2019 (4) TMI 1015

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.... 2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming the disallowance of the expenditure of Rs. 50 lacs incurred by the appellant (Selling Shareholder), claimed as for cost of transferring shares of 20 Microns Ltd ('20ML') in 'offer for sale'. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have considered that the aforementioned expense not only had a direct nexus with the transfer of shares but it was wholly and exclusively in connection with the transfer as encompassed by the provisions of section 48(i) of the Act. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have considered that reimbursement of IPO expenses in contemplation to sale of shares is an allowable expense u/s48(1) in view of the decision of ITAT Chennai in the case of UsharaniRaqhunathan 2012 vide citation (8) TMI 668. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have considered that the reason behind reimbursement of IPO expenses....

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....are premium of Rs. 45 per share. 4.1 The IPO was opened on 08/09/2008 and closed on 11/09/2008. The ''20 ML'' budgeted its IPO expenses at Rs. 2.65 crores but incurred an expense of Rs. 3.91 crore which was more than budgeted expenses. 4.2 The assessee received sale proceeds of the shares sold by it of ''20 ML'' dated 25/09/2008. 4.3 However, the ''20 ML'' requested the assessee vide letter dated 05/12/2008 to share the expenses incurred by it for the IPO on the ground that its actual expenses have exceeded the budgeted expenses. As such the ''20 ML'' requested the assessee to reimburse the IPO expenses for an amount of Rs. 1 crore. 4.4 The assessee accordingly in its Board Meeting dated 23/12/2008 agreed to reimburse the cost of IPO expenses to the tune of Rs. 50,00,000/- subject to the opinion by the C.A. regarding the sharing of IPO expenses. Subsequently, the C.A. in its report dated 08/01/2009 submitted that the IPO expenses incurred by ''20 ML'' can be shared with the mutual understanding. As such, there is no bar if the assessee shares the expenses with the ''20 ML'' incurred in the process of IPO. 4.5 The assessee subsequently made the payment of Rs. 50,00,00....

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....48 of the Act. 6. The Ld.CIT(A) after considering the submission of the assessee held that the reimbursement of IPO expenses cannot be equated as the cost of the improvement. Thus, the question remains to be answered whether these expenses were necessary to incur for the transfer of the shares held by the assessee in ''20 ML''. In this regard the Ld.CIT (A) was of the view that ''20 ML'' was under the obligation to provide the exit route to the assessee. Therefore under no circumstances, it can be construed that the expenses were incurred for transfer of the shares. 6.1 The reasons given by ''20 ML'' that the actual expenses in relation to the IPO had exceeded the budget expenses has no relevance as such. Therefore that cannot be the basis of claiming that the expenses were incurred for the transfer of shares. Accordingly the Ld.CIT(A) held that the expenses increased due to the adverse market condition is not acceptable. 6.2 There was no prior agreement between assessee and ''20ML'' for the sharing of the expenses before the date of IPO. 6.3 The request given by ''20 ML'' was much after the close of IPO. 6.4 In view of above the Ld.CIT (A) held that the expens....

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.... before us arises whether the assessee is eligible for the deduction of Rs. 50 lacs against the transfer of 26,75,632 shares of 20 ML. In this regard we note that the provisions for the deduction of the expenses for the transfer of capital assets are contained under section 48 of the Act which reads as under: "^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:" 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 has both a commercial and private element. If yes, then how that element i....

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....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" 10.3 We further place our reliance on 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 ....

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.... 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 compen....