Income Tax Appellate Tribunal - Delhi
Jcit, Ghaziabad vs M/S. Spice Enfotainment Ltd., Noida on 12 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G' NEW DLEHI
BEFORE SHRI G.D. AGRAWAL, PRESIDENT
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
I.T.A. Nos.785 & 5336/Del/2011
Assessment Years: 2007-08 & 2008-09
Asstt. Commissioner of Income-tax, vs Spice Enfotainment Ltd.,
Range -2, Ghaziabad. D-1, Sector 3, Noida.
(PAN: AABCM0050A)
Cross Objection No.56/Del/2011
(In I.T.A. No.785/Del/2011)
Assessment Year: 2007-08
Spice Enfortainment Ltd., vs ACIT, Range -2,
Noida. Ghaziabad.
I.T.A. Nos.668 & 5034/Del/2013
Assessment Years: 2009-10 & 2010-11
Jt. Commissioner of Income-tax, vs Spice Enfotainment Ltd.,
Range -2, Ghaziabad. D-1, Sector 3, Noida.
(PAN: AABCM0050A)
Cross Objection No.212/Del/2013
(In I.T.A. No.668/Del/2013)
Assessment Year: 2009-10
Spice Enfortainment Ltd., vs ACIT, Range -2,
Noida. Ghaziabad.
(Appellant) (Respondent)
2
Assessee by: Shri Ajay Vohra, Sr. Advocate,
Sh Deepesh Jain, CA & Ms Meenal Goyal, CA
Department by: Shri S.S. Rana, CIT DR
Date of hearing: 28.02.2018
Date of Pronouncement: 12.03.2018
ORDER
PER BENCH Revenue filed all these appeals challenging the deletions made by the Commissioner of Income-tax (A), Ghaziabad ("CIT(A)") in respect of Asstt. Year 2007-08 to 2010-11 whereas the assessee filed the cross objection 56 of 2011 in respect of Asstt Year 2007-08 being aggrieved by the disallowance of deduction of registration expenses u/s 48 of the Act and disallowance of Rs.5 lacs out of travelling expenses, and CO No.212 of 2013 in respect of the Asstt Year2009-10 aggrieved by the disallowance of Rs.25 lacs contributed by the assessee as a sponsorship for Spice lounge in the building of International Fiscal Association, Delhi.
2. Assessee Company derives its income from the business activities which include providing financial and management consultancy, corporate guarantees, loans and shares transactions, commission agency, running a hotel etc. I.T.A. Nos.785 & 5336/Del/2011 & Cross Objection No.56/Del/2011
3. During the scrutiny of return of income for the Asstt Year AO made certain additions on account of (i) long term capital gain on sale of land,(ii) loss on sales of shares of MBM Ltd. , (iii) disallowance of membership/subscription fees paid on behalf of one Mr. B.K. Modi, its Chairman, and (iv) ad hoc disallowance of Rs.
324,53,078/- out of travelling expenses. Learned CIT(A) deleted all these expenses but sustained the disallowance of Rs.3,33,334/-, the registration expenses and reduced the disallowance of travelling expenses to Rs.5 lacs.
4. Ground No 1 of appeal as well as Cross objections relates to the computation of the Long Term Capital Gains. During the F.Y. 1994-95 1 Bigha and 12 Biswas of rural agricultural land, bearing Khasra No. 19/21 situated in village Samalkha, Delhi was acquired by one Silverstone (India) Pvt. Ltd. for a sum of Rs.2,05,200/-. That Silverstone (India) Pvt. Ltd. was amalgamated with the assessee and land at Samalkha was recorded in the books of the assessee company at an estimated value of Rs. 50 lakhs at the time of amalgamation. During the FY 2006-07, the assessee sold the same to M/s Chatur Builders and Promoters Pvt. Ltd. which not a group company, vide an agreement to sell dated 02.08.2006 for a consideration of Rs. 25,00,000/-, and offered the long term capital gain earned from sale of aforesaid land to tax and while computing the same as,-
Particulars Amount (Rs.)
Sale consideration 25,00,000
Less: Stamp duty (registration expenses) 3,33,334
Net sales consideration 21,66,666
Less: Indexed cost of acquisition 4,11,192
Capital Gain 17,55,474
5. Ld. AO, however, held that as a result of amalgamation, the assets of the of the assessee company must have been reduced to the tune of Rs.50 lakhs due to which the value brought in the books of accounts was to the same extent. He further recorded that the spot enquiry revealed that the value of land is much 4 more than the circle rate because the nature of land is yet to be changed practically. On this premise Ld. AO not only substituted the sale consideration from Rs. 25 lakhs to Rs.50 lakhs, but also did not allow the deduction of registration expenses of Rs.3,33,334/- paid by the assessee on transfer of the said land without assigning any specific reasons for doing so, and computed long term capital gain on sale of land as under:
Sale consideration 50 00 000
Less: Indexed cost of acquisition 4,11,192
Long term Capital Gain 45,88,808
6. In the appeal preferred by the assessee, the CIT(A) observed that Provisions of section 50C of the Act stipulate that sale value has to be taken at the actual sale consideration or the value as per stamp duty Act, whichever is higher, and inasmuch as the Ld. AO has accepted that the sale of land had taken place at Rs.25 lakhs and without questioning the value worked as per circle rate, which works out at at Rs. 6,20,126, the observations of the Ld. AO that the value of the land is much higher than the circle rate cannot be accepted as is not supported by any enquiry or evidence on record. He, therefore, reversed the order of the AO by giving a direction to adopt sales consideration at Rs. 25,00,000/- and then reduce the indexed cost of acquisition. However, the CIT(A) did not allow the claim of registration expenses of Rs.3,33,334 holding that the same cannot be part of cost of acquisition or improvement.
