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TMI Blog2013 (2) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... a for the A.Y. 2007-08 in the case of Shri Sagar Anand. ITA No. 466/Agr/2011 is appeal filed by the Revenue against the order dated 10.05.2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2007-08 in the case of Shri Hemant Anand. Some of the grounds raised in all the appeals are based on identical set of facts, therefore, for the sake of convenience all the appeals are decided by this common order. Learned Representatives of the parties submitted that the facts of these appeals lead in the case of Shri Ajay Agarwal, ITA Nos. 405 & 348/Agr/2011 which are Cross appeals filed by the Revenue and assessee. They have argued these appeals accordingly. In the light of the facts, to know the exact grounds of appeal, we reproduce the grounds raised by the Revenue in ITA No. 405/Agr/2011 and by the assessee in ITA No. 348/Agr/2011 as under:-- ITA No. 405/Agr/2011 by the Revenue 1. That the Ld. CIT(A)-I, Agra has erred in Law and on facts in deleting the addition of Rs. 3 crores made by the AO by disallowing the payment made to M/s. Churu Trading Co. Pvt. Ltd., relying upon the principle laid down by the Hon'ble AAR in the case Compagnie Finance Hamon (Supra) without considering the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance made is liable to be deleted. 2. Because the learned Authorities below have erred on facts and in law in disallowing a deduction of Rs. 6,65,000 under section 48(i) for payment made to Mrs. Bina Gupta, Advocate. The disallowance made is liable to be deleted. 3. Because the learned CIT(A) has erred on facts and in law in enhancing the disallowance of Mrs. Bina Gupta, Advocate by Rs. 40,000 without issue of specific notice under section 251(2) of the Income Tax act, 1961. 4. Because the learned authorities below has erred on facts and in law in disallowing a deduction of Rs. 1,50,000 under section 48(i) for payment made to Mr. Sudipto Sarkar, Advocate. The disallowance made is liable to be deleted. 5. Because the learned authorities below has erred on facts and in law in charging interest under section 234C. The assessee was prevented by sufficient cause to deposit the second installment of advance tax on or before 15.12.2006 as no capital gains was payable as the assessee intended to deposit the same in notified bonds in terms of section 54EC of the Income Tax Act, 1961 for claiming exemption, which were not available. The interest charged is liable to be dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 48(i) of the Act and balance amount of Rs. 3,18,38,200/- was disallowed holding that they are not incurred in connection with transfer of shares and thus the LTCG on sale of shares in the assessment order was determined at Rs. 54,03,98,303/- and therefore, the assessment order was completed at an assessed income Rs. 54,92,51,000/-. The details of computation of LTCG as found are as under:-- 3. The A.O. disallowed Rs. 3,18,38,200/- out of Rs. 4,06,10,000/-. The Agarwal Group itself consisted of two families i.e. Ajay Agarwal family and Kamlesh Agarwal (widow of elder brother Shri Anil Agarwal) family. Members of each family who received sale consideration of shares of two companies are detailed as under:-- 4. The whole expenditure of Rs. 11,35,59,600/- was divided between two families of Agarwal Group as noted in the order of the CIT(A) at pages No. 18 & 19. The expenditures were divided between the three members of each family, the details noted from the order of the CIT(A) is reproduced below for ready reference as under:-- Ajay Agarwal Family Kamlesh Agarwal Family i) Ajay Agarwal i) Kamlesh Agarwal ii) Renu Agarwal ii) Sagar Anand iii) Hemant Ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year 1948. While Shri Dorilal Agarwal had 53% stake and Shri Murari Lal Maheshwari had 47% stake under the name and style of the firm as National Journal. The said firm was inter alia engaged in the publication of news paper. 5.2 On 31.08.1979, the said firm was dissolved and two new firms viz. M/s. Amarujala Publications and M/s. Amarujala Prakashan were formed. While M/s. Amarujala Publications was operating in Agra and publications centres at Moradabad, Allahabad, Banaras, Jhansi and Kanpur were added later on. M/s. Amarujala Prakashan carried on the work of publishing newspapers in Bareilly with Meerut, Panchkula (Chandigarh), Jalandhar, Noida, Dehradun and Haldwani came to be added later. The two partnership firms had the members of only the two families of Agarwals and Maheshwaries with the respective stakes continued in the ratio of 53% and 47% respectively in both the said firms. 5.3 On 29.03.2001 the said two firms were converted into two separate Public Limited Companies and registered under Part IX of the Companies Act, 1956 in the name of M/s. Amarujala Publications Limited and M/s. Amarujala Prakashan Limited. The share holdings in the said two companies re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ience these publications were managed by different members of the Board of the Company. For example the Agra Edition was looked after by Shri Ajay Agarwal since 1984 as he was stationed at Agra from the very beginning, Shri Atul Maheshwari was discharging the responsibility of the Editor of Meerut Edition. The publications units of Jalandur, Noida, Panchkula (Chandigarh) which were managed by Atul Maheshwari turned out to be loss making units. Hence somewhere in 2004, members of Agarwal family mooted the idea of shutting these publications, particularly after realising that these units even did not show any prospects of improvements. This suggestion was not approved by members of the Maheshwari family. In the meantime Shri Ashok Agarwal of Agarwal family joined hands with the Maheshwari family and upset the equilibrium and then he mooted the idea to appoint his son Shri Manu Anand as whole time Director with substantial power in the Company. This was opposed by the rest of the members of the Agarwal family as the said appointment sought to not only tilts the balance of power but also sought to divest Shri Ajay Agarwal of his existing powers as a whole time Director. With such devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) The two of the family companies i.e. M/s. Amarujala Publications Ltd. and M/s. A & M Publications (P) Ltd. were to be restructured, while the former shall go to Agarwal Group and the latter shall go to Maheshwari Group. The shares were to be transferred at book value and the Directors would resign. (ii) That apart, a new company was to be incorporated for giving equal rights on the title of Amarujala to both the Companies. (iii) While M/s. Amarujala Publications Ltd. was to retain Agra, Jhansi and part of Noida (Delhi & Haryana), Kanpur, Allahabad, Varanasi and Lucknow and M/s. A & M Publications (P) Ltd. was to get part of Noida (UP Belt), Meerut, Bareilly, Jalandur, Panchkula, Dehradun, Haldwani and Moradabad. (iv) To overcome the problem of newsprint outstanding it was decided that the amount of Rs. 15 Cr. will be introduced as call money from which the family deposits will be deducted. (v) The restructuring process were to end by 31.03.2005 and from 01.04.2005 the two companies were to run separately, including editorial, advertisements with National and Regional Staff to be arranged independently for the respective Groups. (vi) The difference of payout will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion passed in the meeting of the Board of Directors of the company on 07.03.2005 as illegal, null and void including the appointment of Shri Manu Anand as whole time Director. 5.13 On 22.03.2005 the Hon'ble Company Law Board passed an injunction order restraining the Maheshwari Group from giving effect to the resolution passed in the Board Meeting dated 7.03.2005 regarding Bank operations, directing Shri Ajay Agarwal to continue as Editor of the Agra Publication and restraining the appointment of Shri Manu Anand as whole time director. Against this order, the Maheshwari Group preferred an appeal before the High Court of Allahabad and the Hon'ble High court vide order dated 08.04.2005 directed the Company Law Board to pass a reasoned order. Thereafter the Hon'ble Company Law Board after giving opportunity to both Groups passed an order dated 15.04.2005 holding that the balance of convenience lies in favour of the petitioners i.e. the Agarwal Group (including the appellant) and the petitioners have made out a prima facie case and would suffer irreparable loss if relief as prayed are not granted and therefore, till the final disposal of the petition, the respondents are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f payment as provided in clause 4, the Agarwal Group shall not only immediately cease to have the management control and the control shall automatically vest in the Maheshwari Group but also the Agarwal Group shall immediately transfer their shareholding in the companies to the Maheshwari Group on the basis of the same valuation of Rs. 390 crore. The Maheshwari Group will have the liberty to forfeit 10% of the total consideration payable to them. 5.15 Subsequently, it was found that the Agarwal Group was arranging fund for purchase of share holding of the Maheshwari Group from Zee Tele Films (Essel Group) and 5% of the consideration amounting to Rs. 12.5 crore was paid from the current account of M/s. Media West India Ltd. owned Zee Group arranged by a financial consultant M/s. Churu Trading Co. Pvt. Ltd.. As basic understanding reached between both groups before passing of the order dated 25.01.2006 by the CLB was that the company should remain with either of two groups, it was feared by the Maheshwari Group that the company might be taken over by the Zee Group subsequently, if purchase of their share holding by the Agarwal Group is financed by them. Therefore, they filed applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi, as a per my earlier order. The respondents are arranging for depositing this money. Yesterday, I had passed an order directing the bank to transfer a sum of Rs. 17 crores out of the escrow account to the personal accounts of the petitioners and simultaneously hand over 65.33 shares belonging to the respondents to the respondents. I further direct: 1. On receipt of the balance of Rs. 138 Crores in the escrow account, the Manager, State Bank of Patiala will release the balance shares of the petitioners now held in escrow to the respondents. 2. The petitioners are at liberty to withdraw the said sum of Rs. 138 crores or transfer the same to any account that they desire and the Manager, State Bank of Patiala will permit them to do so on receipt of a requisition signed by all the petitioners. 3. The respondents are at liberty to manage the affairs and shareholding of the company in any manner without any interference by the petitioners' group 4. The petitioner's group shall cease to remain either as shareholder/s office bearer/s or director/s of the company and shall have no concern whatsoever with the company. 5. On an earlier occasion, the money deposited in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ajay Agarwal Family Kamlesh Agarwal Family a) Ajay Agarwal (i) Kamlesh Agarwal b) Renu Agarwal (ii) Sagar Anand c) Hemant Anand (iii)Saurabh Anand 6.2 The whole expenditure of Rs. 11,35,59,600/- was divided between two families of Agarwal Group as under: 6.3 Further the above expenditures were divided between the three members of each family as under:-- 7.1 In para 12 of the assessment order, the AO has discussed the nature of various expenditure incurred by the appellant on payment of various legal and professional fees to decide about the claim of the appellant for deduction u/s 48(i) out of these expenses and the same are reproduced as under: 12.1 Payment of Rs. 8,50,00,000/- to Churu Trading Co. Pvt. Ltd. Mumbai & Rs. 2,50,000/- to Rabo India Securities Pvt. Ltd., Mumbai The Agarwal Group started exploring the means for acquisition of majority shareholding of Maheshwari Group. In the process they approached Rabo India Securities Pvt. Ltd. Who acted as strategic and financial advisor to Agarwal Group (the Acquirers) with respect to proposed acquisition of the balance shareholding in the companies held by investors other than acquirers in association with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th minority shareholders. The payment of Rs. 2,24,24,000/- is a lumpsum payment for the services rendered by M/s. S.R. Halbe. Since there is no item wise billing for various activities and considering that major portion of fee is attributable to the proceedings before CLB in connection with transfer of share, the payment of Rs. 2,24,24,000/- is accepted that it has been incurred in connection with the transfer of shares. However, in addition to above, Rs. 3,13,200/- has been shown as reimbursement of traveling, lodging and boarding expenses to M/s. S.R. Halbe & Associates. On perusal of documents on record and bill of M/s. S.R. Halbe & Associates such expenses do not find any place to be directly connected with transfer of shares of the Agarwal Group. The nature of expenses itself shows that it has nothing to do with transfer of shares and cannot be constructed that such expenditure has been incurred wholly and exclusively in connection with the transfer. 12.3 Payment of Rs. 44,22,400/- to Mrs. Bina Gupta, Advocate, New Delhi The payment of Rs. 44,22,400/- has been claimed as fee for preparation of petition, appearance before the CLB and fee for appearance before Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as deduction. 