TMI Blog2024 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... der as well as in the order of ld. CIT (A) which need to be examined afresh. We refer to the decision of Kapurchand Shrimal [ 1981 (8) TMI 2 - SUPREME COURT ] wherein it is held that it is the duty of the appellate authority to correct the lacunae in the orders of the authority below and remit the matter with or without direction unless prohibited by law. In the present case, as already noted that there are shortcomings and lack of proper enquiry by the AO and the assessee has further contended that ld. CIT (A) has arrived at the valuation of the shares without giving the assessee an opportunity in this regard and the documents relied upon by the ld. CIT (A) are incomplete. In such circumstances, we deem it proper to remit the issue to the file of AO. AO shall consider the issue afresh. Disallowance of prior period expenses - CIT (A) elaborately considered the issue. He noted that on the issue of disallowance the same has already been found to be double addition and in the order passed u/s 154, the AO has deleted the addition. As regards, previous year expenditure we note that ld. CIT (A) has examined in detailed the nature of expenditure and his reasoning for classifyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has taken the following grounds of appeal :- 1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition of Rs. 441.87 crores made by the Assessing Officer on account of capital gain on sale of shares of EHIRC Ltd. which, being a subject matter of substantial dispute before the Hon'ble Delhi High Court, is not assessable in the year under appeal. It is a settled law that the taxability of such capital gain would arise only in the year in which dispute is settled. 2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance of long term capital loss of Rs. 96.81 crores on sale of investment in Esconet Services Ltd. and Escosoft Technologies Ltd. in spite of the fact that the transfer of shares and ownership in these companies had taken place during the relevant assessment year and the learned CIT(A) himself recorded the' finding of the fact that the transaction is not sham as opposed to the Assessing Officer s remarks that the transaction is sham and collusive. 3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived only on 19/5/2006 i.e. much after 31.3.2006 being the date of claimed transfer of shares which is against normal practice in genuine transaction where consideration is received first then only shareholding is transferred. 6. Against the above order, assessee is in appeal before the ld. CIT (A). Ld. CIT (A) elaborately considered the submissions. Ld. CIT (A) upheld the AO s action by observing as under :- I have considered the facts and circumstances of the case. The submissions of the appellant have also been gone through. Though I agree in principle with the Id AR that the date of receipt of consideration is not relevant to decide the date of transfer but in the case of the appellant it definitely creates a prima facie doubt as the transaction appears to have been done in hurry admittedly to get a capital loss which may be claimed for set off against huge capital gains arising on account of shale of its shares in EHIRCL. The paltry consideration of Rs. 40,000/- against such huge investments also needed examination. Accordingly I myself tried to verify cursorily the claim of the appellant that the NAV of the shares of these companies has become negative and this is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase agreement amongst Escorts Ltd. i.e. the appellant company and Jagmata Electricals Exim Pvt. Ltd. i.e. the Acquirer and Escosoft Technologies Ltd has also been entered on 31/3/2006. The appellant had' furnished copy of details of shares sold as well as share certificates. On the back of share certificate i.e. Memorandum of Transfer, in the case of one set of shares the date of transfer is 31/3/2006 (Paper Book page 105 to 125) whereas in other set of shares, it is 30/3/2006 (Paper Book page No.144 to 155). It is not understood as to how the share can be transferred in the name of Acquirer on 30103/2006 i.e. before agreement is signed which is done on 31/312006. The appellant also could not throw any light on this aspect during appellate proceedings except submitting search report accessed from ROC website duly attested from Neelam Gupta Associates, Company Secretary. But this certificate only gives the date on which the name of acquirer has been entered in the list of shareholders as it is appearing in the record of ROC. In no way, it explains the discrepancy. It is also noticed that the share certificates have been shown as transferred in physical form without getting it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry on the assessee. Furthermore, ld. Counsel made submissions in support of assessee s claim that the transaction is appropriate and proper. It has been further submitted that the AO at no stage of proceedings sought to undertake any enquiry in respect of the transaction and the grounds on which he rejected the transactions. 