CIRCULAR

187

Diwali bonanza for exporters of services - Govt orders speedy disbursal of refund

CASE LAWS

2015-TIOL-1819-ITAT-AHM

ANJALEE EXIM PVT LTD VS ACIT : AHMEDABAD ITAT (Dated: September 29, 2014)

Income Tax - Sections 14A & 73(1)

Whether computation provisions under rule 8D2 (ii) and (iii) will fail because the dividend yielding shares are held as stock in trade and not as investments, and the disallowance under rule 8D(2)(i) will be confined to only direct expenses for earning the tax exempt income - Whether for the purpose of deciding as to whether explanation to Section 73(1) is applicable or not, business income should be worked out without invoking the provisions of Explanation to Section 73(1) and then, such business loss or income should be compared with the income under the other heads.

The assessee is engaged in the business of trading in shares. It had a closing stock of shares at Rs 8,36,57,556 as against the opening stock of shares at Rs 2,99,59,113. The assessee had earned a dividend income of Rs 5,28,274 which is tax exempt in the hands of the assessee. The AO held that the disallowance u/s 14A r.w.r 8D was required to be made in this case. He thus proceeded to compute the disallowance by taking the value of closing stock of shares as "investment income from which does not form part of the total income". On this basis, as against a dividend income of Rs 5,28,274, a disallowance of Rs 42,97,650 was computed. The CIT(A) held that disallowance was rightly computed u/s 14A r/w rule 8D.

Having heard the parties, the Tribunal held that,

++ the issue is covered by a coordinate bench decision in the case of DCIT Vs Gulshan Investment Co Ltd [(2013) - 2013-TIOL-206-ITAT-KOL inasmuch as even if the provisions of Section 14A are to be held applicable in this case-as was held therein, computation provisions under rule 8D2 (ii) and (iii) will fail because the dividend yielding shares are held as stock in trade and not as investments, and the disallowance under rule 8D(2)(i) will be confined to only direct expenses for earning the tax exempt income. Having noted that there are admittedly no direction expenses incurred in earning the dividends which could qualify for being covered by rule 8D2(i), we delete the impugned disallowance of Rs 42,97,650;

++ on the issue of allocation of STT amounting to Rs 10,12,199, with the consent of the parties, this issue is remitted to the file of the AO for fresh adjudication in the light of the principles laid down by Bombay High Court in the case of CIT Vs Manish D Innai - 2015-TIOL-893-HC-MUM-IT;

++ on the issue of allocation of common expenses between speculation and non-peculation business, amounting to Rs 27,57,751, this issue is covered by Tribunal's decision in assessee's own case for the immediately preceding A.Y. In the said decision, the coordinate bench has, inter alia, observed that Explanation to Section 73(1) is not applicable and, therefore, loss from business of purchase and sale of shares on delivery basis cannot be considered as speculation loss and only the loss from commodity transaction business has to be considered as speculation loss. No reasons to take any other view of the matter than the view so taken by the coordinate bench.

Case remanded

2015-TIOL-1818-ITAT-MUM

COUGAR INVESTMENT PVT LTD VS CIT : MUMBAI ITAT (Dated: September 11, 2014)

Income Tax - Sections 68, 143(3) & 263

Keywords - bonus shares - nature of receipt - premium receipt - share application money

Whether share capital received by the assessee at premium should be treated as genuine, when Commissioner has not given any such finding, when the AO has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record - YES: ITAT

Whether the CIT was not correct in invoking amended provisions u/s 263 under such circumstances - YES: ITAT

The assessee is engaged in the business of financing. It had received share application money along with the premium. The assessment order was passed. However, during assessment, the CIT invoked his power under Section 263 and held that the amount of premium gets reflected in the reserves and can be distributed to the share holders in the form of bonus shares. Thus, provisions u/s.78 of Company's Act was applicable and held that primary nature of premium receipt was 'revenue' and therefore chargeable to tax. He further held that since the nature of receipt was not explained, the premium amount credited in the books of account was chargeable to tax u/s.68. The CIT set aside the assessment order and directed the AO to frame the assessment afresh.

The Tribunal held that,

++ after going through the order of the CIT, we found that he has not disputed the enquiry made by the AO with regard to issue of shares at premium including sources thereof. It is also not the case of the CIT that there was any incriminating material on record, stated any adverse view in this regard nor there is any whisper in this regard. With regard to the share capital receipt, the CIT also not doubted that assessee is involved in any accommodation entries even no adverse view has been taken about the enquiries already made by the AO. Further the CIT had categorically accepted and acknowledged that the AO had made verification/inquiries regarding the source of the cash credit. From the record, we also found that the AO has made direct enquiry with two shareholders as well as with the bank. Both shareholders company was assessed to tax and duly respondend to the AO's notice. The bank had also replied AO's notice regarding share capital received from these companies. Assessee has duly filed confirmation from the share applicants including balance sheet, bank statement;

++ Revenue cannot stand in the way of person opting to buy share at a premium insofar as sources of funds are not in dispute. Even with respect to requirement of Section 78, the assessee has fulfilled all the prescribed formalities under the Companies Act, 1956 by filing requisite Form No.2 along with Annexures. The Registrar of companies has accepted the issue of shares at premium and no adverse view has been adopted in this regard. Thus, the nature of "cash credit" was also evident as per the documentary evidence placed on record. So far as nature of receipt on account of share capital and premium thereon is concerned, both are in the nature of capital receipt and not in the nature of income. The CIT has tried to invoke section 68 to see that share premium is income of the assessee with respect to amendment brought by the Finance Act, 2012. However, the amendment in Section 68 was brought by the Finance Act, 2012 w.e.f1-4-2013, therefore, there is no reason to treat the share premium as income during the assessment year 2010-11 under consideration. Thus, CIT was not correct in invoking amended provisions during the year under consideration;

++ we found that the AO has called for financial details of the companies and also examined the parties in order to satisfy himself about the genuineness of the transaction and source of money. Thus, after examining the evidences available on record, the AO has accepted the claim of assessee regarding receipt of share capital at premium. The Commissioner has not found any fault with the details and records that the AO has not conducted the proper enquiry. When the entire record was available with the Commissioner, he ought to have given a concluding finding that the view taken by the AO is contrary to the law as well as facts emerging from the records. However, the Commissioner has not given any such finding and restore the matter to the record of the AO which is not permissible as per provisions of Section 263 when the AO has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record. We have also found that assessee company has filed bank statement of these companies showing the transaction of payment of share premium. In view of the above discussion, we can conclude that share capital received by the assessee at premium was genuine, not only source of the fund but also genuineness of the transaction was duly established. The share premium so received was capital receipt not liable to tax during the year under consideration. Necessary enquiries with regard to share capital so received was made by the AO.

Assessee's appeal allowed