2017 (1) TMI 1629 - AT - Income Tax

Disallowance of expenses incurred in connection with issue of bonus share - allowable revenue expenses - CIT(A) was of the opinion that such expenditure is of revenue in nature and deleted the same - Held that - We find force in the factual findings of the First Appellate Authority. The entire expenditure has been incurred for the continuance of the listing of the shares with the various authorities as mentioned hereinabove. We therefore do not find any error or infirmity in the findings of the ld. CIT(A) Ground no. 1 is accordingly dismissed. Addition on account of unrealized sales - Held that - As decided in assessee s own case for A.Y. 2005-06 2014 (1) TMI 1851 - ITAT AHMEDABAD there was no need to disturb the method of accounting followed by assessee-company and also found no discrepancy in terms and conditions of purchase orders. CIT(A) has also analyzed the case laws relied by the AO and also that of assessee and found that reliance placed by AO on certain case laws was misplaced as they do not apply to the facts of assessee s case. On the other hand he followed Hon ble Supreme Court decision in assessee s sister concern namely Apollo Industrial Products P. Ltd for assessment year 1989-90 in which identical issue was decided in favour of assessee and against the revenue. Disallowance u/s. 14A r.w. Rule 8D - Held that - Commissioner (Appeals) has after analyzing the material on record found as a matter of fact that the assessee had sufficient surplus funds at its disposal for making any investment in share and for business purpose and therefore there was no nexus that could be established with the expenditure incurred by the assessee for earning the exempt income. - Decided in favour of assessee. Disallowance of loss on sale of shares - Held that - It is true that the impugned shares were of unlisted companies; therefore there is no data available for the prevailing market rate on the date of sale from the stock exchanges. All that has to be seen is whether the valuation of the shares is scientific and based upon facts and figures. We find that the valuation of shares is back by the certificate of Chartered Accountant which is exhibited from pages 119 to 123 of the paper book. A perusal of the same show that the C.A. has done a scientific valuation as per the prescribed norms. No error in the valuation so made. As decided in ASHOK SONI. VERSUS INCOME-TAX OFFICER. 2006 (6) TMI 147 - ITAT DELHI-C No material was available with the AO to show that the assessee has received more amount than the consideration shown in the registered document After deletion of s. 52 it is not possible for the AO to adopt the market value or any other value other than the apparent consideration for sale Therefore the action of the AO in substituting the full value of consideration by the fair market value as stated by the DVO in his report was not valid - We set aside the findings of the ld. CIT(A) and direct the A.O. to allow the loss - decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance of expenses incurred in connection with the issue of bonus shares.
2. Deletion of addition made on account of unrealized sales.
3. Deletion of addition out of disallowance under Section 14A of the Income Tax Act, 1961 (the Act) read with Rule 8D.
4. Disallowance of loss on sale of shares.
5. Restriction of addition out of disallowance under Section 14A read with Rule 8D for a different assessment year.

Detailed Analysis:

1. Deletion of Disallowance of Expenses Incurred in Connection with Issue of Bonus Shares:
The first ground pertains to the deletion of disallowance of expenses amounting to ?2,10,168 incurred in connection with the issue of bonus shares. The Assessing Officer (A.O.) disallowed this amount, considering it capital in nature. However, the assessee contended that no bonus shares were issued during the year, and the expenditure was routine yearly payments for the continuance of share listing. The CIT(A) found the expenses to be of revenue nature and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, finding no factual error in the findings.

2. Deletion of Addition Made on Account of Unrealized Sales:
The second ground involves the deletion of an addition of ?85,18,830 made on account of unrealized sales. The A.O. added this amount to the total income, arguing that the assessee followed a mercantile system of accounting. The CIT(A) deleted the addition, referencing a settled dispute in the assessee's sister concern's case. The Tribunal agreed with CIT(A) and noted that the issue was settled by the Hon'ble Gujarat High Court, which found no need to disturb the method of accounting followed by the assessee.

3. Deletion of Addition Out of Disallowance under Section 14A Read with Rule 8D:
The third ground pertains to the deletion of ?21,82,933 out of a disallowance of ?33,39,824 under Section 14A read with Rule 8D. The A.O. disallowed the amount, believing the assessee diverted interest-bearing funds for non-business purposes. The CIT(A) restricted the disallowance to ?7,82,500 after considering the assessee's submissions. The Tribunal upheld CIT(A)'s decision, referencing the jurisdictional High Court's ruling in the assessee's favor.

4. Disallowance of Loss on Sale of Shares:
The fourth ground relates to the disallowance of ?46,34,375 as a loss on the sale of shares. The A.O. treated the loss as inflated due to mutually arranged transactions. The assessee provided a valuation certificate from a Chartered Accountant to justify the sale price. The Tribunal found the valuation scientific and based on prescribed norms, setting aside the CIT(A)'s findings and directing the A.O. to allow the loss.

5. Restriction of Addition Out of Disallowance under Section 14A Read with Rule 8D for a Different Assessment Year:
For the assessment year 2009-10, the Tribunal dismissed the revenue's appeal regarding the deletion of an addition of ?99,82,800 on account of unrealized sales, following the detailed discussion in the earlier appeal. Similarly, the Tribunal dismissed the revenue's appeal concerning the restriction of addition out of disallowance under Section 14A read with Rule 8D, following the detailed discussion in the earlier appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on various grounds, finding no errors in the factual findings and referencing settled disputes and jurisdictional High Court rulings. The appeals filed by the revenue were dismissed, and the appeal filed by the assessee was allowed in part for statistical purposes.