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TMI Blog2017 (2) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... l activities for accumulating profits, without which the increase of share value did not happen at all. iv) In the given facts, the CIT(Apeals) ought to have confirmed the action of the AO in treating the income under the head 'other sources' relying on the decision of Punjab & Haryana High Court in the case of Som Nath Maini Vs. CIT (306 ITR 414) and Hon'ble Supreme Court decision in the case of Sumati Dayal Vs. CIT(214 ITR 80). v) The learned CIT(Appeals) erred in deleting the addition made by treating the expenditure incurred during the precommencement period as capital expenditure, as the facts cited by the CIT(A) are distinguishable in the present case. vi) Any other ground that may be urged at the time of hearing. 2.1 The assessee has raised the following Cross objections in its C.O.: "1. The order of the learned Commissioner of Income-tax (Appeals), Hyderabad is not correct in holding that the interest received at Rs. 1,79,11,289 during the preconstruction period is assessable to tax. 2. The learned Commissioner of Income-tax failed to note that the interest received was against the fixed deposit which was given as a guarantee to the Government was inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer to disbelieve the transaction. The main reason as submitted by the purchasers of the shares is that the company M/s SRGEPL owns a piece of land at Jaipur and that an Airport was proposed to be constructed near the said land due to which the value of the lands is likely go up abnormally and in the said vacant site they can develop a hotel. Accordingly, the assessee claimed that there is no reason to disbelieve the transaction of capital gains. 5. After considering the submissions of the assessee and the order of the AO as well as enquiry report of the DDIT, the CIT(A) observed that admittedly, on 10.04.2006 the assessee purchased the shares of a face value of Rs. 10/- belonging to M/s SRGEPL at a premium of Rs. 490/- per share. The financial position of M/s SRGEPL as brought out by the Assessing Officer during the subject assessment year is same for the previous year and there are no big business transactions by M/s SRGEPL. If one has to doubt the increase in sale value of shares from Rs. 500 and Rs. 1800 to Rs. 2,670/- over a period of 16 months, the CIT(A) was of the view that why the same doubt cannot be extended to the buying transaction of shares at a premium of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces'. 8. Ld. AR submitted that the AO has not believed the submissions and material evidence produced before him by the assessee. It is submitted that the assessee has purchased shares in M/s SRGEPL with a view to expand its business and the assessee has seen potential to develop the land which is in the possession of the M/s SRGEPL. It is submitted that, in that process, assessee also bought further shares from some of the directors of the said company considering the market value of such land. It is submitted that subsequently the assessee felt that it may not be a good proposition to invest in that land considering the fact that such land cannot be converted into commercial purposes and, hence, considering the commercial exigency, assessee decided to off-load the shares. It is submitted that the existing directors of the company agreed to buy these shares @ 2670/- per share and this is a purely business decision and also the rate was mutually agreed between the parties. He, therefore, submitted that the said transaction should be treated as transfer of shares and any profit earned by the assessee was properly offered to tax under the head 'long term capital gains' and such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has invested on the company @ 500/- per share, which is over and above the fair market value of the shares as on the date of purchase. There is no significant change in the financial position of the M/s SRGEPL. On 21/08/2007, the same shares were bought by the existing directors @ 2670/- per share. We cannot go by what made the existing directors to buy the shares at an exorbitant rate. It is purely a commercial decision of the two parties and whatever the profit earned by the parties were offered to tax. As long as two contracting parties agrees on a price commercially and offers the income to tax, we do not see any reason to doubt the intention of the parties or dealing in these transactions. 9.1 Moreover, the AO had disallowed the capital gains u/s 68 of the Act. As per section 68, where any sum is found credited in the books of an assessee maintained for any PY, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the AO satisfactory, the sum so credited, may be charged to income-tax as the income of the assessee of that PY. To bring any sum to tax u/s 68, a sum has to be credited, for such sum it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employ competent staff, training for them etc. for the purpose of business. The assessee company tried to tie up with many hotels and restaurants during the year under consideration. In fact the assessee company had entered into agreement with few customers during the year. The assessee company had appointed various senior executives like Vice President, finance controller, marketing executives, logistic executives, affiliation executives and various other members of the staff. The salaries, wages and allowances paid to such activities and staff during the year were Rs. l,04,90,366/- which includes staff insurance, gratuity, bonus, leave encashment etc., The assessee company had established a business centre at Mumbai and had incurred a sum of Rs. 3,17,534/- towards rents, rates & taxes, Rs. 2,08,671/- towards telephone expenses, Rs. 1286288/- towards recruitment expenses and Rs. 3,67,293/- towards upkeeping charges. The company had also spent Rs. 1,90,865/- for acquiring furniture & fixtures for its office use. Similarly the company had also spent a sum of Rs. 36,47,815/- for acquiring vehicles, Rs. 36,148/- for office equipment. and Rs. 5,29,766/- for computers. As such the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure on salaries as well as recruitment expenses. He further submitted that business cannot be establishes and set up on over night , as the business can be inaugurated on a particular date, but, the set up and operation has to be commenced well in advance. He submitted that whatever the expenditure incurred was relating to the setting up of business and it is allowable as revenue expenditure. 16. Considered the rival submissions and perused the material facts on record. We have noticed that the assessee has acquired the property on lease to run hotel/boarding and lodging. The moment the property is acquired for the purpose of business and the assessee also incurred administrative expenses on setting up of the business and appointed executives to over see the business and incurred salaries and recruitment expenses. It shows that the assessee has set up the business. The facts of the case are similar to the case relied upon by the assessee before the CIT(A) i.e. the decision of the Hon'ble Gujarat High Court in the case of Hotel Alankar Vs. CIT (supra). As mentioned above, the assessee has set up its business the moment it had acquired the property on lease to run the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October 2006, from State Bank of India for Rs. 5.12 crores and Rs, 6.35 crores to ensure timely completion of the hotel. It is submitted that as pre-condition to the provision of the bank guarantees, State Bank of India required the Assessee to place with it fixed deposits of Rs. 5.15 crores and Rs. 6.35 crores respectively by way of "100% margin money towards issuance of bank guarantees". It is submitted that the Assessee received interest of Rs. 1,79,11,289 on the said fixed deposits and the said amount is not assessable to tax in the light of the judgements of the Hon'ble Supreme Court in CIT vs. Bokaro Steel Ltd 236 lTR 315. CIT v. Karnataka Power Corpn 247 ITR 268 and err vs. Kamal Co-operative Sugar Mills Ltd 243 ITR 2 and that of the Hon'ble Delhi High Court in Indian Oil Panipat Consortium Ltd. vs. ITO 315 ITR 255. 21.1 Ld. AR submitted that in CIT vs. Bokaro Steel Ltd 236 ITR 315 the Supreme Court held that receipts such as rent charged by contractors for housing workers, hire charges for plant and machinery given to contractors and interest on advances were part of. arrangements which were intrinsically connected with the construction of the steel plant and had t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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