2017 (2) TMI 122 - HC - Income Tax

Addition made under Section 14A - application of Rule 8D - Held that - Rule 8D of the Rules is only applicable from 2008-09 as held by this Court in Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ). So far as the said objection is concerned with regard to own funds available with the assessee and the amounts invested in tax free investments, it is very pertinent to note that the Revenue does not dispute the figures as indicated in the balance sheet for year ending 2004 and 2005 and relied upon by the Tribunal. It is also not disputed that the same were a part of the record. Therefore the mere fact that attention was not specifically invited to these figures before the Assessing Officer would not by itself justify the Tribunal ignoring the same while dealing with an appeal under the Act. Substitute the full value of consideration received on sale of shares by its fair market value in the subject Assessment Year - Held that - In the present facts the Revenue accepts the documents but only substitutes the consideration. Therefore, the issue is whether such substitution of full consideration received by fair market value of the asset is permissible. As held by the Tribunal at the relevant time there was no power vested in the authorities under the Act to substitute a full value of consideration received for sale of shares by fair market value in respect of stocks and shares. The power to substitute full consideration with fair market value in respect of shares came into the statute only on introduction of Section 50D with effect from 1st April, 2013. Moreover, such a power under Section 50D of the Act is only to be exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined. Appeal admitted (iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the addition of ₹ 13,25,00,000/made under Section 56(1) of the Income Tax Act being the share application money fortified without appreciating the fact that the transactions of forfeiture was clearly manipulated in a way to benefit the assessee company without any incidence of tax? (iv) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the addition of ₹ 4,05,36,593/made under Section 56(1) of the Act being the value of the leasehold right received by the assessee from its associate concern at NIL value, without appreciating the fact that the transactions was manipulated in a way to benefit the assessee company without any incidence of tax?

Issues involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Rejection of fair market value of unlisted shares for working out long term capital gain.
3. Addition of share application money under Section 56(1) of the Income Tax Act.
4. Addition of leasehold right value received at NIL value under Section 56(1) of the Act.

Analysis:

Issue 1: Disallowance under Section 14A of the Income Tax Act
The Tribunal allowed the respondent-assessee's appeal against the disallowance under Section 14A by applying Rule 8D of the Income Tax Rules. It relied on previous court decisions to hold that Rule 8D was not applicable for the assessment year in question. The Tribunal found that the respondent had sufficient own funds to make investments, thus disallowing the interest paid on borrowed funds. The Revenue's objection regarding the figures not being brought to the Assessing Officer's notice was dismissed, as the figures were part of the record. The court concluded that the application of Rule 8D was not necessary for the assessment year, and the objection raised did not give rise to a substantial question of law.

Issue 2: Rejection of fair market value of unlisted shares
The Tribunal held that the Assessing Officer cannot substitute the 'full value of consideration' received on sale of shares with the 'fair market value' in the subject assessment year. The court noted that there was no provision in the Act allowing such substitution, except for land and buildings under Section 50C. The Tribunal also referred to Section 50D, which was not applicable for the relevant assessment year. The Revenue's argument of transactions being between group companies was dismissed, as genuineness was not disputed. The court held that at the relevant time, authorities did not have the power to substitute consideration received for the sale of shares with fair market value, and such power only came into effect with Section 50D introduced in 2013.

Issue 3: Addition of share application money
The Tribunal deleted the addition of share application money under Section 56(1) of the Income Tax Act, stating that the transactions were manipulated to benefit the assessee without any tax incidence. The court noted that the Revenue did not dispute the figures in the balance sheet, and the objection did not give rise to any substantial question of law.

Issue 4: Addition of leasehold right value received at NIL value
The Tribunal deleted the addition of the leasehold right value received at NIL value, stating that the transactions were manipulated to benefit the assessee without tax incidence. The court held that the objection did not raise a substantial question of law.

The appeal was admitted on substantial questions of law related to the addition of share application money and the leasehold right value. The Tribunal was directed to keep the papers and proceedings available for court review.

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