ANJAL HARLAKA, MUMBAI V. ACIT 12(3), MUMBAI

ITA 5763/MUM/2010

• Counselvise Citation: 576319914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 16-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: DIVYESH I SHAH
• Keywords: Capital asset; Business expenditure; Transactions in derivatives; Additional evidence; Cost of acquisition; Speculation loss
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 5763/MUM/2010 (ASSESSMENT YEAR: 2006-07) MS. ANJALI HARLALKA ACIT, CIRCLE 12(3) 14 THAKUR NIWAS MUMBAI 173, J.N. TATA ROAD, CHURCHGATE VS. MUMBAI 400020 PAN - AADPH 0129 G APPELLANT RESPONDENT APPELLANT BY: SHRI DIVYESH I SHAH RESPONDENT BY: SHRI P.K.B. MENON DATE OF HEARING: 17.10.2011 DATE OF PRONOUNCEMENT: 25.10.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXII, MUMBAI DATED 25.05.2010. 2. ASSESSEE HAS RAISED THREE GROUNDS. GROUND NO. 3 IS AN ALTERNATE GROUND TO GROUND NO. 2. GROUND NO. 1 IS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS)23 [THE CIT(A )] ERRED IN UPHOLDING THE ACTION OF THE INCOME-TAX OFFICER, WAR D12(3), MUMBAI (THE AO) IN TREATING THE LOSS ON TRADING I N FUTURES AND OPTIONS (F & O) OF RS.8,17,628/- PRIOR TO JANUARY 25, 2006 AS SPECULATION LOSS UNDER SECTION 43(5) OF THE INCOME- TAX ACT, 1961 (THE ACT). 3. IT WAS SUBMITTED THAT ON SIMILAR FACTS IN ASSESSEE S HUSBANDS CASE THE ITAT HAS EXAMINED THE ISSUE AND IN ITA NO. 5405/MUM /2010 IN THE CASE OF PRADEEP KUMAR HARLALKA DECIDED THE ISSUE VIDE PARA 5 IN THE ORDER DATED 10.08.2011 AND WAS COVERED IN FAVOUR OF THE ASSESSE E. THE ISSUE IN THE ABOVE GROUND IS WITH REFERENCE TO TREATMENT OF LOSS ON TR ADING IN FUTURES AND OPTIONS OF ` 8,17,628/- PRIOR TO JANUARY 25, 2006 AS SPECULATION LOSS EVEN ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 2 THOUGH PROVISIONS OF SECTION 43(5)(D) WERE AMENDED IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICERS VIEW IS THAT THE AMENDMENT WAS NOTIFIED W.E.F. 25 TH JANUARY 2006, THEREFORE, IT IS APPLICABLE FROM THA T DATE ONLY AND NOT FOR THE ENTIRE YEAR. THE COORDINATE BE NCH, ON SIMILAR ARGUMENTS IN SHRI PRADEEP KUMAR HARLALKAS CASE HAS CONSIDERE D THE ISSUE AS UNDER: - 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE ISSUE INVOLVED IN THE CASE OF GAJENDRA KUMAR T. AGARWAL V S. ITO [SUPRA] IS TOTALLY DIFFERENT. HOWEVER, AT THE SAME TIME THIS I SSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BECAUSE MOST OF THE BENCHES HAVE TAKEN A VIEW THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD. [121 LTD 498] HOLDIN G THAT INSERTION OF CLAUSE [D] IN SEC.43[5] IS APPLICABLE FROM A.Y 2006 -07 AND EVEN LOSS INCURRED BEFORE 25-1-06 SHOULD ALSO BE RECKONED AS ONLY BUSINESS LOSS. THEREFORE, WE SET ASIDE THE ORDER OF THE ID. CIT(A) AND DIRECT THE AO TO ASSESS THE NET PROFIT FROM F&O AT RS.3,27,687 /- UNDER THE HEAD BUSINESS. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE A.O. TO TREAT THE LOSS AS BUSINESS LOSS AND NOT AS SPECULATION LOSS. 4. GROUND NO. 2 IS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN D ISALLOWING THE FOLLOWING EXPENDITURE AS A PART OF THE COST OF ACQU ISITION OR IN CONNECTION WITH THE TRANSFER OF SHARES, SECURITIES, ETC. UNDER SECTION 48 OF THE ACT WHILE CALCULATING CAPITAL GAINS: A. PORTFOLIO ADVISORY FEE OF RS.6,98,711 INCURRED FOR AVAILING PORTFOLIO MANAGEMENT SERVICES; AND B. SHARE TRANSACTION CHARGES OF RS.77,694 BEING 50% OF TOTAL SHARE TRANSACTION CHARGE OF RS.1,55,389 LEVIED BY THE BRO KER. 5. ASSESSEE HAS CLAIMED PORTFOLIO ADVISORY FEE OF ` 6,98,711/- AS PART OF ACQUISITION OF ASSETS AND REDUCED THE CAPITAL GAINS TO THAT EXTENT. HE ALSO CLAIMED SHARE TRANSACTION CHARGES OF ` 1,55,389/- WHICH THE A.O. EXCLUDED WHILE COMPUTING THE CAPITAL GAINS. AS FAR AS PORTFO LIO MANAGEMENT IS CONCERNED THE A.O. DISALLOWED THE WHOLE AMOUNT WHER EAS THE SHARE TRANSACTION CHARGES TO THE EXTENT OF 50% STANDS ALL OWED AND THE BALANCE 50% ONLY WAS DISALLOWED. 6. ON THESE ISSUES IT WAS SUBMITTED THAT SIMILAR CLAIM IN THE CASE OF PARDEEP KUMAR HARLALKA WAS CONSIDERED BY THE ITAT M UMBAI C BENCH IN ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 3 ITA NO. 4501/MUM/2010 DATED 10.08.2011 VIDE PARA 12 TO 15 AND HELD THAT AS FAR AS PORTFOLIO ADVISORY FEE IS CONCERNED THE MATTER WAS HELD AGAINST THE ASSESSEE WHEREAS SHARE TRANSACTION CHARGES ARE CONCERNED THE SAME WAS RESTORED TO THE FILE OF THE A.O. FOR CONSIDERIN G THE ADDITIONAL EVIDENCES FILED AND DECIDING THE ISSUE AFRESH. DURING THE COU RSE OF ARGUMENT THE LEARNED COUNSEL PLACED ON RECORD THE NOTIFICATION O F NATIONAL STOCK EXCHANGE FOR CHARGING TRANSACTION CHARGES IN RESPEC T OF MEMBERS WHICH WAS NOT FILED BEFORE THE A.O. THE LEARNED COUNSEL SUBMI TTED THAT THIS ADDITIONAL EVIDENCE HAS TO BE CONSIDERED FOR ALLOWING THE TRAN SACTION CHARGES. 7. AFTER CONSIDERING THE ARGUMENTS, WE ARE OF THE VIEW THAT AS FAR AS PORTFOLIO ADVISORY FEE IS CONCERNED THE SAME CANNOT BE ALLOWED IN VIEW OF THE COORDINATE BENCH DECISION REFERRED TO ABOVE. THE SH ARE TRANSACTION CHARGES WERE RESTORED TO THE FILE OF AO. THE BENCH HAS CONS IDERED THE ARGUMENTS IN DETAIL AND HELD AS UNDER: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY IN THE LIGHT OF THE MATERIAL ON RECORD AS WELL AS DECISIONS CITED B Y THE PARTIES. THE LD. COUNSEL OF THE ASSESSEE HAS NOT REBUTTED THE AR GUMENT OF THE LD. DR THAT PORTFOLIO ADVISORY FEE HAS BEEN CLAIMED UND ER THE HEAD CAPITAL GAINS, THEREFORE, THE ALTERNATE CONTENTION CANNOT BE ENTERTAINED AND FURTHER TO EXAMINE THE ALLOWABILITY WE NEED TO CONCENTRATE ONLY ON SEC.48 AND THE SAME CANNOT BE A LLOWED U/S.37 BECAUSE ONLY EXPENDITURE INCURRED IN RELATION TO BU SINESS AND PROFESSION CAN BE CONSIDERED U/S.37. SECTION 48 WHI CH IS THE COMPUTING SECTION FOR DETERMINATION OF CAPITAL GAIN S READS AS UNDER: SEC.48. THE INCOME CHARGEABLE UNDER THE HEAD CAPIT AL GAINS SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF TH E CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO: FROM THE ABOVE IT IS CLEAR THAT WHILE COMPUTING THE CAPITAL GAINS ONLY TWO KINDS OF EXPENDITURE CAN BE DEDUCTED FROM FULL VALUE OF CONSIDERATION, VIZ., [I] EXPENDITURE INCURRED WHOLL Y AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND [II] THE COST OF ACQUISITION OR ANY IMPROVEMENT THERETO. THE THRUST OF THE ARGUMENT OF LD. COUNSEL OF THE ASSESSEE IS THAT PORTFOLIO ADVISORY FEE WOULD CONST ITUTE AN EXPENDITURE WHICH HAS BEEN INCURRED IN CONNECTION W ITH THE TRANSFER, BECAUSE OBVIOUSLY IT CANNOT BE ARGUED THAT SUCH EXP ENDITURE WAS IN THE NATURE OF COST OF ACQUISITION OR IMPROVEMENT OF THE ASSET. THE LD. DR HAS SPECIFICALLY CONTENDED THAT PORTFOLIO ADVISO RY FEE HAS NOTHING ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 4 TO DO WITH THE TRANSFER AND SUCH FEE WAS PAYABLE EV EN IF NO SHARES WERE TRANSFERRED OR ANY PURCHASE OF SHARES WERE MAD E. THE LD. COUNSEL OF THE ASSESSEE DID NOT REBUT THESE ARGUMEN TS. NO DETAILS HAVE BEEN FILED BEFORE US TO SHOW HOW THIS EXPENDIT URE HAS DIRECT NEXUS WITH THE PURCHASE OF SHARES OR TRANSFER OF TH E SHARES. THEREFORE, THIS EXPENDITURE CANNOT BE CALLED TO BE AN EXPENDITURE WHICH HAS BEEN INCURRED IN CONNECTION WITH SUCH TRA NSACTION. WE FIND THAT THIS ASPECT WAS HIGHLIGHTED BY THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF DEVENCIRA MOTILAL KOTHARI VS. DCIT [ SUPRA] WHILE DECIDING THE IDENTICAL ISSUE AGAINST THE ASSESSEE. THE HELD COLUMN OF THE DECISION READS AS UNDER: THE DEDUCTION ON ACCOUNT OF FEES PAID FOR PMS HAS BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION IN COMPUTING CAPITAL GAINS ARISING FRO M SALE OF SHARES AND SECURITIES. HE HOWEVER HAS FAILED TO EXPLAIN AS TO HOW THE SAID FEES COULD BE CONSIDERED AS COST OF ACQUISITION OF THE SHARES AND SECURITIES OR THE COST OF ANY IMPROVEMENT THERETO. HE HAS ALSO FAILED TO EXPLAIN AS TO HOW TH E SAID FEES COULD BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SALE OF SHARES AND SECURITIES. ON THE OTHER HAND, THE BASIS ON WHICH T HE SAID FEES WAS PAID BY THE ASSESSEE SHOWS THAT IT HAD NO DIRECT NEXUS WITH THE PURCHASE AND SALE OF SHARES AND AS RIGHTLY CONTENDED BY THE DEPARTMENTAL REPRES ENTATIVE, THE SAID FEES WAS PAYABLE BY THE ASSESSEE GOING BY THE BASIS THEREOF EVEN WITHOUT THERE BEING ANY PURCHASE OR SALE OF SHARES IN A PARTICULAR PERIOD. AS A MATTER OF FACT, WHEN THE CIT(A) REQUIRED THE ASSESSEE TO ALLOCATE THE FEES P AID FOR PMS IN RELATION TO PURCHASE AND SALE OF SHARES AS WELL AS IN RELATION TO THE SHARES HELD AS INVESTMENT ON THE LAST DATE OF THE PREVIOUS YEAR, THE ASSESSEE COULD NOT FURNISH SUCH DETAILS NOR COULD HE GIVE ANY DEFINITE BASIS ON WHICH SUCH ALLOCATION WAS POSSIBLE. THE FEES PAID BY THE ASSESSEE FOR PMS WAS NOT INEXTRICA BLY LINKED WITH THE PARTICULAR INSTANCE OF PURCHASE AND SALE OF SHARES AND SECURIT IES SO AS TO TREAT THE SAME AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH SALE OR THE COST OF ACQUISITION/IMPROVEMENT OF THE SHARES AND S ECURITIES SO AS TO BE ELIGIBLE FOR DEDUCTION IN COMPUTING CAPITAL GAINS UNDER S.48. 