TMI Blog2019 (12) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... this plea, for the first time before us and has strongly relied upon the decision of Mumbai Tribunal in Sajjan India Ltd vs ACIT [ 2017 (12) TMI 47 - ITAT MUMBAI ] wherein it was held that mandate of Act is to tax real income and tax can only be levied under authority of law. Even if disallowance fall below disallowance u/s 14A offered by assessee in the return of income, revenue cannot charge tax on income, which never was income of assessee chargeable to tax. Therefore, we deem it appropriate to restore this part of disallowance u/r 8D(2)(ii) to the file of the AO to examine the issue afresh in the light of above referred decision and pass the order afresh in accordance with law. Disallowance u/s 56(2)(viia) - AO treated the investment in shares as income under section 56(2) (viia) - HELD THAT:- We have noted that the assessing officer during the assessment not provided the valuation (FMV) arrived by him to the assessee. During the first appellate stage the assessee furnished the working of the FMV of the shares of these two entities, however, the AO despite granting opportunity to file his remand report, not controverted the said valuation. The valuation furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow the ground of appeal raised by the assessee. - ITA No. 4012/Mum/2016, ITA No. 4016/Mum/2016 - - - Dated:- 1-11-2019 - Shri Pawan Singh Judicial Member And Shri Rajesh Kumar Accountant Member For the Assessee : Shri Kirit Kamdar Avin Jain AR s For the Revenue : Shri Amit Pratap Singh Sr DR ORDER PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeals are directed against the order of Commissioner of Income Tax [CIT(A)]-21, Mumbai dated 16-032016 which arises from assessment order dated 24-03-2014 passed under section (u/s) 143(3) for AY 2011-12. 2. The assessee, in its appeal, has raised the following grounds of appeal:- 1.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the disallowance made by the Assessing Officer under section 14Aas per rule 8D of the Income-tax Rules to the extent of ₹ 2,25,86,1387-. 1.2 In doing so, the Commissioner of Income-tax (Appeals) erred in the following respects: (a) In not following the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing off the interest expenses should have been considered while disallowance u / s. T4A r.w.Rule 8D without considering the fact that there is no such provision with regard to determining expenditure in relation to the exempt income as per Rule 8D of the I.T.Rule? 2. Whether on the facts and circumstances of the case and in law Ld. CIT(A) has erred in granting relief to the assessee u/s.56(2)(viia) of the Income Tax Act, 1961, ignoring the clarification in the CBDT Circular No.01/2011 dated 06.04.2011, confirming that the said provisions as applicable from 01.06.2010 and assessee company's case is fully covered under the provisions as the aggregate fair market value of the shares exceeds Rupees fifty thousand and exclusion as per the subsequent proviso do not apply. 4. The brief facts of the case are that assessee is a company engaged in the business of operation of Pollution Control equipments, plants, detailed design and engineering of pollution control equipment, investment financing. The assessee filed its return of income for assessment year (AY) 2011-12 on 30-09-2011 declaring Nil income. Subsequently, the assessee filed revised retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO difference as per AO difference as per assessee Enviro Technology Ltd(purchase from Siddhi Dychem PLtd) 25,000 10 53.23 88.15 195387 100750 Shivalik Solid-waste management Ltd(fresh issue) 2,50,000 10 9.21 11.34 335000 (197500) Coimbatore Integrated waste Management. Ltd(fresh issue) 6,50,000 10 2.87 87.72 50518437 (4634500) Total 52807024 (3751250) 5. The AO consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han interest and depreciation have been recovered. Accordingly, there is no question of making any disallowance u/s 14A in respect of these expenses. 8. In respect of ground of appeal raised by the revenue with regard to the netting of interest expenses, the ld.AR submits that if disallowance is to be made u/s 14A, then the same ought to be made in respect of net interest by taking into consideration only 3 investments, which yielded dividend income. In support of his submission, the Ld.AR relied upon the decision of Special Bench of Delhi Bench of Tribunal in ACIT Vs Vireet Investments P Ltd (2017) 58 ITR(T) 313 (Del SB) and Piramal Enterprises Vs ACIT (2018) 97 taxmann.com 352 (Mum). 9. The Ld.AR further submitted that in anticipation of submission of revenue that disallowance u/s 14A cannot be lower than the returned income, the Ld.AR made his reliance on the decision of Tribunal in case of Sajjan India Ltd vs ACIT (2018) 89 taxmann.com 21 (Mum) and submitted that there can be no disallowance of administrative or otherwise as they have been fully covered. 10. On the other hand, the Ld. DR for the revenue, on the disallowance u/r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77 lakhs. The expenses claimed on personal expenses of ₹ 3,06,954, depreciation of ₹ 15,454/-, administrative expenses of ₹ 4,07,06,963/- and interest and finance cost of ₹ 3,19,63,567 resulting loss of ₹ 1,44,10,511. The expenses mainly consists of administrative expenses, legal and professional charges of ₹ 23,02,695/- and management fees of ₹ 3,75,02,000/-. The Ld.CIT(A) also noted that investment was increased from ₹ 67.64 crores to ₹ 103.26 crores during the current year. Further, from the fund flow statement, the facts for the year under consideration were considered to be different from earlier years. After considering the facts, fund flow statement and the investment made during the year and the interest expenditure, the Ld.CIT(A) concluded that the assessing officer has considered the entire interest expenditure for disallowance u/r 8D(2)(ii). The Ld. CIT(A) granted relief to the assessee that interest expenses for the purpose of Rule 8 D(ii) should be considered net of interest income received during the year and directed the AO accordingly. 