Ashutosh R.Majmudar, Mumbai v. The ACIT.,Baroda Circle1(1),, Baroda

ITA 124/AHD/2008 | 1999-2000
Pronouncement Date: 08-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 12420514 RSA 2008
Assessee PAN ACLPM7271D
Bench Ahmedabad
Appeal Number ITA 124/AHD/2008
Duration Of Justice 2 year(s)
Appellant Ashutosh R.Majmudar, Mumbai
Respondent The ACIT.,Baroda Circle1(1),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 08-01-2010
Date Of Final Hearing 09-12-2009
Next Hearing Date 09-12-2009
Assessment Year 1999-2000
Appeal Filed On 07-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA JUDICIAL MEMBER AND SHRI D.C.AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 09/12/2009 DRAFTED ON: 1 4/12/2009 ITA NO.124/AHD/2008 ASSESSMENT YEAR : 1999-2000 ASHUTOSH R.MAJMUDAR P.N.B.HOUSE SIR P.M. ROAD MUMBAI VS. THE ASSTT.CIT BARODA CIRCLE-1 PAN/GIR NO. : ACLPM7271D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.N.SOPARKAR AR RESPONDENT BY: SHRI VINOD TANWARI SR.DR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-I BARODA DATED 14/09/2007 PASSED FOR ASSESSMENT YEAR 1999-2000 BY RAISING FOLLOWING GR OUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN U PHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME-TAX OF NOT TREATING THE ADDITIONAL AMOUNT PAID BY THE APPELLANT AS PER THE CONSENT TERMS FOR THE PURPOSE OF ACQUIRING SHARES AS PART O F THE COST OF ACQUISITION BUT AS PAYMENT IN THE NATURE OF INTERE ST AND ACCORDINGLY NOT ALLOWING DEDUCTION FOR THE SAME WHI LE COMPUTING THE SHORT TERM CAPITAL GAINS. ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 2 - 2.WITHOUT PREJUDICE TO THE ABOVE GROUND OF APPEAL THE APPELLANT SUBMITS THAT EVEN IF THE ADDITIONAL PAYMENT MADE BY THE APPELLANT IS CONSIDERED TO BE IN NATURE OF INTEREST THE SAID AM OUNT OUGHT TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE SHORT TERM CAPITAL GAINS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN U PHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME-TAX IN NOT ALLOWING DEDUCTION OF LEGAL EXPENSES PAID AMOUNTING TO RS.7 07 401/- WHILE COMPUTING SHORT TERM CAPITAL GA INS; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN U PHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME-TAX IN NOT ALLOWING DEDUCTION OF CUSTODIAN CHARGES PAID AMOUNT ING TO RS.3 07 401/- AS AN EXPENDITURE INCURRED IN CONNECT ION WITH TRANSFER OF SHARES WHILE COMPUTING SHORT TERM CAPIT AL GAINS. THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD TO A LTER OR AMPLIFY THE ABOVE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE SOLD 87 330 EQUITY SHARES O F CHEMSTAR ORGANICS (I) LIMITED (HEREINAFTER REFERRED TO AS COIL). FOR THE PURPOSE OF COMPUTING 'SHORT-TERM CAPITAL GAIN' ASSESSEE CLAIM ED FOLLOWING DEDUCTIONS: (A) INTEREST COST OF RS.12 76 764/- (NOT CONSIDERED AS COST OF ACQUISITION/COST OF IMPROVEMENT BY THE A.O.) (B) LEGAL EXPENSES OF RS.7 07 373/- (NOT CONSIDERED AS COST OF ACQUISITION BY THE A.O.) ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 3 - (C) CUSTODIAN CHARGES OF RS.3 07 401/- (NOT CONSIDERED BY THE A.O. AS EXPENDITURE INCURRED IN CONNECTION WITH TRA NSFER OF SHARES). 2.1. THERE WAS A DISPUTE AMONG THE FAMILY MEMBERS O F THE SHARE- HOLDERS OF M/S.COIL FOR ACQUIRING MANAGEMENT OF TH AT COMPANY. THE LEGAL PROCEEDINGS TOOK PLACE AT THE LEVEL OF HIGH C OURT. THEY WERE LATER TAKEN UP BEFORE HON'BLE SUPREME COURT. AT THAT ST AGE A CONSENT NOTE WAS SUBMITTED WHICH WAS APPROVED BY HON'BLE SUPR EME COURT VIDE THEIR ORDER DATED 16/12/1996. AS PER THAT CONSENT NOTE THE ASSESSEE WAS GIVEN RIGHT TO BUY 50% OF THE SHARE HOLDING IN COIL FROM OTHER GROUP WITHIN A STIPULATED PERIOD AT A COST OF RS.9.5 CROR ES. IT SEEMS THAT THE ASSESSEE MADE AN INITIAL PAYMENT OF RS.1.82 CRORES BUT DEFAULTED THEREAFTER. SUBSEQUENTLY A REVISED CONSENT TERMS WERE FILED IN WHICH SHARES WERE OFFERED IN OPEN BID BY THE COURT COMMIS SIONER. IN THAT OPEN BID THE ASSESSEE OFFERED TO BUY 100% OF COMPANYS EQUITY SHARES AT RS.10.11 CRORES. AS IT WAS ALREADY HOLDING 50% OF THE SHARES IT OFFERED TO BUY OTHER 50% AT A RATE OF RS.5.05 CRORES TO BE PAID TO OTHER GROUP. THE SUM ALREADY PAID EARLIER AT RS.1.82 CRORES WAS REDUCED AND BALANCE OF RS.3.24 CRORES WAS AGREED TO BE PAID IN TERMS OF THE NEW DOCUMENT DATED 17/02/1998. EVEN THEN THERE WAS A PAYMENT D EFAULT AND AS PER ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 4 - AGREEMENT DATED 17/02/1998 THE ASSESSEE WAS REQUIR ED TO MAKE PAYMENT OF INTEREST ON THE DELAYED PAYMENT OF THE PURCHASE PRICE. THE ASSESSEE SIMULTANEOUSLY ENTERED INTO AN AGREEMENT TO SELL 26 % OF HIS STAKE IN THOSE TO BE ACQUIRED SHARES TO BTP PLC. BTP PAID AN ADVANCE OF RS.3.80 CORRES ON 21/05/1998. THIS MONEY WAS DEPO SITED WITH ANZ GRINDLAYS BANK. THE SHARES WERE ALSO DEPOSITED WIT H ANZ GRINDLAYS BANK IN LIEU OF WHICH A SUM OF RS.3.66 CRORES WAS RELEASED TO OTHER PARTY AS PER TERMS OF THE SALE. THE ASSESSEE PAID CUSTODIAN CHARGES OF RS.3 07 401/- TO ANZ GRINDLAYS BANK IN RESPECT OF T HE SHARES SOLD BY THE ASSESSEE TO BTP PLC. THIS MONEY WAS KEPT IN A ESC ROW ACCOUNT AS PER TERMS OF THE SALE. THE RESERVE BANK OF INDIA FINAL LY PERMITTED BTP PLC. TO ACQUIRE THE SHARES IN COIL IN DECEMBER-1998. 3. INTEREST CHARGES WERE REQUIRED TO BE PAID BY TH E ASSESSEE ON DELAYED PAYMENT OF MONEY TO THE OTHER GROUP (WHIC H WAS HEADED BY THE BROTHER OF THE ASSESSEE) IN TERMS OF REVISED S ALE AGREEMENT DATED 17/02/1998. ACCORDINGLY ASSESSEE CLAIMED TO HAVE PAID INTEREST OF RS.12 76 764/-. IT WAS CLAIMED TO BE EXPENDITURE I NCURRED FOR ACQUIRING THE SHARES AND HENCE AN ALLOWABLE EXPENDITURE U/S .48(1) OF THE I.T. ACT 1961. THE LD. ASSESSING OFFICER DISALLOWED THE CLA IM ON THE GROUND THAT THIS IS NOT INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH TRANSFER OF ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 5 - THE SHARES. IT IS NEITHER COST OF ACQUISITION OF THE SHARES NOR COST OF ANY IMPROVEMENT THERETO. THE COST OF ACQUISITION OF TH E SHARES ACCORDING TO THE ASSESSING OFFICER IS THE ACTUAL VALUE OF THE SH ARES ONLY. IN ORDER TO DISALLOW THE CLAIM OF INTEREST AS AN ADDITION TO TH E COST THE LD. ASSESSING OFFICER RELIED ON THE DECISION OF HON'BLE DELHI HIG H COURT IN THE CASE OF VASSANJI SONS & CO.PVT.LTD. VS. ITO 99 ITR 148 (DEL HI). ON THE OTHER HAND ASSESSEE RELIED ON THE DECISION OF HON'BLE KA RNATAKA HIGH COURT IN THE CASE OF CIT VS. MAITHREYI PAI (1985)152 ITR 2 47 (KAR.) AND DECISION OF HON'BLE ANDHRA PRADESH HIGH COURT IN TH E CASE OF ADDL.CIT VS. K.S. GUPTA (1979)119 ITR 372 (A.P.). 4. THE LEARNED CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY HOLDING THAT PAYMENT OF INTEREST IS NOT FOR ACQUIRING THE ASSETS (I.E. SHARES) BUT FOR FAILURE TO ACQUIRE THE ASSET IN TIME. FURTHER THE LIABILITY ON ACCOUNT OF INTEREST WAS FIXED ON THE A SSESSEE AND NOT ON THE ASSET. 5. REGARDING CUSTODIAN CHARGES PAID BY THE ASSESSEE TO ANZ GRINDLAYS BANK THE ASSESSING OFFICER HELD THAT THI S IS ALSO NOT THE PART OF COST OF ACQUISITION AND THEREFORE CANNOT BE ALLOW ED. THE LEARNED CIT(APPEALS) CONFIRMED THE DISALLOWANCE ON THE GRO UND THAT CUSTODIAN CHARGES ARE FOR SAFELY KEEPING OF THE SHARES AND NO T FOR ACQUISITION OF ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 6 - SHARES. FURTHER DURING THIS PERIOD THE ASSESSE E HAS NOT ACQUIRED OWNERSHIP OF THE SHARES IN QUESTION. THEREFORE C USTODIAN CHARGES ARE NEITHER AN EXPENDITURE FOR THE ACQUISITION OF SHARE S NOR FOR ANY IMPROVEMENT THERETO. THEREFORE THESE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SHAR ES. 6. REGARDING LEGAL EXPENSES AMOUNTING TO RS.7 07 37 3/- WHICH WAS INCURRED BY THE ASSESSEE FOR FIGHTING THE CASE IN H IGH COURT AND SUPREME COURT AND WHICH RESULTED IN CONSENT DECREE OF ACQU IRING 50% OF SHARES FROM OTHER GROUP THE LEARNED ASSESSING OFFICER MEN TIONED THAT THE ASSESSEE HAS NOT PROVED THAT THIS EXPENDITURE RE LATED TO THE TRANSFER OF ASSETS OR RELATED TO THE COST OF ACQUISITION. IT HAS FAILED TO ESTABLISH A DIRECT NEXUS OF LEGAL EXPENSES VIS--VIS ACQUISISI TION OF SHARES. THE LEARNED CIT(APPEALS) CONFIRMED THE VIEW TAKEN BY TH E ASSESSING OFFICER. 7. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT LEGAL EXPENDITURE WERE INCURRED FOR ACQUIRING SHARES SINCE THE LITIGATION RESULTED INTO ACQUISITION OF 50% OF THE SHARES FROM OTHER PARTY; THEY GET CHARACTER OF EXPENDITURE INCURRED FOR ACQU IRING SHARES. THE EXPENDITURE IN ESCROW ARRANGEMENT WAS IN CONNECTIO N WITH THE TRANSFER ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 7 - OF SHARES AS OTHER PARTY WAS TO BE ENSURED THE DELI VERY OF SHARES AND ASSESSEE WAS TO BE ENSURED RECEIVING SALE PRICE FRO M BTP PLC. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT LITIGATION WAS FOR ACQUIRING CONTROLLING INTEREST I N THE COMPANY - COIL AND HENCE FOR ACQUIRING SHARES IN THAT COMPANY. THUS LEGAL COST WAS INCURRED WHOLLY AND EXCLUSIVELY FOR ACQUIRING SHARE S AND HENCE PART OF COST ACQUISITION. THE INTEREST PAYMENT WAS ON ACCO UNT OF DEFAULT IN MAKING PAYMENT ON THE DUE DATES AND HENCE THEY AR E PART OF THE COST AND ADDITIONAL PRICE PAID FOR PURCHASING THE SHARES . THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REFERRED TO THE DECISION IN THE CASE OF MAITHREYI PAI (SUPRA) AND OF ADDL.CIT VS. K .S.GUPTA(SUPRA). 8. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT LEGAL EXPENDITURE WERE INCURRED FOR ACQUIRING CONTROLLING INTEREST AND OBTAINING A FAVOURABLE DECREE. IT IS NOT NECESSARY THAT LEGAL DISPUTE WOULD HAVE RESULTED IN FAVOUR OF THE ASSESS EE. THESE EXPENSES WERE FOR SECURING JUSTICE OR FOR VINDICATING LEGAL RIGHTS AND COULD NOT BE CONSIDERED AS COST OF ACQUISITION. ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 8 - 9. REGARDING PAYMENT OF INTEREST AND CUSTODIAN CHAR GES THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED CIT(APPEALS). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD ON THE THREE ISSUES AND OUR VIEWS THEREON ARE AS UNDER: 10.1. ISSUE REGARDING LEGAL EXPENSES OF RS.7 07 373 /- THE UNDISPUTED FACTS ARE THAT A DISPUTE AROSE BETWE EN THE TWO BROTHERS WHO WERE CONTROLLING 50% OF THE SHARES EACH IN COIL . THIS COMPANY WAS IN POSSESSION OF GUJARAT INDUSTRIAL INVESTMENT CORPORATION (GIIC) AND THE TWO GROUPS WANTED TO WREST CONTROL FROM IT . THEY ACCORDINGLY SOUGHT LEGAL BATTLE WHICH WENT UP TO THE SUPREME CO URT WHICH FINALLY RESULTED IN A DECREE IN FAVOUR OF THE ASSESSEE. IT CREATED A RIGHT IN HIM TO ACQUIRE 50% SHARES FROM OTHER GROUP. WE AGREE WIT H THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT LEGAL EXPENSES WER E INCURRED IN OBTAINING CONTROL OVER THE COMPANY AND A FAVOURABLE DECREE AND COULD NOT SAID TO BE A COST OF ACQUISITION OF SHARES. W HETHER THE ASSESSEE WOULD HAVE BEEN SUCCESSFUL IN ITS CLAIM AND WOULD HAVE GOT A FAVOURABLE DECREE OR NOT DID NOT DEPEND UPON THE INCURRING OF THE LEGAL EXPENDITURE OR PAYMENT OF COURT FEES OR FEES TO LAWYERS. IN FA CT THE EXPENSES WERE ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 9 - INCURRED FOR THE PURPOSES OF SECURING JUSTICE OR FO R VINDICATING THEIR LEGAL STAND AND COULD NOT BE CONSIDERED AS COST OF ACQUIS ITION OF ANY RIGHT. SUCH RIGHTS THEMSELVES WERE THE SUBJECT MATTER OF L EGAL PROCEEDINGS. IT HAS NOT CREATED ANY NEW OR DIFFERENT RIGHT. WHETHE R THE ASSESSEE WOULD HAVE BEEN FINALLY SUCCESSFULLY OR NOT WAS UNCERTAIN . THE EXPENDITURE WHICH COULD BE DEDUCTED U/S.48 OF THE I.T. ACT 196 1 IS THE ONE IN RESPECT OF WHICH RIGHT IS ASCERTAINED AT THE BEGINNING ITSE LF AND