THE ITO, WARD-2(2)(1),, AHMEDABAD vs. SHRI JAGDISHCHANDRA B. PATEL,, AHMEDABAD

आदेश/O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER:

The captioned appeal filed by the Revenue and the Cross Objection filed by the Assessee against the order of the Learned Commissioner of Income Tax(Appeals), Ahmedabad-5, dated 24/05/2016 ( in short “Ld.CIT”) arising in the matter of assessment order passed under s. 143 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt. 25/02/2013 relevant

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 2 to the Assessment Year 2010-2011. The assessee has filed Cross Objection in the Revenue’s appeal bearing no.2166/AHD/2016 for the Assessment Year 2010-2011.

The Revenue has raised the following ground of appeal.

3. The only issue raised by the Revenue is that the Ld.CIT (A) erred in deleting the addition of Rs. 15,35,00,000/- made by the AO on account of expenditure incurred in connection with the transfer of land.

4.1 The assessee vide agreement dated 14 August 2009 has agreed to transfer the impugned lands to M/s Antriksh Buildcon Pvt. Ltd. (for short ABPL) amounting to Rs. 20,22,42,000/- only.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 3 4.2 However, the assessee subsequently wanted to make outright sale of the impugned lands to M/s Bosch Rexroth Ltd. (for short BRL) for Rs. 45,16,73,800/- only. But ABPL objected on such transfer of land to BRL and threatened to the assessee to institute the legal proceedings against him through the advocate notice dated 9-11-2009.

4.3 Thereafter, the assessee vide letter dated 20-11-2009 demanded to ABPL to surrender its right in the impugned lands which was accepted by ABPL vide MOU dated 28-11-2009. Accordingly, the assessee and ABPL entered into cancellation deed dated 1 December 2009 on the understanding that the former will pay a compensation of ₹ 15,35,00,000/- to the latter. Thus the assessee made the payment of the agreed amount to terminate the rights of ABPL in such lands otherwise it would not have been possible to transfer the clear and marketable title to the 3rd party as discussed above.

4.4 Thus the assessee claimed that the compensation of Rs. 15,35,00,000/- was eligible for deduction under section 48(i) of the Act as it was incurred wholly and exclusively in connection with such transfer.

4.5 The assessee also submitted that it has received net incremental gain by selling the property to M/s BRL at ₹ 9,59,31,800/- which resulted more tax to the revenue by ₹ 3,23,25,486/- only. As such there was no loss to the Revenue by the action of the assessee for terminating the previous contract at a cost of ₹ 15,35,00,000/-.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 4

5.1 The AO was also of the view that had the assessee waited for another 32 days, he could have avoided the impugned amount of compensation paid to ABPL.

5.2 In view of the above, the AO held that the so-called compensation has not been paid in connection with the transfer of such land. Hence the AO disallowed the same and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

6.1 The assessee also submitted that the impugned compensation is subject to tax in the hands of ABPL which has been reopened under the provisions of section 147 of the Act. The assessee in support of his contention filed the copy of the notice issued under section 148 of the Act dated 23-10-2013 for the assessment year 2010-11 and the assessment order dated 30 January 2015.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 5 As such ABPL has disclosed the amount of compensation received by it as income in its financial statements.

6.2 There was no evidence brought by the AO that the amount of compensation paid by the assessee has come back to him directly or indirectly or in any other manner for its benefit.

7.1 There was no documentary evidence brought on record that the impugned transaction of compensation to ABPL was not genuine. Moreover, there is no evidence suggesting that the amount so paid was received back by the assessee.

7.2 In the identical facts and circumstances, his predecessor in the assessment year 2009-10 has deleted the addition made by the AO in the appeal number CIT (A)-XV/DC/IT/ Cir. 9/457/2011-12 dated 13 August 2012.

