2018 (2) TMI 714
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....e impugned order by inviting our attention to the Development agreement made on 29/10/2004 by explaining that the company was in BIFR, since 1990, wherein, it was held that the company is to be wound up. It was contended that Seth Industries entered in to a development right agreement and our attention was invited to pages 64 to 67 of the paper book. It was submitted that litigation started and in the year 2005 discontented share holders filed petition before the Hon'ble High Court for which our attention was invited to order dated 28/04/2006. It was explained that the company opposed winding up and till 2006 (28/04/2006), no payment was made. It was pleaded that to sort out the differences with other parties, the payment was made to safeguard the business interest. Our attention was invited to page-94 to 101 of the paper book, evidencing the payment made to the different parties along with page-102 of the paper book, wherein the assessee got no objection from these parties and similar letters made available from 103 to 108 (other litigating parties to whom payment were made). It was claimed that Shri Naresh Seth wrote directly to the Hon'ble High Court mentioning his no ob....
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.... of Seth Industries, it would have affected the business rights of the assessee company over the property and in order to clear the title of the property from these legal entanglements, the assessee made payments through account payee cheque to various shareholders aggregating 6.50 crores. The crux of argument of the assessee is that the payment was made to such litigating shareholders to safeguard the business interest in order to secure Dahisar Land free from all legal encumbrances so that they can be developed as a housing project and in the absence of such payments, the whole project including other payments would have also jeopardized and as such the payment was made for commercial consideration. While framing the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act) from the notes of accounts to the audit report, it was found by the Ld. Assessing Officer that the assessee made payment of Rs. 6,50, 50,000/- to various shareholders from whom development rights were obtained. The assessee was asked to justify the payment of this amount with complete addresses of the person to whom such payments were made along with documentary evidence. The assessee made the fo....
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....on in making payments to the shareholders of Rs. 6.5 crore in addition to the payment to the seller company. We submit that reliance can be placed on the following decisions:- A. CIT vs Delhi Safe Deposit Ltd. (1982) 133 ITR 756 where it is held that to settle dispute amicably, to save its reputation and to protect source of income, any payment made as incidental to his trade for the purpose of keeping trade going and of making it pay and not in other capacity them of a trader. B. Bombay Steam Navigation Co. vs CIT (1953) 56 ITR 52 where it is held as allowable expenses if expenditure is made under a integral part of the conduct of business. C. CIT vs Sinnar Bidi Udyog Ltd. (2002) 123 taxman 559 (Bom) where it is held that payment made to settle controversy, the assessee accepted pat of employees claim and made additional retirement compensation." 2.3. It is also noted that the assessee vide another communication 23/12/2010 submitted the copies of letter acknowledging the payments amounting to Rs. 6.50 crores and confirmation from recipient of such payments were filed. This contention of the assessee was declined by the Ld. Assessing Officer on the ground that such confi....
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....d Mr. Umed Bharany, have agreed to pledge 2750 number of shares of Seth Industries Pvt. Ltd with the pledgees. This has been followed by a declaration cum indemnity dated 14.3.2007 with respect to shares pledged vide deed of pledge dated 14.2.2007 and Addendum to pledge dated 15.2.2007 The appellant has also filed copy of High Court of Delhi order dated 07.03.2007 in WP(C) 3326/1992 setting aside the order of BIFR and AAIFR recommending winding up of Seth Industries Ltd. 4.5. I find merit in the submissions made by the appellant that the payment of Rs. 6.50 crores was made to various shareholders of the Seth Industries Pvt Ltd in order to ensure the withdrawal of various litigations and suits filed before the High Court of Delhi and High Court of Mumbai so that the development of the said property could be undertaken by the appellant company without any hindrance. Therefore, the appellant has rightly claimed it as business expenditure towards the cost of land/premium for development rights since these payments were made to protect the business interest of the appellant and to safeguard itself from the losses, following the disputes from the shareholders. The objection taken by t....