7.2 In view of above discussion as contained in para 12 of the assessment order, the AO has held following expenditures as not distinctly related to and integrally connected with the transfer of shares for being admissible as deduction u/s 48(i) of the IT Act and hence disallowed by him. Sl. No. Name of Party to whom payment is made Amount (Rs.) (i) M/s Churu Trading Co. Pvt. Ltd. Rs. 8,50,00,00/- (ii) Rabo India Securities Ltd. Rs. 2,50,000/- (iii) Mr. Sudipto Sarkar Rs. 1,50,000/- (iv) Mr. Dayal Saran Rs. 10,00,000/- 7.3 Following expenditures were partly allowed 7.4 In view of above decision of the AO as discussed in para 12 of the assessment order with respect to payments made to six parties for various professional and legal services provided to the Agarwal Group in connection with their dispute with the Maheshwari Group taken before the CLB which ultimately resulted into sale of their share holdings in two closely held unlisted companies, following payments were disallowed to the appellant out of Rs. 4,06,10,000/- claimed by him u/s 48(i) Name to whom payment made Amount Disallowed (Rs.) Smt. Bina Gupta 6,25,000 Sudipto Sarkar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Law Board Regulations, 1991. He further explained that in view of the petition filed by the Agarwal Group and after many rounds of the hearings before the CLB, the Principal Bench, New Delhi on 25.01.2006 passed order requiring the Respondents-Maheshwari Group to quote a price of total shareholding and Petitioners-Agarwal Group will have first right to acquire. Thus Agarwal Group adopted a strategy to enhance/improve the value of the shares and this could only be done with the help and guidance of a suitable person who could back the deal and act as a strategic investor to fund the deal for the acquisition of the share holding of the majority share holders. He further elaborated that under this planning of the strategy, the Agarwal Group first opted for purchase of shareholding of the Maheshwari Group determined at Rs. 252 crore by showing that they were arranging finance with the help of two consultancy companies, M/s. Rabo India Securities (P) Ltd. and M/s. Churu Trading Co. Pvt. Ltd. which arranged finance through M/s. Media West and other Merchant Bankers and first installment of 5% amounting to Rs. 12.5 crore as per the order dated 25.01.2006 was also paid. As explained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and professionals to whom fees were paid as per the details given in para 6.2. After receipt of full amount of Rs. 160 crore, it was divided among the six members of Agarwal Group in the ration of their share holding as given in the chart in para 5.16. 8.2 In order to further clarify the strategy of the Agarwal Group in going to CLB to get the value of shares enhanced, following submissions were made by the Ld. AR on 08.03.2011: Members of the Agarwal Group sought advice of eminent lawyer Shri S.R. Halbe and were advised that if they could join together and file petition before the Company Law Board under section 397 and 398 of the Companies Act, 1956 they would be able to seek the implementation of the MOU which otherwise was not possible since these were closely held companies and their shareholding was in minority too. To achieve this plan a strategy to be drawn in a planned way without brining into knowledge of any person. Hence the petition before the Hon'ble Company Law Board was prepared and filed with the help and assistance of various legal luminaries. Meetings were held between the members of Agarwal Group, S.R. Halbe and other advocates to strategies the plan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board Meeting have to follow the principles of "Majority decision". In case of the respondent company was not looking to be a partnership firm on the face of it, most of the arguments advanced by the respondents would have come to their rescue. However, as already stated the majority decision is not applicable in the case of partnership firm, as stated earlier. It is a matter of detailed discussion and final stage as to whether the relinquishment of Editorship of Agra Edition, the new financial structure framed by the respondent company and appointment of R-3 who is also a son of Respondent-2, would tilt the balance of power in the respondent company or not. This can be decided only when the main petition is heard and arguments are led by learned counsels of both sides on the points of facts and law. In the meantime, it appears that the status quo ante at least 3 issues needs to be maintained till the disposal of this petition, which would otherwise cause irreparable loss to the petitioner. In case the arguments of the learned counsels are accepted it would tantamount to disposal of the petition itself. The balance of convenience therefore, lies in favour of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners' shares to the respondents on the basis of the value of the company indicated by the respondents. In the hearing held on 17.01.2006, the respondents indicated the value of the company including that of A&M Publications Pvt. Ltd. at Rs. 390 crores. In the hearing held on 23.01.2006, the petitioners elected the option of purchasing the shares held by the respondents. 2. It has been agreed by the parties that sale of shares by the respondents shall be subject to the following: 1. There will be a lock-in period of 3 years on the shares of the respondents that are purchased by the petitioner Group. 2. The petitioners shall not transfer any shares of the companies or raise the shareholding in the companies or cause any shares to be allotted and will not enter into any agreement/transactions in such manner that result in the following: (a) Results in purchaser of the shares (Petitioners' Group) ceasing to hold 51% of the shareholding of the companies at any point of time for a period of next 3 year even after IPO. (b) Ceasing to have management control of the companies and all and every policy decision of the company shall be taken by the petitioner Group. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of more than Rs. 50,000/-. (e) There shall be no change in the senior management. (f) There shall be no change in the board of directors. (g) There shall be no change in the capital structure. (h) There shall be no fresh borrowings. 7. After the management control of the company is transferred to the petitioners on receipt of 40% of the consideration, till the full payment is received by the respondents, the same conditions as in clause (6) above will continue to apply and wherever joint signature of petitioners has been stipulated, it shall be with joint signatures of one of the respondents. 8. Within a week of the date of the order, the respondents shall furnish to the petitioners current financial position (in terms of the last trial balance, fund commitments etc.) of both the companies. 9. Likewise, within a week M/s. A&M. Publications Pvt. Ltd. will provide to the petitioners with the share certificates with respect to their shareholding in the company. 3. Since the above terms were discussed and agreed to in my presence, the parties should scrupulously abide by the above terms. Further, since right from the beginning, both the parties expressed their de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eminently a bankable proposition and the petitioners could divest their own 35.33% holding in the market at an appropriate time. While the merchant banker was agreeable to fund major part of the requirement, it insisted that the petitioners should recruit another investor to fund one third to half of the requirement. On the suggestion of the merchant banker, the petitioners approached Media West, one of the names suggested by the merchant bankers and Media West agreed to fund not more than 40% of the requirement. c. After the consent order, further discussions were held jointly with the merchant banker and Media West and it was agreed that Media West would lend Rs. 101 crores, being 40% of the total amount of Rs. 252 crores where after the merchant banker will lend the balance amount of Rs. 151 crores. d. The security for the amount of Rs. 252 crores lent jointly by Media West and the merchant banker would be 35.33% shares held by the petitioners, which shall be subject to restraint against all transfers. e. During the currency of the loans, these shares will stand pledged in favour of Media West and merchant banker and the shares acquired from the respondents of 64.67% will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for repaying the loan by the lenders with simple interest at 15% per annum. m. The lenders may transfer their rights under this agreement to any party willing to abide by the consent order and the rights and obligations of the lenders shall vest in the new investors. Further, it is open to Media West to transfer its right to the merchant banker and vice versa. n. In the event of any dispute, the same shall be referred to an arbitrator named in the MOU, whose decision shall be final. o. Media West will release-the amount in installments as per the consent order subject to the petitioners producing the agreement with the merchant banker before the 2nd installment is paid. p. Once the entire consideration due on 64.67% shares is paid, the petitioners shall execute pledge documents in respect of 35.33% shares and the share certificates shall be kept in escrow. Likewise, the shares in respect of 64.67% also shall be kept in escrow and retained as collateral security. q. In a number of places in the MOU, it is stipulated that the parties will strictly comply with the terms of the consent order. 13. The counsel for the respondents argued on two main points--one is that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the company, the petitioners had held discussions with the Merchant Bankers who had indicated that the purchase of 64.67% shares was a bankable proposition and that the petitioners could divest their 35.33% shares in the market at an appropriate time and that on the suggestion of the Merchant Banker, Media West was approached, who agreed to fund 40% of the cost of acquisition. Therefore, prior in time to the date of consent order, the petitioners had tied up the financing arrangement. Further, the 3 year in period had already been decided in the hearing on 30.11.2005. The whole MOU revolves around the shares of the company and the lock in period. From the terms of the MOU, it is evident that the entire funding arrangement is based on the existing shares of the company, part of which could be sold to public or through private placement for repayment of the loans. In other words, from the proceeds of an IPO of the existing shares, the loans are to be repaid. As I have narrated in the last portion of 1st paragraph ante, the issue relating to IPO was added in the consent order at the request of the petitioners that if the company needed funds, it could go for an IPO, subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of shares. When Shri Datar pointed out that when the petitioners have not been able to mobilize even a sum of Rs. 12.5 crores being 5% of the first installment on their own, how they would be able to mobilize this huge amount within a period of 6 months after acquisition of shares to repay the loans, there was no response form the counsel for the petitioners. The inevitable consequence of the failure of the petitioners to repay the loan within the stipulated time, is that the lenders would acquire the right to dispose of the shares either by public offer or private placement. In other words, as rightly pointed out by Shri Datar, built in default has been provided to enable the lenders to deal with the shares. Further, it is worth noting that the MOU not only provides for sale to the public but also by private placement. Here comes the linkage between Media West and the Essel Group which is admittedly a competitor to the company and which has been acquiring news paper companies. 17. In terms of the MOU, Media West is to fund the petitioners to the tune of Rs. 101 crores and the balance sum of Rs. 151 crores is to be funded by the Merchant Bankers. In all, the amount involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the company has been carried out. It is rather a strange arrangement by which the lenders expect that proceeds from sale of 35.33%/49% shares would cover their entire loans given for acquisition of 64.67% shares, that too with 15% interest. It is more so, as far as the Merchant Banker is concerned. No Merchant Banker would fund such a huge amount of Rs. 151 crores on the strength of shares of a closely held, unlisted company, without due diligence. From the MOU it is seen that it was the Merchant Banker who had suggested that the petitioners could approach Media West for part financing of the acquisition. Further, the provisions in the MOU that the lenders could sell the shares by private placement and that the lenders have the right to transfer their rights to any party etc, definitely rises a doubt whether, this right has been conferred on the lenders only to facilitate Essel Group to acquire the shares. Non disclosure of the name of the Arbitrator also raises a doubt about the independence of the unnamed arbitrator. Shri Sarkar argued that it is of no concern of either the respondents or this Board to examine why and how Media West would fund the acquisition and why it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the petitioners. The terms of the MOU are so unrealistic, that no man of ordinary prudence, leave alone a business person, would be convinced that it is a pure and simple financial arrangement. Under these circumstances, either the consent order should be recalled or the respondents should be given the option of purchasing the shares of the petitioners. Shri Sarkar vehemently argued that this Board has no power either to recall the consent order or to modify the same. He further submitted that on any account, the respondents can not have the right to purchase the shares of the petitioners. It is a settled law when an order is obtained, whether it is consent order or otherwise, by fraud, concealment of material facts, misrepresentation and the like, it is the bounden duty of the court which passed the order, to set aside or recall the said order. In the cases cited by Shri Datar, it has been held so. In the cases cited by Shri Sarkar that executing court cannot go beyond the decree, no element of fraud, concealment of material facts or misrepresentation had been alleged. Therefore, there is every justification to recall the consent order, but, I do not propose to recall the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the former. Likewise, his contention that in the event of breach of any other terms of the consent order, this Board can only put the petitioners to terms is also is not correct, as in the present case, the consent order itself has been obtained by concealment of material facts and misrepresentation. 