Share valuation fees claimed as business expenditure. CIT(A) allowed under head capital gains. Ground not pressed in quantum appeal by assessee. Penalty imposed deleted. – case of unnecessary litigation by revenue against Tata Industries Ltd.

[DEVKUMAR KOTHARI]

About Tata Industres Ltd: from https://tataindustries.com/

Tata Industries Limited is registered with the Reserve Bank of India as a Core Investment Company. The Company is an investment holding company and is part of the promoter group with shareholding in group companies apart from being engaged in incubation / promotion of new business ventures.

Since its inception in 1945, Tata Industries has promoted and incubated Tata ventures in several sectors, including control systems, information technology, financial services, auto components, aerospace and defense, telecom hardware and telecommunication services, amongst several others.

Key Portfolio Companies and Divisions

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More information can be read on their websites.

About the case and related cases  under study in this article

PR. COMMISSIONER OF INCOME TAX-2 VERSUS TATA INDUSTRIES LTD. [2023 (11) TMI 547 - BOMBAY HIGH COURT]

ACIT 2 (3) , MUMBAI VERSUS M/S TATA INDUSTRIES LTD [2016 (11) TMI 322 - ITAT MUMBAI]

TATA INDUSTRIES LTD. VERSUS THE INCOME TAX OFFICER, WARD- 2 (3) (3) , MUMBAI [2016 (7) TMI 1011 - ITAT MUMBAI]

Brief discussion:

In this case the assessee is a TATA group company.  As observed in some of orders of High Court and Tribunal in case of assessee the assessee is  having activities of purchasing the share in group companies for the purpose of controlling interest and also promoted some of the companies for which assesse borrowed the funds and paid the interest. Various disputes have arisen; many of them are related to S.14A and some are related to head of income and deductibility of expenses etc.  

In case under study the assesse claimed professional fees for valuation of shares under head income from business and profession. This was as per profit and loss account. Ld AO did not allow expenses at all.  However, Ld. CIT(A) allowed the same under head ‘capital gains’. In quantum appeal,before Tribunal ,  assesse took ground on  this issue, however it was not pressed during hearing so this was dismissed by Tribunal.

From 2016 (7) TMI 1011 - ITAT MUMBAI supra.  ( appeal against disallowance)

Para   2. The assessee in this appeal has raised the following grounds:-

5. The CIT (A) erred in confirming the disallowance of professional fees of ₹ 19,44,000/- paid for obtaining valuation reports of certain investments held by the Appellant, for the purpose of computing Income from Business or Profession.

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In order on this issue Tribunal has noted as follows in para 32:

32. Grounds No. 4 & 5: The Ld. Counsel for the assessee has stated at the Bar that he does not press Grounds No 4 & 5. Theses grounds are therefore dismissed as not pressed.”

Before High Court:

On the issue of penalty FROM

2016 (7) TMI 1011 - ITAT MUMBAI

TATA INDUSTRIES LTD. VERSUS THE INCOME TAX OFFICER, WARD- 2 (3) (3) , MUMBAI

ITA No. 4894/Mum/ 2008

Dated: - 20-7-2016

2. The assessee in this appeal has raised the following grounds:-

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5. The CIT (A) erred in confirming the disallowance of professional fees of ₹ 19,44,000/- paid for obtaining valuation reports of certain investments held by the Appellant, for the purpose of computing Income from Business or Profession.

32. Grounds No. 4 & 5:

The Ld. Counsel for the assessee has stated at the Bar that he does not press Grounds No 4 & 5. Theses grounds are therefore dismissed as not pressed.

Observations of author:

It appears that the Ld. AO imposed penalty u.s. 271.1.c because the ground was not pressed before Tribunal. This is evident because in respect of many  other additions deleted in appeals,  Ld. AO did not impose penalty. Ld. AO imposed penalty for furnishing of inaccurate particulars of income that is by claiming deduction under head B & P.

The penalty was deleted by Ld.  CIT(A) and  on appeal by revenue,  order of CIT(A)  was confirmed by the Tribunal.

Therefore, revenue preferred appeal before honorable High Court. High Court also confirmed concurrent findings and order of  CIT(A) and Tribuna by holding that no substantial question of law arise.

Before the High Court for this issue substantial question of law was proposed after discussion the appeal was not allowed.

From judgment of High Court:

“ 4. The following three substantial questions of law have been proposed in this appeal :        

1. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in deleting the penalty levied u/s. 271(1)(c) of the I.T. Act on account of disallowance of professional fees of Rs. 19,42,000/- paid by the assessee to SB Billimoria & Company for the valuation of shares taxable under the head capital gain without appreciating that the assessee has furnished inaccurate particulars of income by claiming the above expenses as business expenditure.”

Xxxxx not relevant for this article.

5. As regards question no. 1, the Tribunal has upheld the findings of the CIT(A) on the basis that the entire claim was made by assessee making full disclosure and no facts were concealed or hidden. According to Tribunal, the disallowance was made by the AO as in his opinion these expenses were not allowable under the head capital gains.

Relying and applying  on the judgment in case of COMMISSIONER OF INCOME-TAX VERSUS RELIANCE PETROPRODUCTS PVT. LTD. - 2010 (3) TMI 80 - SUPREME COURT  the High Court ultimately held in para 10 as follows:

9. The Apex Court has held that where assessee has furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as concealment of income on its part and where the AO has taken a particular view contrary to the view that assessee had, it would not attract any penalty under Section 271(1)(c) of the Act. The Apex Court held that if this contention of the Revenue is accepted then in case of every return where the claim made is not accepted by Assessing Officer for any reason, assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.

10. In the circumstances, no substantial question of law arise. Appeal dismissed.

Per author:

Let us hope that revenue will not prefer appeal before the Supreme Court against the order/ judgment of High Court.

This was an un-necessary appeal and litigation by revenue before CIT(A) and then before ITAT. Because it is merely a case of difference of opinion between assesse and the Ld. AO.

Furthermore, in this case claim of various expenses as business expenditure was correct in view of nature and size of business of assesse. Entire activity of assesse constitute business being adventure in nature of trade, commerce and industry. Head of income is a different aspect due to specific provisions. Capital gains are also earned in course of business of assesse.

Valuation of shares held can be made for several reasons in process of carrying business and decision making to ascertain benefits accrued by holding business assets by way of appreciation in value, it can also be to ascertain any diminution in value of shares. Valuation report can be used for raising funds also. Sometimes it can only be to make compliance with provisions of tax law for  preparation of annual accounts.

Therefore, expenses for obtaining valuation reports for investments is a normal business activity and expenditure of assesse, while carrying business.

Therefore, with due respect, author feels that the claim of valuation expenses could be pressed more vigorously and decision not to press ground in this regard,  before Tribunal was not correct.