Addl. CIT, Ghaziabad v. M/s. Spice Corp. Ltd, Noida

ITA 4005/DEL/2009 | 2006-2007
Pronouncement Date: 31-03-2010 | Result: Dismissed

Appeal Details

RSA Number 400520114 RSA 2009
Assessee PAN AABCM0050A
Bench Delhi
Appeal Number ITA 4005/DEL/2009
Duration Of Justice 6 month(s)
Appellant Addl. CIT, Ghaziabad
Respondent M/s. Spice Corp. Ltd, Noida
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 31-03-2010
Date Of Final Hearing 29-03-2010
Next Hearing Date 29-03-2010
Assessment Year 2006-2007
Appeal Filed On 30-09-2009
Judgment Text
ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 4005/DEL/2009 A.Y. : 2006-07 ADDL. COMMISSIONER OF INCOME TAX VS. M/S SPIC E CORP. LTD. RANGE-2 CGO-2 HAPUR ROAD (FORMERLY KNOWN AS MCORP GHAZIABAD GLOBAL PVT. LTD.) D-1 SECTOR-3 NOIDA (PAN: AABCM0050A) AND ITA NO. 4189/DEL/2009 A.Y. 2006-07 M/S SPICE ENFOTAINMENT LIMITED VS. ADDL. COMMISSIONER OF INCOME TAX D-1 SECTOR-3 RANGE-2 CGO-2 HAPUR ROAD NOIDA-201301 (UP) GHAZIABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA ADV. NEHA KHEMKA CA DEPARTMENT BY : SHRI B.K. RAO SR. DR O R D E R PER SHAMIM YAHYA : AM THESE CROSS APPEALS BY THE REVENUE AND THE ASSES SEE EMANATE OUT OF THE ORDER OF THE LD. CIT(A) DATED 25.6.2009 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE FIRST ISSUE RAISED IN THE REVENUES APPEAL I S THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN TREATING THE PROFIT ON SALE OF SHARES AS CAPITAL GAIN INSTEAD OF ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 2 BUSINESS PROFIT AS THE ASSESSEE COMPANY IS ENGAGED IN SALE AND PURCHASE OF SHARES. THEREFORE THE ADDITION MADE BY THE AO AMOU NTING TO RS. 35 42 208/- BE RESTORED AND THE RELIEF GIVEN BY THE CIT(A) BE CANCELLED ON THIS ISSUE. 3. DURING THE RELEVANT PERIOD ASSESSEE SOLD CERTAI N SHARES HELD AS INVESTMENT AND EARNED LONG TERM CAPITAL GAIN AS RS. 20596680/ - WHICH WAS CLAIMED TO BE ADJUSTABLE AGAINST THE CARRY FORWARD THE LONG TERM C APITAL LOSSES OF EARLIER YEARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE CLAIM OF CAPITAL GAINS ON SALE OF SHARES BE NOT TREATED AS ITS BUSINESS ACTIVITY BECAUSE ASSESSEE HAS SHOWN PROFIT FROM SALE OF SHARES. ASSESSEE EXPLAINED THAT ASSESEE HAS BEEN HOLDING INVESTMENT OF SHARES AND HAS HELD THE SHARES FOR MORE THAN 5 YEARS AND IN SOME CASE EVEN 8-9 YEARS. IT WAS ALSO CONTENDED THAT THESE SHARES HAVE BEEN SHOWN AS INVE STMENTS BY THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNTS AT COST AND HAVE B EEN ACCEPTED BY THE DEPARTMENT IN THE PAST. IN THIS REGARD IT WAS F URTHER EXPLAINED TO THE AO THAT ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 1995-96 HA S HELD THAT THE SALE OF SHARES WOULD BE TAXABLE UNDER THE HEAD CAPITAL GAIN. AO REJECTED THIS CONTENTION AND HELD THAT THE SHARES ARE TO BE CONSIDERED AS S TOCK-IN-TRADE IN BUSINESS AND THE PROFIT AND LOSS ON SUCH SHARES TRANSACTIONS WA S TAXABLE UNDER THE HEAD BUSINESS & PROFESSION AND NOT UNDER THE HEAD CAP ITAL GAINS. REGARDING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y . 1995-96 AO HELD THAT THE SAID DECISION OF THE ITAT WAS NOT ACCEPTED BY THE D EPARTMENT AND THE MATTER WAS APPEALED BEFORE THE ALLAHABAD HIGH COURT. ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 3 3.1 UPON ASSESSEES APPEAL LD. CIT(A) DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE PLACING THE RELIANCE OF THE ITATS DECISIO N IN ASSESSEES OWN CASE FOR EARLIER YEARS. 3.2 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 3.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IT TRANSPIRES THAT THE IDENTICAL ISSUE WAS CONSIDERED BY THIS T RIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2002-03 IN ITA NO. 370DEL/2006. THE TRIB UNAL HAD REFERRED TO THE EARLIER DECISION OF THE TRIBUNAL FOR A.Y. 1995-96 IN ITA NO . 1121/DEL/03 AND PARAGRAPH 14 OF THE SAID ORDER WAS REPRODUCED AS UNDER:- 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. WE FIND THAT SHARE OF MODI RUBBER LTD. WERE ACQUIRED BY THE ASSE SSEE IN THE FINANCIAL YEAR 1992-93 AND IN THE BALANCE SHEET AS ON 31 ST MARCH 1993 THESE WERE SHOWN AS INVESTMENT. IN THE FINANC IAL YEAR ENDED ON 31.3.94 ALSO THESE WERE SHOWN AS INVESTMENT. THE REVENUE IN THE ASSESSMENT MADE FOR THESE FINANCIAL YEARS I.E. AY 1 993-94 AND 1994- 95 HAS ACCEPTED THESE SHARES AS THE INVESTMENT OF T HE ASSESSEE AND WERE REFLECTED AT COS. WE FIND THAT 1 69 992 SHAR ES OF MRL WERE SOLD FOR RS. 1 02 00 587/- WHICH WERE ACQUIRED IN AY 199 3-94 FOR RS. 1 34 26 950/-. THE ASSESSEE SOLD THESE SHARES AND THEREBY CLAIMED LONG TERM CAPITAL LOSS OF RS. 53 93 943/- UNDER THE CAPITAL GAINS. THE AO HAS HELD THESE SHARES TO BE THE STOCK-IN-TRA DE OF THE ASSESSEE AND HAS HELD THE LOSS ARISEN ON SALE OF THESE SHARE S AS THE BUSINESS LOSS OF THE ASSESSEE. WE FIND THAT THE REVENUE C OULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE SHARES WHICH WE RE SHOWN BY THE ASSESSEE AS ITS INVESTMENT IN THE BALANCE SHEET IN THE AY 1993-94 AND 1994-95 AND ACCEPTED AS SUCH IN THE ASSESSMENTS MAD E WAS STOCK-IN- TRADE OF THE ASSESSEE IN THE YEAR OF SALE. THE REV ENUE ALSO COULD NOT SHOW BY BRINGING RELEVANT AND COGENT MATERIAL ON RE CORD THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE O F THESE SHARES WAS NOT TO HOLD THEM AS INVESTMENT BUT TO DEAL IN THE S ALE AND PURCHASE ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 4 OF THESE SHARES. THE ASSESSEE THROUGH ITS BALANCE SHEET AND AUDITORS REPORT FOR AY 1993-94 AND 1994-95 HAS SHOWN THAT TH E SHARES WERE HELD AS INVESTMENT AND THAT THEY WERE VALUED AT COS T. IF THESE SHARES HAD BEEN HELD AS STOCK-IN-TRADE BY THE ASSESSEE AN D AS CLAIMED BY THE ASSESSEE THAT THE VALUE OF THESE SHARES HAD FAL LEN DURING THE YEAR ENDED ON 31.3.93 AND 31.3.94 THE ASSESSEE WOULD HA VE VALUED THESE SHARES AT THE MARKET PRICE WHICH WAS LOWER THAN THE COST OF THESES SHARES AND WOULD HAVE CLAIMED THE LOSS ARISING THE REFORM AS ITS BUSINESS LOSS. THE ASSESSEE HAS NOT DONE SO. THIS A LSO SUPPORTS THE CONTENTION OF THE ASSESSEE THAT THE SHARES WERE HEL D BY IT AS INVESTMENT. WE OBSERVE THAT AN ASSESSEE WHO DEALS IN SHARES AND SECURITIES CAN ALSO ACQUIRE AND POSSESS SHARES AS I NVESTMENT. IN THESES FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE REVENUE AUTHORITIES WERE NOT JUSTIF IED IN TREATING THE LOSS FROM THE SALE OF SHARES AS THE BUSINESS LOSS O F THE ASSESSEE. HENCE WE REVERSE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO TREAT THE LOSS OF RS. 53 93 943/- SHOWN BY THE ASSESSEE A S LONG-TERM CAPITAL LOSS OF THE ASSESSEE. ACCORDINGLY GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 3.4 FOLLOWING THE ABOVE THE TRIBUNAL HAD ALLOWED TH E ISSUE IN FAVOUR OF THE ASSESSEE WHILE NOTING THAT NO CONTRARY DECISION HA S BEEN BROUGHT TO THE NOTICE. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. IN VI EW OF THE EARLIER FINDINGS OF THIS TRIBUNAL IN ASSESSEES OWN CASE ADHERING TO THE DOCTRINE OF STARE DECISES WE UPHOLD THE ORDER OF THE LD. CIT(A) AND HOLD THAT T HE GAINS EARNED BY THE ASSESSEE ON THIS ISSUE WERE TO BE ASSESSED UNDER THE HEAD C APITAL GAINS. 4. ANOTHER ISSUE RAISED PERTAIN TO ALLOWABILITY OF MEMBERSHIP AND SUBSCRIPTION FEES PAYMENTS ON WHICH ASSESSEE AND REVENUE ARE BOTH IN CROSS APPEALS. ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 5 4.1 DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD PAID MEMBERSHIP FEE AND SUBSCRIPTION INCURRED BY DR. BK MODI CHAIRMAN OF THE COMPANY. THE DETAILS OF THE SAME WERE AS UNDER:- S.NO. NAME OF THE PAYEE PURPOSE OF PAYMENT AMOUNT (I) THE ASIAN BUSINESS COUNCIL HONGKONG CORPORATE MEMBERSHIP FOR THE YEAR 2005-06 RS. 1324050/- (II) THE CONFERENCE BOARD INC NEWYORK -DO- RS. 300105/- (III) THE OBEROI NEW DELHI BILVEDERE MEMBERSHIP RENEWAL FEE RS. 36060/- (IV) THE ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF UP ANNUAL SUBSCRIPTIONS RS. 100000/- TOTAL RS. 1760215/- 4.2 AO WAS OF THE OPINION THAT THESE PAYMENTS WERE MADE BY DR. B K MODI WERE NOT INCIDENTAL TO BUSINESS ACTIVITIES OF THE C OMPANY. 4.3 UPON ASSESSEES APPEAL LD. CIT(A) REFERRED TO T HE DECISION OF THE ITAT ON SIMILAR ISSUE AND OPINED THAT AMOUNT PAID AS CORPO RATE MEMBERSHIP TOWARDS ASIA BUSINESS COUNCIL HONKONG RS. 13 24 050/-; AND PAID FOR CONFERENCE BOARD INC. NEW YORK FOR RS. 3 00 105/- WAS ALLOWABLE DED UCTION. HOWEVER HE CONFIRMED THE DISALLOWANCE OF RS. 33060/- PAID TO T HE OBEROI NEW DELHI FOR BELVEDERE MEMBERSHIP RENEWAL FEE AND RS. 100000/- T O THE ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF UP LUCKNOW AS ANNUAL SUBSCRIPTION. 4.4 AGAINST THIS ORDER BOTH THE ASSESSEE AND REVE NUE ARE IN APPEAL BEFORE US. ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 6 4.5 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IT TRANSPIRES THAT IDENTICAL ISSUE WAS DEALT BY THE TRIBUNAL I N A. Y. 2002-03 WITH REGARD TO MEMBERSHIP TO ASIA BUSINESS COUNCIL AND THE TRIBUN AL HAD ADJUDICATED THE ISSUE AS UNDER:- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ANNUAL REPORT OF ASIA BUSINESS COUNSEL IN THE LET TERS TO THE MEMBERS FROM THE EXECUTIVE DIRECTOR OF THE BUSINESS COUNCIL SHOWS AS FOLLOWS:- THE ASIA BUSINESS COUNCIL OCCUPIES A UNIQUE POSITI ON IN BRINGING LEADING ASIAN CEOS TOGETHER WITH OTHER GLO BAL BUSINESS LEADERS TO DISCUSS THE CHALLENGES OF COMMO N CONCERN AND THE PROPOSE CREATIVE STRATEGIES FOR ADDRESSING THESE ISSUES. WE ARE EXCITED ABOUT THE R OLE ASIA WILL PLAY IN SHAPING THE WORLD ECONOMY IN THE 21 ST CENTURY AND ARE POSED TO WORK TOGETHER TO BUILD A R OBUST FUTURE. 10. THUS IT IS NOTICED THAT THE PAYMENT HAS BEEN MA DE BY THE ASSESSEE COMPANY FOR BEING REPRESENTED BY ITS CHAIR MAN AT THE MEETING AND CONFERENCES AT INTERNATIONAL LEVEL . TANGIBLE BENEFIT CANNOT BE CORRELATED WITH EVERY MEETING AND CONSEQUENTLY THE PAYMENT OF THE MEMBERSHIP FEE CAN NOT BE DIRECTLY DISBELIEVED AS THE SAME HAS ALSO BEEN MAD E BY DEMAND DRAFTS AND THE DETAILS OF THE ANNUAL REPORT ALSO CLEARLY SHOW THAT THE MEETING HAS BEEN ATTENDED BY SHRI BK MODI WHO WAS THE CHAIRMAN OF THE ASSESSEE COMPANY. SHRI BK MODIS NAME ALSO APPEARS IN PAGE 90 OF THE PAPER BO OK AT PAGE 16 OF THE ANNUAL REPORT. HE IS ALSO FOUND TO A TTEND THE MEETING EVIDENCED BY THE PHOTOGRAPH AT PAGE 10 OF THE ANNUAL REPORT. IN THE CIRCUMSTANCES IT IS NOTIC ED THAT THE LD. CIT(A) HAS DELETED THE ADDITION ON A SOUND FOOTING AND NO INTERFERENCE TO THE SAME IS CALLED FOR. ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 7 4.6 WE FIND THAT FROM PAYMENT TO ASIAN BUSINESS COU NCIL THE SAME REASONING AS ABOVE IS APPLICABLE TO THE CORPORATE MEMBERSHIP OF THE CONFERENCE BOARD INC. NEW YORK. AS THE SAME IS ALSO FOR THE ASSESSEE CO MPANY TO BE REPRESENTED BY ITS CHAIRMAN AT THE MEETING AND CONFERENCE AT INTERNAT IONAL LEVEL. THE SAME ANALOGY NEEDS TO BE DRAWN TOWARDS ANNUAL SUBSCRI PTION PAID TO ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF UP. AS REG ARDS THE MEMBERSHIP RENEWAL FEE OF BELVEDERE PAID TO OBEROI IT TRANSP IRES THAT THE SAME WAS ALSO FOR THE MEMBERSHIP OBTAINED FOR A CONFERENCE HALL/AREA. UNDER SUCH CIRCUMSTANCES IN OUR CONSIDERED OPINION ALL THE ABOVE PAYMENTS TO WARDS SUBSCRIPTION AND MEMBERSHIP FEE ARE TO ENABLE THE CHAIRMAN OF THE CO MPANY TO ATTEND THE MEETINGS ON BEHALF OF THE ASSESSEE COMPANY. THE P URPOSE OF THE PAYMENTS IS HAVING NEXUS WITH THE BUSINESS EXIGENCIES OF THE A SSESEE COMPANY. HENCE IN OUR CONSIDERED OPINION THESE EXPENDITURES ARE ALLOWABLE UNDER SECTION 37 OF THE ACT. IN THIS REGARD WE ALSO PLACE RELIANCE TO THE APEX C OURT DECISION IN THE CASE OF CIT VS WALCHAND AND CO. PRIVATE LTD. 65 ITR 381 WHEREIN IT WAS HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING W HETHER THE EXPENDITURE WAS WHOLLY OR EXCLUSIVELY LAID OUT FOR THE PURPOSE OF B USINESS REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIE W OF THE BUSINESSMAN AND NOT OF THE REVENUE. ACCORDINGLY FOLLOWING THE AF ORESAID PRECEDENTS WE HOLD THAT EXPENDITURE OF RS. 1760215/- IS ALLOWABLE. 5. ANOTHER ISSUE RAISED IS THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF EXPENDITURE OF RS. 90130 /- BEING THE PAYMENT MADE BY THE APPELLANT ON ACCOUNT OF PENALTY FOR VIOLATI ON OF BUILDING BYE-LAWS TO LAND AND DEVELOPMENT OFFICER NEW DELHI. ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 8 5.1 IN THIS CASE THE ASSESSEE HAD MADE PAYMENT OF R S. 90130/- TO THE LAND AND BUILDING OFFICER DELHI FOR REGULARIZING CERTAIN E XCESS CONSTRUCTION IN THE PROPERTY NO. 36 AMRITA SHERGIL MARG NEW DELHI. AO DISALLO WED THE ABOVE CLAIM HOLDING THAT AFORESAID PAYMENT WAS MADE FOR INFRINGEMENT OF STATUTORY PROVISIONS AND THUS PAYMENT SO MADE WAS PENAL IN NATURE AND NOT A LLOWABLE U/S 37 OF THE ACT. 5.2 UPON ASSESSEES APPEAL LD. CIT(A) CONFIRMED THE ADDITION. 5.3 BEFORE US LD. COUNSEL OF THE ASSESSEE PLACED RE LIANCE UPON THE ORDER OF THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF C IT VS. LOKE NATH AND CO. 147 ITR 624. IN THIS CASE THE ASSESSEE FIRM WAS FORMED FOR CONSTRUCTION OF MULTI-STOREYED APARTMENT AND CONSTRUCTION WAS IN EXCESS AND HAD TO FILE REVISED PLAN AND PAY COMPOSITION FEE. IT WAS HELD THAT THE SUM PAID WAS NOT IN THE NATURE OF PENALTY AND WAS ALLOWABLE AS REVENUE EXPENDITURE. 5.4 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE CITED CASE HAD HELD THAT THE PAYMENTS MADE FOR DEVIATION FROM THE ORIGINAL PLAN WAS NOT P ENAL IN NATURE AND WAS HELD TO BE ADMISSIBLE BUSINESS EXPENDITURE AS THE ASSESSEE FIRM WAS IN THE BUSINESS OF CONSTRUCTION. HOWEVER IN THE PRESENT CASE WE FI ND THAT THE ASSESSEE IS NOT IN THE BUSINESS OF CONSTRUCTION AND THE EXPENDITURE WA S INCURRED IN CONNECTION WITH ADDITION MADE IN PROPERTY FALLING UNDER CAPITAL FIE LD. HENCE SINCE EXPENDITURE WAS ITA NO. 4005 & 4189/DEL/09 A.Y. 2006-07 9 IN THE CAPITAL FIELD THE SAME IS NOT ALLOWABLE AS REVENUE EXPENDITURE U/S 37 OF THE IT ACT. 6. IN THE RESULT THE REVENUES APPEAL IS DISMIS SED AND THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03/2010. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 31./03/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES