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TMI Blog2019 (12) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 3 investments which yielded dividend income during the year. We have noted that the assessee has raised this plea, for the first time before us and has strongly relied upon the decision of Mumbai Tribunal in Sajjan India Ltd vs ACIT [ 2017 (12) TMI 47 - ITAT MUMBAI ] wherein it was held that mandate of Act is to tax real income and tax can only be levied under authority of law. Even if disallowance fall below disallowance u/s 14A offered by assessee in the return of income, revenue cannot charge tax on income, which never was income of assessee chargeable to tax. Therefore, we deem it appropriate to restore this part of disallowance u/r 8D(2)(ii) to the file of the AO to examine the issue afresh in the light of above referred decision and pass the order afresh in accordance with law. Disallowance u/s 56(2)(viia) - AO treated the investment in shares as income under section 56(2) (viia) - HELD THAT:- We have noted that the assessing officer during the assessment not provided the valuation (FMV) arrived by him to the assessee. During the first appellate stage the assessee furnished the working of the FMV of the shares of these two entities, however, the AO despite granting opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the assessee. Hence, we accept this submission of the ld. AR for the assessee and allow the ground of appeal raised by the assessee. - Shri Pawan Singh Judicial Member And Shri Rajesh Kumar Accountant Member For the Assessee : Shri Kirit Kamdar Avin Jain AR s For the Revenue : Shri Amit Pratap Singh Sr DR ORDER PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeals are directed against the order of Commissioner of Income Tax [CIT(A)]-21, Mumbai dated 16-032016 which arises from assessment order dated 24-03-2014 passed under section (u/s) 143(3) for AY 2011-12. 2. The assessee, in its appeal, has raised the following grounds of appeal:- 1.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the disallowance made by the Assessing Officer under section 14Aas per rule 8D of the Income-tax Rules to the extent of ₹ 2,25,86,1387-. 1.2 In doing so, the Commissioner of Income-tax (Appeals) erred in the following respects: (a) In not following the appellate order passed by the Income-tax Appellate Tribunal in the appellant's own case for assessment years 2009- 10 and 2010-11; (b) In not appreciating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in granting relief to the assessee u/s.56(2)(viia) of the Income Tax Act, 1961, ignoring the clarification in the CBDT Circular No.01/2011 dated 06.04.2011, confirming that the said provisions as applicable from 01.06.2010 and assessee company's case is fully covered under the provisions as the aggregate fair market value of the shares exceeds Rupees fifty thousand and exclusion as per the subsequent proviso do not apply. 4. The brief facts of the case are that assessee is a company engaged in the business of operation of Pollution Control equipments, plants, detailed design and engineering of pollution control equipment, investment financing. The assessee filed its return of income for assessment year (AY) 2011-12 on 30-09-2011 declaring Nil income. Subsequently, the assessee filed revised return of income on 30-10-2011 declaring loss of ₹ 1.45 crores. The case was selected for scrutiny. During the assessment, the assessing officer (AO) noted that the assessee has shown dividend of ₹ 1,17,04,737/- from three of its subsidiary which was claimed as exempt u/s 10(34) of the Act. The assessee made suo moto disallowance of ₹ 1,04,40,709/- u/s 14A. The AO not accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO considered the entire interest expenses of ₹ 319.60 Lakhs for making interest disallowance, however the net interest should have been considered after reducing the interest income of Rs. ₹ 58.77 lakhs. The other disallowances under Rule 8D(iii) was upheld. The other addition u/s 56(2)(viia) was restricted to ₹ 10,58,250/-. The ld CIT(A) deleted the additions on account of investment in Shivalik Solid Waste Management Ltd and Coimbatore Integrated Waste Management Ltd, however the additions on account of investment in Enviro Technology Ltd was restricted to the extent of difference of fair market value of share as per Rule 11UA. Thus, aggrieved by the order of CIT(A) both the parties have filed their cross appeals by raising their respective grounds of appeal. 7. We have heard the submissions of ld. authorised representative (AR) of the assessee and the ld. departmental representative (DR) for the revenue and perused the material available on record. Ground No. 1 in assessee s appeal and revenue s appeal are interconnected. The Ld. AR of the assessee submits that the ground raised by assessee in assessee s appeal is covered in favour of assessee by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early held that investment in subsidiary would trigger the disallowance u/s 14A. 11. We have considered the rival submissions of the parties and gone through the orders of authorities below. We have also deliberated on various case laws relied upon by Ld. Representatives of the parties and the lower authorities. The AO, while passing the assessment order made the disallowance in the following manner:- Working of disallowance u/s 14A r.w.s. 8D Particulars Amount (Rs.) Amount (Rs.) i. Direct Expenditure relating to exempt income as per assessee s own submissions 0 ii. Amount computed as per rule 8D(2)(ii) [A x B / C] 2,76,75,760 A= interest expenses 3,19,60,489 B= Average Investment 82,13,16,840 C= Average Total Asset 94,84,72,169 iii. 0.5% of Average investment (0.5% x ₹ 82,13,16,840/-) 41,06,584 Total Disallowance as per Rule 8D (i+ii+iii) ₹ 3,17,82,344/- 12. Before the Ld.CIT(A) the assessee made elaborate submissions written and oral. On considering such submissions, the ld CIT(A) noted that the audited accounts furnished by assessee shows that the income earned from business of auxiliary services is ₹ 4.10 crores and other income of ₹ 1.75 crores totallin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be made by taking into consideration only 3 investments which yielded dividend income during the year. We have noted that the assessee has raised this plea, for the first time before us and has strongly relied upon the decision of Mumbai Tribunal in Sajjan India Ltd vs ACIT (supra) wherein it was held that mandate of Act is to tax real income and tax can only be levied under authority of law. Even if disallowance fall below disallowance u/s 14A offered by assessee in the return of income, revenue cannot charge tax on income, which never was income of assessee chargeable to tax. Therefore, we deem it appropriate to restore this part of disallowance u/r 8D(2)(ii) to the file of the AO to examine the issue afresh in the light of above referred decision and pass the order afresh in accordance with law. Needless to say that before passing the order / making disallowance u/r 8D(2)(ii) and (iii), the AO shall grant opportunity to the assessee. 