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TMI Blog2018 (12) TMI 1734X X X X Extracts X X X X X X X X Extracts X X X X ..... res of Arvind Ltd. There is no provision under the Act prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. - As per the provisions of section 50CA of the Act, the sale price of shares other than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. - the lawmakers have not brought any mechanism to determine the sale price of quoted shares if sold off-market. Thus it is transpired that the sale price of the quoted shares shall be the price as agreed between two parties if it is sold off-market. Whether this transaction is a colorable device to reduce its future tax liability - Held that:- whenever assessee has two options, any layman will always go for one which reduces its tax liability but to hold that the transaction as a colorable device Revenue needs to see it in entirety, as held by the Hon ble Gujarat high court [ 1995 (12) TMI 12 - GUJARAT HIGH COURT] We are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keeping in mind the future income of the assessee. The above the loss of ₹ 3,50 crores cannot be treated as generated through the use of colrable decvice. - Decided in favor of assessee. - ITA No. 218/AHD/2016, ITA Nos. 247 & 248/AHD/2016, ITA Nos. 1760 & 2857/AHD/2016 - - - Dated:- 31-12-2018 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER And MS MADHIMITA ROY, JUDICIAL MEMBER For the Appellant : Shri Vartik Choksi Ms. Ira Kapoor, A.Rs For the Respondent : Shri S.K. Dev, Sr. D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: These are a bunch of five appeals by the assessee and the Revenue against respective orders of the ld CIT-A out of which the assessee files one appeal and the Revenue files four appeals. Assessment years involved in these appeals are 2010-2011 to 2013-2014. Since issues involved in all these appeals are interconnected with each other, therefore for the sake of convenience we proceed to dispose of all these appeals by way of this common order. 2. First, we take up assessee appeal bearing No. 218/Ahd/2016 pertaining to the assessment year 2010-11. The assessee has raised the following grounds: 1. On the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m ents No. of Shares purchases Purchase Value Price/s Hares Date of Sales No. of share sold Value of Sales Sales value per unit Indexed Cost Profit/ Loss 1 Arvind Ltd 31/03/08 3000000 143407500 47.80 25/03/10 3000000 164489183 28.31 164489183 - 79559183 3.3 The assessee sold these shares off-market at the rate of ₹ 28.31 per share whereas the share price listed on the stock exchange at that relevant time was ₹ 33.30 per share. 3.4 The assessee submitted that during the period from 1st February 2010 to 31st March 2010 there was an average daily quantum of trading of shares in Arvind Ltd for 4,87,085 shares and 9,56,701 shares on NSE and BSE respectively. However, the assessee wanted to sell 30 lacs shares which were almost 6 times more in BSE and 3 time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to learned CIT-A. The assessee before the ld. CIT-A submitted as under: i) The shares were sold off-market to avoid the bulk supply of these shares in the stock exchange otherwise there was very high possibility that the price listed on the stock exchange would have fallen drastically. As a result of the supply of these shares through the stock exchange, the lower circuit would have been triggered by the stock exchange. ii) The impugned loss was not set off against any income till date. Moreover, it was also not possible to predict the future income which would be set off against such loss. Therefore the allegation of the AO that the impugned loss has been generated through the use of the colorable device is baseless. iii)The shares were sold as a matter of commercial expediency. The assessee was free to sell these shares at a rate which, commercially justifies to it. iv) There is no provision under the Act to determine the sale price of the shares, unlike the provisions as specified under section 50C of the Act. 6. However, the learned CIT (A) disregarded the contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference in the price as discussed above. The assessee sold these shares to Shri Sanjay Lalbhai who is the director in assessee company as well as Arvind Ltd. Accordingly, the AO was of the view that the loss claimed by the assessee has been generated through the use of a colorable device. 10.1 Therefore, the same was disallowed. The view taken by the AO was subsequently confirmed by the learned CIT (A). 10.2 Now the controversy arises whether the loss claimed by the assessee in the given facts and circumstances is based on business expediency or it was used as a tool of a colorable device to generate such loss. 10.3 It is an undisputed fact that all the parties which carried out such transaction were identifiable and there was also a consideration among such parties. The limited issue before us is that whether the assessee can sale listed shares off-market at a price lesser than the price listed on the stock exchange. 