AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 344
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....hat a sum of Rs. 10.20 Lakhs was claimed towards service charges paid to M/s. SRSR Advisory Services Pvt. Ltd., [SRSR]. It was explained by assessee that the said service charges were paid for the services like advisory services in its business area, accounting services, collection of interest and dividend, taxation, ROC related matters and maintenance of its land properties etc. It was also mentioned that the recipient company, SRSR was assessed to tax where all the receipts were declared as their income. AO found that assessee earned interest on dividend income, purchased shares of two concerns and sold shares of another company in two transactions. AO also noticed that the dividend income had been claimed exempt. Even though assessee owns some agricultural lands, no agricultural income was declared, coming to a conclusion that no agricultural operations were conducted by assessee. AO also was of the opinion that the Directors of SRSR are related persons to the Directions of assessee-company. Considering all these facts and circumstances of the case, AO held that the service charges paid were dis-proportionate to the services received and therefore, entire expenditure of Rs. 10.2....
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....vice charges paid was not necessitated by the business needs of the appellant company and the same was disproportionate to the services, if any, rendered by SRSR. Hence, the entire expenditure of Rs. 10.20 lakhs cannot be said to have been expended wholly and exclusively for the purpose of business of the appellant company. The Assessing Officer has rightly estimated the allowable expenses at Rs. 3 lakhs after considering the nature and volume of the business of the appellant company and nature of services to be rendered by SRSR. The same is, therefore, upheld. It is pertinent to mention here that on exactly similar facts disallowance of service charges was also upheld in the appellate orders of even date in the case of other group concerns - M/s. ELEM Investments (P) Ltd., M/s. Highgrace Investments (P) Ltd & M/s. Fincity Investments (P) Ltd". 5. In the course of appellate proceedings, Ld.CIT(A) noted that assessee-company has purchased Rs. 40,323/- unquoted shares of M/s. Dataquest Management and Communications Ltd., (DQ) with a premium of Rs. 145/- per share on 14-07-2001. The same was valued in the closing stock as on 31-03-2002 at the face value of Rs. 10/- per share. These ....
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....ious persons at higher price than the purchase cost, as listed out in para 13, Pg.18 of the order and also analyzing the provisions of Section 73, the explanation, came to the conclusion that assessee has adopted Modus Operandi obviously to evade tax. Vide para 16 onwards, he also examined the various contentions raised by assessee in detail and at the end, he has concluded as under: "17. After considering the entire conspectus of the issue, I have come to the following findings - i) The appellant company had acquired the shares of DQ as an 'investment' and not as 'stock in trade'. These shares were, therefore, not to be taken into share trading account but have to be shown in the Balance Sheet under the head 'long -term investment'. The valuation of these shares in the closing stock would not affect the business profits of the appellant assessable to tax. ii) Without, prejudice to the above, the DQ shares cannot be valued In the closing stock at face value since the net realizable value of these shares was more than the cost price. iii) Without prejudice to the above, the loss shown in the share trading account was deemed to be a loss from specul....
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....iness. 7.1. Coming to the issue of enhancement, Ld. Counsel submitted that Ld.CIT(A) has travelled beyond the scope of appeal and relied on the principles laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. [251 ITR 864] (Del) to submit that whenever the question of taxability of income from a new source which had not been considered by the AO is concerned, the jurisdiction to deal with the same in appropriate cases may be dealt with u/s. 147/148 of the Act and Section 263 of the Act if requisite conditions are fulfilled. In the presence of such specific provisions a similar power is not available to the first appellate authority. Ld. Counsel also referred to the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria [66 ITR 443] (SC) and CIT Vs. Shapoorji Pallonji Mistry [44 ITR 891] (SC) which support the proposition that AAC has no power to enhance the assessment by discovering the new source of income. 7.2. Coming to the merits of the issue, Ld.Counsel submitted that assessee has adopted Rs. 10/- as the cost price as the shares are held by the company as stock in trade and there ....
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....eply, Ld. Counsel submitted that the decision relied upon by the Ld.DR in the case of CIT Vs. Nirbheram Deluram [224 ITR 610] (SC) was considered by the Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. [251 ITR 864] (Del) and so the principles are already clear that CIT(A) cannot traverse beyond the issue before him. 10. We have considered the rival contentions and perused the orders of the authorities. As far as the issue of claim of professional charges to SRSR is concerned, AO accepts that there were certain services rendered by SRSR to assessee-company. He has allowed an amount of Rs. 25,000/- p.m. as against the claim of assessee. Thus, there is no dispute between the parties that SRSR has rendered some services for which payment was born by assessee. The issue is about the quantum of allowance as there is no dispute about services being rendered. According to section 37(1) of the Income Tax Act, 1961, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or p....
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....rmining whether the expenditure was wholly and exclusively laid out for the purposes of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue (Jamshedpur Motor Accessories Stores Vs. CIT (1974) 95 ITR 664 (Pat); J.K. Woollen Manufacturers Vs CIT (1969) 72 ITR 612 (SC). In CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), it was held by the SC that in deciding whether a payment of money is a deductible expenditure, one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. 10.1. The Co-ordinate Bench in the case of Coca Cola India (P) Ltd., Vs. DCIT [116 TTJ 880], [ITAT (Pune)] has considered the provisions of Section 37(1) and laid down the following principles: "18.8 The position in law, in relation to s. 37(1) of the Act, as emerging from the decisions of the Supreme Court, discussed in the above paras, can be summarized as under: (i) the expenses incurred should be 'incidental' to the carrying on of the business of the assessee. (ii) the expression "wholly and exclusively" used in s. 37(1) of the IT Act, 1961, does n....
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....al and Co. [251 ITR 864] (Del) will apply only in the case where the CIT(A) has traversed and found a new source of income. However, in this case as rightly held by the Hon'ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry [44 ITR 891] (SC), the appellate authority has no power to enhance the assessment by discovering the new sources of income not mentioned in the return of assessee or considered by the ITO. It is to be noted that Ld.CIT(A) relied on the trading account of assessee filed along with return. Therefore, in our view, it is not a new source of income not mentioned in the return of assessee. The Hon'ble Supreme Court in the case of CIT Vs. Nirbheram Deluram [224 ITR 610] (SC) has held as under: "The Supreme Court has held in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 that the declaration of law is clear that the power of the AAC is coterminous with that of the ITO and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the ITO, The scope of his power is coterminous with the ITO, He can do what the ITO can do and also direct h....