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TMI Blog2019 (3) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... f the share applicant has also been completed u/s. 143(3) of the Act and no adverse comment has been made by the A.O. in that case. The balance sheet of the share applicant shows ample source of funds. Hence, the A.O.’s negative observation about share applicant’s availability of funds is factually incorrect. The funds obtained by the share applicant appearing in its balance sheet cannot be disregarded. No adverse observation is noted in the assessment order of the said share applicant. Hence, the veracity of share applicant’s fund position remains undoubted by the A.O. of the said concern itself. It is not the case that the A.O. had wanted some information from the share applicant and which the assessee or the share applicant failed to provide. - decided in favour of assessee Disallowance u/s 14A r.w.r. 8D - sufficiency of non interest bearing own funds - Held that:- Submissions of the assessee with regard to the availability of the non interest bearing own funds being more than investments made are found to be correct. Hence, no disallowance is justified with regard to disallowance u/s. 8D(2)(ii). As regards the disallowance u/s. 8D(2)(iii) is concerned, the A.O. has computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciating the fact that the formula prescribed under Rule 8D does not suggest that net interest has to be considered, while computing the disallowance U/S.14A of the I.T. Act, 1961 . v. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in estimating the disallowance u/s,14A at ₹ 50,380/-, being 20% of the exempt income of ₹ 2,51,899/- without appreciating the fact that in the presence of Rule 8D formula, estimation of disallowance is not justified and legal . Apropos addition for share capital: 3. Brief facts of the case are that the assessee e-filed its return of income on 29.09.2012 declaring loss at ₹ 14,39,508/-. The same was processed u/s 143(1) of I T Act. The case was selected for scrutiny and notice u/s 143(2) of I.T. Act dated 02.09.2014 was issued and duly served on the assessee. Subsequently, notice u/s 142(1) was issued along with questionnaire and duly served upon the assessee. The assessee is engaged in the business of trading in shares and securities. The Assessing Officer while passing the assessment order, an amount of ₹ 4,01,988/- on account of disallowance u/s 14A r.w. Rule 8D an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to prove the genuineness of the transaction. The assessee had filed the I.T. Acknowledgement Receipt, Balance Sheet as on 31.03.2013, Bank Statements and Assessment Order u/s 143(3) of the I T Act, 1961 for A.Y 2013-14 of M/s. Illusion Securities (P) Ltd to prove the credit worthiness of such shareholder. The Assessing Officer had not disputed the correctness of the above stated documents furnished on record which reasonably establishes the identity and genuineness of the transaction and proves the credit worthiness of the shareholder. Further, once the Assessment Order u/s 143(3) of the I T Act, 1961 for the same year i.e. A.Y. 2013-14 is passed in case of M/s. Illusion Securities (P) Ltd (shareholder), then correspondingly the transaction cannot be held as in-genuine in case of the appellant. 6. Considering the above, the ld. CIT(A) observed as under: 5.5 I have carefully considered the rival submission and facts of the case and the prevailing legal preposition. The Assessing Officer made the addition u/s 68 of share capital of ₹ 43,00,000/- i.e. 4,30,000 shares of ₹ 10/- and ₹ 3,87,00,000/- as share premium during previous year which at a premium of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer treated the share application money received from M/s. Illusion Securities Pvt Ltd of ₹ 4,30,00,000/- as accommodation entry and made the addition u/s.68 of I.T.Act. 5.8 The appellant had discharged its onus to prove the transaction. The Assessing Officer had not brought any contrary documentary evidence on record to disprove the transaction and involvement of unaccounted money belonging to the appellant. It is observed that Assessing Officer did not even issue the notice u/s 133(6) of the I T Act, 1961 to the shareholder or to the banker of such shareholder to verify the source of funds. Thus, Assessing Officer treated the share application money received from M/s. Illusion Securities Pvt Ltd of ₹ 4,so,oo,ooo/- as accommodation entry and made the addition u/s.68 of I.T. Act. The appellant had furnished adequate documents to prove the Identity, Genuineness and Credit Worthiness of the Share-Holder, the Assessing Officer is not justified in simply brushing aside such documents, thus the addition made in assessment u/s 68 of the IT Act, 1961 needs to be deleted. 5.11 The Learned ARs further argued that the addition u/s 68 cannot be made of the share premium m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to prove the source of money in the hands of shareholder or the persons making payment of share application money. If company identified the persons from whom money has been received, then section 68 cannot be involved in the hands of company. 7. Thereafter, he referred to several case laws and granted relief to the assessee by holding as under: 5.18 Respectfully following the Jurisdictional High Court Bombay's decision in the cases namely; (a) Vodafone India Services Pvt. Ltd. Vs Union of India Others (2014) 368 ITR 01 (Bombay HC) (b) CIT Vs. M/s Gagandeep Infrastructure (Pvt) Ltd. (Appeal No.613 of 2014) (c) CIT Vs. Green Infra Ltd (I T Appeal No. 1162 of 2014) 146 DTK (BomBAY) 262 (2017) (A.Y. 2011-12 ) I am of the considered opinion that share premium amount received by the appellant is in the nature of capital and same cannot be assessed u/s 68 of the IT Act and therefore addition made by the AO is deleted. 