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2017 (1) TMI 571 - AT - Income TaxCapital gain computation - fair market value - reference to DVO - Held that - There is no dispute on the year of taxability by the assessee as well as the tax department. So far as invocation of Section 50C is concerned, the AO was correct in invoking the same. Since Stamp Duty value was more than fair market value, the AO referred the matter to the DVO. Assessee give limited power of attorney in August 2007 to Runwal Developers to represent the matter in the Court. Since the matter was disputed in the High Court the date on which stay was vacated by the High Court is required to be considered as the date of transfer and therefore, the fair market value as on 06/05/2008 is required to be taken for the purpose of Section 50C. Accordingly, AO is directed to recompute the addition u/s. 50C, taking the value at ₹ 13,26,03,000/-. We direct accordingly. Allowance of legal expenditure incurred by Runwal Development for vacating the property after having out of court settlement, while computing the long term capital gains - Held that - As per our considered view even if an assessee exercises his option to substitute the market value of the asset instead of the actual cost price, under Section 55(2)(i), deduction of any type of expenditure whether it is connection with the transfer or in connection with improvement to the capital assets, is allowable. Accordingly, we direct the AO to allow the legal expenses incurred and paid by Runwal Developers, while computing capital gains in the hands of assessee. Disallowance made u/s. 14A read with Rule 8D - Held that - Assessee had invested INR 1,333.10 lakhs in Equity shares from which it had earned exempt income of ₹ 1.66 lacs. The said investments were made out of the Own Fund i.e. Share Capital and Reserves. As of 31 st March 2008, these are stated at INR 13,264.7 lacs and Investment of INR.1333.10 lakhs is only 10.08 % of the Net Worth. As per the decision of Jurisdictional High Courts in case of HDFC Bank Ltd., 2014 (8) TMI 119 - BOMBAY HIGH COURT and Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT if assessee is having sufficient own funds, no disallowance of interest is warranted. We also found that against the exempt income of ₹ 1.66 lakhs the assessee suo-moto worked out the disallowance as per Rule 8D at INR 49,66,962 as against the disallowance of INR 62,87,173 worked out by the AO. Accordingly, we direct the AO to restrict disallowance u/s 14A of ₹ 49,66,962/-. Disallowance under section 37(1) being excess payment of managerial remuneration - Held that - During the year under consideration, Assessee was impacted by the down turn in auto industry with reduced margins and increased finance costs. However, assessee company could still achieve increase in terms of volume mainly on account of various cost saving and other measures taken by these top executives of the company and as such assessee company deemed it appropriate to reciprocate them with the similar bonus as paid in the earlier years which was always well within limits prescribed by the Companies Act,1956. We also found that in respect of Mr. Prakash Kulkami, waiver was granted from recovery of excess remuneration amounting to INR 18,40,868/-. As such, entire amount paid to him was allowed by the MCA and nothing was recoverable. However, AO has disallowed the differential amount of ₹ 47,16,866/- i.e. difference between total remuneration paid to Mr. Kulkami of ₹ 65,57,734 less waiver granted by the MCA amounting to ₹ 18,40,868/-. Since entire amount paid to Mr. Kulkami stands allowed by the MCA, no disallowance can be made u/s 37. However, neither AO nor CIT(A) have properly appreciated all these factual aspects. Thus we set aside the order of the lower authorities and restore the matter back to the file of the AO for deciding afresh, keeping in view our above observations.
Issues involved:
1. Addition under section 145A on Excise Modvat 2. Valuation of property for long term capital gains 3. Deduction for out of court settlement and legal cost 4. Disallowance under section 14A read with Rule 8D 5. Disallowance under section 37(1) for excess managerial remuneration 6. Deduction under section 80IC 7. Disallowance of deduction under section 80IC on other income 1. Addition under section 145A on Excise Modvat: The appellant contested the addition of INR 4,42,01,504 under section 145A on account of Excise Modvat on closing stock of Raw Material and spares. The Tribunal dismissed the ground raised by the assessee, citing previous orders. However, it directed the Assessing Officer to make corresponding adjustments in the opening stock if an addition is made in the closing stock under section 145A. 2. Valuation of property for long term capital gains: The dispute revolved around the fair market value of a plot of land for the purpose of Section 50C. The Tribunal upheld the AO's invocation of Section 50C but directed the AO to consider the fair market value as determined by the DVO on a specific date. The Tribunal emphasized the importance of considering the date of transfer and the value at that time for accurate computation. 3. Deduction for out of court settlement and legal cost: Regarding the legal expenditure incurred by Runwal Developers for vacating the property after an out of court settlement, the Tribunal held that such costs should be considered as part of the cost of improvement while computing capital gains under Section 50C. The Tribunal directed the AO to allow these legal expenses incurred and paid by Runwal Developers. 4. Disallowance under section 14A read with Rule 8D: The Tribunal restricted the disallowance under section 14A to INR 49,66,962, as the appellant had invested in equity shares out of Own Funds and had earned exempt income. The Tribunal relied on precedents and the appellant's suo-moto calculation to determine the disallowance amount. 5. Disallowance under section 37(1) for excess managerial remuneration: The Tribunal considered the excess managerial remuneration paid and the approvals received from the Ministry of Corporate Affairs. It noted that the shareholder approval and disclosure in the audited accounts supported the appellant's claim. The Tribunal directed a fresh assessment by the AO, emphasizing the need to consider all factual aspects and approvals granted by the MCA. 6. Deduction under section 80IC: The Tribunal addressed the exclusion of a sum while granting deduction under section 80IC. The appellant's request for deduction was considered, and the Tribunal provided the appellant with the opportunity to add or amend grounds of appeal if necessary. 7. Disallowance of deduction under section 80IC on other income: The Tribunal dismissed the issue related to the disallowance of deduction under section 80IC on other income as it was not pressed by the appellant's representative during the proceedings. In conclusion, the Tribunal partially allowed the appeal of the assessee, providing detailed reasoning and directions for each issue raised in the appeal.
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