Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 9067 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 6 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-06-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
22-03-2016
Assessment Year
2010-2011
Appeal Filed On
04-12-2013
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NOS. 1216 & 2106/MDS/2013 / ASSESSMENT YEARS : 2009-10 & 2010-11 M/S. SIVANANDHA MILLS LTD., 41, PERIASAMY ROAD (EAST), R.S.PURAM, COIMBATORE-641002. PAN AAKCS7439J ( /APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX / THE DCIT, COMPANY CIRCLE-IV(2), COIMBATORE. RESPONDENT) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, CIT ! / DATE OF HEARING : 22.03.2016 '# ! / DATE OF PRONOUNCEMENT : 17.06.2016 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAIN ST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX( APPEALS) FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. - - ITA 1216 & 2106/13 2 ITA NO.1216/MDS/2013 : 2. THE GROUNDS FOR OUR CONSIDERATION IS WITH REGAR D TO SUSTAINING THE FOLLOWING ADDITIONS BY THE COMMISSIO NER OF INCOME-TAX(APPEALS): I) DISALLOWANCE OF PAYMENT OF RS 18 CRORES INCURRED FOR THE TRANSFER OF LAND PAID TO THE BANK OF BARODA AND PAY MENT OF WORKMEN COMPENSATION FOR SETTLEMENT AT RS 807,43,08 3/-. II) DISALLOWANCE OF CLAIM OF SET OFF OF BUSINESS EX PENDITURE AGAINST LONG TERM CAPITAL GAINS AT ` 3,68,30,254/- III) DISALLOWANCE OF BAD DEBTS OF RS 14,21,618/- 3. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A PUBL IC LIMITED COMPANY WITH OBJECTS, INTER ALIA, OF MANUFA CTURING YARN. THE ASSESSEE FILED THE RETURN OF INCOME ON 30/03/20 11 FOR THE ASSESSMENT YEAR 2009-10, ADMITTING A TOTAL INCOME O F ` 10,28,03,164/-. THE RETURN WAS INITIALLY PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY AND A NOTICE U/S 143 (2) WAS ISSUED ON 15/ 09/2011. IT IS OBSERVED THAT THE ASSESSEE COMPANY HAD BEEN INC URRING LOSSES, SINCE LATE EIGHTIES. THERE WAS A STRIKE RES ORTED TO BY THE LABOUR UNION OF THE ASSESSEE COMPANY, WAY BACK IN 1 993, - - ITA 1216 & 2106/13 3 WHICH LATER RESULTED IN A LOCKOUT DECLARED BY THE M ANAGEMENT. THE MANAGEMENT COULD NOT CONTINUE TO CARRY ON THE B USINESS, PRIMARILY OWING TO THE CONTINUED STRIKE BY THE LABO UR UNION. OWING TO THE ABOVE THE COMPANY HAD GONE SICK AND TH E COMPANY WAS CONSTRAINED TO APPROACH BIFR, FOR REMED IAL MEASURES. HOWEVER, BIFR HAD PASSED AN EX-PARTE ORDE R, ORDERING WINDING UP OF THE ASSESSEE COMPANY AND HAD ACCORDINGLY SOUGHT TO APPOINT AN OFFICIAL RECEIVER. 3.1 THE COMPANY CHALLENGED THE ORDER OF THE BIFR, B Y A WRIT PETITION BEFORE THE MADRAS HIGH COURT, BEING W P NO 19907 OF 2001. IN THE MEANTIME OWING TO THE SICKNESS, THE ASSESSEE COMPANY COULD NOT MEET EXPECTATIONS OF ITS EMPLOYEE S IN TERMS OF INCREMENT, BONUS AND OTHER LABOUR MEASURES. THE EMPLOYEES POST-STRIKE AND LOCKOUT, ERECTED BARBED W IRE FENCE AROUND THE PREMISES, HOUSING, FACTORY AND CORPORATE OFFICE THEREBY VIRTUALLY PREVENTING ALL FROM INGRESS AND E GRESS. IN THE MEANTIME THE SECURED CREDITOR BANK OF BARODA, WHI CH HAD EARLIER ADVANCED LOAN AGAINST THE SECURITY OF ALL T HE ASSETS, INCLUDING STOCK-IN-TRADE, HAD MOVED PETITION BEFORE DRT (DEBTS RECOVERY TRIBUNAL) AND ALSO UNDER SARFAESI A CT (THE - - ITA 1216 & 2106/13 4 SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSE TS AND ENFORCEMENT OF SECURITY INTEREST ACT), TO RECOVER I TS LOAN THAT WAS EARLIER ADVANCED. THE BANK HAD ALREADY TAKEN OV ER THE POSSESSION OF THE PROPERTIES OF THE ASSESSEE COMPAN Y, INCLUDING THE PROPERTY THAT WAS SOUGHT TO BE TRANSF ERRED/SOLD. 3.2 THE LABOUR UNION VIS A VIS WORKMEN, TO RECOVER ITS DUES, HAD ALSO IMPLEADED ITSELF IN THE WRIT PETITIO N FILED BY THE ASSESSEE COMPANY. IN THE COURSE OF PROCEEDINGS BEFO RE THE MADRAS HIGH COURT, AND WITH THE DIRECT INVOLVEMENT AND UNDER SUPERVISION OF THE MADRAS HIGH COURT, A MEMORANDUM OF COMPROMISE WAS REACHED ON 29/11/2007, BETWEEN THE ASSESSEE AND THE COIMBATORE DISTRICT MILL LABOUR UN ION, REPRESENTING THE STRIKING LABOUR UNION OF THE ASSES SEE, AND THE SECURED CREDITOR BANK, WHEREBY THE ASSESSEE, ON THE SUGGESTION AND HELPLESSLY, HAD AGREED TO DISPOSE A PIECE OF LAND AT SARAVANAMPATTI AND TO UTILIZE THE PROCEEDS TO SETTLE DUES TO WORKMEN AND TO THE SECURED CREDITOR VIS A VIS THE BANK. 3.3 IN PURSUANCE OF THE COMPROMISE, A FORMAL PETITI ON WAS FILED BEFORE THE MADRAS HIGH COURT, SEEKING FOR PER MISSION TO - - ITA 1216 & 2106/13 5 IMPLEMENT THE SCHEME OF THE COMPROMISE / MOC. THE O RDER OF THE MADRAS HIGH COURT WAS NECESSARY AS THE PROPE RTY WAS UNDER THE POSSESSION OF THE SECURED CREDITOR. THE ASSESSEE HAD ENGAGED CERTAIN PERSONS, TO ENABLE AND FACILITA TE ALL ASPECTS SURROUNDING SALE OF THE PROPERTY, WITH BETT ER TERMS AND CONDITIONS. IT WAS WITH THE ASSISTANCE OF SERVICES FROM THESE PERSONS THAT THE ASSESSEE WAS ABLE TO OBTAIN BETTER PRICE, WHICH WAS MUCH HIGHER THAN THE GUIDELINE VALUE, WHI CH WOULD NORMALLY HAVE ENDED AS A DISTRESS SALE, UNDER SUCH CIRCUMSTANCES, WITH MUCH LESSER CONSIDERATION, THE SALE EXTRACTED MUCH HIGHER VALUE WHICH WAS INCREDIBLE, C ONSIDERING OVERALL CIRCUMSTANCES UNDER WHICH SUCH SALE TOOK PL ACE. THE ASSESSEE HAD PAID THESE PERSONS FOR SUCH SERVICES, BY WAY OF COMMISSION, WHICH TOTALED TO ABOUT ` 1,98,17,992/-. THESE COMMISSION PAYMENTS WERE MADE BY ACCOUNT PAYEE CROS SED CHEQUES AFTER DULY DEDUCTING TDS FROM SUCH PAYMENTS . THE RECIPIENTS HAD ALSO DULY REFLECTED / ACCOUNTED FOR THESE SUMS IN THEIR RESPECTIVE ACCOUNTS AND RETURNS AS APPLICABLE . IT WILL BE PERTINENT TO POINT OUT THAT THIS COMMISSION WORKS O UT TO LESS THAN 5% OF THE ENTIRE SALE CONSIDERATION. IT WAS T HE CONTENTION - - ITA 1216 & 2106/13 6 OF THE ASSESSEE THAT IT HAD TO DO ALL THE ABOVE ONL Y TO ENSURE THAT IT CONTINUES TO CARRY ON THE BUSINESS AFTER AV OIDING WINDING UP, AFTER SUCH BUSINESS WAS HELPLESSLY REMAINED UND ER LULL. 3.4 IN THE COURSE OF THE ASSESSMENT PROCEEDING TH E ASSESSEE, CLAIMED DEDUCTION U/S 48(I) FOR THE FOLLO WING PAYMENTS MADE: A) PAYMENTS MADE TO WORKMEN, OF ` 8,07,43,083/- WHO HAD PHYSICALLY RETAINED THE POSSESSION (THOUGH THE BANK HAD TAKEN TOKEN LEGAL POSSESSION OF THE PROPERTY) O F THE PROPERTY BY PREVENTING THE MANAGEMENT FROM ENTERING THE PROPERTY, BY PUTTING BARRICADES ETC; B) PAYMENT MADE TO SECURED CREDITOR BANK OF BAROD A, TO THE TUNE OF ` 18.00 CRORES/- TO SECURE LEGAL RELEASE OF THE PROPERTY PRIOR TO SALE OF THE PROPERTY AND ALSO IN COMPLIANCE WITH THE IMPLEMENTATION OF THE MOC. C) PAYMENT MADE TO THE SALES TAX DEPARTMENT TO THE TUNE OF ` 97,49,342/- TO SECURE/RAISE THE ATTACHMENT MADE BY THE SALES TAX DEPARTMENT. D) PAYMENT OF COMMISSION OF ` 1,98,17,992/- E) BUSINESS EXPENDITURE OF RS 3,68,30,254/- F) BAD DEBTS OF RS 14,21,618/-. 3.5 IT IS SUBMITTED THAT THE ABOVE PAYMENTS, I.E. P AYMENTS MADE TO WORKMEN, SECURED CREDITOR, SALES TAX DEPART MENT, COMMISSION PAYMENT TO MEDIATORS, DESERVED TO BE ALL OWED AS DEDUCTIONS UNDER SECTION 48(I) OF THE INCOME TAX AC T 1961 SINCE THE SAME FALL UNDER THE CATEGORY OF THOSE EX PENDITURE - - ITA 1216 & 2106/13 7 INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AS CONTEMPLATED UNDER SECTION 48(I) OF TH E INCOME TAX ACT. IT IS SUBMITTED THAT THE SECTION 48 CONTE MPLATES THREE AMOUNTS FOR THE PURPOSE OF COMPUTING INCOME CHARGEA BLE UNDER THE HEAD CAPITAL GAINS, WHICH IS AS UNDER : THE FIRST IS THE FULL VALUE OF THE CONSIDERATION F OR WHICH THE CAPITAL ASSET HAS BEEN TRANSFERRED. THE SECOND IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND TH E THIRD AND THE LAST IS THE COST OF ACQUISITION OF THE CAPITAL ASSET INCLUDING THE COST OF ANY IMPROVEMENT THERETO. 3.6 IT IS SUBMITTED THAT IN THE PRESENT FACTS AND CIRCUMSTANCES, ALL THAT THE ASSESSEE HAS TO PROVE I S THAT THE EXPENDITURE IN INCURRED WAS WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AS CONTEMPLATED UNDER SECTION 48(I) OF THE ACT. FURTHER THE LARGER QUESTION IS, WHETHER AT ALL THE ASSESSEE WOULD HAVE BEEN ABLE TO DISPOSE OFF T HE PROPERTY WITHOUT INCURRING THESE EXPENDITURE AND IF THE ASSE SSE IS ABLE TO PROVE THE SAME THEN THE EXPENDITURE INCURRED WOULD FORM PART SECTION 48 (I). IT IS THE CONTENTION OF THE ASSESS EE THAT UNLESS THE ASSESSEE HAD SETTLED SERVICE CHARGES I.E . COMMISSION PAYMENTS, SETTLE THE SECURED CREDITOR, S ETTLE THE - - ITA 1216 & 2106/13 8 SALES TAX DEPARTMENT AND ALSO THE WORKMEN, THE SALE TRANSACTION WITH M/S ALLIANCE MALL DEVELOPERS PVT. LTD. WOULD NOT HAVE MATERIALIZED AT ALL. IF THIS TRANSACTION H AD NOT MATERIALIZED, THERE WOULD PERHAPS HAVE BEEN NO QUES TION OF CAPITAL GAINS. IT IS SUBMITTED THAT THE EXPRESSION USED IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER. THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER HAS TO BE SEEN IN A WIDER MANNER AND GIVE N A LARGER LIBERAL INTERPRETATION. IN THE PRESENT CASE, THE AS SESSEE SHALL ENDEAVOR TO PROVE THAT THE EXPENDITURE INCURRED OR PAID WAS ABSOLUTELY NECESSARY TO EFFECT THE TRANSFER AND SUC H AMOUNTS PAID WILL FALL UNDER CLAUSE (I). 4. REGARDING PAYMENT TO WORKMEN, IT IS SUBMITTED THAT THE PAYMENT MADE TO THE WORKMEN SHOULD BE TREATED A S EXPENSES WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AS CONTEMPLATED UNDER SECTION 48(I) OF THE INCOME T AX ACT 1961. ACCORDING TO THE LD. AR, THE WORKMEN HAD FOR CEFULLY TAKEN POSSESSION OF THE FACTORY PREMISES OF THE ASS ESSEE COMPANY BY ERECTING BARBED WIRE FENCE AND VIRTUALLY PREVENTING INGRESS AND EGRESS FROM THE PROPERTY. THIS FINDING OF FACT WAS - - ITA 1216 & 2106/13 9 RECORDED BY THE LEARNED ASSESSING OFFICER IN HIS AS SESSMENT ORDER. THUS THE FORCED POSSESSION BY THE WORKMEN HA D BECOME AN ENCUMBRANCE WHICH WAS NOT CREATED BY THE ASSESSEE COMPANY BY ITSELF BUT THRUST UPON IT. THE MANAGEMENT THOUGHT IT WISE, ON THE GROUNDS OF PRUDE NCE AND COMMERCIAL EXPEDIENCY, NOT TO TAKE BACK THOSE EMPLO YEES WHO BROUGHT ABOUT THE STRIKE IN THE YEAR 1993 AND CONTI NUED TILL 2007. IT IS A STATUTORY LIABILITY IMPOSED ON THE EM PLOYER TO REDEEM BY MAKING PAYMENT. THUS THE EMPLOYER, THE AS SESSEE COMPANY WAS CONSTRAINED TO MAKE THE PAYMENT TO SECU RE FREE POSSESSION OF THE PROPERTY, WHICH IS A PRE-CONDITIO N FOR THE TRANSFER, IN THIS CONTEXT, THE PAYMENT BECOMES A NE CESSARY TO SECURE FREE POSSESSION OF THE PROPERTY AND THUS QUA LIFIES FOR DEDUCTION U/S 48 (1). 