EXPENSES WERE INCURRED FOR ACQUIRING THOSE RIGHTS OR FOR DEFENDIN G THOSE RIGHTS THEN IT COULD BE THE COST FOR THOSE RIGHTS OR FOR IMPROVEME NT THEREON. WHEN THERE IS NO RIGHT EXISTING IN THE BEGINNING AND EXP ENDITURE IS INCURRED WITHOUT BEING ASCERTAINED WHETHER ASSESSEE WILL GE T RIGHTS OR NOT EXPENDITURE CANNOT BE SAID TO BE INCURRED AS PART O F COST OF ACQUISITION OR IMPROVEMENT THERETO. ANY COST INCURRED PRIOR TO ASCERTAINMENT OF SUCH RIGHTS WILL NOT BE ADMISSIBLE AS DEDUCTION U/S.48(1 ) OF THE I.T. ACT 1961 AS COST OF ACQUISITION OF THE ASSETS OR THE IMPROVE MENT THERETO. 10.2. EXPENSES WHICH ARE DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES IS ONLY ADMISSIBLE U/S. 48(1) OF THE I.T. ACT 1961. THERE HAS TO BE A LIVE CONNECTION BETWEEN EXPENDITURE AND TRANSFER OF SHARES OR ACQUISITION OF SHARES. EXPE NDITURE ON SEEKING LEGAL ADVICE ON THE MODALITIES OF TRANSFER OR FOR VALUA TION OF SHARES OR ON ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 10 - PARTICIPATION IN THE DELIBERATIONS WHICH LED TO THE SETTLEMENT OF TRANSFER COULD BE ALLOWABLE AS LEGAL DEDUCTION. 10.3. IN ORDER TO UNDERSTAND THE NATURE OF EXPENDI TURE ALLOWABLE AS DEDUCTION WE QUOTE SECTION 48 AS UNDER:- 48. MODE OF COMPUTATION THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS ' SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET TH E FOLLOWING AMOUNTS NAMELY:- (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: ----- ----- LEGAL EXPENDITURE INCURRED BY THE ASSESSEE ON LITIG ATION CONCLUDED WITH CONSENT DECREE COULD NOT BE COST OF ANY IMPROVEME NT THERETO AS ASSET WAS NOT ACQUIRED WHEN LEGAL EXPENDITURE WAS INCURRE D. THE CASE OF THE ASSESSEE IS ALSO NOT COVERED UNDER SUB-SECTION (I) AS THIS SUB-SECTION WOULD BE APPLICABLE WHEN ASSESSEE OWNED THE ASSET A ND IT IS IN THE PROCESS OF THEIR TRANSFER I.E. SALE TO ANOTHER PER SON. SINCE ASSESSEE IS STILL TO BECOME THE OWNER THE LEGAL EXPENSES INCUR RED PRIOR TO ACQUIRING ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 11 - OWNERSHIP OF SHARES CANNOT BE SAID TO BE EXPENDITUR E IN CONNECTION WITH TRANSFER. THUS THE ONLY LIMB OF SECTION 48(II) O F THE I.T. ACT 1961 LEFT FOR CONSIDERATION IS WHETHER LEGAL EXPENSES ARE CO ST OF ACQUISITION OF THE ASSET. THE WORD THE ASSET PROPOSES THAT THE AS SET(SHARES) ARE IN EXISTENCE AND ARE AVAILABLE FOR ACQUISITION BY THE ASSESSEE. PRIOR TO CONSENT DECREE PASSED BY HON'BLE SUPREME COURT ON 1 6/12/1996 THE ASSET ARE UNASCERTAINED. IT WAS NOT KNOWN WHETHER ASSESS EE WOULD PURCHASE SHARES FROM OTHER GROUP OR OTHER GROUP WOULD PURCHA SE SHARES FROM ASSESSEE OR NOTHING WAY HAPPEN. AFTER CONSENT DEC REE THE RIGHT TO ACQUIRE THE ASSET WAS CREATED IN FAVOUR OF THE ASSE SSEE AND FOR TRANSFER. ANY EXPENDITURE IS INCURRED IN ACTUAL ACQUISITION O F SHARES WOULD BE CONSIDERED IN THE PHRASE COST OF ACQUISITION OF TH E ASSET. THE USE OF ARTICLE THE IS ALSO SIGNIFICANT. IT INDICATES A REAL AND NOT IMAGINARY ASSET WHICH IS AVAILABLE FOR SALE TO THE ASSESSEE. IT IS AT BEST AN EXPENDITURE FOR EXPLORING THE AVAILABILITY OF ASSET WHICH CANNOT BE EQUIVALENT TO COST OF ACQUISITION. 