TaxTMI 
TaxTMI 
2016 (4) TMI 300
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....ncome Tax (Appeals) erred in arbitrarily determining the Long Term Capital Gain at Rs. 1,03,636 on the sale of 349,658 equity shares of Usha Breco Ltd as against the Long Term Capital Loss of Rs. 56,76,211 declared by the Assessee Company. 3) That the learned Commissioner of Income Tax (Appeals) erred in arbitrarily holding that the profit in respect of the sale of Land and Building situated at Village Chandweparganna, Ranchi, has to be assessed as Short Term Capital Gain under section 50(2) of the Income Tax Act, 1961. 4) That the learned Commissioner of Income Tax (Appeals) erred in arbitrarily determining the Short term Capital Gain, on the sale of Land and Building situated at Village Chandweparganna, Ranchi, at Rs. 3,09,90,729 as against the Long Term Capital Gain of Rs. 2,23,19,195 declared by the Assessee Company. 5) That the learned Commissioner of Income Tax (Appeals) erred in arbitrarily holding that the whole amount of consideration being sum of Rs. 16,50,000 in respect of sale of two properties situated at Rajkot are liable to be taxed under the head "Capital Gains" as against the claim of the Assessee Appellant that no amount was chargeable to tax, inasmuch as the A....
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....urt in the case of McDowell And Co. Ltd. v. CIT (1985) 154 ITR 148 (SC), where the Hon'ble Supreme Court has clearly stated that colorable device cannot be part of tax planning. The Hon'ble Delhi High Court in the case of CIT Vs Gillette Diversifies operations (p) ltd. (appeal no. 434/2009) has also held that these factors could have been relevant had the tribunal found the transactions undertaken by the assessee company were a colorable device with a view to cause a loss to the Revenue. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The Ld. AR submitted that Assessing Officer has not appreciated the facts of the case and has wrongly relied upon the aforesaid two decisions to disallow the loss of Rs. 56,76,211/-. The transaction for sale of shares was within the ambit of law and it was between the genuine parties. The sale proceeds were utilized in the repayment of debts in order to reduce the burden of the interest. There is no prohibition under any law to prevent transactions of sale and purchase of shares in group companies. Ld. AR further stated that only reason for disallowance of loss was alleged "colorable device to reduce the burden of tax". Now, the....
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....hat the sale of shares resulting in loses was "colorable devise" to disallow the same following the two decision relied by Ld. CIT(A). Ld. AR further submitted that the decision of Hon'ble Supreme Court in the case of McDowell And Co Ltd. (supra) was not correctly understood by AO. There it was found that the assessee resorted to dubious methods which are not authorized by law to avoid excise duty chargeable on manufacturer of liquor by the Department and transactions, itself were found to be illegal. In these facts of the case, Hon'ble Supreme Court held that avoiding taxes by means of illegal transactions adopting dubious method giving them the shape of legality would be colorable device. Further, Ld. AR submitted that it is for the assessee to arrange its affairs in a manner which reduces its tax liability. So far the assessee does not violate the provisions of any statute, the transactions resulting in reduction of taxes could not be termed as "colorable devise" as envisaged in the case of McDowell And Co Ltd. (supra). 6. On the other hand, Ld. DR vehemently relied on the orders of authorities below. 7. From the aforesaid discussion, we find that assessee has sold sha....
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....en been questioned by the Department. It is not disputed that the assessee had transferred those shares at the book value cost maintained by her. It is also not disputed that the book value cost was lower than the market value of the shares. In fact it is admitted that the market value of those shares was to the tune of Rs. 20,67,876 Under those circumstances, holding that the assessee had derived any income, being the difference between the market value and the price on which the shares were sold by the assessee, in our opinion, was not correct. We are of the view that the Tribunal rightly upheld the finding of the Commissioner of Income-tax (Appeals). It is not a case where any understatement of value or misstatement of value of the shares sold was made by the assessee. This is a case where the assessee had sold the shares at a value admittedly lower than the market price. Yet the shares could not be assessed on the difference amount being her income because no inference can be drawn in the facts and circumstances of the case that the design of the assessee was such that she concealed certain facts and she received the difference of the value by fraudulent means There was no evi....
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....ith rule 8D has prescribed computation for such disallowance any other approximation is not acceptable. Moreover, the assessee has also given an another complex calculation on a number of basis viz loan found used on closing balance basis as on 31.03.09, Loan found used on average basis as on 31.03.09 and on direct loan used for investment purpose. On 5th December the assessee has given another submission of the core contention of which is borrowed fund used and whole lot of other calculation. The above submission of the assessee is perused but the assessee is itself confused as to the method to be used for disallowing expenditure which is used to earn income which does not form part of the total income. It is not understandable as to why the assessee has submitted different method for calculation of disallowance u/s. 14A when the statute has given a simple method for calculation of such expenditure. On perusal of the Balance sheet and P & L account and Tax audit report as well as submission during scrutiny proceedings the following was noted." The AO further observed that own fund of assessee is Rs. 51.43 crores and loan fund of Rs. 48.99 crores. The assessee made investment in ....
