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TMI Blog2018 (12) TMI 1734X X X X Extracts X X X X X X X X Extracts X X X X ..... d in confirming disallowance of long term capital loss Rs. 1,49,70,000 on sale of 30,00,000 shares of Arvind Ltd. 2. On the facts and in the circumstances of the appellant's case, the Ld. CIT(A) erred in confirming disallowance of short term capital loss on sale of 1,00,000 shares of Anagram Knowledge Academy Ltd. (AKAL) amounting to Rs. 3,50,00,000. 3. On the facts and in the circumstances of the appellant's case, the Ld. CIT(A) erred in confirming disallowance to the extent of Rs. 11,82,418 from out of the total disallowance of Rs. 58,77,294 made by the Assessing Officer u/s.14A of the IT. Act read with Rule 8D of the IT. Rules. 4. On the facts and in the circumstances of the appellant's case, the Ld. CIT(A) erred in confirming disallowance to the extent of Rs. 13,63,244 from out of the total disallowance of Rs. 16,03,792 made by the Assessing Officer being depreciation on BMW Motorcar. 5. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal. 3. The first issue raised by the assessee is that ld. CIT(A) erred in confirming the order of the AO by sustaining the disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the price of Arvind Ltd on account of supply of 30 lacs shares. 3.5 The assessee also explained that it saved cost approximately 1.5 - 2% of the listed sale price on account of transaction cost, i.e., brokerage, securities transaction tax, and service tax, etc. Thus the price for the transaction of the sale of shares was determined after considering a 15% discount of the market price which comes to Rs. 28.31 per share. Accordingly, the transaction for the sale of shares as discussed above cannot be treated as a non-genuine and sham transaction. 4. However, the AO was of the view that the whole of the transaction resulting the long-term capital loss is a colorable device to generate the longterm capital loss. Accordingly, the AO issued show cause vide notice dated 25-02-2013 to the assessee to explain such loss. 4.1 In compliance to it the assessee vide letter dated 5th March 2013 submitted as under: 1. The shares were sold off-market to avoid the sudden supply of the shares in the stock exchange otherwise the price prevailing on the stock exchange would have substantially fallen. 2. It did not adjust the impugned loss against any other income till date. Moreover, it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax Act to determine the sale price of the shares akin to the provisions of section 50C of the Act. 8.1 Even as per the provisions of section 56(2)(x) the difference between the sale price and market price is subject to tax in the hands of the recipient. In the case, the assessee is a seller. Therefore, the said provisions cannot be applied in its hands. Moreover, the provisions of the section are applicable with effect from 1st April 2017. 8.2 Similarly, the provisions as specified under section 50CA of the Act are not applicable to the facts of the instant case. It is because the provision of section 50CA of the Act does not speak about the quoted shares. Moreover, the provisions of the section are applicable with effect from 1st April 2018. 9. On the other hand, the learned DR submitted that the shares were sold to a group company at a price less than the market price. Had the assessee sold these 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. 9.1 The learned DR also submitted that there are nomi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10.5 We also note that the assessee must have saved transaction cost consisting of service tax, Security transaction tax, and brokerage by selling the shares off-market. Had the assessee gone through the network of stock exchange then he would have incurred the cost as stated above. Therefore the difference, to the extent of the cost involved in such transfer, as discussed above, between the market price and actual price requires due consideration for quantifying the loss arising from the sale of shares. 10.6 We also note that 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. Thus in the absence of any specific provision to determine the sale price of the shares of the listed company, we are inclined to hold that the price declared by the assessee is correct and within the provisions of law. 10.7 We also find that a new section 50CA of the Act was inserted by the Finance Act 2018 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the transaction and the consideration received by the assessee against the sale of shares, therefore the transaction cannot be termed as a sham transaction. 10.13 Moreover, the onus is on Revenue to establish that assessee has received some benefit over and above the actual sales consideration. In this regard, we find support and guidance from a recent judgment of Delhi high court in case Arjun Malhotra vs. CIT (403 ITR 354) where the same issue has been dealt and decided in favor of the assessee. The relevant extract of the order reads as under: "24. In view of the aforesaid discussion and pronouncement of law in K.P. Varghese case (supra), we fail to fathom how the tribunal had distinguished the said decision solely and entirely on the ground that in the present case the transaction was not at arm's length (see paragraphs 18 and 19 of the order of the tribunal quoted above in paragraph 16). K.P. Varghese case (supra) case holds that sub-sections (1) and (2) relate to transactions, which were not at arm's length between related parties and third parties respectively, but the two provisions were integrally connected inasmuch as they would apply when there was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t quotation of the share as the fair market value." 11. Now coming to the main allegation/finding of the AO, which was later confirmed by the ld. CIT(A), that assessee has used this transaction as a colorable device to reduce its future tax liability and heavily relied on Honorable Supreme court in case of McDowell & Co. Ltd vs. Commercial tax officer (154 ITR 148) dated 17-4-1985 wherein apex court observed that tax planning within the law is permitted, but colorable devices cannot be part of tax planning. 11.1 In the case of McDowell & Co, the assessee was not collecting the sales tax liability on the excise duty even after the amendment in the distillery rules 76 & 79 w.e.f. 4-8-1981. As such before the amendment in the rules, i.e., distillery rules 76 & 79 w.e.f. 4-8-1981, the buyers were liable to deposit the excise duty directly to the state government. Therefore the assessee did not collect the sales tax on such excise duty. It is pertinent to note that the Hon'ble SC before the amendment in the rules 76 & 79 decided the issue in favor of the assessee reported in 1 SCR 914 dated 25-10-1976. Thus the assessee defaulted in complying the amended distillery rules 76 & 79 w.e.f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving less price than the one on which it was marketing. The Court no where said, that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell's case (supra). Ratio of any decision has to be understood in the context it has been made. The facts and circumstances which led to McDowell's decision (supra) leaves us in no doubt that the principle enunciated in the above case has not affected the freedom of citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the frame work of law, unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. It was with this consciousness that the Court has used these expressions while depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and every act which results in tax reduction, exemption of tax or not attracting tax authorised by law is to be treated as device of tax avoidance." 11.4 It is also pertinent to mention here 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 in the abovementioned case. 11.5 The AO in his order also relied on the judgment of Supreme Court in the case of workmen vs. Associated Rubber Industry limited (157 ITR 77) (SC) and held that facts of the above case are similar to assessee's case. However, we note that the above decision was in respect to the calculation of bonus payable to workers where an artificial entity was created to divert the income so that bonus liability can be reduced as the bonus was to be calculated at a fixed rate and diverting the income resulted in reducing the bonus liability. Therefore, Hon'ble Supreme Court held that it is not permissible as the artificial entity was later wound up in 2 years. But we find that facts in the case on hand are different from the case as men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; shares Date of sale No. share sold Value of sales Sales valve Per unit Holding days Profit/ Loss 1 Anagram Knowledge Academy Ltd. (AKA L) 20/03/10 1000 00 5000 0000 500 25/03/10 100000 1500 0000 15 0 5 -35000000 2 Arvind Ltd. Warrants 29/09/08 4060 000 3619051 - 17/05/09 Forfeited 0.09 - 229 -3619050 53619051 15000001 38619050 12.3 All the transactions above of sales of shares and forfeiture of share warrants were carried out among the related parties and belonging to the same group. 12.4 The assessee during the assessment proceedings acquired 1,00,000 shares of M/s Anagram knowledge Academy Ltd ( for short AKAL) at Rs. 500/- per share. Assessee funded Rs. 5,00,00,000/- to AKAL to infuse the capital in the company. As such there was need of fund in the hands of AKAL for the repayment of the unsecured loan as well as to strengthen the financial position of the company. Accordingly, the shares were subscribed by the assessee at a premium of Rs. 490 per share having the face value of Rs. 10 per share. 12.5 The assessee also claimed that the value of the shares of AK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same group, to which assessee also belongs. The other relevant facts and pieces of evidence which justify the business expediency of transaction cannot be ignored. ii) Unlike the provisions of section 40A(2) of the Act, there is no provision under the head capital gain chapter to determine the fair sales consideration if the transaction is between the related parties. iii) Ld. AO failed to justify that how the payment and receipt of the transaction are nullified, or there was some unaccounted transaction to nullify the effect of such transaction in the books. iv) The fair market value of the share as per Rule 11UA is Rs. 109.65 per share while the share has been transferred at Rs. 150.00 per share. v) The warrant was convertible into equity share at Rs. 52/- per share. However, when the price of shares was constantly falling, therefore the appellant decided not to convert the warrant into shares at a price of Rs. 52 per share which was very high than the price listed at the stock exchange. vi) These warrants were purchased from Sanjay Lalbhai on 29/09/08 @ Rs. 0.09/- per warrant which AO has not doubted. Thus, the warrants were held for 7 months with the intention of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair market value, then it shall be treated as income of the company and not of the shareholder. Moreover, such provision was brought under the statute with effect from 1st April 2013. Thus the shares purchased by the assessee at a premium do not generate any income in its hand. 16.3 Similarly, the learned AR further argued that the loss on the forfeiture of warrants was not disputed by the AO, being the amount of rupees 4,59,949.00 as discussed above. Therefore there is no question for disallowing the loss by treating the same a colorable device. 17. On the other hand, the learned DR submitted that the loss incurred by the assessee is the colorable device. Therefore the same cannot be allowed as deduction. 18. Both the parties before us relied on the order of authorities below as favorable to them. 19. We have heard the rival contentions and perused the materials available on records. In the instant case, the assessee has acquired the shares of AKAL at Rs. 500 per share represented by the premium of Rs. 490 and face value of Rs. 10 per share. The assessee acquired these shares on 20th March 2010 which were sold on 25th March 2010 at Rs. 150 per share resulting in total short-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for full value of consideration for transfer of share other than quoted share. 50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is 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.]" 19.4 However, section 50CA is applicable w.e.f. 01st April 2018, therefore, for the assessment year under consideration there was no mechanism under the law to determine the sale price of unquoted shares. Similarly, there is also no provision under the provision of law to determine the price, which should be taken as the purchase cost of a capital asset. 19.5 Further, we also note that there is an amendment u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he group concern were sold in off market transaction to BVHPL. The said transaction is not a colorable device. Further, the assessee has sold the shares on the market price prevailing on the date of sale and no fault can be found with such transactions undertaken by the assessee. In case as against the market value, the other concern had purchased the shares at a higher value, then it would be questionable, but it is not so, in the present case and hence, we find no merit in the orders of authorities below in holding that the loss claimed by selling the shares of GGDL to its 100% subsidiary below the book value should be ignored while setting it off against the other income, if any, in current year or for carry forward and set off in subsequent years. The loss was worked out at (-) Rs. 2,75,83,524/-. We reverse the orders of Assessing Officer and CIT(A) in this regard and hold that the total loss arising on the said transaction can be adjusted against the gain arising on sale of unquoted shares during the year and balance loss can be carried forward and set off against any other gain arising in the subsequent years." 19.8 We also note that in the case tax needs to be levied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the sum of share capital as income under section 68 of the Act or 56 of the Act and that too in the hands of the recipient i.e. AKAL in the instant case. In this regard, we find support & guidance from the judgment of Mumbai Tribunal in the case of Green Infra Limited Vs. ITO reported in 38 taxmann.com 253 wherein it was held as under: "No doubt a non est company or a zero balance company asking for a share premium of Rs. 490 per share defies all commercial prudence, but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land." 19.10 Thus we hold that the investment made by the assessee at such a high premium and subsequent sale at a loss cannot be the basis holding that such loss is bogus in the given facts & circumstances. 20. Now the 2nd controversy arises whether the loss incurred by the assessee on account of the sale of the shares of AKAL is the result of the colorabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mind that it was generated for the purpose of the loss in order to set off the taxable income. Now the next doubt arises that such loss must have been set off against the income. But the fact is that the assessee has not claimed the set off of such loss in the year under consideration. In our considered view this fact cannot be ignored. It is because if the assessee would intend to set off of such loss in the same financial year, then it would have done so in that year only. But the assessee has not done so. Thus had there been any planning of the assessee for creating such bogus loss than it should have claimed the set off of such loss in that year only. It is also pertinent to note that such loss was not set off till the date of the passing of the order by the ld. CIT-A dated 16-11-2015. 