TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 64
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....f Rs. 4,735/- out of its investments and the remaining amount of Rs. 31.30 lakhs was received from the shares held as stock in trade. It was submitted that out of Rs. 31.30 lakhs, dividend of Rs. 31.21 lakhs was received from a scrip named M/s Muthoot Finance Ltd, which was kept as stock in trade. It was also contended that the purpose of trading in shares was to earn profits and not to earn dividend income. Accordingly it was submitted that earning dividend income was incidental and indivisible part of trading in shares. Accordingly the assessee contended that the there is no reason to invoke Rule 8D and further no disallowance was warranted u/s 14A of the Act. 4. The AO was not convinced with the contentions of the assessee and proceeded to compute the disallowance as per Rule 8D of the ITAT Rules. The disallowance of direct expenses under Rule 8D(2)(i) was computed at Rs. 8,22,353/- in proportion to exempt income to total revenue from operations. The disallowance of interest expenses under Rule 8D(2)(ii) was computed at Rs. 12,67,410/- in proportion to average value of investments to the average value of total assets. The disallowance of administrative expenses under rule 8D(2)....
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....and exempt income. In fact, we notice that the Ld CIT(A) has directed the AO to compute the disallowance under Rule 8D(2)(iii) by considering only those scrips which has yielded dividend. Hence considering the fact that major portion dividend income has been received from shares held as stock in trade, that too out of a single scrip, we are of the view that it may not be appropriate to apply the provisions of Rule 8D in the instant case. Accordingly we are of the view that the requirements of provisions of sec. 14A shall be met, if the disallowance is made at 5% of the dividend income earned by the assessee. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A to 5% of the exempt income earned by the assessee. 8. The next issue contested in this appeal relates to the disallowance of deduction claimed u/s 35(1)(iii) of the Act. The facts relating thereto are that the assessee paid donation of Rs. 50.00 lakhs to M/s Bioved Research Society, which was an institution undertaking scientific research. Since it was approved u/s 35 of the Act, the donation paid to it is eligible for weighted deduction of an amount equa....
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....ighted deduction u/s 35(1)(ii) is allowed to donations given to research association, which is approved in accordance with the guidelines issued in this regard and which is notified by the Central Government. He submitted that the M/s Bioved Research Society has been approved and notified, vide notification no.15/2008 dated 01-02-2008. In this regard, he invited our attention to the copy of notification placed at page 30 of the paper book. He submitted that the above said notification has not been withdrawn till date. Accordingly he submitted that there is no valid reason for rejecting the deduction claimed by the assessee u/s 35(1)(ii) of the Act. He submitted that the Ld CIT(A) has placed his reliance on the order passed for withdrawal of the registration granted u/s 12AA of the Act. He submitted that the provisions of sec. 12AA and sec. 35(1)(ii) operate on different fields and further there is no condition prescribed in sec. 35(1)(ii) that the registration of the research association u/s 12AA is the condition for allowing deduction u/s 35(1)(ii) of the Act. 13. The Ld A.R submitted that an almost identical issue was considered by Hon'ble Bombay High Court in the case of Ramdas....
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....commended cancellation of approval granted u/s 35(1)(ii) of the Act. He further submitted that the registration of the above said society given u/s 12AA of the Act has been cancelled with retrospective effect. Accordingly the ld D.R submitted that the assessee has obtained only bogus donation receipts and hence the Ld CIT(A) was justified in confirming the disallowance of weighted deduction of Rs. 87.50 lakhs claimed u/s 35(1)(ii) of the Act. 16. We have heard rival contentions on this issue and perused the record. The undisputed fact remains that the research society, viz., M/s Bioved Research Society was duly approved u/s 35(1)(ii) of the Act and the assessee has given the impugned donation of Rs. 50.00 lakhs, when the approval was very much available. It is the contention of Ld A.R that the approval so granted has not been cancelled till date. The assessee has given donation during the financial year 2013-14.The Assistant Commissioner refers in his remand report about the survey conducted in the year 2015 in the hands of certain donors. Based on the survey findings, the assessment in the hands of Bioved Research Society has been completed on 29-03-2016. These facts show that th....
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....ing Assistant Commissioner (1990)(184 ITR 123). In the case of Sekasaria Biswan Sugar Factory Ltd, the assessment was re- opened to withdraw the deduction allowed u/s 35CCA of the Act on the basis of cancellation of approval with retrospective effect. The Hon'ble Bombay High Court expressed the view that the giving retrospective effect to the cancellation of approval was not valid. Accordingly the Hon'ble Bombay High Court held that the notice of reassessment was not valid. 19. The Hon'ble Calcutta High Court has considered an identical issue in the context of sec. 263 of the Act in the case of CIT Vs. General Magnets Ltd (253 ITR 471). In the above said case, the Ld CIT sought to cancel the deduction claimed u/s 35CCA of the Act on the basis of cancellation of approval made with retrospective effect. The following observations made by the Hon'ble High Court are relevant:- "15. For our consideration in this case the issue is when the approval exemption to the society has been withdrawn with retrospective effect, can the order of the assessing officer be said to be erroneous or prejudicial to the interests of Revenue; our answer will be in the negative. When the assessee has paid....
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....ced reliance on the cancellation of registration granted u/s 12AA of the Act to M/s Bioved Research Society with retrospective effect. The registration granted u/s 12AA of the Act and the approval granted u/s 35(1)(ii) of the Act operates on different field. Hence we are of the view that the Ld CIT(A) was not justified in placing reliance on the order of cancellation of registration u/s 12AA of the Act. 21. Even if the approval is cancelled subsequently with retrospective effect, various case laws discussed above bring out the ratio that the weighted deduction claimed by the assessee u/s 35(1)(ii) of the Act cannot be denied, if there was valid and subsisting approval when the donation was given. In the instant case, it is the contention of Ld A.R that the approval was not cancelled till date. Before us, the revenue did not furnish any material to refute the contentions of Ld A.R. 22. In view of the foregoing discussions, we are of the view that there is no justification in rejecting the claim of weighted deduction claimed u/s 35(1)(ii) of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the weighted deduction claimed u/s 35....
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....rence between the book value of shares and purchase price of shares amounting to Rs. 82.89 lakhs as income of the assessee u/s 56(2)(viia) of the Act. The Ld CIT(A) also confirmed the same. 25. The Ld A.R submitted that the Income tax Act was amended by inserting a new clause in sec. 2(22) of the Act and also by inserting sec.46A, consequent to the insertion of sec. 77A in the Companies Act, which allows a company to purchase its own shares. Amendment in Section 2(22) provides that the dividend does not include any payment made by a company on purchase of its own shares in accordance with provisions of sec. 77 of the Companies Act. Section 46A provides for taxation of consideration received. Accordingly the Ld A.R submitted that the above said provisions only deal with the case of buy back of shares and hence the AO was not correct in invoking the provisions of sec. 56(2)(viia) of the Act in the instant case. In this regard, the Ld A.R placed reliance on the Memorandum Explaining the provisions in Finance Bill, 1999 available in (1999) 236 ITR (St.) 155. 26. He submitted that the provisions of sec.56(2)(vii) were introduced as counter evasion mechanism as explained in the Memoran....
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....educes the paid up capital. Hence the ratio of the above said decision should apply here also. 28. The Ld A.R submitted that the AO has taken the book value of shares at Rs. 32.80 per share. He submitted that the assessee also got its shares valued as per which the book value of shares as on 31.3.2013 works out to Rs. 25.42 per share. He further submitted that the provisions of sec. 56(2)(viia) speaks about "fair market value" of shares, which is different from book value. 29. The Ld D.R, on the contrary, submitted that the assessee is relying upon a valuation certificate obtained recently and the same was not available before the AO. Accordingly he submitted that the above said valuation report should be ignored. He submitted that the assessee has purchased shares at Rs. 26/- per share, while the book value as per the computation of AO was Rs. 32.80 shares. Accordingly he submitted that the AO has rightly assessed the difference u/s 56(2)(viia) of the Act. 30. We have heard rival contentions on this issue and perused the record. The provisions of sec. 56(2)(viia) reads that "where a firm or a company not being a company in which the public are substantially interested, receives....