13. Before us, the Ld.AR of the assessee vehemently submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal the CIT(A), restricted the addition to ₹ 10,58,250/- and remaining addition was deleted. The assessee has challenged the action of AO in upholding to the extent of ₹ 10,58,250/- and the revenue has challenged deleting the addition of ₹ 5,17,26,274/-. The Ld. AR of the assessee submits that during the previous year the assessee made investment in the shares of 3 group companies by subscribing to fresh issue of shares and direct purchase from third parties; viz (i) Shivalik Solid Waste management Ltd (fresh issue), Coimbatore Integrated Waste Management Private Limited (fresh issue) and Enviro Technology Ltd (direct purchase). The assessing officer while passing the assessment order treated the difference of consideration paid and the fair market value of the shares as per Rule 11UA as computed by him as income from other sources. During the assessment the assessee furnished the working of the valuation of shares. The AO rejected the working of assessee on the ground that the same was not supported by valuation report and was not as per Rule 11UA and replaced the same by fair market value of the shares without providing the working of such fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of investment made in share of Shivalik Solid Waste Management Pvt Ltd and Coimbatore Integrated Waste Management Pvt Ltd. 17. For the purchase of share of Enviro Technology Ltd (ETL), the ld. AR for assessee submits that ETL is a company engaged in developing, operating and maintaining a Common Effluent treatment Plant which is set up for the treatment of effluents generated by chemical industries in and around Ankleshwar. The Ankleshwar Environmental Preservation Society, Rotary Pollution Control Cell carried out detailed study and discussions at various forums to address the issue of treatment of effluent generated by Chemical industries in Ankleshwar, one of the largest Chemical Industrial Zones of Asia. Accordingly, it was decided to go ahead with common effluent treatment plant exclusively for Small Scale Industries. Accordingly, ETL was promoted after taking into consideration of success and failure of common effluent treatment plant. ETL is a closely held company and its shares are not freely transferrable. Its shares did not have a ready market for sale or trading. The sale of such share by Sidhi Samrat Dyechem Pvt Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply only if any person received from any person share of a company where the public is not substantially interested, for low consideration or consideration less than the fair market value of shares received. And in case of fresh allotment of shares, the shares are not by just by the company, they do not come into existence until there is allotment by the company and fair of shareholder. The purchase of shares in Shivalik Solid-waste Management Ltd and Coimbatore Integrated Waste Management Private Limited were the fresh issue of capital. The assessee also furnished the fair market value of shares as per Rule 11 UA. The learned CIT(A) has extracted the details of written submission in para 6.4 of his order. 21. In alternative and without prejudice submission of the assessee furnished the fair market value of the investment as per Rule 11UA and as per AO in the following manner; Sr. No. Investment Purchased from Valuation as per assessee Rs. Valuation as per AO Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium where it is justified on the basis of FMV. Issuing shares at par in such cases to preferred persons such as close associate or even parent company is clearly in the nature of gift and is covered by this section. Similarly, the motive in acquiring shares is again irrelevant and there is no need to look at malafide regions or mens-rea for such receipt of share as has been argued by the appellant. No such mention is there on the statue and the plain word of the statue has been considered while it is being interpreted. Words or intention cannot be supplied when the law is explicit and there is no ambiguity. 6.8. The next issue is to whether the shares are received without consideration or at a consideration which is less by over ₹ 50,000/-of its FMV. The FMV has to be determined as per rules. The relevant rule was Rule 11 UA(1)@(b) before its amendment w.e.f. 29.11 .2012. The appellant has given its working of FMV. The assessing officer has not furnished his working even when called for in the remand report. He has also not shown how the working of appellant is not as per rules. The working of FMV which is akin to book value as per the Rules was submitted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such evidence in the form of correspondence or any communication is brought on record by the assessee that Sidhi Samrat Dychem Pvt Ltd was facing financial difficulties, which may justify the action/ transaction with assessee. Hence, we do not find merit in the submissions of the ld. AR for the assessee. 25. So far as alternative submission of the ld AR for the assessee that provisions of section 56(viia) are anti abuse and intended to prevent the practice or receiving property without consideration or for inadequate consideration, are concerned, the ld AR has strongly relied on the Circular No. 01/2011 dated 6th April 2011 issued by Central Board of Direct Tax (CBDT) and the decision of Tribunal in ACIT Vs Subhodh Menon ( supra ). The throughout the proceedings took the stand that the assessee that the transaction with ETL is bonafide transaction. We are also of the view that in absence of any imputation of any consideration over and above consideration was passed, the addition is not justified. The assessing officer has not made any investigation from ETL. We have noted that the coordinate bench of Tribunal in ACIT Vs Subhodh Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. This was real object and purpose of the enactment of subsection (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of sub-section (2) that there is understatement of consideration in respect of the transfer and sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received. 19 . In view of the above, the provisions of section 56(2)(vii)cannot be applied to transaction under consideration. 26. In view of the aforesaid discussions, as we have already noted that in absence of any imputation of any consideration over and above consideration was passed, the addition is not justified. The assessing officer has not made any investigation from ETL nor brought any adverse material on record against the assessee. Hence, we accept this submission of the ld. AR for the assessee and allow the ground of appeal raised by the assessee. 27. Resultantly the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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