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TMI Blog2019 (12) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... 387-. 1.2 In doing so, the Commissioner of Income-tax (Appeals) erred in the following respects: (a) In not following the appellate order passed by the Income-tax Appellate Tribunal in the appellant's own case for assessment years 2009- 10 and 2010-11; (b) In not appreciating the fact that investment in subsidiaries/ associate companies were made out of commercial expediency and not to earn dividend income 1.3 Without prejudice to the above grounds of appeal, the Commissioner of Income-tax (Appeals) erred in the following respects while computing the average value of investments for the purpose of computing the disallowance under section 14A as per rule 8D(2)(ii)of the Income Tax Rules: a. In not excluding the investments which are capable of yielding taxable income; b. In the not excluding the investment in companies which have incurred losses and cannot yield any dividend; c. In not appreciating the fact that only the investments which have yielded exempt income ought to be included. 1.4 Without prejudice to the above grounds of appeal, the Commissioner of Income-tax (Appeals) erred in including investments in companies which are liable to pay DOT under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selected for scrutiny. During the assessment, the assessing officer (AO) noted that the assessee has shown dividend of Rs. 1,17,04,737/- from three of its subsidiary which was claimed as exempt u/s 10(34) of the Act. The assessee made suo moto disallowance of Rs. 1,04,40,709/- u/s 14A. The AO not accepted the suo moto disallowance offered by the assessee. The AO asked the assessee to justify the working of suo moto disallowance u/s 14A. The assessee filed its reply dated 15-01-2014. In the reply, the assessee stated that during the relevant period, the assessee received dividend from its subsidiary aggregating to Rs. 1,17,04,737/-. The assessee further stated that the investment, which are not capable of yielding income should be excluded and accordingly that investment which yielded income should be considered while computing the average value of investment for disallowance u/s 14A. The assessee has made investment in 11 subsidiary companies out of which 6 are loss making companies and could not declare any dividend, thus those investments wherein no income is yielded, be excluded while considering the average value of investment. About the interest disallowance, the assessee sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative (AR) of the assessee and the ld. departmental representative (DR) for the revenue and perused the material available on record. Ground No. 1 in assessee's appeal and revenue's appeal are interconnected. The Ld. AR of the assessee submits that the ground raised by assessee in assessee's appeal is covered in favour of assessee by the decision of Tribunal in assessee's own case for AYs 2009-10 and 2010-11 in ITA No.2173/ Mum/ 2013 and ITA No.470/Mum/2014. The Ld.AR, in his fairness submits that the decision of the Tribunal dated 10-09-2015 is prior to the decision of Hon'ble Supreme Court in case of Maxxop Investments Vs CIT 91 taxmann.com 154 (SC). The Ld.AR submits that the assessee invested in share of group companies to acquire controlling interest in the group companies; however, in the present case, the subsidiary / associate companies has to be formed as separate Special Purpose Vehicles (SVPs) basis for the requirement of tender documents. The Ld.AR further submits that from the P&L account at page 39 of paper book it can be seen that assessee has incurred personal expenses and administrative and other expenses aggregating to R.4,10,13,917/- whereas it has recovered an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/-) 41,06,584 Total Disallowance as per Rule 8D (i+ii+iii) Rs. 3,17,82,344/- 12. Before the Ld.CIT(A) the assessee made elaborate submissions written and oral. On considering such submissions, the ld CIT(A) noted that the audited accounts furnished by assessee shows that the income earned from business of auxiliary services is Rs. 4.10 crores and other income of Rs. 1.75 crores totalling Rs. 5.85 crores as per Schedule 11 and other income comprised of dividend and trade investment of Rs. 1,17,04,737 and the interest on income deposits of Rs. 58.77 lakhs. The expenses claimed on personal expenses of Rs. 3,06,954, depreciation of Rs. 15,454/-, administrative expenses of Rs. 4,07,06,963/- and interest and finance cost of Rs. 3,19,63,567 resulting loss of Rs. 1,44,10,511. The expenses mainly consists of administrative expenses, legal and professional charges of Rs. 23,02,695/- and management fees of Rs. 3,75,02,000/-. The Ld.CIT(A) also noted that investment was increased from Rs. 67.64 crores to Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at before passing the order / making disallowance u/r 8D(2)(ii) and (iii), the AO shall grant opportunity to the assessee. 14. In the result, ground of appeal raised by assessee is allowed and the corresponding ground of appeal raised by revenue has become infructuous. 15. Ground No.2 in both the appeals relates to disallowance u/s 56(2)(viia). The assessing officer treated the investment in shares as income under section 56(2) (viia) of Rs. 5,28,07,024/-. On appeal the CIT(A), restricted the addition to Rs. 10,58,250/- and remaining addition was deleted. The assessee has challenged the action of AO in upholding to the extent of Rs. 10,58,250/- and the revenue has challenged deleting the addition of Rs. 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement Pvt Ltd and Coimbatore Integrated Waste Management Pvt Ltd. Accordingly it was submitted that the share did not exist at any time prior to the said subscription. The rights in share acquired were created by virtue of said transaction. There were neither shareholders nor right in the form of shares existing prior to aforesaid subscription of shares. Accordingly, the aforesaid provision ought not to be applied in case 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 eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The assessing officer computed the addition of Rs. 5,28,07,024/- by invoking the provision of Rule 11 UA (as per the tabulated figure in para- 4 supra). During the first appellate stage the assessee urged that section 56(2) (viia) ought not to be invoked in case of assessee, since the section apply 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant. 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 Rs. 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 in the assessment proceeding and also in appellate proceedings. In all the three cases considered by the assessing officer, the shares were acquired at Rs. 10 per share. As per the working it is only shares of Enviro technology Ltd that has been received at price lower than FMV of Rs. 53.23 per shares. The FMV is lower than Rs. 10/- in the other two cases. The amount to be added as per section 56(2)(viia) is (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceiving 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 Menon (supra), while refereeing the CBDT Circular No. 01/2011 held: "17. We further observe that provisions of section 56(2)(vii) does not apply to bona fide business transaction. As explained hereinabove, shares were issued by the company to comply with a covenant in the loan agreement with State Bank of India which required the promoters to increase the total net worth of the company to Rs. 150 crores by 31 March, 2010. Therefore, the shares were issued by the company for a bona fide reason and as a matter of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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