7.3 In view of the above, the learned CIT (A) allowed the claim of the assessee for the expenditure incurred against the capital gain offered by the assessee. Thus the learned CIT-A allowed the ground of appeal of the assessee.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 6 Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.

agreement. The sale deed had been executed with Applewood Estate Pvt. Ltd. as compensation for termination of banakhat agreement. The fact in the year under consideration for termination of banakhat agreement. The fact in the year under consideration is nothing different except for the parties involved where Prerna Infrabuild Ltd has been replaced with Antariksh Buildcon Pvt . Ltd.

11.1 The impugned issue for the AY 2009-10 travelled up to the ITAT in & CO. No. 29/AHD/2013 which was decided in favour of the assessee vide order dated 16-05-2017. The relevant extract of the order is reproduced as under: 8. We have considered Revenue's averments in its abovestated petition. It is not in dispute that the Assessing Officer never doubted the assessee to have made the impugned payment in the nature of compensation to M/s. Prerna Infrabuild in furtherance to the abovestated arbitration award. His main ground taken in assessment order for disallowing the impugned expenditure claim u/s.48(l) of the Act is that the same is not admissible since not connected with transfer of the land in question. It is also evident that the CIT(A)'s order under challenge is dated 13.08.2012 whereas the CIT's order (supra) is dated 29.03.2014 in furtherance to his show cause notice issued on 18.07.2013. We observe in these peculiar facts that Section 263 Explanation l(c) stipulating that CIT's jurisdiction does not extend to those matters which has been considered and decided in an appeal; squarely applies here. We reiterate that although the assessee is not the same in the above CIT's order and CIT(A)'s order under challenge, still we hold that former's findings would not have mattered at this stage even if the assessee were the same. It further transpires that the CIT's order hereinabove stands reversed in said assessee's appeal ITA No.lll6/Ahd/2014 with detailed observations that payment to M/s. Prerna Infrabuild stood duly proved by way of banking channel. We therefore find no merit in Revenue's above petition seeking to place reliance upon CIT's order (supra). We thus proceed to adjudicate the Revenue's sole substantive ground on the basis of the material already on record/ 9. We now come to learned Departmental Representative' argument that the impugned expenditure of Rs.l0.61crores is not allowable u/s.48(i) of the Act since not incurred wholly and exclusively incurred in connection with the transfer in question. We wish to mention here that the assessee declared long term capital gains in the impugned assessment year amounting to Rs.4,56,35,583/- and raised the impugned claim of transfer expenses of Rs.l(X61crores. Learned Departmental Representative reiterates the abovestated case law to fortify Assessing Officer's findings. We however find no merit therein. It is evident that hon'ble Supreme Court's decision in Jagdishchandran's case (supra) pertained to a mortgage deed which is not the case here. Same is the fact involved in said hon'ble court's second decision in a Attili N. Rao's case (supra). Third decision in Sita Nanda's case (supra) holds that an expenditure under the above statutory provision has to be wholly and exclusively in connection with the transfer. We keep in mind the same to once again revert back to facts narrated in preceding paragraph wherein it stands

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 8 proved that the assessee has paid the impugned compensation for having not been able to perform his obligation in development agreement dated 30.03.2007 as followed by subsequent arrangement fetching huge profits by way of long term capital gains. It has further come on record that the assessee made the impugned payment in furtherance to an arbitration award having very much a legal sanctity under arbitration law. It is evident from the paper book that hon'ble Bombay high court in CIT vs. Shakuntala Kantilal (1991) 190 ITR 56 (Bombay) allows very much a similar claim of expenditure by holding the same to be in connection with the transfer in question u/s.48(i) of the Act. We find that the assessee therein had entered into an agreement. The vendee concerned filed a suit. The assessee paid the sum in question to the earlier vendee. He thereafter sold the very property to another vendee. This followed identical claim of expenditure which was allowed by hon'ble high court. We make it clear that the case records contain a long compilation of judicial precedents in the very direction. We however conclude that the same are not quoted for the sake of brevity. The gist that flows therefrom is that such an expenditure comes u/s.48(i) of the Act. We further deem it appropriate to observe that the Assessing Officer's case law (supra) pertains to mortgages only which is not found relevant since facts of the instant case involve at development agreement creating a clear cut encumbrance in favour of the developer who has been paid the compensation in question. We thus are of the view that the Assessing Officer's action placing reliance upon the above quoted decisions is not sustainable. We accordingly conclude that the learned CIT(A) has rightly deleted the impugned disallowance after a very detailed discussion extracted hereinabove. The Revenue's sole substantive ground as well as main appeal 2 fails.

