NAVINCHANDRA N . MAJITHIA, MUMBAI V. ITO 9(2)(1), MUMBAI

ITA 2830/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1832 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 25-10-2016
• Assessment Year: 1999-2000
• Appeal Filed On: 10-04-2013
• Court: TRIBUNAL
• Assessee Lawyers: KEYURI DESAI
• Keywords: Capital asset; Business income; Opportunity of being heard; Principle of natural justice; Additional evidence; Wrong claim; Scheme of amalgamation; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.2830/MUM/2013 ASSESSMENT YEAR: 1999-2000 SHRI NAVINCHANDRA N. MAJITHIA, 304, KEDIA CHAMBERS, NEAR NEW ERA CINEMA, S.V. ROAD, MALAD (W), MUMBAI-400064 / VS. INCOME TAX OFFICER - 9(2)(1) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( '# $ /ASSESSEE) ( % / REVENUE) P.A. NO. AAEPM6435F '# $ / ASSESSEE BY M/S. KEYURI DESAI % / REVENUE BY SHRI SUSHIL KUMAR PODDAR,DR & %' ( $ ) / DATE OF HEARING : 16/11/2016 ( $ ) / DATE OF ORDER: 18/11/2016 SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 16/01/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE FIRST GROUND RAISED BY THE ASSESSEE PERTAINS TO VIOLATION OF PRINCIPLE OF NATURAL JUSTICE ON THE PLEA THAT PR OPER AND ADEQUATE OPPORTUNITY OF BEING HEARD WAS NOT PROVIDE D TO THE ASSESSEE WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, M/S. KEYURI DESAI, ADVANCED ARGUMENTS, WHICH IS IDE NTICAL TO THE GROUND RAISED, BY EXPLAINING THAT ON EARLIER OC CASION, THE MATTER TRAVELLED TO THE TRIBUNAL, WHEREIN, THE MATT ER WAS SET- ASIDE TO THE FILE OF THE LD. ASSESSING OFFICER WITH CERTAIN DIRECTIONS, FOR WHICH, OUR ATTENTION WAS INVITED TO THE RELEVANT DIRECTIONS BY THE TRIBUNAL. IT WAS PLEADED THAT IN SPITE OF PROVIDING DIRECTIONS, THE ASSESSING OFFICE R DID NOT PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE. ON T HE OTHER HAND, THE LD. DR, SHRI SUSHIL KUMAR PODDAR, STRONGL Y DEFENDED THE ORDER OF THE LD. COMMISSIONER OF INCOM E TAX (APPEAL) BY CONTENDING THAT SUFFICIENT OPPORTUNITY WAS PROVIDED TO THE ASSESSEE AND RATHER THE ASSESSEE CO ULD NOT SUBSTANTIATE HIS CLAIM. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE, AN INDIVIDUAL, IS ENGAGED IN THE SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 3 BUSINESS OF SHARES AND ALSO HAVING INCOME FROM OTHE R SOURCES. THE ASSESSEE CLAIMED CERTAIN LEGAL EXPENS ES, WHICH WERE DISALLOWED BY THE ASSESSING OFFICER. THE ASSES SEE ALSO CLAIMED SHORT TERM CAPITAL GAIN, WHICH WAS ALSO DEN IED BY THE ASSESSING OFFICER. IT IS NOTICED THAT THE MATTER T RAVELLED TO THE TRIBUNAL, WHEREIN, VIDE ORDER IN ITA NO.18/MUM/ 2004 AND ITA NO.7424/MUM/2005, ORDER DATED 30/04/2010, T HE ASSESSING OFFICER WAS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE AND THE APPEAL WAS ALLOWED FOR STATISTICAL PURPOSES. 2.2. PURSUANT TO THE DIRECTION OF THE TRIBUNAL, TH E LD. ASSESSING OFFICER EXAMINED THE CLAIM OF THE ASSESSE E AND ON THE REASONS CONTAINED IN THE ASSESSMENT ORDER, AFFI RMED THE ADDITIONS. THE ASSESSEE CHALLENGED THE ASSESSMENT O RDER BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), WHEREIN; THE STAND TAKEN BY THE LD. ASSESSING OFFICER WAS AF FIRMED. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBU NAL. 2.3. WE HAVE DISPASSIONATELY EXAMINED THE RECORD A ND FOUND THAT THE ASSESSEE WAS PROVIDED SUFFICIENT/ADE QUATE OPPORTUNITY, WHICH RESULTED INTO DENIAL OF CLAIMED RELIEF. SO FAR AS, MERIT IS CONCERNED, THAT IS DIFFERENT BUT T HE QUESTION BEFORE US IS WITH RESPECT TO VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. THE TOTALITY OF FACTS AND THE MATERIAL AV AILABLE ON RECORD CLEARLY INDICATES THAT THE ASSESSEE WAS HEAR D BY THE LD. ASSESSING OFFICER AS WELL AS BY THE LD. COMMISS IONER OF INCOME TAX (APPEAL), THEREFORE, THERE IS NO VIOLATI ON AS SUCH, SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 4 CONSEQUENTLY, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE, THEREFORE, THIS GROUND IS DISMISSED. 3. NOW, WE SHALL DEAL WITH THE MERITS OF THE APPEA L, WHEREIN, VIDE GROUND NO.2, THE ASSESSEE HAS CHALLEN GED THE DISALLOWANCE OF LEGAL EXPENSES OF RS.12,79,871/-, I NCURRED BY THE ASSESSEE. THE STAND OF THE ASSESSEE IS THAT THE LD. ASSESSING OFFICER AS WELL AS THE LD. COMMISSIONER O F INCOME TAX (APPEAL) DID NOT APPRECIATE THE FACTS IN A PROP ER PROSPECTIVE AS THE LEGAL EXPENSES WERE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS/EARNING IN TEREST INCOME. OUR ATTENTION WAS INVITED TO PAGE-15, 106, 108 OF THE PAPER BOOK. IT WAS EXPLAINED THAT THE PAYMENT FOR INCURRING THE LEGAL EXPENSES WAS MADE THROUGH BANKING CHANNEL FOR WHICH OUR ATTENTION WAS INVITED TO PAGES 46 TO 51 O F THE PAPER BOOK. IT WAS ALSO EXPLAINED THAT EVEN THE MAT TER WENT UPTO THE HON'BLE SUPREME COURT AS CRIMINAL COMPLAIN T WAS FILED AGAINST THE ASSESSEE (PAGE-52 OF THE PAPER BO OK). OUR ATTENTION WAS FURTHER INVITED TO PAGES 55, 56 AND 9 3 OF THE PAPER BOOK. 3.1. ON THE OTHER HAND, THE LD. DR, STRONGLY DEFEN DED THE IMPUGNED ORDER BY CONTENDING THAT THE ASSESSEE IS DEALING IN SHARES AND THE CLAIMED LEGAL EXPENSES AR E NOT ALLOWABLE AS THE SAME WERE NOT INCURRED FOR BUSINES S EXPENSES. OUR ATTENTION WAS INVITED TO PAGE-7 OF TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). THE LD . DR, FURTHER CONTENDED THAT THE DIRECTION OF THE TRIBUNA L WERE SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 5 DULY COMPLIED WITH BY THE ASSESSING OFFICER AS WELL AS BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL) FOR WHICH O UR ATTENTION WAS INVITED TO PAGE 108 OF THE PAPER BOOK . 