9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (5) TMI 834 - AT - Income TaxDisallowance u/s 14A - DR had submitted that the assessee had non-current investment and had received during the assessment year a dividend - whether the CIT(A) was right in restricting the disallowance? - HELD THAT - As disallowance made by the revenue authority cannot be more than the expenditure incurred by the assessee for earning the exempt income. For the above said purposes, we may fruitfully rely upon the decision of the Special Bench in the case of ACIT Vs. Vireet Investment P. Ltd. 2017 (6) TMI 1124 - ITAT DELHI - Decided against revenue. Addition u/s 56(2)(viia) - shares received by the assessee company on account of amalgamation, for a price lower than the Fair Market Value (F.M.V) of the shares - CIT-A deleted the addition - HED THAT - In the present case, due to the scheme of amalgamation, the assessee received the shares of 11 amalgamating companies along with underline properties including the shares of various companies and in consideration thereof, had allotted the number of shares at face value of Rs.10/- to various shareholders of the said 11 amalgamating companies. In this way / practice, not only, the transfer of 11 amalgamating companies have taken place but also the transfer of unlisted / listed shares / preferential shares below the market rate have taken place. The argument of the ld.AR is that there is no transfer of shares in the eyes of law, as there is absence of transferor and transferee and there is no receive of shares, whatever transfer of receive of shares happened that was in pursuance to the statutory approved scheme of amalgamation done by the Hon ble High Court can not be accepted and is rejected. The reading of section 56(2)(viia) makes abundantly clear that there is no requirement of transfer as argued by the ld. AR. The requirement under the provision is the receive of any property being the share of a company without or inadequate consideration which is less than the Fair Market Value. Admittedly, the assessee is a company in which public are not substantially interested. Further, the assessee had received any property being shares of a company during the previous year relevant to the assessment year below the fair market value. CIT(A) has misunderstood and misread the statutory provisions mentioned in section 56(2)(viia) of the Act. The ld.CIT(A) has wrongly concluded that the word receive used in section 56 only happens on account of transfer. CIT(A) had held that the amalgamation is not a transfer and therefore, it will not form part of section 56(2)(viia) of the Act. CIT(A) without applying his mind had come to the conclusion that the shareholding and shareholders were identical and even post amalgamation, the holders were the same and the shareholding was in the same ratio. The ld.CIT(A) has lost his sight to the provision of section 56(2)(vii) which contemplates that the receipt of any property being shares of an unlisted company in which public are not substantially interested by a company in which public are not substantially interested. In the present case, the assessee received the property being the shares of the amalgamating companies along with the shares held by these amalgamating companies. As mentioned hereinabove, the assessee company had received the property being the shares of amalgamating companies in which the public are not substantially interested, without consideration or a consideration which is less than the fair market value of such shares. In view of the above, the conclusion drawn by the ld.CIT(A) was without any basis. Decided in favour of revenue. Whether the amount charged by the AO on account of receive of shares, was in accordance with law or not ? - Admittedly, the ld.CIT(A) has not decided the grounds of the assessee on merit and had granted the relief to the assessee on technical ground. As is clear from our finding, hereinabove, the Assessing Officer was within his jurisdiction to invoke the provision of section 56(2)(viia), therefore, we deem it appropriate to remand back the present appeal to the file of ld.CIT(A) with a direction to decide the grounds raised by the assessee on merit. Appeal of Revenue is partly allowed for statistical purposes.
Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act. 2. Applicability of Section 56(2)(viia) to shares received by the assessee company on account of amalgamation. 3. Protective addition made by the Assessing Officer. 4. Determination of the fair market value of shares received under amalgamation. Issue-wise Comprehensive Details: 1. Deletion of Disallowance under Section 14A: The Revenue contended that the CIT(A) erred in restricting the disallowance under Section 14A to Rs. 14,00,000/-. The Assessing Officer had disallowed Rs. 82,72,958/- by invoking Rule 8D. The CIT(A) found that the total expenditure debited by the assessee was Rs. 68,26,342/-, out of which Rs. 49,94,540/- and Rs. 4,30,245/- were already disallowed by the assessee. Thus, the CIT(A) restricted the disallowance to Rs. 14,01,557/-. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance cannot exceed the expenditure incurred by the assessee for earning exempt income. The Tribunal relied on the decision of the Special Bench in ACIT Vs. Vireet Investment P. Ltd., which held that disallowance should be limited to the actual expenditure incurred. 2. Applicability of Section 56(2)(viia) to Shares Received on Amalgamation: The Revenue argued that the CIT(A) erred in holding that the shares received by the assessee company on account of amalgamation do not attract provisions of Section 56(2)(viia). The CIT(A) concluded that the amalgamation did not constitute a transfer under Section 47(vi) and hence, Section 56(2)(viia) was not applicable. The Tribunal disagreed with the CIT(A), stating that Section 56(2)(viia) applies to any property being shares received without or for inadequate consideration. The Tribunal noted that the assessee received shares of amalgamating companies below the fair market value, and such transactions are not excluded by the proviso to Section 56(2)(viia). The Tribunal held that the Assessing Officer was correct in invoking Section 56(2)(viia). 3. Protective Addition Made by the Assessing Officer: The Assessing Officer made a protective addition of Rs. 55,92,49,590/- and Rs. 5,14,80,879/- under Section 56(2)(viia) for the assessment year 2014-15, stating that the substantive addition would be made for AY 2012-13. The Tribunal upheld the protective addition, stating that protective or precautionary assessment is justified under the provisions of the Act. The Tribunal noted that the year of chargeability is the year in which the assessee received the properties, i.e., AY 2014-15. The Tribunal emphasized that the protective addition can be made even if the substantive addition is not made in the same year. 4. Determination of Fair Market Value of Shares Received under Amalgamation: The CIT(A) did not address the merits of the fair market value determination, as he granted relief on technical grounds. The Revenue contended that the CIT(A) should have decided the grounds raised by the assessee on merit. The Tribunal remanded the issue back to the CIT(A) to decide on the merits of the fair market value determination. The Tribunal directed the CIT(A) to consider the legal and factual submissions made by the assessee and, if necessary, seek a remand report from the Assessing Officer. Conclusion: The Tribunal partly allowed the Revenue's appeal, upholding the protective addition under Section 56(2)(viia) and remanding the issue of fair market value determination to the CIT(A) for a decision on merits. The Tribunal dismissed the Revenue's ground regarding the deletion of disallowance under Section 14A.
|
