2003 (1) TMI 242 - AT - Income Tax

Summary

Issues Involved:

1. Taxability of sale considerations for shares.
2. Disallowance of service charges.
3. Disallowance of travelling expenses.
4. Disallowance of legal and share transfer expenses.
5. Treatment of transactions with Papyrus Papers Ltd. and Minoo Biscuits P. Ltd.
6. Loss on sale of shares.
7. Disallowance of charity and donations.
8. Charging of interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Taxability of Sale Considerations for Shares:
The assessee argued that no capital gains tax should be levied on the sale of bonus shares due to the lack of acquisition cost and no cost of improvement for the original shares. The Tribunal referred to its previous decision in the case of Shekhawati Rajputana Trading Co. (P.) Ltd., where it was decided that capital gains tax is not applicable to bonus shares due to the lack of acquisition cost. However, for the original shares, the Tribunal upheld the lower authorities' orders based on the Supreme Court's judgment in Escorts Farms (Ramgarh) Ltd. v. CIT and the Calcutta High Court's judgment in Goodrick Group Ltd. (No. 2) v. CIT, which determined the cost of acquisition.

2. Disallowance of Service Charges:
The assessee claimed service charges paid to S/Shree Sanjiv Taneja and Vijoy Kumar Surana. The Tribunal reversed the lower authorities' orders and allowed the service charges, following its decision in the case of Shekhawati Rajputana Trading Co. (P.) Ltd.

3. Disallowance of Travelling Expenses:
The Tribunal reversed the lower authorities' orders regarding the disallowance of travelling expenses for Shri Vijoy Kumar Surana and Shri Sanjiv Taneja, directing the Assessing Officer to allow the expenses subject to disallowances under Rule 6D. However, a separate opinion by the Judicial Member disagreed, emphasizing the lack of documentary evidence and the failure to justify the business purpose of the travels.

4. Disallowance of Legal and Share Transfer Expenses:
The Tribunal allowed the legal expenses of Rs. 26,632 as revenue expenses, incurred for maintaining the assessee's business assets. However, the share transfer expenses of Rs. 41,087 were considered part of the acquisition cost of shares and not allowable as revenue expenses. The Tribunal expunged the CIT(A)'s direction to delete the adjustment of Rs. 41,087 against the investment account.

5. Treatment of Transactions with Papyrus Papers Ltd. and Minoo Biscuits P. Ltd.:
The Tribunal allowed the loss of Rs. 17,00,000 incurred in the joint venture with Minoo Biscuits P. Ltd. as a business loss, considering the payment necessary for maintaining business relations and avoiding litigation. Similarly, the Tribunal allowed the bad-debt claim of Rs. 19,50,000 for the loan given to Papyrus Papers Ltd., considering it part of the assessee's money-lending business and unrecoverable due to the financial constraints of Papyrus Papers Ltd.

6. Loss on Sale of Shares:
The ground relating to the loss on the sale of shares was not pressed by the assessee's counsel and was dismissed.

7. Disallowance of Charity and Donations:
The Tribunal upheld the disallowance of Rs. 1,17,982 claimed as charity and donations, agreeing with the lower authorities that the expenses were not substantiated and retained their intrinsic character as donations.

8. Charging of Interest under Sections 234B and 234C:
The Tribunal dismissed the ground relating to the charging of interest under sections 234B and 234C, as no explanation was provided by the assessee for why the interest should not be charged.

Separate Judgment:
The Judicial Member disagreed with the Accountant Member on grounds 6 and 7, relating to the disallowance of service charges and travelling expenses, due to the lack of documentary evidence and failure to justify the business purpose. This disagreement led to the involvement of a Third Member, who supported the Judicial Member's view, resulting in the disallowance of the claimed deductions.

Final Order:
The appeal was partly allowed, with the Tribunal reversing some of the lower authorities' orders and upholding others, based on the detailed analysis of each issue.