3.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE ASSESS EE AND HIS FAMILY MEMBERS ENTERED INTO A SALE AGREEMENT FOR SA LE OF SHARES OF INDIA FARMERS PVT. LTD. WITH ONE M/S J. B . HOLDINGS LTD. ON ACCOUNT OF SUCH AGREEMENT AN AMOUNT OF RS.3,46,52,000/- WERE OBTAINED BY THE ASSESSEE AS A DVANCED DUE TO DISPUTE BETWEEN THE ASSESSEE AND M/S J. B. H OLDINGS. AS PER THE ASSESSEE, M/S J. B. HOLDINGS, FAILED TO MAKE FULL PAYMENT TO THE ASSESSEE IN ACCORDANCE WITH THE TERM S AND CONDITIONS OF THE SAID AGREEMENT. IT IS FURTHER NO TED THAT M/S J. B. HOLDINGS LODGED A CRIMINAL COMPLAINT AGAINST THE ASSESSEE FOR REFUND OF ADVANCES MADE TO THE ASSESSE E. THE LITIGATION EVEN REACHED UP TO THE HON'BLE APEX COUR T. THE STAND OF THE ASSESSEE IS THAT LEGAL EXPENSES WERE I NCURRED BY THE ASSESSEE TO SAFEGUARD ITS BUSINESS INTEREST, WH EREAS, THE STAND OF THE REVENUE IS THAT THE LITIGATION WAS NOT FOR BUSINESS PURPOSES RATHER IT WAS WITH REFERENCE TO T RANSFER OF ENTIRE BUSINESS AND ASSETS OF M/S INDIA FARMERS PVT . LTD. PROPOSED TO BE GIVEN TO M/S J. B. HOLDING. SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 6 3.3. WE HAVE PERUSED THE RECORD AND THERE IS A FIN DING IN PARA 4.3 OF THE IMPUGNED ORDER, WHEREIN, IT HAS BEEN OBSERVED AS UNDER:- OBVIOUSLY, THERE WAS INTENTION OF THE APPELLANT AND HIS FAMILY MEMBERS TO TRANSFER LEASE HOLD LAND AND BUSINESS OF M/S INDIA FARMERS PVT. LTD. TO M/S J.B. HOLDINGS LTD. THE APPELLANT HAS GOT SUBSTANTIAL STA KE IN M/S INDIA FARMERS PVT. LTD. AND BECAUSE OF DISPU TE AMONGST THEM, LITIGATION WAS THERE. OBVIOUSLY, THI S LITIGATION WAS WITH REGARD TO TRANSFER OF SHARES AN D RESULTANT ULTIMATE TRANSFER OF COMPANY AND ITS PROPERTY BY THE GROUP MEMBER OF THE ASSESSEE TO M/S J. B. HOLDINGS LTD.. 3.4. FROM THE FOREGOING DISCUSSION AND THE OBSERVA TION MADE IN THE ASSESSMENT ORDER AS WELL AS IN THE IMPU GNED ORDER, THERE IS NO DISPUTE TO THE FACT THAT SOME LI TIGATION WAS GOING ON AMONGST THE PARTIES AND THE ASSESSEE INCUR RED LEGAL EXPENSES TO SAFEGUARD ITS BUSINESS INTEREST. THE P AYMENT WAS MADE THROUGH BANKING CHANNEL TO VARIOUS PERSONS/ADVOCATES AS IS EVIDENCED FROM PAGES 46 TO 51 OF THE PAPER BOOK. IT IS NOTICED THAT THE PAYMENTS WERE MA DE TO ADVOCATES LIKE SHRI S. G. SURANA, SHRI BHARAT MEHTA , SHRI R.T. TIWARI, SHRI MAYANK CHANDAN, S. K. VYAS, S.G. PAGHE, SHRI MILIND SAKHARDANDE, SHRI DHIRAJ MIRAJKAR, NARE NDRA THAKORE, P.R. VAKIL, RAMAKANT KHALAK, SHRI ARUN JAI TELY, ETC. THE AMOUNTS PAID TO THE RESPECTIVE ADVOCATES, DATE OF PAYMENT, CHEQUE NUMBER AND THE PURPOSE HAS BEEN DUL Y MENTIONED AT PAGES 46 TO 41 OF THE PAPER BOOK. THE MAJORITY SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 7 OF THE FEE, WHICH WAS PAID IS WITH RESPECT TO LITIG ATION WITH M/S J.B. HOLDING LTD. FOR APPEARANCE/ARGUMENT BEFOR E SESSION COURT, HON'BLE HIGH COURT/APEX COURT. THUS , IT IS CLEAR THAT THE LEGAL FEE WAS PAID TO DEFEND THE SUI T/CASES AND TO SAFEGUARD ITS BUSINESS INTEREST. IT IS NOT THE CASE THAT BOGUS CLAIM WAS MADE BY THE ASSESSEE RATHER WE FIND THAT, AS MENTIONED EARLIER, THE PAYMENTS WERE MADE THROUGH B ANKING CHANNEL. THE COPY OF THE SUIT/CRIMINAL COMPLAINT (G DE NO.86 DATED 16/06/1997 AND REGISTERED VIDE CID (HQR ) PS CASE NO.1(6)97 U/S 420 IPC), FILED BY M/S J. B. HOL DINGS LTD. WITH THE SPECIAL SUPERINTENDENT OF POLICE, SPECIAL BRANCH (CID), SHILLONG, MEGHALAY IS AVAILABLE AT PAGES 52 TO 55 OF THE PAPER BOOK. THE DECISION DATED 04/09/2000, FROM H ON'BLE APEX COURT IN CRIMINAL APPEAL NO.744 OF 2000 (ARISI NG OUT OF SLP (CRL NO.1097 OF 1999) IS AVAILABLE FROM PAGES 5 6 TO 81 OF THE PAPER BOOK. ANOTHER DECISION FROM HON'BLE APEX COURT ITSELF DATED 04/08/2000 IS AVAILABLE AT PAGES 82 TO 97 OF THE PAPER BOOK. IT IS ALSO NOTED THAT ONE DECISION FRO M HON'BLE APEX COURT IS AVAILABLE AT PAGES 93 TO 104 OF THE P APER BOOK. THE DECISION FROM THE TRIBUNAL (ITA NO.18/MUM/2004) AND (ITA NO.7424/MUM/2005) IS AVAILABLE AT PAGES 105 TO 109 OF THE PAPER BOOK. THE TOTALITY OF FACTS CLEARLY INDIC ATES THAT THE ASSESSEE MADE THE PAYMENT OF LEGAL FEES TO DEFENDS ITS CASE. 3.5. NOW, QUESTION ARISES, WHETHER THE PAYMENT OF LEGAL FEE IS AN ALLOWABLE DEDUCTION. THE OBVIOUS REPLY I S YES. SECTION 57 OF THE ACT SPEAKS ABOUT INCOME CHARGEAB LE UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH SHALL B E SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 8 COMPUTED AFTER MAKING THE DEDUCTIONS MENTIONED THER EIN. THE SECTION IS REPRODUCED HEREUNDER FOR READY REFER ENCE:- 57. THE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM O THER SOURCES' SHALL BE COMPUTED AFTER MAKING THE FOLLOWI NG DEDUCTIONS, NAMELY : ( I ) IN THE CASE OF DIVIDENDS, OTHER THAN DIVIDENDS RE FERRED TO IN SECTION 115-O, OR INTEREST ON SECURITIES, ANY REASONABLE SU M PAID BY WAY OF COMMISSION OR REMUNERATION TO A BANKER OR ANY OT HER PERSON FOR THE PURPOSE OF REALISING SUCH DIVIDEND OR INTEREST ON BEHALF OF THE ASSESSEE ; ( IA ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N SUB-CLAUSE ( X ) OF CLAUSE ( 24 ) OF SECTION 2 WHICH IS CHARGEABLE TO INCOME-TAX UN DER THE HEAD 'INCOME FROM OTHER SOURCES', DEDUCTIONS, S O FAR AS MAY BE, IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE ( VA ) OF SUB-SECTION (1) OF SECTION 36 ; ( II ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N CLAUSES ( II ) AND ( III ) OF SUB-SECTION (2) OF SECTION 56, DEDUCTIONS, SO FAR AS MAY BE, IN ACCORDANCE WITH THE PROVISIONS OF SUB-CLAUSE ( II ) OF CLAUSE ( A ) AND CLAUSE ( C ) OF SECTION 30, SECTION 31 AND SUB-SECTIONS (1) AN D (2) OF SECTION 32 AND SUBJECT TO THE PROVISIONS OF SECTION 38 ; ( IIA ) IN THE CASE OF INCOME IN THE NATURE OF FAMILY PEN SION, A DEDUCTION OF A SUM EQUAL TO THIRTY-THREE AND ONE-THIRD PER CE NT OF SUCH INCOME OR FIFTEEN THOUSAND RUPEES, WHICHEVER IS LES S. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 'FAMILY PENSION' MEANS A REGULAR MONTHLY AMOUNT PAYABLE BY THE EMPLO YER TO A PERSON BELONGING TO THE FAMILY OF AN EMPLOYEE IN TH E EVENT OF HIS DEATH ; ( III ) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSEOF MAKING OR EARNING SUCH INCOME; ( IV ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N CLAUSE ( VIII ) OF SUB-SECTION (2) OF SECTION 56, A DEDUCTION OF A SUM EQUAL TO FIFTY PER CENT OF SUCH INCOME AND NO DEDUCTION SHALL BE A LLOWED UNDER ANY OTHER CLAUSE OF THIS SECTION . 3.6. IF THE PROVISION OF THE ACT, WHICH IS CORRESP ONDING TO THE SECTION 12(2) OF 1922 ACT, USED IN THIS CONT EXT, THE EXPRESSION INCURRED SOLELY FOR THE PURPOSES OF MAK ING OR SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 9 EARNING SUCH INCOME, THE USE OF EXPRESSION LAID O UT OR EXPANDED WHOLLY AND EXCLUSIVELY IN SECTION 57(III) OF THE 1961 ACT IS TO SECURE UNIFORMITY WITH THE LANGUAGE OF SECTION 37(1) OF THE 1961 ACT. AT THE SAME TIME, THE EXPRES SION, FOR THE PURPOSES OF BUSINESS OR PROFESSION HAS A WIDER IMPLICATION THEN THE EXPRESSION FOR THE PURPOSES O F MAKING OR EARNING INCOME USED IN SECTION 57(III) OF THE A CT. THE PURPOSE CONTEMPLATED BY SECTION 57(III) IS MORE SPE CIFIC IN CHARACTER. SO FAR AS, REASONABLENESS OF THE EXPEND ITURE ENVISAGED BY SECTION 57(III) DEPENDS UPON THE FACTS OF PARTICULAR CASE. THE HON'BLE COURT IN CIT VS NEW S AVAN SUGAR AND GOOD REFINING CO. LTD. (1990) 185 ITR 564 , 571 (CAL.) HELD THAT IT IS FOR THE TRIBUNAL TO DECIDE W HETHER THE EXPENDITURE IS WHOLLY INCURRED FOR THE PURPOSE OF KE EPING THE ASSESSEE COMPANY IN OPERATION AND EARNING INCOME IN AS MUCH AS THE CONCEPT WHOLLY PERTAINS TO QUANTUM OF THE MONEY EXPENDED. THE HON'BLE COURT FURTHER OBSERVED EVEN IF A PARTICULAR EXPENDITURE IS UN-REMUNERATIVE, SUCH EXPENDITURE IS NONETHELESS A PROPER DEDUCTION, IF S UCH EXPENDITURE IS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING SUCH INCOME. 3.7. IF THE ISSUE IS ANALYZED IN THE LIGHT OF SECT ION 37(1) OF THE ACT, BROADLY SPEAKING, WHERE LITIGATION EXPE NSES ARE INCURRED FOR PURPOSES OF CREATING, CURING OR COMPLE TING THE ASSESSEES TITLE TO THE CAPITAL, THEN THE SUCH EXPE NSES ARE IN THE NATURE OF CAPITAL EXPENDITURE. ON THE OTHER HA ND, IF THE LITIGATION EXPENSES ARE INCURRED TO PROTECT THE BUS INESS OF THE SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 10 ASSESSEE, IT MUST BE CONSIDERED AS REVENUE EXPENDIT URE. THIS PROPOSITION IS SUPPORTED BY HON'BLE APEX COURT IN D ALMIA JAIN & CO. LTD. VS CIT (1971) 81 ITR 754 (SC) AND M EENAKSHI MILLS LTD. VS CIT (1967) 63 ITR 207 (SC). TO BE MO RE PRECISE, THE TYPE OF LITIGATION, OBJECT OR PURPOSE OF THE LI TIGATION HAS TO BE ASCERTAINED FROM THE FACTS OF EACH CASE. IF THE OBJECT OR PURPOSE IS TO DEFEND OR MAINTAIN EXISTING TITLE TO THE CAPITAL ASSET OF THE BUSINESS OF THE ASSESSEE, THE EXPENDIT URE WOULD BE OF REVENUE IN NATURE. THE RATIO LAID DOWN IN FOL LOWING CASES SUPPORTS OUR VIEW:- A) CIT V. BENGAL ASSAM INVESTORS LTD., (1969) 72 ITR 319 , 325 (CAL); B) CIT V. LIFE INSURANCE CORPORATION OF INDIA, (1966) 6 2 ITR 827 (CAL); C) PREMIER CONSTRUCTION CO. LTD. V. CIT, (1966) 62 ITR 1 76 (BOM); D) LIBERTY CINEMA V. CIT, (1964) 52 ITR 153, 167 (CAL) ; TRANSPORT CO. PR. LTD. V. CIT, (1962) 46 ITR E) 1009, 1016 (MAD); TRANSPORT CO. LTD. V. CIT, (1957) 3 1 ITR 259, 266-7 (MAD); F) G. VEERAPPA PILLAI V. CIT, (1955) 28 ITR 636 (MAD); G) CIT V. RAMAN & RAMAN LTD.,(1951) 19 ITR 558, 569-70 (MAD). ALSO SEE, LACHMINARAYAN MODI V. CIT, (1955) 28 ITR 322 (ORISSA); H) J. B. ADVANI & CO. LTD. V. CIT, (1950) 18 ITR 557 (B OM); I) MAHABIR PRASAD & SONS V. CIT, (1945) 13 ITR 340 (LA H); J) CENTRAL INDIA SPINNING, WEAVING & MANUFACTURING CO. L TD. V. CIT, (1943) 11 ITR 266 (NAG); K) CIT V. MAHARAJADHIRAJA SIR KAMESHWAR SINGH (1942) 1 0 ITR 214 (PC) SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 11 L) SOUTHERN V. BORAX CONSOLIDATED LTD. (1942) 10 ITR (SU P) 1 (KB) M) ASSOCIATED PORTLAND CEMENT MANUFACTURERS LTD. V. KERR, (1946) 27 TAX CAS 103, 118 (CA) N) EBRAHIM ABOOBAKER V CIT (1971) 81 ITR 664 (BOM.) 3.8. IN THE CASES OF DEFENDING THE CRIMINAL LITIGA TION, WE FIND THAT SECTION 37(1) DOES NOT MAKE ANY DISTINCTI ON BETWEEN EXPENDITURE INCURRED IN CIVIL LITIGATION AN D THAT INCURRED IN CRIMINAL LITIGATION. ALL THAT THE COURT HAS TO SEE IS WHETHER THE LEGAL EXPENSES WERE INCURRED BY THE ASS ESSEE IN HIS CHARACTER AS A TRADER, IN OTHER WORDS, WHETHER THE TRANSACTION IN RESPECT OF WHICH PROCEEDINGS ARE TAK EN AROSE OUT OF AND WAS INCIDENTIAL TO ASSESSEE'S BUSINESS. FURTHER, IT IS TO BE SEEN WHETHER THE EXPENDITURE WAS BONAFIDEL Y INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS [SEE, CIT V. BIRLA COTTON SPNG. & WVG. MIL LS LTD., (1971) 82 ITR 166 (SC); CIT V. DHANRAJGIRJI RAJA NA RSINGIRJI, (1973) 91 ITR 544, 549 (SC)]. 