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TMI Blog2016 (12) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for the present year available there is no income earned by the assessee under the head ‘dividend’ which is exempt u/s 10. In the case of Cheminvest Ltd. (2015 (9) TMI 238 - DELHI HIGH COURT ) cited by the ld. AR of assessee, it was held by the Hon’ble Delhi High Court that where the assessee had not earned any exempt income, no disallowance can be made u/s. 14A. Since there is no actual receipt of exempt income by the assessee in the present year, we are of the considered opinion that no disallowance can be made u/s. 14A as per this judgment of Hon’ble Delhi High Court rendered in the case of Cheminvest Ltd. (supra) - Decided against revenue Disallowance made by the AO u/s. 36(1)(iii) - Held that:- we find that a categorical finding has been given by the CIT(A) that the advances given to M/s. Asianet T.V. Holding (P) Ltd. of ₹ 79.40 crores and to M/s. India Radio Ventures of ₹ 10.2 crores and ₹ 3.23 crores and the remaining advances given to M/s. Azure Services Pvt. Ltd. and some more advance to other group companies were all given as part of larger business strategy in the ordinary course of business and hence these advances were given for business expedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the dispute is regarding receipt of loan advanced by the lender company Jupiter Capital Pvt. Ltd. ₹ 5432.90 lakhs and Hindustan Infrastructure Project & Engg. Pvt. Ltd. ₹ 2569.43 lakhs and as per the AO also, the assessee is not a shareholder in any of these two companies. Under these facts, the judgment of Hon’ble Karnataka High Court rendered in the case of DCIT v. Sri Rajiv Chandrashekar (2016 (4) TMI 310 - KARNATAKA HIGH COURT) is squarely applicable wherein it was held by the High Court that if the assessee is not a shareholder in the lender company, addition cannot be made u/s. 2(22)(e) of the I.T. Act. - ITA No.792/Bang/2013, ITA No.963/Bang/2013 - - - Dated:- 3-11-2016 - SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER For The Assessee : Smt. Sheetal Borkar, Advocate For The Revenue : Ms. Neera Malhotra, CIT(DR) ORDER Per A.K. Garodia, Accountant Member These are Cross Appeals filed by the assessee and revenue which are directed against the order of CIT (Appeals) I, Bangalore dated 28.03.2013 for the assessment year 2009-10. 2. In the assessee s appeals, the grounds raised by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of acquisition of shares is most important and relevant. In this regard, she submitted a copy of Board resolution in the Board meeting held on 3.9.2007 and it was pointed out that as per the Board s resolution, it was decided that this investment in shares of these two companies viz., M/s. Fedex Finance Ltd., and M/s. Fedex Equity Ltd. of ₹ 500 lakhs and ₹ 650 lakhs respectively is being made as stock-intrade at a price of ₹ 500/- per share at a premium of ₹ 490/- per share. Thereafter, it is submitted that the balance sheet of the assessee s company for the year ending 31/3/2008 is available at page 13 of PB and this investment of ₹ 11.50 crores was shown as inventory and it was valued at cost whereas investment of ₹ 63.01 crores was shown as investment, as can be seen on page 12 of PB. She also drew attention to page 15 of Paper Book i.e., Schedule V being significant accounting policies and it was pointed out that as per this accounting policy, the assessee was valuing long term investments at cost and investment in shares of body corporate held in inventory were valued at cost or net realisable value, whichever is less. Thereafter, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be applied to the legal transaction under which a person by the machinery of application and allotment becomes a share holder in the company. 5. As against this, learned DR of revenue supported the orders of the authorities below: 6. We have considered the rival submissions. First of all, for ready reference, we reproduce Para 4.4 of the order of ld. CIT(Appeals) hereinbelow:- 4.4 I have considered the facts and submissions made by the appellant. The AO disallowed the said loss of ₹ 11,27,000/- claimed in the profit and loss account for the following reasons - i) that it is not a business loss as there was no object in the Memorandum of Association of the appellant company. ii) the loss claimed is of a capital nature and cannot be allowed u/s 37 of the Act. iii) the transaction is a colourful device and not eligible for deduction. As regards the first aspect, it may be seen that the appellant's main activity is advertisement and publicity. The appellant is not in the business of purchase and sale of shares. Further the shares were not acquired by a normal purchase by the appellant company. M/s Asianet TV Holdings(P) Ltd. gave advances to M/s Fed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution, these shares were acquired as stock-in-trade. This is not in dispute that shares are in fact acquired by the assessee at ₹ 500 per share in the FY 2007-08 and were shown by the assessee in its balance sheet as on 31.3.2008 as inventory and thereafter in the present year, these shares are sold by the assessee at a lower price resulting into loss in question and there is no valid reason or basis