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TMI Blog2018 (3) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... sued at the cost of the assessee. Unless it is proved that the assessee actually incurred this expenditure, it is not possible to give a finding that the case of the assessee is covered under section 48 (i) of the Act. Since it is a fact to be verified, conveniently at the end of the learned AO, we deem it just and proper to set aside the ground No.1 of Cross Objection to the file of the AO for verification of the fact as to whether the assessee incurred this expenditure or not. Disallowance of the long term capital loss - Held that:- We uphold the conclusions reached by the learned CIT(A) that this sale transaction is within the legal framework and cannot be held as illegal. Holding so, we dismiss this ground of appeal. Membership/subscription fees paid on behalf of Mr. B.K. Modi, the Chairman, the assessee incurred the said expense and paid the amount to Clinton Global Initiative, Associated Chamber of Commerce and Industries of UP, Asia Business Council, Conference Board Inc. etc. - claim allowed as relying on assessee' own case Travelling expense incurred by the assessee - Held that:- No dispute that FBT is levied and paid in respect of the travel expenses. Learned CIT(A) recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f registration expenses u/s 48 of the Act and disallowance of ₹ 5 lacs out of travelling expenses, and CO No.212 of 2013 in respect of the Asstt Year2009-10 aggrieved by the disallowance of ₹ 25 lacs contributed by the assessee as a sponsorship for Spice lounge in the building of International Fiscal Association, Delhi. 2. Assessee Company derives its income from the business activities which include providing financial and management consultancy, corporate guarantees, loans and shares transactions, commission agency, running a hotel etc. I.T.A. Nos.785 & 5336/Del/2011 & Cross Objection No.56/Del/2011 3. During the scrutiny of return of income for the Asstt Year AO made certain additions on account of (i) long term capital gain on sale of land,(ii) loss on sales of shares of MBM Ltd. , (iii) disallowance of membership/subscription fees paid on behalf of one Mr. B.K. Modi, its Chairman, and (iv) ad hoc disallowance of ₹ 24,53,078/- out of travelling expenses. Learned CIT(A) deleted all these expenses but sustained the disallowance of ₹ 3,33,334/-, the registration expenses and reduced the disallowance of travelling expenses to ₹ 5 lacs. 4. Ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations of the Ld. AO that the value of the land is much higher than the circle rate cannot be accepted as is not supported by any enquiry or evidence on record. He, therefore, reversed the order of the AO by giving a direction to adopt sales consideration at ₹ 25,00,000/- and then reduce the indexed cost of acquisition. However, the CIT(A) did not allow the claim of registration expenses of ₹ 3,33,334 holding that the same cannot be part of cost of acquisition or improvement. 7. Challenging the direction to adopt sales consideration at ₹ 25,00,000/- Revenue preferred appeal, whereas aggrieved by the denial of claim of registration expenses of ₹ 3,33,334/- assessee filed cross objection. 8. Ld. DR vehemently relied upon the Assessment Order, whereas the Ld. AR submitted that no evidence was brought on record or confronted to the assessee in relation to the observations of the Ld. AO that the nature of land has not yet changed practically, or that the land is urban land and huge towns are developing in the nearby localities or that construction was going on the land. He further submitted that though not disputed, Ld AO ignored the fact that the circle va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale consideration with the unreal consideration of ₹ 50,00,000/-. 12. Coming to the Assessee's Cross Objection, it is submitted by the Ld. AR that as per section 48 of the Act, any expenses incurred wholly and exclusively in connection with transfer of a capital asset is required to be deducted while computing capital gains. Since the registration expenses of the property on transfer amounting to ₹ 3,33,334/- in connection with transfer of property was paid by the assessee, the same are required to be deducted while computing capital gains. Payment of registration expense of ₹ 3,33,334/- by the assessee is duly supported by documentary evidence i.e Pay Order evidencing payment of stamp duty is incorporated at page 33 of the paper book. Consequently, Ld. AR submitted that the action of CIT(A) in not allowing deduction of such expenses is untenable and liable to be reversed. Ld. DR submitted that except the copy of cheque, there is no evidence on record to show that the assessee has incurred this expenditure. 13. We have gone through the record in the light of the submissions made on either side. Section 50C of the Act reads that, - 50C. (1) Where the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, of the view that in view of the provisions of Section 50C of the Act and the law on this aspect, the findings of the Ld. CIT(A) adopting the sales consideration at ₹ 25,00,000/- and then reduce the indexed cost of acquisition does not suffer any irregularity or illegality and does not warrant any interference. Ground No 1 of ITA 785/Del/2011 is dismissed. 16. Now coming to Ground No. 1 of Cross objection, for adjudication of this ground, relevant portion of Section 48 needs to be extracted and it is,- 48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: 17. Order of learned CIT(A) shows that he disallowed the registration expenses on the ground that such expenses cannot be part of cost of acquisition or the cost of improvement of the property. However, a reading of Section 48 clearly shows that while comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheet drawn as on 30.6.1996, the net worth of the company was in negative. Further it was pleaded that the assessee had already had substantial assessed long term capital loss of ₹ 89,18,938/- brought forward from the preceding years to be carried forward and such brought forward loss was more than the capital gains from the land. Learned CIT(A) agreed with these submissions and held that the sale of shares at Re.1/- to one of its group companies is within the legal framework and cannot be dubbed as sham or illegal. 22. It is the argument of the learned DR that the sale transaction with one of the group companies is at the will of the assessee and amenable for manipulation. He vehemently relied upon the Assessment order. 23. There is no dispute that the net worth of the MBM Company is in the negative as on 30.6.1996 and the company was under liquidation. From the documents produced by the learned AR we are satisfied that it is the usual business practice in commercial transactions to sell the shares of a company having net worth at a token consideration of Re.1/- for accounting purposes. In the decisions South Asia Industries Pvt Ltd vs. CIT Delhi Central: 155 ITR 392 (De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is doubts. A mere suspicion, however strong it might appear, cannot take the form of a substantiated opinion sans supporting materials and hence it cannot form the basis for rejection of the claim'' 25. In view of this factual and legal position, we uphold the conclusions reached by the learned CIT(A) that this sale transaction is within the legal framework and cannot be held as illegal. Holding so, we dismiss this ground of appeal. 26. Adverting to the membership/subscription fees paid on behalf of Mr. B.K. Modi, the Chairman, the assessee incurred the said expense and paid the amount to Clinton Global Initiative, Associated Chamber of Commerce and Industries of UP, Asia Business Council, Conference Board Inc. etc. Learned AO disallowed the same on the ground that the assessee did not derive any direct benefit from the above membership, and even if any benefit is derived it is of enduring nature as such, capital expense. Learned CIT(A) deleted the same. 27. At the outset, it is brought to our notice that in assessee's own case for the AY 2005-06, the Tribunal in its order dated 30.9.2010 followed its earlier decisions and vide paragraph no.12 to 14 that the grounds of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. v. ITA : 52 TTJ 198 (Del.); ACIT vs. Amtek Auto Ltd: 112 TTJ 455 (Del); Good Year India Ltd. vs. ITO: 73 ITD 189 (Del-TM); Express Movers P. Ltd vs. ITO: 61 ITD 528 (Del); M.D. Khandelwal vs. DCIT: 65 ITD 313 (Del); Nitin Sales Corporation vs. ITO: 212 Taxation 49 (Del) and other decisions, he submitted that when the books of accounts have been audited in accordance with the provisions of the Act and has been accepted as true and correct, there is no justification to make any adhoc disallowance and adhoc disallowances made in absence of any specific mention of a un-vouched expenditure liable to be disallowed have been held to be untenable and not called for. 32. He further submitted that deduction under section 37(1) of the Act is admissible for expenditure incurred wholly and exclusively for purposes of business, and the expenditure justified by business considerations and incurred out of commercial expediency is allowable deduction. He submitted that the settled position of law on this aspect by the Hon'ble Apex Court in CIT v Walchand & Co.: 65 ITR 381 (SC); CIT v J.K. Wollen Manufactures: 72 ITR 612 (SC); CIT v Aluminium Corporation of India Ltd.: 86 ITR 11 (SC); CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was selling shares very frequently, volume and magnitude was very high and he earned only a meager amount of dividend, Income arising from sales of shares was assessable as business income and submitted that the Hon'ble Supreme Court dismissed the SLP against this order in (2014) 52 Taxmann.com247 (SC) . He further placed reliance on Sadhana Nabera vs ACIT (ITA No.2586/Mum/2009) and CIT vs Gopal Purohit (2010) 336 ITR 287 (Bombay) for the principle that where Tribunal had a pure finding of fact that assessee was engaged in two different types of transactions, first set of transactions involving investment in shares and second set of transactions involving dealing in shares (without delivery) for purposes of business, it had correctly held that delivery based transaction should be treated as those in nature of investment transactions and profit received there from should be treated either as short-term capital gain, depending upon period of holding and profit from other transactions should be treated as business income. 