7. Challenging the direction to adopt sales consideration at Rs. 25,00,000/- Revenue preferred appeal, whereas aggrieved by the denial of claim of registration expenses of Rs.3,33,334/- assessee filed cross objection.
58. Ld. DR vehemently relied upon the Assessment Order, whereas the Ld. AR submitted that no evidence was brought on record or confronted to the assessee in relation to the observations of the Ld. AO that the nature of land has not yet changed practically, or that the land is urban land and huge towns are developing in the nearby localities or that construction was going on the land. He further submitted that though not disputed, Ld AO ignored the fact that the circle value of Rs. 6,20,126/- which was applicable to the land and was duly supported by the notification dated 30.08.2005 and 24.01.2008 issued by Govt of NCT of Delhi - Land and Building Dept. and such value was much lower than the sales consideration of Rs. 25,00,000/-. Further, the Khatauni incorporated at page 29 of paper book specifically mentions the area in which the land was situated, shows that land was rural land. He, therefore, submitted that the action of the AO in substituting the sale consideration is illegal and bad in law in absence of any evidence or even allegation as to receipt of any amount over and above sale consideration of Rs.25,00,000/-.
9. Placing reliance on the decisions of the Hon'ble Apex Court and Hon jurisdictional High Court in K.P. Varghese v. ITO: 131 ITR 597 (SC); CIT V. George Henderson And Co. Ltd. 66 ITR 622 (SC); CIT V. Shivakami Co. P. Ltd. 159 ITR 71 (SC); Gillete Diversified Operations Pvt. Ltd. - 324 ITR 226; CIT v. P. V. Kalyan sundaram: 294 ITR 49; CIT v. Gulshan Kumar (Del HC): 257 ITR 703; CIT v. Ms. Sushila Mittal & Others: 250 ITR 531 (Del.); CIT v. Kami Singh 256 ITR 165 (Del); CIT v. Smt Sushila Devi 256 ITR 179 (Del.); ACIT v. Associated Techno Plastics (P) Limited: 106 Taxman 65 (Del.) (Mag.); Bigjos Stores (P) Limited v. ACIT: 106 Taxman 127 (Del.) (Mag.) and also some other decisions, he submitted that the law in this regard is no longer res-integra and is well settled to the effect that the 6 AO has no power to substitute full value of consideration with any other value. He argued that in Ravi Kant v. ITO: 110 TTJ 297 (Del.) it was held that for the purposes of section 50C of the Act, AO cannot adopt FMV, which is higher than stamp duty valuation.
10. He also referred to the decisions in CIT vs. A. Raman And Company: 67 ITR 11 (SC); CIT vs. Calcutta Discount Company Limited: 91 ITR 8 (SC); Shoorji Vallabhdas & Co.: 46 ITR 144 (SC); Godhra Electricity Co. Ltd. v. CIT: 225 ITR 746 (SC); UCO Bank v. CIT: 237 ITR 889 (SC); CIT v. Birla Gwalior (P.) Ltd: 89 ITR 255 (SC); CIT v. Excel Industries: 358 ITR 295 (SC) and CIT v. Goyal M.G. Gases (P) Ltd.:
303 ITR 159 (Del.) for the principle that tax can be levied only on real income and not on any hypothetical or illusory income.
11. Arguing so, he prayed to uphold the findings of the Ld. CIT(A) and to set aside the action of the AO in substituting the sale consideration with the unreal consideration of Rs. 50,00,000/-.
12. Coming to the Assessee's Cross Objection, it is submitted by the Ld. AR that as per section 48 of the Act, any expenses incurred wholly and exclusively in connection with transfer of a capital asset is required to be deducted while computing capital gains. Since the registration expenses of the property on transfer amounting to Rs.3,33,334/- in connection with transfer of property was paid by the assessee, the same are required to be deducted while computing capital gains. Payment of registration expense of Rs. 3,33,334/- by the assessee is duly supported by documentary evidence i.e Pay Order evidencing payment of stamp duty is incorporated at page 33 of the paper book. Consequently, Ld. AR submitted that the action of CIT(A) in not allowing deduction of such expenses is 7 untenable and liable to be reversed. Ld. DR submitted that except the copy of cheque, there is no evidence on record to show that the assessee has incurred this expenditure.
13. We have gone through the record in the light of the submissions made on either side. Section 50C of the Act reads that, -
50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer :
69[Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:
Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.] xxx xxx xxx xxx xxx xxx
14. A reading of this provision makes it clear that sale value has to be taken at the actual sale consideration or the value as per stamp duty Act, whichever is higher. In this context, the expression full value of the consideration for sale cannot be construed as the market value but as the price decided upon by the parties to the transaction. Further in CIT V. Shivakami Co. P. Ltd. (supra) the 8 Hon'ble Apex court held that when there is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him, no higher price can be taken to be the basis for computation of capital gains. The onus is on the Revenue - the inference might be drawn in certain cases but to come to a conclusion that a particular higher amount was in fact received must be based on such material from which such an irresistible conclusion follows. In this matter, Ld. AO did not dispute the consideration mentioned in the sale deed. He also does not dispute the circle rate, which is far less than the sale consideration mentioned in the sale deed.
15. We are, therefore, of the view that in view of the provisions of Section 50C of the Act and the law on this aspect, the findings of the Ld. CIT(A) adopting the sales consideration at Rs. 25,00,000/- and then reduce the indexed cost of acquisition does not suffer any irregularity or illegality and does not warrant any interference. Ground No 1 of ITA 785/Del/2011 is dismissed.
16. Now coming to Ground No. 1 of Cross objection, for adjudication of this ground, relevant portion of Section 48 needs to be extracted and it is,-
48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto:
17. Order of learned CIT(A) shows that he disallowed the registration expenses on the ground that such expenses cannot be part of cost of acquisition or the cost of improvement of the property. However, a reading of Section 48 clearly shows 9 that while computing the income chargeable under the head "capital gains" not only the cost of acquisition/cost of improvement, but also the expenditure incurred wholly and exclusively in connection with such transfer is also deductable.
18. The registration expense are said to have been incurred under the pay order dated 2.8.2006 copy of which is at page No.33 of the paper book. Vide page nos. 13 to 17 assessee produced the copy of the agreement to sell dated 2.8.2006. On a reading of this agreement to sell which is on a stamp paper worth Rs.50/-, we do not find any obligation on the part of the seller to meet the registration expenses. Except the copy of the pay order dated 2.8.2006 no document is produced before us to show that the assessee is under any legal or contractual obligation to meet the registration expenses in respect of the land sold by them. Even the pay order does not show that the same was issued at the cost of the assessee. Unless it is proved that the assessee actually incurred this expenditure, it is not possible to give a finding that the case of the assessee is covered under section 48 (i) of the Act. Since it is a fact to be verified, conveniently at the end of the learned AO, we deem it just and proper to set aside the ground No.1 of Cross Objection to the file of the AO for verification of the fact as to whether the assessee incurred this expenditure or not, with reference to the books of the assessee to be produced as and when required. We accordingly remand this ground to the file of the learned AO.
19. Now coming to Ground No.2 relating to the disallowance of the long term capital loss, during the relevant financial year the assessee sold 18,84,540 shares of MBM Ltd. with face value of Rs.10/- each to M/s Positive Investment P. Ltd. at 10 Re.1/- each. According to the assessee cost of acquisition was Rs.38,39,480/- and indexed cost of acquisition was Rs.66,66,142/-. Assessee booked long term capital loss of Rs.66,66,142/- .
20. Learned Assessing Officer held that this sale transaction was a sham transaction in view of the fact that M/s Positive Investment P. Ltd. is a group company and the sale is organized only to adjust the long term capital gains arising out of transfer of land against this loss.
21. It was pleaded before the learned CIT(A) that MBM Ltd. Was a company under liquidation since 1996 and as per the balance sheet drawn as on 30.6.1996, the net worth of the company was in negative. Further it was pleaded that the assessee had already had substantial assessed long term capital loss of Rs.89,18,938/- brought forward from the preceding years to be carried forward and such brought forward loss was more than the capital gains from the land.
Learned CIT(A) agreed with these submissions and held that the sale of shares at Re.1/- to one of its group companies is within the legal framework and cannot be dubbed as sham or illegal.
22. It is the argument of the learned DR that the sale transaction with one of the group companies is at the will of the assessee and amenable for manipulation. He vehemently relied upon the Assessment order.
23. There is no dispute that the net worth of the MBM Company is in the negative as on 30.6.1996 and the company was under liquidation. From the documents produced by the learned AR we are satisfied that it is the usual business practice in commercial transactions to sell the shares of a company having net worth at a token consideration of Re.1/- for accounting purposes. In 11 the decisions South Asia Industries Pvt Ltd vs. CIT Delhi Central: 155 ITR 392 (Del.), CIT v. Special Prints Ltd.: 262 CTR 119 (Guj)-, Jayesh P. Choksi v. ACIT: ITA No. 1840/Mum/2005 (Mum) and Lalith umar Modi v. AO: 37 ITD 42 (Del) relied upon by the assessee it is held that the transfer of shares leading to computation of capital loss cannot be disputed merely because such transactions were with group companies. Ld. AR produced Audited annual accounts of Graphtech India Ltd as on 31st March, 2000, Copy of the RBI permission for acquiring 50,00,000 equity shares of Rs. 10/- each of Modi Olivettit Ltd. for consideration of Rs. 1/- by one of group company and Press Report in connection with sale of 50% equity shares of Millenium Broadcast Company for a token consideration of Rs. 1/- vide page Nos 36 to 39 of Paper book, in support of his contention that it is usual business practice in commercial world to sell shares of company having negative worth at a token consideration of Rs. 1 for accounting purposes.
24. In CIT vs Sri Ram Investments, the assessee sold shares held in two companies at sale price of Re. 1 each as against face value of Rs.10 each resulting in huge long term capital loss. Reasons for low sale consideration were that (i) the companies were incurring loss or making insignificant profits; (ii) had not declared dividends since inception and (ii) equity shares of one of the companies were listed in two stock exchanges, but there had been no transactions in the said stock exchanges since long, and, hence, there was no market for these shares, and, therefore, the assessee had to sell their shares at a value of Re. 1 per share. Ld. AO rejected the claim of the assessee. On appeal, the CIT(A) allowed the valuation adopted by the assessee, which was affirmed by the Tribunal. On further appeal, The Hon'ble Court held as under:
12"We are of the view that the Assessee had provided an acceptable justification for both transactions of sale of shares including the aspect of valuation of the shares. The Assessing Authority, while accepting the genuineness of the transactions, merely raises a vague suspicion relating to the valuation adopted by the assessee. This, by itself, is insufficient to reject the claim of capital loss. While the AO is certainly entitled to question the valuation, he ought to have produced some materialsto either disprove the justification offered by the assessee or to substantiate his doubts. A mere suspicion, however strong it might appear, cannot take the form of a substantiated opinion sans supporting materials and hence it cannot form the basis for rejection of the claim''
25. In view of this factual and legal position, we uphold the conclusions reached by the learned CIT(A) that this sale transaction is within the legal framework and cannot be held as illegal. Holding so, we dismiss this ground of appeal.
26. Adverting to the membership/subscription fees paid on behalf of Mr. B.K. Modi, the Chairman, the assessee incurred the said expense and paid the amount to Clinton Global Initiative, Associated Chamber of Commerce and Industries of UP, Asia Business Council, Conference Board Inc. etc. Learned AO disallowed the same on the ground that the assessee did not derive any direct benefit from the above membership, and even if any benefit is derived it is of enduring nature as such, capital expense. Learned CIT(A) deleted the same.
27. At the outset, it is brought to our notice that in assessee's own case for the AY 2005-06, the Tribunal in its order dated 30.9.2010 followed its earlier decisions and vide paragraph no.12 to 14 that the grounds of appeal of the revenue are liable to be dismissed. The Hon'ble Allahabad High Court considered the issue of membership claimed to be connected with the business of the assessee and observed that there was no material to suggest that the expense claimed by the assessee was non-business or of personal in nature and confirmed the finding of 13 the Tribunal. Even for the Asstt. Year 2002-03, 2004-05 and 2006-07 also, the membership fee and subscription fee paid by the assessee on behalf of Mr. B.K. Modi was a business expenditure.
28. There is no dispute in respect of this ground being covered by the orders of the Tribunal and also the Hon'ble Allahabad High Court in assessee's own case for the earlier years. There is no change of circumstances. Facts being remained the same, we do not find any reason to take any different view. We, therefore, respectfully following the orders of the Tribunal for the AYs.2002-03 to 2006-07 and also the order of the Hon'ble Allahabad High Court for the AY 2005-06 hold that the disallowance cannot be sustained and the finding of the learned CIT(A) has to be upheld. Accordingly, we dismiss Ground No.3.
29. Now turning to Ground No.4 and the Cross Objection, it relates to the travelling expense incurred by the assessee to a tune of Rs.1,20,72,758/-. Learned AO compared this expense with that of the last year and allowed Rs.90 lacs which was the expenditure for the last year. On the remaining amount , he allowed Rs.6,13,270/- being 20% since FBT was paid on Rs.30,66,438/-. He brought the balance amount of Rs.24,53,078/- to tax.
30. However, learned CIT(A) found that there was business justification of the travelling expenses and on verification of the books of account which were produced before the ld. AO, he found that a small amount of travelling expenses were not supported by the bills and vouchers. He, therefore, restricted the disallowance to Rs.5 lacs and deleted the balance amount Rs.19,53,078/-.
31. Learned AR submitted that the learned CIT(A) found that the travel expenses were justified by business expediency and the assessee produced the 14 books of account as and many bills relating to the travel expense. Taking support from the ratio of the decisions reported in Dhakeshwari Cotton Mills Ltd. vs. CIT:
26 ITR 775 (SC); Shriram Pistons and Rings Ltd. v IAC: 39 TTJ 132 (Del.); Roger Enterprises Pvt. Ltd. v. ITA : 52 TTJ 198 (Del.); ACIT vs. Amtek Auto Ltd: 112 TTJ 455 (Del); Good Year India Ltd. vs. ITO: 73 ITD 189 (Del-TM); Express Movers P. Ltd vs. ITO: 61 ITD 528 (Del); M.D. Khandelwal vs. DCIT: 65 ITD 313 (Del); Nitin Sales Corporation vs. ITO: 212 Taxation 49 (Del) and other decisions, he submitted that when the books of accounts have been audited in accordance with the provisions of the Act and has been accepted as true and correct, there is no justification to make any adhoc disallowance and adhoc disallowances made in absence of any specific mention of a un-vouched expenditure liable to be disallowed have been held to be untenable and not called for.
32. He further submitted that deduction under section 37(1) of the Act is admissible for expenditure incurred wholly and exclusively for purposes of business, and the expenditure justified by business considerations and incurred out of commercial expediency is allowable deduction. He submitted that the settled position of law on this aspect by the Hon'ble Apex Court in CIT v Walchand & Co.: 65 ITR 381 (SC); CIT v J.K. Wollen Manufactures: 72 ITR 612 (SC); CIT v Aluminium Corporation of India Ltd.: 86 ITR 11 (SC); CIT v Panipal Wollen & General Mills Co. Ltd.: 103 ITR 666 (SC); CIT v J.J. Enterprises: 254 ITR 216 (SC) ; CIT v Dalmia Cement (P.) Ltd.: 254 ITR 377 (HC) (Del); CIT v Padmani Packaging (P) Ltd.: 155 Taxman 268 (HC) (Del) is that the reasonableness of the expenditure has to be seen from the point of view of businessman and not that of the revenue.
1534. While placing reliance on the decisions reported in CIT v S.A. Builders Limited: 288 ITR 1 (SC); CIT v Malayalam Plantations Limited: 53 ITR 140 (SC); CIT v Birla Cotton Spg And Wvg. Mills Ltd.:82 ITR 166 (SC); CIT (UP) v Madhav Prasad Jatia: 118 ITR 200 (SC); CIT v Bharti Teloventures Ltd.: 331 ITR 502 (HC)(Del); CIT v EKL Appliances Ltd.: ITA No. 1070/2011 (HC) (Del) he submitted that once it is established that there was nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the arm-chair of the businessman and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case.
35. Coming to the facts of this case, there is no dispute that FBT is levied and paid in respect of the travel expenses. Learned CIT(A) recorded that it was pleaded before him that considering the FBT paid, the disallowance, if any, should be to the extent of Rs.18,87,214/- only. However, learned CIT(A) restricted the disallowance to Rs.5 lacs only on verification of the record. The reasons given by the learned CIT(A) is that certain bills and vouchers of small amounts are not verifiable. However, no details of the unverifiable expense are noted. Without reference to the particular expenses that remained unverifiable, we are of the considered opinion that ad hoc disallowance is not permissible. With this view of the matter, we dismiss the ground of appeal and allow the ground of Cross Objection and delete the ad hoc disallowance of Rs.5 lacs.
ITA No.5336 of 2011:
36. Learned AO observed that the assessee sold certain shares that were acquired in the earlier years and shown as investment in the books of accounts.
16Assessee offered the capital gains but learned AO treated it as business income and made additions on that ground. In appeal, learned CIT(A) deleted the same.
37. Learned DR placed reliance on the decision reported in the case of Manoj Kumar Samdaria vs CIT (2014) 45 Taxmann.com 394 for the principle that where assessee was selling shares very frequently, volume and magnitude was very high and he earned only a meager amount of dividend, Income arising from sales of shares was assessable as business income and submitted that the Hon'ble Supreme Court dismissed the SLP against this order in (2014) 52 Taxmann.com247 (SC) . He further placed reliance on Sadhana Nabera vs ACIT (ITA No.2586/Mum/2009) and CIT vs Gopal Purohit (2010) 336 ITR 287 (Bombay) for the principle that where Tribunal had a pure finding of fact that assessee was engaged in two different types of transactions, first set of transactions involving investment in shares and second set of transactions involving dealing in shares (without delivery) for purposes of business, it had correctly held that delivery based transaction should be treated as those in nature of investment transactions and profit received there from should be treated either as short-term capital gain, depending upon period of holding and profit from other transactions should be treated as business income.
38. Learned AR submitted that year after the year ld. AO has been treating the capital gains on the sale of shares shown as investment in the books of accounts, as business income and in the previous years, a coordinate bench of this Tribunal dealt with this aspect and held the issue in favour of the assessee. He brought to our notice that in ITA NO.2455/De//2010 vide order dated 30.9.2010, appeal preferred by the revenue, the Tribunal referred to the decisions in earlier years in 17 ITA No.1121/2003 order dated 3.10.2006, ITA No.2022/Del/2008 and ITA NO.1631/Del/2008 dated 14.5.2008 and ITA No.4005 and 4189/Del/2009 dated 31.3.2010 and held the issue in favour of the assessee and dismissed the ground of appeal of the revenue challenging the deletion of addition made by the AO on account of sale and purchase of shares as business profits and CIT(A) holding it to be a long term capital loss. Appeal against this order of the Tribunal was dismissed by the Hon'ble Allahabad High Court in ITA No.108 of 2011 by order dated 10.3.2017.
39. We have carefully gone through the orders of the Tribunals in assessee's own case for the earlier assessment years of 2004-05, 2005-06 and 2006-07 and also the order of the Hon'ble Allahabad High Court. We have also considered the cases relied upon by the learned DR and learned AR. There is no change in the facts and circumstances in assessee's case from those relating to the earlier years on this aspect. In these circumstances, there is no reason for us not to follow the earlier decisions in assessee's own case and to take a different view. While respectfully following the same, we hold that the order of the learned CIT(A) vide corrigendum dated 24.1.2012 is justified and no interference is needed by us. We, therefore, dismiss this ground of appeal.
40. The second ground in this appeal relates to the disallowance of long term capital loss incurred by the assessee on the sale of shares of M/s G.M. Modi Corps Hospital Corporation P. Ltd.("GMM Ltd."), During the year the assessee sold 39,99,000 equity shares of GMM Ltd. with face value of Rs.10 each acquired in the year 2000-01 and 2001-02 at the face value and incurred the long term capital loss on account of indexation. Learned AO disallowed the same on the 18 ground that only with a design to show the long term capital loss to be adjustable against the long term capital gain on account of sale plus paper food Pack Ltd., Harjas Logistics Systems P. Ltd.and Modichem Ltd., the assessee devised this transaction. However, learned CIT(A) found that there is no evidence to show that the transaction is a sham one with any purpose of adjustment of gains and the sale took place at a value much above the net asset value determined by the Chartered Accountant. On this premise, ld. CIT(A) deleted the disallowance.
41. It is argued by the ld. DR that the assessee sold the shares at the value of acquisition itself without any compelling reasons and having regard to the facts and circumstances of the case, the AO rightly concluded that this sale happened only in this year with a purpose of setting off the capital gains in some other shares against the capital loss in these shares.
42. Learned AR submitted that after acquisition of these share, no benefit was derived by the assessee and the value of these shares was determined by the Chartered Accountant at Rs.5.14 as on31.3.2007. According to the learned DR, the assessee got rid of this burden by deriving the value of acquisition and so long as the genuineness of the transaction is not in doubt, merely because the transaction ended up in loss, it cannot be doubted. He submitted that different yardsticks cannot be adopted for the shares accrued capital gain and for the shares incurred capital loss. He submitted that in the decisions reported in CIT v. Bharti Cellular Ltd. : 330 1TR 239 (SC) and Hindustan Lever Employees' Union v. Hindustan Lever Ltd.: 1995 AIR (SC) 470, Hon'ble Apex Court observed that the report obtained from a technical expert is binding on the AO.
1943. On a careful consideration of the matter, we find that there is no material on record to brush aside the findings of the learned CIT(A)that the shares were allotted to the assessee between December 2000 and December 2010 and stand registered in the name of the assessee. It is also not in dispute that the shares were transferred to the name of the buyer company, that too after 5 or 6 years of holding. There is also no dispute that the consideration received was duly accounted in the books of accounts of the assessee. Lastly, there is no dispute that the expert valued the shares of GMM Ltd. at Rs.5.14. When there is no dispute on this factual position, we find it difficult to subscribe to the suspicion of the AO that only to get the set off the capital gains against this capital loss, the transaction is devised. This suspicion does not hold much water on the face of the assertion of the assessee that the assessee already had long term capital losses to a tune of Rs.3,56,37,892/- available for set off against any capital gains in this year. With this view of the matter, we find it difficult to sustain the disallowance or to disturb the finding reached by the ld. CIT(A). We, therefore, uphold the finding of the ld. CIT(A) and dismiss this ground of appeal.
44. So far as Ground No 3 in this appeal is concerned, it relates to the membership/subscription fees paid on behalf of Mr. B.K. Modi, the Chairman and is squarely covered by Ground No. 3 in ITA 785/Del/2011. For the reasons recorded in Paragraph Nos 26 to 28 supra we dismiss this ground of appeal.
45. On Ground No.4 relating to the enhancement of long term capital gains earned on the sale of shares of M/s Harjas Logic System Pvt. Ld, during the relevant assessment year the assessee company sold 6500 equity shares of M/s 20 Harjas Logic System Pvt. Ltd., at a Sale price of Rs 1500/-per share, wereas the cost of acquisition of shares was at Rs. 200/- per share.
46. Ld. AO substituted the actual sale consideration with NAV of shares at Rs 1967/-per share to compute the gain on transfer of shares, observing that the assessee has interest in the company purchasing shares from the assessee company and thus added Rs 30,35,500/- i.e. 467 x 6500 to the assessed business income of the assessee. In appeal, the CIT(A) held that the addition made is not as per the provisions of the Act and the Ld. AO has applied rule of prudency on sale of only such shares where assessee has incurred loss and not to other instances where transaction have resulted into gains. On this premise, Ld. CIT(A) deleted the addition made by the AO of Rs.30,35,500/-.
47. Ld. DR submitted that when the NAV of shares was at Rs 1967/-, it is highly improbable for the assessee to sell the same at a lesser value and the Ld. AO is justified in substituting the Sale consideration with the NAV of the shares.
48. It is the argument of the Ld. AR that Harjas Logic System Pvt. Ltd. is a private company and is not traded on the stock exchange, and the same was concluded at the mutually negotiated price between two parties., the assessee has sold shares @ Rs. 1500 per share as against cost of acquisition of Rs.200 per share. He further submitted that shares transfer transactions which were at a price higher than NAV, namely, as shares of Plus Paper Foodpac were sold at Rs. 20 per share against NAV of Rs. 13.23 per share and of Modikem Ltd. at Rs. 16/- per share as against NAV of Rs. 14.33 per share were accepted by the AO while doubting the shares with higher NAV, and if NAV of all shares be substituted for sale consideration, it would be observed that the assessee has sold investments at 21 value higher by Rs. 3,03,64,980/-. He submitted that the Ld. AO has no power to substitute full value of consideration with any other value.
49. On Ground No 1 of ITA 785/Del/2011 while referring to Section 50C of the Act and CIT V. Shivakami Co. P. Ltd. (supra) wherein the Hon'ble Apex court held that when there is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him, no higher price can be taken to be the basis for computation of capital gain, we held that the expression full value of the consideration for sale cannot be construed as the market value but as the price decided upon by the parties to the transaction and the Ld. AO does not have jurisdiction to substitute the consideration received with any other higher value, in the absence of any material falsifying the contention of the assessee on the aspect of actual consideration received.
50. Further it is not open for the Ld. AO to adopt different standards for the shares sold merely depending upon the NAV by accepted the sale for consideration where NAV is less than the sale consideration while rejecting the sale consideration where NAV is higher. There is no denial on the submission of the assessee that if NAV of all shares is substituted for sale consideration, it would be observed that the assessee has sold investments at value higher by Rs. 3,03,64,980/-. This approach of the Ld. AO cannot be accepted and the Ld. CIT(A) rightly corrected the same.
51. We, therefore, for the reasons set forth in the preceding paragraphs hold that the finding of the Ld. CIT(A) does not suffer any legal error to be corrected by the Tribunal. Ground No 4 of ITA No 5336/Del/2011 is dismissed.
22 ITA No.668/Del/2013 &CO 212/Del/2013:52. This appeal is directed against two aspects of the order of the learned CIT(A). First aspect is the learned CIT(A) deleting the addition of Rs.9,59,273/- on account of the subscription made by the assessee towards the annual subscription/membership fee on behalf of Dr. B.K. Modi which the learned AO held as the personal expense of Mr. Modi and no business activity of the assessee is involved. Second aspect is that during the year assessee made a contribution of Rs.25 lacs to the International Fiscal Association towards sponsorship for "Spice Lounge". Learned AO treated it as capital expense but failed to allow depreciation. Learned CIT(A) concurred with the leaned AO on the nature of the expense stating that this expense is not for the maintenance of business level and needs and is only for promotion of goodwill in the business field for the years to come. However, learned CIT(A) allowed depreciation thereon which comes to Rs.6,25,000/-. Assessee filed CO on the ground that this expense of Rs.25 lacs is a business expense allowable u/s 37 of the Income-tax Act.
53. At the outset, it could be seen from the record that the total taxable amount in the revenue appeal is about Rs.15,84,273/- and certainly the tax effect is less than Rs.10 lacs covered under CBDT Circular No.21 of 2015 applicable with retrospective effect. Under this circular the revenue has to withdraw the appeal as the tax effect is admittedly less than the prescribed limit for not filing the appeals. Consequently, the appeal is dismissed.
54. Now coming to the Cross Objection, it is evident that the ground in the cross objection is not in support of any of the finding of the learned CIT(A) in respect of the contribution to the IFA but challenging the same. Cross objection is 23 independent of the relief sought in the appeal and it stands in the footing of a separate appeal. Accordingly, finding it to be maintainable even on the dismissal of the appeal, we proceed to answer the ground.
55. Both the authorities below held the contribution as capital in nature and the learned CIT(A) held that inasmuch as this contribution is not for the maintenance of the business level and needs but is in the nature of enduring benefit to promote the business interest of the assessee in the form of goodwill for the future years to come, and in that view it is a intangible business right in the nature of capital asset.
