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2019 (12) TMI 959 - AT - Income TaxAddition u/s 68 - genuineness of the transaction, creditworthiness identity of the creditors - HELD THAT - We are not inclined to accept to the finding of the ld. CIT(A) with M/s.Rabna Holdings Ltd. is only a mere pass through entity and M/s. Amas Ltd., being incorporated in Bahamas is found to be a tainted entity. All these observations of the CIT(A) are purely without any basis and not supported by any material evidences brought on record. This is a classic case of the CIT(A) disbelieving the information obtained by CBDT, FT TR division from Mauritian tax authorities under exchange of information in terms of Section 90 of the Act and relevant DTAA Article. AR placed on record various case laws in support of its contentions. Since this is purely a factual matter, we do not find it necessary to look into those case laws as in our considered opinion, assessee had duly established three necessary ingredients of Section 68 of the Act of facts and on merits duly supported by all documentary evidences. In view of the aforesaid observations, we direct the ld. AO to delete the addition made in the sum of ₹ 155 Crores u/s.68 of the Act. Accordingly, the ground Nos.1 to 4 raised by assessee are allowed. Addition made under the head income from house property in respect of unit No.701 in the building Marvella - HELD THAT - Assessee had genuine intention to let out unit No.701 along with other units in the same premises and derive rental income thereon. But due to circumstances beyond its control, it could not do so till 31/12/2014 in respect of unit no. 701 alone and ultimately the said unit after making certain structural corrections had been let out to Hinduja Healthcare Ltd., from 01/01/2015 onwards and rental income derived thereon. Hence, for A.Y.2014-15, this property was not let out as it was remaining vacant and hence, the annual letting value in terms of Section 23(1)(c) of the Act should have to be determined at Rs. Nil. We direct the ld. AO to determine the Annual Letting Value (ALV) of Unit No.701 at Rs. Nil and delete the addition made thereon. Accordingly, the ground No.5 raised by the assessee is allowed. Disallowance u/s.14A under normal provisions - HELD THAT - From the perusal of the balance sheet, we find that assessee had got sufficient own funds in its kitty and hence, there is no need to make any disallowance of interest under second limb of rule 8D(2) of the rules. Accordingly, by placing reliance on the decision of Hon ble Jurisdictional High Court in the case of HDFC Bank 2018 (1) TMI 883 - ITAT MUMBAI and Reliance Utilities and Power Pvt. Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT we direct the ld. AO to delete the disallowance made under second limb of rule 8D(2) of the rules. With regard to the third limb, we hold that only investments that had yielded exempt income should be considered and the ld. AO is directed to recompute the disallowance under third limb of rule 8D(2) of the rules accordingly. The disallowance made under first limb of rule 8D(2) will remain. Disallowance u/s.14A of the Act r.w.r.8D of the rules while computing book profits u/s.115JB - HELD THAT - Special Bench of Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI had held that the computation mechanism provided in rule 8D(2) of the rules cannot be imported into clause of Explanation-1 to section 115JB (2) of the Act. The Special Bench further held that the disallowance of expenses under Clause f need to be made based on actual expenditure debited to profit and loss account by the assessee by clearly identifying the same for the purpose of earning exempt income. Hence, we deem it fit and proper to remand this issue to the file of the ld. AO for denovo adjudication
Issues Involved:
1. Addition of ?155 Crores towards share capital and share premium under Section 68 of the Income Tax Act. 2. Determination of Annual Letting Value (ALV) for vacant property under Section 23(1)(c) of the Income Tax Act. 3. Disallowance under Section 14A of the Income Tax Act under normal provisions. 4. Disallowance under Section 14A of the Income Tax Act vis-à-vis computation of book profit under Section 115JB of the Income Tax Act. 5. Levying of interest under Section 234A of the Income Tax Act. Detailed Analysis: 1. Addition of ?155 Crores towards Share Capital and Share Premium under Section 68: The primary issue was whether the addition of ?155 Crores towards share capital and share premium under Section 68 was justified. The assessee, involved in real estate development, issued equity shares at a premium to Rabna Holdings Ltd., a Mauritius-based entity. The Assessing Officer (AO) questioned the genuineness, creditworthiness, and identity of the subscriber, particularly focusing on the funds originating from Amas Ltd., a Bahamas-based entity, which was listed in the "Bahamas Leaks." The AO concluded that the funds were suspect and structured, leading to the addition under Section 68. The assessee provided extensive documentation, including tax residency certificates, Foreign Inward Remittance Certificates (FIRC), and approvals from the Reserve Bank of India (RBI). The assessee argued that the funds were genuine, coming from a well-known conglomerate, and the transaction was approved by regulatory authorities. The CIT(A) upheld the AO's addition, citing deficiencies in the documentation and the suspect nature of funds from tax havens. However, the Tribunal found that the assessee had established the identity, genuineness, and creditworthiness of the subscriber. The Tribunal noted that the funds were received through normal banking channels with proper regulatory approvals. The Tribunal directed the AO to delete the addition, concluding that the assessee had duly established the necessary ingredients under Section 68. 2. Determination of Annual Letting Value (ALV) for Vacant Property: The issue concerned the ALV of Unit No.701, which remained vacant throughout the year. The assessee argued that the property was vacant due to structural modifications required to suit the needs of a potential tenant, Hinduja Healthcare Ltd., and hence, the ALV should be considered nil under Section 23(1)(c). The AO applied a fair market value approach, but the CIT(A) accepted the assessee's contention regarding the actual area fit for letting. The Tribunal held that the property was genuinely intended to be let out and remained vacant due to circumstances beyond the assessee's control. The Tribunal directed the AO to determine the ALV at nil under Section 23(1)(c). 3. Disallowance under Section 14A under Normal Provisions: The assessee had disallowed ?3,09,60,385 under Section 14A read with Rule 8D. The AO made further disallowances, but the CIT(A) accepted the assessee's method of netting off interest. The Tribunal directed the AO to delete the disallowance under the second limb of Rule 8D(2), considering the assessee had sufficient own funds, and to recompute the disallowance under the third limb by considering only investments that yielded exempt income. 4. Disallowance under Section 14A vis-à-vis Computation of Book Profit under Section 115JB: The AO disallowed ?4,18,76,669 under Section 115JB. The CIT(A) held that Rule 8D could not be applied for computing book profits and directed a disallowance of 10% of exempt income. The Tribunal remanded the issue to the AO for de novo adjudication in light of the Special Bench decision in Vireet Investments, which held that disallowance should be based on actual expenditure debited to the profit and loss account. 5. Levying of Interest under Section 234A: The assessee did not press this ground, and it was dismissed as not pressed. Conclusion: - The assessee's appeal was partly allowed for statistical purposes. - The revenue's appeal was dismissed.
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