TMI Blog2018 (3) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 48 (i) of the Act. Since it is a fact to be verified, conveniently at the end of the learned AO, we deem it just and proper to set aside the ground No.1 of Cross Objection to the file of the AO for verification of the fact as to whether the assessee incurred this expenditure or not. Disallowance of the long term capital loss - Held that:- We uphold the conclusions reached by the learned CIT(A) that this sale transaction is within the legal framework and cannot be held as illegal. Holding so, we dismiss this ground of appeal. 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. - claim allowed as relying on assessee' own case Travelling expense incurred by the assessee - Held that:- No dispute that FBT is levied and paid in respect of the travel expenses. Learned CIT(A) recorded that it was pleaded before him that considering the FBT paid, the disallowance, if any, should be to the extent of ₹ 18,87,214/- only. However, learned CIT(A) restricted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance of deduction of registration expenses u/s 48 of the Act and disallowance of ₹ 5 lacs out of travelling expenses, and CO No.212 of 2013 in respect of the Asstt Year2009-10 aggrieved by the disallowance of ₹ 25 lacs contributed by the assessee as a sponsorship for Spice lounge in the building 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 ₹ 24,53,078/- out of travelling expenses. Learned CIT(A) deleted all these expenses but sustained the disallowance of ₹ 3,33,334/-, the registration expenses and reduced the disallowance of travelling expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal preferred by the assessee, the CIT(A) observed that Provisions of section 50C of the Act stipulate that sale value has to be taken at the actual sale consideration or the value as per stamp duty Act, whichever is higher, and inasmuch as the Ld. AO has accepted that the sale of land had taken place at ₹ 25 lakhs and without questioning the value worked as per circle rate, which works out at at ₹ 6,20,126, the observations of the Ld. AO that the value of the land is much higher than the circle rate cannot be accepted as is not supported by any enquiry or evidence on record. He, therefore, reversed the order of the AO by giving a direction to adopt sales consideration at ₹ 25,00,000/- and then reduce the indexed cost of acquisition. However, the CIT(A) did not allow the claim of registration expenses of ₹ 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 ₹ 25,00,000/- Revenue preferred appeal, whereas aggrieved by the denial of claim of registration expenses of ₹ 3,33,334/- assessee filed cross objection. 8. Ld. DR vehemently relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT: 225 ITR 746 (SC); UCO Bank v. CIT: 237 ITR 889 (SC); CIT v. Birla Gwalior (P.) Ltd: 89 ITR 255 (SC); CIT v. Excel Industries: 358 ITR 295 (SC) and CIT v. Goyal M.G. Gases (P) Ltd.: 303 ITR 159 (Del.) for the principle that tax can be levied only on real income and not on any hypothetical or illusory income. 11. Arguing so, he prayed to uphold the findings of the Ld. CIT(A) and to set aside the action of the AO in substituting the sale consideration with the unreal consideration of ₹ 50,00,000/-. 12. Coming to the Assessee's Cross Objection, it is submitted by the Ld. AR that as per section 48 of the Act, any expenses incurred wholly and exclusively in connection with transfer of a capital asset is required to be deducted while computing capital gains. Since the registration expenses of the property on transfer amounting to ₹ 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 ₹ 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins. The onus is on the Revenue - the inference might be drawn in certain cases but to come to a conclusion that a particular higher amount was in fact received must be based on such material from which such an irresistible conclusion follows. In this matter, Ld. AO did not dispute the consideration mentioned in the sale deed. He also does not dispute the circle rate, which is far less than the sale consideration mentioned in the sale deed. 15. We are, therefore, of the view that in view of the provisions of Section 50C of the Act and the law on this aspect, the findings of the Ld. CIT(A) adopting the sales consideration at ₹ 25,00,000/- and then reduce the indexed cost of acquisition does not suffer any irregularity or illegality and does not warrant any interference. Ground No 1 of ITA 785/Del/2011 is dismissed. 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 follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see booked long term capital loss of ₹ 66,66,142/- . 