21. In view of my findings that the consent order had been obtained by suppressing the material known fact that financing for acquisition of the shares of the respondents was based on an understanding of sale of the shares of the company and that in view of the inbuilt default clause giving right to the lenders to dispose of 49% of the existing shares of the company, which was never disclosed, I hold, on the basic understanding that one Group should go out of the company, that the right to purchase the shares of the petitioners would now revert to the respondents. They will be bound by all the terms of the consent order dated 25.1.2006 which were applicable to the petitioners with the stipulation that the respondents shall not borrow or make any financial arrangements on the strength of either of their own shares or of the shares now held by the petitioners for acquisition of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amount has been remitted after 03.11.2006 when the realisation of their share holding was received by Agarwal Group after the compromise order dated 01.11.2006 of the Hon'ble Company Law Board. The said order is reproduced as under. As per the compromise terms arrived at between the parties, the respondents were to pay a sum of Rs. 155 crores to the petitioners towards their shares and this amount was to be deposited in the escrow account maintained in the State Bank of Patiala, Shastri Branch, New Delhi, as per my earlier order. The respondents are arranging for depositing this money. Yesterday, I had passed an order directing the bank to transfer a sum of Rs. 17 crores out of the escrow account to the personal account of the petitioners and simultaneously hand over 65.33 shares belonging to the respondents to the respondents. I further direct: 1. On receipt of the balance Rs. 138 crores in the escrow account, the Manager, State Bank of Patiala will release the balance shares of the petitioners now held in escrow to the respondents. 2. The petitioners are at liberty to withdraw the said sum of Rs. 138 crores or transfer the same to any account that they desir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the arranger on account of the reason that the assessee had agreed with M/s. Mediavest India (P) Ltd., who were the financers and had remitted part payment in the Escrow account opened in State Bank of Patiala during the course of the proceedings before the Hon'ble Company Law Board when the Agarwal Group after seeking the option for the acquisition of the share holding of Maheshwari Group as a part of their strategy. As per agreement with them the shares owned by Agarwal Group constituted security jointly for the money to be advanced by the Financier and Merchant bankers. In the course of the discussions after the compromise before the Company Law Board the arrangers were duty bound to make the shares free of all encumbrances, however claimed that at least 50% of the excess realisation i.e., Rs. 11 Cr becomes due to them. But since they had been involved in strategising the entire sequence of the events it found appropriate to remit them Rs. 8.50 Cr as originally agreed upon. It would not be out of place to submit that the extra consideration of the value of the shares received is considering the expenditure incurred/to be incurred by Agarwal Group. Your honour's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him as deduction u/s 48(i) as taken in Ground Nos. 2 to 8. The same are reproduced as under: It is respectfully submitted that the section 48 of the Income Tax Act, 61 provides the Mode of Computation of the Income under the head Capital gains, which reads as under - The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-- (i) Expenditure incurred wholly and exclusively in connection with such transfer; (ii) The cost of acquisition of the asset and the cost of any improvement thereto: The above section broadly contemplates three amounts for the purpose of computing income chargeable under the head 'capital gains'. The first is the full value of the consideration for which the capital assets has been transferred. The second is the expenditure incurred wholly and exclusively in connection with such transfer and the third and the last is the cost of acquisition of the capital asset including the cost of any improvement thereto. In clause (i) of Section 48 of the Act, the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the act of transferring shares is established. In the case of the assesses even the services of legal or other professional extended to the process of valuation of shares or the participation in the deliberations that led to the settlement concerning the transfer of shares, the legal charges on that account are also allowable as deduction. As already submitted before that the words "expenditure incurred wholly and exclusively in connection with such transfer" as envisaged under section 48 of the Income Tax Act, 61 are wide enough to cover all the expenses incurred by the assessee in securing the value of the shares which he realized pursuant to the litigation before the Company Law Board, "in connection with" used in clause (i) of section 48 are very wide in their ambit. The expression "in connection with" is important and has to be construed to have expansive meaning. While explaining the meaning of similar an inter-changeable expressions viz "pertaining to" and "in relation to", the Hon'ble Supreme Court observed in the case of Doypack Systems Pvt. Ltd. 1988 (36) ELT 201 (SC): 48. The expression "in relation to&quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66 of the Income War Tax Act which read as under: 66. Subject to the provisions of this Act, the exchequer Court shall have exclusive jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act. In V.A. Vasumathi vs. CIT 123 ITR 94 (Ker) the Kerala High Court observed while interpreting section 48(1) of the Income Tax Act that the words "in connection with such transfer" means intrinsically related to the transfer and the expenditure has to be connected with the transfer. Thus the crucial test to be applied is whether the expenditure was incurred wholly and exclusively in connection with the transfer and it is immaterial where it was incurred prior or subsequent to the transfer of the title. Section 55(1)(b) of the Income Tax Act' 61 defines the cost of improvement as under - "Cost of any improvement", - (1) in relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process any article or thing] [or right to carry on any business] shall be taken to be nil; and (2)In relation to any other capital asset, - (i) where the capital asset became the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure incurred/cost of improvement by the assessee is established with reference to the various orders of the Hon'ble Company Law Board which in pursuance to the petition filed by the assessee and other members of the family termed as "Agarwal group". Each person to whom payment was made by the assessee was by virtue of his shareholding. Thus the real, intimate and proximate nexus between the incurring of the expenses and the transfer of the shares is established, without adopting the strategy the assesses could have never been able to extract such a high price of the shares sold. With regards to the payments made to the aforementioned persons the nexus of the expenditure incurred is proved with reference to the bills and the nature of the service rendered by each to the assessee and other members of the family. The detail of the payment made immediately after the receipt of sale consideration of shares establish that the same was intrinsically related to and were in connection with transfer of share. All the payments were made immediately on receipt of the consideration, except the payments of Rs. 13,78,200 as under - The observations of the learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance for the acquisition of shares, the minority shareholders jointly approached M/s. Churu Trading Co. (P) Ltd. to make financial arrangement for the acquisition of 64.67% shares held by the majority shareholders. They finally identified financers and merchant bankers, who agreed to make available necessary funds. During the course of hearing, the Hon'ble Company Law Board held on 23.01.2006, that the petitioners elected to purchase 64.67% shares held by the respondents and the consideration for the same worked out to Rs. 252 Crores. As per the Memorandum of Understanding dated 06.02.2006 with M/s. Mediavest India Private Limited dated 06.02.2006 Agarwal Group was under an obligation to pledge their holding of 35.33% as security jointly for the monies advanced. The relevant paras of the agreement are reproduced as under. 2. The 35.33% shares held by the "Acquirers" shall constitute the security jointly for the monies advanced by the Financier and the Merchant Banker for the acquisition of 64.67% shares from the Agarwal and Maheshwari families and the 35.33% shares shall (till 64.67% holdings are acquired by the Acquirers by paying off the entire consideration due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are received by the Acquirers under the CLB order, the Acquirers shall authorize the solicitors jointly nominated by the Acquirers, Financers and the Merchant Bankers to receive the share certificates from the Agarwal and Maheshwari families (which are to be put under escrow as agreed under the agreement recorded before the CLB) and after transferring the same in the name of the Acquirers in the records of the Companies as provided under the law, keep it in their custody so as to comply with the restraint against the transfer of the same and be retained as collateral security till the liabilities due to the Financers and the Merchant Bankers are settled in terms of this agreement. Thereafter, on 08.02.2006, the Maheshwari Group-respondents filed application before the Hon'ble Company Law Board seeking for directions to the petitioners to deposit the share certificates relating to 35.33% shares held by them with the Escrow agent, State Bank of Patiala. The first installment of about Rs. 12.5 Crores being 5% of the total consideration was to be deposited in the Escrow account. It was alleged by the respondents that the petitioner had not paid the 1st installment out of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strategic and financial advisory services with Rabo India Securities Pvt. Ltd. as per their agreement dated 10.01.2006 and vide the order of the CLB dated 23.01.2006 consented to acquire the 64.67% share holding of the Majority i.e. Maheshwari Group. Thereafter these agreements, as per the strategy of the assessee were entered into first with M/s. Churu Trading Company Pvt. Ltd. on 01.02.2006 and subsequently with M/s. Mediavest India Private Limited on 06.02.2006. The Hon'ble Company Law Board vide its order dated 10.7.2006 reversed the option for the acquisition of the companies in favour of the Maheshwari Group and till that date only an amount of Rs. 12.50 Crores was deposited in the designated Escrow account by M/s. Mediavest India Pvt. Ltd. on behalf of the assessee and no other payments were made, this amount was refunded subsequently along with the interest by the Bankers namely State Bank of Patiala as will be evident from the order of the CLB dated 01.11.2006. Thus as per the agreement dated 01.02.2006 with M/s. Churu Trading company Pvt. Ltd. the assessee had to pay arranger fees within 30 days from the date of acquisition or 31st December, 2006 which ever was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginning of the dispute between the management who even tried to bring upon a compromise between the management at all levels. However when the dispute reached the level of the CLB Agarwal Group from time to time discussed the strategy with him and involved him to travel and number of times with them in meeting with Mr. S.R. Halbe, Advocate and Mrs. Bina Gupta, Advocate. During the course of assessment proceedings, it was submitted that the assessee's claim for deduction against sale/transfer consideration which resulted into profit or gains under the head capital gains within the meaning of section 45 was: (i) Either addition to the cost being capital expenditure incurred; (ii) Directly wholly and exclusively related in connection with the transfer; (iii) Was nothing but reimbursement of expenditure incurred in particular in fixing the sale consideration as enhanced value of transfer which was considering the said expenses. It is also submitted that whether the amount paid falls under section sub-section (i) or (ii) of section 48 is not material as the assessee has not claimed any benefit of indexation in respect of the improvement cost. The assessee is also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on transfer of the capital asset-shares, as the majority shareholders quoted the maximum value for the purchase of shares, so that they do not lose the right of the management of the Companies. This expenditure has intimate connection with the act of transfer of shares and is allowable under section 48. The same in integrally connected with the transfer of the shares. The expression "in connection with" used in the section 48 is wider and more liberal in meaning. f. Since the shares owned by the assessee were in unlisted companies, there were restrictions and the same could not be transferred/sold to an outsider. The Company Law Board held that the same can be purchased by the majority share holders. To remove this encumbrance and obtain better price the assessee moved the Company Law Board, attained order for option to acquire and sell to any other person. Ultimately reversed the option and got the present sale consideration of shares. g. The main recipients of expenditure have paid tax at the maximum marginal rates. It is worth mentioning that the same amount cannot be taxed or disallowed in the hands of the assessee which would amount to double taxation. As such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to go in favour of Agarwal Group since during the course of proceeds before the CLB it was understood that the Bench wanted both the parties to amicably settle the issue and conclude that the family business be continued by one of the party, thus one of the party had to go out of the company. This tilt of the Bench for the minority shareholders made all the more necessary for Agarwal Group and M/s. Churu Trading to mutually put a clause in the agreement that the arranger fees was to be paid to them within 30 days from the date of acquisition of shares or 31st December 2006, which ever was earlier. Further after the order of the CLB dated 10.07.2006 wherein the option to acquire the companies was reverted to Maheshwari Group M/s. Churu Trading was involved in the negotiations and removal of the encumbrances placed by the financers namely M/s. Mediavest who had kept the shareholding of Agarwal Group as security for financing the deal. M/s. Churu Trading had committed arrangement of Rs. 252 Crores in terms of the CLB order, which was later reversed. All the shares owned by Agarwal Group was hypothecated to Mediavest and other financers and without their explicit consent Agarwal Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of their shares holding to Maheshwari Group at an value which was enhanced only on account of the strategic planning and actions to filed petitions before Hon'ble Company Law Board, which otherwise not yielded any results. • Petition was filed by Agarwal Group before the Hon'ble CLB since they were minority shareholder knowingly that Bench normally protects the interest of minority. • Since Maheswari Group which on their insistence had sought division of the business between them and Agarwal Group, had back tracked on the MOU drawn by the auditor Shri Mukesh Tandon in 2004 Agarwal Group was very careful in planning their strategy by seeking valuation of the Companies to be quoted by Maheshwari Group before the CLB and exercising the option to acquire the companies. • This planning was made keeping in mind the habit and intention of Maheshwari Group to backtrack before the CLB of the value mentioned by them and created actions and drama to acquire the shares of the majority shareholders by bringing M/s. Media west through the help of M/s. Churu Trading and others who had committed arrangement of Rs. 252 Cr ores and even got deposited an amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the order of CLB dated 27.03.2006. This clause had been invoked, thereby when the order of CLB dated 25.01.2006 was reversed by order dated 10.07.2006 and M/s. Churu Trading were involved in revoking those restraint/encumbrances and make available these shares free to be transferred to Maheshwari Group. • That it was submitted before the learned Assessing Officer vide submission dated 30.11.2009 that an following amounts can be considered as expenses towards cost of improvement, being paid prior to the transfer of shares by members of Agarwal Group viz. Shri Ajay Agarwal Rs. 13,78,200 and Smt. Renu Agarwal Rs. 7,37,000. 8.5 The Ld AR has also discussed in his written submission that various case laws relied on by the AO in the assessment order do not apply to the facts of the case of the appellant. He also quoted the case law of Compagnie Finance Hamon (2009) 310 ITR 1 (AAR) relied upon by the AO to argue his case that as per this decision, if the services of legal or other professional extended to the process of valuation of shares or the participation in the deliberation led to the settlement concerning the transfer of shares, the legal expenses on that account wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat O. S. No. 109 of 1970 related to property at No. 24, Cunningham Road, Bangalore, which was bequeathed in favour of the wife of the assessee, Sumathi, under the will of her father Ramalingam. Even under the terms of the compromise decree, the amount of Rs. 40,000 was payable not by the assessee but by his wife. In other words, with reference to the payment of Rs. 40,000, no obligation was cast on the assessee for such payment and that too from out of the amounts realised by him by the sale of the properties at Nos. 52 and 53, Lalbagh Road, Bangalore. If the assessee had paid Rs. 40,000 to Moosa Haji Ahmed, that at best was in fulfilment of the obligation of his wife, Sumathi, to him under the terms of the compromise decree and with reference to the property at No. 24, Cunningham Road, Bangalore. By the discharge of such an obligation by the assessee, the cost of acquisition of the properties sold by the assessee cannot be permitted to be swollen. In the events that happened, the title of the assessee to properties at Nos. 52 and 53, Lalbagh Road, Bangalore, became absolute on the execution of the sale deeds in favour of the assessee by Abdul Razack and Mir Abdul Subhan on paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal for the transfer of shares is not admissible for deduction. In other words the legal expenses for the initial period of dispute are not intrinsically linked with the transfer of shared and therefore it cannot be allowed as deduction. The perusal of the above decision is applied to the facts of the case will reveal that the strategy adopted by Agarwal Group was to exit as even admitted by the CLB in its order dated 10.07.2006 that the basic understanding was that one group should go out of the company, but Agarwal by adopting a successful strategy by bringing about enhancement in their value of shareholding with the help of the parties involved by it such arranger and various legal luminaries incurred expenses by making payment to them which was in connection with the transfer of the shares as corroborated with reference to the orders of the CLB and various evidences placed on record. It cannot be admit of doubt that in an ordinary transaction of transfer of an asset inter parties fixation of the consideration or price is an integral part of the transaction. This fixation of price for transfer was finally effected only by the decision of CLB and thus forms an integral part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such expenditure - Tribunal allowed entire expenditure, as claimed by assessee, on appreciation of evidence which showed that professional involved had incurred substantial expenditure in negotiations with foreign buyers - Whether since authorities proceeded on basis that expenditure incurred was wholly and exclusively for transfer of shares, issue of quantum of expenditure incurred was wholly a matter of appreciation of evidence - Held, yes - Whether since Tribunal had come to conclusion on an appreciation of evidence that assessee had made out a case justifying deduction of entire expenditure incurred, no question of law arose from Tribunal's order - Held, yes In a case of the firm which owed about Rs. 25 lakhs to the bank as loan which could not be paid, the partners decided to dissolve the firm and sell the business of the firm as going concern. It could not be done due to the liability to the bank. The Court directed deposit of Rs. 25 lakhs with the Registrar of the Court to be kept in fixed deposit with the bank free from any lien and all attachments until further orders of the Court. The sale was completed subject to prior payment to the bank and before releasing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is admissible under section 48 of the IT Act on account of legal expenses incurred in relation to transfer of shares? 11. As regards the second question, it has been contended by the applicant's representative that legal expenses before the CLB has been incurred to the tune of Rs. 89,02,063 (approx.) and the said expenditure is in correction with the transfer of shares. The applicant has claimed the deduction of these legal expenses under the 1st clause of section 48 of the Act. 12. The applicant has given the details of legal proceedings that preceded the transfer of shares starting from the filing of Company Petition Nos. 19/2007 and 133 of 2007 by the Indian Promoters and by the applicant respectively before the Company Law Board (CLB). These companies Petitions were filed under sections 397 and 398 of the Companies Act for relief against oppression of minority shareholders and mismanagement of the company. Ultimately, as stated, the parties settled the disputes and arrived at a settlement. The Memorandum of Settlement was signed on 6-5-2008. According to the terms of the settlement, the Indian Promoters of Indian Company and/or nominees of Promoter No. 1 in C.P. 133/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said transfer. In regard to the expression 'wholly and exclusively' employed in section 37(1) of the Act, the following Commentary from Sampath Iyengar's Law of Income Tax (Edited by Shri Rajaratnam 10th Edition) is worth quoting:-- ...The first adverb 'wholly' in the above phrase, 'laid out or expended, wholly and exclusively', refers to the quantum of the expenditure, the sum of money spent. The second adverb 'exclusively', has reference to the motive or object behind the expenditure. Unless such motive or object is exclusively, i.e., solely, for promoting the business, the expenditure will not qualify for deduction. While interpreting section 48(i) of the act, Delhi High Court in the case of Smt. Sita Nanda v. CIT (2001) 251 ITR 575, observed as under:-- ...The crucial words in the provisions are 'in connection with such transfer'. The expression means intrinsically linked with the transfer. Such expenditure has to be wholly and exclusively in connection with the transfer. Even if such expenditure has some nexus with the transfer it does not qualify for deduction unless it is wholly and exclusively in connection with the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignal for the transfer of shares are admissible for deduction. In other words, the legal expenses for the initial period of dispute are not intrinsically linked with the transfer of shares and therefore it cannot be allowed as deduction. ___________________________________________________________________ Now, a brief description of facts of the case are in order. • The assessee went to CLB for acquiring the shares of Maheswari Group and even succeeded in getting a judgement from CLB in his favour. CLB asked Maheshwari Group to quote a price for 65% of shares held by them which came to around Rs. 252 Crores. • For completing the takeover the assessee engaged Churu Trading Co. for arranging the finances and other consultancy work. Churu Trading Co. in turn engaged Media West and other merchant bankers and raised Rs. 12.5 crores. The assessee was also in talk with Zee Group, a big media group interested in expansion, soliciting help in the take over. • As per CLB guidelines the assessee had to arrange the finances on his own, in which he failed, then he was forced to sell the shares to Maheshwari Group. So, from the discussion above, it can be said that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenditure by any stretch of imagination cannot be judged for selling the shares. 4. So, for allowability of expenditure in connection with transfer U/s 48 nexus of that expenditure with the transfer is necessary but not sufficient. In the present case such vague nexus may not be doubted but requirements for allowability U/s 48 and as per various case laws are not satisfied as per discussion above. So, the A.O. is correct in disallowing such expenditure. 10. In response to the above remand report, a rejoinder was filed by the Ld. AR vide letter dated 29.03.2011 and the same is reproduced as under: With reference to your honour's letter dated 25.03.2011 along with the remand report of the learned assessing officer, it is respectfully submitted as under. The learned assessing officer has placed his reliance on the decision of the AAR in the case of Compagnie Finance Hamon (2009) 310 ITR 1 (AAR) and observed that the expenditure is not wholly and exclusively incurred in connection with the transfer of the shares on account of the following reasons. 1. The assessee had approached the CLB with the express purpose of resolving the dispute and protect his minority shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer has not commented and controverted on the following actions of the Agarwal Group establishing the strategy to obtain enhanced valuation of the shares holding of the minority shareholders which are enumerated as under. • Petition was filed by Agarwal Group before the Hon'ble CLB since they were minority shareholder knowingly that Bench normally protects the interest of minority. • Since Maheshwari Group which on their insistence had sought division of the business between them and Agarwal Group, had back tracked on the MOU drawn by the auditor Shri Mukesh Tandon in 2004 Agarwal Group was very careful in planning their strategy by seeking valuation of the Companies to be quoted by Maheshwari Group before the CLB and exercising the option to acquire the companies. • This planning was made keeping in mind the habit and intention of Maheshwari Group to backtrack before the CLB of the value mentioned by them and created actions and drama to acquire the shares of the majority shareholders by bringing M/s. Media west through the help of M/s. Churu Trading and others who had committed arrangement of Rs. 252 Crores and even got deposited an amount of Rs. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible for deduction provided the intimate connection between the expenditure and the act of transferring shares in the case of the assessee is established and yet the learned Assessing Officer has arbitrarily observed that there is no intricate link. In the case of the assessee the strategy adopted is proved with reference to the proceedings before the CLB and the final act of Agarwal Group that they settled the dispute once they were sure of the realisation of the enhanced value of their shareholding. The entire sequence of the events when understood cumulatively proves that all the expenditure incurred in intimately connected with the transfer of the shares. 3. That sequence of the events as submitted in Para 1 above, orders of the CLB, bill of M/s. S.R. Halbe & Associates whose expenditure has been accepted as deductible under section 48 will prove that a strategy had been adopted and not that a game plan was devised on mere surmises and conjectures. 4. That the perusal of the agreement dated 01.02.2006 between the Agarwal Group and M/s. Churu Trading company Pvt. Ltd. will reveal that initially all inclusive arranger fees was agreed and there is no iota of reference to paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for acquiring 64.67% share holding of Amar Ujala Group and as per him this payment cannot be allowed as deduction u/s 48(i) for computing capital Gain on sale of remaining 35.33% shares. However, the Ld. AR contended that the Agarwal Group went to CLB as a part of strategy to first show that they are interested in buying majority shareholding of Maheshwari Group to get the value of shares enhanced and later since they were not having sufficient fund, they decided to exit by selling the shares in their possession in which they ultimately succeeded and hence payment to M/s. Churu Trading Co. and other consultants being part of this strategy to get the value of shares enhanced and fixed before selling of these shares, these expenses should be allowed u/s 48(i) for computing the LTCG. He further argued that there is mention of strategy formulation in the bill of M/s. S.R. Halbe & Associates for protecting the interest of minority shareholders for which Shri Halbe provided necessary assistance to the Agarwal Group to file petition to CLB. For these services, Rs. 2,24,24000/- was paid to Shri Halbe. He contended that if payment to Shri Halbe is accepted by the AO in the assessment order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required to be paid @ 15% along with loan within six months of acquisition of shares of 64.67% of Amar Ujala Group. It was contended by him that since shares were not acquired, no interest was paid to Media West and since the amount was lying in escrow account, interest was paid by the bank. During discussion one alternate plea was taken by the Ld. AR without prejudice to his earlier submission that deduction u/s 48(i) should be provided for payment to M/s. Churu Trading and other consultant. As per the alternative plea, he contended that payment to M/s. Churu Trading Co. and other consultant is not disputed and since the payment has been made and shares have not been acquired, it resulted into loss to the appellant and such loss should be allowed as short term capital loss. However, the AO contended that since payment was made for acquiring 64.67% shares and no transfer of shares has taken place, no capital loss would arise as per section 45 because no transfer of shares in this regard has taken place as provided in the said section. I agree with the AO and in my opinion also, such expenses cannot be allowed as short term capital loss. 11.2 After the discussion on 29.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate on which the instrument of transfer or the intimation of such transmission, as the case may be, was delivered to the Company, send notice of the refusal to the transferee and the transfer or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. Provided that registration of a transfer shall not be refused on the ground that the transferor being either alone or jointly with any other person or persons, indebted to the Company on any account whatsoever except when the Company has a lien on shares. Similarly in the case of M/s. A&M Publications Private Limited, the same being a Private Limited Company there were restrictive covenants i.e., restrictions on transfer of shares. Thus in case Agarwal Group wanted to exit from the company at any point of time as even evident from the MOU drawn up for settlement in the year 2004, there were restrictive rights and the valuation of the shares would have been negligible. Thus being minority shareholders they were strategically advised to approach CLB which they could only do by invoking sections 397 and 398 of the Companies Act' 56. It was a part of this strategy to bid for the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jority share holding and even agreed to pay Rs. 22 crore extra amount over and above the 35.33% of valuation of shares of Rs. 390 crore which comes to Rs. 138 crore and finally in view of their strategy as explained earlier, the Agarwal Group got Rs. 160 crore by selling their 35.33% of share holding in both companies. The Ld. AR argued that the excess realization of Rs. 22 crore could be made possible primarily with the intervention of the arranger i.e. M/s. Churu Trading Co. He also argued that the Maheshwari Group agreed to pay Rs. 22 crore extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group. For this purpose the arranger M/s. Churu Trading Co. demanded for 50% of the extra amount realized by the Agarwal Group but ultimately as per the initial agreement only Rs. 8.5 crore was paid. In view of the above background of the facts of the case, the Ld. AR argued that since because of intervention of M/s. Churu Trading Co., the share value was further got enhanced by Rs. 22 crore, the payment made to M/s. Churu Trading Co. amounting to Rs. 8.5 crore should be allowed to have been paid for transfer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maheshwari Group and control of Agarwal Group was marginalized by the Board's resolution passed by the company on 07.03.2005 under the leadership of Maheshwari Group and Ashok Agarwal holding majority shareholding (64.67%). After going through the petitions filed by the Agarwal Group before the Hon'ble CLB, CP No. 26 of 2005 and CA No. 75 of 2005, it is quite clear that these petitions were filed to seek the implementation of the agreement arrived at with the Maheshwari Group on 02.12.2004 which otherwise was not possible since both companies were closely held companies and their shareholding was in minority too. In the above mentioned petitions, the Agarwal Group mainly prayed for implementation of the settlement arrived at between the families of both group vide agreement dated 02.12.2004 and to declare the various resolution passed in the meeting of the Board of Directors of the company on 07.03.2005 as illegal, null and void including the appointment of Shri Manu Anand as whole time Director. 12.2 After various rounds of hearings held before the CLB, when it became clear that partition of Amar Ujala publication business between both Groups was not possible, an underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company shares with first option to Agarwal Group either to buy the shares held by Maheshwari Group or sell their shares on the basis of the value of the shares determined by the Maheshawari Group. During the course of hearing before CLB, the Maheshwari Group indicated the value of shares of the company at Rs. 390 crore divided between the share holding of the Maheshwari and the Agarwal Group at Rs. 252 crore and Rs. 138 crore respectively. Looking to the background of the case as discussed in para 5, I also intend to agree with the argument of the Ld. AR that with their apprehension that Maheshwari Group may again back track and decide not to buy the shares of Agarwal Group at the value determined before the CLB after the Agarwal Group decide to sell these shares, the Agarwal Group initially decided to buy the shares holding of the Maheshwari Group valued at Rs. 252 crore. Thereafter, a consent order was passed by the CLB through its order dated 24.01.2006 giving option to the Agarwal Group to buy the shares held by Maheshwari Group at Rs. 252 crore as it was elected by the Agarwal Group. 12.4 Subsequent sequence of events further justifies the claim of the Ld. AR that kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble CLB again passed a detailed order dated 10.07.2006 (already discussed in the submission filed by the Ld. AR as reproduced in para No. 8.2) clearly observing as under: 17. In terms of the MOU, Media West is to fund the petitioners to the tune of Rs. 101 crores and the balance sum of Rs. 151 crores is to be funded by the Merchant Bankers. In all, the amount involved in acquisition of the shares of the respondents is about Rs. 252 crores and the petitioners are borrowing the entire amount. The admitted position is that Media West is a Group company of Essel Group. Media West is not an NBFC nor a finance company as is evident from the its object clause in the Memorandum. It is also an admitted fact that the paid up capital of Media West is only Rs. 1 lac and its net worth is negative, having incurred a loss of over Rs. 11 crores in the last year. Its business income for the last two years is nil. With this financial position, there is nothing on record to show how Media West is going to mobilize Rs. 100 crores to fund the acquisition of the shares of the respondents. Whether it is going to borrow on interest or to be assisted by someone else without interest is not clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, this right has been conferred on the lenders only to facilitate Essel Group to acquire the shares. Non disclosure of the name of the Arbitrator also raises a doubt about the independence of the unnamed arbitrator. Shri Sarkar argued that it is of no concern of either the respondents or this Board to examine why and how Media West would fund the acquisition and why it is taking the risk. In normal circumstance, the contention of the learned counsel may be correct. But in the present case, when a party alleges breach of the terms of the consent order, to adjudicate on the allegation, this Board has to examine all aspects. Even though it is claimed that since the MOU specifically provides that 51% shares would continue to be held by the petitioners as also the control and management of the company as stipulated in the consent order, it is to be noted that the restriction of the holding and management is only for a period of 3 year. The terms of the MOU are so unrealistic and one sided, that it appears that the MOU is a prelude to hand over the control of the company after a period of 3 years. Further, that it was not to the knowledge of the respondents that the funding for acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flouted by the petitioners. The terms of the MOU are so unrealistic, that no man of ordinary prudence, leave alone a business person, would be convinced that it is a pure and simple financial arrangement. Under these circumstances, either the consent order should be recalled or the respondents should be given the option of purchasing the shares of the petitioners. Shri Sarkar vehemently argued that this Board has no power either to recall the consent order or to modify the same. He further submitted that on any account, the respondents can not have the right to purchase the shares of the petitioners. It is a settled law when an order is obtained, whether it is consent order or otherwise, by fraud, concealment of material facts, misrepresentation and the like, it is the bounden duty of the court which passed the order, to set aside or recall the said order. In the cases cited by Shri Datar, it has been held so. In the cases cited by Shri Sarkar that executing court cannot go beyond the decree, no element of fraud, concealment of material facts or misrepresentation had been alleged. Therefore, there is every justification to recall the consent order, but, I do not propose to recall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase the former. Likewise, his contention that in the event of breach of any other terms of the consent order, this Board can only put the petitioners to terms is also is not correct, as in the present case, the consent order itself has been obtained by concealment of material facts and misrepresentation. 21. In view of my findings that the consent order had been obtained by suppressing the material known fact that financing for acquisition of the shares of the respondents was based on an understanding of sale of the shares of the company and that in view of the inbuilt default clause giving right to the lenders to dispose of 49% of the existing shares of the company, which was never disclosed. I hold, on the basic understanding that one Group should go out of the company, that the right to purchase the shares of the petitioners would now revert to the respondents. 12.6 The above observation of the Hon'ble CLB in its order dated 10.07.2006 clearly shows that the intention of the Agarwal Group was never to purchase the share holding of the Maheshwari Group for acquiring and running the company and with such unrealistic financial arrangement as analysed by the CLB in its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ensure that the terms of the conditions of funding as were originally placed on them, the payout which were same for the Maheshwari group had been violated or not because as argued by the Ld. AR, the Agarwal Group as per their strategy, ultimately succeeded in their goal to realize the best value of the shares held by them in both companies and they were not at all interested in acquiring the company and to run it as also observed by the Hon'ble CLB in its order dated 10.07.2010 as discussed earlier. I agree with the Ld. AR that such sequence of events goes further to prove and establish the point that the Agarwal Group always wanted an exit route at a good value which could be achieved only by litigating before the CLB and strategically planning with the help of various parties to whom payments were made only after the receipt of the consideration. 12.8 As per the Ld. AR in the proceeding before the CLB, all legal and professional persons engaged by the Agarwal Group viz: Mr. S.R. Halbe, Mrs. Bina Gupta, M/s. Churu Trading Company Pvt. Ltd., M/s. Rabo India Securities Pvt. Ltd., Mr. Sudipto Sarkar, Mr. Dayal Saran, contributed to make the strategy of the Agarwal Group su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company being a front for Zee Group, the fund was ultimately to come from Zee Group) was made in such a manner that ultimately the shares of the company was to be sold to the lender or some outside agency by private placement and therefore, the Hon'ble CLB canceled its earlier order giving option to the Agarwal Group to buy the shares of the Maheshwari Group by recording its observation in the said order dated 10.07.2006 that the terms of the MOU are so unrealistic, that no man of ordinary prudence, leave alone a business person, would be convinced that it is pure and simple financial arrangement. Therefore, just on the basis of pledging of the shares with the lenders, it cannot be said that intention of the appellant was initially to buy the shares of the company as argued by the AO. Noticing the ulterior motive of the Agarwal Group, they were ordered by the Hon'ble CLB vide its order dated 04.04.2006 to deposit their shares in Escrow Account. Under these facts and circumstances, argument of the Ld. AR that the financial arrangement through M/s. Churu Trading Company Pvt. Ltd. was made in contravention to the terms of the CLB order under a plan of strategy to show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal charges on that account will also be allowable as deduction. We do not think, however, that the legal fees etc. paid to the lawyers for filing the petitions under sections 397 and 398 in the Company Law Board and for making appearance before the Board prior to the passing of final order giving green signal for the transfer of shares are admissible for deduction. In other words, the legal expenses for the initial period of dispute are not intrinsically linked with the transfer of shares and therefore it cannot be allowed as deduction.... The operative part of the decision cited on previous page is divided in three parts shown under bold letter, which may act as guiding principle in the present case for deciding the allowability of any legal or professional expenses as deduction under section 48(i). However, in the above decision with the guiding principles as discussed in its para 15, the issue of allowability of expenses u/s 48(i) was left open for the AO to quantify the admissible amount and if the assessee is not in a position to furnish the details of expenditure towards professional fees to lawyers, the AO was asked to allow a reasonable amount towards this item. Consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess fees was paid by the appellant to M/s. Rabo India Securities Pvt. Ltd. as per the agreement after final order was passed by the Hon'ble CLB on 01.11.2006 in which the appellant succeeded as per his strategy. In view of the above facts and looking to the limited role played by this party in arranging financiers for the Agarwal Group in acquisition of shares and its exit at very initial stage, there was no chance for it to play any role in formulation of any strategy as explained by the Ld. AR, which compelled the Maheshwari Group to purchase shares from them at enhanced value fearing sale of the company to Zee Group at subsequent stage due to a financial arrangement made with its front company through another arranger i.e. M/s. Charu Trading Company Pvt. Ltd. Therefore, in respect of the payment made to M/s. Rabo India Securities Pvt. Ltd., I agree with the AO that the process initiated by Agarwal Group for the acquisition and amount paid to Rabo India Securities Pvt. Ltd. was in no way connected with the process of transfer of shares and hence such expenditure cannot be considered as expense distinctly related and integrally connected with the transfer of shares. Applying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a amount over and above the 35.33% of valuation of shares of Rs. 390 crore which comes to Rs. 138 crore and finally as per their strategy as explained earlier, the Agarwal Group got Rs. 160 crore by selling their 35.33% of share holding. The Ld. AR argued that the excess realization of Rs. 22 crore could be made possible primarily with the intervention of the arranger i.e. M/s. Churu Trading Co. He also argued that the Maheshwari Group agreed to pay Rs. 22 crore extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group. For this purpose, the arranger M/s. Churu Trading Co. demanded for 50% of the extra amount realized by the Agarwal Group but ultimately as per the initial agreement only Rs. 8.5 crore was paid. In view of the above background of the facts of the case, the Ld. AR argued that since because of intervention of M/s. Churu Trading Co., the share value was further got enhanced by Rs. 22 crore, the payment made to M/s. Churu Trading Co. amounting to Rs. 8.5 crore should be considered to have been paid for transfer of shares and hence should be allowed as deduction u/s 48(i). In order to underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to draw down the arranged funds or not. It will be an all inclusive and non-refundable fees. • The payment of the said fees shall be made to us within 30 days from the date of the acquisition of 64.67% shares held by Maheshwari Group by way of the transfer in the name of Agarwal Group or 31st December, 2006, whichever is earlier. We hope, the above terms shall be acceptable to you. We shall appreciate your acknowledgement of the said letter by counter signing it as a token of your confirmation. We look forward to work with you for facilitating your proposed acquisition. As per the above agreement, arranger fees of Rs. 8.5 crore was to become due on achieving the financial closure of Rs. 252 crore (not withstanding whether the Agarwal Group draws down the arranged fund or not) and only after arranging the full fund of Rs. 252 crore, the arranger fees was to be paid within 30 days from the date of the acquisition of 64.67% shares held by Maheshwari Group by way of the transfer in the name of Agarwal Group or 31st December, 2006, whichever is earlier. Thus it is very clear from this agreement that condition for payment of arranger fees was making of arrangement of fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as per the facts of the case already discussed in this order in para 5 and 8, it is quite clear that M/s. Churu Trading Co. played an important role in this strategy by which the Agarwall Group were ultimately able to sell their share holding at enhanced value. Therefore, I find force in the argument of the Ld. AR that since because of intervention of M/s. Churu Trading Co., the share value was further got enhanced by Rs. 22 crore, the payment of Rs 8.5 crore was made to M/s. Churu Trading Co. on 15.11.2006 (after final order dated 01.11.2006 was passed by the Hon'ble CLB) as agreed earlier, though they demanded 50% of such extra amount realized by the Agarwal Group and therefore, payment of Rs. 8.5 crore should be allowed as deduction u/s 48(i) to have been paid for transfer of shares. Another argument of the AO that the payment made to M/s. Churu Trading Co. includes interest on the fund arranged by it is also not found to be tenable as discussed in para 11.4. Taking into account all these facts and circumstances of the case, I find that participation of M/s. Churu Trading Co. in the strategy formulated by the Agarwal Group helped them in the deliberations before the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e billing for various activities and the major portion of fee was attributable to the proceedings before CLB in connection with transfer of share. After having accepted that the payment of fees made to Shri Halbe was attributable to the proceedings before the Hon'ble CLB in connection with transfer of shares, he disallowed the claim of the appellant for deduction of Rs. 3,13,200/- paid to Shri Halbe towards the reimbursement of traveling, lodging and boarding expenses which he claimed on account of incurring these expenditure while visiting Delhi in connection with proceeding before CLB. These expenses were disallowed by the AO giving his finding in the assessment order that such expenses do not find any place to be directly connected with transfer of shares of the Agarwal Group and the nature of expenses itself shows that it has nothing to do with transfer of shares and cannot be construed that such expenditure has been incurred wholly and exclusively in connection with the transfer of shares. As against this decision of the AO, in the Ground No. 5, the appellant has contended that when the fees paid to him is held to have been incurred in connection with the transfer of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court including consultation from time to time in respect of transfer of shares. Out of total payment of Rs. 44,22,400/- made to Smt. Bina Gupta by all the members of Agarwal Group, the appellant's share of payment made to her is Rs. 15,40,000/-. Out of the amount of Rs. 15,40,000/- claimed by the appellant as deduction u/s 48(i) on account of payments made to Smt. Bina Gupta, it was noticed by the AO that certain expenses were incurred in cash on vouchers which are basically reimbursement of expenses related to traveling, lodging and boarding etc. totaling to an amount of Rs. 6,25,000/- and hence looking at the supporting bills, he concluded that such payments fell under the category of various miscellaneous accounts of logistic expenses which are not distinctly related and integrally connected with the transfer of shares and therefore, he held that Rs. 6,25,000/- is not admissible for deduction u/s 48(i). Disputing this disallowance, the appellant in Ground No. 6 contended that all payments have been made wholly and exclusively in connection with the transfer of the capital asset and hence the addition made is liable to be deleted. In order to examine the allowability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments and transfer of shares from escrow account. Therefore, payments of Rs. 8,75,000/- is allowable as deduction u/s 48(i) being in connection with the transfer of shares as rightly allowed by the AO, though nothing has been discussed in the assessment order while accepting the claim of the appellant in respect of the amount of Rs. 8,75,000/-. Other payments totaling to Rs. 6,65,000/- has been paid to Mrs. Bina Gupta in the initial stage of CLB proceeding in connection with preparation of petition, appearing before the CLB, engaging other lawyers for consultation and making appearance before the CLB and also to contest the case of the Agarwal Group before the High Court and the Supreme Court and these payments were mainly made in connection with protecting the minority rights of the Agarwal Group u/s 397 and 398 of the Companies Act and to argue their case for partitioning of publication business among the family members. Such payments to Smt. Bina Gupta had nothing to do with the transfer of shares as held by the Hon'ble AAR in case of Compagnie Finance Hamon(supra),that such legal fees etc. paid to the lawyers for filing the petitions under sections 397 and 398 in the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,000/- was mentioned for disallowance without giving any computation, I made the computation of allowable payments and disallowable payments as mentioned above on the basis of the principle laid down by the Hon'ble AAR in the case of Compagnie Finance Hamon(supra) relied upon by both the AO as well as Ld. AR and I find that it would be appropriate to disallow deduction for Rs. 6,65,000/- and allow deduction for Rs. 8,75,000/- out of total claim of Rs. 15,40,000/- made in respect of payments made to Smt. Bina Gupta. 12.10.4 Payment of Rs. 1,50,000/- to Mr. Sudipto Sarkar, Advocate The appellant has claimed to have made payment of Rs. 1,50,000/- to Mr. Sudipto Sarkar, Advocate on account of appearance fees before the CLB on 17.01.2006, 24.01.2006 and 25.01.2006. The AO noted on perusal of orders of CLB that Shri Sarkar appeared on behalf of Agarwal Group during the acquisition process of majority shareholding of Maheshwari Group on behalf of petitioners (Agarwal Group). The consolidated payments also included expenses on account of logistic provisions and therefore he held that such expenses are not distinctly related to and integrally connected with the transfer of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egy to get the value of shares enhanced before selling them. In this formulation of strategy, role of M/s. Rabo India Securities Ltd., Smt. Bina Gupta (to the extent of preparation of CLB petition and appearing before the CLB for hearing till the date Agarwal group was contesting for partition of publication business and acquisition of majority share holding) and Shri Sudipto Sarkar, advocate (for appearing before the CLB for hearing relating to acquisition of shares) was limited and they do not appear to be part of the strategy of the Agarwal Group and therefore, their payment with respect to their apparent services was settled much before the final order was passed by the Hon'ble CLB because since they were not part of the strategy, they did not wait till its success and they only received the payment for the services for which they were engaged. On looking to the bill of the Sudipto Sarkar, it is clear that he was paid Rs. 1,50,000/- for appearing before the CLB on 17.01.2006, 24.01.2006 and 25.01.2006 in which he argued the case of the Agarwal Group for acquisition of majority share holding and since not being part of the strategy of the Agarwal Group (that they were not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been made wholly and exclusively in connection with the transfer of the capital asset and therefore the addition made is prayed to be deleted. I have gone through the bill of Shri Dayal Saran and find that in the bill, it is clearly written that this bill was raised for charging the fees for consultation in respect of the transfer of shares including travel and other out of pocket expenses for visiting Delhi from time to time. Case of the AO is not that this payment is not made. He also could not prove, if this payment is not made for the consultation in respect of the transfer of shares, then what were other possible services for which this payment could have been made by the appellant to him. From the facts of the case, it is very clear that Shri Dayal Saran being a Chartered Accountant was associated with the Agarwal Group since the beginning of the dispute and therefore, his contribution in settling the dispute till a compromise was reached between both Groups and final order was passed by the Hon'ble CLB on 01.11.2006 for sale and transfer of shares of the Agarwal Group, cannot be denied and therefore, his payment was settled only after passing of final order by the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove the compromised amount of Rs. 138 Crores as per the order of the Hon'ble Company Law Board totaling to Rs. 160 Crores, the excess included the cost of the reimbursement of expenses and hence these expenses should be allowed. In support of this ground, in the written submission filed on 15.10.2010, it was submitted by the Ld. AR that final value of shares fixed by the Company Law Board, Principal Bench, New Delhi for the minority group of shareholders was Rs. 138 Crores. To avoid dispute, purchase peace both the family groups finally agreed and settled value of shares at Rs. 160 Crores considering that minority group actually incurred expenditure in relation to capital asset. Therefore, in the alternative, it is hereby claimed that net consideration accruing/finally received be considered as reduced by such expenditure wholly and exclusively incurred in connection with the transfer as envisaged in Explanation 5 to Section 54E of the Income Tax Act, 1961. Accordingly even otherwise the Ld. AR argued that the amount of expenses incurred and claimed against capital gain is allowable against the gross receipts on transfer of shares and the remaining amount left, attracts the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fees to a consultant to arrange financier. By protecting the right of minority share holder and by paying initiation fees for arranging financier to buy shares, only source for earning income as dividend income is being protected and for earning of dividend income being exempted from the tax, no expense is allowable as per the provisions section 14A, therefore, the remaining expenses of Rs. 10,65,000/- cannot be allowed u/s 57(iii) in view of provisions of section 14A. Another plea of the Ld. AR to allow such expenses as short term capital loss is also not found to be tenable as discussed in para No. 11.2 (pg 67). Therefore, both pleas taken by the Ld. AR for allowing the balance expense of Rs. 10,65,000/- in other provisions of the Income-tax Act, 1961 is rejected. 14.1 In Ground No. 10, it is contended by appellant that the AO has erred on facts and in law in ignoring that the consideration received by him is in pursuance to family settlement towards an amicable settlement of the disputes and the same is not a transfer and taxable under the head 'Capital Gains'. Further in view of the appellant the definition of family given in the explanation to section 10(5) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property or even a semblance of a claim on some other ground, as affection. It is further argued that in the matter of taxation, the family arrangements have been held not to give rise to any liability to capital gains tax as held in CIT vs. R. Ponnammal (1987) 164 ITR 706 (Mad), CIT vs. A.L. Ramanathan (2000) 245 ITR 494 (Mad) and CIT vs. Kay Aar Enterprises (2008) 299 ITR 348 (Mad) to hold that no liability to capital gains tax would be attracted on account of change in share holding and control as a result of family arrangement/settlements being implemented to effectuate the same. It is thereby claimed by the Ld. AR that gain of Rs. 50,85,60,103 which has been shown under the head "Income from Capital Gains" is not taxable, and prayed that the same be held accordingly. In the end of the submission, it is submitted by the Ld. AR that the claim in respect of family settlement arose for the first time during the course of the assessment proceedings on the pretext of the learned Assessing officer and it was the assessee who himself had shown the amounts under the head long term capital gains and had paid tax there on. 14.3 It is not understood as to why this ground was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the agreement dated 02.12.2004 between both Groups for which petition u/s 397 and 398 of the Companies Act was filed by the appellant along with other members of the Agarwal Group, such partition of business would have come under the purview of the term 'family settlement'. The directions of the Hon'ble CLB contained in the order dated 01.11.2006 passed after a compromise was reached between both groups for sale of shares by the Agarwal Group to the Maheshwari Group, it is very clear that the compromise arrived between two groups was not a family settlement but the Agarwal Group exited from both publication companies earlier being controlled by both Groups by selling their share holding and receiving the best price as per the strategy formulated by them. The following two directions clearly shows that after this order, both companies went into exclusive control of the Maheshwari Group and the Agarwal Group ceased to have any role in these two companies after they got price of their share on sale/transfer of these shares to the Maheshwari Group. They are: 3. The respondents (Maheshwari Group) are at liberty to manage the affairs and shareholding of the company in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no loss of livelihood to the appellant after sale of shares of his previous company because he started another publishing company in Agra by using the money received by him on sale of shares of previous companies. At one place the appellant has argued that it formulated a strategy to realize the best price on sale of shares, which shows his intention to sell the shares of the company and at other place he is saying that by selling these shares, he lost his source of livelihood. Both the arguments cannot hold good together because shares held by him in the company was his long term capital asset and by selling this capital asset, a long term capital gain was earned by him and therefore, he declared this capital gain in his return of income and also paid the tax. Therefore, in my opinion after declaring this income and paying tax voluntarily, raising of such ground at appellate level that the receipt on sale of shares is capital receipt in view of loss of livelihood is a futile exercise. In support of this ground, the Ld. AR relied on a decision of Hon'ble Supreme Court in the case of Oberoi Hotel P Ltd. vs. CIT (1999) 236 ITR 903 (SC) wherein it has been held that where certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g term Capital Asset" in terms of section 54EC of the Income Tax Act' 61 and hence the interest charged is to be liable to be deleted/reduced. In support of this ground in the written submission filed on 15.10.2010, it was argued by the Ld. AR that during the course of the assessment proceedings, it was submitted that when the long term capital gains arose, the assessee was under rightful obligation to save tax liability by investing the same in notified bonds for claiming exemption under section 54EC of the Income Tax Act' 61. Vide CBDT Notification No. 142 of 2006 dated 29.06.2006, the bonds issued by NHAI were specified as 'Long Term Capital Asset' and vide CBDT Notification No. 143 of 2006 dated 29.06.2006, the bonds issued by REC were specified as 'Long Term Capital Asset' for the purposes of Section 54EC of the Income Tax Act, 1961. However, after the date of sale i.e., 03.11.2006, there were no such bonds available. The CBDT vide Notification No. 380 of 2006 dated 22.12.2006 provided a condition of capping such bonds to Rs. 50,00,000 and hence the assessee was precluded from making complete investment and save his tax liability as originally envi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the corresponding section pertaining to imposition of interest used the expression 'may' thereby giving a discretion to the authorities concerned to either reduce or waive the interest. The change brought about by the Amending Act (Finance Act, 1987) is a clear indication of the fact that the intention of the legislature was to make the collection of statutory interest mandatory. 16.3 In view of above decision of the Hon'ble Supreme Court, it is very clear that charging of interest u/s 234A, 234B and 234C is mandatory and no discretion is left to the assessing authorities to reduce or waive these interest considering any cause which prevented the assessee to pay the advance taxes correctly or file the return late. However, Chief Commissioners of Income-tax have been given power by the Central Board of Direct Taxes to reduce or waive such interest under certain condition. But the assessing authority under no condition can decide to waive or reduce charging of interest under these sections, if the assessee is at default in paying the advance taxes or filing the return late. It has already been discussed by me that the appellant was at default in not paying the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted: [Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government :] [Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section :] [Provided also that no deduction shall be allowed in computing the income chargeable under the head "Capital gains" in respect of any sum paid on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain principles for working out capital gain or loss alongwith accounting principles. The principles that have to be applied are those which are a part of the commercial practice or which can an ordinary man of business will resort to when making computation for his business purposes. The accounting principles are that if expenditures are incurred in connection with acquiring of assets, the same are capital expenditures and are to take as part of the cost of the assets. The reverse position is that expenditures incurred wholly and exclusively in connection with transfer of asset, such expenditure is allowable under section 48(i) of the Act for the purpose of calculation of capital gain. To further appreciate this aspect, we would like to refer certain judicial pronouncements which are as under:-- (i) Commissioner of Income-tax vs. Dr. P. Rajendran, 127 ITR 810 (Ker.) - The brief facts of this case are that the State Government acquired in March 1967, the assessee's immovable property and awarded a compensation of Rs. 47,000/-. The assessee claimed before the Civil Court an enhanced compensation of Rs. 2,58,233/-. While this claim was still pending before the Sub-judge, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and title thereto became vested in the State Govt. The words "in connection with" used in clause (1) of section 48 are very wide in their ambit and hence there is no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The crucial test to be applied is whether the expenditure was incurred wholly and exclusively in connection with the transfer and it is immaterial whether it was incurred prior or subsequent to the passing of title. It cannot admit of doubt that in an ordinary transaction of transfer of property inter parties the fixation of the consideration or the price is an integral part of that transaction. By virtue of the definition contained in section 2(47) of the Act the expression " transfer " will include the compulsory acquisition of a capital asset under any law. Hence, the compulsory acquisition of property under the Land Acquisition Act has to be treated as a transfer for the purposes of computation of capital gains under the Act. Under the scheme of the Kerala Land Acquisition Act, the consideration for such a transfer is to be fixed in the first inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated to the transfer. Only such expenditure, as is wholly and exclusively related in an intrinsic manner to the transfer, is a deductible expenditure. 2. The process of transfer by compulsory acquisition is completed only upon the final determination of the compensation by the competent authority. The litigation emanating from a reference under section 20 of the Land Acquisition Act was a proceeding intimately and intrinsically connected with the acquisition. 3. For the purpose of section 48, it is immaterial that the expenditure was incurred subsequent to the award so long as it was incurred wholly and exclusively in connection with the compulsory acquisition. 