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TMI Blog2019 (6) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 56(2)(viib) and no other section. This transaction will never fall in any of the heads of income as per Section 14. Therefore, in our considered view, AO is not correct in bringing this capital investment as income of the assessee after satisfying himself that assessee s case does not fall u/s. 56(2)(viib). Therefore, the addition made by AO is deleted. Disallowance u/s 14A - valuation difference of mutual fund - real dividend income - HELD THAT:- We notice that assessee made investment in mutual funds and the value as on Balance Sheet date stood at ₹ 25,10,99,520/-. The difference between actual investment and value as on Balance Sheet was declared as dividend income. This is not actual receipt of dividend during this year, it is only difference in valuation of investment. The position will keep changing every year. The same will be recognized in the Profit and Loss A/c. The investment value may increase compared to previous year status or decrease depending upon the performance of the fund. The actual increase in value will be determined only when it is transferred or matured. This income recognised by assessee is not real dividend income and the real dividend i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29/01/2015 M/s Sanofi Synthelabo (India) Ltd. 406504 10 1220 4065040 495934880 29/01/2015 M/s Apollo Health Lifestyle Ltd. 596 10 1220 5960 727120 16/12/2014 -do- 210900 10 990 2109000 208791000 29/11/2014 -do- 3000000 10 Nil 3000000 300 Total 3618000 36180000 7054533 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded that from the Rule 11UA it is clear that the fair market value of the shares has to be determined in the prescribed manner and the assessee is not at liberty to determine its own price with the intending purchaser after due negotiations and deliberations, there should be some basis to evaluate the shares of the company at a premium, it cannot be evaluated by imaginary/surmises. On one side it has evaluated its shares by following DCF method, while, on the other side it is stating that it need not follow the valuation report. 2.9 According to the AO, the assessee has neither adopted the value of ₹ 741/- reported in the valuation report given by the chartered accountant under DCF method as it was evaluated by its own company nor adopted the method prescribed under the IT Act i.e., Rule 11UA. On the other hand, it has taken a stand that the company is free to determine its own price with the intending purchaser after due negotiations and deliberations. It shows that the assessee company has scant respect for the legislation passed by the Government of India. The intention of the legislation for determination of fair market value of the shares is to curb t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 AHILL 3,11,496 3,21,14,960 20,95,18,120 Total 3,61,80,000 70,54,53,000 4.1 The assessee submitted that clause (b) item (B) to Section 2(18) is that where the shares of the company, carrying not less than 50% of the voting power have been held by and were throughout the relevant previous year beneficially held by (a) government, or(b) the statutory corporation, or (c) a widely held company or a wholly owned subsidiary of such widely held company. The assessee submitted that Apollo Hospitals Enterprise Limited (AHEL) is a parent company which is a public company listed on the Bombay Stock Exchange (Security Scrip : APOLLOHOSP) and the National Stock Exchange (Security Scrip: APOLLOHOSP). Since Apollo Hospitals Enterprise Limited (AHEL) is a listed company, the same is a company in which public are substantially interest within the meaning of Section 2(18)(b)(A) of the Act. The assessee submitted that M/s. Apollo Health and Lifest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (India) Limited, appellant charged share premium of ₹ 1220/- while on majority share purchase in case of M/s. Apollo Health Life Style Limited is Nil. The Assessing Officer has raised the calculation/valuation of share premium with actuals with regard to profit before taxes and found there is a huge gap between projections and actuals available of the company account. The valuation report submitted by BSR Associates also has lacunae and specifically based on financial information and underlying management assumptions provided by the management for the valuation analysis of the company'. For the purpose of this engagement and report, we have made no investigation and assume no responsibility for the title to, or liabilities against ASCL. ..... valuation carried out by us is solely for regulatory /nonfinancial reporting purposes and it is the prerogative of the parties to the transaction to decide the transaction price . The above extracts from the findings of the Assessing Officer and the submissions made by the BSR Associates pin points the finding that a) The calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a sum of ₹ 25 crores was invested in the mutual funds during the year. At the year end, the fair market value of the investment showed the value at ₹ 25,10,99,520/-.Thus the investment yield unrecognized income of ₹ 10,99,520/- which was offered for taxation. No expenditure has been incurred to earn this income, hence no amount qualifies for any disallowance under this section. However the same was included under the head income from business and profession instead of being offered for taxation under the head income from other sources. The Assessing Officer relying upon the Honourable Bombay High Court's decision in the case of CIT Vs. Godrej Boyce Mfg. Co. Ltd. vis DCIT (2010) reported in 328 ITR 81 disallowed expenditure incurred in relation to earning the exempt income and by applying Rule 8D worked out the total disallowance at ₹ 6,27,749/-. 7. When the assessee preferred an appeal before the CIT(A), the CIT(A) upheld the disallowance made by the AO u/s 14A of the Act. 8. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: General grounds: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in facts, in disallowing expenses incurred and allowable by invoking section 14A of the Act. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 8.1 Ground Nos. 1 2 are general in nature. 9. As regards ground Nos. 3 to 8 regarding addition of receipt in the nature of share premium, the ld. AR submitted that the year under consideration is the first year of operation and assessee-company is the second level subsidiary of M/s. Apollo Hospitals Enterprises Ltd., (AHEL). At the time of issue of shares, assessee-company was a 99.99% subsidiary of M/s. Apollo Health and Life Style Ltd., (AHLL) which is subsidiary of AHEL. Since AHEL is a public limited company and by virtue of Section 2(18)(vii) of the Act, the assessee-company also a company in which public are substantially interested. Hence, the provisions of Section 56(2)(viib) will not attract. This fact was also acknowledged by the Assessing Officer in his order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with income of every kind, which does not fall in any of the head of income A E and also which is not to be excluded from the total income under this Act. The important thing is, it should fall within the definition of income u/s 2(24) of the Act. At the same time, sub-section (2) of section 56, deals with specific income which is not income as per section 2(24) but specifically brought under the definition of income by the Legislature. Therefore, the income which cannot be brought to tax under section 56(2), under specific head, AO cannot bring to tax even u/s 56(1). As held in the case of Mercantile Corporation Vs. CIT, 83 ITR 700 (SC), where there is a specific head for the income in question and specific section providing for the head, this residuary section cannot be called in aid . Similarly, when there is specific provision introduced by the Legislature to bring the specific transaction as income in section 56(2)(viib) because the transaction of issue of shares is capital in nature but under the circumstances as mentioned in above section, this transaction will be considered as income. 11.2 In the given case, the fact is clear that assessee has received s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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