AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 665
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....uilding of International Fiscal Association, Delhi. 2. Assessee Company derives its income from the business activities which include providing financial and management consultancy, corporate guarantees, loans and shares transactions, commission agency, running a hotel etc. I.T.A. Nos.785 & 5336/Del/2011 & Cross Objection No.56/Del/2011 3. During the scrutiny of return of income for the Asstt Year AO made certain additions on account of (i) long term capital gain on sale of land,(ii) loss on sales of shares of MBM Ltd. , (iii) disallowance of membership/subscription fees paid on behalf of one Mr. B.K. Modi, its Chairman, and (iv) ad hoc disallowance of Rs. 24,53,078/- out of travelling expenses. Learned CIT(A) deleted all these expenses but sustained the disallowance of Rs. 3,33,334/-, the registration expenses and reduced the disallowance of travelling expenses to Rs. 5 lacs. 4. Ground No 1 of appeal as well as Cross objections relates to the computation of the Long Term Capital Gains. During the F.Y. 1994-95 1 Bigha and 12 Biswas of rural agricultural land, bearing Khasra No. 19/21 situated in village Samalkha, Delhi was acquired by one Silverstone (India) Pvt. Ltd. for a sum....
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.... acquisition. However, the CIT(A) did not allow the claim of registration expenses of Rs. 3,33,334 holding that the same cannot be part of cost of acquisition or improvement. 7. Challenging the direction to adopt sales consideration at Rs. 25,00,000/- Revenue preferred appeal, whereas aggrieved by the denial of claim of registration expenses of Rs. 3,33,334/- assessee filed cross objection. 8. Ld. DR vehemently relied upon the Assessment Order, whereas the Ld. AR submitted that no evidence was brought on record or confronted to the assessee in relation to the observations of the Ld. AO that the nature of land has not yet changed practically, or that the land is urban land and huge towns are developing in the nearby localities or that construction was going on the land. He further submitted that though not disputed, Ld AO ignored the fact that the circle value of Rs. 6,20,126/- which was applicable to the land and was duly supported by the notification dated 30.08.2005 and 24.01.2008 issued by Govt of NCT of Delhi - Land and Building Dept. and such value was much lower than the sales consideration of Rs. 25,00,000/-. Further, the Khatauni incorporated at page 29 of paper book spec....
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.... the registration expenses of the property on transfer amounting to Rs. 3,33,334/- in connection with transfer of property was paid by the assessee, the same are required to be deducted while computing capital gains. Payment of registration expense of Rs. 3,33,334/- by the assessee is duly supported by documentary evidence i.e Pay Order evidencing payment of stamp duty is incorporated at page 33 of the paper book. Consequently, Ld. AR submitted that the action of CIT(A) in not allowing deduction of such expenses is untenable and liable to be reversed. Ld. DR submitted that except the copy of cheque, there is no evidence on record to show that the assessee has incurred this expenditure. 13. We have gone through the record in the light of the submissions made on either side. Section 50C of the Act reads that, - 50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of s....
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....smissed. 16. Now coming to Ground No. 1 of Cross objection, for adjudication of this ground, relevant portion of Section 48 needs to be extracted and it is,- 48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: 17. Order of learned CIT(A) shows that he disallowed the registration expenses on the ground that such expenses cannot be part of cost of acquisition or the cost of improvement of the property. However, a reading of Section 48 clearly shows that while computing the income chargeable under the head "capital gains" not only the cost of acquisition/cost of improvement, but also the expenditure incurred wholly and exclusively in connection with such transfer is also deductable. 18. The registration expense are said to have been incurred under the pay order dated 2.8.2006 copy of which is at page No.33 of the paper book. Vide page n....