3.9. SO FAR AS, ISSUE OF QUANTUM OF THE EXPENDITUR E TO BE INCURRED IS CONCERNED, WE ARE OF THE VIEW, IT IS FOR THE ASSESSEE TO DECIDE HOW BEST TO PROTECT HIS OWN INTE REST. IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPEND ITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. THE RATIO LAID DOWN IN CIT V. DHANRAJGIRJI RAJA NARSINGIRJI, (1973) 91 ITR 544 (S C) SUPPORTS OUR VIEW. IN THAT CASE HIS LORDSHIP OBSERV ED: SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 12 IT IS TRUE THAT IN SOME OF THE CASES THIS COURT HA S HELD THAT AN EXPENDITURE INCURRED BY AN ACCUSED ASSESSEE TO DEFEND HIMSELF AGAINST A CRIMINAL CHARGE DID NOT FA LL WITHIN THE SCOPE OF SECTION 1O(2)(XV)*. THOSE DECIS IONS WERE RENDERED ON THE FACTS OF THOSE CASES. THAT IS NOT THE POSITION IN THIS CASE.' CRIMINAL LITIGATION MAY BE PROSECUTED TO PUT PRESSU RE ON THE ACCUSED TO MAKE GOOD THE LOSS CAUSED TO THE ASSESSEE, AND EXPENDI-TURE INCURRED THEREFORE, IF HAVING NEXU S WITH THE PROFITS OR BUSINESS, ARE ALLOWABLE DEDUCTION SAHARA NPUR ELECTRIC SUPPLY CO. LTD. V. CIT, (1971) 82 ITR 405 (ALL). ASSESSEE DEFENDING HIMSELF-EXPENSES INCURRED BY A P ERSON EXERCISING A TRADE OR PROFESSION IN DEFENDING HIMSE LF IN A CRIMINAL PROSECUTION, WHICH ARISES OUT OF HIS BUSIN ESS OR PROFESSIONAL ACTIVITIES, CANNOT BE DEDUCTED AS BUSI NESS EXPENDITURE IN THE COMPUTATION OF HIS BUSINESS INCO ME CIT V. H. HIRJEE, (1953) 23 ITR 427, 431 (SC); CIT V. GASP ER & CO., (1940) 8ITR 100 (RANG)]. IN HIRJEE'S CASE [23 ITR 4 27], THE ASSESSEE INCURRED EXPENDITURE IN DEFENDING PROSECUT ION UNDER THE HOARDING AND PROFITEERING ORDINANCE, 1943 (NO. 35 OF 1943), FOR SELLING GOODS AT BLACK MARKET PRICES. SUCH EXPENDITURE WAS HELD NOT ALLOWABLE. SIMILARLY, EXPE NDITURE INCURRED BY A FIRM CARRYING ON EXPORT AND IMPORT BU SINESS IN DEFENDING ONE OF ITS PARTNERS FOR HAVING ACQUIRED F OREIGN EXCHANGE AND NOT FULLY UTILISING IT FOR IMPORT WERE HELD NOT ALLOWABLE ALTHOUGH THE PARTNER WAS UTLIMATELY ACQUI TTED [CIT V. CHAMAN LAL & BRA .(1970) 77 ITR 383 (DELHI)]. TH IS CASE WAS, HOWEVER, DISTINGUISHED IN CIT V. AHMEDABAD CON TROLLED IRON & STEEL ASSN. PR. LTD., (1975) 99 ITR 567 (GUJ ), WHERE SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 13 EXPENSES INCURRED BY COMPANY IN DEFENDING ITS MANAG ING DIRECTOR WERE HELD ALLOWABLE. IN ORDER TO SO CLAIM SUCH EXPENDITURE THE ASSESSEE HAS NOT ONLY TO PROVE THAT THE EXPENDITURE WAS INCIDENTAL TO THE BUSINESS BUT ALSO TO SHOW THAT THE EXPENDITURE WAS LAID OUT OR EXPENDED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS [INDERM ANI JATIA V. CIT, (1951) 19 ITR 342 (ALL) ON APPEAL, SEE, (19 59) 35 ITR 298 (SC)]. 3.10. ASSESSEE DEFENDING AN EMPLOYEE, ETC.-WHEN AN EMPLOYEE IS PROSECUTED IN RESPECT OF TRANSACTION IN THE COURSE OF HIS EMPLOYMENT, EXPENDITURE INCURRED IN O R ABOUT HIS DEFENCE IS INCURRED FOR THE PROTECTION OF THE G OOD NAME OF THE BUSINESS AND IS AN ALLOWABLE BUSINESS EXPENDITU RE [ J.B. ADVANI & CO. LTD. V. CIT & EPT, (1950) 18 ITR 557 ( BOM) CONSIDERED IN CIT V. H. HIRJEE, (1953) 23 ITR 427 ( SC), WHERE THE CORRECTNESS OF ITS ULTIMATE DECISION WAS NOT DO UBTED; J.N. SINGB & CO. PR. LTD. V. CIT. (1966) 60 ITR 732 (PUN J)]. LEGAL EXPENSES INCURRED BY ASSESSEE-COMPANY, A SUGAR MILL , IN DEFENDING A CRIMINAL PROSECUTION LAUNCHED AGAINST I TS DIRECTOR-MANAGER AND SOME EMPLOYEES ON CHARGE OF CONSPIRACY BETWEEN THE ASSESSEE AND THE RAILWAY EMP LOYEES TO GIVE AND ACCEPT BRIBES IN REGARD TO TRANSPORT OF SUGARCANE FROM VARIOUS STATIONS TO MILL WERE HELD TO BE ALLOW ABLE DEDUCTIONS [LAKSHMIJI SUGAR MILLS CO. LTD. V. CIT, (1967) ITR (SH N) 21 (DELHI)]. SIMILARLY, EXPENDITURE INCURRED IN DEFENDING A CRIMINAL CASE AGAINST THE DIRECTORS AND PRINCIPAL OFFICERS OF THE ASSESSEE-COMPANY ON THE ALLEGATION THAT THE SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 14 VEGETABLE OIL PRODUCED BY THE COMPANY DID NOT CONTA IN 5% TIL OIL AS REQUIRED BY THE GOVERNMENT RULE WAS HELD TO BE AN EXPENDITURE INCURRED WITH A VIEW TO PROVING THE QUA LITY AND STANDARD OF THE MANUFACTURED GOODS PRODUCED BY THE ASSESSEE AND, THEREFORE, DEDUCTIBLE [ROHTAS INDUSTR IES LTD. V. CIT, (1968) 67 ITR 361 (PAT)]. 3.11. IN ANANDA MARGA PRACHARAKA SANG HA V. CIT [(1996) 218 ITR 254, 258, 2 (CAL)] , THE LEGAL EXPE NSES INCURRED BY THE ASSESSEE FOR DEFENDING MARGA GURU, THE PRESIDENT OF THE ASSOCIATION AND OTHER MEMBERS OF T HE ASSOCIATION AGAINST CRIMINAL CHARGES HAVE BEEN HELD ALLOWABLE AS A PERMISSIBLE EXPENDITURE WHILE COMPUT ING THE INCOME OF THE ASSESSEE. HOWEVER, ON THE QUESTION OF ALLOWABILITY OF LEGAL EXPENSES INCURRED BY THE ASSE SSEE FOR DEFENDING CRIMINAL CHARGES ARISING OUT OF THE PERSO N CIVIL RIGHTS AND UNCONNECTED WITH THE AIMS AND OBJECTS OF THE ASSESSEE-ORGANISATION SUCH, HAS BEEN REMANDED TO TH E TRIBUNAL (P. 273) TO DETERMINE THAT WHETHER SUCH EX PENSES WERE RELATED TO THE SOCIETY'S ACTIVITY AND THEN TO DECIDE SUCH QUESTION ABOUT THEIR ALLOWABILITY. 3.12. THERE ARE SOME OTHER CASES, WHERE THE EXPEND ITURE INCURRED IN CRIMINAL LITIGATION WAS HELD ALLOWABLE, ARE:- (1) HINGIR RAMPUR COAL CO. LTD. V. CIT, (1971) 81 I TR 633 (BOM) [RIOTING BY ASSESSEE'S WORKMEN RESULTING IN SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 15 INJURY AND DEATH OF MANAGER-SUMS SPENT BY ASSESSEE IN ASSISTING STATE PROSECUTION OF ACCUSED]. (2) CIT V. DHANRAJGIRJI RAJA NARASINGIRJI, (1973) 9 1 ITR 544 (SC) [EXPENSE INCURRED BY THE ASSESSEE FOR PROSECUTION OF THE TRANSFEREE OF THE MANAGING AGENC Y, WHICH WAS INSTRUMENTAL IN SETTLEMENT BETWEEN THE ASSESSEE AND THE TRANSFEREE]. (3) IRON TRADERS P. LTD. V. CIT, (1974 97 ITR 606 ( DELHI) CRIMINAL COMPLAINT AGAINST FORMER MANAGING DIRECTOR FOR FAILURE TO ACCOUNT FOR AMOUNT BELONGING TO THE COMPANY-EXPENSES FOR PROSECTUOIN. 4) LAKSHMIJI SUGAR MILLS CO. PR. LTD. V. CIT, (1975 ) 98 ITR 568 (DELHI) [CRIMINAL CASE AGAINST DIRECTOR AND EMPLOYEES FOR BRIBERY-AMOUNT SPENT BY COMPANY FOR DEFENCE OF ACCUSED). 5) PARSHVA PROPERTIES LTD. V. CIT, (1976) 104 ITR 6 31 (CAL) [EXPENSES INCURRED IN DEFENDING EMPLOYEES OF THE ASSESSEE-COMPANY IN A CRIMINAL PROSECUTION FOR VIOLATING MINES REGULATIONS]. 6) CIT V. NATIONAL RAYON CORPORATION LTD., (1985) 1 55 ITR 413 (BOM) [EXPENDITURE INCURRED IN DEFENDING A SENIOR EMPLOYEE OF THE ASSESSEE WAS HELD DEDUCTIBLE ]. SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 16 7) CIT V. INDIAN COPPER CORPORATION LTD., (1986) 16 2 ITR 905 (PAT) [EXPENDITURE INCURRED IN DEFENDING WATCHM EN AND OTHER EMPLOYEES WHO GUARDED THE PREMISES OF COMPANY]. 8) ATLAS CYCLE INDUSTRIES LTD. V. CIT, (1990) 181 I TR 18 (PUNJ) [EXPENDITURE INCURRED IN CONNECTION WITH CRI MINAL LITIGATION PERTAINING TO CRIMINAL CONSPIRACY COMMIS SION OF OFFENCE UNDER THE ESSENTIAL COMMODITIES ACT, 195 5, WAS HELD DEDUCTIBLE]. 3.13. HOWEVER, THE AMOUNT SPENT IN DEFENDING DIREC TORS WHO WERE PROSECUTED UNDER THE MINES ACT WAS HELD NO T DEDUCTIBLE BECAUSE THERE WAS NO EVIDENCE TO SHOW TH AT THE AMOUNT WAS SPENT FOR PRESERVING THE REPUTATION OF T HE ASSESSEE [CIT V. INDIAN COPPER CORPORATION LTD., (1 986) 162 ITR 905 (PAT)]. SIMILARLY, EXPENSES INCURRED BY A N EWSPAPER COMPANY IN DEFENDING THE EDITOR AND PRINTER IN PROC EEDINGS FOR CONTEMPT OF COURT WERE HELD, ON FACTS, NOT TO B E EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING PRO FITS OR GAINS AND CONSEQUENTLY NOT ALLOWABLE [AMRITA BAZAR PATRIKA, IN RE, (1937) 5 ITR 648 (CAL)]. ALSO SEE, SWADESHI COTTON MILLS CO. LTD. V. CIT, (1975) 100ITR (ALL), FOR FACTS AND DECISION. 4. NOW, WE SHALL DEAL WITH THE CASES AND THE RATIO LAI D DOWN THEREIN, WHERE THE EXPENDITURE WAS INCURRED BU T WAS NOT HELD TO BE NOT ALLOWALBLE DEDUCTION. SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 17 (1) BY A SHAREHOLDER-ASSESSEE IN SUITS FILED AGAIN ST DIRECTORS RESPECTING MATTERS OF INTERNAL MANAGEMENT OF THE COMPANY [TRANSPORT CO. P. LTD. V. CIT, (1962) 4 6 ITR 1009 (MAD)]; (2) IN AN APPEAL WITH REGARD TO THE CORRECTNESS OF A RULING GIVEN BY THE PRESIDENT IN THE GENERAL MEETIN G, WITH REFERENCE TO THE RELATIVE RIGHTS OF THE SHAREH OLDERS AND THE BOARD OF DIRECTORS UNDER THE COMPANIES ACT, WHICH HAD NOTHING TO DO WITH THE COMPANY'S BUSINESS [PREMIER CONSTRUCTION CO. LTD. V. CIT, (1966) 62 IT R 176 (BORN), WHERE THE EXPENSES OF THE ORIGINAL SUIT WER E HELD ALLOWABLE AS THE PLAINTIFF HAD CLAIMED FOR RELIEFS WHICH, IF GRANTED, WOULD HAVE AFFECTED THE CARRYING ON OF THE BUSINESS OF THE COMPANY]; (3) IN DEFENDING AN APPLICATION TO THE COURT BY THE SHAREHOLDERS UNDER SECTION 153C OF THE INDIAN COMPANIES ACT, 1913, QUESTIONING THE APPOINTMENT OF SOME OF THE DIRECTORS OF THE COMPANY [CIT V. SHIWAL IK TALKIES LTD., (1967) 63 ITR 83 (PUNJ)]; (4) IN A SUIT FOR AMENDING THE ARTICLES OF ASSOCIAT ION OF THE COMPANY AND THEREBY ACQUIRING THE VOTING RIGHTS IN RESPECT OF EACH AND EVERY SHARE [CIT V. BENGAL ASSA M INVESTORS LTD., (1969) 72 ITR 319 (CAL)]; SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 18 (5) IN PROCEEDINGS FOR COMPELLING A COMPANY TO REGI STER ITS SHARES IN THE NAME OF THE ASSESSEE, WHICH WERE PURCHASED EARLIER IN AN AUCTION SALE [CIT V. BENGAL ASSAM INVESTORS LTD., (1969) 72 ITR 319 (CAL)]; (6) IN CONNECTION WITH THE DISPUTE BETWEEN THE PART NERS OF THE OLD MANAGING AGENCY FIRM AND FOR OBTAINING SANCTION OF THE CENTRAL GOVERNMENT FOR APPOINTMENT OF THERECONSTITUTED FIRM AS ITS MANAGING AGENTS [RAMPOORIA COTTON MILLS LTD. V. CIT, (1974) TAX LR 395 (CAL)]; (7) IN PAYING TO CHARTERED ACCOUNTANTS GIVING ADVIC E REGARDING THE SCHEME OF AMALGAMATION [NEW COMMERCIAL CO. LTD. V. ADDL. CIT, IT REF. O. 40 OF 1972 DECIDED BY THE GUJARAT HIGH COURT ON 30-11-1973]; (8) IN DEFENDING DISCIPLINARY PROCEEDINGS AGAINST T HE AUDITOR [CIT V. DECCAN SUGAR & ABKHARI CO. LTD., (1 976) 104 ITR 458 (MAD)]; (9) BY THE ASSESSEE-LESSOR-COMPANY IN CONDUCTING WINDING UP PROCEEDINGS STARTED AGAINST THE LESSEE- COMPANY [ASSOCIATED BOMBAY CINEMA P. LTD. V. CIT, (1978) III ITR 942 (BOM)]; (10) IN RESISTING TRANSFER OF SHARES WITHOUT ASSIGN ING OR DISCLOSING REASONS [HARINAGAR SUGAR MILLS LTD. V. C IT, (1979) 117 ITR 945 BORN)]; SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 19 (11) IN ATTEMPTING TO PREVENT INVESTIGATION INTO TH E AFFAIRS OF THE COMPANY [HARINAGAR SUGAR MILLS LTD. V. CIT, (1979) 117 ITR 945 (BORN)]; (12) BY THE ASSESSEE-AMALGAMATED-COMPANY IN REIMBURSING THE AMOUNT OF LEGAL EXPENSES INCURRED B Y THE SHAREHOLDERS WHO ATTEMPTED STAYAL OF DECLARATIO N OF DIVIDENDS [RAZA BULAND SUGAR CO. LTD. V. CIT, (1980 ) 122 ITR 817 (ALL)]; (L3) FOR THE PURPOSES OF THE AMALGAMATION OF TWO COMPANIES [RAZA BULAND SUGAR CO. LTD. V. CIT, (1980 ) 122 ITR 817 (ALL); RAZA BULAND SUGAR CO. LTD. V. CI T, (1980) 123 ITR 24 (ALL)]; (14) IN DEFENDING A SUIT INSTITUTED BY CERTAIN SHAREHOLDERS SEEKING AN INJUNCTION RESTRAINING