10.4 The price prevailing on the stock exchange at the relevant time was ₹ 33.30 per share. It is an undisputed fact that among other things the price at the stock exchange is decided by demand and supply of the shares. It means if there is more s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on received or accruing as a result of such transfer. Explanation.-For the purposes of this section, quoted share means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.] 10.8 From the plain reading of the above provision we note that the law was amended to bring the transaction of unquoted sale and purchase of shares under the net of income tax concerning the sale price of the shares. As per the provisions of section 50CA of the Act, the sale price of shares other than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. 10.9 From the above provisions it is clear that the lawmakers have not brought any mechanism to determine the sale price of quoted shares if sold off-market. Thus it is transpired that the sale price of the quoted shares shall be the price as agreed between two parties if it is sold off-market. 10.10 We also note that there is no provision under the head capital gain which empowered AO to determine the fair sale or purchase price of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 71, which observes that the provision would apply only when there was consideration and which consideration actually received was more than the consideration disclosed or declared. Further, onus was on the Revenue to prove under-statement of the said consideration. Section 52 was not meant to apply to tax capital gains on the basis that the assessee might have gained or could have gained a higher price which in fact was not received. Reference can be also made to CITv. Godavari Corpn. Ltd. [1993] 68 Taxman 344/200 ITR 567 (SC) and judgments of this Court in CIT v. Dinesh Jain, HUF [2012] 25 taxmann.com 550/211 Taxman 23/[2013] 352 ITR 629 and CIT v. Gulshan Kumar [2002] 123 Taxman 111/257 ITR 703 (Del). 25. As noted above, Section 52 of the Act was omitted by Finance Act, 1987 with effect from 1st April, 1988. The said provision, therefore, was not applicable in the Assessment Year 1999-2000. We have referred to the aforesaid judgment in K.P. Vearghese case (supra) as this judgment was referred to and distinguished by the tribunal in the impugned order. We have also referred to K.P. Varghese case (supra) to elucidate that the legal ratio propounded with reference to then appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the judgment of the Madras High Court in M.V.Vallipappan and others v. ITO , which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corporation Ltd., and did not have the benefit of the House of Lords's pronouncement in Craven, the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. 11.3 Further, we also note that Hon ble Jurisdictional High Court in case of Banyan And Berry Vs. Commissioner Of Income Tax (222 ITR 831) held that tax planning within the law is permissible and only if any transaction which is reducing the tax liability cannot be regarded as a colorable device. The court also discussed the meaning of colorable device and case of McDowell Co. Ltd vs. Commercial tax officer (supra) in detail. The relevant extract of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is in appearance only, and not in reality, what it purports to be, hence, counterfeit, feigned having the appearance of truth'. So also a device. The context in which the expression device has been used in its ordinary dictionary meaning as per Shorter Oxford Dictionary means 'inneuity, something device, arrangement, plan, contrivance, a plot or a trick. Black's Dictionary refers to device as contrivance, a scheme, trick. Subterfuge - according to ordinary meaning as per the Shorter Oxford English Dictionary - means that to which one refers for escape or concealment. Subterfuge on historical principles means, an article or device to which a person refers in order to escape the force of an argument, an excuse with which conceals a clue. So also the expression dubious refers to a doubtful or of questionable character. That is to say what has been deprecated as tax planning for avoidance of tax are those acts which have doubtful, or questionable character as to their bona fide and righteousness. Not all legitimate acts of a taxpayer which in ordinary course of conducting his affairs a person does and are under law he is entitled to do, can be branded of qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us we feel that had the loss claimed by the assessee been colorable device then, the assessee should have claimed set off of such loss against the income as per the provisions of the Act. As the assessee has not claimed the set off of such loss, we are of the view that the same cannot be held as the result of the colorable device. 