20. Learned Assessing Officer held that this sale transaction was a sham transaction in view of the fact that M/s Positive Investment P. Ltd. is a group company and the sale is organized only to adjust the long term capital gains arising out of transfer of land against this loss. 21. It was pleaded before the learned CIT(A) that MBM Ltd. Was a company under liquidation since 1996 and as per the balance sheet drawn as on 30.6.1996, the net worth of the company was in negative. Further it was pleaded that the assessee had already had substantial assessed long term capital loss of ₹ 89,18,938/- brought forward from the preceding years to be carried forward and such brought forward loss was more than the capital gains from the land. Learned CIT(A) agreed with these submissions and held that the 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 Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares including the aspect of valuation of the shares. The Assessing Authority, while accepting the genuineness of the transactions, merely raises a vague suspicion relating to the valuation adopted by the assessee. This, by itself, is insufficient to reject the claim of capital loss. While the AO is certainly entitled to question the valuation, he ought to have produced some materialsto either disprove the justification offered by the assessee or to substantiate his doubts. A mere suspicion, however strong it might appear, cannot take the form of a substantiated opinion sans supporting materials and hence it cannot form the basis for rejection of the claim'' 25. In view of this factual and legal position, we uphold the conclusions reached by the learned CIT(A) that this sale transaction is within the legal framework and cannot be held as illegal. Holding so, we dismiss this 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 Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance to ₹ 5 lacs and deleted the balance amount ₹ 19,53,078/-. 31. Learned AR submitted that the learned CIT(A) found that the travel expenses were justified by business expediency and the assessee produced the books of account as and many bills relating to the travel expense. Taking support from the ratio of the decisions reported in Dhakeshwari Cotton Mills Ltd. vs. CIT: 26 ITR 775 (SC); Shriram Pistons and Rings Ltd. v IAC: 39 TTJ 132 (Del.); Roger Enterprises Pvt. Ltd. v. ITA : 52 TTJ 198 (Del.); ACIT vs. Amtek Auto Ltd: 112 TTJ 455 (Del); Good Year India Ltd. vs. ITO: 73 ITD 189 (Del-TM); Express Movers P. Ltd vs. ITO: 61 ITD 528 (Del); M.D. Khandelwal vs. DCIT: 65 ITD 313 (Del); Nitin Sales Corporation vs. ITO: 212 Taxation 49 (Del) and other decisions, he submitted that when the books of accounts have been audited in accordance with the provisions of the Act and has been accepted as true and correct, there 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs. ITA No. 5336 of 2011: 36. Learned AO observed that the assessee sold certain shares that were acquired in the earlier years and shown as investment in the books of accounts. Assessee offered the capital gains but learned AO treated it as business income and made additions on that ground. In appeal, learned CIT(A) deleted the same. 37. Learned DR placed reliance on the decision reported in the case of Manoj Kumar Samdaria vs CIT (2014) 45 Taxmann.com 394 for the principle that where assessee was selling shares very frequently, volume and magnitude was very high and he earned only a meager amount of dividend, Income arising from sales of shares was assessable as business income and submitted that the Hon ble Supreme Court dismissed the SLP against this order in (2014) 52 Taxmann.com247 (SC) . He further placed reliance on Sadhana Nabera vs ACIT (ITA No.2586/Mum/2009) and CIT vs Gopal Purohit (2010) 336 ITR 287 (Bombay) for the principle that 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 (witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,99,000 equity shares of GMM Ltd. with face value of ₹ 10 each acquired in the year 2000-01 and 2001-02 at the face value and incurred the long term capital loss on account of indexation. Learned AO disallowed the same on the ground that only with a design to show the long term capital loss to be adjustable against the long term capital gain on account of sale plus paper food Pack Ltd., Harjas Logistics Systems P. Ltd.and Modichem Ltd., the assessee devised this transaction. However, learned CIT(A) found that there is no evidence to show that the transaction is a sham one with any purpose of adjustment of gains and the sale took place at a value much above the net asset value determined by the Chartered Accountant. On this premise, ld. CIT(A) deleted the disallowance. 41. It is argued by the ld. DR that the assessee sold the shares at the value of acquisition itself without any compelling reasons and having regard to the facts and circumstances of the case, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal. 45. On Ground No.4 relating to the enhancement of long term capital gains earned on the sale of shares of M/s Harjas Logic System Pvt. Ld, during the relevant assessment year the assessee company sold 6500 equity shares of M/s Harjas Logic System Pvt. Ltd., at a Sale price of ₹ 1500/-per share, wereas the cost of acquisition of shares was at ₹ 200/- per share. 46. Ld. AO substituted the actual sale consideration with NAV of shares at ₹ 1967/-per share to compute the gain on transfer of shares, observing that the assessee has interest in the company purchasing shares from the assessee company and thus added ₹ 30,35,500/- i.e. 467 x 6500 to the assessed business income of the assessee. In appeal, the CIT(A) held that the addition made is not as per the provisions of the Act and the Ld. AO has applied rule of prudency on sale of only such shares where assessee has incurred loss and not to other instances where transaction have resulted into gains. On this premise, Ld. CIT(A) deleted the addition made by the AO of ₹ 30,35,500/-. 47. Ld. DR submitted that when the NAV of shares was at ₹ 1967/-, it is highly improbable for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/-. This approach of the Ld. AO cannot be accepted and the Ld. CIT(A) rightly corrected the same. 51. We, therefore, for the reasons set forth in the preceding paragraphs hold that the finding of the Ld. CIT(A) does not suffer any legal error to be corrected by the Tribunal. Ground No 4 of ITA No 5336/Del/2011 is dismissed. ITA No.668/Del/2013 CO 212/Del/2013: 52. This appeal is directed against two aspects of the order of the learned CIT(A). First aspect is the learned CIT(A) deleting the addition of ₹ 9,59,273/- on account of the subscription made by the assessee towards the annual subscription/membership fee on behalf of Dr. B.K. Modi which the learned AO held as the personal expense of Mr. Modi and no business activity of the assessee is involved. Second aspect is that during the year assessee made a contribution of ₹ 25 lacs to the International Fiscal Association towards sponsorship for Spice Lounge . Learned AO treated it as capital expense but failed to allow depreciation. Learned CIT(A) concurred with the leaned AO on the nature of the expense stating that this expense is not for the maintenance of business level and needs and is only for promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the important corporate members of IFA. IFA branch office at Noida was constructed for carrying out research in the field of International and Domestic taxation as well as impart practical training to tax professionals. Sponsorship given by Spice is similar to a usual mode of funding of the industry forums and major educational institutions. In the books, the assessee debited said expenses under the head 'Advertisement' as mandated by accounting standards issued by ICAI. He, therefore, submits that in these circumstances, The above contribution is clearly for the purposes of business of the assessee. 57. He further submitted that the case of the assessee is squarely covered in favour of the assessee by the decision of the Delhi High Court in the case of CIT v. Vaish Associates: 235 Taxman 208 (Del.) and CIT vs Chemicals and Plastics India Ltd., 292 ITR 115 (Madras), wherein it was held that the contributions made for the construction of a building by an identity which serves the interest of various members, it is covered by section 37 of the Act. 58. Learned DR placed reliance on the orders of the authorities below and submitted that the contribution is a gratuitous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and the disallowance of the subscription/membership fees paid to M/s Asia Business Council on behalf of Dr. B.K. Modi, the Chairman of the company. 63. Learned AO treated the long term capital gains of ₹ 7,91,18,112/- and short term capital loss of Rs,72,87,500/- offered by the assessee as the business profits and on that assumption he made an addition. Learned AO also held the subscription/membership fee of ₹ 6,40,520/- paid by the assessee to M/s Asia Busines Council on behalf of Dr. B.K. Modi as a personal payment without any nexus with the business activity of the company and accordingly added such amount to the income of the assessee. 64. Learned CIT(A) by way of impugned order deleted these two amounts holding that the capital gains/loss cannot be treated as business income in this case and also that the membership/subscription fee on behalf of Mr. B.K. Modi is a business expense. 65. These two issues are dealt with in detail and are answered vide Ground Nos.1 in ITA No.5336Del/2011 vide paragraphs 36 to 39 supra, and Ground No. 3 in ITA 785/Del/2011 vide Paragraph Nos 26 to 28 supra. For the same reasons, we uphold the findings of the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
