TMI Blog2019 (4) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... at cannot be the basis of disallowance of the expenses under section 48 of the Act. The obligation of 20ML was to provide the exit route to the assessee, but there was no clause or condition that the assessee shall not share the expenses in connection with the transfer. AO cannot sit on the armchair of the assessee to decide/direct the business affairs of the assessee. It is the assessee who knows the best of its business affairs. The role of the AO is to establish whether the expenses were incurred wholly and exclusively in connection with the transfer of assets. There is no ambiguity that the expenses were incurred wholly and exclusively in connection with the transfer of the shares as held by us in the preceding paragraph. Thus, the allegation of the AO that the assessee was not under the obligation to incur the cost for the transfer of shares has no relevance in the given facts and circumstances. We conclude that the assessee is entitled to a deduction under section 48 of the Act, for the expenses incurred wholly and exclusively in connection with the transfer of the shares. Accordingly, we reverse the order of the authorities below. Accordingly, we set aside the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, it was only due to the extra efforts put by 20 ML that its IPO was successful and the aforesaid reimbursement was merely consequential to the same and therefore the appellant could receive ₹ 14.71 crores as consideration in offer for sale. Thus the reimbursement of IPO expenses had a direct nexus with the IPO proceeds. 6. In law and in the facts and circumstances of the appellant's case, the learned CIT(A)'s contention that 'the issue of sharing of expenses came l much later' (page 6 of the impugned appellate order) is untenable in view of the provisions of section 45(1) r.w. s. 48(i) of the Act, wherein the chargeability of capital gains to income tax arises on transfer of capital asset effected in the previous year. 7. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) erred in observing that the payments made by the appellant to 20ML qualifies as 'personal in nature' (page 10 of the impugned appellate order) and not wholly and exclusively in connection with transfer of shares. 8. The Ld. CIT(A) has erred in facts and in law in upholding the charge of interest u/s 234A, 234B and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion Bank of India. 4.6 Thus, the assessee declared long term capital gain income of ₹ 5,11,640/- after claiming the deduction of ₹ 50,00,000/- as the cost of transfer against the sale of shares of 20 ML . 4.7 However, the AO observed certain facts as detailed under: 1. The reimbursement of IPO expenses was paid after the close of the IPO issue, and sale proceeds received by the assessee. As such there was no need for the assessee to reimburse any expense incurred by 20 ML in connection with the transfer of shares sold by it through the process of IPO. 2. The expenses which are incurred only and exclusively for transfer of shares are eligible for deduction u/s 48 of the Act. 3. There is no nexus between the reimbursement of the cost of IPO expense vis- -vis the share held by the assessee in 20 ML . Therefore the same cannot be classified as cost of improvement of shares. 4. The expenses u/s 48 of the Act can be claimed if these were necessary for the transfer of shares otherwise the same cannot be allowed as deduction. 5. As per the agreement between the assessee and the 20 ML, it was the obligation of 20 ML to provide the exit rout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly the Ld.CIT (A) confirmed the order of the AO. 7. Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us. 8. The Ld.AR, before us, filed a paper book running from pages 1 to 53 and submitted that the decision for the reimbursement of the expenses was approved in the Board of Directors meeting dated 23/12/2008. There was also a report from the C.A. for sharing of the expenses. 8.1 The reimbursement of the expenses were directly linked with the transfer of shares. Therefore it is concluded that the expenses were incurred wholly and exclusively for transfer of the shares. There is no mentioned u/s 48 of the Act that the expenses will be allowed as deduction if these were necessary for the transfer of an asset. 8.2 There is also no mention under the provision of section 48 of the Act that the expenses need to be incurred before the date of transfer of the shares. Thus, the expenses incurred after transfer of the shares are also eligible for deduction u/s 48 of the Act. 8.3 The Ld.AR also submitted that the assessee is a Government Organization and the C AG will verify the necessity of expenses. As such the duty of AO is to ensure wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f running a car, the proportion of their personal use of that vehicle has to be worked out accurately and excluded from the amount submitted for deduction. 10.2 In the case on hand, the expenses incurred by the assessee were having direct nexus/ connection with the transfer of the shares though it can be said that these expenses were not necessary to incur for such transfer of shares. But the language of the provision is unambiguous that it does not talk about the expenses which are necessary for such transfer shall be allowed. Had this been the intention of the legislation then there would have been a provision for the expenses which were necessary for such transfer. But there is no such provision under section 48 of the Act. The section requires that the expenses should be directly connected with the transfer of the assets. In this regard, we find support and guidance from the judgment of Hon ble Supreme Court in the case of Sasson J. David co. Pvt Ltd Vs. CIT reported in 1 taxman 485 wherein it was held as under: It has to be observed here that the expression wholly and exclusively used in section 10(2)(xv) of the Act does not mean necessarily . Ordinarily it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o effect the transfer will be an expenditure covered by this clause. In other words, if without removing any encumbrance including the encumbrance of the type involved in this case, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration requires to be reduced by the amount of compensation. The first question is, therefore, answered in the affirmative and in favour of the assessee . 10.4 We also place reliance on the judgment of Bombay High Court in case of CIT Vs. AbrarAlvi reported in 117 taxman 95 wherein it was held as under: Before concluding, one more point needs to be mentioned. The assessee has paid an amount of ₹ 8 lakhs to his son, AbrarAlvi. Much prior to the sale of the property in 1992, AbrarAlvi has instituted a suit in the city civil court being Suit No. 4763 of 1986, seeking an injunction restraining the assessee from selling 'JankiKutir'. Hence, the said amount of ₹ 8 lakhs was paid. On the facts, the Tribunal found that the amount was paid to remove the encumbrance. The Tribunal also applied the ratio of the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred wholly and exclusively in connection with its transfer 10.6 We also note that the assessee claimed such expenses not as the cost of improvement but as incurred in connection with the transfer of the shares. This fact can also be established from the order of the AO wherein it was disallowed by observing as under: Profit Gains From Business Or Profession Income-As per statement of income Rs. NIL CAPITAL GAINS LTCG-As per statement of income Rs. 1,93,43,404 Add: Cost of transfer disallowed as discussed at Para. 4 to 4.5.3 Rs. 50,00,000 Long term Capital Gains Rs. 2,43,43,404 10.7 As per the agreement between the assessee and 20 ML , there was no obligation on the assessee to incur any cost in connection with the transfer of the shares. As such it was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business are to be run and wasteful or excessive expenditure is to be curtailed. The question of commercial expediency is to be judged by the assessee and not by the AO. Following test was laid down in the case of Atherton v. British Insulated Helsby Cables Ltd. 10 TC 155, 191 (HL) in the following terms: 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 indirectly to facilitate the carrying on the business, may yet be expended wholly and exclusively for the purposes of the trade. The above test was quoted with approval and applied by the Supreme Court in the case of Eastern Investments Ltd. v. CIT [1951] 20 ITR 1. 10.12 In view of the above we conclude that the assessee is entitled to a deduction under section 48 of the Act, for the expenses incurred wholly and exclusively in connection with the transfer of the shares. Accordingly, we reverse the order of the authorities below. Accordingly, we set aside the order of the Ld.CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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