11.7 We also note that the purchase and sale of the shares by the assessee of the shares of Arvind Ltd were duly supported with the relevant shreds of evidence which are placed on pages 50 to 53 of the paper book. It is also pertinent to note that the lower authorities did not doubt the details of the purchases and sales of the securities. 11.8 In view of the above, we are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 12. The 2nd issue of the assessee and the first issue in Revenue appeal are interconnected, and the ld. CIT-A passed common order. Therefore, we have clubbed them together for the adjudication and convenience. 12.1 The issue raised by the assessee is that lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the unsecured loan as well as to strengthen the financial position of the company. Accordingly, the shares were subscribed by the assessee at a premium of ₹ 490 per share having the face value of ₹ 10 per share. 12.5 The assessee also claimed that the value of the shares of AKAL as per rule 11UA of Income Tax Rule was determined at ₹ 109.57 per share whereas it has sold shares at ₹ 150.00 per share. 12.6 Assessee in respect of share warrant claimed that it had not exercised his right to acquire the shares against the share warrants because the share price of Arvind Ltd was fallen substantially whereas it agreed to acquire the shares at ₹ 52 per share. Therefore, to avoid further loss due to the reduction in the price of the shares it did not acquire the shares against share warrants. Accordingly, Arvind Ltd forfeited the share warrants issued to the assessee resulting capital loss of ₹ 36,19,050 which was claimed as a short-term capital loss. 12.7 However, the AO was of the view that the loss claimed by the assessee is a colorable device and show caused the assessee vide letter dated 25th February 2013 for its explanation. 12.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the appellant decided not to convert the warrant into shares at a price of ₹ 52 per share which was very high than the price listed at the stock exchange. vi) These warrants were purchased from Sanjay Lalbhai on 29/09/08 @ ₹ 0.09/- per warrant which AO has not doubted. Thus, the warrants were held for 7 months with the intention of conversion but forfeited subsequently when the price of shares was falling. This fact itself proves the commercial expediency of the transaction which the AO doubted by holding the transaction as a colorable device. 14. However, the ld. CIT(A) disregarded the contention of the assessee and held that assessee could not provide any bonafide explanation for selling the shares at such heavy loss to the group concern within 5 days of the purchase of shares. Accordingly, the ld. CIT(A) upheld the order of AO to the extent of ₹ 3,50,00,000/- representing the short-term loss on the sale of shares. 14.1 However, ld. CIT(A) deleted the addition made by AO on account of the transfer of share warrants of Arvind Ltd by observing that had the intention of the assessee to create the loss through these warrants it would not have converted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. 19. We have heard the rival contentions and perused the materials available on records. In the instant case, the assessee has acquired the shares of AKAL at ₹ 500 per share represented by the premium of ₹ 490 and face value of ₹ 10 per share. The assessee acquired these shares on 20th March 2010 which were sold on 25th March 2010 at ₹ 150 per share resulting in total short-term capital loss of ₹ 3.50 crores which was treated by the AO as a colorable device to generate such loss. Accordingly, the AO disallowed the same and added to the total income of the assessee. The view taken by the AO was subsequently confirmed by the learned CIT (A). 19.1 Similarly, the assessee has claimed loss of ₹ 36,19,050 on account of forfeiture of share warrants of Arvind Ltd. As such the assessee did not exercise his right to acquire shares against the share warrants on the due date. Therefore, Arvind Ltd forfeited the amount advanced by the assessee. As per the assessee, such transaction was an extinguishment of his right, therefore, qualify within the definition of the transfer. Accordingly, the value of such extinguishment of right was determined by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary course of business.] 19.4 However, section 50CA is applicable w.e.f. 01st April 2018, therefore, for the assessment year under consideration there was no mechanism under the law to determine the sale price of unquoted shares. Similarly, there is also no provision under the provision of law to determine the price, which should be taken as the purchase cost of a capital asset. 19.5 Further, we also note that there is an amendment under the provisions of section 56(2)(x) of the Act which reads as under: [(x) Where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017, --- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (c) any property, other than immovable property, ----- (A) Without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (B) For a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: 19.6 A plain reading of the above provision reveals that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard and set off in subsequent years. The loss was worked out at (-) ₹ 2,75,83,524/-. We reverse the orders of Assessing Officer and CIT(A) in this regard and hold that the total loss arising on the said transaction can be adjusted against the gain arising on sale of unquoted shares during the year and balance loss can be carried forward and set off against any other gain arising in the subsequent years. 