4.1 IT IS SUBMITTED THAT THE WORKMEN WERE DEMANDING THEIR COMPENSATION. THE WORKMEN WERE MADE PARTY TO THE PROCEEDINGS. IT IS SUBMITTED THAT THE WORKMEN HAVE CLAIMED/RIGHT OVER THE IMMOVEABLE PROPERTY OF THE C OMPANY AND THE SAID RIGHT IS IN PARI PASSU TO THE EXTENT O F THE WORKMENS PORTION AS LAID DOWN IN SECTION 529(1)(C) PROVISO - - ITA 1216 & 2106/13 10 READ WITH SECTION 529A OF THE COMPANIES ACT, 1956. IT IS A WELL-ESTABLISHED LEGAL POSITION, THAT THE WINDING U P OF A COMPANY SHALL BE DEEMED TO COMMENCE AT THE TIME OF PRESENTATION OF THE PETITION FOR WINDING UP OF THE COMPANY UNDER SECTION 20 OF THE SICA. 4.2 THE LD. AR PLACED RELIANCE ON THE PROVISIONS OF SEC.529 OF THE COMPANIES ACT, WHICH READS AS FOLLOWS: SECTION 529 APPLICATION OF INSOLVENCY RULES IN W INDING UP OF INSOLVENT COMPANIES, THE SAME RULES SHALL PRE VAIL AND BE OBSERVED WITH REGARD TO- . (C) THE RESPECTIVE RIGHTS OF SECURED AND UNSECURED CREDITORS; AS ARE IN FORCE FOR THE TIME BEING UNDER THE LAW OF INSOLVENCY WITH RESPECT TO THE ESTATES OF PE RSONS ADJUDGED INSOLVENT: PROVIDED THAT THE SECURITY OF EVERY SECURED CREDITO R SHALL BE DEEMED TO BE SUBJECT TO A PARI PASSU CHARG E IN FAVOUR OF THE WORKMENS PORTION THEREIN, AND, WHERE A SECURED CREDITOR, INSTEAD OF RELINQUISHING HIS SECU RITY AND PROVING HIS DEBT, OPTS TO REALIZE HIS SECURITY, - (A) THE LIQUIDATOR SHALL BE ENTITLED TO REPRESENT T HE WORKMEN AND ENFORCE SUCH CHARGE; (B) ANY AMOUNT REALIZED BY THE LIQUIDATOR BY WAY OF ENFORCEMENT OF SUCH CHARGE SHALL BE APPLIED RATEABL Y FOR THE DISCHARGE OF WORKMENS DUES; AND - - ITA 1216 & 2106/13 11 (C) SO MUCH OF THE DEBT DUE TO SUCH SECURED CREDITO R AS COULD NOT BE REALIZED BY HIM BY VIRTUE OF THE FOREGOING PROVISIONS OF THIS PROVISO OR THE AMOUNT OF THE WORKMENS PORTION IN HIS SECURITY, WHICHEVER IS LESS, SHALL RANK PARI PASSU WITH THE WORKMENS DUES FOR THE PURPOSES OF SECTION 529A.] (2) (3) FOR THE PURPOSES OF THIS SECTIONS, SECTION 529A AND SECTION 530 ,- (A) WORKMEN, IN RELATION TO A COMPANY, MEANS THE EMPLOYEES OF THE COMPANY, BEING WORKMEN WITHIN THE MEANING OF THE INDUSTRIAL DISPUTES ACT, 1947 (14 OF 1947); (B) WORKMENS DUES, IN RELATION TO A COMPANY, MEA NS THE AGGREGATE OF THE FOLLOWING SUMS DUE FROM THE COMPANY TO ITS WORKMEN, NAMELY: (I) TO (IV) (C) WORKMENS PORTION, IN RELATION TO THE SECURIT Y OF ANY SECURED CREDITOR OF A COMPANY, MEANS THE AMOUNT WHICH BEARS TO THE VALUE OF THE SECURITY THE SAME PROPORTION AS THE AMOUNT OF THE WORKMENS DUES BEAR S TO THE AGGREGATE OF- (I) THE AMOUNT OF WORKMENS DUES; AND (II) THE AMOUNT OF THE DEBTS DUE TO THE SECURED CRE DITORS. ILLUSTRATION. THE VALUE OF THE SECURITY OF A SECU RED CREDITOR OF A COMPANY IS ` 1,00,000. THE TOTAL AMOUNT OF THE WORKMENS DUES IS ` 1,00,000. THE AMOUNT OF THE DEBTS DUE FROM THE COMPANY TO ITS SECURED CREDITORS IS ` 3,00,000. THE AGGREGATE OF THE AMOUNT OF WORKMENS DUES AND OF THE AMOUNT OF DEBTS DUE TO SECURED CREDITORS IS ` 4,00,000. THE WORKMENS PORTION OF THE SECURITY IS, THEREFORE, ONE-FOURTH OF THE VALUE OF THE SECURITY, THAT IS ` 25,000. - - ITA 1216 & 2106/13 12 E. SECTION 529A IS CRUCIAL FOR CONSIDERATION OF THESE APPEALS AND IT IS REPRODUCED AS IT IS: SECTION 529A OVERRIDING PREFERENTIAL PAYMENT. (1) NOTWITHSTAND ING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS A CT OR ANY OTHER LAW FOR THE TIME BEING IN FORCE, IN THE W INDING UP OF A COMPANY- (A) WORKMENS DUES; AND (B) DEBTS DUE TO SECURED CREDITORS TO THE EXTENT SU CH DEBTS RANK UNDER CLAUSE (C) OF THE PROVISO TO SUB- SECTION (1) OF SECTION 529 PARI PASSU WITH SUCH DUES, SHALL BE PAID IN PRIORITY TO ALL OTHER DEBTS. (2) THE DEBTS PAYABLE UNDER CLAUSE (A) AND CLAUSE ( B) OF SUB-SECTION (1) SHALL BE PAID IN FULL, UNLESS TH E ASSETS ARE INSUFFICIENT TO MEET THEM, IN WHICH CASE THEY S HALL ABATE PROPORTIONS. F. FROM THE ABOVE IT IS CLEAR THAT IT IS ONLY LIMIT ED CLASS OF SECURED CREDITORS WHO HAVE PRIORITY OVER ALL OTHERS IN ACCORDANCE WITH SECTION 529A AND THE PRIORITY OF TH E SECURED CREDITOR IS ONLY TO THE EXTENT THAT ANY PART OF THE SAID SECURITY IS LOST IN FAVOUR OF THE WORKMEN CONSEQUENT TO DEMA NDS MADE BY THE LIQUIDATOR UNDER CLAUSES (A) OR (B) OR CLAUSE (C) TO PROVIDE TO SECTION 529(1). IT IS THEREFORE CLEAR THAT THE WORKMENS DUE IS PARI PASSU WITH THE CLAIM OF ANY S ECURED CREDITOR. 4.3 IN THIS REGARD THE FOLLOWING JUDGMENTS ARE RELIED UPON BY THE LD. AR: A. IN JITENDRA NATH SINGH IN (2013) 1 SSC 462, WHER EIN IT WAS HELD AS FOLLOWS: 16.1. A SECURED CREDITOR HAS ONLY A CHARGE OVER A PARTICULAR PROPERTY OR ASSET OF THE COMPANY. THE SE CURED CREDITOR HAS THE OPTION TO EITHER REALIZE HIS SECUR ITY OR - - ITA 1216 & 2106/13 13 RELINQUISH HIS SECURITY. IF THE SECURED CREDITOR RELINQUISHES HIS SECURITY, LIKE ANY OTHER UNSECURED CREDITOR, HE IS ENTITLED TO PROVE THE DEBT DUE TO H IM AND RECEIVE DIVIDENDS OUT OF THE ASSETS OF THE COMPANY IN THE WINDING-UP PROCEEDINGS. IF THE SECURED CREDITOR OPTS TO REALIZE HIS SECURITY, HE IS ENTITLED TO REALIZE IN A PROCEEDING OTHER THAN THE WINDING-UP PROCEEDING BUT HAS TO PAY TO THE LIQUIDATOR THE COSTS OF PRESERVAT ION OF THE SECURITY TILL HE REALIZES THE SECURITY. 16.2. OVER THE SECURITY OF EVERY SECURED CREDITOR, A STATUTORY CHARGE HAS BEEN CREATED IN THE FIRST LIMB OF THE PROVISO TO CLAUSE (C) OF SUB-SECTION (1) OF SECTION 529 OF THE COMPANIES ACT IN FAVOUR OF THE WORKMEN IN RESPE CT OF THEIR DUES FROM THE COMPANY AND THIS CHARGE IS P ARI PASSU WITH THAT OF THE SECURED CREDITOR AND IS TO T HE EXTENT OF THE WORKMENS PORTION IN RELATION TO THE SECURITY OF ANY SECURED CREDITOR OF THE COMPANY AS STATED IN CLAUSE (C) OF SUB-SECTION (3) OF SECTION 529 OF THE COMPANIES ACT. 16.3. WHERE A SECURED CREDITOR OPTS TO REALISE THE SECURITY THEN SO MUCH OF THE DEBT DUE TO SUCH SECUR ED CREDITOR AS COULD NOT BE REALIZED BY HIM BY VIRTUE OF THE STATUTORY CHARGE CREATED IN FAVOUR OF THE WORKMEN S HALL TO THE EXTENT INDICATED IN CLAUSE (C) OF THE PROVIS O TO SUB-SECTION ( 1 ) OF SECTION 529 OF THE COMPANIES ACT RANK PARI PASSU WITH THE WORKMENS DUES FOR THE PURPOSES OF SECTION 529-A OF THE COMPANIES ACT. 16.4. THE WORKMENS DUES AND WHERE THE SECURED CREDITOR OPTS TO REALIZE HIS SECURITY, THE DEBT TO THE SECURED CREDITOR TO THE EXTENT IT RANKS PARI PASSU WITH THE WORKMENS DUES UNDER CLAUSE (C) OF THE PROVISO TO SUB-SECTION ( 1 ) OF SECTION 529 OF THE COMPANIES ACT SHALL BE PAID IN PRIORITY OVER ALL OTHER DUES OF TH E COMPANY. SECTION 529A WAS INSERTED BY COMPANIES (AMENDMENT) ACT, 1985. BY INCORPORATION OF THIS PROVISION, WORK MENS DUES RANK PARI PASSU WITH SECURED CREDITORS. IN OTH ER - - ITA 1216 & 2106/13 14 WORDS, THE WORKMEN OF THE COMPANY IN WINDING UP ACQUIRE THE STATUS OF SECURED CREDITORS. PERTINENTL Y, WHILE INSERTING SECTION 529A IN THE COMPANIES ACT BY THE COMPANIES (AMENDMENT) ACT, 1985, THE PROVISO TO SUB-SECTION (1) OF SECTION 529 WAS ALSO INSERTED WHICH PROVIDES THAT THE SECURITY OF EVERY SECURED CREDITO R SHALL BE DEEMED TO BE SUBJECT TO A PARI PASSU CHARGE IN FAVOUR OF THE WORKMEN TO THE EXTENT OF THE WORKMEN S PORTION. 4.4 HE ALSO RELIED ON THE JUDGMENT IN THE CASE O F BANK OF MAHARASHTRA V/S PANDURANG KESHAV GORWARDKAR AND OTH ERS REPORTED IN (2013) 7 SSC 754, WHEREIN IT HAS BEEN H ELD AS FOLLOWS: 63. A CUMULATIVE READING OF SECTIONS 529A AND 529(1)(C) PROVISO ENDS TO AN IRRESISTIBLE CONCLUSION THAT WHE RE A COMPANY IS IN LIQUIDATION, A STATUTORY CHARGE IS CR EATED IN FAVOUR OF WORKMEN IN RESPECT OF THEIR DUES OVER THE SECURITY OF EVERY SECURED CREDITOR AND THIS CHARGE IS PARI PASSU WITH THAT OF THE SECURED CREDITOR. SUCH STATU TORY CHARGE IS TO THE EXTENT OF WORKMENS PORTION IN REL ATION TO THE SECURITY HELD BY THE SECURED CREDITOR OF THE CO MPANY. THIS POSITION, IN OUR OPINION, IS EQUALLY APPLICABL E WHERE THE ASSETS OF THE COMPANY HAVE BEEN SOLD IN EXECUTI ON OF THE RECOVERY CERTIFICATE OBTAINED BY THE BANK OR FI NANCIAL INSTITUTION AGAINST THE DEBTOR COMPANY WHEN IT WAS NOT IN LIQUIDATION BUT BEFORE THE PROCEEDS REALIZED FROM S UCH SALE COULD BE FULLY AND FINALLY DISBURSED, THE COMPANY H AD GONE INTO LIQUIDATION. STATED DIFFERENTLY, PENDING FINAL DISBURSEMENT OF THE PROCEEDS REALIZED FROM THE SAL E OF SECURITY IN EXECUTION OF THE RECOVERY CERTIFICATE I SSUED BY THE DRT, IF DEBTOR COMPANY BECOMES COMPANY IN WINDI NG UP, SECTIONS 529A AND 529(1)(C) PROVISO COME INTO OPERATION IMMEDIATELY AND STATUTORY CHARGE IS CREAT ED IN FAVOUR OF WORKMEN IN RESPECT OF THEIR DUES OVER SUC H PROCEEDS. - - ITA 1216 & 2106/13 15 4.5 FURTHER, HE SUBMITTED THAT FROM THE ABOVE TWO JUDGMENTS IT IS VERY CLEAR THAT A STATUTORY CHARGE IS CREATED IN FAVOUR OF WORKMEN IN RESPECT OF THEIR DUES OVER THE SECURITY OF EVERY SECURED CREDITOR AND THIS CHARGE IS PARI PAS SU WITH THAT OF THE SECURED CREDITOR. SUCH STATUTORY CHARGE IS T O THE EXTENT OF WORKMENS PORTION IN RELATION TO THE SECURITY HE LD BY THE SECURED CREDITOR OF THE DEBTOR COMPANY. FURTHER WIT HOUT REMOVAL OF THIS CHARGE, THE PROPERTY CANNOT BE SOLD AND THERE WOULD BE NO TAKERS ALSO. THE STATUTORY CHARGE ACTS AS AN ENCUMBRANCE OVER THE PROPERTY AND THEREFORE IT IS N ECESSARY THAT THE COMPANY FIRST SETTLES THE DUES OF THE WOR KMEN THUS ENABLING THE COMPANY TO DISPOSE OFF THE PROPERTY. HE DREW OUR ATTENTION TO THE FOLLOWING JUDGMENTS: 1. GOPEENATH PAUL & SONS AND ANOTHER VS DCIT 278 ITR 240 (CAL) 2. CIT VS SHAKUNTALA KANTILAL 190 ITR 56 (CAL) 3. CIT VS BRADFORD TRADING COMPANY PVT. LTD., 261 ITR 222 (MAD) & 4. CIT VS ABRAR ALVI 247 TR 312 (BOM) 4.6 ALTERNATIVELY HE SUBMITTED THAT THE PAYMENT AL SO QUALIFIES FOR DEDUCTION U/S. 37(1), AS THE SAME WAS MADE ON THE - - ITA 1216 & 2106/13 16 GROUNDS OF COMMERCIAL EXPEDIENCY. THE NEED FOR SUCH PAYMENTS WAS IMPOSED BY A STATUTORY LIABILITY. AS A COROLLARY THE EXISTENCE AND CONTINUITY OF THE BUSINESS HAS TO BE INFERRED. IT WAS A FACT THAT THE ASSESSEE COMPANY WOULD NOT H AVE BEEN ABLE TO SECURE RELEASE/POSSESSION OF THE PROPERTY B UT FOR THE COMPROMISE REACHED AND APPROVED BY MADRAS HIGH COUR T AND THE PAYMENT MADE. THUS THE PAYMENT MADE TO SECURE T HE RELEASE OF THE PROPERTY AND FURTHER TO COMPLY WITH THE COMPROMISE REACHED QUALIFIES FOR DEDUCTION U/S. 48( 1). HE ALSO RELIED ON THE JUDGMENT OF THE MADRAS HIGH COUR T IN THE CASE OF CIT VS A. VENKATARAMAN (1982) 137 ITR 846 , WHEREIN IT WAS HELD THAT RETRENCHMENT COMPENSATION PAID TO THE EMPLOYEES IN TERMS OF THE AGREEMENT TO SELL WAS AN ALLOWABLE DEDUCTION INCURRED WHOLLY AND EXCLUSIVELY IN CONNEC TION WITH THE SALE OF THE ASSET. THE CASE OF BAWA CHERIAN VS ITO (COCHIN) WAS ALSO CONSIDERED AMONG SIMILAR LINES. H E FURTHER RELIED ON THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF AMBALA CANTT ELECTRIC SUPPLY CORPORATIO N VS CIT 133 ITR 343. - - ITA 1216 & 2106/13 17 5. REGARDING SETTLEMENT TO THE SECURED CREDITOR TO BANK, IT WAS SUBMITTED THAT THE SETTLEMENT MADE TO THE SECUR ED CREDITOR WAS ESSENTIAL AND WITHOUT WHICH THE PROPERTY WOULD NOT HAVE BEEN SOLD AT ALL. IT IS ALSO SUBMITTED THAT THE SAI D PROPERTY WAS MORTGAGED TO THE BANK AS A SECURITY FOR THE LOANS T AKEN. IT IS ALSO SUBMITTED FACT THAT SARFAESI PROCEEDINGS WERE INITIATED BY THE BANK. IT IS SETTLED PROPOSITION OF LAW ONCE SARFAESI PROCEEDINGS ARE INITIATED THEN THE SAME OPERATES AS AN ATTACHMENT OVER THE SAID PROPERTY AND THE PROPERTY CAN BE SOLD WITHOUT SATISFYING OR DULY DISCHARGING THE DUES TO THE SECURED CREDITOR. IN THIS CONTEXT IT WOULD BE MORE THAN USE FUL TO REPLY IN SECTION 13(13) OF THE SARFAESI ACT. IT READS AS FOL LOWS: NO BORROWER SHALL, AFTER RECEIPT OF NOTICE REFERRED TO IN SUB-SECTION (2), TRANSFER BY WAY OF SALE, LEASE OR OTHERWISE (O THER THAN IN THE ORDINARY COURSE OF HIS BUSINESS) ANY OF HIS SEC URED ASSETS REFERRED TO IN THE NOTICE, WITHOUT PRIOR WRITTEN CO NSENT OF THE SECURED CREDITOR. 5.1 IT IS SUBMITTED THAT NO BORROWER SHALL, AFTER RECEIPT OF NOTICE UNDER SECTION 13(2), TRANSFER BY WAY OF SALE , LEASE OR OTHERWISE ANY OF HIS SECURED ASSETS REFERRED TO IN THE NOTICE, - - ITA 1216 & 2106/13 18 WITHOUT PRIOR WRITTEN CONSENT OF THE SECURED CREDIT OR. THIS ALSO MEANS THAT SECTION 13(13) OF THE SARFAESI ACT OPERA TES AS AN ATTACHMENT/INJUNCTION RESTRAINING THE BORROWER F ROM DISPOSING OF THE SECURED ASSETS AND THEREFORE, ANY RIGHT CREATED AFTER SUCH NOTICE WOULD BE NULL AND VOID. 5.2 IN THIS CONTEXT THE LD. AR RELIED ON THE JUDGME NT IN THE CASE OF TRANSCORE V. UNION OF INDIA (UOI) ANR., 1 S SC 125 WHEREIN IT HAS BEEN HELD BY THE SUPREME COURT AS FO LLOWS: PARA 23 : READING THE SCHEME OF SECTION 13(2) WITH SECTION 13(4), IT IS CLEAR THAT THE NOTICE UNDER SE CTION 13(2) IS NOT A MERE SHOW CAUSE NOTICE AND IT CONSTITUTES AN ACTION TAKEN BY THE BANK/FI FOR THE PURPOSES OF THE NPA ACT. SECTION 13(6) INTER ALIA PROVIDES THAT ANY TRA NSFER OF SECURED ASSET AFTER TAKING POSSESSION OR AFTER TAKI NG OVER OF MANAGEMENT OF THE BUSINESS, UNDER SECTION 13(4), BY THE BANK/FI SHALL VEST IN THE TRANSFEREE ALL RIGHTS IN RELATION TO THE SECURED ASSETS AS IF THE TRANSFER HAS BEEN M ADE BY THE OWNER OF SUCH SECURED ASSET. THEREFORE, SECTION 13(6) INTER ALIA PROVIDES THAT ONCE THE BANK/FI TAKES POS SESSION OF THE SECURED ASSET, THEN THE RIGHTS, TITLE AND IN TEREST IN THAT ASSET CAN BE DEALT WITH BY THE BANK/FI AS IF I T IS THE OWNER OF SUCH AN ASSET. IN OTHER WORDS, THE ASSET W ILL VEST IN THE BANK/FI FREE OF ALL ENCUMBRANCES AND THE SEC URED CREDITOR WOULD BE ENTITLED TO GIVE A CLEAR TITLE TO THE TRANSFEREE IN RESPECT THEREOF. SECTION 13(7) REFERS TO RECOVERY OF ALL COSTS, CHARGES AND EXPENSES INCURRE D BY THE BANK/FI FOR TAKING ACTION UNDER SECTION 13(4). SECTION 13(7) PROVIDES FOR PRIORITY IN THE MATTER OF RECOVE RY OF DUES FROM THE BORROWER . IT INTER ALIA PROVIDES FOR PAYM ENT OF SURPLUS TO THE PERSON ENTITLED THERETO. SECTION 13( 8) INTER ALIA STATES THAT IF THE DUES OF THE SECURED CREDITO R TOGETHER WITH ALL COSTS, CHARGES AND EXPENSES INCURRED ARE T ENDERED - - ITA 1216 & 2106/13 19 TO THE SECURED CREDITOR BEFORE THE DATE FIXED FOR S ALE/ TRANSFER THE SECURED ASSET SHALL NOT BE SOLD OR TRA NSFERRED BY THE BANK/FI TO THE ASSET RECONSTRUCTION COMPANY AND NO FURTHER STEPS SHALL BE TAKEN IN THAT REGARD. SECTIO N 13(9) INTER ALIA STATES THAT WHERE A FINANCIAL ASSET IS F UNDED BY MORE THAN ONE BANK/FI OR IN CASE OF JOINT FINANCING BY A CONSORTIUM, NO SINGLE SECURED CREDITOR FROM THAT CONSORTIUM SHALL BE ENTITLED TO EXERCISE RIGHT UNDE R SECTION 13(4) UNLESS EXERCISE OF SUCH RIGHT IS AGREED UPON BY ALL THE SECURED CREDITORS. SECTION 13(9) PROVIDES FOR O NE MORE INSTANCE WHEN PERMISSION OF DRT MAY BE REQUIRED UND ER THE FIRST PROVISO TO SECTION 19(1) OF THE DRT ACT. THE AGREEMENT BETWEEN THE SECURED CREDITORS IN SUCH CAS ES IS REQUIRED TO BE PLACED BEFORE THE DRT NOT AS A FETTE R ON THE RIGHTS OF THE SECURED CREDITORS BUT OUT OF ABUNDANT CAUTION. GENERALLY, SUCH AGREEMENTS ARE COMPLEX, IN MEASURE, PARTICULARLY BECAUSE RIGHTS OF EACH OF THE SECURED CREDITOR IN THE CONSORTIUM MAY BE REQUIRED TO BE LOOKED INTO . HOWEVER, IF BEFORE THE DRT, ALL THE SECURED CREDITO RS IN SUCH CONSORTIUM ENTER INTO AN AGREEMENT UNDER SECTI ON 13(9) THEN NO SUCH FURTHER INQUIRY IS REQUIRED TO B E MADE BY THE DRT. IN SUCH CASES, THE DRT HAS ONLY TO SEE THAT ALL THE SECURED CREDITORS IN THE CONSORTIUM ARE REP RESENTED UNDER THE AGREEMENT. THE POINT TO BE NOTED IS THAT THE SCHEME OF THE NPA ACT DOES NOT DEAL WITH DISPUTES BETWEEN THE SECURED CREDITORS AND THE BORROWER. ON THE CONTRARY, THE NPA ACT DEALS WITH THE RIGHTS OF THE SECURED CREDITORS INTER SE. THE REASON IS THAT THE NPA ACT PROCEEDS ON THE BASIS THAT THE LIABILITY OF THE BORROWER HAS CRYSTALIZED AND THAT HIS ACCOUNT IS CLASSIFIED AS N ON- PERFORMING ASSET IN THE HANDS OF THE BANK/FI. SECTI ON 13(9) ALSO DEALS WITH PARI PASSU CHARGE OF THE WORKERS UN DER SECTION 529-A OF THE COMPANIES ACT, 1956, APART FRO M BANKS AND FINANCIAL INSTITUTIONS, WHO ARE SECURED C REDITORS. SECTION 13(10) INTER ALIA STATES THAT WHERE THE DUE S OF THE SECURED CREDITORS ARE NOT FULLY SATISFIED BY THE SA LE PROCEEDS OF THE SECURED ASSETS, THE SECURED CREDITO R MAY FILE AN APPLICATION TO DRT UNDER SECTION 17 OF THE NPA ACT FOR RECOVERY OF BALANCE AMOUNT FROM THE BORROWER. S ECTION 13(10), THEREFORE, SHOWS THAT THE BANK/FI IS NOT ON LY FREE TO - - ITA 1216 & 2106/13 20 MOVE UNDER NPA ACT WITH WITHOUT LEAVE OF DRT BUT HA VING INVOKED NPA ACT, LIBERTY IS GIVEN STATUTORY TO THE SECURED CREDITORS (BANKS/FIS) TO MOVE THE DRT UNDER THE DRT ACT ONCE AGAIN FOR RECOVERY OF THE BALANCE IN CASE WHER E THE ACTION TAKEN UNDER SECTION 13(4) OF THE NPA ACT DOE S NOT RESULT IN FULL LIQUIDATION OF RECOVERY OF THE DEBTS DUE TO THE SECURED CREDITORS. SECTION 13(10) FORTIFIES OUR VIEW THAT THE REMEDIES FOR RECOVERY OF DEBTS UNDER THE DRT ACT AN D THE NPA ACT ARE COMPLEMENTARY TO EACH OTHER. FURTHER, SECTION 13(10) SHOWS THAT THE FIRST PROVISO TO SECT ION 19(1) OF DRT ACT IS AN ENABLING PROVISION AND THAT THE SAID PROVISION CANNOT BE READ AS A CONDITION PRECEDENT T O TAKING RECOURSE TO NPA ACT. SECTION 13(11) OF THE N PA ACT INTER ALIA STATES THAT, WITHOUT PREJUDICE TO THE RI GHTS CONFERRED ON THE SECURED CREDITOR UNDER SECTION 13, THE SECURED CREDITOR SHALL BE ENTITLED TO PROCEED AGAIN ST THE GUARANTOR/PLEDGER; THAT THE SECURED CREDITOR SHALL BE ENTITLED TO SELL THE PLEDGED ASSETS WITHOUT TAKING RECOURSE UNDER SECTION 13(4) AGAINST THE PRINCIPAL BORROWER IN RELATION TO THEIR SECURED ASSETS UNDER THE NPA ACT. SECTION 13(3) STATES THAT, NO BORROWER SHALL, AFTER RECEIPT OF NOTICE UNDER SECTION 13(2), TRANSFER BY WAY OF SALE, LEASE OR OTHERWISE ANY OF SECURED ASSETS REFERRED TO IN THE NOTICE, WITHOUT PRIOR WRITTEN CONSENT OF THE SECURED CREDIT OR. THUS, SECTION 13(13) FURTHER FORTIFIES OUR VIEW THAT NOTI CE UNDER SECTION 13(2) IS NOT MERELY A SHOW CAUSE NOTICE. IN FACT, SECTION 13(13) INDICATES THAT THE NOTICE UNDER SECT ION 13(2) IN EFFECT OPERATES AS AN ATTACHMENT/INJUNCTIO N RESTRAINING THE BORROWER FROM DISPOSING OF THE SECU RED ASSETS AND, THEREFORE, SUCH A NOTICE, WHICH IN THE PRESENT CASE IS DATED 6-1-12003 IS NOT A MERE SHOW CAUSE NO TICE BUT IT IS AN ACTION TAKEN UNDER THE PROVISION OF TH E NPA ACT. 5.3 THE LD. AR, RELIED ON ANOTHER JUDGMENT REPORTED IN SREE LAKSHMI PRODUCTS REP. BY ITS PARTNER VS. STATE BANK OF INDIA 2007(2) CTC 193 AND ACCORDING TO HIM, FROM THE ABOV E JUDGMENT, IT IS CLEAR THAT THE BANK/FI IS ENTITLED TO TAKE ACTUAL - - ITA 1216 & 2106/13 21 POSSESSION OF THE SECURED ASSETS FROM THE BORROWER OR FROM ANY OTHER PERSON IN TERMS AND SECTION 13(4) OF THE SARFAESI ACT. ANY TRANSFER OF SECURED ASSETS AFTER TAKING P OSSESSION OF THE SAME BY THE BANK/FI SHALL VEST IN THE TRANSFERE E ALL RIGHTS IN RELATION TO THE SECURED ASSETS AS IF THE TRANSFER H AS BEEN MADE BY THE OWNER OF SUCH SECURED ASSETS. ANY PARTY AGGR IEVED BY SUCH DISPOSSESSION WILL HAVE TO TAKE RECOURSE TO AP PROACHING THE DRT UNDER SECTION 17(4) OF THE SARFAESI ACT. IF THE PARTY IS DISPOSSESSED, NOT IN ACCORDANCE WITH THE PROVISI ONS OF THE ACT, THEN THE DRT IS ENTITLED TO PUT THE CLOCK BACK BY RESTORING THE STATUS QUO ANTE. BY VIRTUE OF SECTION 17(4) REA D WITH SECTION 35 OF THE SARFAESI ACT, IF IN A GIVEN CASE THE MEASURES UNDERTAKEN BY THE SECURED CREDITOR UNDER S ECTION 13(4) COME IN CONFLICT WITH THE PROVISIONS OF ANY S TATE LAW, THEN NOTWITHSTANDING TO SUCH CONFLICT, THE PROVISIONS OF SECTION 13(4) SHALL OVERRIDE THE LOCAL LAW. SECTION 13(13) OF THE SARFAESI ACT OPERATES AS AN ATTACHMENT/INJUNCTION RESTRAININ G THE BORROWER FROM DISPOSING OF THE SECURED ASSETS AND T HEREFORE, ANY TENANCY CREATED AFTER SUCH NOTICE WOULD BE NULL AND VOID. ANY TENANCY CREATED BY THE MORTGAGER AFTER THE MORT GAGE IN - - ITA 1216 & 2106/13 22 CONTRAVENTION OF SECTION 65-A WOULD NOT BE BINDING ON THE BANK/FI, AND IN ANY EVENT SUCH TENANCY RIGHTS SHALL STAND DETERMINED ONCE ACTION UNDER SECTION 13(4) HAS BEEN TAKEN BY THE BANK/FI. WHEN THE PETITIONER IS CLAIMING A TENA NCY PRIOR TO THE CREATION OF MORTGAGE AND SUCH TENANCY IS DISPUT ED BY THE BANK THE REMEDY OF THE PETITIONER IS TO APPROACH DR T BY WAY OF AN APPLICATION UNDER SECTION 17 OF THE SARFAESI ACT TO ESTABLISH ITS RIGHTS. 5.4 FROM A READING OF THE ABOVE TWO JUDGMENTS , HE INFERRED THAT THE ASSESSEE AFTER RECEIPT OF SARFAESI NOTICE, WITHOUT PRIOR CONSENT OF THE SECURED CREDITOR, COULD NOT HA VE DONE ANYTHING AT ALL TO DISPOSE THE PROPERTY. ACCORDING TO THE LD. AR, SEC.13(13) INDICATES THAT THE NOTICE UNDER SEC.13(2 ) IN EFFECT OPERATES AS AN ATTACHMENT/INJUNCTION RESTRAINING TH E BORROWER FROM DISPOSING OF THE SECURED ASSETS AND FOR THAT P ROPERTY TO FETCH A HIGHER RATE DUES OF THE BANK HAD TO BE SETT LED. THE NOTICE UNDER SARFAESI ACTED AS AN ENCUMBRANCE AND T HE EXPENDITURE INCURRED TO REMOVE THE SAID ENCUMBRANCE CERTAINLY WOULD FALL WITHIN SEC.48(I) OF THE ACT. IT IS WELL ADMITTED FACT THAT THE PAYMENT WAS MADE TO BANK OF BARODA ONLY TO CLEA R THE - - ITA 1216 & 2106/13 23 ENCUMBRANCE IT HELD IN ITS FAVOUR, TO FACILITATE TR ANSFER. IT IS ALSO A FACT THAT WITHOUT REMOVING THIS ENCUMBRANCE, WHIC H WAS ENFORCEABLE AND THE BANK HAD ALREADY INITIATED MEAS URE TO ENFORCE THE SAME, THE TRANSFER OF PROPERTY WOULD HA VE BEEN IMPOSSIBLE. 5.5 IN THIS REGARD, HE MADE REFERENCE TO THE FOLLOW ING JUDGMENTS: 1. GOPEENATH PAUL & SONS AND ANOTHER VS. DCIT 278 ITR 240(CAL) 2. CIT VS. SHAKUNTALA KANTILAL 190 ITR 56 (CAL) 3 CIT VS. BRADFORD TRADING COMPANY PVT. LTD. 261 IT R 222 (MAD) & 4. CIT VS. ABRAR ALVI 247 ITR 312 (BOM.) 6. REGARDING PAYMENT MADE TO THE SALES TAX DEPARTM ENT TO THE TUNE OF ` 97,49,342/- TO SECURE/RAISE THE ATTACHMENT MADE BY THE SALES TAX DEPARTMENT, IT IS SUBMITTED T HAT THERE WAS A FURTHER CHARGE OVER THE PROPERTY BY THE SALES TAX DEPARTMENT. SINCE THERE WAS AN OUTSTANDING DUE TOW ARDS SALES TAX, THE DEPARTMENT, HAD INITIATED ACTION AND HAD CREATED CHARGE OVER THE PROPERTY OF THE COMPANY. THE SALES TAX DEPARTMENT MADE IT VERY CLEAR BY THEIR LETTER DATED 10.4.2008, THAT ONLY ON DEPOSITING THE NECESSARY MONIES, THE C HARGE AND THE ATTACHMENT ON THE LAND WILL BE LIFTED. THEREAF TER THE - - ITA 1216 & 2106/13 24 ASSESSE ENTERED INTO NEGOTIATIONS AND AVAILED THE S AMADHAN SCHEME AND SETTLED THE ENTIRE DUES OF THE SALES TAX DEPARTMENT BY DEPOSITING A SUM OF ` 97,49,342/- AND ONLY AFTER THE ENTIRE ATTACHMENT AND CHARGES OVER THE LAND WER E REMOVED ON 25.2.2009, THUS FACILITATING THIS ASSESSE TO PRO CEED WITH THE SALE OF LAND WITH A THIRD PARTY AS MENTIONED ABOVE. IT IS SUBMITTED THAT WITHOUT LIFTING OF THE ATTACHMENT/CH ARGE, THIS ASSESSE COULD NOT HAVE DONE ANYTHING WITH THE LANDS AND THERE WOULD HAVE BEEN NO TAKERS FOR THE LAND ALSO. THE ATTACHMENT/CHARGE ORDERS OF THE SALES TAX DEPARTMEN T ACTED AS AN ENCUMBRANCE IN ORDER TO SELL THE PROPERTY AND FO R THAT PROPERTY TO FETCH A HIGHER RATE DUES OF THE SALES T AX DEPARTMENT HAD TO BE SETTLED. IT IS SUBMITTED THAT THE ENCUMB RANCE AND THE EXPENDITURE INCURRED TO REMOVE THE SAID ENCUMBRANCE CERTAINLY WOULD FALL WITHIN SEC.48(I). IT IS WELL ADMITTED F ACT THAT THE PAYMENT WAS MADE TO SALES TAX DEPARTMENT ONLY TO CL EAR THE ENCUMBRANCE IT HELD IN ITS FAVOUR , TO FACILITATE T RANSFER. IT IS ALSO A FACT THAT WITHOUT REMOVING THIS ENCUMBRANCE, WHICH WAS ENFORCEABLE THE TRANSFER OF PROPERTY WOULD HAVE BEE N IMPOSSIBLE. ACCORDING TO THE LD. AR, THEREFORE THE MONIES PAID - - ITA 1216 & 2106/13 25 TO THE SALES TAX DEPARTMENT WOULD FALL WITHIN THE C ATEGORY OF SEC.48(I) OF THE ACT. 7. REGARDING PAYMENT OF COMMISSIONS TO THOSE WHO FACILITATED IN COMPLETING THE TRANSACTION, IT IS SU BMITTED THAT THE PAYMENT OF COMMISSION TO BROKERS FOR FACILITATING S MOOTH TRANSACTION WOULD FALL UNDER THE CATEGORY OF THE E XPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. HOWEVER, THE EXPENDITURE INCURRED TOWA RDS PAYMENT OF COMMISSION HAS BEEN DISALLOWED ON THE GROUND THA T THE MOST OF THE RECIPIENTS WERE RELATED TO THE ASSESSEE AND THAT OF LACK OF EVIDENCE / MATERIAL REGARDING THE SERVICES RENDERED BY THESE PERSONS, WITHOUT APPRECIATING THAT THERE WAS NO OTHER REASON FOR THE ASSESSEE TO MAKE THE PAYMENT. IT SH OULD BE SEEN THAT THE ASSESSEE HAD PRODUCED ALL THE EVIDENC ES WHICH ARE MORE THAN ADEQUATE TO ESTABLISH SUCH FACT, GENU INENESS, NECESSITY AND PURPOSE OF SUCH PAYMENT, WHICH WERE F URTHER CORROBORATED BY THE FACT OF FILING OF RETURNS THERE OF BY THE RECIPIENTS. 7.1 IT WAS SUBMITTED THAT WITH THE PRODUCTION OF FAIRLY REASONABLE EVIDENCES POINTING TO SUCH FACT OR EVEN RAISING - - ITA 1216 & 2106/13 26 PROBABILITIES THEREOF WOULD AMOUNT TO DISCHARGE OF ONUS BY THE ASSESSEE AND THEREAFTER THE ONUS SHIFT TO THE DEPAR TMENT TO DISPROVE THE SAME WITH MORE COGENT AND MATERIAL EVI DENCE, SUPPORTING REJECTING OF EVIDENCES PRODUCED BY THE A SSESSEE. FURTHER IT WAS SUBMITTED THAT NO REASONS HAVE BEEN RECORDED IN THE IMPUGNED ORDER TO SHOW THAT THE ASSESSEE HAS NO T UTILIZED THE SERVICES OF THE RECIPIENTS, EXCEPT PREDOMINANT PREVALENCE OF PRESUMPTION OF BAD FAITH ABOUT THE ASSESSEE AND CONJECTURES THAT NO SERVICES WOULD HAVE BEEN RENDERED BY THOSE BROKERS, TO REJECT THE ALL THE GOOD EVIDENCES PRODUCED BY TH E ASSESSEE AND THE CONFIRMATIONS THEREON MADE BY THE RESPECTIV E RECIPIENTS. FURTHER THE AO AND THE CIT(A) HAD NOT REJECTED THE PAYMENTS OF COMMISSION ON THE GROUNDS THAT THE SAME WAS EXCESSIVE. 7.2 IT WAS SUBMITTED THAT THE COMMISSION TOTALL Y WORKED OUT TO LESS THAN 5% OF THE TOTAL SALE CONSIDERATION WHI CH IS REASONABLE CONSIDERING HE DIFFICULTIES SURROUNDING THE SALE OF A PROPERTY WHICH HAD A CHEQUERED HISTORY. 7.3 IT IS SUBMITTED THAT BOTH THE ASSESSING OFF ICER AND THE LEARNED COMMISSIONER OF INCOME TAX, HAD NOT DOUBTED THE - - ITA 1216 & 2106/13 27 VERACITY (GENUINENESS) OF THE PAYMENTS MADE. THE O NLY GROUND ATTRIBUTED TO WAS THAT EVIDENCES THAT WERE L ET IN WERE INADEQUATE, FORGETTING THE FACT THAT THE HIGHER (IF NOT THE HIGHEST) SALE CONSIDERATION RECEIVED AMIDST THE ADV ERSE CIRCUMSTANCES (OF ADVERSE CONDITIONS IN WHICH THE A SSESSEE FOUND ITSELF IN), AND THAT, TOO WITHIN AN INCREDIBL Y SHORTER TIME CONSTITUTE A KIND OF UNIMPEACHABLE EVIDENCE WHICH C ANNOT BE ARBITRARILY REJECT TED. 7.4 IT IS SUBMITTED THAT THE ASSESSEE HAD FURN ISHED ALL THE DETAILS LIKE, (I). PAYMENTS WERE MADE THROUGH ACCOU NT PAYEE CHEQUES, WHICH REFLECTED IN THE BANK STATEMENTS OF BOTH THE ASSESSEE AND PAYEES, (II). PAYMENTS WERE SUBJECT T O TDS, (III) ALL THE RECIPIENTS CONFIRMED THE COMMISSION OF PAYM ENTS AND (IV) THE RECIPIENTS HAD ALSO APPROPRIATELY SHOWN TH ESE RECEIPTS IN THEIR RESPECTIVE INCOME TAX RETURNS. 7.5 ACCORDING TO THE LD. AR, THE AO HAD SELECTI VELY SUMMONED SOME OF THE RECIPIENT, EXAMINED HEM AND AL SO RECORDED THEIR STATEMENT. THE ENTIRE SCENARIO WAS EXPLAINED. IN SPITE OF THIS, BOTH THE AO AND CIT(A) HAVE REJEC TED ON THE GROUND THAT (I) SOME OF THE RECIPIENTS WERE RELATI VES OF THE MD - - ITA 1216 & 2106/13 28 OF THE ASSESSEE COMPANY, (II) SOME HAVE ACCOUNTED T HE PAYMENTS IN THE NEXT ASSESSMENT YEAR, (III) THE BUY ER HAS ALSO PAID COMMISSION. IT IS PERTINENT TO POINT OUT THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE NOT BEEN QUESTIONED. NOR THE GENUINENESS AND REGULARITY HAVE BEEN DOUBTED. HE R ELIED ON THE FOLLOWING JUDGMENTS : (I) IN MEDICAL TECHNOLOGIES LTD (2013) 32 TAX MANN.COM 386 (GUJ), IT WAS HELD THAT WHEN THE ASSESSEE HAD PAYME NTS OF COMMISSION TO AGENTS AND THE SAME WAS APPROVED BY T HE MANAGEMENT IT WAS AN ALLOWABLE EXPENDITURE. (II) IN CIT VS. RAMA MULTITECH LTD. 33 TAXMANN .COM 13(GUJ), IT WAS HELD THAT WHEN THERE WAS NO DEFECT IN MAINTE NANCE OF BOOKS OF ACCOUNT ON THE PART OF THE ASSESSEE THERE COULD NOT BE ANY DISALLOWANCE. (III) IN ASGAR JAIN VS. CIT (2008) 298 ITR 60 (KAR) , IT WAS HELD THAT WHERE COMMISSION WAS PAID FOR SALE OF PRO PERTY AND AMOUNT OF COMMISSION PAID HAD BEEN REFLECTED BY REC IPIENT OF COMMISSION IN HIS INCOME TAX RETURNS AND SAME WAS A CCEPTED BY THE DEPARTMENT, DISALLOWANCE OF SUCH COMMISSION WHILE COMPUTING CAPITAL GAIN IN ASSESSEES HANDS WAS NOT JUSTIFIED. - - ITA 1216 & 2106/13 29 (IV) IT WAS HELD IN DHANSIRAM AGARWALA VS. CIT 21 7 ITR 4 (GAU) THAT WHERE THE GENUINENESS AND REGULARITY OF THE ACCOUNTS HAVE NOT BEEN CHALLENGED, THE ACCOUNTS ARE PRIMA FACIE PROOF OF THE ENTRIES AND THE CORRECTNESS THER EOF UNDER SECTION 34 OF THE EVIDENCE ACT, 1872. 8. REGARDING BUSINESS LULL, IT WAS SUBMITTED THAT T HE ASSESSEE COULD NOT CARRY ON ITS BUSINESS, OWING TO FACTORS BEYOND ITS CONTROL, AS ALREADY STATED SUPRA. THE M ANAGEMENT WAS FORCED TO SELL THE PROPERTY ONLY TO PAVE THE WA Y FOR RESUMPTION OF BUSINESS, AT THE EARLIEST. THE TECHN OLOGICAL OBSOLESCENCE WAS YET ANOTHER PRIMARY FACTOR THAT AL SO FORCED THE MANAGEMENT OF THE ASSESSEE TO DISPOSE OF THE OL D AND OBSOLETE MACHINERIES. JUST BECAUSE CERTAIN PROPERT IES WERE EITHER SOLD OR PLANNED TO BE SOLD, IT CANNOT BE A G ROUND TO DRAW AN INFERENCE THAT THE COMPANY IS IN THE PROCESS OF WINDING UP. WINDING UP IS A PROCESS OF LAW AND IT CANNOT BE ASS UMED, UNLESS THE SAME HAS HAPPENED. 8.1 THE COMPANIES ACT PROVIDES FOR SALE OF ITS ENT IRE UNDERTAKING OR PART OF ITS UNDERTAKING, THROUGH SEC .293 OF COMPANIES ACT AND YET REMAIN IN THE THICK OF ITS BU SINESS AND - - ITA 1216 & 2106/13 30 ITS EXISTENCE IS NOT DISTURBED. THE COMPANIES ACT DOES NOT PROVIDE FOR COMPULSORY WINDING UP, EVEN IN THE WAKE OF DISPOSAL OF ITS UNDERTAKING. THE COMPANIES ACT DOE S NOT EVEN ASSUME THAT IN THE WAKE OF SUCH SALE OF ITS UNDERTA KING, THE PRIMARY BUSINESS OF THE COMPANY WOULD COME TO AN EN D OR CEASED TO BE CARRIED ON. THUS EVEN DISPOSAL OF ITS UNDERTAKING CANNOT LEAD TO AN INFERENCE OF WINDING UP. 8.2 HE SUBMITTED THAT THE INCOME TAX ACT, TOO, PR OVIDES FOR AN OCCASION, THROUGH SEC.54G, WHEREIN THE ASSESSEE MAY DISPOSE OF ITS ENTIRE UNDERTAKING AND EVEN REMAIN W ITHOUT ANY ASSETS AND YET CONTINUE TO REMAIN AS A BUSINESS ENT ITY, TO RESUME ITS BUSINESS. THUS BOTH THE COMPANIES ACT A ND THE INCOME TAX ACT DO NOT PROVIDE FOR ANY GROUND FOR AN Y ASSUMPTION THAT DISPOSAL OF MAJORITY (EVEN ALL) OF ITS ASSETS, WOULD AMOUNT TO WINDING UP. THE WINDING UP BEING A LEGAL PROCESS IT CANNOT BE ASSUMED OTHERWISE. 8.3 IT IS SUBMITTED THAT WHAT HAD HAPPENED WAS A TEMPORARY SUSPENSION OF ITS BUSINESS ACTIVITIES, ALBEIT LONGE R PERIOD. THE ACT OF THE MANAGEMENT IN CHALLENGING THE WINDING UP PETITION/DIRECTION OF BIFR, IS A CLEAR INDICATION I N THIS DIRECTION. - - ITA 1216 & 2106/13 31 EVEN DISPOSAL OF ITS ASSETS OR TERMINATION OF ITS E MPLOYEES WOULD NOT PROVIDE FOR AN INFERENCE TO THE CONTRARY. 8.4 ACCORDING TO THE LD. AR, THE AUTHORITIES BE LOW ERRED ON AN INCORRECT NOTION ASSUMED THE ASSESSEE WAS ON THE BR INK OF WINDING UP AND AS THERE WAS NO MANUFACTURING ACTIVI TY ALL THE EXPENDITURE NEED TO BE DISALLOWED AND HAD ACCORDING LY DISALLOWED, INCLUDING THOSE PERTAINING TO BAD DEBTS WRITTEN OF, DEPRECIATION ETC., GENERATION OF REVENUE IS NEITHER IMPORTANT NOR A NECESSITY TO CLAIM EXPENSES, IF SUCH EXPENDIT URE IS OTHERWISE CLAIMABLE. GENERATION OF REVENUE IS NOT A SINE QUA NON, FOR ALLOWANCE OF EXPENDITURE. 8.5 THE ASSESSEE RELIED ON THE CIT V. VIKRAM CO TTON MILLS LTD. (1988) 169 ITR 597 (SC), WHEREIN EXTREME CONDI TIONS PREVAILED WHEREIN THE COMPANY WAS CLOSED DOWN AND A PETITION FOR WINDING UP WAS PRESENTED. A MAJOR SEC URED CREDITOR INTERVENED, TOOK POSSESSION OF THE FIXED A SSETS AND TO PAY OFF THE CREDITORS AND A SCHEME OF LEASE OF THE MILLS WAS EVOLVED BY THE HIGH COURT, THE SUPREME COURT HELD T HAT THERE HAD BEEN TEMPORARY SUSPENSION OF BUSINESS ONLY. - - ITA 1216 & 2106/13 32 9. REGARDING DISALLOWANCE OF BAD DEBTS, IT I S SUBMITTED THAT CIT(A) HAD CONFIRMED THE DISALLOWANCE OF BAD DEBTS CLAIMED ON THE GROUND THAT THE ASSESSE DID NOT FURNISH DETAILS TO SHOW THAT THESE AMOUNTS WERE OFFERED AS INCOME IN THE EARLIER YEARS. 9.1 IT IS SUBMITTED THAT THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE BAD DEB T, CONSIDERING ITS NATURE, WOULD NOT HAVE COME UP IN T HE FIRST PLACE, WITHOUT OFFERING THE SAME AS INCOME EITHER I N AN EARLIER YEAR OR IN THE SAME YEAR. IT MAY BE NOTED THAT THE AMOUNT OF DEBT, WRITTEN OFF AS BAD DEBTS, ETC. ON THE GENESIS OF THIS ACCOUNT/AMOUNT, BEFORE THE ASSESSING OFFICER. 9.2 IT IS SUBMITTED THAT THE ONLY GROUND ON WHICH T HIS AMOUNT WAS DISALLOWED BY THE ASSESSING OFFICER WAS THAT TH ERE NO MANUFACTURING ACTIVITY DURING THE YEAR. IT IS TO B E SEEN THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), DID N OT EVEN ALLUDE TO THE SAME GROUND TO CONFIRM THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER, INSTEAD LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS STATED AS HIS GROUNDS OF CO NFIRMATION OF DISALLOWANCE THAT THE ASSESSEE COULD NOT FURNIS H THE DETAILS TO SHOW THAT THESE AMOUNTS WERE OFFERED AS INCOME I N THE - - ITA 1216 & 2106/13 33 EARLIER YEARS. DURING THE COURSE OF APPELLATE PROC EEDINGS, THE ASSESSEE COULD NOT FURNISH ANY DETAILS TO SATISFY T HE CONDITIONS OF SECTIONS 36(1)(VII) RWS 36(2) OF THE INCOME TAX ACT. 9.3 FURTHER, IT IS SUBMITTED THAT NO SUCH INFORMATI ON WAS EVER ASKED FOR IN THE COURSE OF APPELLATE PROCEEDIN GS. HE SUBMITTED THAT THE CLAIM OF BAD DEBTS NEEDS TO BE A LLOWED IN VIEW OF THE FOLLOWING JUDGMENTS: (I) CIT VS. AHMEDABAD ELECTRICITY COMPANY LIMITED ( 262 ITR 97(GUJ.) (II) JETHAHIRJI AND JETHABHAJ RAMDAS VS. CIT (120 I TR 792)(BOM). (III) KAMALA COTTON VS. CIT (226 ITR 605)(GUJ.) (IV) TRF LIMITED VS. CIT (2010) 323 ITR 397(SC) & (2010) 190 TAXMAN 321(SC). (V) SOUTHERN TECHNOLOGIES LIMITED VS. JOINT CIT (2 0120) 320 ITR 577 (SC). 10. REGARDING DISALLOWANCE OF CLAIM OF SET OFF B USINESS EXPENDITURE/LOSS AGAINST LONG TERM CAPITAL GAIN, IT IS SUBMITTED THAT THIS CLAIM WAS DISALLOWED ON THE GROUND THAT T HERE WAS NO BUSINESS ACTIVITY OF SPINNING AND MANUFACTURING OF YARN AND THE EXPENSES COULD NOT BE CLAIMED. HOWEVER THE DEPARTM ENT HAS - - ITA 1216 & 2106/13 34 NOT PRODUCED ANY EVIDENCE TO PROVE THAT THE ASSESSE E WAS MAKING EFFORTS NOT TO CONTINUE THE BUSINESS ACTIVIT IES. 11. REGARDING DISALLOWANCE OF CLAIM OF LOSS DUE T O DETERIORATION IN VALUE OF STOCK-IN-TRADE, IT WAS SU BMITTED THAT THE ASSESSEES CLAIM OF LOSS ARISING OUT OF DETERIO RATION IN THE VALUE OF GOODS/STOCK IN TRADE, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO MANUFACTURING ACTIVITY DURING THE YEAR WAS CONFIRME D ON THE SAME GROUND WITHOUT CONSIDERING THE CONTENTIONS OF THE ASSESSEE THAT IT WAS ONLY UNDERGOING LULL AND THE B USINESS WAS NOT DISCONTINUED. INDEED THE ASSESSEE WAS FORCED T O DEFER THE RESUMPTION OF THE BUSINESS ACTIVITIES OWING TO HIGH PITCHED ASSESSMENT ORDER AND CONSEQUENT HARSH RECOVERY MEAS URES TAKEN BY THE DEPARTMENT WHICH RESULTED IN INCORRIGI BLE AND SUBSTANTIAL REDUCTION IN REQUIRED FINANCIAL RESOURC ES REQUIRED TO RESUME BUSINESS ACTIVITIES WITH NEW PLANT AND MACHI NERIES. 12. REGARDING INTEREST RECEIPTS, IT WAS SUBMITT ED THAT TREATING INTEREST RECEIPTS AMOUNTING TO ` 56,17,361/- AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. IT IS TO BE SEEN THAT THE DEPARTMENT HAS NOT - - ITA 1216 & 2106/13 35 PRODUCED ANY EVIDENCE TO PROVE THAT THE ASSESSEE WA S NOT MAKING EFFORTS TO CONTINUE THE BUSINESS ACTIVITIES. 13. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS: THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE CONSIDERED THE LEGAL POSITION THAT THE COMPANY HAS EARNED BUSINESS INCOME IN THE FORM OF INTEREST RECE IPTS AND CONSEQUENTLY THE BUSINESS LOSS ARISING OUT OF T HE BUSINESS ACTIVITIES SHOULD BE SET OFF AGAINST THE C APITAL GAIN ON SALE OF BUSINESS ASSETS. HE PRAYED THAT ABOVE ADDITIONAL GROUND TO BE ADMITT ED IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CA SE OF NTPC V. CIT (229 ITR 383)(SC) AND ACCORDING TO HIM, IT WAS INADVERTENTLY NOT RAISED BEFORE THE CIT(APPEALS ). 13.1 IT WAS SUBMITTED THAT THE COMMISSIONER O F INCOME- TAX(APPEALS) OUGHT TO HAVE CONSIDERED THE AMOUNT OF ` 56.17 LAKHS CREDITED TO PROFIT AND LOSS ACCOUNT AS INTERE ST WHICH HAS ARISEN IN THE COURSE OF CARRYING ON OF NORMAL BUSIN ESS ACTIVITIES. THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HA VE CONSIDERED THE FACT THAT IN THE SUBSEQUENT YEARS TH E BUSINESS ACTIVITIES OF THE COMPANY HAVE BEEN REVIVED AND CON SEQUENTLY, AS THE BUSINESS OF THE COMPANY HAS BEEN STARTED AGA IN, THE LOSS FROM BUSINESS ACTIVITIES SHOULD BE ALLOWED. THE ABOVE - - ITA 1216 & 2106/13 36 SALES HAVE BEEN SUPPORTED BY SALE BILLS AND TNVAT R ETURNS AND WHICH HAVE BEEN OVER LOOKED BY THE ASSESSING AU THORITY ALSO. 13.2 THE COMMISSIONER OF INCOME-TAX(APPEALS) OU GHT TO HAVE CONSIDERED THE FACT THAT THE LICENSES AND REGI STRATIONS SUCH AS SALES TAX (TIN) WERE ALL IN CURRENCY AND TH IS INDICATES THAT THE COMPANY IS ENGAGED IN THE PROCESS OF REVIV AL ACTIVITIES. THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HA VE CONSIDERED THE FACT THAT THE COMPANY HAS VEHEMENTLY CONTESTED THE WINDING UP ORDER PASSED BY BIFR BEFOR E THE HIGH COURT OF MADRAS AND THE COMPANY HAS GOT FAVOUR ABLE BY DISMISSAL WINDING UP ORDER OF BIFR. THIS CLEARLY S HOWS THE COMPANYS GENUINE INTENTION OF REVIVING ITS BUSINES S ACTIVITIES. IN L.VE. VAIRAVAN CHETTIAR V. CIT (1969) 72 ITR 114 , THE MADRAS HIGH COURT HELD THAT MAINTAINING THE ESTABLISHMENT AND WAITING FOR IMPROVED MARKET CONDI TIONS IN A BUSINESS WHICH THE ASSESSEE HAD TEMPORARILY STOPPED, THE BUSINESS MUST BE DEEMED TO HAVE CONTIN UED AS THERE WAS NOTHING TO SHOW THAT HE HAD COMPLETELY ABANDONED OR CLOSED THAT BUSINESS. - - ITA 1216 & 2106/13 37 13.3 THE CIT(APPEALS) HAS ERRONEOUSLY CONCLUDED THA T THE BUSINESS ACTIVITIES ARE TOTALLY STOPPED BY VOLU NTARY ACTION OF THE BOARD OF DIRECTORS WHICH IS FACTUALLY INCORRECT AND BECAUSE OF THE LABOUR UNREST/OUTCRY THE DIRECT ORS COULD NOT ENTER INTO THE MILLS PREMISES AND DO BUSI NESS. THE CIT(APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE STATUTORY AUDITORS HAVE CERTIFIED THE STATUS OF GOING CONCERN OF THE COMPANY. THE CIT(APPEALS) HAS OVERLOOKED THE FACT THAT THE BUSINESS EXPENDITURE D EBITED TO THE PROFIT AND LOSS ACCOUNT REPRESENT EXPENDITUR E WHICH IN THE NATURE OF REVENUE AND WHICH HAVE BEEN CRYSTA LIZED IN THE FINANCIAL YEAR ENDED 31.03.2009 AND 31.3.201 0 AND HENCE PROPERTY CLAIMED IN THOSE YEARS. THE ASSESSI NG OFFICER HAS DISPUTED THE ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE IN THE ASSESSMENT ORDER. 13.4 THE COMMISSIONER OF INCOME TAX(APPEALS) HAS FAILED TO CONSIDER THE FACT THAT THE EXPENDITURE HA VE NEVER BEEN CLAIMED IN ANY EARLIER YEARS AND ONLY WHEN IT BECAME CRYSTALIZED THE COMPANY HAS CLAIMED THE SAME WHICH IS CLEARLY ADMISSIBLE IN LAW. IN THE CASE OF CIT V. - - ITA 1216 & 2106/13 38 HARIPRASAD & CO. (P) LTD. (99 ITR 118,), THE FOLLOW ING OBSERVATIONS OF THE APEX COURT COULD BE RELEVANT F ROM THE CHARGING PROVISIONS OF THE ACT, IT IS DISCERNIB LE THAT THE WORDS INCOME OR PROFITS AND GAINS SHOULD BE UND ERSTOOD AS INCLUDING LOSSES ALSO, SO THAT, IN ONE SENSE PR OFITS AND GAINS REPRESENT PLUS INCOME WHEREAS LOSSES REPRE SENT MINUS INCOME. IN OTHER WORDS, LOSS IS NEGATIVE P ROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHARACTER. BOTH MUST ENTER INTO COMPUTATION, WHERE VER IT BECOMES MATERIAL, IN THE SAME MODE OF THE TAXABLE INCOME OF THE ASSESSEE 14. THE LD. AR SUBMITTED THAT THE CIT(APPEALS) OUGH T TO HAVE CONSIDERED THE AMOUNT OF ` 56.17 LAKHS CREDITED TO PROFIT AND LOSS ACCOUNT AS INTEREST WHICH HAS AR ISEN IN THE COURSE OF CARRYING ON OF NORMAL BUSINESS ACTIVI TIES. THE CIT(APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT IN THE SUBSEQUENT YEARS THE BUSINESS ACTIVITIES OF THE COMPANY HAVE BEEN REVIVED AND CONSEQUENTLY, AS THE BUSINESS OF THE COMPANY HAS BEEN STARTED AGAIN, THE LOSS FROM BUSINESS ACTIVITIES SHOULD BE ALLOWED. THE ABO VE - - ITA 1216 & 2106/13 39 SALES HAVE BEEN SUPPORTED BY SALE BILLS AND TNVAT RETURNS AND WHICH HAVE BEEN OVER LOOKED BY THE ASSESSING AUTHORITY ALSO. THE COMMISSIONER OF INCOM E TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THA T THE LICENCES AND REGISTRATIONS SUCH AS SALES TAX (TIN) WERE ALL IN CURRENCY AND THIS INDICATES THAT THE COMPANY IS ENGAGED IN THE PROCESS OF REVIVAL ACTIVITIES. THE CIT(APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE COMPANY HAS VEHEMENTLY CONTESTED THE WINDING UP ORD ER PASSED BY BIFR BEFORE THE HIGH COURT OF MADRAS AND THE COMPANY HAS GOT FAVOURABLE BY DISMISSAL WINDING UP ORDER OF BIFR. THIS CLEARLY SHOWS THE COMPANYS GE NUINE INTENTION OF REVIVING ITS BUSINESS ACTIVITIES. 15. REGARDING THE DISALLOWANCE OF COMMISSION PAYMENT, THE LEARNED DR HAS MADE VERY ELABORATE SUBMISSIONS. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS STATE D THE AR WAS SPECIFICALLY ASKED TO PRODUCE THE LIST OF PERSO NS ENGAGED IN THE TRANSFER OF LAND TO M/S ALLIANCE MALL DEVELO PERS CO. PVT. LIMITED. THE ASSESSEE VIDE LETTER DATED 6.12.2011 HAS SUBMITTED THE DETAILS OF COMMISSION PAID TO 51 PERS ONS TOTALING - - ITA 1216 & 2106/13 40 TO ` 1,98,17,992/-. THE ASSESSING OFFICER BASED ON TH IS INFORMATION VERIFIED FEW OF THE PERSONS NAMELY SIX PERSONS AND CONCLUDED THAT THESE PEOPLE ARE EITHER RELATIVES OR ASSOCIATES OF THE MANAGING DIRECTOR OF M/S SIVANANDA MILLS LIM ITED, SHRI P.MURUGESAN. NONE OF THE COMMISSION AGENTS WERE I NVOLVED IN THE BROKING OF THE TRANSFER OF LAND WITH ALLIANC E MALL. THE ASSESSING OFFICER FURTHER STATED THAT MOST OF THE P ERSONS HAVE FILED REVISED RETURN OR ACCOUNTED RECEIPT IN THE NE XT YEAR AS THEY WERE FOLLOWING CASH METHOD OF ACCOUNTING. THE ASSESSING OFFICER OBTAINED CLARIFICATION FROM M/S ALLIANCE MA LL DEVELOPERS CO. PVT. LTD., MUMBAI REGARDING THE COMMISSION AGEN TS WHO WERE MEDIATING TRANSFER BETWEEN M/S SIVANANDA MILLS LTD AND M/S ALLIANCE MALL DEVELOPERS CO. PVT. LTD. M/S ALLI ANCE MALL DEVELOPERS CO. PVT. LTD HAS SENT A LEDGER COPY OF T HE COMMISSION AGENT NAME M/S HIND WASTRA BANDAR WHO WA S PAID ` 55,15,100/- AS BROKERAGE FOR THE PURCHASE OF THE S AID PROPERTY. HENCE, THE ASSESSING OFFICER CONCLUDED TH AT THE COMMISSION WAS NOT PAID FOR THE SERVICES RENDERED A ND THE EXPENDITURE INCURRED WAS NOT WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. - - ITA 1216 & 2106/13 41 16. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR WAS ALSO ASKED TO FURNISH THE NATURE OF SERVICES RENDER ED BY THE PERSONS TO WHOM THE AMOUNTS WERE PAID. AN OPPORTUNI TY WAS ALSO GIVEN TO THE AR TO ALSO FURNISH THE INCOME TAX DETAILS AND BANK ACCOUNTS OF THE AGENTS TO PROVE THE CLAIM. THE AR ONLY STATED THAT THE SERVICES INCLUDE REFERRAL SERVICES, SERVICES ON PROVIDING ACCESS TO NETWORK OF TARGETED AUDIENCE, C ONVENING OR MAKING ARRANGEMENTS FOR A MEETING BETWEEN THE PARTI ES CONCERNED OR THEIR AGENTS, PROVIDING INFORMATION OR PROVIDING MEANS FOR EXCHANGE OF INFORMATION REQUIRED FOR PROP ER EVALUATION OF FACTS AND / OR FOR DECISION MAKING, I DENTIFICATION OF PARTIES / THINGS / ASSETS / PROPERTIES CONCERNED AN D PROVIDING ASSISTANCE IN BRINGING ABOUT TRANSACTION OR CONCLUS ION OF TRANSACTION ON MUTUALLY ACCEPTABLE TERMS AND CONDIT IONS. THE AR HAS MADE ELABORATE SUBMISSIONS WITHOUT SPECIFICA LLY MENTIONING THE SERVICES RENDERED BY THE 51 AGENTS T O WHOM BROKERAGE / COMMISSION PAYMENTS WERE MADE. ONE OF T HE FUNDAMENTAL REQUIREMENTS FOR ALLOWING DEDUCTION IN RESPECT OF COMMISSION PAYMENT IS THAT THERE SHOULD BE EVIDENCE OF SOME SERVICES BEING RENDERED. HE RELIED ON THE ORDER OF THE KOLKATTA - - ITA 1216 & 2106/13 42 BENCH, ITAT IN THE CASE OF UNITED TRADERS VS TRO 27 TAXMAN.COM 293 (2012), WHEREIN IT WAS HELD THAT IT IS A COMPULSORY REQUIREMENT FOR ALLOWING DEDUCTION IN RE SPECT OF COMMISSION PAYMENT THAT THERE SHOULD BE EVIDENCE OF SOME SERVICES BEING RENDERED. THE AR COULD NOT SPECIFY THE SERVICES RENDERED BY ANY AGENTS AND ALSO DID NOT PR ODUCE ANY OF THE AGENTS TO WHOM COMMISSIONS WERE PAID FOR NEC ESSARY VERIFICATION DURING THE COURSE OF APPELLATE PROCEED INGS. IT IS ALSO SURPRISING THAT 51 PERSONS WHO ARE CLOSELY ASS OCIATED WITH THE MD WERE PAID THESE COMMISSION PAYMENTS WITHOUT SERVICES BEING RENDERED BY THESE PERSONS, AND PRAYED TO CONF IRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 17. REGARDING THE DISALLOWANCE OF PAYMENT MADE TO WORKMEN, THE LD. DR SUBMITTED THAT THE ASSESSE COM PANY WAS INCURRING LOSSES FROM THE YEAR 1989 AND WAS CLOSED BECAUSE OF WORKMEN AGITATION IN THE YEAR 1991. THE WORKMEN COMPENSATION / RETRENCHMENT WERE ON ACCOUNT OF BUSI NESS LIABILITY OF THE ASSESSE COMPANY. IT HAS NOTHING T O DO WITH THE TRANSFER OF THE PROPERTY DONE BY THE COMPANY. A LE TTER WAS ALSO ADDRESSED TO THE ASSESSE COMPANY ON 24.01.2013 WHER EIN - - ITA 1216 & 2106/13 43 CLARIFICATIONS WERE SOUGHT FROM THE ASSESSE COMPANY . AS SEEN FROM THE MEMORANDUM OF COMPROMISE, WAGES WERE TO BE PAID FROM JUNE TO DECEMBER 1993. THE BONUS WAS TO BE PA ID FOR THE YEAR 1991-92 AND 1992-93 AND THE EARNED LEAVE ENCASHMENT FOR THE YEAR 1992 AND 1993. THE ASSESSE WAS ASKED TO CLARIFY WITH REGARD TO THE AMOUNTS CLAIMED IN THE REGULAR RETURN OF INCOME FOR THE ASSESSMENT YEAR 19 91-92, 1992-93 AND 1993-94 WITH RESPECT TO THE WAGES AND B ONUS. THE WAGES, IF THEY WERE CLAIMED IN THE PROFIT AND L OSS ACCOUNT FOR THE ASSESSMENT YEAR MENTIONED AT, THE CLAIM TO ALLOW THE SAME AGAINST THE CAPITAL GAIN WILL AMOUNT TO DOUBLE DEDUCTION. HENCE, THE ASSESSE WAS ASKED TO CLARIFY AND PROVIDE EVIDENCE WITH REGARD TO DETAILS OF RETURNS FILED FOR THE ASS ESSMENT YEAR 1991-92 TO 2007-08. THE ASSESSE IN HIS REPLY DATE D 8 TH FEBRUARY 2013 SUBMITTED THAT THE AMOUNTS WERE NOT C LAIMED BY THE MANAGEMENT IN ANY OF THE PREVIOUS YEARS. HOWEV ER, NO EVIDENCE WITH REGARD TO THIS WAS FILED BEFORE ME TO APPRECIATE THE FACTS. IT IS ALSO TO BE MENTIONED THAT ANY RET RENCHMENT COMPENSATION PAID TO EX-EMPLOYEES ON SALE OF BUSINE SS ASSETS IS NOT ALLOWABLE U/S.48(1) AS COMPENSATION SO PAID HAS NO - - ITA 1216 & 2106/13 44 CONNECTION WITH THE TRANSACTION OF SALE OF LAND BUI LDING AND IT IS CONNECTED ONLY WITH THE CLOSURE OF THE BUSINESS. T HE BOMBAY HIGH COURT MADE THIS OBSERVATION IN THE CASE OF CIT V. RADIA TALKIES (238 ITR 872). ON EXAMINATION OF THE FACTS OF THE CASE, IT IS VERY CLEAR THAT THE RETRENCHMENT COMPENSATION WAS ON ACCOUNT OF CLOSURE OF BUSINESS AND THE ARREARS OF W AGE / BONUS WAS RELATED TO THE BUSINESS OF THE ASSESSE AND HAS NOTHING TO DO WITH THE SALE OF BUSINESS ASSETS. HE PLACED REL IANCE ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF SIT ANANDA VS. CIT (2001) 251 ITR 575, WHEREIN IT WAS HELD THAT TH E ASSESSE HAS TO PAY THE INTEREST TO THE LESSOR FOR THE DELAY ED PAYMENT OF LEASE AMOUNT. IT WAS HELD THAT IT WAS NOT AN EXPEN DITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. IN THE CASE OF THE ASSESSEE ALSO THERE WERE INTERES T PAYMENTS TO THE WORKERS AND THIS EXPENDITURE CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE TRA NSFER AND CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE CAPITAL GAIN. HENCE, THE ASSESSING OFFICER HAS RIGHTLY DIS ALLOWED THE EXPENDITURE CLAIMED ON ACCOUNT OF PAYMENTS MADE TO WORKMEN AND SETTLEMENT OF STAFF. - - ITA 1216 & 2106/13 45 18. REGARDING THE DISALLOWANCE OF PAYMENT TO THE BA NK OF BARODA, THE LD. DR SUBMITTED THAT FROM THE DETAILS FURNISHED BY THE ASSESSEE, IT IS SEEN THAT THE DUES AS ON 31.3.2 007 WITH THE BANK OF BARODA AS ON 28.4.2007 WAS ` 34,83,76,311/-. IT IS ALSO SEEN FROM THE CREDIT FACILITIES OF BANK OF BAR ODA, THE SECURITY AGREEMENT SHOWS THE HYPOTHECATION OF STOCK S, BOOK DEBTS, PLANT AND MACHINERY, PLEDGE OF STOCKS, EQUIT ABLE MORTGAGE OF FACTOR LAND AND BUILDINGS. IT IS PERT INENT TO SEE FROM THE NATURE OF LOAN OBTAINED BY THE ASSESSEE TH AT THEY WERE IN THE NATURE OF CASH CREDIT AND TERM LOANS. TERM LOANS ARE USUALLY UTILIZED BY THE COMPANY FOR PURCHASE OF PLANT AND MACHINERY AND OTHER ASSETS OF THE COMPANY. THE ASS ESSE COULD HAVE CLAIMED DEPRECIATION IN THE EARLIER YEAR S ON THE ASSETS PURCHASED FROM THE LOANS TAKEN BY THE COMPAN Y. THE MAJOR AMOUNT WAS ON ACCOUNT OF TERM LOANS AND ALSO DEMAND LOANS. AS ON 31.10.1991 ONLY, THE ASSESSEE HAD GIV EN EQUITABLE MORTGAGE OF ALL THE FIXED ASSETS OF THE C OMPANY AND THE CHARGE ON THE EQUITABLE MORTGAGE WAS ORIGINALLY CREDIT ON 16.7.1982 WHICH WAS MODIFIED FROM TIME TO TIME. TH E EQUITABLE MORTGAGE OF FIXED ASSETS OF THE COMPANY WAS MODIFIE D IN MAY - - ITA 1216 & 2106/13 46 1991 BY REDUCTION OF CHARGE FROM ` 6,04,71,000/- TO ` 5,94,51,000/- AND EXTENSION OF CHARGES FOR SECURING SUFFICIENT DEMAND LOANS OF ` 10,00,000/- THEREBY INCREASING THE TOTAL AMOUNT SECURED BY THE CHARGE FROM ` 5,94,51,000/- TO ` 6,04,51,000/-. THE RATE OF INTEREST PER ANNUM WAS AT 16%. THERE WAS ALSO AN OPENING INTEREST OF 16% PER ANNUM PER QUARTER SINCE THE ASSESSE HAS NOT PAID THE DUES REG ULARLY. AS PER LETTER DATED 28.4.2007 FILED BY THE ASSESSEE, T HE LOAN ACCOUNT HAS BEEN CLASSIFIED AS NON-PERFORMING ASSET S AS ON 31.3.1991 IN ACCORDANCE WITH THE RBI DIRECTIVES AND GUIDELINES. AS SEEN FROM THE FACTS IN THIS LETTER, THE ASSESSEE HAS DEFAULTED IN PAYMENT OF INTEREST ON THE ABOVE LOANS DURING THE ASSESSMENT YEAR 1989-90, 1990-91 AND 1991-92. 18.1 HE SUBMITTED THAT IN VIEW OF THE ABOVE FAIL URE OF THE ASSESSE TO PAY THE DUES OF LOAN ALONG WITH INTEREST , THE BANK HAS IN LETTER DATED 28.04.2007 STATED TO DISCHARGE THE LIABILITIES TO BANK AGGREGATING TO ` 34,83,311/-. TAKING THIS LETTER INTO CONSIDERATION, A LETTER WAS ADDRESSED TO THE ASSESS EE BY THE CIT(APPEALS) ON 24.01.2013 ASKING THE ASSESSE TO FI LE THE DETAILS REGARDING THE CHARGE WITH RESPECT TO THE LA ND AND - - ITA 1216 & 2106/13 47 BUILDINGS, PLANT AND MACHINERY AND STOCK PLEDGED TO THE BANK TILL DECEMBER 2007. THE ASSESSE WAS ALSO REQUESTED BY THE CIT(APPEALS) TO CLARIFY REGARDING THE UTILIZATION O F THE TERM LOAN DURING THE VARIOUS FINANCIAL YEARS. HOWEVER, IN THE LETTER DATED 08.12.2013 FILED BEFORE THE CIT(APPEALS) BY THE ASS ESSEE DID NOT FILE ANY OF THE REQUIRED DETAILS BUT ONLY STATE D THAT THE BANKS INVARIABLY TOOK ALL THE PROPERTIES AS A SINGLE SECU RITY COVER FOR ALL THE ADVANCES / LOANS LENT BY IT AND DOES NOT DI STINGUISH OR DIFFERENTIATE EITHER THE PROPERTIES OR LANDS AND TH E ENTIRE AMOUNT OF LOAN REPAYMENT NEEDS TO BE ALLOWED U/S 48 (I). 18.2 THE ASSESSEE DID NOT FURNISH ANY DETAILS R EGARDING UTILIZATION OF TERM LOAN FROM WHICH PLANT AND MACHI NERY AND OTHER ASSETS WERE PURCHASED AND ALSO THE DETAILS OF DEPRECIATION CLAIMED IN THE EARLIER YEARS ON ALL TH OSE ASSETS. IN THE ABSENCE OF THESE DETAILS, IT IS NOT POSSIBLE TO KNOW WHETHER THE ASSESSEE HAS CLAIMED DEDUCTION IN THE EARLIER Y EARS ON ACCOUNT OF DEPRECIATION ON THE ASSETS PURCHASED BY UTILIZING THE TERM LOAN. AS DISCUSSED EARLIER, THE ASSESSEE HAS A PPROACHED THE HIGH COURT FOR ACCORDING PERMISSION TO SELL THE VACANT LAND OF 14.68 ACRES OUT OF THE TOTAL EXTENT OF 25.66 ACR ES. IN THE - - ITA 1216 & 2106/13 48 JUDGMENT OF THE HONBLE HIGH COURT DELIVERED ON 3.1 2.2007 (AT PAGE 4, PARA 2), IT IS CLEARLY MENTIONED THAT THE B ANK HAS ACCEPTED THE ONE TIME SETTLEMENT AND RECEIVED THE A MOUNT OF ` 18 CRORES TOWARDS THE ONE TIME SETTLEMENT IN NO LIE N ACCOUNT. THIS CLEARLY PROVES THAT THE ASSESSE HAS RECEIVED R S.18 CRORES FROM THE PROSPECTIVE BUYER I.E., M/S ALLIANCE MALL DEVELOPERS CO. PVT. LTD. BEFORE APPROACHING THE HIGH COURT TO SELL THE VACANT LANDS. SINCE THE BIFR PROCEEDINGS ARE PENDIN G BEFORE THE HIGH COURT, THE ASSESSE HAS FILED THE APPLICATI ON BEFORE THE HIGH COURT TO PERMIT THE ASSESSE TO SELL THE VACANT LAND. THIS CLEARLY PROVES THAT THE PAYMENT TO THE BANK IS NOT AN EXPENDITURE RELATED TO THE TRANSFER OF THE PROPERTY . AS SEEN FROM THE INFORMATION FILED DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, A LETTER WAS FILED FROM THE BANK OF BA RODA (AUGUST 6, 2012) STATING THAT THE SAID FINANCE LIMITS HAVE BEEN CLOSED AND SETTLED IN FULL, OUT OF THE SALE PROCEEDS OF TH E PROPERTY ON 17.12.2007. A LETTER WAS ADDRESSED BY THE BANK OF BARODA ON 17 TH DECEMBER 2007 TO M/S ALLIANCE MALL DEVELOPERS CO. PVT. LTD. STATING AS FOLLOWS : AS PER YOUR LETTER OF EVEN DATE ADDRESSED TO US, WE STATE THAT WE HAVE DEBITED YOUR ACCOUNT FOR THE SUM OF - - ITA 1216 & 2106/13 49 ` 18 CRORES ONLY AGAINST THE ONE TIME SETTLEMENT OF ` 18 CRORES IN RESPECT OF DUES OF M/S SIVANANDA MILLS LT D. AND FURTHER THAT WE HAVE CREDITED THE BALANCE OF MATURITY AMOUNT OF FIXED DEPOSIT HELD BY YOU UNDER TD108 SCHEME BEARING RECEIPT NO. 799948 IN THE CURRENT ACCOUNT HELD BY YOU WITH US. WE SHALL HAND OVER ALL THE TITLE DEEDS OF THE SCHEDULED PROPERTIES IN OUR POSSESSION DIRECTLY TO YOU ON RECEIPT OF THE SALE F ROM THE DEBTS RECOVERY TRIBUNAL. 18.3 ACCORDING TO THE DEPARTMENTAL REPRESENTATIVE, THIS CLEARLY PROVES THAT THE AMOUNT WAS PAID ON ACCOUNT OF DEBT OF THE COMPANY AND HAS NOTHING TO DO WITH THE PAYMENTS IN CONNECTION WITH THE TRANSFER. BEFORE THE HIGH COURT , THE BANK HAS ACCEPTED THAT THE AMOUNTS OF ` 18 CRORE WAS RECEIVED AND KEPT IN A NO LIEN ACCOUNT. THIS WAS BEFORE THE PROC EEDINGS OF THE HIGH COURT ON 3 RD DECEMBER 2011. AS SEEN FROM THE ASSESSMENT ORDER, THE ASSESSE MADE AN AGREEMENT FOR SALE ON 12 TH DECEMBER 2007. THIS STATES THAT THE PURCHASER HAD DEPOSITED THE AMOUNT OF ` 18 CRORES IN A NO LIEN ACCOUNT BEFORE THE DATE OF SALE OF AGREEMENT. ALL THESE FACTS CLEA RLY STATE THAT THE EXPENDITURE INCURRED WITH REGARD TO THE PAYMENT TO THE BANK HAS NOTHING TO DO WITH THE TRANSFER OF THE LAND AND IS NOT AN ALLOWABLE EXPENDITURE U/S 48(1) OF THE INCOME TAX A CT. IT IS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN C ONNECTION - - ITA 1216 & 2106/13 50 WITH SUCH TRANSFER. THE WORDS IN CONNECTION WITH S UCH TRANSFER ARE VERY RELEVANT TO ALLOW THE TRANSFER. MERE PAYME NT TO DISCHARGE THE MORTGAGE CANNOT BE ALLOWED AS EITHER COST OF IMPROVEMENT OR AS DEDUCTION FROM CONSIDERATION AS H ELD BY THE HIGH COURT OF MADRAS IN THE CASE OF CIT VS VAJRAPAN I NAIDU 242 ITR 560. THE HIGH COURT FOLLOWED THE DECISION O F THE SUPREME COURT IN THE CASE OF ARUNACHALAM VS CIT (19 97) 227 ITR 222. THE APEX COURT HELD THAT OUTSTANDING DUES, AGAINST MORTGAGED PROPERTY, NOT TO BE DEDUCTED (CIT VS ATTI L N RAO (2001) 252 ITR 880 (SC)]. THE CIT(APPEALS) AGREED W ITH THE ASSESSING OFFICER IN DISALLOWING THE EXPENDITURE RE LATING TO THE BANK PAYMENT AND THE ORDER IS CONFIRMED. 19. THE OTHER GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN SUSTAI NING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER REGARDIN G THE CLAIM OF SET OFF OF BUSINESS EXPENDITURE/LOSS AGAIN ST LONG TERM CAPITAL GAIN, ON THE GROUND THAT THERE WAS NO BUSIN ESS ACTIVITY OF SPINNING AND MANUFACTURING OF YARN AND THE DEPAR TMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AU THORITIES. - - ITA 1216 & 2106/13 51 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CLAIM OF THE ASSESSEE IN T HIS APPEAL IS WITH REGARD TO PAYMENT OF RS. 18 CRORES TO BANK OF BARODA AND RS. 8,07,43,083/- TO WORKMEN AS A DEDUCTION OUT OF CONSIDERATION RECEIVED FROM SALE OF CAPITAL ASSET. 21. UNDER SEC.48 OF THE ACT, THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY DEDUC TING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACC RUED AS A RESULT OF THE TRANSFER OF ASSET FOLLOWING THE AMOUN TS VIZ., I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN C ONNECT ION WITH SUCH TRANSFER, II) THE COST OF ACQUISITION OF THE CAPITAL ASSET AN D COST OF ANY IMPROVEMENT THERETO. SEC.48 OF THE ACT, BROADLY CONTEMPLATES THREE AMOU NTS FOR THE PURPOSE OF COMPUTING INCOME CHARGEABLE UNDER THE HE AD CAPITAL GAINS. THE FIRST IS THE FULL VALUE OF TH E 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 LAS T IS THE COST OF ACQUISITION OF THE CAPITAL ASSET INCLUDING THE C OST OF ANY IMPROVEMENT THERETO. - - ITA 1216 & 2106/13 52 22. WE HAVE ALREADY REFERRED IN EARLIER PARA THE RE LEVANT FACTS OF THE CASE AS IN AUTHORISED REPRESENTATIVE O F ASSESSEES SUBMISSIONS. IT CANNOT BE DISPUTED THA T THE PROPERTY IN DISPUTE WAS MORTGAGED WITH BANK OF BARO DA. THEY ALSO TAKEN THE SYMBOLIC POSSESSION OF THE ASSETS CH ARGED TO THEM UNDER THE PROVISIONS OF SARFAESI 2002 WHICH IS EVIDENCED FROM THE LETTER DATED 7.7.2007 KEPT ON RE CORD AT PAGE 2 OF THE PAPER BOOK. FURTHER, THEY HAVE ALSO GIVEN POSSESSION NOTICE VIDE LETTER DATED 7.7.2007 WHICH IS KEPT ON RECORD AT PAGE 3 OF THE PAPER BOOK. THUS, IT CANNO T BE DISPUTED THAT UNLESS THE ASSESSEE HAD SETTLED THE D ISPUTE WITH BANK OF BARODA, THE SALE TRANSACTION WITH M/S. ALLI ANCE MALL DEVELOPERS CO. PVT. LTD. VIDE SALE DEED DATED 11 TH JUNE, 2008 COULD NOT HAVE MATERIALIZED, THERE WOULD PERHAPS HA VE NO QUESTION OF CAPITAL GAINS. THE SALE WOULD NOT HAVE TAKEN PLACE. BEING SO, THE FULL VALUE OF CONSIDERATION I N THIS CASE WAS NOT APPARENT CONSIDERATION. THE LEGISLATURE WH ILE USING THE EXPRESSION FULL VALUE OF CONSIDERATION IN OUR OPINION, HAS CONTEMPLATED BOTH ADDITIONS TO, AS WELL AS DEDUCTIO NS FROM THE APPARENT VALUE. WHAT IT MEANS IS THE REAL AND EFFE CTIVE - - ITA 1216 & 2106/13 53 CONSIDERATION. THAT APART, SO FAR AS CLAUSE (I) OF SEC.48 IS CONCERNED, WE FIND THAT THE EXPRESSION USED BY THE LEGISLATURE IN THEIR WISDOM IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. TH E EXPRESSION IN CONNECTION WITH SUCH TRANSFER IS, IN OUR OPINI ON, CERTAINLY WIDER THAN THE EXPRESSION FOR THE TRANSFER. ONC E AGAIN, WE ARE OF THE VIEW THAT ANY AMOUNT THE PAYMENT OF WHIC H IS ABSOLUTELY NECESSARY TO EFFECT THE TRANSFER WILL BE AN EXPENDITURE COVERED BY THIS CLAUSE. IN OTHER WORDS , IF, WITHOUT REMOVING ANY ENCUMBRANCE, SALE OR TRANSFER COULD NO T BE EFFECTED, THE AMOUNT PAID FOR REMOVING THAT ENCUMBR ANCE WILL FALL UNDER CLAUSE (I). IN THIS CASE, SALE OF TRANS FER COULD NOT BE EFFECTED AND THE AMOUNT PAID FOR REMOVING THAT ENCU MBRANCE WILL FALL UNDER CLAUSE (I) OF SEC.48 OF THE ACT. T HE SAME VIEW WAS TAKEN BY THE BOMBAY HIGH COURT IN THE CASE OF C IT V. SHAKUNTALA KANTILAL (190 ITR 56). THIS DECISION IS FOLLOWED BY THE MADRAS HIGH COURT IN THE CASE OF CIT V. BRADFOR D TRADING CO. P. LTD. (261 ITR 222), WHEREIN IT WAS HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO A THIRD PARTY TO SETTLE THE PRE-EXISTING CLAIM AGAINST TRANSFER OF ASSET AS ALSO LITIGATION EXPENSES - - ITA 1216 & 2106/13 54 CONSTITUTE THE EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY FOR TRANSFER OF CAPITAL ASSET AND WAS DEDUCTIBLE IN COM PUTATION OF CAPITAL GAIN; AMOUNT REIMBURSED BY THE VENDEE TOWAR DS SUCH CLAIM CONSTITUTE PART OF SALE CONSIDERATION BUT DED UCTIBLE WHILE COMPUTING CAPITAL GAIN. SIMILAR VIEW WAS TAKEN BY THE BOMBAY HIGH COURT IN THE CASE OF CIT V. ABRAR ALVI (247 IT R 312). FURTHER, CALCUTTA HIGH COURT IN THE CASE OF GOPEE N ATH PAUL AND SONS AND ANOTHER V. DCIT (278 ITR 240), HELD TH AT THE CRITERIA IS THE PERFECTION OF TITLE IN ORDER TO EFF ECT THE SALE. IN THAT CASE, WITHOUT REMOVING THE LIABILITY OF THE AL LAHABAD BANK, THE TITLE OF THE PURCHASER COULD NOT BE PERFECTED. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THAT CASE AND THE POSITION IN LAW, THE MEETING OF THE LIABILITY OF TH E ALLAHABAD BANK RELATING TO THE ASSETS OF GOBINDO SHEET METAL WAS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER. FURTHER THE DELHI HIGH COURT IN THE CASE OF CIT V. EAGLE THEATRES (205 TAXMAN 278), WHEREIN IT WAS HEL D THAT THE AMOUNT PAID TO THE TENANTS FOR VACATING THE PREMISE S FOR EFFECTING THE SALE OF BUILDING IS REQUIRED TO BE DE DUCTING IN COMPUTING THE CAPITAL GAINS OF THE BUILDING SOLD AS INCURRED - - ITA 1216 & 2106/13 55 WHOLLY AN EXCLUSIVELY IN CONNECTION WITH TRANSFER. FURTHER, THE ANDHRA PRADESH HIGH COURT IN THE CASE OF NAOZAR CHE NOY V. CIT (234 ITR 95), OBSERVED AS UNDER : AS REGARDS THE EXPENDITURE INCURRED BY THE ASSESSE E TOWARDS PAYMENT OF THE AMOUNT TO THE TENANTS FOR VACATING THE PREMISES, WHICH IS THE SUBJECT-MATTER OF THE SALE TRANSACTION, WE ARE OF THE VIEW THAT IT HA S NEXUS WITH THE TRANSACTION AS WITHOUT THE TENANTS VACATING THE PREMISES, THE BUILDING CANNOT BE SOLD. THEREFORE WE ARE OF THE VIEW THAT THE SAID EXPENDIT URE WAS INCURRED FOR EFFECTING THE TRANSACTION AND THER EFORE HE IS ENTITLED FOR DEDUCTION OF THE AMOUNTS INCURRE D TOWARDS VACATION OF THE TENANTS, IN COMPUTING THE CAPITAL GAIN OF THE BUILDING SOLD. 23. SIMILAR VIEW HAS BEEN TAKEN BY THE MADRAS HIGH COURT IN THE CASE OF CIT V. A. VENKATRAMAN AND OTHERS (13 7 ITR 846) . IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE OPI NION THAT THE ABOVE TWO PAYMENTS TO BE ALLOWED. IT IS N EEDLESS TO SAY THAT HAD THE ASSESSEE NOT PAID TO THE WORKMEN, WHO HAD TAKEN THE POSSESSION OF FACTORY PREMISES OF THE ASS ESSEE COULD NOT BE ALLOWED TO TRANSFER THE SAID CAPITA AS SET. HOWEVER, IF THE ASSESSEE HAD CLAIMED ANY AMOUNT OUT OF THIS, IN ANY ASSESSMENT YEAR , SAME TO BE REDUCED FROM TH IS AMOUNT I.E. RS. 8,07,43,083/- BY AO WHILE GIVING E FFECT TO THIS - - ITA 1216 & 2106/13 56 ORDER. ACCORDINGLY, THE GROUNDS RELATING TO THESE ISSUES ARE ALLOWED. 24. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF COMMISSION PAYMENT. 25. THE CONTENTION OF THE LD. DR IS THAT THESE PAYM ENTS ARE NOT PROPERLY VOUCHED AND DOUBTED THE SERVICES RENDE RED BY THE RECIPIENTS. FURTHER, THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE IS THAT MOST OF THE RECIPIENTS OF TH IS COMMISSION ARE EITHER RELATIVES OR ASSOCIATES OF THE MANAGING DIRECTOR OF SIVANANDA MILLS, MR. MURUGESAN. THE AO HAS GIVEN A FINDING THAT NONE OF THE COMMISSION PAYMENTS WERE INVOLVED IN THE BROKERING OF THE TRANSFER WITH ALLIANCE MALL DEVELO PERS CO. P. LTD. (PURCHASER). MOST OF THE PERSONS HAVE FILED R EVISED RETURN OR ACCOUNTED THE RECEIPTS IN THE NEXT YEAR AS THEY WERE FOLLOWING CASH METHOD OF ACCOUNTING. FURTHER, THE CONTENTION OF THE LD. DR IS THAT THE PURCHASER HAD A BROKER VI Z. M/S. HIND WASTRA BANDAR, WHO HAS RECEIVED THE PAYMENT OF RS 2 5.15 LAKHS AS BROKERAGE. FROM THIS, THE DR INFERRED THA T THERE IS NO NECESSITY OF PAYMENT OF COMMISSION BY THE ASSESSEE. IN OUR OPINION, THE REASON GIVEN BY THE AO TO DENY THE PAY MENT OF - - ITA 1216 & 2106/13 57 COMMISSION IS NOT PROPER. IT IS NOT UNUSUAL THAT B OTH, PURCHASER AND SELLER HAVING SEPARATE BROKERS OR MID DLEMEN TO COMPLETE THE TRANSACTION OF TRANSFER. THE CIT(APPE ALS) HAS GIVEN A FINDING THAT THE ASSESSEE HAS NOT PRODUCED BROKERS TO SHOW THAT THEY HAVE RENDERED SERVICES. THE POWER O F THE CIT(APPEALS) IS COTERMINOUS THAT OF THE AO AND HE S HOULD HAVE ISSUED SUMMONS, ONCE THE ASSESSEE HAS FURNISHE D THE NAMES AND ADDRESSES OF THE PARTIES. THIS EXERCISE HAS NOT BEEN DONE BY THE REVENUE AUTHORITIES. HENCE, OUT R IGHTLY DISALLOWING THE ENTIRE COMMISSION PAYMENT IS NOT AP PROPRIATE. HOWEVER, THERE IS LAPSE ON THE ASSESSEE ALSO AS NOT ICED BY THE AO AS MENTIONED IN EARLIER PARA. IN OUR OPINION, T HE PAYMENT OF COMMISSION OF RS 1,98,17,992/- IS VERY EXCESSIVE . AS PER TRADE PRACTICE, WHEN THE TRANSACTION OF SUCH VOLUME S TOOK PLACE, USUALLY IN REAL ESTATE FIELD, COMMISSION PAY MENT IS AT ONE PERCENT OF THE SALE VALUE OF THE PROPERTY WOULD BE PAID. ACCORDINGLY, WE DIRECT THE AO TO ALLOW ONE PERCENT OF THE TOTAL SALE VALUE OF THE PROPERTY AS COMMISSION PAYMENT TO WARDS TRANSFER OF PROPERTY. THIS GROUND IS PARTLY ALLOWE D. - - ITA 1216 & 2106/13 58 26. THE NEXT GROUND IS WITH REGARD TO SUSTAINING TH E DISALLOWANCE MADE BY THE AO IN RESPECT OF CLAIM OF SET OFF OF BUSINESS EXPENDITURE/LOSS AGAINST LONG TERM CAPITAL GAIN, ON THE GROUND THAT THERE WAS NO BUSINESS ACTIVITY OF S PINNING AND MANUFACTURING OF YARN. 27. ACCORDING TO THE REVENUE AUTHORITIES, THE ASSE SSEE HAS STOPPED MANUFACTURING OF YARN SINCE 1993 AND THE LI ABILITIES AND EXPENDITURE RELATING TO THOSE EARLIER YEARS HAVE BE EN CLAIMED AS EXPENDITURE IN THE ASSESSMENT YEAR 2009-10. ACCORD ING TO THE ASSESSEE, THERE WAS AN INTENTION TO RESUME THE SAME AND THE COMPANY WAS NOT WOUND UP AS THERE WAS TRANSFER OF C OMPANY, LAND SELLING, SELLING OF MACHINERIES, SETTLEMENT OF BANK AND EMPLOYEES DEMAND. FURTHER, THE CONTENTION OF THE A SSESSEES COUNSEL IS THAT IN SUBSEQUENT YEAR, THE ACTIVITIES OF THE COMPANY HAVE BEEN REVIVED AND SUDDENLY, THE COMPANY WAS STA RTED AGAINST AND THE LOSS FROM THE BUSINESS ACTIVITIES S HOULD BE ALLOWED. THERE IS NOTHING ON RECORD TO SHOW THAT T HE ASSESSEE HAS COMPLETELY CLOSED THE BUSINESS OF THE ASSESSEE. HOWEVER, THE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSME NT YEAR 2012-13 TO SHOW THAT WHEREIN THE AO TAXED T HE CESSATION - - ITA 1216 & 2106/13 59 OF LIABILITY U/S.41(1) OF THE ACT. THE LD. AR SUBM ITTED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS CAPITALIZED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. BEING SO, IN OUR OPINION, THIS ISSUE REQUIRES RE-EXAMINATION BY THE AO. SINC E THE ABOVE EVIDENCE WAS BROUGHT ON RECORD, WE SUGGEST THAT THE COMPANY ONLY WITHHOLD THE BUSINESS ACTIVITY DUE TO STRIKE A ND OTHER FACTORS AND THERE WAS NO INTENTION TO CARRY ON THE BUSINESS ACTIVITY, FOR THE TIME BEING AND IT WAS NOT WOUND UP THE BUSINESS . THEREFORE, ISSUE IS TO BE REEXAMINED BY THE AO, WHETHER IT IS REASONABLE OR EXCESSIVE. ACCORDINGLY, HE IS DIRECTED TO DISALLO W ONLY THAT PORTION OF THE EXPENDITURE IF HE FINDS ANY AMOUNT EXCESSIVE OR UNREASONABLE. FURTHER, REGARDING THE CLAIM OF BAD DEBTS, THE SAME TO BE EXAMINED IN TERMS OF SEC.36(1)(VII) R.W. SEC. 36(2) OF THE ACT. WITH REGARD TO STATUTORY LIABILITY LIKE S ALES TAX, ESI, PF ETC., IS TO BE ALLOWED ON ACTUAL PAYMENT BASIS IN T HE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SEC.43B OF THE ACT. HENCE, WE REMIT THIS ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 28. THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND THAT THE COMPANY HAS EARNED BUSINESS INCOME IN THE FORM OF I NTEREST RECEIPTS AND CONSEQUENTLY THE BUSINESS LOSS ARISING OUT OF THE - - ITA 1216 & 2106/13 60 BUSINESS ACTIVITIES SHOULD BE SET OFF AGAINST THE C APITAL GAIN ON SALE OF BUSINESS ASSETS. 29. IN OUR OPINION, THE ASSESSEE DEPOSITED CERTAIN FUND OUT OF THE AMOUNT RECEIVED FROM SALE OF LAND AND INTEREST EARNED FROM THAT DEPOSIT AS INCOME FROM OTHER SOURCES AND IN VI EW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTI CORIN ALKALI CHEMICALS AND FERTILIZERS LTD. V. CIT (227 ITR 172) , WHEREIN IT WAS HELD THAT INTEREST EARNED BY THE ASSESSEE ON SH ORT TERM DEPOSIT IN BANK OUT OF TERM LOAN IS INCOME UNDER TH E HEAD OTHER SOURCES. HENCE, THIS ISSUE IS DISMISSED. 29.1 IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO.1216/MDS/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA N0.2106/MDS/13: 30. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF THE CLAIM OF EXPENDITURE TOWARDS PA YMENT OF COMMISSION AT 100% AND SITE CLEARING CHARGES AT 75% WHILE CALCULATING LONG TERM CAPITAL GAINS. 31. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DISPOSED OFF LAND MEASURING ABOUT 10.98 ACRES. THE ASSESSEE HAS ALSO REALISED THAT ALL THE PLANT AND MACHINERIES WHICH IN TURN BECAME RUSTY DUE TO YEARS OF NON-OPERATION AND ALSO BECAME UNVIABLE BECA USE OF - - ITA 1216 & 2106/13 61 OBSOLESCENCE OF THE MACHINERY. DURING THE SALE OF THIS PROPERTY, THE ASSESSEE MADE COMMISSION PAYMENTS TO ABOUT 39 PERSONS. ACCORDING TO THE ASSESSEE, IT HA S PROVIDED A LIST OF PERSONS TO WHOM SUCH PAYMENTS HA VE BEEN MADE TOGETHER WITH CORRESPONDING QUANTUM OF PAYMENTS MADE TO EACH OF SUCH PERSONS. ALL THE PAYMENTS WERE MADE THROUGH BANK CHANNELS AND ALL TH E PAYMENTS WERE SUBJECTED TO TDS. THE ASSESSING OFF ICER WAS OF THE OPINION THAT THE EVIDENCE BROUGHT ON REC ORD IS NOT SUFFICIENT TO SHOW THE SERVICES RENDERED BY THE SE PERSONS AND THE COMMISSION PAYMENTS OF ` 1,42,24,000/- AND THE AO WAS OF THE OPINION THAT THE EXPENDITURE CANNOT BE CONSIDERED AS WHOLLY AND EXCLUSIVELY INCURRED WI TH THE TRANSFER OF THE LAND. HE DISALLOWED THE SAME. AGA INST THIS, THE ASSESSEE IS IN APPEAL BEFORE THE CIT(APPE ALS). 32. THE CIT(APPEALS) OBSERVED THAT NONE OF THE PARTIES WHO HAVE RECEIVED THE PAYMENTS WERE PRODUCED FOR EXAMINATION. AND MOST OF THE PERSONS WHO HAVE RECEI VED PAYMENTS SAID TO BE RELATIVES AND THE ASSESSEE HAS NOT FURNISHED DETAILS BEFORE THE CIT(APPEALS). FURTHER , THE - - ITA 1216 & 2106/13 62 OBSERVED THAT SHRI SIVARAJ CHETTY, HUF, SHRI SIVARA J CHETTY, INDIVIDUAL, SMT. ANANTHALAKSHMI SIVARAJ CHE TTY AND M/S. VISHNU VARDHINI AGENCIES WERE RECEIVED ` 8 LAKHS EACH TOTALLING ` 32 LAKHS ON 31.3.2010. FURTHER, ADDRESS OF ALL THE PERSONS MENTIONED AS AT 11, BHAR ATHI PARK ROAD, COIMBATORE 641 043. FURTHER, S/SHRI R AM GANESAN VENKATESAN, HUF, V. KATHIKEYAN, MRS. MEENAKSHI VENKATESAN WERE ALSO PAID ` 8 LAKHS, ALL SAID TO BE HAVING ADDRESS OF NO.10, ARCHBISHOP MATHIAS AVENUE, R.A.PURAM, CHENNAI 600 028. SIMILARLY, SM T. VIDYA RAHUL REDDY AND MR. DIPUR KRISHNAMURTHI WERE ALSO PAID ` 8 LAKHS AND BOTH ARE STAYING AT 12, SATHYANARAYANA AVENUE, R.A.PURAM, CHENNAI 600 028 . THIS MADE SUSPICIOUS IN THE MIND OF CIT(APPEALS) AN D DISALLOWED THE CLAIM OF COMMISSION PAYMENT. AGAINS T THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 33. REGARDING THE PAYMENTS MADE TO THE WORKERS FOR CLEARING THE PREMISES, THE FACTS ARE THAT THE ASSES SEE CLAIMED THIS EXPENDITURE FOR THE LAND SOLD TO M/S. ALLIANCE MALL DEVELOPERS CO. (P) LTD. THIS AMOUNT WAS REDUC ED - - ITA 1216 & 2106/13 63 FROM THE TOTAL SALE CONSIDERATION OF THE LAND AT ` 40.78 CRORES IN THE COMPUTATION OF INCOME FROM LONG TERM CAPITAL GAINS BY THE ASSESSEE. ACCORDING TO THE AO, THAT EXPENDITURE IS NOT SUPPORTED BY PROPER EVIDENCE AND DISALLOWANCE ` 48,80,215/-. 34. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT T HESE AMOUNTS ARE PAID BY CASH. HOWEVER, THE VOUCHERS HA VE BEEN MADE IN THE MONTH OF APRIL TO JUNE 2009 BUT TH E LEDGER SHOWS CASH PAYMENTS WERE MADE IN MARCH 2010. ACCORDING TO THE CIT(APPEALS), THE DAILY WAGE LABOU R DOES NOT WAIT FOR SO MUCH TIME TO RECEIVE WAGES. HOWEVE R, THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE ENGA GED IN LABOUR CONTRACT TO CARRY OUT THIS WORK. HENCE, CIT(APPEALS) DIRECTED THE AO TOP ALLOW 25% OF THE EXPENDITURE ON ACCOUNT OF SITE CLEARING CHARGES. A GAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 35. THE LD. AR, SUBMITTED THAT T HE CIT (A) OUGHT TO HAVE SEEN THE COMPREHENSIVE LIST OF PERSONS TO WHOM SUCH PAYMENTS HAVE BEEN MADE TOGETHER WITH CORRESPONDING QUANTUM OF PAYMENTS MADE TO EACH OF SUCH PERSONS. ALL THE - - ITA 1216 & 2106/13 64 PAYMENTS WERE MADE BY ACCOUNT PAYEE CROSSED CHEQUES AND ALL THE PAYMENTS WERE SUBJECTED TO TDS REQUIREMENTS AS REQUIRED. IT IS ALSO SUBMITTED POSITION AND WELL SETTLED POSITION OF LAW THAT PAYMENT OF COMMISSION TO BROKERS FOR FA CILITATING SMOOTH TRANSACTION WOULD FALL UNDER THE CATEGORY OF THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER. 35.1 IT IS FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF COMMISSION HAS BEEN DISALLOWED O N THE GROUND THAT THE MOST OF RECIPIENTS WERE RELATED TO THE ASSESSEE AND THAT OF LACK OF EVIDENCE / MATERIAL REGARDING T HE SERVICES RENDERED BY THESE PERSONS, WITHOUT APPRECIATING THA T THERE WAS NO OTHER REASON FOR THE ASSESSEE TO MAKE THE PAYMEN T. IT SHOULD BE SEEN THAT THE ASSESSEE HAD PRODUCED ALL T HE EVIDENCES WHICH ARE MORE THAN ADEQUATE TO ESTABLISH SUCH FACT, GENUINENESS, NECESSITY AND PURPOSE OF SUCH PA YMENT, WHICH WERE FURTHER CORROBORATED BY THE FACT OF FILI NG OF RETURNS THEREOF BY THE RECIPIENTS. - - ITA 1216 & 2106/13 65 35.2 THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE FURTHER SUBMITTED THAT IN MANY CASES THAT WITH THE PRODUCTI ON OF FAIRLY REASONABLE EVIDENCES POINTING TO SUCH FACT OR EVEN RAISING PROBABILITIES THEREOF WOULD AMOUNT TO DISCHARGE OF ONUS BY THE ASSESSEE AND THEREAFTER THE ONUS SHIFT TO THE DEPAR TMENT TO DISPROVE THE SAME WITH MORE COGENT AND MATERIAL EVI DENCE, SUPPORTING REJECTING OF EVIDENCES PRODUCED BY THE A SSESSEE. 35.3. ACCORDING TO THE LD. AR, NO REASONS HAVE BEE N RECORDED IN THE IMPUGNED ORDER TO SHOW THAT THE ASS ESSEE HAS NOT UTILIZED THE SERVICES OF THE RECIPIENTS, EXCEPT PREDOMINANT PREVALENCE OF PRESUMPTION OF BAD FAITH ABOUT THE AS SESSEE AND THE CONJECTURES THAT NO SERVICES WOULD HAVE BEEN RE NDERED BY THOSE BROKERS, TO REJECT THE ALL GOOD EVIDENCES PRO DUCED BY THE ASSESSEE AND THE CONFIRMATIONS THEREON MADE BY THE RESPECTIVE RECIPIENTS. IT IS SUBMITTED THAT BOTH THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER OF INCOME TAX, HAD NOT DOUBTED THE VERACITY (GENUINENESS) OF THE PAYMENTS MADE. 35.4 THE LD. AUTHORISED REPRESENTATIVE OF ASS ESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAD ENGAGED THE PERSONS , WHO HAD RENDERED SERVICES AND THE ASSESSEE HAD ALSO PAI D FOR THEIR - - ITA 1216 & 2106/13 66 SERVICES. IN THE PROCESS OF THE SALE OF LAND, THE ASSESSEES HAD TO CAUSE CLEANING UP OF THE LAND TO ENABLE EXACT ME ASUREMENT OF LAND, MARKING OF BOUNDARIES AND PRESENT THE SUBJ ECT MATTER OF LAND FOR SALE, COMPREHENSIVE, CLEAN AND CLEAR. I N SUCH PROCESS THE ASSESSEES HAD TO EMPLOY SCORES OF PERSO NNEL TO CUT, REMOVE AND WEED OUT BUSHES, REMOVE DEBRIS FROM THE AREAS OVER SEVERAL PERIOD OF DAYS, INTERMITTENTLY. THE ASSESSEE HAD TO ENGAGE PERSONNEL SPECIALLY SKILLED IN DOING SUCH KIND OF JOBS WHO WERE ILLITERATE AND WORKING IN AN UNORGANI ZED MANNER. THESE PERSONNEL DID NOT NORMALLY COME AND WORK REGU LARLY BUT WERE COMING AND WORKING ERRATICALLY. BESIDES THEY H AD TO BE PAID IN CASH ONLY. HOWEVER THE CIT (A) HAS ALLOWED ONLY 25% OF THE EXPENDITURE FOR THE CLEANING CHARGES. THE CI T (A) OUGHT TO HAVE ALLOWED FULLY THE EXPENDITURE. ACCORDING T O THE LD. AR THE CIT (A) WRONGLY ALLOWED ONLY 25% LEARNED ASSESS ING OFFICER HAS GROSSLY ERRED IN DISALLOWING ALL THE CL AIMS OF THE ASSESSEE ON THE COMMISSION PAYMENT MADE TO FACILITA TE CONCLUSION OF THE SALE OF IMMOVABLE PROPERTY U/S 48 (I) OF THE ACT, AND SITE CLEARING CHARGES ALSO UNDER SEC. 48(I ) OF THE ACT, DRAWING UNTENABLE NON-EXISTENT INFERENCE, PURELY BA SED ON - - ITA 1216 & 2106/13 67 SUSPICIONS, SURMISES, CONJECTURES, PRESUMPTION OF B AD FAITH ETC., WHICH RUNS CONTRARY TO THE FACTS OBTAINING VE RY MUCH FROM THE RETURN OF INCOME AND EXPLANATIONS OFFERED. 36. ON THE OTHER HAND, THE LD. DR RELIED ON THE FINDINGS OF THE CIT(APPEALS). 36.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE ISSUE RELATING TO THE PAYM ENT OF COMMISSION WAS ALREADY DECIDED BY US IN ITA NO.1216 /MDS/13 FOR THE ASSESSMENT YEAR 2009-10. ACCORDINGLY, WE D IRECT THE AO TO ALLOW COMMISSION PAYMENT AT 1% OF THE SALE VA LUE OF THE CAPITAL ASSET. 36.2 REGARDING CLEARING CHARGES OF THE SITE, WE AR E OF THE OPINION THAT THE ASSESSEE HAS NOT PLACED CONTEMPORA NEOUS EVIDENCE BEFORE THE LOWER AUTHORITIES SO AS TO PROV E THE GENUINENESS OF THE CLAIM OF THE ASSESSEE. HENCE, WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO THE ASSESSEE TO PLACE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM. THIS ISSUE IS PARTLY ALLOWED. - - ITA 1216 & 2106/13 68 37. THE NEXT GROUND IS WITH REGARD TO DISALLOWING THE CLAIM OF THE ASSESSEE ON THE RIGHT TO SET OFF OF THE BUSI NESS LOSSES AGAINST THE LONG TERM CAPITAL GAINS AND ALSO THE CL AIM OF PAYMENT OF INTEREST MADE IN THE PREVIOUS YEAR UNDER SEC.40(IA) OF THE ACT. 38. ACCORDING TO THE LOWER AUTHORITIES, NO BUSINES S ACTIVITIES HAVE BEEN CONDUCTED IN THE YEAR 2010-11. HOWEVER, THE ASSESSEE CLAIMED EXPENSES OF RS. 15,08,35,525/- DUR ING THE ASSESSMENT YEAR 2010-11. THE EXPENDITURE WHICH WAS NO NEXUS WITH MANUFACTURING OF YARN CANNOT BE ALLOWED AS EXPENDITURE FOR THE PURPOSE OF BUSINESS. WINDING U P OF THE COMPANY WAS IN PROGRESS AND NO BUSINESS ACTIVITY WA S CARRIED OUT BY THE ASSESSEE AND THE ABOVE EXPENDITURE WAS D ISALLOWED AND NO SET OFF OF LONG TERM CAPITAL GAINS OF THE AS SESSEE. AGAINST THIS, THE ASSESSEE CARRIED THE MATTER BEFOR E THE CIT(APPEALS), WHO CONFIRMED THE ORDER OF THE AO. A GAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 39. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE WAS CONSIDERED BY U S IN ITA - - ITA 1216 & 2106/13 69 NO.1216/MDS/13 IN EARLIER PARA. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE AO TO DISALLOW ONLY THE EXPENDITURE WHICH HE FINDS EXCESSIVE OR UNREASONABLE AS PER OUR DIRECTIO N IN ITA NO.1216/MDS/13. 40. IN THE RESULT, ITA NO.2106/MDS/13 IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 17 TH OF JUNE, 2016 AT CHENNAI. SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 17 TH JUNE, 2016. MPO* ;D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H3 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.
Mehul