2018 (12) TMI 1932 - AT - Income Tax

Addition u/s. 68 - investment in share capital of amalgamating companies - CIT(A) has deleted the addition taking note that the AO has made the addition in the hands of the amalgamated company (assessee company) - HELD THAT -The identity of the amalgamating 14 companies were lost and it effaces away for all practical purposes and is no longer in-existence and so non-est in the eyes of law. And since the assessee company is different juristic entity cannot be taxed by applying sec. 68 of the Act for the share capital and premium which these 14 amalgamating companies have shown in their respective books from FY 2008-09 onwards. CIT(A) has correctly taken note of the judicial precedence to come to the conclusion that on the date of transfer taking effect the corporate entity of the transferor company ceased to exist and from that date the amalgamating companies is non-est in the eyes of law and the amalgamated assessee company is a different corporate entity and cannot be saddled with the share capital introduced by 14 different amalgamating companies in FY 2008-09 therefore we are inclined not to interfere with the order passed by the Ld. CIT(A) and for the reasons discussed above and the reasons given by the Ld. CIT(A) we concur and therefore we uphold the same and dismiss the Revenue s ground of appeal for AY 2012-13. Disallowance u/s. 14A of the Act read with Rule 8D - HELD THAT - As brought to our notice that the assessee has not earned any dividend income which is exempt from tax so according to Ld. AR no disallowance could have been made applying sec. 14A read with Rule 8D of the Rules. We note that Hon ble High Court of Delhi in the case of CIT Vs. Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has held after taking note that assessee company in that case also did not earn any dividend income. Thus as per law the receipt of the income exempted from tax is necessary for any disallowance u/s 14A of the Act read with Rule 8D. If there is no exempted income received during the year there can be no disallowance made applying section 14A of the Act read with Rule 8D. Hence in the instant case of the assessee company question of any disallowance does not arise as it has not received any exempt income. Therefore in view of the case laws discussed hereinabove no disallowance is warranted in the instant case as no exempted income has been earned by the assessee. Therefore we confirm the action of ld CIT(A) on this issue and dismiss the ground of appeal of revenue. Claim of assessee in respect to Preliminary Expenses written off. - disallowance on the reason that assessee has not filed any details before him in respect to this claim made by assessee - HELD THAT - CIT(A) has not deliberated on this issue while allowing the claim of the assessee. Therefore for the interest of justice and fairplay we set aside this order of Ld. CIT(A) and remit this matter back to the file of AO to decide de novo the claim of the assessee and the assessee is directed to file all details before the AO. And the AO to decide this issue after hearing the assessee in accordance to law. This ground of appeal of revenue is allowed for statistical purposes.

Summary

Issues Involved:

1. Deletion of addition made under Section 68 of the Income-tax Act, 1961.
2. Deletion of disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1962.
3. Deletion of addition related to "Preliminary Expenses written off."

Detailed Analysis:

1. Deletion of Addition under Section 68:

The primary issue was the deletion of an addition of ?153,60,07,000/- made under Section 68 of the Income-tax Act, 1961, concerning the investment in share capital of amalgamating companies. The Assessing Officer (AO) added this amount in the hands of the assessee company for AY 2012-13, noting the total investment in shares of the Rashmi Group of companies as ?155,28,60,000/- after reducing a commission paid by the assessee. The Ld. CIT(A) deleted the addition, stating that the share capital introduced in FY 2008-09 of the 14 amalgamating companies cannot be added in the hands of the amalgamated company in AY 2012-13. The CIT(A) referenced case laws, including the Supreme Court's decision in Saraswati Industrial Syndicate Ltd vs Commissioner of Income-tax, which held that the amalgamated company is a different entity and cannot be taxed for liabilities or investments of the amalgamating companies. The Tribunal upheld this view, agreeing that the amalgamated company could not be taxed for share capital introduced by the amalgamating companies in FY 2008-09.

2. Deletion of Disallowance under Section 14A read with Rule 8D:

The second issue involved the deletion of disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1962. The assessee argued that no disallowance could be made as no exempt income was earned during the relevant year. The Tribunal referenced the Delhi High Court's decision in CIT Vs. Cheminvest Ltd., which held that Section 14A does not apply if no exempt income is received or receivable during the relevant previous year. Consequently, the Tribunal confirmed the CIT(A)'s decision to delete the disallowance since the assessee did not earn any exempt income.

3. Deletion of Addition Related to "Preliminary Expenses Written Off":

The third issue concerned the deletion of an addition related to "Preliminary Expenses written off." The AO disallowed the claim due to the lack of details provided by the assessee. The Tribunal noted that the CIT(A) did not deliberate on this issue while allowing the claim. Therefore, the Tribunal set aside the CIT(A)'s order and remitted the matter back to the AO for a de novo decision, directing the assessee to provide all necessary details and the AO to decide the issue after hearing the assessee in accordance with the law.

Conclusion:

The Tribunal upheld the CIT(A)'s deletion of the addition under Section 68 and the disallowance under Section 14A read with Rule 8D while remitting the issue of "Preliminary Expenses written off" back to the AO for a fresh decision. The appeal by the Revenue was partly allowed for statistical purposes.