Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 2652 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-08-2017
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
24-07-2017
Assessment Year
2011-2012
Appeal Filed On
16-10-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1592/HYD/2014 ASSESSMENT YEAR: 2011-12 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(1), HYDERABAD. VS. Y. HARISH CHANDRA PRASAD, HYDERABAD. PAN AAIPY 7375A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SVSS PRASAD ASSESSEE BY : SHRI VIJAY MEHTA & GOVIND JAVERI DATE OF HEARING : 27-07-2017 DATE OF PRONOUNCEMENT : -08-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (A), HYDE RABAD, DATED 07/04/2014 FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE AN INDIVIDUAL DERIVING HIS INCOME FROM SALARY AND ENGAGED IN GENE RATION OF WIND MILL POWER, FILED HIS ORIGINAL RETURN OF INCOME FOR THE AY 2011-12 DECLARING AN INCOME OF RS.26,01,300/- ON 23.09.2011 AND SUBSEQUENTLY REVISED IT ON 30.03.2012 WITH SOME MOD IFICATIONS. THE CASE WAS SELECTED FOR SCRUTINY U/S 143(3) OF THE I. T. ACT, 1961. 2.1 THE AO NOTICED THAT THE ASSESSEE SOLD 5000 SHA RES HELD BY HIM IN M/S NAVABHARAT POWER PVT LTD TO M/S ESSAR PO WER LTD FOR A 2 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD SALE CONSIDERATION OF RS.50 CRORES AND DECLARED LON G TERM CAPITAL GAINS OF RS.30,99,28,471/-. WHILE COMPUTING THE CAP ITAL GAINS, THE ASSESSEE CLAIMED DEDUCTION U/S 48(I) AMOUNTING TO R S.19 CRORES AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER OF 5000 SHARES. 2.2 THE AO WAS NOT CONVINCED THAT THE SAID AMOUNT OF RS.19 CRORES REPRESENTED EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE 5000 SHARES IN QUESTION. HE DENIED THE DEDUCTION FOR 19 CRORES IN THE COMPUTATI ON OF LONG TERM CAPITAL GAINS. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE ARGUED THAT THE REMARKS OF THE AO IN PARA 4.5 OF HIS ORDER WERE MISCONCEIVED A ND BASED UPON SOME MISUNDERSTANDING. FIRSTLY, IT IS INCORRECT TO SAY THAT BECAUSE THE 5000 SHARES WERE NOT UNDER PLEDGE OR NO ENCUMBR ANCE WAS ATTACHED TO THEM, THE PAYMENT OF RS.19 CRORES CANNO T BE LINKED TO THE SALE OF THE SAID 5000 SHARES. A PLEDGE OR MORTGAGE IS NOT THE ONLY TYPE OF ENCUMBRANCE THAT IS ALLOWABLE U/S 48(I) OF THE ACT. THERE CAN BE VARIOUS OTHER ENCUMBRANCES TO THE TRANSACTION OF SALE. IF AN OPPONENT HAS FILED A CIVIL SUIT SEEKING A DECLARATI ON THAT THE SALE IN QUESTION IS ILLEGAL OR NON-EST, THAT WOULD DEFINITE LY BE AN ENCUMBRANCE TO THE TRANSACTION OF SALE AND ANY AMOUNT PAID TO G ET RID OF SUCH AN ENCUMBRANCE WOULD BE ALLOWABLE AS A DEDUCTION U/S 4 8(I). 4.1 THE AR ALSO PLEADED THAT THE IMPORT OF REMARKS OF AO IN PARA 4.6 OF HIS ORDER IS NOT AT ALL CLEAR. HE SEEMS TO THINK THAT THE AMOUNT OF RS.19 CRORES WAS PAID ONLY TO REMOVE THE ENCUMBRANC E OVER HIS '250 CRORE COMPANY (MEVL). THIS IS CLEARLY A MISUNDERSTA NDING. THE AMOUNT OF RS.19 CRORES WAS PAID NOT TO REMOVE THE E NCUMBRANCE 3 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD ATTACHED TO MEVL BUT TO REMOVE THE ENCUMBRANCE IN T HE WAY OF THE TRANSACTION OF SALE OF 5000 SHARES. M/S MEVL MIGHT HAVE DERIVED SOME BENEFIT OUT OF THE PAYMENT OF RS.19 CRORES BY THE ASSESSEE IN THE SENSE THAT THE ENCUMBRANCE TO THE SALE OF ITS 8 8,08,500 SHARES IS REMOVED. BUT THAT DOES NOT DETRACT FROM THE FACT TH AT THE ASSESSEE IS PRIMARILY INTERESTED IN SAVING HIS TRANSACTION OF S ALE OF 5000 SHARES AND THE SALE CONSIDERATION RS. 50 CRORES AND SO PA ID THE RS.19 CRORES IN QUESTION. THE AO ALSO SEEMS TO THINK THAT SIMPLY BECAUSE THE ASSESSEE'S NAME IS INCLUDED AS A DEFENDANT IN T HE SUIT FILED BY THE PVP GROUP, IT CANNOT BE SAID THAT RS.19 CRORES WAS PAID TO REMOVE THE ENCUMBRANCE ON THE TRANSACTION OF SALE O F 5000 SHARES IN MEVL. THE AO SEEMS TO HAVE IGNORED THE FACT THAT TH E SUIT WAS FILED AS MUCH AGAINST THE SALE OF 5000 SHARES AS AGAINST THE 88,08,500 SHARES HELD BY MEVL IN NAVABHARAT POWER. THE AO ALS O SEEMS TO THINK WRONGLY THAT THE 5000 SHARES HELD BY THE ASSE SSEE IN NPPL ARE 'PALTRY' COMPARED TO 88,08,500 SHARES HELD BY MEVL IN NPPL AND SO THE SUIT FILED BY THE PVP GROUP SOMEHOW IS AGAINST ONLY THE SALE OF 88,08,500 SHARES AND NOT AGAINST THE 5000 SHARES. T HIS IS TOTALLY ERRONEOUS IN AS MUCH AS THE SUIT WAS FILED CLEARLY AGAINST THE ASSESSEE AND IT QUESTIONED THE SALE OF 5000 SHARES. THE AO SEEMS TO IGNORE THE FACT THAT THE SALE CONSIDERATION FOR THE ASSESSEE'S SO CALLED 'PALTRY' 5000 SHARES WAS RS. 50 CRORES WHERE AS THE CONSIDERATION RECEIVED BY THE M/S. MEVL FOR ITS 88,08,500 SHARES WAS ONLY A MEAGRE RS. 12.17 CRORES. THE ASSESSEE RELIED UPON T HE FOLLOWING CASES: 1. CIT VS. RAJENDRAN [1981] 127 ITR 810 2. GOPEEE NATH PAUL & SONS V. DCIT [2005] 147 TAXM AN 629 3. CIT VS. BRADFORD TRADING CO. (P) LTD., 179 CTR 324. 