14. In the result, ground of appeal raised by assessee is allowed and the corresponding ground of appeal raised by revenue has become infructuous. 15. Ground No.2 in both the appeals relates to disallowance u/s 56(2)(viia). The assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment by Company in favour of shareholder. The provisions of section 56(2)(viia) are attracted only where any person transfer to another person share of a Company wherein public are not substantially interested, for no consideration or for consideration which is lower than the fair market value of such shares. A receipt of share otherwise than by way of transfer does not fall within the ambit of section 56(2)(viia). It was further submitted that in terms of Valuation Rules as well, property received is required to be valued as on the valuation date which is the date on which property is received. It is the value of the share which is being treated or transacted which is relevant. This pre-supposes the existence of shareholder. The assessee has subscribed the fresh issue of shares in case of investment made in Shivalik Solid Waste Management Pvt Ltd and Coimbatore Integrated Waste Management Pvt Ltd. Accordingly it was submitted that the share did not exist at any time prior to the said subscription. The rights in share acquired were created by virtue of said transaction. There were neither shareholders nor right in the form of shares existing prior to aforesaid subscription of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nti abusive provision ought not to be applied in the said transaction. 19. On the other hand the ld. DR for the revenue on supported the order of the assessing officer. 20. We have considered the submissions of both the parties and gone through the orders of authorities below. During the assessment the assessing officer noted that Assessee Company made investment in group companies by purchasing shares, at lesser price than the fair market value. The assessing officer issued show cause notice to the assessee as to why the difference representing the whole value of a set received by assessee company without consideration or at the consideration below the market rate should not be taxed as income under section 56(2)(viia) of the Act. The assessee filed a detailed reply, which has been referred by assessing officer in para 4.4 of his order. The assessing officer computed the addition of ₹ 5,28,07,024/- by invoking the provision of Rule 11 UA (as per the tabulated figure in para- 4 supra ). During the first appellate stage the assessee urged that section 56(2) (viia) ought not to be invoked in case of assessee, since the section apply only if any person received from any person s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per method prescribed which is rule 11U and 11 UA. 6.7. I am unable to accept the contention that section 56 does not apply to fresh issue of shares. No such exception has been carved out. Whether it is by way of purchase, gift, transfer or allotment after 1.06.2010, the fact remains that shares are received. It is irrelevant how the shares come to be received. It is often seen that an existing company issues shares at a premium where it is justified on the basis of FMV. Issuing shares at par in such cases to preferred persons such as close associate or even parent company is clearly in the nature of gift and is covered by this section. Similarly, the motive in acquiring shares is again irrelevant and there is no need to look at malafide regions or mens-rea for such receipt of share as has been argued by the appellant. No such mention is there on the statue and the plain word of the statue has been considered while it is being interpreted. Words or intention cannot be supplied when the law is explicit and there is no ambiguity. 6.8. The next issue is to whether the shares are received without consideration or at a consideration which is less by over ₹ 50,000/-of its FMV. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the addition of difference of FMV as per Rule 11UA. The ld. AR for the assessee vehemently argued that ETL is a closely held company and its shares are not readily available in the market for sale or trading and that the sale by Sidhi Samrat Dychem Pvt Ltd was a mode of exit from the agreement due to certain financial difficulties faced by Sidhi Samrat Dychem Pvt Ltd. No such evidence in the form of correspondence or any communication is brought on record by the assessee that Sidhi Samrat Dychem Pvt Ltd was facing financial difficulties, which may justify the action/ transaction with assessee. Hence, we do not find merit in the submissions of the ld. AR for the assessee. 25. So far as alternative submission of the ld AR for the assessee that provisions of section 56(viia) are anti abuse and intended to prevent the practice or receiving property without consideration or for inadequate consideration, are concerned, the ld AR has strongly relied on the Circular No. 01/2011 dated 6th April 2011 issued by Central Board of Direct Tax (CBDT) and the decision of Tribunal in ACIT Vs Subhodh Menon ( supra ). The throughout the proceedings took the stand that the assessee that the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not escape the charge of tax on capital gains by understatement of the consideration. This was real object and purpose of the enactment of subsection (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of sub-section (2) that there is understatement of consideration in respect of the transfer and sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received. 19 . In view of the above, the provisions of section 56(2)(vii)cannot be applied to transaction under consideration. 26. In view of the aforesaid discussions, as we have already noted that in absence of any imputation of any consideration over and above consideration was passed, the addition is not justified. The assessing officer has not made any investigation from ETL nor brought any adverse materi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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