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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 ..... R had submitted a copy of the bank statement and ledger copy of transactions by letter dated 29/12/2016 and it proves the genuineness of the transactions. Thus on both counts, i.e. commercial decision of the assessee as well as genuineness of the transaction, we hold that the AO was wrong in treating this transaction as ‘income from other sources’ and making disallowance u/s 68 of the Act, instead of capital gains as offered by the assessee. We have no hesitation to uphold the findings of the CIT(A) on this issue and accordingly dismiss the ground raised by the revenue. - Decided in favour of assessee Disallowance of salaries and recruitment expenditure - non setup of business - Held that:- The assessee has set up its business the moment it had acquired the property on lease to run the business with effect from 01/04/2007 and started recruiting the people for the suitable positions, in our view, the assessee has already set up its business and any expenditure in the nature of establishment, administrative, etc. are admissible business expenditure. Considering the nature of expenditure incurred by the assessee during the year we are inclined to agree with the findings of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 incidental to the set up of business and therefore is a capital receipt. 3. Briefly the facts of the case are that the assessee company filed its return of income on 26/09/2008 admitting income of ₹ 30,45,190/- under the head income from business and ₹ 4,47,44,209/- under the head long term capital gains . Assessment u/s 143(3) of the Act was completed determining the total income of the assessee at ₹ 6,05,51,300/- by making various additions, which are to be adjudicated as under: 4. On appeal before the CIT(62,11,400/- as income from other sources under section 68 of the Act against the admission as long term capital gains by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly, on 10.04.2006 the assessee purchased the shares of a face value of ₹ 10/- belonging to M/s SRGEPL at a premium of ₹ 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 ₹ 500 and ₹ 1800 to ₹ 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 ₹ 490/- when the financial position of M/s SRGEPL in the year of purchase and sale is one and the same?. The CIT(A) observed that the Assessing Officer had not doubted the increase of share from ₹ 500 on 10.04.2006 to ₹ 1,800 on 16.04.2006 which is around 3 times in a gap of 6 days. When the value of shares is so fluctuating for reasons best known to the purchaser and seller, transactions do happen and as long as the resultant gains were offered to tax, no need to see any reason to disbelieve the transaction of sale/purchase rate of shares which are determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profit cannot be treated as income from other sources and bring to tax u/s 68 of the Act. He further submitted that AO has treated the above transaction as income from other sources merely based on the suspicion and surmises/conjectures, instead, he should have exercised his discretion judiciously while making the addition u/s 68 of the Act. For this proposition, he has relied on the following case law: 1. CIT Vs. Tilak Raj Kumar, [2014] 369 ITR 180 (T AP) 2. Harish Kumar Vs. DCIT, [2003] 85 ITD 366 (ITAT-Hyd.) 3. CIT Vs. Dinesh Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is well settled law that in order to discharge the onus, the assessee must prove the identity of the creditor, capacity of the creditor and genuineness of the transaction. In the given case, the AO has brought to tax the capital gain, which is not the sum credited in the books of the assessee, secondly, the assessee has already brought on record the identity of the parties and capacities of the parties. With regard to genuineness of the transaction, assessee has brought on record the transactions as investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laries, 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 ₹ 3,17,534/- towards rents, rates taxes, ₹ 2,08,671/- towards telephone expenses, ₹ 1286288/- towards recruitment expenses and ₹ 3,67,293/- towards upkeeping charges. The company had also spent ₹ 1,90,865/- for acquiring furniture fixtures for its office use. Similarly the company had also spent a sum of ₹ 36,47,815/- for acquiring vehicles, ₹ 36,148/- for office equipment. and ₹ 5,29,766/- for computers. As such the company had put in place all the infrastructure necessary for conducting the business during the year. The assessee relied on the judgment of Gujarat High court in the case of Hotel Alankar Vs. CIT, 133 ITR 866. 12. After considering the submissions of the assessee, the CIT(A) observed that the Assessing Officer has disallowed a part of expenditure relating to salaries of ₹ 1,00,08,788/- and recruitment expenses of ₹ 12,86,288/- and has allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business with effect from 01/04/2007 and started recruiting the people for the suitable positions, in our view, the assessee has already set up its business and any expenditure in the nature of establishment, administrative, etc. are admissible business expenditure. Considering the nature of expenditure incurred by the assessee during the year and the case laws relied upon by the assessee, we are inclined to agree with the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the Assessee received interest of ₹ 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 to go to reduce the cost of construction. It was held that such receipts were capital receipts and could not he created as income of the assessee from any independent source. 21.2 He submitted that in CIT v. Karnataka Power Corpn 247 ITR 268 the Hon ble Supreme Court held that interest receipts and hire charges from contractors during the construction period was in the nature of capital rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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