10.4. ACCORDINGLY LEGAL EXPENDITURE SO INCURRED WILL NOT BE ADMISSIBLE AS DEDUCTION. THIS PART OF THE ORDER OF THE LEARN ED CIT(APPEALS) IS THEREFORE CONFIRMED. RELATED GROUND OF THE ASSES SEE IS REJECTED. ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 12 - 11. ISSUE REGARDING INTEREST EXPENDITURE THE UNDISPUTED FACTS ARE THAT WHEN SETTLEMENT WAS A RRIVED AT AND APPROVED BY HON'BLE SUPREME COURT AND ALSO WHEN RE VISED CONSENT TERMS WERE DRAFTED PROVISIONS FOR INTEREST WAS MADE . WE REFER TO CLAUSE- 8 IN THE TERMS OF CONSENT DATED 07/03/1996 WHICH PR OVIDED FOR INTEREST AS UNDER:- 8. AGREED ORDERED AND DECREED THAT THE SAID SUM O F RS.9.50 CRORES (RUPEES NINE CRORES FIFTY LAKHS ONLY)SHALL BE PAID AS PER SCHEDULE A ATTACHED HERETO IN THE FOLLOWING MANNER : A. RS.75 LACS (RUPEES SEVENTY FIVE LACS ONLY) ON O R BEFORE 13 TH DECEMBER-1996. B. RS.150 LACS (RUPEES ONE CRORE FIFTY LAKHS ONLY) ON OR BEFORE 28 TH FEBRUARY-1997. A GRACE PERIOD OF THIRTY DAYS IS ALLOWED UPTO 28 TH MARCH 1997 CONDITIONAL UPON PAYMENT OF INTEREST A T 18% P.A. ON THE THEN OUTSTANDING AMOUNT. C. RS.725 LACS (RUPEES SEVEN CRORES TWENTY FIVE LA KHS) ON OR BEFORE 13 TH JUNE 1997. A GRACE PERIOD OF THIRTY DAYS IS ALLOW ED UPTO 13 TH JULY 1997 CONDITIONAL UPON PAYMENT OF INTEREST 18 % P.A. ON THE THEN OUTSTANDING AMOUNT. 12. PROVISIONS FOR INTEREST WERE ALSO MADE IN THE REVISED TERMS OF CONSENT DATED 17/02/1998. CLUASE-5 THEREOF READS A S UNDER:- 5. IN CASE OF DEFAULT IN PAYMENT OF THE AMOUNTS MENTIONED IN CLAUSES 2 AND 3 ABOVE I.E. RS.3 59 58 524.50 ON OR BEFORE 20 TH APRIL 1998 MR ASHUTOSH MAJMUDAR SHALL HAVE A GRACE PERIOD FOR PAYMENT UPTO AND INCLUSIVE OF 20 TH MAY 1998 (TIME BEING OF THE ESSENCE) FOR THE PAYMENT OF THE AMOUNTS MENTIONED I N CLAUSES 2 AND 3 ABOVE PROVIDED HE PAYS THE SAID AMOUNT WITH I NTEREST @ ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 13 - 24% PER ANNUM FORM 21 ST APRIL 1998 TILL PAYMENT ON OR BEFORE 20 TH MAY 1998 (TIME BEING OF ESSENCE). 12.1. IT IS APPARENT FROM THE READING OF THE ABOVE QUOTED TWO CLAUSES THAT PAYMENT OF INTEREST WAS PART OF AGREEMENT TO SELL THE SHARES BY OTHER MAJMUDAR GROUP TO THE ASSESSEE-GROUP. THEREFORE P AYMENT OF INTEREST IS INTEGRAL PART OF COST OF ACQUISITION OF SHARES. I N ONE SITUATION ASSESSEE BORROWS FUNDS FROM A THIRD PARTY PAID INTEREST THER EON AND PURCHASES SHARES WITH SUCH BORROWED FUNDS. THIS WOULD HAVE N ECESSARILY MADE THE INTEREST AS PART OF COST OF PURCHASE OF ASSETS AS H ELD IN THE CASE OF ADDL.CIT VS. K.S.GUPTA(SUPRA) OR IN THE CASE OF C IT VS. MAITHREYI PAI (SUPRA). THE PRESENT PAYMENT OF INTEREST IS COST OF DEFERMENT OF PURCHASE PRICE AND THEREFORE INTEGRALLY LINKED TH EREWITH. THERE IS NO DIFFERENCE WHETHER MONEY IS BORROWED FROM A THIRD P ARTY AND INTEREST IS PAID AND PURCHASE PRICE IS PAID BELATEDLY AND INTE REST IS PAID THEREON. THE EFFECT BEING INFLATION OF COST ON THE ASSESSE E IS THE SAME. IT IS NOT A CASE THAT INTEREST PAYMENT IS PRIOR TO ACQUIRING OF THE RIGHT IN SHARES OR REMOTELY CONNECTED WITH THE PURCHASE OF SHARES. T HE PAYMENT OF PURCHASE PRICE AND INTEREST BOTH ARE PART AND PARCE L OF SAME AGREEMENT. THE EVENT GIVING RISE TO PAYMENT OF PURCHASE PRICE AND INTEREST THEREON IS THE SAME AND HENCE THE TWO CANNOT BE VIEWED DIFF ERENTLY OR INDEPENDENTLY. THE AUTHORITIES RELIED BY THE LEARN ED AUTHORISED ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 14 - REPRESENTATIVE OF THE ASSESSEE AS GIVEN IN MAITREYI PAIS CASE (SUPRA) AND OF K.S. GUPTAS CASE(SUPRA) ARE SQUARELY APPLICABLE . AS A RESULT THIS GROUND OF ASSESSEE IS ALLOWED. 13. ISSUE REGARDING CUSTODIAN CHARGES THE UNDISPUTED FACTS ARE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT TO SALE TO BTP PLC 26% OF THE SHARES TO BE ACQUIRED FROM OTHER MAJMUDAR GROUP. THIS AGREEMENT WAS ENTERED ON 21/05/1998. IN ORDER TO ENSURE THE RECEIPT OF MONEY AS WELL AS TRANSFER OF SHARES ANZ GRINDLAYS BANK ENTERED AS MEDIATOR TO TAKE POSSESSION OF SHARES FR OM OTHER MAJMUDAR GROUP AND TO HOLD THEM IN CUSTODY FOR SOME TIME AND TO RELEASE MONEY IN FAVOUR OF ASSESSEE GROUP. FOR SAFE CUSTODY OF SHARES ANZ GRINDLAYS BANK CHARGED RS.3 07 401/- AS CUSTODIAN CHARGES. 13.1. IN OUR VIEW THIS EXPENDITURE IS COVERED BY CLAUSE(I) OF SECTION 48 OF THE I.T. ACT 1961 AS EXPENDITURE INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF TRANSFER OF SHARES. AS WE HAVE ALR EADY HELD WHILE DISCUSSING THE ISSUE ON LEGAL EXPENDITURE THAT LEGA L EXPENDITURE DIRECTLY RELATED TO OR INTEGRALLY CONNECTED WITH THE TRANSFE R OF CAPITAL ASSET IS ADMISSIBLE AS DEDUCTION. ASSESSEE HAS SOLD SHARES BTP PLC. AND IT ITA NO .124/AHD/2008 M/S.ASHUTOSH R.MAJMUDAR VS. ACIT ASST.YEAR - 1999-2000 - 15 - ACQUIRED SHARES FROM THE OTHER MAJMUDAR GROUP. FOR COMPLETING A SMOOTH AND SATISFACTORY TRANSFER OF SHARES AND MON EY TO AND FROM THE PARTIES CHARGES ARE PAID. THEREFORE IT WAS AN EX PENDITURE INCURRED DURING THE COURSE OF SALE OF SHARES. THEY WILL BE HOWEVER ALLOWABLE WHILE COMPUTING CAPITAL GAINS ON TRANSFER OF SHARES TO BTP. THERE IS NO REASON TO HOLD THAT IT WAS AN EXPENDITURE PRIOR T O TRANSFER OF SHARES OR REMOTELY CONNECTED WITH THE TRANSFER. THE VIEW HEL D BY THE LOWER AUTHORITIES ARE NOT SUSTAINABLE AND HENCE CLAIM O F THE ASSESSEE IS ALLOWED. 14. AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 08/01/2010. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 08/01/2010 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I BARODA. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD