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TMI Blog2023 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the shareholders of both the transferor and transferee companies, as only these shareholders would have gained or lost having agreed to the same. We therefore do not find merit in the report of the AO challenging the correctness of the valuation report exchange ratio of shares between shareholders of the transferor and transferee companies to justify the addition u/s 56(1) of the Act. We find ourselves in agreement with the AR that, when qua these assets lower authorities did not disregard the scheme of amalgamation or hold it to a colourable device to evade tax, then it was incorrect on the Revenue s part to cherry pick only the receipt of shares of ZEEL and assess it as a taxable event, denying the benefit of exemption set out in Section 47(vi) of the Act. Thus we hold that the scheme of amalgamation of EBPL with the assessee company cannot be disregarded nor can it be held to be a colourable device . Consequent thereto, the transfer of shares of ZEEL pursuant to the scheme of amalgamation was entitled for benefit of exemption u/s 47(vi) of the Act and therefore the addition made u/s. 56(1) is not sustainable - Decided against revenue. Addition u/s 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od. Reason being, the tax-payer should not create a foreign obligation for India in favour of another country at a consideration which is below fair value of shares. Thus, to plug this loss to India, FEMA/RBI have stipulated that the issue price of shares should be equal to or more than fair value arrived at by approved method viz. DCF. Hence, even going by the AO's analogy that the price at which shares were issued to foreign investors was higher than fair value of shares, according to us, such issuance of shares at a value higher than the intrinsic fair value was in compliance with the FEMA/RBI regulations. It is noted that, the RBI has not disputed the fair value of shares, which was supported by the CA Certificate using DCF method. Even the AO, apart from making certain remarks, was unable to point out any specific defect or inaccuracy in the valuation report issued by the Chartered Accountant. No reason to interfere with the order of the Ld. CIT(A) in deleting the addition made by the AO u/s 68. Disallowance u/s 14A read with Rule 8D - both under normal computational provisions and under MAT provisions u/s 115JB - HELD THAT:- CIT(A) noted that the investments only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was unable to counter the findings of the Ld. CIT(A). Accordingly, this ground of appeal is dismissed. - I.T.A. No.4312/Mum/2017, Cross Objection No. 302/Mum/2018 Arising out of I.T.A. No.4312/Mum/2017 and 4478/Mum/2017 - - - Dated:- 6-3-2023 - SHRI ABY T. VARKEY, JM AND SHRI GAGAN GOYAL, AM For the Appellant : Shri Jay Bhansali/Ms. Slachi Jain For the Respondent : Shri H. N. Singh (DR) Mr. R. A. Dhyani (Sr. AR) ORDER PER ABY T. VARKEY, JM: These appeals preferred by the Revenue and the assessee along with the Cross Objections ( CO ) filed by the assessee, for Assessment Year [in short AY ] 2012-13, arise out of the order passed by the Ld. Commissioner of Income Tax (Appeals)-12, Mumbai [in short Ld. CIT(A) ] dated 31-03-2017, against the assessment order passed u/s 143(3) of the Income-tax Act, 1961 [in short the Act ] dated 30-03-2016 by the Deputy Commissioner of Income-tax, Circle 6(2)(1), Mumbai [in short the AO ]. 2. The grounds of appeal raised by the Revenue are as under: - 1. On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 1466.60 crores made u/s 56(1) of the Act, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company has failed to furnish the details of source of funds in the hands of EMEL and also of funds in the hands of PPIL. 6. On the facts and of the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 29.30 Crores on account of Share Premium by upholding the discounted Cash flow (OCF) method adopted by the assessee instead of Net Asset value (NAV) method adapted by the A.O. for determining the value of shares received from M/s Essel Media, Entertainment Ltd. 7. On the facts and in the circumstances of the case) and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 29.30 Crores on account of share capital / share premium / share application without appreciating the fact that the assessee has not furnished the details of DCF valuation at the time of assessment proceedings, as recorded by the A.O. in para 20 of the Assessment order. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made u/s 14A r.w.r 8D(2)(ii) 8D(2)(iii) of Rs. 12,47,28,867/- and Rs. 4,08,52,175/--, respectively, without appreciating the fact that assessee s own fund was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong, contrary to the facts of the case and provisions of law. b. The Ld. CIT(A) / AO failed to appreciate that in order to invoke provisions of section 79 of the Act, voting power is relevant and not the shareholding pattern and therefore in a case where 51% or more of the ultimate voting remained unchanged, the Appellant was entitled to carry forward and set off the losses 3. Disallowance of 14A of the Act read with Rule 8D of the Income--tax Rule, 1962 a. The Ld. CIT(A) erred in law and facts in confirming the addition of Rs. 4,10,77,175/- u.s 14A of the Act r.w. Rule 8D to book profit computed u/s 115JB of the Act. The reasons given by her are contrary to the facts of the case and provisions of the Act. 5. The assessee has also raised the following additional grounds before us :- (i) Whether on the facts and circumstances Ld. CIT(A) was justified in upholding the disallowance of Rs. 4,10,77,175/- of expenses u/s 14A r.w. Rule 8D. 6. It is noted that the issue raised in this additional ground is legal in nature and the facts relating to this additional ground are available on record, and is therefore admitted. 7. Ground Nos. 1 to 4 of the Revenue s appeal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was of the view that the scheme of amalgamation was a colourable device , carried out with no business intent and meant to avoid tax. According to the AO, the transfer of shares at NIL consideration ought to be held as colourable device , and thus he brought the same to tax u/s 56(1) of the Act. Thus, the AO inter alia disregarded the subsidiary-holding relationship and also denied the benefit of Section 47(vi) of the Act. He held that there was a transfer of shares, which resulted in the generation of income in the hands of the assessee. He, accordingly, taxed a sum equivalent to the fair value/market value of 13,08,88,822 equity shares of M/s. ZEEL, as appearing in the books of the assessee, i.e. Rs. 1466,60,00,000/-, as Income from other sources u/s 56(1) of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). 10. According to the Ld. CIT(A), the AO had rightly disregarded the scheme of amalgamation. The Ld. CIT(A) was of the view that, the transfer of the shares of ZEEL in the garb of gift/amalgamation etc., was not a case of corporate restructuring. Instead, according to the Ld. CIT(A), it was a tool to accommodate exchange of shares between M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-DR has submitted a report from the AO wherein the facts justifying the addition has been brought to our notice vide letter dated 09.09.2022, which is reproduced as under: - Background: In this case, appeal was filed by the Department against the order of the CIT(A) who had deleted the addition of Rs. 1466.60 crores made u/s 56(1) of the IT Act, 1961 by the AO as well as deletion of Rs. 29.30 crores on account of share capital/premium received by the assessee and disallowance u/s 14A of Rs. 12.47 crores Rs. 4.08 crores. The requisite details of written submission as to how the addition of Rs. 1466.60 crores can be made u/s 56(1) of the IT Act and how receipt of share of M/s ZEEL Ltd under the scheme of Amalgamation comes under the definition of income u/s 2(24) of the IT Act, are as under: 1. Addition of Rs. 1466.60 crore u/s 56(1) of the Act: i) The brief facts of the case are that there was --n amalgamation of M/s Essel Business Process Ltd. (EBPL) with the assessee. During the course of amalgamation, all assets and liabilities of EBPL were taken over by the assessee company including 13,09,88822 shares of Zee Entertainment Enterprise Ltd. (ZEEL), Pursuant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was leviable had the shares been transferred otherwise. He thus urged that the AO has rightly brought to tax the amount of Rs. 1466.60 crores u/s 56(1) of the Act and that the Ld. CIT(A) erred in deleting the same. He also assailed the basis on which the Ld. CIT(A) deleted the impugned addition viz., the directions given by him in the case of Jayneer. According to Ld. CIT, DR, the facts involved and the decision taken in the case of Jayneer was completely independent of the assessee and therefore had no bearing or relevance in the present case. He urged that any addition made in the hands of Jayneer Capital Pvt Ltd is separate and independent of the assessee and therefore cannot be said to amount to double taxation. He thus prayed that the action of the Ld. CIT(A) be reversed and the order of the AO be upheld. 14. Per contra, the Ld. AR of the assessee, Shri Jay Bhansali, assisted by Ms. Slachi Jain, submitted that once the scheme of amalgamation is sanctioned by the Hon ble High Court, and to which the Union of India is also a party, the AO cannot disregard the same while alleging it to be a colourable device . The Ld. AR brought to our notice that the Revenue had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as contended before this court. It is contended by learned counsel for the sixth and the ninth respondents that neither the appropriate authority (fifth respondent) nor any one else could challenge the order dated February 3, 1993, at this point of time. In the alternative, it is contended that the appropriate authority is estopped from doing so since it had taken no step at any point earlier and allowed the shareholders to alter their position to their detriment. The reliance placed on the judgment of this court in J. K. (Bombay) Pvt. Ltd. v. New Kaiser-J-Hind Spinning and Weaving Co. Ltd. [1967] 2 Comp LJ 272 appears justified. 