TMI Blog2020 (6) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... the associate concerns, the AO held that the funds borrowed were not utilized for business purposes. Hence, interest expenditure and other associate expenditure were not incurred wholly and exclusively for business purposes. The reliance of the decision in case of Hero Cycles (P) Ltd. vs. CIT [2015 (11) TMI 1314 - SUPREME COURT] will not be applicable in the present case as advance to subsidiary company became imperative as a business expediency in view of undertaking given to financial institutions by assessee to effect that it would provide additional margin to subsidiary company to meet working capital for meeting any cash losses. But in the present case, funds were specifically borrowed for infusion of equity in the associate concerns which is totally different aspect from the case of Hero Cycles (Supra). Hence the CIT(A) rightly confirmed the addition. Ground No. 2 is dismissed. Addition u/s 56 (2) (viiib) - valuation of premium received on issue of shares - HELD THAT:- In the present case, the assessee is saying that value of the shares owned by the assessee company of the listed companies which are recorded at the book value (cost price) is far less than the listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance made by Ld. A.0. u/s 36(l)(iii) of the Income Tax Act, 1961 of ₹ 79,08,068/-on account of interest paid for money borrowed. 3. In the facts circumstances of the case, The Ld. CIT(A) has wrongly upheld the disallowance made by Ld. A.0. u/s 56(viib) of the Income Tax Act, 1961 of ₹ 34,38,000/- on account of valuation of premium received on issue of shares 3. The assessee company is engaged in the business of investment in shares. Return of income was filed on 8/9/2013 declaring a loss of ₹ 1,17,70,956/-. Assessment u/s 143(3) was made on 19/2/2016 determining total income at ₹ 32,44,078/- in the assessment order. The Assessing Officer disallowed expenses pertaining to earning exempt income of ₹ 21,33,361/-. The Assessing Officer also disallowed interest and loan processing charges for diversion of interest bearing funds to the sister concerns to the extent of ₹ 60,72,432/-. The Assessing Officer also added ₹ 34,38,000/- on account of excess premium received on sale of shares to Shoveller Infra Commission Ltd. 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A) and CIT(A) partly allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured loan and interest paid on TDS. The Ld. AR submitted that the Assessing Officer while passing assessment order did not satisfied himself about total expenditure claimed by the assessee and erred in disallowance of ₹ 2,97,725/-. 6. The Ld. DR relied upon the assessment order and the order of the CIT(A). 7. We have heard both the parties and perused the material available on record. During the year the assessee received dividend income of ₹ 54,84,142/-. The assessee made investment of ₹ 22,00,000/- in the shares of Glofin Investment Finance of ₹ 22,00,000/- and other investments were made in earlier years. The assessee paid interest of ₹ 35,26,028/- for the loans taken by it from Tata Capital Finance Services as on 31.12.2012. Thus there is no correlation between the investment made in the shares of other company with the borrowing of funds during the year. Hence, the CIT(A) rightly held that interest disallowed has to be restricted to the extent of funds invested in Glofin Investment Finance during the year. The disallowance of interest under Rule 8D(2)(ii) worked out by the CIT(A) as under: a x b / c i.e. ₹ 35,26,028/- x ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion in the associate concerns, the Assessing Officer held that the funds borrowed were not utilized for business purposes. Hence, interest expenditure and other associate expenditure were not incurred wholly and exclusively for business purposes. The reliance of the decision of the Hon ble Supreme Court in case of Hero Cycles (P) Ltd. vs. CIT (2015) 379 ITR 347 (SC) will not be applicable in the present case as advance to subsidiary company became imperative as a business expediency in view of undertaking given to financial institutions by assessee to effect that it would provide additional margin to subsidiary company to meet working capital for meeting any cash losses. But in the present case, funds were specifically borrowed for infusion of equity in the associate concerns which is totally different aspect from the case of Hero Cycles (Supra). Hence the CIT(A) rightly confirmed the addition. Ground No. 2 is dismissed. 11. As regards to Ground No. 3 against the order of the CIT (A) in upholding the disallowance/addition made by the Assessing Officer under section 56 (2) (viiib) of the act of ₹ 34,38,000/- on account of valuation of premium received on issue of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher than the value which is derived in accordance with the valuation rules, therefore, the higher value should be accepted. The CIT(A) also rejected the argument of the assessee stating that assessee has not given any material in support of its claim as to how the book value of the share has been worked out at ₹ 71.04 per share. Further the assessee itself has worked out the book value of its shares at ₹ 11.80 per share and therefore the Assessing Officer has correctly treated ₹ 34,38,000/ as income of the assessee under section 56 (2) (viiiib) of the act. Therefore, assessee is in appeal before us. 13. The Ld. AR submitted that as on 31st March 2013 the company was having shares of Hanung Toys and Textiles Limited whose book value (cost) was ₹ 3,83,38,380/ being 2738000 equity shares whose market rate was ₹ 138.80 per share having market value of ₹ 38,00,34,400/ whereas its book value was only ₹ 3,83,38,380/-. He submitted that assessee has substituted the book value of the shares of listed entity by taking market value of the listed shares as on that date. He submitted that all other unlisted equity shares are considered at that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer based on the value on the date of issue of shares office assets. In the present case, the assessee is saying that value of the shares owned by the assessee company of the listed companies which are recorded at the book value (cost price) is far less than the listed price (traded price) of those shares, therefore, same should be taken while determining the fair market value of its shares in accordance with the provisions of section 56 (2) of the act. Principally, we agree with the argument of the Ld. AR, that if assessee can substantiate that fair market value of its shares is higher than the valuation determined in accordance with the rules framed there under, then, higher of the above should be considered for working out income u/s 56 (2) of the act. However, assessee has to satisfy the assessing officer and it is only the satisfaction of the assessing officer, which is required for working out fair market value of shares. As the lower authorities stated that assessee has not produced anything to substantiate the above claim of the assessee, they disbelieved it. Before us, assessee has submitted the quotation at the National stock exchange of share price of Hanu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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