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2019 (8) TMI 400 - AT - Income TaxAddition u/s 68 and u/s 56(2)(viib) - assessee received share application money / share premium from its Managing Director - as alleged assessee-company paid money to M/s Kothari Credit India Pvt. Ltd. or to Shri Mahendra Sethia, which was invested in the form of share premium in the assessee-company - HELD THAT - No material is available on record to suggest that either the assessee-company paid money to M/s Kothari Credit India Pvt. Ltd. or to Shri Mahendra Sethia, which was invested in the form of share premium in the assessee-company. In the absence of any material evidence, this Tribunal is of the considered opinion that there cannot be any addition on presumption and assumption under Section 68. Moreover, as rightly submitted by the Ld.counsel for the assessee, the AO made addition u/s 56(2)(viib) in respect of the so-called excess amount. In other words, the AO has admittedly treated the transaction as genuine and also admitted the capacity of the person for making investment in the shares of the assessee-company. Therefore, the addition made u/s 68 cannot stand in the eye of law. Judicial satisfaction means the Assessing Officer has to take into consideration the well established method of valuation of shares including the assets as explained in Explanation 2 to Section 56(2)(viib). It cannot be arbitrary. The AO has to take note of the judicial and established principles in arriving at his satisfaction. In this case, the AO has not found any specific fault in rejecting or not satisfying with the valuation made by the assessee. When the AO has not found any defect or error in the valuation of shares by the assessee-company, it may not be necessary to apply the method of valuation prescribed under Rule 11UA of the I.T.Rules. Therefore, this Tribunal is unable to uphold the valuation made by the AO under Rule 11UA of the Income-tax Rules, 1962. Orders of both the authorities below are set aside and the addition made both under Section 68 of the Act and under Section 56(2)(viib) of the Act is deleted. Disallowance u/s 40A(2)(b) - Assessee-company paid lease rent to its Managing Director - HELD THAT - The assessee admittedly paid ₹ 15 Crores to its Managing Director Shri M. Kiran Kumar for taking the property on lease at 124, Usman Road, T. Nagar, Chennai. The monthly lease rent was ₹ 15,00,000/-. The assessee admittedly paid lease advance of ₹ 15 Crores. As per Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, the rental premium shall be equivalent to 3 months monthly rent. Moreover, Section 30 of the said Act exempts certain type of buildings as enumerated therein. Therefore, the AO shall reconsider the matter in the light of the provisions of Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. Accordingly, the orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer. The AO shall re-examine the matter and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. Similarly, in respect of the property taken on lease at No.122, Usman Road, T. Nagar, Chennai also needs to be reconsidered as above. Accordingly, orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer. Disallowance u/s 36(1)(va) - delay in the payment of employees contribution of PF/ESI to the respective account - HELD THAT - As in CIT v. Industrial Security and Intelligence India (P.) Ltd. 2015 (7) TMI 1063 - MADRAS HIGH COURT found that if both the employees and employer s contributions were paid to the respective account within the due date provided for filing the return of income, it has to be allowed. Therefore, orders of both the authorities below are set aside and the entire issue is remitted back to the file of the AO. The AO shall re-examine the matter and bring on record the actual date of payment made by the assessee to the Government account and thereafter decide the issue afresh. - Appeals filed by the assessee are allowed for statistical purposes.
Issues Involved:
1. Addition under Section 68 of the Income-tax Act, 1961. 2. Addition under Section 56(2)(viib) of the Income-tax Act, 1961. 3. Disallowance under Section 40A(2)(b) of the Income-tax Act, 1961. 4. Disallowance under Section 36(1)(iii) of the Income-tax Act, 1961. 5. Disallowance under Section 36(1)(va) of the Income-tax Act, 1961. Issue-Wise Detailed Analysis: 1. Addition under Section 68 of the Income-tax Act, 1961: The assessee received share application money/share premium from its Managing Director and M/s Kothari Credit India Pvt. Ltd. The Assessing Officer (AO) treated the share premium as unexplained credit under Section 68 due to improper valuation of shares. The Tribunal noted that the AO relied on a statement recorded under Section 131 from Shri Mahendra Sethia, which lacked evidentiary value as authorities under Section 131 cannot administer an oath. The Tribunal excluded this statement and found no material evidence to support the addition under Section 68. The Tribunal also referenced a Madras High Court judgment in the assessee's own case, which stated that if the identity and payment channel are clear, the receipt towards share capital or premium remains valid. Consequently, the addition under Section 68 was deleted. 2. Addition under Section 56(2)(viib) of the Income-tax Act, 1961: The AO added the excess share premium received by the assessee under Section 56(2)(viib), claiming it exceeded the fair market value as per Rule 11UA. The Tribunal observed that the AO did not consider the second limb of Section 56(2)(viib), which includes valuation based on intangible assets like goodwill and patents. The Tribunal found no specific fault in the assessee's valuation and determined that the AO's application of Rule 11UA was unnecessary. Therefore, the addition under Section 56(2)(viib) was deleted. 3. Disallowance under Section 40A(2)(b) of the Income-tax Act, 1961: For the assessment year 2013-14, the assessee paid lease rent to its Managing Director, which the AO found excessive and disallowed under Section 40A(2)(b). The Tribunal noted that the fair rent must consider location, amenities, and market value. The AO did not follow the procedure under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. The Tribunal remitted the matter back to the AO for re-examination in accordance with the law. 4. Disallowance under Section 36(1)(iii) of the Income-tax Act, 1961: For the assessment year 2014-15, the assessee paid a refundable advance to its Managing Director for leasing a property. The AO disallowed the interest on the borrowed amount, claiming it was diverted. The Tribunal noted the need to reconsider the matter under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. The issue was remitted back to the AO for fresh examination. 5. Disallowance under Section 36(1)(va) of the Income-tax Act, 1961: For the assessment year 2014-15, there was a delay in the payment of employees' contributions. The Tribunal referenced a Madras High Court judgment, which allowed such payments if made within the due date for filing the return of income. The Tribunal remitted the issue back to the AO to verify the actual payment dates and decide accordingly. Conclusion: The Tribunal set aside the additions and disallowances made by the AO under Sections 68, 56(2)(viib), 40A(2)(b), 36(1)(iii), and 36(1)(va) of the Income-tax Act, 1961. The matters were remitted back to the AO for re-examination and fresh decision in accordance with the law, after giving a reasonable opportunity to the assessee.
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