TMI Blog2018 (8) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the grounds on this issue are allowed. Enhancement of amount by way of loss claimed on valuation of certain shares - CIT(A) has jurisdiction to consider the loss claimed of the assessee - Held that:- The provisions of Section 251(1)(a) empowers the CIT in an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Thus, since the CIT(A) has not unearthed a new source of income, but only has gone by the annual report/ statements enclosed to the return in which assessee has claimed trading loss to set-off to other incomes, we are of the opinion that CIT(A) has power to enhance and accordingly the contentions of assessee on this issue are rejected. Coming to the merits of addition made by CIT(A) i.e., disallowance of loss claimed, it is to be noted that assessee having purchased shares of ₹ 155/- per share has valued the same at ₹ 10/- as on 31-03-2002, so as to claim a notional loss in the transaction of purchase of shares. As pointed out by CIT(A) in the order, there is no fall in the value of the share and the said company (DQ) has issued further shares to others at ₹ 167/- as on 30-11-2001 to ₹ 290/- on 16-07-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals, we have heard together 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 ₹ 21,273/-. On verification of the expenses of ₹ 29,53,079/- debited under the head Administrative and other expenses , it was found by AO that a sum of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not require the services of SRSR. There is no 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 ₹ 18 lakhs per annum to SRSR especially when the appellant is separately incurring expenses of ₹ 2.76 lakhs on account of professional charges ₹ 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 ₹ 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 ₹ 3 lakhs after considering the nature and volume of the business of the appellant company and nature of services to be rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate placement basis. The shares were tradable but not through stock exchange as the DQ is a limited company. The valuation of shares forming part of the stock in trade has to be made necessarily at cost or market value, whichever is lower as per the accounting standard No. 2 of the ICAI which was followed. 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d above . 5.2. Thus, he has enhanced the total income by directing the AO to disallow the loss claimed in the trading account as directed above. 6. Assessee is aggrieved and raised various grounds on the above two issues. 7. Ld. Counsel referring to the issue of claim of service 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. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the statue may be held to be retrospective in nature. It was the submission that the provisions of Section 73 Explanation does not apply, in view of the subsequent amendment brought for the benefit of the companies involved in share trading. 8. Ld.DR, however, in reply submitted that there is 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 ₹ 155/- and Ld.CIT(A) also noted that the said company had issued further shares in later year at a higher cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961 does not mean necessary . Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits assessee 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)). Expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that AO cannot step into the shoes of assessee to re-fix the amount that should have been paid. There is no dispute that the amount was paid for the purpose of business, as AO has allowed the amount partly. Since the provisions of Section 37(1) does not have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as powers to enhance also given to him u/s. 251. The provisions of Section 251(1)(a) empowers the CIT in an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Thus, since the CIT(A) has not un- earthed a new source of income, but only has gone by the annual report/ statements enclosed to the return in which assessee has claimed trading loss to set-off to other incomes, we are of the opinion that CIT(A) has power to enhance and accordingly the contentions of assessee on this issue are rejected. 12. Coming to the merits of addition made by Ld.CIT(A) i.e., disallowance of loss claimed, it is to be noted that assessee having purchased shares of ₹ 155/- per share has valued the same at ₹ 10/- as on 31-03-2002, so as to claim a notional loss in the transaction of purchase of shares. As pointed out by Ld.CIT(A) in the order, there is no fall in the value of the share and the said company (DQ) has issued further shares to others at ₹ 167/- as on 30-11-2001 to ₹ 290/- on 16-07-2004 (as stated in pg.18 of the order). It is also to be noted that in the course of argument also, Ld. Counsel fairly admitted that the intrinsic val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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