THE COMPANY FROM PROCEEDING TO DISTRIBUTE DIVIDENDS IN SPECIE [BULAND SUGAR CO. LTD. V. CIT, (1981) L30 IT R 434 (DEL)]; (15) BY THE COMPANY IN DEFENDING A SUIT INSTITUTED BY A DIRECTOR AGAINST ANOTHER DIRECTOR [ALBERT DAVID LTD . V. CIT, (1981) L31 ITR 192 (CAL)]; (16) IN LEGAL PROCEEDINGS IN CONNECTION WITH A SCHE ME OF AMALGAMATION WHICH DID NOT MATERIALISE [BENGAL & ASSAM INVESTORS LTD. V. CIT, (1983) 142ITR 156 (CAL )]; SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 20 (17) BY THE ASSESSEE, A MAJOR SHAREHOLDER, IN CONNE CTION WITH APPLICATION UNDER SECTION 186 OF THE COMPANIES ACT FOR CALLING MEETING OF ITS SUBSIDIARY COMPANY F OR REMOVAL OF EXISTING DIRECTORS AND APPOINTMENT OF NE W DIRECTORS, ETC. [UNITED BREWERIES LTD. V. CIT, (198 6) 162 ITR 527 (KARN)]; (18) BY THE ASSESSEE TOWARDS FEES FOR CONDUCTING AN APPEAL BEFORE THE COMPANY LAW BOARD IN CONNECTION WITH THE REFUSAL OF REGISTRATION OF CERTAIN SHARES IN A COMPANY [JAYA HIND INDUSTRIES (P.) LTD. V. CIT, (19 86) 161 ITR 842 (BOM)]; (19) IN CONNECTION WITH SEEKING LEGAL ADVICE IN THE MATTER OF CERTAIN IRREGULARITIES AND FICTITIOUS TRANSACTIONS AS REVEALED IN THE AUDITORS' REPORTS [ CIT V. MCLEOD & CO. LTD., (1987) 164 ITR 681 (CAL)]. (20) IN DEFENDING THE APPEAL FILED BY B CO. IN THE SUPREME COURT CHALLENGING THE ORDER OF THE COMPANY LAW BOARD ORDERING THE TRANSFER OF SHARES OF B CO. TO THE ASSESSEE [CIT V. JAYA HIND INDUSTRIES (P.) LTD. , (1993) 201 ITR 934,938 (BOM)]. (21) IN CONNECTION WITH AMALGAMATION OF COMPANY M WITH THE ASSESSEE-COMPANY WHICH RESULTED IN A RADIC AL ALTERATION IN THE FRAMEWORK OF THE BUSINESS OF THE AS-SESSEE-COMPANY [GODFREY PHILLIPS INDIA LTD. V. C IT, SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 21 (1994) 206 ITR 23,35 (BOM)]. ALSO SEE, LALITMANI PV T. LTD. V. CIT, (1997) TAX LR 543,544 (BORN). (22) FOR OBTAINING ADVICE OF SOLICITORS IN REGARD T O DILUTION OF SHAREHOLDING IN PURSUANCE OF THE PROVIS IONS OF THE FOREIGN EXCHANGE REGULATION ACT, 1973, AS TH E EXPENDITURE RESULTED IN AUGMENTATION OF THE CAPITAL BASE OF THE ASSESSEE-COMPANY [CIT V. HAYWARD WALDIA REFINERY LTD., (1994) 209 ITR 159, 161 (CAL)]. (23) IN PAYING FEES TO THE LAWYERS IN CONNECTION WI TH INCREASE IN AUTHORISED CAPITAL OF THE ASSESSEE-COMP ANY [CYNAMID INDIA LTD V. CIT, (1994) TAX LR 895, 897-9 8 (BOM)]. (24) IN CONNECTION WITH AMALGAMATION OF ONE OF THE SUBSIDIARY COMPANIES OF THE ASSESSEE-COMPANY WITH T HE LATTER HAS BEEN HELD OF CAPITAL IN NATURE BECAUSE T HE PURPOSE AND OBJECT OF INCURRING THE EXPENDITURE WAS TO ALTER THE FRAMEWORK OR THE STRUCTURE UNDER WHICH TH E ASSESSEE WAS CARRYING ON ITS BUSINESS AND AFFECTED THE PROFIT-MAKING APPARATUS [JAYASHREE TEA & INDUSTRIES LTD. V. CIT, (1995) 80 TAXMAN 169,175-76 (CAL)]. (25) ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES I N CONNECTION WITH THE MERGER OF THE COMPANY WAS HELD NOT DEDUCTIBLE AS REVENUE EXPENDITURE BECAUSE THERE WERE NO FINDINGS THAT THE TWO COMPANIES WERE CARRYI NG SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 22 ON COMPLEMENTARY BUSINESS AND THE AMALGAMATION WAS NECESSARY FOR THE SMOOTH AND EFFICIENT CONDUCT OF BUSINESS [TRIVENI ENGINEERING WORKS LTD. V. CIT, (1 998) 232 ITR 639, 645 (DEL)]. (26) IN CONNECTION WITH ISSUANCE OF SHARE CERTIFICA TES AND BONDS AS A PART OF THE AMALGAMATION SCHEME [CIT V. OFFICIAL LIQUIDATOR, AHMEDABAD MANUFACTURING & CALI CO PRINTING CO. LTD., (2000) 244 ITR 156, 160, 162-63 (GUJ)]. 5. TO SUM OF THE ISSUE WE FIND THAT HON'BLE JUSTIC E P.D. DESAI, IN SMT. VIRMATI RAMKRISHNA VS CIT (1981 ) 131 ITR 659, 672-73(GUJ.), HAS ANALYZED THE STATUTORY L ANGUAGE AND LAID DOWN VARIOUS PRINCIPLES, IN VARIOUS DECIDE D CASES AND MADE FOLLOWING PROPOSITIONS. (I) IN ORDER TO DECIDE WHETHER AN EXPENDITURE IS A PERMISSIBLE DEDUCTION UNDER SECTION 57(III), THE NA TURE OF THE EXPENDITURE MUST BE EXAMINED; (II) THE EXPENDITURE MUST NOT BE IN THE NATURE OF C APITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE; (III) THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING 'INCOME FROM OTHER SOURCES'; (IV) THE PURPOSE OF MAKING OR EARNING SUCH INCOME MUST BE THE SOLE PURPOSE FOR WHICH THE EXPENDITURE MUST HAVE BEEN INCURRED, THAT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 23 PURPOSE AS ALSO FOR ANOTHER PURPOSE OR FOR A MIXED PURPOSE; V) THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN MIND IN THIS CONNECTION, FOR, WH AT IS RELEVANT IS THE MANIFEST AND IMMEDIATE PURPOSE A ND NOT THE MOTIVE OR PERSONAL CONSIDERATIONS WEIGHING IN THE MIND OF THE ASSESSEE IN INCURRING THE EXPENDITU RE; (VI) IF THE ASSESSEE HAS NO OPTION EXCEPT TO INCUR THE EXPENDITURE IN ORDER TO MAKE THE EARNING OF THE INC OME POSSIBLE, SUCH AS WHEN HE HAS TO INCUR LEGAL EXPENS E FOR PRESERVING AND MAINTAINING THE SOURCE OF INCOME , THEN, UNDOUBTEDLY, SUCH EXPENDITURE WOULD BE AN ALLOWABLE DEDUCTION; HOWEVER, WHERE THE ASSESSEE HAS AN OPTION AND THE OPTION WHICH HE EXERCISES HAS NO CONNECTION WITH THE MAKING OR EARNING OF THE INCOME AND THE OPTION DEPENDS UPON PERSONAL CONSIDERATIONS OR MOTIVES OF THE ASSESSEE, THE EXPENDITURE INCURRED IN CONSEQUENCE OF THE EXERCISE OF SUCH OPTION CANNOT BE TREATED AS AN ALLOWABLE DEDUCTION; (VII) IT IS NOT NECESSARY, HOWEVER, THAT THE EXPEND ITURE INCURRED MUST HAVE BEEN OBLIGATORY; IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO AN IMMEDIATE BENEFIT TO THE ASSESSEE BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE THE MAKING OR EARNING OF THE INCOME; (VIII) IF, THEREFORE, IT IS FOUND ON APPLICATION OF THE PRINCIPLES OF ORDINARY COMMERCIAL TRADING THAT THER E IS SOME CONNECTION, DIRECT OR INDIRECT, BUT NOT REMOTE , BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED, THE EXPENDITURE MUST BE TREATED AS AN ALLOWABLE DEDUCTION; SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 24 (IX) IT WOULD NOT, HOWEVER, SUFFICE TO ESTABLISH ME RELY THAT THE EXPENDITURE WAS INCURRED IN ORDER INDIRECT LY TO FACILITATE THE CARRYING ON OF THE ACTIVITY WHICH IS THE SOURCE OF THE INCOME; THE NEXUS MUST NECESSARILY BE BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED; (X) IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITUR E WAS A PROFITABLE ONE OR THAT IN FACT INCOME WAS EARNED; (XI) THE TEST IS NOT WHETHER THE ASSESSEE BENEFITED THEREBY OR WHETHER IT WAS A PRUDENT EXPENDITURE WHICH RESULTED IN ULTIMATE GAIN TO THE ASSESSEE BUT WHETHER IT WAS INCURRED LEGITIMATELY AND BONA FIDE FOR MAKING OR EARNING THE INCOME; (XII) THE QUESTION WHETHER THE EXPENDITURE WAS LAID OUT OR EXPENDED FOR MAKING OR EARNING THE INCOME MUST B E DECIDED ON THE FACTS OF EACH CASE, THE FINAL CONCLU SION BEING ONE OF LAW'. IN THE AFORESAID PROPOSITIONS (VI) IT HAS BEEN CLEA RLY HELD/OBSERVED THAT INCURRING OF LEGAL EXPENSES FOR PRESERVING AND MAINTAINING OF SOURCE OF INCOME WOULD BE ALLOWA BLE DEDUCTION. 6. LIKEWISE, HON'BLE APEX COURT IN SREE MEENAKSHI MILLS LTD. V. CIT, (1967) 63 ITR 207 (SC), WHERE EX PENSES WERE INCURRED IN FILING A SUIT FOR OBTAINING AN ORD ER RESTRAINING SEIZURE OF GOODS DELIVERED IN CONTRAVEN TION OF THE CONTROL ORDER WERE HELD ALLOWABLE DEDUCTION. IT FOL LOWS FROM THIS DECISION THAT: SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 25 (I) LITIGATION EXPENSES TO SECURE AN ORDER FROM THE COURT FOR ENABLING AN ASSESSEE TO CARRY ON ITS BUSI NESS WITHOUT INTERFERENCE IS AN ALLOWABLE DEDUCTION; (II) EXPENDITURE INCURRED TO RESIST, IN A CIVIL PRO CEEDING, THE ENFORCEMENT OF A MEASURE, LEGISLATIVE OR EXECUT IVE, WHICH IMPOSES RESTRICTIONS ON THE CARRIAGE OF A BUSINESS OR TO OBTAIN A DECLARATION THAT THE MEASUR E WAS INVALID, WOULD, IF OTHER CONDITIONS ARE SATISFI ED, BE ADMISSIBLE AS DEDUCTION; AND (III) THE DEDUCTIBILITY OF EXPENDITURE INCURRED IN PROSECUTING A CIVIL PROCEEDING DEPENDS UPON THE NATURE AND PURPOSE OF THE CIVIL PROCEEDING IN RELAT ION TO ASSESSEE'S BUSINESS AND CANNOT BE AFFECTED BY TH E FINAL OUTCOME OF THAT BUSINESS. 6.1. IN THE CASE OF CIT VS GANNON DUNKARLAY AND CO . PVT. LTD. (2000) 243 ITR 646 (MAD.), CIT VS ADMINIS TRATOR GENERAL OF MADRAS (1998) 234 ITR 351 (MAD.), CIT VS PATIALA FLOUR MILLS CO. LTD. (1989) 180 ITR 75 (P & H), HIN DUSTAN MILK FOOD MANUFACTURING LTD. 179 ITR 302 (P & H), P ALANI SIR MURGUN TEXTILES LTD. VS ACIT (2002) 254 ITR 333 (MA D.) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN TH E CASE OF GANNON DUNKARLAY AND CO. PVT. LTD., THE HON'BLE MAD RAS HIGH COURT, WHERE THE EXPENDITURE WAS INCURRED BY T HE OFFICIAL LIQUIDATOR TO MAINTAIN THE INFRASTRUCTURE OF THE COMPANY HELD THAT THE EXPENDITURE WAS DEDUCTIBLE U/ S SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 26 57(III), AS IT WOULD NOT HAVE BEEN POSSIBLE TO EARN THE INTEREST INCOME WITHOUT INCURRING SUCH EXPENDITURE. IN THE L IGHT OF THE FOREGOING DISCUSSION, RATIO LAID DOWN BY VARIOU S HON'BLE HIGH COURTS/HON'BLE APEX COURT AND THE FACTS AVAILA BLE ON RECORD, WE ARE OF THE CONSIDERED OPINION THAT IN DE FENDING THE LITIGATION, THE FEE/LEGAL EXPENSES PAID BY THE ASSE SSEE IS AN ALLOWABLE DEDUCTION, MORE SPECIFICALLY WHEN THE SAM E WAS PAID THROUGH BANKING CHANNEL AND THE ASSESSING OFFI CER HAS NEITHER CONTRADICTED THE GENUINENESS OF PAYMENT AND HAS ALSO NOT BROUGHT ANY CONTRARY MATERIAL ON RECORD, E VIDENCING THAT NO SUCH PAYMENT WAS MADE BY THE ASSESSEE, THER EFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. THE NEXT GROUND RAISED BY THE ASSESSEE PERTAINS TO COMPUTING THE INCOME FROM SHARE TRANSACTION UNDER T HE HEAD BUSINESS AND PROFESSION AS AGAINST SHORT TER M CAPITAL GAIN OF RS.6,12,711/-, OFFERED BY THE ASSES SEE UNDER THE HEAD CAPITAL GAIN. 7.1. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF TH E ASSESSEE IS THAT PAYMENT WAS MADE THROUGH BANKING CHANNEL/ CHEQUE, SHARES ARE DELIVERY BASED AND THE ASSESSEE IS A INVESTOR AND NOT A TRADER. IT WAS AL SO EXPLAINED THAT ASSESSEE FILED ADDITIONAL EVIDENCE/V ARIOUS INFORMATION BEFORE THE LD. COMMISSIONER OF INCOME T AX (APPEAL) FOR WHICH OUR ATTENTION WAS INVITED TO PAG E-8 PARA .5.2 OF THE IMPUGNED ORDER. OUR ATTENTION WAS FURTH ER INVITED TO PAGE 42 OF THE PAPER BOOK BY EXPLAINING THAT THE SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 27 SHARES ARE LISTED ONE. THE LD. COUNSEL ALSO CLAIMED THAT THE AVERAGE HOLDING PERIOD IS 43.61 DAYS AND IS FOLLOWI NG CONSISTENT METHOD. RELIANCE WAS PLACED UPON THE DEC ISION IN ITA NO.6497/MUM/2009 ORDER DATED 15/06/2011 AND ITA NO.605/JP/2013 DATED 18/03/2016. 7.2. ON THE OTHER HAND, THE LD. DR INVITED OUR ATT ENTION TO PAGE-11 OF THE IMPUGNED ORDER AND ALSO THE ORDER OF THE TRIBUNAL (PAGE-108 OF THE PAPER BOOK), BY DEFENDING THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINE D BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL). 7.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT IT IS WORTH MENTIONING THAT THIS ISSUE EV EN TRAVELLED TO THE TRIBUNAL AND VIDE ORDER DATED 30/04/2010 (IT A NO.18/MUM/2004) DIRECTION WAS GRANTED TO THE ASSESS ING OFFICER TO EXAMINE THE FACTUAL MATRIX AND ALSO WHET HER THE SHARES WERE ACTUALLY DELIVERED AT THE TIME OF SALE. THE CLAIM OF THE ASSESSEE WITH RESPECT TO ADDITION OF RS.6,12 ,711/- AROSE FROM SHARE TRANSACTION MADE BY THE ASSESSEE. EVEN DURING SET-ASIDE PROCEEDINGS, THE LD. ASSESSING OFF ICER MAINTAINED THE ADDITION, WHICH WAS AFFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL). THE ASSESSEE DULY PARTICIPATED BEFORE THE ASSESSING OFFICER DURING SE T-ASIDE PROCEEDINGS AND FILED VARIOUS INFORMATION. THE AMOU NT WAS AROSE FROM 51 SALES TRANSACTIONS OF SHARE, WHICH WA S NOT REGARDED AS SHORT TERM CAPITAL GAIN. THE LD. ASSESS ING SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 28 OFFICER HAS ALSO CITED VARIOUS JUDICIAL DECISIONS A ND REACHED TO THE CONCLUSION THAT THE ASSESSEE IS A TRADER IN SHARES, THERE IS FREQUENT TRANSACTIONS, THE INTENTION IS TO EARN PROFIT. WE HAVE PERUSED THE PAPER BOOK AND FOUND THAT THE S HARES ARE DELIVERY BASED (PAGES 1 TO 31 OF THE PAPER BOOK ), SALE AND PURCHASE WAS MADE THROUGH BANKING CHANNEL (PAGE -32 TO 45 OF THE PAPER BOOK) AND HAS BEEN SHOWN AS INVE STMENTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE . THE ASSESSEE IS CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNT AND NO FAULT WAS EVER FOUND. THE SHARES TR ANSACTED BY THE ASSESSEE ARE LISTED ONE (PAGE-42 OF THE PAPE R BOOK) AND THE AVERAGE HOLDING PERIOD IS 43.61 DAYS. THE S HARES WERE ACTUALLY DELIVERED AND THE INTENTION OF THE AS SESSEE IS INVESTMENT ONLY. SO FAR AS, THE CONTENTION OF THE L D. DR AS WELL AS THE OBSERVATION MADE IN THE ASSESSMENT ORDE R THAT THE INTENTION OF THE ASSESSEE IS TO EARN PROFIT, IS CONCERNED, WE ARE OF THE VIEW THAT WHILE DOING THE BUSINESS OR EVEN INVESTMENT, THE INTENTION IS ALWAYS TO EARN THE PRO FIT AND NOT A LOSS, THEREFORE, THIS CONTENTION OF THE LD. A SSESSING OFFICER CANNOT BE SAID TO BE JUSTIFIED. WE FIND TH AT THE CASE OF THE ASSESSEE IS COVERED IN HIS FAVOUR BY THE RAT IO LAID DOWN IN CIT VS TRISHUL INVESTMENT LTD. (2008) 305 I TR 434 (MAD.), CIT VS RAMAMIRTHAM (2008) 306 ITR 239 (MAD. ), CIT VS N.S. S. INVESTMENT PVT. LTD. 277 ITR 149 (MAD.), CIT VS JUBILANT SECURITY PVT. LTD. (2011) 333 ITR 445 (DEL .), JANAK S. RANGWALA VS ACIT 11 SOT 627 (MUM.), BOMBAY GYMKHANA LTD. VS INCOME TAX OFFICER (2008) 5 DTR (M UM) SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 29 401, CIT VS GOPAL PUROHIT (2011) 336 ITR 287 (BOM.) (SLP DISMISSED BY SUPREME COURT IN 334 ITR 308)(ST.)(SC) . SO FAR AS, THE FREQUENCY OF TRANSACTION IS CONCERNED, IT D EPENDS UPON VOLUME, MAGNITUDE, USE OF BORROWED FUNDS, PERI OD OF HOLDING, INFRASTRUCTURE OF THE ASSESSEE, ETC AND FA CTS OF EACH CASE. THE RATIO LAID DOWN IN KARISHMA SHA VS ACIT ( ITA NO.2735/MUM/2009) ORDER DATED 23/07/2010, WHERE THE RE WERE TRANSACTIONS OF 138 PURCHASES AND 107 SALES AN D THE AVERAGE PERIOD OF HOLDING WAS LESS THAN ONE MONTH, SUPPORTS THE CASE OF THE ASSESSEE. FURTHER, THE RA TIO LAID DOWN IN NEHAL V. SHAH VS ACIT (ITA NO.2733/MUM/2009 ) ORDER DATED 15/12/2010, VINOD K. NEVATIA VS ACIT (I TA NO.6556/MUM2009) ORDER DATED 03/12/2010, ACIT VS NAISHADH V. VACHHARAJANI (ITA NO.6429/MUM/2009) ORD ER DATED 25/02/2011, NAGINDAS P. SHAH (HUF) VS ACIT (I TA NO.961 & 1836/MUM/2010) ORDER DATED 05/04/2011, RAMESH BABU RAO VS ACIT (ITA NO.3719, 4084, 5318 & 5319/MUM/2009) ORDER DATED 13/04/2011, HITESH SATISHCHANDRA DOSHI ETEMAI VS JCIT (ITA NO.6497/MUM/2009) ORDER DATED 15/06/2011, CBDT INSTRUCTION NO.1827 DATED 31/08/1999 ALONG WITH SUPPLEMENTARY INSTRUCTION SUPPORTS THE CASE OF THE ASSESSEE. THE RATIO LAID DOWN IN THE AFOREMENTIONED CASES IS THAT WHEN THE ASSESSEE TREATED THE TRANSACTIONS AS INVESTMENTS IN THE BOOKS OF ACCOUNTS, WHICH INCLUDE S BOTH LONG TERM AND SHORT TERM, THE INTENTION OF THE ASSE SSEE FOR ACQUIRING THE SHARES, SOURCE OF ACQUISITION ARE OUT OF OWN SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 30 FUNDS/FAMILY FUNDS, THE ASSESSEE VALUED THE SHARES UNDER INVESTMENT PORTFOLIO AT COST AND NEVER VALUED THEM AT MARKET PRICE OR REALIZATION VALUE, IT HAS TO BE TRE ATED AS SHORT TERM CAPITAL GAIN. DURING HEARING, THE LD. CO UNSEL FOR THE ASSESSEE CLAIMED THAT IN EARLIER YEARS, SUCH TR ANSACTION OF THE ASSESSEE WERE ASSESSED AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN. THIS FACTUAL MATRIX WA S NOT CONTROVERTED BY THE REVENUE, CONSEQUENTLY WE ARE OF THE THAT UNLESS AND UNTIL CONTRARY MATERIAL IS BROUGHT ON RECORD NO U-TURN IS EXPECTED FROM THE DEPARTMENT. CONSIDE RING THE TOTALITY OF FACTS, WE ARE OF THE VIEW, THE ASSE SSEE TRANSACTED THE SHARES AS INVESTOR, THEREFORE, IT CA NNOT BE TREATED AS BUSINESS INCOME. THIS GROUND OF THE ASSE SSEE IS, THEREFORE, ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 16/11/2016. SD/- SD/- ( N.K. PRADHAN ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER & ' MUMBAI; * DATED : 18/11/2016 F{X~{T? P.S / +% %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT 2. 0./ / THE RESPONDENT. 3. 1 1 & 2$ ( ,- ) / THE CIT, MUMBAI. SHRI NAVINCHANDRA N. MAJITHIA ITA NO.2830/MUM/2013 31 4. 1 1 & 2$ / CIT(A)- , MUMBAI 5. 4%5 $ , 1 ,-) , 6 , & ' / DR, ITAT, MUMBAI 6. 7' 8' / GUARD FILE. / BY ORDER, 04-$ $ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI,