M/s. Shoe Specialities (P) Ltd., CHENNAI V. ITO, CHENNAI

CO 26/CHNY/2003

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7625 (ITAT-CHENNAI)
• Duration Of Justice: 9 year(s) 1 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 22-08-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 30-06-2003
• Court: TRIBUNAL
• Department Lawyers: S DAS GUPTA IRS
• Assessee Lawyers: T VASUDEVAN
• Keywords: Business expenditure; Diversion of income; Capital receipt; Commercial expediency; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER I.T.A. NO.1874/MDS/2002 ASSESSMENT YEAR : 1997-98 AND C.O. NOS. 26/MDS/2003 & 164/MDS/2011 (IN ITA NO.1874/MDS/2002) THE INCOME-TAX OFFICER , COMPANY WARD- VI(1), CHENNAI. VS. M/S. SHOE SPECIALITIES (P) LTD. 349/C, LAMINGTON CHAMBERS, LAMINGTON ROAD, MUMBAI 400 004. PAN/GIR NO. 132-S (APPELLANT) (RESPONDENT/CROSS OBJECTOR) DEPARTMENT BY : SHRI S. DAS GUPTA, IRS, J CIT ASSESSEE BY : SHRI T. VASUDEVAN, ADVOC ATE DATE OF HEARING : 22 ND AUGUST, 2012 DATE OF PRONOUNCEMENT : 28 TH AUGUST, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THE APPEAL IS FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 1997-98. THE CROSS OBJECTIONS A RE FILED BY THE ASSESSEE. THE APPEAL AND THE CROSS OBJECTIONS ARE DIRECTED - - ITA 1874/02, CO 26/03 & 164/11 2 AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- V, AT CHENNAI DATED 6.9.2002 AND ARISE OUT OF THE A SSESSMENT ORDER PASSED UNDER SEC.143(3) OF THE INCOME-TAX ACT , 1961. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING OF SHOE UPPERS AND LEATHER GOODS. T HE ASSESSEE-COMPANY RETURNED A LOSS OF ` 3,04,361/- FOR THE RELEVANT PREVIOUS YEAR. INITIALLY, THE RETURN WAS PROCESSED UNDER SEC.143(1). THEREAFTER THE CASE WAS SELECTED FOR S CRUTINY. 3. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICE R FOUND THAT THE ASSESSEE- COMPANY HAD RECEIVED ` 63.75 LAKHS AGAINST THE SALE OF DUPLICATE SHARES. THE AMOUNTS WERE REC EIVED IN THE FINANCIAL YEAR 1993-94. THERE WAS A DISPUTE AMONG THE PROMOTERS OF THE COMPANY AND ANOTHER GROUP WHO OBTA INED DUPLICATE SHARES ALLEGEDLY THROUGH FRAUDULENT BILLS AND SOLD THOSE SHARES. THE DISPUTE WAS REFERRED FOR ARBITRATION. THE MATTER THEREAFTER REACHED BEFORE COMPANY LAW BOARD. THE C OMPANY LAW BOARD HELD THAT THE PERSONS WHO BOUGHT THOSE SH ARES DID NOT HAVE ANY RIGHT, AS THE ENTIRE TRANSACTION WAS F RAUDULENT, AS A RESULT OF WHICH, THE COMPANY LAW BOARD DIRECTED THE ASSESSEE- - - ITA 1874/02, CO 26/03 & 164/11 3 COMPANY TO RETURN THE MONEY COLLECTED FROM THE PURC HASERS OF DUPLICATE SHARES. THE DECISION OF THE COMPANY LAW BOARD WAS CHALLENGED IN APPEAL BEFORE THE HONBLE MADRAS HIGH COURT. THE HONBLE HIGH COURT CONFIRMED THE ORDER OF THE C OMPANY LAW BOARD TO THE EXTENT OF HOLDING THAT THE DUPLICA TE SHARES HAVE NO WORTH , AS THE TRANSACTION WAS FRAUDULENT. BUT THE HONBLE HIGH COURT FURTHER HELD THAT THE ASSESSEE-COMPANY N EED NOT RETURN THE MONEY TO THE PURCHASERS OF THE DUPLICATE SHARES. THIS DIRECTION OF THE HONBLE HIGH COURT WAS TAKEN UP BE FORE THE HONBLE SUPREME COURT IN SLP. THE SAID SLP FILED B Y THE PURCHASERS OF THE DUPLICATE SHARES WAS DISMISSED BY THE HONBLE SUPREME COURT. 4. WHEN ALL THESE LITIGATIONS WERE GOING ON, THE AS SESSEE- COMPANY HAS TREATED THE MONEY RECEIVED FROM THE BUY ERS OF THE DUPLICATE SHARES AS A LIABILITY IN ITS BOOKS OF ACC OUNT. ONCE THE COMPANY RECEIVED THE ORDER OF THE HONBLE SUPREME C OURT DISMISSING THE SLP, THE AMOUNT WAS TRANSFERRED TO I TS GENERAL RESERVE ACCOUNT. - - ITA 1874/02, CO 26/03 & 164/11 4 5. IN THE ABOVE BACKGROUND, THE ASSESSING OFFICER S OUGHT EXPLANATION FROM THE ASSESSEE-COMPANY THAT WHY THIS AMOUNT OF ` 63.75 LAKHS TRANSFERRED TO GENERAL RESERVE ACCOUNT SHOULD NOT BE TREATED AS THE INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE-COMPANY EXPLAINED THAT THE RECEIPT WAS NOT IN THE NATURE OF INCOME, BUT IT WAS ONLY A WINDFALL RECEIP T IN THE NATURE OF DAMAGES/COMPENSATION. THE ASSESSEE ALSO EXPLAIN ED THAT IT COULD NOT BE A CAPITAL RECEIPT BECAUSE THERE WAS NO TRANSFER OF ANY ASSET. THE ASSESSEE ALSO RELIED ON THE JUDGMEN T OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M. RAMALAKSHMI REDDY (131 ITR 415) AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. V. MR. P. FIRM, MUAR (56 ITR 67). 6. BUT THE ASSESSING OFFICER DID NOT ACCEPT THE EXP LANATIONS OF THE ASSESSEE. THE ASSESSING OFFICER HELD THAT T HE AMOUNT OF ` 63.75 LAKHS RECEIVED BY THE ASSESSEE IS A CAUSAL AN D NON- RECURRING RECEIPT AND THEREFORE, LIABLE FOR TAXATIO N AFTER PROVIDING THE BASIC EXEMPTION AVAILABLE UNDER SEC.10(3). HE , ACCORDINGLY, TREATED THIS AMOUNT OF ` 63.75 LAKHS AS A CAUSAL AND NON- RECURRING INCOME AND AFTER GIVING A BASIC DEDUCTION OF ` 5000/-, - - ITA 1874/02, CO 26/03 & 164/11 5 BROUGHT THE BALANCE OF ` 63.70 LAKHS TO TAX AFTER SETTING OFF OF LOSS RETURNED BY THE ASSESSEE. THE TOTAL TAXABLE I NCOME WAS THUS DETERMINED AT ` 60,65,640/-. 7. THIS ADDITION WAS CHALLENGED IN FIRST APPEAL BEF ORE THE COMMISSIONER OF INCOME-TAX(APPEALS). THE COMMISSIO NER OF INCOME-TAX(APPEALS), AFTER A PRELIMINARY EXAMINATIO N OF THE FACTS OF THE CASE, CALLED FOR A REMAND REPORT FROM THE AS SESSING AUTHORITY. THE ASSESSING AUTHORITY IN HIS REMAND R EPORT, REPORTED THAT THE ASSESSEE HAD REPAID THE ENTIRE AMOUNT OF ` 63.75 LAKHS REALIZED ON THE SALE OF DUPLICATE SHARES, TO THOSE PERSONS WHO HAVE PURCHASED THE DUPLICATE SHARES. THE ASSESSING OFFICER OBSERVED THAT EVEN THOUGH THE HONBLE HIGH COURT HA D HELD THAT THE ASSESSEE NEED NOT REPAY THE AMOUNT TO THE PURCH ASERS OF THE DUPLICATE SHARES, THE ASSESSEE HAD MADE THE REP AYMENTS TO UPHOLD ITS GOODWILL AND DIGNITY AND ALSO FOR ETHICA L AND COMMERCIAL REASONS. THE ASSESSING OFFICER ALSO RE PORTED THAT THE GROUNDS STATED BY THE ASSESSEE TO REPAY THE AMO UNTS ARE JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CAS E. - - ITA 1874/02, CO 26/03 & 164/11 6 8. IN THE LIGHT OF THE ABOVE REMAND REPORT, THE ASS ESSEE FURTHER REITERATED BEFORE THE COMMISSIONER OF INCOM E- TAX(APPEALS) THAT THE REPAYMENTS WERE MADE IN THE I NTEREST OF ITS BUSINESS REPUTATION AND THEREFORE, IT IS TO BE SEEN THAT THE ENTIRE AMOUNT RECEIVED AGAINST THE SALE OF DUPLICATE SHARE S HAVE BEEN RETURNED TO THE CONCERNED PERSONS AND THEREFORE, NO THING REMAINED IN THE HANDS OF THE ASSESSEE-COMPANY TO BE TREATED AS INCOME. THE ASSESSEE RELIED ON THE JUDGMENT OF TH E HONBLE SUPREME COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD. (62 ITR 638) WHERE THE COURT HAS HELD THAT DEDUCTION OF EXP ENDITURE IS JUSTIFIABLE IF THE EXPENDITURE WAS MADE FOR PRESERV ING THE GOOD WILL OF THE BUSINESS AND ITS RELATIONSHIP WITH CLIE NTS. THE ASSESSEE ALSO RELIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF DECCAN SUGAR ABKARI CO. L TD. (104 ITR 458) WHERE THE JURISDICTIONAL HIGH COURT HAS HELD T HAT AN EXPENDITURE IF INCURRED FOR REPUTATION OF THE COMPA NY NEEDS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME. 9. IN THE LIGHT OF THE FACTS STATED IN THE REMAND R EPORT SUBMITTED BY THE ASSESSING OFFICER AND THE LEGAL PR OPOSITIONS DECLARED BY THE HONBLE COURTS IN THE JUDGMENTS CIT ED ABOVE, THE - - ITA 1874/02, CO 26/03 & 164/11 7 COMMISSIONER OF INCOME-TAX(APPEALS) FOUND THAT THER E WAS NOTHING LEFT IN THE HANDS OF THE ASSESSEE- COMPANY TO BE TREATED AS INCOME FOR THE REASON THAT THE ENTIRE AMOUNT OF ` 63.75 LAKHS HAS BEEN REPAID BY THE ASSESSEE-COMPANY TO THOSE PE RSONS WHO HAD PURCHASED DUPLICATE SHARES. ACCORDINGLY, H E DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND ALLO WED THE APPEAL FILED BY THE ASSESSEE. 10. THE REVENUE IS AGGRIEVED AND, THEREFORE, THIS S ECOND APPEAL BEFORE US. 11. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL READ AS BELOW : 2. THE LEARNED CIT(A) HAS ERRED IN DELETING THE SU M OF ` 63,70,000/- BROUGHT TO TAX BY THE ASSESSING OFFICER AS CASUAL AND NON RECURRING INCOME ON THE PLEA THAT TH IS AMOUNT WAS REPAID TO THE PURCHASERS DURING A LATER YEAR. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E AMOUNT OF ` 63.70 LAKHS WAS RIGHTLY ASSESSED AS INCOME OF THE ASSESSEE THOUGH IT WAS RECEIVED AN ACCOUNT OF SALE OF DUPLICATE SHARES BY FRAUDULENT MEANS. - - ITA 1874/02, CO 26/03 & 164/11 8 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E HIGH COURT HAS HELD THAT THE MONEY RECEIVED BY THE ASSES SEE ON THE SALE OF DUPLICATE SHARES NEED NOT BE RETURNED T O THE PURCHASERS AND THAT THE MATTER HAS BECOME FINAL WHE N THE SUPREME COURT DISMISSED ON 18.11.96, THE SLP FILED BY THE PURCHASERS AND SO THE ASSESSEE IS UNDER NO OBLIGAT ION TO RETURN THE PURCHASE MONEY. 5. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E PAYMENT MADE TO THE PURCHASERS TO MAKE AMENDS FOR THE FRAUD COMMITTED EARLIER WOULD NOT TANTAMOUNT TO BUSINESS EXPENDITURE OR DIVERSION OF INCOME BY OVER-RIDING T ITLE. 6. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E PAYMENT WAS MADE, AS REPORTED BY THE ASSESSEE, ONLY TO PRES ERVE THE GOODWILL OF THE BUSINESS AND REPUTATION OF THE COMPANY AND THAT SUCH AN EXPENDITURE IF AT ALL BUSINESS EXP ENDITURE WOULD CONSTITUTE ONLY CAPITAL EXPENDITURE. 7. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E RETURN OF PURCHASE MONEY CAN ONLY BE CALLED A GRATUITOUS ACT ON THE PART OF THE ASSESSEE DESPITE HIGH COURTS ORDER AND THE REJECTION OF THE SLP OF THE PURCHASERS BY THE SUPRE ME COURT - - ITA 1874/02, CO 26/03 & 164/11 9 AND WOULD IN NO WAY AMOUNTS TO EXPENDITURE INCURRED ON ACCOUNT OF BUSINESS EXPEDIENCY. 12. WE HEARD SHRI S. DAS GUPTA, THE LEARNED JOINT COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E. THE LEARNED OFFICER CONTENDED THAT RECEIPT OF THE AMOUN T OF ` 63.75 LAKHS AND THE REPAYMENTS OF ` 63.75 LAKHS NEED TO BE CONSIDERED INDEPENDENTLY, AS THEY ARE DIFFERENT TRA NSACTIONS, ALTOGETHER. THE LEARNED OFFICER EXPLAINED THAT THE HONBLE SUPREME COURT HAS UPHELD THE JUDGMENT OF THE HONBL E MADRAS HIGH COURT WHEREIN THE COURT HAS HELD THAT THE ASSE SSEE NEED NOT REPAY THE AMOUNT OF ` 63.75 LAKHS. WHEN THAT IS THE POSITION, THE LIABILITY OF THE ASSESSEE-COMPANY HAS CEASED TO EXIST AND THE SAID AMOUNT HAS BECOME THE INCOME OF THE ASSESSEE C OMPANY. ON THAT POINT ITSELF, THE WHOLE AMOUNT SHOULD BE TR EATED AS INCOME ACCOUNTABLE IN THE HANDS OF THE ASSESSEE. T HEREAFTER, THE ASSESSEE- COMPANY MIGHT HAVE REPAID THE AMOUNTS TO THOSE PERSONS WHO HAD PURCHASED THE DUPLICATE SHARES. BU T THAT IS A DIFFERENT TRANSACTION. WHEN THE COURT HAS RULED THA T THE ASSESSEE COMPANY NEED NOT REPAY THE AMOUNT, THE ASSESSEE WE NT FURTHER AND MADE THE REPAYMENTS ON ITS OWN WILL AND THEREFO RE, SUCH - - ITA 1874/02, CO 26/03 & 164/11 10 REPAYMENTS DO NOT PERTAKE THE CHARACTER OF EXPENDIT URE. THE LEARNED OFFICER, THEREFORE, SUBMITTED THAT THE COMM ISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DELETING THE ADDIT ION ONLY FOR THE REASON THAT THE AMOUNT OF ` 63.75 LAKHS HAS BEEN REPAID BY THE ASSESSEE-COMPANY. 13. SHRI T. VASUDEVAN, THE LEARNED COUNSEL APPEARIN G FOR THE RESPONDENT-ASSESSEE, ON THE OTHER HAND, SUPPORTED T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS). THE LEARN ED COUNSEL EXPLAINED THAT THERE IS A CLOSE NEXUS BETWEEN THE R ECEIPT OF THE AMOUNT OF ` 63.75 LAKHS AND REPAYMENTS OF ` 63.75 LAKHS. THE RECEIPT AND REPAYMENTS OF THE AMOUNT ARE INEXTRICAB LY RELATED EACH OTHER AND, THEREFORE, IT IS NOT POSSIBLE TO TR EAT THE RECEIPT AND REPAYMENT OF THE AMOUNT AS TWO INDEPENDENT TRAN SACTIONS. THE LEARNED COUNSEL RELIED ON THE JUDGMENT OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD. (62 ITR 638) AND THE DECISION OF THE HONBLE MADRAS HIGH CO URT IN THE CASE OF DECCAN SUGAR ABKARI CO. LTD. (104 ITR 458) TO SUPPORT HIS ARGUMENT THAT THE ASSESSEE HAD NECESSARILY TO R EPAY THE AMOUNTS TO UPHOLD ITS BRAND NAME AND THE GOODWILL I N THE MARKET AND IF THE AMOUNTS WERE NOT REPAID, IRREPARABLE LOS S WOULD HAVE - - ITA 1874/02, CO 26/03 & 164/11 11 SUFFERED TO THE BUSINESS INTERESTS OF THE ASSESSEE- COMPANY. HE EXPLAINED THAT EVEN IF THOSE PAYMENTS, WHEN TREATED AS EXPENDITURE, ARE TO BE ALLOWED AS A DEDUCTION FOR T HE REASON THAT THE EXPENDITURE WAS INCURRED FOR PROTECTING THE BUS INESS INTERESTS OF THE ASSESSEE-COMPANY. 14. WE HEARD BOTH SIDES IN DETAIL. THERE ARE NO DI SPUTES REGARDING THE BASIC FACTS OF THE CASE. THE ASSESSE E HAD RECEIVED ` 63.75 LAKHS FROM DIFFERENT PERSONS AGAINST THE ALLOTMENT OF SHARES. IT WAS FOUND LATER ON THAT TH E SHARES ALLOTTED WERE DUPLICATE AND THE ENTIRE SCHEME WAS A FRAUDULE NT ONE. THE COMPANY LAW BOARD HELD THAT THOSE SHAREHOLDERS DID NOT HAVE ANY RIGHT AS THE TRANSACTION WAS FRAUDULENT. IN AP PEAL, THE HONBLE MADRAS HIGH COURT UPHELD THE ABOVE FINDING OF THE COMPANY LAW BOARD, BUT AT THE SAME TIME HELD THAT T HE ASSESSEE-COMPANY WAS NOT LIABLE FOR REPAYMENT OF TH E AMOUNT OF ` 63.75 LAKHS. BUT DEHORS, SUCH A JUDGMENT FROM THE HONBLE HIGH COURT, THE ASSESSEE SOUGHT TO REPAY THOSE PERS ONS WHO SUFFERED AND THE ENTIRE AMOUNT OF ` 63.75 LAKHS WAS REPAID BY THE ASSESSEE-COMPANY. - - ITA 1874/02, CO 26/03 & 164/11 12 15. WHEN THE ASSESSEE-COMPANY RECEIVED THE AMOUNT O F ` 63.75 LAKHS AGAINST THE ALLOTMENT OF SHARES, THE RE CEIPT DEFINITELY PERTOOK THE CHARACTER OF A LIABILITY. T HE ASSESSEE SHOULD DISCHARGE THAT LIABILITY EITHER BY ALLOTTING SHARES AND TRANSFERRING THE AMOUNTS TO ITS CAPITAL ACCOUNT OR BY RETURNING THOSE AMOUNTS TO THOSE PERSONS WHO HAD APPLIED FOR SHARES. IN THE LIGHT OF THE EVENTS DEVELOPING THEREAFTER, THE ASSESSEE DID NOT ALLOT SHARES TO THOSE PERSONS WHO APPLIED FOR T HE SHARES AND THE LIABILITY WAS NOT DISCHARGED BY CONVERTING IT I NTO ASSESSEES CAPITAL ACCOUNT. THEREAFTER, THE ONLY WAY TO DISCH ARGE THE LIABILITY WAS TO RETURN THE AMOUNTS TO THE CONCERNE D PERSONS. THIS CONDITION HAS BEEN SATISFIED IN THE PRESENT CA SE. THE ASSESSEE-COMPANY HAS RETURNED THE ENTIRE AMOUNT TO THOSE PERSONS WHO HAD APPLIED FOR THE SHARES. IN THAT WA Y, THE ASSESSEE HAS DISCHARGED ITS LIABILITY. 16. IN THE ABOVE PERSPECTIVE, IT IS ALWAYS POSSIBLE TO HOLD THAT THE LIABILITY, CREATED IN THE HANDS OF THE ASSESSEE -COMPANY BY RECEIPT OF ` 63.75 LAKHS, NOWHERE PERTOOK THE CHARACTER OF INCOME. AS SOON AS THE AMOUNTS WERE REPAID TO THOS E PERSONS, THE LIABILITY WAS DISCHARGED AND THE ACCOUNT WAS SQ UARED UP. IN - - ITA 1874/02, CO 26/03 & 164/11 13 THAT WAY, THERE IS NO BASIS IN ALLEGING THAT THE AS SESSEE HAS EARNED INCOME OF ` 63.75 LAKHS AS A CASUAL AND NON-RECURRING RECEIPT. IN FACT, IT WAS A CASE OF RAISING A LIABI LITY AND THEREAFTER DISCHARGING THAT LIABILITY. IN BETWEEN THESE TWO E VENTS NO INCOME DID GENERATE IN THE HANDS OF THE ASSESSEE. THEREFO RE, FROM THE ABOVE LIABILITY POINT OF VIEW, IT IS NOT POSSIBLE T O HOLD THAT THE RECEIPT AND REPAYMENT OF ` 63.75 LAKHS SHOULD BE TREATED AS INDEPENDENT AND DIFFERENT TRANSACTIONS. ON THE OTH ER HAND, IT IS A CREATION OF A LIABILITY AND SATISFACTION OF THE LIA BILITY, ONE BEING THE CONSEQUENCE OF THE OTHER. THEREFORE, IT MAY NOT BE WISE TO HOLD THAT THE RECEIPT OF AMOUNT OF ` 63.75 LAKHS SHOULD BE TREATED AS AN EXCLUSIVE TRANSACTION, RESULTING IN GENERATION O F INCOME. 17. WHEN THE MATTER IS EXAMINED IN THE LIGHT OF THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT, THE ASSESSEE-COMP ANY NEED NOT PAY THE AMOUNT OF ` 63.75 LAKHS TO THE DUPLICATE SHAREHOLDERS. IT IS TO BE SEEN THAT THE REPAYMENT S MADE BY THE ASSESSEE COULD BE ALLOWED AS A DEDUCTION IN COMPUTI NG ITS INCOME. THIS IS ANOTHER DIMENSION OF THIS CASE. T HE HONBLE HIGH COURT HAS HELD THAT THE ASSESSEE NEED NOT REPA Y THE AMOUNT, THAT WAS ONLY A DECLARATION OVER A LEGAL DI SPUTE. BUT THE - - ITA 1874/02, CO 26/03 & 164/11 14 ASSESSEE FELT THAT IT SHOULD UPHOLD ITS GOODWILL IN THE MARKET BY RETURNING THE MONEY TO THE DUPLICATE SHAREHOLDERS. OTHERWISE THE ASSESSEE-COMPANY COULD BE CRITICIZED FOR MAKING AN UNDUE ADVANTAGE OUT OF AN UNFORTUNATE SITUATION. THEREFO RE, IN THE INTEREST OF ITS BUSINESS REPUTATION, WHICH IS ESSEN TIAL FOR THE SURVIVAL OF THE BUSINESS, THE ASSESSEE HAS DECIDED TO RETURN THE MONEY TO THOSE PERSONS WHO SUFFERED. WE HAVE TO SE E THAT IT IS A BUSINESS DECISION TAKEN BY THE ASSESSEE-COMPANY A ND NOT A LEGAL CONSEQUENCE COMPLIED WITH BY THE ASSESSEE-COM PANY. THIS ASPECT NEEDS TO BE DISTINGUISHED. THE ASSESSE E FOUND IT MORE IMPORTANT TO SAFEGUARD ITS GOODWILL AND REPUTA TION, RATHER THAN ENJOYING THE MONEY RECEIVED FROM THE DUPLICATE SHAREHOLDERS. WHEN THE ASSESSEE HAS TAKEN SUCH A D ECISION AND REPAID THE AMOUNT IN THE INTERESTS OF ITS BUSIN ESS, WE FIND THAT THE SAME SHOULD BE ALLOWED AS A DEDUCTION. AP ART FROM THE DECISION RELIED ON BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE, IT IS NECESSARY TO REFER THE WELL-KNOWN J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. VS. CIT(APPEALS) AND ANOTHER (288 ITR 01) WHERE THE COU RT HAS EXAMINED IN DETAIL THE IMPLICATION OF THE EXPRESSIO N COMMERCIAL - - ITA 1874/02, CO 26/03 & 164/11 15 EXPEDIENCY. THE HONBLE SUPREME COURT HELD THAT T HE ABOVE EXPLANATION IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESS-MAN INCURS FOR THE PURPOSE OF BUSINESS. THE COURT FURTHER OBSERVED THAT THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET I T IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT WAS INCURRE D ON GROUNDS OF COMMERCIAL EXPEDIENCY. (EMPHASIS PROVIDED BY US). 18. WHEN WE EXAMINE THE PRESENT CASE IN THE LIGHT O F THE ABOVE JUDGMENT OF THE HONBLE SUPREME COURT, WE FIN D THAT EVEN IF THE ASSESSEE WAS NOT LEGALLY BOUND TO REPAY THE AMOUNTS, THE ASSESSEE SOUGHT TO REPAY THE AMOUNTS ON ACCOUNT OF BUSINESS EXPEDIENCY AND, THEREFORE, THE SAME SHOULD BE TREAT ED AS AN EXPENDITURE INCURRED IN THE COURSE OF BUSINESS CARR IED ON BY THE ASSESSEE. THEREFORE, WE FIND THAT ON THIS EXPENDIT URE POINT OF VIEW AS WELL, THE AMOUNT IS TO BE DEDUCTIBLE. 19. IN THE FACTS CONSIDERED ABOVE, WE FIND THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUSTIFIED IN DELETING THE AMOUNT OF ` 63.75 LAKHS, TREATING THE SAME AS A NON-TAXABLE AMOUNT. HIS ORDER IS UPHELD ACCORDINGLY, ON THIS P OINT. - - ITA 1874/02, CO 26/03 & 164/11 16 20. THE CROSS OBJECTION IN C.O. NO.26/MDS/2003 IS F ILED BY THE ASSESSEE IN SUPPORT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). AS THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ALREADY BEE N UPHELD, THIS CROSS OBJECTION DOES NOT SURVIVE AND IT IS TO BE DISMISSED AS INFRUCTUOUS. 21. C.O.NO.164/2011 FILED BY THE ASSESSEE IS ONLY A DUPLICATE OF THE CROSS OBJECTION ALREADY FILED BY IT. THEREF ORE, IT IS TO BE REJECTED AS NON-MAINTAINABLE. 22. IN RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDERS PRONOUNCED ON TUESDAY, THE 28 TH OF AUGUST, 2012 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 28 TH AUGUST, 2012. MPO* COPY TO : ASSESSEE/DEPARTMENT/CIT/CIT(A)/DR/GF.