4. The action of the Commissioner in disallowing the impugned expenditure was quashed and the revenue was directed to determine the nature of the amount and pass appropriate order". (See also CIT v. Smt. M. Subaida Beevi (1986) 160 ITR 557 (Ker) and CIT v. R. Ranga Setty (1986) 159 ITR 797(Ker)-legal expenses allowable) (iii) Commissioner of Income-tax vs. R. Ramanathan Chettiar (Mad)152 ITR 489 (Mad.) - The brief facts of the case decided by the Madras High Court are that the assessee sold certain lands aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to commercial principles. There may be an expenditure or there may be a loss which may not be an admissible loss under any of the provisions of section 10(2) and yet such an expenditure or loss would have to be allowed in order to determine what were the true profits of a business, and it is the duty of everyone who has anything to do with taxing business-people to understand what are the principles of commercial expediency. Unless one understands these principles it is difficult to make a proper assessment on a business or on a businessman. But this question does not arise here because, as already pointed out, no further aspect of the case has to be considered under this head different from what we have already considered under section 10(2)(xv). (v) CIT v. Dhanarajgirji Narasingirgi, 91 ITR 544 (SC).- The Court held as under:-- All that the court has to see is whether the legal expenses were incurred by the assessee in his character as a trader, in other words, whether the transaction in respect of which proceedings are taken arose out of and was incidental to the assessee's business. Further, we have to see whether the expenditure in question was bona fide incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abooed. Indeed, it is natural to do so but this does not give a licence to cover up dishonest transactions or impermissible transfers. The courts and authoritarians are not to wear blinkers to overlook or condone the passing off of public revenue to one's own kith and kin by subterfuge or clandestine or clever devices clothed in legalistic jargon. Instead it is their duty to lift the veil of apparent legality and get to the truth or substance of a transaction to deal with it in accordance with law. It is only appropriate, indeed normal, that dealings involving transfer of funds to near and dear ones need to be looked into with care and caution and necessary inferences drawn if there are abnormalities attaching to such transactions. It is not for the court to go into appreciation of evidence of circumstances attaching to a transfer to determine whether the Tribunal was justified in arriving at the finding that a certain payment was not exclusively for the purpose of the business of the assessee as this is wholly a question of fact and not of law. (vii) Commissioner of Income Tax Vs. Shakuntala Kantilal [(1991) 190 ITR 56] (Bomb). In this case, it is held by the Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st could be lifted and shares are sold to the Maheshwari Group. For this purpose, the arranger M/s. Churu Trading Co. Pvt. Ltd. demanded for 50% of the extra amount realized by the Agarwal Group but ultimately as per the initial agreement only Rs. 8.5 Crores was paid. The case of the A.O. is that CLB gave option to the Agarwal group, either to buy majority shares holding (64.67%) or to sell their share holding (35.33%) but they first chose to buy majority share holding and hence whatever expenditure was incurred for arranging the finance should not be considered to have been incurred in connection with the transfer of shares. Therefore, in the view of A.O., since M/s. Churu Trading Co. Pvt. Ltd. was engaged to arrange the fund, payment made to them are for arranging the fund and not in connection with the transfer of shares and hence payment of Rs. 8.5 Crores made to M/s. Churu Trading Co. Pvt. Ltd. should not be allowed as deduction under section 48(i) of the Act. The A.O. also pointed out that the intention of the Agarwal Group was initially not to sell the shares; otherwise they would have not pledged the 35.33% of their share holding as security for obtaining the fund. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Maheshwari Group to decide as to how shares of one group is sold to other group so that both he companies under dispute remain in control of one Group only and the other Group gets best price on sale of their shares and ultimately it was decided that the Agarwal Group was to sell its shares to the Maheshwari Group at mutually agreed price. Considering this background of the proceedings before the CLB, the A.O. has already accepted the active role of Shri Halbe in these proceedings before the CLB and allowed the fees paid to him considering that the fees paid to him was in connection with the transfer of shares and therefore, if any expenditure was incurred by him while visiting Delhi to attend these proceedings and the Agarwal Group reimbursed those expenses, they should also be allowed as being incurred in connection with the transfer of shares. As the full amount of these expenses being Rs. 3,13,200/- has been claimed by the assessee is allowable. We, therefore, find that the CIT(A) has rightly directed the A.O. to allow deduction for Rs. 3,13,200/- also under section 48(i) of the Act. Payment of Rs. 8,50,00,000/- to Churu Trading Co. Pvt. Ltd. Mumbai & Rs. 2,50,000/- to Rab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Agarwal Group went to the CLB under a strategy to get the value of shares of both the companies enhanced and frozen for which first they showed that they are interested in buying the shares knowing very well that they had no capacity to buy the shares held by the majority share holders (64.67%) and therefore, they made such financial arrangements which was in contravention of the conditions fixed by the CLB in its order dated 25.01.2006 to arrange finance in which M/s. Churu Trading Co. Pvt. Ltd. helped them through M/s. Media West and other Merchant Bankers. That because of this arrangement, the other party i.e. the Maheshwari Group got alarmed and they further moved to CLB to restrain the Agarwal Group to buy majority share holding and even agreed to pay Rs. 22 Crores extra amount over and above the 35.33% of valuation of shares of Rs. 390 Crores which comes to Rs. 138 Crores and finally as per their strategy as explained earlier, the Agarwal Group got Rs. 160 Crores by selling their 35.33% of share holding. That the excess realization of Rs. 22 Crores could be made possible primarily with the intervention of the arranger i.e. M/s. Churu Trading Co. Pvt. Ltd. That the Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear that M/s. Churu Trading Co. played an important role in this strategy by which the Agarwal Group were ultimately able to sell their share holding at enhanced value. That since because of intervention of M/s. Churu Trading Co. Pvt. Ltd., the share value was further got enhanced by Rs. 22 Crores, the payment of Rs. 8.5 Crores was made to M/s. Churu Trading Co. Pvt. Ltd. on 15.11.2006 as agreed earlier, though they demanded 50% of such extra amount realized by the Agarwal Group and therefore, payment of Rs. 8.5 Crores is allowable as deduction under section 48(i) of the Act to have been paid for transfer of shares. Payment of Rs. 44,22,400/- to Mrs. Bina Gupta, Advocate, New Delhi 17. That the payment of Rs. 44,22,400/- was claimed to have been made to Smt. Bina Gupta as fee for preparation of petition, appearance before the CLB and fee for appearance before Hon'ble Allahabad High Court and Hon'ble Supreme Court including consultation from time to time in respect of transfer of shares. Out of total payment of Rs. 44,22,400/- made to Smt. Bina Gupta by all the members of Agarwal Group's share of payment made to her is Rs. 15,40,000/-. Out of the amount of Rs. 6,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. The CIT(A) held that Shri Dayal Saran being a Chartered Accountant was associated with the Agarwal Group since the beginning of the dispute and therefore, his contribution in settling the dispute till a compromise was reached between both Groups and final order was passed by the CLB on 01.11.2006 for sale and transfer of shares of the Agarwal Group, cannot be denied and therefore, his payment was settled only after passing of final order by the CLB giving green signal for the transfer of shares similar to Shri S.R. Halbe and therefore, payment made to Shri Dayal Saran is also allowable for deduction under section 48(i) of the Act on the basis of bill raised by him being for the services provided for consultation in respect of the transfer of shares unless any contrary finding is given by the A.O., which he has failed to bring on record in the assessment order. Therefore, the CIT(A) directed the A.O. to allow deduction for Rs. 5,00,000/- under section 48(i) of the Act being half portion of the payment made to Shri Dayal Saran and claimed by the assessee in the return of income. In the light of detailed discussion made in Paragraph Nos. 8 to 18, we do not find any infirmity in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally connected with the transfer of shares. Therefore, the same is not admissible deduction under 48(i) of the Act. However, part of the expenditure has been accepted by the A.O. on the ground that fee paid to M/s. S.R. Halbe & Associates were incurred for formulation of strategy for filing petition before CLB for protection of interest of minority share holders. The case of the assessee is that the expenditures were incurred in formulating a strategy to get the maximum sale consideration of the minority share holdings. Under the facts and circumstances, whether the expenditure incurred by the assessee is covered by section 48(i) of the Act, expenditures incurred are wholly and exclusively in connection with such transfer. The Hon'ble Kerala High Court in the case of Dr. P. Rajendran (Supra) held that the words "in connection with" used in clause (i) of section 48 are very wide in their ambit and hence there is no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The crucial test to be applied is whether the expenditure was incurred wholly and exclusively in connection w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n get more consideration for his minority share holdings. The expenditures incurred were wholly and exclusively for the purpose of transfer of the shares, therefore, in the light of ratio laid down by the Hon'ble Delhi High Court in the case of Siddho Mal & Sons vs. ITO (Supra) the claim of the assessee is allowable. If we judge the test of commercial expediency from the point of view of the assessee, the expenditure claimed by the assessee is allowable under section 48(i) of the Act. The A.O. has himself accepted the part claim of the assessee in respect of payment made to M/s. S.R. Halve & Associates on account of payment of fee which was paid for attending the proceedings before the CLB. It is important to note that case before CLB was for business settlement between two groups. However, the A.O. did not accept reimbursement claim of expenses to M/s. S.R. Halbe & Associates whereas the nature of expenditures were same. How one can bifurcate such fee and its related expenditures separately first one fee is to allow and other part of reimbursement of expenses on the ground that these were not in connection with transfer of shares. This finding of the A.O. is on presumption bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgement from another angle, for that purpose, we would like to reiterate the law laid down by the Apex Court in the case of CIT vs. Dhanarajgirji Narasingirgi (Supra) wherein it was held that it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. When in principle it has been accepted that the expenditures were incurred for strategy in connection with getting more consideration for the purpose of transfer of shares, all such expenditures are allowable may be in respect of legal services or others. Otherwise also, as stated above, that in such circumstances, each case is to decide on its facts, therefore, the order relied upon by the CIT(A) is distinguishable on facts. 23. If we consider the entire principles laid down in above judgments including accounting and principle of commercial expediency in the light of the provisions of the Act including section 48(i) of the Act, we find that the expenditures were incurred in commercial expediency which resulted into higher sale consideration. The settlement of business dispute and incurring expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to M/s. Churu Trading Co. Pvt. Ltd. under section 48(i) of the Act. 32. In the light of the detailed discussions made above in paragraph Nos. 8 to 24 of this order, appeal of the Revenue is dismissed. ITA No. 348/Agr/2011 by the assessee Shri Ajay Agarwal 33. Ground Nos. 1 & 2 are in respect of addition of Rs. 2,50,000/- being payment made to Rabo India Securities (P) Ltd. & Rs. 6,65,000/- being payment made to Mrs. Bina Gupta confirmed by the CIT(A). The A.O. made these disallowances under section 48(i) of the Act and the CIT(A) has confirmed the action of the A.O. in respect of above amounts paid to Rabo India Securities (P) Ltd. & Mrs. Bina Gupta. Ground No. 3 is in respect of enhanced disallowance of Rs. 40,000/- being payment made to Mrs. Bina Gupta. Ground No. 4 is in respect of disallowance of Rs. 1,50,000/- being payment made to Shri Sudipto Sarkar, Advocate. 34. As per the detailed discussions made in paragraph Nos. 8 to 24 of this order, we find force in the ground of appeal of the assessee and in the light of above discussions, addition sustained by the CIT(A) are deleted including the enhanced addition of Rs. 40,000/- in respect of disallowance of amount paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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