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TMI Blog2024 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance of long term capital loss of Rs. 96.81 crores on sale of investment in Esconet Services Ltd. and Escosoft Technologies Ltd. in spite of the fact that the transfer of shares and ownership in these companies had taken place during the relevant assessment year and the learned CIT(A) himself recorded the' finding of the fact that the transaction is not sham as opposed to the Assessing Officer's remarks that the transaction is sham and collusive. 3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting only Rs. 24.50 lacs out of the disallowance of Rs. 7,00,11,165/- on account of prior period expenses claimed during the year. 4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting only Rs. 4,35,150/- out of total disallowance of Rs. 10.00 lacs made by the Assessing Officer on account of expenses claimed towards gifts and presents." 3. Grounds of appeal taken by the Revenue read as under :- "1(a) On the facts and in law and in the circumstances of the case the Ld. CIT(A) has erred in deleting the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the date of receipt of consideration is not relevant to decide the date of transfer but in the case of the appellant it definitely creates a prima facie doubt as the transaction appears to have been done in hurry admittedly to get a capital loss which may be claimed for set off against huge capital gains arising on account of shale of its shares in EHIRCL. The paltry consideration of Rs. 40,000/- against such huge investments also needed examination. Accordingly I myself tried to verify cursorily the claim of the appellant that the NAV of the shares of these companies has become negative and this is evidenced by equity valuation and due Diligence Reports. Accordingly I have gone through the Due Diligence Report and also the Balance Sheet of these companies. 7.3.1. It is seen that M/s Escosoft Technology Ltd is having investment in three companies namely Escotoonz Entertainment Pvt. Ltd, CA-Escosoft Limited and E-Soft Mauritius Holdings Ltd. Only in the case of E-Soft Mauritius Holdings Ltd, the fair value of shares has been valued at Nil. The shares of CA-Escosoft Limited' has been valued at Rs. 3.61 per share and that of Escotoonz Entertainment Pvt. Ltd. at Rs. 7.83 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Acquirer on 30103/2006 i.e. before agreement is signed which is done on 31/312006. The appellant also could not throw any light on this aspect during appellate proceedings except submitting search report accessed from ROC website duly attested from Neelam Gupta & Associates, Company Secretary. But this certificate only gives the date on which the name of acquirer has been entered in the list of shareholders as it is appearing in the record of ROC. In no way, it explains the discrepancy. It is also noticed that the share certificates have been shown as transferred in physical form without getting it De-matted. It is not understood how the same can be transferred which in my opinion is against SEBI guidelines. In case had it been Dematted the exact date of transfer could have been verified. In absence of D-mat account the claim of appellant of transfer cannot be conclusively established as the evidence filed in support of the transfer of shares during the year is not conclusive as it is not a third party evidence. Thus, considering the totality of circumstances, it is held that appellant is not able to establish that the transfer is complete during the year and equitable right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the submission of the ld. Counsel for the assessee that the value of shares of subsidiaries is not correct and that the value has been arrived at without giving assessee an opportunity to rebut. Furthermore, ld. CIT (A) has passed an order in which he has tried to verify cursorily the claim of the assessee that the NAV of the shares of these companies has become negative. Thereafter, ld. CIT (A) has embarked upon the valuation which the assessee contended that it is not based upon full details and assessee was not confronted also. In this view of the matter, in our considered view, there are shortcomings in the assessment order as well as in the order of ld. CIT (A) which need to be examined afresh. We refer to the decision of Hon'ble Apex Court in the case of Kapurchand Shrimal vs Commissioner Of Income Tax 131 ITR 451 wherein it is held that it is the duty of the appellate authority to correct the lacunae in the orders of the authority below and remit the matter with or without direction unless prohibited by law. In the present case, we have already noted that there are shortcomings and lack of proper enquiry by the AO and the assessee has further contended that ld. CIT (A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or period expenses". This double addition even otherwise is required to be deleted. " 10.1. During appellate proceedings, it was brought to my notice that the double addition of Rs. 6,71,83,363/- made in this order has been deleted by A.O. in the order passed u/s 154 dated 9/3/2009. Accordingly, this ground is not pressed. Thus, ground No.10 is treated as dismissed as not pressed. 10.1.1. Thus, the only ground No.9 has to be discussed which is regarding non allowance of expenditure to the extent of Rs. 7,00,11,165/- which according to A.O. does not pertain to Assessment Year 2006-07. 10.2. Before undersigned details have been submitted by the appellant and it has been argued that all these expenses have been accrued during assessment year 2006-07 only though they may be pertaining to the prior period. The expenses are definitely incurred in connection with the business of the company. Therefore, the same should be allowed. The appellant has filed an Annexure regarding all these expenses. In some cases invoices have also been produced. 