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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI PRASHANT MAHARSHI & KAVITHA RAJAGOPAL
ORDER Per Kavitha Rajagopal (JM):
This appeal has been filed by the assessee as against the order of the Ld.Commissioner of Income-tax (Appeals)-21, Mumbai dated 22/01/2016 passed under section 250 of the Income-tax Act, 1961 pertaining to assessment year 2011-12.
The following grounds of appeal are taken by the assessee:- “The following grounds of Appeal are without prejudice to each other: 1) On the facts and circumstances of the case as well as in law, the Learned CIT (A) has erred in confirming the action of Learned Assessing officer in disallowing the claim of Foreign Travelling Expenses of Rs.5, 44,0237- on the alleged plea
2 ITA 1343/Mum/2016 that the same was not incurred for business purposes, without considering the facts and circumstances of the case. 2) On the facts and circumstances of the case as well as in law, the * Learned CIT(A) has erred in not adjudicating the additional ground raised by appellant for reducing the Long Term Capital Gain earned on account of sale of shares of M/s. WMI Cranes Limited by Rs. 1,42,44,7257-, on the plea that the ground was subject matter of petition u/s.264 of the Income Tax Act, 1961, hence Hon'ble CIT(A) is not having jurisdiction to consider the same ground in appeal, without considering the facts and circumstances of the case. 3) The Learned CIT (A) ought to have direct Assessing Officer to reduce sale consideration due to revised sale price of the share of M/s. WMI Cranes Ltd., as the appellant have finally received lesser consideration from the funds lies in Escrow account as per terms of sale agreement.”
The brief facts are that the assessee is a domestic private limited company engaged in the business of facilitating foreign consultancy and business and has earned income from business and profession and capital gain during the impugned year. The assessee filed its return of income on 02/08/2011 declaring total income of Rs.22,12,30,101/- and the assessee’s case was selected for scrutiny and order under section 143(3) dated 8/11/2013 was passed thereby determining the total income at Rs.22,68,51,530/- by way of disallowance of claim of foreign travel expenses of Rs.5,44,023/- on the ground that the same was not incurred for business purpose and on various other grounds. The assessee was in appeal before the Ld.CIT(A) wherein certain claims of the assessee was allowed and certain claims such as foreign travel expenses incurred by the assessee was disallowed. The assessee further stated that the additional ground for reducing the long term capital gain on account of sale of shares of M/s MWI Cranes Pvt Ltd of Rs.1,42,44,725/- was not decided by the Ld.CIT(A). It is stated that the assessee works as an agent in India and abroad and dealing with non conventional energy engineering equipments. The assessee company is also into imports / exports / material handling equipment activities, etc.
3 ITA 1343/Mum/2016 which is evident from the Memorandum and Articles of Association. The expenses of foreign travel of Rs.5,44,023/- was stated to be the foreign travel of Shri Gopal Vazirani, the Chaiman and MD and Mrs. Padma Vazirani, the director of the assessee company to London and other places. It was further stated that the said persons were frequently travelling abroad for the promotion of the assessee company. The said income has also been shown as expenditure in the P&L Account. The said expenses was disallowed by the lower authorities on the ground that there was no supporting documents were filed to show that the foreign travel was for business purpose. It was also alleged that the assessee company was into the business of investment in shares and mutual funds in India and that there was no necessity to travel to foreign countries for business purpose. The Ld.CIT(A) failed to consider the submission of the assessee that in subsequent years, the assessee company had earned exempt income of Euro 50,000 which amounts to Rs.32,42,266/- for A.Y. 2013-14 as a consequence of such foreign travel of directors was not considered by the Ld.CIT(A) on the ground that there is connectivity between the commission income earned in A.Y. 2013-14 and the impugned assessment year. Aggrieved by this, the assessee is in appeal before us.
Having heard both the learned representatives and perused the materials on record, we are of the considered opinion that owing to the nature of business of the assessee company, which works as an agent in India and abroad dealing in non conventional energy engineering equipments, it is obligatory for the directors to travel abroad for the purpose of business of the assessee. It is also pertinent to point out that the assessee has earned commission income arising out of the foreign travel in subsequent years also. From the facts and circumstances of the case, we conclude that the said
4 ITA 1343/Mum/2016 expenses claimed by the assessee was for business purpose thereby allowing this ground of appeal filed by the assessee.
5. Grounds 2 & 3 : The assessee has raised these grounds on the fact that the Ld.CIT(A) has not adjudicated this issue which was raised as an additional ground by the assessee for reducing long term capital gain earned on account of sale of shares of M/s WMI Cranes Ltd of Rs.1,42,44,725/- for the reason that the same was subject matter of petition under section 264 and that the Ld.CIT(A) had no jurisdiction to deal with the same.
6. Ground 3 pertains to the fact that the Ld.CIT(A) has erred in not directing the Assessing Officer to reduce sale consideration due to revised sale price and the share of M/s WMI Cranes Ltd as the assessee had finally received lesser consideration from the funds that was in the escrow account as per the terms of sale agreement.
It is contended that the assessee being an Indian company alongwith three other individuals were the promoters of M/s WMI Cranes Ltd which is a public limited company incorporated in India and was engaged in the business of manufacturing of EOT cranes and material handling equipments. There was an agreement by name “share subscription and purchase agreement” dated 11/10/2010 between the promoters and M/s Konecranes Finance Corporation (the purchasers) which is a Finland based company. It was stated that M/s WMI Cranes Ltd had total issued and paid up shares 9,99,920 equity shares of Rs.10 each in which the promoters collectively owned 100% of the issued and paid up share capital of the company. The assessee company held 1,23,800 equity shares i.e. 12.38% of the total equity shares of the company. As per the agreement, the promoters agreed to sell 4,82,519 equity shares i.e. 48.25% of the issued and paid up equity share capital of the company to M/s
5 ITA 1343/Mum/2016 Konecranes& Finance Corporation or to its affiliates initially at Rs.3,02,012.31 per share amounting to Rs.155,00,00,000/- . The assessee consented to sell 75,000 equity shares out of 1,23,800 held by it. M/s Konecranes & Finance Corporation also subscribed for additional 56,000 equity shares in order to increase its shareholding in the company to 51% thereby resulting into 51% of holding in the company which was owned and controlled by M/s Konecranes& Finance Corporation. The assessee further submitted that as per the agreement “purchase price” means Rs.3,212,.31 per share which aggregates to Rs.155,00,00,000/- for all the shares” which means 4,82,519 equity shares of the company. The agreement also provided for certain promoters obligation wherein the promoter would neither buy and indemnify the purchaser of the company of certain claims imposed upon the company in relation to any liability prior to the closing date as per the terms of the agreement and that the said liability of promoters to indemnify for claims shall be restricted to the total sale consideration of Rs.155,00,00,000/-, out of which Rs.30,00,00,000/- should be credited to in the escrow account which would operate as per the escrow agreement entered into between the promoters, the purchaser (M/s Konecranes & Finance Corporation) and the escrow agent and the same was acted upon by transferring Rs.30,00,00,000/- on transfer of shares in the escrow account. It was further submitted that if there was no liability as per the agreement, the promoters would be entitled to the balance amount from the escrow account. It was further stated that the assessee included the capital gain on sale of 75,000 equity shares of the company after setting off unabsorbed depreciation of Rs.5,41,239/-, the total income filed in the return of income was Rs.21,12,30,109/- after deducting the same from the returned income of Rs.22,17,09,427/-. It was contended by the assessee that the capital gain was computed by the assessee by taking into account Rs.24,09,23,250/-
6 ITA 1343/Mum/2016 Rs.24,09,23,250/-being preparation of total sale consideration of Rs.155,00,00,000/- which includes Rs.30,00,00,000/- deposited in the escrow account. The assessee states that subsequent to the sale of shares of the company, the purchaser, viz. M/s Konecranes & Finance Corporation through its affiliates directed the escrow agent to make payment on certain statutory and other liabilities which arose prior to the sale of the shares and an amount of Rs.9,17,04,240/- was paid on various dates from the escrow account. The assessee contends that the impugned amount is not considered to have been received by the promoters and was only towards the liabilities which arose against M/s WMC Cranes Ltd and that the impugned amount ought to have been reduced from the sale consideration in computing the capital gains arising on the transfer of shares of the company. The assessee stated that the capital gain at a higher amount of Rs.22,17,09,427/- being proportion of sale consideration of Rs.155,00,00,000/- without reducing the consideration by Rs.1,42,44,725/- being proportionate amount of Rs.9,17,04,240/- which was withdrawn from the escrow account for meeting out the liabilities which arose before the sale of share, was not considered by the Ld.CIT(A). This ground of appeal was raised before the Ld.CIT by an application under section 264 on the ground that the amount withdrawn from the escrow account cannot at any time be in the coffers of the promoters. Consequently resulting in the reduction of consideration of sale of shares of the company. The Ld.CIT(A) had rejected the claim of the assessee on the ground that there is no express provision in the Income-tax Act to reduce the returned income which is against the provision of section 139(1) and 139(5) of the Act and the same cannot be done indirectly by invoking the provisions of section 264 of the Act. The Ld.CIT(A) further held that the contingent liability paid out of escrow account does not have any effect on “amount receivable” as per share subscription and 7 ITA 1343/Mum/2016 purchase agreement between the parties and since the assessee has voluntarily computed the long term capital gain and filed its return of income in accordance with the provisions of section 48 of the Act beyond which there is no deduction other than those specified in section 48 under “consideration received or receivables”. On denial of the same, the assessee filed the additional ground before the Ld.CIT(A) to reduce the sale consideration as per revised sale price of the share from Rs.3,212.31 per share to Rs.3,022.38 per share thereby to reduce the same paid out of escrow account from the gross sale proceeds declared by the assessee. The Ld.CIT(A) on adjudication of the additional ground filed by the assessee called for the remand report from the Assessing Officer and dismissed the additional ground on the ground that since the assessee has taken the additional ground for reducing the returned income before the Principal CIT-7 under section 264 which was rejected, thereby cannot be taken again before the Ld.CIT(A), who held that he did not have jurisdiction to adjudicate the additional ground of appeal. Aggrieved by this, the assessee is in appeal before us.
8. Having heard both the learned representatives and perused the materials on record, it is observed that the assessee has raised an additional ground before the Ld.CIT(A) claiming that the actual consideration received on sale of shares of WMI Cranes Ltd was less than the consideration taken for computing the capital gains after reducing the amount of consideration which was transferred to the escrow account. The Ld.CIT(A) though has called for the remand report from the Assessing Officer has failed to adjudicate on the additional ground filed by the assessee on the contention that the same was a subject of petition under section 264 of the I.T. Act, 1961 before the Principal CIT-7, Mumbai. The Ld.CIT(A) has held that since this ground was raised in an application under section 264 before the PCIT thereby rejected, the Ld.CIT(A)
8 ITA 1343/Mum/2016 held that he had no jurisdiction to consider the same grounds in appeal before him. We find that the Ld.CIT(A) has erred in not deciding this ground of appeal filed as additional ground before him by the assessee which ought to have been decided on merits. The Ld.CIT(A) is not barred from deciding this ground of appeal on merits inspite of the fact that section 264 application was rejected by the PCIT-7, Mumbai. On the above observation, we direct the Ld.CIT(A) to consider this ground of appeal on merits and adjudicate the issue pertaining to the reduction of capital gain. We remand back this file to the Ld.CIT(A) for deciding this issue on merits.
In the result, appeal is partly allowed.
Order pronounced in the open Court on 25th August 2022.