15. Thereafter, the Ld. AR also drew our attention to the Hon ble Supreme Court s decision in the case of Dalmia Power Ltd. Vs. CIT (112 taxmann.com 252) wherein the Hon ble Supreme Court held that a scheme of amalgamation once approved attains statutory force and operates not only between transferor and transferee but also in rem. The Ld. AR further drew our attention to several other judicial precedents in the same context, which we shall discuss in the succeeding paragraphs. The Ld. AR accordingly asserted that the AO erred in terming the ama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, perused the records and the written submissions filed by the Revenue and the assessee. The issue to be decided in this appeal for AY 2012-13 is, whether the scheme of amalgamation undertaken between EBPL and the assessee, was a colourable device , entered into with the sole intent to evade taxes or not; and if so held, whether the AO was correct in assessing the fair value of shares of ZEEL received by the assessee pursuant to the said scheme as income from other sources u/s. 56(1) of the Act. 19. From the facts placed before us, it is noted that the assessee had acquired the Advertisement Space Sales Division from M/s Diligent Media Corporation Ltd [in short DMCL ] on a going concern basis, vide Business Transfer Agreement dated 01.07.2011 for a net consideration of Rs. 2595.27 lacs. The details thereof are noted to be available in Note no. 33 [Page 22 of the Paperbook] of the Financial Statements, which is placed at Pages 1 to 26 of the Paper book. We observe that the lower authorities have not disputed the acquisition of the business division of Advertisement Space Sales from DMCL. Thus, the undisputed fact noted by us is that, the assessee was engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms therein are not placed before us. In absence of there being any tangible evidence linking the terms of other schemes of arrangements between different entities with the present case, they cannot be straightaway read into or relied upon to draw any inference, adverse or not, in the hands of assessee. On these given facts, we are therefore of the considered view that, the present scheme of arrangement has to be viewed independently. 21. Likewise, we find that even the Ld. CIT(A) has factually erred in having relied on the observations/ findings made by him in the appeal matters of Jayneer in Appeal No. CIT(A)-12/ITO6(3)(1)/256/2015-16 to adjudicate the addition made in the hands of the assessee u/s 56(1) of the Act is also held to be untenable. Both the Revenue the assessee in their grounds of appeal deprecating the action of the Ld. CIT(A) have claimed that when the scheme of amalgamation in question did not involve Jayneer directly or indirectly, the findings/conclusions drawn in its income-tax assessment cannot serve as a basis to ascertain the incidence of tax in the case of the assessee. We are also unable to countenance this action of the Ld. CIT(A). To that extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Regional Director, MCA for incorporating them in its response to the Court, immediately after receiving information about any scheme of amalgamation or reconstruction etc. 23. The Ld. AR has also rightly relied on the following findings of the coordinate Bench of this Tribunal at Kolkata in the case of ITO Vs. Purbanchal Power Co. Ltd. (ITA. No. 201/Kol/2010) wherein it was held as under: - From the above provisions of section 394A of the Companies Act, 1956, legal position enunciated in the decisions of Hon ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently makes the purpose clear that if the revenue wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon ble High Court no authority sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sole object of avoidance of income tax. The assessing officer held so. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income-tax (Appeals)-VIII, Kolkata. By order dated 19th November, 2009, the appeal was allowed. The finding rendered by the appellate authority is as follows: *** *** *** However, once the Hon'ble jurisdictional High Court approves the scheme of amalgamation, it is a natural corollary to presume that these issues were in the knowledge of the Hon'ble High Court and, also, that such an order has been passed after due deliberations of all concerned issues. The AO has relied on a few case laws in support of his stand. These have been perused. I do not discern any latitude in these decisions which can empower any AO to challenge the jurisdictional High Court's order in this regard. Moreover, once the jurisdictional High Court