indicated in the order of CIT (A) to say that it is capital loss particularly when the loss itself is being accepted by the CIT(A) and the Revenue is not in appeal against this decision of CIT(A) that the loss in question is a fact. 8. The only objection of the ld. CIT(A) is that it is not a business loss but capital loss and the reasoning of the CIT(A) is this that the assessee has not acquired the shares under normal business transaction so that the same can be taken as stock-in-trade. We find no merit in this objection of CIT(A) in view of this fact that shares were acquired by the assessee as per Board Resolution dated 3.9.2007, as per which, the shares in these two companies are to be acquired as stock-in-trade. Hence, on this issue, we reverse the order of the CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is opposed to law and the facts and circumstances of the case. 2. The CIT (A) erred in deleting the disallowance made under section 14A read with rule 8D (2)(ii) for the reason that the investment was not made during the year without appreciating the fact that the when the investment of ₹ 63 cr in share capital and in group companies was made the company did not have either own or surplus funds to make such investments. 3. The learned CIT (Appeals) erred in allowing the appeal on the issue of disallowance made under section 14A read with rule 8D (2)(ii) for the reason there was no evidence on record to show that any borrowed funds were utilised for the said investments year without appreciating the fact when the interest expense incurred cannot be directly attributed to any particular income or receipt, provisions of rule 8D(2)(ii) automatically become applicable. 4. The learned CIT (Appeals), erred in not appreciating that the borrowings are neither directly attributable to borrowings specifically used for tax exempt incomes or receipts, nor is directly attributable to borrowings specifically used for taxable incomes or receipts and as such, provisions of rule 8D(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f joint venture with the star group without appreciating the fact that the balance sheet did not show any investment regarding the joint venture 11. The learned CIT (Appeals) erred in holding that loans and advances of ₹ 25,69,43,380 from Hindustan Infrastucture Project and Engineering Limited cannot be treated as deemed dividend without appreciating the fact that the amounts were advanced by Hindustan Infrastucture Project and Engineering Limited to the assessee company and the company Jupier Capital Pvt Ltd is a common shareholder both in the assessee company and the lender company. 12. The Learned CIT(A) has erred in law in not appreciating that section 2(22)(e) of the I.T.Act, 1961 covers concerns having common shareholder(s) with substantial beneficial interest in both the companies / concerns that is payer and payee. 13. The Learned CIT(A) has erred in law in not appreciating that section 2(22)(e) of the I.T.Act, 1961 also refers to payment to any concern wherein such shareholder is common having a substantial interest in the company as well as payee concern. 14. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of ₹ 1,45,83,467/- u/s . 36(1)(iii) r.w.s. 37(1) of the Act. The A.O made this disallowance on protective basis on the ground that the same was considered for disallowance u/s 14A of the Act r.w. Rule 80 of I.T. Rules. It may be mentioned here the disallowance u/s 14A has been deleted by vide para no.s 4.4 4.5 of this order. The A.O also stated that the loans to the sister concerns were given out of borrowed funds and there was no commercial expediency. The A.O also relied on certain judicial decisions in this regard. 6.5. The amount of advance given to M/s Asianet T.V Holding (P) Ltd. is ₹ 79.49 crores. The appellant paid this amount as a share application amount to consolidate the appellants holding in the said company. As the shares were yet to be allotted the shares can not be treated as investment in shares. Since it is a share application amount no interest is receivable in the normal course. This investment is made by the appellant company out of commercial expediency. Even though, the borrowed monies are utilized for this purpose the payment of interest cannot be denied. Therefore, no interest can be disallowed. An amount of ₹ 10.2 crores was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 238-ITR-939(Mad. H.C) iv. Abhishek Industries Ltd. (286-ITR-1 (P H H.C) The decision in the case of M/ s. Continental Construction Ltd. (195- ITR-81) is with regard to 80HHB 80O of the Act and the A.O quoted an observation in the context of finance charges in respect of the said section hence the said section is not applicable to the present facts of the case. The decision in the case of Hindustan Conductors P. Ltd. (240-ITR-762(Bom. H.C) is on different facts and distinguishable. In the said case there is a finding that the appellant advanced money to sister concern for extra commercial consideration and the Hon'ble High Court stated that the interest paid for extra commercial consideration is disallowable and allowed to the extent which is paid for business purpose u/s 36(1)(iii) of the Act. In the instant case there is no evidence to show that there were any extra commercial considerations. The