TMI Blog2013 (2) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... 007-08 in the case of Shri Sagar Anand. ITA No. 466/Agr/2011 is appeal filed by the Revenue against the order dated 10.05.2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2007-08 in the case of Shri Hemant Anand. Some of the grounds raised in all the appeals are based on identical set of facts, therefore, for the sake of convenience all the appeals are decided by this common order. Learned Representatives of the parties submitted that the facts of these appeals lead in the case of Shri Ajay Agarwal, ITA Nos. 405 348/Agr/2011 which are Cross appeals filed by the Revenue and assessee. They have argued these appeals accordingly. In the light of the facts, to know the exact grounds of appeal, we reproduce the grounds raised by the Revenue in ITA No. 405/Agr/2011 and by the assessee in ITA No. 348/Agr/2011 as under:-- ITA No. 405/Agr/2011 by the Revenue 1. That the Ld. CIT(A)-I, Agra has erred in Law and on facts in deleting the addition of Rs. 3 crores made by the AO by disallowing the payment made to M/s. Churu Trading Co. Pvt. Ltd., relying upon the principle laid down by the Hon'ble AAR in the case Compagnie Finance Hamon (Supra) without considering the fact that the backgroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted. 2. Because the learned Authorities below have erred on facts and in law in disallowing a deduction of Rs. 6,65,000 under section 48(i) for payment made to Mrs. Bina Gupta, Advocate. The disallowance made is liable to be deleted. 3. Because the learned CIT(A) has erred on facts and in law in enhancing the disallowance of Mrs. Bina Gupta, Advocate by Rs. 40,000 without issue of specific notice under section 251(2) of the Income Tax act, 1961. 4. Because the learned authorities below has erred on facts and in law in disallowing a deduction of Rs. 1,50,000 under section 48(i) for payment made to Mr. Sudipto Sarkar, Advocate. The disallowance made is liable to be deleted. 5. Because the learned authorities below has erred on facts and in law in charging interest under section 234C. The assessee was prevented by sufficient cause to deposit the second installment of advance tax on or before 15.12.2006 as no capital gains was payable as the assessee intended to deposit the same in notified bonds in terms of section 54EC of the Income Tax Act, 1961 for claiming exemption, which were not available. The interest charged is liable to be deleted. 6. That the appellant craves leave to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce amount of Rs. 3,18,38,200/- was disallowed holding that they are not incurred in connection with transfer of shares and thus the LTCG on sale of shares in the assessment order was determined at Rs. 54,03,98,303/- and therefore, the assessment order was completed at an assessed income Rs. 54,92,51,000/-. The details of computation of LTCG as found are as under:-- 3. The A.O. disallowed Rs. 3,18,38,200/- out of Rs. 4,06,10,000/-. The Agarwal Group itself consisted of two families i.e. Ajay Agarwal family and Kamlesh Agarwal (widow of elder brother Shri Anil Agarwal) family. Members of each family who received sale consideration of shares of two companies are detailed as under:-- 4. The whole expenditure of Rs. 11,35,59,600/- was divided between two families of Agarwal Group as noted in the order of the CIT(A) at pages No. 18 19. The expenditures were divided between the three members of each family, the details noted from the order of the CIT(A) is reproduced below for ready reference as under:-- Ajay Agarwal Family Kamlesh Agarwal Family i) Ajay Agarwal i) Kamlesh Agarwal ii) Renu Agarwal ii) Sagar Anand iii) Hemant Anand iii) Saurabh Anand 5. The whole expenditure of Rs.11,35,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eshwari had 47% stake under the name and style of the firm as National Journal. The said firm was inter alia engaged in the publication of news paper. 5.2 On 31.08.1979, the said firm was dissolved and two new firms viz. M/s. Amarujala Publications and M/s. Amarujala Prakashan were formed. While M/s. Amarujala Publications was operating in Agra and publications centres at Moradabad, Allahabad, Banaras, Jhansi and Kanpur were added later on. M/s. Amarujala Prakashan carried on the work of publishing newspapers in Bareilly with Meerut, Panchkula (Chandigarh), Jalandhar, Noida, Dehradun and Haldwani came to be added later. The two partnership firms had the members of only the two families of Agarwals and Maheshwaries with the respective stakes continued in the ratio of 53% and 47% respectively in both the said firms. 5.3 On 29.03.2001 the said two firms were converted into two separate Public Limited Companies and registered under Part IX of the Companies Act, 1956 in the name of M/s. Amarujala Publications Limited and M/s. Amarujala Prakashan Limited. The share holdings in the said two companies remained at 53% and 47% respectively vis- -vis members of Agarwal and Maheshwari families ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Edition was looked after by Shri Ajay Agarwal since 1984 as he was stationed at Agra from the very beginning, Shri Atul Maheshwari was discharging the responsibility of the Editor of Meerut Edition. The publications units of Jalandur, Noida, Panchkula (Chandigarh) which were managed by Atul Maheshwari turned out to be loss making units. Hence somewhere in 2004, members of Agarwal family mooted the idea of shutting these publications, particularly after realising that these units even did not show any prospects of improvements. This suggestion was not approved by members of the Maheshwari family. In the meantime Shri Ashok Agarwal of Agarwal family joined hands with the Maheshwari family and upset the equilibrium and then he mooted the idea to appoint his son Shri Manu Anand as whole time Director with substantial power in the Company. This was opposed by the rest of the members of the Agarwal family as the said appointment sought to not only tilts the balance of power but also sought to divest Shri Ajay Agarwal of his existing powers as a whole time Director. With such developments, dispute arose between Agarwal family and Maheshwari family somewhere in 2004 on the issue of contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be restructured, while the former shall go to Agarwal Group and the latter shall go to Maheshwari Group. The shares were to be transferred at book value and the Directors would resign. (ii) That apart, a new company was to be incorporated for giving equal rights on the title of Amarujala to both the Companies. (iii) While M/s. Amarujala Publications Ltd. was to retain Agra, Jhansi and part of Noida (Delhi Haryana), Kanpur, Allahabad, Varanasi and Lucknow and M/s. A M Publications (P) Ltd. was to get part of Noida (UP Belt), Meerut, Bareilly, Jalandur, Panchkula, Dehradun, Haldwani and Moradabad. (iv) To overcome the problem of newsprint outstanding it was decided that the amount of Rs. 15 Cr. will be introduced as call money from which the family deposits will be deducted. (v) The restructuring process were to end by 31.03.2005 and from 01.04.2005 the two companies were to run separately, including editorial, advertisements with National and Regional Staff to be arranged independently for the respective Groups. (vi) The difference of payout will be settled in equal instalments within one from 01.04.2005. (vii) After the completion of MOU and amount of Rs. 10 Cr. were to be intr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector. 5.13 On 22.03.2005 the Hon'ble Company Law Board passed an injunction order restraining the Maheshwari Group from giving effect to the resolution passed in the Board Meeting dated 7.03.2005 regarding Bank operations, directing Shri Ajay Agarwal to continue as Editor of the Agra Publication and restraining the appointment of Shri Manu Anand as whole time director. Against this order, the Maheshwari Group preferred an appeal before the High Court of Allahabad and the Hon'ble High court vide order dated 08.04.2005 directed the Company Law Board to pass a reasoned order. Thereafter the Hon'ble Company Law Board after giving opportunity to both Groups passed an order dated 15.04.2005 holding that the balance of convenience lies in favour of the petitioners i.e. the Agarwal Group (including the appellant) and the petitioners have made out a prima facie case and would suffer irreparable loss if relief as prayed are not granted and therefore, till the final disposal of the petition, the respondents are restrained from giving effect to the resolutions passed in the Board Meeting dated 7.03.2005 regarding Bank operations. Secondly the petitioners will continue to be the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the Agarwal Group shall immediately transfer their shareholding in the companies to the Maheshwari Group on the basis of the same valuation of Rs. 390 crore. The Maheshwari Group will have the liberty to forfeit 10% of the total consideration payable to them. 5.15 Subsequently, it was found that the Agarwal Group was arranging fund for purchase of share holding of the Maheshwari Group from Zee Tele Films (Essel Group) and 5% of the consideration amounting to Rs. 12.5 crore was paid from the current account of M/s. Media West India Ltd. owned Zee Group arranged by a financial consultant M/s. Churu Trading Co. Pvt. Ltd.. As basic understanding reached between both groups before passing of the order dated 25.01.2006 by the CLB was that the company should remain with either of two groups, it was feared by the Maheshwari Group that the company might be taken over by the Zee Group subsequently, if purchase of their share holding by the Agarwal Group is financed by them. Therefore, they filed application before CLB seeking for directions to the Agarwal Group to deposit their shares in the escrow account alleging that the Agarwal Group has violated the terms of the consent order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow account to the personal accounts of the petitioners and simultaneously hand over 65.33 shares belonging to the respondents to the respondents. I further direct: 1. On receipt of the balance of Rs. 138 Crores in the escrow account, the Manager, State Bank of Patiala will release the balance shares of the petitioners now held in escrow to the respondents. 2. The petitioners are at liberty to withdraw the said sum of Rs. 138 crores or transfer the same to any account that they desire and the Manager, State Bank of Patiala will permit them to do so on receipt of a requisition signed by all the petitioners. 3. The respondents are at liberty to manage the affairs and shareholding of the company in any manner without any interference by the petitioners' group 4. The petitioner's group shall cease to remain either as shareholder/s office bearer/s or director/s of the company and shall have no concern whatsoever with the company. 5. On an earlier occasion, the money deposited in the escrow account by the petitioners was directed to be paid to M/s. Mediavest Private Limited and the bank had issued TDS Certificate in the name of Amar Ujala Publication Limited for the interest accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n two families of Agarwal Group as under: 6.3 Further the above expenditures were divided between the three members of each family as under:-- 7.1 In para 12 of the assessment order, the AO has discussed the nature of various expenditure incurred by the appellant on payment of various legal and professional fees to decide about the claim of the appellant for deduction u/s 48(i) out of these expenses and the same are reproduced as under: 12.1 Payment of Rs. 8,50,00,000/- to Churu Trading Co. Pvt. Ltd. Mumbai Rs. 2,50,000/- to Rabo India Securities Pvt. Ltd., Mumbai The Agarwal Group started exploring the means for acquisition of majority shareholding of Maheshwari Group. In the process they approached Rabo India Securities Pvt. Ltd. Who acted as strategic and financial advisor to Agarwal Group (the Acquirers) with respect to proposed acquisition of the balance shareholding in the companies held by investors other than acquirers in association with the set of like minded investors. So the transaction entered into with Rabo India Securities Pvt. Ltd. was basically a initial strategic planning for the acquisition of majority shareholdings whereas the Agarwal Group in its returns of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the proceedings before CLB in connection with transfer of share, the payment of Rs. 2,24,24,000/- is accepted that it has been incurred in connection with the transfer of shares. However, in addition to above, Rs. 3,13,200/- has been shown as reimbursement of traveling, lodging and boarding expenses to M/s. S.R. Halbe Associates. On perusal of documents on record and bill of M/s. S.R. Halbe Associates such expenses do not find any place to be directly connected with transfer of shares of the Agarwal Group. The nature of expenses itself shows that it has nothing to do with transfer of shares and cannot be constructed that such expenditure has been incurred wholly and exclusively in connection with the transfer. 12.3 Payment of Rs. 44,22,400/- to Mrs. Bina Gupta, Advocate, New Delhi The payment of Rs. 44,22,400/- has been claimed as fee for preparation of petition, appearance before the CLB and fee for appearance before Hon'ble Allahabad High Court and Hon'ble Supreme Court including consultation from time to time in respect of transfer of shares. Out of these expenses it is noticed that certain expenses has been incurred in cash on vouchers from the accounts of different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 48(i) of the IT Act and hence disallowed by him. Sl. No. Name of Party to whom payment is made Amount (Rs.) (i) M/s Churu Trading Co. Pvt. Ltd. Rs. 8,50,00,00/- (ii) Rabo India Securities Ltd. Rs. 2,50,000/- (iii) Mr. Sudipto Sarkar Rs. 1,50,000/- (iv) Mr. Dayal Saran Rs. 10,00,000/- 7.3 Following expenditures were partly allowed 7.4 In view of above decision of the AO as discussed in para 12 of the assessment order with respect to payments made to six parties for various professional and legal services provided to the Agarwal Group in connection with their dispute with the Maheshwari Group taken before the CLB which ultimately resulted into sale of their share holdings in two closely held unlisted companies, following payments were disallowed to the appellant out of Rs. 4,06,10,000/- claimed by him u/s 48(i) Name to whom payment made Amount Disallowed (Rs.) Smt. Bina Gupta 6,25,000 Sudipto Sarkar 1,50,000 S.R. Halbe Asso. 3,13,200 Dayal Saran 5,00,000 Rabo India Securities (P) Ltd. 2,50,000 Churu Trading Co. (P) Ltd. 3,00,00,000 Total amount disallowed 3,18,38,200 In view of the findings of the AO as discussed above, Rs. 3.18,38,200/- was added in the returned income of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Petitioners-Agarwal Group will have first right to acquire. Thus Agarwal Group adopted a strategy to enhance/improve the value of the shares and this could only be done with the help and guidance of a suitable person who could back the deal and act as a strategic investor to fund the deal for the acquisition of the share holding of the majority share holders. He further elaborated that under this planning of the strategy, the Agarwal Group first opted for purchase of shareholding of the Maheshwari Group determined at Rs. 252 crore by showing that they were arranging finance with the help of two consultancy companies, M/s. Rabo India Securities (P) Ltd. and M/s. Churu Trading Co. Pvt. Ltd. which arranged finance through M/s. Media West and other Merchant Bankers and first installment of 5% amounting to Rs. 12.5 crore as per the order dated 25.01.2006 was also paid. As explained by the Ld. AR, since the financial arrangement made by the Agarwal Group with M/s. Media West and other Merchant Bankers was not found to be straight forward and a takeover of the company by the ZEE Group was suspected because the financial arrangement was made with M/s. Media West in such a manner that ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Agarwal Group in going to CLB to get the value of shares enhanced, following submissions were made by the Ld. AR on 08.03.2011: Members of the Agarwal Group sought advice of eminent lawyer Shri S.R. Halbe and were advised that if they could join together and file petition before the Company Law Board under section 397 and 398 of the Companies Act, 1956 they would be able to seek the implementation of the MOU which otherwise was not possible since these were closely held companies and their shareholding was in minority too. To achieve this plan a strategy to be drawn in a planned way without brining into knowledge of any person. Hence the petition before the Hon'ble Company Law Board was prepared and filed with the help and assistance of various legal luminaries. Meetings were held between the members of Agarwal Group, S.R. Halbe and other advocates to strategies the plan and it was decided that one of the best way to extract the price was to pray before the Hon'ble Board, who has the powers of the Court that the Petitioners were will to purchase the shares of the Respondents at value they quoted and in case this was to go through then Agarwal Group has to seek assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of partnership firm, as stated earlier. It is a matter of detailed discussion and final stage as to whether the relinquishment of Editorship of Agra Edition, the new financial structure framed by the respondent company and appointment of R-3 who is also a son of Respondent-2, would tilt the balance of power in the respondent company or not. This can be decided only when the main petition is heard and arguments are led by learned counsels of both sides on the points of facts and law. In the meantime, it appears that the status quo ante at least 3 issues needs to be maintained till the disposal of this petition, which would otherwise cause irreparable loss to the petitioner. In case the arguments of the learned counsels are accepted it would tantamount to disposal of the petition itself. The balance of convenience therefore, lies in favour of the petitioners. I am of the considered view that the petitioners have made out a prima facie case and would suffer irreparable loss if relief as prayed are not granted. As such, till the final disposal of the petition, the respondents are restrained from giving effect to the resolutions passed in the Board Meeting dated 7.03.2005 regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchasing the shares held by the respondents. 2. It has been agreed by the parties that sale of shares by the respondents shall be subject to the following: 1. There will be a lock-in period of 3 years on the shares of the respondents that are purchased by the petitioner Group. 2. The petitioners shall not transfer any shares of the companies or raise the shareholding in the companies or cause any shares to be allotted and will not enter into any agreement/transactions in such manner that result in the following: (a) Results in purchaser of the shares (Petitioners' Group) ceasing to hold 51% of the shareholding of the companies at any point of time for a period of next 3 year even after IPO. (b) Ceasing to have management control of the companies and all and every policy decision of the company shall be taken by the petitioner Group. (c) That the petitioner Group shall also have majority Directors on the Board of the company. (d) However, the petitioners are at liberty to go in for public issue after payment of full consideration for the shares in terms of Clause (4) below subject to clauses (a) and (b) above. 3. The management control of the company shall only be transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment is received by the respondents, the same conditions as in clause (6) above will continue to apply and wherever joint signature of petitioners has been stipulated, it shall be with joint signatures of one of the respondents. 8. Within a week of the date of the order, the respondents shall furnish to the petitioners current financial position (in terms of the last trial balance, fund commitments etc.) of both the companies. 9. Likewise, within a week M/s. A M. Publications Pvt. Ltd. will provide to the petitioners with the share certificates with respect to their shareholding in the company. 3. Since the above terms were discussed and agreed to in my presence, the parties should scrupulously abide by the above terms. Further, since right from the beginning, both the parties expressed their desire to keep the business of the company within the family and that is why the option was given to the petitioners to either buy or sell, the petitioners having opted to take the full ownership and control of the company--that is within the family, they shall not either directly or indirectly facilitate or negotiate or shop around with any third party for a period of 3 years to either acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the names suggested by the merchant bankers and Media West agreed to fund not more than 40% of the requirement. c. After the consent order, further discussions were held jointly with the merchant banker and Media West and it was agreed that Media West would lend Rs. 101 crores, being 40% of the total amount of Rs. 252 crores where after the merchant banker will lend the balance amount of Rs. 151 crores. d. The security for the amount of Rs. 252 crores lent jointly by Media West and the merchant banker would be 35.33% shares held by the petitioners, which shall be subject to restraint against all transfers. e. During the currency of the loans, these shares will stand pledged in favour of Media West and merchant banker and the shares acquired from the respondents of 64.67% will be retained as collateral security. The voting rights of 35.33% shares shall not be exercisable in any manner prejudicial to the interest of the lenders. f. The petitioners would have the option to repay the loans at any time within a period of 6 months of acquiring the entire shares, with 15% interest per annum, before the lenders exercise their option to sell the shares. g. The merchant banker will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an arbitrator named in the MOU, whose decision shall be final. o. Media West will release-the amount in installments as per the consent order subject to the petitioners producing the agreement with the merchant banker before the 2nd installment is paid. p. Once the entire consideration due on 64.67% shares is paid, the petitioners shall execute pledge documents in respect of 35.33% shares and the share certificates shall be kept in escrow. Likewise, the shares in respect of 64.67% also shall be kept in escrow and retained as collateral security. q. In a number of places in the MOU, it is stipulated that the parties will strictly comply with the terms of the consent order. 13. The counsel for the respondents argued on two main points--one is that the consent order itself was obtained by concealing the fact that the petitioners had already entered into certain terms with the lenders and the same had not been disclosed at the time of entering into the consent terms. This act of the petitioners, according to the learned counsel, amounts to a fraud as his clients had been induced to enter into consent terms by concealment of vital facts by the petitioners. The second argument is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the petitioners had tied up the financing arrangement. Further, the 3 year in period had already been decided in the hearing on 30.11.2005. The whole MOU revolves around the shares of the company and the lock in period. From the terms of the MOU, it is evident that the entire funding arrangement is based on the existing shares of the company, part of which could be sold to public or through private placement for repayment of the loans. In other words, from the proceeds of an IPO of the existing shares, the loans are to be repaid. As I have narrated in the last portion of 1st paragraph ante, the issue relating to IPO was added in the consent order at the request of the petitioners that if the company needed funds, it could go for an IPO, subject to ensuring that even after the IPO, the petitioners would continue to hold not less than 51% shares. In other words, the IPO was for issue of new shares, the proceeds of which would go to the company. The intention of going for IPO of the existing shares was never expressly indicated not could be implied during the discussions even though the petitioners were aware that their 35.33% shares would be subject to public offer in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan within the stipulated time, is that the lenders would acquire the right to dispose of the shares either by public offer or private placement. In other words, as rightly pointed out by Shri Datar, built in default has been provided to enable the lenders to deal with the shares. Further, it is worth noting that the MOU not only provides for sale to the public but also by private placement. Here comes the linkage between Media West and the Essel Group which is admittedly a competitor to the company and which has been acquiring news paper companies. 17. In terms of the MOU, Media West is to fund the petitioners to the tune of Rs. 101 crores and the balance sum of Rs. 151 crores is to be funded by the Merchant Bankers. In all, the amount involved in acquisition of the shares of the respondents is about Rs. 252 crores and the petitioners are borrowing the entire amount. The admitted position is that Media West is a Group company of Essel Group. Media West is not an NBFC nor a finance company as is evident from the its object clause in the Memorandum. It is also an admitted fact that the paid up capital of Media West is only Rs. 1 lac and its net worth is negative, having incurred a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue diligence. From the MOU it is seen that it was the Merchant Banker who had suggested that the petitioners could approach Media West for part financing of the acquisition. Further, the provisions in the MOU that the lenders could sell the shares by private placement and that the lenders have the right to transfer their rights to any party etc, definitely rises a doubt whether, this right has been conferred on the lenders only to facilitate Essel Group to acquire the shares. Non disclosure of the name of the Arbitrator also raises a doubt about the independence of the unnamed arbitrator. Shri Sarkar argued that it is of no concern of either the respondents or this Board to examine why and how Media West would fund the acquisition and why it is taking the risk. In normal circumstance, the contention of the learned counsel may be correct. But in the present case, when a party alleges breach of the terms of the consent order, to adjudicate on the allegation, this Board has to examine all aspects. Even though it is claimed that since the MOU specifically provides that 51% shares would continue to be held by the petitioners as also the control and management of the company as stipulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order or to modify the same. He further submitted that on any account, the respondents can not have the right to purchase the shares of the petitioners. It is a settled law when an order is obtained, whether it is consent order or otherwise, by fraud, concealment of material facts, misrepresentation and the like, it is the bounden duty of the court which passed the order, to set aside or recall the said order. In the cases cited by Shri Datar, it has been held so. In the cases cited by Shri Sarkar that executing court cannot go beyond the decree, no element of fraud, concealment of material facts or misrepresentation had been alleged. Therefore, there is every justification to recall the consent order, but, I do not propose to recall the same but, try to work out the said order in the spirit under which the same was passed. 20. As far as the right of the respondents to acquire the shares of the petitioners is concerned, reference to the chronology of events is necessary. Even though, initially the petitioners were against the suggestion of their going out of the company and were only interested in the division of the company, later, it was only at the suggestion of the counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of the respondents was based on an understanding of sale of the shares of the company and that in view of the inbuilt default clause giving right to the lenders to dispose of 49% of the existing shares of the company, which was never disclosed, I hold, on the basic understanding that one Group should go out of the company, that the right to purchase the shares of the petitioners would now revert to the respondents. They will be bound by all the terms of the consent order dated 25.1.2006 which were applicable to the petitioners with the stipulation that the respondents shall not borrow or make any financial arrangements on the strength of either of their own shares or of the shares now held by the petitioners for acquisition of the shares of the petitioners. They shall also disclose all the financial arrangements that they propose to make for acquiring the shares of the petitioners before making payment towards the 1st installment. The amount of Rs. 12.5 crores deposited by the petitioners in escrow will be released to them immediately along with interest accrued thereon, without any part of the same being forfeited. On production of a copy of this order by the petitioners, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in the State Bank of Patiala, Shastri Branch, New Delhi, as per my earlier order. The respondents are arranging for depositing this money. Yesterday, I had passed an order directing the bank to transfer a sum of Rs. 17 crores out of the escrow account to the personal account of the petitioners and simultaneously hand over 65.33 shares belonging to the respondents to the respondents. I further direct: 1. On receipt of the balance Rs. 138 crores in the escrow account, the Manager, State Bank of Patiala will release the balance shares of the petitioners now held in escrow to the respondents. 2. The petitioners are at liberty to withdraw the said sum of Rs. 138 crores or transfer the same to any account that they desire and the Manager, State Bank of Patiala will permit them to do so on receipt of a requisition signed by all the petitioners. 3. The respondents are at liberty to manage the affairs and shareholding of the company in any manner without any interference by the petitioners' Group 4. The petitioners' Group shall cease to remain either as shareholder/s office bearer/s or director/s of the company and shall have no concern whatsoever with the company. 5. On an ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Group constituted security jointly for the money to be advanced by the Financier and Merchant bankers. In the course of the discussions after the compromise before the Company Law Board the arrangers were duty bound to make the shares free of all encumbrances, however claimed that at least 50% of the excess realisation i.e., Rs. 11 Cr becomes due to them. But since they had been involved in strategising the entire sequence of the events it found appropriate to remit them Rs. 8.50 Cr as originally agreed upon. It would not be out of place to submit that the extra consideration of the value of the shares received is considering the expenditure incurred/to be incurred by Agarwal Group. Your honour's kind attention is also invited to the Professional Bill of S.R. Halbe Associates, relevant portion reproduced hereunder which will amply prove that strategy had been formulated for protecting the interests of the minority shareholders. It is submitted that the payment made for S.R. Halbe Associates has been accepted as deduction under section 48 of the Income Tax Act. 1. Formulation of strategy for protecting the interests of Minority share holders in Amar Ujala Publications Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred wholly and exclusively in connection with such transfer; (ii) The cost of acquisition of the asset and the cost of any improvement thereto: The above section broadly contemplates three amounts for the purpose of computing income chargeable under the head 'capital gains'. The first is the full value of the consideration for which the capital assets has been transferred. The second is the expenditure incurred wholly and exclusively in connection with such transfer and the third and the last is the cost of acquisition of the capital asset including the cost of any improvement thereto. In clause (i) of Section 48 of the Act, the legislature has used the expression expenditure incurred wholly and exclusively in connection with such transfer . The expression presupposes (a) there should be an expenditure (b) the said expenditure should be in connection with the transfer of the capital asset and (c) it should be wholly and exclusively incurred in connection with the said transfer. In regard to the expression wholly and exclusively employed in Section 37(1) of the Act, the following Commentary from Sampath Iyengar's Law of Income Tax (Edited by Shri Rajaratnam 10th Editi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the shares which he realized pursuant to the litigation before the Company Law Board, in connection with used in clause (i) of section 48 are very wide in their ambit. The expression in connection with is important and has to be construed to have expansive meaning. While explaining the meaning of similar an inter-changeable expressions viz pertaining to and in relation to , the Hon'ble Supreme Court observed in the case of Doypack Systems Pvt. Ltd. 1988 (36) ELT 201 (SC): 48. The expression in relation to (so also pertaining to ), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context see State Wakf Board vs. Abdul Aziz (AIR 1968 Mad 79 ,81 paragraph 8 and 10), following and approving Nitai Charan Bagchi vs. Suresh Chandra Paul (66 C.W.N. 767), Shyam Lal vs. M. Shayamlal (A.I.R. 1933 All. 649) and 76 Corpus Juris Secundum 621. Assuming that the investments in shares and lands do not form part of the undertaking but are different in subject matters, even than these would be brought within the purview of the vest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any improvement , - (1) in relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process any article or thing] [or right to carry on any business] shall be taken to be nil; and (2)In relation to any other capital asset, - (i) where the capital asset became the property of the previous owner or the assessee before the [1st day of April, 1981] means all expenditure of a capital nature incurred in making any additions or alterations to the capital assets on or after the said date by the previous owner or the assessee, and (ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in [sub section (1) of] section 49, by the previous owner, But does not include any expenditure which is deductible in computing the income chargeable under the head Interest on securities , Income from house property , Profits and gains of business or profession , or Income from other sources , and the expression improvement shall be construed accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere in connection with transfer of share. All the payments were made immediately on receipt of the consideration, except the payments of Rs. 13,78,200 as under The observations of the learned Assessing officer in respect of the payments made by the assessee and claimed as deduction under section 48 of the IT Act' 61 is tabled as under: Thus the perusal of the table above will reveal that the learned assessing officer disallowed the claim of the assessee on account of the following reasons : (i) Payments in relation to the acquisition process of majority shareholding (assessee's contribution) a. M/s Churu Trading Co. Pvt. Ltd. Rs. 3,00,00,000 b. Mr. Sudipto Sarkar, Advocate Rs. 1,50,000 c. M/s Rabo India Securities (P) Ltd Rs. 2,50,000 (ii) Payments not directly connected with transfer of shares a. M/s S.R. Halbe Associates, Advocates Rs. 3,13,200 b. Mrs Bina Gupta, Advocate Rs. 6,25,000 c. Mr. Dayal Saran, Advocate Rs. 5,00,000 During the course of the assessment proceedings the assessee filed complete details of the payments made along with the copies of the bills raised by the above persons. It cannot admit of doubt that in an ordinary transaction of transfer of an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies and the 35.33% shares shall (till 64.67% holdings are acquired by the Acquirers by paying off the entire consideration due thereon) be subject to restrain against all transfers or other encumbrances other than the transfer to the Agarwal and Maheshwari families provided in the agreement recorded by the CLB order in the event of the acquirers not being able to fulfil their part of the obligations and are required to sell their holdings to the Agarwal and Maheshwari families. 3. After the entire consideration is paid and till the amounts financed by the Financier and Merchant Banker are fully settled in terms of the arrangement spelt out hereon, the 35.33% shares held by the Acquirers shall stand pledged in favour of the Financers and the Merchant Banker jointly in proportion to the amounts funded by them respectively. In addition the 64.67% shares acquired from the Agarwal and Maheshwari families shall also be retained as collateral security for the monies advanced by the Financier and the Merchant Banker till the amounts due to them is settled in terms of the agreement reached between the parties. But it is agreed that while the voting rights on 64.67% shares shall not be exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Escrow account. It was alleged by the respondents that the petitioner had not paid the 1st installment out of their own funds but instead the money had been drawn from the account of M/s. Mediavest India (P) Ltd. The latter being the financier who had been brought in by the arranger M/s. Churu Trading Co. (P) Ltd. Thus the action to bring the arranger M/s. Churu Trading P. Ltd. and others namely Rabo India Securities Ltd. to whom the assessee has made payments was part and parcel of the strategy to extract the maximum price of the shares held by the assessee. The assessee never wanted to acquire the company as it was always a minority shareholders as will even be evident from the petition filed under section 397 and 398 before the Hon'ble Company law Board. This was a well planned strategy evolved on account of the reason that both the companies were unlisted one being a closely held public company and the other being a private limited company and thus there was always a restriction in the transfer of the shares to any outsider. The learned Assessing Officer in making the disallowance of the payment made to M/s. Churu Trading Company Pvt. Ltd. has relied merely on the one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees within 30 days from the date of acquisition or 31st December, 2006 which ever was earlier, since the acquisition never took place hence the agreement became void. Hence no payment was made to them in terms of the agreement. However since the assessee was able to realize Rs. 160 Crore which was Rs. 22 Crores more than the value of their holding of the quoted value by the Maheshwari Group i.e. 138 Crore (35.33% of Rs. 390 Crores) as per the strategy was required to pay M/s. Churu Trading Company an amount of atleast 50% of this excess i.e. Rs. 11 Crores. The assessee finally agreed to pay them Rs. 8.50 Crores only i.e. upto the extent of the amount of the Arranger fees. The same is amply proved with reference to the communications filed. Hence the payment made on 15.11.2006 to M/s. Churu Trading Company Pvt. Ltd. was not of the arranger fees but for the excess amount alike to overriding charge. By adopting this strategy the assessee forced the Maheshwari Group to reach a situation where they could reap the maximum price/value of the shares. In respect of the payments made to Mr. Sudipto Sarkar, Advocate. Mrs. Bina Gupta, Advocate and Mr. Dayal Saran, Advocate the learned Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in respect of the improvement cost. The assessee is also submitted that the expenditure incurred can be treated as cost of improvement/or addition to cost of share on account of the reasons that the action of the assessee has resulted in the enhancement in the value of the shares. Further, that in respect of the explanation of the amounts claimed as deduction under section 48 for the purpose of computation of capital gains the following amounts paid by the assessees within the Agarwal Group can be considered as expenses towards cost of improvement, being paid prior to the transfer of shares Shri Ajay Agarwal Rs. 13,78,200 Smt. Renu Agarwal Rs. 7,37,000 The remaining amount paid are in respect of the expenditure incurred wholly and exclusively in connection with transfer. It was also clarified that in Schedule-CG of the Income Tax Return in ITR-4, the entire payment made by each of the assessee has been shown in Column 3(b)(ii), the same may be taken as corrected in that column to the extent stated above and the remaining be considered in Column 3(b)(iii) of the Schedule. The reason for showing the entire amount in Column 3(b)(ii) was on account of the data input in the software. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation. As such the same income cannot be taxed twice. In view of above facts and circumstances of the case the disallowances made are liable to be deleted. 