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TMI Blog2018 (8) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... re is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 10.20 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/- p.m. as reasonable expenditure considering the nature and volume of business of assessee-company and the nature of services rendered by SRSR. The balance of ₹ 7.20 Lakhs was disallowed u/s. 37(1) of the Act. 3. Before the Ld.CIT(A), assessee filed copy of the agreement and gave submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ELEM Investments (P) Ltd., M/s. Highgrace Investments (P) Ltd M/s. Fincity Investments (P) Ltd . 5. In the course of appellate proceedings, Ld.CIT(A) noted that assessee-company has purchased ₹ 40,323/- unquoted shares of M/s. Dataquest Management and Communications Ltd., (DQ) with a premium of ₹ 145/- per share on 14-07-2001. The same was valued in the closing stock as on 31-03-2002 at the face value of ₹ 10/- per share. These shares were shown as stock in trade of the business of purchase and sale of shares. Ld.CIT(A) was of the opinion that assessee has created a loss of ₹ 58,46,780/- in the share trading account which was set-off against interest income shown under the head business . It was also further noted that similar Modus Operandi was also adopted by the other group concerns in AY. 2002-03. He was of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. After considering the entire conspectus of the issue, I have come to the following findings - i) The appellant company had acquired the shares of DQ as an 'investment' and not as 'stock in trade'. These shares were, therefore, not to be taken into share trading account but have to be shown in the Balance Sheet under the head 'long -term investment'. The valuation of these shares in the closing stock would not affect the business profits of the appellant assessable to tax. ii) Without, prejudice to the above, the DQ shares cannot be valued In the closing stock at face value since the net realizable value of these shares was more than the cost price. iii) Without prejudice to the above, the loss shown in the share trading account was deemed to be a loss from speculation business in terms of 'Explanation' to Section 73 of the Act. Such loss cannot be set off against interest Income shown under the head 'business'. iv) The technique adopted by the appellant and other group concerns in this year and earlier year by showing the 'investment' as 'stock in trade' and thereafter valuing the same in closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not been considered by the AO is concerned, the jurisdiction to deal with the same in appropriate cases may be dealt with u/s. 147/148 of the Act and Section 263 of the Act if requisite conditions are fulfilled. In the presence of such specific provisions a similar power is not available to the first appellate authority. Ld. Counsel also referred to the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria [66 ITR 443] (SC) and CIT Vs. Shapoorji Pallonji Mistry [44 ITR 891] (SC) which support the proposition that AAC has no power to enhance the assessment by discovering the new source of income. 7.2. Coming to the merits of the issue, Ld.Counsel submitted that assessee has adopted ₹ 10/- as the cost price as the shares are held by the company as stock in trade and there was no market at the end of the year. However, it was fairly admitted that while arriving at the cost price, the company has not taken the share premium amount into consideration and if that was taken into consideration, the valuation of the shares would be around ₹ 23.52. 7.3. Further referring to the amendment brought to explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue before him. 10. We have considered the rival contentions and perused the orders of the authorities. As far as the issue of claim of professional charges to SRSR is concerned, AO accepts that there were certain services rendered by SRSR to assessee-company. He has allowed an amount of ₹ 25,000/- p.m. as against the claim of assessee. Thus, there is no dispute between the parties that SRSR has rendered some services for which payment was born by assessee. The issue is about the quantum of allowance as there is no dispute about services being rendered. According to section 37(1) of the Income Tax Act, 1961, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . The Apex Court in CIT Vs. Bharat Carbon Ribbon Mfg. Co. (P) Ltd., 1999 XII SITC 218 has observed that whether the assessee is entitled to a particular deduction or not will depend on the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs CIT (1969) 72 ITR 612 (SC). In CIT Vs. Chandulal Keshavlal Co. (1960) 38 ITR 601 (SC), it was held by the SC that in deciding whether a payment of money is a deductible expenditure, one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. 10.1. The Co-ordinate Bench in the case of Coca Cola India (P) Ltd., Vs. DCIT [116 TTJ 880], [ITAT (Pune)] has considered the provisions of Section 37(1) and laid down the following principles: 18.8 The position in law, in relation to s. 37(1) of the Act, as emerging from the decisions of the Supreme Court, discussed in the above paras, can be summarized as under: (i) the expenses incurred should be 'incidental' to the carrying on of the business of the assessee. (ii) the expression wholly and exclusively used in s. 37(1) of the IT Act, 1961, does not mean 'necessarily'. (iii) an expenditure incurred 'voluntarily' without any 'necessity', would be permissible for deduction under s. 37(1) if it was incurred for promoting the assessee's business. (iv) the fact that somebody other than the assessee was also benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no power to enhance the assessment by discovering the new sources of income not mentioned in the return of assessee or considered by the ITO. It is to be noted that Ld.CIT(A) relied on the trading account of assessee filed along with return. Therefore, in our view, it is not a new source of income not mentioned in the return of assessee. The Hon'ble Supreme Court in the case of CIT Vs. Nirbheram Deluram [224 ITR 610] (SC) has held as under: The Supreme Court has held in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 that the declaration of law is clear that the power of the AAC is coterminous with that of the ITO and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the ITO, The scope of his power is coterminous with the ITO, He can do what the ITO can do and also direct him to do what he has failed to do. Having regard to the aforesaid decision it must be held that the High Court was in error in holding that the appellate power conferred on the AAC under section 251 was confined to the matter which had been considered by the ITO and that the AA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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