19.8 We also note that in the case tax needs to be levied on the share capital premium is taxable in the hands of the recipient. The share capital premium can be brought to tax under the provisions of section 56(2) or 68 of the Act as the case may be. But there is no provision to tax the investment along with share premium amount in the hands of the payer or investor. It is an undisputed fact that the assessee has invested in AKAL by acquiring the shares at a premium. The act of acquiring the shares at a premium by the assessee does not result in any income in its hands. Thus there cannot be any tax in the hands of the assessee on account of the investment in shares in AKAL at a premium. In this regard, we draw the principles from the order of Mumbai Tribunal in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. 19.10 Thus we hold that the investment made by the assessee at such a high premium and subsequent sale at a loss cannot be the basis holding that such loss is bogus in the given facts circumstances. 20. Now the 2nd controversy arises whether the loss incurred by the assessee on account of the sale of the shares of AKAL is the result of the colorable device used to generate such loss. We want to explain such loss incurred by the assessee with the help of an example. 20.1 Supposing Mr. X acquires 10 shares of ABC Ltd having a face value of ₹ 10 per share at a premium of rupees 490.00 per share in the financial year 2009-10. Accordingly, Mr. X has shown an investment of ₹ 5000 in its balance sheet as on 31.3.2010. On the acquisition of the shares, there is no question of working out any taxable income in the hands of the assessee. Thus the value of the investment shown by the assessee in its balance sheet will certainly be accepted by the Revenue. There cannot be any question of any income in the hands of Mr. X on account of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinent to note that such loss was not set off till the date of the passing of the order by the ld. CIT-A dated 16-11-2015. 20.5 We also note that the assessee acquired the shares at the fag end of the financial year which was sold immediately after the acquisition which resulted in the loss as discussed above, but the same was not set off against any other income. 20.6 In addition to the above, we also note that the assessee could have split the transaction into two financial years by acquiring the shares of AKAL in one year and selling the same in the year of set off of such loss. So that there should not have been any question of any disallowance. On the contrary, the assessee has not done so rather incurred the loss within 5 days from the acquisition of the shares. It is also pertinent to note that the shares were acquired at the fag end of the previous year, and there were few days left for the expiry of such financial year. The assessee could have planned such transaction by splitting into 2 different financial years as it was the matter of few days only. Thus the action of the assessee does not show any malafide intention to use the sale of shares as the colourable devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, Mr. X has shown stock in trade at ₹ 5000 in its books of accounts. Further Mr. X requires to value such stock in trade in the balance sheet as on 31.3.2010 which comes to ₹ 1500.00. Thus there shall be a loss of ₹ 3500 to the assessee which will be allowed to him as a business loss. 21.2 But in case Mr. X classified the shares in its balance sheet as an investment then the loss cannot be allowed to him on account devaluation of the investment at the year-end unless Mr. X sells these. Thus the loss allowable to the trader of shares cannot be disallowed if such shares were held as an investment. But such loss will be allowed only on the sale of such shares. 21.3 We also find support guidance from the order of this Tribunal in the case of DCIT Vs. Orbit Finmark Pvt. Ltd. in ITA 100/Ahd/1999 dated 9/11/2012 wherein it was held as under : 10. After hearing both the parties and perusing the record we find that ld. CIT(A) has given relief to the assessee by holding that the case of the assessee is squarely covered by the Hon'ble Calcutta High Court decision in the case of CIT vs. Smt. Nandini Nopany (230 ITR 679), the relevant portion of which rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the market price were in fact paid by the purchasers, the mere fact that goods were sold at a concessional rate to benefit to purchaser at the expenses of the company would not entitled to income-tax department to assess the difference between market price and price paid by the purchaser as profit of the company. 