DEEPAK GURUSHANKAR TRIPATHI,PANJIM - GOA vs. DCIT CIRCLE 1(1) PANJIM, PANJIM GOA

The sole grievance of the assessee is against the disallowance of expenses at Rs.83,47,183/- allegedly claimed against transfer of capital gains.

Brief facts of the case are that the assessee is an individual and declared income of Rs.33,54,12,110/- in the income-tax return for A.Y. 2016-17 furnished on 13.10.2016. Case selected for scrutiny under CASS followed by validly serving statutory notices u/s.143(2) and 142(1) of the Act. Ld. Assessing Officer observed that one of the main transaction during the year is the income from capital gain of Rs.25,48,97,024/- from sale of unlisted shares of M/s. Lilac Medicare Pvt. Ltd. In the said transaction, assessee has claimed expenses of Rs.85,43,302/- which are mainly towards Advisory fees and Event and Execution expenses. Ld. Assessing Officer was not satisfied with the said claim as in his view the assessee failed to establish the link between the Advisory fees and Event and execution expenses paid with the sale consideration and observed that they are not directly connected to the securities sold during the year and therefore cannot be loaded to the cost of acquisition. Accordingly, disallowance of expenses at Rs.83,47,183/- made and income assessed at Rs.34,37,59,290/-.

Aggrieved assessee preferred appeal before ld.CIT(A) but inspite of filing detailed submissions could not succeed as ld.CIT(A) held that burden of proof lies squarely on the assessee to demonstrate that the expenses fall within the strict parameters of section 48(i) of the Act. Now the assessee is in appeal before this Tribunal.

Ld. Counsel for the assessee made reference to the written submissions filed before ld.CIT(A) and also the paper book running into 303 pages which contains the details of transaction of sale of equity shares, copy of Agreement with 7i Advisors LLP and the invoices raised by them and the details of all other expenses allegedly disallowed by the ld. Assessing Officer. Reliance also placed on the judgment of Hon’ble Delhi High Court in the case of Kaushalya Devi Vs. CIT (2018) 92 taxmann.com 335 (Delhi) where the Hon’ble court held that since there is close nexus and connect between payment of liquidated damages and transfer of property resulting in income by way of capital gains it had to be treated as expenditure incurred wholly and exclusively in connection with transfer of immovable property and thus is allowable u/s.48(i) of the Act. Reliance also placed on other decisions mentioned in the case law paper book running into 61 pages.

On the other hand, ld. DR supported the order of ld.CIT(A).

We have heard the submissions made by both the sides and perused the record. The only issue for our consideration is the disallowance of expenses of Rs.83,47,183/- claimed by the assessee to have been incurred wholly and exclusively in connection with transfer of shares deductible u/s.48(i) of the Act. We observe that major transaction of sale of unlisted equity shares of M/s. Lilac Medicare Pvt. Ltd. took place during the year and genuineness of the sale transaction is not in dispute. Gross sale proceeds are to the tune of Rs.26,60,62,500/-. Cost of purchase is Rs.12,36,250/- and indexed cost is Rs.26,22,174/- and the incidental expenses incurred for carrying out the sale transaction is claimed at Rs.85,43,302/-. Ld. Assessing Officer has only disputed the claim made by the assessee u/s.48(i) of the Act for the following expenses :

We observe that in the income-tax return assessee has claimed total expenses at Rs.85,43,302/- which includes Advisory fees at Rs.76,35,901/-, Stamp duty and Notary charges at Rs.3,65,613/- and Event and Execution expenses at Rs.5,71,788/-. It therefore shows that the stamp duty and notary charges have been straight away allowed by the Assessing Officer. The remaining two heads, i.e. Advisory fees and Event and Execution expenses. Now the only basis for disallowing the two expenses by the Assessing Officer are that he was unable to ascertain as to how the advises given by the professionals to whom such huge Advisory fees paid help in getting good deal as claimed by the assessee. We note that observation of the Assessing Officer is rather questioning the way a person has to carry out its business/financial affairs. In this case, the assessee held number of equity shares of M/s. Lilac Medicare Pvt. Ltd. and has actually sold the unlisted shares. Assessee owns 24.75% share holding in the form of 49,500 equity shares. 7i Advisors LLP is a consultant company and the assessee along with other shareholders were awaiting for a buyer of the business of the company and for getting the best price they have to hire the financiers and transaction advisors which in this case is 7i Advisors LLP which has finally got the deal done with Tosoh Corporation and Tosoh Asis Pte Ltd. Japan and the total deal was locked at Rs.5,375/- per share for sale of 2 lakh equity shares. For all these advisory work, preparing the documents, finding good buyers and then locking the deal at the best price needs lot of professional advice and service. In this work other professional firms J. Sagar Associates and S.R. Divatia also included for carrying out due diligence, preparation of valuation reports for finalising the deal. We have gone through all these details which are furnished in the paper book and find that the assessee along with other shareholders have collectively given the mandate to 7i Advisors LLP to find a buyer for purchasing the business and acquire their shareholding in the Private Limited company namely M/s. Lilac Medicare Pvt. Ltd. which finally ended up finding a Japanese buyer and the transaction has been duly completed.

We find that payment of consultancy fees to the advisors is having direct nexus with the transaction of sale of equity shares by the assessee and the expenses incurred towards professional advisory fees vis-a-via Event and Execution expenses were incurred for setting up buyer representatives functions held for the formal exchange and signature of purchase agreements and are part of incidental expenses. Therefore, in our considered view the alleged expenses have been incurred wholly and exclusively for carrying out the transaction of sale of unlisted equity shares and is allowable u/s.48(i) of the Act. Our view is fortified by the judgment of Hon’ble Delhi High Court in the case of Kausalya Devi Vs. CIT (supra) wherein the Hon’ble Court has held that if the link and connection with the transfer of a capital asset and expenditure is inextricable and established then such expenses are to be allowed as have been incurred wholly and exclusively for the transfer of immovable property and expenditure is to be deducted while computing the capital gain. Finding of ld.CIT(A) is reversed and the disallowance made by the Assessing Officer towards at Rs.83,47,183/- is hereby deleted. Grounds of appeal raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.

The Pr. CIT concerned. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, Panaji 4. ‘DB’ Bench / DR, ITAT, Panaji ‘DB’ Bench ग र्ड फ़ इल / Guard File. 5. आिेश नुस र / BY ORDER,