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....e sale of shares at Re.1/- to one of its group companies is within the legal framework and cannot be dubbed as sham or illegal. 22. It is the argument of the learned DR that the sale transaction with one of the group companies is at the will of the assessee and amenable for manipulation. He vehemently relied upon the Assessment order. 23. There is no dispute that the net worth of the MBM Company is in the negative as on 30.6.1996 and the company was under liquidation. From the documents produced by the learned AR we are satisfied that it is the usual business practice in commercial transactions to sell the shares of a company having net worth at a token consideration of Re.1/- for accounting purposes. In the decisions South Asia Industries Pvt Ltd vs. CIT Delhi Central: 155 ITR 392 (Del.), CIT v. Special Prints Ltd.: 262 CTR 119 (Guj)-, Jayesh P. Choksi v. ACIT: ITA No. 1840/Mum/2005 (Mum) and Lalith umar Modi v. AO: 37 ITD 42 (Del) relied upon by the assessee it is held that the transfer of shares leading to computation of capital loss cannot be disputed merely because such transactions were with group companies. Ld. AR produced Audited annual accounts of Graphtech India Ltd as ....
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.... ground of appeal. 26. Adverting to the membership/subscription fees paid on behalf of Mr. B.K. Modi, the Chairman, the assessee incurred the said expense and paid the amount to Clinton Global Initiative, Associated Chamber of Commerce and Industries of UP, Asia Business Council, Conference Board Inc. etc. Learned AO disallowed the same on the ground that the assessee did not derive any direct benefit from the above membership, and even if any benefit is derived it is of enduring nature as such, capital expense. Learned CIT(A) deleted the same. 27. At the outset, it is brought to our notice that in assessee's own case for the AY 2005-06, the Tribunal in its order dated 30.9.2010 followed its earlier decisions and vide paragraph no.12 to 14 that the grounds of appeal of the revenue are liable to be dismissed. The Hon'ble Allahabad High Court considered the issue of membership claimed to be connected with the business of the assessee and observed that there was no material to suggest that the expense claimed by the assessee was non-business or of personal in nature and confirmed the finding of the Tribunal. Even for the Asstt. Year 2002-03, 2004-05 and 2006-07 also, the membership ....
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....here is no justification to make any adhoc disallowance and adhoc disallowances made in absence of any specific mention of a un-vouched expenditure liable to be disallowed have been held to be untenable and not called for. 32. He further submitted that deduction under section 37(1) of the Act is admissible for expenditure incurred wholly and exclusively for purposes of business, and the expenditure justified by business considerations and incurred out of commercial expediency is allowable deduction. He submitted that the settled position of law on this aspect by the Hon'ble Apex Court in CIT v Walchand & Co.: 65 ITR 381 (SC); CIT v J.K. Wollen Manufactures: 72 ITR 612 (SC); CIT v Aluminium Corporation of India Ltd.: 86 ITR 11 (SC); CIT v Panipal Wollen & General Mills Co. Ltd.: 103 ITR 666 (SC); CIT v J.J. Enterprises: 254 ITR 216 (SC) ; CIT v Dalmia Cement (P.) Ltd.: 254 ITR 377 (HC) (Del); CIT v Padmani Packaging (P) Ltd.: 155 Taxman 268 (HC) (Del) is that the reasonableness of the expenditure has to be seen from the point of view of businessman and not that of the revenue. 34. While placing reliance on the decisions reported in CIT v S.A. Builders Limited: 288 ITR 1 (SC); CIT ....
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....t where Tribunal had a pure finding of fact that assessee was engaged in two different types of transactions, first set of transactions involving investment in shares and second set of transactions involving dealing in shares (without delivery) for purposes of business, it had correctly held that delivery based transaction should be treated as those in nature of investment transactions and profit received there from should be treated either as short-term capital gain, depending upon period of holding and profit from other transactions should be treated as business income. 38. Learned AR submitted that year after the year ld. AO has been treating the capital gains on the sale of shares shown as investment in the books of accounts, as business income and in the previous years, a coordinate bench of this Tribunal dealt with this aspect and held the issue in favour of the assessee. He brought to our notice that in ITA NO.2455/De//2010 vide order dated 30.9.2010, appeal preferred by the revenue, the Tribunal referred to the decisions in earlier years in ITA No.1121/2003 order dated 3.10.2006, ITA No.2022/Del/2008 and ITA NO.1631/Del/2008 dated 14.5.2008 and ITA No.4005 and 4189/Del/200....