11. In view of the above and since no contrary decision was cited by the Revenue, we are not inclined to interfere with the order passed by ld. CIT(A) deleting the addition of ₹ 14,14,06,326/- and the same is hereby upheld. This ground of the Revenue is dismissed. 21.4 Further, in almost in a similar case Hon ble Gujarat high court in case of Assistant Commissioner of Income-tax vs. Biraj Investment (P.) Ltd ( 24 taxmann.com 273) held as under: 14. Having thus heard the learned counsel for the parties, we find that the relevant facts are not in dispute. The respondent assessee sold shares of Rustom Mills and Industries Ltd for a sum of ₹ 4,01,000/- on which transaction, the assessee claimed long term capital loss of ₹ 8,38,790/-. During the same period, the assessee also sold certain shares of Rustom Spinners Ltd. and showed long term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of CIT v. Sakarlal Balabhai [1968] 69 ITR 186 (Raj.), a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 19. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/09 400000 Forfeited 1 459950 21.8 It is also pertinent to mention here that AO did not make any addition even after conducting the inquiry for the long-term loss on forfeiture of the warrant of Arvind Ltd as evident from the order of AO itself, but he restrained himself from making any addition. 21.9 AO also alleged that assessee used these transactions as a colorable device to reduce its tax liability. However, we have already decided this in Para 6 of this order while adjudicating the ground no 1, the same principle and facts are applicable in these grounds also. Therefore, AO is not correct in holding that these transactions are used as a colorable device. 21.10 In view of above, we are of the view that the loss incurred by the assessee on account of sale of shares and extinguishment of its right cannot be held as a colorable device. We also note that the loss claimed by the assessee has not been set off against any income till the date of passing the order of the ld. CIT-A. Thus the loss incurred by the assessee cannot be denied merely on the ground that the assessee generated such loss to set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no disallowance of interest expenses could be made. 22.5 The assessee without prejudice to the above also submitted that if the disallowance of interest expense needs to be made then interest expense net of interest income should be considered for disallowance. 22.6 The assessee regarding the administrative expenses submitted that it has claimed expenses to the tune of ₹ 15,07,418.00 only in the profit loss account. The assessee further explained that it has already made disallowance of ₹ 3,25,000/- out of such expenses. Therefore, the assessee claimed that no further disallowance could be made on account of administrative expenses. 22.7 The assessee further submitted that there could not be any disallowance of the administrative expenses exceeding the expenses claimed in the income tax return. As such the assessee claimed that it had claimed the expense of ₹ 15,07,418/- only, therefore, there is no question of making the disallowance of ₹62,02,294/- in respect of administrative expenses. 22.8 However, the AO disagreed with the contention of the assessee and worked out the disallowance of the expenses under section 14A read with rule 8D as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed in Profit Loss Account The Hon'ble Anmedabad ITAT In identical cake of Adani Port Infrastructure Pvt. Ltd, (I.TA No. l383/Ahd/2013) has held as under: Further our attention has also been drawn on the P LI A/c drawn on 31st March, 2008 according to which the assessee has claimed expenditure in respect of filling fees, Demat charges, finance charges etc. as follows: Filling fees 126950 Demat charges 657548 Legal Expenses 48236 Miscellaneous Expenses -- Finance charges 48182348 Preliminary expenses written off 429254. Total 49619556 5,2 As against that the income of the assesses was earned from professional fees of ₹ 6,75,000/-. The assessee had disallowed the aforelisted expenditure as we have noted from the computation of income furnished along with return. On those very facts, the respected coordinate Bench De/W in the case of Gillete Group India (supra) has opined as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed the expenditure actually claimed by the assesses. We, therefore, accept the assessee s contentions that the disallowance made by the Assessing Officer and sustained.by the learned CIT(A) in excess of total expenditure debited to profit loss account was unjustified. Accordingly, we restrict the disallowance to the extent of expenditure actually claimed by the assesses i.e. ₹ 49,04,028/- 5.3 Therefore on merits as wet! we can hold that in such situation a disallowance u/s. 14A cannot exceed the expenditure actually claimed by the assessee. In the absence of any contradictory judgment pieced before us, we hereby respectfully follow the decision of the respected Coordinate Bench and hold that the teamed Commissioner was not justified in invoking the provisions of Section 263 of the Act. The impugned order passed u/s. 263, dated 18,03,2003 is hereby quashed. Grounds raised by the assesses are allowed. 