8.4 The Ld. AR further filed details of services rendered by various lawyers and professionals on 14.03.2011 to explain his position that the payments made to them was in connection with the transfer of shares. These details as submitted by the Ld. AR are as under: .... 4. That the explanation of the nature of the services rendered by various parties to whom payments have been made is as under. It is submitted that the copies of the bills and other evidences stands filed during the course of the assessment proceedings and stands placed before your honour in the paper book. M/s. Churu Trading Company Pvt. Ltd. Continental Building 135, Dr A.B. Road, Mumbai They were involved in the formulation of strategy to act as arranger assist for arrangement of the funds to the tune of Rs. 252 Crores for Agarwal Group including tying up with Media West (P) Ltd. and other Merchant Bankers to acquire the shares of the majority share holders on the basis of the option exercised by the Agarwal Group in pursuance to the order of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not have transferred shares. It was by their persistent efforts and negotiations, Maheshwari Group finally agreed to pay Rs 22 Crores over and above the compromise amount of Rs. 138 Crore totaling to Rs. 160 Crores for the Shareholding of Agarwal Group. There after M/s. Churu Trading insisted for the payment of Rs. 11 Crore i.e. 50% of the excess but finally agreed to Rs. 8.50 Crores i.e. the original agreed amount which was paid only after the receipt of the consideration by Agarwal Group. M/s. Rabo India Securities Pvt. Ltd. Forbes Building 2nd Floor, Chiranjit Rai Marg, Fort, Mumbai Strategic and financial advisory services Mrs. Bina Gupta, Advocate Khaitan House, B-1, Defence Colony, Agra Preparation of the petitions before CLB including appearances before CLB, high Court and Supreme Court and involved till the time of the transfer of shares. It was only after her letter was issued to the bankers that payments were made of the consideration by the bankers to Agarwal Group. Mr. Sudipto Sarkar Advocate, 33 Broad Street Kolkatta Appearance before CLB on various dates as will be evident from the orders in particular on 17.01.2006, 24.01.2006 and 25.01.2006 Mr. Dayal Saran Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the CLB dated. It was known to all the parties that Agarwal Group never had the financial capacity to acquire the stake of the majority share holders to the tune of Rs. 252 Crores but still was strategically creating feelers in the market that they would acquire the company which was being done merely to freeze the valuation of the companies to Rs. 390 Crores as quoted by Maheshwari Group. Agarwal Group did not deposit their share certificates with State Bank of Patiala, Shastri Bhawan as was done by Maheshwari Group, evident from order of CLB dated 04.04.2006 Agarwal Group strategically compelled Maheshwari Group to file a fresh applications petition before the CLB to set the ball rolling in their court to direct CLB to make Maheshwari Group to take over the shares of the minority as per the order dated 10.07.2006 thereby reversing its earlier dated 25.01.2006 but invoking similar conditions of funding such payout as were put in the original order of CLB dated 25.01.2006. After the receipt of the aforesaid order Agarwal Group could file appeal before the High Court but chose not to do the same since their purpose had been solved by bringing an enhanced valuation to their sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only by the decision of CLB, the action of the appellant being part of the Agarwal Group, going to CLB forms an integral part of the process of transfer of shares and hence all the legal and professional expenses relating to the proceeding carried out before CLB should be allowed as expenses carried out in connection with the transfer of shares. He also argued that the fact that the AO himself has allowed the payment made to M/s. S.R. Halbe Associates, the main person who devised the entire strategy proves the case of the appellant that all these expenses are interrelated and connected with the transfer of shares. For the ready reference, the arguments taken by the Ld AR with respect to various case laws relied upon by the AO and the case laws relied upon by him are reproduced as under: 6. That the learned Assessing Officer has relied on the decision following decisions whose facts are not applicable to the case of the assessee a. Smt. Sita Nanda vs. CIT (2001) 251 ITR 575 (Del) Whether, therefore, payment of interest being in shape of damages for late payment of unearned increase was inadmissible as deduction under section 48(i)-Held, yes b. B.N. Pinto vs. CIT (1974) 96 ITR 306 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale by the assessee of the properties at Nos. 52 and 53, Lalbagh Road, Bangalore, he had an unfettered right over the sale proceeds of Rs. 85,000. No material was also placed before this Court to show that the view taken by the authorities below that out of the amount of Rs. 15,000 claimed by the assessee as expenses, a sum of Rs. 3,119 was inadmissible, as that amount was spent in connection with the litigation launched by the wife of the assessee is, in any manner, incorrect. We have carefully considered the order of the Tribunal and we find that the Tribunal had taken into account all the relevant facts to conclude that the claim made by the assessee cannot be sustained. Similarly the perusal of the decision of the Authority of Advance Rulings in the case of Compagnie Finacriere Hamom (2009) 310 ITR 1 (AAR) relied upon by the learned Assessing Officer wherein in it has been held that- legal expenses distinctly related to and integrally connected with the transfer of shares is admissible for deduction under section 48(i). The sole object of the expenditure incurred towards legal fees should be in connection with the transfer of the shares. Legal fees for seeking advice on the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the main person who devised the entire strategy proves the case of the assessee that all these expenses are interrelated and connected with the transfer of shares. 7. Your honour's kind attention is invited to the following decisions - Mrs. June Perrett v. Income-tax Officer, Ward-1, Chikmagalur [2008] 169 TAXMAN 124 (KAR.) Assessee received a portion of sale proceeds of a house in India bequeathed by her father-Executors of Will, who resided abroad, had incurred certain expenses to obtain probate and letter of administration and to secure order of eviction against unauthorized occupant-While computing capital gains, assessee claimed deduction of those expenditure - Whether amounts paid by executors as Court fee at time of obtaining letter of administration and to secure an order of eviction against unauthorized occupant had to be treated as expenditures in connection with transfer of property and, therefore, assessee was entitled to claim deduction of expenditures incurred by executors - Held, yes Commissioner of Income-tax v. R. Ramanathan Chettiar [1985] 152 ITR 489 (MAD.) Assessee sold lands by converting them into plots, and for this purpose, maintained separate office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m was negatived by the Assessing Officer and up to the stage of Tribunal. The Court held that the sale consideration was less the liability to the bank. Meeting of the liability of the bank was before sale of the assets and was deductible from the consideration for computation of capital gain. In holding so, the Court took support from decision in CIT v. Shakuntala Kantilal [1991] 190 ITR 56/58 Taxman 106 (Bom.) in which it was held that an expenditure incurred in removing encumbrance would be deductible in computation of capital gain. This case was affirmed in CIT v. Abrar Alvi [2001] 247 ITR 312/117 Taxman 95 (Bom.). As such, the case was decided in favour of the assessee in Gopee Nath Paul Sons v. Dy. CIT [2005] 278 ITR 147/ 147 Taxman 629 (Cal.) 9. All the submissions made by the Ld. AR to justify the payments made to various lawyers and professionals in connection with their legal and professional services were in connection with transfer of shares being a part of strategy because before they were sold, their value was substantially enhanced, even from the initial value of Rs. 138 crore (value of 35.33% share of the Agarwal Group as determined by the Maheshwari Group initially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter, passed an order on 9-5-2008 to give effect to the terms of settlement. After narrating these facts, the applicant stated as follows: That the applicant till date during the entire process of settlement culminating into proposed transfer of shares of the Indian Company borne legal expenses to the tune of Euros 1,49,445 (equivalent to Rs. 8,902,063). The applicant has not furnished any break up of the said figure or the details pertaining to the expenses. The applicant's counsel has relied on the decision of Kerala High Court in V.A. Vasumathi v. CIT (1980) 123 ITR 94 wherein the expenditure incurred for the purpose of litigation in the Civil Court, pursuant to a reference under section 20 of the Land Acquisition Act, was allowed as deduction under section 48(i). 13. In order to appreciate the above issue, it is desirable to refer to the provisions of section 48 of the Act which read as under:-- Mode of computation-The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital assets the following amounts, namely:-- (i) expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively in connection with the transfer. The damages for mental worry and suffering on account of wrongful withholding and detention of her property cannot, by any stretch of imagination, be said to be expenses incurred wholly and exclusively in connection with the transfer. The claim in respect of lawyer's fees is also indefinite and vague and is not specific that it was in connection with the transfer, like, for example, drafting of the deed or such purposes intimately connected with the transfer. Similarly, regarding the traveling expenses, it is not specific that it was in connection with the transfer. 15. In the light of the above exposition of law, it is clear that the legal expenses distinctly related to and integrally connected with the transfer of shares is admissible for deduction under section 48(i) of the Act. The sole object of the expenditure incurred towards legal fees should be in connection with the transfer of shares. Legal fees for seeking advice on the modalities of transfer and the drafting of agreement or deed of transfer would undoubtedly qualify for deduction. It must also be noted that the expression 'in connection with such transfer' is wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the said transfer. Requirement mentioned in point (a) above is not under contention in the present case. Requirement mentioned in point (b) above i.e. the 'connection' is to be examined. The expenditure after being proved in 'connection' has to be further checked whether it is wholly and exclusively for such transfer or not. Only when these three criteria are satisfied in succession can the expenditure be allowed. This examination follows below:-- 1. The assessee approached the CLB for the express purpose of resolving the dispute and protecting his minority shareholder interest and also for acquiring the shares of Maheshwari Group. There is nothing on record and no evidence to suggest that the assessee was actually trying to sell his shares. In the case of Compagnie Financiere Hamon (2009) 177 Taxman 511 (AAR-New Delhi) as discussed above, the expenses relating to filing the appeal U/s 397 398 with the CLB were disallowed as it was not disallowed as it was not wholly and exclusively linked with the transfer even though they had a nexus with the transfer. These expenses were held to be for protecting minority shareholder interest and not for transfer. So, as discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion about a larger game plan of selling is based on conjectures and surmises without any proof. 4. The expenditure paid by the assessee to Churu Trading Co. includes interest expenses incurred to Media west and other merchant bankers for raising a war chest of Rs. 12.5 Crores for acquisition of shares. This interest expenditure by any stretch of imagination cannot be judged for selling the shares The para wise comment on the above observations is as under: 1. That there is no admit of doubt as to the minority shareholding of the assessee and the fact that in the year 2004 a settlement for the MOU was drawn between the Agarwal and the Maheshwari Group by which division of the various publication units was made on the insistence of the latter. Both the companies were closely held unlisted Companies converted from partnership firm in existence since 1962 and hence it was strategized to seek the CLB route for the maximum realisation of the price. But Agarwal group already having a past experience of backtrack by the Maheshwari Group had to be cautious in its moves even in the petition under section 397 and 398 of the Companies Act' 61 as that was the only mode by which the minority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the companies to Rs. 390 Crores as quoted by Maheshwari Group. Agarwal Group did not deposit their share certificates with State Bank of Patiala, Shastri Bhawan as was done by Maheshwari Group, evident from order of CLB dated 04.04.2006 Agarwal Group strategically compelled Maheshwari Group to file a fresh applications petition before the CLB to set the ball rolling to direct CLB to make Maheshwari Group to take over the shares of the minority as per the order dated 10.07.2006 thereby reversing its earlier dated 25.01.2006 but invoking similar conditions of funding such payout as were put in the original order of CLB dated 25.01.2006. After the receipt of the aforesaid order Agarwal Group could file appeal before the High Court but chose not to do the same since their purpose had been solved by bringing an enhanced valuation to their shareholdings. Further Agarwal Group did not insist in pursuing in any litigation with Maheshwari Group to ensure that the terms of the conditions of funding as were originally placed on them about the payout which were same for the Maheshwari group had been violated or not. This goes further to prove and establish the point that Agarwal group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LB wherein directions were issued to refund the amount of Rs. 12.50 Crores deposited in the escrow account the bank has paid interest to them on the deposit made, no interest has been paid by the assessee. This fact is amply proved with reference to the order of the CLB dated 01.11.2006 and para 5 is reproduced as under. 5. On an earlier occasion, the money deposited in the escrow account by the petitioners was directed to be paid to M/s. Mediavest Private Limited and the bank had issued TDS certificate and the bank had issued TDS Certificate in the name of Amarujala Publication Limited for the interest accrued thereon. The Manager, State Bank of Patiala is directed to issue a fresh TDS in the name of the Mediavest Private Limited in lieu of one issued in favour of Amarujala Publication Limited after observing the necessary formalities in this regard. Further the learned Assessing officer has completely ignored the alternative submissions made before your honour that even if the expenditure incurred was for the acquisition of the shares of the companies, which is a capital asset and the acquisition does not take place the same was in the nature of the capital loss since the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares. During discussion, the AO admitted that there is no documentary evidence to show that this payment includes interest paid to M/s. Media West but he contended that for arranging certain funds from M/s. Media West, as per business practice, certain interest should have been paid to M/s. Media West and since M/s. Churu Trading Co. arranged fund from M/s. Media West, the appellant should have paid interest to M/s. Media West through M/s. Churu Trading Co. and therefore in view of the present AO, the amount paid to M/s. Churu Trading Co. should include the interest payable to M/s. Media West and the same should be calculated at the rate prevailing in the market at that time. However, he could not quantify the amount of alleged interest amount included in the payment made to M/s. Churu Trading Co. supported by any documentary evidence. In the agreement with M/s. Media West, the rate of interest is mentioned as 15%. If this interest rate is applied, the amount of interest on the fund of Rs. 12.5 crore arranged through M/s. Churu Trading Co. from M/s. Media West for about 6 months [from Feb 06(when the amount was deposited in escrow account) to July 06 (when the order of CLB was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose was achieved then they exited with the valuation determined. Citing this strategy, He again contended that the expenses incurred in connection with such proceedings before CLB was in connection with the transfer of the shares which was the resultant to the strategic movement of the Agarwal Group. In this submission, it was also contended that due to moving to CLB and passing of the order by the CLB, the restrictive clause against the transfer of shares in the Memorandum and Article of Association of both companies got removed and shares were transferred and resulted in the capital gain and therefore all the expenses incurred on lawyers and professional in connection with the proceeding before CLB was pleaded to be allowed. For a ready reference, this submission of the Ld. AR is also produced for ready reference:-- That it has been explained that both companies in which the share holdings of the Agarwal Group which have been transferred and the income there from has been shown under the head Long Term Capital Gains were closely held unlisted Companies converted from partnership firm. The perusal of the Memorandum and Articles of M/s. Amarujala Publications Ltd. which was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain which has been shown as income of the assessee. With regards observations of the learned Assessing Officer for the alternate submissions of the assessee it is submitted that there is no doubt that the expenditure incurred alternatively can be considered admissible under section 57(iii).There is in fact nothing in the language of section 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of section 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. However the claim of assessee is that the expenditure incurred was in connection with the transfer of his share holding and has a live link by being intimately connected with the transfer of the shares if the entire sequence of the events and the strategy taken into consideration . 11.3 The above submission of the Ld. AR was considered in the hearing held on 31.03.2011 with the Ld. AR as well as the AO. In the light of all the submissions made by the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged to arrange the fund, payment made to them are for arranging the fund and not in connection with the transfer of shares and hence payment of Rs. 8.5 crore made to M/s. Churu Trading Co. should not be allowed as deduction u/s 48(i). The AO also pointed out that the intention of the Agarwal Group was initially not to sell the shares, otherwise they would have not pledged the 35.33% of their shares holding as security for obtaining the fund. Therefore in his opinion, initially the intention of the appellant was to buy the majority share holding and hence the expenditure incurred for arranging the fund for buying the majority share holding should not be allowed and hence he contended that the payment made to M/s. Churu Trading Co. and other consultants for arranging the fund and preparation of CLB petition and appearing before the CLB for arguing the case of the appellant should not be allowed u/s 48(i). 7. The finding of the CIT(A) is reproduced as under:- (Para 12.1. to 16.3) 12.1 I have considered all the facts of the case as discussed in the assessment order and as presented before me by the Ld. AR through his various submissions and as emerged during the discussion with the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the part of Agarwal Group on the advice of Shri S.R. Halbe to go to CLB on the pretext of protecting the minority right u/s 397 and 398 of the Companies Act and create such atmosphere that ultimately value of company is determined at its market value and then giving them an opportunity to sell their share holding at the market determined price. Such strategy as formulated by Shri S. R. Halbe has even been recognized by the AO in the assessment order wherein in para 12.2 he has held that the payment of Rs. 2,24,24,000/- to him is a lump-sum payment for the services rendered by him and since there is no item-wise billing for various activities and considering that major portion of fees is attributable to the proceedings before CLB in connection with transfer of share, the payment of Rs. 2,24,24,000/- is accepted that it has been incurred in connection with the transfer of shares. Nature of all the services rendered by Shri S.R. Halbe is discussed on page 38 of this order, which clearly talk about the formulation of strategy for protecting the interest of Minority shareholders. Therefore, I find force in the argument of the Ld. AR that if payment to Shri Halbe is accepted by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategy was explained by the Ld. AR that the Agarwal Group did not have financial capacity to buy the share holdings of the Maheshwari Group and their intention was always to sell their shareholdings and they also did not trust the Maheshwari Group for selling shares to them because earlier agreement of partitioning of family business was back tracked by them and therefore, they entered in a strategic financial arrangement with Essel/Zee Group through its front company M/s. Media West by which it was planned to get the finance of Rs. 252 crore arranged to buy the company. This financial arrangement was made through M/s. Churu Trading Co. but since the intention of the Agarwal Group was not to buy and run the company and they always wanted to sell their shareholdings, a MOU was drawn with M/s. Media West in such a way that a clause was put to sell the share holding to the lender or any other private party by private placement to repay the loan. It was also later noted by the Hon'ble CLB that the M/s. Media West did not have capacity to lend such high amount of fund and hence fund was ultimately to come from Essel/Zee Group through M/s. Media West which has been acquiring news pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st shares, especially those of an unlisted closely held company, due diligence is carried out of the company to find out the fair value of the shares, but, in the present case, admittedly, nothing was done. Even though the respondents have raised all these issues in CA 148, the petitioners have not responded to the same in their reply. The motive of a company, having no cash resources, in lending such a huge amount, cannot be but for an oblique purpose. Considering the fact that Media West has been used as a special purpose vehicle by Essel Group, the claim of which has not been denied by the petitioners, to acquire other newspaper companies, it appears that even the present funding to the petitioner is with the object of taking over control of the company. The very fact that the MOU provides that whatever might be the consideration that the lenders would receive on sale of 49% shares, the same would release the petitioners of all their liabilities, obligations etc. would indicate that the present lending arrangement by the lenders is not based either on commercial or financial consideration, especially when no due diligence of the company has been carried out. It is rather a stran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r financial strength to pay of the loans within the stipulated time, that the liberty given to the lenders to sell the shares by private placement and their right to transfer their rights under the MOU to any party, that the petitioners have refused to produce the MOU with the Merchant Bankers who had suggested the name of Media West to the petitioners, etc lead only to the strong presumption that there is more to the understanding expressed in the MOU than what the eyes meet. In other words, the whole arrangement of financing for the acquisition of shares of the respondents does not appear to be a straight forward one and it is only a prelude to the final takeover of the company after the period of 3 years. This adverse presumption is inevitable in the light of the refusal of the petitioners to disclose the MOU with the Merchant Banker, who has agreed to fund a huge sum of Rs 152 crores even without a due diligence. 12.5 It is very clear from the findings of the CLB as discussed in para 17 of its order dated 10.07.2006 reproduced above that the lending arrangement of funding to the Agarwal Group for buying the majority share holding of 64.67% was not based either on commercial or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the petitioners, the consent order resulted. The foundation of the suggestion of the counsel for the petitioners is that one of the two Groups should control the company in exclusion of the other Group. Both in the replies to the applications and during the arguments, there was not even a whisper that the petitioners would be able to mobilize funds to avoid the lenders from taking over the control of the shares. Instead, their stand has been that there is no provision in the consent order restraining the petitioners from raising funds on the strength of the shares of the company. Thus, it is crystal clear that the petitioners are not in a position to fund the purchase of the shares of the respondents without the backing of the shares of the company, which, I have held the petitioners cannot do so. Therefore, since, I have come to the conclusion that the consent order was obtained by concealment of material fact and that the petitioners have breached the terms of the said order, even in the absence of any stipulation in the consent order to the specific effect, the respondents will have the right to purchase the shares of the petitioners. In this connection, I may refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo Groups but the Agarwal Group also wanted to extract the maximum value for their shareholding and therefore, they compelled the Maheshwari Group to buy their share holding by entering into a MOU with a rival group (Essel/Zee Group) through its front company apparently showing that they are interested in buying the company, even though this MOU was just a ploy to force the Maheshwari Group to buy their share holding at a value more than what was offered by them. The MOU with M/s. Media West was not viable at all for getting the desired fund, has been clearly observed by the Hon'ble CLB in its order dated 10.7.2006 wherein, it is discussed by them that the terms of the MOU are so unrealistic, that no man of ordinary prudence, leave alone a business person, would be convinced that it is pure and simple financial arrangement. 12.7 After reversal of order by the Hon'ble CLB and ordering the Maheshwari Group to buy 35.33% share holding of the Agarwal Group, a negotiated settlement was arrived between both Groups in which the Maheshwari Group agreed to pay Rs. 160 crore to the Agarwal Group, which was Rs. 22 crore more than the earlier value determined by the Maheshwari Group fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed in para No. 7 of this order. I also find force in the argument of the Ld. AR that the Maheshwari Group agreed to pay Rs. 22 crore extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group. For this purpose the arranger M/s. Churu Trading Co. demanded for 50% of the extra amount realized by the Agarwal Group but ultimately as per the initial agreement, only Rs. 8.5 crore was paid. In view of the above background of the facts of the case, the Ld. AR argued that since because of intervention of M/s. Churu Trading Co., the share value was further got enhanced by Rs. 22 crore, the payment made to M/s. Churu Trading Co. amounting to Rs. 8.5 crore should be allowed to have been paid for transfer of shares. However, the contention of the AO during the discussion was that the intention of the Agarwal Group was initially not to sell the shares, otherwise they would not have pledged the 35.33% of their shares holding as security for obtaining the fund. Therefore in his opinion, initially the intention of the appellant was to buy the majority share holding and hence the expenditure incurred for arranging the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to M/s. Churu Trading Company Pvt. Ltd. appears to be very much part of the strategy of the Agarwal Group to get the value of shares enhanced before these shares are sold. Since the shares of the Agarwal Group were pledged with lender (M/s. Media West) that was arranged by M/s. Churu Trading Company Pvt. Ltd. and it has also been admitted by the AO that these shares were pledged, therefore, the argument of the Ld. AR that the Maheshwari Group agreed to pay Rs. 22 crore extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group and for this purpose the arranger M/s. Churu Trading Co. was paid Rs. 8.5 crore as per the initial agreement despite its demand for 50% of the extra amount realized by the Agarwal Group, appears to be quite convincing and therefore, I find force in the argument of the Ld. AR that since because of intervention of M/s. Churu Trading Co., the share value was further got enhanced by Rs. 22 crore, the payment made to M/s. Churu Trading Co. amounting to Rs. 8.5 crore should be allowed to have been paid for transfer of shares. 12.10 For allowability of deduction u/s 48(i), both the AO as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples as laid down in para 15 of the order of AAR. My decision for allowability of deduction u/s 48(i) for each payment made to various Lawyers and Professionals is as under: 12.10.1 Payment of Rs. 8,50,00,000/- to Churu Trading Co. Pvt. Ltd. Mumbai Rs. 2,50,000/- to Rabo India Securities Pvt. Ltd., Mumbai Both these parties were engaged by the Agarwal Group for providing financial advisory services and assisting them to arrange funds to acquire shares of Majority Group in both companies. In this process, the Agarwal Group first approached Rabo India Securities Pvt. Ltd. that acted as strategic and financial advisor to Agarwal Group for acquisition of shares and through this party as explained by the Ld. AR, they were introduced to the second party i.e. M/s. Churu Trading Company Pvt. Ltd. that later played important role till the shares held by the Agarwal Group were sold instead of purchasing the shares of Majority share holder as per their strategy. As after M/s. Churu Trading Company Pvt. Ltd. came into picture and were got involved in the formulation of the strategy of the Agarwal Group, role of M/s. Rabo India Securities Pvt. Ltd. ended very soon and therefore, they were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment made to Rabo India Securities Pvt. Ltd. Similarly, during the process of acquisition of majority share holding of Maheshwari Group, the Agarwal Group also entered into another agreement with M/s. Churu Trading Pvt. Ltd. that acted as arranger for arranging Rs. 252 crores to acquire majority shareholding in the companies. As per the terms of agreement dated 01.02.2006 with M/s. Churu Trading Co. Pvt. Ltd., the Agarwal Group was to pay Rs. 8.5 crores as arranger fee to it for arranging the fund. The arranger fee was to become due on achieving the financial closure of Rs. 252 crores notwithstanding whether the Agarwal Group shall be able to draw down the arranged funds or not. In view of these terms of agreement with M/s. Churu Trading, the main contention of the AO is that as M/s. Churu Trading Co. was engaged to arrange the fund, payment made to them are for arranging the fund and not in connection with the transfer of shares and hence payment of Rs. 8.5 crore made to M/s. Churu Trading Co. should not be allowed as deduction u/s 48(i). However, the Ld. AR explained during the appeal proceeding that the Agarwal Group went to the CLB under a strategy to get the value of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter referred to as Companies) held by Maheshwari Group for a consideration of Rs. 252 Crores. We would like to state that we have carefully examined the said CLB Order dated January 25, 2006 and also sought legal advice to understand the various implications emerging out of the said order. We have arrived at conclusion that the proposal of acquiring 64.67% shares held by Maheshwari Group in the Companies, by Agarwal Group is a bankable proposition. However, it is important to bring to your kind notice that due to certain conditions of the order, which are restrictive or prohibitive in nature, the market appetite to this kind of lending would be affected. With the background, we are agreeable to act as an arranger of arranging Rs. 252 Crores through syndication with Banks, Financial Institutions and others for the acquisition of 64.67% shares held by Maheshwari Group in the companies in terms of the Company Law Board order dated January 25, 2006 on the following terms and conditions : We as arranger shall arrange Rs. 252 Crores for Agarwal Group to acquire 64.67% equity shares of Amar Ujala Publication Ltd. and A M Publications Pvt. Ltd. in term of the above referred order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indian Contract Act, 1872, which depends on happening or not happening of some event, collateral to such contract. In the present case, liability to pay the arranger fees by the Agarwal Group to the M/s. Churu Trading Co. Pvt. Ltd. would have arisen only in case of the event of arranging the fund of Rs. 252 crore had happened. But by the time M/s. Churu Trading Co. Pvt. Ltd. could arrange fund of Rs. 12.5 crore, the Hon'ble CLB on the petition of the Maheshwari Group (filed fearing the suspected takeover by Zee Group as already discussed in detail in para 5.15), passed an order dated 04.04.2006 deferring the payments of further installments and thereafter, vide order dated 10.07.2006 cancelled its earlier order of giving option to the Agarwal Group to purchase 64.67% shares and ordered the Maheshwari Group to purchase 35.33% shares of the Agarwal Group. After this order had been passed by the CLB, the condition for arranging the fund of Rs. 252 crore by M/s. Churu Trading Co. as per the agreement dated 01.02.2006 was not possible to be fulfilled and hence in view of section 32 of the Indian Contract Act, 1872, this agreement became void and hence payment of arranger fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended by it to the process of valuation of shares by helping the Agarwal Group during the participation in the deliberations before the Hon'ble CLB that led to the settlement concerning the transfer of shares. Therefore, the AO is directed to allow deduction of Rs. 3,00,00,000/- u/s 48(i) for payment made to M/s. Churu Trading Co. Pvt. Ltd. as part of the share of appellant out of total payment of Rs. 8.5 crore. In view of my above decision, out of total disallowance of Rs. 3,02,50,000/-made by the AO in respect of these two payments disputed in Ground No. 4, deduction for Rs. 3,00,00,000/- paid to M/s. Churu Trading Co. Pvt. Ltd. is allowed and disallowance of deduction for Rs. 2,50,000/- paid to M/s. Rabo India Securities Ltd. is confirmed and accordingly Ground No. 4 is partly allowed. 12.10.2 Payment of Rs. 2,24,24,000/- + Rs. 3,13,200/- to M/s. S.R. Halbe Associates, Mumbai: A payment of Rs. 2,24,24,000/- have been claimed on account of fees paid to M/s. S. R. Halbe and Associates, Mumbai for formulation of the strategy for filing petition before the CLB for protection of the interest of minority shareholders, appearance and attending the proceedings before CLB, briefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the proceedings before CLB in connection with transfer of share and allowed the full fees paid to him for deduction u/s 48(i), there is no logic to deny the deduction for the reimbursement of incidental expenses on travelling, lodging, boarding etc., which he incurred while visiting Delhi in connection with the proceeding before CLB that was seized with the matter of settling the dispute between the Agarwal Group and the Maheshwari Group to decide as to how shares of one group is sold to other group so that both companies under dispute remain in control of one Group only and the other Group gets best price on sale of their shares and ultimately it was decided that the Agarwal Group was to sell its shares to the Maheshwari Group at mutually agreed price. Considering this background of the proceedings before the CLB, the AO has already accepted the active role of Shri Halbe in these proceedings before the Hon'ble CLB and allowed the fees paid to him considering that the fees paid to him was in connection with the transfer of shares and therefore, if any expenditure was incurred by him while visiting Delhi to attend these proceedings and the Agarwal Group reimbursed those expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before it. Looking to the facts of the case as discussed in detail in para 5 of this order, initially when petition was filed before the CLB, the Agarwal Group mainly wanted the publication business being partitioned among the family members as per the initial agreement arrived between them on 02.12.2004 but only after many rounds of hearing before the CLB, it became clear that partition of the publication business is not possible, a compromise was reached before the CLB that one group has to go out and the outgoing group would sell their share holding at the best possible value of shares and thereafter order dated 25.01.2006 was passed by the CLB giving first option to the Agarwal Group to buy shares and therefore, if any strategy was formulated by the Agarwal Group for enhancing the value of shares, it would have come into play only after this date and hence all the payments to parties involved in this strategy was made after final settlement and passing of final order by the CLB on 01.11.2006 allowing the Agarwal Group to sell their shares at mutually agreed price of Rs. 160 crore which was enhanced by Rs. 22 crore than the original valuation of Rs. 138 crore and thus the Agar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or before 25.01.2006 and listed in the chart shown on page No. 90 91 of this order. In the assessment order, the AO has not given any computation as to how he arrived to the amount of disallowance of Rs. 6,25,000/- and since after adding all the bills for which deduction u/s 48(i) cannot be allowed, it comes to Rs. 6,65,000/-, AO is directed to disallow deduction u/s 48(i) for Rs. 6,65,000/- instead of Rs. 6,25,000/- in respect of payment made to Smt. Bina Gupta. Therefore, Ground No. 6 is dismissed and amount of disallowance is enhanced from Rs. 6.25,000/- to Rs. 6,65,000/-. Though no specific notice for enhancement of this disallowance was given to the appellant but in the hearing held on 29.03.2011, the Ld. AR was told that for other payments made to consultants, only that payment would be allowed which is paid in connection with transfer of shares and not for making petition to be filed before the Hon'ble CLB and appearance before CLB and for this purpose, the Ld. AR was required to submit the chart of bill-wise payment made to each consultant giving purpose of payment. While submitting such chart, it was submitted by the Ld. AR that Smt. Bina Gupta was appointed as escro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case so far discussed in this order in para No. 5, 8,11 and from 12.1 to 12.9, I find that all the persons who helped the Agarwal Group to achieve their ultimate aim of selling the shares at best price remained involved in the whole process till the final order dated 01.11.2006 was passed by the Hon'ble CLB ordering the Maheshwari Group to pay Rs. 155 crore as sale consideration of shares purchased by them from the Agarwal Group, out of total mutually agreed sale consideration of Rs. 160 crore because, Rs. 5 crore was already paid in advance. These persons who formed the strategy or helped the Agarwal Group in this strategy to achieve the ultimate aim were Shri S.R. Halbe, M/s. Churu Trading Company Pvt. Ltd. and Shri Dayal Saran and therefore, final payments were made to them after the strategy formed by them was succeeded and shares of the Agarwal Group were sold as desired by them after receiving the enhanced sale proceeds and therefore payments made to them was found to be in connection with transfer of shares and allowed as deduction u/s 48(i) by me. Smt Bina Gupta also contributed partly in transfer of shares being appointed as escrow account agent and hence payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings relating to acquisition of shares and did not wait for the final outcome of the strategy formulated by the Agarwal Group. Therefore, I agree with the AO that such payments made to Shri Sudipto Sarkar are not distinctly related to and integrally connected with the transfer of shares and hence, it cannot be treated as the expenses incurred wholly and exclusively in connection with transfer of shares. As per the principle laid down by the Hon'ble AAR in the case of Compagnie Finance Hamon(supra) also, such expenses are not allowable for deduction u/s 48(i) because this payment is in the nature of legal fees paid to a lawyer for making appearance before the Company Law Board prior to the passing of final order giving green signal for the transfer of shares. Therefore, I confirm the disallowance of deduction u/s 48(i) made by the AO for Rs. 1,50,000/- paid to Shri Sudipto Sarkar. Accordingly Ground No. 7 is dismissed. 12.10.5 Payment of Rs. 10,00,000/- to Mr. Dayal Saran, Advocate, Agra A consolidated payment of Rs. 10,00,000/- (Rs. 5,00,000/- each by Ajay Agarwal family and Kamlesh Agarwal family) has been shown as fee for consultation taken from time to time in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the appellant in the return of income. Accordingly Ground No. 8 is allowed. 12.11 In view of my decision for Ground No. 4 to Ground No. 8 discussed in previous sub-paras, certain disallowance made by the AO are deleted and certain disallowances were confirmed/enhanced as presented below in a chart: In view of above details relating to allowance/disallowances of various expenses claimed as deduction by the appellant u/s 48(i), out of total disallowances of Rs. 3,18,38,000/0 made by the AO, the disallowance of Rs. 10,25,000/- (2,50,000/-+ 6,25,000/- + 1,50,000/-) is confirmed and further enhanced by Rs. 40,000/- as discussed in para 12.10.3 and therefore total disallowance of deduction u/s 48(i) comes to Rs. 10,65,000/- and therefore, the appellant gets a net relief of Rs. 3,07,73,200/-. 12.12 While deciding the grounds of this appeal relating to allowance of deduction u/s 48(i) in respect of payments made by the appellant to various lawyers and professional as discussed in previous sub-paras, I have considered all case laws cited by the AO as well as the appellant but the facts of none of the case laws was found in conformity with the facts of the case of the appellant ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le deciding the Grounds from 4 to 8 in previous para and hence no separate decision is required on this Ground. Therefore, for statistical purposes, this Ground may also be treated as partly allowed. 13.2 While filing rejoinder to the remand report of the AO, the Ld. AR took alternative plea that there is no doubt that the expenditure incurred alternatively can be considered admissible under section 57(iii). In his view, there is in fact nothing in the language of section 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. He further contended that the plain natural construction of the language of section 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. As out of total disallowance of Rs. 3,18,38,200/-, I have already allowed expenses of Rs. 3,07,73,200/- and only balance amount of Rs. 10,65,000/- is held to be disallowable u/s 48(i) and therefore, in view of above plea of the appellant, I have again examined whether the remaining expenses of Rs. 10,65,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various members of the family intended to be generally and reasonably for the benefit of the family. ii) The agreement should be with the object, either of compromising doubtful or disputed rights, or for preserving the family property, or the peace and security of the family by avoiding litigation, or for saving its honour. iii) Being an agreement, there is consideration for the same, the consideration being the expectation that such an agreement or settlement will result establishing or ensuring amity and goodwill amongst the relations. By citing the above decision of the Hon'ble Supreme Court, the Ld. AR argued that family is not to be understood in narrow sense; common tie of relations is enough. There should be a legal claim as member held in Krishna Biharilal vs. Gulabdas AIR 1971 SC 1041. 14.2 By citing the above decision of the Hon'ble Supreme Court, it was submitted by the Ld. AR that if the consideration received by the assessee is taken in pursuance to family settlement then the same does not involve transfer as held in the case of Ram Charan Das vs. Girja Nandini Devi AIR 1965 SC 323, wherein it was held that the transaction of a family settlement entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, I have dealt with the Ground No. 10. In the assessment order, the AO has dealt with this issue in para No. 9 and finally he has also given finding in para No. 10 of the assessment order that the assessee himself by considering the applicability of provisions of section 45 have offered the gains under the head long term capital gain, there is no doubt that the consideration received on transfer of share holding by the assessee is taxable as capital gain. 14.4 In the Ground taken before me, the appellant has disputed the definition of family taken by the AO given in the provision of section 10(5) contending that this definition is for a limited purpose for claiming exemption from taxation of amount received on account of leave travel concession and further arguing that family settlement should be taken in wider sense in view of various Courts decision including Hon'ble Supreme Court. Instead of going into the dispute of the definition of family applicable in this case, I have examined whether on the facts of this case, the compromise under which shares of the Agarwal Group was sold to the Maheshwari Group can be regarded as family settlement in view of case laws cited by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly showed this LTCG in their return of income. Now it appears, the appellant is raking up this issue only because the AO during the assessment proceeding raised a query relating to family settlement. Despite this issue was settled by the AO in the assessment order, the appellant has still continued this dispute in appeal before me ignoring the fact that he himself has voluntarily declared the capital gain on sale of these shares and paid the tax. Such approach of the appellant is not acceptable considering the fact that the order of the CLB passed in this regard is not for family settlement but to resolve a dispute between two warring factions controlling two publishing companies and the same was settled by exit of one Group i.e. the Agarwal Group to whom the appellant belongs, by selling their shares on getting a decent price after negotiation. Therefore, the contention raised by the appellant in Ground No. 10 for exempting the capital gain declared by him from taxation terming it as earned on account of family settlement is not found to be tenable at all and hence dismissed. Accordingly Ground No. 10 is dismissed. 15. In Ground No. 11, the appellant has raised anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otel in form of fee, the Hon'ble Supreme Court held the receipt of compensation as capital receipt because the amount received by the assessee was in form a compensation on losing its right to run the hotel. In the present case, what the appellant has received is not a compensation on leaving the company but he has received the sale consideration on sale of shares held by him in the company and for receiving the best price, he also formulated a strategy compelling the other group to pay the best price. Therefore, the amount received by the appellant in this case is the sale consideration of shares and not a compensation for leaving the company and hence such amount received by the appellant cannot be said to be capital receipt but received on sale of a capital asset being in form of shares and hence for sale of this capital asset, he would be liable for capital gain and therefore, knowing all these facts of his case, he consciously declared capital gain earned by him and paid taxes. Now, raising the issue of considering this receipt as capital receipt in appeal is not found to be tenable when this issue has already been rejected in the assessment order on the ground that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the CLB was passed. If by subsequent notification, investment in bonds was caped at Rs. 50,00,000/-, it cannot be said to be sufficient reason for paying short advance tax by the appellant. Had the appellant made the investment of full amount of capital gain in REC bond before 22.12.2006, thinking that the whole amount would be exempted without any knowledge of its capping subsequently, his case would have been on stronger footing for arguing that he was prevented by the reasonable cause to pay advance tax correctly in time but the appellant made the said investment on 17.03.2007 and accordingly paid the advance tax in the month of March 2007. Therefore, in my opinion there was no reasonable cause for the appellant for delaying payment of advance tax by him and hence he is liable for paying interest u/s 234C. It has also been held by the Hon'ble Supreme Court in the case of CIT vs. Anjum M.H. Ghaswala Ors 252 ITR 1 (2001)(SC) that word shall occurring in section 234A, 234B and 234C indicate clear mandate of charging interest for defaults. The decision of the Hon'ble Supreme Court in this case relating to charging of interest in these sections is reproduced as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal are as under:- - 8. The issue under consideration whether such expenses are allowable under section 48(i) of the Act for computing long term capital gain. To appreciate the issue, we would like to go through section 48(i) and relevant scheme of the Act. For the purpose of ready reference, the section 48 is reproduced as under:-- 48. The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the 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 connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginning on the 1st day of April, 1981, whichever is later; (iv) indexed cost of any improvement means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; [(v) Cost Inflation Index , in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five percent of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.]] 9. What can be deducted under section 48(i) of the Act is expenditure incurred wholly and exclusively in connection with the transfer contemplated by section 45. In computing capital gains, expenditure incurred wholly and exclusively in connection with the transfer of a capital asset has to be deducted under section 48(i) of the Act. The words in connection with such transfer occurring in that section means intrinsically related to the transfer. These words are very wide in their ambit. There is no w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO directing him (a) to adopt the final figure of compensation and solatium settled by the High Court as the full value of the transfer of the property, and (b) to allow a further deduction of the aggregate cost certified for the assessee by the civil court and the High Court, subject to the condition that the capital gains should not be allowed to go below the figure fixed by the AAC. On reference, the Revenue contended, inter alia, (i) that the Tribunal had acted illegally in permitting the assessee to put forward before it for the first time the claim for deduction of the expenditure incurred in prosecuting the claim for enhancement of the compensation before the civil courts, and (ii) that the aforesaid expenditure was incurred only subsequent to the transfer which should be taken as having become complete when the title passed to the State Government on its taking possession of the property under section 18 of the Land Acquisition Act, 1864. The court held as under:-- The further question to be considered is whether the Tribunal was right in its view that the expenditure incurred by the assessee in prosecuting the land acquisition reference case before the civil court is an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in connection with the transfer. Our attention has been drawn to a recent decision of a learned single judge of this court wherein an identical view has been expressed-Vasumathy v. CIT [1980] 123 ITR 94. We are in complete agreement with the dictum laid down in the said decision. We accordingly hold that the Tribunal was perfectly right in incorporating in its decision a direction to the ITO that while computing the capital gains on the basis of the compensation awarded to the assessee by the High Court the costs certified for the assessee by the sub-court and the High Court should be allowed as a deduction subject to the condition that by such deduction the capital gains should not go below the figure fixed by the AAC against whose order no appeal has been filed. (ii) V.A. Vasumathi vs. Commissioner of Income-tax, 123 ITR 94 (Ker) - The brief facts of this case are that certain expenditure was incurred by the assessee for the purpose of prosecuting in a civil court his claim for enhancement of the compensation under the Land Acquisition Act. The Commissioner disallowed such expenditure in computing capital gains tax liability on the ground that it was not incurred in connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have fetched such a price which the assessee actually got now after converting the lands into house sites. Therefore, all the expenses incurred in connection with the preparing of the lay-outs and getting them sanctioned should be taken to be expenses solely incurred for the transfer of the land for a better price. The other expenses such as salary paid to the clerk who was attending to the preparation of the lay-outs and also for finding suitable purchasers should also be taken to be expenses incurred exclusively for the transfer of the land. The maintenance of an office which had to be located in a building situated in the land itself by making some improvement should also be taken to be exclusively for the purposes of the transfer of land. Therefore, the Court held that the Tribunal was right in allowing the assessee's claim and no referable question of law arose from its order. (iv) Aruna Mills Limited vs. Commissioner of Income Tax, 31 ITR 153 (Bomb). The Court held as under:-- He has drawn our attention to an observation of the Tribunal in the statement of the case that the so-called ordinary principles of commercial accounting are not found to be defined in any code and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the commission as a deduction under s. 10(2)(xv) of the Indian I.T. Act, 1922. The word wholly in s. 10(2)(xv) refers to the quantum of expenditure but the word exclusively refers to the motive, objective and purpose of the expenditure. An expenditure is to be allowed if it satisfied the test of commercial expediency and commercial expediency has to be judged from the point of view of assessee who knows best how his business has to be run but such a point of view has to be a prudent and reasonable point of view which is free from an apparent taint of excessiveness, collusiveness or colorable discretion. Thus, on the one hand, it is not for the ITO to judge whether the assessee could have avoided to reduce a particular expenditure but on the other, an unreasonably high or excessive expenditure would normally and correctly caution the ITO to examine it more carefully and, if combined with other circumstances, it leads to the conclusion that the motive behind the expenditure is to unduly benefit someone, the ITO is well within his rights to come to a finding that the expenditure is not exclusively for the purposes of business. Relationship by itself, without more, cannot lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is no dispute regarding the fact that the expenditures were incurred by the assessee. That the Agarwal Group went to CLB under a strategy to get the value of shares of both the companies enhanced and frozen for which first they showed that they are interested in buying the shares knowing very well that they had no capacity to buy the shares held by the majority share holders (64.67%) and therefore, they made such financial arrangements which was in contravention of the conditions fixed by CLB in its order dated 25.01.2006 to arrange finance in which M/s. Churu Trading Co. Pvt. Ltd. helped them through Media West and other Merchant Bankers. That because of this arrangement, the other party i.e. the Maheshwari Group got alarmed and they further moved to CLB to restrain the Agarwal Group to buy majority share holding and even agreed to pay Rs. 22 Crores extra amount over and above the 35.33% of valuation of shares of Rs. 390 Crores which comes to Rs. 138 Crores and finally in view of their strategy, the Agarwal Group got Rs. 160 crores by selling their 35.33% of share holding in both the Companies. The excess realization of Rs. 22 Crores could be made possible primarily with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,24,24,000/- made to Shri Halbe because he found that major portion of fee was attributable to the proceedings before CLB in connection with the transfer of shares. 15. After having accepted that the payment of fees made to Shri Halbe was attributable to the proceedings before the CLB in connection with transfer of shares, The A.O. disallowed the claim of the assessee for deduction of Rs. 3,13,200/- paid to Shri Halbe towards the reimbursement of traveling, lodging and boarding expenses which he claimed on account of incurring expenditure while visiting Delhi in connection with proceeding before the CLB. When the fees paid is held to have been incurred in connection with the transfer of shares, other incidental expenses reimbursed to him in connection with proceeding before the CLB is also allowable. We, therefore, are of the considered opinion that once the A.O. has found that the services rendered by Shri Halbe was mainly related to the proceedings before the CLB in connection with transfer of shares and allowed the full fees paid to him for deduction under section 48(i), there is no logic to deny the deduction for the reimbursement of incidental expenses on travelling, lodging, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as initiation fees and 1% of Gross Transaction Value subject to a minimum of Rs. 3,00,00,000/- as success fees as per the agreement dated 10.01.2006 entered with them. This payment was made much before the date of the order of CLB i.e. 10.07.2006, when the Maheshwari Group was ordered to purchase the share holding of the Agarwal Group. In view of the above facts and looking to starting role played by this party in arranging financiers for the Agarwal Group in acquisition of shares, the payment to M/s. Rabo India Securities Pvt. Ltd. is part of the strategy. Merely on the basis of the fact that this party was original party to strategy and did not continue does not effect in allowing as expenditures under section 48(i) of the Act. Similarly, during the process of acquisition of majority share holding of Maheshwari Group, the Agarwal Group also entered into another agreement with M/s. Churu Trading Pvt. Ltd. that acted as arranger for arranging Rs. 252 Crores to acquire majority shareholding in the companies. As per the terms of agreement dated 01.02.2006 with M/s. Churu Trading Co. Pvt. Ltd., the Agarwal Group was to pay Rs. 8.5 Crores as arranger fee to it for arranging the funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Churu Trading Co. Pvt. Ltd. and its payment was to be made irrespective of acquisition of 64.67% shares, if shares had been acquired, it should have been paid within 30 days from the date of the acquisition of these shares otherwise payment was to be made by 31st December 2006. With such terms in the agreement, the question of payment of such arranger fees would have arisen only when the fund of Rs. 252 Crores was arranged. In the present case, liability to pay the arranger fees by the Agarwal Group to the M/s. Churu Trading Co. Pvt. Ltd. would have arisen only in case of the event of arranging the fund of Rs. 252 Crores had happened. But by the time M/s. Churu Trading Co. Pvt. Ltd. could arrange fund of Rs. 12.5 Crores, the CLB on the petition of the Maheshwari Group, passed an order dated 04.04.2006 deferring the payments of further installments and thereafter, vide order dated 10.07.2006 cancelled its earlier order of giving option to the Agarwal Group to purchase 64.67% shares and ordered the Maheshwari Group to purchase 35.33% shares of the Agarwal Group. Rs. 8.5 Crores was paid to M/s. Churu Trading Co. Pvt. Ltd. and therefore, the question is as to for what services th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed to have made payment of Rs. 1,50,000/- to Shri Sudipto Sarkar, Advocate on account of appearance fees before the CLB. The CIT(A) confirmed the order of the A.O. In the light of detailed discussion made in Paragraph Nos. 8 to 18 of this order, the claim of the assessee is allowable. Payment of Rs. 10,00,000/- to Shri Dayal Saran, Advocate, Agra 19. A consolidated payment of Rs. 10,00,000/- (Rs. 5,00,000/- each by Ajay Agarwal family and Kamlesh Agarwal family) has been shown as fee for consultation taken from time to time in respect of the transfer of shares. The A.O. has discussed in the assessment order that there is no evidence which can corroborate that any legal services have been extended in the process of valuation of share or in the process of compromise concerning the transfer of shares. In his view such a legal expense does not find any place that they are intrinsically linked with the transfer of shares and therefore, he held that it cannot be allowed as deduction under section 48(i) of the Act. The CIT(A) has gone through the bill of Shri Dayal Saran and found that in the bill, it is clearly written that this bill was raised for charging the fees for consultation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the groups. The assessee was in minority share holding, therefore, in their interest they approached to the CLB. The CLB passed an order dated 25.01.2006 of which a detailed discussion has been made by CIT(A) in his order in para No. 5.14. As per the provisions of CLB, the total value of shares froze at Rs. 390 Crores by Maheshwari group, accordingly Rs. 252 Crores (64.67%) share to Maheshwari group and Rs. 138 Crores (35.33%) to Agarwal group. The Agarwal group formulated strategy to show that they are going to purchase the shares held by Maheshwari group and made arrangement accordingly. When this strategy came to the notice of Maheshwari group they filed application before the CLB for direction to the Agarwal group to deposit their shares in Escrow account alleging that Agarwal group has violated the terms of the concerned order dated 25.01.2006. The Agarwal group did not deposit their shares in the Escrow account as that is also part of strategy to create pressure against Maheshwari group so that the Agarwal group gets more consideration of their shares. After a prolonged litigation carried before the CLB, the sale consideration of share holding of Agarwal group increased at 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer. The Hon'ble Madras High Court in the case of CIT vs. R. Ramanathan Chettiar (Supra) held that such expenditures are allowable expenditures under section 48(i) of the Act, otherwise in that case the sale of the land, as it was, would not have fetched such a price which the assessee actually got now after converting the land into house sites. Similar situation is in the case under consideration. If the assessee did formulate such strategy and incurred expenditure, the assessee could not have got consideration of Rs. 160 Crores in their minority share holding. In the light of the ratio laid down by the Hon'ble Bombay High Court in the case of Aruna Mills Limited vs. CIT (Supra) the claim of the assessee is allowable, considering the principle of commercial expediency. For calculating the correct profit on sale of shares, the expenditure incurred in respect of transfer of share holding is allowable expenditure under section 48(i) of the Act. The Apex Court in the case of CIT vs. Dhanarajgirji Narasingirgi (Supra) held that it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is only expenses in connection with transfer of shares, this is not correct to say so because without other part of strategy this alone thing to appearing before CLB will not serve the purpose. The assessee gets success because of the consolidated efforts. The case under consideration is not a simple case of filing petition before the CLB but filing of petition before CLB by the assessee is part of strategy. On consideration of entire aspect of strategy, we find that expenses incurred by the assessee were integrally connected with transfer of shares. Therefore, on consideration of entirety of facts, we are of the view that these expenditures are allowable. 22. As regards finding of the CIT(A) following an order of Authority for Advance Ruling in the case of Compagnie Financiere Hamon (2009) 310 ITR 1 (AAR) we find that the CIT(A) without appreciating the facts of that case and facts of the case under consideration followed the said judgement. In the said case, expenditures were not related to transfer of shares but related to initial period of the dispute. In the case under consideration, the sole object of the expenditures incurred are legal fee in connection with transfer as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of deletion of addition of Rs. 1,00,00,000/- made by the CIT(A) on account of payment made to M/s. Churu Trading Co. Pvt. Ltd. under section 48(i) of the Act. 26. In the light of detailed discussions made above in paragraph Nos. 8 to 24 of this order, appeal of the Revenue is dismissed. ITA No. 406/Agr/2011 by the Revenue in the case of Smt. Kamlesh Agarwal 27. In this appeal the Revenue has raised ground in respect of deletion of addition of Rs. 85,00,000/- made by the CIT(A). The payment was made to M/s. Churu Trading Co. Pvt. Ltd. 28. In the light of detailed discussions made above in paragraph Nos. 8 to 24 of this order, appeal of the Revenue is dismissed. ITA No. 466/Agr/2011 by the Revenue in the case of Shri Hemant Anand 29. In this appeal the Revenue has raised ground in respect of deletion of addition of Rs. 25,00,000/- made by the CIT(A). The A.O. made the addition disallowing payment made to M/s. Churu Trading Co. Pvt. Ltd. under section 48(i) of the Act. 30. In the light of the detailed discussions made above in paragraph Nos. 8 to 24 of this order, appeal of the Revenue is dismissed. ITA No. 407/Agr/2011 by the Revenue in the case of Shri Sagar Anand 31. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. vs. CCE (2006) 280 ITR 321 (SC) CIT vs. Revathi Equipment Ltd. (2008) 298 ITR 67 (Mad.) CIT vs. Anand Prakash (2009) 316 ITR 141 (Del.) CIT vs. Smt. Premlata Jalani (2003) 264 ITR 744 (Raj.) 37. Ld. Departmental Representative, on the other hand, relied upon the order of CIT(A) and submitted that it is settled legal position that interest is mandatory. He relied upon the judgement of Hon'ble Supreme Court in the case of Karanvir Singh Gossal vs. CIT, 349 ITR 692 (SC). 38. We have heard the ld. Representatives of the parties and records perused. In the light of law laid down by the Apex Court in the case of Karanvir Singh Gossal vs. CIT, 349 ITR 692 (SC) wherein it has been held that charging of interest under section 234B/ 234C is mandatory. Following the law laid down by the Apex Court in the case of Karanvir Singh Gossal (supra), we do not find any substance in this ground of appeal of the assessee, therefore, the same is dismissed. Thus, appeal of the assessee is partly allowed. ITA No. 349/Agr/2011 by the assessee Smt. Renu Agarwal 39. Ground No. 1 is in respect of sustenance of addition of Rs. 7,37,000/- by the CIT(A) being payment made to Mrs. Bina Gupta. 40. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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