11.2 The learned DR at the time of hearing has not brought anything on record suggesting that the facts of the immediate preceding assessment year viz a viz for the year under consideration were different. Thus it is inferred that the facts of the immediate preceding assessment year viz a viz for the year under consideration are identical. Accordingly, we are bound to follow the impugned order of the ITAT. As such, we cannot change the view taken by the ITAT in its own case of the assessee in the earlier A.Y. 2009-10 in the identical facts and circumstances. Regarding this we find support & guidance from the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 9 facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities.

If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself."

11.3. We also find that the Hon’ble supreme court in case of Ambika Parsad Mishra Vs. State of U.P. and Others vide writ petition no. 1543 of 1977 vide order dated 09-05-1980 has taken the similar view as taken by the Hon’ble High court (supra) as detailed under:

“Thus we get the statutory perspective of agrarian reform and so, the constitutionality of the Act has to be tested on the touchstone of Art 31A which is the relevant protective armour for land reform laws. Even here, we must state that while we do refer to the range of constitutional immunity Art. 31Aconfers on agrarian reform measures we do not rest our decision on that provision. Independently ofArt. 31A, the impugned legislation can withstand constitutional invasion and so the further challenge to Art. 31A itself is of no consequence. The comprehensive vocabulary of that purposeful provision obviously catches within its protective net the present Act and, broadly speaking, the antiseptic effect of that With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 10 Article is sufficient to immunise the Act against invalidation to the extent stated therein. The extreme argument that Art. 31A itself is void as violative of the basic structure of the Constitution has been negatived by my learned brother, Bhagwati, J. in a kindred group of cases of Andhra Pradesh. The amulet of Art. 31A is, therefore, potent, so far as it goes, but beyond its ambit it is still possible, as counsel have endeavoured, to spin out some sound argument to nullify one section or the other. Surely, the legislature cannot run amok in the blind belief that Art. 31A is omnipotent. We will examine the alleged infirmities in due course. It is significant that even apart from the many decisions upholding Art. 31A, Golak Nath's case decided by a Bench of 11 Judges, while holding that the Constitution (First Amendment) Act exceeded the constituent power still categorically declared that the said amendment and a few other like amendments would be held good based on the doctrine of prospective over-ruling. The result, for our purpose, is that even Golak Nath's case has held Art. 31A valid. The note struck by later cases reversing Golaknath does not militate against the vires of Art. 31A. Suffice it to say that in the Kesavananda Bharati's case. Article 31A was challenged as beyond the amendatory power of Parliament and, therefore, invalid. But, after listening to the marathon erudition from eminent counsel, a 13 Judges Bench of this Court upheld the vires of Article 31A in unequivocal terms. That decision binds, on the simple score of stare decisis and the constitutional ground of Art.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 11

“81[Mode of computation. 8248. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration 83received 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 83a; (ii) the cost of acquisition of the asset and the cost of any improvement 83a thereto:”

12.1 From the above provisions, it is clear that the expenses incurred wholly and exclusively in connection with the transfer of assets is eligible for deduction under section 48 of the Act. The phrase ‘wholly and exclusively’ means that it should be directly linked with the subject matter. One needs to be quite clear on whether a deduction/expense has both a commercial and private element. If yes, then how that element is divided. To give a simple example, if a sole trader deducts the expense of running a car, the proportion of their personal use of that vehicle has to be worked out accurately and excluded from the amount submitted for deduction.

