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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: HON’BLE SHRI C.N. PRASAD, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश आदेश / O R D E R आदेश आदेश
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid cross-appeals for Assessment Year [AY] 2013-14 contest the order Ld. Commissioner of Income-Tax (Appeals)-2, Mumbai [CIT(A)], Appeal No. CIT(A)-2/IT/247/2016-17 dated 14/07/2017. The grounds raised by the assessee reads as under: - The Commissioner of Income Tax (Appeals) -3, Mumbai [hereinafter referred to as CIT(A)] erred in directing the AO to not allow set off of losses under the head ‘Income from Other Source’ against the income under the head ‘Income from business & profession’. The appellant submits that the Ld. CIT(A) once having accepted the claim of the appellant for deduction u/s 57(iii), the resultant losses under the head ‘Income from Other Sources’ are eligible for set off against the ‘Income from business & profession’; hence the AO shall be directed to allow the set off of losses under ‘Income from Other Sources’ against income under the head ‘Income from business & profession’.
The grounds raised by the revenue reads as under: -
1. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in deleting the addition of Rs. 23.17 crore made by the AO on account of acquisition of quoted shares through off-market, below the market price?
2. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in deleting the addition of Rs. 23.17 crore made by the AO on account of acquisition of quoted shares through off-market, below the market price though the same was resulted in accrual of benefit to the assessee taxable u/s. 28(iv) of the I. T. Act, 1961?
3. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in deleting disallowance made by the AO u/s. 14A of the Act read with Rule 8D of the Income-tax Rules in relation to investment made by the assessee in listed equity shares of Network 18 Media & Investments Ltd., by ignoring the Board's circular No. 5 of 2014 dated 11.02.2014? Revenue’s Appeal, 2.1 Facts leading to the same are that the assessee being resident corporate assessee stated to be engaged in manufacturing of ready-mix 3 concrete was assessed for impugned AY u/s 143(3) on 18/03/2016 wherein the income of the assessee was determined at Rs.2611.94 Lacs after certain disallowances as against Nil return filed by the assessee on 16/09/2013. The following quantum additions are the subject matter of revenue’s appeal before us: - No. Nature of Addition Amount (Rs.)
1. Disallowance u/s 69B 2317.89 Lacs
2. Disallowance u/s 14A 96.18 Lacs 2.2 Facts qua the same are that during assessment proceedings, it transpired that the assessee acquired 12,75,27,787 shares of an entity namely M/s Network 18 Media & Investment Ltd. for a sum of Rs.361.88 Crores. Out of this, the shares numbering 82,78,180 were purchased in off-market transaction from different shareholders @Rs.5/- per share whereas 11,92,49,607 shares were acquired by the assessee in the right issue @Rs.30/- per share. It was observed that the payment of shares acquired in off-market transaction was made after more than one year. whereas the period of off-market transaction and right-issue was less than 3 months. 2.3 In the above background, Ld. AO show-caused the assessee as to why the investment made in 82,78,180 shares stated to be made @Rs.5/- per shares, was not to be considered @Rs.30/- per share and the differential amount of Rs.25/- be brought to tax in assessee’s hand as undisclosed investments. In defense, the assessee submitted that all the investments were recorded in books of account and the provisions of Section 69 were not applicable. The assessee also filed declaration from the sellers that the shares were sold at Rs.5/- per share. However, rejecting the same, Ld. AO opined that investments were under-valued 4 since the market price of the share on the date of transfer was much higher and therefore, an amount of Rs.28/- per share [being the difference between market price per share i.e. Rs.33/- & price at which the shares were acquired i.e. Rs.5/- per share] was to be added as undisclosed income u/s 69B. The same worked out to be Rs.23.17 Crores. 2.4 The second addition i.e. disallowance u/s 14A stem from the fact that it was noted that the assessee debited ROC fees of Rs.25,000/- each on 14/09/2012 & 06/11/2012. The said sums were stated to be paid to SEBI for submission of post issue report u/r 10 of Takeover Code for investment in Right issue of TV18 Broadcast Ltd. and Network18 Media & Investment Ltd. Since the assessee had investments in its Balance Sheet, the same called for disallowance u/s 14A. The assessee defended the same by submitting that no exempt income was received during the year and no expenditure was incurred towards the investment. However, not convinced, Ld. AO, applying Rule 8D, computed aggregate disallowance of Rs.96.18 Lacs, which comprised-off of aforesaid direct expenditure of Rs.50,000/- u/r 8D(2)(i) and indirect expenditure disallowance u/r 8D(2)(iii) for Rs.95.68 Lacs, being 0.5% of average investment. 3.1 Aggrieved, the assessee agitated the same before Ld. CIT(A) vide impugned order dated 14/07/2017. Regarding addition u/s 69B, it was submitted that the additions were made on mere presumption, surmises and conjectures. The attention was drawn to the fact that 82,78,180 shares were purchased from 4 parties which were the assessee’s promoters or promoters group entities. It was submitted that these 5 shares were held by the two directors namely Mr. Raghav Bahl & Mrs. Ritu Kapoor in individual capacity as well as through their closely held entities in the ratio of 95:5. These directors were shareholders in the assessee company in the same ratio. With a view to consolidate shareholding in one single entity, the shares of these directors as well as other closely held companies were transferred during the year at face value i.e. Rs.5/- per share and therefore, even after transfer or re- organization, the stated directors would remain the beneficial shareholder in the same ratio and the transaction has not resulted into any dilution in the shareholding of existing shareholders. In the aforesaid background, the addition u/s 69B were agitated. It was submitted that the provisions of Section 69B were not, at all, applicable to the facts of the case. Reliance was placed, inter-alia, on the decision of Hon’ble Bombay High Court in CIT V/s Rupee Finance & Management Ltd. [ITA No.1208 of 2009 20/10/2008], CIT V/s Devesh Agarwal [81 Taxmann.com 257] & Hon’ble Supreme Court in Dhakeshwari Cotton Mills Ltd. V/s CIT [26 ITR 775]. 3.2 After due consideration of assessee’s submissions and factual matrix, Ld. CIT(A) concurred with the same and deleted the additions u/s 69B by making following observations: - From the above discussion, the following inferences are drawn: a) The Ld. AO has estimated the investment made in purchase of shares i.e. 82,78,180 shares by relying on the market rate at Rs. 33/- of the M/s. Network 18 Media 85 Investment Ltd. b) The transferor and transferee effectively is Mr. Raghav Bahl and Ms. Ritu Kapoor and not a third party is involved. c) Hon’ble Bombay High Court decision in the case of CIT-7 vs M/s. Rupee Finance 85 Management (P) Ltd. IT Appeal No. 1208 of 2008 dated 20.10.2008 wherein it is held that mere purchase of shares, as an investment, with the lock in period of holding, for a consideration which is less than the market value, cannot be brought to tax, as a benefit or perquisite under Section 28 (iv) of the Act.
6 d) Hon’ble Supreme Court decision in the case of Dhakeswari Cotton Mills Ltd vs. Commissioner of Income tax [26 1TR 775 SC] wherein it is held the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all-There must be something more than bare suspicion to support the assessment under s. 23(3)-ITO and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion The ratio followed in jurisdictional High Court decision in the case of CIT-7 vs M/s. Rupee Finance & Management (P) Ltd. IT Appeal No. 1208 of 2008 and CIT-20 vs Devesh Agarwal, IT Appeal No. 1637 of 2014 with Appeal no. 1727 of 2014 is squarely applicable to the fact of the case of the appellant that mere purchase of shares, as an investment, with a lock in period of holding, for a consideration which is less than the market value, cannot be brought to tax and also following the Hon'ble Supreme Court decision in the case of Dhakeswari Cotton Mills Ltd vs. Commissioner of Income tax [26 ITR 775 SC] wherein ITO cannot act on pure guess and suspicion, so I am of the considered opinion that the addition made by the AO on account of the difference in market value and the face value of the share is not a justifiable one and accordingly I direct the AO to delete the above addition. 3.3 The disallowance u/s 14A was deleted in view of the fact that the assessee did not earn any exempt income during the year and therefore, no disallowance was warranted in terms of decision of Hon’ble Bombay High Court rendered in Delite Enterprises [ITA No.110 of 2009 dated 26/02/2009]. Aggrieved, the revenue is in further appeal before us.
The Ld. CIT-DR, while relying upon the stand of Ld.AO, submitted that the additions would be justified u/s 56(2)(viia). The Ld. AR, relying upon the stand of Ld. first appellate authority, submitted that the aforesaid provisions would not apply to the factual matrix. 5.1 we have carefully heard the rival submissions and perused relevant material on record and deliberated on judicial pronouncements as cited before. It emerges that the assessee has purchased certain shares @Rs.5/- per share from its directors and their closely held companies. It is undisputed fact even after the transfer of shares, ultimate beneficial shareholding of the two directors would remain unchanged since these 7 shares were held by the directors in the ratio of 95:5. Similar is shareholding ratio of the two directors in the assessee company. 5.2 Proceeding further, it is observed that except for mere allegations, nothing has been brought on record by Ld. AO to establish that the assessee made any payment for the stated investment anything over and above what was recorded in the books of accounts. These transactions were within the group entities and the confirmations of sellers have been placed on record. The assessee has placed on record assessment order u/s 143(3) in case of one of the sellers namely M/s RB Holdings Pvt. Ltd., the perusal of which reveal that the returned income of the said entity has been accepted by the revenue. Nothing on record would demonstrate any exchange / flow of funds, out of books, between the assessee and the sellers. It is trite law that no additions could be made merely on the basis of assumptions, conjectures or surmises. We find that the primary onus to substantiate the transactions was duly fulfilled by the assessee and the same had shifted to revenue to dislodge assessee’s claim. In our opinion, nothing has been brought on record by Ld. AO to prove that any excess price was paid by the assessee to the sellers. Therefore, in the absence of any evidences establishing receipts & payments outside regular books of accounts, the provisions of Section 69B could not be invoked. 5.3 The said proposition is squarely covered by the decision of Hon’ble Bombay High Court rendered in CIT V/s Devesh Agarwal [81 Taxmann.com 257], which Ld. CIT(A) has already considered. The case law of Hon’ble Rajasthan High Court rendered in CIT V/s Mantri Share Brokers Pvt. Ltd. [96 Taxmann.com 279] as confirmed by 8 Hon’ble Apex Court by way of dismissal of revenue’s SLP [96 Taxmann.com 280], the decision of Hon’ble Delhi High Court rendered in CIT V/s Puneet Sabharwal [338 ITR 485] also supports the same view. 5.4 So far as the submissions made by Ld. CIT-DR is concerned, we find that, firstly the aforesaid provisions of Section 56(2)(viia) has not been invoked by Ld.AO and secondly, these provisions do not apply in case of receipts of shares for inadequate consideration by the assessee, of a company not being a company in which the public are substantially interested [as defined in Section 2(18)]. However, we find that shares being transacted by the assessee are not of a private company but of a public listed company which is evident from the fact that Ld. AO proceeded to tax the difference of listed price and the acquisition price u/s 69B. Therefore, the said provisions, in our opinion, do not apply to the factual matrix. 5.5 The revenue, in its ground of appeal, has also asserted that the acquisition of shares has resulted into accrual of benefit to the assessee u/s 28(iv). However, we again find that the provisions of Section 28(iv) have not been invoked by Ld. AO to make the impugned additions. Secondly, the allegations of Ld. AO stem from the suspicion that the assessee has paid the differential amount of Rs.28/- per share to the seller. Under these circumstances, nothing would suggest that the assessee has received certain benefit during the course of its business so as to attract the provisions of Section 28(iv) since it is not the case of Ld. AO that the assessee had received certain benefit by way of purchase of shares of higher value at lower prices.
9 5.6 Keeping in view the entirety of facts and circumstances, we do not find any infirmity in the impugned order on this issue. This ground of revenue’s appeal stands dismissed. 6.1 So far as the disallowance u/s 14A is concerned, we find that it is undisputed fact that the assessee has not earned any exempt income during the year. This being, so no disallowance u/r 8D(2)(iii) would be warranted in terms of decision of Hon’ble Bombay High Court [Nagpur Bench] rendered in PCIT Vs. Ballarpur Industries Ltd. [ITA No.51 of 2016], Pr.CIT V/s M/s Rivian International Pvt. Ltd. [ITA No.693 of 2015] & Hon’ble Delhi High Court rendered in PCIT Vs. Mcdonald’s India (P) Ltd. [101 Taxmann.com 86]. 6.2 So far as the disallowance u/r 8D(2)(i) is concerned, we find that the aforesaid payment of Rs.0.50 Lacs has been paid by the assessee to SEBI for certain statutory compliances. These payments, being more in the nature of statutory & mandatory payments, could not be said to be incurred in relations to making-off of investments. 6.3 Keeping in view the same, no infirmity could be found in the impugned order qua this issue. This ground of revenue’s appeal stands dismissed. Resultantly, the revenue’s appeal stands dismissed. Assessee’s Appeal, 7.1 The grievance of the assessee stem from the fact that the assessee suffered interest disallowance of Rs.160.11 Lacs u/s 36(1)(iii). Before Ld. first appellate authority, it was alternatively submitted that borrowed funds had direct nexus with investment in debenture since the moneys were borrowed and invested on same date i.e. 13/07/2011. The moneys were borrowed @15% whereas interest on debenture was 10 earned @10%. Accordingly, the assessee earned interest income of Rs.265.75 Lacs and paid interest expenditure of Rs.425.86 Lacs. It was the differential of the two, which Ld. AO had disallowed u/s 36(1)(iii). The assessee pleaded that since interest income was offered under the head Income from other sources and the borrowed funds had direct nexus with investment, full deduction of the interest expenditure was allowable u/s 57(iii). The attention was drawn to the computation of income to submit that the assessee has ignored the loss under the head Income from other sources except to the extent of setting-off of business income of Rs.6,48,911/-. The Ld. CIT(A), convinced with the claim of the assessee u/s 57(iii) concluded the matter in the following manner: - So as per the provisions of Section 57(iii), the appellant company has rightly claimed the deduction u/s 57(iii) and further the net effect is only Rs.6,48,911/- the appellant company gets benefit so even if the AO has any reservation, Rs.6,48,911/- can be treated as an income and not to set off the interest loss as the appellant company already ignored the carry forward. Accordingly, it is partly allowed.