20.5 We also note that the assessee acquired the shares at the fag end of the financial year which was sold immediately after the acquisition which resulted in the loss as discussed above, but the same was not set off against any other income. 20.6 In addition to the above, we also note that the assessee could have split the transaction into two financial years by acquiring the shares of AKA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he device depends not upon considerations of morality, but on the operation of the Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." 20.9 Thus from the above, we note that the conduct of the assessee is suggesting that the loss was not created purposefully to meet some malafide purposes. 21. We also want to explain such loss incurred by the assessee with the help of another example. 21.1 Supposing Mr. X, a trader in shares, acquires 10 shares of ABC Ltd having a face value of Rs. 10 per share at a premium of rupees 490.00 per share in the financial year 2009-10. Accordingly, Mr. X has shown stock in trade at Rs. 5000 in its books of accounts. Further Mr. X requires to value such stock in trade in the balance sheet as on 31.3.2010 which comes to Rs. 1500.00. Thus there shall be a loss of Rs. 3500 to the assessee which will be allowed to him as a business loss. 21.2 But in case Mr. X classified the shares in its balance sheet as an investment then the loss cannot be allowed to him on account devaluation of the investment at the year-end unless Mr. X sells these. Thus the loss allowable to the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the case of India Finance and Construction Co. Pvt. Ltd. v. B.N . Panda, Dy. CIT[1993] 200 ITR 710." A.Y. 1994-95 We further find that the order of ld. CIT(A) is in conformity with the decision of jurisdictional High Court in the case of Marghabhai Kishabhai Patel & Co. (supra) wherein Hon'ble Court referred to the case of Madras High Court in the case of Ramlinga Choodambikai Mils Ltd. vs. CIT (1955) 281 ITR 952 and that of Gujarat High Court in the case of CIT Vs. Keshavlal Chandulal (1996) 59 ITR 120 and held as under:- "In absence of evidence to show either that the sales were sham transaction or that the market price were in fact paid by the purchasers, the mere fact that goods were sold at a concessional rate to benefit to purchaser at the expenses of the company would not entitled to income-tax department to assess the difference between market price and price paid by the purchaser as profit of the company." 11. In view of the above and since no contrary decision was cited by the Revenue, we are not inclined to interfere with the order passed by ld. CIT(A) deleting the addition of Rs. 14,14,06,326/- and the same is hereby upheld. This ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms. As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDBI is concerned and insofar as the purchaser's right to have shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of CIT v. Sakarlal Balabhai [1968] 69 ITR 186 (Raj.), a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Value Price/ shares Date of Sales No. of Share sold Value of Sales Sales Value per unit Indexed Cost Profit/ Loss 2 Warrants 26/03/08 400000 401001 1.00 17/05/09 400000 Forfeited 1 459950 21.8 It is also pertinent to mention here that AO did not make any addition even after conducting the inquiry for the long-term loss on forfeiture of the warrant of Arvind Ltd as evident from the order of AO itself, but he restrained himself from making any addition. 21.9 AO also alleged that assessee used these transactions as a colorable device to reduce its tax liability. However, we have already decided this in Para 6 of this order while adjudicating the ground no 1, the same principle and facts are applicable in these grounds also. Therefore, AO is not correct in holding that these transactions are used as a colorable device. 21.10 In view of above, we are of the view that the loss incurred by the assessee on account of sale of shares and extinguishment of its right cannot be held as a colorable device. We also note that the loss claimed by the assessee has not been set off against any income till the date of passing the order of the ld. CIT-A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of interest expenses could be made. 22.5 The assessee without prejudice to the above also submitted that if the disallowance of interest expense needs to be made then interest expense net of interest income should be considered for disallowance. 22.6 The assessee regarding the administrative expenses submitted that it has claimed expenses to the tune of Rs. 15,07,418.00 only in the profit & loss account. The assessee further explained that it has already made disallowance of Rs. 3,25,000/- out of such expenses. Therefore, the assessee claimed that no further disallowance could be made on account of administrative expenses. 