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TMI Blog2014 (11) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court ), there was a sale of business of exhibiting films and property consisting of land and buildings. The agreement provided that seller had to discharge the liabilities of employees’ gratuity, retrenchment compensation, bonus, etc. Payment was to the former employees and not to the employees who continue after take over of the business by the purchaser. In those circumstances, the Hon’ble Bombay High Court held that expenditure was not allowable u/s. 48(i) of the Act. In the present case, however, we are concerned with a case of change of ownership of business, consequent to sale of shares. The entity, Trident, continues to remain in existence. Therefore, the aforesaid decision cannot be applied to the facts of the present case. We have therefore not discussed the case laws cited by the learned DR before us. CIT(A) correctly relied on the decision of the Hon’ble High Court of Karnataka in CIT v. R. Ranga Shetty, [1984 (12) TMI 45 - KARNATAKA High Court], wherein it was held that compensation paid to a tenant on transfer by compulsory acquisition of property is not expenditure incurred in connection with transfer and not allowable as a deduction. Following the said decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th transfer as contemplated u/s. 48(i) of the Act. The assessee explained before the Assessing Officer that the aforesaid sum was contributed to meet any contingency liability arising out of possible objection from the employees on sale of business of Trident to EMR. The AO, however, disallowed the claim of the assessee for deduction observing as follows:- As can be seen, the condition in the agreement specifies that the (i) amount is to be paid to a Trust, (ii) the Trust is to be set up by the sellers (4 persons including the assessee) within 60 days from the date of agreement. However, it is found that no Trust has been set up by the sellers. The amount has been deposited only to a separate bank account. As the condition of the agreement is not fulfilled, the purpose and utilization of this contribution remains doubtful. Therefore, this contribution cannot be allowed as expenditure in the hands of the assessee and will be added back to the income fro the year. 5. On appeal by the assessee, the ld. CIT(Appeals) formulated the following two issues for consideration on the claim made by the assessee for deduction:- (i) Whether the payment is actually made as per the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he held that expenditure in question claimed by the assessee was a voluntary payment and therefore cannot be allowed as deduction u/s. 48(i) of the Act. 8. With regard to question of actual payment of money for the purpose stated by the assessee, the CIT(A) found that the actual utilization of the money deposited in the bank account by the assessee could not be verified. In this regard, he referred to the remand report filed by the AO in which the AO had pointed out that total amount given in the list and the total amount mentioned in the agreement did not tally and that the date of payments were not given. Some payments had been made by cash which were not verifiable. Based on the remand report of the AO filed before the CIT(A), the ld. CIT(A) concluded as follows:- It is clear that, only during the appellate proceedings, the appellant has stated that the condition to form the trust was waived off by the company. These contentions show that payment to employees Welfare has not been proved. More so, the amount cannot be termed as expenditure as being wholly and exclusively for transfer for it to be allowed as deduction u/s. 48(i) as held above. Therefore, disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has actually made payment of the sum in question and therefore the assessee has incurred the expenditure and deduction u/s. 48(i) had to be allowed. The ld. counsel for the assessee therefore prayed that the aforesaid additional evidence be admitted for consideration. 11. The ld. counsel for the assessee further filed a confirmation from Maruthi Electrical Works in which it has been confirmed that 155 employees were on deputation from them to Trident and were therefore to be regarded as outsourced employees of Trident and therefore they were also entitled to receive the benefits given to employees of Trident. The ld. counsel for the assessee reiterated the submissions made before the CIT(A) and it was also submitted by him that the expenditure in question had to be incurred as it was a condition for sale of shares of the assessee to EMR. According to him, the conditions laid down u/s. 48(i) of the Act are satisfied and therefore assessee is entitled to claim the aforesaid sum as a deduction while computing long term capital gains. 12. The ld. DR, apart from relying on the orders of CIT(A), further submitted that the payment in question is purely a voluntary pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with clause 29 of the Share Purchase Agreement, the assessee cannot claim deduction of the sum in question as an expenditure incurred wholly and exclusively in connection with the transfer. We may also mention that details of payment filed by the assessee before us will not be of any assistance because the payments now claimed by the assessee to have been made to the employees of Trident, cannot be traced to clause 29 of the Share Purchase Agreement. Therefore, the said payment, even if it is true, cannot be said to be an expenditure incurred wholly and exclusively in connection with the transfer of shares. We, therefore, do not deem it necessary to consider the additional evidence sought to be filed by the assessee before us. 14. We may also add that had the assessee established substitution of the conditions mentioned in clause 29 of the share purchase agreement with the manner in which assessee discharged payments to the employees, then the additional evidence with regard to payments could have been examined. Since the assessee has failed to do so, claim of the assessee for having made payments to employees can at best be regarded as a voluntary payment, which cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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