ACIT (OSD)2(3), MUMBAI V. SALONI A. JHAVERI, MUMBAI

ITA 9179/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88512 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: G S PIKALE
• Keywords: Search and seizure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI SANJAY ARORA ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 9179/MUM/2010 ASSESSMENT YEAR: 2007-08 ACIT (OSD)-2(3) MUMBAI VS. SMT. SALONI A. JHAVERI 202 C GRAND PARADI AUGUST KRANTI MARG, MUMBAI- 400 036 PAN:-AAHPJ 9691 D (APPELLANT) (RESPON DENT) ITA NO.8359/MUM/2011 ASSESSMENT YEAR: 2007-08 ACIT (OSD) - 2(3) MUMBAI VS. ANAND PRABHAKAR JHAVERI 26, RAIDGE ROAD, MUMBAI 400 006 PAN:- AABPJ 5419 K (APPELLANT) (RESPON DENT) REVENUE BY : SHRI ASGHAR ZAIN ASSESSEE BY : SH RI G.S. PIKALE DATE OF HEARING : 23 .02.2015 DATE OF ORDER : 27 .02.20 15 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEALS HAVE BEEN FILED BY THE REVEN UE AGAINST ORDER DATED 06.10.2010 IN THE CASE OF SALONI A. JHA VERI AND 08.09.2011 IN THE CASE OF ANAND P. JHAVERI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2007-08. SINCE THE ISSUES I NVOLVED IN BOTH THE ITA NOS. 9179/MUM/2010 8359/MUM/2011 ASSESSMENT YEAR: 2007-08 2 APPEALS ARE COMMON, THEREFORE, SAME WERE HEARD TOGE THER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. TO UNDERSTAND THE FACTS AND THE IMPLICATION THER EOF ON THE ISSUES INVOLVED, WE WILL FIRST TAKE UP REVENUES APPEAL IN THE CASE OF SMT. SALONI JHAVERI ITA NO. 9179/MUM/2010, VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THE ORDER OF CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS.45.39 LAKHS PAID TO M/S. EDELWEISS CAPITAL AND RS. 3.80 LAKHS P AID TO M.S ALMT LEGAL WERE INCURRED IN CONNECTION WITH SALE AN D TRANSFER OF SHARES WITHOUT APPRECIATION THAT THE PROFESSIONAL F EES INFACT, WERE NOT PAID WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE SHARES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT EXPENSES ALLOWABLE UNDER THE PROVISIONS OF SECTION 48(I) ARE THE EXPENDITURE WHI CH WERE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE SHARES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) FAILED TO APPRECIATE THAT AMOUNT PA ID TO M/S. EDELWEISS CAPITAL AND M/S. ALMT LEGAL WERE NOT INCU RRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE SHARES. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, THE DECISION OF THE CIT (A) MAY BE SET ASI DE AND THAT OF THE AO RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE I S AN INDIVIDUAL, WORKING AS A DIRECTOR IN M/S. RAVE TECHNOLOGIES IND IA PVT. LTD. DURING THE YEAR, THE ASSESSEE HAS SOLD MAJORITY OF EQUITY SHARES HELD IN M/S. RAVE TECHNOLOGIES INDIA PVT. LTD. AND HAD EARNED LO NG TERM CAPITAL GAIN OF RS.12,62,59,357/-. THE SAID LONG TERM CAPITAL GA IN WAS ARRIVED FROM THE GROSS PROCEEDS OF RS.14,23,63,272/- AGAINST WHI CH, THE ASSESSEE HAD CLAIMED EXPENSES OF RS.45,39,158/- WHICH WAS MO STLY LEGAL AND ITA NOS. 9179/MUM/2010 8359/MUM/2011 ASSESSMENT YEAR: 2007-08 3 PROFESSIONAL CHARGES IN CONNECTION WITH THE SALE OF SHARES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE W AS REQUIRED TO FURNISH DETAILS OF THE SAID EXPENSES, IN RESPONSE T O WHICH, THE ASSESSEE SUBMITTED THAT SUM OF RS.3,80,852/- WAS PAID TO AL MT LEGAL AND THE BALANCE AMOUNT OF RS.41,58,306/- WAS PAID TO M/S. E DELWEISS CAPITAL LTD. THE ASSESSEE ALSO FILED COPY OF INVOICES ISSUE D BY THESE TWO PARTIES AND ALSO FILED COPY OF LETTER DATED 26.08.2002 WHIC H WAS AN AGREEMENT BETWEEN MR. ANAND JHAVERI, MD OF RAVE TECHNOLOGIES INDIA PVT. LTD. AND EDELWEISS CAPITAL LTD WHEREIN IT WAS STATED THA T THEY WILL PROVIDE SERVICES REGARDING SALE OF EQUITY ESTATE/SHARES OF THE COMPANY. THE NATURE OF SERVICES PROVIDED HAVE BEEN NOTED BY THE ASSESSING OFFICER ALSO. IN TERM OF THE SAID LETTER. M/S. EDELWEISS WI LL CHARGE A NON REFUNDABLE RETAINER FEES OF RS.2,50,000/- AND SUCC ESSES FEES OF 2% OF THE ENTERPRISE VALUE. THE ASSESSING OFFICER NOTED T HE SERVICES PROVIDED BY EDELWEISS AND HELD THAT THE SAME WAS TO M/S. RAV E TECHNOLOGIES INDIA PVT. LTD. IN CONNECTION WITH THE MERGERS AND ACQUISITIONS AND FOR THE BUSINESS OF THE COMPANY IN WHICH THE ASSESSEE W AS A DIRECTOR OF AND SHAREHOLDER. THUS THE SUCCESS FEES CHARGE PAID BY THE ASSESSEE FOR THE SERVICES OF M/S. EDELWEISS CAPITAL CANNOT BE SA ID TO BE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANS FER OF ASSESSEES SHARE. ACCORDINGLY, HE DISALLOWED THE SAID EXPENSES . SIMILARLY WITH REGARD TO THE AMOUNT PAID TO M/S. ALMT LEGAL, HE NO TED THAT THE SERVICES RENDERED BY THE SAID LAW FIRM WAS ALSO NOT WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE SALE OF THE TRAN SFER OF SHARES. ACCORDINGLY, HE DISALLOWED THE SAID EXPENSES FROM T HE COMPUTATION OF CAPITAL GAINS. ITA NOS. 9179/MUM/2010 8359/MUM/2011 ASSESSMENT YEAR: 2007-08 4 4. BEFORE THE LD. CIT(A), AFTER REFERRING TO THE CO PIES OF BILLS/INVOICES RAISED BY THESE TWO PARTIES AND THE NATURE OF SERVI CES PROVIDED BY THEM IT WAS SUBMITTED THAT, THE SERVICES WERE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE SALE OF SHARES OF M/S. RAVE TECHNOLOGIES INDIA PVT. LTD. THE LETTER OF AGREEMENT WITH EDELWEISS CA PITAL WAS ALSO REFERRED TO POINT OUT THAT THEY WERE IN CONNECTION WITH SALE OF EQUITY SHARES HELD BY THE SHAREHOLDERS OF THE COMPANY. 5. THE LD.CIT(A) AFTER EXAMINING THE NATURE OF SER VICES PROVIDED BY THESE TWO PARTIES HELD THAT THESE SERVICES RELATED TO TRANSFER OF SHARES ONLY AND THEY WERE IN THE NATURE OF PROFESSIONAL SE RVICES RENDERED FOR THE SALE OF EQUITY SHARES OF M/S. RAVE TECHNOLOGIES INDIA PVT. LTD.. THE BENEFICIARY OF THE SAID TRANSACTIONS WERE THE SHARE HOLDERS INCLUDING THE ASSESSEE AND NOT THE COMPANY. HE LISTED OUT THE NAT URE OF SERVICES AND HELD THAT THE SOLE OBJECT OF THESE SERVICES WAS TO ENSURE THE SALE/ TRANSFER OF SHARES ONLY. ACCORDINGLY, HE ALLOWED TH E DEDUCTION OF SUCH EXPENSES WHILE WORKING OUT THE INCOME UNDER THE HEA D CAPITAL GAINS. 6. BEFORE US, THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE NATURE OF SERVICES RENDERED WAS MAINLY FOR THE COMPANY AND NOT FOR THE ASSESSEE ALONE. IF THE SERV ICES ARE IN CONNECTION WITH THE TO THE COMPANY, THEN NO DEDUCTI ON OF EXPENSES CAN BE ALLOWED TO THE ASSESSEE. 7. ON THE OTHER HAND, LEARNED COUNSEL POINTED OUT T HAT, THERE WERE VARIOUS SHAREHOLDERS IN M/S. RAVE TECHNOLOGIES INDI A PVT. LTD., THE LIST OF WHICH HAVE BEEN ENCLOSED AT PAGE 14 OF THE PAPER BOOK AND SUBMITTED THAT MOST OF THE EQUITY SHARES OF THE SHA REHOLDER WERE SOLD DURING THE YEAR, ON ACCOUNT OF WHICH, THE LONG TERM CAPITAL GAIN HAD ARISEN IN THE HAND OF THE SHAREHOLDERS. AS TRANSACT ION WAS VERY BIG ITA NOS. 9179/MUM/2010 8359/MUM/2011 ASSESSMENT YEAR: 2007-08 5 INVOLVING FOREIGN CUSTOMER AND IN ORDER TO FETCH GO OD PRICE, THE ASSESSEE HAS ENGAGED THE PROFESSIONAL SERVICES OF M /S. EDELWEISS CAPITAL AND M/S. ALMT LEGAL. FROM THE PERUSAL OF THE LETTER OF AGREEMENT OF EDELWEISS, HE SUBMITTED THAT IT IS AMPLY CLEAR THAT THE SAME WAS PURELY FOR SELLING OF EQUITY STAKE OF THE M/S. RAVE TECHNO LOGIES INDIA PVT. LTD. IF THE SUBJECT MATTER OF SALES WAS THE SHARES OF TH IS COMPANY HELD BY THE SHAREHOLDER, THEN THE CORRESPONDING EXPENSE REL ATES TO SALE OF SHARES ONLY AND SAME CAN BE CLAIMED FROM THE WORKIN G OF THE CAPITAL GAIN OF THE SHAREHOLDERS. REGARDING PAYMENT MADE TO ALMT LEGAL, HE SUBMITTED THAT SAME WAS FOR SALE AND PURCHASE AGREE MENT FOR SALE OF SHARES AND DRAFTING AND NEGOTIATION OF AGREEMENTS. EVEN IN THE INVOICES RAISED, THEY HAVE CATEGORICALLY MENTIONED FOR ADVIS E ON SALE OF SHARES IN M/S. RAVE TECHNOLOGIES INDIA PVT. LTD. THUS, THE OR DER OF THE LD. CIT(A) SHOULD BE AFFIRMED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIAL PLACED ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE ALONG WITH OTHER SHAREHOLDERS HAVE SOLD THEIR MAJOR EQUIT Y HOLDING IN M/S. RAVE TECHNOLOGIES INDIA PVT. LTD. AND THEREBY EARNE D LONG TERM CAPITAL GAIN. AS THE TRANSACTION OF SALE OF SHARES WAS QUIT E BIG AND SHARES HAVE BEEN SOLD TO FOREIGN INVESTOR WHICH INVOLVED VARIOU S PERMISSIONS, RESOLUTIONS, ALTERATION OF ARTICLES OF ASSOCIATION OF THE COMPANY, VALUATION ADVICE FOR THE TRANSACTION, ETC., THE ASS ESSEE REQUIRED SERVICES OF PROFESSIONAL FIRMS. FROM THE PERUSAL OF THE LETT ER OF AGREEMENT DATED 26.08.2002 BETWEEN EDELWEISS CAPITAL AND MR. ANAND JHAVERI MD, OF RAVE TECHNOLOGIES INDIA PVT. LTD., IT IS SEEN THAT UNDER THE TITLE OF SCOPE OF SERVICES THE ENTIRE LIST OF SERVICES IS ONLY FOR ACQUIRING AND SELLING OF THE EQUITY STAKE IN THE SAID COMPANY. IN LIEU OF SU CH SERVICES, EDELWEISS ITA NOS. 9179/MUM/2010 8359/MUM/2011 ASSESSMENT YEAR: 2007-08 6 CAPITAL IS COMPENSATED WITH NON REFUNDABLE RETAINER FEES OF RS.2,50,000/- AND SUCCESS FEE OF 2% OF THE ENTERP RISE VALUE. THESE PAYMENTS HAVE BEEN PROPORTIONATELY DIVIDED AMONG TH E VARIOUS SHAREHOLDERS IN THE PROPORTION TO THE SHARES. THER E IS NOTHING IN THE LETTER OF THE AGREEMENT THAT THE SERVICES OF EDELWE ISS CAPITAL IS FOR ANY DIFFERENT PURPOSE OTHER THAN SALE OF EQUITY SHARES. EVEN FROM THE PERUSAL OF LEGAL SERVICES PERFORMED BY ALMT LEGAL F ROM IT IS SEEN THAT THEY ARE MOSTLY CONNECTED WITH DRAFTING AND NEGOTIA TION OF SALE AND PURCHASE AGREEMENT OF SALE AND SHARES AND CARRYING OUT VARIOUS AMENDMENT AND DRAFTING IN THE VARIOUS AGREEMENTS. I N THEIR INVOICES RAISED IT HAS BEEN CATEGORICALLY STATED THAT BILL H AVE BEEN RAISED FOR ADVISING ON SALE OF SHARES OF M/S. RAVE TECHNOLOGIE S INDIA PVT. LTD. THUS, THE PAYMENTS AGGREGATING RS.45,39,158/- ARE I N CONNECTION WITH SALE OF SHARE ONLY WHICH HAS GIVEN RISE TO CAPITAL GAIN IN THE HANDS OF THE SHAREHOLDERS, INCLUDING THE ASSESSEE. THUS, THE FIN DING OF FACT RECORDED BY THE LD. CIT(A) IS FACTUALLY AND LEGALLY CORRECT, WHICH IS AFFIRMED. ACCORDINGLY GROUND RAISED BY THE REVENUE STANDS DIS MISSED. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE APPEAL OF SHRI ANAND P. JHAVERI, SIMILAR GROUND AND ISSUE HAVE BEEN RAISED BY THE REVENUE WHICH ARE ARISING O UT OF IDENTICAL SET OF FACTS AS HE WAS ALSO ONE OF THE SHAREHOLDER. ACCORD INGLY, THE FINDING GIVEN IN THE AFORESAID APPEAL WILL APPLY MUTATIS MU TANDIS IN THIS APPEAL ALSO AND THUS, GROUND RAISED BY THE REVENUE IS DISM ISSED. ITA NOS. 9179/MUM/2010 8359/MUM/2011 ASSESSMENT YEAR: 2007-08 7 10. IN THE RESULT, BOTH APPEALS FILED BY THE REVENUE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY, 2015. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.02.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR A BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.