10.3. I have gone through all these items as under:- (i) Repair to Machinery 1,51,000 (ii) Repair to Machinery 2,850 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial Year 2005-06. In the circumstances, it is held as prior period expenses and, therefore, correctly held as not allowable. (viii) Sales Promotion Rs. 80,000/- The reasons given by the appellant for the allowability of the same is as under:- "The expenditure relates to participation in Surajkund Trade Fair held in December, 2004. The consent was given for participation but the payment note was received and entered in June 2005." A copy of letter from Dy.Commissioner, Faridabad addressed to the Chairman of the appellant company has been filed. On perusal of the same it is seen that the payment is related to participation in Surajkund Trade Fair which was held from 22 to 30/1212004. An amount of rent was also fixed in this letter itself. Thus, there is no need of any invoice. The expenditure definitely pertains to Assessment Year 2005-06 and the appellant could have provided the same in previous year relevant to Assessment Year 2005-06. This expenditure is also, therefore, treated as prior period expenses and correctly not allowed by the AO. (ix) Sales Promotion Rs. 169,552/- The reasons given by the appellant for the allowability of the same is as under:- "The expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn else it will amount to double addition. I agree with the alternate submission of the appellant. Thus the disallowance in this year is upheld on the ground that this pertains to earlier year. However the A.O. at the same time is directed to reduce the income by identical amount after due verification of the claim of the appellant that this amount has been written back in the Profit and Loss Account and in turn to the total income of the assessee for AY 2008-09. (xiii) Homolagation Expenses Rs. 18802143/- Though the appellant has given a detailed reason as to why the same cannot be said as prior period expenses, however, alternatively it was submitted by them that this provision is no more required and accordingly it was reversed during Assessment Year 2007-08. It was submitted that in case this disallowance is upheld here then in assessment year 2007-08 when the assessee itself has added back this amount, the same may be directed to be withdrawn else it will amount to double addition. I agree with the alternate submission of the appellant. Thus the disallowance in this year is upheld on' the ground that this pertains to earlier year. However the A.O. at the same time is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue is dismissed and assessee's appeal on this issue is allowed. 19. Apropos misc. expenses : on this issue, AO noted that assessee had debited Rs. 95,66,089/- towards misc. expenses under the head 'sales & administration expenses'. He noted that in absence of any details, an amount of Rs. 15,00,000/- is disallowed on estimate basis. 20. Upon assessee's appeal, ld. CIT (A) on this issue examined the details and gave a finding that none of the expenditure could be said as not pertaining to the purpose of business of the assessee. He also noted that AO has not made out any case by brining any evidence whatsoever on record to show that some or any of the expenditure was not for the purpose of the business. Hence, in absence of any material brought on record by the AO, ld. CIT (A) directed to delete the addition in this regard. 21. Against this order, Revenue is in appeal before us. We have heard both the parties and perused the records. 22. Ld. DR for the Revenue relied upon the order of the AO. However, ld. Counsel for the assessee relied upon the order of the ld. CIT (A). 23. Upon careful consideration, we find that ld. CIT (A) has passed a well-reasoned order on this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial advisor in connection with a possible sale/divestiture/disposal of some or all of the share capital of, or the business or assets of Escorts Heart Institute and Research Centre Limited and/or some or all of its subsidiaries (together "Healthcare Business') (the "Transaction"). Scope of Services During the term of our engagement JMMS will provide you with advice and assistance in connection with this transaction, which may include, if appropriate, advice and assistance with respect to: 1. Defining Objectives. 2. Identifying potential investors. 3. Perform.ing valuation analysis. 4. Structuring, planning and negotiating the transaction. JMMS may provide such services through, or in conjunction with, one or more of its affiliates/associates. Mandate Terms The fees payable to JMMS for the services rendered would be as follows: In consideration for the services rendered herein, an advisory fees of Rs. 5 Lakhs shall be payable to JMMS by Escorts on signing of this engagement ........ JMMS would also be paid transaction fees @ 2% of the "Aggregate Value" (as defined below) of the transaction on the successful completion of the transaction." 6.3.2. Thus it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in connection to the sale of shares of the appellant in EHIRCL. The other shareholders might have been benefited but it can not be said that any part of payment is pertaining to them. It is therefore held that entire payment is wholly and exclusively in connection with the transfer under reference of shares of the appellant in EHIRCL and therefore AO was not justified in making even part disallowance. The entire disallowance of Rs. 12,89,34,000/- is therefore directed to be deleted. (Relief Rs. 12,89,34,000/-)." 26. We find that the ld. CIT (A) has passed a well-reasoned order after elaborately considering all aspects. Hence, we do not find any infirmity in the order of the ld. CIT (A) on this issue. Accordingly, we affirm the same and this ground of Revenue's appeal is dismissed. 27. Apropos upfront fee paid : AO made disallowance of Rs. 6,60,66,800/- on this account by stating that facts and circumstances are same as in assessment year 1999-2000 where similar disallowance was made by holding the expenditure to be capital in nature. 28. Upon assessee's appeal, ld. CIT (A) referred to the ITAT order of the aforesaid assessment year and observed that the ITAT has allowed the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this, AO disallowed the amount of Rs. 100,75,000/- and added back to income. 34. Upon assessee's appeal, ld. CIT (A) deleted the addition. We may gainfully refer to ld. CIT (A)'s order in this regard as under :- " I have considered the facts of the case. The submissions of the appellant have also been gone through. It is true based on the material submitted by the appellant that the payment of royalty @ 0.25% of the total turnover is evidenced by Minutes of the Meeting of Board of Directors of Harparshad and Company Pvt. Ltd. held on 1/2/2001 which has been specifically confirmed by way of Deed of Confirmation signed between Shri Rajan Nanda, Chairman and Managing Director of Escorts Ltd and Shri Kedar Nath Sachdeva, Company Secretary for Harprashad and Company Pvt. Ltd. on 5/2/2001. The royalty is payable for the use of name "Escorts" as a Trade Mark which is evidenced by the Deed of Confirmation. The genuineness of the expenditure is admittedly not under dispute. The claim of appellant is also found correct that this expenditure has been allowed in full in earlier year also. The reasons given by the AO for the disallowance is only based on the decision of Apex Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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