The Assistant Commissioner of Income Tax, Circle-2(1), , Guntur V. Bolla Brahma Naidu, Narasaraopet

ITA 238/VIZ/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7655 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 30-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V NAGAPRASAD
• Assessee Lawyers: S RAVI SHANKAR NARAYAN
• Keywords: Share purchase agreement; Working capital adjustments; Set aside; Capital Gains
• Section: 54F; 201; 13; 147; 54

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T. A.NO. 2 38 /VIZ/201 9 ( / A SSESSMENT Y EAR : 201 4 - 1 5 ) ASST. COMMISSIONER OF INCOME TAX CIRCLE - 2(1) GUNTUR ( / APPELLANT) VS. SRI BOLLA BRAHMA NAIDU NO.12 - 13/27/A, 60 FEET ROAD PRAKASH NAGAR NARSARAOPET [PAN : AFLPB1687C ] ( / RESPONDENT) / APPELLANT BY : SHRI V.NAGA PRASAD, AR / RESPONDENT BY : SHRI S.RAVI SHANKAR NARAYAN, CIT , DR / DATE OF HEARING : 0 7 .01.2020 / DATE OF PRONOUNCEMENT : 29 .01. 20 20 / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : TH IS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX ( APPEAL ) [CIT(A)] - 1 , GUNTUR IN APPEAL NO. 10182 / 2018 - 19 DATED 2 1 . 02 .201 9 FOR THE ASSESSMENT YEAR ( A.Y. ) 201 4 - 1 5 . 2 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET 2. GROUND NO.1 AND 6 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3. GROUND NO.2 TO 4 ARE RELATED TO THE ADDITION MADE BY THE AO U/S 2(24)(IV) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) , UNDER THE IMPRESSION THAT THE ASSESSEE HAD RECEIVED THE BENEFIT OF RS.3,96,18 ,0 99/ - FROM M/S TIRUMALA MILK PRODUCTS PRIVATE LTD. ( M/S TM PPL), A COMPANY IN WHICH THE ASSESSEE WAS A PROMOTER DIRECTOR. BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE I S AN INDIVIDUAL AND FILED THE RETURN OF INCOME ON 31.07.2014 ADMITTING TOTAL INCOME OF RS.212,37,62,980/ - AND THE ASSESSMENT WAS COMPLETED U/S 14 3(3) ON 31.08.2016 . SUBSEQUENTLY, THE CASE WAS REOPENED U/S 147 OF THE ACT BY ISSUE OF NOTICE U/S 147. DURING THE COURSE OF RE ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER (A O ) FOUND THAT THE ASSESSEE HA D ADMITTED THE LONG TERM CAPITAL GAINS OF RS.211,78,44,832/ - ON SALE OF 31,57,657 SHARES OF M/S TMPPL. DURING THE YEAR, THE ASSESSEE ALONG WITH OTHER INDIVIDUAL SHARE HOLDERS AND A FOREIGN COMPANY, ENTERED INTO AN AGREEMENT DATED 04. 11.2013 FOR SALE OF TOTAL SHARE HOLDI NG OF M/S TMPPL TO M/S BSA INTERNATIONAL. I N THE PROCESS OF TRANSFER OF HARES, THE COMPANY M/S TMPPL HAD ENTERED INTO AN AGREEMENT THROUGH AN E NGAGEMENT L ETTER (EL) DATED 05.07.2013 WITH M/S BARCLAYS BANK PLC FOR EVALUATING THE VALUE 3 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET OF SHARES OF TMPPL AN D FOR SEARCHING A PROBABLE BUYER TO HAVE CONTROL OVER ITS INVESTMENTS OR ITS AFFAIRS. THE TERMS O F THE AGREEMENT ENTERED INTO WERE , THE COMPANY M/S TMPPL HAS TO PAY THE SUCCESS FEE ON COMPLETION OF THE TRANSACTION TO M/S BARCLAYS BANK AS PER THE INVOICE R AISED BY THEM. ACCORDINGLY, AT THE END OF THE TRANSACTION, M/S BARCLAYS HAS RAISED AN INVOICE DATED 08.01.2014 FOR RS.28,81,31,631/ - AS SUCCESS FEE FOR THE TRANSACTION AND THE SAME WAS MET BY THE COMPANY M/S TMPPL. IT WAS OBSERVED BY THE AO THAT THE AMOUN T OF RS.28,81,31 ,631/ - WAS SHOWN AS PAYMENT BELOW THE LINE OF PROFIT AND LOSS ACCOUNT BY THE COMPANY , WHICH MEANS THAT THE COMPANY TMPPL HAS PAID THE TRANSACTION FEE FROM THE TAXED PROFITS OF THE COMPANY. THEREFORE, THE AO HELD THAT THE ASSESSEE ALONG WITH OTHER STAKE HOLDERS WHO SOLD THE SHARES BEING THE BENEFICIARIES OF THE PAYMENT MADE TO BARCLAYS, THE EXPENDITURE INCURRED TOWARDS THE SALE OF SHARES REQUIRED TO BE MET BY THE SHARE HOLDERS BUT NOT BY COMPANY . SINCE THE COMPANY PAID THE EXPENDITURE OUT O F ITS TAXED PROFITS THE PROPORTIONATE SHARE OF THE EXPENSES OUT OF THE TOTAL EXPENDITURE OF RS.28.81 CRORES PAID TO M/S BARCLAYS BANK REQUIRED TO BE TAXED IN THE HANDS OF THE DIRECTORS U/S 2(24)(IV) OF THE ACT. ACCORDINGLY, THE AO ISSUED SHOW CAUSE NOT ICE AND THE ASSESSEE FILED OBJECTIONS. 4 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET 3.1. NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE AO HELD THAT THE PAYMENT MADE BY THE COMPANY TO M/S BARCLAYS BANK IS THE BENEFIT RECEIVED BY THE ASSESSEE DIRECTLY, HENCE TAXED THE SAME AS INCOME U/S 2(24)(IV) OF THE ACT AMOUNTING TO RS.3,96,18,099/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION MADE BY THE AO HOLDING THAT THERE IS NO CASE FOR INVOCATION OF PROVISIONS OF 2(24)(IV) OF THE ACT IN THE INSTANT CASE SINCE THE PAYMENT WAS MADE BY THE COMPANY AS PER THE AGREEMENT ENTERED INTO BY THE COMPANY WITH BARCLAYS BANK AND THE ASSESSEE HAS NOT MADE ANY AGREEMENT WITH BARCLAYS BANK . FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THE LD.CIT(A) WHICH READS AS UNDER : I HAVE PERUSED PARA 9 OF SHARE PURCHASE AGREEMENT (SPA) , WHICH STATES THAT THE COST OF TRANSFER OF SHARES SHOULD BE BORNE BY THE APPELLANT. IN THIS CONNECTION THE SAID PARA WA S CONSIDERED AND FOUND THAT THE EXPENSES IN RELATION TO NEGOTIATION, FINA LI ZATION AND EXECUTION OF SPA HAVE TO BE BORNE BY THE SHAREHOLDERS INCLUDING APPELLANT. THE S UCCESS FEE WAS PAID ON ACCOUNT O F EL ENTERED MUCH AHEAD OF SPA WHICH CANNOT BE EXPECTED TO BE PAID BY THE SHARE HOLDERS AS THIS EXPENDITURE IS NO T IN RELATION TO SPA . HENCE THE DECISION OF THE AO THAT CERTAIN BENEFIT ACCRUED TO THE APPELLANT IS INCORRECT. THE CONTENTION OF THE APPELLANT THAT HE WAS NOT THE DIRECTOR OF THE COMPANY WHEN THE INVOICE WAS RAISED BY THE M/S BARCLAYS TOWARDS SUCCESS , FEE AND HENCE SEC 2(24)( I V) IS NOT APPLICABLE WAS NOT ACCEPTED BY THE A O FOR THE REASON THAT THE APPELLANT WAS DIRECTOR ON THE DATE OF THE EXECUTION OF THE EL. IT WAS HELD BY THE AO THAT IT IS NOT THE DATE OF PAYMENT BUT THE DATE OF EXECUTION OF EL WHICH CREATES A LIABILITY SHOULD BE SEEN. AS PER SEC. 2(24)(IV) OF THE ACT, ANY BEN EFIT OR PERQUISITE OBTAINED FROM A COMPANY BY A 5 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET DIRECTOR/SUCH PERSON IS AN INCOME. AS DISCUSSED ABOVE THERE IS NO BENEFIT ENURED TO THE APPELLANT. ONCE THERE IS NO BENEFIT, IT IS NOT NECESSARY TO DISCUSS WHETHER THE APPELLANT WAS DIRECTOR OR NOT AT THE TIM E O F PAYMENT OR RAISING I NVOICE. IT IS A FACT THAT THE PAYMENT WAS MADE AFTER THE APPELLANT CEASED TO BE A SHAREHOLDER OF THE COMPANY. HENCE THE VIEW POINT OF THE AO IS ALSO NOT CORRECT. I HAVE CONSIDERED THE SUBMISSIONS, THE REPORT OF M / S. DELOITTE AND RE ASSESSMENT ORDER ON THIS ISSUE. THE APPELLANT IS ENTITLED TO RECEIVE SHARE PURCHASE CONSIDERATION AS PER SPA. THE SPA PROVIDES FOR WORKING OF CONSIDERATION AFTER ADJUSTMENT TO BE DONE . THE COMPANY OBTAINED A REPORT IN A DRAFT FORM FROM M/S DELOITTE. THE CO NSULTANT COMPANY WORKED OUT THE PURCHASE C ONSIDERATION AND ALSO PROPOSED ADJUSTMENTS TO DEBT A ND WORKING CAPITAL AS PROVIDED IN SPA AS ON THE FINAL CLOSING DATE AND ESTIMATED CLOSING STATEMENT AS ON 31 . 12 . 2013. AS ON 31 . 12 . 2013 THE ADJUSTED DEBT WAS SHOWN AT RS. 4,81,04,246/ - WHEREAS AS ON 07 . 01 . 2014 I.E. FINAL CLOSING STATEMENT THE SAME WAS WORKED OUT AT RS. 3,87,38,041/ - . IT WAS ALSO PROPOSED FURTHER ADDITIONAL ADJUSTMENT WHICH INCLUDES SEVERAL OTHER ITEMS IN ADDITION TO SUCCESS FEE PAYABLE TO M/S. BARCL AYS. THE DRAFT REPORT CONSISTS OF ADJUSTMENT TO BE DONE TO THE WORKING CAPITAL CONSIDERING THESE TWO, THE CONSULTANT WORKED OUT TOTAL NET DEBT/CASH, FINAL NET DEBT , WORKING CAPITAL ADJUSTMENT, FINAL WORKING CAPITAL DELTA, AND EQUITY VALUE AND ALSO SUGGESTED A D JUSTMENT IN THE FORM OF SUCCESS FEE AND ARRIVED AT FINAL DELTA, A RECO N CILIATI O N STATEMENT OF SALE CONSIDERATION HAS BEEN WORKED OUT WHICH GIVES THE SUMMARY OF CONSIDERATION TO BE RECEIVED BY THE APPELLANT INCLUDING OTHER SHAREHOLDERS THE GROSS CONSIDERATION AS PER THE AGREEMENT WAS AT RS 1700,00,00,000/ - / - . OUT OF THIS N ET DEBT AND WORKING CAPITAL ADJUSTMENTS WERE MADE AND ARRIVED AT EQUITY VALUE AT RS. 17O9,57,41,721/ - . OUT OF THIS BARCLAYS FEE OF RS. 28,81,31,631/ - HAS BEEN DEDUCTED TO ARRIVE AT NET EQUITY VALUE AND CONSIDERATION AT RS 1 6 80,76 , 1 0,090/ - . SUCCESS FEE PAYMENT TO BARC LAYS IS AN OBLIGATION CAST ON M/ S. TMPPL AND IT IS A LIABILITY ON THE COMPANY. THIS LIABILITY HAS TO BE CONSIDERED, FOR ADJUSTMENT OF DEBT AS PROVIDED UNDER SPA. THE CONSULTANT COMPANY PROPOSED THIS ADJUSTMENT HAVING REGARD TO THE CLAUSES IN SPA. IN VIEW OF THIS THE SAID AMOUNT WAS ADJUSTED TO ARRIVE AT CONSIDERATION OF SHARE VALUE. FURTHER TO THIS, ON MUTUAL AGREEMENT, AS STATED BY THE APPELLANT, ON THE FINAL DATE, AD JUSTMENTS WERE MADE TOWARDS INCENTIVES TO EMPLOYEES' IN THE CASE OF CARLAYLE AND FREEZER DEPOSITS IN THE CASE OF INDIAN SHAREHOLDERS INCLUDING THE APPELLANT. AFTER CONSIDERING THESE ADJUSTMENTS THE FINAL CONSIDERATION TO INDIAN SHAREHOLDERS WAS WORKED OUT AT RS. 1245,79,57,961/ - . THIS WAS DIVIDED AMONG THE SHAREHOLDERS AND THE SAME WAS OFFERED TO TAX. THE APPE LLANT ALSO CLAIMED THAT THERE WAS NO DEDUCTION OR RECOVERY AS STATED IN SUBMISSIONS FROM THE SALE CONSIDERATION OF THE APPELLANT. WHILE WORKING OUT NE T CONSIDERATION TO BE PAID, THE VALUATION OF THE SHARES HAS BEEN DONE AND CERTAIN ADJUSTMENTS WERE MADE AS PER SPA. IN ADDITION TO THIS ON MUTUAL BASIS CERTAIN ADJUSTMENT PROPOSED, OUT OF MANY SUGGESTED, BY THE CONSULTANT, HAVE BEEN ACCEPTED AND ARRIVED AT THE CONSIDERATION AND THE SAME HAS BEEN RECEIVED THROUGH BANKING CHANNELS AND 6 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET OFFERED THE SAID CONSIDERATION TO TAX. IN VIEW OF THIS THE CONSIDERATION OFFERED BY THE APPELLANT APPEARS TO BE AS PER SPA AND MUTUAL AGREEMENT. CONSIDERING THE ABOVE DISCUSSION THE QUANTUM OFFERED BY THE APPELLANT IS IN TUNE WITH SPA REGARDING THE I SSUE OF DISALLOWANCE MADE BY THE AO THE SAME HAS BEEN DEALT SUPRA . IN VIEW OF THIS THE ADD I TION MADE BY THE AO IS HEREBY DELETED AND GROUND RAISED BY THE APPELLANT IS ALLOWED . AGAI NST WHICH THE REVENUE FILED APPEAL BEFORE THIS TRIBUNAL. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IDENTICAL ISSUE HAS COME UP BEFORE THIS TRIBUNAL IN THE CASE OF SRI DANDA BHARHMANANDAM AND SRI BATTINI NAGESWARA RAO IN I.T.A.NO.11&12/VIZ/2019 DATED 19.07.2019 AND THE TRIBUNAL HAS CONSIDERED THE ISSUE ELABORATELY AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE REVENUE. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT PARA NO.6 TO 8.1 O F THE ORDER OF THIS TRIBUNAL WHICH READS AS UNDER : 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE ASSESSEE HAS TRANSFERRED 23,74,457 SHARES HELD BY HIM IN M/S TMPPL TO M/S BSA INTERNATIONAL FOR A CONSIDERATION OF RS.179,84,85,978/ - AND THE ENTIRE SALE CO NSIDERATION RECEIVED BY THE ASSESSEE WAS OFFERED FOR LONG TERM CAPITAL GAINS. THE COMPANY M/S TMPPL HAD ENTERED INTO AGREEMENT FOR INVESTMENT WITH FIRST CARLYLE GROUP ON 10.04.2010. ACCORDINGLY, CARLYLE GROUP HAS MADE THE INVESTMENTS AND THE COMPANY WAS OBLIGED TO GIVE EXIT OPTION TO THE INVESTORS AS PER CLAUSE 13.1 OF THE AGREEMENT. FOR THE PURPOSE OF HONOURING THE COMMITMENT, THE COMPANY HAD ENGAGED M/S BARCLAYS BANK PVT. LTD. FOR FINANCIAL ADVICE AND POSSIBLE TRANSACTION TO STUDY THE MARKET AND FIND A WAY TO PROVIDE EXIT ROUTE TO CARLYLE GROUP. THE SCOPE OF EL WAS APPOINTMENT OF M/S BARCLAYS AS A SOLE FINANCIAL ADVISOR IN CONNECTION WITH THE TRANSACTION AND TO ASSIST THE CLIENT IN IDENTIFYING AND LIAISING WITH POTENTIAL BUYER. AS PER THE TERMS AND CO NDITIONS, THE SUCCESS FEE WOULD BE PAID 7 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET ONLY ON COMPLETION OF TRANSACTION FROM THE PROCEEDS RECEIVED FROM SALE OF THE BUSINESS OF THE COMPANY PARTLY / FULLY. AS PER CLAUSE 2.2. THE COMPANY AGREES THAT IT SHALL BE RESPONSIBLE FOR ALL COSTS AND EXPENSES AND THE BARCLAYS HAS RAISED INVOICE ON CLIENT IN ACCORDANCE WITH THE EL. M/S BARCLAYS IDENTIFIED THE POTENTIAL BUYER, I.E BSA INTERNATIONAL LTD TO TAKE OVER THE COMPANY NOT ONLY THE INTEREST OF CARLYLE GROUP BUT ALSO EXPRESSED ITS INTEREST TO TAKE OVER THE SH ARES OF INDIVIDUAL SHAREHOLDERS, THEREBY TAKING HOLD OF THE ENTIRE COMPANY. IT WAS STATED BY THE ASSESSEE THAT BSA INTERNATIONAL WAS RELUCTANT TO BUY THE SHAREHOLDING OF CARLYLE GROUP ALONE . THEREFORE AS EXPLAINED BY THE LD.AR, TMPPL HAS CONVINCED ITS PROMOTERS TO SELL THEIR SHAREHOLDING AGAINST THEIR WILL. THE SHAREHOLDERS DID NOT ENGAGE THE BARCLAYS AND THE INTENTION OF THE EL WAS TO IDENTIFY THE POTENTIAL BUYER AS OBSERVED BY THE LD.CIT(A). EL WAS EXECUTED ON 05.07.2013 AND IT WAS NOT MEANT FOR T RANSFER OF SHARES. IT PROVIDES FOR SALE OF BUSINESS OR ASSETS AND FOR POSSIBLE TRANSACTION AND THERE WAS NO CERTAINTY WITH REGARD TO POSSIBLE TRANSACTION AT THE TIME OF EXECUTION OF THE EL. AS PER THE EL, SUCCESS FEE IS TO BE PAID BY M/S TMPPL ON COMPLETI ON OF THE TRANSACTION. SUBSEQUENT TO IDENTIFYING THE POTENTIAL BUYER OF THE COMPANY, THE INDIVIDUAL SHAREHOLDERS WERE COMPELLED TO SELL THE SHARES TO BSA INTERNATIONAL WHICH CANNOT BE HELD AGAINST THE ASSESSEE TO HOLD THAT THE ASSESSEE GOT THE BENEFIT. S INCE THE ASSESSEE WAS NOT THE PARTY TO BARCLAYS FOR EL, THERE IS NO LEGAL OBLIGATION ON THE PART OF THE ASSESSEE TO MAKE THE PAYMENT AND THE SAME IS NOT ENFORCEABLE AGAINST THE ASSESSEE. THE AGREEMENT IS BETWEEN THE BARCLAYS BANK AND M/S TMPPL, BUT NOT BE TWEEN THE SHAREHOLDERS AND THE BARCLAYS. THUS, THERE WAS NO LEGAL LIABILITY OF SHAREHOLDERS TO MAKE THE PAYMENT. THE AO DID NOT FURNISH ANY MATERIAL TO SHOW THAT THE ASSESSEE HAD ENGAGED THE BARCLAYS AND THE COMPANY MADE THE PAYMENT ON BEHALF OF THE ASS ESSEE TO DERIVE THE BENEFIT DIRECTLY OR INDIRECTLY. AS PER SECTION 2(22)(IV) OF THE ACT, ANY SUM PAID BY ANY SUCH COMPANY IN RESPECT OF ANY OBLIGATION WHICH IS REQUIRED TO BE PAID FOR THE DIRECTOR OR SHAREHOLDER HAS TO BE TREATED AS INCOME IN THE HANDS OF SUCH DIRECTOR. IN THE INSTANT CASE, THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT FOR TRANSFER OF SHARES OR THE ASSESSEE WAS OBLIGED TO MAKE PAYMENT TO BARCLAYS. AS PER THE EL, BARCLAYS WAS ENGAGED AS A SOLE FINANCIAL ADVISOR IN CONNECTION WITH THE TRANSACTION AND NO OTHER PERSON SHOULD BE APPOINTED BY TMPPL. IT WAS ALSO MADE CLEAR THAT THE PROMOTERS OR THE CLIENT MAY CHOOSE AND APPOINT THEIR OWN CONSULTANT OR ADVISOR. SUCH CONSULTANT HAS NO RIGHT TO CLAIM THE FEE, RIGHT TITL E FOR THE PURPOSE OF CARRYING OUT THE SERVICES CONTEMPLATED. THE DIRECTORS OR SHAREHOLDERS ARE PERMITTED TO APPOINT THEIR OWN CONSULTANT WHO WILL NOT HAVE ANY SAY IN THE SUCCESS FEE. IN VIEW OF THIS CLAUSE ALSO, THE CONTENTION OF AO THAT THE SUCCESS FEE W AS THE OBLIGATION OF THE ASSESSEE IS INCORRECT. AS MENTIONED IN THE SHARE PURCHASE AGREEMENT (SPA), COST OF TRANSFER OF SHARES SHOULD BE BORNE BY THE ASSESSEE. ACCORDINGLY, THE EXPENSES IN RELATION TO THE NEGOTIATION, FINALIZATION AND EXECUTION OF SPA HAV E TO BE BORNE BY THE SHAREHOLDERS INCLUDING THE ASSESSEE. THE SUCCESS FEE WAS FOR ENGAGING THE SERVICES OF BARCLAYS AS PER EL DATED 05.07.2013 AND THE SHARE PURCHASE AGREEMENT WAS 8 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET ENTERED ON 04.11.2013, MUCH AHEAD OF SPA, HENCE, THE SUCCESS FEE CANNOT BE TREATED AS THE EXPENDITURE INCURRED IN CONNECTION WITH THE SPA. FROM PLAIN READING OF SPA AND THE EL, IT IS ESTABLISHED THAT THE ASSESSEE HAS NO OBLIGATION TO MAKE ANY PAYMENT TOWARDS SUCCESS FEE PAID TO BARCLAYS, HENCE, IT CANNOT BE HELD THAT THE ASSESS EE GOT ANY BENEFIT FROM THE SUCCESS FEE PAID BY THE TMPPL AS OBSERVED BY THE LD.CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE REVENUES GROUND ON THIS ISSUE. 7. THE NEXT CONTENTION RAISED BY THE LD.AR DURING THE APPEAL HEARING IS THAT THE SUCCESS FEE IS TO BE PAID ONLY ON THE COMPLETION OF THE TRANSACTION BARCLAYS HAS RAISED THE INVOICE ON THE COMPANY ON COMPLETION OF THE TRANSACTION. BY THE TIME THE INVOICE WAS RAISED AND THE SUBSEQUENT PAYMENT MADE, ALL THE DIRECTORS HAVE RE LINQUISHED AND THEY WERE NO MORE DIRECTORS. HENCE ARGUED THAT HAVING CEASED TO BE THE DIRECTOR OF THE COMPANY BY THE TIME THE PAYMENT WAS MADE, SECTION 2(24)(IV) HAS NO APPLICATION IN ASSESSEES CASE. THE AO REJECTED THE CONTENTION OF THE ASSESSEE STATING THAT THE OBLIGATION OF THE ASSESSEE AROSE ON THE DATE OF AGREEMENT DATED 05/07/2013 WHEN THE ASSESSEE WAS A DIRECTOR OF THE COMPANY AND HOLDING SUBSTANTIAL STAKE IN THE COMPANY, HENCE REJECTED THE ARGUMENT OF THE ASSESSEE. AS PER THE DISCUSSION MADE IN THE PRECEDING PARAGRAPHS WE HAVE HELD THAT THE THERE WAS NO BENEFIT DERIVED BY THE ASSESSEE AND ONCE IT IS HELD THAT THE ASSE SSEE DID NOT DERIVE ANY BENEFIT, THUS THE ISSUE BECOMES INFRUCTUOUS. HOWEVER, IT IS ALSO A FACT THAT THE ASSESSEE CEASED TO BE DIREC TOR /SHAREHOLDER BY THE TIME THE INVOICE WAS RAISED AND THE PAYMENT WAS MADE. THE NEW DIRECTORS TAKEN THE DECISION TO MAKE THE PAYMENT. HENCE IT IS INCORRECT TO APPLY THE PROVISIONS OF SECTION 2(24) (IV) IN THE CASE OF THE ASSESSEE. 8. THE NEXT CONTENTION RAISED BY THE LD.AR DURING THE APPEAL HEARING IS THAT THE SUCCESS FEE PAID BY THE COMPANY WAS ALREADY RECOVERED FROM THE NET CONSIDERATION PAID TO THE SHAREHOLDERS, HENCE, THERE IS NO CASE FOR MAKING SEPARATE ADDITION. THE LD.AR INVITED OUT ATTENTION TO PAGE NO. 5 OF THE CIT(A) ORDER, WHEREIN, THE DETAILS WERE FURNISHED WITH REGARD TO EVALUATION OF THE SHARES OF COMPANY AND PURCHASE CONSIDERATION AGREED TO BE PAID BY BSA INTERNATIONAL WHICH WAS CALCULATED BY DELOITTE TOUCHE TOHMANTSU INDIA PRIVATE LTD WHI CH READS AS UNDER : 9 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET 10 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET 8.1. FROM THE ABOVE WORKING, IT SHOWS THAT BARCLAYS FEE WAS ALREADY RECOVERED BY BSA INTERNATIONAL AND THE NET CONSIDERATION WAS PAID TO SHAREHOLDERS WHICH ESTABLISHES THAT THE AMOUNT OF SUCCESSION FEE PAID TO BARCLAYS FROM THE PROFITS AND RESERVES OF THE SHAREHOLDERS. FURTHER, THE FEE PAID TO BARCLAYS WAS EXPENSES IN RELATION TO TRANSFER OF SHARES WHICH REQUIRED TO BE ALLOWED AS DEDUCTION FOR COMPUTING THE CAPITAL GAINS AND CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM O THER SOURCES. FOR A QUERY FROM THE BENCH, THE LD.DR DID NOT SHOW ANY MATERIAL TO SUBSTANTIATE THAT THE SUCCESS FEE PAID TO THE BARCLAYS WAS NOT IN RELATION TO TRANSFER OF SHARES. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 5.1. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL, WE HOLD THAT THERE IS NO CASE FOR INVOKING THE PROVISIONS OF SECTION 2(24)(IV) OF THE ACT AND THERE IS NO CASE FOR TAXING THE INCOME UNDER THE HE AD INCOME FROM OTHER SOURCES, ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE ON THIS GROUND. 6. GROUND NO.5 IS RELATED TO THE INVESTMENT IN ACQUIRING THE RESIDENTIAL HOUSE AND CLAIM OF DEDUCTION U/S 54F OF THE ACT. THE AO FOUND THAT THE ASSESSEE HA D CLAIMED DEDUCTION U/S 54F TO THE EXTENT OF 14.34 CRORES BY ACQUIRING RESIDENTIAL HOUSE. THE AO NOTICED THAT THE ASSESSEES SON HA D PARTICIPATED IN THE AUCTION OF THE PLOTS HELD BY VUDA AND PAID AN AMOUNT OF RS.14.34 CR ORES AND THE FUNDS FOR THE BID AMOUNTS WERE TRANSFERRED FROM ASSESSEES ACCOUNT. AS PER SECTION 54F, EXEMPTION IS AVAILABLE ONLY WHEN THE ASSESSEE PURCHASES RESIDENTIAL HOUSE OR FOR CONSTRUCTION OF RESIDENTIAL HOUSE. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO ASKED THE 11 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET ASSESSEE AS TO WHY THE DEDUCTION CLAIMED U/S 54F SHOULD NOT BE DISALLOWED. SINCE THE ASSESSEE DID NOT RESPOND TO THE SHOW CAUSE NOTICE, THE AO MADE THE ADDITION. 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL B EFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION OBSERVING THAT THE ASSESSEE HA D CONSTRUCTED THE HOUSE WHICH GOT COMPLETED BY 31.03.2017 , I.E. WITHIN THE PERIOD OF 3 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR 2014 - 15 AND CLAIMED THE DEDUCTIO N U/S 54F TO THE EXTENT OF RS. 5.79 CRORES AND OFFERED THE REMAINING AMOUNT OF RS.19.21 CRORES TO THE CAPITAL GAINS FOR THE A.Y.2017 - 18. SINCE THE ASSESSEE HAD ALREADY OFFERED THE SAID A MOUNT IN THE A.Y.2017 - 18, THE LD.CIT(A) FELT THAT THERE IS NO REASON F OR MAKING THE ADDITION, HENCE, THE LD.CIT(A) DIRECTED THE AO TO VERIFY THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE A.Y.2017 - 18 AND TO DELETE THE ADDITION. 8. AGAINST WHICH THE DEPARTMENT HAS FILED APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUND. THE LD.CIT(A) - 1, GUNTUR OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE FACT THAT WHEN THE TRANSACTION OF INVESTMENT IN THE SAID PLOTS HAS NOT MATERIALIZED, ASSESSEE SHOULD HAVE INVESTED THE SAID CAPITAL GAIN PROCEEDS IN THE CAP ITAL GAIN DEPOSIT SCHEME. 12 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET DURING THE APPEAL HEARING, THE LD.DR SUBMITTED THAT TH E ASSESSEE HA D PAID THE AMOUNT TO VUDA ON BEHALF OF HIS SON WHO HA D PARTICIPATED IN THE AUCTION. AS PER SECTION 54F OF THE ACT, IT IS NOT PERMISSIBLE TO ALLOW THE DEDUCTION, UNLESS THE ASSESSEE MAKES THE INVESTMENT IN HIS OWN NAME. THE LD.DR ARGUED THAT SINCE , THE ASSESSEE HAS MADE THE INVESTMENT IN THE NAME OF HIS SON, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 54 OF THE ACT. FURTHER, THE LD.DR ARGUED THAT DURING THE INTERIM PERIOD, THE ASSESSEE OUGHT TO HAVE INVESTED THE AMOUNT IN THE CAPITAL GAINS SCHEME INSTEAD OF PARTICIPATING IN THE BID FOR ACQUIRING THE LAND. THEREFORE, ARGUED THAT THE AO RIGHTLY MADE THE ADDITION AND REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE REVENUE. 9. ON THE OTHER HAND, THE LD.AR SUBMITTED THAT THE DEPARTMENTS GROUND IS NOT RELATED TO THE INVESTMENT MADE IN THE NAME OF HIS SON, BUT THE GRIEVANCE IS THAT SINCE , THE ACQUIRING OF THE PLOTS FROM THE VUDA WAS NOT MATERIALIZED, THE ASSESSEE OUGHT TO HAVE INVESTED THE PROCEEDS IN THE CAPITAL GAINS DEPOSIT SCHEME IN THE INTERIM PERIOD . ADVANCING THE ARGUMENT, THE LD.AR ARGUED THAT THE ASSESSEES SON HAD PARTICIPATED IN THE VUDA AUCTION FOR ACQUIRING THE PLOT FOR CONSTRUCTION OF RESIDENTIAL HOUSE FOR WHICH THE ASSESSEE HA D MADE THE PAYMENT FROM HIS ACCOUNT. SINCE THE 13 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET ASSESSEES SON PARTICIPATED IN THE AUCTION AND T HE PAYMENT WAS MADE BY THE ASSESSEE FROM HIS ACCOUNT, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54F OF THE ACT. THE ASSESSEE INTENDED TO CONSTRUCT THE HOUSE BY ACQUIRING THE PLOT S . THEREFORE, THERE IS NO WRONG IN MAKING THE PAYMENT FOR ACQUIRING THE PLO T EVEN THOUGH HIS SON HA D PARTICIPATED IN THE VUDA AUCTION. ONCE, THE PLOT IS ACQUIRED, THE ASSESSEE OUGHT TO HAVE MADE THE INVESTMENT FOR CONSTRUCTION AND MADE NECESSARY ARRANGEMENTS FOR TRANSFER OF PLOT IN THE ASSESSEES NAME IF NECESSARY AS PER LAW . T HE LD.AR FURTHER SUBMITTED THAT EVEN THE ASSESSEE ACQUIRES PLOTS IN THE NAME OF SON ALSO, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54F OF THE ACT. FURTHER, THE LD.AR SUBMITTED THAT SINCE THE AMOUNT WAS PAID TO VUDA TILL SUCH TIME THE AMOUNTS WERE RECEIV ED BACK, THE INVESTMENT CONTINUED TO BE MADE FOR ACQUIRING THE HOUSE, THEREFORE, THE ASSESSEE COULD NOT MAKE INVESTMENT IN CAPITAL GAINS SCHEME, PENDING RECEIPT OF THE SAID MONEY. SINCE THE ASSESSEE COULD NOT RECEIVE THE AM OUNT, THE ASSESSEE FILED WRIT PE TITION BEFORE THE HONBLE HIGH COURT OF ANDHRA PRADESH AND ULTIMATELY SETTLED THE ISSUE, THEREFOR E, THE ASSESSEE MADE ALTERNATE INVESTMENT AND PURCHASE OF HOUSE ON 20.04.2005 AND GOT COMPLETED THE HOUSE AT RS.5.79 CRORES AND THE SAME WAS COMPLETED WITHIN THREE YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THE BALANCE WAS OFFERED TO TAX IN THE A.Y.2017 - 18 . H ENCE, ARGUED 14 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET THAT THERE WAS NO OCCASION FOR THE ASSESSEE TO MAKE THE INVESTMENT IN CAPITAL GAINS SCHEME SINCE THE FUNDS WERE BLOCKED WITH VUDA, HENCE ARGUED THAT THE LD.CIT(A) RIGHTLY ALLOWED THE DEDUCTION AND NO INTERFERENCE IS CALLED FOR. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE ASSESSEE FILED THE ORIGINAL RETURN OF INCOME AND CLAI MED THE DEDUCTION U/S 54 F OF THE ACT WHICH WAS ALLOWED IN THE ORIGINAL ASSESSMENT. SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED FOR EXAMINING THE ISSUE OF TAX ING THE BENEFIT U/S 2(24) (IV) OF THE ACT AND THE AO ONCE AGAIN EXAMINED THE ISSUE WITH REGARD TO DEDU CTION CLAIMED BY THE ASSESSEE U/S 54F OF THE ACT AND MADE THE ADDITION SINCE THE ASSESSEE HAS NOT RESPONDED TO THE SHOW CAUSE NOTICE. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED THE DEDUCTION U/S 54F TO THE EXTENT OF RS.24,83,82,054/ - OUT OF WHICH RS.10 .66 CRORES WAS DEPOSITED IN CAPITAL GAINS SCHEME AND RS.14.34 CRORES WAS PAID TO VUDA FOR ACQUIRING THE SITE. IN THE ORIGINAL ASSESSMENT, THE AO ALLOWED THE ENTIRE DEDUCTION. AS PER THE SUBMISSION MADE BY THE ASSESSEE, THE ASSESSEE PAID THE SUM OF RS.14. 34 CRORES FOR PURCHASE OF PLOT S FROM VUDA FOR CONSTRUCTION OF RESIDENTIAL HOUSE ON THE PLOT S . THE ASSESSEE ALSO RELIED ON THE CBDT CIRCULAR NO.667 DATED 18.10.1993, WHEREIN, THE 15 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET CBDT CLARIFIED THAT THE LAND IS AN INTEGRAL PART OF THE RESIDENTIAL HOUSE, WH ETHER PURCHASED OR BUILT. SINCE THE ASSESSEE HA D PARTICIPATED IN THE VUDA AUCTION FOR PURCHASE OF PLOT, THE INTENTION BEHIND PARTICIPATING IN AUCTION IS TO PROCURE THE LAND AN D TO CONSTRUCT THE HOUSE. T HE VUDA NEITHER RETURNED MON EY NOR ALLOTTED THE VACA NT SITE, HENCE, THE ASSESSEE LOOKED FOR ALTERNATE INVESTMENT AND ACQUIRED THE NEW RESIDENTIAL HOUSE BY 31.03.017 FOR A SUM OF RS.5.79 CRORES WITHIN THE PERMISSIBLE PERIOD OF THREE YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THE BALANCE AMOUNT WA S ADMITTED FOR TAX IN THE A.Y.2017 - 18. SINCE THE INVESTMENT WAS MADE FOR ACQUIRING THE PLOTS AND CONSTRUCTION OF HOUSE, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54F. FURTHER , IN THE INSTANT CASE, THE AMOUNT PAID TO VUDA FOR ACQUIRING THE PLOTS WAS NOT RE TURN ED TO THE ASSESSEE TILL SUCH TIME OF ACQUIRING THE NEW HOUSE. THE SAID AMOUNT WAS REMAINED WITH THE VUDA. THE DEPARTMENT ALSO DID NOT PLACE ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAD RECEIVED THE MONEY BACK FROM THE VUDA AND UTILIZED FOR PERSONAL PURPOSE. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. ACCORDINGLY , WE DISMISS THE GROUND RAISED BY THE DEPARTMENT ON T HIS ISSUE . 16 I.T.A. NO. 2 38 /VIZ/201 9, A.Y.201 4 - 1 5 SRI BOLLA BRAHMA NAIDU, NARSARAOPET 10.1. WITH REGARD TO LD.DRS ARGUMENT ON EXEMPTION U/S 54F FOR ACQUIRING THE RESIDENTIAL HOUSE IN THE NAMES OF FATHER AND SON, WE CONSIDER IT IS NOT NECESSARY TO ADJUDICATE , SINCE , THE DEPARTMENT HAS NOT RAISED THE GROUND. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2020. S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 29 . 01 .20 20 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1 . / THE REVENUE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), GUNTUR 2 . / THE ASSESSEE - SRI BOLLA BRAHMA NAIDU , NO.12 - 13/27/A, 60 FEET ROAD , PRAKASH NAGAR , NARSARAOPET 3. THE PR.COMMISSIONER OF INCOME TAX, GUNTUR 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, GUNTUR 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM