JT. CIT(OSD)-2(3)(1), MUMBAI vs. M/S WAVELL INVESTMENT PVT. LTD., MUMBAI

These are the cross appeals filed by the assessee as well as The learned Joint Commissioner of Income-tax (OSD) 2(3)(1) (the learned Assessing Officer) for A.Y. 2015-16

The learned AO in ITA No. 1288/Mum/2019 has raised solitary ground of appeal as under:-

The assessee in ITA No. 1644/Mum/2019 has raised concise grounds of appeal as under:-

Brief fact of the case shows that the assessee is a company engaged in investment activity. It filed its return of income on 30 September 2015, declaring a loss of ₹ 4,68,52,572/-. The case of the assessee was picked up for scrutiny. Ld AO made following three additions/ disallowance :-

Accordingly, the assessment order under Section 143(3) of the Act was passed on 14th December, 2017 determining the total income of ₹1,72,24,829/- against the loss of ₹4,68,52,572/-.

Assessee aggrieved with that order preferred the appeal before the learned CIT (A). The learned CIT (A)

Assessee and ld AO both are aggrieved with the order of the learned CIT (A) and in appeal before us.

The learned Assessing Officer is aggrieved with the deletion of disallowance and restricting it to only exempt income of ₹17,910/-. We have heard both the parties on this aspect. We find that as the exempt income earned by assessee is merely ₹17,910/-, the disallowance under Section 14A of the Act cannot exceed the sum. The learned CIT (A) allowed the relief to the assessee following the decision of Hon'ble Delhi High Court in case of Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118 (Delhi) and CIT Vs. Cortech Energy P. Ltd. [2014 (3) TMI 856 - Guj] The learned Departmental Representative could not show us any infirmity in the appellate order. Accordingly, we confirm the order of the learned CIT (A) in restricting the disallowance under Section 14A of the Act to the extent of exempt income of ₹17910/-. Accordingly, the solitary ground of appeal of learned Assessing Officer is dismissed.

In the result, ITA No. 1288/Mum/2019 filed by the learned Assessing Officer is dismissed.

Ground nos. 1 to 4 is against the addition under Section 56(2) (viib) of the Act of ₹1,93,38,298/- regarding alleged excess share price received by the assessee. At the time of hearing, assessee moved a petition for admission of additional evidences under Rule 29 of the Rules. Assessee submitted exhibit C1 to exhibit C4 containing page nos. 32-38 as additional evidences. Assessee submitted that assessee inadvertently omitted to file certain documents before the lower authorities in support of valuation report. It was stated that these are necessary for deciding the issue of addition. Assessee relied on the decision of Hon'ble Jurisdictional High Court in case of Smt. Prabhavati S. Shah vs. CIT [1998] 231 ITR 1 (Bombay). It was also stated that unless these are considered the issue of share premium and its taxability could not be decided. She submitted that there is a clarification dated 5 June 2021 issued by the Chartered Accountant on the share valuation certificate dated 30 November 2014 and certificate of Chartered Engineer based on which share valuation is determined of immovable property owned by the assessee company. The market value of such immovable property also needs to be considered for the purposes of valuation. It was further stated that assessee holds equity shares of one listed company and those shares are quoted at National Stock Exchange, for the purpose of the valuation market value of these shares is required to be taken into consideration. Assessee has

The learned Departmental Representative vehemently objected to the additional evidences and submitted that assessee before the learned Assessing Officer as well as the learned CIT (A) did not submit these documents and therefore, it may not be admitted now. He further submitted that there is no justification by the assessee as to why these two evidences were not submitted before lower authorities.

We have carefully considered the application of the assessee for admission of the additional evidence. We find that, before ld AO, assessee submitted valuation report of equity shares of assessee company dated 30 November 2014 wherein in para number 4.1 it is stated that as per the net asset value method of valuation of equity shares one equity share of Rs 100/- each fully paid up works out to ₹ 3136/- . Along with that report a worksheet for valuation of equity shares was attached where valuation of a flat at New Delhi which has a book value of ₹ 79.14 lakhs which has the indicative market value of ₹ 28.66 crores but considered for valuation of shares only to the extent of ₹ 21.51 crores being only ¾ of the market value. Further assessee has the non-current investment in quoted equity shares of ₹ 14.64 crores the market value of such shares is considered at ₹ 92.10 crores however

Before the lower authorities assessee did not furnish any information that value of the flat at New Delhi is ₹ 7,914,248 which has an indicative market value of ₹ 28.66 crores but for the valuation of the equity share is only considered the value at ₹ 21.50 crores being only 3/4 value of the indicative market value. Similarly the investment in court in shares were having the book value of ₹ 146,394,641 having indicative market value as on 31/3/2014 of ₹ 921,074,734/– which has been considered to the extent of only ¼ of the indicative market value of ₹ 230,268,683.

As there was no justification of (1) indicating market value of flat at New Delhi as well as the quoted equity investment, (2) why assessee only took a part of such indicative market value for the purpose of valuation of equity shares. Now the assessee has submitted a clarification dated 5 June 2021 of the chartered accountant

Facts shows that on 24/12/2014 resolution was passed wherein 6855 equity shares are allotted having a face value of ₹ 100 per share and at a premium of ₹ 3036.40 per share. Accordingly total nominal amount of equity share capital was ₹ 685,500 and total premium amount is ₹ 20,814,500/–. For justification of the share premium assessee submitted the valuation report dated 30 November 2014 of the chartered accountant who has valued the total value of those shares at ₹ 3136 per share as at 31/3/2014.

According to the provisions of Section 56 (2) (viib) provides that where a company, in which public is not substantially interested, receives in any previous year from any resident any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the ‘fair market value’ of the shares shall be chargeable to tax as

Per ground numbers 5 – 6 assessee challenges disallowance of interest expenses , claim of the assessee is that the advances were made by assessee from

Now the only issue that remains is whether the amount of advances given by the assessee without charging any interest are having any nexus of non-interest-bearing funds obtained by the assessee. The onus is very heavy on the assessee to show that the amount of advances given by it does not have nexus with interest-bearing funds or mix funds. Here the assessee has stated that the advances have been given prior to the assessee of obtaining interest-bearing funds as loan. Further, the claim of the assessee is also that on some of the advances, interest

In the Result, appeal of the assessee is allowed for statistical purposes.

Appeal of the AO is dismissed and appeal of the assessee is allowed for statistical purposes.