22.7 The assessee further submitted that there could not be any disallowance of the administrative expenses exceeding the expenses claimed in the income tax return. As such the assessee claimed that it had claimed the expense of Rs. 15,07,418/- only, therefore, there is no question of making the disallowance of Rs.62,02,294/- in respect of administrative expenses. 22.8 However, the AO disagreed with the contention of the assessee and worked out the disallowance of the expenses under section 14A read with rule 8D as detailed under: 1. Direct expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I A/c drawn on 31st March, 2008 according to which the assessee has claimed expenditure in respect of filling fees, Demat charges, finance charges etc. as follows: Filling fees 126950 Demat charges 657548 Legal Expenses 48236 Miscellaneous Expenses -- Finance charges 48182348 Preliminary expenses written off 429254. Total 49619556 5,2 As against that the income of the assesses was earned from professional fees of Rs. 6,75,000/-. The assessee had disallowed the aforelisted expenditure as we have noted from the computation of income furnished along with return. On those very facts, the respected coordinate Bench De/W in the case of Gillete Group India (supra) has opined as under- "5. We have carefully considered the argument of both the sides and perused the material placed before us. Section 14A reads as under: - "Expenditure incurred in relation to income -not includible in total income. 14A, [(1) For the purposes of computing: the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form port of the & total income under this Act,] [(2) The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceed the expenditure actually claimed by the assessee. In the absence of any contradictory judgment pieced before us, we hereby respectfully follow the decision of the respected Coordinate Bench and hold that the teamed Commissioner was not justified in invoking the provisions of Section 263 of the Act. The impugned order passed u/s. 263, dated 18,03,2003 is hereby quashed. Grounds raised by the assesses are allowed. 6. In the result, the appeal of the assesses is allowed. Considering the facts discussed herein above, it is observed that disallowance of administrative expenses under Rule 8D(2)(iii) is required to be rrestricted to Rs. 15,07,418 and as Appellant has already made disallowance of Rs. 3,25,000/- net disallowance under Section 14A is restricted Rs. 11,82,418/- as against disallowance made by Assessing Officer at Rs. 62,02,294/-,in the nutshell overall disallowance under Section 14A is restricted at Rs, 11,82,418/- as against Rs. 58,77,294/-. 24. Being aggrieved by the order of the ld. CIT(A) both assessee and Revenue are in appeal before us. The assessee is in appeal before us for the confirmation of the addition made by the ld. CIT(A) Rs.11,82,418.00 whereas the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,47,18,116.00 which was proposed and disallowed by the AO as per the provisions of section 14A read with rule 8D of the Income Tax Rule. Therefore, there remains no dispute for the interest amount disallowed by the AO. Therefore, we do not find any infirmity the order of ld. CIT(A) on account of deletion of interest expenses as discussed above. 25.5 As regards the administrative expenses we note that the assessee has claimed the deduction of Rs.15,07,418/- only whereas the AO has made the disallowances of Rs.62,02,294/- which is exceeding the actual expenses claimed by the assessee in its income tax return. Therefore we are of the view that the disallowances under section 14A read with rule 8D cannot exceed the actual expenses claimed by the assessee in the income tax return in any given facts and circumstances. 25.6 At this juncture we find important to refer the provisions of rule 8D which reads as under: "(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- 1. the correctness of the claim of expenditure made by the assessee; or 2. the claim made by the assessee that no expenditure has been incurred, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 419/- as depicted hereunder as against the amount of Rs. 6202295/- as per the computation formulate of the Rule 8D. The Assessee company is of the opinion that the formulae of the Rule 8D in its set of facts is not applicable as all expenses are indentifiable. Therefore the disallowance on account of other expenditure apportioned in the ratio of Income from investment to income from Financial Assets as computed hereunder. Sr.No. Particulars Amount 1 Total Expenditure as per Proft and Loss account 16 07 70 611 2 Less: Interest considered separately 1 99 41 186 3 Less: Expenditure disallowed/considered separately in Return of income Donation Increase in authorized capital Demat Charges Depreciation Deferred Tax liability Opening Stock of Painting Loss on Sale of Investments Loss on Sale of Fixed Assets Loss on Warrants Forfeited 12 50 000 63,97,821 6 01 718 10 92 599 1 11 915 3 39 99 