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2021 (9) TMI 1172 - AT - Income TaxAddition on account of CCM Client Code Modification and commission earned for providing accommodation entry to the persons out of the Group - CIT-A deleted the addition - HELD THAT - We find an identical issue had come up before the Tribunal in the case of Group Company namely Jaypee Financial Services Ltd 2019 (12) TMI 820 - ITAT DELHI as held nothing on record to suggest that the CCM was done at the behest of the assessee. Further, there is no addition or adverse view taken in the case of the other person with whose accounts presumption is being made that transaction has been shifted.Admittedly there is nothing on record that the revenue has gone to the broker to find out as to who is the beneficiary of the CCM. Further the transactions have not been held to be non genuine.Client Code Modification is akin to penny stock is concerned, we do not find any merit in the said arguments. In case of the penny stocks shares are purchases at a very low price and were sold immediately after one year at astronomically high price just to claim the benefit of deduction u/s. 10 (38) or as the case may be. However, in case of CCM there is no such purchase at low price and sale at high price and it is on account of some punching error which has been rectified subsequently. So no infirmity in the order of the Ld. CIT(A) in deleting the addition made on account of Client Code Modification and commission earned for such accommodation entry. Addition u/s 36(1)(iii) - interest bearing funds have been diverted for interest free loans to Director of sister concern - assessee could not establish that the interest bearing funds borrowed by it is wholly and exclusively used for the purpose of business and there is no commercial expediency in giving interest free loan to its sister concerns - CIT(A) deleted the addition on the ground that the transactions with the 03 clients are business transactions and not loan transactions - HELD THAT - As relying in own case 2020 (1) TMI 858 - ITAT DELHI we find no infirmity in the order of the Ld. CIT(A) in deleting the addition made by the A.O. under section 36(1)(iii). Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted the disallowance - HELD THAT - We find merit in the alternate contention of Learned Counsel for the Assessee that the disallowance under section 14A cannot exceed the actual dividend income received in view of the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT - Since the assessee in the instant case has received dividend income of only ₹ 60,718/-, therefore, the disallowance under section 14A is restricted to ₹ 60,718/-. The order of Ld. CIT(A) is accordingly modified and the ground raised by the Revenue on this issue is partly allowed. Addition on account of sale of shares of United Stock Exchange - CIT(A) deleted the addition on the ground that the sale price of share on 17.09.2010 sold by USE to assessee and M/s Richa Global Exports Pvt. Ltd, @ ₹ 1/-, which is not a related party transaction - HELD THAT - Sole motive behind selling the shares was to obtain permission from SEBI for online trading and the shares were sold in a haste, hence the same were sold at par. USE was to formally commence its operations on 20.09.2010 and till 19.09.2010 the assessee had no option but to reduce the shareholding to 5% since the operation of USE could not commence under the above circumstances as assessee was holding 22.50 Crore shares in excess of 5% before 19.09.2010. Thus assessee has no option but to sell entire excess shareholding of 22.50 Crore on or before 19.09.2010 at par. BSE has the right of first refusal i.e. if BSE can buy at the same price and further more BSE has the right to bring new buyer of their choice to buy shares at the offered price, then these could not be sold to other parties. Therefore, there cannot be any scope of understatement of selling price as the same was in knowledge of BSE and doubting this transaction would also raise questions on BSE. We find all the shares allotted/transferred were approved by the board of USE and BSE. That is, the shares are transferred with prior approval of board, hence there is no hidden transaction etc. We, therefore, find no infirmity in the order of the Ld. CIT(A) in deleting the addition made by the A.O. Addition on account of allotment of shares of NCDEX at concessional rate by invoking the provisions of Section 56(2)(viia) - Addition on the ground that provisions of Section 56(2)(viia) are applicable on the allotment of shares of NCDEX at concessional rates - CIT(A) deleted the addition on the ground that Rule 11U and 11UA of Income Tax Rules, have come into force by Notification no. 23/10 dated 08.04.2010, which came into effect from 01.10.2009 - HELD THAT- Shares issued to SRSL and shares issued to NCDEX, are on different footing and cannot be compared. The purchase of shares by the assessee is not from related party. The submission of the Learned Counsel for the Assessee that shares are issued to the assessee-company @ ₹ 59/- per share as against Fair Market Value of ₹ 42.12 as per Rule 11U and 11UA could not be controverted by Ld. D.R. Since, the Ld. CIT(A) while deleting the addition has passed a detailed order giving reasons which the Ld. D.R. could not controvert, therefore, we find no infirmity in the order of the Ld. CIT(A) in deleting the addition. We, therefore, uphold the order of the Ld. CIT(A). Addition being income under section 92 as interest on loan from A.E. - CIT-A deleted the addition - HELD THAT - CIT(A) correctly deleted the addition on the ground that ALP of interest on foreign currency loan, is to be determined at US Dollar LIBOR, for the year under consideration since loan given to A.E. is in US Dollar, for which, assessee will determine the ALP, and file its claim before the A.O. If the A.O. finds that the claim as per US Dollar LIBOR, in terms of decision of Hon ble Delhi High Court in the case of Cotton Naturals (I) Pvt. Ltd. 2013 (6) TMI 174 - ITAT DELHI , the addition to the extent will be made and the excess of interest now determined, will be deleted. Appeal of revenue dismissed.
