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TMI Blog2018 (8) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... s not proved to be personal or capital in nature, as provided in the section itself. Enhancement of amount by way of loss claimed on valuation of certain shares by the Ld.CIT(A) - Held that:- CIT(A) has jurisdiction to consider the loss claimed of the assessee, which AO has not examined, as he has powers to enhance also given to him u/s. 251. The provisions of Section 251(1)(a) empowers the CIT in an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Thus, since the CIT(A) has not unearthed a new source of income, but only has gone by the annual report/ statements enclosed to the return in which assessee has claimed trading loss to set-off to other incomes, we are of the opinion that CIT(A) has power to enhance and accordingly the contentions of assessee on this issue are rejected. Coming to the merits of addition i.e., disallowance of loss claimed, it is to be noted that assessee having purchased shares of ₹ 155/- per share has valued the same at ₹ 10/- as on 31-03-2002, so as to claim a notional loss in the transaction of purchase of shares. As pointed out by Ld.CIT(A) in the order, there is no fall in the value of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services like advisory services in its business area, accounting services, collection of interest and dividend, taxation, ROC related matters and maintenance of its land properties etc. It was also mentioned that the recipient company, SRSR was assessed to tax where all the receipts were declared as their income. AO found that assessee earned interest on dividend income, purchased shares of two concerns and sold shares of another company in two transactions. AO also noticed that the dividend income had been claimed exempt. Even though assessee owns some agricultural lands, no agricultural income was declared, coming to a conclusion that no agricultural operations were conducted by assessee. AO also was of the opinion that the Directors of SRSR are related persons to the Directions of assessee-company. Considering all these facts and circumstances of the case, AO held that the service charges paid were dis-proportionate to the services received and therefore, entire expenditure of ₹ 18 Lakhs could not be said to have been expended wholly and exclusively for the purpose of business in terms of Section 37(1) of the Act. AO estimated sum of ₹ 3 Lakhs at ₹ 25,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, I agree with the Assessing Officer that the amount of service charges paid was not necessitated by the business needs of the appellant company and the same was disproportionate to the services, if any, rendered by SRSR. Hence, the entire expenditure of ₹ 18 lakhs cannot be said to have been expended wholly and exclusively for the purpose of business of the appellant company. The Assessing Officer has rightly estimated the allowable expenses at ₹ 3 lakhs after considering the nature and volume of the business of the appellant company and nature of services to be rendered by SRSR. The same is, therefore, upheld. It is pertinent to mention here that on exactly similar facts disallowance of service charges was also upheld in the appellate orders of even date in the case of other group concerns M/s. Highgrace Investments (P) Ltd M/s. Fincity Investments (P) Ltd. 4.1. Similar issue arises in AYs. 2003-04, 2004-05 2005-06, wherein AO has reduced the amounts as under: A.Y. Disallowed (Rs.in Lakhs) Allowed (Rs.in Lakhs) 2003-04 15.00 3.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come and is carrying on business of dealing in shares. Assessee objected to invoking the Explanation to Section 73 and also contested that the transaction is not speculation as defined u/s. 43(5). It was submitted that assessee is entitled to set-off the business loss against its income from other sources viz., interest and dividend income. Assessee relied on the decision of Rajan Enterprises Pvt. Ltd., [41 ITD 469] (Bom), Concord Commercial Pvt. Ltd., [95 ITD 117] (Mum.)(SB) and Godavari Capital Ltd., [91 ITD 274] (Hyd). 5.1. Ld.CIT(A), however, did not agree and after analyzing the agreement entered into on 16-08-2001 with the promoters of DQ and the case law on the subject and also the fact that the said company has allotted shares subsequently to various persons at higher price than the purchase cost, as listed out in para 13, Pg.18 of the order and also analyzing the provisions of Section 73, the Explanation, came to the conclusion that assessee has adopted Modus Operandi obviously to evade tax. Vide para 16 onwards, he also examined the various contentions raised by assessee in detail and at the end, he has concluded as under: 17. After considering the entire cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the reasonability of an expenditure and once a claim is made, the entire amount is to be allowed. He also pointed out the finding of Ld.CIT(A) that the provisions of Section 40A(2) are not invoked and submitted that AO cannot restrict the amount claimed u/s. 37(1) as there is no finding that expenditure is personal in nature or for non-business purposes. Therefore, the claim as made by assessee is allowable in full. After referring to various principles on the claim u/s. 37(1), Ld. Counsel relied on the decision of the ITAT, Pune Bench in the case of Coca Cola India (P) Ltd., Vs. DCIT [116 TTJ 880], [ITAT (Pune)] to submit that the Coordinate Bench has summarized the principles according to which AO has to allow the amount in full once it is identified that expenditure is for the purpose of business. 7.1. Coming to the issue of enhancement, Ld. Counsel submitted that Ld.CIT(A) has travelled beyond the scope of appeal and relied on the principles laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. [251 ITR 864] (Del) to submit that whenever the question of taxability of income from a new source which had not been considered by the AO is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can consider any other issue also as the Hon'ble Supreme Court in the case of CIT Vs. Nirbheram Deluram [224 ITR 610] (SC) has upheld that scope of the power of the appellate authority is co-terminus with the AO. He can do what the AO can do and also direct him to do what he has failed to do. 8.1. Coming to the merits of the action taken by the CIT(A), it was submitted that assessee has purposely valued the stock at cost price when it was purchased at a cost of ₹ 155/- and Ld.CIT(A) also noted that the said company had issued further shares in later year at a higher cost. Therefore, valuation of share at ₹ 10/- is a methodology adopted for reducing the taxable income. He supported the orders of the Ld.CIT(A) on the issue of claim u/s. 37(1) as well. 9. In reply, Ld. Counsel submitted that the decision relied upon by the Ld.DR in the case of CIT Vs. Nirbheram Deluram [224 ITR 610] (SC) was considered by the Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. [251 ITR 864] (Del) and so the principles are already clear that CIT(A) cannot traverse beyond the issue before him. 10. We have considered the rival contentions and perused the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not require that expenses should be incurred only for earning immediate profits. Expenses incurred though not directly related to earning to income, may be allowable deductions if they are related to the carrying on of the business vide Birla Cotton Spinning Weaving Mills Ltd. Vs. CIT (1967) 64 ITR 568 (Cal)). It is for the assessee to decide how best to protect its own interest. It is not open to AO to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure (CIT Vs. Dhanrajgiri Raja Narasingiri (1973) 91 ITR 544 (SC)). Expression commercial expediency is not a term of art. It mean everything that serves to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purposes of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue (Jamshedpur Motor Accessories Stores Vs. CIT (1974) 95 ITR 664 (Pat); J.K. Woollen Manufacturers Vs CIT (1969) 72 ITR 612 (SC). In CIT Vs. Chandulal Keshavlal Co. (1960) 38 ITR 601 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in certain circumstances) and also restrictions placed u/s. 30 and 31 does not apply to the facts of the case. In view of that, we are of the opinion that AO has wrongly considered the claim. There is no power to AO to reduce the claim, whereas he can examine whether the amount can be allowed or not in full. In view of that, since the restrictions u/s. 37(1) are not applicable, the whole of the amount claimed is to be allowed as the expenditure is not proved to be personal or capital in nature, as provided in the section itself. AO is directed to allow the claim in full. To that extent, the orders of AO and CIT(A) are modified. Thus, the grounds on this issue are allowed. 11. Coming to the issue of enhancement undertaken by the AO in AY 2002-03, the reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. [251 ITR 864] (Del) will apply only in the case where the CIT(A) has traversed and found a new source of income. Hon'ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry [44 ITR 891] (SC), has rightly held that the appellate authority has no power to enhance the assessment by discovering the new sources of income n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld.CIT(A) i.e., disallowance of loss claimed, it is to be noted that assessee having purchased shares of ₹ 155/- per share has valued the same at ₹ 10/- as on 31-03-2002, so as to claim a notional loss in the transaction of purchase of shares. As pointed out by Ld.CIT(A) in the order, there is no fall in the value of the share and the said company (DQ) has issued further shares to others at ₹ 167/- as on 30-11-2001 to ₹ 290/- on 16-07-2004 (as stated in pg.18 of the order). It is also to be noted that in the course of argument also, Ld. Counsel fairly admitted that the intrinsic value of the share is around ₹ 23.52 and therefore valuation of share at ₹ 10/- is certainly without any basis. Affirming the order of the CIT(A) in which he has discussed in detail the legal provisions and factual aspects, we agree with the Ld.CIT(A) that the valuation of shares at a lesser price than the cost was resorted to only to claim notional loss. Since we are affirming the order of the CIT(A) on this issue, the question of consideration of loss whether it is speculation or not under the provisions of Section 73 Explanation does not arise. In view of that, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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