302 9 17 27 500 1 21 101 40 20 050 13 93 22 006 Balance Administrative Expensiture 15 07 419 The balance Administrative expenditure is apportioned in the ratio of income from Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 otherwise of the appellant's working of the claim. He has not specifically rejected that working and has not provided any reason for doing so. The Commissioner was of the view that before proceeding to compute the disallowance under Section 14A as per Rule 8D, the Assessing Officer should consider the working of expenses made by the assessee and when he is not satisfied with the said working and terms it as incorrect, based on objective criteria and for cogent reasons, he can then proceed to work out the disallowance under Section 14A as per Rule 8D of the Rules." 26. Hence the grounds of appeal of the assessee are allowed, and the grounds of appeal of the Revenue are dismissed. 27. The next issue raised by the assessee is that ld. CIT-A erred in the confirming the order of AO by disallowing the depreciation to the extent of Rs. 13,63,244.00 out of total disallowance of Rs. 16,03,792.00. 27.1 There was disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso. 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 the motor car. Since motor car is in possession and control of the directors in whose name the same stand, there is no dominion or contra/ of the Appellant Company on the said motor cars. Though purchased from the funds provided by it, Appellant cannot be said to be beneficial owner for the purpose of claiming depreciation, Appellant relied upon the divisions of /TAT Ahmedabad and a/so certain High Courts including Supreme Court decision in the case of Mysore Minerals Limited. It would be very re/want to refer to; three-member decision of Hon'ble Supreme Court in the case of Tamil Nadu Civil Supplies Corporation ltd. V/s CIT reported in 249 ITR 214. In this larger bench derision of Apex Court, earlier decision of Mysore Minerals Limited was also considered The said decision was distinguished on facts and it was held that since Assesses has not acquired Dominion over asset in question claim of depreciation is not allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 outset, we note that issue has been decided by the ITAT in the own case of the assessee as discussed above in its favor. The relevant extract of the order is reproduced as under: "18. We have given a thoughtful consideration to the orders of the. authorities below, A perusal of the bank statement of the assessee and the copy of the ledger account show that though the vehicle in the name of the director but all the payments have .been made by the appellant company and the vehicle has been shown as an asset of the company in its balance sheet On finding :hat the funds for purchase of vehicle had been invested by the appellant company and the same has been duly reflected on the assets side of the balance sheet of the appellant company, we do not find any reason why the claim of depreciation should not be allowed to the appellant company. For this proposition, we draw support from the decision of the Hon'ble Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 AO made the addition of Rs. 17,01,370.00 being 6% of the loan on account of short charging of interest. 35. Aggrieved assessee preferred an appeal to the ld. CIT(A). The assessee before the ld. CIT-A inter-alia submitted that its fund exceed the amount of advance given to Radiant Urja Ltd. Therefore no disallowance can be made. The learned CIT-A after considering the submission of the assessee deleted the addition made by the AO by observing as under 6.3. On careful consideration of entire facts, it is observed that Appellant has advanced funds to Radiant Urja Limited @ 6% and Assessing Officer has not proved GBP^ that terms and conditions for charging of interest was @12%. It is not the case of Assessing Officer that advances are given to sister concern hence there is no case of diversion of profit from Assessee Company to borrower. It is settled legal law that Assessee cannot be thrust upon to pay the taxes on income which has not at all accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding 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 purposes. Thus, as can be seen the Tribunal actually relied on the findings given in case of Torrent Financiers Ltd. (supra) and furthermore there was nothing contrary that could be brought on record by the Department for it to hold otherwise. Factually, it found huge funds were available without interest liability with the assessee and that there was no evidence to hold that the borrowed money was utilized for the purpose of advance to the sister concern. All these aspects cumulatively led the Tribunal to hold that the disallowance made only on the ground that advances were given out of the borrowed funds, holding the assessee ineligible for allowance of interest by the Assessing Officer of the sum of Rs. 18.66 lacs was not sustainable............." (ii) Decision of Gujarat High Court in the case of case of CIT V/s Amod Stamping (P) Ltd [2014] 45 taxmann.com 427and this Court has observed as under. "[3.2] Similar observations are made by the learned IT AT with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds 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 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" 37.1 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on facts in deleting the addition of Rs. 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 of Rs. 1,04,87,720/- made u/s 14A of the Act. (3) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.l 0,80,5 72/- made u/s 36(l)(iii) of the Act. (4) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 97,224/- made u/s 35D of the Act. (5) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 12,25,908/- made u/s 40(a)(ia) of the Act. 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. 42. The 1st issue raised by the Revenue is that the ld. CIT-A erred in deleting the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 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 the AO disallowed the same and added to the total income of the assessee. 46. Aggrieved assessee preferred an appeal to the CIT-A. The assessee before the learned CIT-A submitted that it has incurred demerger expenses in the assessment year 2008 -09 of Rs.1,59,530/- and in the assessment year 2011- 12 of Rs.3,26,590/- which were allowed in the respective years as per the provisions of section 35DD of the Act. 47. The learned CIT-A after considering the submission of the assessee deleted the addition made by the AO by observing as under: "7.3. I have carefully considered the Assessment Order and the submission filed by the Appellant. It is observed that appellant had incurred demerger expenses in the A.Y. 2008-09 for Rs. 1,59,5307- and in A.Y. 2011-12 for Rs. 3,26,5907- and aggregate amount of Rs. 4,86,120/- was debited in Profit & loss account. The appellant has claimed 1/5ih of such expenses u/s 35DD of the Act. The Assessing Officer is incorrect in observing that appellant has claimed such expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proposition, in our considered view the deduction claimed by the assessee under section 35DD of the Act cannot be the denied merely on the ground that it was claimed under section 35D of the Act. Since the demerger expenses were allowed for deduction as per the provisions of section 35DD of the Act in the earlier assessment years which were accepted by the Revenue, therefore, for claiming such expenses, there is no need to refer any supporting evidence except the details of such eligible expenses in the earlier assessment years. The financial statements of the assessee of the earlier assessment years were in possession of the AO. Had there been any wrong claim of the assessee in the earlier years the same should have been pointed out by the AO. But in the given facts and circumstances there was no such allegation brought on record suggesting that the assessee has not amortized the demerger expenses in the earlier years. Therefore, we do not find any reason to interfere in the order of learned CIT-A. Thus the ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;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 the Income-tax Act, 1961 - Deduction of tax at source - Commission, brokerage, etc. (Bank charges) - Assessment year 2009-10 -Whether banking services provided by bank to its client cannot be covered and treated as services rendered by an agent for principal during course of buying or selling of goods as banker does not render any service in nature of agency - Held, yes - Assessee, engaged in business of trading in readymade garments, paid 'commission' to bank on payments received from customers who had made purchases through credit cards - Whether amount charged by bank was a fee for rendering banking services to its client and, thus, same could not be treated as a commission or brokerage under section 194H - Held, yes [Para 16] [In favour of assessee]" It is further observed that Hon'ble Mumbai ITAT in the case of /TO V/s Jet Airways(lndia) Limited 2013] 36 faxmann.com 379 has also held that "Payments to banks for utilization of credit card facilities are in nature of bank charges, and not commission, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Benches of the Tribunal we uphold the order of the ld. CIT(A) and reject the grounds No.1 to 3 taken by the department for all the three assessment years under consideration." 52.4 In view of above we conclude that the commission charges paid by the assessee to the bank for getting the early payment on account of the sales made by it against the use of credit card by the customers are representing the interests to the bank. Accordingly, there is no liability on the part of the assessee for the deduction of TDS on such payment to the bank. Hence the ground of appeal of the Revenue is dismissed. 53. In the result, the appeal of the Revenue is dismissed. 54. Now coming to the Revenue appeal in ITA 2857/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 Rs. 8,12,864/- 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 of Rs. l,54,26,525/-madeu/sl4A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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