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....7 and addendum to pledge dated 15/02/2007. The assessee before the revenue authorities including First Appellate Authority and also before this Tribunal copy of the order of the Hon'ble Delhi High Court dated 07/03/2007 in WP(C)3326 of 1992 setting aside the order of BIFR and AAIFR recommending winding up of Seth Industries Ltd. The totality of facts clearly indicates that the payment of Rs. 6.50 cores was made to various shareholders of Seth Industries Pvt. Ltd. in order to withdrawal of various litigations and suits filed before the Hon'ble High Courts of Delhi & Bombay, so that development of the said property could be undertaken by the assessee company. In view of this uncontroverted finding, we are in agreement with the conclusion of the Ld. Commissioner of Income Tax (Appeal) in allowing the claimed business expenditure towards cost of land/development rights to safeguard its business interest. 3. Now, we shall deal with the expenditure with the help of certain case laws from Hon'ble High Courts/Hon'ble Apex Courts. Broadly speaking, where litigation expenses are incurred for the purposes of creating, curing or completing the title of the assessee to the capi....
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....of 1922 Act, used in this context, the expression "incurred solely for the purposes of making or earning such income", the use of expression "laid out or expanded wholly and exclusively" in section 57(iii) of the 1961 Act is to secure uniformity with the language of section 37(1) of the 1961 Act. At the same time, the expression, "for the purposes of business or profession" has a wider implication then the expression "for the purposes of making or earning income" used in section 57(iii) of the Act. The purpose contemplated by section 57(iii) is more specific in character. So far as, reasonableness of the expenditure envisaged by section 57(iii) depends upon the facts of particular case. The Hon'ble Court in CIT vs New Savan Sugar and Good Refining Co. Ltd. (1990) 185 ITR 564, 571 (Cal.) held that it is for the Tribunal to decide whether the expenditure is wholly incurred for the purpose of keeping the assessee company in operation and earning income in as much as the concept "wholly" pertains to quantum of the money expended. The Hon'ble Court further observed even if a particular expenditure is un-remunerative, such expenditure is nonetheless a proper deduction, if such ex....
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.... incurred by the assessee in his character as a trader, in other words, whether the transaction in respect of which proceedings are taken arose out of and was incidential to assessee's business. Further, it is to be seen whether the expenditure was bonafidely incurred wholly and exclusively for the purpose of the business [see, CIT v. Birla Cotton Spng. & Wvg. Mills Ltd., (1971) 82 ITR 166 (SC); CIT v. Dhanrajgirji Raja Narsingirji, (1973) 91 ITR 544, 549 (SC)]. 3.4. So far as, issue of quantum of the expenditure to be incurred is concerned, we are of the view, it is for the assessee to decide how best to protect his own interest. It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. The ratio laid down in CIT v. Dhanrajgirji Raja Narsingirji, (1973) 91 ITR 544 (SC) supports our view. In that case His Lordship observed: "It is true that in some of the cases this court has held that an expenditure incurred by an accused assessee to defend himself against a criminal charge did not fall within the scope of section 1O(2)(xv)*. Those decisions were rendered on the facts of those cases. T....
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.... in defending a criminal prosecution launched against its director-manager and some employees on charge of conspiracy between the assessee and the railway employees to give and accept bribes in regard to transport of sugarcane from various stations to mill were held to be allowable deductions [Lakshmiji Sugar Mills Co. Ltd. v. CIT, (1967) ITR (Sh N) 21 (Delhi)]. Similarly, expenditure incurred in defending a criminal case against the directors and principal officers of the assessee-company on the allegation that the vegetable oil produced by the company did not contain 5% till oil as required by the Government rule was held to be an expenditure incurred with a view to proving the quality and standard of the manufactured goods produced by the assessee and, therefore, deductible [Rohtas Industries Ltd. v. CIT, (1968) 67 ITR 361 (Pat)]. 3.6. In Ananda Marga Pracharaka Sang ha v. CIT [(1996) 218 ITR 254, 258, 2 (Cal)] , the legal expenses incurred by the assessee for defending Marga Guru, the president of the association and other members of the association against criminal charges have been held allowable as a permissible expenditure while computing the income of the assessee. Howeve....