9911796707
TMI Blog2024 (11) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... same. Disallowance of General administrative expenses - assessee has incurred these expenditure on salaries, administration, depreciation etc - HELD THAT:- The income tax provisions allows the assessee s to compute the income under different heads of income and the assessee is allowed to claim the expenses based on the relevant heads of income. In the given case, the assessee can claim the general expenses of running the business only under the head business income. Even there is no income declared under the head business income, the assessee is allowed to claim these expenses as business expenditure, if there is no business income, the assessee is allowed to carry forward the same in case the assessee does not have income under other heads of income other than loss under the head Capital Gains. Since the assessee has declared profit under the head Capital Gains, the assessee is allowed to adjust the same u/s 71 - Hence, the above said expenses cannot be claimed under the head Capital Gains u/s 48 of the Act. Therefore we are inclined to decide the issue of claim of administration expenses in favour of the revenue. Ultimately, the assessee may get the benefit of claim of these expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny prudence and the explanations offered to exit the project does not impress us. Decided against assessee. - Shri S. Rifaur Rahman, Accountant Member And Shri Sudhir Kumar, Judicial Member For the Assessee : Shri Manish Jain, CA For the Revenue : Ms. Sapna Bhatia, CIT DR ORDER PER S.RIFAUR RAHMAN, AM: 1. The appeal has been filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), Delhi/National Faceless Appeal Centre (NFAC) [ Ld. CIT(A) , for short] dated 28.12.2023 for the Assessment Year 2004-05. 2. Brief facts of the case are, assessee filed its return of income for Assessment Year 2004-05 on 31.10.2004 declaring income of Rs. 34,80,69,911/-. The same was processed under section 143 (1) of the Income-tax Act, 1961 (for short the Act ) on 28.12.2004. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In response, ld. AR for the assessee attended from time to time and submitted relevant information as called for. 3. The assessee was incorporated on 03.10.1983 with the main objects, as per Memorandum of Association, to acquire and hold shares, stocks, debentures, debenture st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 7,56,809 Entertainment 2,18,125.58 Professional charges (including management fees paid to M/s. Kotak Securities of Rs. 36,67,416.97) 39,21,998.97 Vehicle running maintenance 1,82,480.70 Donations 3,00,000 Loss on sale of assets 1,34,838.34 Security expenses 2,06,556 Travelling expenses 5,64,199 Membership fees 1,55,352 Hire charges 3,00,000 Telephone expenses 1,35,404.43 Others like printing, stationery, filing fees etc. 2,67,045.23 Financial charges 29,088.88 Auditors remuneration 35,648 Dep as per Income Tax Act 21,40,736 Sub Total 93,48,282.13 Filing fees disallowed (58,000) Disallowance u/s 14A (2,51,427) Loss on sale of assets (1,34,838) Donation (3,00,000) Sub Total 7,44,265 Total Expenses claimed 86,04,017.13 The AO disallowed the above expenses for the reason that the above expenditures are not allowed to be claimed under the head Capital Gains u/s 48 of the Act. 8. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) after considering the detailed submissions of the assessee partly allowed the ground raised by the assessee by observing as under :- I have carefully considered the appellant submissions, judicial pronouncemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n being adduced, is not allowed. Further, the appellant has contended that there is nothing adverse in the assessment order that either the expenses are bogus, not genuine or excessive and from remarks of the Ld. AO in assessment order, it is very clear that these expenses are genuine and allowable expenses as these are allowed in the assessment order against business income. Further, in support of its contention, the appellant company has relied upon below case: The Hon'ble ITAT Pune in case of Deputy Commissioner of Income-tax vs Serum Institute of India Ltd.