12.2 In the case on hand, the expenses incurred by the assessee were having direct nexus/ connection with the transfer of the lands otherwise it was not possible to transfer the clear and marketable title of the land. Even it is assumed that such expense was not necessary to incur for such transfer of lands. But the language of the provision under section 48 of the Act is unambiguous that it does not talk about the expenses which are necessary for such transfer shall be allowed. Had this been the intention of the legislation then there would have been a provision for the expenses which were necessary for such transfer. But there is no such provision under section 48 of the Act. The section requires that the expenses should be directly connected with the transfer of the assets. In this regard, we draw support and guidance from the judgment of Hon’ble Supreme Court in the case of Sasson J. David & co. Pvt Ltd Vs. CIT reported in 1 taxman 485 wherein it was held as under:

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 12

“It has to be observed here that the expression "wholly and exclusively" used in section 10(2)(xv) of the Act does not mean "necessarily". Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of section 37 of the Income-tax Act, 1961 which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under section 37. Section 37(1) in the Bill read "any expenditure. . . . laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed" The introduction of the word "necessarily" in the above section resulted in public protest. Consequently when section 37 was finally enacted into law, the word "necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. This view is in accord with the following observations made by this Court in CIT v. ChandulalKeshavlal& Co. [1960] 3 SCR 38 at page 48”

12.3 We further draw support and guidance from the judgment of Bombay High Court in case CIT Vs. Smt. Shakuntalakantilal reported in 58 taxman 106 wherein it was held as under: “The Legislature while using the expression 'full value of consideration', in our view, has contemplated both additions to as well as deductions from the apparent value. What it means is the real and effective consideration. That apart so far as (i) of section 48 is concerned, we find that the expression used by the Legislature in its wisdom is wider than the expression 'for the transfer'. The expression used is 'the expenditure incurred wholly and exclusively in connection with such transfer'. The expression 'in connection with such transfer' is, in our view,, certainly wider than the expression 'for the transfer'. Here again, we are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if without removing any encumbrance including the encumbrance of the type involved in this case, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration requires to be reduced by the amount of compensation. The first question is, therefore, answered in the affirmative and in favour of the assessee.” 12.4 We also draw support and guidance on the judgment of Bombay High Court in case of CIT Vs. AbrarAlvi reported in 117 taxman 95 wherein it was held as under:

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 13

“Before concluding, one more point needs to be mentioned. The assessee has paid an amount of Rs. 8 lakhs to his son, AbrarAlvi. Much prior to the sale of the property in 1992, AbrarAlvi has instituted a suit in the city civil court being Suit No. 4763 of 1986, seeking an injunction restraining the assessee from selling 'JankiKutir'. Hence, the said amount of Rs. 8 lakhs was paid. On the facts, the Tribunal found that the amount was paid to remove the encumbrance. The Tribunal also applied the ratio of the judgment of this Court in the case of CIT v. ShakuntalaKantilal [1991] 190 ITR 561, wherein it has been held that expenditure incurred in removing the encumbrances is deductible. The Tribunal found that there was an acrimonious dispute between the father and the son and the said amount was paid to effect the transfer. Hence, the Tribunal ordered Rs. 8 lakhs to be deductible. We see no reason to interfere with this finding of fact.”

12.5 We also draw support and guidance from the judgment of Hon’ble Kerala High Court in the case of CIT Vs. Dr. P. Rajendran reported in 127 ITR 810 wherein it was held as under: “The words "in connection with" used in section 48(i) were very wide in their ambit. There was, thus, no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The crucial test was whether the expenditure was incurred wholly and exclusively in connection with the transfer and it was immaterial whether it was incurred prior or subsequent to the passing of title. Further, by virtue of the definition contained in section 2(47), the expression "transfer" would include the compulsory acquisition of a capital asset under any law. Hence, the compulsory acquisition of property under the Land Acquisition Act, 1964, had to be treated as a "transfer" for computing capital gains. The fixation of the quantum of consideration for the transfer was finally effected only by the decision rendered by the civil court. Such fixation formed an integral part of the process of transfer by way of compulsory acquisition provided by the Land Acquisition Act. The Tribunal was, therefore, right in holding that the expenses incurred by the assessee in his litigation before the civil courts to claim enhanced compensation for the compulsory acquisition of his property was an expenditure incurred wholly and exclusively in connection with its transfer”