9. Per contra, ld. DR for the Revenue relied upon the orders of the authorities below. 10. Upon careful consideration, we note that AO has not made proper enquiry in this regard. Similarly, the buyer has not been examined by the Revenue authorities. Furthermore, it is the submission of the ld. Counsel for the assessee that the value of shares of subsidiaries is not correct and that the value has been arrived at without giving assessee an opportunity to rebut. Furthermore, ld. CIT (A) has passed an order in which he has tried to verify cursorily the claim of the assessee that the NAV of the shares of these companies has become negative. Thereafter, ld. CIT (A) has embarked upon the valuation which the assessee contended that it is not based upon full details and assessee was not confronted also. In this view of the matter, in our considered view, there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (A) on this issue as under :- 10. Ground No.9 10 are reproduced as under:- 9. The Assessing Officer erred in disallowing previous year expenditure to the tune of Rs. 7,00,11,165/- without appreciating that the said expenditure accrued in Assessment Year 2006-07 and as per the past history of the case as also taking into account the system of accounting maintained by the company no such addition was required to be made. 10. Without prejudice to Ground No.9, a 'double addition' in respect of the previous year expenses has been made in a sum of Rs. 6,71,83,363/- under the head prior period expenses . This double addition even otherwise is required to be deleted. 10.1. During appellate proceedings, it was brought to my notice that the double addition of Rs. 6,71,83,363/- made in this order has been deleted by A.O. in the order passed u/s 154 dated 9/3/2009. Accordingly, this ground is not pressed. Thus, ground No.10 is treated as dismissed as not pressed. 10.1.1. Thus, the only ground No.9 has to be discussed which is regarding non allowance of expenditure to the extent of Rs. 7,00,11,165/- which according to A.O. does not pertain to Assessment Year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r period expenses. The copy of invoice has also been produced. Based on the reasons as discussed for item No.(iii), it is held that expenses pertaining to these two items are also cannot be said as prior period expenses. The same are, therefore, allowed. (Rs. 12,25,000/-) (vii) Advertisement Expenses Rs. 1,52,076/- The reasons given by the appellant for the allowability of the same is as under:- The expenditure relates to advertisement on Punjabi TV Channel during the month of November 2004. The bill of the party was received in May 2005 and hence accounted for in the A.Y.2006-07. On going through the invoice, it is seen that there is no mention about the date of receipt of the bill and the. appellant also could not establish that bill was received in Financial Year 2005-06. In the circumstances, it is held as prior period expenses and, therefore, correctly held as not allowable. (viii) Sales Promotion Rs. 80,000/- The reasons given by the appellant for the allowability of the same is as under:- The expenditure relates to participation in Surajkund Trade Fair held in December, 2004. The consent was given for participation but the payment note was received an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay this expense has been determined during the Assessment Year 2006-07. During appellate proceedings, it is ascertained that this liability pertains to earlier year and could have been provided as on 31/3/2005. Therefore, definitely this is prior period expenditure and disallowance thereof is upheld. (xii) Agni Incentive Rs. 195,00,000/- Though the appellant has given a detailed reason as to why the same cannot be said as prior period expenses, however, alternatively it was submitted by them that this provision is no more required and accordingly it was reversed during Assessment Year 2008-09. It was submitted that in case this disallowance is upheld here then in assessment year 2008-09 when the assessee itself has added back this amount, the same may be directed to be withdrawn else it will amount to double addition. I agree with the alternate submission of the appellant. Thus the disallowance in this year is upheld on the ground that this pertains to earlier year. However the A.O. at the same time is directed to reduce the income by identical amount after due verification of the claim of the appellant that this amount has been written back in the Profit and Loss Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48,500/- towards gifts and presents. AO made general observations that from the details filed, during the course of hearing, he found that most of the expenditure was incurred other than during the Diwali. Hence, he made ad hoc disallowance amounting to Rs. 10,00,000/- 16. Upon assessee s appeal, ld. CIT (A) also made general comments and held that 10% disallowance amounting to Rs. 5,64,850/- is to be upheld and the AO is directed to give relief of Rs. 4,35,150/-. 