* [2016] 72 taxmann.com 361 (Pune - Trib.), held as below: Para 30. The ground No.8 raised by the assessee in its appeal is against the findings of Commissioner of Income-tax (Appeals) in not allowing PMS fees Rs. 75,08,253/- either as cost of acquisition/improvement or as cost of transfer for computing capital gain. The ld. AR of the assessee submitted that similar disallowance was made by the Revenue in assessment year 2007- 08. In first appeal the Commissioner of Income-tax (Appeals) upheld the findings of Assessing Office. The assessee carried the matter in appeal before the Tribunal in ITA NO.102/PN/2012 for assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure on account of 'PMS' fees is neither cost of acquisition of the shares in question nor cost of improvement there of nor incurred wholly and exclusively in connection with the transfer of assets and therefore the Assessing Officer is justified in rejecting the claim of deduction of the fees of Rs. 34,63,969/- while computing the capital gain. 12.1 Respectfully following the decision of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. (supra) we hold that the PMS fees paid by the. assessee is an allowable deduction from the capital gains. Ground of appeal no.2 by the assessee is accordingly allowed. Para 8 It is not in dispute that in connection with the present matter of controversy there are two views which have been taken by the Hon'ble Income Tax Appellate Tribunal. One is in favour of the assessee and the other is against the assessee. In view of the above mentioned case i.e. Serum International Ltd. (supra) the view which is in favour of the assessee is liable to be taken. The finding of the said case is based upon the finding of Hon'ble Supreme Court of India in case [CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.(SC)]. In view of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, administration, depreciation, etc. shall not be permissible under the head capital gain as per the provisions of section 48 of the Act and only expenses which are eligible to be deducted under the head capital gain are, which are incurred in connection with the transfer of capital assets, acquisition of cost and cost of improvement. Therefore, he relied on the findings of the Assessing Officer in this regard. 11. On the other hand, ld. AR for the assessee relied on detailed submissions made before the ld. CIT (A) and reasoned findings given by the ld. CIT(A). 12. Considered the rival submissions and material placed on record. We observed that the assessee has established its business and carries on the business of dealing in shares, stocks, debentures, etc. in the line of securities transactions. The assessee claimed expenditure of general administration and PMS towards maintenance of securities against the income declared under the head Capital Gains. The AO rejected the same with the observation that there is no provisions in the section 48 to claim such expenses. The ld CIT(A) by relying on the decision of ITAT Pune and Mumbai, allowed the claim of the assessee. After carefu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this AY. 14. With regard to ground no.2, Assessing Officer treated the transaction entry with the assessee as business transaction and observed as under :- 1. As per the main object of Memorandum of Association, the assessee company was authorized to deal in sale / purchase of shares and other securities etc. 2. The intention and the dominant motive of the assessee was to earn profit. 3. Almost all the funds were deployed in shares/securities. 4. The scale of activity is substantial. 5. The sale-purchase of securities was conducted in a systematic, organized and continuous manner. 6. Only the profit or loss arisen on sale purchase of shares of private limited companies can be treated as capital gain/loss. Above facts make it amply clear that the assessee is denying business income from sale-purchase of shares and securities. These facts are also covered by the guidelines dt. 18-5-2006 issued by the CBDT for looking into circumstances to determine whether a person is a trader in stocks or investor in stocks. Thus, the facts of the case are fully covered u/s 28 of the Income Tax Act, 1961. In view of the above discussion the profit from sale of shares and mutual funds is treated as b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is to derive income by way of dividend etc. than the profits accruing by change in such Investment (by sale of shares) will yield capital gain and not revenue receipt 6. As mentioned above the assessee motive of investment was to held the investment and earn dividend which is evident by the rate at which dividend is earned on the capital gain i.e. 25.20% and supported by various case laws as mentioned in detailed submission. Further the same is treated as investment in the books and accordingly the Short term capital gain should be treated as Short term capital gain only. 7. Further, the department has treated the sale of shares as capital gain only in assessments done for earlier year and for later years. 