was made by the company and hence the Appellant is the beneficial owner. Payment will not determine the ownership since payment can be made by way of loan also. In fact major payment is made by the finance company but it is not the beneficial owner. Since both Appellant and its director are separate entities and directors are not permanent, it cannot be said that Appellant Company has got complete dominion over t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... te 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 the ratio herein above, disallowance made by the Assessing Officer is upheld. However, it is observed that Assessing Officer has made disallowance of depreciation at ₹ 16, 03, 792 which is similar to disallowance made in A.Y. 2009-10 whereas correct disallowance on car is ₹ 13,63,224/-. Thus, disallowance is restricted to ₹ 13,63,244. This ground is partly allowed. 28. Being aggrieved by the order of ld. CIT-A, the assessee is in appeal before us. The ld. AR for the assessee before us submitted that the Hon ble ITAT had decided the issue in favor of the assessee in the immediately preceding assessment year in ITA No. 1330/AHD /2012 vide order dated 12- 07-2017. 29. On the other hand the ld. DR before us vehemently supported the order of authorities below. 30. We have heard the rival contentions and perused the materials available on record. At the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... al 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 adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion please referred to Para number 14&15 of this order. Hence the ground of appeal of the Revenue is dismissed. 34. The last issue raised by Revenue is that learner CIT(A) erred in deleting the addition made by the AO ₹ 17,01,370.00 on account of short charging of interest on the advances. 34.1 The assessee has given the loan of Rupees to 25,15,31,233/- on interest at the rate of 6% per annum to Radiant Urja Ltd. Thus the assessee charged interest of ₹ 17,01,370.00 from the said company. 34.2 The AO during the assessment proceedings found that the assessee has incurred interest cost on the borrowing at the rate of 12% per annum. Therefore, the AO was of the view that the assessee has charged short interest on a loan provided by it to M/s Radiant Urja Ltd. Accordingly, the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... re 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 assessee's equity share capital ₹ 3.85 cores and reserve and surplus of ₹ 5.52 crores also were noted by the Tribunal. It found that the interest free fund available with the assessee was far greater than the loan advanced to the sister concerns and as a corollary to that, it concluded that the borrowed money was not utilized for the purpose of advance to the sister concerns, as had been noted by the Assessing Officer. What had weighed with the Tribunal is the fact that the entire interest free funds included owner's own capital and accumulated profits and other interest free credits and loans and if the total interest free advances including the debit balance of the partners did not exceed the total interest free funds available with the assessee, interest was not disallowable merely on account of the utilization of the funds for nonbusiness pu .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... estion 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 aggrieved by the order of ld. CIT-A Revenue is in appeal before us. The ld. DR before us vehemently supported the orders of the AO whereas the learned AR for the assessee before us submitted that the own fund of the assessee exceeds the amount of loan. Therefore there cannot be any disallowance of interest expenses. The ld. AR before us vehemently supported the orders of the ld. CIT(A). 37. We have heard the rival contentions and perused the materials available on record. It is an undisputed fact that the own fund of the assessee exceeds the amount of loans given to M/s Radiant Urja Ltd. Thus a presumption can be drawn that the assessee has given such loan out of its funds and without using any borrowed fund for such loans and advances. In holding so, we find support and guidance from the judgment of Hon ble Bombay High Court in the case of Reliance Utilities and P .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 restricting the disallowance at ₹15,41,073.00 under section 14A read with rule 8D against the addition made by the AO at ₹ 1,00,07,145.00 only 40.1 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 respectfully following the same, the ground of appeal of the Revenue is dismissed. 41. Now coming to the Revenue appeal in ITA 1760/AHD/2016, the Revenue has raised the following grounds of appeal. (1) That the ld.CIT(A) erred in law and on facts in deleting the addition of ₹ 9,56,310/- made on account of disallowance of depreciation claimed on Motor Car. (2) That the ld.CIT(A) erred in law and on facts in deleting the addition .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... n 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 has claimed demerger expenses amounting to ₹97,224/- under section 35D of the Act. The assessee has explained during the assessment proceedings that the demerger expenses were claimed in the earlier assessment years 2009-10 and 2011-12 which were allowed under section 35DD of the Act. As such these expenses are arising from the earlier assessment years. Therefore these are eligible for deduction under section 35DD of the Act. The assessee also admitted its mistake saying that it has wrongly claimed the deduction under section 35D of the Act. 45.2 However the AO disagreed with the submission of the assessee by observing that the deduction has been claimed under the wrong section, i.e. 35D of the Act. The AO also observed that the assessee had not produced any documentary evidence in support of its claim for the deduction under section 35DD of the Act. Therefore t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... d 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 remains no doubt that these expenses were brought forward from the earlier years. Therefore the same cannot be disallowed in the year under consideration. In this regard, we find support and guidance from the judgment of Honorable Gujarat High Court in the case of the DCIT, Bharuch Vs. Gujarat Narmada Valley Fertilizers Co. Ltd reported in 356 ITR 460. Wherein it was held as under: 7.1 From the above, we noticed that one of the prime factors which weighed with the Tribunal was the rule of consistency. Learned counsel for the assessee rightly pointed out that such claim did not arise for consideration for the first time, but, is spread over to the entire period between A.Ys. 1996-97 to 1999-2000. Such claim was made by the assessee and duly granted by the Assessing Officer. In that view of the matter, in our opinion, the Tribunal committed no error. 49.1 By the above prop .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 machines to the appellant company. By availing these facilities, a credit card holder could make payment by swiping the credit card on the said machines against purchases made from various stores selling branded garments. The appellant present the details of collection made thorough credit card to merchant bankers who in turn make payment to appellant after deducting service charges. It is observed that sales made to credit card holder are not carried with the help of merchant banker nor said credit card company has brought appellant and buyer together like commission agent. The issue whether charges deducted by merchant banker are in nature of commission or not is settled by decision of Hon'ble Delhi 'High court in the case of JDS Apparels (P.) Ltd,*[2Q15] 53 taxmann.com 139 (Delhi) wherein it is held as under: "Section 194H, read with section 40(a)(ia) of .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 undertakes the liability to make the payment to the assessee on behalf of the customer who uses the credit card for the payment. In this regard, we also find support and guidance from the judgment of Mumbai ITAT in the case of ITO versus Jet Airways India Ltd reported in 36 Taxman.com 379 wherein it was held as under: We also observe that the Bangalore Bench of the Tribunal by following the said decision of the Hyderabad Bench of the Tribunal has held that the payments made to the banks on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act and hence no TDS is required to be deducted u/s 194 H of the Act. In view of the above we hold that the issue is squarely covered in favour of the assessee. Respectfully following the decisions of the Co-ordinate B .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... f 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 respectfully following the same, the ground of appeal of the Revenue is dismissed. 57. The 3rd issue raised by Revenue is that ld. CIT-A erred in deleting the addition of ₹ 19,68,967.00 under section 36(1)(iii) of the Act. 57.1 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 referred to Para number 26 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. 58. In the result, the appeal of the Revenue is dismissed. 59. In the combined result, the appeal filed by assessee bearing No.218/Ahd/2016 is allowed, and appeals filed by the Revenue bearing ITA Nos.247-248, 1760 & 2857/Ahd/2016 are dismissed. Order pronounced in the Court on 31/12/201 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Site Map - Recent || Site Map ||