2019 (7) TMI 293 - AT - Income Tax

Addition of undisclosed income u/s 69B - difference between market price per share and shares acquired - addition u/s 56(2)(viia) though not invoked by AO - share were purchased from directors - HELD THAT - Nothing on record would demonstrate any exchange / flow of funds, out of books, between the assessee and the sellers. It is trite law that no additions could be made merely on the basis of assumptions, conjectures or surmises. We find that the primary onus to substantiate the transactions was duly fulfilled by the assessee and the same had shifted to revenue to dislodge assessee s claim. In our opinion, nothing has been brought on record by Ld. AO to prove that any excess price was paid by the assessee to the sellers. Therefore, in the absence of any evidences establishing receipts payments outside regular books of accounts, the provisions of Section 69B could not be invoked. So far as the submissions made by Ld. CIT-DR is concerned, we find that, firstly the aforesaid provisions of Section 56(2)(viia) has not been invoked by Ld.AO and secondly, these provisions do not apply in case of receipts of shares for inadequate consideration by the assessee, of a company not being a company in which the public are substantially interested as defined in Section 2(18) . However, we find that shares being transacted by the assessee are not of a private company but of a public listed company which is evident from the fact that Ld. AO proceeded to tax the difference of listed price and the acquisition price u/s 69B. Therefore, the said provisions, in our opinion, do not apply to the factual matrix. Accrual of benefit to the assessee u/s 28(iv) - HELD THAT - We again find that the provisions of Section 28(iv) have not been invoked by Ld. AO to make the impugned additions. Secondly, the allegations of Ld. AO stem from the suspicion that the assessee has paid the differential amount of ₹ 28/- per share to the seller. Under these circumstances, nothing would suggest that the assessee has received certain benefit during the course of its business so as to attract the provisions of Section 28(iv) since it is not the case of Ld. AO that the assessee had received certain benefit by way of purchase of shares of higher value at lower prices. - ground of revenue s appeal stands dismissed. Disallowance u/s 14A - HELD THAT - We find that it is undisputed fact that the assessee has not earned any exempt income during the year. This being, so no disallowance u/r 8D(2)(iii) would be warranted. So far as the disallowance u/r 8D(2)(i) is concerned, we find that the aforesaid payment of ₹ 0.50 Lacs has been paid by the assessee to SEBI for certain statutory compliances. These payments, being more in the nature of statutory mandatory payments, could not be said to be incurred in relations to making-off of investments. - ground of revenue s appeal stands dismissed. Set off of losses - disallowance of interest u/s 36(1)(iii) - assessee alternatively submitted that borrowed funds had direct nexus with investment in debenture since the moneys were borrowed hence allowable u/s 57(iii) - HELD THAT - it emerges that the assessee s alternative claim of deduction u/s 57(iii) has been accepted by Ld. first appellate authority and the same has attained finality in view of the fact that the revenue is not in further appeal before us. Therefore, in the given situation, once the claim was accepted u/s 57(iii), the Ld. CIT(A), in our opinion, was not justified in not allowing the inter-head set-off of losses under the head Income from other sources against business income, which otherwise was allowable to the assessee in terms of Section 71(1). Therefore, Ld. AO is directed to allow set-off of losses under the head Income from other sources against business income. The assessee s appeal stands allowed

Issues Involved:
1. Set-off of losses under the head ‘Income from Other Sources’ against ‘Income from Business & Profession’.
2. Deletion of addition made by the AO on account of acquisition of quoted shares below market price.
3. Deletion of disallowance made by the AO u/s 14A of the Act read with Rule 8D.
4. Interest disallowance u/s 36(1)(iii).

Issue-wise Detailed Analysis:

1. Set-off of losses under the head ‘Income from Other Sources’ against ‘Income from Business & Profession’:
The assessee contended that the CIT(A) erred in not allowing the set-off of losses under ‘Income from Other Sources’ against ‘Income from Business & Profession’. The CIT(A) had accepted the claim for deduction u/s 57(iii), and thus, the resultant losses should be eligible for set-off. The Tribunal directed the AO to allow the set-off of losses under ‘Income from Other Sources’ against business income to the extent of ?6,48,911, as it was allowable under Section 71(1).

2. Deletion of addition made by the AO on account of acquisition of quoted shares below market price:
The AO had added ?23.17 Crores as undisclosed income u/s 69B, alleging that the shares were acquired below market price. The CIT(A) deleted the addition, noting that the shares were acquired from promoters at face value, and the transactions were within group entities. The CIT(A) relied on decisions from the Hon’ble Bombay High Court and the Supreme Court, which held that mere purchase of shares at a price lower than market value cannot be taxed as a benefit or perquisite under Section 28(iv). The Tribunal upheld the CIT(A)’s decision, stating that no evidence was provided to show any payment over and above the recorded amount, and mere assumptions could not justify the addition.

3. Deletion of disallowance made by the AO u/s 14A of the Act read with Rule 8D:
The AO had disallowed ?96.18 Lacs u/s 14A, applying Rule 8D, despite the assessee not earning any exempt income during the year. The CIT(A) deleted the disallowance, referencing the Hon’ble Bombay High Court’s decision in Delite Enterprises, which stated that no disallowance is warranted if no exempt income is earned. The Tribunal agreed, noting that statutory payments to SEBI could not be considered as expenses related to investments, thus upholding the CIT(A)’s deletion of the disallowance.

4. Interest disallowance u/s 36(1)(iii):
The assessee suffered an interest disallowance of ?160.11 Lacs u/s 36(1)(iii). The CIT(A) accepted the assessee’s alternative claim for deduction u/s 57(iii), as the borrowed funds had a direct nexus with investment in debentures. The CIT(A) allowed the deduction but did not permit the set-off of the resultant loss against business income. The Tribunal directed the AO to allow the set-off of losses under ‘Income from Other Sources’ against business income to the extent of ?6,48,911, as the claim u/s 57(iii) was accepted.

Conclusion:
The revenue’s appeal was dismissed, and the assessee’s appeal was allowed. The Tribunal directed the AO to allow the set-off of losses under ‘Income from Other Sources’ against business income to the extent of ?6,48,911. The Tribunal upheld the CIT(A)’s decisions on the deletion of additions u/s 69B and disallowance u/s 14A.

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