2011 (2) TMI 207 - HC - Income Tax

Disallowance of loss - assessee had shown in Profit & Loss account the decrease/increase in stock of shares Rs. 2,02,19,778 - The CIT (A), thus, held that there was sufficient documentary evidence to prove that the assessee sold the shares @ Rs.2.23 per share and not @ Rs.3.35 which was taken into account by the AO - Once the shares are identifiable, the date of sale of which is 20.03.2002, merely because by mistake the assessee mentioning the date of 22.03.2002, would not mean that the assessee was precluded from showing that that was an error and documentary evidence clearly reflected that the shares were sold on 20.03.2002. - the cost of acquisition of such shares has to be taken into account, instead of average cost of acquisition. Disallowane of expense - Since it was the first year of business activity and the assessee had no infrastructure, this was the compelling reason for the assessee to outsource various concerns including M/s. Goyal M.G. Gases Pvt - Reasons for the AO went by the irrelevant extraneous consideration, viz., PPF, etc. were not produced by the assessee - Obviously, it was for M/s. Goyal M.G. Gases Pvt. Ltd. to pay salary to its employee and they would be maintaining such ledgers - This appeal is bereft of any merit. We accordingly dismiss this appeal

Summary

Issues:
1. Disallowance of loss claimed on the sale of shares.
2. Disallowance of expenses debited to Profit and Loss account.

Analysis:

Issue 1: Disallowance of loss claimed on the sale of shares:
The Assessing Officer (AO) made two additions to the assessment of the respondent assessee for the Assessment Year 2002-03. The first addition was of Rs.55,56,620 by disallowing the loss claimed on the sale of shares of M/s. Doogar & Associates (Pvt.) Ltd. The AO found discrepancies in the sale rate of shares claimed by the assessee and the rate mentioned in the bank statement. The CIT (A) admitted additional evidence submitted by the assessee, including a contract note and bank statement, which confirmed the sale rate claimed by the assessee. The Tribunal dismissed the Revenue's appeal against the CIT (A)'s order, leading to the current appeal. The Court held that the additional evidence was crucial for the appeal's disposal and permissible under Rule 46A of the Act. The contention that the sale date discrepancy was not addressed was rejected, and it was affirmed that the shares were sold at Rs.2.23 per share on 20.03.2002.

Issue 2: Disallowance of expenses debited to Profit and Loss account:
The second addition made by the AO was of Rs.9,13,081 on account of disallowing certain expenses claimed by the assessee. The expenses were related to various categories like travelling, conveyance, salary, advertisement, etc., and were incurred by M/s. Goyal M.G. Gases Pvt. Ltd. but debited to the assessee's account. The CIT (A) accepted the assessee's explanation that the expenses were outsourced to the sister concern and were justified due to the business activities undertaken by the assessee during the year. The Court noted that the burden of proof was on the assessee, and the explanation provided was satisfactory, leading to no question of law arising in this regard. The Tribunal upheld the CIT (A)'s decision, emphasizing that the expenses were incurred in connection with the business activities of the assessee.

In conclusion, the Court dismissed the appeal as it found no merit in the Revenue's contentions regarding both the disallowance of loss claimed on the sale of shares and the disallowance of expenses debited to the Profit and Loss account.