Issues Involved:
1. Client Code Modifications (CCM) 2. Disallowance under section 36(1)(iii) 3. Disallowance under section 14A read with Rule 8D 4. Addition under section 56(2)(viia) 5. Sale of shares of United Stock Exchange 6. Addition under section 92 of the I.T. Act, 1961 Detailed Analysis: 1. Client Code Modifications (CCM): The A.O. made an addition of ?11,97,21,030/- on account of CCM, alleging that the assessee shifted profit and loss among group companies to reduce tax liability. The Ld. CIT(A) deleted the addition, stating that the CCM transactions were within permissible limits and no adverse inference was drawn by SEBI or the exchange. The Tribunal upheld the CIT(A)'s decision, referencing a similar case involving the group company, Jaypee Financial Services Ltd., where the Tribunal found that CCM is an internal matter of the broker and the transactions were genuine. 2. Disallowance under section 36(1)(iii): The A.O. disallowed ?1,97,54,804/- under section 36(1)(iii), arguing that interest-bearing funds were diverted for interest-free loans to related parties. The Ld. CIT(A) deleted the addition, stating that the transactions with the alleged clients were business transactions, not loans. The Tribunal upheld this decision, referencing its own ruling in the assessee's case for A.Y. 2013-2014, where it was established that the advances were for business purposes and commercially expedient. 3. Disallowance under section 14A read with Rule 8D: The A.O. made a disallowance of ?67,98,422/- under section 14A read with Rule 8D, arguing that expenses were incurred to earn exempt income. The Ld. CIT(A) deleted the addition, stating that the dividend income was incidental to the main business of trading in shares. The Tribunal partly allowed the Revenue's appeal, restricting the disallowance to the actual dividend income of ?60,718/-, in line with the Delhi High Court's judgment in Cheminvest Ltd. 4. Addition under section 56(2)(viia): The A.O. added ?113,31,36,000/- under section 56(2)(viia), arguing that the shares of NCDEX were allotted at a concessional rate. The Ld. CIT(A) deleted the addition, stating that the fair market value of the shares, as per Rule 11U and 11UA, was ?42.12 per share, which was less than the allotment price of ?59 per share. The Tribunal upheld the CIT(A)'s decision, noting that the shares were issued at a price higher than the fair market value. 5. Sale of shares of United Stock Exchange: The A.O. added ?45 crores, estimating the sale value of shares at ?3 per share instead of ?1 per share. The Ld. CIT(A) deleted the addition, stating that the shares were sold at par value due to regulatory requirements and there was no evidence of any amount received over the declared sale value. The Tribunal upheld the CIT(A)'s decision, noting that the shares were sold in compliance with SEBI guidelines and approved by the USE and BSE boards. 6. Addition under section 92 of the I.T. Act, 1961: The A.O. added ?2,02,72,428/- as interest on loans to the foreign subsidiary, arguing that the interest should be computed at 13.5% p.a. The Ld. CIT(A) deleted the addition, stating that the ALP of interest on foreign currency loans should be determined at US Dollar LIBOR. The Tribunal upheld the CIT(A)'s decision, referencing its own ruling in the assessee's case for A.Y. 2013-2014, where it was established that the ALP should be based on LIBOR rates for foreign currency loans. Conclusion: The Tribunal upheld the Ld. CIT(A)'s decisions on most issues, providing relief to the assessee by deleting substantial additions made by the A.O. The Tribunal's rulings were consistent with its previous decisions and relevant judicial precedents.
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