approves of a scheme of Amalgamation, the suspicion of a colourable device therein is preclude. The AO has mentioned in his order that a a huge amount of money has been transferred to the serve by way of some transaction which is nothing but a colourable devise to put the reserve by way of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are imaginary. Therefore, it cannot be said that the Scheme has no purpose or object and that it is a mere device/subterfuge with the sole intention to evade taxes, particularly when even the incidence of tax purportedly sought to be evaded is not established on facts. Further, similar scheme of arrangement proposed by other telecommunication companies to achieve the aforesaid objective have been sanctioned by different High Courts. In our considered view, this Court cannot refuse the sanction on the aforesaid ground by coming to the conclusion that the only object of the Scheme is to avoid taxes. 47. It is, no doubt, true as argued by Mr. Thakor that in case the Scheme is sanctioned, it may result into tax avoidance on the part of the appellant, but it is required to be noted that even if the ultimate effect of the Scheme may result into some tax benefit or even if it is framed with an object of saving tax or it may result into tax avoidance, it cannot be said that the only object of the Scheme is 'tax avoidance'. Considering the various clauses of the Scheme, it is not possible for us to come to a conclusion that the Scheme is floated with the sole object of tax avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court had approved the scheme of amalgamation and the terms contained therein. The Department did not raise any objection at that time before the Hon ble High Court and therefore for the reasons already discussed earlier, the Revenue cannot now claim that the scheme was a colourable device . 28. Having held so, we, at the same time, agree that the Revenue is not precluded from ascertaining as to whether the scheme of amalgamation was in compliance with the provisions of the Act so as to avail the benefit of Section 47(vi) of the Act. The provisions of Section 2(1B) of the Act, which defines the term amalgamation reads as follows: (1B) amalgamation , in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the valuation report. Moreover, even otherwise, the valuation report exchange ratio, if so, could have a bearing only in the hands of the shareholders of both the transferor and transferee companies, as only these shareholders would have gained or lost having agreed to the same. We therefore do not find merit in the report of the AO challenging the correctness of the valuation report exchange ratio of shares between shareholders of the transferor and transferee companies to justify the addition u/s 56(1) of the Act. 30. The Ld. AR also brought to our notice that, apart from the shares of ZEEL, the assessee had received other assets (net) aggregating to Rs. 96,798.49 lacs from EBPL upon scheme of amalgamation. He pointed out that, none of the lower authorities had denied the benefit of exemption u/s 47(vi) or assessed the receipt of these assets u/s 56(1) in the hands of the assessee. We find ourselves in agreement with the Ld. AR that, when qua these assets of Rs. 96,798.49 lacs, the lower authorities did not disregard the scheme of amalgamation or hold it to a colourable device to evade tax, then it was incorrect on the Revenue s part to cherry pick only the receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MEL had acquired 100% shareholding of the assessee pursuant to which 94,00,000 shares (Face value Rs. 1/share) were allotted at a premium of Rs. 30/- each. In relation thereto, EMEL had paid sum of Rs. 29,25,89,512/-, out of which Rs. 94,00,000/- was towards equity share capital and Rs. 28,20,00,000/- was towards share premium. The remaining excess balance of Rs. 11,89,512/- was refunded back by the assessee to EMEL. When enquired in the course of assessment, the assessee had furnished the copy of the incorporation details, the financial statements of the shareholders of EMEL, their inward proof of remittance, its source of making investments along with CA certificate, valuation report, etc. The AO, thereafter, had made reference to FT TR division to verify the source of investments, and it is noted by the AO that part reply was received from FT TR in the course of assessment. According to the AO, the assessee failed to discharge its onus of establishing the creditworthiness of the investor u/s 68 of the Act as the source of the funds of the investor remained unexplained. The AO further held that the valuation report furnished by the assessee was untenable. According to him, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares at Rs 1466.60 cr for making addition u/s 56 of the Act. This itself indicates that the NAV method adopted by the AO for arriving the valuation of shares of the appellant company to arrive its intrinsic value is not the correct method. But, in my opinion, the valuation is much more which would fetch more premium than as adopted by the appellant. Hence, I do not find any merit in such valuation of shares either by DCF or NAV as adopted by the AO. This method does not consider the actual valuation of shares in the given circumstances. Therefore, AO is directed to delete the addition made u/s 68 of the Act. Accordingly, ground no 2 of the appeal is allowed. 36. Aggrieved by the above order, the Revenue in now in appeal before us. 37. Assailing the action of the Ld. CIT(A), the Ld. CIT DR submitted that the valuation exercise undertaken by the Chartered Accountant using DCF Method was flawed in as much as the assessee was a loss-making entity and therefore it was highly unusual for a foreign entity to invest in its share capital at a premium. Referring to the AO s findings, the Ld. CIT, DR submitted that the investor, EMEL had underwent a restructuring exercise, in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to discharge that the credit received by it is from the sources whose identity can be proved, the genuineness of the transaction and the creditworthiness of the investor is also established by supporting relevant material/ documentary evidences. If the assessee presents all these details during the assessment proceeding before the AO, the onus shifts onto the AO to prove otherwise. If the AO accepts such evidences without finding anything wrong after enquiry, it can be said that the assessee has discharged its onus. On the other hand, only if the AO presents some contrary evidences or finds fault with the evidence submitted by the assessee, then the onus again shifts upon the assessee to rebut such contrary evidences. 40. In the present case, the Ld. CIT(A) had noted that the assessee had furnished the details of EMEL including copy of certificate of incorporation in Mauritius, certificate regarding source of funds, copy of inward remittance proof along with assessee s bank statement evidencing both receipt of funds and refund of excess balance. The documents placed on record revealed that EMEL was incorporated on 3rd June 2011 and that the source of their investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of inquiry on the basis that apparently the investor was investing huge amount which may prima facie appear to be without adequate possible returns, may be fully justified. However, when all the relevant factors are properly explained, including the fact that the payment of dividend was not the sole attraction for the investor and that the investor could expect a fair return on the investment, of course, subject to vagaries of the any business decision, the Assessing Officer had to advert to all such materials on record in proper perspective. As noted by the Tribunal, all necessary permissions and clearances were granted by the Government of India and other government authorities for such investment. The source of the funds in the hands of P5AHIML was also verified. Merely because multiple corporate bodies may have been involved in the entire process of collecting funds in P5AHIML and then investing the same in the assessee company, by itself would not be sufficient to establish a sham transaction or colourable device. 10. We further notice that when the Commissioner (Appeals) had permitted additional evidence to be produced on record during the appellate proceedings, he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not hold good. Nonetheless, the proviso to Section 68 of the Act, which was inserted by the Finance Act, 2012, fastened further burden upon the assessees to substantiate the source of source of funds. We note that the proviso to Section 68 of the Act was inserted by the Finance Act, 2012 and it was made effective from 01-04-2013 i.e. AY 2013-14 and onwards. For this, reference may be made to the Memorandum as well as the Notes to Clauses of the Finance Bill, 2012 which makes it explicitly clear that the Parliament had introduced the proviso to Section 68 of the Act prospectively and the same was made applicable only from AY 2013-14 and onwards. We may also gainfully refer to the following decisions wherein the Hon ble Constitutional Courts have held that the proviso to Section 68 of the Act, introduced by the Finance Act, 2012 with effect from 01-04-2013 will not have retrospective effect. (i) CIT Vs Gagandeep Infrastructure Private Limited (394 ITR 680) [Bom HC]: We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investors creates a foreign obligation for India in favour of another country. Accordingly, in terms of the RBI/FEMA requirements, the tax-payers are required to issue shares for a consideration which has to necessarily be equal to or higher than the fair value, arrived at by an approved method. Reason being, the tax-payer should not create a foreign obligation for India in favour of another country at a consideration which is below fair value of shares. Thus, to plug this loss to India, FEMA/RBI have stipulated that the issue price of shares should be equal to or more than fair value arrived at by approved method viz. DCF. Hence, even going by the AO's analogy that the price at which shares were issued to foreign investors was higher than fair value of shares, according to us, such issuance of shares at a value higher than the intrinsic fair value was in compliance with the FEMA/RBI regulations. It is noted that, the RBI has not disputed the fair value of shares, which was supported by the CA Certificate using DCF method. Even the AO, apart from making certain remarks, was unable to point out any specific defect or inaccuracy in the valuation report issued by the Chartered Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. As held concurrently by the Commissioner (Appeals) and the Tribunal, these conclusions were clearly baseless and false. 48. The Hon'ble Bombay High Court in the case of Pr. CIT vs. Apeak Infotech (supra) also held as under: .In any view of the matter the three essential tests while confirming the pre-proviso section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The apex court in Lovely exports P Ltd (supra) in the context to the pre-amended section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income tax Officer to proceed by reopening the assessment of such shareholders and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions u/s 115JB of the Act. Since all these grounds involve a common issue and are inter-related, they are taken up together for adjudication. 52. Brief facts qua the issue are that, the average value of investments held in shares/securities by the assessee was Rs. 817,04,35,000/-. It is noted that, the assessee did not earn any exempt income during the year from these investments. The assessee, however, had suo moto computed and disallowed a sum of Rs. 4,10,77,175/- under Section 14A read with Rule 8D(2)(iii). In the course of assessment proceedings, the AO required the assessee to explain as to why disallowance should not be made u/s 14A read with Rule 8D to which the assessee furnished a detailed explanation, which was placed at Pages 58 to 70 of the Paper Book before us. The AO, however, did not agree with the submissions of the assessee. He worked out the disallowance as per Rule 8D of the Income Tax Rules viz., (a) proportionate interest of Rs. 12,47,28,867/- under Rule 8D(2)(ii) and (b) administrative expenditure of Rs. 4,08,52,175/- under Rule 8D(2)(iii), both of which were added back both under the normal provisions as well as while assessing book profit u/s 115JB of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of closely held companies which did not declare any dividend. On fact, there is no dispute that the assessee has not earned any exempt income during the year under consideration. After consideration of Section 14A, the Delhi High Court followed decisions of certain other High Courts. Section 14A of the said Act provides that for the purpose of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the said Act. In other words, Section 14A provides that if there is an income which does not form a part of the total income under the said Act, the expenditure which is incurred for earning the income is not an allowable deduction. Therefore, during the relevant year, if the assessee has not earned any tax free income, the corresponding expenditure incurred cannot be taken into consideration for dis-allowance. 56. The above judgment is noted to have been followed with approval by another coordinate Bench of the Hon ble Bombay High Court in the case of Pr. CIT Vs. Huntsman International (India) Pvt. Ltd. (ITA 1619 of 2016) dated 30-01-2019 . The Ld. AR submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the relevant previous assessment year assessee having not earned any exempt income, no disallowance could have been made under section.14A r.w.r. 8D irrespective of the fact that assessee has itself made disallowance under section. 14A. In our view, the reading of the provision of section 14A makes it clear that disallowance to be made under the said provision is with respect to the exempt income earned by the assessee in the particular assessment year. Therefore, what follows is, if there is no exempt income earned during a particular assessment year, no disallowance under section.14A can be made. This view has been expressed by different High Courts including the Hon'ble Delhi High Court in case of Cheminvest v/s. CIT (supra) as well as the Special Bench of the Tribunal in case of ACIT v/s Vireet Investment Pvt. Ltd., [2017] 165 ITD 26 (Del.). Thus as per the settled principle of law as it stands now, ITA No.2540/Mum/2017 M/s. Finquest Securities P. Ltd., in absence of any exempt income earned in a particular assessment year, no disallowance u/s. 14A can be made. Therefore, only because the assessee itself has made some disallowance under section.14A of the Act, it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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