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TMI Blog2022 (2) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... owance u/s 14A to the extent of exempt income earned by the assessee which was computed as per Rule 8D of I.T Rules 1962 on the basis of CBDT Circular No.5/2014 dated 11.02.2014 which clearly states that it is not necessary to earn exempt income in a particular year in which the disallowance is made? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in restricting the disallowance u/s 14A to the extent of exempt income earned by the assessee which is contrary to CBDT Circular No.5/2014 which clarifies that the Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income? 3. Brief facts of the case are that, assessee filed its return of income on 20.10.2014 declaring total income of Rs..NIL after setting off unabsorbed depreciation of Rs..8,49,236/-. The case was selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short "Act") were issued and served on the assessee. In response Ld. AR of the assessee attended and filed the relevant information as called for. 4. The assessee company is in the business of rentin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter considering detailed submissions Ld.CIT(A) allowed the appeal of the assessee and deleted the addition with the observations in his order vide Para No 3.2.2 to 3.2.11. Aggrieved revenue is in appeal before us. 7. Facts relating to Ground No. 2 and 3 raised by the revenue are relating to disallowance u/s. 14A of the Act. During this year assessee has actually received exempt income of Rs..3000/- and the Assessing Officer by invoking rule 8D of I.T. Rules disallowed Rs..2,47,000/-. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and the Ld.CIT(A) restricted the disallowance to the extent of exempt income earned by the assessee. Aggrieved revenue is in appeal before us. 8. At the time of hearing, Ld. DR relied on the finding of the Assessing Officer and specifically supported the finding of the Assessing Officer at Para No. 5.5.1 to 5.5.5. He argued that Ld.CIT(A) deleted the addition made by the Assessing Officer ignoring that shares were valued by taking growth projections rather than adopting the book value of the assets. 9. With regard to Ground No. 2 and 3 he relied on the CBDT Circular No. 5/2014 on this issue and prayed that the addition made by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method prescribed as per the Income Tax Rules Le. Rule 11UA. While finalising the assessment the assessing officer held that the very provisions of section 56(2) (viib) an acceptable methodology has been prescribed in terms of Rule 11UA and revised the valuation as per Rule 11UA to arrive at a valuation of NIL as against the value per share issued by the assessee at Rs. 24,900/- plus face value at Rs. 100/- i.e. Rs. 25,000/ and thus brought the premium received by the assessee of Rs. 4,99,24,500/to tax as other sources u/s 56 (2) (viib) of the IT act, 1961. Being aggrieved by the order of the Assessing officer the assessee filed an appeal before the CIT (A). The assessee during the course of hearing before the CIT(A) filed various submissions including the valuation report and brought to the notice of the CIT(A) the fact that the asseesee had followed explanation (a)(ii) to arrive at the fair market value of the shares and as per explanation (a) (ii) of section 56 (2) (viib) has substantiated the value of the shares with the valuation report at Rs. 37,890/ and that the comments of the assessing officer that assessee has not submitted any supporting evidences in respect of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the generation and use of unaccounted money. The said intent can be noted from the Hon'ble Finance Minister's speech and memorandum explaining the provisions of the Finance Bill, 2012. In addition to the above, there have been a series of decisions of the Tribunal, where the invocation of section 56(2) (viib) has been negated in view of the absence of any evidence to suggest that any unaccounted money was sought to be introduced in the transactions of issue of Shares. In the transaction of issue of Shares, in the instant case, it is an uncontroverted factual position that the Shares were issued by the assessee to its sister concern. Since the money has simply flown from sister concern to the assessee, it is not anybody's case and it cannot be that any unaccounted money has been laundered in the process. Therefore the genuineness of the entire transactions is beyond any shadow of doubt. Accordingly, a transaction between sister concern cannot be equated with generation / circulation of unaccounted money. Therefore, having regard to the intention of legislature in the assessee's case, provisions of section 56(2) (viib) of the act cannot be invoked. Such being the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Chartered Accountant to justify the valuation of the immovable properties. The fact that assessee had submitted the valuation report has been acknowledged even by the assessing officer in para 5.5.5, wherein he states that "from the above valuation report it can be seen". There is an inherent contradiction in the assessment order wherein in one para the assessing officer states that no evidence was filed to justify the valuation and in the very next para he acknowledged the fact that the Valuation Report was filed hence there is a fallacy in the argument that the assessee had not submitted any evidence to support the valuation of the immovable properties. Infact the CIT (A) while passing the order has verified the said valuation report in detail [Page 16 to 35 of the Order of CIT(A)]. It can be seen from the said valuation report that the Valuer has arrived at the valuation of the immovable properties after relying upon the stamp duty ready reckoner, which value is even accepted by the department hence the department is not justified in saying that the asseesse's Valuation is not supported by any evidence, 'The assessee submits that the FMV arrived at by the assessee is correct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is higher fair market value of the Shares shall be adopted. Here in this case the assessee has substantiated the value by relying on the valuation report which is higher. The valuation of the assets has been arrived at by the valuer in a scientific way by relying on the stamp duty ready reckoner which is as acceptable mode of valuation by the department, hence the assessing officer was not justified in ignoring the Fair market value of the Shares as arrived by the assessee by following the method prescribed in explanation (a) (ii) of section 56(2) (viib) and insisting on relying on the method prescribed as per rule 11UA as per the explanation (a)(i) of the section 56(2) (viib) more so when the said explanation is very clear and the choice lies with the assessee to follow either of the method. Grounds of Appeal No. 2&3 As regarding ground 2 and ground 3 being the addition restricted by the Ld.CIT(A) under section 14A of the Act to Rs. 3,000/- being the amount of exempt earned against the disallowance of Rs. 2,47,000/- arrived at by the assessing officer as per Rule 8D, the assessee submits that it is now settled position that disallowance cannot exceed the exempt income. the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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