12.6 It is settled law that the AO cannot sit on the armchair of the assessee to decide/direct the business affairs of the assessee. It is the assessee who knows the best of its business affairs. The role of the assessee is to establish whether the expenses were incurred wholly and exclusively in connection with the transfer of assets. There is no ambiguity that the expenses were incurred wholly and exclusively in connection with the transfer of the land as With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 14 held by us in the preceding paragraph. Thus the allegation of the AO that the assessee was not under the obligation to incur the cost for the transfer of such land, has no relevance in the given facts and circumstances.

12.7 In this regard we also draw support and guidance from the judgment of Hon’ble High Court of Delhi in case of CIT Vs. Oracale India Pvt. Ltd. reported in 11 taxmann.com 139 wherein it was held as under:

“19. It is, thus, clear that what is to be seen is that the expenditure was incurred by the assessee in the course of business and had nexus with the business of the assessee. It could not be disputed that the payment of royalty is a business expenditure, which was expended wholly and exclusively for the purpose of business of the assessee. The nature of the expenses is also not such which would fall in any of the exceptions carved out under sections 30 and 36 of the Act. Once these conditions are satisfied, the expense is to be allowed in toto as business expenditure, and the Revenue cannot sit in the arm's chair of the assessee and decide as to how affairs of the business are to be run and wasteful or excessive expenditure is to be curtailed. The question of commercial expediency is to be judged by the assessee and not by the AO. Following test was laid down in the case of Atherton v. British Insulated &Helsby Cables Ltd. 10 TC 155, 191 (HL) in the following terms:

"A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on the business, may yet be expended wholly and exclusively for the purposes of the trade." The above test was quoted with approval and applied by the Supreme Court in the case of Eastern Investments Ltd. v. CIT [1951] 20 ITR 1.”

12.8 It is also pertinent to note that the assessee by cancelling the agreement with ABPL was able to generate more income and consequently paid more taxes to the government exchequer. As such, there was no loss to the revenue as alleged by the AO in his order. Had the assessee sold the impugned land to ABPL instead of BRL, he could not have earned the incremental gain as discussed in the preceding paragraph.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 15 12.9 We also note that the payment for the compensation to ABPL was made through the banking channel and there was no evidence available to the AO suggesting that such amount of compensation was received back by the assessee directly or indirectly. As such, the amount of compensation was paid as per the agreement available on record.

In view of the above we conclude that the assessee is entitled to a deduction under section 48 of the Act, for the expenses incurred wholly and exclusively in connection with the transfer of the lands. Accordingly, we uphold the order of the ld. CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of Revenue is dismissed.

In the result, the appeal of the Revenue is dismissed.

Coming to the CO bearing No.159/AHD/2016 filed by the assessee The assessee has raised the following ground in the CO.

1. The ld.CIT(A) after carefully considering the facts of the case, submission of the Respondent, various judicial pronouncements relied upon by the Respondent and relying upon the appellate order rendered by the CIT(A)-XV, Ahmedabad, vide order in Appeal No.CIT(A)-XV/DCIT/Cir.9.457/11012 dated 13.08.2012 for A.Y.2009-10, wherein identical addition made by the A.O was deleted, has rightly deleted the addition of Rs.14,35,00,000/- on account of expenditure incurred by the appellant in connection with the sale of land.

2. Your respondent craves right to add, amend, alter, modify, substitute, delete or modify all or any of the above grounds of cross objection.

In the result, the CO filed by the assessee is dismissed.

With C.O. No.159/Ahd/2016 Asstt. Year 2010-11 16

Order pronounced in the Court on 27/11/2019 at Ahmedabad.