16. After considering the above submissions, ld. CIT (A) allowed ground raised by the assessee with the following observations :- 6.5 Further, with regard to finding of the Ld. Assessing Officer that only the profit/loss arisen on sale, purchase of shares of private limited companies can be treated as capital gain/loss, the appellant company has contended that with regard to Long Term Capital. Gain of Rs. 3542.58 lakh, company has earned total long term capital gain of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the CBDT circular is as under:- ordinarily the purchase and sale of shares with the motive of earning profit would result in the transaction being in the nature of trade, 'but where the object of the investment in shares of a company is to derive income by way of dividend etc. than the profits accruing by change in such Investment (by sale of shares) will yield capital gain and not revenue receipt Further, Para 10 of the above CBDT circular mentioned that CBDT also wishes to emphasise that it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated .as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads, i.e., capital gains as well as business income. In support of the above CBDT Circular no. 04/2007 dated 15.06.2007, the appellant company contended that the appellant has held the shares as investments as stock in trade. The appellant company has further contended that appellant earned dividend amounting to Rs. 9,36,470.16 while capital Gain is Rs. 37,15,20,048.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of shares related to investment could not be treated as business income, The above judgement of the Hon'ble' Delhi High' Court/Bombay High Court and the Hon'ble ITAT Delhi was carefully gone through and considered and it was found that ratio of the decisions is that where the appellant company has held the share/mutual funds as Investment in the books of accounts and not as stock in trade which is important material facts and the same has never been disputed by the Ld. AO, then the Ld. AO cannot treat the same as business income of the appellant company. Further, it is important to mention here that an application under rule 46A has been filed by the appellant furnishing the additional evidence to establish the fact that Directors of the appellant company were also the promotor of the HCL group whose shares were held as investment by the appellant company. Thereafter, as per the Para (f) at page no.16 of written submission dt. 08-12-2023 the appellant has contended that above mentioned additional evidence has become redundant now therefore the appellant withdraws the application under rule 46A and has requested to decide the issue as per the present position of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the non-trade investment has increased by Rs. 41,77,92,286/- etc., has no more relevant now after the issuance of Circular no. 6/2016 dated 29th February, 2016 and Circular no. 04/200 dated 15.06.2007. Therefore, after the careful consideration of the above narrated facts, circumstances of the case, the submissions of the Appellant and respectfully following the ratio of various Judgement of Jurisdictional Delhi High Courts and Jurisdictional ITAT, New Delhi and following the Circular no.6/2016 dated 29th February, 2016 with regard to Long Term Capital Gain and Circular no.04/2007 dated 15th June, 2007 with regard to Short Term Capital Gain, the ground of appeal is allowed as the Ld. Assessing Officer has erroneously treated the Gain from share/mutual funds as Business Income amounting to Rs. 36,79,65,338/- hence the Ld. Assessing Officer is being directed to treat the Gain from share/mutual funds as Capital Gain instead of Business Income. 17. At the time of hearing, ld. DR for the Revenue vehemently argued and brought to our notice findings of the Assessing Officer and relied on the same. 18. On the other hand, ld. AR for the assessee relied on the detailed submissions made be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase price of Rs. 100/- per share of a private limited company, As regards the sale bill in respect of the above shares, the assessee has furnished the copies of two agreements, both dated 11.12.2003 whereby the said 70000 shares of PDK Shenaz Hotels (P) Ltd were sold to one Mr Aditya Kanoi r/o 13/2 Bally Ganj Park Road, Kolkatta for a total consideration of Rs. 2,940,000/- i.e. Rs. 42/- per share. The assessee company did not furnish any documentary evidence justifying the above sale price. The assessee also did not give any explanation as to why the shares, which were purchased just four and a half months earlier @ Rs. 100/- per share were sold @ Rs. 42/-per share. However, on perusal of the letter of allotment of shares of PDK Shenaz Hotels (P) Ltd and the copies of agreement of sale it has been noticed that Mr. Adıtya Kanoi to whom shares were sold was none other than the director of PDK Shenaz Hotels (P) Ltd. The revelation of the fact that the shares of PDK Shenaz Hotels (P) Ltd were eventually purchased by the director of PDK Shenaz Hotels (P) Ltd has made it clear that the assessee company has been used as a via media /device for pouring in extra money to reap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance to above queries, the assessee furnished the copy of letter of allotment dt. 31-03-2003 of PDK Shenaz Hotels (P) Ltd. containing therein purchase price of unit share at Rs. 10/- each at premium of Rs. 90/- per share i.e. the assessee was allotted/purchased the unit share at the price of Rs. 100/- per share. In the same way assessee has furnished the copies of two sale agreement both dated 11-12-2003 containing the-Fein the sale price of the unit share of PDK Shenaz Hotels (P) Ltd., which was sold at price of Rs. 42/- per share. Furthermore, in the compliance of Assessing Officer s query with regard to name and address of person to whom the share of PDK Shenaz Hotels (P) Ltd. were sold, the assessee furnished the name of one Mr. Aditya Kanoi with address as R/o 13/2, Bally Ganj, Park Road, Kolkata. Further, the AO also asked the justification to for purchase and sale price of share of PDK Shenaz Hotels (P) Ltd. In this connection it is relevant to mention here that the purchase of share of PDK Shenaz Hotels (P) Ltd. was made in the previous year i.e. AY 2003-04, i.e. the year in which detailed Scrutiny Assessment was undertaken by the AO in AY 2003-04 and no adverse view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any the assesses has bought the share at the alleged high price; 8. That the AO has failed to establish that net worth of the company and business activity of the company is negligible, hence the share price commanded by company is unusually high and therefore the transaction comes into the category of sham transaction which is artificially structured one. Therefore, clearly the doubt raised by the Assessing Officer on purchase price of share of PDK Shenaz Hotels (P) Ltd is not being established by showing the company's performance in term of financial. net worth, its business being not real. Therefore, in absence of any adverse material finding of fact with regard to the above mentioned criteria or, without bringing any adverse material on record, the price at which the shares were purchased and sold can not be doubted or held as unjustified. Therefore, AO has not been able to bring any material evidence on record to establish that the said company's performance/worth is not commensurate to undertake the transaction of purchase and sale price at the price level on which it has been transacted in the instant case, hence the AO's holding of said transaction being bogus i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to sell these shares at Rs. 42 per share i.e. less than the purchase price and consequently a loss was incurred by the assessee on the its sale. Further, the Ld. Assessing Officer has contended that the assessee company has used this device to reduce its liability and treated this loss of Rs. 40,60,000/- as bogus in the absence of any justification from the assessee company. In this regard the appellant company has mentioned that Ld. AO has verified the genuineness of purchase as the entire purchase consideration is paid through Banking channel and same has been verified by Ld. AO and accepted during the assessment proceedings for AY 2003-04 and however, the year under appeal, the Ld. AO did not accept the purchase price of Rs. 100 without any basis and further did riot brought any material evidence to disallow the said loss. In this case, after discussion of aforesaid narrated facts and circumstances of the case, the appellant company has been able to duly discharge its onus by furnishing all documents of sale and purchase, name and address of buyer, name and address of company whose share were transacted and justification that the appellant was interested in diversifying its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the High Court was carefully gone through and considered, and it can be safely deduced that where the appellant has established the fact with 'detail evidence related to transaction is furnished during the course of assessment proceeding and the Ld. AO has failed to bring any adverse material evidence to treat the transaction as bogus, the disallowance/addition can not be made. Therefore, after careful consideration of the above narrated facts, circumstances of the case, the submissions of the Appellant and respectfully following the ratio of various Judgement of Hon'ble Supreme Court and High Courts, I find force in the contention of the appellant hence the ground of appeal is allowed and the addition of Rs. 40,60,000/- on account of short term capital loss is accordingly deleted. 23. Aggrieved, Revenue is in appeal before us and at the time of hearing, ld. DR for the Revenue relied on the findings of the Assessing Officer and expressed objections on the findings of the ld. CIT (A) and submitted that ld. CIT (A) merely relied on the submissions of the assessee without verifying proper documents and evidences. 24. On the other hand, ld. AR for the assessee submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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