56. Learned AR argued that IFA is a leading non-governmental, international organization dealing with fiscal matters comprising of taxpayers, their advisors, lawyers, CAs, tax executives, govt, officials and is a unique forum for discussing international taxation issues. It has over 11000 members worldwide from 90 countries with 46 national branches including India Branch. IFA has consultative status with the United Nations Economic and Social Council. In that capacity, it is represented at meetings of the Group of experts on International Co-operation in Tax matters. The IFA also maintains close contact with the fiscal activities of OECD, the EU, the council of Europe, the CIAT and ESCAP. CBDT, AAR, National Institute of Public Finance & Policy, RBI, etc. are some of the important corporate members of IFA. IFA branch office at Noida was constructed for carrying out research in the field of International and Domestic taxation as well as impart practical training to tax professionals. Sponsorship given by Spice is similar to a usual mode of funding of the industry forums and major educational institutions. In the books, the assessee debited said expenses under the head 'Advertisement' 24 as mandated by accounting standards issued by ICAI. He, therefore, submits that in these circumstances, The above contribution is clearly for the purposes of business of the assessee.
57. He further submitted that the case of the assessee is squarely covered in favour of the assessee by the decision of the Delhi High Court in the case of CIT v. Vaish Associates: 235 Taxman 208 (Del.) and CIT vs Chemicals and Plastics India Ltd., 292 ITR 115 (Madras), wherein it was held that the contributions made for the construction of a building by an identity which serves the interest of various members, it is covered by section 37 of the Act.
58. Learned DR placed reliance on the orders of the authorities below and submitted that the contribution is a gratuitous act and at the best it is in the nature of creation of a capital asset building the goodwill for the assessee.
59. In Chemicals & Plastics India Ltd. (supra), the assessee company contributed certain amount towards the construction of building of Chamber of Commerce. He claimed that the Chamber's maintenance was for the furtherance of the business interest of its constituents and, hence, the payment made by it as member thereof had to be treated as business expenditure. The AO , however, holding that the payment was only a gratuitous payment and the same would not be considered as one incurred wholly or exclusively for the purpose of assessee's business, rejected the assessee's claim. On appeal, the Commissioner (Appeals) allowed the appeal. On further appeal, the Tribunal held that the Chamber of Commerce was a body which brought together all the industries under one roof to present before the Government and hence, contribution towards the building fund would enable the chamber to function comfortably in its own building, thus, 25 serving the interests of the various members, like the assessee. It, therefore, upheld the order of the Commissioner (Appeals).
60. In Vaish Associates case (supra), the assessee firm made contribution to the International Fiscal Associations towards constructing a meeting hall in its name to hold meetings, conferences and publish material for creating greater awareness of assessee's activities. The Hon'ble jurisdictional High Court held that such expenditure was incurred for business and has to be allowed as business expenditure u/s 37(1) of the Act.
61. These two decisions are applicable to the facts of this case inasmuch as the contributions made for construction of the building was not for a gratuitous purpose but the same would serve as advertisement to the business of the assessee. Contribution in Vaish Associates Case (supra) is very similar to the contribution made in this case also. Respectfully following the ratio laid down by the Hon'ble jurisdictional High Court, we hold that the contribution made by the assessee to the International Fiscal Association is allowable u/s 37 of the Act. The ground in the Cross Objection is allowed.
ITA No.5034/Del/2013:62. Two grounds raised in this appeal relate to the AO treating the long term capital gains on the sale of shares offered by the assessee as the business profits and the disallowance of the subscription/membership fees paid to M/s Asia Business Council on behalf of Dr. B.K. Modi, the Chairman of the company.
63. Learned AO treated the long term capital gains of Rs.7,91,18,112/- and short term capital loss of Rs,72,87,500/- offered by the assessee as the business 26 profits and on that assumption he made an addition. Learned AO also held the subscription/membership fee of Rs.6,40,520/- paid by the assessee to M/s Asia Busines Council on behalf of Dr. B.K. Modi as a personal payment without any nexus with the business activity of the company and accordingly added such amount to the income of the assessee.
64. Learned CIT(A) by way of impugned order deleted these two amounts holding that the capital gains/loss cannot be treated as business income in this case and also that the membership/subscription fee on behalf of Mr. B.K. Modi is a business expense.
65. These two issues are dealt with in detail and are answered vide Ground Nos.1 in ITA No.5336Del/2011 vide paragraphs 36 to 39 supra, and Ground No. 3 in ITA 785/Del/2011 vide Paragraph Nos 26 to 28 supra. For the same reasons, we uphold the findings of the learned CIT(A) and dismiss these two grounds of appeal.
66. In the result, ITA No.785 and 5336/Del/2011, ITA No.397 and 5034/Del/2013 are dismissed. CO No. 56/Del/2011 is allowed for statistical purpose, and CO No. 212/Del/2013 is allowed.
Order pronounced in the open court on this the 12th day of March, 2018.
Sd/- sd/-
(G.D. AGRAWAL) (K. NARASIMHA CHARY)
PRESIDENT JUDICIAL MEMBER
Dated: 12th March, 2018
'VJ'
27
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
By order
Asstt. Registrar, ITAT