DCIT 1(1)(1), MUMBAI V. BDS PROJECTS INDIA P.LTD, MUMBAI

ITA 3737/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0246 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 23-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA S ANJARIA LD
• Assessee Lawyers: CHETAN A KARIA LD
• Keywords: Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.3737/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) ASSISTANT COMMISSIONER OF INCOME TAX-1(1)(1) ROOM NO.579 AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 / VS. BDS PROJECTS INDIA PRIVATE LIMITED GROUND FLOOR, NEVILLE HOUSE CURRIMBHOY ROAD BALLARD ESTATE MUMBAI-400 001 ./ ./PAN/GIR NO. AADCB-1736-G ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ASSESSEE BY : CHETAN A. KARIA, LD. AR REVENUE BY : CHAITANYA S. ANJARIA, LD. DR / DATE OF HEARING : 15/10/2018 / DATE OF PRONOUNCEMENT : 11/12/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-2 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-2/IT-34/2015-16 DATED 28/02/2017 BY RAISING FOLLOWING GROUNDS OF APPEAL: - ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.1,71,81,600/- MADE ON ACCOUNT OF DISALLOWANCE OF COMPENSATION PAID TO TWO RETIRING DIRECTORS, EVEN W HEN THE SAME WAS NOT ESTABLISHED REVENUE IN NATURE AND RELATING TO THE E ARNING OF THE INCOME OR BUSINESS OF THE PRESENT YEAR RELEVANT TO A.Y. 2012-13? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) WAS RIGHT IN HOLDING THAT THE LUMP SUM PAYMENT MADE BY ASSESSEE COMPANY TO ITS DIRECTORS AS REVENUE EXPENDITURE WITHOUT APPRECIATI NG THAT, ONE OF THE BENEFITS ASSESSEE COMPANY RECEIVED IN LIEU OF THE PAYMENT WA S THAT, THE DIRECTORS ENTERED INTO A RESTRICTIVE COVENANT WITH ASSESSEE COMPANY T HAT THEY WILL NOT DAMAGE THE REPUTATION OF ASSESSEE COMPANY AND THIS RESULTED IN YIELDING ENDURING BENEFIT TO THE ASSESSEE, FOR SMOOTH CONDUCT OF BUSINESS AND HENCE CONSTITUTED CAPITAL EXPENDITURE? THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX-CIRCLE 1(1)(1), MUMBAI [ AO] IN SCRUTINY ASSESSMENT U/S 143(3) ON 13/03/2015 WHEREIN THE INC OME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.245.37 LACS AFTER CERTAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.73.5 5 LACS FILED BY THE ASSESSEE ON 27/09/2012. DURING IMPUGNED AY, THE ASS ESSEE BEING RESIDENT CORPORATE ENTITY WAS ENGAGED IN CONSTRUCTION ACTIVITIES. AS EVIDENT FROM GROUNDS OF APPEAL, THE SOLE SUBJECT MA TTER OF THE PRESENT APPEAL IS RELATED WITH ALLOWANCE OF CERTAIN PAYMENT MADE BY THE ASSESSEE TO ITS TWO DIRECTORS. 2.1 DURING ASSESSMENT PROCEEDINGS IT TRANSPIRED THA T THE ASSESSEE DEBITED A SUM OF RS.171.81 LACS IN THE PROFIT & LOSS ACCOUNT AS RETRENCHMENT COMPENSATION / BENEFIT STATED TO BE PAID TO ITS TWO KEY EMPLOYEES / DIRECTORS NAMELY MRUDUL GOYAL & SUNIL JOSHI. THE ASSESSEE EXPLAINED THAT BOTH THE EMPLOYEES WERE GIVEN 12.5% SHARES IN THE COMPANY. HOWEVER, LATER ON, IN THE INTEREST OF THE BUSINESS, IT WAS DECIDED TO RETRENCH THEM AGAINST WHICH A SUM OF RS. 85.90 LACS WAS PAID TO EACH OF THEM FOR AN AMICABLE SETTLEMENT. IT WAS ALSO SUBMITTED ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 3 THAT DUE TDS @30.9% WAS DEDUCTED FROM THE SAID PAYM ENT AND THEREFORE, THE EXPENDITURE WAS BUSINESS EXPENDITURE AND ALLOWABLE DURING IMPUGNED AY PARTICULARLY IN VIEW OF THE FACT THAT IT ENABLED THE ASSESSEE TO MAKE NOTIONAL SAVINGS OF RS.4.46 CRORES DURING FINANCIAL YEARS 2011-12 TO 2013-14. HOWEVER, NOT CONVINCED, L D. AO DISALLOWED THE SAME ON THE PREMISE THAT THE SAID PAYMENT WAS O NE-TIME SETTLEMENT PAYMENT AND THEREFORE CAPITAL IN NATURE. THE LD. AO ALSO OPINED THAT THE ASSESSEE FAILED TO JUSTIFY THE CLAIM OF THE EXPENSE AS A BUSINESS EXPENSES WITH ANY STRONG AND REASONABLE ARGUMENT. 2.2 THE LD. AO, IN THE ALTERNATIVE, NOTED THAT THE SHARES OF 12.5% HELD BY EACH OF THEM WERE REDUCED WHEREAS THE SHAREHOLDI NG OF THE ASSESSEES HOLDING COMPANY NAMELY NS GUZDER & CO. PRIVATE LIMITED GOT INCREASED TO THE SAME EXTENT AND THEREFORE, THE AFORESAID PAYMENT WAS NOTHING BUT PAYMENT ON BEHALF OF THE HOLDING CO MPANY AND THEREFORE CAPITAL PAYMENT. FURTHER, THE SAID PAYMEN T WAS HIT BY THE PROVISIONS OF SECTION 40A(2)(B) AND HENCE, COULD NO T BE ALLOWED TO THE ASSESSEE. FINALLY, THE AFORESAID EXPENDITURE WAS DI SALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER D ATED 28/02/2017 BY WHEREIN LD. CT(A), AFTER DUE CONSIDERATION OF FACTU AL MATRIX DELETED THE ADDITIONS BY MAKING FOLLOWING OBSERVATIONS: - 6.5 THE AUTHORIZED REPRESENTATIVE ALSO FILED THE CO PIES OF LETTER OF FULL AND FINAL SETTLEMENT OF THE TWO PERSONS, COPY OF FORM 16 AND ALSO A STATEMENT OF EXPENSES SAVED POST RESIGNATION OF THESE TWO PERSONS. ALSO, THE AUTHORIZED REPRESENTATIVE HAS FURNISHED THE VALUATION OF SHARES OF THE APPELL ANT AND HAS ARGUED THAT THE SHARE PRICE PAID IS MORE THAN THE SHARE VALUATION. 6.6 I HAVE GONE THROUGH THE ASSESSMENT ORDER DATED 13 TH MARCH, 2015 WHEREIN THE ASSESSING OFFICER HAS MADE ADDITION OF RS.1,71, 81,600/- AS COMPENSATION PAID ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 4 TO SHRI MRIDUL GOYAL AND SHRI SAMEER JOSHI STATING THE REASON THAT BY PAYING THE COMPENSATION TO THE TWO DIRECTORS SHRI MRIDUL GOYAL AND SHRI SAMEER JOSHI, THE COMPANY GOT ENDURING BENEFIT AND MORE PROFITS ARE B ROUGHT TO, THEREFORE, THE AO IS OF THE OPINION THAT THE EXPENDITURE SHOULD BE TREAT ED AS CAPITAL ONE AND NOT AS A REVENUE ONE AS CLAIMED BY THE APPELLANT. IT IS ALSO SEEN THAT THE APPELLANT COMPANY HAS DEDUCTED 30% TDS ON THE COMPENSATION PAID TO TH E DIRECTORS. FURTHER AO IS OF THE OPINION THAT THE RECEIPT OF THE COMPENSATION TO THE EXTENT OF RS.1,71,81,600/-, THE SHARES HELD BY THE OUTGOING DIRECTORS SHRI MRID UL JOSHI AND SHRI SAMEER JOSHI WILL BE ASSET TO THE COMPANY OR OTHERWISE THE SHARE S WERE OWNED BY THE EXISTING DIRECTORS I.E. N S GUZDER. I HAVE ALSO PERUSED THE SUBMISSIONS MADE BY THE AUT HORIZED REPRESENTATIVE. THE AUTHORIZED REPRESENTATIVE HAS ALSO RELIED ON VARIOU S DECISIONS ON THE SUBJECT WHOLLY AND EXCLUSIVELY AND FOR THE PURPOSES OF T HE BUSINESS USED U/S 37(1) OF THE ACT. THE AR OF THE APPELLANT HAS RELIED ON THE FOLLOWING SUBMISSIONS: A) ATHURTON V/S BRITISH INSULATED & HELSBY CABLES L TD. (10 TC 155) AT PAGE 191, WHEREIN IT IS HELD AS UNDER. A SUM OF MONEY EXPENDED, NOT OF NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AND IN ORDER TO FACILITATE THE CARRYING ON THE BUSINESS MAY YET TO EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE TRADE. B) CIT V/S CHANDULAL KESHVLAL & CO. 38 ITR 601 (SC) , WHEREIN IT IS HELD AS UNDER: IN DECIDING WHETHER A PAYMENT OF MONEY IS DEDUCTIB LE EXPENDITURE ONE HAS TO TAKE INTO CONSIDERATION QUESTIONS OF COMMERCIAL EXP EDIENCY AND THE PRINCIPLES OF ORDINARY COMMERCIAL TRADING. IF THE PAYMENT OR EXPE NDITURE IS INCURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESSEE IT DOES NOT MA TTER THAT THE PAYMENT MAY INURE TO THE BENEFIT OF A THIRD PARTY (USHERS WILL SHIRE BREWERY LIMITED V/S BRUCE). ANOTHER TEST IS WHETHER THE TRANSACTION IS PROPERLY ENTERED INTO AS A PART OF THE ASSESSEES LEGITIMATE COMMERCIAL UNDERTAKING IN ORD ER TO FACILITATE THE CARRYING ON OF ITS BUSINESS; AND IT IS IMMATERIAL THAT A THI RD PARTY ALSO BENEFITS THEREBY (EASTERN INVESTMENTS LTD. V/S COMMISSIONER OF INCOM E-TAX). C) CIT V/S MALAYAIAM PLANTATIONS LTD. 53 IR 140 (SC ), WHEREIN IT IS HELD AS UNDER: THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS UN DER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS. IT S RANGE IS WIDE; IT MAY TAKE IN NOT ONLY THE DAY-TO-DAY RUNNING OF A BUSINESS BUT A LSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND FOR THE PROTEC TION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION, COERCIVE PROCESS OR ASSERTION O F HOSTILE TITLE; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPO SED AS A PRE-CONDITION TO COMMENCE OR FOR CARRYING ON OF A BUSINESS. HOWEVER, WIDE THE MEANING OF THE EXPRESSION MAY BE, ITS LIMITS ARE IMPLICIT IN IT. T HE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINESS, I.E. TO SAY, THE ASSESSEE SHALL INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. D) SASSON J. DAVID & CO. PVT.LTD V/S CIT. 118 ITR 2 61, WHEREIN IT IS HELD AS UNDER: IT HAS TO BE OBSERVED HER THAT THE EXPRESSION WHO LLY AND EXCLUSIVELY USED IN SECTION 10(2)(XV) OF THE ACT DOES NOT MEAN NECESSA RILY. ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD B E INCURRED IN THE COURSE OF ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 5 HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURR ED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE B USINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 10(2)(XV ) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXP ENDITURE. AN ATTEMPT WAS MADE IN THE I.T. BILLOF 1961 TO LAY DOWN THE NECES SITY OF THE EXPENDITURE AS A CONDITION FOR CLAIMING DEDUCTION UNDER SECTION 37. SECTION 37(1) IN THE BILL READ ANY EXPENDITURELAID OUT OR EXPENDED WH OLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED. THE INTRODUCTION OF THE WORD NECESSARIL Y IN THE ABOVE SECTION RESULTED IN PUBLIC PROTEST. CONSEQUENTLY, W HEN SECTION 37 WAS FINALLY ENACTED INTO LAW, THE WORD NECESSARILY CA ME TO BE DROPPED. THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPEND ITURE BEING ALLOWED WAY OF DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT , IF IT SATISFIED OTHERWISE THE TEST LAID DOWN BY LAW. E) THE HONBLE KARNATAKA HIGH COURT IN CIT V/S CANARA BANK LTD. (ITA NO.1397 OF 2006) HAS HELD AS UNDER: THE BANK HAD SET UP A MUTUAL FUND WHICH HAD FLOATE D A SCHEME UNDER WHICH AN ASSURED RETURN OF 12.5% WAS GRANTED TO THE INVESTORS. AT THE TIME OF REDEMPTION, THE SCHEME DID NOT HAVE ADEQUATE ASS ETS NOR FUNDS TO HONOUR ITS COMMITMENT OF RETURN OF 12.5%. CONSEQUENTLY, IN ORDER TO MAINTAIN THE BANKS GOODWILL AND REPUTATION, THE MANAGEMENT OF THE BANK DECIDED TO REPURCHASE THE UNITS OF THE SCHEME AT THE PRICE AT WHICH THE MUTUAL FUND HAD COMMITTED TO THE INVESTORS. THE BANK CLAIMED THE AM OUNT AID TOWARDS THE REPURCHASE OF THE UNITS AS EXPENDITURE WHOLLY AND E XCLUSIVELY INCURRED FOR THE PURPOSE OF ITS BUSINESS. IT WAS TO PROTECT THE BUSINESS INTERESTS OF THE AP PELLANT, WHICH WAS REPRESENTED BY THE ASSET MANAGEMENT FEES PAYABLE BY THE RESPECT IVE SCHEMES TO IT, THAT THE APPELLANT CONTRIBUTED TO THE DEFICIENCIES OF THE SC HEMES, WHICH INDIRECTLY ALSO BOOSTED INVESTORS CONFIDENCE IN THE SCHEMES AND MI TIGATED THE SCOPE OF EXODUS BY INVESTORS IN THE SCHEMES. THE FACT THAT THE SCHE MES WERE BENEFITED IS NOT A CONSIDERATION IN DETERMINING WHETHER THE CONTRIBUTI ON MADE BY THE APPELLANT TOWARDS THE DEFICIENCIES OF THE SCHEMES IS EXPENDIT URE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. THE CONTRIBUTION WAS INCURRED BY THE APPELLANT WITH A VIEW TO PRESERVING AND PROTECT ING ITS PROFIT-MAKING APPARATUS, VIZ. THE ASSET MANAGEMENT BUSINESS AND H ENCE WAS LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. I HAVE GONE THROUGH THE SUBMISSIONS GIVEN BY THE AR OF THE APPELLANT WHEREIN IT IS MENTIONED THAT TWO DIRECTORS SHRI MRIDUL JOSHI AND SHRI SAMEER JOSHI STARTED TO GIVEN MORE TROUBLE TO THE COMPANY AND THEREBY EXIST ENCES IN THE APPELLANT COMPANY WILL RAISE TO THE FALL OF THE GROWTH AND THEREFORE THE COMPANY EXECUTIVE DECIDED TO AWARE THIS COMPENSATION AND THEREBY COMPANY CAN RUN THE BUSINESS IN PEACEFUL MANNER. I HAVE ALSO GONE THROUGH THE CASE LAWS RELIED ON BY THE APPELLANT COMPANY IN THE CASE OF EMPIRE JUTE CO. LTD VS. CIT (124 ITR 1) AND ALSO VARIOUS OTHER JUDICIAL DECISIONS. CIT VS. CHANDULAL KESHVLAL & CO. (38 ITR 601] ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 6 IF THE PAYMENT OR EXPENDITURE IS INCURRED FOR THE P URPOSE OF THE TRADE OF THE ASSESSEE IT DOES NOT MATTER THAT THE PAYMENT MAY IN URE TO THE BENEFIT OF A THIRD PARTY THAT A THIRD PARTY ALSO BENEFITS THEREBY (EASTERN I NVESTMENTS LTD. V. COMMISSIONER OF INCOME-TAX). CIT VS. MALAYALAM PLANTATIONS LTD. (53 ITR 140 THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WI DER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS. IT S RANGE IS WIDE; IT MAY TAKE IN NOT ONLY THE DAY-TO-DAY RUNNING OF A BUSINESS BU T ALSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINE RY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND F OR THE PROTECTION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION, COERCIVE PR OCESS OR ASSERTION OF HOSTILE TITLE; IT MAY ALSO COMPREHEND PAYMENT OF ST ATUTORY DUES AND TAXES IMPOSED AS A PRE-CONDITION TO COMMENCE OR FOR CARRY ING ON OF A BUSINESS. HOWEVER, WIDE THE MEANING OF THE EXPRESSION MAY BE, IT LIMITS ARE IMPLICIT IN IT. THE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINES S, I.E, TO SAY, THE EXPENDITURE INCURRED SHALL BE FOR THE CARRYING ON O F THE BUSINESS AND THE ASSESSEE SHALL INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. SASSON J. DAVID & CO. PVT.LTD. VS. CIT (118 ITR 26 1) SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WI THOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS A LSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPEND ITURE BEING ALLOWED BY WAY OF DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT . IF IT SATISFIED OTHERWISE THE TESTS LAID DOWN BY LAW. CONSIDERING THE ABOVE FACTS ON RECORD, I ALSO CONSI DERING THE JUDICIAL DECISIONS RELIED ON BY THE APPELLANT COMPANY PARTICULARLY IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO., I AM OF THE CONSIDERED OPINION THA T THE EXPENDITURE INCURRED BY THE APPELLANT COMPANY AS COMPENSATION PAID TO THE FORME R DIRECTORS IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE MAN AGING DIRECTORS TOOK THE RIGHT DECISION BY SENDING OUT THE DIRECTORS WHO INDULGED IN STOPPING THE GROWTH OF THE COMPANY, THEREFORE, I DIRECT THE AO TO DELETE THE A BOVE ADDITION OF RS.1,71,81,600/- AND ALLOWED IT ASS REVENUE EXPENDITURE. HENCE THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR], SUBMIT TED THAT THE ONUS WAS ON ASSESSEE TO ESTABLISH THAT THE RETRENCHMENT COMPENSATION PAID TO THE OUTGOING DIRECTORS FULFILLED THE CONDITIONS AS ENVISAGED BY SECTION 37(1). PER CONTRA, LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], SHRI CHETAN KARIA, SUBMITTED THAT THE COMPENSATION WAS AN ALLOWABLE ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 7 EXPENDITURE SINCE THE SAME WAS A ROUTINE BUSINESS E XPENDITURE AND COULD NOT BE TERMS AS CAPITAL EXPENDITURE IN ANY MA NNER. 5.1 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN TH E PAPER-BOOK AND JUDICIAL PRONOUNCEMENTS CITED BEFORE US. UPON DUE C ONSIDERATION, WE FIND THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSE E HAS PAID COMPENSATION TO THE TWO OUTGOING DIRECTORS AT THE T IME OF SEVERANCE OF THEIR EMPLOYMENT RELATIONSHIP WITH THE COMPANY. IT IS ALSO AN UNDISPUTED FACT THAT DUE TAX AT SOURCE [TDS] AGAINST THE SAME HAS BEEN DEDUCTED BY THE ASSESSEE AND THE SAID COMPENSATION HAS BEEN REFLECTED IN FORM 16 ISSUED BY THE ASSESSEE TO THE TWO DIRECTORS. THE L D. AR HAS CANVASSED THE FACT THAT THE RETRENCHMENT WAS DONE S O AS TO PROTECT THE BUSINESS INTEREST OF THE ASSESSEE SINCE THE GROWTH PROMISED BY THE SAID TWO KEY PERSONS WAS NOT FORTHCOMING WHEREAS EXPENDI TURE KEPT ON MOUNTING AND THEREFORE, THE ASSESSEE STOOD TO GAIN BY RETRENCHING THE TWO DIRECTORS AND ARRIVED AT AMICABLE SETTLEMENT AT THE TIME OF SEVERANCE OF RELATIONSHIP. 5.2 ON THE OTHER HAND, LD. AO DISALLOWED THE SAME O N THE PREMISE THAT THE EXPENDITURE WAS NOT FOR BUSINESS PURPOSE A ND WAS CAPITAL IN NATURE. THE OTHER CONCLUSION DRAWN BY LD. AO WAS TH E FACT THAT THE SHAREHOLDING OF THE ASSESSEES HOLDING COMPANY GOT INCREASED BY EXACT REDUCTION IN SHAREHOLDING OF THE TWO DIRECTORS AND THEREFORE, THE PAYMENT WAS IN THE NATURE OF CAPITAL PAYMENT TOWARDS PURCHA SE OF SHARES OF THE TWO DIRECTORS. HOWEVER, NOTHING ON RECORD SUGGEST S UCH AN ARRANGEMENT. THE LD. AR HAS SUBMITTED THAT THE ASSESSEES HOLDIN G COMPANY MADE A SEPARATE PAYMENT TO PURCHASE THE SHARES OF TWO DIRE CTORS AND THE ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 8 AMOUNT OF IMPUGNED COMPENSATION DID NOT INCLUDE ANY AMOUNT IN RESPECT OF PURCHASE OF SHARES. THIS FACT COULD NOT BE CONTROVERTED BY THE REVENUE. IT IS TRITE LAW THAT NO ADDITION COULD BE SUSTAINED MERELY ON THE BASIS OF SUSPICION, DOUBTS, CONJECTURES OR SURMISES WITHOUT BRINGING ON RECORD ANY COGENT MATERIAL TO SUBSTANTIATE THE SAME . THEREFORE, THE AFORESAID CONCLUSION DRAWN BY LD. AO, IN OUR OPINIO N, DO NOT HOLD ANY WATER. 5.3 SO FAR AS THE NATURE OF EXPENDITURE IS CONCERNE D, WE FIND THAT THE AFORESAID COMPENSATION HAS BEEN PAID BY THE ASSESSE E TO TWO DIRECTORS IN THE CAPACITY OF EMPLOYER-EMPLOYEE RELATIONSHIP, WHICH IS EVIDENT FROM THE APPOINTMENT LETTER OF AFORESAID TWO PERSONS. TH E RETRENCHMENT COMPENSATION PAID BY THE ASSESSEE TOWARDS SEVERANCE OF THIS RELATIONSHIP WAS ROUTINE BUSINESS EXPENDITURE AND C OULD NOT BE TERMED AS CAPITAL FROM ANY ANGLE. THE ASSESSEE HAS NOT ACQ UIRED ANY BENEFIT OF ENDURING IN NATURE. HENCE, THE LD. FIRST APPELLATE AUTHORITY, WHILE CONCURRING WITH THE STAND OF ASSESSEE, WAS QUITE JU STIFIED IN RELYING UPON THE PLETHORA OF JUDICIAL PRONOUNCEMENTS WHICH HAS A LREADY BEEN DEALT WITH IN THE IMPUGNED ORDER. THE REVENUE IS UNABLE T O BRING ON RECORD ANY CONTRARY JUDGEMENT OR POINT OUT ANY DISTINGUISHING FEATURE. THEREFORE, FINDING NO INFIRMITY IN THE IMPUGNED ORDER, WE DISM ISS THE APPEAL. 6. IN NUTSHELL, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2018. SD/- SD/- (MAHAVIR SINGH) (M ANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ITA.NO.3737/MUM/2017 BDS PROJECTS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2012-13 9 MUMBAI; DATED : 11/12/2018 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. +, '%- , - , / DR, ITAT, MUMBAI 6. ,./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.