13. COMING TO THE DECISION OF PUNE BENCH OF THE TRI BUNAL IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. [SUPRA], AFTER P ERUSING THE JUDGMENT VERY CAREFULLY WE FIND THAT IN THAT DECISI ON THE DECISION OF COORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA] WAS DISTINGUISHED MAINLY O N THE BASIS OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. SHAKUNTALA KANTILAL [SUPRA]. THE PUNE BENCH REFERRE D TO VARIOUS PARAS OF HONBLE BOMBAY HIGH COURTS DECISION IN PA RA-22 AND ULTIMATELY CONCLUDED IN PARA-23 THAT WHAT WAS REQUI RED WAS THAT THE CLAIM SHOULD BE BONA FIDE AND CLAIM FOR SUCH GENUIN E EXPENDITURE HAS TO BE ALLOWED SO LONG AS INCURRING OF THE EXPEN DITURE IS A MATTER OF FACT AND NECESSITY. HOWEVER, AS POINTED OUT BY T HE LD. DR THIS DECISION WAS SPECIFICALLY OVER RULED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ROSHANBABU MOHD. HUSSE IN MERCHANT [SUPRA] AND AT PLACITUM 18 IT HAS BEEN OBSERVED AS UNDER: AS REGARDS THE DECISIONS OF THIS COURT IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL [1991] 190 ITR 56 FOLLOWED IN THE CASE OF ABRAR ALV I [2001] 247 ITR 312] AND THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF SM T. THRESSIAMMA ABRAHAM (NO.1) [2001] 227 ITR 802 WHICH ARE STRONGLY RELIED UPON B Y THE COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THE SAID DECISIONS ARE N O LONGER GOOD LAW IN THE LIGHT OF THE SUBSEQUENT DECISIONS OF THE APEX COURT REFERRED TO HEREINABOVE. ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 5 THUS, WITHOUT GOING INTO FURTHER DETAILS WE WOULD O NLY LIKE TO OBSERVE THAT THE DECISION IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL [SUPRA] IS NO MORE A GOOD LAW IN VIEW OF THE LATEST DECISION A ND THEREFORE THAT DECISION CANNOT BE RELIED FOR THE PROPOSITION THAT NECESSITY OF EXPENDITURE WOULD MAKE THE SAME ALLOWABLE. 14. WE WOULD ALSO LIKE TO OBSERVE THAT INCOME OF AN ASSESSEE HAS TO BE CHARGED IN VIEW OF THE FIVE HEADS GIVEN UNDER TH E I.T.ACT. EACH HEAD OF INCOME GIVES DETAILED PROCEDURE TO DETERMIN E THE RECEIPTS AS WELL AS OUT GOINGS AND ONLY THOSE ITEMS CAN BE DEDU CTED WHICH HAVE BEEN SPECIFICALLY PROVIDED UNDER THE RESPECTIVE HEA DS. THIS POSITION WAS MADE CLEAR BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. UDAYAN CHINUBHAI AND ORS. [222 ITR 456]. AGAIN THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DR. V. P. GOPI NATHAN [248 ITR 449] WHERE THE ISSUE WAS WHETHER INTEREST PAID BY T HE ASSESSEE TO THE BANK AGAINST LOAN TAKEN ON FDR COULD BE ALLOWED AGAINST THE INTEREST INCOME, THE APEX COURT CLEARLY HELD THAT S UCH CLAIM WAS NOT ALLOWABLE BECAUSE INTEREST THAT ASSESSEE RECEIVED F ROM THE BANK WAS INCOME IN HIS HAND AND IT COULD BE DIMINISHED ONLY IF THERE WAS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. IN OTHER WORDS, A DEDUCTION CAN BE ALLOWED UNDER A PARTICULAR HEAD ON LY WHEN THERE IS A PROVISION FOR THE SAME. THIS CAN BE EASILY UNDERS TOOD BY A SIMPLE EXAMPLE. LET US SAY THERE IS ONE MR. X WHO IS A SAL ARIED EMPLOYEE. HE MAY INCUR SOME EXPENSES IN CONNECTION WITH HIS E MPLOYMENT SAY ON PURCHASE OF BOOKS NECESSARY TO DISCHARGE HIS DUT IES AS AN EMPLOYEE. EARLIER THERE WAS A PROVISION U/S.16[1][A ] FOR STANDARD DEDUCTION AND HE COULD BE ALLOWED SUCH STANDARD DED UCTION SUBJECT TO LIMITS PRESCRIBED. NOW, THAT PROVISION HAS BEEN REMOVED AND THUS WHATSOEVER EXPENDITURE IS INCURRED MAY BE HAVING CL OSE CONNECTION WITH HIS EMPLOYMENT, BUT THE SAME CANNOT BE ALLOWED IN THE ABSENCE OF ANY SUCH PROVISION. THE SITUATION WOULD BE DIFFE RENT IF THE SAME PERSON WAS RECEIVING THE INCOME AS COMMISSION BECAU SE IN THAT CASE THE INCOME WOULD BE ASSESSABLE UNDER THE HEAD BUSIN ESS INCOME AND PURCHASE OF BOOKS FOR RENDERING SUCH SERVICES W OULD CONSTITUTE BUSINESS EXPENDITURE. THIS MEANS THE ALLOWABILITY O F EXPENDITURE IS NOT DEPENDANT ON THE NECESSITY OF THE EXPENDITURE B UT IT IS BASED ON THE PROVISION OF THE ACT UNDER A PARTICULAR HEAD UN DER WHICH INCOME HAS TO BE ASSESSED. ANOTHER EXAMPLE IS BROKERAGE IN CURRED BY A PERSON WHILE GIVING HIS PROPERTY ON RENT. THOUGH TH IS EXPENDITURE IS NECESSARY FOR EARNING RENTAL INCOME BUT IN THE ABSE NCE OF ANY PROVISION, THIS EXPENDITURE IS NOT ALLOWABLE. SEE T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. S. G. GUPTA & SONS [149 ITR 253]. THEREFORE, IN CASE BEFORE US AS OBSE RVED EARLIER THE ALLOWABILITY OF PORTFOLIO ADVISORY FEE HAS TO BE TE STED UNDER THE PROVISIONS OF SEC.48. AS OBSERVED ABOVE, THE LD. CO UNSEL OF THE ASSESSEE DESPITE SPECIFIC ARGUMENT OF LD. DR DID NO T SHOW US AS TO HOW THE PORTFOLIO FEE HAS ANY CONNECTION WITH THE T RANSFER OF ASSET AND THE SAME CANNOT BE ALLOWED. THEREFORE THE THEOR Y THAT A PARTICULAR EXPENDITURE IS GENUINE AND IT IS NOT DIS PUTED THAT SAME HAS BEEN INCURRED AND SAME WAS NECESSARY FOR A PARTICUL AR PURPOSE, THE ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 6 EXPENDITURE DOES NOT BECOME ALLOWABLE IF THERE IS N O SPECIFIC PROVISION FOR THE SAME. THEREFORE, IN OUR VIEW THE EXPENDITURE INCURRED IN CONNECTION WITH FEE OF PORTFOLIO MANAGE MENT HAS NOTHING TO DO WITH THE COST OF ACQUISITION OF SHARES OR TRA NSACTION OF SHARES AND, THEREFORE, IS HELD TO BE NOT ALLOWABLE. WE FIN D NO FORCE IN THE ALTERNATE SUBMISSIONS ALSO BECAUSE EXPENDITURE HAS BEEN CLAIMED UNDER THE HEAD CAPITAL GAINS AND NOW ASSESSEE CANNO T MAKE A NEW CASE THAT SUCH EXPENDITURE MAY BE ALLOWED FULLY OR PROPORTIONATELY U/S.37 WITHOUT SHOWING US THAT HOW THIS EXPENDITURE PERTAINED TO THE INCOME ASSESSABLE UNDER THE HEAD BUSINESS AND ACCOR DINGLY WE REJECT THE ALTERNATE CLAIM. THE ABOVE VIEW IS FURTH ER SUPPORTED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RADIO TALKIES [238 ITR 872]. IN THIS CASE THE ISSUE WAS ALLOWABILITY OF EXPENDITURE ON PAYMENT OF RETRENCHMENT COMPENSATION TO THE EX- EMPLOYEES. IT WAS ONE OF THE CONDITIONS PRECEDENTS TO THE SALE OF PROPERTY THAT THE EXEMPLOYEES MUST BE PAID RETRENCH MENT COMPENSATION. THE HONBLE HIGH COURT WHILE REVERSIN G THE ORDER OF THE TRIBUNAL HELD THAT SUCH EXPENDITURE WAS NOT ALL OWABLE. IN FACT AFTER QUOTING THE PROVISION OF SEC.48 IT WAS OBSERV ED AS UNDER: THIS SECTION LAYS DOWN THE MODE OF COMPUTATION OF CAPITAL GAINS. TWO ITEMS ARE ALLOWED AS DEDUCTIONS FROM THE FULL VALUE OF THE CO NSIDERATION FOR WHICH THE TRANSFER IS MADE FOR ARRIVING AT CAPITAL GAINS. THE FIRST IT EM IS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. T HE SECOND ITEM IS THE COST OF ACQUISITION OF THE CAPITAL ASSET AND THE COST OF AN Y IMPROVEMENT THERETO. IN THIS CASE, WE ARE CONCERNED ONLY WITH THE FIRST ITEM. TH E QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE RETRENCHMENT COMPENSAT ION PAID BY THE ASSESSEE TO ITS FORMER EMPLOYEES CAN BE REGARDED AS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF LAND AND BUILDING BY THE ASSESSEE TO THE PURCHASER. THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER CAN BE EXPENDITURE LIKE COMMISSION PAI D TO THE BROKER AND/OR SIMILAR OTHER EXPENDITURE. THE RETRENCHMENT COMPENSATION PA ID BY THE ASSESSEE TO ITS EMPLOYEES, IN OUR OPINION, HAS NO CONNECTION WHATSO EVER WITH THE TRANSACTION OF SALE OF THE LAND AND BUILDING. IT IS CONNECTED ONLY WITH THE CLOSURE OF THE BUSINESS OF THE ASSESSEE IN MARCH, 1972. SUCH EXPENDITURE BY NO STRETCH OF IMAGINATION CAN BE REGARDED AS EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE TRANSACTION OF SALE OF THE PROPERTY. THE RETRENCHME NT COMPENSATION HAS NO CONNECTION WHATSOEVER WITH THE TRANSFER OF PROPERTY IN QUESTION. THE STIPULATION IN THE AGREEMENT MERELY REQUIRES THE OWNER TO CLEAR AL L ITS LIABILITIES ON CERTAIN ACCOUNTS AND TO KEEP THE TRANSFEREE INDEMNIFIED. TH IS STIPULATION CANNOT CHANGE THE CHARACTER OF THE RETRENCHMENT COMPENSATION FROM A L IABILITY ARISING OUT OF THE CLOSURE OF THE BUSINESS TO EXPENDITURE INCURRED WHO LLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE ASSET IN QUESTION. FROM THE ABOVE IT IS CLEAR THAT DESPITE THERE BEING A CONDITION FOR PAYMENT OF RETRENCHMENT COMPENSATION BEFORE THE TRA NSFER OF THE PROPERTY I.E. THERE WAS A NECESSITY FOR SUCH EXPEND ITURE TILL THE SAME WAS HELD TO BE NOT ALLOWABLE. SIMILARLY, HONBLE DE LHI HIGH COURT IN THE CASE OF SMT. SITA NANDA VS. CIT [251 ITR 575] W AS CONCERNED WITH THE ISSUE REGARDING A CLAIM OF EXPENDITURE IN RESPECT OF PAYMENT OF UNEARNED INCREASE TO THE GOVERNMENT FOR EFFECTIN G THE TRANSFER OF LEASE-HOLD RIGHTS. AGAIN THE HONBLE HIGH COURT AFT ER QUOTING SEC.48 OBSERVED AS UNDER: A BARE READING OF THE PROVISION MAKES IT CLEAR THA T WHAT CAN BE DEDUCTED UNDER SECTION 48(I) IS EXPENSES INCURRED WHOLLY AND EXCLU SIVELY IN CONNECTION WITH THE ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 7 TRANSFER. THE AMOUNT WHICH THE ASSESSEE CLAIMED TO BE COVERED WAS NOT REALLY A PART OF THE UNEARNED INCREASE. ON THE CONTRARY IT W AS THE AMOUNT PAID FOR MAKING THE PAYMENT DEMANDED BY THE LDO BELATEDLY. THE INTE REST, AS WAS NOTED BY THE TRIBUNAL, HAD TO BE PAID BY THE ASSESSEE AS SHE MAD E THE PAYMENT OF UNEARNED INCREASE BELATEDLY. THE CRUCIAL WORDS IN THE PROVIS IONS ARE IN CONNECTION WITH SUCH TRANSFER. THE EXPRESSION MEANS INTRINSICALLY LINKE D WITH THE TRANSFER. SUCH EXPENDITURE HAS TO BE WHOLLY AND EXCLUSIVELY IN CON NECTION WITH THE TRANSFER. EVEN IF SUCH EXPENDITURE HAS SOME NEXUS WITH THE TRANSFE R IT DOES NOT QUALIFY FOR DEDUCTION UNLESS IT IS WHOLLY AND EXCLUSIVELY IN CO NNECTION WITH THE TRANSFER. THE TRIBUNAL WAS, THEREFORE, RIGHT IN ITS CONCLUSION TH AT THE PAYMENT OF INTEREST WAS IN THE SHAPE OF DAMAGES FOR LATE PAYMENT OF UNEARNED I NCREASE. THAT BEING SO, THE INTEREST PAID CANNOT BE TREATED AS EXPENDITURE INCU RRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. THE ANSWER TO THE QUE STION IS IN THE NEGATIVE, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THUS IT IS CLEAR THAT UNLESS AND UNTIL EXPENDITURE IS INCURRED IN CONNECTION WITH SUCH TRANSFER THE SAME CANNOT BE A LLOWED AND AS OBSERVED BY US THE EXPENDITURE FOR PAYMENT OF PORTF OLIO MANAGEMENT FEE HAS NOTHING TO DO WITH THE TRANSFER OF SHARES A ND THIS WAS TAKEN AS A SPECIFIC ARGUMENT BY THE LD. DR AGAINST WHICH NO SUBMISSIONS WERE MADE BY THE LD. COUNSEL OF THE ASSESSEE. THERE FORE, IN OUR VIEW SUCH EXPENDITURE CANNOT BE ALLOWED. SIMILAR VIEW WA S TAKEN IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA]. IN VIEW OF THIS DISCUSSION, WE FIND NOTHING WRONG WITH THE ORDER OF THE ID. CIT(A) AND CONFIRM THE SAME. 15. HOWEVER, AS FAR AS SHARE TRANSACTION CHARGES AR E CONCERNED THEY WOULD BE ALLOWABLE IF THEY ARE IN THE NATURE OF SHA RE BROKERAGE OR ANY OTHER CHARGES CHARGED BY THE BROKER, BUT AT THE SAME TIME LD. COUNSEL OF THE ASSESSEE COULD NOT GIVE THE EXACT NA TURE OF THE CHARGES AND ACCORDINGLY WE SET ASIDE THE ORDER OF T HE ID. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AC WITH A DIREC TION TO EXAMINE THE EXACT NATURE OF THE CHARGES AND THEN ADJUDICATE THI S ISSUE. 8. IN VIEW OF THIS GROUND NO. 2(A) IS HELD AGAINST ASS ESSEE AND GROUND NO. 2(B) IS RESTORED TO THE FILE OF THE A.O. TO CONSIDE R IN THE LIGHT OF THE ORDER OF THE ITAT IN HER HUSBANDS CASE AND WITH REFERENCE TO CI RCULAR NO. NSE/F&A/00663 DATED NOVEMBER 7, 1998 FILED BEFORE US. AFTER EXAMI NATION THE A.O. CAN CONSIDER WHETHER TO ALLOW THE EXPENDITURE UNDER THE HEAD BU SINESS OR UNDER THE HEAD CAPITAL GAINS ACCORDING TO THE FACTS AS WELL AS L AW. 9. IN THE RESULT, APPEAL IS CONSIDERED PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH OCTOBER 2011 ITA NO. 5763/MUM/2010 MS. ANJALI HARLALKA 8 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIII, MUMBAI 4. THE CIT XII, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.