6. In the result, the appeal of the assesses is allowed. Considering the facts discussed herein above, it is observed that disallowance of administrative expenses under Rule 8D(2)(iii) is required to be rrestricted to ₹ 15,07,418 and as Appellant has already made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reads as under : If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A 25.3 Because of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investment in the securities under section 8D r.w.s. 14A of the Act. 25.4 However, we note that the assessee has made the disallowance of the interest expenses for the amount of ₹ 1,47,18,116.00 which was proposed and disallowed by the AO as per the provisions of section 14A read with rule 8D of the Income Tax Rule. Therefore, there remains no dispute for the interest amount disallowed by the AO. Therefore, we do not find any infirmity the order of ld. CIT(A) on account of deletion of interest expenses as discussed above. 25.5 As regards the administrative expenses we note that the assessee has claimed the deduction of ₹15,07,418/- only whereas the AO has made the disallowances of ₹62,02,294/- which is exceeding the actual expenses claimed by the assessee in its income tax return. Therefore we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Account Head Amount Remarks 1 Direct Expenses - - 2 Interest Expenses 1 47 18 116 See note(i) below 3 Other Expenses: 0.5% of Average Investments 3 25 000 Subject to observation pint(ii) below Total 1 50 43 116 Note: (i) In the opinion of the assessee, the disallowance on account of interest in the proportion of Average Investment to Average Assets should be restricted to ₹ 83,90,734/- (i.e Interest Expenditure ₹ 1 99 186/- less Interest income ₹ 1 15 50 452/-) (ii) In the opinion of the assessee, the allowable administrative expenditure comes to ₹ 15 07 419/- as depicted hereunder as against the amount of ₹ 6202295/- as per the computation formulate of the Rule 8D. The Assessee company is of the opinion that the formulae of the Rule 8D in its set of facts is not applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome not includible in total income85. 86 14A. 87[(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred 88 by the assessee in relation to 88 income which does not form part of the total income 88 under this Act.] 87 [(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed 89 , if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] 25.11 A plain reading of the above provisions reveals that the AO before making the disallowance under section 14A read with rule 8D was to record his satisfaction, but in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l issue is decided against the Appellant by the predecessor CIT(Appeals)-VI vide his order dated 23 * May, 2012 wherein he has held as under. I have considered the facts of the case; Assessment Order and Appellant's written submission, The basic fact is that director of the company purchased motor cars in his name and the bills for the said purchase are also in the name of director. Therefore, Appellant Company is not the legal owner of the motor care. For claim of depreciation the two conditions are to be fulfilled namely - Appellant must be owner of the asset and it must: be used for the purpose of Appellant's business. In this case appellant is not the owner since the ownership vests with the directors who are separate entity than the Appellate Company. As regards use of these cars for the purpose of business, the same were not furnished. Therefore, use of car for the purpose of company's business is not established by the Appellant, Although the onus to prove the user of asset was on the Appellant, the same was not discharged either before the Assessing Officer or before the undersigned. Claim of an expense in the company account is not an evidence to prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be allowed. The decisions of other High Court have been considered, in all those decisions the user of asset name/y transport buses, ere., were by the companies and the companies were disclosing the income from hiring those vehicles. The user of asset for me purpose of business was proved in all these cases beyond doubt with the user of asset, dominion and control is also proved. Therefore, claim of depreciation in these cases were a//owed by various high Courts. However, in the Appellant's case use for the purpose of business is not at all proved and the dominion and control also remained unproved, therefore, these decisions do not help the Appellant. Considering the larger bench decision of apex court and the Delhi High Court decision in the case of MM Fisheries private Ltd, the decision of jurisdictional ITAT is not followed which has not considered mess decisions, it is, therefore, held that the depreciation claimed by the Appellant is correctly disallowed by the Assessing Officer. As the entire issue is adjudicated against the Appellant by my predecessor CIT | (Appeals), following the ratio herein above, disallowance made by the Assessing Officer is upheld. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of warrants of Arvind Ltd. 2.The Ld.CIT(A) has erred in law and on facts in directing to restrict the disallowance under section 14A r.w Rule 8D at ₹ 11,82,418 as against ₹ 62,02,294/- made by the AO. 3.The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 17,01,370/- made by AO on account of short charging of interest on the advances given to Radiant Urja Limited. 32. The 1st issue raised by the Revenue is that learned CIT-A erred in deleting the disallowance made by the AO for ₹ 36,19,050.00 on account of forfeiture of warrants of Arvind Ltd. 32.1 This issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For a detailed discussion, please refer to Para number 10 of this order. Hence the ground of appeal of the Revenue is dismissed. 33. The 2nd issue raised by Revenue is that ld. CIT-A erred in restricting the disallowance at ₹ 11,82,418/- under section 14A read with rule 8D of Income Tax Rule against the addition made by the AO ₹ 62,02,094.00 only. 33.1 This issue has already been considered by us while adjudicating the appeal of the assessee in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard, reliance is placed on decision of- (i) Hon'ble Gujarat High Court in the case of CIT V/s Raghuvir Synthetics Limited [ 2013] 36 taxmann.com 275 (Gujarat), the relevant portion of which reads as under: As can be noted from the order of the Tribunal, the Assessing Officer disallowed the interest solely on the ground that the assessee had given interest free loans to the associate concerns, viz., R. R. Family Trust and Sagar Texile Mills and this disallowance, in appeal the CIT (Appeals) deleted by holding that the amount advanced to both R. R. Family Trust and Sagar Textiles Mils were not given during the year under consideration, but the same was given in the earlier years. CIT (Appeals) had also taken note of the fact that there was sufficient funds available with the assessee-respondent on which there was no interest liability that had been incurred. In such circumstances, relying on the case of Torrent Financiers Ltd. (supra), it found that the disallowance was not justifiable. The Tribunal on noting these details, in terms held that there was nothing contrary that could be brought on record by the Department. The assessee's equity share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jarat State Fertilizers and Chemicals Ltd. reported in [2013] 358 ITR 323 [Guj]. Applying the ratio/law laid down by the Bombay High Court in the case of Reliance Utilities and Power Ltd. (Supra) as well as Division Bench of this Court in the case of Gujarat State Fertilizers and Chemicals Ltd. (Supra) to the facts of the case on hand and when it has been found that the assessee was having interest-free funds far in excess of investments and therefore, it can be said that the investments are made out of interest-free funds and therefore, the AO was not justified in making additions and/or making disallowance under Section 36(1)(iii) of the IT Act. Under the circumstances, no error and/or illegality has been committed by the learned IT AT in deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act. No question of law much less substantial question of law arise with respect to deletion of the disallowance made by the AO under section 36(1)(iii) of the IT Act. Considering the facts discussed herein above, addition made by Assessing Officer for ₹ 17,01,370 is deleted. This ground of appeal is allowed. 36. Being aggrieved by the order of ld. CIT-A Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fund. Hence, we do not find any reason to interfere in the order of ld. CIT-A. Accordingly, the AO is directed to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. 38. In the result, the appeal of the assessee is allowed, and the appeal of the Revenue is dismissed. 39. Now coming to the Revenue appeal in ITA 248/AHD/2016, the Revenue has raised the following grounds of appeal. The ld.CIT(A) has erred in law and on facts in directing to restrict the disallowance under section 14A r.w. Rule 8D at ₹ 15,41,073/- as against ₹ 1,00,07,145/- worked out by the Assessing Officer. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 40. The only issue raised by Revenue is that ld. CIT-A erred in restri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that ld. CIT-A erred in deletion the addition of ₹ 1,04,87,720.00 under section 14A read with rule 8D of Income Tax Rules. 43.1 The identical issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion, please refer to Para number 14 15 of this order. As the issue involved is identical to the issue raised in ITA 218/AHD/2016, therefore, respectfully following the same, the ground of appeal of the Revenue is dismissed. 