2022 (8) TMI 861 - AT - Income Tax

Disallowance u/s 14A - strategic investments - expenditure incurred to earn the exempt income - HELD THAT - We find that, in terms of decision of Hon ble Apex Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT exclusion of strategic investment is not correct. Therefore, the impugned order stand modified to that extent. The other directions as given by Ld. CIT(A) do not require any interference on our part. This ground stand partly allowed. Long Term Capital Loss on Sale of Shares - CIT-A deleted the addition - HELD THAT - The sale of shares through buy-back route as per extant rules could not be said to be a colorable device. The cited decision of Hon ble High Court of Bombay in Capgemini India P. Ltd. 2015 (4) TMI 1069 - BOMBAY HIGH COURT clearly support this proposition. We also concur with other observations of Ld. CIT(A), in the impugned order. Accordingly, we find no reason to interfere in the impugned order, on this issue. The grounds thus raised stand dismissed.

Summary

Issues involved:
1. Disallowance u/s 14A
2. Computation of Profit on sale of shares
3. Long-Term Capital Loss on buy back of shares

Detailed Analysis:

1. Disallowance u/s 14A:
The appeal by Revenue for Assessment Year 2009-10 challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance under Rule 8D for investment in subsidiary/associated companies. The Revenue contended that the investment in subsidiary companies should be included for disallowance under Rule 8D(2). The Tribunal, citing the decision of the Honorable Apex Court, modified the order to exclude strategic investments. The Tribunal partially allowed this ground.

2. Computation of Profit on sale of shares:
Regarding the Long-Term Capital Loss on the sale of shares, the Revenue challenged the computation of Long-Term Capital Gains based on the sale price of shares by the assessee compared to another shareholder. The Tribunal found that the sale was not a colorable device and upheld the decision of the Commissioner of Income Tax (Appeals). The Tribunal dismissed the grounds raised by the Revenue in this regard.

3. Long-Term Capital Loss on buy back of shares:
The issue of Long-Term Capital Loss on the buy back of shares involved the sale of shares through a buy-back route. The Tribunal noted that the buy-back of shares as per extant rules could not be considered a colorable device. Citing relevant case law and decisions, the Tribunal agreed with the Commissioner of Income Tax (Appeals) and dismissed the grounds raised by the Revenue on this issue.

In conclusion, the Tribunal partly allowed the appeal based on the detailed analysis and adjudication of the issues involved. The order was pronounced on 17th August 2022.