decision in the case of K. Somasundaram Bros. (238-ITR-939(Mad. H.C) is also on different facts. In the said case there was a sufficient proof to show diversion of borrowed funds. The Hon'ble High Court held that the borrowed funds were used for business and some time la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and submissions made by the appellant and the reasons given by the A.O in this regard. The A.O disallowed the above sums u/s 40A(2) of the Act. She also disallowed the same on an alternative reason that the said expenditure was not incurred for the exclusive business purpose u/s 37 of the Act. The major amount of the disallowance is ₹ 6,06,65,000/- paid to M/ s. Hindustan infrastructure Project and Engineering Ltd (HIPE). It is submitted by the appellant that the said amount was paid for the management and consultancy services. The appellant produced the copy of the invoice for making the said payment and also the agreement entered with M/s. HIPE on 11.01.2008. However, the A.O rejected the evidence and resorted to the disallowance on the ground that the appellant paid the said amount for reducing the tax liability. The appellant seriously contested the A.O s reasons stating that M/s. HIPE was the tax paying company during that period. The A.O also stated that M/ s. Jupiter capital Pvt. Ltd. which was the share holder of the appellant company had also share holding in M/s. HIPE hence presumed that the transactions was only for reduction of tax liability. The A.O s presumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... native to each other. But in instant case there is no such finding by the A.O. Alternatively the disallowance u/s 37 of the Act is also not justifiable. There is no material on record to show that the expenditure was in the nature of capital expenditure or not for the purpose of business. The Expenditure is covered under the normal provisions of the Act. Therefore, the disallowance can not be confirmed u/s 37 of the Act. Hence, the disallowance is deleted. 19. From the above Para from the order of CIT (Appeals), we find that the disallowance made by the AO was on this basis that the amount paid is excessive and he invoked the provisions of section 40A(2) of the I.T. Act and he also held that this is to be disallowed u/s. 37 also because as per AO, this expenditure was not utilized exclusively for the purpose of business. 20. The ld. CIT (Appeals) has given a categorical finding that section 40A (2)(b) can be invoked when the AO feels that such expenditure is excessive or unreasonable having regard to fair market value of goods , services or facilities for which the payment is made and since, the AO has not given a categorical finding that the expenditure in question is exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen from the copies of the invoices of page no. s 25 26 of the assessment order that the said payments were paid as a consultancy fees for setting joint venture with a star group. The evidence was rejected without any contrary material on record. There was nothing on the invoices submitted by the appellant to show that the said payments were for acquisitions of shares. The appellant incurred the above expenditure for the purpose of business of joint venture with the star group. Therefore, the said payments were not in the nature of capital hence, can not be disallowed u/s 37 of the Act. 24. As per Bill of Lexicon Finance Ltd. available at page 197 of PB, this amount is paid towards consultation fee for setting up a joint venture with Star Group and there is no mention about any purchase of shares. In para 10.4 of the assessment order also, it is noted by the AO that no investment has been shown in the balance sheet of assessee regarding any joint venture. In the same para, he has given a finding that the said expenditure is in the nature of capital expenditure and it is related to cost of acquisition of shares. This finding of AO is without any basis that this expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies are Jupiter Capital Pvt. Ltd. and Hindustan Infrastructure Projects and Engg. Pvt. Ltd. and on page 27 of assessment order, the AO himself has noted the shareholding pattern of these two companies and as per the same, the assessee is not a shareholder of these two companies and therefore, as per the judgment of Hon ble Karnataka High Court, no addition can be made u/s. 2(22)(e) of the Act in respect of these advances from these two companies. 27. We have considered the rival submissions. We find force in the submissions of the ld. AR of assessee and we find that the dispute is regarding receipt of loan advanced by the lender company Jupiter Capital Pvt. Ltd. ₹ 5432.90 lakhs and Hindustan Infrastructure Project Engg. Pvt. Ltd. ₹ 2569.43 lakhs and as per the AO also, the assessee is not a shareholder in any of these two companies. Under these facts, the judgment of Hon ble Karnataka High Court rendered in the case of DCIT v. Sri Rajiv Chandrashekar (supra) is squarely applicable wherein it was held by the High Court that if the assessee is not a shareholder in the lender company, addition cannot be made u/s. 2(22)(e) of the I.T. Act. Respectfully followin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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