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TMI Blog2018 (2) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of ₹ 6.50 crores was made to these shareholders of Seth Industries Pvt. Ltd. for withdrawal of litigations and suits filed before Hon'ble High Court of Delhi and Bombay, so that the development of the said property could be smoothly undertaken without any hindrance, consequently, the expenditure was incurred to protect the business interest of the assessee and further to safeguard the assessee itself for further losses, resultantly, we find no infirmity in the order of the First Appellate Authority. The same is affirmed. The appeal of the Revenue is, therefore, dismissed. - ITA NO.428/Mum/2016 - - - Dated:- 27-12-2017 - Shri Joginder Singh, Judicial Member And Shri G. Manjunatha, Accountant Member For The Revenue : Shri Rajat Mittal-DR For The Assessee : Shri Vijay Mehta ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 30/11/2015 of the Ld. First Appellate Authority, Mumbai. The only ground raised by the assessee pertains to disallowance of project expenses of ₹ 6,50,50,000/- without appreciating the genuineness of the claim of payments as the payments were neither confirmed nor me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 crores, therefore, the purpose of payment is not in doubt. The amounts were duly claimed to be reflected in the books of account of the assessee (page-14 of the paper book and also page-24). It was explained that the payments were made through account payee cheque so as to get no objection from these parties. It was explained that there is no evidence till today that the amounts were received back from these parties and once Hon'ble Delhi High Court decided the issue in favour of the assessee, the purpose was achieved. All parties were claimed to have filed confirmation, therefore, their identity is not in dispute. The entire transaction was claimed to be concluded during Assessment Year 2008-09, so the payment were made. The crux of the argument is that to safeguard business interest the payment were made. It was explained that the expenses so incurred were capitalized for which our attention was invited to page-17(Schedule-XII) as the entire amount was closing WIP. 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company, during the relevant time, carried out business of land developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain shareholders filed a company petition before the Bombay High Court in 2005 for various reliefs including winding up of the Seller Company. In this context, we enclose herewith the copy of index filed with the Bombay High Court including synopsis and letter received from the shareholders. It can be observed from the letter received from Shri Janak Seth where the sale of developments rights by the seller company to the assessee company has been challenged. In the meantime, the assessee company had made various payments to the Seller company for Development rights on land belonging to the seller company. Now to remove hindrance of all legal cases and winding up petition pending before Delhi High court and to safeguard interest of the company in securing possession and clear title to Dahisar Land, the assessee company made payments to various shareholders aggregating to ₹ 6.5 crores. After making above payments to the shareholders, the assessee company obtained NOC from the shareholders for filing same before Delhi High Court so that seller company can be taken outside the purview of BIFR. We humbly submit that additional payments made to the shareholders are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order, the submissions made by the appellant and the cases relied upon. 4.4. The appellant has entered in to a development agreement on 29/10/2004 with Seth Industries Private Limited, proprietor of M/s. Simplex Woolen Mills, tile owners and other confirming parties in respect of property comprising of land, buildings at Village Mahaianwadi in Taluka Thane for a consideration of ₹ 14.50 crores. This was followed by the Supplemental Agreement dated 22-2-2006 and a deed of conveyance made on 8/11/2006 for purchase price agreed to be ₹ 23,04,80,219/-. From the submissions made by the appellant, it is noted that payment of ₹ 6.50 crores has been made to seven shareholders in respect of which supporting documents aye been filed in the course of assessment as well as appeal proceedings, which include copies of letters acknowledging, payments, receipts from the company amounting to ₹ 6.50 crores, copies of letters dated 13-2-2007 addressed to the appellant company from the said shareholder stating that they were satisfied with the sale deed of Simplex Woolen Mills at Dahisar, Mumbai, copy of affidavit filed by Mr Naresh Seth on behalf of Seth industries Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. In view of the above discussion, the aid expenditure is held to be towards business expenditure incurred for AY. 2008-09. The addition, made on the ground that the cost of ₹ 6.50 crores of land/premium of developments rights was unsubstantiated expenditure and not incurred during the previous year 2007-08 relevant to AY. 2008-09, is found to be without merit. Accordingly, the addition of ₹ 6,50,50,000/- is deleted and this ground is allowed. 