4. SASSON J. DAVID & CO., (P) LTD. VS. CIT, [1979] 118 ITR 261 5. NAOZR CHENOY VS. CIT [1998] 234 ITR 95 (AP) 6. CIT VS. VENKATARAMAN [1982] 137 ITR 846 7. CIT VS. ABRAR ALVI [2001] 247 ITR 312 (BOM.) 8. CIT VS. SMT. SHAKUNTALA KANTILAL [1991] 190 ITR 56 4 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ELABORATELY DISCUSSED THE FACTUAL MATRIX OF THE CAS E FROM PAGES 4 TO 15 OF HIS ORDER AND POINTS MADE BY THE AO WERE PUT TO THE ASSESSEE AND HIS CLARIFICATION WAS OBTAINED, WHICH READS AS UNDER: POINTS MADE BY THE AO I. HOW THE ASSESSEE RECEIVED A CONSIDERATION RS. 5 0 CRORES FOR THE TRANSFER OF 5000 SHARES IN M/S NAVABHARAT P OWER PVT LTD (NPPL) TO M/S ESSAR POWER LTD, WHEREAS M/S MALAXMI ENERGY VENTURES (I) PVT LTD (MEVL) RECEIVED ONLY RS.12.17 CRORES FOR THE TRANSFER OF 88,08,500 SHARES OF THE SAME COMPAN Y TO THE SAME TRANSFEREE. 2. HOW THE ENTIRE SETTLEMENT AMOUNT OF RS.19 CRORES WAS PAID ONLY BY THE ASSESSEE, WHEREAS THE SUIT FILED BY THE PVP GROUP WAS, INTER ALIA, AGAINST BOTH THE FOLLOWING DEFENDA NTS: 1. MALAXMI ENERGY VENTURES (INDIA) PVT. LTD. 2. MR. Y. HARISH CHANDRA PRASAD (ASSESSEE) CLARIFICATIONS BY THE ASSESSEE 1. SO, FAR AS THE QUESTION AT 1' ABOVE IS CONCERNE D, IT IS COMMON KNOWLEDGE THAT THE ASSESSEE WAS THE DRIVING FORCE BEHIND MALAXMI GROUP. HE IS THE TECHNOCRAT WITH A M ASTERS DEGREE FROM USA, AND HE WAS THE MD OF M/S LANCO KON DAPALLI POWER PVT LTD., DURING THE PERIOD 1995 TO 2005. HE WAS THE FOUNDER OF M/S MALAXMI ENERGY VENTURES (INDIA) PVT LTD AND HE OWNED THE COMPANY ALONG WITH HIS WIFE. HE WAS THE M D OF M/S NAVABHARAT POWER PVT LTD IN WHICH HIS GROUP HAD 50% SHARE HOLDING ALONG WITH THE NAVABHARAT GROUP. M/S ESSAR POWER LTD WAS NOT CONCERNED HOW THE SALE CONSIDERATION OF RS. 62.17 CRORES (50+12.17 CRORES) WAS DIVIDED BETWEEN THE AS SESSEE AND MEVL. THEY WERE INTERESTED IN GETTING CONTROL O F NPPL. THEY WERE CONVINCED THAT THE ASSESSEE WOULD ENSURE THE TRANSFER OF 88,13,500 (5000+88,08,500) SHARES, EVEN IF THEY PAID 50 CRORES TO THE ASSESSEE AND RS.12.17 CRORES TO MEVL. 2. THERE IS ANOTHER SUBSTANTIAL REASON FOR THE PAYM ENT OF THE LARGER CHUNK OF RS. 50 CRORES TO THE ASSESSEE. THE PVP GROUP 5 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD WAS CLAIMING OWNERSHIP OF MEVL BY SEEKING THE ENFOR CEMENT OF THE ORIGINAL AGREEMENT DATED 14.06.2008 WITH THEM. A COPY OF THE AGREEMENT MAY KINDLY BE SEEN AT PAGES 46 TO 53 OF OUR PAPER BOOK. THEY WERE TAKING THE STAND THAT THE LOA N AGREEMENT DATED 03.11.2009 IN TERMS OF WHICH THE OR IGINAL AGREEMENT DATED 14.06.2008 STOOD CANCELLED, WAS OBT AINED BY FRAUD. EVEN THOUGH THEIR ENTIRE INVESTMENT IN MEVL WAS RETURNED, THEY WERE NOT WILLING TO RETURN THE SHARE S OF THE ASSESSEE AND HIS WIFE IN MEVL, WHICH WERE PLEDGED W ITH THE PVP GROUP. IN THEIR LETTER WRITTEN AS EARLY AS ON 1 1.12.2009, THE PVP GROUP WAS INSISTING ON THE ENFORCEMENT OF THE O RIGINAL AGREEMENT AND THE CANCELLATION OF THE LOAN AGREEMEN T DATED 03.11.2009. CONSIDERING THE LITIGATION INVOLVED ABO UT THE OWNERSHIP OF THE MEVL AND ITS MERGER WITH THE PVP G ROUP, THE ASSESSEE THOUGHT IT SAFE TO NEGOTIATE WITH M/S ESSA R POWER LTD AND ENSURE THAT THE LARGER CHUNK OF THE SALE CONSID ERATION WAS RECEIVED BY HIM SO THAT IT IS BEYOND THE PALE OF AN Y CONTROVERSY WITH THE PVP GROUP. IN OTHER WORDS, AT THAT STAGE, THERE WAS NO CONTROVERSY ABOUT THE OWNERSHIP OF 5000 SHARES HELD BY THE ASSESSEE IN NPPL, WHEREAS THE OWNERSHIP OF THE 88,0 8,500 SHARES HELD BY MEVL IN NPPL WAS EMBROILED IN LITIGA TION AND CONTROVERSY. SUBSEQUENTLY, THE PVP GROUP INVOLVED E VEN THE 5000 SHARES IN LITIGATION AND IN THE CIVIL SUIT FIL ED BY THEM, THEY QUESTIONED THE TRANSFER OF EVEN THE 5000 SHARES. 3. ULTIMATELY, SALE CONSIDERATION IS A MATTER OF NE GOTIATION BETWEEN VENDOR AND VENDEE. FACTUALLY, THE ASSESSEE RECEIVED RS.50 CRORES FOR THE TRANSFER OF HIS 5000 SHARES AN D HAS DISCLOSED THE SAME. 4. SO FAR AS THE QUESTION NO. 2 ABOVE IS CONCERNED, THE ASSESSEE HAD RECEIVED RS.50 CRORES FOR THE TRANSFER OF HIS 5000 SHARES WHEREAS MEVL HAD RECEIVED ONLY RS.12.17 CRORES FOR THE TRANSFER ITS 88,08,500 SHARES. AS THE RECIP IENT OF THE BULK OF CONSIDERATION, THE ASSESSEE WAS ANXIOUS TO SAFE GUARD HIS TRANSACTION OF: SALE OF 5000 SHARES AND HIS RS.50 C RORES. FURTHER, MEVL HAD TO RETURN THE ENTIRE INVESTMENT O F THE PVP GROUP IN TERMS OF THE LOAN AGREEMENT DATED 03.11.20 09 AND ALSO PAY A FURTHER COMPENSATION OF RS.8,25,63,2401- TO THE PVP GROUP TO GET OUT THE ORIGINAL AGREEMENT. IN EFFECT, MEVL HAD TO PAY A TOTAL OF RS.15,85,50,232/(7,59,86,992+8,25,63 ,240). THIS MAY BE SEEN AT PARAS 1 & 2 OF THE LOAN AGREEMENT DA TED 03.11.2009. A COPY OF THE LOAN AGREEMENT MAY BE SEE N AT PAGES 54 TO 72 OF OUR PAPER BOOK. FOR THE PAYMENT O F RS.15,85,50,232/-, MEVL HAD TO RAISE OTHER RESOURCE S WHICH HAD TO BE PAID OFF FROM THE SALE CONSIDERATION OF R S.12.17 CRORES RECEIVED FROM M/S ESSAR POWER LTD. IN THE CIRCUMSTANCES, MEVL HAD NO RESOURCES TO TAKE UP THE RESPONSIBILITY OF THE PAYMENT OF SETTLEMENT AMOUNT OF RS.19 6 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD CRORES OR ANY PORTION OF IT TO THE PVP GROUP. AT AN Y RATE, WHETHER MEVL PAID THE AMOUNT OR NOT, THE ASSESSEE C OULD NOT ALLOW THE TRANSACTION OF SALE OF HIS 5000 SHARES TO BE EMBROILED IN LITIGATION. SO, THE ASSESSEE HAS PAID THE RS. 19 CRORES TO THE PVP GROUP AND THE PVP GROUP DID NOT CARE AS TO FROM WHOM THEY RECEIVED THEIR RS. 19 CRORES. 5. IN THE HANDS OF MEVL, FOR THE ASSESSMENT YEAR 20 11-12, THERE IS A HUGE BROUGHT FORWARD CAPITAL LOSS AND TH E ENTIRE CAPITAL GAIN RELATABLE TO THE SALE OF 88,08,500 SHA RES WAS ADJUSTED AGAINST THE SAME RESULTING IN A CARRIED FO RWARD SHORT TERM CAPITAL LOSS OF RS.6,86,61,997/-. EVEN IF A PO RTION OF RS.19 CRORES WAS CLAIMED IN THE HANDS OF MEVL, IT WOULD H AVE RESULTED ONLY IN A FURTHER INCREASE OF THE CARRIED FORWARD SHORT TERM CAPITAL LOSS. 6. SIMILARLY, IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011-12, THE ENTIRE LONG TERM CAPITAL GAIN OF RS. 30,99,28,471/- RELATABLE TO THE SALE OF 5000 SHARES WAS ADJUSTED AGAINST THE UNABSORBED DEPRECIATION OF RS.36,23,88,771/- AND THERE WAS A FURTHER CARRIED F ORWARD UNABSORBED DEPRECIATION OF RS. 4,13,77,430/-. BY CL AIMING THE ENTIRE AMOUNT OF RS.19 CRORES IN THE HANDS OF THE A SSESSEE, HE DID NOT DERIVE ANY PARTICULAR BENEFIT. IT IS NOT AS THOUGH HE REDUCED HIS TAXABLE INCOME AND SAVED SOME TAX BY TH E CLAIM FOR DEDUCTION OF RS.19 CRORES. IN OTHER WORDS, THE CLAI M HAD NO REVENUE EFFECT. 7. AS THE AMOUNT IS ACTUALLY PAID BY THE ASSESSEE, IT IS ALLOWABLE AS A DEDUCTION IN THE COMPUTATION OF THE CAPITAL GAINS IN THE HAND OF THE ASSESSEE. AS NO PORTION OF RS.19 CRORES WAS PAID BY THE MEVL AND THEY DID NOT CLAIM ANY DEDUCTION FOR THE SAME, THERE IS NO REASON FOR THE APPORTIONMENT OF ANY PORTION OF RS.19 CRORES TO MEV L. THE ENTIRE AMOUNT OF RS.19 CRORES MAY KINDLY BE ALLOWED IN THE HANDS OF THE ASSESSEE AS, FACTUALLY, HE HAS INCURRE D THE EXPENDITURE AND PAID IT.' 5.1 IN THE LIGHT OF THE ABOVE SUBMISSIONS, THE CIT( A) WAS OF THE OPINION THAT THE CLAIM OF DEDUCTION OF RS.19 CRORE S IS ALLOWABLE U/S 48(I) AS THERE IS NO MERIT IN THE STAND OF THE AO T HAT AS THE AMOUNT OF RS. 19 CRORES DID NOT REPRESENT THE EXPENDITURE FOR REDEMPTION OF PLEDGE, IT IS NOT ALLOWABLE AS DEDUCTION. IF THE SH ARES IN QUESTION WERE UNDER PLEDGE AT THE TIME OF THEIR ACQUISITION, THE REPAYMENT OF THE LOAN OR REDEMPTION OF THE PLEDGE WOULD CLEARLY HAVE BEEN AN 7 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD ALLOWABLE DEDUCTION. THAT DOES NOT MEAN THAT THERE CAN BE NO OTHER ENCUMBRANCE, WHICH CONSTITUTES AN ALLOWABLE DEDUCTI ON U/S 48(I). HE OBSERVED THAT IF EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER TO REMOVE ANY OTHER TY PE OF ENCUMBRANCE, THAT EXPENDITURE WOULD CLEARLY BE AN A LLOWABLE DEDUCTION. IN THE PRESENT CASE, THE SALE OF 5000 SH ARES IS CLEARLY UNDER LITIGATION BECAUSE OF THE CIVIL SUIT FILED BY THE PVP GROUP AND IF THE LITIGATION IS NOT CLEARED, THE SALE OF 5000 SHA RES WOULD NOT HAVE GONE THROUGH. TO SAVE HIS TRANSACTION OF SALE OF 50 00 SHARES THE ASSESSEE INCURRED THE EXPENDITURE IN QUESTION OF R S.19 CRORES AND SO IS AN ALLOWABLE DEDUCTION U/S 48(I). 5.2 THE CIT(A) OBSERVED THAT THE AO ALSO SEEMS TO THINK THAT SIMPLY BECAUSE 5000 SHARES HELD BY THE ASSESSEE ARE PALTRY IN NUMBER COMPARED TO 88,08,500 SHARES HELD BY MEVL, S OMEHOW THE CIVIL SUIT IS CONCERNED ONLY WITH THE RS.250 CRORE COMPANY I.E. MEVL AND NOT WITH THE ASSESSEE OR HIS SALE OF 5000 SHARE S. THAT IS CLEARLY AGAINST THE PLAIN LANGUAGE OF THE PRAYER IN THE CIV IL SUIT FILED BEFORE THE HON'BLE CHIEF JUDGE, CITY CIVIL COURT, HYDERABA D. IT HAS TO BE REMEMBERED THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE SALE OF 5000 SHARES IS RS. 50 CRORES WHEREAS THE CONSIDERATION RECEIVED BY MEVL FOR THE SALE OF ITS 88,08,500 SHARES IS RELATIVELY SMALL AMOUNT OF RS.12.17 CRORES. SO, IT CANNOT BE SAID THAT THE 5000 SHARES ARE 'PALTRY'. AT ANY RATE, THE ASSE SSEE HAD TO INCUR THE EXPENDITURE TO SAVE HIS TRANSACTION OF SALE OF 5000 SHARES. IT IS NOT FOR THE REVENUE TO QUESTION THE NECESSITY OF IN CURRING THE EXPENDITURE. FACTUALLY, THE EXPENDITURE WAS INCURRE D BY THE ASSESSEE AND SO CONSTITUTES AN ALLOWABLE DEDUCTION. 5.3 THE CIT(A) ALSO OBSERVED THAT IT CANNOT ALSO B E IGNORED THAT THE PVP VENTURES LTD HAS ACKNOWLEDGED THE RECEIPT O F RS.19 CRORES BY WAY OF SETTLEMENT OF THE DISPUTES AND THEY HAVE REFLECTED THIS AMOUNT AS 'EXTRAORDINARY INCOME' IN THEIR P&L A/C F OR THE YEAR ENDED 8 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD 31.03.2011. THE RELEVANT EXTRACT OF THEIR ANNUAL RE PORT FOR THE YEAR ENDING 31.03.2011 HAD ALREADY BEEN EXTRACTED HEREIN ABOVE. THE COMPANY HAS CLEARLY MENTIONED THAT IT RECEIVED RS.1 9 CRORES FROM THE ASSESSEE FOR THE SETTLEMENT OF ITS DISPUTES IN RESP ECT OF THE 'BENEFICIAL INTERESTS' IT HAD IN M/S NPPL. THIS CLE ARLY SHOWS THAT THE TITLE OF THE ASSESSEE FOR THE 5000 SHARES WAS IN JE OPARDY AND THE AMOUNT OF RS.19 CRORES WAS PAID TOWARDS PERFECTION OF THE TITLE IN ORDER TO EFFECT THE SALE AND SO CLEARLY FALLS WITHI N THE RATIO OF THE DECISION OF HON'BLE HIGH COURT OF CALCUTTA, IN THE CASE OF GOPEEE NATH PAUL & SONS VS. DY CIT (SUPRA). 5.4 FURTHER, THE CIT(A) OBSERVED THAT IT ALSO DESE RVES TO BE MENTIONED AS CLAIMED BY THE ASSESSEE IN PARA 9.2 OF THIS ORDER THAT THERE ARE SUBSTANTIAL LOSSES BOTH IN THE HANDS OF T HE ASSESSEE AND M/S. MEVL AND THE CLAIM FOR DEDUCTION OF RS. 19 CRO RES IN THE HANDS OF THE ASSESSEE DOES NOT SEEM TO HAVE CONFERRED ANY PARTICULAR ADDITIONAL ADVANTAGE TO THE ASSESSEE OR HIS GROUP. 5.5 THE CIT(A) OBSERVED THAT THE CLAIM OF THE ASSE SSEE FOR THE DEDUCTION OF RS.19 CRORES IS CLEARLY SUPPORTED BY T HE CASE LAW ON WHICH HE RELIED BEFORE ME. IN THE CASE OF CIT VS SM T. SHAKUNTALA KANTILAL (1991) 190 ITR 56, THE HON'BLE BOMBAY HIGH COURT HAD CLEARLY HELD THAT THE EXPRESSION 'IN CONNECTION WIT H SUCH TRANSFER'. IN THIS CASE, AN AMOUNT PAID TO BE RELIEVED OF THE OBL IGATIONS UNDER AN EARLIER AGREEMENT INTO WHICH THE SELLER ENTERED WIT H ANOTHER PARTY, WAS ALLOWED AS A DEDUCTION IN THE COMPUTATION OF CA PITAL GAINS. IN THE PRESENT CASE THE FACTS ARE SIMILAR. THERE WAS AN EA RLIER AGREEMENT FOR THE MERGER OF MEVL WITH THE PVP GROUP AND THE ASSES SEE ENTERED INTO A LOAN AGREEMENT TO BE RELIEVED OF THE EARLIER MERGER AGREEMENT. EVEN AFTER THE LOAN WAS REPAID, THE ASSESSEE WAS DR AGGED INTO LITIGATION BY THE PVP GROUP TO ENFORCE THE EARLIER MERGER AGREEMENT AND THE ASSESSEE HAD TO PAY THE 19 CRORES IN QUESTI ON TO BE RELIEVED OF THAT EARLIER MERGER AGREEMENT. 9 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD 5.6 CIT(A) OBSERVED THAT SIMILAR IS THE SITUATION IN THE CASE OF CIT VS ABRAR ALVI (2001) 247 ITR 312 (BOM). IN THIS CAS E, THE ASSESSEE PAID A CERTAIN SUM TO HIS OWN SON WHO HAD INSTITUTE D A SUIT SEEKING INJUNCTION RESTRAINING THE ASSESSEE FROM SELLING HI S PROPERTY. IT WAS HELD THAT THE AMOUNT WAS PAID TO REMOVE THE ENCUMBR ANCE TO SELL THE PROPERTY AND SO THE EXPENDITURE INCURRED WAS AN ALL OWABLE DEDUCTION. 5.7 CIT(A) NOTED THAT IN THE CASE OF SASSOON ] DAV I & CO. (P) LTD VS CIT (1979) (118 ITR 261), THE APEX COURT CLEARLY HELD THAT THE EXPRESSION 'WHOLLY AND EXCLUSIVELY' HELD IN SECTION 48(I) DOES NOT MEAN THAT THE EXPENDITURE SHOULD HAVE BEEN 'NECESSA RILY' INCURRED. EVEN IF THE AMOUNT WAS INCURRED VOLUNTARILY, IT IS AN ALLOWABLE DEDUCTION. ACTUALLY, IN THE PRESENT CASE, THE ASSES SEE HAD NECESSITY TO INCUR THE EXPENDITURE OF RS.19 CRORES. THE LITIG ATION THRUST ON HIM WAS NOT OF HIS CHOICE. IF HE DID NOT PAY THE AMOUNT , THE TRANSACTION OF SALE WOULD HAVE FALLEN THROUGH. THE ASSESSEE ALSO E XPLAINED WHY HE FOOTED THE BILL. HE EXPLAINED THAT MEVL DID NOT HAV E SUFFICIENT RESOURCES TO PAY THE AMOUNT AS IT HAS ALREADY PAID ABOUT RS. 7,59,86,892/- BY WAY OF REPAYMENT OF LOAN TO THE PV P GROUP AND A FURTHER SUM OF RS.8,25,63,240/- BY WAY OF COMPENSAT ION TO THEM. 5.8 IN THE LIGHT OF THE ABOVE DISCUSSION, THE CIT(A ) HELD THAT THE AMOUNT OF RS. 19 CRORES WAS INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF TRANSFER OF 5000 SHARES AND THUS IS AN A LLOWABLE DEDUCTION U/S 48(I) OF THE ACT. HE ACCORDINGLY DIRECTED THE A O TO RECOMPUTE THE CAPITAL GAINS IN QUESTION ALLOWING THE DEDUCTION. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 10 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD 1. THE LEARNED CIT(A) ERRED BOTH IN LAW AND ON FAC TS OF THE CASE. 2. THE LEARNED CIT(A) OUGHT TO HAVE NOTICED THAT TH ERE IS NO ENCUMBRANCE TO THE 5000 SHARES OF NAVABHARAT POWER (P) LIMITED HELD BY THE ASSESSEE IN HIS INDIVIDUAL CAPA CITY. 3. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT THE ASSESSEE HIMSELF HAS ADMITTED THAT THE 5000 SHARES OF NAVABHARAT POWER (P) LIMITED HELD BY HIM IN HIS IND IVIDUAL CAPACITY WERE NOT PLEDGED TO ANYONE AND ONLY THE SH ARES HELD BY HIM AND HIS WIFE IN MALAXMI ENERGY VENTURES INDI A (P) LIMITED WERE ONLY PLEDGED TO PVP VENTURES (P) LIMIT ED IN CONNECTION WITH MERGER OF MALAXMI ENERGY VENTURES I NDIA (P) LIMITED WITH PVP VENTURES (P) LIMITED. 4. THE LEARNED CIT(A) SHOULD HAVE NOTICED THAT THE EXPENDITURE OF RS.19 CRORES STATED TO HAVE INCURRED TOWARDS TRA NSFER OF 5000 SHARES IS NOT AGAINST THE SHARES SOLD BY THE ASSESS EE IN HIS INDIVIDUAL CAPACITY BUT IS AGAINST THE OBLIGATION A NNEXED TO THE TRANSACTION OF SHARES OF MALAXMI ENERGY VENTURES IN DIA (P) LIMITED IN CONNECTION WITH MERGER. 7. LD. DR RELIED ON THE ORDER OF AO AND SUBMITTED T HAT TO CLAIM DEDUCTION U/S 48(I), THE EXPENDITURE SHOULD BE CONN ECTED TO THE TRANSFER OF CAPITAL ASSET, IN THE GIVEN CASE, THE A SSESSEE HAS TRANSFERRED 5000 SHARES IN HIS INDIVIDUAL CAPACITY, THERE IS NO ENCUMBRANCE ON THOSE SHARES HELD BY THE ASSESSEE, W HICH WAS THE SUBJECT MATTER OF TRANSFER. HE BROUGHT TO OUR NOTIC E THE SHARE PURCHASE AGREEMENT, WHICH WAS ENTERED ON 12/07/2010 BETWEEN ESSAR POWER LTD WITH ASSESSEE AND M/S MALAXMI ENERG Y VENTURES INDIA (P) LTD. (MEVPL). HE SUBMITTED THAT AS PER CL AUSE (C) OF THE RECITALS OF THE AGREEMENT, IT IS CLEARLY MENTIONED THAT ASSESSEE WAS HOLDING 5000 EQUITY SHARES, WHICH ARE EQUAL TO 0.02 8% OF THE ISSUED AND PAID UP CAPITAL OF NPPL WHEREAS THE ISSUED AND PAID UP SHARE CAPITAL OF NPPL IS 1,76,27,000 EQUITY SHARES. HE SU BMITTED THAT NOWHERE IN THE AGREEMENT IT IS MENTIONED THAT ASSES SEE IS SELLING HIS 5000 SHARES. HE FURTHER BROUGHT TO OUR NOTICE THAT AS PER THE AGREEMENT, INITIAL PURCHASE PRICE WAS QUOTED AT RS. 45 CRORES. (REFER PAGE 129 OF PAPER BOOK). FURTHER, HE BROUGHT TO OUR NOTICE THE CIVIL 11 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD SUIT FILED BY PVP GROUP AGAINST THE ASSESSEE AND MA LAXMI ENERGY VENTURES (INDIA) P. LTD. (MEVPL), NPPL INCLUDING ES SAR POWER LTD. AND HE SUBMITTED THAT THESE CIVIL APPEALS ARE AGAIN ST THE PLEDGE OF SHARES BELONGS TO MEVPL AND AGAINST THE CONDUCT OF THE ASSESSEE. THIS IS NOT RELATING TO THE SHARES HELD BY THE ASSE SSEE, WHICH WAS TRANSFERRED. HE SUBMITTED THAT CIT(A) HAS ALLOWED T HE CLAIM OF THE ASSESSEE FOR THE PAYMENT OF 19 CRORES IN SETTLEMENT OF DISPUTES WITH PVP GROUP U/S 48(I), WHICH IS NOT PROPER AND THE OR DER OF THE CIT(A) SHOULD BE QUASHED. 8. THE LD. AR SUBMITTED THAT THE FACTS OF THE CASE OF ASSESSEE BROUGHT OUT BY THE CIT(A) IN HIS ORDER ARE PROPER. HE BROUGHT TO OUR NOTICE, THE AGREEMENT ENTERED BY THE ASSESSEE AND P RASAD V. POTLURI, WHICH WAS ENTERED ON 14 TH JULY, 2008, AS PER WHICH, THEY DESIRED TO MERGE MEVPL AND PVPL. AS PER THE AGREEMENT, MEVPL W AS VALUED AT RS. 252 CRORES. THE PROPOSAL TO MERGE MEVPL WITH PVPL, FOR THE CONSIDERATION, THE EQUIVALENT SHARES OF PVPL WILL B E ISSUED. SUBSEQUENTLY, PVPL WAS NOT IN A POSITION TO INFUSE CAPITAL FOR THE NPPL PROJECTS AND DISPUTES AROSE BETWEEN THE PARTIE S AND FUNDS INVESTED BY PVPL IN THE MEVPL GROUP WAS CONVERTED I NTO LOAN BY WAY OF MUTUAL AGREEMENT BY ENTERING INTO LOAN AGREE MENT DATED 3 RD NOVEMBER, 2009, THE SAME IS PLACED AS PART OF PAPER BOOK. HE SUBMITTED THAT AS PER THE LOAN AGREEMENT, IT IS CLE ARLY HIGHLIGHTS THE REASONS FOR CANCELLING PROPOSED MERGERS BETWEEN PVP L AND MEVPL GROUP AND COMPENSATION FOR THE SAME. HE SUBMITTED T HAT ASSESSEE HAS PAID THE COMPENSATION AS PER THE LOAN AGREEMENT AND CLAIMED BACK THE SHARES BELONGS TO MEVPL PLEDGED WITH PVP G ROUP. 8.1 LD. AR SUBMITTED THAT SUBSEQUENT TO SETTLEMENT OF LOAN AS PER THE AGREEMENT WITH PVP GROUP, ASSESSE IN HIS PERSON AL AS WELL AS REPRESENTING MEVPL AS THE M.D. ENTERED INTO AGREEME NT WITH ESSAR POWER LTD. TO SELL THE SHARES HELD BY HIM AS WELL A S MEVPL ON 12/07/2010. HE SUBMITTED THAT IN BETWEEN ASSESSEE C AME TO KNOW 12 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD THAT PVP GROUP FILED CIVIL AND CRIMINAL CASES AGAIN ST THE ASSESSEE AS WELL AS MEVPL GROUP AND ALSO INCLUDED ESSAR POWER L TD. AS DEFENDENTS INSTEAD OF RETURNING THE SHARES PLEDGED BY THEM, EVEN THOUGH, THE AGREED COMPENSATION AS PER THE LOAN AGR EEMENT WAS SETTLED BY MEVPL GROUP. HE SUBMITTED THAT THE INTEN TION OF THE PVP GROUP IS TO STALL THE PROPOSED SALE OF SHARES TO ES SAR POWER LTD. HE BROUGHT TO OUR NOTICE VARIOUS ISSUES RAISED BY THE PLAINTIFF IN THE CIVIL PROCEEDINGS AND COPY OF THE ABOVE CIVIL CASE IS PLA CED ON RECORD. LD. AR SUBMITTED THAT ASSESSEE IS PART AND PARCEL OF SA LE AGREEMENT WITH ESSAR POWER LTD. IN SUPPORT OF THAT AND ALSO TO COU NTER LD. DR, HE BROUGHT TO OUR NOTICE CLAUSE 1.37 OF THE SALE AGREE MENT, WHICH IS PART OF PAPER BOOK AT PAGE 131, IT IS MENTIONED AS DEFIN ITION OF SALE OF SHARES, WHICH INCLUDES SHARES HELD BY THE ASSESSEE. 8.2 LD. AR SUBMITTED THAT ASSESSEE BEING FOUNDER AN D MAIN PERSON IN FLOATING THE COMPANY, MEVPL, IN WHICH HE HOLDS 5 0% SHARES, HE IS MAIN INSTRUMENTAL PERSON TO BRING THE ESSAR POWER L TD FOR NEGOTIATIONS AND BEING THE IMPORTANT PERSON IN THE DEAL, HE MANAGED TO NEGOTIATE BETTER PRICE FOR HIS OWN SHARES FROM OVERALL SALE CONSIDERATION OF RS. 62.17 CRORES. HE SUBMITTED THA T THE CIT(A) HAS RECORDED THE REASONS FOR DIFFERENCE IN SALE CONSIDE RATION AND SUBMITTED THAT MEVPL IS ONLY A SPECIAL PURPOSE VEHI CLE IN ORDER TO FACILITATE THE ASSESSEE TO INVEST IN NPPL AS WELL A S FACILITATE SMOOTH FUNCTIONING OF POWER PROJECTS IN THE COMPANY NPPL B Y REPRESENTING VARIOUS GOVERNMENT ORGANISATIONS TO GET THE APPROVA LS FOR SMOOTH FUNCTIONING OF THE PROJECTS. HE SUBMITTED THAT THE COMPANY MEVPL IS ONLY A FACILITATOR FOR THE WHOLE SET UP AND ACCORDI NGLY, THE ASSESSEE HAS VALUED THE SHARES OF MEVPL AS WELL AS HIS OWN S HARES. HE FURTHER SUBMITTED THAT AS PER THE AGREEMENT OF SALE WITH ESSAR POWER LTD., AS PER CLAUSE 2.1, AS PER THE CONDITION IN THAT CLAUSE, ASSESSEE IRREVOCABLY AGREES TO SELL SHARES AND CLEA R ALL ENCUMBRANCES. HE SUBMITTED THAT IN ORDER TO CLEAR THE ENCUMBRANCES, ASSESSEE HAS AGREED TO SETTLE RS. 19 CRORES AS A 13 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD COMPENSATION TO PVP GROUP IN ORDER TO WITHDRAW THE CIVIL CASES, WHICH WAS FILED BY THEM AGAINST ASSESSEE, MEVPL, NP PL, WIFE OF ASSESSEE AS WELL AS ESSAR POWER LTD. HE SUBMITTED T HAT IT IS NOT POSSIBLE FOR THE ASSESSEE TO CLOSE THE DEAL WITH ES SAR POWER LTD WITHOUT MAKING ABOVE ARRANGEMENT WITH PVP GROUP. H E SUBMITTED THAT MEVPL BEING A SPECIAL PURPOSE VEHICLE IN ORDER TO FACILITATE OPERATION IN NPPL, WHICH IS NOT IN A POSITION TO TA KE ANY FINANCIAL COMMITMENT, THE ASSESSEE HAS TO SETTLE THE COMPENSA TION TO PVP GROUP IN ORDER TO CLOSE THE DEAL WITH ESSAR POWER L TD. FOR SALE OF SHARES. HE SUBMITTED THAT IT CAN BE NOTED THAT WITH OUT THE ABOVE ARRANGEMENT, THE DEAL WITH ESSAR POWER LTD. WOULD N OT HAVE BEEN POSSIBLE AND, HENCE, THE ABOVE ARRANGEMENT IS DIREC TLY RELATING TO TRANSFER OF ASSESSEES SHARE AND IN FACT THE SETTLE MENT ALSO WAS MADE BY ONLY ASSESSEE, HENCE, THE ASSESSEE ALONE IS ELIG IBLE TO CLAIM THE ABOVE DEDUCTION U/S 48(I). FOR THIS PROPOSITION, LD . AR HAS RELIED ON VARIOUS DECISIONS: 1. CIT VS. BRADFORD TRADING CO. P. LTD., 261 ITR 222 2. ACIT VS. PUSHKAR DUTT SHARMA, 68 SOT 278 (DELHI ) 3. ADDL. CIT VS. MRS. MADHUR I. TECKCHANDANEY, 93 I TD 65 (MUM.) 4. I PARVATHA VARDHINI VS. ITO IN ITA NO. 590/HYD/2 015, DATED 31/08/16 5. SM WAHI VS. DIT AND OTHERS, 324 ITR 269 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE DECISIONS CITED BY LD. AR. THE CASE OF THE REVENUE IS THAT ASSESSEE HAS PAID RS. 19 CRORES TO SETTLE THE DISPUTE WITH PVP GROUP FOR WHICH ASSESSEE AND THE COMPANY M EVPL HAS PLEDGED THE SHARES OF MEVPL GROUP WITH PVP GROUP, B UT, THE ASSESSEE HAS SOLD 5000 SHARES HELD BY HIM IN NPPL, WHICH IS NOT A SUBJECT MATTER OF DISPUTE BUT THE SHARES HELD IN PL EDGE OF SHARES OF MEVPL WITH PVP GROUP, HENCE, SUCH PAYMENT OF RS. 19 CRORES CANNOT BE CLAIMED AS A DEDUCTION U/S 48(I) OF THE ACT. 14 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD 9.1 CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND THE BRIEF FACTS COMING OUT OF THE SUBMISSIONS ARE, ASSESSEE H AS ENTERED INTO A SALE AGREEMENT FOR SALE OF SHARES IN NPPL WITH ESS AR POWER LTD. FOR A CONSIDERATION OF RS. 62.17 CRORES, THIS TRANS ACTION INCLUDES SELLING OF 5000 SHARES HELD BY THE ASSESSEE ON HIS PERSONAL CAPACITY AND 88,08,500 SHARES WHICH WAS HELD BY MEVPL. 9.2 PRIOR TO THE SALE TRANSACTION IN THE EARLIER PE RIOD, ASSESSEE AS A MD OF MEVPL ENTERED INTO AN AGREEMENT WITH PVP GROU P TO MERGE THE MEVPL GROUP INTO PVP GROUP AND TO RECEIVE SHARE S OF PVP GROUP AS CONSIDERATION. ACCORDINGLY, PVP GROUP HAS INFUSE D SOME FUNDS TO MEVPL IN ORDER TO DEVELOP PROJECTS IN NPPL. LATER, SOME DISPUTE AROSE BETWEEN MEVPL GROUP AND PVP GROUP AND WITH MU TUAL CONSENT, THE FUNDS GIVEN BY PVP GROUP WAS CONVERTED AS LOAN AND LOAN AGREEMENT WAS SIGNED BY BOTH THE PARTIES AGREE ING TO PLEDGE SHARES OF MEVPL AS A SECURITY FOR REPAYMENT OF SUCH LOAN. THE LOAN WAS REPAID BY MEVPL GROUP SUBSEQUENTLY AND AS PER T HE TERMS OF LOAN AGREEMENT, PVP GROUP IS SUPPOSED TO RETURN THE PLEDGED SHARES TO THE MEVPL GROUP. IN THE MEANTIME, ASSESSEE HAS E NTERED INTO AN AGREEMENT OF SALE WITH ESSAR GROUP. THE PVP GROUP C AME TO THE KNOW OF SUCH DEVELOPMENT AND AGGRIEVED WITH THE MEV PL GROUP, PVP GROUP HAS FILED A CIVIL CASE AGAINST ASSESSEE, MEVP L, WIFE OF ASSESSEE, NPPL AND ESSAR POWER LTD., IN ORDER TO ST ALL THE SALE AGREEMENT WHICH WAS ENTERED BETWEEN MEVPL AND ESSAR POWER LTD. 9.3 AS PER THE TERMS OF AGREEMENT ENTERED BY ASSESS EE, MEVPL WITH ESSAR POWER LTD, THE SHARES SHOULD BE FREE OF ALL ENCUMBRANCES AND THE STAKE INVOLVED IN THIS TRANSAC TION, ASSESSEE IN HIS INDIVIDUAL CAPACITY AS WELL AS MD OF MEVPL HAS TO TAKE A DECISION IN ORDER TO SAFEGUARD THE SALE TRANSACTION. ACCORDI NG TO THE SITUATION, EXPLAINED BY THE LD. AR, ONE OF THE BEST OPTION AVA ILABLE TO THE ASSESSEE IS TO SELL THESE SHARES TO ESSAR POWER LTD , OTHERWISE, IT 15 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD MAY NOT HAVE BETTER OPPORTUNITY COMING FORTH IN TH E NEAR FUTURE AND ASSESSEE WAS NOT WILLING TO LET GO THE SITUATION AN D AGREED UNDER DISTRESS TO SETTLE THE ISSUE WITH PVP AND ACCORDING LY, AGREED TO PAY FINANCIAL COMPENSATION OF RS. 19 CRORES IN ORDER TO WITHDRAW THE CIVIL APPEAL, SO THAT ESSAR GROUP CAN BUY THE SHARES FREE OF ANY ENCUMBRANCES. EVEN THOUGH, THE ENCUMBRANCES WERE NO T ON THE SHARES OF NPPL HELD BY MEVPL OR BY THE ASSESSEE HIM SELF, BUT, THERE IS AN INDIRECT LINK TO THE SALE TRANSACTIONS OF NPP L SHARES, WHICH ASSESSEE HAS TO CLEAR ENCUMBRANCES IN THE SHARES OF MEVPL. SINCE MEVPL IS FULLY OWNED BY THE ASSESSEE AND HIS WIFE A ND ANY ENCUMBRANCES RELATING TO SHARES OF THE MEVPL BEING MAJORITY SHAREHOLDER OF THE NPPL, ESSAR POWER LTD WOULD NOT HAVE SHOWN INTEREST TO GO WITH THE SALE AGREEMENT, HENCE, THE RE IS A LIVE-LINK OF ENCUMBRANCES TO THE SHARES OF NPPL ALSO. WE ARE INC LINED TO FOLLOW THE RATIOS OF THE FOLLOWING DECISIONS: 9.4 IN THE CASE OF CIT VS. BRADFORD TRADING CO. P. LTD., (SUPRA), THE HONBLE MADRAS HIGH COURT HAS HELD THAT EXPENDITURE INCURRED IN REMOVING ENCUMBRANCES TO TRANSFER IS ELIGIBLE EXPEN DITURE U/S 48(I). FOR THE SAKE OF CLARITY, WE REPRODUCE THE RATIO LAI D DOWN BY THE HONBLE COURT, WHICH IS AS UNDER: WE THEREFORE HOLD THAT THE AMOUNT OF RS. 2 LAKHS W AS PAID TO GET OVER THE DIFFICULTIES CREATED BY A. M. BUHARI F OR THE SALE OF THE PROPERTY AND UNLESS THE AMOUNT WAS PAID, THE TR ANSFER OF PROPERTY WOULD NOT HAVE TAKEN PLACE AT ALL. WE, THE REFORE, HOLD THAT THE APPELLATE TRIBUNAL WAS RIGHT IN HOLDING TH AT THE PAYMENT HAD AN INTIMATE CONNECTION WITH THE TRANSFER OF THE UNDERTAKING AS F BY ALLOWING THE LITIGATION TO GO ON THE HANDS OF THE COMPANY WOULD BE TIED AGAINST THE TRANSFER OF THE U NDERTAKING IN FAVOUR OF INDIA TOBACCO COMPANY LIMITED AND THE ASSESSEE WOULD NOT HAVE REALISED THE SALE CONSIDERATION FROM THE PROSPECTIVE PURCHASER. 9.5 SIMILARLY IN THE CASE OF ACIT VS. PUSHKAR DUTT SHARMA (SUPRA), THE DELHI BENCH HAS OPINED IN THE SIMILAR MANNER AS HELD IN THE ABOVE CASE, THAT THE LANGUAGE OF THIS PROVISION THAT IT P ROVIDES FOR DEDUCTING ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH 16 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD SUCH TRANSFER. THE EXPRESSION IN CONNECTION WITH S UCH TRANSFER IS TO BE SEEN IN CONTRADISTINCTION TO THE EXPRESSION FOR THE TRANSFER. WHEREAS THE LATTER IS RELATIVELY NARROWER SO AS TO EMBRACE ONLY SUCH EXPENSES WHICH ARE INCURRED FOR THE PURPOSES OF TRA NSFER OF CAPITAL ASSET, THE FORMER IS QUITE WIDE IN ITS AMBIT AND AL SO ENCOMPASSES EXPENDITURE OF ANY NATURE WHICH IS CONNECTED WITH T HE TRANSFER OF PROPERTY. IT WAS FURTHER HELD THAT ANY EXPENDITURE WHICH HAS TO BE INCURRED TO EFFECTIVELY TRANSFER THE PROPERTY FALLS WITHIN ITS PURVIEW. NOT ONLY THE EXPENSES DIRECTLY CONNECTED WITH OR FO R THE IMMEDIATE PURPOSE OF THE TRANSFER OF CAPITAL ASSET, BUT, ALSO ALL EXPENSES WHICH FACILITATE THE TRANSFER OF THE CAPITAL ASSET, FALL WITHIN ITS SCOPE. IT WOULD ALSO INCLUDE THE EXPENSES INCURRED TO REMOVE THE IM PEDIMENTS OR ENCUMBRANCES IN THE WAY OF THE INSTANT TRANSFER OF CAPITAL ASSET. IT IMPLIES THAT, ANY AMOUNT PAID BY THE ASSESSEE FOR R EMOVING ANY ENCUMBRANCE FALLS UNDER SECTION 48(I) OF THE ACT. 9.6 SIMILARLY, THE COORDINATE BENCH OF ITAT, HYDERA BAD IN THE CASE OF I PARVATHA VARDHINI (SUPRA), HAS HELD AS UNDER: 9.1. COMING TO THE ISSUE OF COMPENSATION PAID TO K. KRISHNA AND K. GNANESWAR , THERE WAS A MEMORANDUM OF COMPRO MISE DT. 04-01-2006 WHEREIN, BOTH THE PARTIES ARE CLAIMI NG ABSOLUTE OWNERSHIP OF THE IMPUGNED LANDS AND PERPETUAL INJUN CTION IN O.S. NO. 68/198 ON THE FILE OF PR. SENIOR CIVIL JUD GE, RR DISTRICT WAS OBTAINED AGAINST THOSE PARTIES. THERE WAS A COM PROMISE TO SETTLE THE DISPUTE AMICABLY AND AS A PART OF THAT R S. 1 CRORE WAS PAID BY WAY OF CHEQUES, AS DETAILED IN THE MEMO RANDUM OF COMPROMISE. THEREFORE, THE EXPENDITURE INCURRED TO IMPROVE THE TITLE OF THE PROPERTY SHOULD ALSO BE ALLOWED AS A DEDUCTION IN COMPUTATION OF CAPITAL GAINS, AS HELD BY THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABRAR ALVI [247 I TR 312] (BORN). IN VIEW OF THIS, SINCE LD. AO'S ORDER IS AC CORDING TO THE PROVISIONS OF THE ACT, AS WELL AS PRINCIPLES LAID D OWN IN VARIOUS CASES ON SIMILAR NATURE OF EXPENDITURE, WE ARE OF T HE OPINION THAT THERE IS NO ERROR IN THE ORDER PASSED BY THE A O. 9.7 CONSIDERING THE ABOVE DECISIONS AND THE DECISIO N OF CIT(A), WE ARE IN AGREEMENT WITH THE FINDING OF THE CIT(A) WIT H RESPECT TO THE EXPENSES BEING INCURRED FOR THE PURPOSE OF CLEARING THE 17 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD ENCUMBRANCES TO FACILITATE THE TRANSFER. HOWEVER, W E ARE NOT IN AGREEMENT WITH CIT(A) THAT WHOLE EXPENDITURE WAS IN CURRED TO REMOVE ENCUMBRANCES WHICH RELATES TO TRANSFER OF SHARES HE LD BY ASSESSEE ONLY. IN OUR CONSIDERED VIEW, THE ASSESSEE WAS UNDE R PRESSURE TO SAFEGUARD SALE TRANSACTION WHICH INVOLVES NOT ONLY SHARES HELD BY THE ASSESSEE AS WELL AS SHARES HELD BY MEVPL. ASSESSEE AND HIS COMPANY ENTERED INTO SALE AGREEMENT WITH ESSAR POWE R LTD TO SELL WHOLE CHUNK OF SHARES HELD BY THEM IN NPPL COMPANY . EVEN ESSAR POWER LTD AGREED TO BUY THE WHOLE SHARES FOR PURCHA SE CONSIDERATION OF RS. 62.17 CRORES IN ORDER TO HAVE CONTROL AND IN TEREST IN NPPL COMPANY, AS THEY ARE NOT CONCERNED HOW THE PRICE OF EACH INDIVIDUAL SHARES IS QUOTED BY THE ASSESSEE. IN OUR VIEW, ESSA R POWER LTD HAS PAID THE SALE CONSIDERATION TO BUY 50% OF SHARES HE LD IN NPPL. HENCE, THE PAYMENT OF RS. 19 CRORES IN ORDER TO REM OVE ENCUMBRANCES, RELATES TO THE TOTAL SHARES HELD BY A SSESSEE HIMSELF AND THE COMPANY MEVPL. 9.8 EVEN THOUGH, ASSESSEE HIMSELF PAID RS. 19 CRORE S TO CLEAR ENCUMBRANCES, THE EXPENDITURE HAS TO BE APPORTIONED TO THE SHARES TRANSFERRED BY ASSESSEE AND THE COMPANY MEVPL. NORM ALLY, THE PROPER WAY TO APPORTION IS BASED ON THE NUMBER OF S HARES TRANSFERRED. HOWEVER, IN THE PRESENT CASE, THE VALUE OF SHARES T RANSFERRED WERE NOT EVENLY VALUED, THE VALUE OF SHARES HELD BY ASSE SSEE I.E. 5000 SHARES WERE VALUED AT RS. 50 CRORES AND MEVPL WAS H OLDING 88,08,500 SHARES WERE VALUED AT RS. 12.17 CRORES. C ONSIDERING THE VAST VARIATION IN THE VALUATION, IN OUR CONSIDERED VIEW, THE EXPENDITURE SHOULD BE APPORTIONED BASED ON TOTAL SA LE CONSIDERATION PAID BY ESSAR POWER LTD. I.E. RS. 62.17 CRORES. ACC ORDINGLY, RS. 19 CRORES IS TO BE APPORTIONED BETWEEN ASSESSEE AND ME VPL IN PROPORTION OF RS. 50 CRORES AND RS. 12.17 CRORES. H ENCE, THE APPORTIONED EXPENDITURE WHICH COMES TO ASSESSEE IS RS. 15.28 CRORES. ACCORDINGLY, WE DIRECT THE AO TO ALLOW RS. 15.28 CRORES AS 18 ITA NO. 1592/H/14 Y. HARISH CHANDRA PRASAD EXPENDITURE U/S 48(I). THUS, THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE PARTLY ALLOWED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 31 ST AUGUST, 2017. KV COPY TO:- 1) DCIT, CIRCLE 16(1), ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2) SHRI Y. HARISH CHANDRA PRASAD, MALAXMI COURT YAR D, SURVEY NO. 157, KHAJAGUDA (VILLAGE) GOLCONDA PO ST, HYDERABAD. 3) CIT(A) - V , HYDERABAD 4) CIT IV, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE
