2003 (1) TMI 241 - AT - Income Tax

Issues Involved:
1. Taxability of excess sale proceeds over purchase price of shares as capital gains.
2. Taxability of sale of bonus shares as capital gains.
3. Disallowance of service charges of Rs. 1,58,600.
4. Disallowance of travelling expenses of Rs. 55,044.
5. Levy of interest under sections 234A, 234B, and 234C of the Income-tax Act.
6. Admission of additional grounds and confirmation of the assessment order.
7. Direction to allow a refund of tax paid with interest.
8. Permission to raise new contentions and grounds of appeal.

Issue-wise Detailed Analysis:

1. Taxability of Excess Sale Proceeds Over Purchase Price of Shares as Capital Gains:
The primary contention was whether the excess of sale proceeds over the purchase price or adjusted purchase price of shares should be considered taxable capital gains under section 45 of the Income-tax Act, 1961. The appellant argued that the cost of acquisition and cost of improvement are prerequisites for capital gains. Citing various case laws, including CIT v. Home Industries & Co. and Evans Fraser & Co. Ltd. v. CIT, the appellant emphasized that the cost of acquisition must be ascertainable. The Tribunal concluded that for original shares, the cost of acquisition or market price as on the date of transfer, whichever is higher, should be considered for capital gains computation.

2. Taxability of Sale of Bonus Shares as Capital Gains:
The Tribunal addressed whether the sale of bonus shares resulted in taxable capital gains under section 45. The appellant referenced the Finance Bill, 1995, which clarified that the cost of bonus shares should be taken as nil for capital gains computation. Despite the amendment being effective from April 1, 1996, the Tribunal deemed it clarificatory and applicable to the assessment year 1992-93. Thus, the cost of bonus shares was treated as nil.

3. Disallowance of Service Charges of Rs. 1,58,600:
The disallowance of service charges paid to Shri Sanjiv Taneja and Shri Vijay Kumar Surana was contested. The appellant failed to provide documentary evidence of services rendered, leading to the confirmation of disallowance by CIT(A). However, there was a dissenting opinion from the Accountant Member, who highlighted a detailed agreement outlining the services provided. Ultimately, the Third Member upheld the disallowance, agreeing with the Judicial Member's conclusion.

4. Disallowance of Travelling Expenses of Rs. 55,044:
The Tribunal confirmed the disallowance of travelling expenses, agreeing with CIT(A) that the appellant failed to furnish details of the foreign tour, including places visited, contacts made, and results achieved. The business purpose of the tour was not established, justifying the disallowance.

5. Levy of Interest Under Sections 234A, 234B, and 234C of the Income-tax Act:
The Tribunal acknowledged that the provisions for levying interest under sections 234A, 234B, and 234C are mandatory. However, it was noted that interest should be levied on the tax declared in the return, not on the determined total income. The Tribunal cited Ranchi Club Ltd v. CIT to support this view.

6. Admission of Additional Grounds and Confirmation of the Assessment Order:
The Tribunal found no merit in the appellant's contention regarding the admission of additional grounds by CIT(A) without allowing the Assessing Officer an opportunity to verify. This would violate Rule 46(A).

7. Direction to Allow Refund of Tax Paid with Interest:
This ground was deemed consequential and did not require specific consideration at this stage.

8. Permission to Raise New Contentions and Grounds of Appeal:
Similarly, this ground was treated as consequential and did not necessitate further consideration.

Conclusion:
The appeal was partly allowed, with specific judgments on each issue. The Tribunal upheld the disallowance of service charges and travelling expenses while providing clarity on the treatment of bonus shares and the levy of interest under the relevant sections of the Income-tax Act.

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