2.5. If the aforesaid finding of the Ld. Commissioner of Income Tax (Appeal) is analyzed, there is no dispute that the amount of ₹ 6.50 cores was made to seven litigating shareholders even the Ld. Assessing Officer has not disputed the payments. There is uncontroverted finding (para 4.4) of the impugned order that supporting documents were duly filed during assessment stage as well as First Appellate Stage, which includes copies of letters acknowledging payments, wherein, such recipients were satisfied with the sale deed of Simplex Woolen Mills at Dahisar and one of the recipient namely Shri Naresh Seth (on behalf of Seth Industries and other petitioners) filed affidavit dated 13/02/2007 before the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomed to do so and to prevent enforcement of such orders, the expenditure incurred in that behalf would, without doubt, be expenditure laid out wholly and exclusively for the purpose of business of the assessee (Minakshi Mills Ltd. vs CIT 63 ITR 207)(SC)). From these decisions, it follows that:- (a) Litigation expenses to secure an order from the Court for enabling an assessee to carry on its business without interference is an allowable deduction (b) Expenditure incurred to resist, in civil proceedings, the enforcement of measure, legislative or executive, which imposes restrictions on the carries of a business or to obtain a declaration that the measure was invalid, would, if other conditions was satisfied, be admissible deduction and (c) The deductibility of expenditure incurred in prosecuting a civil proceedings depends upon the nature and purpose of civil proceedings in relation to business of the assessee and cannot be affected by the final outcome of that business. (Birla Cotton Mills Spinning and weaving Mills Ltd. vs CIT 64 ITR 568, 586(Cal.) and affirmed by Hon'ble Apex Court in (1971) 82 ITR 166 (SC). This our view find support from the ratio laid down i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted by Hon'ble Apex Court in Dalmia Jain Co. Ltd. vs CIT (1971) 81 ITR 754 (SC) and Meenakshi Mills Ltd. vs CIT (1967) 63 ITR 207 (SC). To be more precise, the type of litigation, object or purpose of the litigation has to be ascertained from the facts of each case. If the object or purpose is to defend or maintain existing title to the capital asset of the business of the assessee, the expenditure would be of revenue in nature. The ratio laid down in following cases supports our view:- a) CIT v. Bengal Assam Investors Ltd., (1969) 72 ITR 319, 325 (Cal); b) CIT v. Life Insurance Corporation of India, (1966) 62 ITR 827 (Cal); c) Premier Construction Co. Ltd. v. CIT, (1966) 62 ITR 176 (Bom); d) Liberty Cinema v. CIT, (1964) 52 ITR 153, 167 (Cal); Transport Co. Pr. Ltd. v. CIT, (1962) 46 ITR e) 1009, 1016 (Mad); Transport Co. Ltd. v. CIT, (1957) 31 ITR 259, 266-7 (Mad); f) G. Veerappa Pillai v. CIT, (1955) 28 ITR 636 (Mad); g) CIT v. Raman Raman Ltd.,(1951) 19 ITR 558, 569-70 (Mad). Also see, Lachminarayan Modi v. CIT, (1955) 28 ITR 322 (Orissa); h) J. B. Advani Co. Ltd. v. CIT, (1950) 18 ITR 557 (Bom); i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal prosecution, which arises out of his business or professional activities, cannot be deducted as business expenditure in the computation of his business income CIT v. H. Hirjee, (1953) 23 ITR 427, 431 (SC); CIT v. Gasper Co., (1940) 8ITR 100 (Rang)]. In Hirjee's case [23 ITR 427], the assessee incurred expenditure in defending prosecution under the Hoarding and Profiteering Ordinance, 1943 (No. 35 of 1943), for selling goods at black market prices. Such expenditure was held not allowable. Similarly, expenditure incurred by a firm carrying on export and import business in defending one of its partners for having acquired foreign exchange and not fully utilizing it for import were held not allowable although the partner was ultimately acquitted [CIT v. Chaman Lal Bra .(1970) 77 ITR 383 (Delhi)]. This case was, however, distinguished in CIT v. Ahmedabad Controlled Iron Steel Assn. Pr. Ltd., (1975) 99 ITR 567 (Guj), where expenses incurred by company in defending its managing director were held allowable. In order to so claim such expenditure the assessee has not only to prove that the expenditure was incidental to the business but also to show that the expenditure was la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel and the judicial pronouncements discussed hereinabove, if kept in juxtaposition and analyzed, we find that even the Ld. Assessing Officer has not disputed of making the payment or incurring the expenditure to various share holders of Seth Industries Pvt. Ltd.. One of the objection raised by the Ld. Assessing Officer is that the confirmations were not filed on stamp papers. We are of the view that it is not the requirement of law that every transaction has to be confirmed on stamp papers only. The payments were made through account payee cheques and the recipient parties duly acknowledged the receipt of such payments and even Shri Naresh Seth filed a affidavit on behalf of the petition shareholders (page-109) of the paper book) before Hon'ble Delhi High Court and the application was withdrawn by him (page-110 of the paper book). The deed of pledge on behalf of the recipients is available at page-111 of the paper book, wherein, the impugned amount was received by them. At page-117 of the paper book, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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