17. Against the above order, assessee and Revenue are in cross appeals before us. We have heard both the parties on this issue and perused the records. 18. We find that this addition has been made on ad hoc basis without bringing out necessary details. Hence, in our considered view, orders of authorities below on this issue are liable to be reversed. Accordingly, we hold that entire expenditure in this regard is allowable. The Revenue s appeal on this issue is dismissed and assessee s appeal on this issue is allowed. 19. Apropos misc. expenses : on this issue, AO noted that assessee had debited Rs. 95,66,089/- towards misc. expenses under the head sales administration expenses . He noted that in absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne through the bill dated 29/9/2005 from J.M.Morgan Stanley Pvt.Ltd. (JMMS) addressed to Escorts Ltd for Rs. 12,89,34,000/-. The description as mentioned in this bill dated 29.09.05 is reproduced here as under for ready reference:- Being fee payable to us for acting as exclusively Financial Adviser to you in respect of advisory services rendered for divestment of your stake in Escort Heart Institute and Research Centre Ltd. as per the terms of the agreement letter dated 18/1/2005. 6.3.1. I have also gone through the copy of letter dated 18/1/2005 addressed by JMMS to the appellant which had been referred by the A.O. as well as in this bill. For ready reference the relevant portion is reproduced as under: Pursuant to our recent discussions, we are pleased to confirm the arrangement under which JM Morgan Stanley Limited ( JMMS'J is engaged by Escorts limited ( Escorts or Company ) to render services as its exclusive financial advisor in connection with a possible sale/divestiture/disposal of some or all of the share capital of, or the business or assets of Escorts Heart Institute and Research Centre Limited and/or some or all of its subsidiaries (together Healthcar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposal of some or all the share capital of or the business or assets of EHIRCL and/or some or of all its subsidiaries. From the letter dated 18/0112005, it is clear that JMMS has been engaged by appellant in connection with a possible sale/divestiture/disposal of entire share capital/ business/assets of entire EHIRCL and/or some or all of its subsidiaries. The term some or all of its subsidiaries is not qualifying the appellant but EHIRCL. Thus I do not agree with the interpretation of the AO that the fee paid by the appellant was in connection with affairs of the entire group including health care business. Further in the bill from JMMS, as reproduced hereinabove, it has been very clearly mentioned that fee payable is in connection with divestment of the stake of the appellant in EHIRCL. Thus even though there are other parties also who have sold the shares of EHIRCL, but JMMS has not been engaged by them and the bill raised by JMMS is also only in connection to the sale of shares of the appellant in EHIRCL. The other shareholders might have been benefited but it can not be said that any part of payment is pertaining to them. It is therefore held that entire payment is wholly an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure and ld. CIT (A) passed a reasonable order on this issue. Hence, we do not find any infirmity in the order of the ld. CIT (A) on this issue. Accordingly, this issue is decided against the Revenue. 33. Apropos addition on account of royalty payment : On this issue, AO made a disallowance 25% of expenditure. During the relevant accounting period, the assessee company made payment of Rs. 4.03 crores as royalty to M/s. Harprasad Co. Ltd. From the details of agreement filed during the course of assessment proceedings, it is found that the assessee has been continuously payment royalty since 1954 and as such enduring benefit was derived by the assessee. Following the decision of the Apex Court in the case of M/s. Southern Switchgear Ltd. vs. CIT (1997) (232 ITR 359) wherein it had been held that entire payment towards royalty could not be allowed as revenue expenditure and that 25% of the expenditure would have to be taken as capital in nature. In view of this, AO disallowed the amount of Rs. 100,75,000/- and added back to income. 34. Upon assessee s appeal, ld. CIT (A) deleted the addition. We may gainfully refer to ld. CIT (A) s order in this regard as under :- I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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