TaxTMI 
TaxTMI 
2016 (10) TMI 1249
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....e facts and in the circumstances of the case and in law, the CIT (A) erred in confirming the disallowance made by the AO u/s 14A of the Act as per Rule 8D of the IT Rules, 1962 at Rs. 2,07,144/-. 1.2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in upholding the action of the AO in rejecting the working of disallowance u/s 14A of the Act made by the appellant on reasonable basis. 1.3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in computing disallowance u/s 14A of the Act by invoking Rule 8D without giving any reasons for non-satisfaction with the correctness of the disallowance made by the appellant. 1.4. On the facts and in the circumstances of the case and in law, the CIT (A) erred in not appreciating that no borrowed funds have been used for the purpose of making investments in shares yielding exempt income and the entire investments have been made out of own funds. 1.5. On the facts and in the circumstances of the case and in law, CIT (A) erred in not appreciating that the appellant has not incurred any interest expenditure for the pur....
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....en off amounting to Rs. 5,00,000/- given by various companies (now merged with the appellant company) which were engaged in the business of investment. 4. Taxability u/s 115-O: 4.1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that by gifting the shares of United Phosphorus Limited (UPL) and Uniphos Enterprises Ltd (UEL) to Nerka Chemicals Private Limited (NCPL) there was an indirect disguised distribution of accumulated profits by the appellant to its shareholders / members of the Shroff family which is covered u/s 2(22)(a) of the Act. 4.2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that the appellant is liable to pay dividend distribution tax u/s 115-O of the Act in respect of the shares transferred to NCPL held to be deemed dividend u/s 2(22)(a) of the Act. 4.3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in giving directions to the AO to levy dividend distribution tax u/s 115-O without issuing a cause notice and consequently violating the principles of natural justice by not providing an adequate and reasonable opp....
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....ited (NCPL) vide transfer agreement dated 26.2.2010. Assessee claimed the same as „gift‟ of the shares to NCPL does not involve any consideration by the donee assessee-company. Considering the precedent involving in similar donor concern, which was adjudicated by the Hon‟ble Jurisdictional High Court in the case of Nerka Chemicals P Ltd (371 ITR 280) as well as Ahmedabad High Court judgment in the case of M/s. Prakriya Pharmachem vs. ITO in Special Civil Application No.20492 of 2015, dated 18.1.2016, we have adjudicated the identical issue in the said cases of Ultima Search and Shroffs (supra) and the said gift ransactions are held by us as „gift‟ transactions. The decision is in favour of the assessee. The decision is in favour of the assessee. While deciding the issue the above cases, we have considered the view of the Hon‟ble High Court that the title of he agreement should not come on the way of the substance of the transaction. We have also examined the applicability of the provisions of section 2(22)(a) of the Act and upheld the interpreting of the said provisions by the „principles of strict interpretation‟. We have also held t....
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....e of M/s. Prakriya Pharmachem vs. ITO in Special Civil Application No.20492 of 2015, dated 18.1.2016 and the related transfer of shares constitutes an exempt transfer under the provisions of sectin 47(iii) of the Act. We have also perused the order of Honble Bombay High Court in the case of the recipient company NECL reported in 371 ITR 280 during the Stay Petition related proceedings and find that the assessee‟s claim of gift agreement is prima facie approved. The relevant para 5 and 6 of the said judgment is extracted as under: "5. The AO in the assessment order held that the transfer agreement is purely in he nature of "transfer" as it does not mention the word „gift‟. He rejected the contention that the transfer of the shares was by way of „gift‟ as the agreement is titled as Transfer Agreement". He observed that if it had been a "gift" it would have been a gift deed". 6. The petitioner has more than just a strong prima facie vase in this regard. The title given to a document is not determinative of its true character. he purport of the document must be ascertained on a consideration of he contents thereof. The respondents do not ....
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....enefit granted to them u/s 115-0 of the Act; (c) the said benefit also attracts the provisions of section 56(2)(vii) of the act; and (d) eventually whole scheme of transfer of shares of UPL/UEL to NCPL and ultimately to the holding company constitutes a case of colourable device. In the process, CIT(A) rejected the assessee‟s claim of „transfer agreement‟ as „gift agreement‟ and eventually rejected to applicability of the provisions of section 47(iii) which considers such gift transfer as „exempt transfer‟ for the purpose of capital gains. However, CIT(A) granted relief to assessee on holding that it is case of ransfer without consideration. He however, confirmed the addition for the other reasons narrated above. We shall now deal with each of them in the succeeding paragraphs of this order. 14. Applicability of the provisions of clause (a) of section 2(22)/section 115-0 of the Act: In this regard, Ld Counsel for the assessee brought our attention o the relevant provisions and submitted that the assessee is an individual and herefore, the question of distribution of dividend does not arise for invoking the provisions of clause (a) ....
