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2018 (3) TMI 665) 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. - Disallowance of deduction of registration expenses u/s 48 - Held that:- No obligation on the part of the seller to meet the registration expenses. Except the copy of the pay order dated 2.8.2006 no document is produced before us to show that the assessee is under any legal or contractual obligation to meet the registration expenses in respect of the land sold by them. Even the pay order does not show that the same was issued at the cost of the assessee. Unless it is proved that the assessee actually incurred this expenditure, it is not possible to give a finding that the case of the assessee is covered under section 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 reach ..... X X X X X X X X X X X X X X be accepted and the Ld. CIT(A) rightly corrected the same - Contribution made by the assessee to the International Fiscal Association is allowable u/s 37 - I.T.A. Nos.785 & 5336/Del/2011, Cross Objection No.56/Del/2011, I.T.A. Nos.668 & 5034/Del/2013, Cross Objection No.212/Del/2013 - Dated:- 12-3-2018 - Shri G. D. Agrawal, President And Shri K. Narasimha Chary, Judicial Member Assessee by : Shri Ajay Vohra, Sr. Advocate Sh Deepesh Jain, CA & Ms Meenal Goyal, CA Department by: Shri S.S. Rana, CIT DR ORDER Per Bench Revenue filed all these appeals challenging the deletions made by the Commissioner of Income-tax (A), Ghaziabad ( CIT(A) ) in respect of Asstt. Year 2007-08 to 2010-11 whereas the assessee filed the cross objection 56 of 2011 in respect of Asstt Year 2007-08 being aggrieved by the 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 ..... X X X X X X X X X X X X X X 8377; 50 lakhs, but also did not allow the deduction of registration expenses of ₹ 3,33,334/- paid by the assessee on transfer of the said land without assigning any specific reasons for doing so, and computed long term capital gain on sale of land as under: Sale consideration 50 00 000 Less: Indexed cost of acquisition 4,11,192 Long term Capital Gain 45,88,808 6. In the 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 registra ..... X X X X X X X X X X X X X X ant v. ITO: 110 TTJ 297 (Del.) it was held that for the purposes of section 50C of the Act, AO cannot adopt FMV, which is higher than stamp duty valuation. 10. He also referred to the decisions in CIT vs. A. Raman And Company: 67 ITR 11 (SC); CIT vs. Calcutta Discount Company Limited: 91 ITR 8 (SC); Shoorji Vallabhdas & Co.: 46 ITR 144 (SC); Godhra Electricity Co. Ltd. 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 prope ..... X X X X X X X X X X X X X X he parties to the transaction. Further in CIT V. Shivakami Co. P. Ltd. (supra) the Hon'ble Apex court held that when there is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him, no higher price can be taken to be the basis for computation of capital gains. 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 Gr ..... X X X X X X X X X X X X X X long term capital loss, during the relevant financial year the assessee sold 18,84,540 shares of MBM Ltd. with face value of ₹ 10/- each to M/s Positive Investment P. Ltd. at Re.1/- each. According to the assessee cost of acquisition was ₹ 38,39,480/- and indexed cost of acquisition was ₹ 66,66,142/-. Assessee 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 ..... X X X X X X X X X X X X X X rejected the claim of the assessee. On appeal, the CIT(A) allowed the valuation adopted by the assessee, which was affirmed by the Tribunal. On further appeal, The Hon'ble Court held as under: "We are of the view that the Assessee had provided an acceptable justification for both transactions of sale of 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 di ..... X X X X X X X X X X X X X X CIT(A) found that there was business justification of the travelling expenses and on verification of the books of account which were produced before the ld. AO, he found that a small amount of travelling expenses were not supported by the bills and vouchers. He, therefore, restricted the disallowance 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 ..... X X X X X X X X X X X X X X ence to the particular expenses that remained unverifiable, we are of the considered opinion that ad hoc disallowance is not permissible. With this view of the matter, we dismiss the ground of appeal and allow the ground of Cross Objection and delete the ad hoc disallowance of ₹ 5 lacs. 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 (20 ..... X X X X X X X X X X X X X X dismiss this ground of appeal. 40. The second ground in this appeal relates to the disallowance of long term capital loss incurred by the assessee on the sale of shares of M/s G.M. Modi Corps Hospital Corporation P. Ltd.( GMM Ltd. ), During the year the assessee sold 39,99,000 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 reg ..... X X X X X X X X X X X X X X in this appeal is concerned, it relates to the membership/subscription fees paid on behalf of Mr. B.K. Modi, the Chairman and is squarely covered by Ground No. 3 in ITA 785/Del/2011. For the reasons recorded in Paragraph Nos 26 to 28 supra we dismiss this ground 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 oth ..... X X X X X X X X X X X X X X on where NAV is higher. There is no denial on the submission of the assessee that if NAV of all shares is substituted for sale consideration, it would be observed that the assessee has sold investments at value higher by ₹ 3,03,64,980/-. 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 ..... X X X X X X X X X X X X X X on in Tax matters. The IFA also maintains close contact with the fiscal activities of OECD, the EU, the council of Europe, the CIAT and ESCAP. CBDT, AAR, National Institute of Public Finance & Policy, RBI, etc. are some of 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 ..... X X X X X X X X X X X X X X Cross Objection is allowed. ITA No.5034/Del/2013: 62. Two grounds raised in this appeal relate to the AO treating the long term capital gains on the sale of shares offered by the assessee as the business profits 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 N ..... X X X X X X X X X X X X X X
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