2019 (5) TMI 852 - AT - Income Tax

Tribunal upholds decisions on tax issues including capital loss, land sale gains, and MAT adjustments

The tribunal upheld the CIT(A)'s decisions in dismissing the Revenue's appeals and the assessee's cross-objection regarding various tax issues, including ... Disallowance of Long Term Capital Loss (LTCL) of shares - HELD THAT:- In the light of the said observations of the Hon'ble jurisdictional ITAT in similar and identical facts in the own case of the assessee for the assessment Year 2009-10 [2016 (4) TMI 300 - ITAT KOLKATA] in terms of the binding decision of Hon'ble jurisdictional High Court in the case of Smt. Nandini Nopany, [1997 (12) TMI 102 - CALCUTTA HIGH COURT] it is held that the action of the Ld. AO in making the impugned disallowance of losses of ₹ 6,07,02,817 claimed on sale of shares of group companies and the recomputation of the Profit from the said transactions in the sum to be unsustainable in law. The grounds of appeal are therefore allowed. Calculating gains on sale of land - LTCG OR STCG - section 50C application - AO admittedly applied sec.50 stipulating capital gains computation on transfer of depreciable assets to assess the said gains as STCG - HELD THAT:- AO admittedly applied sec.50 of the Act stipulating capital gains computation on transfer of depreciable assets to assess the said gains as STCG. The CIT(A)’s order in both cases has partly accepted the assessee’s arguments that they had not claimed any depreciation regarding land in question by including in their respective block of assets for the purpose of computing depreciation. He has directed the AO to verify the relevant fact in this regard. We conclude these peculiar facts that the Revenue cannot be held to be an aggrieved party against the CIT(A)’s findings at this stage since the issue is very much open before the Assessing Officer as to whether assessee had included the relevant land in their block of assets or no so as to attract sec. 50 Disallowance u/s 14A r.w.r 8D - HELD THAT:- This tribunal’s decision in REI Agro Ltd. vs. DCIT [2013 (9) TMI 156 - ITAT KOLKATA] as upheld in CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] holds that necessary presumption that arises in such a case is of deployment of interest free investments funds only in exempt income yielding investments. We do not find any merit in Revenue’s former argument regarding Rule 8D(2)(ii) of the Income Tax Rules, 1962 proportionate interest issue therefore Administrative expenditure disallowed under third limb of Rule 8D - both parties fail to dispute that the CIT(A) has directed the Assessing Officer to re-compute the impugned disallowance qua the exempt income yielding investment only as per this tribunal’s co-ordinate bench’s decision in REI Agro Ltd. vs. DCIT (supra) upheld in hon'ble jurisdictional high court. The Revenue’s third substantive ground in both these two appeals is declined therefore. Non recording mandatory satisfaction us/1 4A r.w.s. 8D disallowance before computing the impugned disallowance - We find that the assessee had suo motu disallowed administrative expenditure whose correctness failed before the Assessing Officer as per the prescribed formula under Rule 8D. He declined the said computation therefore to arrive at the impugned administrative head expenditure of ₹44,45,411/-. We observe in these facts that the Assessing Officer had duly taken note of assessee’s computation as well as its relevant books of account before arriving at the impugned administrative disallowance. The assessee’s cross-objection is rejected therefore. We make it clear before parting that we have not touched upon the first head of direct expense (supra). The Revenue as well as latter assessee in their respective pleadings therefore. The assessee’s cross-objection 44/Kol/2018 raising the instant sole substantive ground fails therefore. MAT adjustment u/s 115JB on the 14A r.w.s. 8D disallowance - HELD THAT:- This tribunal’s special bench decision in ACIT vs. Viveet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] holds that said statutory provision does not cover any disallowance made u/s 14A read with Rule 8D. We according affirm the CIT(A)’s findings qua instant last issue as well. Issues Involved1. Disallowance of Long Term Capital Loss (LTCL) on share sale.2. Classification of gains on sale of land as Long Term Capital Gains (LTCG) versus Short Term Capital Gains (STCG).3. Disallowance under Section 14A read with Rule 8D for exempt income.4. Applicability of Section 115JB Minimum Alternate Tax (MAT) adjustments on disallowance under Section 14A read with Rule 8D.Detailed Analysis1. Disallowance of Long Term Capital Loss (LTCL) on Share SaleThe Revenue challenged the CIT(A)'s decision to reverse the Assessing Officer's disallowance of the assessee's LTCL on share sales amounting to Rs. 6,07,02,817/- and Rs. 20,95,69,036/-. The Assessing Officer had disallowed the LTCL on the grounds that the sale price of the unquoted shares was below their break-up value, suggesting an internal arrangement to create artificial losses. The CIT(A) reversed this disallowance by following the tribunal's order in the assessee's case for the preceding assessment year 2009-10, which held that the transactions were genuine and within the legal framework, and thus could not be termed as a 'colourable device' for tax avoidance. The tribunal upheld the CIT(A)'s decision, noting that the Revenue did not present any new facts or legal exceptions for the assessment year 2010-11.2. Classification of Gains on Sale of Land as LTCG versus STCGThe Revenue contended that the CIT(A) erred in treating the gains on the sale of land as LTCG instead of STCG as assessed by the Assessing Officer under Section 50 of the Income Tax Act, which applies to depreciable assets. The CIT(A) directed the Assessing Officer to verify whether the land was included in the block of assets for depreciation purposes. The tribunal concluded that the issue remained open for verification by the Assessing Officer and thus, the Revenue's appeal on this ground was dismissed.3. Disallowance under Section 14A read with Rule 8D for Exempt IncomeThe Revenue challenged the CIT(A)'s decision on the disallowance under Section 14A read with Rule 8D, amounting to Rs. 3,10,94,241/- and Rs. 44,45,663/-. The tribunal noted that the Assessing Officer did not record the mandatory satisfaction as required under Section 14A(2). The CIT(A) found that the assessee's interest-free funds exceeded its investments in tax-free income-yielding assets, thereby applying the presumption that interest-free funds were used for such investments. The tribunal upheld the CIT(A)'s decision, citing precedents from the jurisdictional High Court and the Bombay High Court.4. Applicability of Section 115JB MAT Adjustments on Disallowance under Section 14A read with Rule 8DThe Revenue sought to apply Section 115JB MAT adjustments on the disallowance made under Section 14A read with Rule 8D. The tribunal referred to its special bench decision in ACIT vs. Viveet Investment Pvt. Ltd., which held that Section 115JB does not cover any disallowance made under Section 14A read with Rule 8D. Consequently, the tribunal affirmed the CIT(A)'s findings on this issue.ConclusionThe tribunal dismissed the Revenue's appeals and the assessee's cross-objection, affirming the CIT(A)'s decisions on all substantive issues. The order was pronounced in the open court on 10/05/2019.