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...., the AO rightly concluded that this sale happened only in this year with a purpose of setting off the capital gains in some other shares against the capital loss in these shares. 42. Learned AR submitted that after acquisition of these share, no benefit was derived by the assessee and the value of these shares was determined by the Chartered Accountant at Rs. 5.14 as on31.3.2007. According to the learned DR, the assessee got rid of this burden by deriving the value of acquisition and so long as the genuineness of the transaction is not in doubt, merely because the transaction ended up in loss, it cannot be doubted. He submitted that different yardsticks cannot be adopted for the shares accrued capital gain and for the shares incurred capital loss. He submitted that in the decisions reported in CIT v. Bharti Cellular Ltd. : 330 1TR 239 (SC) and Hindustan Lever Employees' Union v. Hindustan Lever Ltd.: 1995 AIR (SC) 470, Hon'ble Apex Court observed that the report obtained from a technical expert is binding on the AO. 43. On a careful consideration of the matter, we find that there is no material on record to brush aside the findings of the learned CIT(A)that the shares were a....
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....ise, Ld. CIT(A) deleted the addition made by the AO of Rs. 30,35,500/-. 47. Ld. DR submitted that when the NAV of shares was at Rs. 1967/-, it is highly improbable for the assessee to sell the same at a lesser value and the Ld. AO is justified in substituting the Sale consideration with the NAV of the shares. 48. It is the argument of the Ld. AR that Harjas Logic System Pvt. Ltd. is a private company and is not traded on the stock exchange, and the same was concluded at the mutually negotiated price between two parties., the assessee has sold shares @ Rs. 1500 per share as against cost of acquisition of Rs. 200 per share. He further submitted that shares transfer transactions which were at a price higher than NAV, namely, as shares of Plus Paper Foodpac were sold at Rs. 20 per share against NAV of Rs. 13.23 per share and of Modikem Ltd. at Rs. 16/- per share as against NAV of Rs. 14.33 per share were accepted by the AO while doubting the shares with higher NAV, and if NAV of all shares be substituted for sale consideration, it would be observed that the assessee has sold investments at value higher by Rs. 3,03,64,980/-. He submitted that the Ld. AO has no power to substitute full....
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.... the expense stating that this expense is not for the maintenance of business level and needs and is only for promotion of goodwill in the business field for the years to come. However, learned CIT(A) allowed depreciation thereon which comes to Rs. 6,25,000/-. Assessee filed CO on the ground that this expense of Rs. 25 lacs is a business expense allowable u/s 37 of the Income-tax Act. 53. At the outset, it could be seen from the record that the total taxable amount in the revenue appeal is about Rs. 15,84,273/- and certainly the tax effect is less than Rs. 10 lacs covered under CBDT Circular No.21 of 2015 applicable with retrospective effect. Under this circular the revenue has to withdraw the appeal as the tax effect is admittedly less than the prescribed limit for not filing the appeals. Consequently, the appeal is dismissed. 54. Now coming to the Cross Objection, it is evident that the ground in the cross objection is not in support of any of the finding of the learned CIT(A) in respect of the contribution to the IFA but challenging the same. Cross objection is independent of the relief sought in the appeal and it stands in the footing of a separate appeal. Accordingly, findin....
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....e on the orders of the authorities below and submitted that the contribution is a gratuitous act and at the best it is in the nature of creation of a capital asset building the goodwill for the assessee. 59. In Chemicals & Plastics India Ltd. (supra), the assessee company contributed certain amount towards the construction of building of Chamber of Commerce. He claimed that the Chamber's maintenance was for the furtherance of the business interest of its constituents and, hence, the payment made by it as member thereof had to be treated as business expenditure. The AO , however, holding that the payment was only a gratuitous payment and the same would not be considered as one incurred wholly or exclusively for the purpose of assessee's business, rejected the assessee's claim. On appeal, the Commissioner (Appeals) allowed the appeal. On further appeal, the Tribunal held that the Chamber of Commerce was a body which brought together all the industries under one roof to present before the Government and hence, contribution towards the building fund would enable the chamber to function comfortably in its own building, thus, serving the interests of the various members, like the assess....