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TMI Blog2003 (1) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995 : Assessment Year-- 1992 - 1993]. The facts of the present case are exactly similar to this in the said case. Arguments have also been put forward by the representatives of both the sides in the same line and the same judgments of different Courts as well as of Tribunal have been relied upon. On a consideration of the legal aspect including the judgments of different Courts and Tribunal, we have already come to the decision in the case of Shekhawati Rajputana Trading Co. (P.) Ltd. that so far as the bonus shares are concerned, on the ground of lack of any cost of acquisition thereof, no capital gains tax would be leviable in respect of sale consideration of the bonus shares. So far as, however, the original shares arc concerned, we have held mainly by following the judgments of the Supreme Court in the case of Escorts Farms (Ramgarh) Ltd. v. CIT [1996] 222 ITR 509 and of the Calcutta High Court in the case of Goodrick Group Ltd (No. 2) v. CIT [1993] 201 ITR 266 and also taking into consideration the definition of "cost of improvements as appearing in section 55(2)(ii) that the cost of acquisition of the original shares will have to be taken on the basis of the aforesaid two d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tours in accordance with the provisions of Rule 6D. 5. Ground No. 8 has been taken up as follows:-- "For that learned CIT(A) was wrong in disallowing legal expenses incurred to protect business assets in form of shares and share transfer expenses which are normal business expenses". At the same time again, Ground No. 13 has been taken as follows:-- "For that learned CIT(A) was wrong in directing the Assessing Officer to withdraw deduction allowed by him on account of legal expenses and share transfer expenses against capital gains". It is thus clear that the above mentioned two grounds are related to each other. 6. The facts of the case are that the assessee claimed legal expenses of Rs. 26,632 which include payment of Rs. 4,905 to P.D. Himmatsingkha for conducting the case of Jokai India Ltd. shares and Rs. 21,727 to Khaitan for the same reasons. The Assessing Officer has disallowed these claims by considering them to be for acquiring the shares of Jokai India Ltd. under the investment portfolio. At the same time again, he stated that the expenses may be considered in the share investment account. Similarly, the amount paid for share transfer at Rs. 41,084 has also been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c., entered into with M/s. Papyrus Papers Ltd. and Minoo Biscuits P. Ltd. as joint venture on capital account and not in the course of business of company. (10) For that learned CIT(A) was wrong in holding that irrecoverable money from Papyrus Papers Ltd., actually written off was not a business loss but a capital loss not which can be allowed either in computation of income under heads business income or capital gains. (11) For that ld. CIT(A) was wrong in holding that compensation paid to M/s. Minoo Biscuits P. Ltd. on termination of financing agreement, was a capital loss not allowable in computation of income under heads business income or capital gains. (12) For that ld. CIT(A) was wrong in directing the Assessing Officer to withdraw deductions made by him in computation of capital gains on account of unrecoverable amounts written off and compensation paid to M/s. Papyrus Papers Ltd. and Minoo Biscuits P. Ltd.". 8. The facts of the case as discussed by the Assessing Officer in the assessment order are that the assessee-company entered into a joint venture agreement for the rehabilitation of Minoo Biscuits P. Ltd, It was decided that a sum of Rs. 85,00,000 would be contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/Projects was actually a part of the business activity of the assessee. The assessee claimed before him that the amount of Rs. 12,00,000 was not towards participation in capital but had merely been given as a loan. It was furthermore stated that so far as participation in the capital of Minoo Biscuits Co. P. Ltd. is concerned, nothing had been paid till then and that the participation in the capital would have taken place in due course only, after further sizeable amounts had been disbursed as per the contract. The CIT(A), thereafter, however, stated that in the proposed joint venture, there were more than mere financing or rehabilitation and that the scheme could not be described as a Company/Project promotion, pure and simple, either. He concluded that the venture amounted to acquisition of a capital asset in the rehabilitated business of Minoo Biscuits Co. P. Ltd. with financial and managerial control in it. This being so, the CIT(A) held that all costs incurred in connection with the joint venture agreement and its termination were nothing but capital costs in the hands of the assessee-company. He thus held that the Assessing Officer was right in considering the loss of Rs. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill date, no such acquisition had taken place, which has been acknowledged even by the CIT(A) by opining that the loss under consideration had not been incurred towards acquisition of any capital asset at all and hence, the said loss was not allowable as a loss under the head "capital gains". Till the end of the relevant accounting year, the assesses had merely lent money to the extent of Rs. 12,00,000 to Minoo Biscuits Co. P. Ltd., whatever may be the purpose for such lending. The discussions made by the Assessing Officer himself stating the results of his enquiry made through his Inspector clearly show that Minoo Biscuits Co. P. Ltd. had come under severe financial constraints and it would, therefore, be proper to consider the loan given by the assessee to that concern as having gone bad. Even the Arbitrators also decided against the recoverability of the loan amount. Hence, the claim of the assessee towards the bad-debt of Rs. 12,00,000 during the course of its money-lending business can be considered to be allowable. Alternatively, the entire payment of Rs. 17,00,000 can be considered to have been required under the award of the Arbitrator, in order to maintain proper business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany did not make any initiative to realise the advance on the ground that the other company had gone under BIFR. The Assessing Officer disallowed the claim of the assessee in respect of the amount of Rs. 19,50,000 on the ground that the amount had never been credited to the Profit & Loss A/c of the assessee and hence, the claim of the bad-debts under section 36(1)(vii) read with section 36(a)(i) was not allowable. Ultimately, the claim of the assessee towards this amount was disallowed. In the first appeal also, the CIT(A) agreed with the Assessing Officer that the object behind making the advance was to acquire substantial interest in M/s. Papyrus Paper Limited. The CIT(A) furthermore states that this advance was again not a part of any financing, money lending, Company/Project promotion or rehabilitation pure and simple. Accordingly, he upheld the order of the Assessing Officer in considering the loss to be on capital account. So far as this issue is also concerned, we find that till the end of the accounting year under consideration, the amounts stood as loan advanced to M/s. Papyrus Paper Limited whatever might have been the ultimate intention behind the loan. There was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining goodwill. The CIT(A), however, held that even then, the expenses retained the intrinsic character as donation. He, therefore, sustained the disallowance of Rs. 1,17,982. Before us also, the ld. counsel for the assessee has made the same argument as before the CIT(A). However, neither any evidence in support of the claim that the expenses had to be met on requests of business associates nor even any details of the said donations have been filed before us. Therefore, we are in agreement with the orders of the lower authorities that the claim of the assessee is not substantiated and hence, the amounts represented nothing but charity and donations simplicitor. The appellate ground is thus being dismissed. 15. In ground no. 16, it is contended that the CIT(A) erred in not directing the assessee not to charge interest under sections 234B and 234C. It has not at all been explained before us as to why the interests under sections 234B and 234C need not be charged. Hence, we are dismissing this particular appellate ground. 16. In the result, the appeal filed by the assessee is partially allowed to the above mentioned extent. Per Sri N.L. Dash, Judicial Member--I have perused the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER 1. The appeal of the assessee for the assessment year 1992-93 had come up for hearing before the "E" Bench of the Tribunal. Since there was a difference of opinion amongst the Members constituting the Bench in regard to the following issues, I was nominated as Third member by the Hon'ble President under section 255(4) of the Income-tax Act, 1961:-- "Whether, on the facts and in the circumstances of the case, the payment of service charges of Rs. 10,48,895 to Shri Sanjiv Taneja and Shri Vijay Kumar Surana; and the travelling expenses of Rs. 1,65,369 including those related to the travel of Shri Vijay Kumar Surana and Shri Sanjiv Taneja or the amount of Rs. 1,30,295 should be allowed as deductions?" 2. Parties have been heard and records perused. Though the facts have been stated in the base order, I consider it appropriate to reiterate the same in my own words for the sake of ready reference. 3. The appellant is a company and in the previous year relevant to the assessment year under appeal, it had derived income on sale of shares, profit on sale of investments, dividends, interest on loans and misc. income. The assessment under section 143(3) was made vide order dated 31-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of one year and their whereabouts were unknown. It was, however, claimed that they had rendered services and helped the company in raising funds, deploying fund, buying and selling shares, contacting with various parties, mutual funds for buying and selling the shares in block. It was further claimed that their role of consultancy had benefited the company. 4. The Assessing Officer disallowed the claim for service charges on the following grounds. (a) That the assessee could not produce any evidence in support of the claim of rendering services. (b) That the assessee-company had suffered losses in all the share transactions entered into by the company and, therefore, the claim that the company was benefited by the advice of so-called experts was unreliable. (c) That the assessee-company paid money to these persons in the month of September, 1991 although the share transactions continued till the end of March, 1992. (d) That there is no evidence to establish that the two persons have helped the company in procuring any fund for the company. (e) That the assessee had sold shares of Russel Industries Ltd. and collected sum of Rs. 5,24,29,500 in September, 1991 and had, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the payments made to them." 8. The Ld. Judicial Member, on the other band, was unable to persuade himself to agree with the view expressed by the Ld. Accountant Member. According to the Ld. Judicial Member, the Assessing Officer has a right to satisfy himself about the genuineness of the claim and since on being given opportunity the assessee having failed to establish the rendering of the services to the satisfaction of the Assessing Officer, the disallowance, according to him, is justified. 9. Whereas the learned counsel for the assessee sought to support the order proposed by the Ld. Accountant Member, the Ld. Departmental Representative sought to support the order of the Ld. Judicial Member. The learned counsel for the assessee contended that there was an agreement between the appellant and Sri Sanjiv Taneja and Sri Vijay Kumar Surana. The payments to the parties has not been doubted. The appellant had received their advice in conducting the business from time to time and the mere fact that the parties were not traced should not cloud the genuineness of the claim. According to the learned counsel, the aforementioned persons had undertaken the travelling also from time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress given by the assessee. It was further pointed out that two persons were claimed to be experts in the field of rendering services for advising in investments etc. The company itself is in business for a long time and well experienced in the field. The company is having assistance in the form of trained employees and infrastructure for running the business. It is strange that the assessee with vast experience in business required the services of the so-called experts only for one year. It was further pointed out that the period of 1991-92, i.e. the relevant previous year, was a boom year for share trading. Therefore, there was no advice required for trading in shares for experienced concerns. It was also pointed out that the company had sold the shares mainly of Russel Industries Ltd., which was a sister concern of the assessee. The assessee, according to the Ld. Departmental Representative, was well equipped to know the strength of the company and accordingly to dealwith the shares of that company. It was further contended that Sri Taneja and Sri Surana were experts in the field, but in that case these persons should have been well known as such, The Ld. Departmental Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be said that the Tribunal had misdirected itself or omitted to consider an evidence or had relied on any irrelevant material in arriving at its conclusion. The earlier decision of the High Court in the case of Vishnu Agencies (P.) Ltd. was referred to and followed by the Hon'ble High Court. 13. Similar view has been taken by their Lordships of the Gauhati High Court in the case of Assam Pesticides & Agro Chemicals v. CIT [1997] 227 ITR 846. Their Lordships held "Mere payment by itself would not entitle an assessee for deduction of the said expenditure unless the same was proved to be paid for commercial considerations. The onus of proof at all relevant times rests upon the assessee. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and situations of the case." 14. The view expressed by their Lordships of the Calcutta High Court and that of the Gauhati High Court referred to above, is supported by the view of their Lordships of the Supreme Court in the case of Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439. Their Lordships have held as under:-- "The mere existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuineness of the claim. The assessee has claimed to have paid a sum of Rs. 30 lacs (Rs. 15 lacs each) to Sri Sanjiv Taneja and Sri Vijay Kumar Surana and Rs. 25,000 each for expenses. This amount has been apportioned amongst the various associates not on the basis of any services rendered but on the basis of share holdings or various concerns in Russel Industries Ltd. Corresponding deductions have been claimed in respective assessments. It was claimed that the aforementioned persons were experts in the field of financing, money lending, investment, leasing, hire purchases, trading, consultancy agency, broking, etc. The Assessing Officer made local enquiries through the Inspector of the Income-tax Department, but the parties could not be traced. The assessee was informed about the outcome of the enquiry and had been asked to produce them for examination. The assessee could not produce the parties. It was claimed by the assessee that two letters were sent to these persons, copies of which were provided to the Assessing Officer, but the aforementioned persons did not respond. The assessee did not confirm as to whether the letters sent by them to the aforementioned persons were s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the holding company of the assessee and not, in the name of the appellant-company. 17. At this stage I consider it relevant to refer to the observations of the Ld. Accountant Member in his order that it is very difficult to furnish evidence for the actual rendering of services by the consultants. One army not possibly have any quarrel with the proposition that in certain circumstances it may not be easy to furnish direct evidence for Tendering of consultancy services. However, there should not be any difficulty for the assessee for producing circumstantial evidence in support of the claim. For example, if payment is made to a Doctor by a patient it would be reasonable to presume that the Doctor has provided his services to patient. What is required to be established is that there was a patient who availed the services of the Doctor. Similarly if there is a legal problem one might take the services of the lawyer. In respect of payments to the lawyer, it would be sufficient to establish that there was a problem that was attended to by the lawyer. In the aforementioned cases, two things are of importance. Once is that payment is made to professionals and secondly the rendering of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so disallowed by the Assessing Officer for lack of evidence to establish that the expenses were incurred for purposes of business. The facts and circumstances described by the Assessing Office, do not inspire confidence in support of the genuineness of the claim. I, therefore, agree with the conclusion of the Ld. Judicial Member in regard to the claim of service charges to Sri Sanjiv Taneja and Sri Vijay Kumar Surana as also the travelling expenses claimed in respect of the said persons. 20. The orders passed in this case may be placed before the Bench for passing consequential order in accordance with majority view. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Pramod Kumar, A.M.--On a difference of opinion between the members originally constituting this bench, then point of difference of opinion was referred to Hon'ble Vice President (Kolkata Zone) as Third Member under section 255(4) of the Income Tax Act. 2. In accordance with the majority view after duly taking into account the opinion expressed by the learned Third Member, we hold that the payment of service charges of Rs. 10,48,895 to Shri Sanjiv Taneja and Shri Vijay Kumar Surana, and the travelling expens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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