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....faction regarding the working of the assessee has directly invoked the provisions of rule 8D which is not correct. The assessee submitted that .5% of the average value of investment should be considered as reasonable for the working of disallowable interest. The assessee also submitted that the amount of disallowance, in any case, should be calculated with reference to the amount of borrowed funds used for acquiring investments. The quantum of borrowed funds used for such investments could be arrived at by reference to the following decisions: i) CIT vs Reliance Utilities & Power Ltd. (2009) 178 Taxman 135 (Bom) ii) CIT vs. Dhampur Sugar Mills Ltd. 274 ITR 370 (All) iii) Britannia Industries Ltd. vs. JCIT 271 ITR 123 (Cal) iv) Bunge Agribusiness (India) (P) Ltd. v. Dy. CIT (2011) 64 DTR 201 (Mum.) (Trib.) In the above cases it was held that the available funds of the company should be treated as invested in tax free securities. Thus only balance amount of investment may be treated as having been made out of borrowed funds. Accordingly, interest on such amount only could be considered as disallowable u/s. 14A of the Act. The assessee further submitted without the prejudice of....
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....(b) ISG Traders Ltd. v. CIT in - 2011-TOIL-621-HC-KOL-IT dated 29.05.2002 (c) Dhanuka & Sons v. CIT (2011) 339 ITR 319 (Cal) (d) Technopak Advisors (P) Ltd. v. ACIT ITAT Delhi Bench (e) Cheminvest Ltd. v. ITO 121 ITD 318 (Del) (SB) (f) Sonata Information Technology Ltd. v. DCIT ITA No.1507/Mum/2012 dated 07.09.2012 (g) Hindustan Construction Co. Ltd. v. DCIT ITA No. 6438 to 6441/Mum/2008 dated 28.09.2012 (h) DCIT v. M/s Trade Apartment Ltd. ITA No. 1277/Kol/2011 dated 31.03.2012 ITAT Kolkata Bench (i) M/s Gillette Group India Pvt. Ltd. v. ACIT ITA No. 267/Del/2012 dated 23.03.2012 (j) M/s Search Enviro Ltd. v. ACIT ITA No. 3464/Mum/2011 dated 02.03.2012. Finally the ld. CIT(A) has worked out the disallowance under section 14A read with rule 8D by observing as under : "51. The Assessing Officer has calculated the interest under Rule 8D(2)(ii) by taking the value of the net assets rather than the gross assets. The appellant has submitted that total assets are to be taken as denominator rather than the net assets for calculation of disallowance under Rule 8D(2)(ii). The plea of the appellant is held to be correct since the Rule 8D(3) provides that for the purposes of thi....
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.... had recorded his satisfaction in terms of Rule 8D(1) of the IT Rules is based on incorrect facts. Ld. AR further argued that the recording of satisfaction in terms of Sec. 14A of the Act read with Rule 8D(1) of the IT Rules is mandatory for the AO before resorting to Rule 8D(2). In this connection, Ld AR relied on the following decisions with regard to his contentions:- * CIT vs Ashish Jhunjhunwala in GA No. 2990 of 2013 in ITAT No. 157 of 2013 dated 08.01.2014 rendered by Hon'ble jurisdictional High Court * CIT vs. R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 rendered by Hon'ble jurisdictional High Court Ld. AR further argued that investments which have not given any yield in the form of dividend income during the year needs to be excluded for the purpose of disallowance u/s 14A of the Act. The investment made in group companies should be constituted as strategic investment, hence, the provision of Sec. 14A of the Act should not be applied. 11. On the other hand Ld. DR simply relied on the orders of authorities below. 12. We have heard rival contentions and perused the materials available on record. From the above discussion, we find that ....
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....two conflicting decisions of the same court or different courts on the same issue, then the decision favorable to the assessee has to be followed. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products (1973) 88 ITR 192 (SC) hence, we hold that the action of the AO in directly embarking on Rule 8D(2) of the IT rules is not appreciated and hence no disallowance under section 14A of the Act could be made in the facts of the case. We also find that the investments made in the group companies by the assessee are only strategic investments and were made with a primary object to acquire controlling interest in group concerns and not for earning any income out of that investment and reliance in this regard is placed on the decision of co-ordinate Bench of this Tribunal in the case of DCIT vs. Selvel Advertising Pvt. Ltd. (2015)58 taxmann.con 196 (Kol) (Trib.). We hold that even on this count, no disallowance u/s. 14A of the Act could be made by the AO. We also find that the investments which did not yield any dividend income needs to be excluded from the computation of disallowance, if any, u/s. 14A of the Act read with ....