44. The 3rd issue raised by Revenue is that ld. CIT-A erred in deletion the addition of ₹ 10,80,572.00 under section 36(1)(iii) of the Act. 44.1 The identical issue has already been considered by us while adjudicating the appeal of the Revenue in ITA 247/AHD/2016. For detailed discussion, please refer to Para number 26 27 of this order. As the issue involved is identical to the issue raised in ITA 247/AHD/2016, therefore respectfully following the same, the ground of appeal of the Revenue is dismissed. 45. The 4th issue raised by Revenue is that the learned CIT-A erred in deleting the addition made by the AO of ₹97,224/- under section 35D of the Act. 45.1 The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years from the year in which it is incurred. The appellant has not incurred such expenditure in year under consideration but claimed in earlier assessment year. The above claim is allowed by Assessing Officer consistently in earlier assessment years including the assessment year in which it is incurred hence Assessing Officer is not justified in denying such claim in current year. The decision of Hon'ble Gujarat High court in the case of DCIT vs. Gujarat Narmada Valley Co. Ltd. 356 ITR 460 squarely applies to present case. Considering the facts discussed herein above, disallowance made by Assessing Officer for ₹ 97,224/- is deleted. This ground of appeal is allowed. 48. Being aggrieved by the order of learned CIT-A, Revenue is in appeal before us. The learned DR before us relied on the order of AO whereas the ld. AR for the assessee before us reiterated the submission made before the ld. CIT-A and supported his order. 49. We have heard the rival contentions and perused the materials available on record. It is an undisputed fact that the assessee has claimed 1/5th of demerger expenses in the earlier years and there was no disallowance made by the AO in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the bank against the sale made by it through the use of credit card. The assessee explained that in case any sales made through the credit card the payment of the same is credited in its bank account on its due date. But to enhance the financial liquidity, it has taken early payment from the bank before the due date. Accordingly, the bank released the payment to the assessee before the due date after charging certain charges which were termed as credit card commission. The assessee also claimed that such credit card commission is nothing but representing the interest paid to the bank. Therefore, there is no liability for deducting the TDS under section 194H of the Act. 50.2 However, the AO did not agree with the contention of the assessee and treated the same as commission to the bank which is subject to the provisions of TDS. Accordingly, the AO disallowed the same due to non-deduction of TDS and added to the total income of the assessee. 51. Aggrieved assessee preferred an appeal to learned CIT-A, who has deleted the addition made by the AO by observing as under: 8.3 I have carefully considered the Assessment Order and the submission filed by the Appellant. The br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below as favorable to them. 52.1 In the instant case, the commission paid by the assessee against the early recovery from the bank is against the sales made by it through the use of credit card. As per the assessee, such charges paid to the bank are in the nature of bank interest. Therefore, the same cannot be subject to TDS under section 194H of the Act. However, the AO was of the view that the impugned payment is representing the commission paid to the bank. Therefore there has to be the deduction of TDS under section 194H of the Act. However, the view of the AO was subsequently reversed by the learned CIT (A). 52.2 Now the controversy before us arises to decide whether the commission paid against the sales effected through the use of credit card by the customers is liable for deduction of TDS. There is no ambiguity that the banks levy certain charges if the assessee expects payment from the bank before the due date. If we see the nature of the transaction, it is clear that the assessee pays the charges for availing the fund from the bank before the due date. Thus these charges are representing the interest paid to the bank. 52.3 We also note that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 55. The 1st issue raised by Revenue is that ld. CIT(A) erred in deleting the addition made by the AO for disallowing the depreciation amounting to ₹ 8,12,864.00 only. 55.1 The identical issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion please referred to Para number 19 of this order. As the issue involved is identical to the issue raised in ITA 218/AHD/2016, therefore respectfully following the same, the ground of appeal of the Revenue is dismissed. 56. The 2nd issue raised by Revenue is that ld. CIT-A erred in deletion the addition of ₹ 1,54,26,525.00 under section 14A read with rule 8D of Income Tax Rules. 56.1 The identical issue has already been considered by us while adjudicating the appeal of the assessee in ITA 218/AHD/2016. For detailed discussion please referred to Para number ..... X X X X Extracts X X X X X X X X Extracts X X X X
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