5.19 In view of the above discussion and also following the judicial decisions stated above, I hold that the share premium money received by appellant is of capital nature and does not constitute a revenue receipt, thus addition u/s 68 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was confirmed by the ITAT vide order dated 14.02.2018. The ld. Counsel of the assessee submitted that the facts and circumstances are identical. Hence, the ld. Counsel of the assessee submitted that in identical circumstances, the ITAT in assessee's own case has upheld the ld. CIT(A) s order deleting the addition for share premium from the same concern. He submitted that addition for the present year has rightly been deleted by the ld. CIT(A). In this regard, the learned counsel of the assessee further placed reliance upon the order of this ITAT in the case of Dy. CIT vs. Piramal Realty Pvt. Ltd. (in ITA No. 2317/Mum/2017 vide order dated 16.11.2018). 11. Upon careful consideration we find that the assessee in this case has taken shares along with share application from the sister concern. The assessee has submitted all the necessary details to establish the creditworthiness, identity and genuineness of the transaction. The documents submitted are as under: a) PAN card b) CIN Master data (ROC) c) Share application Forms d) Board Resolution e) Confirmation of Account f) Balance Sheet of shareholder g) Bank statement of shareholder h) I.T. Acknowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition for share capital and share premium from the same sister concern has upheld the order of the ld. CIT(A) deleting the said addition. 16. We further note that the ITAT in the case of Piramal Realty Pvt. Ltd. (supra) has held as under: 14. The Ld. Counsel for the assessee made another argument that the power of carrying valuation is not envisaged by the Legislature for the purpose of Section 68 of the Act. He argued that, wherever the Legislature intended to give the power to determine the value to the AO, it either prescribes Rule for valuation of a particular thing or vested upon the AO the power to refer to the Valuation officer. The power of AO to make a reference to the Valuation Officer is contained in section 142A of the Act. Section 142A of the Act as it stood for the year under consideration reads as under: 142. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 6911 or the value of any bullion, jewellery or oilier valuable article referred to in section 69A or section 6911 or fair market value of any property referred to in sub-section (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) of the Act redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time. In view of the matter, the Ld Counsel explained that it is a settled law that where two views are possible, the view favorable to the assesse should be adopted as held by Hon ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192. In view of the above facts and circumstances, we are of the view that the assessee has discharged its onus by adequately disclosing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 of the Act and no addition can be made on this account. Hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. This issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against earning this exempt income and hence it called for disallowance u/s 14A r.w.r. 8D. the AO has recomputed the disallowance of ₹ 3,14,339/- u/r 8D(2)(ii) and ₹ 87,649/- u/r 8D(2)(iii) and thus made disallowance of ₹ 4,01,988/- u/s 14A of the IT Act. 21. Upon the assessee s appeal, the ld. CIT(A) noted the following submissions: The appellant has not made any investment in shares for the purpose of earning dividend income. The appellant has used the borrowed funds from IIFL (NBFC) for the purpose of earning divided income. Interest of ₹ 3,35,376/- has been paid for day to day running of the business of the company. We have earned the dividend income on the shares and securities held as stock in trade only, 6.2 Without prejudice to the above, the appellant has earned the total interest of ₹ 20,74,233/- and paid ₹ 13,83,441/-. Thus, the appellant has received the interest income of ₹ 6,90,792/-, on net basis. The appellant has relied upon the decision of Mumbai ITAT in the case of Morgan Stanley India Securities Pvt. Ltd., vs. ACIT, Yatish Trading Co. P. ltd. vs ACIT and also CIT vs. Reliance Utility and Power Ltd. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred only to the extent they are relatable to the earning of taxable income and (Hi) to allow the exemption in respect of the net income. The expression in relation to used in section 14A of the Act has both direct significance as well as indirect significance having regard to the context in which it is used. 6.4 The provisions of section 14A do confirm the disallowance, whereas if we consider the formula in computing the disallowance u/r 8D(2)(ii) and (iii) needs Average Investment which in the case of the stock-in-trade yielding Nil disallowance. To overcome such situation and the fact that the appellant has not even identified Direct Expenses to earn the dividend income and the fact that the computation in accordance with the formula given in Rule 8D does not yield any figure due to mathematical concepts it is imperative to make disallowance on estimate basis which is incurred by the appellant to earn the dividend income. The estimation should be fair and justifiable to earn the exempt income and fulfill the requirement of provision of section 14A, In view of the above facts and circumstances of the case, I hereby estimate 20% of the exempt income ₹ 2,51,899/- i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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