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TMI Blog2015 (3) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... tilal [1991 (3) TMI 123 - BOMBAY High Court] has held that the expenditure incurred in removing encumbrances to transfer is deductible under section 48 of the Act. The court has observed that in so far as clause (i) of section 48 is concerned, the expression used by the Legislature in its wisdom is "the expenditure incurred wholly and exclusively in connection with such transfer". The expression "in connection with such transfer" is wider than the expression, "for the transfer". The High Court further observed that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. Thus, the allowability of the claim of deduction is also supported by the judicial decision. Thus view of the learned Commissioner is also not correct because the Tribunal, Mumbai Bench, in Chemosyn Ltd. v. Asst. CIT [2012 (9) TMI 804 - ITAT MUMBAI] has allowed the expenditure incurred by the company towards purchase of its own shares at premium from minority group as per the directions of the Company Law Board as business expenditure because the order passed by the Company Law Board is always considered to be in the interest of company and not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was made vide order dated December 15, 2009. The assessee-company is engaged in the business of manufacturing and export of garment products and also exporting shoes. The assessee has returned income under the head "income from house property", "profits and gain of business" and "capital gain on sale of property". After thoroughly scrutinising the return of income, the Assessing Officer made disallowance under the following heads : Rs. 1. Lease rent receivable vis-a-vis interest-free deposit 4,31,298 2. Under the head Income from business-interest on loan to director 1,95,000 3. Travelling expenses 16,24,114 4. Personal expenditure 8,22,305 5. Administrative expenses 12,38,570 6. Long-term capital gains on sale of property accepted as per the statement 1,21,16,695 The income was assessed at a loss of ₹ 1,84,18,086. 3. The learned Commissioner received a proposal from the Assessing Officer who pointed out that the assessment order passed under section 143(3) was erroneous and prejudicial to the interests of the Revenue inasmuch as the gains arising out of the sale of property was required to be offered for tax as per special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gain by claiming deduction actually not allowable as per law and the Assessing Officer passed the order by mechanically accepting the petition of the assessee while passing the order under section 143(3) of the Act resulting loss to the Revenue. The learned Commissioner was of the belief that the order is prejudicial to the interests of the Revenue. The order is also erroneous as it is a case of incorrect assumption of facts and incorrect application of law which has been passed without application of mind. On the claim of deduction of ₹ 31.05 crores, the learned Commissioner was of the firm belief that such payment cannot be considered as cost of encumbrances. The learned Commissioner finally concluded that the assessment order under consideration is erroneous insofar as the same is prejudicial to the interests of the Revenue. Accordingly, he set aside with the direction to the Assessing Officer to recompute the capital gains of the assessee in consonance of the provisions of the Act. Aggrieved by this, the assessee is in appeal before us. 8. Learned counsel for the assessee vehemently submitted that the learned Commissioner has proceeded on the wrong assumption of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed after scrutiny of the return of income and cannot be said to be erroneous and prejudicial to the interests of the Revenue. 10. Per contra, relying upon the findings of the learned Commissioner, the learned Departmental representative relied upon the decision of the Madras High Court in Smt. S. Valliammai v. CIT [1981] 127 ITR 713 (Mad) [FB]. 11. We have carefully considered the rival contentions and perused the assessment order and the order of the learned Commissioner. The first thing which has to be considered is whether the learned Commissioner has rightly assumed the power under section 263 of the Act. The hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), has laid down the following ratio (headnote) : "A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision. We find that the learned Commissioner, at page 7/paragraph 2 of its order has made the following observation : "Accordingly in computing the capital gains arising from the impugned sale, the expenses incurred for payment to shareholders is not deductible as cost of improvement or for that matter in any other manner." 13. This view of the learned Commissioner is also not correct because the Tribunal, Mumbai Bench, in Chemosyn Ltd. v. Asst. CIT [2012] 19 ITR (Trib) 6 (Mum) has allowed the expenditure incurred by the company towards purchase of its own shares at premium from minority group as per the directions of the Company Law Board as business expenditure because the order passed by the Company Law Board is always considered to be in the interest of company and not in the interest of shareholder/family members. In the present case also, we find that the Company Law Board, vide its order dated June 29, 2005, in order to end the dispute between the parties, held as under : "22. In order to end the dispute between the parties, I direct that the petitioner should be given an option to go out of the company on return of her investment in the shares of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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