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TMI Blog2022 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was not acceptable. In the absence of such recorded satisfaction, the additional disallowance as made in assessment order could not be sustained in the eyes of law. Accordingly, we are inclined to delete the disallowance as made by Ld. AO while computing income under normal provisions as well as while computing Book Profits u/s 115JB. This ground stand allowed Disallowance of Short-Term Capital Loss on forfeiture of Share Warrants - AO rejected the assessee s claim on the ground that there was no transfer of capital asset - HELD THAT:- The definition of capital asset is wide enough to cover property of any king held by the assessee. The right acquired by the assessee through share warrants, in our considered opinion, was a valuable right and covered within the meaning of capital asset as defined in Sec. 2(14). Proceeding further, transfer as defined in Sec. 2(47) would include sale, exchange or relinquishment of the asset or extinguishment of any rights therein. Clearly, upon forfeiture of share warrants, the assessee s right in acquiring the warrants as well as resultant shares was extinguished and the assessee was deprived of a right in capital asset. Thus, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) erred in confirming the disallowance U/S.14A r.w Rule 8D (2)(i) of Lead Management fees of ₹ 13,00,300/- paid to DSP Merill Lynch Ltd and Escrow Management fee of ₹ 1,20,00,000/- paid to Standard Chartered Bank which were related to open offer issued for shares of Shriram City Union Finance Limited and advisory fees paid for restructuring of ₹ 2,48,175/-. 5. The CIT(A) erred in not appreciating the fact that in the case of our group company viz., Shriram Capital Limited, which is also in the business of investment promotion, the ITAT in their order in ITA Nos. 638,639 640 / Mds/2012 dated 04.02.2013 for the assessment year 2005-06, 2007-08 2008- 09 has deleted the additions of interest and facilitation fees. 6. The CIT(A) erred in not appreciating the fact that in the appellant's case for the assessment year 2009-10, the Hon'ble ITAT in their orders in ITA No.1477/Mds/2013 dated 10.04.2014 has confirmed the CIT(A) order deleting bank guarantee commission and filing fees. 7. The CIT(A) erred in not appreciating the fact that the dividend income which was received by the appellant from Shriram City Union Finance Limited has been cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. These investments are stated to be out of commercial expediency and to strengthen the capital and liquidity base of group entities as a whole. The assessee earned exempt dividend income of ₹ 334.37 Lacs and offered suo-moto disallowance of ₹ 51,220/- in the computation of income and submitted that no further disallowance would be warranted u/s 14A. 4.2 However, Ld. AO rejected assessee s submissions that the investment in subsidiaries would not attract disallowance u/s 14A. Referring to CBDT circular No.05/2014 dated 11.02.2014, Ld. AO repeated disallowance of ₹ 135.48 Lacs in terms of Rule 8D(2)(i) which comprised-off of advisory fees of ₹ 2.48 Lacs, lead management fees of ₹ 13 Lacs and Escrow management fees of ₹ 120 Lacs paid by the assessee. The Ld. AO has also repeated disallowance u/r 8D(2)(iii) for ₹ 6.84 Lacs. No disallowance was made u/r 8D(2)(ii). 4.3 During appellate proceedings, reiterating the business profile of the assessee, it was submitted that entire expenses incurred were related to assessee s business of investment promotion. During the year, the assessee received only two dividend from M/s Shriram City Union F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o compute disallowance as per Rule 8D. The application of Rule 8D, in our considered opinion, was not mechanical or automatic. 6. The Hon ble Apex Court in the cited case of Godrej Boyce Manufacturing Co. Ltd. V/s DCIT (2017 394 ITR 449) held that subsections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. The said principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g appellate proceedings, the assessee relied on the decision of Hon ble Delhi High Court in the case of CIT V/s Chand Ratan Bagri (329 ITR 356) which held that loss on forfeiture of amount paid towards convertible warrants was deductible as Short Term Capital Loss. Similar was stated to be the ratio of decision of Hon ble Karnataka High Court in the case of DCIT V/s BPL Sanyo Finance Limited (312 ITR 63) which held that the assessee would be deemed to have acquired a right in shares even if call monies of the full value of the share has not been paid. The extinguishment of any right as per Sec.2(47) would cover every possible transaction resulting in the destruction, annihilation, extinction, termination cessation or cancellation, by satisfaction or otherwise, of all or any of the bundle of rights whether qualitative or quantitative, which the assessee has in capital asset, whether or not such an asset is corporeal or incorporeal. Upon forfeiture, the assessee s right in the share stood extinguished and the loss was short- Term Capital loss. The case law of CIT V/s R.Chidambaranatha Mudaliar (supra) was stated to be distinguishable on facts and not applicable to the assessee s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Pr. CIT V/s Kanaiyalal M.Sheth (108 Taxmann.com 455 dated 30.04.2019) which concurred with the decision of Hon ble Delhi High Court in CIT V/s Chand Ratan Bagri (329 ITR 356) as well as the decision of Hon ble Karnataka High Court in DCIT V/s BPL Sanyo Finance Limited (312 ITR 63). In the decision of CIT V/s Chand Ratan Bagri (supra), it was held by Hon ble Court that the forfeiture of convertible warrant would result into extinguishment of the right of the assessee to obtain a share. A share in a company is nothing but share in the ownership of the company. While the right of the assessee to share in the ownership of the company stand extinguished on account of forfeiture, the company, with all its assets, continues to exist. The forfeiture only results in one less shareholder. Therefore, the loss thus suffered by the assessee would be a capital loss. Respectfully following these decisions, we would hold that loss suffered by the assessee on account of forfeiture of share warrant would be deductible Short-Term Capital Loss. The observation of Ld. CIT(A) that such transactions are to be treated as sham transaction are mere allegations and bereft of any merits. No cogent materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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