2016 (11) TMI 1235 - AT - Income Tax

Tribunal upholds deletions under Income Tax Act, remands expense disallowance for further examination

M/s Anshika Investments Pvt. Ltd. and M/s A.R. Leasing Pvt. Ltd Versus Commissioner of Income Tax (Appeals) – III, New Delhi and Deputy Commissioner of Income Tax, Central Circle-18, New Delhi Versus M/s Anshika Investments Pvt. Ltd. and M/s A.R. Leasing Pvt. Ltd.

The Tribunal upheld the deletion of additions under Section 68 of the Income Tax Act for both the assessee companies, finding the identity, ... Addition u/s 68 - undisclosed share capital - Held that:- The value of each share is worked out at ₹ 40,616/-. Thus, apparently, higher share premium of ₹ 39,900/- is justifiable because of limited number of shares of the assessee company who are actual owner of assets of worth more than ₹ 60 crores. Moreover, in the earlier year also, the shares were allotted at a premium of ₹ 39,900/- per share and in AY 2006-07, the Assessing Officer even got the verification made through the Investigation Wing of Kolkata and the ITAT has accepted the credit in the form of share capital after considering the report of Investigation Wing of Kolkata. Hon'ble Jurisdictional High Court has also upheld the order of the ITAT in assessee’s own case for assessment year 2006-07 after taking due note of high share premium. In view of the above, we are of the opinion that considering the facts of the case, the genuineness of the transactions is duly established. In view of the above, we hold that the assessee has duly discharged the onus of proving the credit of share capital in its account and learned CIT(A) was fully justified in accepting the same and in deleting the addition. Addition u/s 14A - Held that:- No investment was made for earning of exempt income. That various Benches of the ITAT have taken the view that where the investment has been made for acquiring the controlling interests in the group companies, then the disallowance cannot be made u/s 14A. He also stated that no expenditure was incurred by the assessee for earning of exempt income because no borrowed money was invested and moreover, it is a permanent investment in the few group companies. Thus, no expenditure was incurred. Learned DR stated that no such claim was made before the Assessing Officer. All these aspects would require verification at the end of the Assessing Officer, thus restore the matter to the file of the Assessing Officer. Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act, 1961.2. Disallowance of expenses under Section 14A of the Income Tax Act, 1961 and Rule 8D of the Income Tax Rules, 1962.Issue-wise Detailed Analysis:1. Deletion of addition under Section 68 of the Income Tax Act, 1961:The Revenue challenged the deletion of an addition of Rs. 4,00,00,000/- made by the Assessing Officer (AO) under Section 68, questioning the share capital raised by the assessee company. The AO argued that the premium of Rs. 39,900/- per share was unjustifiable for a private limited company and doubted the creditworthiness and genuineness of the transactions involving M/s Adhyay Equi Pref Pvt. Ltd. (AEPPL). The AO noted that AEPPL had a meager bank balance before a credit of Rs. 12 crores, which was used to issue cheques to the assessee and other entities.The assessee countered by referencing a similar issue in its case for AY 2006-07, where the ITAT and Hon'ble Jurisdictional High Court had upheld the deletion of the addition. The assessee demonstrated the valuation of its shares based on the net worth of the Uflex group of companies, justifying the premium. The assessee also provided evidence of AEPPL's financial stability and regular investments in shares.The Tribunal, after reviewing the facts and previous judgments, concluded that the identity, creditworthiness, and genuineness of the transactions were duly established. The Tribunal noted that the issue was covered by the decision of the ITAT and Hon'ble Jurisdictional High Court in the assessee's own case for AY 2006-07. The Tribunal found no reason to interfere with the CIT(A)'s order, which had accepted the share capital as explained and deleted the addition.2. Disallowance of expenses under Section 14A of the Income Tax Act, 1961 and Rule 8D of the Income Tax Rules, 1962:The assessee contested the disallowance of Rs. 1,31,82,562/- under Section 14A and Rule 8D, arguing that the investments were made to acquire controlling interests in group companies, not for earning exempt income. The assessee claimed no expenditure was incurred for earning exempt income as no borrowed funds were used, and it was a permanent investment.The Tribunal noted that the assessee had not made this claim before the AO, necessitating verification. The Tribunal set aside the orders of the authorities below on this point and restored the matter to the AO. The AO was directed to allow the assessee an opportunity to explain why no disallowance under Section 14A was warranted and to pass a speaking order thereafter.Additional Appeals:In another appeal, the Revenue contested the deletion of an addition of Rs. 6,99,60,000/- under Section 68 for M/s A.R. Leasing Pvt. Ltd., which involved similar facts and arguments as the case of AEPPL. The Tribunal, referencing its detailed discussion in the case of AEPPL and previous judgments, upheld the CIT(A)'s order deleting the addition.For the appeals concerning disallowance under Section 14A for M/s A.R. Leasing Pvt. Ltd. for AY 2009-10, 2010-11, and 2011-12, the Tribunal followed the same approach as in the case of AEPPL, setting aside the orders and restoring the matter to the AO for re-adjudication.Conclusion:The appeals of the Revenue were dismissed, and the appeals of the assessees were deemed allowed for statistical purposes. The Tribunal directed the AO to re-examine the disallowance under Section 14A, providing the assessee an opportunity to present their case.