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.... 2(22)(a) of the Act and find the said section provides for inclusive definition of the word "dividend". The situations mentioned in clauses (a) to (e) of section 2(22) of the Act are some of the situations, which attracts these provisions subject to exceptions provided therein. It is a settled legal proposition that the provisions of section 2(22) constitutes "deemed dividend" and must receive a „strict interpretation‟ [CIT vs Martin Burn Ltd (136 ITR 805) (Cal)]. The judgment of the Hon‟ble Apex Court in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) is relevant for the proposition that every receipt by the shareholder is not a „dividend‟. The expression "accumulated profits" appearing in the above clause-(a) to section 2(22) of the Act is required to be understood in a sense of „commercial profits‟, PK Badiani v. CIT [1976] 105 ITR 642 (SC). It is also a settled proposition in law that the expression „release of capital assets‟ is not attracted in factual matrix where certain bogus shares are issued without any consideration by the company to the shareholders [CIT vs. Dalmia Investment Company Limited [52 ....
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....ssions of the assessee, for the reasons given in paras 5.3.1 to 5.3.3 of his order, CIT (A) confirmed the addition of Rs. 79,693/- u/s 14A of the Act. Aggrieved with the said decision of the CIT (A), assessee is in further appeal before the ribunal. 12. During the proceedings before us, Ld Counsel for the assessee reiterated the submissions made before the lower authorities. 13. On the other hand, Ld DR for the Revenue relied on the orders of the Revenue Authorities. 14. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties and on perusal of the orders of the Revenue Authorities as well as the submissions made before us, we find, there is no dispute so far as the disallowance under Rule 8D(2)(i) is concerned. Whereas, regarding the attracting the provisions of clause-(ii) and (iii) of Rule 8D(2) of IT Rules, 1962, Ld Counsel for the assessee was critical of the CIT (A)‟s conclusions in para 5.3.2. On perusal of the said para 5.43.2 of the CIT (A)‟s order, we find, the CIT (A) has not honoured the legal proposition relating to the transaction relating to pre....
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....tantiate that the assessee has received an amount higher than what has been declared by him. 2.8. In this regard, reliance is placed on the following decisions: (a) S. Ganesh Vs. ACIT (ITA No.527/Mum/2010) (ITAT Mum) (URO) affirmed in CIT vs. S. Ganesh [2016] 88 CCH 469 (Bom.) (b) Crescent Chemicals vs. ITO (ITA No.1355/Mum/2010) (ITAT Mum) (Unreported)" 16. After going through the reasoning given by the CIT (A) in para 6.3 of his order and the written submissions extracted above, we are of the opinion, the addition lacks in merits. Accordingly, we allow this part of the ground in favour of the assessee. Thus, Ground no.2 raised by the assessee is allowed. 17. Ground no.3 relates to the disallowance in respect of advances written off. Giving brief facts in this regard, Ld Counsel for the assessee submitted that the said amount was advanced by the various companies, which were merged with the assessee-company conclusively. Consequently, their advances have become the advances of the assessee-company. Assessee wrote off such advances in its books of account of the year. The same is claimed as allowable deduction considering the fact relating to the cl....
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....at the same right should not be recognised in the transferee. It is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. It is a right which should, on a proper appreciation of all that is implied in the transfer of a business be regarded as belonging to the new owner................ 8. It seems to us that even if the debt had been taken into account in computing the income of the predecessor-firm only and had subsequently been written off as irrecoverable in the accounts of the assessee, the assessee would still have been entitled to a deduction of the amount written off as a bad debt. It is not imperative that the assessee referred to in sub-clause (a) must necessarily mean the identical assessee referred to in sub-clause (b). A successor to the pertinent interest of a previous assessee would be covered within the terms of sub-clause (b). The successor assessee, in effect, steps into the shoes of his predecessor." 18. Further, it is evident that the Revenue disallowed the claim of the assessee for want of evidence that the said advances are given in ordinary course of business o....
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.... 3.2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that the appellant is liable to pay dividend distribution tax u/s 115-O of the Act in respect of the shares transferred to NCPL as deemed dividend u/s 2(22)(a) of the Act. 3.3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that by gifting the shares of UPL and UEL by various donor companies to NCPL there was an indirect disguised distribution of accumulated profits by the donor companies to their shareholders / members of the Shroff family which is covered u/s 2(22)(a) of the Ac. 4. Gift of UPL and UEL shares is a colourable device: 4.1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in confirming the action of the AO in holding the aforesaid transaction as a colourable device to avoid tax by applying the decision of the Supreme Court in the case of McDowell & Co Ltd (154 ITR 148). 4.2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in making various observations which are factually incorrect and contrary to he facts available on rec....
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....urnished relevant information involving VAT and tax invoices etc. The said explanation was rejected and the AO proceeded to make addition on this account as per the given in para 5.7 of his order. Matter travelled to the first appellate authority. 23. During the proceedings before the first appellate authority, after considering he submissions of the assessee, CIT (A) set aside the matter to the file of the AO with a direction to verify / examine the assessee‟s claim that the said purchases were lying in closing stock as on 31.3.2010 as well as the evidence furnished by the assessee to prove the genuineness of purchases from M/s. K.C. Enterprises. Contents of para 6.3.2 of CIT (A)‟s order are relevant in this regard. Aggrieved, assessee is in appeal before the Tribunal. 24. During the proceedings before us, Ld Counsel for the assessee reiterated the submissions made before the lower authorities. Further, Ld AR submitted that since all the evidence was before the CIT (A) and he examined the same. It is the submission of the Ld AR, since the purchased items were lying in closing stock as on 31.3.2010, for which evidence was produced before the first appellate author....