TaxTMI 
TaxTMI 
2018 (8) TMI 380
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....ether and disposed-of by this common order. For the sake of convenience, AY. 2002-03 is discussed hereunder: 2. Briefly stated, assessee-company is an investment company and filed its return of income on 31-10-2002 admitting total income of Rs. 1,43,110/-. On verification of the expenses of Rs. 31,52,422/- debited under the head 'Administrative and other expenses', it was found by AO that a sum of Rs. 18 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....
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....o evidence on record that the said purchase and sale transactions of shares were made through SRSR. (iv) The nature and quantum of business of the appellant company do not justify the payment of service charges of Rs. 18 lakhs per annum to SRSR especially when the appellant is separately incurring expenses of Rs. 2.76 lakhs on account of professional charges & Rs. 26,250/- on account of audit fee. (v) The directors of the payer and payee companies are related to each other. 07. In view of these facts and circumstances of the case, I agree with the Assessing Officer that the amount of service 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. 18 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 pertinen....
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....Since the shares are not quoted, the shares of DQ are valued at face value in the closing stock as the intrinsic value was below the cost and net realisable value was estimated at Rs. 10/-. It was stated that Explanation to Section 73 cannot be invoked as assessee has earned interest income and dividend income and is carrying on business of dealing in shares. Assessee objected to invoking the Explanation to Section 73 and also contested that the transaction is not speculation as defined u/s. 43(5). It was submitted that assessee is entitled to set-off the business loss against its income from other sources viz., interest and dividend income. Assessee relied on the decision of Rajan Enterprises Pvt. Ltd., [41 ITD 469] (Bom), Concord Commercial Pvt. Ltd., [95 ITD 117] (Mum.)(SB) and Godavari Capital Ltd., [91 ITD 274] (Hyd). 5.1. Ld.CIT(A), however, did not agree and after analyzing the agreement entered into on 16-08-2001 with the promoters of DQ and the case law on the subject and also the fact that the said company has allotted shares subsequently to various persons at higher price than the purchase cost, as listed out in para 13, Pg.18 of the order and also analyzing the provi....
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.... charges, submitted that AO cannot disallow the expenditure u/s. 37(1) as it is a business decision and the provisions of Section 37(1) permits either allowance of the entire claim or disallowance of the entire claim but not a partial claim. It was submitted that AO cannot step into the shoes of the businessmen to decide the reasonability of an expenditure and once a claim is made, the entire amount is to be allowed. He also pointed out the finding of Ld.CIT(A) that the provisions of Section 40A(2) are not invoked and submitted that AO cannot restrict the amount claimed u/s. 37(1) as there is no finding that expenditure is personal in nature or for non-business purposes. Therefore, the claim as made by assessee is allowable in full. After referring to various principles on the claim u/s. 37(1), Ld. Counsel relied on the decision of the ITAT, Pune Bench in the case of Coca Cola India (P) Ltd., Vs. DCIT [116 TTJ 880], [ITAT (Pune)] to submit that the Coordinate Bench has summarized the principles according to which AO has to allow the amount in full once it is identified that expenditure is for the purpose of business. 7.1. Coming to the issue of enhancement, Ld. Counsel submitted....
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.... no new source of income and CIT(A) has examined the annual reports and statements filed along with return of income and noticed that assessee has wrongly valued the closing stock. It was submitted that the power of AAC is not confined to the matter which had been considered by the ITO and appellate authority can consider any other issue also as the Hon'ble Supreme Court in the case of CIT Vs. Nirbheram Deluram [224 ITR 610] (SC) has upheld that scope of the power of the appellate authority is co-terminus with the AO. He can do what the AO can do and also direct him to do what he has failed to do. 8.1. Coming to the merits of the action taken by the CIT(A), it was submitted that assessee has purposely valued the stock at cost price when it was purchased at a cost of Rs. 155/- and Ld.CIT(A) also noted that the said company had issued further shares in later year at a higher cost. Therefore, valuation of share at Rs. 10/- is a methodology adopted for reducing the taxable income. He supported the orders of the Ld.CIT(A) on the issue of claim u/s. 37(1) as well. 9. In reply, Ld. Counsel submitted that the decision relied upon by the Ld.DR in the case of CIT Vs. Nirbheram Delu....
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....ssee can claim deduction even though there was no compelling necessity to incur such expenditure. (Sasson J. David & Co. (P) Ltd. Vs. CIT (1979) 118 ITR 261 (SC)). Though the main objects of business is to earn profits, business purposes are wider than profit-making purposes. Business expediency does not require that expenses should be incurred only for earning immediate profits. Expenses incurred though not directly related to earning to income, may be allowable deductions if they are related to the carrying on of the business vide Birla Cotton Spinning & Weaving Mills Ltd. Vs. CIT (1967) 64 ITR 568 (Cal)). It is for the assessee to decide how best to protect its own interest. It is not open to AO to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure (CIT Vs. Dhanrajgiri Raja Narasingiri (1973) 91 ITR 544 (SC)). Expression "commercial expediency" is not a term of art. It mean everything that serves to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purposes of the business, reas....
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....ve any restriction to allow the amount partly, so long as the expenditure was incurred for the purpose of the business wholly and exclusively, the same has to be allowed. The restrictions placed in other provisions like that 36(1)(iii) for the purpose of interest, u/s. 40A (expenses or payment not deductible in certain circumstances) and also restrictions placed u/s. 30 and 31 does not apply to the facts of the case. In view of that, we are of the opinion that AO has wrongly considered the claim. There is no power to AO to reduce the claim, whereas he can examine whether the amount can be allowed or not in full. In view of that, since the restrictions u/s. 37(1) are not applicable, the whole of the amount claimed is to be allowed as the expenditure is not proved to be personal or capital in nature, as provided in the section itself. AO is directed to allow the claim in full. To that extent, the orders of AO and CIT(A) are modified. Thus, the grounds on this issue are allowed. 11. Coming to the issue of enhancement undertaken by the AO in AY 2002-03, the reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. [251 ITR 864] (Del) will ap....