38. Learned AR submitted that year after the year ld. AO has been treating the capital gains on the sale of shares shown as investment in the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) found that there is no evidence to show that the transaction is a sham one with any purpose of adjustment of gains and the sale took place at a value much above the net asset value determined by the Chartered Accountant. On this premise, ld. CIT(A) deleted the disallowance. 41. It is argued by the ld. DR that the assessee sold the shares at the value of acquisition itself without any compelling reasons and having regard to the facts and circumstances of the case, the AO rightly concluded that this sale happened only in this year with a purpose of setting off the capital gains in some other shares against the capital loss in these shares. 42. Learned AR submitted that after acquisition of these share, no benefit was derived by the assessee and the value of these shares was determined by the Chartered Accountant at ₹ 5.14 as on31.3.2007. According to the learned DR, the assessee got rid of this burden by deriving the value of acquisition and so long as the genuineness of the transaction is not in doubt, merely because the transaction ended up in loss, it cannot be doubted. He submitted that different yardsticks cannot be adopted for the shares accrued capital gain and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of shares, observing that the assessee has interest in the company purchasing shares from the assessee company and thus added ₹ 30,35,500/- i.e. 467 x 6500 to the assessed business income of the assessee. In appeal, the CIT(A) held that the addition made is not as per the provisions of the Act and the Ld. AO has applied rule of prudency on sale of only such shares where assessee has incurred loss and not to other instances where transaction have resulted into gains. On this premise, Ld. CIT(A) deleted the addition made by the AO of ₹ 30,35,500/-. 47. Ld. DR submitted that when the NAV of shares was at ₹ 1967/-, it is highly improbable for the assessee to sell the same at a lesser value and the Ld. AO is justified in substituting the Sale consideration with the NAV of the shares. 48. It is the argument of the Ld. AR that Harjas Logic System Pvt. Ltd. is a private company and is not traded on the stock exchange, and the same was concluded at the mutually negotiated price between two parties., the assessee has sold shares @ ₹ 1500 per share as against cost of acquisition of ₹ 200 per share. He further submitted that shares transfer transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/- on account of the subscription made by the assessee towards the annual subscription/membership fee on behalf of Dr. B.K. Modi which the learned AO held as the personal expense of Mr. Modi and no business activity of the assessee is involved. Second aspect is that during the year assessee made a contribution of ₹ 25 lacs to the International Fiscal Association towards sponsorship for "Spice Lounge". Learned AO treated it as capital expense but failed to allow depreciation. Learned CIT(A) concurred with the leaned AO on the nature of the expense stating that this expense is not for the maintenance of business level and needs and is only for promotion of goodwill in the business field for the years to come. However, learned CIT(A) allowed depreciation thereon which comes to ₹ 6,25,000/-. Assessee filed CO on the ground that this expense of ₹ 25 lacs is a business expense allowable u/s 37 of the Income-tax Act. 53. At the outset, it could be seen from the record that the total taxable amount in the revenue appeal is about ₹ 15,84,273/- and certainly the tax effect is less than ₹ 10 lacs covered under CBDT Circular No.21 of 2015 applicable with retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above contribution is clearly for the purposes of business of the assessee. 57. He further submitted that the case of the assessee is squarely covered in favour of the assessee by the decision of the Delhi High Court in the case of CIT v. Vaish Associates: 235 Taxman 208 (Del.) and CIT vs Chemicals and Plastics India Ltd., 292 ITR 115 (Madras), wherein it was held that the contributions made for the construction of a building by an identity which serves the interest of various members, it is covered by section 37 of the Act. 58. Learned DR placed reliance on the orders of the authorities below and submitted that the contribution is a gratuitous act and at the best it is in the nature of creation of a capital asset building the goodwill for the assessee. 59. In Chemicals & Plastics India Ltd. (supra), the assessee company contributed certain amount towards the construction of building of Chamber of Commerce. He claimed that the Chamber's maintenance was for the furtherance of the business interest of its constituents and, hence, the payment made by it as member thereof had to be treated as business expenditure. The AO , however, holding that the payment was only a gratuitous pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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