Sh. Ajay Agarwal, Agra V. Addl. C.I.T., Agra

ITA 348/AGR/2011

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0419 (ITAT-AGRA)
• Duration Of Justice: 7 year(s) 8 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-09-2011

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.405/AGR/2011 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX-2, VS. SHRI AJAY AGARWAL, AGRA. 65, NEW RAJA MANDI COLONY, AGRA. (PAN: AAMPA 0705 E) ITA NO.348/AGR/2011 ASSESSMENT YEAR: 2007-08 SHRI AJAY AGARWAL, VS. ADDL. COMMISSIONER OF INCO ME TAX, A-35, NEW AGRA, RANGE-2, AGRA. AGRA. (PAN: AAMPA 0705 E) ITA NO.349/AGR/2011 ASSESSMENT YEAR: 2007-08 SMT. RENU AGARWAL, VS. ADDL. COMMISSIONER OF INCO ME TAX, A-35, NEW AGRA, RANGE-2, AGRA. AGRA. (PAN: AAUPA 2106 M) ITA NO.404/AGR/2011 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX-2, VS. SMT. RENU AGARWAL, AGRA. 65, NEW RAJA MANDI COLONY, AGRA. (PAN: AAUPA 2106 M) ITA NO.406/AGR/2011 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, VS. SMT. KAMLESH AGARWAL, CIRCLE-1, AGRA. 22, SHIKHA ENCLAVE, DAYAL BAGH, AGRA. (PAN: AAUPA 2100 P) ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 2 ITA NO.407/AGR/2011 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, VS. SHRI SAGAR A NAND, CIRCLE-1, AGRA. 22, SHIKHA ENCLAVE, DAYAL BAGH, AGRA. (PAN: ADXPA 9132 B) ITA NO.466/AGR/2011 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX-2, VS. SHRI HEMAN T ANAND, AGRA. 65, RAJA MANDI COLONY, AGRA. (PAN: ADGPA 4039 G) (APPELLANTS) (RESPONDENTS) APPELLANT BY : SHRI SAHIB P. SATSANGE, C.A. RESPONDENT BY : SHRI WASEEM ARSHAD, SR. D .R. DATE OF HEARING : 28.12.2012 DATE OF PRONOUNCEMENT OF ORDER : 08.02.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: ITA NOS.405 & 348/AGR/2011 ARE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER DATED 31.03.2011 PASSED BY THE LD. CIT(A)-I, AGRA FOR THE A.Y. 2007-08 IN THE CASE OF SHRI AJAY AGARWAL. ITA NOS.349 & 404/AGR/2011 ARE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER DATED 31.03.2011 PASSED BY THE LD. CIT(A)-I, AGRA FOR THE A.Y. 2007-08 IN THE CASE OF SMT. RENU AGARWAL. ITA NO.406/AGR/2011 IS APPEAL F ILED BY THE REVENUE AGAINST ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 3 THE ORDER DATED 31.03.2011 PASSED BY THE LD. CIT(A) -I, AGRA FOR THE A.Y. 2007-08 IN THE CASE OF SMT. KAMLESH AGARWAL. ITA NO.407/AG R/2011 IS APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 31.03.2011 PASSED B Y THE LD. CIT(A)-I, AGRA FOR THE A.Y. 2007-08 IN THE CASE OF SHRI SAGAR ANAND. ITA NO.466/AGR/2011 IS APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 10.05.2011 PASSED BY THE LD. CIT(A)-I, AGRA FOR THE A.Y. 2007-08 IN THE CASE OF SHRI HEMANT ANAND. 2. SOME OF THE GROUNDS RAISED IN ALL THE APPEALS AR E BASED ON IDENTICAL SET OF FACTS, THEREFORE, FOR THE SAKE OF CONVENIENCE ALL T HE APPEALS ARE DECIDED BY THIS COMMON ORDER. LEARNED REPRESENTATIVES OF THE PARTI ES SUBMITTED THAT THE FACTS OF THESE APPEALS LEAD IN THE CASE OF SHRI AJAY AGARWAL , ITA NOS.405 & 348/AGR/2011 WHICH ARE CROSS APPEALS FILED BY THE REVENUE AND AS SESSEE. THEY HAVE ARGUED THESE APPEALS ACCORDINGLY. IN THE LIGHT OF THE FAC TS, TO KNOW THE EXACT GROUNDS OF APPEAL, WE REPRODUCE THE GROUNDS RAISED BY THE REVE NUE IN ITA NO.405/AGR/2011 AND BY THE ASSESSEE IN ITA NO.348/AGR/2011 AS UNDER :- ITA NO.405/AGR/2011 BY THE REVENUE 1. THAT THE LD. CIT(A)-I, AGRA HAS ERRED IN LAW AN D ON FACTS IN DELETING THE ADDITION OF RS.3 CRORES MADE BY THE AO BY DISALLOWING THE PAYMENT MADE TO M/S CHURU TRADING CO. PVT. LTD. , RELYING UPON THE PRINCIPLE LAID DOWN BY THE HONBLE AAR IN THE C ASE COMPAGNIE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 4 FINANCE HAMON (SUPRA) WITHOUT CONSIDERING THE FACT THAT THE BACKGROUND OF THE AGREEMENT WITH CHURU TRADING CO. PVT. LTD. IT IS AMPLY CLEAR THAT THE FEE WAS BASICALLY IN THE NATUR E OF ARRANGEMENT OF THE FUND AND NO WAY WAS IT IN THE CONNECTION OF TRA NSFER OF SHARES OF AGARWAL GROUP TO THE MAHESHWARI GROUP, THEREFORE, T HE AMOUNT OF RS.8.5 CRORES PAID TO M/S CHURU TRADING CO. PVT. LT D. IS NOT DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES FOR BEING ADMISSIBLE AS DEDUCTION U/S 48(I) OF THE I.T. ACT. 2. THAT THE LD. CIT(A)-I, AGRA HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,13,200/- MADE BY THE ON THE GROUND THAT THE AO HAS ALREADY ACCEPTED ACTIVE ROLE OF SR HALVE IN THESE PROCEEDINGS BEFORE CLB AND ALLOWED THE FEES AMOUNTI NG TO RS.78,56,800/- PAID TO SHRI HALVE CONSIDERING THAT THE FEES PAID TO HIM IN CONNECTION WITH THE TRANSFER OF SHARES THERE FORE, IF ANY, EXPENDITURE WAS INCURRED WHILE VISITING DELHI TO AT TEND THESE PROCEEDINGS AND AGARWAL GROUP REIMBURSED THOSE EXPE NSES THEN THEY SHOULD ALSO BE ALLOWED AS BEING INCURRED IN CONNECT ION WITH THE TRANSFER OF SHARES IS NOT ACCEPTABLE IN VIEW OF THE FACTS THAT THE NATURE OF EXPENSES ITSELF SHOWS THAT IT HAS NOTHING TO DO WITH THE TRANSFER OF SHARES AND CAN NOT BE CONSTRUED THAT SUCH EXPENDITU RE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. 3. THE LD. CIT(A)-I, AGRA HAS ERRED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS.5,00,000/-, MADE BY THE AO BY DISALLOWING PAYMENT OF RS.10,00,000/- SHRI AJAY AGARWAL & SMT. KAMLESH AGARWAL TO SHRI DAYAL SARAN, ADVOCATE ON THE BASIS OF BILLS RAISED BY SHRI DAYAL SARAN, ADVOCATE WITHOUT CONSIDERING THE FACTS THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE LEGAL EXPENS ES HAS BEEN MADE FOR LEGAL SERVICES EXTENDED IN THE PROCESS OF VALUA TION OF SHARE OR IN THE PROCESS OF COMPROMISE CONCERNING THE TRANSFER O F SHARES. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR DELETE OR ALTER OR MODIFY ANY ONE OR AMORE GROUND(S) OF APPEAL DURING THE APPELLATE PROCEEDINGS. 5. THAT THE ORDER OF THE CIT (APPEALS)-1, AGRA BEIN G ERRONEOUS IN LAW AND ON FACTS BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 5 ITA NO.348/AGR/2011 BY THE ASSESSEE 1. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRE D ON FACTS AND IN LAW IN DISALLOWING A DEDUCTION OF RS.2,50,000 UN DER SECTION 48(I) FOR PAYMENT MADE TO RABO INDIA SECURITIES (P) LTD. THE DISALLOWANCE MADE IS LIABLE TO BE DELETED. 2. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW IN DISALLOWING A DEDUCTION OF RS.6,65,000 UN DER SECTION 48(I) FOR PAYMENT MADE TO MRS. BINA GUPTA, ADVOCATE. THE DISALLOWANCE MADE IS LIABLE TO BE DELETED. 3. BECAUSE THE LEARNED CIT(A) HAS ERRED ON FACTS AN D IN LAW IN ENHANCING THE DISALLOWANCE OF MRS. BINA GUPTA, ADVO CATE BY RS.40,000 WITHOUT ISSUE OF SPECIFIC NOTICE UNDER SE CTION 251(2) OF THE INCOME X ACT, 1961. 4. BECAUSE THE LEARNED AUTHORITIES BELOW HAS ERRED ON FACTS AND IN LAW IN DISALLOWING A DEDUCTION OF RS.1,50,000 UNDER SECTION 48(I) FOR PAYMENT MADE TO MR. SUDIPTO SARKAR, ADVOCATE. THE DISALLOWANCE MADE IS LIABLE TO BE DELETED. 5. BECAUSE THE LEARNED AUTHORITIES BELOW HAS ERRED ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SECTION 234C. THE A SSESSEE WAS PREVENTED BY SUFFICIENT CAUSE TO DEPOSIT THE SECOND INSTALLMENT OF ADVANCE TAX ON OR BEFORE 15.12.2006 AS NO CAPITAL G AINS WAS PAYABLE AS THE ASSESSEE INTENDED TO DEPOSIT THE SAME IN NOT IFIED BONDS IN TERMS OF SECTION 54EC OF THE INCOME TAX ACT, 1961 FOR CLA IMING EXEMPTION, WHICH WERE NOT AVAILABLE. THE INTEREST CHARGED IS LIABLE TO BE DELETED. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD OR DELETE ANY OF THE GROUNDS HEREINBEFORE. 3. THE FACTS OF THE CASE ARE THAT THE IMPUGNED ASSE SSMENT ORDER WAS PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREI NAFTER) VIDE ORDER DATED 30.11.2009 DETERMINING THE ASSESSED INCOME AT RS.54 ,92,51,000/- AS AGAINST THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 6 RETURNED INCOME OF RS.51,74,12,800/-. RETURNED INCO ME INCLUDED, AN INCOME EARNED BY WAY OF LONG TERM CAPITAL GAIN (LTCG) ON S ALE OF SHARE HOLDING BY THE ASSESSEE IN TWO UNLISTED COMPANIES VIZ. M/S. AMAR U JALA PUBLICATIONS LTD. AND M/S. A & M PUBLICATIONS LIMITED AS PER A COMPROMISE REACHED BETWEEN TWO GROUPS DURING THE COURSE OF PROCEEDINGS BEFORE THE COMPANY LAW BOARD (HEREINAFTER REFERRED AS CLB), ONE HEADED BY THE AS SESSEE, HEREINAFTER REFERRED AS AGARWAL GROUP AND ANOTHER HEADED BY SHRI ATUL MAHES HWARI, HEREINAFTER REFERRED AS MAHESHWARI GROUP. WHILE COMPUTING THE LTCG, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION.48(I) OF THE ACT FOR CERTAI N PROFESSIONAL AND LEGAL EXPENSES PAID TO CERTAIN PERSONS IN CONNECTION WITH THE LITI GATION BEFORE THE CLB RESULTING INTO PASSING OF A FINAL ORDER BY THE CLB VIDE ORDER DATED 01.11.2006, DIRECTING THE MAHESHWARI GROUP TO PURCHASE ALL THE SHARE HOLDING OF AGARWAL GROUP (35.34%) BY PAYING AN AGGREGATE AMOUNT OF RS.160 CRORES WHIC H WAS TO BE DIVIDED AMONG THE MEMBERS OF THE AGARWAL GROUP IN THE RATIO OF TH EIR SHARE HOLDING. OUT OF THE TOTAL AMOUNT OF RS.160 CRORES PAID BY THE MAHESHWAR I GROUP, THE ASSESSEE RECEIVED RS.56,29,34,703/-. TOTAL AMOUNT OF RS.11, 35,59,600/- WAS PAID BY THE AGARWAL GROUP TO VARIOUS PROFESSIONALS AND LAWYERS FOR FIGHTING THEIR CASE BEFORE THE CLB FOR SETTLEMENT OF THEIR DISPUTE WITH THE MA HESHWARI GROUP AND THESE EXPENSES WERE ALSO DIVIDED AMONG THE MEMBERS OF AGA RWAL GROUP OUT OF WHICH THE EXPENSES ATTRIBUTABLE TO THE ASSESSEE COMES TO RS.4,06,10,000/-. AGAINST THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 7 RECEIPT OF THE AMOUNT OF RS.56,29,34,703/-, THE ASS ESSEE CLAIMED RS.4,06,10,000/- AS EXPENSES INCURRED IN CONNECTION WITH THE SALE OF SHARES AND COMPUTED A LTCG OF RS.50,85,60,103/- AFTER DEDUCTING THE INDEXED CO ST OF ACQUISITION OF THESE SHARES AND THE SAME WAS INCLUDED IN THE RETURNED INCOME OF RS.51,74,12,800/-. OUT OF TOTAL EXPENSES OF RS.4,06,10,000/- CLAIMED BY THE A SSESSEE, THE A.O. ALLOWED ONLY RS.87,71,800/- AS EXPENSES INCURRED IN CONNECTION W ITH THE TRANSFER OF SHARES ELIGIBLE FOR DEDUCTION UNDER SECTION 48(I) OF THE A CT AND BALANCE AMOUNT OF RS.3,18,38,200/- WAS DISALLOWED HOLDING THAT THEY A RE NOT INCURRED IN CONNECTION WITH TRANSFER OF SHARES AND THUS THE LTCG ON SALE O F SHARES IN THE ASSESSMENT ORDER WAS DETERMINED AT RS.54,03,98,303/- AND THEREFORE, THE ASSESSMENT ORDER WAS COMPLETED AT AN ASSESSED INCOME RS.54,92,51,000/-. THE DETAILS OF COMPUTATION OF LTCG AS FOUND ARE AS UNDER :- (I) LTCG ON SALE OF SHARES OF AMAR UJALA PUBLICATIO NS SALE PROCEEDS RS.49,95,32,495/- LESS (I) INDEXED COST OF ACQUISITION (II). EXPENDITURE IN CONNECTION WITH SHARE TRANSFER RS.76,87,425/- RS.4,06,10,000/- RS.4,82,97,425/- RS.45,12,35,070/- LESS: EXEMPTION U/S 54EC RS. 50,00,000/- ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 8 RS.44,62,35,070/- (I) LTCG ON SALE OF SHARES OF M/S A & M PUBLICATION S LTD. SALE PROCEEDS RS. 6,34,02,208/- LESS INDEXED COST OF ACQUISITION RS. 10,77,175/- RS.6,23,25,033/- TOTAL LONG TERM CAPITAL GAIN (I) ON SALE OF SHARES OF M/S AMAR UJALA PUBLICATION LTD. (II) ON SALE OF M/S A& M PUBLICATION LTD. TOTAL LTCG RS. 44,62,35,070/ - RS. 6,23,25,033/- RS.50,85,60,103/- ADD SHARE TRANSFER EXPENDITURE DISALLOWED IN THE ASST. ORDER TOTAL ASSESSED LTCG RS. 3,18,38,200 RS.54,03,98,303 4. THE A.O. DISALLOWED RS.3,18,38,200/-OUT OF RS.4, 06,10,000/-. THE AGARWAL GROUP ITSELF CONSISTED OF TWO FAMILIES I.E. AJAY AG ARWAL FAMILY AND KAMLESH AGARWAL (WIDOW OF ELDER BROTHER SHRI ANIL AGARWAL) FAMILY. MEMBERS OF EACH FAMILY WHO RECEIVED SALE CONSIDERATION OF SHARES OF TWO COMPANIES ARE DETAILED AS UNDER:- ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 9 AJAY AGARWAL FAMILY I) AJAY AGARWAL II) RENU AGARWAL III) HEMANT ANAND KAMLESH AGARWAL FAMILY I) KAMLESH AGARWAL II) SAGAR ANAND III) SAURABH ANAND 5. THE WHOLE EXPENDITURE OF RS.11,35,59,600/- WAS D IVIDED BETWEEN TWO FAMILIES OF AGARWAL GROUP AS NOTED IN THE ORDER OF THE CIT(A) AT PAGES NO.18 & 19. THE EXPENDITURES WERE DIVIDED BETWEEN THE THRE E MEMBERS OF EACH FAMILY, THE DETAILS NOTED FROM THE ORDER OF THE CIT(A) IS REPRO DUCED BELOW FOR READY REFERENCE AS UNDER:- NAME OF THE ASSESSEE AJAY AGARWAL RENU AGARWAL HEMANT ANAND KAMLESH AGARWAL SAGAR ANAND SAURABH ANAND TOTAL NAME & ADDRESS OF PERSON / PARTY TO WHOM PAYMENT MADE AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS .) & (DATE OF PAYMENT) (RS.) M/S CHURU TRADING CO. PVT. LTD. CONTINENTAL BUILDING, 135, DR. A.B. ROAD, MUMBAI 3,00,00,000 (15.11.2006) 1,00,00,000 (13.11.2006) 25,00,000 (13.11.2006) 85,00,000 (13.11.2006) 1,70,00,000 (13.11.2006) 1,70,00,000 (13.11.2006) 8,50,00,000 M/S S.R. HALBE & ASSOCIATES, ADVOCATES FOUNTAIN CHAMBERS, 3 RD FLOOR, NANABHAI LANE, FOUNTAIN, MUMBAI 78,56,800 (14.12.2006) 50,000 (19.05.2005) 50,000 (26.12.2005) 23,200 (01.03.2006) 90,000 (02.05.2006) 1,00,000 (03.08.2006) 28,06,000 (14.12.2006) 5,61,200 (14.12.2006) 22,40,000 (02.01.2007) 44,80,000 (02.01.2007) 44,80,000 (02.01.2007) 2,27,37,200 MRS. BINA GUPTA & OTHERS, ADVOCATES KHAITAN HOUSE, B-1, DEFENCE COLONY, NEW DELHI 8,75,000 (03.02.2007) 1,00,000 (04.04.2005) 30,000 (23.04.2005) 3,12,500 (03.02.2007) 1,00,000 (15.05.2005) 1,00,000 (31.05.2005) 62,500 (03.02.2007) --- 5,00,000 (03.02.2007) 5,00,000 (03.02.2007) 7,70,400 44,22,400 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 10 50,000 (06.10.2005) 1,00,000 (01.03.2006) 85,000 (05.02.2006) 1,50,000 (23.03.2006) 50,000 (05.04.2006) 1,00,000 (12.07.2006) 1,50,000 (02.06.2005) 1,00,000 (07.10.2005) 1,87,000 (15.11.2005) 1,00,000 (28.03.2006) MR. SUDIPTO SARKAR, ADVOCATE 31, BROAD STREET, KOLKATA 1,50,000 (02.04.2006) --- --- --- --- --- 1,50,000 RABO INDIA SECURITIES PVT. LTD. FORBES BUILDING, 2 ND FLOOR, CHIRANJIT RAI MARG, FORT, MUMBAI 2,50,000 (01.02.2006) --- --- --- --- --- 2,50,000 MR. DAYAL SARAN, ADVOCATE 63, NEHRU NAGAR, AGRA 5,00,000 19.02.2007 --- --- --- --- 5,00,000 10,00,000 GRAND TOTAL 4,06,10,000 1,38,55,500 31,23,700 1,07, 40,000 2,19,80,000 2,32,50,400 11,35,59,600 6. HOWEVER, THE FACTS AND SUBMISSIONS FROM BOTH SID ES NOTED BY THE CIT(A) IN HIS ORDER IN DETAIL WHICH ARE AS UNDER:- (PARAGRAP H NOS. 4 TO 11 OF THE ORDER OF THE CIT(A)) 4. IN THE APPEAL FILED BEFORE ME AGAINST THE ASSES SMENT ORDER DATED 30.11.2009, THE APPELLANT TOOK 15 GROUNDS OF APPEAL . GROUND NOS. 1, 12, 14 AND 15 ARE GENERAL IN NATURE AND COVERED BY THE OTH ER GROUNDS AND HENCE NO SEPARATE ADJUDICATION IS REQUIRED ON THESE GROUNDS. IN GROUND NO. 13, LEVY OF INTEREST U/S 234C IS DISPUTED. IN GROUND NOS. 2 TO 9 THE APPELLANT HAS DISPUTED VARIOUS DISALLOWANCES MADE FOR THE EXPENSE S PAID BY THE APPELLANT TO DIFFERENT PROFESSIONALS AND LAWYERS CLAIMED TO H AVE BEEN PAID BY HIM IN CONNECTION WITH THE SALE OF SHARES. IN GROUND NO.10 AND 11, THE APPELLANT HAS TAKEN ALTERNATIVE PLEAS ARGUING THE RECEIPT OF SALE CONSIDERATION OF SHARES BEING TAX FREE BECAUSE IN HIS VIEW THIS AMOU NT WAS RECEIVED ON FAMILY SETTLEMENT AND ON LOSS OF SOURCE OF INCOME RESPECTI VELY, THOUGH HE HIMSELF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 11 OFFERED THIS AMOUNT FOR TAXATION AFTER COMPUTING LT CG ON RECEIPT OF SALE CONSIDERATION OF SHARES. FIRST, I HAVE DEALT WITH T HE VARIOUS LEGAL AND PROFESSIONAL EXPENSES CLAIMED BY THE APPELLANT U/S 48(I) FROM THE SALE CONSIDERATION OF SHARES, WHICH WAS NOT ALLOWED BY T HE AO WHILE COMPUTING LTCG IN THE ASSESSMENT ORDER. 5. BEFORE DEALING WITH THE ISSUE OF ALLOWABILITY U/ S 48(I) OF VARIOUS LEGAL AND PROFESSIONAL FEES PAID BY THE APPELLANT AS DEDU CTION FOR COMPUTATION OF LTCG, IT WOULD BE APPROPRIATE TO DISCUSS THE FACTS AND CIRCUMSTANCES OF THE CASE GIVING THE DETAILS OF ALL EVENTS WHICH FINALLY CULMINATED IN SALE OF SHAREHOLDING IN TWO COMPANIES BY THE AGARWAL GROUP TO THE MAHESHWARI GROUP. BRIEF FACTS OF THE CASE AS CULLED OUT FROM T HE ASSESSMENT ORDER AND ALSO SUBSEQUENTLY FILED BY THE LD. AR OF THE APPELL ANT DURING THE HEARING OF THE APPEAL AND FURTHER EXAMINED BY THE PRESENT AO D URING THE REMAND STAGE ARE AS UNDER: 5.1 AMARUJALA A HINDI NEWSPAPER WAS STARTED BY LATE SHRI DORILA L AGARWAL AND LATE SHRI MURARI LAL MAHESHWARI SOMETIM E IN THE YEAR 1948. WHILE SHRI DORILAL AGARWAL HAD 53% STAKE AND SHRI M URARI LAL MAHESHWARI HAD 47% STAKE UNDER THE NAME AND STYLE O F THE FIRM AS NATIONAL JOURNAL. THE SAID FIRM WAS INTER ALIA ENGAGED IN TH E PUBLICATION OF NEWS PAPER. 5.2 ON 31.08.1979, THE SAID FIRM WAS DISSOLVED AND TWO NEW FIRMS VIZ. M/S AMARUAJALA PUBLICATIONS AND M/S AMARUJALA PRAKASHAN WERE FORMED. WHILE M/S AMARUJALA PUBLICATIONS WAS OPERATING IN AGRA AN D PUBLICATIONS CENTRES AT MORADABAD, ALLAHABAD, BANARAS, JHANSI AND KANPUR WERE ADDED LATER ON. M/S AMARUJALA PRAKASHAN CARRIED ON THE WORK OF PUBLISHING NEWSPAPERS IN BAREILLY WITH MEERUT, PANCHKULA (CHANDIGARH), JA LLANDUR, NOIDA, DEHRADUN AND HALDWANI CAME TO BE ADDED LATER. THE T WO PARTNERSHIP FIRMS HAD THE MEMBERS OF ONLY THE TWO FAMILIES OF AGARWAL S AND MAHESHWARIES WITH THE RESPECTIVE STAKES CONTINUED IN THE RATIO O F 53% AND 47% RESPECTIVELY IN BOTH THE SAID FIRMS. 5.3 ON 29.03.2001 THE SAID TWO FIRMS WERE CONVERTED INTO TWO SEPARATE PUBLIC LIMITED COMPANIES AND REGISTERED UNDER PART IX OF THE COMPANIES ACT, 1956 IN THE NAME OF M/S AMARUJALA PUBLICATIONS LIMITED AND M/S AMARUJALA PRAKASHAN LIMITED. THE SHARE HOLDINGS IN THE SAID TWO COMPANIES REMAINED AT 53% AND 47% RESPECTIVELY VIS- -VIS MEMBERS OF AGARWAL AND MAHESHWARI FAMILIES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 12 5.4 THEREAFTER, FROM EFFECTIVE DATE OF 01.04.2003 M /S AMARUJALA PRAKASHAN LIMITED GOT MERGED INTO M/S AMARUJALA PUB LICAIONS LIMITED AND ALL THE NEWSPAPERS WITH DIVERSE EDITIONS CAME TO BE OWNED BY M/S AMARUJALA PUBLICATIONS LIMITED. THE SHAREHOLDING EV EN AFTER THE MERGER REMAINED AT 53% WITH AGARWAL FAMILY AND 47% WITH MA HESHWARI FAMILY. 5.5 ANOTHER COMPANY IN AN AROUND 1997 IN THE NAME A ND STYLE M/S A&M PUBLICATIONS PVT. LIMITED WAS INCORPORATED AND THE SHAREHOLDING IN THE SAID COMPANY WAS ONCE AGAIN IN THE VERY SAME PROPORTION OF 53% AND 47% IN FAVOUR OF THE AGARWAL FAMILY AND MAHESHWARI FAMILY RESPECTIVELY. IT WAS ALWAYS THE UNDERSTANDING BETWEEN BOTH THE FAMILIES THAT THEY WOULD HAVE EQUAL LEVEL OF PARTICIPATION IN THE MANAGEMENT OF B OTH COMPANIES. IT WAS ALSO THE UNDERSTANDING BETWEEN BOTH THE FAMILIES RI GHT FROM THE INCEPTION THAT THE STAKES AND THE LEVEL OF RISK WOULD ALSO BE IN THE PROPORTION OF THE HOLDING. THEREAFTER, SINCE 1997 TWO COMPANIES REMAI NED IN OPERATION I.E M/S AMARUJALA PUBLICATION LTD. AND M/S A&M PUBLICAT ION PVT. LTD. 5.6 SINCE THE INCEPTION OF THE AMAR UJALA PUBLICATI ON AND EVEN AFTER FORMATION OF AFORESAID TWO COMPANIES, IT WAS ALSO T HE UNDERSTANDING BETWEEN THE SAID TWO FAMILIES THAT THE STAKES AND T HE LEVEL OF THE RISK IN THE COMPANIES WOULD BE IN PROPORTION TO THE SHAREHOLDIN G OF THE DIFFERENT MEMBERS OF EITHER OF TWO FAMILIES. IT WAS ON THE BA SIS OF THE AFORESAID UNDERSTANDING SHRI ATUL MAHESHWARI BELONGING TO MAH ESHWARI FAMILY WAS MADE THE MANAGING DIRECTOR OF M/S AMARUJALA PUBLICA TIONS LTD. AND SHRI ASHOK AGARWAL AND SHRI AJAY AGARWAL BELONGING TO AG ARWAL FAMILY WERE MADE CHAIRMAN AND LATER THE WHOLE TIME DIRECTOR WIT H LEVEL OF CONTROL, MANAGEMENT AND SUPERINTENDENCE OF THE BUSINESS OF T HE COMPANY AT PAR WITH THE MANAGING DIRECTOR. MR SAURABH ANAND OF AGARWAL FAMILY WAS APPOINTED AS WHOLE TIME DIRECTOR OF THE COMPANY TO LOOK AFTER THE MARKETING AFFAIRS AND PARTICIPATE IN THE DAY TO DAY AFFAIRS. EVEN THOUGH THERE WAS NO FORMAL DIVISION OF WORK BETWEEN THE VA RIOUS MEMBERS ON THE BOARD OF THE COMPANY VIS--VIS THE VARIOUS PUBLICAT IONS WHICH WERE TAKEN OUT FROM AGRA, JHANSI, JALLANDUR, MEERUT, PANCKULA (CHANDIGARH), KANPUR, ALLAHABAD, VARANASI, MORADABAD, BARIELLY, NOIDA, DE HRADUN AND HALDWANI, HOWEVER, FOR CONVENIENCE THESE PUBLICATIO NS WERE MANAGED BY DIFFERENT MEMBERS OF THE BOARD OF THE COMPANY. FOR EXAMPLE THE AGRA EDITION WAS LOOKED AFTER BY SHRI AJAY AGARWAL SINCE 1984 AS HE WAS STATIONED AT AGRA FROM THE VERY BEGINNING, SHRI ATU L MAHESHWARI WAS DISCHARGING THE RESPONSIBILITY OF THE EDITOR OF MEE RUT EDITION. THE PUBLICATIONS UNITS OF JALLANDUR, NOIDA, PANCHKULLA (CHANDIGARH) WHICH ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 13 WERE MANAGED BY ATUL MAHESHWARI TURNED OUT TO BE LO SS MAKING UNITS. HENCE SOMEWHERE IN 2004, MEMBERS OF AGARWAL FAMILY MOOTED THE IDEA OF SHUTTING THESE PUBLICATIONS, PARTICULARLY AFTER REA LISING THAT THESE UNITS EVEN DID NOT SHOW ANY PROSPECTS OF IMPROVEMENTS. THIS SU GGESTION WAS NOT APPROVED BY MEMBERS OF THE MAHESHWARI FAMILY. IN TH E MEANTIME SHRI ASHOK AGARWAL OF AGARWAL FAMILY JOINED HANDS WITH T HE MAHESHWARI FAMILY AND UPSET THE EQUILIBRIUM AND THEN HE MOOTED THE ID EA TO APPOINT HIS SON SHRI MANU ANAND AS WHOLE TIME DIRECTOR WITH SUBSTAN TIAL POWER IN THE COMPANY. THIS WAS OPPOSED BY THE REST OF THE MEMBER S OF THE AGARWAL FAMILY AS THE SAID APPOINTMENT SOUGHT TO NOT ONLY T ILTS THE BALANCE OF POWER BUT ALSO SOUGHT TO DIVEST SHRI AJAY AGARWAL OF HIS EXISTING POWERS AS A WHOLE TIME DIRECTOR. WITH SUCH DEVELOPMENTS, DISPUT E AROSE BETWEEN AGARWAL FAMILY AND MAHESHWARI FAMILY SOMEWHERE IN 2 004 ON THE ISSUE OF CONTROL OF PUBLICATION BUSINESS OF AMAR UJALA NEWS PAPERS IN DIFFERENT CITIES. IN THIS DISPUTE, SHRI ASHOK AGARWAL THOUGH BELONGING TO THE AGARWAL FAMILY JOINED THE MAHESHWARI FAMILY TO GET HIS SON APPOINTED AS WHOLE TIME DIRECTOR. 5.7 THE SHARE HOLDING IN BOTH THE COMPANIES BEFORE DISPUTE WERE 53% WITH AGARWAL FAMILY AND 47% WITH MAHESHWARI FAMILY. HOWEVER AFTER DISPUTE THE SHARE HOLDING PATTERN BETWEEN REST OF A GARWAL FAMILY (EXCLUDING FAMILY OF ASHOK AGARWAL) HEREINAFTER REFERRED AS TH E AGARWAL GROUP AND MAHESHWARI FAMILY ALONG WITH THE FAMILY OF ASHOK AGARWAL HEREINAFTER REFERRED AS THE MAHESHWARI GROUP IN BOTH COMPANIES BECAME AS UNDER:- NO. OF SHARES NAME OF THE ASSESSEE AMAR UJALA PUBLICATIONS LTD. A & M PUBLICATIONS LTD. AGARWAL GROUP AJAY AGARWAL 13.79% 5,51,567 7.00% 70,000 RENU AGARWAL 3.88% 1,55,000 6.00% 60,000 HEMANT ANAND 0.01% 100 4.67% 46,700 SAURABH ANAND 6.62% 2,65,050 8.83% 88,300 SAGAR ANAND 6.62% 2,65,050 8.83% 88,300 KAMLESH AGARWAL 4.41% 1,76,566 - TOTAL 35.33% 14,13,333 35.33% 3,53,300 MAHESHWARI GROUP ASHOK AGARWAL 6.30% 2,51,867 7.00% 70,000 DAYA AGARWAL 6.00% 60,000 MANU ANAND 11.37% 4,54,800 4.67% 46,700 ATUL MAHESHWARI 8.87% 3,55,000 10.00% 1,00,000 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 14 SNEHLATA MAHESHWARI 14.63% 5,85,000 8.00% 80,000 TANMAY MAHESHWARI 5.50% 55,000 RAJUL MAHESHWARI 23.50% 9,40,000 18.00% 1,80,000 VARUN MAHESHWARI 5.50% 55,000 TOTAL 64.67% 25,86,667 64.67% 6,46,700 GRAND TOTAL 40,00,000 10,00,000 5.8 FROM THE ABOVE CHART, IT IS CLEAR THAT AFTER DI SPUTE, THE AGARWAL FAMILY EXCLUDING THE FAMILY OF ASHOK AGARWAL (AGARWAL GROUP ) BECAME MINORITY SHARE HOLDER HAVING ONLY 35.33% OF SHARE HOLDINGS A ND MAHESHWARI FAMILY ALONG WITH THE FAMILY OF ASHOK AGARWAL (MAHESHWARI GROUP) BECAME MAJORITY SHAREHOLDER HAVING 64.67% OF SHAREHOLDINGS IN BOTH COMPANIES. BOTH GROUPS WERE FURTHER DIVIDED INTO DIFFERENT FAM ILIES ON THE BASIS OF THREE SONS OF SHRI DORI LAL AGARWAL AND TWO SONS OF SHRI MURARI LAL MAHESHWARI. CONSTITUENTS OF THESE FIVE FAMILIES ARE GIVEN BELOW : AGARWAL GROUP MAHESHWARI GROUP LATE SHRI DORILAL AGARWAL (FATHER) SHRI ASHOK AGARWAL (SON) MAJORITY MANU ANAND (SON) GROUP LATE SHRI ANIL AGARWAL (SON) KAMLESH AGARWAL (WIFE) MINORITY SAURABH ANAND (SON) GROUP SAGAR ANAND (SON) SHRI AJAY AGARWAL (SON) RENU AGARWAL (WIFE) HEMANT ANAND (SON) LATE SHRI MURARIL LAL MAHESHWARI (FATHER) MAJORITY SHRI ATUL MAHESHWARI (SON) GROUP SMT SNEHLATA MAHESHWARI (WIFE) SHRI RAJUL MAHESHWARI (SON) NOTE: FAMILY OF SHRI ASHOK AGARWAL LATER JOINED MAHESHWARI FAMILY AS DISCUSSED IN EARLIER PARA AND THUS FORMING MAJORITY GROUP ALONG WITH MAHESHWARI FAMILY 5.9 IT WAS UNDER THE AFORESAID CIRCUMSTANCES IN ORD ER TO CARRY OUT THE PUBLICATION BUSINESS OF AMAR UJALA NEWS PAPER IN SM OOTH MANNER, A SETTLEMENT WAS REACHED BETWEEN ALL THE FIVE BRANCHE S OF TWO FAMILIES WITHIN THE AGARWAL AND MAHESHWARI GROUP FOR DIVISION OF AM AR UJALA PUBLICATION BUSINESS. THE WORKING WAS DONE BY SHRI MUKESH TANDO N, THE AUDITOR OF THE COMPANY. THE BUSINESS WAS DIVIDED INTO FIVE UNITS. SHRI SAURABH ANAND BEING THE YOUNGEST MEMBER WAS GIVEN THE FIRST OPTIO N TO CHOOSE THE UNIT, ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 15 AFTER HIM SHRI AJAY AGARWAL WAS GIVEN THE OPTION. S HRI SAURABH CHOSE THE UNIT CONSISTING OF EDITION AT KANPUR, ALLAHABAD AND VARANASI WHILE SHRI AJAY AGARWAL CHOSE THE UNIT COMPRISING EDITION AT A GRA, JHANSI AND PART OF NOIDA (DELHI AND HARYANA). APART FROM THE HELP OF S HRI MUKESH TANDON, SHRI DAYAL SARAN, TAX CONSULTANT AND A CLOSE FAMILY FRIEND ALSO HELPED IN ARRIVING AT THE SETTLEMENT. FINALLY ON 2.12.2004, A FINAL AND CONCLUDED AGREEMENT WAS ARRIVED AT BETWEEN THE PARTIES AT THE OFFICE OF SHRI DAYAL SARAN. UNDER THE SAID AGREEMENT THE FOLLOWING ISSUE S WERE CONCLUDED. (I) THE TWO OF THE FAMILY COMPANIES I.E. M/S AMARUJALA PUBLICATIONS LTD. AND M/S A & M PUBLICATIONS (P) LTD. WERE TO BE RESTRUCTURED, WHILE THE FORMER SHALL GO TO AGARWAL GROUP AND THE LATTER SHALL GO TO MAHESHWARI GROUP. THE SHARES WER E TO BE TRANSFERRED AT BOOK VALUE AND THE DIRECTORS WOULD R ESIGN. (II) THAT APART, A NEW COMPANY WAS TO BE INCORPORATED FO R GIVING EQUAL RIGHTS ON THE TITLE OF AMARUJALA TO BOTH THE COMPANIES. (III) WHILE M/S AMARUJALA PUBLICATIONS LTD. WAS TO RETAIN AGRA, JHANSI AND PART OF NOIDA (DELHI & HARYANA), KANPUR, ALLAHABAD, VARANASI AND LUCKNOW AND M/S A & M PUBLICATIONS (P) LTD. WAS TO GET PART OF NOIDA (UP BELT), MEERUT, BARIELLY, J ALLANDUR, PANCHKULA, DEHRADUN, HALDWANI AND MORADABAD. (IV) TO OVERCOME THE PROBLEM OF NEWSPRINT OUTSTANDING IT WAS DECIDED THAT THE AMOUNT OF RS. 15CR. WILL BE INTRODUCED AS CALL MONEY FROM WHICH THE FAMILY DEPOSITS WILL BE DEDUCTED. (V) THE RESTRUCTURING PROCESS WERE TO END BY 31.03.2005 AND FROM 01.04.2005 THE TWO COMPANIES WERE TO RUN SEPARATELY , INCLUDING EDITORIAL, ADVERTISEMENTS WITH NATIONAL AND REGIONA L STAFF TO BE ARRANGED INDEPENDENTLY FOR THE RESPECTIVE GROUPS. (VI) THE DIFFERENCE OF PAYOUT WILL BE SETTLED IN EQUAL I NSTALMENTS WITHIN ONE FROM 01.04.2005. (VII) AFTER THE COMPLETION OF MOU AND AMOUNT OF RS. 10 CR . WERE TO BE INTRODUCED IN THE FORM OF EXISTING SHAREHOLDERS DEP OSITING 30% IF THE SAID AMOUNT BY 15.12.2004 AND THE REMAINING 70% BY 10% EVERY WEEK IN THE 7 TH WEEK AFTER 15.12.2004. (VIII) SHRI MUKESH TANDON BE GIVEN THE RESPONSIBILITY OF R ESTRICTING THE BANK INTEREST AND BANK BORROWING OF BOTH THE CO MPANIES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 16 THEREAFTER A CIRCULATION TITLED CIRCULATION CHART GIVING DIVISION ALONG WITH THE BASIS AMONG VARIOUS GROUP PUBLICATION WISE WAS ALSO FROZEN BETWEEN THE PARTIES IN TERMS OF THE AFORESAID AGREEMENT. 5.10 HOWEVER, THE ABOVE AGREEMENT WAS NOT IMPLEMENT ED AND A BOARD MEETING ON 07.03.2005 WAS CALLED .IN THE AGENDA OF THIS MEETING, THE FOLLOWING BUSINESS WAS SOUGHT TO BE TRANSACTED : (I) THE COMPANY OPTING FOR CORPORATE GOVERNANCE. (II) INDUCTION OF PROFESSIONAL DIRECTORS IN THE BOARD (III) RESTRUCTURING OF THE EDITORIAL SYSTEM OF THE COMPAN Y (IV) CONSTITUTION OF VARIOUS COMMITTEES FOR THE PURPOSE OF DECISION MAKING PROCESS (V) BANKING OPERATIONS REVAMPED BY DELETING THE CHEQUE SIGNING POWER TO THE BRANCH HEAD/ACCOUNT HEAD OF THE PUBLIC ATION IN ADDITION TO THE CONCERNED DIRECTOR. (VI) APPOINTMENT OF SHRI MANU ANAND AS WHOLE TIME DIRECT OR (VII) ALTERING THE DUTIES AND POWER OF THE FUNCTIONAL DIR ECTORS. 5.11 SHRI AJAY AGARWAL, THE APPELLANT, OPPOSED THE AGENDA OF THIS MEETING AND INSISTED FOR IMPLEMENTATION OF THE AGREEMENT AR RIVED AT WITH THE MAHESHWARI GROUP ON 02.12.2004 BUT THE BOARD IN ITS MEETING HELD ON 07.03.2005 PASSED THE AGENDA EVEN THOUGH MEMBERS OF AGARWAL GROUP DISSENTED FROM IT. 5.12 SUBSEQUENT TO THE ABOVE BOARD MEETING, ON ADVI CE OF A LAWYER SHRI S.R. HALBE THE AGARWAL GROPUP JOINTLY FILED AN URGE NT APPLICATION UNDER REGULATION 44 OF THE COMPANIES ACT, 1956- CP NO. 26 OF 2005 BEFORE THE COMPANY LAW BOARD AND FURTHER A PETITION UNDER SECT ION 397 AND 398 OF THE COMPANIES ACT, 1956- CA NO. 75 OF 2005 TO SEEK THE IMPLEMENTATION OF THE AGREEMENT ARRIVED AT 02.12.2004 WHICH OTHERWISE WAS NOT POSSIBLE SINCE BOTH COMPANIES WERE CLOSELY HELD COMPANIES AND THEI R SHAREHOLDING WAS IN MINORITY TOO. IN THE ABOVE MENTIONED PETITIONS, THE AGARWAL GROUP MAINLY PRAYED FOR IMPLEMENTATION OF THE SETTLEMENT ARRIVED AT BETWEEN THE FAMILIES OF BOTH GROUP VIDE AGREEMENT DATED 02.12.2004 AND T O DECLARE THE VARIOUS RESOLUTION PASSED IN THE MEETING OF THE BOARD OF DI RECTORS OF THE COMPANY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 17 ON 07.03.2005 AS ILLEGAL, NULL AND VOID INCLUDING T HE APPOINTMENT OF SHRI MANU ANAND AS WHOLE TIME DIRECTOR. 5.13 ON 22.03.2005 THE HONBLE COMPANY LAW BOARD PA SSED AN INJUNCTION ORDER RESTRAINING THE MAHESHWARI GROUP FROM GIVING EFFECT TO THE RESOLUTION PASSED IN THE BOARD MEETING DATED 7.03.2005 REGARDI NG BANK OPERATIONS, DIRECTING SHRI AJAY AGARWAL TO CONTINUE AS EDITOR O F THE AGRA PUBLICATION AND RESTRAINING THE APPOINTMENT OF SHRI MANU ANAND AS WHOLE TIME DIRECTOR. AGAINST THIS ORDER, THE MAHESHWARI GROUP PREFERRED AN APPEAL BEFORE THE HIGH COURT OF ALLAHABAD AND THE HONBLE HIGH COURT VIDE ORDER DATED 08.04.2005 DIRECTED THE COMPANY LAW BOARD TO PASS A REASONED ORDER. THEREAFTER THE HONBLE COMPANY LAW BOARD AFTER GIVI NG OPPORTUNITY TO BOTH GROUPS PASSED AN ORDER DATED 15.04.2005 HOLDING THA T THE BALANCE OF CONVENIENCE LIES IN FAVOUR OF THE PETITIONERS I.E. THE AGARWAL GROUP (INCLUDING THE APPELLANT) AND THE PETITIONERS HAVE MADE OUT A PRIMA FACIE CASE AND WOULD SUFFER IRREPARABLE LOSS IF RELIEF AS PRAYED ARE NOT GRANTED AND THEREFORE, TILL THE FINAL DISPOSAL OF THE PETIT ION, THE RESPONDENTS ARE RESTRAINED FROM GIVING EFFECT TO THE RESOLUTIONS PA SSED IN THE BOARD MEETING DATED 7.03.2005 REGARDING BANK OPERATIONS. SECONDLY THE PETITIONERS WILL CONTINUE TO BE THE EDITOR OF THE AGRA PUBLICATIONS AND THIRDLY, THE RESPONDENTS ARE RESTRAINED FROM GIVING EFFECT TO TH E APPOINTMENT OF RESPONDENT NO. 3 (SHRI MANU ANAND) AS A WHOLE TIME DIRECTOR. 5.14 THEREAFTER, AN ORDER DATED 25.01.2006 WAS PAS SED BY THE CLB. IN THIS ORDER, IT IS MENTIONED THAT WITH A VIEW TO RESOLVE THE DISPUTE AMICABLY, BOTH GROUPS DURING THE COURSE OF THE HEARING AGREED ON 3 0.11.2006 THAT MAHESHWARI GROUP WOULD INDICATE THE VALUE OF THE CO MPANY WITH THE FIRST OPTION TO AGARWAL GROUP EITHER TO BUY THE SHARES HE LD BY MAHESHWARI GROUP OR SELL THEIR SHARES ON THE BASIS OF THE VALU E OF THE COMPANY INDICATED BY THE MAHESHWARI GROUP. IN THE HEARING HELD ON 17. 01.2006, THE MAHESHWARI GROUP INDICATED THE VALUE THE COMPANY M/ S AMARUJALA PUBLICATIONS LTD AND M/S A & M PUBLICATIONS (P) LTD . AT RS. 390 CRORES. OUT OF TOTAL VALUE OF SHARES OF THE COMPANY AT RS. 390 CRORE, VALUE OF SHARE HELD BY THE MAHESHWARI GROUP CAME TO BE RS. 252 CRORE (6 4.67%) AND THAT HELD BY THE AGARWAL GROUP CAME TO BE RS. 138 CRORE (35.3 3%). IN THE HEARING HELD ON 23.01.2006, THE AGARWAL GROUP ELECTED THE O PTION OF PURCHASING THE SHARES HELD BY THE MAHESHWARI GROUP. VIDE THIS ORDE R, THE AGARWAL GROUP WAS ALLOWED TO PURCHASE THE SHARE HOLDING OF THE MA HESHWARI GROUP VALUED AT RS. 252 CRORE WITH CERTAIN CONDITIONS AS DISCUSS ED IN PARA 2. OF THE SAID ORDER OF THE CLB DATED 25.01.2006 AS PER WHICH PAYM ENT WAS REQUIRED TO BE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 18 MADE BY THE AGARWAL GROUP IN FOLLOWING MANNER AS GI VEN IN CLAUSE (4) OF THE PARA 2: (A). 5% OF THE CONSIDERATION WILL BE MADE WITHIN 2 WEEKS FROM THE DATE OF THE ORDER AND ANOTHER 5% WITHIN THE NEX T TWO WEEKS (B). 30% WITHIN 3 MONTHS FROM THE DATE OF THE ORDER (C). 30% WITHIN 6 MONTHS FROM THE DATE OF THE ORDER (D). 30% WITHIN 9 MONTHS FROM THE DATE OF THE ORDER (E). THE FULL AMOUNT PAYABLE TO THE RESPONDENT GROU P ( THE MAHESHWARI GROUP) BY THE PETITIONER ( THE AGARWAL GROUP) SHALL BE COMPLETELY PAID WITHIN 9 MONTHS OF THE PASSING OF THE ORDER AND AS PER THE SCHEDULE CONTAI NED HEREINABOVE. NO DEFAULT IN THE SCHEDULE GIVEN HEREI NABOVE SHALL BE MADE BY THE PETITIONER GROUP. IT IS FURTHER PROVIDED IN CLAUSE (5) OF THE PARA 2 THAT IN CASE OF DEFAULT IN PAYMENT AND IN NON-COMPLIANCE OF THE SCHEDULE OF PAYMENT AS PROVIDED IN CLAUSE 4, THE AGARWAL GROUP SHALL NOT ONLY IMMEDIAT ELY CEASE TO HAVE THE MANAGEMENT CONTROL AND THE CONTROL SHALL AUTOMATICA LLY VEST IN THE MAHESHWARI GROUP BUT ALSO THE AGARWAL GROUP SHALL I MMEDIATELY TRANSFER THEIR SHAREHOLDING IN THE COMPANIES TO THE MAHESHWA RI GROUP ON THE BASIS OF THE SAME VALUATION OF RS. 390 CRORE. THE MAHESHW ARI GROUP WILL HAVE THE LIBERTY TO FOREFEIT 10% OF THE TOTAL CONSIDERATION PAYABLE TO THEM. 5.15 SUBSEQUENTLY, IT WAS FOUND THAT THE AGARWAL GR OUP WAS ARRANGING FUND FOR PURCHASE OF SHARE HOLDING OF THE MAHESHWAR I GROUP FROM ZEE TELE FILMS (ESSEL GROUP) AND 5% OF THE CONSIDERATION AMO UNTING TO RS. 12.5 CRORE WAS PAID FROM THE CURRENT ACCOUNT OF M/S MEDI A WEST INDIA LTD. OWNED ZEE GROUP ARRANGED BY A FINANCIAL CONSULTANT M/S CHURU TRADING CO. PVT. LTD.. AS BASIC UNDERSTANDING REACHED BETWE EN BOTH GROUPS BEFORE PASSING OF THE ORDER DATED 25.01.2006 BY THE CLB WA S THAT THE COMPANY SHOULD REMAIN WITH EITHER OF TWO GROUPS, IT WAS FEA RED BY THE MAHESHWARI GROUP THAT THE COMPANY MIGHT BE TAKEN OVER BY THE Z EE GROUP SUBSEQUENTLY, IF PURCHASE OF THEIR SHARE HOLDING BY THE AGARWAL G ROUP IS FINANCED BY THEM. THEREFORE, THEY FILED APPLICATION BEFORE CLB SEEKIN G FOR DIRECTIONS TO THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 19 AGARWAL GROUP TO DEPOSIT THEIR SHARES IN THE ESCROW ACCOUNT ALLEGING THAT THE AGARWAL GROUP HAS VIOLATED THE TERMS OF THE CON SENT ORDER DATED 25.01.2006 AND AS SUCH, THEY SHOULD BE DIRECTED TO SELL THEIR SHARES TO THE MAHESHWARI GROUP. ON THIS APPLICATION OF THE MAHESH WARI GROUP, THE CLB PASSED ORDER DATED 04.04.2006, DIRECTING THE AGARWA L GROUP TO DEPOSIT THEIR SHARES IN ESCROW ACCOUNT AND ALSO TILL THE DISPOSAL OF THE APPLICATION OF THE MAHESHWARI GROUP, PAYMENTS OF FURTHER INSTALLMENTS BY THE AGARWAL GROUP WAS DEFERRED. FINALLY THE ABOVE APPLICATION OF THE MAHESHWARI GROUP WAS DISPOSED OFF BY THE CLB VIDE ITS ORDER DATED 10.07. 2006 AFTER OBSERVING AND DISCUSSING IN DETAIL IN THIS ORDER THAT THE AGARWAL GROUP DID NOT HAVE FINANCIAL CAPACITY TO PURCHASE SHARE AND THE MOU WI TH M/S MEDIA WEST WAS SO UNREALISTIC, THAT NO MAN OF ORDINARY PRUDENCE , LEAVE ALONE A BUSINESS PERSON, WOULD BE CONVINCED THAT IT IS PURE AND SIMP LE FINANCIAL ARRANGEMENT AND SUCH MOU LEAD ONLY TO THE STRONG PRESUMPTION TH AT THERE IS MORE TO THE UNDERSTANDING EXPRESSED IN THE MOU THAN WHAT THE EY E MEET AND THEN HOLDING THAT CONSENT ORDER DATED 25.01.2006 WAS OBT AINED BY THE AGARWAL GROUP BY SUPPRESSING THE MATERIAL KNOWN FACT RELATI NG TO THE FINANCING AGREEMENT WITH THE LENDERS FOR PURCHASE OF SHARES F ROM THE MAHESHWARI GROUP, WHICH HAD THE INBUILT DEFAULT CLAUSE GIVING RIGHT TO THE LENDERS TO DISPOSE OF 49% OF THE EXISTING SHARES OF THE COMPAN Y WHICH HAD THE RISK OF THE COMPANY GOING TO OUTSIDERS ( AS FEARED BY THE M AHESHWARI GROUP TO ZEE GROUP) AND HENCE CONSIDERING THE BASIC UNDERSTANDIN G THAT ONE GROUP SHOULD GO OUT OF THE COMPANY, THE CLB DIRECTED IN T HIS ORDER THAT THE AGARWAL GROUP WOULD SELL THEIR SHARE HOLDING TO THE MAHESHWARI GROUP. THIS ORDER OF CLB WAS NOT CHALLENGED BY THE AGARWAL GROUP AND AFTER A COMPROMISE TERMS WERE ARRIVED AT BETWEEN BOTH GROUP S, A FINAL ORDER DATED 01.11.2006 WAS PASSED BY THE CLB DIRECTING THE MAHE SHWARI GROUP TO PAY RS. 155 CRORE TO AGARWAL GROUP FOR PURCHASE OF THEI R SHARE HOLDING. EXTRACT OF THIS FINAL ORDER IS REPRODUCED AS UNDER: AS PER THE COMPROMISE TERMS ARRIVED AT BETWEEN T HE PARTIES, THE RESPONDENTS WERE TO PAY A SUM OF RS. 1 55 CRORES TO THE PETITIONERS TOWARDS THEIR SHARES AND THIS AMOUNT WA S TO BE DEPOSITED IN THE ESCROW ACCOUNT MAINTAINED IN THE S TATE BANK OF PATIALA, SHASTRI BRANCH, NEW DELHI, AS A PER MY EAR LIER ORDER. THE RESPONDENTS ARE ARRANGING FOR DEPOSITING THIS MONEY . YESTERDAY, I HAD PASSED AN ORDER DIRECTING THE BANK TO TRANSFER A SUM OF RS. 17 CRORES OUT OF THE ESCROW ACCOUNT TO THE PERSONAL AC COUNTS OF THE PETITIONERS AND SIMULTANEOUSLY HAND OVER 65.33 SHAR ES BELONGING TO THE RESPONDENTS TO THE RESPONDENTS. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 20 I FURTHER DIRECT: 1. ON RECEIPT OF THE BALANCE OF RS, 138 CRORES IN T HE ESCROW ACCOUNT, THE MANAGER, STATE BANK OF PATIALA WILL RE LEASE THE BALANCE SHARES OF THE PETITIONERS NOW HELD IN ESCRO W TO THE RESPONDENTS. 2. THE PETITIONERS ARE AT LIBERTY TO WITHDRAW THE S AID SUM OF RS. 138 CRORES OR TRANSFER THE SAME TO ANY ACCOUNT THAT THEY DESIRE AND THE MANAGER, STATE BANK OF PATIALA WILL PERMIT THEM TO DO SO ON RECEIPT OF A REQUISITION SIGNED BY ALL THE PETITION ERS. 3. THE RESPONDENTS ARE AT LIBERTY TO MANAGE THE AFF AIRS AND SHAREHOLDING OF THE COMPANY IN ANY MANNER WITHOUT A NY INTERFERENCE BY THE PETITIONERS GROUP 4. THE PETITIONERS GROUP SHALL CEASE TO REMAIN EIT HER AS SHAREHOLDER/S OFFICE BEARER/S OR DIRECTOR/S OF THE COMPANY AND SHALL HAVE NO CONCERN WHATSOEVER WITH THE COMPANY. 5. ON AN EARLIER OCCASION, THE MONEY DEPOSITED IN T HE ESCROW ACCOUNT BY THE PETITIONERS WAS DIRECTED TO BE PAID TO M/S MEDIAWEST PRIVATE LIMITED AND THE BANK HAD ISSUED T DS CERTIFICATE IN THE NAME OF AMAR UJALA PUBLICATION L IMITED FOR THE INTEREST ACCRUED THEREON. THE MANAGER, STATE BANK O F PATIALA IS DIRECTED TO ISSUE A ONE ISSUED IN FAVOUR OF AMAR UJ ALA PUBLICATION LIMITED AFTER OBSERVING THE NECESSARY FORMALITIES I N THIS REGARD. 6. THE SUIT IN AGRA WILL BE DISMISSED AS WITHDRAWN. 7 LET A CERTIFIED COPY OF THIS ORDER BE SERVED ON THE MANAGER, SBP FOR COMPLIANCE. SINCE THE MATTER HAS BEEN COMPROMISED, THE PET ITION IS CLOSED WITH LIBERTY TO REVIVE IN CASE OF ANY DIFFICULTLY I N WORKING OUT THE TERMS OF THIS ORDER. 5.16 PURSUANT TO THE COMPROMISE ARRIVED BETWEEN THE AGARWAL GROUP AND THE MAHESHWARI GROUP AFTER A PROLONGED LITIGATION C ARRIED BEFORE THE CLB AS DISCUSSED IN AFORESAID PARAS, THE TOTAL SALE CONSID ERATION OF THE 35.33% SHARE HOLDING OF THE AGARWAL GROUP WAS AGREED AT RS. 160 CRORES OUT OF WHICH RS 5 CRORES WAS PAID TO SHRI AJAY AGARWAL AS ADVANCE BY WAY OF BANK DRAFT WHO WAS DULY AUTHORIZED TO RECEIVE THIS ADVANCE AMOUNT ON BEHALF OF ALL THE MEMBERS OF THE AGARWAL GROUP AND THE BALANCE OF RS . 155 CRORES WAS PAID ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 21 IN FULL IN PURSUANT TO THE ORDER PASSED BY THE PRIN CIPAL BENCH COMPANY LAW BOARD, NEW DELHI DATED 01.11.2006 IN THE ESCROW ACC OUNT (OPENED ON THE DIRECTION OF THE HONBLE CLB IN ITS ORDER DATED 25. 01.2006) AND THEN THE WHOLE AMOUNT OF RS. 160 CRORE WAS DISTRIBUTED BY TH E ESCROW AGENT APPOINTED BY THE COMPANY LAW BOARD, SMT. BINA GUPA TO ALL SIX MEMBERS OF THE AGARWAL GROUP IN THE RATIO OF THEIR SHARE HOLDING. THUS, THE CONSIDERATION RECEIVED ON SALE OF THE SHARES HOLDING IN M/S AMARU JALA PUBLICATIONS LTD. AND M/S A & M PUBLICATIONS LTD. BY THE MEMBERS OF THE A GARWAL GROUP WAS DIVIDED AS UNDER: AMAR UJALA PUBLICATIONS LTD. A & M PUBLICATIONS LTD. NAME OF THE ASSESSEE NO. OF SHARES VALUE NO OF SHARES VALUE TOTAL VALUE AJAY AGARWAL & FAMILY AJAY AGARWAL 5,51,567 49,95,32,495 70,000 6,34,02,208 56,29,34,703 RENU AGARWAL 1,55,000 14,03,77,392 60,000 5,43,44,750 19,47,22,142 HEMANT ANAND 100 90,565 46,700 4,22,98,330 4,23,88,895 KAMLESH AGARWAL & FAMILY SAURABH ANAND 2,65,050 24,00,45,340 88,300 7,99,77,356 32,00,22,696 SAGAR ANAND 2,65,050 24,00,45,340 88,300 7,99,77,356 32,00,22,696 KAMLESH AGARWAL 1,76,566 15,99,08,868 --- 15,99,08,868 TOTAL 14,13,333 1,28,00,00,000 3,53,300 32,00,00,000 1,60,00,00,000 6.1 AS THE ENTIRE APPEAL PROCEEDING TAKEN BEFORE ME IS FOR DISPUTING THE EXPENSES OF RS. 3,18,38,200/- DISALLOWED BY THE AO OUT OF RS. 4,06,10,000/- WHILE COMPUTING THE LTCG, THE DETAILS OF THESE EXPE NSES AS EXPLAINED BY THE LD. AR DURING THE ASSESSMENT PROCEEDING AS WELL AS APPELLATE PROCEEDING ARE DISCUSSED IN THIS PARA. IN FACT AGARWAL GROUP I TSELF CONSISTED OF TWO FAMILIES I.E. AJAY AGARWAL FAMILY AND KAMLESH AGARW AL (WIDOW OF ELDER BROTHER ANIL AGARWAL) FAMILY. MEMBERS OF EACH FAMIL Y WHO RECEIVED SALE CONSIDERATION OF SHARES OF TWO COMPANIES MENTIONED IN PARA 3.1 ARE AS UNDER: AJAY AGARWAL FAMILY A) AJAY AGARWAL KAMLESH AGARWAL FAMILY (I) KAMLESH AGARWAL ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 22 B) RENU AGARWAL C) HEMANT ANAND (II) SAGAR ANAND (III)SAURABH ANAND 6.2 THE WHOLE EXPENDITURE OF RS. 11,35,59,600/- WAS DIVIDED BETWEEN TWO FAMILIES OF AGARWAL GROUP AS UNDER: NAME & ADDRESS OF PERSON / PARTY TO WHOM PAYMENT MADE AJAY AGARWAL AND FAMILY (RS.) KAMLESH AGARWAL AND FAMILY (RS.) TOTAL (RS.) PURPOSE OF PAYMENT M/S CHURU TRADING CO. PVT LTD. CONTINENTAL BUILDING, 135, DR. A.B. ROAD MUMBAI 4,25,00,000 4,25,00,000 8,50,00,000 FEES PAID FOR A CTING AS ARRANGER FOR ARRANGING RS. 252 CRORES FOR THE PROPOSAL FOR ACQUISITION OF 64.67% EQUITY SHARES HELD BY MAHESHWARI GROUP AS PER AGREEMENT. LATER, SINCE THE SHARES COULD NOT BE ACQUIRED DUE TO SUBSEQUENT ORDER OF CLB AND RS. 22 CRORE MORE WAS RECEIVED THAN THE INITIAL AMOUNT OF RS. 138 CRORE ON SALE OF SHARES, RS. 8.5 CRORE WAS PAID AS CONSIDERATION FOR ENHANCING THE VALUE OF SHARES AS A PART OF STRATEGY M/S S.R. HALBE & ASSOCIATES ADVOCATES FOUNTAIN CHAMBERS 3 RD FLOOR, NANABHAI LANE, FOUNTAIN MUMBAI 1,12,24,000 3,13,200 1,12,00,000 2,24,24,000 3,13,200 FEES PAID FOR FORMULATION OF THE STRATEGY FOR FILING PETITION BEFORE THE COMPANY LAW BOARD FOR PROTECTION OF THE INTEREST OF MINORITY SHAREHOLDERS, WHICH RESULTED IN ENHANCEMENT IN THE VALUE OF THE SHARES ON ACCOUNT OF THE REASONS THAT THE MAJORITY SHAREHOLDERS QUOTED THE VALUE OF THE SHARES THINKING THAT THE MINORITY CANNOT PAY THE PRICE FOR ACQUISITION OF THEIR 64.67%. REIMBURSEMENT OF TRAVELLING, LOADING AND BOARDING EXPENSES. MRS BINA GUPTA ADVOCATE KHAITAN HOUSE B-1, DEFENCE COLONY NEW DELHI 26,52,000 17,70,400 44,22,400 FEES FOR PREPARATIO N OF PETITION INCLUDING APPEARANCE BEFORE THE COMPANY LAW BOARD. FEES FOR APPEARANCE BEFORE THE HONBLE ALLAHABAD HIGH COURT AND SUPREME COURT INCLUDING CONSULTATION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES BEING ESCROW AGENT. MR. SUDIPTO SARKAR ADVOCATE 31, BROAD STREET KOLKATA 1,50,000 1,50,000 APPEARANCE FEES BEFORE THE COMPANY LAW BOARD ON VARIOUS DATES VIZ 17.01.2006, 24.01.2006 AND 25.01.2006 RABO INDIA SECURITIES (P) LTD FORBES BUILDING, 2 ND FLOOR, CHIRANJIT RAI 2,50,000 2,50,000 PAID FOR STRATEGIC AND FINANCIAL ADVISORY SERVICES ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 23 MARG, FORT MUMBAI MR. DAYAL SARAN, ADVOCATE 63, NEHRU NAGAR AGRA 5,00,000 5,00,000 10,00,000 FEES FOR THE CONSULTA TION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES TOTAL 5,75,89,200 5,59,70,400 11,35,59,600 6.3 FURTHER THE ABOVE EXPENDITURES WERE DIVIDED BET WEEN THE THREE MEMBERS OF EACH FAMILY AS UNDER: - NAME OF THE ASSESSEE AJAY AGARWAL RENU AGARWAL HEMANT ANAND KAMLESH AGARWAL SAGAR ANAND SAURABH ANAND TOTAL NAME & ADDRESS OF PERSON / PARTY TO WHOM PAYMENT MADE AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) AMOUNT (RS.) & (DATE OF PAYMENT) (RS.) M/S CHURU TRADING CO. PVT. LTD. CONTINENTAL BUILDING, 135, DR. A.B. ROAD, MUMBAI 3,00,00,000 (15.11.2006) 1,00,00,000 (13.11.2006) 25,00,000 (13.11.2006) 85,00,000 (13.11.2006) 1,70,00,000 (13.11.2006) 1,70,00,000 (13.11.2006) 8,50,00,000 M/S S.R. HALBE & ASSOCIATES, ADVOCATES FOUNTAIN CHAMBERS, 3 RD FLOOR, NANABHAI LANE, FOUNTAIN, MUMBAI 78,56,800 (14.12.2006) 50,000 (19.05.2005) 50,000 (26.12.2005) 23,200 (01.03.2006) 90,000 (02.05.2006) 1,00,000 (03.08.2006) 28,06,000 (14.12.2006) 5,61,200 (14.12.2006) 22,40,000 (02.01.2007) 44,80,000 (02.01.2007) 44,80,000 (02.01.2007) 2,27,37,200 MRS. BINA GUPTA & OTHERS, ADVOCATES KHAITAN HOUSE, B-1, DEFENCE COLONY, NEW DELHI 8,75,000 (03.02.2007) 1,00,000 (04.04.2005) 30,000 (23.04.2005) 50,000 (06.10.2005) 1,00,000 (01.03.2006) 85,000 (05.02.2006) 1,50,000 (23.03.2006) 50,000 (05.04.2006) 1,00,000 3,12,500 (03.02.2007) 1,00,000 (15.05.2005) 1,00,000 (31.05.2005) 1,50,000 (02.06.2005) 1,00,000 (07.10.2005) 1,87,000 (15.11.2005) 1,00,000 (28.03.2006) 62,500 (03.02.2007) --- 5,00,000 (03.02.2007) 5,00,000 (03.02.2007) 7,70,400 44,22,400 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 24 (12.07.2006) MR. SUDIPTO SARKAR, ADVOCATE 31, BROAD STREET, KOLKATA 1,50,000 (02.04.2006) --- --- --- --- --- 1,50,000 RABO INDIA SECURITIES PVT. LTD. FORBES BUILDING, 2 ND FLOOR, CHIRANJIT RAI MARG, FORT, MUMBAI 2,50,000 (01.02.2006) --- --- --- --- --- 2,50,000 MR. DAYAL SARAN, ADVOCATE 63, NEHRU NAGAR, AGRA 5,00,000 19.02.2007 --- --- --- --- 5,00,000 10,00,000 GRAND TOTAL 4,06,10,000 1,38,55,500 31,23,700 1,07, 40,000 2,19,80,000 2,32,50,400 11,35,59,600 7.1 IN PARA 12 OF THE ASSESSMENT ORDER, THE AO HAS DISCUSSED THE NATURE OF VARIOUS EXPENDITURE INCURRED BY THE APPELLANT ON PA YMENT OF VARIOUS LEGAL AND PROFESSIONAL FEES TO DECIDE ABOUT THE CLAIM OF THE APPELLANT FOR DEDUCTION U/S 48(I) OUT OF THESE EXPENSES AND THE S AME ARE REPRODUCED AS UNDER: 12.1 PAYMENT OF RS. 8,50,00,000/- TO CHURU TRADING CO. P VT. LTD. MUMBAI & RS. 2,50,000/- TO RABO INDIA SECURITI ES PVT. LTD., MUMBAI THE AGARWAL GROUP STARTED EXPLORING THE MEANS FOR ACQUISITION OF MAJORITY SHAREHOLDING OF MAHESHWARI GROUP. IN THE PROCESS THEY APPROACHED RABO INDIA SECURITIES P VT. LTD. WHO ACTED AS STRATEGIC AND FINANCIAL ADVISOR TO AGARWAL GROUP (THE ACQUIRERS) WITH RESPECT TO PROPOSED ACQUISITION OF THE BALANCE SHAREHOLDING IN THE COMPANIES HELD BY INVESTORS OTH ER THAN ACQUIRERS IN ASSOCIATION WITH THE SET OF LIKE MINDE D INVESTORS. SO THE TRANSACTION ENTERED INTO WITH RABO INDIA SECURI TIES PVT. LTD. WAS BASICALLY A INITIAL STRATEGIC PLANNING FOR THE ACQUISITION OF MAJORITY SHAREHOLDINGS WHEREAS THE AGARWAL GROUP IN ITS RETURNS OF INCOME HAD SHOWN SALE OF THEIR SHAREHOLDINGS TO THE MAJORITY SHAREHOLDERS. THE PROCESS INITIATED BY AGARWAL GROU P FOR THE ACQUISITION AND AMOUNT PAID TO RABO INDIA SECURITIE S PVT. LTD. WAS IN NO WAY IN CONNECTION WITH PROCESS OF TRANSFE R OF SHARES AND HENCE SUCH EXPENDITURE CANNOT BE CONSIDERED AS EXPENSE DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH TH E TRANSFER OF SHARES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 25 SIMILARLY, DURING THE PROCESS OF ACQUISITION OF MAJ ORITY SHARE HOLDING OF MAHESHWARI GROUP, THE AGARWAL GROU P ENTERED INTO AGREEMENT WITH CHURU TRADING PVT. LTD. WHO ACT ED AS ARRANGER FOR ARRANGING RS. 252 CRORES TO ACQUIRE MA JORITY SHAREHOLDING IN THE COMPANIES BY MAHESHWARI GROUP. AS PER THE TERMS OF CHURU TRADING PVT. LTD. THE AGARWAL GROUP WAS TO PAY RS. 8.5 CRORES FOR CONSIDERATION OF ARRANGING THE F UND AS ARRANGER FEE TO CHURU TRADING COMPANY PVT. LTD. THE ARRANGER FEE WAS DUE ON ACHIEVING THE FINANCIAL CLOSURE OF R S. 252 CRORES NOTWITHSTANDING WHETHER THE AGARWAL GROUP SHALL BE ABLE TO DRAW DOWN THE ARRANGED FUNDS OR NOT. THIS WAS AN AL L INCLUSIVE AND NOT REFUNDABLE FEES. IN THE BACKGROUND OF THE A GREEMENT WITH CHURU TRADING CO. PVT. LTD. IT IS AMPLY CLEAR THAT THE FEE WAS BASICALLY IN THE NATURE OF ARRANGEMENT OF THE FUND AND NO WAY IT WAS IN THE CONNECTION OF TRANSFER OF SHARES OF AGAR WAL GROUP TO THE MAHESHWARI GROUP, THEREFORE, THE AMOUNT OF RS. 8.5 CRORES PAID TO M/S CHURU TRADING CO. PVT. LTD. IS NOT DIST INCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SH ARES FOR BEING ADMISSIBLE AS DEDUCTION U/S 48(I) OF THE I.T. ACT. 12.2 PAYMENT OF RS. 2,24,24,000/- + RS. 3,13,200/- TO M/ S S.R. HALBE & ASSOCIATES, MUMBAI: A PAYMENT OF RS. 2,24,24,000/- HAVE BEEN CLAIMED ON ACCOUNT OF FEES PAID TO M/S S. R. HALBE AND ASSOCIA TES, MUMBAI FOR FORMULATION OF THE STRATEGY FOR FILING PETITION BEFORE THE CLB FOR PROTECTION OF THE INTEREST OF MINORITY SHAREHOL DERS, APPEARANCE AND ATTENDING THE PROCEEDINGS BEFORE CLB , BRIEFING THE LAWYERS AND ATTENDING THE HEARING BEFORE HONBL E ALLAHABAD HIGH COURT AND HONBLE SUPREME COURT, ADVISING AND DRAFTING THE TERMS OF SETTLEMENT IN CONNECTION WITH TRANSFER , HOLDING DISCUSSIONS AND CONFERENCING WITH MINORITY SHAREHOL DERS. THE PAYMENT OF RS. 2,24,24,000/- IS A LUMPSUM PAYMENT F OR THE SERVICES RENDERED BY M/S S.R. HALBE. SINCE THERE IS NO ITEMWISE BILLING FOR VARIOUS ACTIVITIES AND CONSIDERING THAT MAJOR PORTION OF FEE IS ATTRIBUTABLE TO THE PROCEEDINGS BEFORE CL B IN CONNECTION WITH TRANSFER OF SHARE, THE PAYMENT OF RS. 2,24,24, 000/- IS ACCEPTED THAT IT HAS BEEN INCURRED IN CONNECTION WI TH THE TRANSFER OF SHARES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 26 HOWEVER, IN ADDITION TO ABOVE, RS. 3,13,200/- HAS B EEN SHOWN AS REIMBURSEMENT OF TRAVELING, LODGING AND BO ARDING EXPENSES TO M/S S.R.HALBE & ASSOCIATES. ON PERUSAL OF DOCUMENTS ON RECORD AND BILL OF M/S S.R. HALBE & AS SOCIATES SUCH EXPENSES DO NOT FIND ANY PLACE TO BE DIRECTLY CONNECTED WITH TRANSFER OF SHARES OF THE AGARWAL GROUP. THE NATURE OF EXPENSES ITSELF SHOWS THAT IT HAS NOTHING TO DO WITH TRANSFE R OF SHARES AND CANNOT BE CONSTRUCTED THAT SUCH EXPENDITURE HAS BEE N INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANS FER. 12.3 PAYMENT OF RS. 44,22,400/- TO MRS. BINA GUPTA, ADVOCATE, NEW DELHI THE PAYMENT OF RS. 44,22,400/- HAS BEEN CLAIMED AS FEE FOR PREPARATION OF PETITION, APPEARANCE BEFORE THE CLB AND FEE FOR APPEARANCE BEFORE HONBLE ALLAHABAD HIGH COURT AND HONBLE SUPREME COURT INCLUDING CONSULTATION FROM TIME TO T IME IN RESPECT OF TRANSFER OF SHARES. OUT OF THESE EXPENSE S IT IS NOTICED THAT CERTAIN EXPENSES HAS BEEN INCURRED IN CASH ON VOUCHERS FROM THE ACCOUNTS OF DIFFERENT MEMBERS OF AGARWAL GROUP WHICH ARE BASICALLY REIMBURSEMENT OF EXPENSES RELATED TO TRAV ELING, LODGING AND BOARDING ETC. IT IS NOTICED THAT AN AMOUNT OF R S. 6,25,000/- HAS BEEN CLAIMED BY SHRI AJAY AGARWAL AND AN AMOUNT OF RS. 7,37,000/- HAS BEEN CLAIMED BY SMT. RENU AGARWAL AS DEDUCTION, HOWEVER LOOKING AT THE SUPPORTING BILLS SUCH PAYMEN TS FALLS UNDER THE CATEGORY OF VARIOUS MISCELLANEOUS ACCOUNTS OF L OGISTIC EXPENSES WHICH ARE NOT DISTINCTLY RELATED AND INTEG RALLY CONNECTED WITH THE TRANSFER OF SHARES, THEREFORE, T HEY ARE NOT ADMISSIBLE FOR DEDUCTION U/S 48. 12.4 PAYMENT OF RS. 1,50,000/- TO MR. SUDIPTO SARKAR, ADVOCATE A PAYMENT OF RS. 1,50,000/- HAS BEEN CLAIMED AS PAY MENT TO MR. SUDIPTO SARKAR, ADVOCATE ON ACCOUNT OF APPEA RANCE FEES BEFORE THE CLB ON VARIOUS DATES. HOWEVER, ON PERUSA L OF ORDERS OF CLB IT IS NOTICED THAT HE HAS APPEARED ON BEHALF OF AGARWAL GROUP DURING THE ACQUISITION PROCESS OF MAJORITY SH AREHOLDING OF MAHESHWARI GROUP ON BEHALF OF PETITIONERS (AGARWAL GROUP). THE CONSOLIDATED PAYMENTS ALSO INCLUDED EXPENSES ON ACCOUNT OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 27 LOGISTIC PROVISIONS. SINCE SUCH EXPENSES ARE NOT DI STINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SH ARES, THEREFORE, IT CANNOT BE TREATED THAT THE EXPENSES HAVE BEEN PA ID WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SHARES. THEREFORE, SUCH EXPENSE IS NOT ALLOWABLE AS DEDUCTION U/S 48(I) OF I.T.ACT. 12.5 PAYMENT OF RS. 10,00,000/- TO MR. DAYAL SARAN, ADVOCATE, AGRA A CONSOLIDATED PAYMENT OF RS. 10,00,000/- (RS. 5,00 ,000/- EACH BY AJAY AGARWAL FAMILY AND KAMLESH AGARWAL FAM ILY) HAS BEEN SHOWN AS FEE FOR CONSULTATION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES. HOWEVER, THERE I S NO EVIDENCE ON RECORD SHOWING SUCH EXPENDITURE BEING DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES. T HERE IS NO EVIDENCE WHICH CAN CORROBORATE THAT ANY LEGAL SERVI CES HAVE BEEN EXTENDED IN THE PROCESS OF VALUATION OF SHARE OR IN THE PROCESS OF COMPROMISE CONCERNING THE TRANSFER OF SH ARES. SUCH A LEGAL EXPENSE DOES NOT FIND ANY PLACE THAT THEY ARE INTRINSICALLY LINKED WITH THE TRANSFER OF SHARES AND THEREFORE IT CANNOT BE ALLOWED AS DEDUCTION. 7.2 IN VIEW OF ABOVE DISCUSSION AS CONTAINED IN PAR A 12 OF THE ASSESSMENT ORDER, THE AO HAS HELD FOLLOWING EXPENDITURES AS NO T DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARE S FOR BEING ADMISSIBLE AS DEDUCTION U/S 48(I) OF THE IT ACT AND HENCE DISALLO WED BY HIM. SL. NO. NAME OF PARTY TO WHOM PAYMENT IS MADE AMOUNT (RS.) (I) M/S CHURU TRADING CO. PVT. LTD. RS. 8,50,00,00/ - (II) RABO INDIA SECURITIES LTD. RS. 2,50,000/- (III) MR. SUDIPTO SARKAR RS. 1,50,000/- (IV) MR. DAYAL SARAN RS. 10,00,000/- ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 28 7.3 FOLLOWING EXPENDITURES WERE PARTLY ALLOWED SL. NO. NAME OF PARTY TO WHOM PAYMENT IS MADE AMOUNT CLAIMED (RS.) AMOUNT ALLOWED U/S 48(I) (RS.) REASON FOR NOT ALLOWING BALANCE AMOUNT (I) M/S S.R. HALBE & ASSOCIATES RS. 2,24,24,000/ - ( AS FEES) + RS. 3,13,200/- ( AS REIMBURSEMENT OF BOARDING, LODGING AND TRAVELLING EXPENSES) RS. 2,24,24,000/ - ( AS FEES) RS. 3,13,200/- ( AS REIMBURSEMENT OF BOARDING, LODGING AND TRAVELLING EXPENSES) NOTE: THIS EXPENSE WAS FULLY CLAIMED BY SHRI AJAY AGARWAL (APPELLANT) (II) MRS. BINA GUPTA RS. 44,22,400/- RS. 30,60,400/- RS. 6,25,000/- IN THE HAND OF SHRI AJAY AGARWAL (APPELLANT) + RS. 7,37,000/- IN THE HAND OF SMT. RENU AGARWAL HOLDING THAT THESE EXPENSES FALLS UNDER THE CATEGORY OF VARIOUS MISCELLANEOUS ACCOUNTS OF LOGISTICS EXPENSES NOT DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH TRANSFER OF SHARES 7.4 IN VIEW OF ABOVE DECISION OF THE AO AS DISCUSSE D IN PARA 12 OF THE ASSESSMENT ORDER WITH RESPECT TO PAYMENTS MADE TO S IX PARTIES FOR VARIOUS PROFESSIONAL AND LEGAL SERVICES PROVIDED TO THE AGA RWAL GROUP IN CONNECTION WITH THEIR DISPUTE WITH THE MAHESHWARI G ROUP TAKEN BEFORE THE CLB WHICH ULTIMATELY RESULTED INTO SALE OF THEIR SH ARE HOLDINGS IN TWO CLOSELY HELD UNLISTED COMPANIES, FOLLOWING PAYMENTS WERE DISALLOWED TO THE APPELLANT OUT OF RS. 4,06,10,000/- CLAIMED BY HIM U /S 48(I) NAME TO WHOM PAYMENT MADE AMOUNT DISALLOWED (RS.) SMT. BINA GUPTA 6,25,000 SUDIPTO SARKAR 1,50,000 S.R. HALBE & ASSO. 3,13,200 DAYAL SARAN 5,00,000 RABO INDIA SECURITIES (P) 2,50,000 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 29 LTD. CHURU TRADING CO. (P) LTD. 3,00,00,000 TOTAL AMOUNT DISALLOWED 3,18,38,200 IN VIEW OF THE FINDINGS OF THE AO AS DISCUSSED ABOV E, RS. 3.18,38,200/- WAS ADDED IN THE RETURNED INCOME OF THE APPELLANT A ND ASSESSED INCOME WAS DETERMINED AT RS. 54,92,51,000/- ( 51,74,12,800 + 3 ,18,38,200) 8.1 THE ABOVE ADDITION HAS BEEN DISPUTED BY THE APP ELLANT IN GROUNDS NO. 2 TO 9 TAKING EACH AMOUNT SEPARATELY FOR SIX AMOUNT S CONTAINED IN THE TOTAL DISALLOWANCE OF RS. 3,18,38,200/- PLEADING THAT ALL THESE EXPENSES ARE INCURRED IN CONNECTION WITH TRANSFER OF SHARES AND IN SUPPORT OF THESE GROUNDS IN THE WRITTEN SUBMISSIONS FILED ON 15.10.2 010, THE LD. AR HAS FIRST TRIED TO EXPLAIN THE CIRCUMSTANCES UNDER WHICH THE AGARWAL GROUP HAD TO GO TO THE HONBLE CLB UNDER A STRATEGY TO COMPEL THE M AJORITY SHAREHOLDER I.E. THE MAHESHWARI GROUP TO PURCHASE THEIR SHAREHOLDING AT AN MAXIMUM POSSIBLE ENHANCED SHARE PRICE AS DETERMINED BY THEM UNDER THE DIRECTION OF THE CLB BECAUSE BOOK VALUE OF THE SHARES WERE MINIS CULE AND ALSO THEIR EARLIER ATTEMPT OF DIVISION OF FAMILY BUSINESS OF P UBLICATION AS PER THE AGREEMENT ARRIVED AT BETWEEN TWO GROUPS ON 02.12.20 04 FAILED DUE TO NOT BEING HONOURED BY THE MAHESHWARI GROUP BY PASSING A BOARD RESOLUTION ON 07.03.2005. IN THE WRITTEN SUBMISSION, IT WAS EX PLAINED BY THE LD. AR THAT AFTER EXPERIENCING UNPRECEDENTED PROBLEMS FROM THE MAJORITY SHARE HOLDERS VIZ., MAHESHWARI GROUP (INCLUDING FAMILY OF ASHOK A GARWAL), WHO WERE FORCING / MAKING SITUATION SO THAT THE AGARWAL GROU P MAY BE THROWN OUT FROM THESE COMPANIES AND SELL THEIR HOLDING TO THEM AS THEY WERE IN MINORITY, THEY FILED PETITION BEFORE THE COMPANY LA W BOARD, PRINCIPAL BENCH, NEW DELHI. IT WAS FURTHER EXPLAINED BY THE L D. AR THAT IF THEY WOULD HAVE EXITED FROM THE COMPANY, THEY WOULD HAVE REALI ZED MINISCULE PRICE OF THEIR SHAREHOLDING. THEREFORE, IT WAS MUTUALLY DECI DED BY AGARWAL GROUP TO MOVE TO THE CLB, AGITATE JOINTLY SO THAT THEY OBTAI N PROPER PRICE AND SHARE THE EXPENSES INCURRED ON THE LITIGATION. IN ORDER T O CLARIFY THE WHOLE CIRCUMSTANCES UNDER WHICH THE AGARWAL GROUP MOVED T O CLB, IT HAS BEEN EXPLAINED BY THE LD. AR THAT IT IS TO BE UNDERSTOOD THAT CLB IS A DISPUTE RESOLUTION MECHANISM CONSTITUTED UNDER SECTION 10E OF THE COMPANIES ACT, 1956 AND IT IS REGULATED BY THE COMPANY LAW BOARD R EGULATIONS, 1991. HE FURTHER EXPLAINED THAT IN VIEW OF THE PETITION FILE D BY THE AGARWAL GROUP AND AFTER MANY ROUNDS OF THE HEARINGS BEFORE THE CLB, T HE PRINCIPAL BENCH, NEW ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 30 DELHI ON 25.01.2006 PASSED ORDER REQUIRING THE RESP ONDENTS-MAHESHWARI GROUP TO QUOTE A PRICE OF TOTAL SHAREHOLDING AND PE TITIONERS-AGARWAL GROUP WILL HAVE FIRST RIGHT TO ACQUIRE. THUS AGARWAL GROU P ADOPTED A STRATEGY TO ENHANCE/IMPROVE THE VALUE OF THE SHARES AND THIS CO ULD ONLY BE DONE WITH THE HELP AND GUIDANCE OF A SUITABLE PERSON WHO COULD BA CK THE DEAL AND ACT AS A STRATEGIC INVESTOR TO FUND THE DEAL FOR THE ACQUISI TION OF THE SHARE HOLDING OF THE MAJORITY SHARE HOLDERS. HE FURTHER ELABORATED T HAT UNDER THIS PLANNING OF THE STRATEGY, THE AGARWAL GROUP FIRST OPTED FOR PUR CHASE OF SHAREHOLDING OF THE MAHESHWARI GROUP DETERMINED AT RS. 252 CRORE BY SHOWING THAT THEY WERE ARRANGING FINANCE WITH THE HELP OF TWO CONSULT ANCY COMPANIES , M/S RABOO INDIA SECURITIES (P) LTD. AND M/S CHURU TRADI NG CO. PVT. LTD. WHICH ARRANGED FINANCE THROUGH M/S MEDIA WEST AND OTHER M ARCHANT BANKERS AND FIRST INSTALLMENT OF 5% AMOUNTING TO RS. 12.5 CRORE AS PER THE ORDER DATED 25.01.2006 WAS ALSO PAID. AS EXPLAINED BY THE LD. A R, SINCE THE FINANCIAL ARRANGEMENT MADE BY THE AGARWAL GROUP WITH M/S MEDI A WEST AND OTHER MERCHANT BANKERES WAS NOT FOUND TO BE STRAIGHT FORW ARD AND A TAKEOVER OF THE COMPANY BY THE ZEE GROUP WAS SUSPECTED BECAUSE THE FINANCIAL ARRANGEMENT WAS MADE WITH M/S MEDIA WEST IN SUCH A MANNER THAT ULTIMATELY AT LEAST 49% OF SHARES WOULD HAVE BEEN SOLD TO THE LENDER AND AS PER THE MARKET INFORMATION, THE LENDER M/S MEDIA WE ST WAS A FRONT COMPANY OF ZEE GROUP, THE CLB WITH ITS SUBSEQUENT ORDER DAT ED 10.07.2006 CANCELLED THE OPTION OF THE AGARWAL GROUP TO BUY TH E SHARES OF THE MAHESHWARI GROUP AND ORDERED THE MAHESHWARI GROUP T O BUY THE SHARES OF THE AGARWAL GROUP. IT WAS ALSO ARGUED BY THE LD. AR THAT AGAINST THIS ORDER OF THE CLB, THE AGARWAL GROUP FURTHER DID NOT GO IN APPEAL BECAUSE THEY WERE ULTIMATELY INTERESTED IN SELLING THEIR SHARE H OLDING. AS PER THE COMPROMISE REACHED BEFORE THE CLB, IT WAS THE BASIC UNDERSTANDING THAT ONE GROUP SHOULD GO OUT OF THE COMPANY SO THAT COMP ANY REMAINS WITH EITHER OF TWO GROUPS AND NOT FALL IN THE HANDS OF O UTSIDERS, THE CLB ORDERED THAT RIGHT TO PURCHASE THE SHARES OF THE AGARWAL GR OUP WOULD REVERT TO THE MAHESHWARI GROUP AND SINCE IT SERVED THE PURPOSE OF THE AGARWAL GROUP, THEY DID NOT APPEAL AGAINST THE ORDER OF THE CLB. A S PER THE LD. AR, FINALLY BOTH THE PETITIONERS (THE AGARWAL GROUP) AND THE RE SPONDENTS (THE MAHESHWARI GROUP) SUBSEQUENTLY ENTERED INTO A COMPR OMISE BEFORE THE HONBLE CLB TO ENABLE THE LATTER TO TAKE OVER THE C OMPANIES AND THE FORMERS BE PAID THE VALUE OF THE SHARES, WHICH THE AGARWAL GROUP WAS ABLE TO GET ENHANCED WITH THE BACKING OF THE FINANCERS/MERCHANT BANKERS ETC. THUS HONBLE COMPANY LAW BOARD PASSED AN ORDER DATED 01. 11.2006 FOR THE COMPROMISE BETWEEN BOTH PARTIES WITHOUT ANY RESTRIC TIVE COVENANTS AS THE AGARWAL GROUP WAS BEING PAID THE VALUE OF SHARES AN D THE MAHESHWARI ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 31 GROUP WERE ACQUIRING THE SAME. PURSUANT TO THE FINA L ORDER OF THE CLB, RS. 160 CRORE WAS PAID TO THE AGARWAL GROUP WHICH WAS R S. 22 CRORE MORE THAN THE INITIAL VALUE OF RS. 138 CRORE FOR 35.33% SHARE HOLDING OF THE AGARWAL GROUP AS DETERMINED BY THE MAHESHWARI GROUP IN VIEW OF THE ORDER DATED 25.01.2006 OF THE CLB AND HENCE IT WAS ARGUED BY TH E LD. AR THAT ALL THESE ENHANCEMENT OF THE VALUE OF THE SHARES BECAME POSSI BLE BECAUSE OF THE STRATEGY OF THE AGARWAL GROUP PLANNED ON THE ADVICE AND HELP OF VARIOUS LAWYERS AND PROFESSIONALS TO WHOM FEES WERE PAID AS PER THE DETAILS GIVEN IN PARA 6.2. AFTER RECEIPT OF FULL AMOUNT OF RS. 160 C RORE, IT WAS DIVIDED AMONG THE SIX MEMBERS OF AGARWAL GROUP IN THE RATION OF T HEIR SHARE HOLDING AS GIVEN IN THE CHART IN PARA 5.16. 8.2 IN ORDER TO FURTHER CLARIFY THE STRATEGY OF THE AGARWAL GROUP IN GOING TO CLB TO GET THE VALUE OF SHARES ENHANCED, FOLLOWI NG SUBMISSIONS WERE MADE BY THE LD. AR ON 08.03.2011: MEMBERS OF THE AGARWAL GROUP SOUGHT ADVICE OF EMI NENT LAWYER SHRI S.R. HALBE AND WERE ADVISED THAT IF THEY COULD JOIN TOGETHER AND FILE PETITION BEFORE THE COMPANY LAW BOARD UNDER SE CTION 397 AND 398 OF THE COMPANIES ACT, 1956 THEY WOULD BE ABLE T O SEEK THE IMPLEMENTATION OF THE MOU WHICH OTHERWISE WAS NOT P OSSIBLE SINCE THESE WERE CLOSELY HELD COMPANIES AND THEIR SHAREHO LDING WAS IN MINORITY TOO. TO ACHIEVE THIS PLAN A STRATEGY TO BE DRAWN IN A PLANNED WAY WITHOUT BRINING INTO KNOWLEDGE OF ANY PERSON. HENCE THE PETITION BEFORE THE HONBLE COMPANY LAW B OARD WAS PREPARED AND FILED WITH THE HELP AND ASSISTANCE OF VARIOUS LEGAL LUMINARIES. MEETINGS WERE HELD BETWEEN THE MEMBERS OF AGARWAL GROUP, S.R. HALBE AND OTHER ADVOCATES TO STRATEGISE THE PLAN AND IT WAS DECIDED THAT ONE OF THE BEST WAY TO EXTRACT THE PRICE WAS TO PRAY BEFORE THE HONBLE BOARD, WHO HAS THE POWERS OF THE COURT THAT THE PETITIONERS WERE WILL TO PURCHASE THE SHARES OF THE RESPONDENTS AT VALUE THEY QUOTED AND IN CASE THIS WAS TO GO THROUG H THEN AGARWAL GROUP HAS TO SEEK ASSISTANCE OF FINANCERS OR ELSE T HE MATTER MAY GET OUT OF HAND. SHRI AJAY AGARWAL AND SHRI SAURABH ANA ND TRAVELLED TO MUMBAI AND MET CHAIRMAN AND MEMBERS OF ZEE GROUP AN D M/S CHURU TRADING CO., THEY AGREED TO HELP THEM IN THIS PLAN, BUT SOUGHT TO SEEK CHARGES FOR THIS FAVOUR, WHICH THE MEMBERS OF THE AGARWAL GROUP AGREED TO SINCE IF THIS STRATEGY WORKED THEY WOULD HAVE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 32 REALISED A GOOD PRICE OF THEIR SHAREHOLDINGS UNDER DIRECTIONS FROM COMPANY LAW BOARD. ON 22.03.2005 THE HONBLE COMPANY LAW BOARD PASSED AN INJUNCTION ORDER RESTRAINING THE MAHESHWARI GROUP F ROM GIVING EFFECT TO THE RESOLUTION PASSED IN THE BOARD MEETIN G DATED 7.03.2005 REGARDING BANK OPERATIONS, DIRECTING SHRI AJAY AGAR WAL TO CONTINUE AS EDITOR OF THE AGRA PUBLICATION AND RESTRAINING T HE APPOINTMENT OF SHRI MANU ANAND AS WHOLE TIME DIRECTOR. AGAINST THI S ORDER MAHESHWARI GROUP PREFERRED AN APPEAL BEFORE THE HIG H COURT OF ALLAHABAD AND THE HONBLE HIGH COURT VIDE ORDER DAT ED 08.04.2005 DIRECTED THE COMPANY LAW BOARD TO PASS A REASONED O RDER. THEREAFTER THE HONBLE COMPANY LAW BOARD AFTER GIVI NG OPPORTUNITY TO BOTH THE GROUP PASSED AN ORDER DATED 15.04.2005 AS UNDER. I HAVE HEARD THE LEARNED COUNSELS OF BOTH SIDES AND ALSO SEEN THE RECORDS OF THE CASE AS WELL AS SUBMISSIONS NOW MADE BY THEM. IT IS ADMITTED POSITION THAT THIS IS FAMILY CONCERN AND S HAREHOLDING IS HELD BY CLOSE FAMILY MEMBERS. MOREOEVER, THE RESPONDENT COM PANY IS A RESULT OF CONVERSION OF PRE EXISTING PARTNERSHIP FIRM, THEREF ORE, PRIMA FACIE THE PRINCIPLE OF PARTNERSHIP FIRM SHOULD APPLY IN THIS CASE AS DECIDED BY THIS BOARD IN THE CASE OF M/S TIRATH RAM AHUJA LTD. AND ORS. (CP NO. 57/99). THE CASE OF THE PETITIONERS IS THAT THE POWER STRUC TURE WHICH WAS BEING MAINTAINED FOR 20 YEARS IS BEING TILTED IN FA VOUR OF RESPONDENT IN THE GARB OF SO CALLED PROFESSIONALISM SO AS TO MARG INALISE THE PETITIONERS. THE RESPONDENTS ON OTHER HAND ARE RELYING ON THE AR TICLES OF ASSOCIATION AS WELL AS THE RESOLUTIONS PASSED IN THE BOARD MEET ING OF 7.03.05 WHERE THE PETITIONERS WERE ALSO PRESENT. THE PETITIONERS HAVING PARTICIPATED IN THE BOARD MEETING HAVE TO FOLLOW THE PRINCIPLES OF MAJORITY DECISION. IN CASE OF THE RESPONDENT COMPANY WAS NOT LOOKING T O BE A PARTNERSHIP FIRM ON THE FACE OF IT, MOST OF THE ARG UMENTS ADVANCED BY THE RESPONDENTS WOULD HAVE COME TO THEIR RESCUE. HOWEVE R, AS ALREADY STATED THE MAJORITY DECISION IS NOT APPLICABLE IN THE CASE OF PARTNERSHIP FIRM, AS STATED EARLIER. IT IS A MATTER OF DETAILED DISCUSSI ON AND FINAL STAGE AS TO WHETHER THE RELINQUISHMENT OF EDITORSHIP OF AGRA ED ITION, THE NEW FINANCIAL STRUCTURE FRAMED BY THE RESPONDENT COMPAN Y AND APPOINTMENT OF R-3 WHO IS ALSO A SON OF RESPONDENT-2, WOULD TIL T THE BALANCE OF POWER IN THE RESPONDENT COMPANY OR NOT. THIS CAN BE DECID ED ONLY WHEN THE MAIN PETITION IS HEARD AND ARGUMENTS ARE LED BY LEA RNED COUNSELS OF BOTH SIDES ON THE POINTS OF FACTS AND LAW. IN THE MEANTI ME, IT APPEARS THAT THE STATUS QUO ANTE AT LEAST 3 ISSUES NEEDS TO BE MAINT AINED TILL THE DISPOSAL OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 33 THIS PETITION, WHICH WOULD OTHERWISE CAUSE IRREPARA BLE LOSS TO THE PETITIONER. IN CASE THE ARGUMENTS OF THE LEARNED CO UNSELS ARE ACCEPTED IT WOULD TANTAMOUNT TO DISPOSAL OF THE PETITION ITSELF . THE BALANCE OF CONVENIENCE THEREFORE, LIES IN FAVOUR OF THE PETITI ONERS. I AM OF THE CONSIDERED VIEW THAT THE PETITIONERS HAVE MADE OUT A PRIMA FACIE CASE AND WOULD SUFFER IRREPARABLE LOSS IF RELIEF AS PRAY ED ARE NOT GRANTED. AS SUCH, TILL THE FINAL DISPOSAL OF THE PETITION, THE RESPONDENTS ARE RESTRAINED FROM GIVING EFFECT TO THE RESOLUTIONS PASSED IN THE BOARD MEETING DATED 7.03.2005 REGARDING BANK OPERATIONS. SECONDLY THE P ETITIONERS WILL CONTINUE TO BE THE EDITOR OF THE AGRA PUBLICATIONS AND THIRDLY, THE RESPONDENTS ARE RESTRAINED FROM GIVING EFFECT TO TH E APPOINTMENT OF RESPONDENT NO. 3 AS A WHOLE TIME DIRECTOR. THEREAFTER AFTER SEVERAL ROUNDS OF HEARINGS THE CHA IRMAN OF THE HONBLE COMPANY LAW BOARD INTERVENED AND REQUESTED BOTH THE GROUPS TO SETTLE THEIR DISPUTES AMICABLE TO PRESERVE THE F AMILY HELD COMPANY. IT WAS AT THIS STAGE THE STRATEGY ADOPTED BY THE AGARW AL GROUP TO AUGMENT THE PRICE OF THEIR SHARE HOLDING WAS TO BE TESTED. THUS DURING THE COURSE OF THE HEARING THE PARTIES AGREED ON 30.11.2005 THA T MAHESHWARI GROUP WOULD INDICATE THE VALUE OF THE COMPANY WITH THE FI RST OPTION TO AGARWAL GROUP EITHER TO BUY THE SHARES HELD BY MAHESHWARI G ROUP OR SELL THEIR SHARES ON THE BASIS OF THE VALUE OF THE COMPANY. IN THE MEANWHILE MEMBERS OF THE AGARWAL GROUP AS A PART OF THEIR STR ATEGY STARTED REVEALING INFORMATION THAT THEY WERE GOING TO BUY O UT THE SHAREHOLDING OF THE MAJORITY IE MAHESHWARI GROUP BY WAY OF DISCUSSI ON WITH THE VARIOUS MERCHANT BANKERS AND OTHER PERSONS IN THE MARKET IN ORDER TO RAISE FINANCE. THIS ACTION OF THEIRS CAUGHT THE ATTENTION OF MAHESHWARI GROUP WHO IN THE COURSE OF THE HEARING INDICATED THE VALU E THE COMPANY M/S AMARUJALA PUBLICATIONS LTD AND M/S A & M PUBLICATI ONS (P) LTD. AT RS. 390 CRORES. TO FURTHER PUT THE MAHESHWARI GROUP UNA WARE OF THEIR DEALINGS WITH ZEE GROUP THEY OPTED TO BUY THE SHARE HOLDING OF THE MAJORITY SHAREHOLDERS I.E. MAHESHWARI GROUP SO THAT THE PRICE MAY NOT BE BACK TRACKED AGAIN AS PREVIOUSLY IT WAS MAHESHWA RI GROUP WHO HAD BACK TRACKED THE MOU FOR SETTLEMENT WHICH WAS THEIR PROPOSAL. THEREAFTER THE HONBLE COMPANY LAW BOARD CONSTITUTI NG THE BENCH OF THE PRESIDENT ON 24.01.2006 PASSED THE FOLLOWING ORDER. 1. WITH A VIEW TO RESOLVE THE DISPUTES AMICABLY, THE P ARTIES HAD AGREED ON 30.11.2005 THAT THE RESPONDENTS WOULD INDICATE THE VALUE OF THE COMPANY WITH THE FIRST OPTION TO THE PETITIONERS EITHER TO BUY T HE SHARES HELD BY THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 34 RESPONDENTS OR SELL THE PETITIONERS SHARES TO THE RESPONDENTS ON THE BASIS OF THE VALUE OF THE COMPANY INDICATED BY THE RESPONDEN TS. IN THE HEARING HELD ON 17.01.2006, THE RESPONDENTS INDICATED THE VALUE OF THE COMPANY INCLUDING THAT OF A&M PUBLICATIONS PVT. LTD. AT RS. 390 CRORES. IN THE HEARING HELD ON 23.01.2006, THE PETITIONERS ELECTED THE OPTION OF P URCHASING THE SHARES HELD BY THE RESPONDENTS. 2. IT HAS BEEN AGREED BY THE PARTIES THAT SALE OF SHAR ES BY THE RESPONDENTS SHALL BE SUBJECT TO THE FOLLOWING: 1. THERE WILL BE A LOCK-IN PERIOD OF 3 YEARS ON THE SH ARES OF THE RESPONDENTS THAT ARE PURCHASED BY THE PETITIONER GROUP. 2. THE PETITIONERS SHALL NOT TRANSFER ANY SHARES OF TH E COMPANIES OR RAISE THE SHAREHOLDING IN THE COMPANIES OR CAUSE ANY SHARES T O BE ALLOTTED AND WILL NOT ENTER INTO ANY AGREEMENT/TRANSACTIONS IN SUCH M ANNER THAT RESULT IN THE FOLLOWING: (A) RESULTS IN PURCHASER OF THE SHARES (PETITIONERS GR OUP) CEASING TO HOLD 51% OF THE SHAREHOLDING OF THE COMPANIES AT ANY POI NT OF TIME FOR A PERIOD OF NEXT 3 YEAR EVEN AFTER IPO. (B) CEASING TO HAVE MANAGEMENT CONTROL OF THE COMPANIES AND ALL AND EVERY POLICY DECISION OF THE COMPANY SHALL BE TAKEN BY THE PETITIONER GROUP. (C) THAT THE PETITIONER GROUP SHALL ALSO HAVE MAJORITY DIRECTORS ON THE BOARD OF THE COMPANY. (D) HOWEVER, THE PETITIONERS ARE AT LIBERTY TO GO IN FO R PUBLIC ISSUE AFTER PAYMENT OF FULL CONSIDERATION FOR THE SHARES IN TER MS OF CLAUSE (4) BELOW SUBJECT TO CLAUSES (A) AND (B) ABOVE. 3. THE MANAGEMENT CONTROL OF THE COMPANY SHALL ONLY BE TRANSFERRED TO THE PETITIONER GROUP ON PAYMENT OF 40% OF THE AGREED AM OUNT PAYABLE TO THE RESPONDENT GROUP BY THE PETITIONERS. IN THE MEANTIM E, THE SHARES SOUGHT TO BE SOLD BY THE RESPONDENTS AND ALSO THE INSTALLMENT S OF CONSIDERATION PAID BY THE PETITIONERS SHALL BE KEPT IN ESCROW ACCOUNT AND ON FULL PAYMENT, THE MONEY WILL BE RELEASED TO THE RESPONDENTS AND ALL T HE SHARES WILL BE TRANSFERRED TO THE PETITIONERS. 4. THE PAYMENT SHALL BE MADE BY THE PETITIONERS GROUP IN THE FOLLOWING MANNER: (A) 5% OF THE CONSIDERATION WILL BE PAID WITHIN 2 WEEKS FROM THE DATE OF THE ORDER AND ANOTHER 5% WITHIN THE NEXT TWO WEEKS. (B) 30% WITHIN 3 MONTHS FROM THE DATE OF THE ORDER. (C) 30 % WITHIN 6 MONTHS FROM THE DATE OF THE ORDER. (D) 30% WITHIN 9 MONTHS FROM THE DATE OF THE ORDER. (E) THE FULL AMOUNT PAYABLE TO THE RESPONDENT GROUP BY THE PETITIONERS SHALL BE COMPLETELY PAID WITHIN 9 MONTHS OF THE PAS SING OF THE ORDER AND AS PER THE SCHEDULE CONTAINED HEREIN ABOVE. NO DEFA ULT IN THE SCHEDULE GIVEN HEREINABOVE SHALL BE MADE BY THE PETITIONER G ROUP. 5. IN CASE OF DEFAULT IN PAYMENT AND IN NON-COMPLIANCE OF THE SCHEDULE OF PAYMENT AS PROVIDED IN CLAUSE 4, THE PETITIONER GRO UP SHALL NOT ONLY IMMEDIATELY CEASE TO HAVE THE MANAGEMENT CONTROL AN D THE CONTROL SHALL ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 35 AUTOMATICALLY VEST IN THE RESPONDENT GROUP BUT ALSO THE PETITIONER GROUP SHALL IMMEDIATELY TRANSFER THEIR SHAREHOLDING IN TH E COMPANIES TO THE RESPONDENT GROUP ON THE BASIS OF THE SAME VALUATION OF RS. 390 CRORES. THE RESPONDENTS WILL HAVE LIBERTY TO FORFEIT 10% OF THE TOTAL CONSIDERATION PAYABLE TO THE RESPONDENTS. 6. SINCE THE MANAGEMENT OF THE COMPANY WILL BE HANDED OVER TO THE PETITIONERS ONLY AFTER RECEIPT OF 40% OF THE CONSID ERATION, THE RESPONDENTS SHALL ENSURE THE FOLLOWING: (A) THERE SHALL BE NO ADDITIONAL CAPITAL COMMITMENTS. (B) THERE SHALL BE NO SALE OR PURCHASE OF ASSETS. (C) THERE SHALL BE NO CLOSURE OR STARTER OF NEW ADDITIO NS. (D) ALL PAYMENTS BEYOND RS. 50,000/- SHALL BE WITH JOIN T SIGNATURES OF ONE OF THE PETITIONERS AS ALSO ANY CONTRACT OF VALUE OF MO RE THAN RS. 50,000/-. (E) THERE SHALL BE NO CHANGE IN THE SENIOR MANAGEMENT. (F) THERE SHALL BE NO CHANGE IN THE BOARD OF DIRECTORS. (G) THERE SHALL BE NO CHANGE IN THE CAPITAL STRUCTURE. (H) THERE SHALL BE NO FRESH BORROWINGS. 7. AFTER THE MANAGEMENT CONTROL OF THE COMPANY IS TRAN SFERRED TO THE PETITIONERS ON RECEIPT OF 40% OF THE CONSIDERATION, TILL THE FULL PAYMENT IS RECEIVED BY THE RESPONDENTS, THE SAME CONDITIONS AS IN CLAUSE (6) ABOVE WILL CONTINUE TO APPLY AND WHEREVER JOINT SIGNATURE OF PETITIONERS HAS BEEN STIPULATED, IT SHALL BE WITH JOINT SIGNATURES OF ON E OF THE RESPONDENTS. 8. WITHIN A WEEK OF THE DATE OF THE ORDER, THE RESPOND ENTS SHALL FURNISH TO THE PETITIONERS CURRENT FINANCIAL POSITION (IN TERMS OF THE LAST TRAIL BALANCE, FUND COMMITMENTS ETC.) OF BOTH THE COMPANIES. 9. LIKEWISE, WITHIN A WEEK M/S A&M. PUBLICATIONS PVT. LTD. WILL PROVIDE TO THE PETITIONERS WITH THE SHARE CERTIFICATES WITH RE SPECT TO THEIR SHAREHOLDING IN THE COMPANY. 3. SINCE THE ABOVE TERMS WERE DISCUSSED AND AGREED TO IN MY PRESENCE, THE PARTIES SHOULD SCRUPULOUSLY ABIDE BY THE ABOVE TERMS. FURTH ER, SINCE RIGHT FROM THE BEGINNING, BOTH THE PARTIES EXPRESSED THEIR DESIRE TO KEEP THE BUSINESS OF THE COMPANY WITHIN THE FAMILY AND THAT IS WHY THE OPTIO N WAS GIVEN TO THE PETITIONERS TO EITHER BUY OR SELL, THE PETITIONERS HAVING OPTED TO TAKE THE FULL OWNERSHIP AND CONTROL OF THE COMPANY THAT IS WITHIN THE FAMILY, THEY SHALL NOT EITHER DIRECTLY OR INDIRECTLY FACILITATE OR NEGOTIATE OR SHOP AROUND W ITH ANY THIRD PARTY FOR A PERIOD OF 3 YEARS TO EITHER ACQUIRE THE OWNERSHIP OR CONTR OL OF THE COMPANY. 4. THE PARTIES ARE AT LIBERTY TO APPROACH THE BENCH ON CASE OF ANY DIFFICULTY IN WORKING OUT THIS ORDER. MAHESHWARI GROUP NEVER ANTICIPATED AND WERE COMPLET ELY UNAWARE OF THE STRATEGY OF AGARWAL GROUP WERE COMPLETELY TA KEN ABACK WITH THE OPTION OF AGARWAL GROUP TO BUY OUT THEIR SHAREHOLDI NGS AT THE VALUE OF RS. 252 CRORES. THEREAFTER THEY STARTED SCOUTING THAT H OW AGARWAL GROUP WAS ABLE TO RAISE FUNDS OF SUCH LARGE AMOUNT AND STARTE D FEARING OF LOSING THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 36 COMPANY. AFTER OBTAINING VITAL INFORMATION THEY AGA IN FILED PETITION BEFORE THE HONBLE COMPANY LAW BOARD THAT AGARWAL GROUP HA VE VIOLATED THE TERMS OF THE CONSENT ORDER DATED 25.01.2006 AND THE Y SHOULD BE DIRECTED TO SELL THEIR SHARES TO MAHESHWARI GROUP. THE HON BLE COMPANY LAW BOARD REVERSED THE OPTION FROM ACQUISITION OF THE C OMPANY FROM AGARWAL GROUP TO MAHESHWARI GROUP AFTER HEARING THE COUNSEL S OF THE LATTER THAT THE FUNDING OF MONEY FROM M/S MEDIAWEST ARRANGED BY M/S CHURU TRADING CO. WAS IN CONTRAVENTION TO THE CONSENT ORD ER, MEANING THEREBY THAT THE EARLIER ORDER OF THE BOARD BECAME INEFFECT IVE, UNENFORCEABLE AND NON EST AND THE RIGHT TO PURCHASE THE SHARES REVERT ED TO MAHESHWARI GROUP WITH THE SAME BINDING TERMS THAT THEY SHALL N OT BORROW OR MAKE FINANCIAL ARRANGEMENTS. THE RELEVANT PORTION OF THE ORDER OF THE HONBLE CO MPANY LAW BOARD DATED 10.07.2006 IS REPRODUCED AS UNDER. 12. I HAVE CONSIDERED THE PLEADINGS AND ARGUMENTS O F THE COUNSEL. BEFORE DEALING WITH THE MERITS OF THE CASE, IT WOULD BE APPROPRIAT E TO SUMMARIZE, POINT WISE, THE RECITALS IN THE MOU BETWEEN THE PETITIONERS AND MEDIA WEST. A. THE SUBJECT MATTER OF THE MOU IS FINANCING THE ACQU ISITION OF 64.67% SHARES PRESENTLY HELD BY THE RESPONDENTS. B. IMMEDIATELY AFTER THE VALUE OF THE COMPANY WAS DISC LOSED BY THE RESPONDENTS ON 17.1.2006, THE PETITIONERS HELD DISC USSIONS WITH A WELL KNOWN UNDISCLOSED MERCHANT BANKING INSTITUTION WHIC H HAD INDICATED THAT PURCHASE OF 64.67% SHARES WAS EMINENTLY A BANKABLE PROPOSITION AND THE PETITIONERS COULD DIVEST THEIR OWN 35.33% HOLDING I N THE MARKET AT AN APPROPRIATE TIME. WHILE THE MERCHANT BANKER WAS AGR EEABLE TO FUND MAJOR PART OF THE REQUIREMENT, IT INSISTED THAT THE PETIT IONERS SHOULD RECRUIT ANOTHER INVESTOR TO FUND ONE THIRD TO HALF OF THE R EQUIREMENT. ON THE SUGGESTION OF THE MERCHANT BANKER, THE PETITIONERS APPROACHED MEDIA WEST, ONE OF THE NAMES SUGGESTED BY THE MERCHANT BA NKERS AND MEDIA WEST AGREED TO FUND NOT MORE THAN 40% OF THE REQUIR EMENT. C. AFTER THE CONSENT ORDER, FURTHER DISCUSSIONS WERE H ELD JOINTLY WITH THE MERCHANT BANKER AND MEDIA WEST AND IT WAS AGREED TH AT MEDIA WEST WOULD LEND RS. 101 CRORES, BEING 40% OF THE TOTAL A MOUNT OF RS. 252 CRORES WHERE AFTER THE MERCHANT BANKER WILL LEND TH E BALANCE AMOUNT OF RS. 151 CRORES. D. THE SECURITY FOR THE AMOUNT OF RS. 252 CRORES LENT JOINTLY BY MEDIA WEST AND THE MERCHANT BANKER WOULD BE 35.33% SHARES HELD BY THE PETITIONERS, WHICH SHALL BE SUBJECT TO RESTRAINT AGAINST ALL TRA NSFERS. E. DURING THE CURRENCY OF THE LOANS, THESE SHARES WILL STAND PLEDGED IN FAVOUR OF MEDIA WEST AND MERCHANT BANKER AND THE SHARES AC QUIRED FROM THE RESPONDENTS OF 64.67% WILL BE RETAINED AS COLLATERA L SECURITY. THE VOTING RIGHTS OF 35.33% SHARES SHALL NOT BE EXERCISABLE IN ANY MANNER PREJUDICIAL TO THE INTEREST OF THE LENDERS. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 37 F. THE PETITIONERS WOULD HAVE THE OPTION TO REPAY THE LOANS AT ANY TIME WITHIN A PERIOD OF 6 MONTHS OF ACQUIRING THE ENTIRE SHARES , WITH 15% INTEREST PER ANNUM, BEFORE THE LENDERS EXERCISE THEIR OPTION TO SELL THE SHARES. G. THE MERCHANT BANKER WILL HAVE THE RIGHT TO MAKE PUB LIC OFFER FOR SALE OR PRIVATE PLACEMENT TO FINANCIAL INVESTORS OF THE 35. 33% SHARES AT ANY TIME AFTER 6 MONTHS BUT WITHIN 36 MONTHS FROM THE DATE O N WHICH THE PETITIONERS ACQUIRE THE ENTIRE SHARES AND THE LENDERS WILL APPR OPRIATE THE PROCEEDS PROPORTIONATELY. AFTER 3 YEARS, THE MERCHANT BANKER WILL HAVE THE RIGHT TO SELL EITHER BY PUBLIC OFFER OR BY PRIVATE PLACEMENT OF ADDITIONAL 13.67% SHARES THUS TOTALING TO 49% SHARES. THE RECEIPT OF THE PROCEEDS OF SALE OF 49% SHARES WOULD FULLY AND FINALLY RELEASE THE PETI TIONERS FROM ALL DEBTS, LIABILITIES AND OBLIGATIONS DUE TO THE LENDERS AND THE BALANCE 51% SHARES WILL BE RELEASED UNCONDITIONALLY TO THE PETITIONERS . H. TILL THAT TIME, NO DIVIDEND SHALL BE DECLARED WITHO UT THE CONSENT OF THE LENDERS. I. IF THE PETITIONERS DO NOT ACCEPT THE SCHEME PREPARE D BY THE MERCHANT BANKER FOR SALE OF 35.33% SHARES, THE SHARES SHALL BE IMMEDIATELY TRANSFERRED IN THE JOINT NAME OF THE LENDERS AND TH E PETITIONERS WILL PAY 15% INTEREST PER ANNUM RIGHT FROM THE BEGINNING REPAYAB LE WITHIN A PERIOD OF 48 MONTHS FROM THE DATE OF THE LOAN. DURING THE CURREN CY OF THE LOAN, 64.67% SHARES SHALL CONTINUE TO BE RETAINED AS COLLATERAL SECURITY BY THE LENDERS. J. IF THE INTEREST ON THE LOAN REMAINS UNPAID FOR MORE THAN A YEAR, AFTER NOTICE TO THE PETITIONERS, THE LENDERS MAY OFFER FO R SALE TO PUBLIC OR BY PRIVATE PLACEMENT, THE 35.33% SHARES AND THE PROCEE DS SHALL BE APPROPRIATED PROPORTIONATELY BY THE LENDERS FIRST T OWARDS INTEREST AND THEREAFTER THE PRINCIPAL. K. IF THE REMAINING PRINCIPAL AMOUNT AND THE INTEREST IS NOT PAID WITHIN 48 MONTHS, THE LENDERS SHALL HAVE A RIGHT TO MAKE A PU BLIC OFFER OF SUCH NUMBER OF SHARES OUT OF 64.67% SHARES SO THAT THE PETITION ERS CONTINUE TO RETAIN 51% SHARES. L. IN THE EVENT, PUBLIC OFFER FOR SALE DOES NOT TAKE P LACE WITHIN A PERIOD 12 MONTHS FROM THE DATE OF ACQUISITION, THE PARTIES MA Y RENEGOTIATE AND THE NEW AGREEMENT SHALL PROVIDE FOR PUBLIC OFFER BY THE PET ITIONERS FOR REPAYING THE LOAN BY THE LENDERS WITH SIMPLE INTEREST AT 15% PER ANNUM. M. THE LENDERS MAY TRANSFER THEIR RIGHTS UNDER THIS AG REEMENT TO ANY PARTY WILLING TO ABIDE BY THE CONSENT ORDER AND THE RIGHT S AND OBLIGATIONS OF THE LENDERS SHALL VEST IN THE NEW INVESTORS. FURTHER, I T IS OPEN TO MEDIA WEST TO TRANSFER ITS RIGHT TO THE MERCHANT BANKER AND VICE VERSA. N. IN THE EVENT OF ANY DISPUTE, THE SAME SHALL BE REFE RRED TO AN ARBITRATOR NAMED IN THE MOU, WHOSE DECISION SHALL BE FINAL. O. MEDIA WEST WILL RELEASE-THE AMOUNT IN INSTALLMENTS AS PER THE CONSENT ORDER SUBJECT TO THE PETITIONERS PRODUCING THE AGRE EMENT WITH THE MERCHANT BANKER BEFORE THE 2 ND INSTALLMENT IS PAID. P. ONCE THE ENTIRE CONSIDERATION DUE ON 64.67% SHARES IS PAID, THE PETITIONERS SHALL EXECUTE PLEDGE DOCUMENTS IN RESPECT OF 35.33% SHARES AND THE SHARE CERTIFICATES SHALL BE KEPT IN ESCROW. LIKEWISE, THE SHARES IN RESPECT OF 64.67% ALSO SHALL BE KEPT IN ESCROW AND RETAINED AS COLLAT ERAL SECURITY. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 38 Q. IN A NUMBER OF PLACES IN THE MOU, IT IS STIPULATED THAT THE PARTIES WILL STRICTLY COMPLY WITH THE TERMS OF THE CONSENT ORDER . 13. THE COUNSEL FOR THE RESPONDENTS ARGUED ON TWO MAIN POINTS - ONE IS THAT THE CONSENT ORDER ITSELF WAS OBTAINED BY CONCEALING THE FACT THAT THE PETITIONERS HAD ALREADY ENTERED INTO CERTAIN TERMS WITH THE LENDERS AND THE SAME HAD NOT BEEN DISCLOSED AT THE TIME OF ENTERING INTO THE CONSENT TERMS. THIS ACT OF THE PETITIONERS, ACCORDING TO THE LEARNED COUNSEL, AMOU NTS TO A FRAUD AS HIS CLIENTS HAD BEEN INDUCED TO ENTER INTO CONSENT TERMS BY CON CEALMENT OF VITAL FACTS BY THE PETITIONERS. THE SECOND ARGUMENT IS THAT THE MO U WITH MEDIA WEST IS A SCAM DOCUMENT AND THE PURPOSE OF THE PETITIONERS, I S TO HAND OVER THE CONTROL AND MANAGEMENT INCLUDING THE SHARES TO THE ESSEL GR OUP AND AS SUCH THEY HAVE BREACHED THE PREMISES ON WHICH THE CONSENT TERMS WE RE ENTERED INTO I.E. THE COMPANY IS TO BE WITHIN-THE FAMILY. 14. IT IS ON RECORD THAT BEFORE THE RESPONDENTS DISCLOS ED THE VALUE OF THE COMPANY, THEY FILED AN APPLICATION EXPRESSING AN AP PREHENSION THAT THE PETITIONERS WERE SHOPPING AROUND FOR SALE OF THE SH ARES WHICH THE PETITIONERS EXPRESSLY DENIED IN THEIR REPLY. SIMULTANEOUSLY, TH E RESPONDENTS ALSO SOUGHT FOR KEEPING THE SHARES OF THE PETITIONERS IN ESCROW SO THAT THEIR SHARES ARE NOT DEALT WITH IN ANY MANNER. EVEN THOUGH, INITIALLY THE PETI TIONERS WERE UNWILLING TO DO SO AS THE SAME WAS NOT PART OF THE CONSENT ORDER, U LTIMATELY THEY DEPOSITED THEIR SHARES WITH THE ESCROW ACCOUNT. IN MY ORDER DATED 0 4.04.2006, I HELD THAT THERE WAS NO SPECIFIC STIPULATION IN THE CONSENT ORDER TH AT THE PETITIONERS COULD NOT BORROW TO PAY FOR THE CONSIDERATION AND A SUCH, BOR ROWING PER SE, CANNOT BE CONSIDERED TO BE IN BREACH OF THE CONSENT TERMS. I HAD ALSO EXPRESSED A PRIMA FACIE VIEW IN THAT ORDER THAT A PERUSAL OF THE MOU WITH MEDIA WEST INDICATED THAT NONE OF THE TERMS IN THE SAME WAS IN BREACH OF THE CONSENT TERMS. HOWEVER, AFTER HEARING THE COUNSEL FOR THE PARTIES NOW, I FI ND THAT THE RESPONDENTS ARE JUSTIFIED IN CLAIMING THAT THEY HAD BEEN INDUCED TO ENTER INTO THE MOU WITHOUT FULL DISCLOSURE OF VITAL FACTS AND THAT THE MOU REA D AS A WHOLE, WOULD REFLECT, AS DETAILED BELOW, TO BE IN BREACH OF THE CONSENT TERM S. 15. IT WAS ARGUED BY SHRI SARKAR, THAT THE PETITIONERS DID NOT AND COULD NOT HAVE ENTERED INTO ANY ARRANGEMENT WITH THE LENDERS BEFORE THE COMPANY LAW BOARD PASSED THE CONSENT ORDER AS THEY WOULD NOT HA VE KNOWN THE TERMS OF THE CONSENT. THIS ARGUMENT IS CONTRARY TO FACTS. IN THE MOU ITSELF, IT IS STATED THAT AFTER THE RESPONDENTS DISCLOSED THE VALUE OF THE CO MPANY, THE PETITIONERS HAD HELD DISCUSSIONS WITH THE MERCHANT BANKERS WHO HAD INDICATED THAT THE PURCHASE OF 64.67% SHARES WAS A BANKABLE PROPOSITIO N AND THAT THE PETITIONERS COULD DIVEST THEIR 35.33% SHARES IN THE MARKET AT A N APPROPRIATE TIME AND THAT ON THE SUGGESTION OF THE MERCHANT BANKER, MEDIA WES T WAS APPROACHED, WHO AGREED TO FUND 40% OF THE COST OF ACQUISITION. THER EFORE, PRIOR IN TIME TO THE DATE OF CONSENT ORDER, THE PETITIONERS HAD TIED UP THE FINANCING ARRANGEMENT. FURTHER, THE 3 YEAR IN PERIOD HAD ALREADY BEEN DECI DED IN THE HEARING ON 30.11.2005. THE WHOLE MOU REVOLVES AROUND THE SHARE S OF THE COMPANY AND THE LOCK IN PERIOD. FROM THE TERMS OF THE MOU, IT I S EVIDENT THAT THE ENTIRE FUNDING ARRANGEMENT IS BASED ON THE EXISTING SHARES OF THE COMPANY, PART OF WHICH COULD BE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 39 SOLD TO PUBLIC OR THROUGH PRIVATE PLACEMENT FOR REP AYMENT OF THE LOANS. IN OTHER WORDS, FROM THE PROCEEDS OF AN IPO OF THE EXISTING SHARES, THE LOANS ARE TO BE REPAID. AS I HAVE NARRATED IN THE LAST PORTION OF 1 ST PARAGRAPH ANTE, THE ISSUE RELATING TO IPO WAS ADDED IN THE CONSENT ORDER AT T HE REQUEST OF THE PETITIONERS THAT IF THE COMPANY NEEDED FUNDS, IT COULD GO FOR A N IPO, SUBJECT TO ENSURING THAT EVEN AFTER THE IPO, THE PETITIONERS WOULD CONTINUE TO HOLD NOT LESS THAN 51% SHARES. IN OTHER WORDS, THE IPO WAS FOR ISSUE OF NEW SHARES , THE PROCEEDS OF WHICH WOULD GO TO THE COMPANY. THE INTENTION OF GOING FOR IPO OF THE EXISTING SHARES WAS NEVER EXPRESSLY INDICATED NOT COULD BE IMPLIED DURING THE DISCUSSIONS EVEN THOUGH THE PETITIONERS WERE AWARE THAT THEIR 35.33% SHARES WOULD BE SUBJECT TO PUBLIC OFFER IN TERMS OF THE DISCUSSIONS WITH THE L ENDERS. BUT IN THE ARGUMENTS, SHRI SARKAR TOOK A STAND THAT EVEN THE EXISTING SHA RES COULD BE SOLD THROUGH IPO. WHEN THE PETITIONERS KNEW, AT THE TIME WHEN THE CON SENT TERMS WERE BEING DISCUSSED BEFORE ME THAT THE ENTIRE FINANCING ARRAN GEMENT WAS BASED ON THE ADVISE OF THE MERCHANT BANKERS THAT THE PETITIONERS COULD DISPOSE OF THEIR SHARES OF 34.33% SHARES THROUGH IPO, THEY SHOULD HAVE DISCLOS ED THE SAME WHEN THEY SOUGHT FOR PERMISSION TO GO FOR IPO, BUT INSTEAD THEY WANT ED THE SAME FOR RAISING FUNDS FOR THE COMPANY. THUS, THE PETITIONERS ARE GUILTY OF NO T ONLY OF SUPPRESSION OF THIS MATERIAL FACT THAT THE 34.33% SHARES WOULD BE SUBJE CT TO SALE THROUGH IPO, BUT ALSO INDUCED THE PETITIONERS TO AGREE FOR IPO ON TH E GROUND THAT THE COMPANY MIGHT NEED FURTHER FUNDS. THIS IS EVIDENT FROM THE CONSENT ORDER ALSO. IN PARAGRAPH 2(D) OF THE CONSENT ORDER, IT IS NOT STAT ED THAT THE PETITIONERS ARE AT LIBERTY TO DIVEST THEIR SHARES THROUGH PUBLIC OFFER BUT IT IS STATED THAT THEY ARE AT LIBERTY TO GO FOR PUBLIC ISSUE INDICATING THE UNDER STANDING OF THE RESPONDENTS THAT THE IPO WOULD BE FOR NEW SHARES. SHRI DATAR CO NTENDED THAT IF THE RESPONDENTS HAD KNOWN THAT THE PETITIONERS WERE TO FUND THE ACQUISITION BY SALE OF THEIR OWN SHARES, THE RESPONDENTS WOULD NOT HAVE AG REED TO THE CONSENT TERMS. I FIND FULL JUSTIFICATION IN THIS ARGUMENT. 16. THE ABOVE ARGUMENT WOULD BECOME RELEVANT ONLY IF TH E TERMS OF THE MOU INDICATE THE POSSIBILITY OF THE SHARES BEING SOLD T O REPAY THE LOANS. IN CA 148 OF 2006, THE RESPONDENTS HAVE ELABORATELY DEALT WITH T HEIR OBJECTIONS AND APPREHENSIONS ON THE TERMS OF THE MOU. HOWEVER, IN THE REPLY TO THIS APPLICATION, THE PETITIONERS HAVE NOT ADDRESSED ON ANY OF THESE OBJECTIONS AND APPREHENSIONS OF THE RESPONDENT. IN TERMS OF THE MO U, THE PETITIONERS HAVE THE RIGHT TO REPAY THE ENTIRE LOAN OF RS. 252 CRORES AL ONG WITH INTEREST AT THE RATE OF 15% PER ANNUM WITHIN A PERIOD OF 6 MONTHS OF ACQUIS ITION OF SHARES. WHEN SHRI DATAR POINTED OUT THAT WHEN THE PETITIONERS HAVE NO T BEEN ABLE TO MOBILIZE EVEN A SUM OF RS. 12.5 CRORES BEING 5% OF THE FIRST INSTAL LMENT ON THEIR OWN, HOW THEY WOULD BE ABLE TO MOBILIZE THIS HUGE AMOUNT WITHIN A PERIOD OF 6 MONTHS AFTER ACQUISITION OF SHARES TO REPAY THE LOANS, THERE WAS NO RESPONSE FORM THE COUNSEL FOR THE PETITIONERS. THE INEVITABLE CONSEQUENCE OF THE FAILURE OF THE PETITIONERS TO REPAY THE LOAN WITHIN THE STIPULATED TIME, IS THAT THE LENDERS WOULD ACQUIRE THE RIGHT TO DISPOSE OF THE SHARES EITHER BY PUBLIC OFFER OR PRIVATE PLACEMENT. IN OTHER WORDS, AS RIGHTLY POINTED OUT BY SHRI DATAR, BUILT IN DEFA ULT HAS BEEN PROVIDED TO ENABLE THE LENDERS TO DEAL WITH THE SHARES. FURTHER, IT IS WOR TH NOTING THAT THE MOU NOT ONLY PROVIDES FOR SALE TO THE PUBLIC BUT ALSO BY PRIVATE PLACEMENT. HERE COMES THE LINKAGE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 40 BETWEEN MEDIA WEST AND THE ESSEL GROUP WHICH IS ADM ITTEDLY A COMPETITOR TO THE COMPANY AND WHICH HAS BEEN ACQUIRING NEWS PAPER COMPANIES. 17. IN TERMS OF THE MOU, MEDIA WEST IS TO FUND THE PETI TIONERS TO THE TUNE OF RS. 101 CRORES AND THE BALANCE SUM OF RS. 151 CRORES IS TO BE FUNDED BY THE MERCHANT BANKERS. IN ALL, THE AMOUNT INVOLVED IN ACQUISITION OF THE SHARES OF THE RESPONDENTS IS ABOUT RS. 252 CRORES AND THE PETITIO NERS ARE BORROWING THE ENTIRE AMOUNT. THE ADMITTED POSITION IS THAT MEDIA WEST IS A GROUP COMPANY OF ESSEL GROUP. MEDIA WEST IS NOT AN NBFC NOR A FINANCE COMP ANY AS IS EVIDENT FROM THE ITS OBJECT CLAUSE IN THE MEMORANDUM. IT IS ALSO AN ADMITTED FACT THAT THE PAID UP CAPITAL OF MEDIA WEST IS ONLY RS. 1 LAC AND ITS NET WORTH IS NEGATIVE, HAVING INCURRED A LOSS OF OVER RS. 11 CRORES IN THE LAST YEAR. ITS BUSINESS INCOME FOR THE LAST TWO YEARS IS NIL. WITH THIS FINANCIAL POSI TION, THERE IS NOTHING ON RECORD TO SHOW HOW MEDIA WEST IS GOING TO MOBILIZE RS. 100 CR ORES TO FUND THE ACQUISITION OF THE SHARES OF THE RESPONDENTS. WHETHER IT IS GOI NG TO BORROW ON INTEREST OR TO BE ASSISTED BY SOMEONE ELSE WITHOUT INTEREST IS NOT CLEAR. FOR LENDING SUCH A HUGE AMOUNT TO THE PETITIONERS THERE ARE NO TERMS IN THE MOU RELATING TO SECURITY, EITHER FINANCIAL OR OTHERWISE TO BE PROVIDED BY THE PETITIONERS. THE SECURITY IS OBVIOUSLY ONLY THE SHARES OF THE COMPANY, WHETHER I T IS 35.33% OR 64.67% OR THE WHOLE 100%. THE SAID SECURITY IN THE FORM OF SHARES , COVERS THE LENDING BY BOTH MEDIA WEST AND THE UNNAMED MERCHANT BANKER. NORMALL Y, WHEN A LARGE AMOUNT OF MONEY IS LENT AGAINST SHARES, ESPECIALLY THOSE O F AN UNLISTED CLOSELY HELD COMPANY, DUE DILIGENCE IS CARRIED OUT OF THE COMPAN Y TO FIND OUT THE FAIR VALUE OF THE SHARES, BUT, IN THE PRESENT CASE, ADMITTEDLY, N OTHING WAS DONE. EVEN THOUGH THE RESPONDENTS HAVE RAISED ALL THESE ISSUES IN CA 148, THE PETITIONERS HAVE NOT RESPONDED TO THE SAME IN THEIR REPLY. THE MOTIVE OF A COMPANY, HAVING NO CASH RESOURCES, IN LENDING SUCH A HUGE AMOUNT, CANNOT BE BUT FOR AN OBLIQUE PURPOSE. CONSIDERING THE FACT THAT MEDIA WEST HAS BEEN USED AS A SPECIAL PURPOSE VEHICLE BY ESSEL GROUP, THE CLAIM OF WHICH HAS NOT BEEN DENIED BY THE PETITIONERS, TO ACQUIRE OTHER NEWSPAPER COMPANIES, IT APPEARS THAT EVEN THE PRESENT FUNDING TO THE PETITIONER IS WITH THE OBJECT OF TAKING OVER CONTRO L OF THE COMPANY. THE VERY FACT THAT THE MOU PROVIDES THAT WHATEVER MIGHT BE THE CO NSIDERATION THAT THE LENDERS WOULD RECEIVE ON SALE OF 49% SHARES, THE SAME WOULD RELEASE THE PETITIONERS OF ALL THEIR LIABILITIES, OBLIGATIONS ETC. WOULD INDIC ATE THAT THE PRESENT LENDING ARRANGEMENT BY THE LENDERS IS NOT BASED EITHER ON C OMMERCIAL OR FINANCIAL CONSIDERATION, ESPECIALLY WHEN NO DUE DILIGENCE OF THE COMPANY HAS BEEN CARRIED OUT. IT IS RATHER A STRANGE ARRANGEMENT BY WHICH THE LENDERS EXPECT THAT PROCEEDS FROM SALE OF 35.33% / 49% SHARES WOULD COV ER THEIR ENTIRE LOANS GIVEN FOR ACQUISITION OF 64.67% SHARES, THAT TOO WITH 15% INT EREST. IT IS MORE SO, AS FAR AS THE MERCHANT BANKER IS CONCERNED. NO MERCHANT BANKER WO ULD FUND SUCH A HUGE AMOUNT OF RS. 151 CRORES ON THE STRENGTH OF SHARES OF A CLOSELY HELD, UNLISTED COMPANY, WITHOUT DUE DILIGENCE. FROM THE MOU IT IS SEEN THAT IT WAS THE MERCHANT BANKER WHO HAD SUGGESTED THAT THE PETITIONERS COULD APPROACH MEDIA WEST FOR PART FINANCING OF THE ACQUISITION. FURTHER, THE PROVISIO NS IN THE MOU THAT THE LENDERS COULD SELL THE SHARES BY PRIVATE PLACEMENT AND THAT THE LENDERS HAVE THE RIGHT TO TRANSFER THEIR RIGHTS TO ANY PARTY ETC, DEFINITELY RISES A DOUBT WHETHER, THIS RIGHT HAS BEEN CONFERRED ON THE LENDERS ONLY TO FACILITATE ES SEL GROUP TO ACQUIRE THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 41 SHARES. NON DISCLOSURE OF THE NAME OF THE ARBITRATO R ALSO RAISES A DOUBT ABOUT THE INDEPENDENCE OF THE UNNAMED ARBITRATOR. SHRI SA RKAR ARGUED THAT IT IS OF NO CONCERN OF EITHER THE RESPONDENTS OR THIS BOARD TO EXAMINE WHY AND HOW MEDIA WEST WOULD FUND THE ACQUISITION AND WHY IT IS TAKIN G THE RISK. IN NORMAL CIRCUMSTANCE, THE CONTENTION OF THE LEARNED COUNSEL MAY BE CORRECT. BUT IN THE PRESENT CASE, WHEN A PARTY ALLEGES BREACH OF THE TE RMS OF THE CONSENT ORDER, TO ADJUDICATE ON THE ALLEGATION, THIS BOARD HAS TO EXA MINE ALL ASPECTS. EVEN THOUGH IT IS CLAIMED THAT SINCE THE MOU SPECIFICALLY PROVIDES THAT 51% SHARES WOULD CONTINUE TO BE HELD BY THE PETITIONERS AS ALSO THE CONTROL AND MANAGEMENT OF THE COMPANY AS STIPULATED IN THE CONSENT ORDER, IT IS T O BE NOTED THAT THE RESTRICTION OF THE HOLDING AND MANAGEMENT IS ONLY FOR A PERIOD OF 3 YEAR. THE TERMS OF THE MOU ARE SO UNREALISTIC AND ONE SIDED, THAT IT APPEARS T HAT THE MOU IS A PRELUDE TO HAND OVER THE CONTROL OF THE COMPANY AFTER A PERIOD OF 3 YEARS. FURTHER, THAT IT WAS NOT TO THE KNOWLEDGE OF THE RESPONDENTS THAT THE FUNDING F OR ACQUISITION WOULD BE ARRANGED ON THE BASIS OF THE EXISTING SHARES OF THE COMPANY AND THEREFORE, MERE CONTINUING WITH THE 51% SHARES BY THE PETITIONERS I S OF NO JUSTIFICATION. 18. THE FACTS THAT MEDIA WEST, WITHOUT ANY FINANCIAL RE SOURCES OF ITS OWN AGREEING TO FUND A HUGE SUM OF RS. 101 CRORES, THAT MEDIA WEST IS A GROUP COMPANY OF ESSEL WHICH HAS BEEN ACQUIRING NEWS PAPE R COMPANIES, THAT THE PETITIONERS HAVE NOT BEEN ABLE TO ESTABLISH THEIR F INANCIAL STRENGTH TO PAY OF THE LOANS WITHIN THE STIPULATED TIME, THAT THE LIBERTY GIVEN TO THE LENDERS TO.SELL THE SHARES BY PRIVATE PLACEMENT AND THEIR RIGHT TO TRAN SFER THEIR RIGHTS UNDER THE MOU TO ANY PARTY, THAT THE PETITIONERS HAVE REFUSED TO PRODUCE THE MOU WITH THE MERCHANT BANKERS WHO HAD SUGGESTED THE NAME OF MEDI A WEST TO THE PETITIONERS, ETC LEAD ONLY TO THE STRONG PRESUMPTION THAT THERE IS MORE TO THE UNDERSTANDING EXPRESSED IN THE MOU THAN WHAT THE EYES MEET. IN OT HER WORDS, THE WHOLE ARRANGEMENT OF FINANCING FOR THE ACQUISITION OF SHA RES OF THE RESPONDENTS DOES NOT APPEAR TO BE A STRAIGHT FORWARD ONE AND IT IS O NLY A PRELUDE TO THE FINAL TAKE OVER OF THE COMPANY AFTER THE PERIOD OF 3 YEARS. THIS AD VERSE PRESUMPTION IS INEVITABLE IN THE LIGHT OF THE REFUSAL OF THE PETITIONERS TO D ISCLOSE THE MOU WITH THE MERCHANT BANKER, WHO HAS AGREED TO FUND A HUGE SUM OF RS 152 CRORES EVEN WITHOUT A DUE DILIGENCE. 19. THUS, I FIND THAT NOT ONLY THE CONSENT ORDER IS VIT IATED BY NON DISCLOSURE OF MATERIAL FACTS BY THE PETITIONERS AND INDUCEMENT TO AGREE FOR IPO, EVEN THE SPIRIT OF THE ORDER IS FOUND TO HAVE BEEN FLOUTED B Y THE PETITIONERS. THE TERMS OF THE MOU ARE SO UNREALISTIC, THAT NO MAN OF ORDINARY PRUDENCE, LEAVE ALONE A BUSINESS PERSON, WOULD BE CONVINCED THAT IT IS A PU RE AND SIMPLE FINANCIAL ARRANGEMENT. UNDER THESE CIRCUMSTANCES, EITHER THE CONSENT ORDER SHOULD BE RECALLED OR THE RESPONDENTS SHOULD BE GIVEN THE OPT ION OF PURCHASING THE SHARES OF THE PETITIONERS. SHRI SARKAR VEHEMENTLY ARGUED THAT THIS BOARD HAS NO POWER EITHER TO RECALL THE CONSENT ORDER OR TO MODIFY THE SAME. HE FURTHER SUBMITTED THAT ON ANY ACCOUNT, THE RESPONDENTS CAN NOT HAVE THE RIGHT TO PURCHASE THE SHARES OF THE PETITIONERS. IT IS A SETTLED LAW WHEN AN ORDER IS O BTAINED, WHETHER IT IS CONSENT ORDER OR OTHERWISE, BY FRAUD, CONCEALMENT OF MATERI AL FACTS, MISREPRESENTATION AND THE LIKE, IT IS THE BOUNDEN DUTY OF THE COURT W HICH PASSED THE ORDER, TO SET ASIDE OR RECALL THE SAID ORDER. IN THE CASES CITED BY SHR I DATAR, IT HAS BEEN HELD SO. IN THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 42 CASES CITED BY SHRI SARKAR THAT EXECUTING COURT CAN NOT GO BEYOND THE DECREE, NO ELEMENT OF FRAUD, CONCEALMENT OF MATERIAL FACTS OR MISREPRESENTATION HAD BEEN ALLEGED. THEREFORE, THERE IS EVERY JUSTIFICATION TO RECALL THE CONSENT ORDER, BUT, I DO NOT PROPOSE TO RECALL THE SAME BUT, TRY TO WORK OUT THE SAID ORDER IN THE SPIRIT UNDER WHICH THE SAME WAS PASSED. 20. AS FAR AS THE RIGHT OF THE RESPONDENTS TO ACQUIRE T HE SHARES OF THE PETITIONERS IS CONCERNED, REFERENCE TO THE CHRONOLO GY OF EVENTS IS NECESSARY. EVEN THOUGH, INITIALLY THE PETITIONERS WERE AGAINST THE SUGGESTION OF THEIR GOING OUT OF THE COMPANY AND WERE ONLY INTERESTED IN THE DIVI SION OF THE COMPANY, LATER, IT WAS ONLY AT THE SUGGESTION OF THE COUNSEL FOR THE P ETITIONERS, THE CONSENT ORDER RESULTED. THE FOUNDATION OF THE SUGGESTION OF THE C OUNSEL FOR THE PETITIONERS IS THAT ONE OF THE TWO GROUPS SHOULD CONTROL THE COMPANY IN EXCLUSION OF THE OTHER GROUP. BOTH IN THE REPLIES TO THE APPLICATIONS AND DURING THE ARGUMENTS, THERE WAS NOT EVEN A WHISPER THAT THE PETITIONERS WOULD BE ABLE TO MOB ILIZE FUNDS TO AVOID THE LENDERS FROM TAKING OVER THE CONTROL OF THE SHARES. INSTEAD, THEIR STAND HAS BEEN THAT THERE IS NO PROVISION IN THE CONSENT ORDER RES TRAINING THE PETITIONERS FROM RAISING FUNDS ON THE STRENGTH OF THE SHARES OF THE COMPANY. THUS, IT IS CRYSTAL CLEAR THAT THE PETITIONERS ARE NOT IN A POSITION TO FUND THE PURCHASE OF THE SHARES OF THE RESPONDENTS WITHOUT THE BACKING OF THE SHARES OF TH E COMPANY, WHICH, I HAVE HELD THE PETITIONERS CANNOT DO SO. THEREFORE, SINCE, I H AVE COME TO THE CONCLUSION THAT THE CONSENT ORDER WAS OBTAINED BY CONCEALMENT OF MATERI AL FACT AND THAT THE PETITIONERS HAVE BREACHED THE TERMS OF THE SAID ORDER, EVEN IN THE ABSENCE OF ANY STIPULATION IN THE CONSENT ORDER TO THE SPECIFIC EFFECT, THE RESPO NDENTS WILL HAVE THE RIGHT TO PURCHASE THE SHARES OF THE PETITIONERS. IN THIS CON NECTION, I MAY REFER TO THE DECISION OF THE SUPREME COURT IN RAMBAHADUR THAKUR'S CASE WHEREIN THE SUPREME COURT HAS HELD THAT WHEN A CONSENT ORDER IS RECORDED BY THIS BOARD, IT IS ITS DUTY TO INTERPRET THE TERMS OF THE CONSENT ORDE R WITH A VIEW TO ENSURE THAT THE SAME IS WORKED OUT. THEREFORE, THE CONTENTION OF SH RI SARKAR THAT ONLY IF THERE IS A DEFAULT IN PAYMENT OF THE INSTALLMENTS OF CONSIDERA TION, THE RESPONDENTS WILL HAVE THE RIGHT TO PURCHASE THE SHARES OF THE PETITIONERS AND NOT OTHERWISE IS NOT CORRECT AS THE BASIC PREMISES UNDER WHICH THE PARTIES DECID ED TO END THE DISPUTES WAS THAT ONLY ONE GROUP WOULD CONTINUE WITH THE COMPANY. NOW THAT IT IS ESTABLISHED THAT THE PETITIONERS CANNOT ACQUIRE THE SHARES OF THE RE SPONDENTS, THE LATTER HAS THE RIGHT TO PURCHASE THE FORMER. LIKEWISE, HIS CONTENTION TH AT IN THE EVENT OF BREACH OF ANY OTHER TERMS OF THE CONSENT ORDER, THIS BOARD CAN ON LY PUT THE PETITIONERS TO TERMS IS ALSO IS NOT CORRECT, AS IN THE PRESENT CASE, THE CO NSENT ORDER ITSELF HAS BEEN OBTAINED BY CONCEALMENT OF MATERIAL FACTS AND MISRE PRESENTATION. 21. IN VIEW OF MY FINDINGS THAT THE CONSENT ORDER HAD B EEN OBTAINED BY SUPPRESSING THE MATERIAL KNOWN FACT THAT FINANCING FOR ACQUISITION OF THE SHARES OF THE RESPONDENTS WAS BASED ON AN UNDERSTANDING OF SA LE OF THE SHARES OF THE COMPANY AND THAT IN VIEW OF THE INBUILT DEFAULT CLA USE GIVING RIGHT TO THE LENDERS TO DISPOSE OF 49% OF THE EXISTING SHARES OF THE COM PANY, WHICH WAS NEVER DISCLOSED , I HOLD, ON THE BASIC UNDERSTANDING THAT ONE GROUP S HOULD GO OUT OF THE COMPANY, THAT THE RIGHT TO PURCHASE THE SHARES OF THE PETITI ONERS WOULD NOW REVERT TO THE RESPONDENTS . THEY WILL BE BOUND BY ALL THE TERMS OF THE CONSEN T ORDER DATED 25.1.2006 WHICH WERE APPLICABLE TO THE PETITIONERS WITH THE STIPULATION THAT THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 43 RESPONDENTS SHALL NOT BORROW OR MAKE ANY FINANCIAL ARRANGEMENTS ON THE STRENGTH OF EITHER OF THEIR OWN SHARES OR OF THE SHARES NOW HEL D BY THE PETITIONERS FOR ACQUISITION OF THE SHARES OF THE PETITIONERS. THEY SHALL ALSO DISCLOSE ALL THE FINANCIAL ARRANGEMENTS THAT THEY PROPOSE TO MAKE FO R ACQUIRING THE SHARES OF THE PETITIONERS BEFORE MAKING PAYMENT TOWARDS THE 1 ST INSTALLMENT. THE AMOUNT OF RS. 12.5 CRORES DEPOSITED BY THE PETITIONERS IN ESCROW WILL BE RELEASED TO THEM IMMEDIATELY ALONG WITH INTEREST ACCRUED THEREON, WI THOUT ANY PART OF THE SAME BEING FORFEITED. ON PRODUCTION OF A COPY OF THIS OR DER BY THE PETITIONERS, THE ESCROW AGENT STATE BANK OF PATIALA, SHASTRI BHAVA N BRANCH WILL RELEASE THE PAYMENT. HOWEVER, IT WILL CONTINUE TO KEEP CUSTODY OF THE SHARE CERTIFICATES OF BOTH THE GROUPS, WHICH ARE ALREADY IN ESCROW WITH I T. THE PETITIONERS ARE RELEASED FROM ALL THEIR OBLIGATIONS ARISING OUT OF THE CONSE NT ORDER. THE SCHEDULE OF PAYMENT BY THE RESPONDENTS WILL BE THE SAME AS IN P ARAGRAPH 2(4) OF THE ORDER DATED 25.1.2006, BEGINNING WITH DEPOSIT OF THE FIRST INST ALLMENT ON THE 1 ST AUGUST 2006 (AND NOT BEFORE), WITH THE ESCROW AGENT. 22. CA 62 OF 2006 AND CA 148 OF 2006 ARE DISPOSED OF IN THE ABOVE TERMS. AS FAR AS OTHER APPLICATIONS MENTIONED IN THIS ORDER ARE CONC ERNED, I HAVE ALREADY PASSED INTERIM ORDERS, WHICH, IN THE CHANGED CIRCUMSTANCES , WILL BE TREATED AS FINAL ORDERS TO BE STRICTLY COMPLIED WITH BY BOTH THE PARTIES. 23. THIS ORDER IS STAYED UPTO 31.7.2006 TO ENABLE THE P ARTIES PREFER APPEAL/S, IF SO ADVISED. THUS AGARWAL GROUP HAD THE OPTION TO FILE APPEAL BE FORE THE HIGH COURT, WHICH THEY CHOSE NOT TO, SINCE THEIR PURPOSE ACCORDING TO THE PLANNED STRATEGY WAS BEING SERVED AND THEY WERE ABL E TO REALISE HIGHER BEST VALUE OF THEIR SHARE HOLDING. FURTHER THE PERU SAL OF THE AGREEMENT DATED 2.02.2006 WITH M/S CHURU TRADING CO (P) LTD. WHO WERE THE ARRANGERS INVOLVED BY ZEE GROUP WERE ENTITLED ARRAN GER FEES OF RS. 8.50 CRORES. HOWEVER SAID FEES WAS DUE ON ACHIEVING THE FINANCIAL CLOSURE OF RS. 252 CRORE (TO THE VALUE OF ACQUISITION OF SHARE S OF MAHESHWARI GROUP), WHICH WAS TO BE PAID WITHIN 30 DAYS FROM TH E DATE OF ACQUISITION OF THE SHARES OR 31 ST DECEMBER 2006, WHICHEVER IS EARLIER. THIS PARTICULAR SAVING CLAUSE WAS PURPOSELY ADDED B Y AGARWAL GROUP AS A PART OF PLANNED STRATEGY SINCE THE PLAN TO ACQ UISITION WAS A SAFEGUARD TO ENSURE THE HIGH VALUE REALISATION OF THE SHARES OWNED AND HELD BY AGARWAL GROUP. IT WOULD NOT BE OUT TO PLACE TO MENT ION HERE THAT THIS ACTION IS FURTHER SUBSTANTIATED WITH THE FACT THAT THE SAID AMOUNT HAS BEEN REMITTED AFTER 03.11.2006 WHEN THE REALISATION OF T HEIR SHARE HOLDING WAS RECEIVED BY AGARWAL GROUP AFTER THE COMPROMISE ORDE R DATED 01.11.2006 OF THE HONBLE COMPANY LAW BOARD. THE SAID ORDER IS REPRODUCED AS UNDER. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 44 AS PER THE COMPROMISE TERMS ARRIVED AT BETWEEN THE PARTIES, THE RESPONDENTS WERE TO PAY A SUM OF RS. 155 CRORES TO THE PETITION ERS TOWARDS THEIR SHARES AND THIS AMOUNT WAS TO BE DEPOSITED IN THE ESCROW ACCOU NT MAINTAINED IN THE STATE BANK OF PATIALA, SHASTRI BRANCH, NEW DELHI, AS PER MY EARLIER ORDER. THE RESPONDENTS ARE ARRANGING FOR DEPOSITING THIS MONEY . YESTERDAY, I HAD PASSED AN ORDER DIRECTING THE BANK TO TRANSFER A SUM OF RS. 1 7 CRORES OUT OF THE ESCROW ACCOUNT TO THE PERSONAL ACCOUNT OF THE PETITIONERS AND SIMULTANEOUSLY HAND OVER 65.33 SHARES BELONGING TO THE RESPONDENTS TO THE RE SPONDENTS. I FURTHER DIRECT: 1. ON RECEIPT OF THE BALANCE RS. 138 CRORES IN THE ESC ROW ACCOUNT, THE MANAGER, STATE BANK OF PATIALA WILL RELEASE THE BALANCE SHAR ES OF THE PETITIONERS NOW HELD IN ESCROW TO THE RESPONDENTS. 2. THE PETITIONERS ARE AT LIBERTY TO WITHDRAW THE SAID SUM OF RS. 138 CRORES OR TRANSFER THE SAME TO ANY ACCOUNT THAT THEY DESIRE A ND THE MANAGER, STATE BANK OF PATIALA WILL PERMIT THEM TO DO SO ON RECEIPT OF A REQUISITION SIGNED BY ALL THE PETITIONERS. 3. THE RESPONDENTS ARE AT LIBERTY TO MANAGE THE AFFAIR S AND SHAREHOLDING OF THE COMPANY IN ANY MANNER WITHOUT ANY INTERFERENCE BY T HE PETITIONERS GROUP 4. THE PETITIONERS GROUP SHALL CEASE TO REMAIN EITHER AS SHAREHOLDER/S OFFICE BEARER/S OR DIRECTOR/S OF THE COMPANY AND SHALL HAV E NO CONCERN WHATSOEVER WITH THE COMPANY. 5. ON AN EARLIER OCCASION, THE MONEY DEPOSITED IN THE ESCROW ACCOUNT BY THE PETITIONERS WAS DIRECTED TO BE PAID TO M/S MEDIAWES T PRIVATE LIMITED AND THE BANK HAD ISSUED TDS CERTIFICATE IN THE NAME OF AMAR UJALA PUBLICATION LIMITED FOR THE INTEREST ACCRUED THEREON. THE MANAG ER, STATE BANK OF PATIALA IS DIRECTED TO ISSUE A FRESH TDS IN THE NAME OF MEDIAW EST PRIVATE LIMITED IN LIEU OF THE ONE ISSUED IN FAVOUR OF AMAR UJALA PUBLICATI ON LIMITED AFTER OBSERVING THE NECESSARY FORMALITIES IN THIS REGARD. 6. THE SUIT IN AGRA WILL BE DISMISSED AS WITHDRAWN. 7. LET A CERTIFIED COPY OF THIS ORDER BE SERVED ON THE MANAGER, SBP FOR COMPLIANCE. SINCE THE MATTER HAS BEEN COMPROMISED, THE PETITION IS CLOSED WITH LIBERTY TO REVIVE IN CASE OF ANY DIFFICULTY IN WORKING OUT THE TERMS OF THIS ORDER. IT MAY BE NOTED THAT THE COMPROMISE ORDER HAS BEEN PASSED WITHIN THE LIMITATION PERIOD WHEN THE PARTIES HAD THE OPTI ON TO FILE APPEAL AGAINST THE ORDER DATED 10.07.2006 OF THE HONBLE COMPANY L AW BOARD. THIS COMPROMISE COULD BE ENTERED INTO WITH THE INTERVENT ION OF ALL THOSE INVOLVED INCLUDING ARRANGER OF FUNDS, LEGAL CONSULT ANTS SHRI S.R. HALBE, ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 45 SMT BINA GUPTA, SHRI DAYAL SARAN ETC. AND IT WAS AG REED AMONGST THE PARTIES THAT SINCE AGARWAL GROUP WAS REALISING SIZE ABLE AMOUNT MORE THAN EVEN IN THEIR OFFER, THEY WOULD ACCEPT THE SA ME AND NOT RAISE ANY QUESTIONS AS THE MANNER BY WHICH MAHESHWARI GROUP W AS RAISING THE FUNDS WHICH WERE TO BE PAID AS CONSIDERATION FOR TH E SHAREHOLDING OF AGARWAL GROUP. THE PERUSAL OF THE RECORD WILL REVEAL THAT THE AGAR WAL GROUP WAS ABLE TO REALISE RS. 160 CRORES TOWARDS THE TOTAL VA LUE OF THEIR SHARE HOLDING IN M/S AMARUJALA PUBLICATIONS LTD. AND M/S A&M PUBLICATIONS (P) LTD, WHICH OVER MORE BY RS. 22 CRORES THAN THE EARLIER AMOUNT OF RS. 138 CRORES IN THE ORDER OF THE HONBLE COMPANY LAW BOARD DATED 01.11.2006. THIS EXCESS REALISATION COULD BE MADE W ITH PRIMARILY THE INTERVENTION OF THE ARRANGER ON ACCOUNT OF THE REAS ON THAT THE ASSESSEE HAD AGREED WITH M/S MEDIAVEST INDIA (P) LTD, WHO WERE T HE FINANCERS AND HAD REMITTED PART PAYMENT IN THE ESCROW ACCOUNT OPENED IN STATE BANK OF PATIALA DURING THE COURSE OF THE PROCEEDINGS BEFORE THE HONBLE COMPANY LAW BOARD WHEN THE AGARWAL GROUP AFTER SEEKING THE OPTION FOR THE ACQUISITION OF THE SHARE HOLDING OF MAHESHWARI GROU P AS A PART OF THEIR STRATEGY. AS PER AGREEMENT WITH THEM THE SHARES OWN ED BY AGARWAL GROUP CONSTITUTED SECURITY JOINTLY FOR THE MONEY TO BE AD VANCED BY THE FINANCER AND MERCHANT BANKERS. IN THE COURSE OF THE DISCUSSI ONS AFTER THE COMPROMISE BEFORE THE COMPANY LAW BOARD THE ARRANGE RS WERE DUTY BOUND TO MAKE THE SHARES FREE OF ALL ENCUMBRANCES, HOWEVER CLAIMED THAT AT LEAST 50% OF THE EXCESS REALISATION I.E., RS. 11 CR BECOMES DUE TO THEM. BUT SINCE THEY HAD BEEN INVOLVED IN STRATEGISING TH E ENTIRE SEQUENCE OF THE EVENTS IT FOUND APPROPRIATE TO REMIT THEM RS. 8.50 CR AS ORIGINALLY AGREED UPON. IT WOULD NOT BE OUT OF PLACE TO SUBMIT THAT T HE EXTRA CONSIDERATION OF THE VALUE OF THE SHARES RECEIVED IS CONSIDERING THE EXPENDITURE INCURRED/ TO BE INCURRED BY AGARWAL GROUP. YOUR HONOURS KIND ATTENTION IS ALSO INVITED TO THE PROFESSIONAL BILL OF S.R. HALBE & ASSOCIATES, RELEVANT PORTION REPRODUCE D HEREUNDER WHICH WILL AMPLY PROVE THAT STRATEGY HAD BEEN FORMULATED FOR PROTECTING THE INTERESTS OF THE MINORITY SHAREHOLDERS. IT IS SUBMI TTED THAT THE PAYMENT MADE FOR S.R. HALBE & ASSOCIATES HAS BEEN ACCEPTED AS DEDUCTION UNDER SECTION 48 OF THE INCOME TAX ACT. 1. FORMULATION OF STRATEGY FOR PROTECTING THE INTEREST S OF MINORITY SHARE HOLDERS IN AMAR UJALA PUBLICATIONS LTD. AND A & M PUBLICATI ONS PRIVATE LTD. 2. CONDUCTING CORRESPONDENCE BEFORE AND AFTER FILING O F THE CLB PETITION. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 46 3. ADVISING ON THE CONDUCT OF VARIOUS BOARD MEETINGS O F AMAR UJALA PUBLICATIONS LTD. AS WELL AS A & M PUBLICATIONS PVT . LTD. 4. DRAFTING OF CLB PETITION AND BRIEFING THE SENIOR CO UNSELS LIKE MR. SARKAR, MR. ABHISHEK MANU SINGHAVI, MR. MANMOHAN ETC. 5. APPEARING AND ATTENDING ALL THE PROCEEDINGS BEFORE THE CLB. 6. BRIEFING THE LAWYERS AND ATTENDING THE HEARINGS IN ALLAHABAD HIGH COURT. 7. BRIEFING THE COUNSELS AND ATTENDING THE HEARING BEF ORE SUPREME COURT OF INDIA 8. ADVISING AND DRAFTING THE TERMS OF SETTLEMENT IN CO NNECTION WITH TRANSFER INCLUDING TRANSFER DEEDS. 9. HOLDING DISCUSSIONS AND CONFERENCES FROM TIME TO TI ME WITH MINORITY SHAREHOLDERS. THE PERUSAL OF THE SUBMISSIONS ABOVE, EVIDENCES PLA CED ON RECORD AND THE PROCEEDINGS BEFORE THE HONBLE COMPANY LAW BOARD WILL REVEAL THAT THERE WAS A WELL PLANNED STRATEGY TO AUGMENT T HE VALUE OF THE SHARES AND ALL THE PAYMENTS BEING IN THE NATURE OF EXPENDI TURE ARE INTIMATELY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER AND ALSO IN THE NATURE OF THE COST OF IMPROVEMENT RESULTING IN THE ENHANCEMEN T IN THE VALUE OF THE SHARE HOLDING OF AGARWAL GROUP IN THE COMPANIES M/S AMARUJALA PUBLICATIONS LTD. AND M/S A & M PUBLICATIONS (P) LT D AND CORRECTLY CLAIMED AS DEDUCTION UNDER CLAUSE (I) AND OR (II) O F SECTION 48 OF THE INCOME TAX ACT61. 8.3 AFTER EXPLAINING THE STRATEGY OF THE AGARWAL GR OUP TO MOVE TO CLB FOR GETTING THE VALUE OF THEIR SHARE HOLDING ENHANC ED BEFORE THEY ARE SOLD AND SALE OF THEIR SHARE WAS CARRIED OUT SMOOTHLY, THE L D. AR HAS DRAWN MY ATTENTION TO THE WRITTEN ARGUMENTS PUT FORWARD BY H IM IN THE SUBMISSIONS FILED ON 15.10.2010 JUSTIFYING THE CLAIM OF THE APPELLANT FOR THE EXPENSES DISALLOWED BY THE AO TOTALING TO RS. 3,18,38,200/- OUT OF TOTAL EXPENSES OF RS. 4,06,10,000/- CLAIMED BY HIM AS DEDUCTION U/S 48 (I ) AS TAKEN IN GROUND NOS. 2 TO 8. THE SAME ARE REPRODUCED AS UNDER: IT IS RESPECTFULLY SUBMITTED THAT THE SECTION 48 OF THE INCOME TAX ACT61 PROVIDES THE MODE OF COMPUTATION OF THE INCOME UNDER THE HEAD CAPITAL GAINS, WHICH READS AS UNDER THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS ' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPI TAL ASSET THE FOLLOWING AMOUNTS, NAMELY :- ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 47 (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST O F ANY IMPROVEMENT THERETO: THE ABOVE SECTION BROADLY CONTEMPLATES THREE AMOUNT S FOR THE PURPOSE OF COMPUTING INCOME CHARGEABLE UNDER THE HE AD CAPITAL GAINS. THE FIRST IS THE FULL VALUE OF THE CONSIDER ATION FOR WHICH THE CAPITAL ASSETS HAS BEEN TRANSFERRED. THE SECOND IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND THE THIRD AND THE LAST IS THE COST OF ACQUISITION O F THE CAPITAL ASSET INCLUDING THE COST OF ANY IMPROVEMENT THERETO. IN C LAUSE (I) OF SECTION 48 OF THE ACT, THE LEGISLATURE HAS USED THE EXPRESS ION EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. THE EXPRESSION PRESUPPOSES (A) THERE SHOULD BE AN EXPENDITURE (B) THE SAID EXPENDITURE SHOULD BE IN CONNECTION WI TH THE TRANSFER OF THE CAPITAL ASSET AND (C) IT SHOULD BE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE SAID TRANSFER. IN REGARD TO THE EXPRESSION WHOLLY AND EXCLUSIVELY EMPLOYED IN SECTION 37(1) OF THE ACT, THE FOLLOWING COMMENTARY FROM SAMPATH IYENGARS LAW OF INCOME TAX (EDITED BY SHRI RAJARAT NAM 10TH EDITION) IS WORTH QUOTING: - THE FIRST ADVERB WHOLLY IN THE ABOVE PHRASE, LAID OUT OR EXPENDED, WHOLLY AND EXCLUSIVELY, REFERS TO THE QU ANTUM OF THE EXPENDITURE, THE SUM OF MONEY SPENT. THE SECOND ADV ERB EXCLUSIVELY, HAS REFERENCE TO THE MOTIVE OR OBJECT BEHIND THE EX PENDITURE. UNLESS SUCH MOTIVE OR OBJECT IS EXCLUSIVELY, I.E., SOLELY, FOR PROMOTING THE BUSINESS, THE EXPENDITURE WILL NOT QUALIFY FOR DEDU CTION. IN THE LIGHT OF THE ABOVE EXPOSITION OF LAW, IT IS CLEAR THAT THE LEGAL EXPENSES DISTINCTLY RELATED TO AND INTEGRALLY CONNE CTED WITH THE TRANSFER OF SHARES IS ADMISSIBLE FOR DEDUCTION UNDER SECTION 48 (I) OF THE ACT. THE SOLE OBJECT OF THE EXPENDITURE INCURRED TOWARDS LEGAL FE ES SHOULD BE IN CONNECTION WITH THE TRANSFER OF SHARES. LEGAL FEES FOR SEEKING ADVICE ON THE MODALITIES OF TRANSFER AND THE DRAFTING OF AGREEMEN T OR DEED OF TRANSFER WOULD UNDOUBTEDLY QUALIFY FOR DEDUCTION. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 48 AS PER THIS SECTION COST OF ACQUISITION OF ASSET AN D COST OF ANY IMPROVEMENT IS TO BE DEDUCTED FROM THE CONSIDERATIO N RECEIVED AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. IT IS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SHAKUNTALA KANTILAL [(1991) 190 ITR 56] THAT THE EXPRESSION USED IN SECTION 48 OF THE ACT, VIZ., EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CON NECTION WITH SUCH TRANSFER HAS WIDER CONNOTATION THAN THE EXPRESSION , FOR THE TRANSFER. THIS VIEW HAS BEEN ACCEPTED BY THE MADRAS HIGH COUR T IN THE CASE OF COMMISSIONER OF INCOME TAX VS. BRADFORD TRADING CO. P. LTD. [261 ITR 222]. BY REASON OF EMPLOYING SUCH A WIDE EXPRESSION I.E. IN CONNECTION WITH, SOMETHING MORE THAN WHAT IS ATTRIBUTABLE TO THE FINAL ACT OF TRANSFER OF SHARES IS ADMISSIBLE FOR DEDUCTION PROVIDED THE INTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE ACT OF TRANSFERRING SHARES IS ESTABLISHED. IN THE CASE OF THE ASSESSES EVEN THE SERVICES OF LE GAL OR OTHER PROFESSIONAL EXTENDED TO THE PROCESS OF VALUATION OF SHARES OR T HE PARTICIPATION IN THE DELIBERATIONS THAT LED TO THE SETTLEMENT CONCERNING THE TRANSFER OF SHARES, THE LEGAL CHARGES ON THAT ACCOUNT ARE ALSO ALLOWABL E AS DEDUCTION. AS ALREADY SUBMITTED BEFORE THAT THE WORDS EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRAN SFER AS ENVISAGED UNDER SECTION 48 OF THE INCOME TAX ACT61 ARE WIDE ENOUGH TO COVER ALL THE EXPENSES INCURRED BY THE ASSESSEE IN SECURING T HE VALUE OF THE SHARES WHICH HE REALIZED PURSUANT TO THE LITIGATION BEFORE THE COMPANY LAW BOARD, IN CONNECTION WITH USED IN CLAUSE (I) OF SECTION 48 ARE VERY WIDE IN THEIR AMBIT. THE EXPRESSION IN CONNECTION WITH IS IMPORTANT AN D HAS TO BE CONSTRUED TO HAVE EXPANSIVE MEANING. WHILE EXPLAINI NG THE MEANING OF SIMILAR AN INTER-CHANGEABLE EXPRESSIONS VIZ PERTAI NING TO AND IN RELATION TO, THE HONBLE SUPREME COURT OBSERVED IN THE CASE OF DOYPACK SYSTEMS PVT. LTD 1988(36)ELT201(SC): 48. THE EXPRESSION IN RELATION TO (SO ALSO PERT AINING TO), IS A VERY BROAD EXPRESSION WHICH PRESUPPOSES ANOTHER SUBJECT MATTER . THESE ARE WORDS OF COMPREHENSIVENESS WHICH MIGHT BOTH HAVE A DIRECT SI GNIFICANCE AS WELL AS AN INDIRECT SIGNIFICANCE DEPENDING ON THE CONTEXT SEE STATE WAKF BOARD VS. ABDUL AZIZ (AIR 1968 MADRAS 79,81 PARAGRAPH 8 AND 10) , F OLLOWING AND APPROVING NITAI CHARAN BAGCHI VS. SURESH CHANDRA PAUL (66 C.W .N. 767), SHYAM LAL VS. M. SHAYAMLAL (A.I.R. 1933 ALL. 649) AND 76 CORP US JURIS SECUNDUM 621. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 49 ASSUMING THAT THE INVESTMENTS IN SHARES AND LANDS D O NOT FORM PART OF THE UNDERTAKING BUT ARE DIFFERENT IN SUBJECT MATTERS, E VEN THAN THESE WOULD BE BROUGHT WITHIN THE PURVIEW OF THE VESTING BY REASON OF THE ABOVE EXPRESSIONS. IN THIS CONNECTION REFERENCE MAY BE MADE TO 76 CORP US JURIS SECUNDEM AT PAGES 620 AND 621 WHERE IT IS THAT THAT THE TERM R ELATE IS ALSO DEFINED AS MEANING TO BRING INTO ASSOCIATION OR CONNECTION WIT H. IT HAS BEEN CLEARLY MENTIONED THAT RELATION TO HAS BEEN HELD TO BE EQ UIVALENT TO OR SYNONYMOUS WITH AS TO CONCERNING WITH AND PERTAINING TO. T HE EXPRESSION PERTAINING TO IS AN EXPRESSION OF EXPANSION AND N OT OF CONTRACTION. IN THE DECISION OF BRITISH COLUMBIA APPELLATE COURT , VANCOUER IN NANAIMO COMMUNITY HOTEL LTD. VS. CANADA, WHICH AROS E UNDER THE EXCISE PROFITS TAX ACT, 1940, THE FOLLOWING PASSAGE IS INS TRUCTIVE OF THE REAL IMPORT OF THE PHRASE IN CONNECTION WITH: MR. CUNLIFEE ARGUES THAT THAT SECTION PRESUPPOSES THAT AN ASSESSMENT HAS BEEN MADE, AND THAT AS I UNDERSTAND HIM, THE WORDS IN CONNECTION WITH MEAN CONSEQUENT UPON. I DO NOT THINK THAT IS THE CORRECT CONSTRUCTION TO BE PUT UPON THESE WORDS. ONE OF THE VERY GENERALLY ACC EPTED MEANING OF CONNECTION IS RELATION BETWEEN THING ONE WHICH IS BOUND UP WITH OR INVOLVED IN ANOTHER; OR AGAIN HAVING TO DO WITH . THE WORDS INCLUDE MATTERS ACCRUING PRIOR TO AS WELL AS SUBSEQUENT TO OR CONSEQUENT UPON SO LONG AS THEY ARE RELATED TO THE PRINCIPAL THING. THE PHR ASE HAVING TO DO WITH PERHAPS GIVES AS GOOD A SUGGESTION OF THE MEANING A S COULD BE HAD? I THINK SECTION 66 IS SUFFICIENT TO OUST THE JURISDICTION O F THIS COURT TO DEAL WITH A DECISION ON WHICH AN ASSESSMENT IS SUBSEQUENTLY MAD E. IN THAT CASE, THE COURT WAS WITH INTERPRETING SECTI ON 66 OF THE INCOME WAR TAX ACT WHICH READ AS UNDER: 66. SUBJECT TO THE PROVISIONS OF THIS ACT, THE EXC HEQUER COURT SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ALL QU ESTIONS THAT MAY ARISE IN CONNECTION WITH ANY ASSESSMENT MADE UNDER THIS ACT. IN V.A. VASUMATHI VS CIT 123 ITR 94 (KER ) THE KERALA HIGH COURT OBSERVED WHILE INTERPRETING SECTION 48(1) OF THE IN COME TAX ACT THAT THE WORDS IN CONNECTION WITH SUCH TRANSFER MEANS INTR INSICALLY RELATED TO THE TRANSFER AND THE EXPENDITURE HAS TO BE CONNECTE D WITH THE TRANSFER. THUS THE CRUCIAL TEST TO BE APPLIED IS WHETHER THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND IT IS IMMATERIAL WHERE IT WAS INCURRED PRIOR OR SUBSEQUEN T TO THE TRANSFER OF THE TITLE. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 50 SECTION 55(1)(B) OF THE INCOME TAX ACT61 DEFINES T HE COST OF IMPROVEMENT AS UNDER COST OF ANY IMPROVEMENT, (1) IN RELATION TO A CAPITAL ASSET BEING GOODWILL O F A BUSINESS [OR A RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G] [OR RIGHT TO CARRY ON ANY BUSINESS] SHALL BE TAKEN TO BE NIL; AND (2)IN RELATION TO ANY OTHER CAPITAL ASSET, - (I) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER OR THE ASSESSEE BEFORE THE [1 ST DAY OF APRIL,1981] MEANS ALL EXPENDITURE OF A CAPI TAL NATURE INCURRED IN MAKING ANY ADDITIONS OR ALTERATI ONS TO THE CAPITAL ASSETS ON OR AFTER THE SAID DATE BY THE PREVIOUS OWNER OR THE ASSESSEE, AND (II) IN ANY OTHER CASE, MEANS ALL EXPENDITURE OF A CAPITAL NATURE INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET BY THE ASSESSEE AFTER IT BECAME HIS PROPERTY, AND, WHERE THE CAPITAL ASSET B ECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN [SUB SECT ION (1) OF] SECTION 49, BY THE PREVIOUS OWNER, BUT DOES NOT INCLUDE ANY EXPENDITURE WHICH IS DEDUC TIBLE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD INTEREST ON SECUR ITIES, INCOME FROM HOUSE PROPERTY , PROFITS AND GAINS OF BUSINESS OR PROFESSION, OR INCOME FROM OTHER SOURCES, AND THE EXPRESSION IMPROVEMEN T SHALL BE CONSTRUED ACCORDINGLY. THE PERUSAL OF THE ABOVE DEFINITION WILL REVEAL THA T THE ASSESSEES CASE FALLS UNDER SECTION 55(2)(II) AND THE EXPENDIT URE OF A CAPITAL NATURE INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET AMOUNTS TO THE COST OF THE IMPROVEMENT. IN RELATION TO COST OF IMPROVEMENT GOODWILL OF A BUSINESS OR A RIGHT TO MANUFACTURE, PR ODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS. NIL CAPITAL ASSET, WHICH BECAME THE PROPERTY OF THE PREVIOUS OWNER OR ASSESSEE BEFORE THE 01.04.1981. ALL EXPENDITURE INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET ON OR AFTER THE SAID DATE (01.04.1981) BY THE PREVIOUS OWNER OR THE ASSESSEE. IN ANY OTHER CASE ALL EXPENDITURE OF A CAPITAL NATU RE INCURRED IN MAKING ANY ADDITIONS OR ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 51 ALTERATIONS BY THE ASSESSEE AFTER IT BECAME HIS PROPERTY OR BY THE PREVIOUS OWNER. IN THE CASE OF THE ASSESSEES IT IS BEYOND DOUBT TH AT THE THERE HAS BEEN AN ACTUAL PAYMENT TO THE ARRANGER, STRATEGIST, LEGA L COUNSELS WITH WHOSE HELP AND GUIDANCE INCLUDING EXPERTISE, THE ASSESSEE S WERE ABLE TO ENHANCE AND ALTER THE VALUE OF THE SHARES. THUS THERE WAS A N IMPROVEMENT TO THE ASSET AND NOT TO THE TITLE OF THE ASSET. THE TITLE OF THE ASSESSEES WAS NEVER IN DISPUTE. THE WORD IMPROVE HAS VARIOUS SHADES OF MEANING AND IT INCLUDES EVERYTHING BY DOING WHICH IS AN ENHANCEMEN T IN THE VALUE OF THE ASSET OR THERE IS A RISE IN ITS PRICE OR THE ASSET IS TO GROW BETTER OR IT IS EVEN FOLLOWED UP BY SOMETHING BETTER. THE IMPROVEMENT IN THE VALUE OF THE ASSET WAS ON AC COUNT OF THE REASONS THAT THE SEED CAPITAL WAS AVAILABLE AT THE RIGHT TIME EFFECTIVE AND DILIGENT SKILLS WERE MADE AVAILABLE B Y WAY OF EXPERT THERE WAS ALWAYS THE ASSISTANCE OF MERCHANT BANKERS , FINANCER AND ARRANGER HAD THIS STRATEGY WOULD NOT BEEN ADOPTED THE VALUE WOULD HAVE BEEN MUCH LOWER AS WILL BE EVIDENT FROM THE BREAKUP UP V ALUE CALCULATED ON THE BASIS OF THE BALANCE SHEET OF BOTH THE COMPANIES FO R THE YEAR ENDING 31.03.2006. FURTHER, THE DIRECT NEXUS OF THE EXPENDITURE INCURR ED/COST OF IMPROVEMENT BY THE ASSESSEE IS ESTABLISHED WITH REF ERENCE TO THE VARIOUS ORDERS OF THE HONBLE COMPANY LAW BOARD WHICH IN PU RSUANCE TO THE PETITION FILED BY THE ASSESSEE AND OTHER MEMBERS OF THE FAMILY TERMED AS AGARWAL GROUP. EACH PERSON TO WHOM PAYMENT WAS MA DE BY THE ASSESSEE WAS BY VIRTUE OF HIS SHAREHOLDING. THUS TH E REAL, INTIMATE AND PROXIMATE NEXUS BETWEEN THE INCURRING OF THE EXPENS ES AND THE TRANSFER OF THE SHARES IS ESTABLISHED, WITHOUT ADOPTING THE STR ATEGY THE ASSESSES COULD HAVE NEVER BEEN ABLE TO EXTRACT SUCH A HIGH PRICE O F THE SHARES SOLD. WITH REGARDS TO THE PAYMENTS MADE TO THE AFOREMENTI ONED PERSONS THE NEXUS OF THE EXPENDITURE INCURRED IS PROVED WIT H REFERENCE TO THE BILLS AND THE NATURE OF THE SERVICE RENDERED BY EACH TO T HE ASSESSEE AND OTHER MEMBERS OF THE FAMILY. THE DETAIL OF THE PAYMENT MA DE IMMEDIATELY AFTER ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 52 THE RECEIPT OF SALE CONSIDERATION OF SHARES ESTABLI SH THAT THE SAME WAS INTRINSICALLY RELATED TO AND WERE IN CONNECTION WIT H TRANSFER OF SHARE. ALL THE PAYMENTS WERE MADE IMMEDIATELY ON RECEIPT O F THE CONSIDERATION, EXCEPT THE PAYMENTS OF RS. 13,78,200 AS UNDER M/S S.R. HALBE & ASSOCIATES ADVOCATES FOUNTAIN CHAMBERS 3 RD FLOOR, NANABHAI LANE, FOUNTAIN MUMBAI RS. 3,13,200 MRS BINA GUPTA AND OTHERS ADVOCATE KHAITAN HOUSE B-1, DEFENCE COLONY NEW DELHI RS.6,25,000 MR. SUDIPTO SARKAR ADVOCATE 31, BROAD STREET KOLKATA RS. 1,50,000 RABO INDIA SECURITIES PVT. LTD FORBES BUILDING, 2 ND FLOOR, CHIRANJIT RAI MARG, FORT MUMBAI RS.2,50,000 TOTAL RS 13,78,200 THE OBSERVATIONS OF THE LEARNED ASSESSING OFFICER I N RESPECT OF THE PAYMENTS MADE BY THE ASSESSEE AND CLAIMED AS DEDUCT ION UNDER SECTION 48 OF THE IT ACT61 IS TABLED AS UNDER : NAME & ADDRESS OF PERSON/ PARTY TO WHOM PAYMENT MADE TOTAL PURPOSE OF PAYMENT AS PER THE ASSESSING OFFIC ER M/S CHURU TRADING CO. PVT LTD. CONTINENTAL BUILDING, 135, DR. A.B. ROAD MUMBAI 8,50,00,000 FEES PAID FOR ACTING AS ARRANGER FOR ARRANGING RS. 252 CRORES FOR THE PROPOSAL FOR ACQUISITION OF 64.67% EQUITY SHARES HELD BY MAHESHWARI GROUP AS PER AGREEMENT. (COPY ENCLOSED) SYNDICATION WITH BANKS, FINANCIAL INSTITUTIONS AND OTHERS FOR THE ACQUISITION. TIE-UP WITH MEDIAVEST INDIA PVT. LTD FOR DEPOSIT OF RS. 12.65 CRORES IN THE ESCROW ACCOUNT WITH THE THE AGARWAL GROUP ENTERED INTO AGREEMENT FOR ARRANGING 252 CRORES TO ACQUIRE MAJORITY SHAREHOLDING IN THE COMPANIES. AS PER THE AGREEMENT THE ARRANGER FEES WAS DUE ON ACHIEVING A FINANCIAL CLOSURE OF RS. 252 CRORE WHETHER THE AGARWAL GROUP SHALL BE ABLE TO DRAW DOWN THE ARRANGED FUNDS OR NOT. THIS WAS AN ALL INCLUSIVE AND NOT REFUNDABLE FEES. THUS IT IS AMPLY CLEAR THAT THE FEE BASICALLY WAS IN THE NATURE OF ARRANGEMENT OF THE FUND AND NO WAY IT WAS IN THE CONNECTION OF TRANSFER OF SHARES OF AGARWAL GROUP TO MAHESHWARI GROUP. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 53 COMPANY LAW BOARD BEFORE THE STIPULATED DATE ON BEHALF OF THE APPELLANTS. M/S S.R. HALBE & ASSOCIATES ADVOCATES FOUNTAIN CHAMBERS 3 RD FLOOR, NANABHAI LANE, FOUNTAIN MUMBAI 2,24,24,000 3,13,200 FEES PAID FOR FORMULATION OF THE STRATEGY FOR FILING PETITION BEFORE THE COMPANY LAW BOARD FOR PROTECTION OF THE INTEREST OF MINORITY SHAREHOLDERS, WHICH RESULTED IN ENHANCEMENT IN THE VALUE OF THE SHARES ON ACCOUNT OF THE REASONS THAT THE MAJORITY SHAREHOLDERS QUOTED THE VALUE OF THE SHARES THINKING THAT THE MINORITY CANNOT PAY THE PRICE FOR ACQUISITION OF THEIR 64.67%. REIMBURSEMENT OF TRAVELLING, LOADING AND BOARDING EXPENSES. THE PAYMENT IS ACCEPTED TO HAVE BEEN INCURRED IN CONNECTION WITH THE TRANSFER OF SHARES THESE EXPENSES DO NOT FIND ANY PLACE TO BE DIRECTLY CONNECTED WITH THE TRANSFER OF SHARES MRS BINA GUPTA ADVOCATE KHAITAN HOUSE B-1, DEFENCE COLONY NEW DELHI 44,22,400 FEES FOR PREPARATION OF PETITION INCLUDING APPEARANCE BEFORE THE COMPANY LAW BOARD. FEES FOR APPEARANCE BEFORE THE HONBLE ALLAHABAD HIGH COURT AND SUPREME COURT INCLUDING CONSULTATION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES OUT OF THESE EXPENSES IT IS NOTICED THAT CERTAIN EXPENSES HAS BEEN INCURRED IN CASH ON VOUCHERS FROM THE ACCOUNTS OF DIFFERENT MEMBERS OF AGRAWAL GROUP WHICH ARE BASICALLY REIMBURSEMENT OF EXPENSES RELATING TO TRAVELLING, LODGING AND BOARDING ETC . IT IS NOTICED THAT AN AMOUNT OF RS.6,25,000 HAS BEEN CLAIMED BY SHRI AJAY AGARWAL AND AN AMOUNT OF RS. 7,37,000 HAS BEEN CLAIMED BY SMT. RENU AGARWAL AS DEDUCTION, HOWEVER LOOKING AT THE SUPPORTING BILLS SUCH PAYMENT FALLS UNDER THE CATEGORY OF VARIOUS MISCELLANEOUS ACCOUNTS OF LOGISTICS EXPENSES WHICH ARE NOT DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES. MR. SUDIPTO SARKAR ADVOCATE 31, BROAD STREET KOLKATA 1,50,000 APPEARANCE FEES BEFORE THE COMPANY LAW BOARD ON VARIOUS DATES VIZ 17.01.2006, 24.01.2006 AND 25.01.2006 ON THE PERUSAL OF THE ORDERS OF CLB IT IS NOTICED THAT HE HAS APPEARED ON BEHALF OF THE AGARWAL GROUP DURING THE ACQUISITION PROCESS OF MAJORITY SHAREHOLDING OF MAHESHWARI GROUP . THE CONSOLIDATED PAYMENTS ALSO INCLUDED EXPENSES ON ACCOUNT OF LOGISTIC PROVISIONS AND SUCH EXPENSES CANNOT BE TREATED HAVING BEEN PAID WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER. RABO INDIA SECURITIES (P) LTD FORBES BUILDING, 2 ND FLOOR, CHIRANJIT RAI MARG, FORT MUMBAI 2,50,000 PAID FOR STRATEGIC AND FINANCIAL ADVISORY SERVICES THE TRANSACTION ENTERED INTO WAS BASICALLY AN INITIAL STRATEGIC PLANNING FOR THE ACQUISITION OF MAJORITY SHAREHOLDING WHEREAS AGARWAL GROUP IN ITS RETURNS OF INCOME HAD SHOWN SALE OF THEIR SHAREHOLDINGS TO MAJORITY SHAREHOLDERS. THUS THE AMOUNT PAID IS IN NO WAY CONNECTED WITH THE PROCESS OF TRANSFER OF SHARES AND HENCE THE EXPENDITURE CANNOT BE CONSIDERED AS EXPENSE DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER MR. DAYAL SARAN ADVOCATE 63, NEHRU NAGAR AGRA 10,00,000 FEES FOR THE CONSULTATION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES THERE IS NO EVIDENCE ON RECORD SHOWING SUCH EXPENDITURE DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES . THERE IS NO EVIDENCE THAT WHICH CAN CORROBORATE THAT ANY LEGAL SERVICES HAVE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 54 BEEN EXTENDED IN THE PROCESS OF VALUATION OF SHARE OR IN THE PROCESS OF COMPROMISES CONCERNING THE TRANSFER OF SHARES. TOTAL 11,35,59,600 THUS THE PERUSAL OF THE TABLE ABOVE WILL REVEAL THA T THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON ACCOUNT OF THE FOLLOWING REASONS: (I) PAYMENTS IN RELATION TO THE ACQUISITION PROCESS OF MAJORITY SHAREHOLDING (ASSESSEES CONTRIBUTION) A. M/S CHURU TRADING CO. PVT. LTD. RS. 3,00,00,000 B. MR. SUDIPTO SARKAR, ADVOCATE RS. 1,50,000 C. M/S RABO INDIA SECURITIES (P) LTD RS. 2,50,000 (II) PAYMENTS NOT DIRECTLY CONNECTED WITH TRANSFER OF SH ARES A. M/S S.R. HALBE & ASSOCIATES, ADVOCATES RS. 3,13,200 B. MRS BINA GUPTA, ADVOCATE RS. 6,25,000 C. MR. DAYAL SARAN, ADVOCATE RS. 5,00,000 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE FILED COMPLETE DETAILS OF THE PAYMENTS MADE ALONG WITH TH E COPIES OF THE BILLS RAISED BY THE ABOVE PERSONS. IT CANNOT ADMIT OF DOUBT THAT IN AN ORDINARY TRANSA CTION OF TRANSFER OF AN ASSET INTER PARTIES THE FIXATION OF THE CONSIDER ATION OR PRICE IS AN INTEGRAL PART OF THE TRANSACTION. THIS FIXATION OF THE CONSIDERATION FOR THE TRANSFER WAS FINALLY EFFECTED ONLY BY THE DECISION OF THE COMPANY LAW BOARD AND THUS FORMS AN INTEGRAL PART OF THE PROCES S OF TRANSFER. ON ACCOUNT OF SHARE BEING OF UNLISTED COMPANY, RESTRIC TIONS ON TRANSFER IN THE MARKET, THE ASSESSEE HAD NO ALTERNATIVE BUT TO PLAN A STRATEGY TO GET MAXIMUM SALE PRICE OF SHARE BY MOVING TO COMPANY LA W BOARD /ARRANGING OF ARRANGER/FINANCER/MERCHANT BANKER WHI CH ULTIMATELY LEAD TO REALIZATION OF THE SALE CONSIDERATION ON TRANSFER O F SHARES. THIS IS ELABORATELY AND FULLY PROVED WITH REFERENCE THE PER USAL OF THE ORDERS OF THE HONBLE COMPANY LAW BOARD WHICH WILL REVEAL THAT THE ASSESSEE AND THE OTHER MEMBERS OF THE FAMILY TERMED AS AGARWAL GROU P WERE MINORITY SHAREHOLDERS AND COLLECTIVELY HELD 35.33% SHARES IN BOTH THE COMPANIES. ON ACCOUNT OF THE DISPUTE WITH THE OTHER SHAREHOLDE RS, WHO COLLECTIVELY HELD 64.67%, SINCE THE LATTER WANTED TO OUST THEM T HEY JOINTLY MOVED PETITION BEFORE THE HONBLE COMPANY LAW BOARD. THES E MINORITY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 55 SHAREHOLDERS, WHO WERE THE PETITIONERS WERE GIVEN T HE FIRST OPTION TO DECIDE EITHER TO SELL THEIR SHARES OR TO PURCHASE T HE SHARES OF THE RESPONDENTS I.E., THE MAJORITY SHAREHOLDERS NAMELY, MAHESHWARI GROUP. TO OBTAIN FINANCE FOR THE ACQUISITION OF SHARES, TH E MINORITY SHAREHOLDERS JOINTLY APPROACHED M/S CHURU TRADING CO. (P) LTD. T O MAKE FINANCIAL ARRANGEMENT FOR THE ACQUISITION OF 64.67% SHARES HE LD BY THE MAJORITY SHAREHOLDERS. THEY FINALLY IDENTIFIED FINANCERS AND MERCHANT BANKERS, WHO AGREED TO MAKE AVAILABLE NECESSARY FUNDS. DURING TH E COURSE OF HEARING, THE HONBLE COMPANY LAW BOARD HELD ON 23.01.2006, T HAT THE PETITIONERS ELECTED TO PURCHASE 64.67% SHARES HELD BY THE RESPO NDENTS AND THE CONSIDERATION FOR THE SAME WORKED OUT TO RS. 252 CR ORES. AS PER THE MEMORANDUM OF UNDERSTANDING DATED 06.02. 2006 WITH M/S MEDIAVEST INDIA PRIVATE LIMITED DATED 06.02.200 6 AGARWAL GROUP WAS UNDER AN OBLIGATION TO PLEDGE THEIR HOLDING OF 35.33% AS SECURITY JOINTLY FOR THE MONIES ADVANCED. THE RELEVANT PARAS OF THE AGREEMENT ARE REPRODUCED AS UNDER. 2. THE 35.33% SHARES HELD BY THE ACQUIRERS SHALL CONSTITUTE THE SECURITY JOINTLY FOR THE MONIES ADVANCED BY THE FINANCER AND THE MERCHANT BANKER FOR THE ACQUISITION OF 64.67% SHARES FROM THE AGARWAL A ND MAHESHWARI FAMILIES AND THE 35.33% SHARES SHALL (TILL 64.67% HOLDINGS A RE ACQUIRED BY THE ACQUIRERS BY PAYING OFF THE ENTIRE CONSIDERATION DU E THEREON) BE SUBJECT TO RESTRAIN AGAINST ALL TRANSFERS OR OTHER ENCUMBRANCE S OTHER THAN THE TRANSFER TO THE AGARWAL AND MAHESHWARI FAMILIES PROVIDED IN THE AGREEMENT RECORDED BY THE CLB ORDER IN THE EVENT OF THE ACQUIRERS NOT BEI NG ABLE TO FULFIL THEIR PART OF THE OBLIGATIONS AND ARE REQUIRED TO SELL THEIR HOLD INGS TO THE AGARWAL AND MAHESHWARI FAMILIES. 3. AFTER THE ENTIRE CONSIDERATION IS PAID AND TILL THE AMOUNTS FINANCED BY THE FINANCER AND MERCHANT BANKER ARE FULLY SETTLED IN TERMS OF THE ARRANGEMENT SPELT OUT HEREON, THE 35.33% SHARES HEL D BY THE ACQUIRERS SHALL STAND PLEDGED IN FAVOUR OF THE FINANCERS AND THE ME RCHANT BANKER JOINTLY IN PROPORTION TO THE AMOUNTS FUNDED BY THEM RESPECTIVE LY. IN ADDITION THE 64.67% SHARES ACQUIRED FROM THE AGARWAL AND MAHESHW ARI FAMILIES SHALL ALSO BE RETAINED AS COLLATERAL SECURITY FOR THE MON IES ADVANCED BY THE FINANCER AND THE MERCHANT BANKER TILL THE AMOUNTS D UE TO THEM IS SETTLED IN TERMS OF THE AGREEMENT REACHED BETWEEN THE PARTIES. BUT IT IS AGREED THAT WHILE THE VOTING RIGHTS ON 64.67% SHARES SHALL NOT BE EXERCISABLE IN ANY MANNER WHICH WOULD BE PREJUDICIAL TO THE INTERESTS OF THE FINANCER AND MERCHANT BANKER. THE FINANCERS HAVE AGREED IN TERMS OF THE ABOVE AGREEMENT TO ADVANCE A SUM OF RS. 101 CRORES EQUIVA LENT TO 40% OF THE CONSIDERATION DUE TO THE AGARWAL AND MAHESHWARI FAM ILIES IN TERMS OF THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 56 SETTLEMENT BETWEEN THE ACQUIRERS AND THE SAID FAMIL IES ON THE FOLLOWING FURTHER TERMS. 4. THE ACQUIRERS SHALL EXECUTE AN UNDERTAKING ACCEP TING THAT THEY SHALL NOT TRANSFER OR CREATE ANY CHARGE OR OTHER ENCUMBRANCE ON THE 35.33% SHARES HELD BY THEM AND ALSO AFFIRM THAT APART FROM THE ST IPULATION IN THE AGREEMENT RECORDED BY THE CLB THAT IN THE EVENT OF NON PERFOR MANCE OF THE TERMS OF THE SETTLEMENT BY THE ACQUIRERS THE SAID SHARES SHALL B E TRANSFERRED TO THE AGARWAL AND MAHESHWARI FAMILIES, NO RESTRAINT OR ENCUMBRANC ES ON THE SAID 35.33% SHARES EXIST AS OF DATE. 5. WHEN THE ENTIRE CONSIDERATION DUE ON THE 64.67% SHARES ARE PAID THE AGREED PLEDGE OF 35.33% SHARES HELD BY THE ACQUIRER S SHALL BE EXECUTED BY AN APPROPRIATE PLEDGE DOCUMENT AS ADVISED BY THE LEGAL ADVISERS OF THE FINANCERS AND THE MERCHANT BANKERS AND THE SHARE CE RTIFICATES SHALL BE DELIVERED TO THE COMMON BANKERS NOMINATED BY THE FI NANCERS AND THE MERCHANT BANKER ALONG WITH THE PLEDGE DOCUMENT. AGA IN WHEN THE SHARE CERTIFICATE RELATING TO 64.67% SHARES ARE RECEIVED BY THE ACQUIRERS UNDER THE CLB ORDER, THE ACQUIRERS SHALL AUTHORIZE THE SOLICI TORS JOINTLY NOMINATED BY THE ACQUIRERS, FINANCERS AND THE MERCHANT BANKERS T O RECEIVE THE SHARE CERTIFICATES FROM THE AGARWAL AND MAHESHWARI FAMILI ES (WHICH ARE TO BE PUT UNDER ESCROW AS AGREED UNDER THE AGREEMENT RECORDED BEFORE THE CLB) AND AFTER TRANSFERRING THE SAME IN THE NAME OF THE ACQU IRERS IN THE RECORDS OF THE COMPANIES AS PROVIDED UNDER THE LAW, KEEP IT IN THE IR CUSTODY SO AS TO COMPLY WITH THE RESTRAINT AGAINST THE TRANSFER OF THE SAME AND BE RETAINED AS COLLATERAL SECURITY TILL THE LIABILITIES DUE TO THE FINANCERS AND THE MERCHANT BANKERS ARE SETTLED IN TERMS OF THIS AGREEMENT. THEREAFTER, ON 08.02.2006, THE MAHESHWARI GROUP-RES PONDENTS FILED APPLICATION BEFORE THE HONBLE COMPANY LAW BOARD SE EKING FOR DIRECTIONS TO THE PETITIONERS TO DEPOSIT THE SHARE CERTIFICATES RELATING TO 35.33% SHARES HELD BY THEM WITH THE ESCROW AGENT, S TATE BANK OF PATIALA. THE FIRST INSTALLMENT OF ABOUT RS. 12.5 CRORES BEIN G 5% OF THE TOTAL CONSIDERATION WAS TO BE DEPOSITED IN THE ESCROW ACC OUNT. IT WAS ALLEGED BY THE RESPONDENTS THAT THE PETITIONER HAD NOT PAID THE 1 ST INSTALLMENT OUT OF THEIR OWN FUNDS BUT INSTEAD THE MONEY HAD BEEN D RAWN FROM THE ACCOUNT OF M/S MEDIAVEST INDIA (P) LTD. THE LATTER BEING TH E FINANCER WHO HAD BEEN BROUGHT IN BY THE ARRANGER M/S CHURU TRADING C O. (P) LTD. THUS THE ACTION TO BRING THE ARRANGER M/S CHURU TRA DING P. LTD. AND OTHERS NAMELY RABO INDIA SECURITIES LTD. TO WHOM TH E ASSESSEE HAS MADE PAYMENTS WAS PART AND PARCEL OF THE STRATEGY TO EXT RACT THE MAXIMUM PRICE OF THE SHARES HELD BY THE ASSESSEE. THE ASSESSEE NE VER WANTED TO ACQUIRE THE COMPANY AS IT WAS ALWAYS A MINORITY SHAREHOLDER S AS WILL EVEN BE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 57 EVIDENT FROM THE PETITION FILED UNDER SECTION 397 A ND 398 BEFORE THE HONBLE COMPANY LAW BOARD. THIS WAS A WELL PLANNED STRATEGY EVOLVED ON ACCOUNT OF THE REASON THAT BOTH THE COMPANIES WERE UNLISTED ONE BEING A CLOSELY HELD PUBLIC COMPANY AND THE OTHER BEING A P RIVATE LIMITED COMPANY AND THUS THERE WAS ALWAYS A RESTRICTION IN THE TRANSFER OF THE SHARES TO ANY OUTSIDER. THE LEARNED ASSESSING OFFICER IN MAKING THE DISALLO WANCE OF THE PAYMENT MADE TO M/S CHURU TRADING COMPANY PVT. LTD. HAS RELIED MERELY ON THE ONE OF THE CLAUSES OF THE AGREEMENT DATED 01 .02.2006 BETWEEN THEM AND THE ASSESSEE WHICH IS REPRODUCED AS UNDER: AGARWAL GROUP IN CONSIDERATION OF ARRANGING RS. 252 CRORES FOR THE ACQUISITION OF 64.67% SHARES OF THE COMPANI ES SHALL PAY RS. 8.5 CRORES (ALL INCLUSIVE) TOWARDS ARRANGER FEE S TO US. THE ARRANGER FEES SHALL BE DUE ON ACHIEVING THE FINANCI AL CLOSURE OF RS. 252 CRORES NOT WITHSTANDING WHETHER THE AGARWAL GROUP SHALL BE ABLE TO DRAW DOWN THE ARRANGED FUNDS OR NO T. IT WILL BE AN ALL INCLUSIVE AND NON REFUNDABLE FEES. HE HAS IGNORED THE LAST CLAUSE OF THE SAID AGREEMEN T WHICH PROVIDED FOR THE PAYMENT OF THE ARRANGER FEES, WHICH IS REPR ODUCED AS UNDER: THE PAYMENT OF THE SAID FEES SHALL BE MADE TO US WI THIN 30 DAYS FROM THE DATE OF THE ACQUISITION OF 64.67% SHA RES HELD BY MAHESHWARI GROUP BY WAY OF THE TRANSFER IN THE NAME OF AGARWAL GROUP OR 31 ST DECEMBER, 2006, WHICH EVER IS EARLIER. HOWEVER, AS THE ACQUISITION NEVER TOOK PLACE IN VIE W OF REVERSAL OF ORDERS BY THE COMPANY LAW BOARD, THE AGREEMENT RELI ED UPON BY THE LEARNED ASSESSING OFFICER BECAME IN-OPERATIONAL SIN CE THE ARRANGER FEES WAS IN RESPECT OF THE ACQUISITION, AS EVEN ACCEPTED BY THE HIM IN HIS ORDER, WHICH WAS THE REASON FOR MAKING THE DISALLOWANCE. IT IS RESPECTFULLY SUBMITTED THAT THE AGARWAL GROUP TIED UP FOR STRATEGIC AND FINANCIAL ADVISORY SERVICES WITH RABO INDIA SECURITIES PVT. LTD. AS PER THEIR AGREEMENT DATED 10.01.2006 AND VI DE THE ORDER OF THE CLB DATED 23.01.2006 CONSENTED TO ACQUIRE THE 64.67 % SHARE HOLDING OF THE MAJORITY IE MAHESHWARI GROUP. THEREAFTER THESE AGREEMENTS, AS PER THE STRATEGY OF THE ASSESSEE WERE ENTERED INTO FIRS T WITH M/S CHURU TRADING ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 58 COMPANY PVT. LTD ON 01.02.2006 AND SUBSEQUENTLY WIT H M/S MEDIAVEST INDIA PRIVATE LIMITED ON 06.02.2006. THE HONBLE COMPANY LAW BOARD VIDE ITS ORDER DATED 10.7.2006 REVERSED THE OPTION FOR THE ACQUISITION OF THE COMP ANIES IN FAVOUR OF THE MAHESHWARI GROUP AND TILL THAT DATE ONLY AN AMOUNT OF RS. 12.50 CRORES WAS DEPOSITED IN THE DESIGNATED ESCROW ACCOUNT BY M /S MEDIAVEST INDIA PVT. LTD ON BEHALF OF THE ASSESSEE AND NO OTHER PAY MENTS WERE MADE, THIS AMOUNT WAS REFUNDED SUBSEQUENTLY ALONG WITH THE INT EREST BY THE BANKERS NAMELY STATE BANK OF PATIALA AS WILL BE EVIDENT FRO M THE ORDER OF THE CLB DATED 01.11.2006. THUS AS PER THE AGREEMENT DATED 01.02.2006 WITH M/S CHURU TRADING COMPANY PVT. LTD. THE ASSESSEE HAD TO PAY ARRANGER FEES WITHIN 30 DAYS FROM THE DATE OF ACQUISITION OR 31 ST DECEMBER, 2006 WHICH EVER WAS EARLIER, SINCE THE ACQUISITION NEVER TOOK PLACE HEN CE THE AGREEMENT BECAME VOID. HENCE NO PAYMENT WAS MADE TO THEM IN T ERMS OF THE AGREEMENT. HOWEVER SINCE THE ASSESSEE WAS ABLE TO R EALIZE RS. 160 CRORE WHICH WAS RS. 22 CRORES MORE THAN THE VALUE OF THEI R HOLDING OF THE QUOTED VALUE BY THE MAHESHWARI GROUP IE 138 CRORE ( 35.33% OF RS. 390 CRORES) AS PER THE STRATEGY WAS REQUIRED TO PAY M/S CHURU TRADING COMPANY AN AMOUNT OF ATLEAST 50% OF THIS EXCESS IE RS. 11 CRORES. THE ASSESSEE FINALLY AGREED TO PAY THEM RS. 8.50 CRORES ONLY IE UPTO THE EXTENT OF THE AMOUNT OF THE ARRANGER FEES. THE SAME IS AMP LY PROVED WITH REFERENCE TO THE COMMUNICATIONS FILED. HENCE THE PA YMENT MADE ON 15.11.2006 TO M/S CHURU TRADING COMPANY PVT. LTD WA S NOT OF THE ARRANGER FEES BUT FOR THE EXCESS AMOUNT ALIKE TO OV ERRIDING CHARGE. BY ADOPTING THIS STRATEGY THE ASSESSEE FORCED THE MAHE SHWARI GROUP TO REACH A SITUATION WHERE THEY COULD REAP THE MAXIMUM PRICE /VALUE OF THE SHARES. IN RESPECT OF THE PAYMENTS MADE TO MR. SUDIPTO SARK AR, ADVOCATE. MRS BINA GUPTA, ADVOCATE AND MR. DAYAL SARAN, ADVOC ATE THE LEARNED ASSESSING OFFICERS OBSERVATION ARE INCORRECT AS TH ESE LEGAL LUMINARIES WERE INVOLVED IN STRATEGIZING THE ACTIONS OF THE AS SESSEE TO ENABLE HIM TO EXTRACT THE MAXIMUM PRICE AND IN CONNECTION WITH TH E TRANSFER OF THE CAPITAL ASSET. HAD THESE ACTION NOT BEEN TAKEN BY T HE ASSESSEE HE WOULD PARTED WITH MINISCULE AMOUNT OR MADE THERE WOULD HA VE BEEN A SERIOUS DEADLOCK IN THE MANAGEMENT AND HOW THE CLB WOULD HA VE INTERFERED IS CANNOT BE STATED IN ACTUAL TERMS. EVEN PER SE THE E XPENSES PAID TO THE MRS. BINA GUPTA, ADVOCATE AND M/S S.R. HALBE & ASSOCIATE S WERE IN THE NATURE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 59 OF REIMBURSEMENT AND FOR LOGISTICS THEN THEY OUGHT TO HAVE BEEN ALLOWED IN PARTICULAR WHEN THE PAYMENTS MADE TO M/S S.R. HALBE & ASSOCIATES, ADVOCATE HAVE BEEN HELD TO HAVE BEEN INCURRED IN CO NNECTION WITH THE TRANSFER OF THE SHARES BY THE LEARNED ASSESSING OFF ICER HIMSELF. AS REGARDS PAYMENT MR. DAYAL SARAN, ADVOCATE THE CO PY OF HIS BILL EVIDENCING THE PAYMENT MADE BY THE ASSESSEE WAS FIL ED, WHICH AMPLY PROVE THE NATURE OF SERVICES RENDERED BEING IN CONN ECTION WITH THE TRANSFER OF THE SHARES. THE OBSERVATION THAT THE SAME WAS NO T IN CONNECTION WITH THE PROCESS OF THE VALUATION OR COMPROMISE IS INCOR RECT. HE WAS ENGAGED WITH THE AMARUJALA GROUP SINCE MORE THAN THREE DECA DES AND WAS INVOLVED SINCE THE BEGINNING OF THE DISPUTE BETWEEN THE MANA GEMENT WHO EVEN TRIED TO BRING UPON A COMPROMISE BETWEEN THE MANAGEMENT A T ALL LEVELS. HOWEVER WHEN THE DISPUTE REACHED THE LEVEL OF THE C LB AGARWAL GROUP FROM TIME TO TIME DISCUSSED THE STRATEGY WITH HIM A ND INVOLVED HIM TO TRAVEL AND NUMBER OF TIMES WITH THEM IN MEETING WIT H MR S.R. HALBE, ADVOCATE AND MRS. BINA GUPTA, ADVOCATE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT THE ASSESSEES CLAIM FOR DEDUCTION AGAINST SALE/TRA NSFER CONSIDERATION WHICH RESULTED INTO PROFIT OR GAINS UNDER THE HEAD CAPITAL GAINS WITHIN THE MEANING OF SECTION 45 WAS : (I) EITHER ADDITION TO THE COST BEING CAPITAL EXPENDITU RE INCURRED; (II) DIRECTLY WHOLLY AND EXCLUSIVELY RELATED IN CONNECTI ON WITH THE TRANSFER; (III) WAS NOTHING BUT REIMBURSEMENT OF EXPENDITURE INCURR ED IN PARTICULAR IN FIXING THE SALE CONSIDERATION AS ENHA NCED VALUE OF TRANSFER WHICH WAS CONSIDERING THE SAID EXPENSES. IT IS ALSO SUBMITTED THAT WHETHER THE AMOUNT PAID F ALLS UNDER SECTION SUBSECTION (I) OR (II) OF SECTION 48 IS NOT MATERIA L AS THE ASSESSEE HAS NOT CLAIMED ANY BENEFIT OF INDEXATION IN RESPECT OF THE IMPROVEMENT COST. THE ASSESSEE IS ALSO SUBMITTED THAT THE EXPENDITURE INC URRED CAN BE TREATED AS COST OF IMPROVEMENT / OR ADDITION TO COST OF SHARE ON ACCOUNT OF THE REASONS THAT THE ACTION OF THE ASSESSEE HAS RESULTE D IN THE ENHANCEMENT IN THE VALUE OF THE SHARES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 60 FURTHER, THAT IN RESPECT OF THE EXPLANATION OF THE AMOUNTS CLAIMED AS DEDUCTION UNDER SECTION 48 FOR THE PURPOSE OF COMPU TATION OF CAPITAL GAINS THE FOLLOWING AMOUNTS PAID BY THE ASSESSEES WITHIN THE AGARWAL GROUP CAN BE CONSIDERED AS EXPENSES TOWARDS COST OF IMPRO VEMENT, BEING PAID PRIOR TO THE TRANSFER OF SHARES SHRI AJAY AGARWAL RS. 13,78,200 SMT. RENU AGARWAL RS. 7,37,000 THE REMAINING AMOUNT PAID ARE IN RESPECT OF THE EXP ENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER. IT WAS ALSO CLARIFIED THAT IN SCHEDULE-CG OF THE IN COME TAX RETURN IN ITR- 4, THE ENTIRE PAYMENT MADE BY EACH OF THE ASSESSEE HAS BEEN SHOWN IN COLUMN 3(B)(II), THE SAME MAY BE TAKEN AS CORRECTED IN THAT COLUMN TO THE EXTENT STATED ABOVE AND THE REMAINING BE CONSIDERED IN COLUMN 3(B)(III) OF THE SCHEDULE. THE REASON FOR SHOWING THE ENTIRE AMO UNT IN COLUMN 3(B)(II) WAS ON ACCOUNT OF THE DATA INPUT IN THE SOFTWARE. I T IS REITERATED THAT THERE IS NO IMPACT ON THE COMPUTATION OF CAPITAL GAIN AS PER THE RETURN FILED ON ACCOUNT OF THE REASON THAT ASSESSEE HAS NOT CLAIMED INDEXATION ON THE COST OF IMPROVEMENT. THUS THE FACTS BEYOND DOUBT THAT A. THE MINORITY GROUP WERE BEING OUSTED BY THE MAJOR SHAREHOLDERS, WHICH COMPELLED THEM TO APPROACH THE HONBLE COMPANY LAW BOARD. THE PETITION WITH THE COMPANY LA W BOARD CAN ONLY BE FILED BY SHAREHOLDERS HAVING MORE THAN 10% HOLDING, THUS COLLECTIVELY THE ASSESSEE AND OTHER M EMBERS OF THE FAMILY HELD 35.33%. B. THE ASSESSEES STATUS IN THE COMPANY M/S AMARUJALA PUBLICATION LTD. AND M/S A & M PUBLICATIONS LTD. WA S A SHAREHOLDER. C. THE GAIN WHICH HAS BEEN OFFERED FOR TAXATION ON SAL E OF SHARES (CAPITAL ASSET) IS A LONG TERM CAPITAL GAIN. D. WHATEVER HAS BEEN SPENT BY THE ASSESSEE IN CONNECTI ON WITH/ PERTAINING TO THE SHARES- CAPITAL ASSET IS THE EXPE NDITURE IN CONNECTION WITH/IMPROVEMENT IN ITS COST AND INTRINS ICALLY RELATED TO THE TRANSFER OF THE ASSET. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 61 E. THERE WERE RESTRICTIONS OF TRANSFER TO OUTSIDERS. THE EXPENDITURE INCURRED ON FILING THE PETITION BEFORE THE CLB TO O BTAIN MAXIMUM SALE CONSIDERATION BY THE MINORITY SHARE HOLDER. THE SAME FINALLY RESULTED IN ENHANCED REALISATION ON TR ANSFER OF THE CAPITAL ASSETSHARES, AS THE MAJORITY SHAREHOLDERS QUOTED THE MAXIMUM VALUE FOR THE PURCHASE OF SHARES, SO THAT T HEY DO NOT LOSE THE RIGHT OF THE MANAGEMENT OF THE COMPANIES. THIS EXPENDITURE HAS INTIMATE CONNECTION WITH THE ACT OF TRANSFER OF SHARES AND IS ALLOWABLE UNDER SECTION 48. THE SAME IN INTEGRALLY CONNECTED WITH THE TRANSFER OF THE SHARES. THE EXPR ESSION IN CONNECTION WITH USED IN THE SECTION 48 IS WIDER AN D MORE LIBERAL IN MEANING. F. SINCE THE SHARES OWNED BY THE ASSESSEE WERE IN UNLI STED COMPANIES, THERE WERE RESTRICTIONS AND THE SAME COU LD NOT BE TRANSFERRED/SOLD TO AN OUTSIDER. THE COMPANY LAW BO ARD HELD THAT THE SAME CAN BE PURCHASED BY THE MAJORITY SHAR E HOLDERS. TO REMOVE THIS ENCUMBRANCE AND OBTAIN BETTER PRICE THE ASSESSEE MOVED THE COMPANY LAW BOARD, ATTAINED ORDE R FOR OPTION TO ACQUIRE AND SELL TO ANY OTHER PERSON. ULT IMATELY REVERSED THE OPTION AND GOT THE PRESENT SALE CONSID ERATION OF SHARES. G. THE MAIN RECIPIENTS OF EXPENDITURE HAVE PAID TAX AT THE MAXIMUM MARGINAL RATES. IT IS WORTH MENTIONING THAT THE SAME AMOUNT CANNOT BE TAXED OR DISALLOWED IN THE HANDS O F THE ASSESSEE WHICH WOULD AMOUNT TO DOUBLE TAXATION. AS SUCH THE SAME INCOME CANNOT BE TAXED TWICE. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CAS E THE DISALLOWANCES MADE ARE LIABLE TO BE DELETED. 8.4 THE LD. AR FURTHER FILED DETAILS OF SERVICES RE NDERED BY VARIOUS LAWYERS AND PROFESSIONALS ON 14.03.2011 TO EXPLAIN HIS POSITION THAT THE PAYMENTS MADE TO THEM WAS IN CONNECTION WITH THE TR ANSFER OF SHARES. THESE DETAILS AS SUBMITTED BY THE LD. AR ARE AS UNDER: --- 4. THAT THE EXPLANATION OF THE NATURE OF THE SERVIC ES RENDERED BY VARIOUS PARTIES TO WHOM PAYMENTS HAVE BEEN MADE IS AS UNDER. IT IS SUB MITTED THAT THE COPIES OF THE BILLS AND OTHER EVIDENCES STANDS FILED DURING THE C OURSE OF THE ASSESSMENT PROCEEDINGS AND STANDS PLACED BEFORE YOUR HONOUR IN THE PAPER BOOK. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 62 M/S CHURU TRADING COMPANY PVT. LTD. CONTINENTAL BUILDING 135, DR A.B. ROAD, MUMBAI THEY WERE INVOLVED IN THE FORMULATION OF STRATEGY T O ACT AS ARRANGER ASSIST FOR ARRANGEMENT OF THE FUNDS TO THE TUNE OF RS. 252 CRO RES FOR AGARWAL GROUP INCLUDING TYING UP WITH MEDIA WEST (P) LTD. AND OTH ER MERCHANT BANKERS TO ACQUIRE THE SHARES OF THE MAJORITY SHARE HOLDERS ON THE BASIS OF THE OPTION EXERCISED BY THE AGARWAL GROUP IN PURSUANCE TO THE ORDER OF THE HONBLE CLB DATED 25.01.2006. IT WAS ALWAYS AN UNDERSTANDING BETWEEN THEM AND AGA RWAL GROUP THAT SINCE THE LATTER HAD NO FINANCIAL CAPACITY TO FUND THE ACQUIS ITION THE ENTIRE FUNDING WAS TO BE SECURED BY THE HOLDING OF 35.33% IN THE COMPANIES, WHICH WAS KEPT AS A MORTGAGE/PLEDGED WITH THE FINANCER. IT WAS ALSO KNOWN AS DISCUSSED AS A PART OF THE STR ATEGY BETWEEN THEM AND AGARWAL GROUP THAT THIS ACT OF FINANCING MAY BE SUBJECT TO DILIGENCE BY MAHESHWARI GROUP BUT BY BUILDING THE ACTION TO SEEK OPTION TO ACQUIR E THE COMPANIES BEFORE THE CLB WAS PRIMARILY TO FREEZE A PRICE OF THE SHAREHOLDING AND SEEK VALUATION, WHICH BY ANY OTHER ACT COULD NOT HAVE ARISEN SINCE THEY WERE MINORITY SHAREHOLDERS AND BOTH THE COMPANIES HAD RESTRICTION OF TRANSFER OF THE SH AREHOLDING TO ANY OUTSIDER ON ACCOUNT OF BEING CLOSELY HELD OR BEING A PRIVATE LI MITED COMPANY. AGARWAL GROUP WAS NOT OBLIGED TO DO ANY DILIGENCE O F THE FUNDS BEING DRAWN BY THE ARRANGER FOR THEM AND AS SUCH STRATEGICALLY ACT S WERE BEING DONE TO ENFORCE MAHESHWARI GROUP TO DO DILIGENCE SO THAT THEY WOULD FILE AGITATE BEFORE CLB AND SEEK TO BUY OUT THE SHARES OF THE MINORITY IE AGARW AL GROUP AT THE VALUATION FIXED BY THEM. THIS ACT WAS SURE TO GO IN FAVOUR OF AGARW AL GROUP SINCE DURING THE COURSE OF PROCEEDS BEFORE THE CLB IT WAS UNDERSTOOD THAT THE BENCH WANTED BOTH THE PARTIES TO AMICABLY SETTLE THE ISSUE AND CONCLU DE THAT THE FAMILY BUSINESS BE CONTINUED BY ONE OF THE PARTY, THUS ONE OF THE PART Y HAD TO GO OUT OF THE COMPANY. THIS TILT OF THE BENCH FOR THE MINORITY SHAREHOLDER S MADE ALL THE MORE NECESSARY FOR AGARWAL GROUP AND M/S CHURU TRADING TO MUTUALLY PUT A CLAUSE IN THE AGREEMENT THAT THE ARRANGER FEES WAS TO BE PAID TO THEM WITHI N 30 DAYS FROM THE DATE OF ACQUISITION OF SHARES OR 31 ST DECEMBER 2006, WHICH EVER WAS EARLIER. FURTHER AFTER THE ORDER OF THE CLB DATED 10.07.2006 WHEREIN THE OPTION TO ACQUIRE THE COMPANIES WAS REVERTED TO MAHESHWARI GROUP M/S CHURU TRADING WAS INVOLVED IN THE NEGOTIATIONS AND REMOVAL OF THE ENC UMBRANCES PLACED BY THE FINANCERS NAMELY M/S MEDIAWEST WHO HAD KEPT THE SHA REHOLDING OF AGARWAL GROUP AS SECURITY FOR FINANCING THE DEAL. M/S CHURU TRADI NG HAD COMMITTED ARRANGEMENT OF RS. 252 CRORES IN TERMS OF THE CLB ORDER, WHICH WAS LATER REVERSED. ALL THE SHARES OWNED BY AGARWAL GROUP WAS HYPOTHECATED TO M EDIAWEST AND OTHER FINANCERS AND WITHOUT THEIR EXPLICIT CONSENT AGARWA L GROUP COULD NOT HAVE TRANSFERRED SHARES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 63 IT WAS BY THEIR PERSISTENT EFFORTS AND NEGOTIATIONS , MAHESHWARI GROUP FINALLY AGREED TO PAY RS 22 CRORES OVER AND ABOVE THE COMPR OMISE AMOUNT OF RS. 138 CRORE TOTALING TO RS. 160 CRORES FOR THE SHAREHOLDI NG OF AGARWAL GROUP. THERE AFTER M/S CHURU TRADING INSISTED FOR THE PAYMENT OF RS. 11 CRORE IE 50% OF THE EXCESS BUT FINALLY AGREED TO RS. 8.50 CRORES IE THE ORIGINAL AGREED AMOUNT WHICH WAS PAID ONLY AFTER THE RECEIPT OF THE CONSIDERATIO N BY AGARWAL GROUP. M/S RABO INDIA SECURITIES PVT . LTD . FORBES BUILDING 2 ND FLOOR, CHIRANJIT RAI MARG, FORT, MUMBAI STRATEGIC AND FINANCIAL ADVISORY SERVICES MRS BINA GUPTA, ADVOCATE KHAITAN HOUSE, B-1, DEFENCE COLONY, AGRA PREPARATION OF THE PETITIONS BEFORE CLB INCLUDING A PPEARANCES BEFORE CLB, HIGH COURT AND SUPREME COURT AND INVOLVED TILL THE TIME OF THE TRANSFER OF SHARES. IT WAS ONLY AFTER HER LETTER WAS ISSUED TO THE BANKERS THA T PAYMENTS WERE MADE OF THE CONSIDERATION BY THE BANKERS TO AGARWAL GROUP. MR. SUDIPTO SARKAR ADVOCATE , 33 BROAD STREET KOLKATTA APPEARANCE BEFORE CLB ON VARIOUS DATES AS WILL BE E VIDENT FROM THE ORDERS IN PARTICULAR ON 17.01.2006, 24.01.2006 AND 25.01.2006 MR. DAYAL SARAN ADVOCATE, 63, NEHRU NAGAR, AGRA INVOLVED IN THE PLANNING AND STRATEGY RIGHT SINCE T HE INCEPTION I.E. WHEN THE MOU WAS AGREED UPON BY THE PARTIES INCLUDING CONSULTATI ON UPTO THE PERIOD OF THE RECEIPT OF THE SALE CONSIDERATION BY AGARWAL GROUP. THE WHOLE TRANSFER CONSIDERATION WAS FINALIZED IN HIS PRESENCE AND HE WAS WHOLLY INVOLVED IN THE FINALIZATION OF STRATEGY IN DISCUSSION WITH SHRI S. R. HALBE. THE LD. AR IN NEXT PARA OF HIS SUBMISSION FILED ON 14.03.2011, HAS FURTHER SUMMARIZED ALL THE ACTIONS OF THE AGARWAL G ROUP FROM THE DATE OF FILING OF PETITION BEFORE THE CLB TILL THE DATE OF PASSING OF ORDER DATED 01.11.2006 BY THE CLB TO EMPHASISE HIS CONTENTION T HAT ALL THESE ACTIONS WERE UNDERTAKEN UNDER A STRATEGY TO GET MAXIMUM VAL UE OF SHARES FROM THE MAHESHWARI GROUP ON THEIR SALE IN WHICH THE ABO VE LAWYERS AND PROFESSIONALS HELPED AND HENCE FEES PAID TO THEM SH OULD BE CONSIDERED AS PAID WHOLLY AND EXCLUSIVELY IN CONNECTION WITH S ALE OF SHARES. THE SAME IS REPRODUCED AS UNDER: 5. THAT FROM THE PERUSAL OF THE SUBMISSIONS MADE B EFORE THE HONOUR THE FOLLOWING ACTIONS WILL SUBSTANTIATE THAT ALL THE PA YMENTS MADE BY AGARWAL GROUP AND INTIMATELY CONNECTED WITH THE TRANSFER OF THEIR SHARES HOLDING TO MAHESHWARI GROUP AT AN VALUE WHICH WAS ENHANCED ONLY ON ACCOUN T OF THE STRATEGIC PLANNING AND ACTIONS TO FILED PETITIONS BEFORE HONBLE COMPA NY LAW BOARD, WHICH OTHERWISE NOT YIELDED ANY RESULTS. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 64 PETITION WAS FILED BY AGARWAL GROUP BEFORE THE HON BLE CLB SINCE THEY WERE MINORITY SHAREHOLDER KNOWINGLY THAT BENCH NORMALLY PROTECTS THE INTEREST OF MINORITY. SINCE MAHESWARI GROUP WHICH ON THEIR INSISTENCE HAD SOUGHT DIVISION OF THE BUSINESS BETWEEN THEM AND AGARWAL GROUP, HAD BACK TRACKED ON THE MOU DRAWN BY THE AUDITOR SHRI MUKESH TANDON IN 2004 AGARWAL GROUP WAS VERY CAREFUL IN PLANNING THEIR ST RATEGY BY SEEKING VALUATION OF THE COMPANIES TO BE QUOTED BY MAHESHWA RI GROUP BEFORE THE CLB AND EXERCISING THE OPTION TO ACQUIRE THE CO MPANIES. THIS PLANNING WAS MADE KEEPING IN MIND THE HABIT AN D INTENTION OF MAHESHWARI GROUP TO BACKTRACK BEFORE THE CLB OF THE VALUE MENTIONED BY THEM AND CREATED ACTIONS AND DRAMA TO ACQUIRE THE SHARES OF THE MAJORITY SHAREHOLDERS BY BRINGING M/S MEDIA WEST THROUGH THE HELP OF M/S CHURU TRADING AND OTHERS WH O HAD COMMITTED ARRANGEMENT OF RS. 252 CRORES AND EVEN GOT DEPOSITE D AN AMOUNT OF RS. 12.50 CRORE IN THE ESCROW ACCOUNT AS PER THE OR DER OF THE CLB DATED. IT WAS KNOWN TO ALL THE PARTIES THAT AGARWAL GROUP NEVER HAD THE FINANCIAL CAPACITY TO ACQUIRE THE STAKE OF THE MAJO RITY SHARE HOLDERS TO THE TUNE OF RS. 252 CRORES BUT STILL WAS STRATEGICA LLY CREATING FEELERS IN THE MARKET THAT THEY WOULD ACQUIRE THE COMPANY WHIC H WAS BEING DONE MERELY TO FREEZE THE VALUATION OF THE COMPANIES TO RS. 390 CRORES AS QUOTED BY MAHESHWARI GROUP. AGARWAL GROUP DID NOT DEPOSIT THEIR SHARE CERTIFICA TES WITH STATE BANK OF PATIALA, SHASTRI BHAWAN AS WAS DONE BY MAHESHWAR I GROUP, EVIDENT FROM ORDER OF CLB DATED 04.04.2006 AGARWAL GROUP STRATEGICALLY COMPELLED MAHESHWARI GR OUP TO FILE A FRESH APPLICATIONS PETITION BEFORE THE CLB TO SET T HE BALL ROLLING IN THEIR COURT TO DIRECT CLB TO MAKE MAHESHWARI GROUP TO TAKE OVER THE SHARES OF THE MINORITY AS PER THE ORDER DATED 10.07 .2006 THEREBY REVERSING ITS EARLIER DATED 25.01.2006 BUT INVOKING SIMILAR CONDITIONS OF FUNDING SUCH PAYOUT AS WERE PUT IN THE ORIGINAL ORDER OF CLB DATED 25.01.2006 . AFTER THE RECEIPT OF THE AFORESAID ORDER AGARWAL GR OUP COULD FILE APPEAL BEFORE THE HIGH COURT BUT CHOSE NOT TO DO TH E SAME SINCE THEIR PURPOSE HAD BEEN SOLVED BY BRINGING AN ENHANCED VAL UATION TO THEIR SHAREHOLDINGS. FURTHER AGARWAL GROUP DID NOT INSIST IN PURSUING IN ANY LITIGATION WITH MAHESHWARI GROUP TO ENSURE THAT THE TERMS OF T HE CONDITIONS OF FUNDING AS WERE ORIGINALLY PLACED ON THEM THE PAYOU T WHICH WERE SAME FOR THE MAHESHWARI GROUP HAD BEEN VIOLATED OR NOT. THIS GOES FURTHER TO PROVE AND ESTABLISH THE POINT THAT AGARW AL GROUP ALWAYS WANTED AN EXIT ROUTE AT A GOOD VALUE WHICH WAS ONLY ACHIEVED BY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 65 LITIGATING BEFORE CLB AND STRAGICALLY PLANNING WITH THE HELP OF VARIOUS PARTIES TO WHOM PAYMENT WAS MADE ONLY AFTER THE REC EIPT OF THE CONSIDERATION. THAT THE PERUSAL OF THE RECITALS OF THE MEMORANDUM OF UNDERSTANDING BETWEEN AGARWAL GROUP AND M/S MEDIAVEST INDIA (P) L TD. WHICH HAS BEEN STATED IN THE ORDER OF THE CLB DATED 10.07.200 6 WILL REVEAL THAT SECURITY FOR THE AMOUNT OF RS. 252 CRORES LENT JOIN TLY BY THEM AND THE MERCHANT BANKER WOULD BE 35.33% SHARES HELD BY THE MINORITY SHAREHOLDERS WHICH SHALL BE SUBJECT TO RESTRAINT AG AINST ALL TRANSFERS. SINCE MEDIAVEST HAD PLACED FUNDS TO THE TUNE OF RS. 12.50 CRORES ON BEHALF OF AGARWAL GROUP IN THE ESCROW ACCOUNT AS EV IDENT FROM THE ORDER OF CLB DATED 27.03.2006. THIS CLAUSE HAD BEEN INVOKED, THEREBY WHEN THE ORDER OF CLB DATED 25.01.2006 WAS REVERSED BY ORDER DATED 10.07.2006 AND M/S CHURU TRADING WERE INVOLVED IN R EVOKING THOSE RESTRAINT/ ENCUMBRANCES AND MAKE AVAILABLE THESE SH ARES FREE TO BE TRANSFERRED TO MAHESHWARI GROUP. THAT IT WAS SUBMITTED BEFORE THE LEARNED ASSESSING OFFICER VIDE SUBMISSION DATED 30.11.2009 THAT AN FOLLOWING AMOUN TS CAN BE CONSIDERED AS EXPENSES TOWARDS COST OF IMPROVEMENT, BEING PAID PRIOR TO THE TRANSFER OF SHARES BY MEMBERS OF AGARWAL GRO UP VIZ. SHRI AJAY AGARWAL RS. 13,78,200 AND SMT RENU AGARWAL RS. 7,37 ,000. 8.5 THE LD. AR HAS ALSO DISCUSSED IN HIS WRITTEN S UBMISSION THAT VARIOUS CASE LAWS RELIED ON BY THE AO IN THE ASSESS MENT ORDER DO NOT APPLY TO THE FACTS OF THE CASE OF THE APPELLANT. HE ALSO QUOTED THE CASE LAW OF COMPAGNIE FINANCE HAMON (2009) 310 ITR 1 (AAR) RELIED UPON BY THE AO TO ARGUE HIS CASE THAT AS PER THIS DECISION, IF THE SERVICES OF LEGAL OR OTHER PROFESSIONAL EXTENDED TO THE PROCESS OF VALUATION O F SHARES OR THE PARTICIPATION IN THE DELIBERATION LED TO THE SETTLE MENT CONCERNING THE TRANSFER OF SHARES, THE LEGAL EXPENSES ON THAT ACCOUNT WILL BE ALLOWED AS DEDUCTION AND IN THE CASE OF THE APPELLANT, SINCE THE FIXATIO N OF PRICE FOR TRANSFER WAS FINALLY EFFECTED ONLY BY THE DECISION OF CLB , THE ACTION OF THE APPELLANT BEING PART OF THE AGARWAL GROUP, GOING TO CLB FORMS AN IN TEGRAL PART OF THE PROCESS OF TRANSFER OF SHARES AND HENCE ALL THE LEG AL AND PROFESSIONAL EXPENSES RELATING TO THE PROCEEDING CARRIED OUT BEF ORE CLB SHOULD BE ALLOWED AS EXPENSES CARRIED OUT IN CONNECTION WITH THE TRANSFER OF SHARES. HE ALSO ARGUED THAT THE FACT THAT THE AO HIMSELF HAS A LLOWED THE PAYMENT MADE TO M/S S.R. HALBE & ASSOCIATES, THE MAIN PERSON W HO DEVISED THE ENTIRE STRATEGY PROVES THE CASE OF THE APPELLANT THAT ALL THESE EXPENSES ARE INTERRELATED AND CONNECTED WITH THE TRANSFER OF SHA RES. FOR THE READY REFERENCE, THE ARGUMENTS TAKEN BY THE LD. AR WITH R ESPECT TO VARIOUS CASE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 66 LAWS RELIED UPON BY THE AO AND THE CASE LAWS RELIED UPON BY HIM ARE REPRODUCED AS UNDER: 6 THAT THE LEARNED ASSESSING OFFICER HAS RELIED ON THE DECISION FOLLOWING DECISIONS WHOSE FACTS ARE NOT APPLICABLE TO THE CAS E OF THE ASSESSEE A. SMT SITA NANDA VS. CIT (2001) 251 ITR 575 (DEL) WHETHER, THEREFORE, PAYMENT OF INTEREST BEING IN SH APE OF DAMAGES FOR LATE PAYMENT OF UNEARNED INCREASE WAS INADMISSIBLE AS DE DUCTION UNDER SECTION 48(I) - HELD, YES B. B.N. PINTO VS CIT (1974) 96 ITR 306 (MYS.) ASSESSEE, ON DEATH OF HER HUSBAND RECEIVED CERTAIN AMOUNT FROM FIRM IN WHICH HER HUSBAND WAS A PARTNER ON HER EXECUTING RELEASE DEED - ASSESSEE GAVE BREAK UP OF CONSIDERATION AMOUNT AND CLAIMED DEDUCT ION TOWARDS LAWYERS FEES, TRAVELLING EXPENDITURE AND DAMAGES FOR MENTAL WORRY AND SUFFERING ON ACCOUNT OF WRONGFUL WITHHOLDING AND DETENTION OF PR OPERTY BY FIRM - WHETHER, SINCE THERE WAS NO EVIDENCE TO SUPPORT CLAIM OF ASS ESSEE, IT WAS LIABLE TO BE REJECTED - HELD, YES - WHETHER, MOREOVER, IN VIEW O F FACT THAT EXPENDITURE CLAIMED WAS NOT SPECIFIC THAT IT WAS IN CONNECTION WITH TRANSFER, IT WOULD NOT FALL WITHIN AMBIT OF SECTION 48(I) SO AS TO BE A PE RMISSIBLE DEDUCTION - HELD, YES C. D.D. CHITTRANJAN VS CIT 193 ITR 238 (MAD.) IN SO FAR AS THE CLAIM OF THE ASSESSEE FOR DEDUCTIN G THE PAYMENT OF RS. 40,000 MADE TO MOOSA HAJI AHMED WAS CONCERNED, THAT PAYMEN T HAD ABSOLUTELY NO CONNECTION WHATEVER WITH THE PROPERTIES ACQUIRED BY THE ASSESSEE, WHICH WERE ALSO LATER DISPOSED OF BY HIM AND WHICH HAD LED TO THE ARISING OF THE CAPITAL GAINS. IT WAS NOT DISPUTED THAT O. S. NO.109 OF 197 0 RELATED TO PROPERTY AT NO. 24, CUNNINGHAM ROAD, BANGALORE, WHICH WAS BEQUEATHE D IN FAVOUR OF THE WIFE OF THE ASSESSEE, SUMATHI, UNDER THE WILL OF HE R FATHER RAMALINGAM. EVEN UNDER THE TERMS OF THE COMPROMISE DECREE, THE AMOUN T OF RS. 40,000 WAS PAYABLE NOT BY THE ASSESSEE BUT BY HIS WIFE. IN OTH ER WORDS, WITH REFERENCE TO THE PAYMENT OF RS. 40,000, NO OBLIGATION WAS CAST O N THE ASSESSEE FOR SUCH PAYMENT AND THAT TOO FROM OUT OF THE AMOUNTS REALIS ED BY HIM BY THE SALE OF THE PROPERTIES AT NOS. 52 AND 53, LALBAGH ROAD, BAN GALORE. IF THE ASSESSEE HAD PAID RS. 40,000 TO MOOSA HAJI AHMED, THAT AT BE ST WAS IN FULFILMENT OF THE OBLIGATION OF HIS WIFE, SUMATHI, TO HIM UNDER T HE TERMS OF THE COMPROMISE DECREE AND WITH REFERENCE TO THE PROPERTY AT NO. 24 , CUNNINGHAM ROAD, BANGALORE. BY THE DISCHARGE OF SUCH AN OBLIGATION B Y THE ASSESSEE, THE COST OF ACQUISITION OF THE PROPERTIES SOLD BY THE ASSESSEE CANNOT BE PERMITTED TO BE SWOLLEN. IN THE EVENTS THAT HAPPENED, THE TITLE OF THE ASSESSEE TO PROPERTIES AT NOS. 52 AND 53, LALBAGH ROAD, BANGALORE, BECAME ABS OLUTE ON THE EXECUTION OF THE SALE DEEDS IN FAVOUR OF THE ASSESSEE BY ABDU L RAZACK AND MIR ABDUL SUBHAN ON PAYMENT OF RS. 30,000 AND THE DISMISSAL O F THE SUITS INSTITUTED BY SWAMINATHAN AND AMARNATH IN O. S. NOS. 318 AND 319 OF 1972 SO THAT, ON THE SALE BY THE ASSESSEE OF THE PROPERTIES AT NOS. 52 A ND 53, LALBAGH ROAD, ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 67 BANGALORE, HE HAD AN UNFETTERED RIGHT OVER THE SALE PROCEEDS OF RS. 85,000. NO MATERIAL WAS ALSO PLACED BEFORE THIS COURT TO SH OW THAT THE VIEW TAKEN BY THE AUTHORITIES BELOW THAT OUT OF THE AMOUNT OF RS. 15,000 CLAIMED BY THE ASSESSEE AS EXPENSES, A SUM OF RS. 3,119 WAS INADMI SSIBLE, AS THAT AMOUNT WAS SPENT IN CONNECTION WITH THE LITIGATION LAUNCHE D BY THE WIFE OF THE ASSESSEE IS, IN ANY MANNER, INCORRECT. WE HAVE CARE FULLY CONSIDERED THE ORDER OF THE TRIBUNAL AND WE FIND THAT THE TRIBUNAL HAD T AKEN INTO ACCOUNT ALL THE RELEVANT FACTS TO CONCLUDE THAT THE CLAIM MADE BY T HE ASSESSEE CANNOT BE SUSTAINED. SIMILARLY THE PERUSAL OF THE DECISION OF THE AUTHOR ITY OF ADVANCE RULINGS IN THE CASE OF COMPAGNIE FINACRIERE HAMOM (2009) 310 ITR 1 (AAR) RELIED UPON BY THE LEARNED ASSESSING OFFICER WHEREIN IN IT HAS BEEN HELD THAT- LEGAL EXPENSES DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES IS ADMISSIBLE FOR DEDUCTION UNDE R SECTION 48(I). THE SOLE OBJECT OF THE EXPENDITURE INCURRED TOWARDS LEG AL FEES SHOULD BE IN CONNECTION WITH THE TRANSFER OF THE SHARES. LEGAL F EES FOR SEEKING ADVICE ON THE MODALITIES OF TRANSFER AND DRAFTING O F AGREEMENT OR DEED OF TRANSFER WOULD UNDOUBTEDLY QUALIFY FOR DEDUCTION . IT MUST BE NOTED THAT THE EXPRESSION IN CONNECTION WITH SUCH TRANSF ER IS WIDER AND MORE LIBERAL IN MEANING THAN THE PHRASEOLOGY FOR T HE TRANSFER. BY REASON OF EMPLOYING SUCH A WIDE EXPRESSION IE IN C ONNECTION WITH SOMETHING MORE THAN WHAT IS ATTRIBUTABLE TO THE FIN AL ACT OF TRANSFER OF SHARES IS ALSO ADMISSIBLE FOR DEDUCTION PROVIDED THE INTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE ACT OF T RANSFERRING SHARES IS ESTABLISHED. FOR INSTANCE, IF THE SERVICES OF LEGAL OR OTHER PROFESSIONAL EXTENDED TO THE PROCESS OF VALUATION O F SHARES OR THE PARTICIPATION IN THE DELIBERATIONS LED TO THE SETTL EMENT CONCERNING THE TRANSFER OF SHARES, THE LEGAL EXPENSES ON THAT ACCO UNT WILL ALSO BE ALLOWABLE AS DEDUCTION . HOWEVER, THAT THE LEGAL FEES ETC. PAID TO LAWYERS FOR FILING PETITION UNDER SECTION 397 AND 3 98 IN THE CLB AND FOR MAKING APPEARANCE BEFORE THE BOARD PRIOR TO THE PASSING OF THE FINAL ORDER GIVING GREEN SIGNAL FOR THE TRANSFER OF SHARES IS NOT ADMISSIBLE FOR DEDUCTION. IN OTHER WORDS THE LEGAL EXPENSES FOR THE INITIAL PERIOD OF DISPUTE ARE NOT INTRINSICALLY LIN KED WITH THE TRANSFER OF SHARED AND THEREFORE IT CANNOT BE ALLOWED AS DEDUCT ION. THE PERUSAL OF THE ABOVE DECISION IS APPLIED TO THE FACTS OF THE CASE WILL REVEAL THAT THE STRATEGY ADOPTED BY AGARWAL GROUP WAS TO E XIT AS EVEN ADMITTED BY THE CLB IN ITS ORDER DATED 10.07.2006 THAT THE BASI C UNDERSTANDING WAS THAT ONE GROUP SHOULD GO OUT OF THE COMPANY, BUT AGARWAL BY ADOPTING A SUCCESSFUL STRATEGY BY BRINGING ABOUT ENHANCEMENT I N THEIR VALUE OF SHAREHOLDING WITH THE HELP OF THE PARTIES INVOLVED BY IT SUCH ARRANGER AND VARIOUS LEGAL LUMINARIES INCURRED EXPENSES BY MAKIN G PAYMENT TO THEM WHICH WAS IN CONNECTION WITH THE TRANSFER OF THE SHARES A S CORROBORATED WITH REFERENCE TO THE ORDERS OF THE CLB AND VARIOUS EVID ENCES PLACED ON RECORD. IT ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 68 CANNOT BE ADMIT OF DOUBT THAT IN AN ORDINARY TRANSA CTION OF TRANSFER OF AN ASSET INTER PARTIES FIXATION OF THE CONSIDERATION O R PRICE IS AN INTEGRAL PART OF THE TRANSACTION. THIS FIXATION OF PRICE FOR TRANSFE R WAS FINALLY EFFECTED ONLY BY THE DECISION OF CLB AND THUS FORMS AN INTEGRAL PART OF THE PROCESS OF TRANSFER. FURTHER THE FACT THAT THE LEARNED ASSESSING OFFICER HIMSELF HAS ALLOWED THE PAYMENT MADE TO M/S S.R. HALBE & ASSOCIATES THE MAI N PERSON WHO DEVISED THE ENTIRE STRATEGY PROVES THE CASE OF THE ASSESSEE THAT ALL THESE EXPENSES ARE INTERRELATED AND CONNECTED WITH THE TRANSFER OF SHA RES. 7 YOUR HONOURS KIND ATTENTION IS INVITED TO THE FOLL OWING DECISIONS MRS. JUNE PERRETT V. INCOME-TAX OFFICER, WARD-1, CH IKMAGALUR [2008] 169 TAXMAN 124 (KAR.) ASSESSEE RECEIVED A PORTION OF SALE PROCEEDS OF A H OUSE IN INDIA BEQUEATHED BY HER FATHER - EXECUTORS OF WILL, WHO RESIDED ABROAD, HAD INCURRED CERTAIN EXPENSES TO OBTAIN PROBATE AND LETTER OF ADMINISTRATION AND TO SECURE ORDER OF EVICTION AGAINST UNAUTHORIZED OCCUPANT - WHILE COMPUTING CAP ITAL GAINS, ASSESSEE CLAIMED DEDUCTION OF THOSE EXPENDITURE - WHETHER AMOUNTS PA ID BY EXECUTORS AS COURT FEE AT TIME OF OBTAINING LETTER OF ADMINISTRATION AND T O SECURE AN ORDER OF EVICTION AGAINST UNAUTHORIZED OCCUPANT HAD TO BE TREATED AS EXPENDITURES IN CONNECTION WITH TRANSFER OF PROPERTY AND, THEREFORE, ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF EXPENDITURES INCURRED BY EXECUTORS - HELD, YES COMMISSIONER OF INCOME-TAX V. R. RAMANATHAN CHETTIA R [1985] 152 ITR 489 (MAD.) ASSESSEE SOLD LANDS BY CONVERTING THEM INTO PLOTS, AND FOR THIS PURPOSE, MAINTAINED SEPARATE OFFICE FOR PREPARING LAY-OUT PL ANS, ETC. ASSESSEE CLAIMED DEDUCTION OF EXPENDITURE INCURRED ON TRAVELING, STA TIONARY, SALARY AND REPAIRS TO OFFICE PREMISES, IN COMPUTING CAPITAL GAINS WHETH ER IMPUGNED EXPENSES COULD BE CONSIDERED AS SOLELY INCURRED IN CONNECTION WITH TRANSFER OF LAND AND WERE ACCORDINGLY DEDUCTIBLE HELD, YES. V.A. VASUMATHI V. COMMISSIONER OF INCOME TAX [1980] 4 TAXMAN 94 (KER.) WHETHER EXPENDITURE INCURRED IN LITIGATION CLAIMING ENHANCEMENT OF COMPENSATION AWARDED UNDER THE LAND ACQUISITION ACT WAS WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH TRANSFER OF CAPITAL ASS ET AND ALLOWABLE UNDER SECTION 48(I) HELD, YES. COMMISSIONER OF INCOME-TAX.V. PLASHFOOD (P.) LTD. [2009] 2 DTLONLINE 45 (DELHI) ASSESSEE CLAIMED DEDUCTION OF CERTAIN EXPENDITURE O N ACCOUNT OF BROKERAGE, PROFESSIONAL FEES, ETC, FROM CAPITAL GAINS ARISING FROM SALE OF CERTAIN SHARES ASSESSING OFFICER AND COMMISSIONER (APPEALS) AGREED THAT EXPENDITURE WAS WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SHARES BUT ALLOWED ONLY A PART OF SUCH EXPENDITURE TRIBUNAL ALLOWED ENTIRE EXPENDITURE, AS CLAIMED BY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 69 ASSESSEE, ON APPRECIATION OF EVIDENCE WHICH SHOWED THAT PROFESSIONAL INVOLVED HAD INCURRED SUBSTANTIAL EXPENDITURE IN NEGOTIATION S WITH FOREIGN BUYERS WHETHER SINCE AUTHORITIES PROCEEDED ON BASIS THAT E XPENDITURE INCURRED WAS WHOLLY AND EXCLUSIVELY FOR TRANSFER OF SHARES, ISSU E OF QUANTUM OF EXPENDITURE INCURRED WAS WHOLLY A MATTER OF APPRECIATION OF EVI DENCE HELD, YES WHETHER SINCE TRIBUNAL HAD COME TO CONCLUSION ON AN APPRECI ATION OF EVIDENCE THAT ASSESSEE HAD MADE OUT A CASE JUSTIFYING DEDUCTION O F ENTIRE EXPENDITURE INCURRED, NO QUESTION OF LAW AROSE FROM TRIBUNALS ORDER HE LD, YES IN A CASE OF THE FIRM WHICH OWED ABOUT RS. 25 LAKHS TO THE BANK AS LOAN WHICH COULD NOT BE PAID, THE PARTNERS DECIDED TO DISSOLVE THE FIRM AND SELL THE BUSINESS OF THE FIRM AS GOING CONCERN. IT COULD NOT BE DONE DUE TO THE LIABILITY TO THE BANK. THE COURT DIRECTED DEPOSIT OF RS. 25 LAKHS WITH THE REGISTRAR OF THE COURT TO BE KEPT IN FIXED DEPOSIT WITH THE BANK FREE FROM ANY L IEN AND ALL ATTACHMENTS UNTIL FURTHER ORDERS OF THE COURT. THE SALE WAS COMPLETED SUBJECT TO PRIOR PAYMENT TO THE BANK AND BEFORE RELEASING THE BALANCE AMOUNT TO THE PARTNERS, THE ASSESSEE CLAIMED THE PAYMENT MADE TO THE BANK IN COMPUTATION OF SHORT-TERM CAPITAL GAIN ON SALE OF ASSETS OF THE FIRM. THE CLAIM WAS NEGATI VED BY THE ASSESSING OFFICER AND UP TO THE STAGE OF TRIBUNAL. THE COURT HELD THA T THE SALE CONSIDERATION WAS LESS THE LIABILITY TO THE BANK. MEETING OF THE LIAB ILITY OF THE BANK WAS BEFORE SALE OF THE ASSETS AND WAS DEDUCTIBLE FROM THE CONSIDERATIO N FOR COMPUTATION OF CAPITAL GAIN. IN HOLDING SO, THE COURT TOOK SUPPORT FROM DE CISION IN CIT V. SHAKUNTALA KANTILAL [1991] 190 ITR 56/58 TAXMAN 106 (BOM.) IN WHICH IT WAS HELD THAT AN EXPENDITURE INCURRED IN REMOVING ENCUMBRANCE WOULD BE DEDUCTIBLE IN COMPUTATION OF CAPITAL GAIN. THIS CASE WAS AFFIRMED IN CIT V. ABRAR ALVI [2001] 247 ITR 312/117 TAXMAN 95 (BOM.) . AS SUCH, THE CASE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN GOPEE NATH PAUL & SONS V. DY. CIT [2005] 278 ITR 14 7/147 TAXMAN 629 (CAL.) 9. ALL THE SUBMISSIONS MADE BY THE LD. AR TO JUSTIF Y THE PAYMENTS MADE TO VARIOUS LAWYERS AND PROFESSIONALS IN CONNECTION WITH THEIR LEGAL AND PROFESSIONAL SERVICES WERE IN CONNECTION WITH TRANS FER OF SHARES BEING A PART OF STRATEGY BECAUSE BEFORE THEY WERE SOLD, THEIR VA LUE WAS SUBSTANTIALLY ENHANCED , EVEN FROM THE INITIAL VALUE OF RS. 138 C RORE ( VALUE OF 35.33% SHARE OF THE AGARWAL GROUP AS DETERMINED BY THE MAH ESHWARI GROUP INITIALLY) WITH THE SERVICES AND HELP PROVIDED BY T HEM AND HENCE COMPLETELY ALLOWABLE U/S 48(I) INSTEAD OF PART ALLOWANCE MADE BY THE AO, WERE FORWARDED TO AO FOR HIS COMMENT AND TO JUSTIFY AS T O WHY ONLY PART ALLOWANCE OF SUCH EXPENSES WERE MADE IN THE LIGHT O F THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF COMPAG NIE FINANCE HAMON (2009) 310 ITR 1 RELIED UPON BY THE AO WHILE DISALL OWING THE EXPENSES OF RS. 3,18,38,200/-. IN COMPLIANCE TO MY DIRECTION AN D AFTER EXAMINATION OF THE WRITTEN SUBMISSION OF THE APPELLANT, THE AO FIL ED HIS REMAND REPORT VIDE HIS LETTER DATED 23.03.2011 AND THE SAME IS REPRODU CED AS UNDER: ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 70 FIRST, WE SHOULD CONSIDER THE JUDGMENT GIVEN BY A AR IN THE CASE OF COMPAGNIE FINANCIERE HAMON (2009) 177 TAXMAN 511 (A AR NEW DELHI ). I AM REPRODUCING ALL THE RELEVANT PORTIONS OF TH E JUDGMENT BELOW SO THAT IT CAN BE CONSIDERED IN ITS ENTIRETY. RULING 2ND QUESTION WHETHER IN COMPUTING THE CAPITAL GAINS, DEDUCTION I S ADMISSIBLE UNDER SECTION 48 OF THE IT ACT ON ACCOUNT OF LEGAL EXPENS ES INCURRED IN RELATION TO TRANSFER OF SHARES ? 11. AS REGARDS THE SECOND QUESTION, IT HAS BEEN CON TENDED BY THE APPLICANTS REPRESENTATIVE THAT LEGAL EXPENSES BEFO RE THE CLB HAS BEEN INCURRED TO THE TUNE OF RS. 89,02,063 (APPROX.) AND THE SAID EXPENDITURE IS IN CORRECTION WITH THE TRANSFER OF SHARES. THE APPLICA NT HAS CLAIMED THE DEDUCTION OF THESE LEGAL EXPENSES UNDER THE 1ST CLA USE OF SECTION 48 OF THE ACT. 12. THE APPLICANT HAS GIVEN THE DETAILS OF LEGAL PR OCEEDINGS THAT PRECEDED THE TRANSFER OF SHARES STARTING FROM THE FILING OF COMPANY PETITION NOS. 19/2007 AND 133 OF 2007 BY THE INDIAN PROMOTERS AND BY THE APPLICANT RESPECTIVELY BEFORE THE COMPANY LAW BOARD (CLB). TH ESE COMPANIES PETITIONS WERE FILED UNDER SECTIONS 397 AND 398 OF THE COMPANIES ACT FOR RELIEF AGAINST OPPRESSION OF MINORITY SHAREHOLDERS AND MISMANAGEMENT OF THE COMPANY. ULTIMATELY, AS STATED, THE PARTIES SETTLED THE DISPUTES AND ARRIVED AT A SETTLEMENT. THE MEMORANDUM OF SETTLEMENT WAS SIGN ED ON 6-5-2008. ACCORDING TO THE TERMS OF THE SETTLEMENT, THE INDIA N PROMOTERS OF INDIAN COMPANY AND/OR NOMINEES OF PROMOTER NO. 1 IN C.P. 1 33/2007 AGREED TO PURCHASE 25 LAKH SHARES OWNED BY THE APPLICANT @ RS . 65 EACH. BESIDES, THE PARTIES AGREED TO THE RETENTION OF REMAINING SHARES OF 4.95 LAKHS BY THE APPLICANT. THE CLB, THEREAFTER, PASSED AN ORDER ON 9-5-2008 TO GIVE EFFECT TO THE TERMS OF SETTLEMENT. AFTER NARRATING THESE FACT S, THE APPLICANT STATED AS FOLLOWS: THAT THE APPLICANT TILL DATE DURING THE ENTIRE PRO CESS OF SETTLEMENT CULMINATING INTO PROPOSED TRANSFER OF SHARES OF THE INDIAN COMPANY BORNE LEGAL EXPENSES TO THE TUNE OF EUROS 1,49,445 (EQUIV ALENT TO RS. 8,902,063). THE APPLICANT HAS NOT FURNISHED ANY BREAK UP OF THE SAID FIGURE OR THE DETAILS PERTAINING TO THE EXPENSES. THE APPLICANTS COUNSEL HAS RELIED ON THE DECISION OF KERALA HIGH COURT IN V.A. VASUMATHI V. CIT (1980) 123 ITR 94 WHEREIN THE EXPENDITURE INCURRED FOR THE PURPOSE OF LITIGATION IN THE CIVIL COURT, PURSUANT TO A REFERENCE UNDER SECTION 20 OF THE LAND ACQUISITION ACT, WAS ALLOWED AS DEDUCTION UNDER SECTION 48(I). 13. IN ORDER TO APPRECIATE THE ABOVE ISSUE, IT IS D ESIRABLE TO REFER TO THE PROVISIONS OF SECTION 48 OF THE ACT WHICH READ AS U NDER: ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 71 MODE OF COMPUTATIONTHE INCOME CHARGEABLE UNDER TH E HEAD CAPITAL GAINS SHALL BE COMPUTED, BY DEDUCTING FROM THE FUL L VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSETS THE FOLLOWING AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST O F ANY IMPROVEMENT THERETO; 14. THE ABOVE SECTION BROADLY CONTEMPLATES THREE AM OUNTS FOR THE PURPOSE OF COMPUTING INCOME CHARGEABLE UNDER THE HE AD CAPITAL GAINS. THE FIRST IS THE FULL VALUE OF THE CONSIDERATION FOR WH ICH THE CAPITAL ASSETS HAS BEEN TRANSFERRED. THE SECOND IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND THE THIRD AND THE LAST IS THE COST OF ACQUISITION OF THE CAPITAL ASSET INCLUDING THE COST OF ANY IMPROVEMENT THERETO. IN CLAUSE(I) OF SECTION 48 OF THE ACT, THE LEGISLAT URE HAS USED THE EXPRESSION EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CON NECTION WITH SUCH TRANSFER. THE EXPRESSION PRESUPPOSES (A) THERE SHOULD BE AN EXPENDITURE (B) THE SAID EXPENDITURE SHOULD BE IN CONNECTION WI TH THE TRANSFER OF THE CAPITAL ASSET AND (C) IT SHOULD BE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE SAID TRANSFER. IN REGARD TO THE EXPRESSION WHOLLY AND EXCLUSIVELY EMPLOYED IN SECTION 37(1) OF THE ACT, THE FOLLOWING COMMENTARY FROM SAM PATH IYENGARS LAW OF INCOME TAX (EDITED BY SHRI RAJARATNAM 10TH EDITION) IS WORTH QUOTING:- THE FIRST ADVERB WHOLLY IN THE ABOVE PHRASE, L AID OUT OR EXPENDED, WHOLLY AND EXCLUSIVELY, REFERS TO THE QUANTUM OF T HE EXPENDITURE, THE SUM OF MONEY SPENT. THE SECOND ADVERB EXCLUSIVELY, HAS R EFERENCE TO THE MOTIVE OR OBJECT BEHIND THE EXPENDITURE. UNLESS SUCH MOTIVE O R OBJECT IS EXCLUSIVELY, I.E., SOLELY, FOR PROMOTING THE BUSINESS, THE EXPENDITURE WILL NOT QUALIFY FOR DEDUCTION. WHILE INTERPRETING SECTION 48(I) OF THE ACT, DELHI HIGH COURT IN THE CASE OF SMT SITA NANDA V. CIT (2001) 251 ITR 575, OBSERV ED AS UNDER:- . . .THE CRUCIAL WORDS IN THE PROVISIONS ARE IN C ONNECTION WITH SUCH TRANSFER. THE EXPRESSION MEANS INTRINSICALLY LINKE D WITH THE TRANSFER. SUCH EXPENDITURE HAS TO BE WHOLLY AND EXCLUSIVELY IN CON NECTION WITH THE TRANSFER. EVEN IF SUCH EXPENDITURE HAS SOME NEXUS WITH THE TR ANSFER IT DOES NOT QUALIFY FOR DEDUCTION UNLESS IT IS WHOLLY AND EXCLUSIVELY I N CONNECTION WITH THE TRANSFER . . . . SIMILARLY, THE FOLLOWING OBSERVATION OF MYSORE HIGH COURT IN THE CASE OF B.N. PINTO V. CIT (1974) 96 ITR 306 CAN BE USEFULLY RECALLED:- ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 72 WHAT CAN BE DEDUCTED UNDER SECTION 48(I) IS EXPEN SES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. TH E DAMAGES FOR MENTAL WORRY AND SUFFERING ON ACCOUNT OF WRONGFUL WITHHOLDING AN D DETENTION OF HER PROPERTY CANNOT, BY ANY STRETCH OF IMAGINATION, BE SAID TO BE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. THE CLAIM IN RESPECT OF LAWYERS FEES IS ALSO INDEFINITE AND VAG UE AND IS NOT SPECIFIC THAT IT WAS IN CONNECTION WITH THE TRANSFER, LIKE, FOR EXAM PLE, DRAFTING OF THE DEED OR SUCH PURPOSES INTIMATELY CONNECTED WITH THE TRANSFE R. SIMILARLY, REGARDING THE TRAVELING EXPENSES, IT IS NOT SPECIFIC THAT IT WAS IN CONNECTION WITH THE TRANSFER. 15. IN THE LIGHT OF THE ABOVE EXPOSITION OF LAW, IT IS CLEAR THAT THE LEGAL EXPENSES DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES IS ADMISSIBLE FOR DEDUCTION UNDER SECTION 48(I) OF THE ACT. THE SOLE OBJECT OF THE EXPENDITURE INCURRED TOWARDS LEGAL FE ES SHOULD BE IN CONNECTION WITH THE TRANSFER OF SHARES. LEGAL FEES FOR SEEKING ADVICE ON THE MODALITIES OF TRANSFER AND THE DRAFTING OF AGREEMENT OR DEED OF T RANSFER WOULD UNDOUBTEDLY QUALIFY FOR DEDUCTION. IT MUST ALSO BE NOTED THAT T HE EXPRESSION IN CONNECTION WITH SUCH TRANSFER IS WIDER AND MORE LIBERAL IN ME ANING THAN THE PHRASEOLOGY FOR THE TRANSFER. (REF: CIT V. SHAKUNTALA (1991) 190 ITR 56, 59, BOMBAY HIGH COURT). BY REASON OF EMPLOYING SUCH A WIDE EXP RESSION I.E., IN CONNECTION WITH ,SOMETHING MORE THAN WHAT IS ATTRI BUTABLE TO THE FINAL ACT OF TRANSFER OF SHARES IS ALSO ADMISSIBLE FOR DEDUCTION PROVIDED THE INTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE ACT OF T RANSFERRING SHARES IS ESTABLISHED. FOR INSTANCE, IF THE SERVICES OF LEGAL OR OTHER PROFESSIONAL EXTENDED TO THE PROCESS OF VALUATION OF SHARES OR T HE PARTICIPATION IN THE DELIBERATIONS THAT LED TO THE SETTLEMENT CONCERNING THE TRANSFER OF SHARES, THE LEGAL CHARGES ON THAT ACCOUNT WILL ALSO BE ALLOWABL E AS DEDUCTION. WE DO NOT THINK, HOWEVER, THAT THE LEGAL FEES ETC. PAID TO TH E LAWYERS FOR FILING THE PETITIONS UNDER SECTIONS 397 AND 398 IN THE COMPANY LAW BOARD AND FOR MAKING APPEARANCE BEFORE THE BOARD PRIOR TO THE PAS SING OF FINAL ORDER GIVING GREEN SIGNAL FOR THE TRANSFER OF SHARES ARE ADMISSI BLE FOR DEDUCTION. IN OTHER WORDS, THE LEGAL EXPENSES FOR THE INITIAL PERIOD OF DISPUTE ARE NOT INTRINSICALLY LINKED WITH THE TRANSFER OF SHARES AND THEREFORE IT CANNOT BE ALLOWED AS DEDUCTION. ___________________________________________________ __________ NOW, A BRIEF DESCRIPTION OF FACTS OF THE CASE ARE I N ORDER. THE ASSESSEE WENT TO CLB FOR ACQUIRING THE SHARES O F MAHESWARI GROUP AND EVEN SUCCEEDED IN GETTING A JUDGEMENT FROM CLB IN H IS FAVOUR. CLB ASKED MAHESHWARI GROUP TO QUOTE A PRICE FOR 65% OF SHARES HELD BY THEM WHICH CAME TO AROUND RS. 252 CRORES. FOR COMPLETING THE TAKEOVER THE ASSESSEE ENGAGED CH URU TRADING CO. FOR ARRANGING THE FINANCES AND OTHER CONSULTANCY WORK. CHURU TRADING CO. IN TURN ENGAGED MEDIA WEST AND OTHER MERCHANT BANKERS AND R AISED RS. 12.5 CRORES. THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 73 ASSESSEE WAS ALSO IN TALK WITH ZEE GROUP, A BIG MED IA GROUP INTERESTED IN EXPANSION, SOLICITING HELP IN THE TAKE OVER. AS PER CLB GUIDELINES THE ASSESSEE HAD TO ARRANGE T HE FINANCES ON HIS OWN, IN WHICH HE FAILED, THEN HE WAS FORCED TO SELL THE SHA RES TO MAHESHWARI GROUP. SO, FROM THE DISCUSSION ABOVE, IT CAN BE SAID THAT THERE ARE THREE REQUIREMENTS FOR ALLOWABILITY OF EXPENDITURE U/S 48: (A) THERE SHOULD BE AN EXPENDITURE (B) THE SAID EXPENDITURE SHOULD BE IN CONNECTION W ITH THE TRANSFER OF THE CAPITAL ASSET AND (C) IT SHOULD BE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE SAID TRANSFER. REQUIREMENT MENTIONED IN POINT (A) ABOVE IS NOT UND ER CONTENTION IN THE PRESENT CASE. REQUIREMENT MENTIONED IN POINT (B) ABOVE I.E. THE CONNECTION IS TO BE EXAMINED. THE EXPENDITURE AFTER BEING PROVED IN CONNECTION HAS TO BE FURTHER CHECKED WHETHER IT IS WHOLLY AND EXCLUSIVELY FOR SUCH TRANSFER OR NOT. ONLY WHEN THESE THREE CRITERIA ARE SATISFIED IN SUCCESSION CAN THE EXPENDITURE BE ALLOWED. THIS EXAMINATION FOLLOWS BELOW:- 1. THE ASSESSEE APPROACHED THE CLB FOR THE EXPRESS PURPOSE OF RESOLVING THE DISPUTE AND PROTECTING HIS MINORITY SHAREHOLDER INT EREST AND ALSO FOR ACQUIRING THE SHARES OF MAHESHWARI GROUP. THERE IS NOTHING ON REC ORD AND NO EVIDENCE TO SUGGEST THAT THE ASSESSEE WAS ACTUALLY TRYING TO SELL HIS S HARES. IN THE CASE OF COMPAGNIE FINANCIERE HAMON (2009) 177 TAXMAN 511 (AAR NEW D ELHI) AS DISCUSSED ABOVE, THE EXPENSES RELATING TO FILING THE APPEAL U/S 397 & 39 8 WITH THE CLB WERE DISALLOWED AS IT WAS NOT DISALLOWED AS IT WAS NOT WHOLLY AND EXCL USIVELY LINKED WITH THE TRANSFER EVEN THOUGH THEY HAD A NEXUS WITH THE TRANSFER. THESE EX PENSES WERE HELD TO BE FOR PROTECTING MINORITY SHAREHOLDER INTEREST AND NOT FO R TRANSFER. SO, AS DISCUSSED ABOVE, MORE THAN A MERE NEXUS BUT INTRICATE LINK WITH TR ANSFER IS REQUIRED FOR ALLOWABILITY OF THE EXPENDITURE. 2. THE COMMENTERY FROM SAMPATH LYENGER AS DISCUSSED ABOVE SAYS THAT THE SECOND ADVERB EXCLUSIVELY, HAS REFERENCE TO THE M OTIVE OR OBJECT BEHIND THE EXPENDITURE. UNLESS SUCH MOTIVE OR OBJECT IS EXCLUS IVELY, I.E., SOLELY, FOR PROMOTING THE BUSINESS, THE EXPENDITURE WILL NOT QUALIFY FOR DEDU CTION. IN THIS CASE MOTIVE OR OBJECT, AS EVIDENCED BY THE PROCEEDINGS BEFORE THE CLB IS A CQUISITION OF SHARES AND NOT SELLING OF SHARES. ASSESSEES CONTENTION ABOUT A LARGER GAM E PLAN OF SELLING AT THIS STAGE IS BASED ON CONJECTURES AND SURMISES WITHOUT ANY PROOF . 3. THE EXPENDITURE PAID BY THE ASSESSEE TO CHURU TR ADING CO. INCLUDES INTEREST EXPENSES INCURRED TO MEDIA WEST AND OTHER MERCHANT BANKERS FOR RAISING A WAR CHEST OF RS. 12.5 CRORES FOR ACQUISITION OF SHARES. THIS INTEREST EXPENDITURE BY ANY STRETCH OF IMAGINATION CANNOT BE JUDGED FOR SELLING THE SHARES . 4. SO, FOR ALLOWABILITY OF EXPENDITURE IN CONNECTIO N WITH TRANSFER U/S 48 NEXUS OF THAT EXPENDITURE WITH THE TRANSFER IS NECESSARY BUT NOT SUFFICIENT. IN THE PRESENT CASE SUCH VAGUE NEXUS MAY NOT BE DOUBTED BUT REQUIREMENT S FOR ALLOWABILITY U/S 48 AND AS ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 74 PER VARIOUS CASE LAWS ARE NOT SATISFIED AS PER DISC USSION ABOVE. SO, THE A.O. IS CORRECT IN DISALLOWING SUCH EXPENDITURE. 10. IN RESPONSE TO THE ABOVE REMAND REPORT, A REJOI NDER WAS FILED BY THE LD. AR VIDE LETTER DATED 29.03.2011 AND THE SAME IS REPRODUCED AS UNDER: WITH REFERENCE TO YOUR HONOURS LETTER DATED 25. 03.2011 ALONG WITH THE REMAND REPORT OF THE LEARNED ASSESSI NG OFFICER, IT IS RESPECTFULLY SUBMITTED AS UNDER. THE LEARNED ASSESSING OFFICER HAS PLACED HIS RELIAN CE ON THE DECISION OF THE AAR IN THE CASE OF COMPAGNIE FINACIERE HAMON (2009) 310 ITR 1 (AAR) AND OBSERVED THAT THE EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE TRANSFER OF THE SHARES ON ACCOUNT OF THE FOLLOWING REASONS. 1. THE ASSESSEE HAD APPROACHED THE CLB WITH THE EXP RESS PURPOSE OF RESOLVING THE DISPUTE AND PROTECT HIS MI NORITY SHAREHOLDER INTEREST AND ALSO FOR ACQUIRING THE SHA RES OF MAEHSHWARI GROUP. THERE IS NOTHING ON RECORD TO SUG GEST THAT THE ASSESSEE WAS ACTUALLY TRYING TO SELL HIS SHARES. 2. MORE THAN MERE NEXUS BUT INTRICATE LINK WITH TRA NSFER IS REQUIRED FOR ALLOWABILITY OF THE EXPENDITURE. 3. ASSESSEES CONTENTION ABOUT A LARGER GAME PLAN O F SELLING IS BASED ON CONJECTURES AND SURMISES WITHOUT ANY PROOF . 4. THE EXPENDITURE PAID BY THE ASSESSEE TO CHURU TR ADING CO. INCLUDES INTEREST EXPENSES INCURRED TO MEDIA WEST A ND OTHER MERCHANT BANKERS FOR RAISING A WAR CHEST OF RS. 12. 5 CRORES FOR ACQUISITION OF SHARES. THIS INTEREST EXPENDITURE BY ANY STRETCH OF IMAGINATION CANNOT BE JUDGED FOR SELLING THE SHARES THE PARA WISE COMMENT ON THE ABOVE OBSERVATIONS IS AS UNDER: 1. THAT THERE IS NO ADMIT OF DOUBT AS TO THE MINORI TY SHAREHOLDING OF THE ASSESSEE AND THE FACT THAT IN T HE YEAR 2004 A SETTLEMENT FOR THE MOU WAS DRAWN BETWEEN THE AGARWA L AND THE MAHESHWARI GROUP BY WHICH DIVISION OF THE VARIOUS P UBLICATION UNITS WAS MADE ON THE INSISTENCE OF THE LATTER. BOT H THE COMPANIES WERE CLOSELY HELD UNLISTED COMPANIES CONVERTED FROM PARTNERSHIP FIRM IN EXISTENCE SINCE 1962 AND HENCE IT WAS STRAT EGIZED TO SEEK THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 75 CLB ROUTE FOR THE MAXIMUM REALISATION OF THE PRICE. BUT AGARWAL GROUP ALREADY HAVING A PAST EXPERIENCE OF BACKTRACK BY THE MAHESHWARI GROUP HAD TO BE CAUTIOUS IN ITS MOVES EV EN IN THE PETITION UNDER SECTION 397 AND 398 OF THE COMPANIES ACT61 AS THAT WAS THE ONLY MODE BY WHICH THE MINORITY COULD APPRO ACH THE CLB AND PROTECT ITS INTEREST AND RIGHTS. YOUR HONOURS KIND ATTENTION IS INVITED TO PARA 1(A) OF THE MAIN PRAYER MADE IN THE PETITION FILED BY THE AGARWAL GROUP BEFORE THE HONBLE COMPANY LAW BO ARD WHICH READS AS UNDER. DIRECTING THE RESPONDENTS TO ACT UPON THE SET TLEMENT ARRIVED AT BETWEEN THE PARTIES ON 2.12.2004, AS PAR TICULARLY MENTIONED IN PARA 8.13 TO 8.18 ABOVE. THUS THERE WAS ALWAYS AN INTENTION OF THE AGAR WAL GROUP TO GO OUT OF THE COMPANY BY TAKING THE VARIOUS PUBL ICATIONS UNITS AS WAS DECIDED IN THE MOU FOR SETTLEMENT. FURTHER THE PERUSAL OF THE PARA 21 OF THE ORDER OF THE CLB DATED 10.07.2006 WI LL REVEAL THAT EVEN THE CLB WAS ALWAYS OF THE VIEW THAT ONE OF THE GROUP HAD TO GO OUT OF THE COMPANY. AS ALREADY SUBMITTED BEFORE THAT THE ACT TO ACQUIRE WAS MERELY TO FREEZE A VALUATION OF THE SHA RE HOLDING OF THE MINORITY. THE LEARNED ASSESSING OFFICER HAS NOT COMMENTE D AND CONTROVERTED ON THE FOLLOWING ACTIONS OF THE AGARWA L GROUP ESTABLISHING THE STRATEGY TO OBTAIN ENHANCED VALUAT ION OF THE SHARES HOLDING OF THE MINORITY SHAREHOLDERS WHICH ARE ENUM ERATED AS UNDER. PETITION WAS FILED BY AGARWAL GROUP BEFORE THE HON BLE CLB SINCE THEY WERE MINORITY SHAREHOLDER KNOWINGLY THAT BENCH NORMALLY PROTECTS THE INTEREST OF MINORITY. SINCE MAHESHWARI GROUP WHICH ON THEIR INSISTENCE HA D SOUGHT DIVISION OF THE BUSINESS BETWEEN THEM AND AG ARWAL GROUP, HAD BACK TRACKED ON THE MOU DRAWN BY THE AUDITOR SH RI MUKESH TANDON IN 2004 AGARWAL GROUP WAS VERY CAREFUL IN PL ANNING THEIR STRATEGY BY SEEKING VALUATION OF THE COMPANIES TO B E QUOTED BY MAHESHWARI GROUP BEFORE THE CLB AND EXERCISING THE OPTION TO ACQUIRE THE COMPANIES. THIS PLANNING WAS MADE KEEPING IN MIND THE HABIT AN D INTENTION OF MAHESHWARI GROUP TO BACKTRACK BEFORE T HE CLB OF THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 76 VALUE MENTIONED BY THEM AND CREATED ACTIONS AND DRA MA TO ACQUIRE THE SHARES OF THE MAJORITY SHAREHOLDERS BY BRINGING M/S MEDIA WEST THROUGH THE HELP OF M/S CHURU TRADING AND OTHERS WH O HAD COMMITTED ARRANGEMENT OF RS. 252 CRORES AND EVEN GO T DEPOSITED AN AMOUNT OF RS. 12.50 CRORE IN THE ESCROW ACCOUNT. IT WAS KNOWN TO ALL THE PARTIES THAT AGARWAL GROUP NEVER HAD THE FINANCIAL CAPACITY TO ACQUIRE THE STAKE OF THE MAJORITY SHARE HOLDERS TO THE TUNE OF RS. 252 CRORES BUT STILL WAS STRATEGICALLY CREATING FEELERS IN THE MARKET THAT THEY WOULD ACQU IRE THE COMPANY WHICH WAS BEING DONE MERELY TO FREEZE THE VALUATION OF THE COMPANIES TO RS. 390 CRORES AS QUOTED BY MAHESHWARI GROUP. AGARWAL GROUP DID NOT DEPOSIT THEIR SHARE CERTIFICA TES WITH STATE BANK OF PATIALA, SHASTRI BHAWAN AS WAS DONE B Y MAHESHWARI GROUP, EVIDENT FROM ORDER OF CLB DATED 04.04.2006 AGARWAL GROUP STRATEGICALLY COMPELLED MAHESHWARI GR OUP TO FILE A FRESH APPLICATIONS PETITION BEFORE THE CL B TO SET THE BALL ROLLING TO DIRECT CLB TO MAKE MAHESHWARI GROUP TO T AKE OVER THE SHARES OF THE MINORITY AS PER THE ORDER DATED 10.07 .2006 THEREBY REVERSING ITS EARLIER DATED 25.01.2006 BUT INVOKING SIMILAR CONDITIONS OF FUNDING SUCH PAYOUT AS WERE PUT IN TH E ORIGINAL ORDER OF CLB DATED 25.01.2006 . AFTER THE RECEIPT OF THE AFORESAID ORDER AGARWAL GR OUP COULD FILE APPEAL BEFORE THE HIGH COURT BUT CHOSE N OT TO DO THE SAME SINCE THEIR PURPOSE HAD BEEN SOLVED BY BRINGING AN ENHANCED VALUATION TO THEIR SHAREHOLDINGS. FURTHER AGARWAL GROUP DID NOT INSIST IN PURSUING IN ANY LITIGATION WITH MAHESHWARI GROUP TO ENSURE THAT THE TERMS OF THE CONDITIONS OF FUNDING AS WERE ORIGINALLY PLACED ON THEM ABOUT THE PAYOUT WHICH WERE SAME FOR THE MAHESHWARI GROUP HAD BEEN VIOLATED OR NOT. THIS GOES FURTHER TO PROVE AND EST ABLISH THE POINT THAT AGARWAL GROUP ALWAYS WANTED AN EXIT ROUTE AT A GOOD VALUE WHICH WAS ONLY ACHIEVED BY LITIGATING BEFORE CLB AN D STRAGICALLY PLANNING WITH THE HELP OF VARIOUS PARTIES TO WHOM P AYMENT WAS MADE ONLY AFTER THE RECEIPT OF THE CONSIDERATION. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 77 THUS IT IS AMPLY PROVED WITH REFERENCE TO THE STRAT EGY AND THE ORDERS OF THE CLB THAT THE ASSESSEE ALWAYS WANTED T O EXIT THE COMPANY BY GETTING A FAIR VALUE OF HIS SHAREHOLDING . 2. IT MUST ALSO BE NOTED THAT THE EXPRESSION IN CON NECTION WITH SUCH TRANSFER IS WIDER AND MORE LIBERAL IN MEANING THAN THE PHRASEOLOGY FOR THE TRANSFER (REF: CIT VS. SHAKUN TALA KANTILAL, 190 I.T.R. 56,59, BOMBAY HIGH COURT). BY REASON OF EMPLOYING SUCH A WIDE EXPRESSION I.E. IN CONNECTION WITH , SOMETHING MORE THAN WHAT IS ATTRIBUTABLE TO THE FINAL ACT OF TRANS FER OF SHARES IS ADMISSIBLE FOR DEDUCTION PROVIDED THE INTIMATE CONN ECTION BETWEEN THE EXPENDITURE AND THE ACT OF TRANSFERRING SHARES IN THE CASE OF THE ASSESSEE IS ESTABLISHED AND YET THE LEARNED ASSESSI NG OFFICER HAS ARBITRARILY OBSERVED THAT THERE IS NO INTRICATE LIN K. IN THE CASE OF THE ASSESSEE THE STRATEGY ADOPTED IS PROVED WITH REFERE NCE TO THE PROCEEDINGS BEFORE THE CLB AND THE FINAL ACT OF AGA RWAL GROUP THAT THEY SETTLED THE DISPUTE ONCE THEY WERE SURE OF THE REALISATION OF THE ENHANCED VALUE OF THEIR SHAREHOLDING. THE ENTIRE SE QUENCE OF THE EVENTS WHEN UNDERSTOOD CUMULATIVELY PROVES THAT ALL THE EXPENDITURE INCURRED IN INTIMATELY CONNECTED WITH THE TRANSFER OF THE SHARES. 3. THAT SEQUENCE OF THE EVENTS AS SUBMITTED IN PARA 1 ABOVE, ORDERS OF THE CLB, BILL OF M/S S.R. HALBE & ASSOCIA TES WHOSE EXPENDITURE HAS BEEN ACCEPTED AS DEDUCTIBLE UNDER S ECTION 48 WILL PROVE THAT A STRATEGY HAD BEEN ADOPTED AND NOT THAT A GAME PLAN WAS DEVISED ON MERE SURMISES AND CONJECTURES. 4. THAT THE PERUSAL OF THE AGREEMENT DATED 01.02.20 06 BETWEEN THE AGARWAL GROUP AND M/S CHURU TRADING COMPANY PVT . LTD WILL REVEAL THAT INITIALLY ALL INCLUSIVE ARRANGER FEES W AS AGREED AND THERE IS NO IOTA OF REFERENCE TO PAYMENT OF ANY INTEREST. THE DEPOSIT IN THE ESCROW ACCOUNT BY M/S MEDIA WEST WAS IN CONSONANCE TO THE ORDER OF THE CLB. THE PERUSAL OF THE MEMORANDUM OF UNDERS TANDING AGREEMENT BETWEEN THE AGARWAL GROUP AND M/S MEDIA W EST (WHICH HAS BEEN REPRODUCED IN THE ORDER OF THE CLB DATED 1 0.07.2006) WILL REVEAL THAT THEY WERE ENTITLED TO INTEREST ON CERTA IN CONDITIONS, HOWEVER AFTER THIS ORDER OF THE CLB WHEREIN DIRECTI ONS WERE ISSUED TO REFUND THE AMOUNT OF RS. 12.50 CRORES DEPOSITED IN THE ESCROW ACCOUNT THE BANK HAS PAID INTEREST TO THEM ON THE D EPOSIT MADE, NO INTEREST HAS BEEN PAID BY THE ASSESSEE. THIS FACT I S AMPLY PROVED ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 78 WITH REFERENCE TO THE ORDER OF THE CLB DATED 01.11. 2006 AND PARA 5 IS REPRODUCED AS UNDER. 5. ON AN EARLIER OCCASION, THE MONEY DEPOSITED IN THE ESCROW ACCOUNT BY THE PETITIONERS WAS DIRECTED TO BE PAID TO M/S MEDIAWEST PRIVATE LIMITED AND THE BANK HAD ISSUED TDS CERTIFI CATE AND THE BANK HAD ISSUED TDS CERTIFICATE IN THE NAME OF AMAR UJALA PUBLICATION LIMITED FOR THE INTEREST ACCRUED THEREO N. THE MANAGER, STATE BANK OF PATIALA IS DIRECTED TO ISSUE A FRESH TDS IN THE NAME OF THE MEDIAWEST PRIVATE LIMITED IN LIEU OF ONE ISSUED IN FAVOUR OF AMARUJALA PUBLICATION LIMITED AFTER OBSERVING THE NECESSARY FORMALITIES IN THIS REGARD. FURTHER THE LEARNED ASSESSING OFFICER HAS COMPLETEL Y IGNORED THE ALTERNATIVE SUBMISSIONS MADE BEFORE YOUR HONOUR THAT EVEN IF THE EXPENDITURE INCURRED WAS FOR THE ACQUISITION OF THE SHARES OF THE COMPANIES, WHICH IS A CAPITAL ASSET AND THE ACQUISI TION DOES NOT TAKE PLACE THE SAME WAS IN THE NATURE OF THE CAPITA L LOSS SINCE THE EXPENDITURE HAS BEEN ACTUALLY INCURRED BY THE ASSES SEE AND THE SAME IS LIABLE TO BE REDUCED FROM THE CAPITAL GAINS INCURRED IN THE SALE OF THE SHARES TO MAHESHWARI GROUP. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION MADE IS LIABLE TO BE DELETED. 11.1 AFTER CONSIDERING THE WRITTEN SUBMISSIONS OF T HE LD. AR AND REMAND REPORT AS WELL AS REJOINDER OF THE LD. AR, A JOINT HEARING OF THE LD. AR AND THE AO WAS HELD ON 29.03.2011 AND 31.03.2011 TO DISCUSS ABOUT THE ALLOWABILITY OF VARIOUS EXPENSES CLAIMED BY THE APPELLANT AS DED UCTION U/S 48(I) WHILE COMPUTING THE LTCG BUT ALLOWED BY THE AO ONLY PARTL Y AS DISCUSSED IN PARA 7. OF THIS ORDER. IN THIS HEARING AS ARGUED BY THE AO, THE PAYMENT MADE TO M/S CHURU TRADING CO. AND OTHER CONSULTANTS WAS CONTEND ED BY HIM TO HAVE BEEN PAID FOR ACQUIRING 64.67% SHARE HOLDING OF AMAR UJA LA GROUP AND AS PER HIM THIS PAYMENT CANNOT BE ALLOWED AS DEDUCTION U/S 48(I) FOR COMPUTING CAPITAL GAIN ON SALE OF REMAINING 35.33% SHARES. HO WEVER, THE LD. AR CONTENDED THAT THE AGARWAL GROUP WENT TO CLB AS A P ART OF STRATEGY TO FIRST SHOW THAT THEY ARE INTERESTED IN BUYING MAJORITY SH AREHOLDING OF MAHESHWARI GROUP TO GET THE VALUE OF SHARES ENHANCED AND LATER SINCE THEY WERE NOT HAVING SUFFICIENT FUND, THEY DECIDED TO EXIT BY SEL LING THE SHARES IN THEIR POSSESSION IN WHICH THEY ULTIMATELY SUCCEEDED AND H ENCE PAYMENT TO M/S ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 79 CHURU TRADING CO. AND OTHER CONSULTANTS BEING PART OF THIS STRATEGY TO GET THE VALUE OF SHARES ENHANCED AND FIXED BEFORE SELLING O F THESE SHARES, THESE EXPENSES SHOULD BE ALLOWED U/S 48(I) FOR COMPUTING THE LTCG. HE FURTHER ARGUED THAT THERE IS MENTION OF STRATEGY FORMULATIO N IN THE BILL OF M/S S.R. HALBE & ASSOCIATES FOR PROTECTING THE INTEREST OF M INORITY SHAREHOLDERS FOR WHICH SHRI HALBE PROVIDED NECESSARY ASSISTANCE TO T HE AGARWAL GROUP TO FILE PETITION TO CLB. FOR THESE SERVICES, RS. 2,24,24000 /- WAS PAID TO SHRI HALBE. HE CONTENDED THAT IF PAYMENT TO SHRI HALBE IS ACCEP TED BY THE AO IN THE ASSESSMENT ORDER, THE STRATEGY AS MENTIONED IN THE BILL AND AS EXPLAINED BY HIM IN HIS PREVIOUS SUBMISSIONS (AS DISCUSSED IN PA RA 8.2 AND 8.4) SHOULD ALSO BE ACCEPTED. IN THE REMAND REPORT OF THE AO, REGARDING PAYMENT MADE TO M/S CHURU TRADING CO., IT HAS BEEN REPORTED THAT IT INC LUDES INTEREST EXPENSES INCURRED TO M/S MEDIA WEST AND OTHER MERCHANT BANKE RS FOR RAISING A WAR CHEST OF RS. 12.5 CRORE FOR ACQUISITION OF SHARES. DURING DISCUSSION, THE AO ADMITTED THAT THERE IS NO DOCUMENTARY EVIDENCE TO S HOW THAT THIS PAYMENT INCLUDES INTEREST PAID TO M/S MEDIA WEST BUT HE CON TENDED THAT FOR ARRANGING CERTAIN FUNDS FROM M/S MEDIA WEST, AS PER BUSINESS PRACTICE, CERTAIN INTEREST SHOULD HAVE BEEN PAID TO M/S MEDIA WEST AND SINCE M /S CHURU TRADING CO. ARRANGED FUND FROM M/S MEDIA WEST, THE APPELLANT SH OULD HAVE PAID INTEREST TO M/S MEDIA WEST THROUGH M/S CHURU TRADING CO. AND THEREFORE IN VIEW OF THE PRESENT AO, THE AMOUNT PAID TO M/S CHURU TRADIN G CO. SHOULD INCLUDE THE INTEREST PAYABLE TO M/S MEDIA WEST AND THE SAME SHO ULD BE CALCULATED AT THE RATE PREVAILING IN THE MARKET AT THAT TIME. HOWEVER , HE COULD NOT QUANTIFY THE AMOUNT OF ALLEGED INTEREST AMOUNT INCLUDED IN THE P AYMENT MADE TO M/S CHURU TRADING CO. SUPPORTED BY ANY DOCUMENTARY EVID ENCE. IN THE AGREEMENT WITH M/S MEDIA WEST, THE RATE OF INTEREST IS MENTIO NED AS 15%. IF THIS INTEREST RATE IS APPLIED, THE AMOUNT OF INTEREST ON THE FUND OF RS.12.5 CRORE ARRANGED THROUGH M/S CHURU TRADING CO. FROM M/S MEDIA WEST F OR ABOUT 6 MONTHS [FROM FEB 06(WHEN THE AMOUNT WAS DEPOSITED IN ESCRO W ACCOUNT) TO JULY 06 (WHEN THE ORDER OF CLB WAS PASSED CANCELLING THE OR DER FOR PURCHASE OF SHARES BY THE AGARWAL GROUP AND RELEASING THE AMOUN T FROM ESCROW ACCOUNT)] WOULD COME TO ABOUT RS. 93.75 LAC ( 12.5X 0.15X 6/12) ONLY AS AGAINST THE TOTAL AMOUNT OF RS. 8.5 CRORE PAID TO M /S CHURU TRADING CO. AS AGAINST THE CONTENTION OF THE AO THAT THE PAYMENT T O M/S CHURU TRADING CO. INCLUDES INTEREST PAYMENT ON ARRANGING THE FUND, TH E LD. AR ARGUED THAT THERE WAS SEPARATE AGREEMENT WITH M/S MEDIA WEST AND M/S CHURU TRADING CO. AS PER THE AGREEMENT WITH M/S CHURU TRADING CO., ONLY ARRANGER FEES OF RS. 8.5 CRORE WAS TO BE PAID BY THE AGARWAL GROUP WHICH WAS SUBSEQUENTLY PAID ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 80 AFTER SHARES WERE FINALLY SOLD AND IT DOES NOT INCL UDE ANY INTEREST PAYMENT, IF ANY PAYABLE TO M/S MEDIA WEST. AS PER THE AGREEMENT WITH THE MEDIA WEST, INTEREST WAS REQUIRED TO BE PAID @ 15% ALONG WITH L OAN WITHIN SIX MONTHS OF ACQUISITION OF SHARES OF 64.67% OF AMAR UJALA GROUP . IT WAS CONTENDED BY HIM THAT SINCE SHARES WERE NOT ACQUIRED, NO INTERES T WAS PAID TO MEDIA WEST AND SINCE THE AMOUNT WAS LYING IN ESCROW ACCOUNT, I NTEREST WAS PAID BY THE BANK. DURING DISCUSSION ONE ALTERNATE PLEA WAS TAKEN BY THE LD. AR WITHOUT PREJUDICE TO HIS EARLIER SUBMISSION THAT DEDUCTION U/S 48(I) SHOULD BE PROVIDED FOR PAYMENT TO M/S CHURU TRADING AND OTHER CONSULTANT. AS PER THE ALTERNATIVE PLEA, HE CONTENDED THAT PAYMENT TO M/S CHURU TRADING CO. AND OTHER CONSULTANT IS NOT DISPUTED AND SINCE THE PAYM ENT HAS BEEN MADE AND SHARES HAVE NOT BEEN ACQUIRED, IT RESULTED INTO LOS S TO THE APPELLANT AND SUCH LOSS SHOULD BE ALLOWED AS SHORT TERM CAPITAL LOSS. HOWEVER, THE AO CONTENDED THAT SINCE PAYMENT WAS MADE FOR ACQUIRING 64.67% SH ARES AND NO TRANSFER OF SHARES HAS TAKEN PLACE, NO CAPITAL LOSS WOULD ARISE AS PER SECTION 45 BECAUSE NO TRANSFER OF SHARES IN THIS REGARD HAS TAKEN PLAC E AS PROVIDED IN THE SAID SECTION. I AGREE WITH THE AO AND IN MY OPINION ALSO , SUCH EXPENSES CANNOT BE ALLOWED AS SHORT TERM CAPITAL LOSS. 11.2 AFTER THE DISCUSSION ON 29.03.2011, THE LD. AR FURTHER FILED A WRITTEN SUBMISSION ON 31.03.2011 CLARIFYING THAT THERE WAS RESTRICTIVE CLAUSE IN THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF BOTH COMPA NIES BECAUSE OF THAT THEY COULD NOT HAVE SOLD THE SHARES. THEREFORE, AS A PART OF STRATEGY, THE AGARWAL GROUP BID FOR THE ACQUISITION OF THE SHAREH OLDING OF MAJORITY SHAREHOLDERS TO ENHANCE AND FIX THE VALUATION OF TH E SHARES AND ONCE THIS PURPOSE WAS ACHIEVED THEN THEY EXITED WITH THE VALU ATION DETERMINED. CITING THIS STRATEGY, HE AGAIN CONTENDED THAT THE EXPENSES INCURRED IN CONNECTION WITH SUCH PROCEEDINGS BEFORE CLB WAS IN CONNECTION WITH THE TRANSFER OF THE SHARES WHICH WAS THE RESULTANT TO THE STRATEGIC MOV EMENT OF THE AGARWAL GROUP. IN THIS SUBMISSION, IT WAS ALSO CONTENDED TH AT DUE TO MOVING TO CLB AND PASSING OF THE ORDER BY THE CLB, THE RESTRICTIV E CLAUSE AGAINST THE TRANSFER OF SHARES IN THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF BOTH COMPANIES GOT REMOVED AND SHARES WERE TRANSFERRED A ND RESULTED IN THE CAPITAL GAIN AND THEREFORE ALL THE EXPENSES INCURRE D ON LAWYERS AND PROFESSIONAL IN CONNECTION WITH THE PROCEEDING BEFO RE CLB WAS PLEADED TO BE ALLOWED. FOR A READY REFERENCE, THIS SUBMISSION OF THE LD. AR IS ALSO PRODUCED FOR READY REFERENCE:- ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 81 THAT IT HAS BEEN EXPLAINED THAT BOTH COMPANIES IN WHICH THE SHARE HOLDINGS OF THE AGARWAL GROUP WHICH HAVE BEEN TRANS FERRED AND THE INCOME THERE FROM HAS BEEN SHOWN UNDER THE HEAD LON G TERM CAPITAL GAINS WERE CLOSELY HELD UNLISTED COMPANIES CONVERTED FROM PARTNERSHIP FIRM. THE PERUSAL OF THE MEMORANDUM AND ARTICLES OF M/S A MARUJALA PUBLICATIONS LTD. WHICH WAS FILED ALONG WITH THE PE TITION UNDER SECTION 397 AND 398 OF THE COMPANIES ACT56 WILL RE VEAL THE THERE WERE RESTRICTIVE COVENANTS I.E., RESTRICTIONS IN TH E TRANSFER OF THE SHARES, AS ESTABLISHED WITH REFERENCE TO CLAUSE 49 OF THE ARTICLES IS REPRODUCED AS UNDER BOARD MAY REFUSE TO REGISTER TRANSFER SUBJECT TO THE PROVISIONS OF SECTION 111 OF THE ACT AND SECTION 22A OF THE SECURITIES (CONTRACTS) REGULATION ACT, 1 956 OR ANY STATUTORY MODIFICATION OR RE ENACTMENT THEREOF, THE BOARD OF DIRECTORS MAY REFUSE WHETHER IN PURSUANCE OF ANY PO WER OF THE COMPANY UNDER THE ARTICLES OR OTHERWISE TO REGISTER THE TRANSFER OF, OR TRANSMISSION BY OPERATION OF LAW OF THE RIGHT TO ANY SHARES OR INTEREST OF A MEMBER IN OR DEBENTURES OF THE COMPAN Y. THE COMPANY SHALL WITHIN TWO MONTHS FROM THE DATE ON WH ICH THE INSTRUMENT OF TRANSFER OR THE INTIMATION OF SUCH TR ANSMISSION, AS THE CASE MAY BE, WAS DELIVERED TO THE COMPANY, SEND NOTICE OF THE REFUSAL TO THE TRANSFEREE AND THE TRANSFER OR TO TH E PERSON GIVING INTIMATION OF SUCH TRANSMISSION, AS THE CASE MAY BE , GIVING REASONS FOR SUCH REFUSAL. PROVIDED THAT REGISTRATION OF A T RANSFER SHALL NOT BE REFUSED ON THE GROUND THAT THE TRANSFEROR BEING EIT HER ALONE OR JOINTLY WITH ANY OTHER PERSON OR PERSONS, INDEBTED TO THE COMPANY ON ANY ACCOUNT WHATSOEVER EXCEPT WHEN THE COMPANY H AS A LIEN ON SHARES. SIMILARLY IN THE CASE OF M/S A&M PUBLICATIONS PRIVA TE LIMITED, THE SAME BEING A PRIVATE LIMITED COMPANY THERE WERE RESTRICTIVE COVENANTS I.E., RESTRICTIONS ON TRANSFER OF SHARES. THUS IN CASE AGARWAL GROUP WANTED TO EXIT FROM THE COMPANY AT ANY POINT OF TIME AS EVEN EVIDENT FROM THE MOU DRAW N UP FOR SETTLEMENT IN THE YEAR 2004, THERE WERE RESTRICTIVE RIGHTS AND THE VALUATION OF THE SHARES WOULD HAVE BEEN NEGLIGIBLE. THUS BEING ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 82 MINORITY SHAREHOLDERS THEY WERE STRATEGICALLY ADVIS ED TO APPROACH CLB WHICH THEY COULD ONLY DO BY INVOKING SECTIONS 3 97 AND 398 OF THE COMPANIES ACT56. IT WAS A PART OF THIS STRATEG Y TO BID FOR THE SHAREHOLDING OF THE MAJORITY TO ENHANCE AND FIX THE VALUATION AND ONCE PURPOSE WAS SOLVE THEN EXIT WITH THE VALUATION . THUS EXPENSES HAVE BEEN IN CONNECTION WITH THE TRANSFER OF THE SH ARE WHICH WAS THE RESULTANT OF THE STRATEGIC MOVEMENT OF THE AGARWAL GROUP. IT WAS ONLY SUBSEQUENT TO THE ORDER OF THE CLB THAT THIS R ESTRICTIVE RIGHT GOT REMOVED AND THE SHARES WERE TRANSFERRED IN BOTH THE COMPANIES WHICH RESULTED IN THE CAPITAL GAIN WHICH HAS BEEN S HOWN AS INCOME OF THE ASSESSEE. WITH REGARDS OBSERVATIONS OF THE LEARNED ASSESSING OFFICER FOR THE ALTERNATE SUBMISSIONS OF THE ASSESSEE IT IS SUBMITT ED THAT THERE IS NO DOUBT THAT THE EXPENDITURE INCURRED ALTERNATIVELY C AN BE CONSIDERED ADMISSIBLE UNDER SECTION 57(III).THERE IS IN FACT N OTHING IN THE LANGUAGE OF SECTION 57(III) TO SUGGEST THAT THE PUR POSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCT ION OF THE LANGUAGE OF SECTION 57(III) IRRESISTIBLY LEADS TO T HE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSAR Y THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. HOWEVER THE CLAIM OF ASSESSEE IS THAT THE EXPENDITU RE INCURRED WAS IN CONNECTION WITH THE TRANSFER OF HIS SHARE HOLDIN G AND HAS A LIVE LINK BY BEING INTIMATELY CONNECTED WITH THE TRANSFE R OF THE SHARES IF THE ENTIRE SEQUENCE OF THE EVENTS AND THE STRATEGY TAKEN INTO CONSIDERATION. 11.3 THE ABOVE SUBMISSION OF THE LD. AR WAS CONSIDE RED IN THE HEARING HELD ON 31.03.2011 WITH THE LD. AR AS WELL AS THE A O. IN THE LIGHT OF ALL THE SUBMISSIONS MADE BY THE LD. AR SO FAR, IT WAS FINAL LY ARGUED BY THE LD. AR THAT THE AGARWAL GROUP WENT TO CLB UNDER A STRATEGY TO GET THE VALUE OF SHARES OF BOTH THE COMPANIES ENHANCED AND FREEZED F OR WHICH FIRST THEY SHOWED THAT THEY ARE INTERESTED IN BUYING THE SHARE S KNOWING VERY WELL THAT THEY HAD NO CAPACITY TO BUY THE SHARES HELD BY THE MAJORITY SHARE HOLDERS (64.67%) AND THEREFORE, THEY MADE SUCH FINANCIAL AR RANGEMENTS WHICH WAS IN CONTRAVENTION OF THE CONDITIONS FIXED BY CLB IN ITS ORDER DATED 25.01.2006 TO ARRANGE FINANCE IN WHICH M/S CHURU TRADING CO. HELP ED THEM THROUGH MEDIA WEST AND OTHER MERCHANT BANKERS. HE FURTHER ARGUED THAT BECAUSE OF THIS ARRANGEMENT, THE OTHER PARTY I.E. THE MAHESHWARI GR OUP GOT ALARMED AND ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 83 THEY FURTHER MOVED TO CLB TO RESTRAIN THE AGARWAL G ROUP TO BUY MAJORITY SHARE HOLDING AND EVEN AGREED TO PAY RS. 22 CRORE E XTRA AMOUNT OVER AND ABOVE THE 35.33% OF VALUATION OF SHARES OF RS. 390 CRORE WHICH COMES TO RS. 138 CRORE AND FINALLY IN VIEW OF THEIR STRATEGY AS EXPLAINED EARLIER, THE AGARWAL GROUP GOT RS. 160 CRORE BY SELLING THEIR 35 .33% OF SHARE HOLDING IN BOTH COMPANIES. THE LD. AR ARGUED THAT THE EXCESS R EALIZATION OF RS. 22 CRORE COULD BE MADE POSSIBLE PRIMARILY WITH THE INT ERVENTION OF THE ARRANGER I.E. M/S CHURU TRADING CO. HE ALSO ARGUED THAT THE MAHESHWARI GROUP AGREED TO PAY RS. 22 CRORE EXTRA SO THAT THE SHARES WHICH WERE PLEDGED AS SECURITY WITH M/S MEDIA WEST COULD BE LIFTED AND SH ARES ARE SOLD TO THE MAHESHWARI GROUP. FOR THIS PURPOSE THE ARRANGER M/S CHURU TRADING CO. DEMANDED FOR 50% OF THE EXTRA AMOUNT REALIZED BY TH E AGARWAL GROUP BUT ULTIMATELY AS PER THE INITIAL AGREEMENT ONLY RS. 8. 5 CRORE WAS PAID. IN VIEW OF THE ABOVE BACKGROUND OF THE FACTS OF THE CASE, THE LD. AR ARGUED THAT SINCE BECAUSE OF INTERVENTION OF M/S CHURU TRADING CO., T HE SHARE VALUE WAS FURTHER GOT ENHANCED BY RS. 22 CRORE, THE PAYMENT M ADE TO M/S CHURU TRADING CO. AMOUNTING TO RS. 8.5 CRORE SHOULD BE AL LOWED TO HAVE BEEN PAID FOR TRANSFER OF SHARES. THE AO ARGUED THAT CLB GAVE OPTION TO THE AGARWAL GROUP, EITHER TO BUY MAJORITY SHARES HOLDING (64.67%) OR SELL THEIR SHAR E HOLDING ( 35.33%) BUT THEY FIRST CHOOSE TO BUY MAJORITY SHARE HOLDING AND HENCE WHATEVER EXPENDITURE WAS INCURRED FOR ARRANGING THE FINANCE SHOULD NOT BE CONSIDERED TO HAVE BEEN INCURRED IN CONNECTION WITH THE TRANSF ER OF SHARES. THEREFORE IN VIEW OF THE AO, SINCE M/S CHURU TRADING CO. WAS ENG AGED TO ARRANGE THE FUND, PAYMENT MADE TO THEM ARE FOR ARRANGING THE FU ND AND NOT IN CONNECTION WITH THE TRANSFER OF SHARES AND HENCE PAYMENT OF RS . 8.5 CRORE MADE TO M/S CHURU TRADING CO. SHOULD NOT BE ALLOWED AS DEDUCTIO N U/S 48(I). THE AO ALSO POINTED OUT THAT THE INTENTION OF THE AGARWAL GROUP WAS INITIALLY NOT TO SELL THE SHARES, OTHERWISE THEY WOULD HAVE NOT PLEDGED T HE 35.33% OF THEIR SHARES HOLDING AS SECURITY FOR OBTAINING THE FUND. THEREFO RE IN HIS OPINION, INITIALLY THE INTENTION OF THE APPELLANT WAS TO BUY THE MAJOR ITY SHARE HOLDING AND HENCE THE EXPENDITURE INCURRED FOR ARRANGING THE FUND FOR BUYING THE MAJORITY SHARE HOLDING SHOULD NOT BE ALLOWED AND HENCE HE CONTENDE D THAT THE PAYMENT MADE TO M/S CHURU TRADING CO. AND OTHER CONSULTANTS FOR ARRANGING THE FUND AND PREPARATION OF CLB PETITION AND APPEARING BEFORE TH E CLB FOR ARGUING THE CASE OF THE APPELLANT SHOULD NOT BE ALLOWED U/S 48( I). 7. THE FINDING OF THE CIT(A) IS REPRODUCED AS UNDER :- (PARA 12.1. TO 16.3) ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 84 12.1 I HAVE CONSIDERED ALL THE FACTS OF THE CASE AS DISCUSSED IN THE ASSESSMENT ORDER AND AS PRESENTED BEFORE ME BY THE LD. AR THROUGH HIS VARIOUS SUBMISSIONS AND AS EMERGED DURING THE DISCU SSION WITH THE LD. AR AND THE AO DURING THE HEARING HELD ON 29.03.3011 AN D 31.03.2011 AND ALSO CONSIDERED THE ARGUMENTS TAKEN BY THE PRESENT AO IN HIS REMAND REPORT DATED 23.03.2011 AND FURTHER REJOINDER FILED BY THE LD. AR SO FAR DISCUSSED IN THE PREVIOUS PARAS. IN VIEW OF THE FACTS OF THE CASE DISCUSSED SO FAR, IT EMERGES THAT INITIALLY THE AGARWAL GROUP WENT TO CL B U/S 397 AND 398 FOR PROTECTION OF THE INTEREST OF MINORITY SHAREHOLDERS ON THE ADVICE OF SHRI H.R. HALBE BECAUSE THESE ARE THE SECTIONS AVAILABLE IN THE COMPANIES ACT UNDER WHICH THEY COULD HAVE GONE TO CLB FOR ITS INTERVEN TION AS THE EARLIER AGREEMENT ARRIVED AT BETWEEN THE MEMBERS OF AGARWAL FAMILY AND MAHESHWARI FAMILY FOR PARTITION OF FAMILY BUSINESS OF AMAR UJALA PUBLICATION BUSINESS WAS BACK TRACKED BY THE MAHESH WARI GROUP AND CONTROL OF AGARWAL GROUP WAS MARGINALIZED BY THE BO ARDS RESOLUTION PASSED BY THE COMPANY ON 07.03.2005 UNDER THE LEADE RSHIP OF MAHESHWARI GROUP AND ASHOK AGARWAL HOLDING MAJORITY SHAREHOLDI NG (64.67%) . AFTER GOING THROUGH THE PETITIONS FILED BY THE AGARWAL GR OUP BEFORE THE HONBLE CLB, CP NO. 26 OF 2005 AND CA NO. 75 OF 2005, IT IS QUITE CLEAR THAT THESE PETITIONS WERE FILED TO SEEK THE IMPLEMENTATION OF THE AGREEMENT ARRIVED AT WITH THE MAHESHWARI GROUP ON 02.12.2004 WHICH OTHER WISE WAS NOT POSSIBLE SINCE BOTH COMPANIES WERE CLOSELY HELD COM PANIES AND THEIR SHAREHOLDING WAS IN MINORITY TOO. IN THE ABOVE MENT IONED PETITIONS, THE AGARWAL GROUP MAINLY PRAYED FOR IMPLEMENTATION OF T HE SETTLEMENT ARRIVED AT BETWEEN THE FAMILIES OF BOTH GROUP VIDE AGREEMEN T DATED 02.12.2004 AND TO DECLARE THE VARIOUS RESOLUTION PASSED IN THE MEE TING OF THE BOARD OF DIRECTORS OF THE COMPANY ON 07.03.2005 AS ILLEGAL, NULL AND VOID INCLUDING THE APPOINTMENT OF SHRI MANU ANAND AS WHOLE TIME DI RECTOR. 12.2 AFTER VARIOUS ROUNDS OF HEARINGS HELD BEFORE T HE CLB, WHEN IT BECAME CLEAR THAT PARTITION OF AMAR UJALA PUBLICATION BUSI NESS BETWEEN BOTH GROUPS WAS NOT POSSIBLE , AN UNDERSTANDING WAS REAC HED BETWEEN BOTH GROUPS THAT BOTH COMPANIES SHOULD REMAIN WITH EITHE R OF TWO GROUPS AND WITH THIS UNDERSTANDING VALUE OF THE SHARES OF BOTH COMPANIES WAS DETERMINED BY THE MAHESHWARI GROUP AT RS 390 CRORE WITH VALUE OF SHARE HOLDING WITH THE MAHESHWARI GROUP AT RS. 252 CRORE (64.67%) AND WITH THE AGARWAL GROUP AT RS. 138 CRORE (35.33%). WITH SUCH SEQUENCE OF EVENTS, THERE APPEARS TO BE FORMULATION OF SOME STRATEGY AT THE PART OF AGARWAL GROUP ON THE ADVICE OF SHRI S.R. HALBE TO GO TO CLB ON THE PRETEXT OF PROTECTING THE MINORITY RIGHT U/S 397 AND 398 OF TH E COMPANIES ACT AND ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 85 CREATE SUCH ATMOSPHERE THAT ULTIMATELY VALUE OF COM PANY IS DETERMINED AT ITS MARKET VALUE AND THEN GIVING THEM AN OPPORTUNITY TO SELL THEIR SHARE HOLDING AT THE MARKET DETERMINED PRICE. SUCH STRATEGY AS FO RMULATED BY SHRI S. R. HALBE HAS EVEN BEEN RECOGNIZED BY THE AO IN THE ASS ESSMENT ORDER WHEREIN IN PARA 12.2 HE HAS HELD THAT THE PAYMENT OF RS. 2, 24,24,000/- TO HIM IS A LUMP-SUM PAYMENT FOR THE SERVICES RENDERED BY HIM A ND SINCE THERE IS NO ITEM-WISE BILLING FOR VARIOUS ACTIVITIES AND CONSID ERING THAT MAJOR PORTION OF FEES IS ATTRIBUTABLE TO THE PROCEEDINGS BEFORE CLB IN CONNECTION WITH TRANSFER OF SHARE, THE PAYMENT OF RS. 2,24,24,000/- IS ACCEPTED THAT IT HAS BEEN INCURRED IN CONNECTION WITH THE TRANSFER OF SH ARES. NATURE OF ALL THE SERVICES RENDERED BY SHRI S.R. HALBE IS DISCUSSED O N PAGE 38 OF THIS ORDER, WHICH CLEARLY TALK ABOUT THE FORMULATION OF STRATEG Y FOR PROTECTING THE INTEREST OF MINORITY SHAREHOLDERS. THEREFORE, I FIN D FORCE IN THE ARGUMENT OF THE LD. AR THAT IF PAYMENT TO SHRI HALBE IS ACCEPTE D BY THE AO IN THE ASSESSMENT ORDER, THE STRATEGY AS MENTIONED IN THE BILL AND AS EXPLAINED BY HIM IN HIS SUBMISSION AS DISCUSSED IN PARA 8.2 AND 8.4 SHOULD ALSO BE ACCEPTED. 12.3 THOUGH IN THE PETITION FILED BEFORE THE CLB, T HE MAIN PRAYER IS MADE ONLY WITH REGARD TO PARTITION OF FAMILY BUSINESS , HOWEVER WITH SUBSEQUENT SEQUENCE OF EVENTS AS DISCUSSED IN SUB-PARA 5.14 ON WARDS OF PARA 5 AND AS EXPLAINED BY THE LD. AR IN HIS WRITTEN SUBMISSION D ISCUSSED IN PARA 8.2 , IT IS QUITE APPARENT THAT WITH SUCH STRATEGY OF GOING TO CLB U/S 397 & 398 FOR PROTECTION OF INTEREST OF AGARWAL GROUP BEING MINOR ITY SHAREHOLDER, THEY SUCCEEDED IN GETTING THE MAHESHWARI GROUP AGREED DU RING THE COURSE OF HEARING BEFORE CLB ON 30.11.2005 THAT THE MAHESHWAR I GROUP WOULD INDICATE THE VALUE OF THE COMPANY SHARES WITH FIRST OPTION TO AGARWAL GROUP EITHER TO BUY THE SHARES HELD BY MAHESHWARI GROUP O R SELL THEIR SHARES ON THE BASIS OF THE VALUE OF THE SHARES DETERMINED BY THE MAHESHAWARI GROUP. DURING THE COURSE OF HEARING BEFORE CLB , THE MAHES HWARI GROUP INDICATED THE VALUE OF SHARES OF THE COMPANY AT RS. 390 CRORE DEVIDED BETWEEN THE SHARE HOLDING OF THE MAHESHWARI AND THE AGARWAL GRO UP AT RS. 252 CRORE AND RS. 138 CRORE RESPECTIVELY. LOOKING TO THE BACK GROUND OF THE CASE AS DISCUSSED IN PARA 5, I ALSO INTEND TO AGREE WITH TH E ARGUMENT OF THE LD. AR THAT WITH THEIR APPREHENSION THAT MAHESHWARI GROUP MAY AGAIN BACK TRACK AND DECIDE NOT TO BUY THE SHARES OF AGARWAL GROUP A T THE VALUE DETERMINED BEFORE THE CLB AFTER THE AGARWAL GROUP DECIDE TO SE LL THESE SHARES, THE AGARWAL GROUP INITIALLY DECIDED TO BUY THE SHARES H OLDING OF THE MAHESHWARI GROUP VALUED AT RS. 252 CRORE. THEREAFTE R, A CONSENT ORDER WAS PASSED BY THE CLB THROUGH ITS ORDER DATED 24.01.200 6 GIVING OPTION TO THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 86 AGARWAL GROUP TO BUY THE SHARES HELD BY MAHESHWARI GROUP AT RS. 252 CRORE AS IT WAS ELECTED BY THE AGARWAL GROUP. 12.4 SUBSEQUENT SEQUENCE OF EVENTS FURTHER JUSTIFIE S THE CLAIM OF THE LD. AR THAT KNOWING VERY WELL THAT THEY DO NOT HAVE CAPACI TY TO BUY THE MAJORITY SHARE HOLDING, IT WAS DECIDED AS PER THE STRATEGY T HAT THE AGARWAL GROUP WOULD FIRST ELECT TO BUY THE SHARE HOLDING OF THE M AJORITY GROUP TO GET THE VALUE OF SHARES FURTHER ENHANCED AND FIXED BEFORE S ELLING OF THEIR PART OF SHARES AND ULTIMATELY SUCCEEDED IN REALIZING RS. 22 CRORE MORE THAN THE VALUE OF THEIR SHARE HOLDING INITIALLY DETERMINED A T RS. 138 CRORE. THIS STRATEGY WAS EXPLAINED BY THE LD. AR THAT THE AGARW AL GROUP DID NOT HAVE FINANCIAL CAPACITY TO BUY THE SHARE HOLDINGS OF THE MAHESHWARI GROUP AND THEIR INTENTION WAS ALWAYS TO SELL THEIR SHAREHOLDI NGS AND THEY ALSO DID NOT TRUST THE MAHESHARI GROUP FOR SELLING SHARES TO THE M BECAUSE EARLIER AGREEMENT OF PARTITIONING OF FAMILY BUSINESS WAS BA CK TRACKED BY THEM AND THEREFORE, THEY ENTERED IN A STRATEGIC FINANCIAL AR RANGEMENT WITH ESSEL/ZEE GROUP THROUGH ITS FRONT COMPANY M/S MEDIA WEST BY W HICH IT WAS PLANNED TO GET THE FINANCE OF RS. 252 CRORE ARRANGED TO BUY THE COMPANY. THIS FINANCIAL ARRANGEMENT WAS MADE THROUGH M/S CHURU TR ADING CO. BUT SINCE THE INTENTION OF THE AGARWAL GROUP WAS NOT TO BUY A ND RUN THE COMPANY AND THEY ALWAYS WANTED TO SELL THEIR SHAREHOLDINGS, A M OU WAS DRAWN WITH M/S MEDIA WEST IN SUCH A WAY THAT A CLAUSE WAS PUT TO S ELL THE SHARE HOLDING TO THE LENDER OR ANY OTHER PRIVATE PARTY BY PRIVATE PL ACEMENT TO REPAY THE LOAN. IT WAS ALSO LATER NOTED BY THE HONBLE CLB THAT THE M/S MEDIA WEST DID NOT HAVE CAPACITY TO LEND SUCH HIGH AMOUNT OF FUND AND HENCE FUND WAS ULTIMATELY TO COME FROM ESSEL/ZEE GROUP THROUGH M/S MEDIA WEST WHICH HAS BEEN ACQUIRING NEWS PAPER COMPANIES FOR ESSEL/Z EE GROUP. HOWEVER, THIS FINANCIAL ARRANGEMENT IN WHICH SALE OF SHARES OF THE COMPANY WAS BUILT IN WAS NOT DISCLOSED TO THE CLB, THOUGH SUCH FINANC IAL ARRANGEMENT WAS MADE BEFORE THE CONSENT ORDER DATED 25.01.2006 WAS PASSED BY THE CLB. WITH SUCH BUILT-IN PROVISION IN THE MOU WITH M/S ME DIA WEST TO ULTIMATELY SELL THE SHARES OF THE COMPANY TO SOME OTHER PRIVAT E PARTY AND BRINGING IT TO THE KNOWLEDGE OF THE MAHESHWARI GROUP, THE AGARWAL GROUP AGAIN SUCCEEDED TO GET THE MAHESHWARI GROUP FILED A PETIT ION BEFORE THE CLB PRAYING THAT THE AGARWAL GROUP VIOLATED THE TERMS O F THE CONSENT ORDER DATED 25.01.2006 AND THEY SHOULD BE DIRECTED TO SEL L THEIR SHARES TO THEM AT THE VALUE DETERMINED BY THEM AT RS. 138 CRORE. ON T HIS PETITION, THE HONBLE CLB AGAIN PASSED A DETAILED ORDER DATED 10.07.2006 (ALREADY DISCUSSED IN THE SUBMISSION FILED BY THE LD. AR AS REPRODUCED IN PARA NO.8.2) CLEARLY OBSERVING AS UNDER: ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 87 17. IN TERMS OF THE MOU, MEDIA WEST IS TO FUND THE PETITIONERS TO THE TUNE OF RS. 101 CRORES AND THE BALANCE SUM OF R S. 151 CRORES IS TO BE FUNDED BY THE MERCHANT BANKERS. IN ALL, THE AMOU NT INVOLVED IN ACQUISITION OF THE SHARES OF THE RESPONDENTS IS ABO UT RS. 252 CRORES AND THE PETITIONERS ARE BORROWING THE ENTIRE AMOUNT . THE ADMITTED POSITION IS THAT MEDIA WEST IS A GROUP COMPANY OF E SSEL GROUP. MEDIA WEST IS NOT AN NBFC NOR A FINANCE COMPANY AS IS EVIDENT FROM THE ITS OBJECT CLAUSE IN THE MEMORANDUM. IT IS ALSO AN ADMITTED FACT THAT THE PAID UP CAPITAL OF MEDIA WES T IS ONLY RS. 1 LAC AND ITS NET WORTH IS NEGATIVE, HAVING INCURRED A LOSS OF OVER RS. 11 CRORES IN THE LAST YEAR. ITS BUSINESS INCOME FOR THE LAST TWO YEARS IS NIL. WITH THIS FINANCIAL POSITION, THERE IS NOTHING ON RECORD TO SHOW HOW MEDIA WEST IS GOING TO MOBILIZE RS. 100 CRORES TO FUND THE ACQUISITION OF THE SHARES OF THE RESPONDENTS. WHETH ER IT IS GOING TO BORROW ON INTEREST OR TO BE ASSISTED BY SOMEONE ELS E WITHOUT INTEREST IS NOT CLEAR. FOR LENDING SUCH A HUGE AMOU NT TO THE PETITIONERS THERE ARE NO TERMS IN THE MOU RELATING TO SECURITY, EITHER FINANCIAL OR OTHERWISE TO BE PROVIDED BY THE PETITIONERS. THE SECURITY IS OBVIOUSLY ONLY THE SHARES OF THE COMPAN Y, WHETHER IT IS 35.33% OR 64.67% OR THE WHOLE 100%. THE SAID SECURI TY IN THE FORM OF SHARES, COVERS THE LENDING BY BOTH MEDIA WEST AN D THE UNNAMED MERCHANT BANKER. NORMALLY, WHEN A LARGE AMOUNT OF M ONEY IS LENT AGAINST SHARES, ESPECIALLY THOSE OF AN UNLISTED CLO SELY HELD COMPANY, DUE DILIGENCE IS CARRIED OUT OF THE COMPANY TO FIND OUT THE FAIR VALUE OF THE SHARES, BUT, IN THE PRESENT CASE, ADMITTEDLY , NOTHING WAS DONE. EVEN THOUGH THE RESPONDENTS HAVE RAISED ALL THESE I SSUES IN CA 148, THE PETITIONERS HAVE NOT RESPONDED TO THE SAME IN T HEIR REPLY. THE MOTIVE OF A COMPANY, HAVING NO CASH RESOURCES, IN L ENDING SUCH A HUGE AMOUNT, CANNOT BE BUT FOR AN OBLIQUE PURPOSE. CONSIDERING THE FACT THAT MEDIA WEST HAS BEEN USED AS A SPECIAL PUR POSE VEHICLE BY ESSEL GROUP, THE CLAIM OF WHICH HAS NOT BEEN DENIED BY THE PETITIONERS, TO ACQUIRE OTHER NEWSPAPER COMPANIES, IT APPEARS THAT EVEN THE PRESENT FUNDING TO THE PETITIONER IS WITH THE OBJECT OF TAKING OVER CONTROL OF THE COMPANY. THE VERY FACT T HAT THE MOU PROVIDES THAT WHATEVER MIGHT BE THE CONSIDERATION T HAT THE LENDERS WOULD RECEIVE ON SALE OF 49% SHARES, THE SAME WOULD RELEASE THE PETITIONERS OF ALL THEIR LIABILITIES, OBLIGATIONS E TC. WOULD INDICATE THAT THE PRESENT LENDING ARRANGEMENT BY THE LENDERS IS N OT BASED EITHER ON COMMERCIAL OR FINANCIAL CONSIDERATION, ES PECIALLY WHEN NO DUE DILIGENCE OF THE COMPANY HAS BEEN CARRIED OU T. IT IS RATHER ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 88 A STRANGE ARRANGEMENT BY WHICH THE LENDERS EXPECT T HAT PROCEEDS FROM SALE OF 35.33% / 49% SHARES WOULD COVER THEIR ENTIRE LOANS GIVEN FOR ACQUISITION OF 64.67% SHARES, THAT TOO WI TH 15% INTEREST . IT IS MORE SO, AS FAR AS THE MERCHANT BANKER IS CON CERNED. NO MERCHANT BANKER WOULD FUND SUCH A HUGE AMOUNT OF RS . 151 CRORES ON THE STRENGTH OF SHARES OF A CLOSELY HELD, UNLIST ED COMPANY, WITHOUT DUE DILIGENCE. FROM THE MOU IT IS SEEN THAT IT WAS THE MERCHANT BANKER WHO HAD SUGGESTED THAT THE PETITION ERS COULD APPROACH MEDIA WEST FOR PART FINANCING OF THE ACQUI SITION. FURTHER, THE PROVISIONS IN THE MOU THAT THE LENDERS COULD SE LL THE SHARES BY PRIVATE PLACEMENT AND THAT THE LENDERS HAVE THE RIG HT TO TRANSFER THEIR RIGHTS TO ANY PARTY ETC, DEFINITELY RISES A DOUBT W HETHER, THIS RIGHT HAS BEEN CONFERRED ON THE LENDERS ONLY TO FACILITATE ES SEL GROUP TO ACQUIRE THE SHARES. NON DISCLOSURE OF THE NAME OF T HE ARBITRATOR ALSO RAISES A DOUBT ABOUT THE INDEPENDENCE OF THE U NNAMED ARBITRATOR. SHRI SARKAR ARGUED THAT IT IS OF NO CON CERN OF EITHER THE RESPONDENTS OR THIS BOARD TO EXAMINE WHY AND HOW ME DIA WEST WOULD FUND THE ACQUISITION AND WHY IT IS TAKING THE RISK. IN NORMAL CIRCUMSTANCE, THE CONTENTION OF THE LEARNED COUNSEL MAY BE CORRECT. BUT IN THE PRESENT CASE, WHEN A PARTY ALLEGES BREAC H OF THE TERMS OF THE CONSENT ORDER, TO ADJUDICATE ON THE ALLEGATION, THIS BOARD HAS TO EXAMINE ALL ASPECTS. EVEN THOUGH IT IS CLAIMED THAT SINCE THE MOU SPECIFICALLY PROVIDES THAT 51% SHARES WOULD CONTINU E TO BE HELD BY THE PETITIONERS AS ALSO THE CONTROL AND MANAGEMENT OF THE COMPANY AS STIPULATED IN THE CONSENT ORDER, IT IS TO BE NOT ED THAT THE RESTRICTION OF THE HOLDING AND MANAGEMENT IS ONLY FOR A PERIOD OF 3 YEAR. THE TERMS OF THE MOU ARE SO UNREALISTIC AND ONE SIDED, THAT IT APPEARS THAT THE MOU IS A PRELUDE TO HAND OVER THE CONTROL OF THE COMPANY AFTER A PERIOD OF 3 YEARS. FURTHER, THAT IT WAS NOT TO THE KNOWLEDGE OF THE RESPONDENTS THAT THE FUNDING FOR ACQUISITION WO ULD BE ARRANGED ON THE BASIS OF THE EXISTING SHARES OF THE COMPANY AND THEREFORE, MERE CONTINUING WITH THE 51% SHARES BY THE PETITION ERS IS OF NO JUSTIFICATION. 18. THE FACTS THAT MEDIA WEST, WITHOUT ANY FINANCIAL RE SOURCES OF ITS OWN AGREEING TO FUND A HUGE SUM OF RS. 101 CROR ES, THAT MEDIA WEST IS A GROUP COMPANY OF ESSEL WHICH HAS BEEN ACQ UIRING NEWS PAPER COMPANIES, THAT THE PETITIONERS HAVE NOT BEEN ABLE TO ESTABLISH THEIR FINANCIAL STRENGTH TO PAY OF THE LO ANS WITHIN THE STIPULATED TIME, THAT THE LIBERTY GIVEN TO THE LEND ERS TO.SELL THE SHARES ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 89 BY PRIVATE PLACEMENT AND THEIR RIGHT TO TRANSFER TH EIR RIGHTS UNDER THE MOU TO ANY PARTY, THAT THE PETITIONERS HAVE REF USED TO PRODUCE THE MOU WITH THE MERCHANT BANKERS WHO HAD SUGGESTED THE NAME OF MEDIA WEST TO THE PETITIONERS, ETC LEAD ONLY TO THE STRONG PRESUMPTION THAT THERE IS MORE TO THE UNDERSTANDING EXPRESSED IN THE MOU THAN WHAT THE EYES MEET. IN OTHER WORDS, TH E WHOLE ARRANGEMENT OF FINANCING FOR THE ACQUISITION OF SHA RES OF THE RESPONDENTS DOES NOT APPEAR TO BE A STRAIGHT FORWAR D ONE AND IT IS ONLY A PRELUDE TO THE FINAL TAKEOVER OF THE COMPANY AFTER THE PERIOD OF 3 YEARS. THIS ADVERSE PRESUMPTION IS INEVITABLE IN THE LIGHT OF THE REFUSAL OF THE PETITIONERS TO DISCLOSE THE MOU WITH THE MERCHANT BANKER, WHO HAS AGREED TO FUND A HUGE SUM OF RS 152 CRORES EVEN WITHOUT A DUE DILIGENCE. 12.5 IT IS VERY CLEAR FROM THE FINDINGS OF THE CLB AS DISCUSSED IN PARA 17 OF ITS ORDER DATED 10.07.2006 REPRODUCED ABOVE THAT THE L ENDING ARRANGEMENT OF FUNDING TO THE AGARWAL GROUP FOR BUYING THE MAJORITY SHARE HOL DING OF 64.67% WAS NOT BASED EITHER ON COMMERCIAL OR FINANCIAL CONSIDERATION BEC AUSE SUCH ARRANGEMENT WAS MADE WITHOUT ANY DUE DILIGENCE , WHICH WAS FOUND BY THE HONBLE CLB AS STRANGE ARRANGEMENT AND THEREFORE, AFTER GETTING CONVINCED THAT THE AGARWAL GROUP WAS NOT GENUINELY INTERESTED IN BUYING THE MAJORITY SHARE H OLDING AND RUNNING THE COMPANY, THE HONBLE CLB REVERSED ITS EARLIER ORDER AND ASKE D THE RESPONDENTS I.E. MAHESHWARI GROUP TO PURCHASE THE SHARE HOLDING OF T HE AGARWAL GROUP AS PER THE DIRECTION CONTAINED IN SUBSEQUENT PARAS 19 TO 21 OF ITS ORDER DATED 10.07.2006 REPRODUCED BELOW: 19 THUS, I FIND THAT NOT ONLY THE CONSENT ORDER IS VITIATED BY NON DISCLOSURE OF MATERIAL FACTS BY THE PETITIONERS AND INDUCEMENT TO AGREE FOR IPO, EVEN THE SPIRIT OF THE ORDER IS FOUN D TO HAVE BEEN FLOUTED BY THE PETITIONERS. THE TERMS OF THE MOU ARE SO UNREALISTIC, THAT NO MAN OF ORDINARY PRUDENCE, LEAV E ALONE A BUSINESS PERSON, WOULD BE CONVINCED THAT IT IS A PU RE AND SIMPLE FINANCIAL ARRANGEMENT . UNDER THESE CIRCUMSTANCES, EITHER THE CONSENT ORDER SHOULD BE RECALLED OR THE RESPONDENTS SHOULD BE GIVEN THE OPTION OF PURCHASING THE SHARES OF THE PE TITIONERS. SHRI SARKAR VEHEMENTLY ARGUED THAT THIS BOARD HAS NO POW ER EITHER TO RECALL THE CONSENT ORDER OR TO MODIFY THE SAME. HE FURTHER SUBMITTED THAT ON ANY ACCOUNT, THE RESPONDENTS CAN NOT HAVE THE RIGHT TO PURCHASE THE SHARES OF THE PETITIONERS. IT IS A SETTLED LAW WHEN AN ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 90 ORDER IS OBTAINED, WHETHER IT IS CONSENT ORDER OR O THERWISE, BY FRAUD, CONCEALMENT OF MATERIAL FACTS, MISREPRESENTA TION AND THE LIKE, IT IS THE BOUNDEN DUTY OF THE COURT WHICH PASSED TH E ORDER, TO SET ASIDE OR RECALL THE SAID ORDER. IN THE CASES CITED BY SHR I DATAR, IT HAS BEEN HELD SO. IN THE CASES CITED BY SHRI SARKAR THAT EXE CUTING COURT CANNOT GO BEYOND THE DECREE, NO ELEMENT OF FRAUD, CONCEALM ENT OF MATERIAL FACTS OR MISREPRESENTATION HAD BEEN ALLEGED. THEREF ORE, THERE IS EVERY JUSTIFICATION TO RECALL THE CONSENT ORDER, BU T, I DO NOT PROPOSE TO RECALL THE SAME BUT, TRY TO WORK OUT THE SAID ORDER IN THE SPIRIT UNDER WHICH THE SAME WAS PASSED. 20 AS FAR AS THE RIGHT OF THE RESPONDENTS TO ACQUIRE T HE SHARES OF THE PETITIONERS IS CONCERNED, REFERENCE TO THE C HRONOLOGY OF EVENTS IS NECESSARY. EVEN THOUGH, INITIALLY THE PET ITIONERS WERE AGAINST THE SUGGESTION OF THEIR GOING OUT OF THE CO MPANY AND WERE ONLY INTERESTED IN THE DIVISION OF THE COMPANY, LAT ER, IT WAS ONLY AT THE SUGGESTION OF THE COUNSEL FOR THE PETITIONERS, THE CONSENT ORDER RESULTED. THE FOUNDATION OF THE SUGGESTION OF THE C OUNSEL FOR THE PETITIONERS IS THAT ONE OF THE TWO GROUPS SHOULD CO NTROL THE COMPANY IN EXCLUSION OF THE OTHER GROUP. BOTH IN THE REPLIE S TO THE APPLICATIONS AND DURING THE ARGUMENTS, THERE WAS NOT EVEN A WHIS PER THAT THE PETITIONERS WOULD BE ABLE TO MOBILIZE FUNDS TO AVOI D THE LENDERS FROM TAKING OVER THE CONTROL OF THE SHARES. INSTEAD , THEIR STAND HAS BEEN THAT THERE IS NO PROVISION IN THE CONSENT ORDE R RESTRAINING THE PETITIONERS FROM RAISING FUNDS ON THE STRENGTH OF T HE SHARES OF THE COMPANY. THUS, IT IS CRYSTAL CLEAR THAT THE PETITIO NERS ARE NOT IN A POSITION TO FUND THE PURCHASE OF THE SHARES OF THE RESPONDENTS WITHOUT THE BACKING OF THE SHARES OF THE COMPANY, W HICH, I HAVE HELD THE PETITIONERS CANNOT DO SO. THEREFORE, SINCE, I H AVE COME TO THE CONCLUSION THAT THE CONSENT ORDER WAS OBTAINED BY C ONCEALMENT OF MATERIAL FACT AND THAT THE PETITIONERS HAVE BREACHE D THE TERMS OF THE SAID ORDER, EVEN IN THE ABSENCE OF ANY STIPULATION IN THE CONSENT ORDER TO THE SPECIFIC EFFECT, THE RESPONDENTS WILL HAVE T HE RIGHT TO PURCHASE THE SHARES OF THE PETITIONERS. IN THIS CONNECTION, I MAY REFER TO THE DECISION OF THE SUPREME COURT IN RAMBAHADUR THAKUR'S CASE WHEREIN THE SUPREME COURT HAS HELD THAT WHEN A CONS ENT ORDER IS RECORDED BY THIS BOARD, IT IS ITS DUTY TO INTERPRET THE TERMS OF THE CONSENT ORDER WITH A VIEW TO ENSURE THAT THE SAME I S WORKED OUT. THEREFORE, THE CONTENTION OF SHRI SARKAR THAT ONLY IF THERE IS A DEFAULT IN PAYMENT OF THE INSTALLMENTS OF CONSIDERATION, TH E RESPONDENTS WILL ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 91 HAVE THE RIGHT TO PURCHASE THE SHARES OF THE PETITI ONERS AND NOT OTHERWISE IS NOT CORRECT AS THE BASIC PREMISES UNDE R WHICH THE PARTIES DECIDED TO END THE DISPUTES WAS THAT ONLY O NE GROUP WOULD CONTINUE WITH THE COMPANY. NOW THAT IT IS ESTABLISH ED THAT THE PETITIONERS CANNOT ACQUIRE THE SHARES OF THE RESPON DENTS, THE LATTER HAS THE RIGHT TO PURCHASE THE FORMER. LIKEWISE, HIS CONTENTION THAT IN THE EVENT OF BREACH OF ANY OTHER TERMS OF THE CONSE NT ORDER, THIS BOARD CAN ONLY PUT THE PETITIONERS TO TERMS IS ALSO IS NOT CORRECT, AS IN THE PRESENT CASE, THE CONSENT ORDER ITSELF HAS B EEN OBTAINED BY CONCEALMENT OF MATERIAL FACTS AND MISREPRESENTATION . 21. IN VIEW OF MY FINDINGS THAT THE CONSENT ORDER H AD BEEN OBTAINED BY SUPPRESSING THE MATERIAL KNOWN FACT THA T FINANCING FOR ACQUISITION OF THE SHARES OF THE RESPONDENTS WAS BA SED ON AN UNDERSTANDING OF SALE OF THE SHARES OF THE COMPANY AND THAT IN VIEW OF THE INBUILT DEFAULT CLAUSE GIVING RIGHT TO THE L ENDERS TO DISPOSE OF 49% OF THE EXISTING SHARES OF THE COMPANY, WHICH WA S NEVER DISCLOSED , I HOLD, ON THE BASIC UNDERSTANDING THAT ONE GROUP S HOULD GO OUT OF THE COMPANY, THAT THE RIGHT TO PURCHASE THE SHARES OF THE PETITIONERS WOULD NOW REVERT TO THE RESPONDENTS . 12.6 THE ABOVE OBSERVATION OF THE HONBLE CLB IN IT S ORDER DATED 10.07.2006 CLEARLY SHOWS THAT THE INTENTION OF THE AGARWAL GROUP WAS NEVER TO PURCHASE THE SHARE HOLDING OF THE MAHESHWARI GRO UP FOR ACQUIRING AND RUNNING THE COMPANY AND WITH SUCH UNREALISTIC FINAN CIAL ARRANGEMENT AS ANALYSED BY THE CLB IN ITS ABOVE MENTIONED ORDER, I T APPEARS THAT AFTER ACQUIRING BOTH COMPANIES WITH THE FINANCE ARRANGED THROUGH ESSEL/ZEE GROUP, THEY PLANNED TO SELL THE SHARES OF BOTH COMP ANIES TO ESSEL/ZEE GROUP BECAUSE THEY DID NOT TRUST MAHESHWARI GROUP FOR THE REASONS ALREADY DISCUSSED. HOWEVER, DURING THE PROCEEDING BEFORE TH E CLB, THE INITIAL UNDERSTANDING BETWEEN BOTH GROUPS WAS THAT THE AMAR UJALA PUBLICATION BUSINESS SHOULD NOT GO OUT OF THE CONTROL OF EITHER OF TWO GROUPS BUT THE AGARWAL GROUP ALSO WANTED TO EXTRACT THE MAXIMUM VA LUE FOR THEIR SHAREHOLDING AND THEREFORE, THEY COMPELLED THE MAHE SHWARI GROUP TO BUY THEIR SHARE HOLDING BY ENTERING INTO A MOU WITH A R IVAL GROUP ( ESSEL/ZEE GROUP) THROUGH ITS FRONT COMPANY APPARENTLY SHOWING THAT THEY ARE INTERESTED IN BUYING THE COMPANY, EVEN THOUGH THIS MOU WAS JUST A PLOY TO FORCE THE MAHESHWARI GROUP TO BUY THEIR SHARE HOLDI NG AT A VALUE MORE THAN WHAT WAS OFFERED BY THEM. THE MOU WITH M/S MEDIA WE ST WAS NOT VIABLE AT ALL FOR GETTING THE DESIRED FUND, HAS BEEN CLEARLY OBSERVED BY THE HONBLE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 92 CLB IN ITS ORDER DATED 10.7.2006 WHEREIN, IT IS DIS CUSSED BY THEM THAT THE TERMS OF THE MOU ARE SO UNREALISTIC, THAT NO MAN OF ORDINARY PRUDENCE, LEAVE ALONE A BUSINESS PERSON, WOULD BE CONVINCED T HAT IT IS PURE AND SIMPLE FINANCIAL ARRANGEMENT. 12.7 AFTER REVERSAL OF ORDER BY THE HONBLE CLB AND ORDERING THE MAHESHWARI GROUP TO BUY 35.33% SHARE HOLDING OF THE AGARWAL GROUP, A NEGOTIATED SETTLEMENT WAS ARRIVED BETWEEN BOTH GROU PS IN WHICH THE MAHESHWARI GROUP AGREED TO PAY RS. 160 CRORE TO THE AGARWAL GROUP, WHICH WAS RS. 22 CRORE MORE THAN THE EARLIER VALUE DETERMINED BY THE MAHESHWARI GROUP FOR 35.33% OF THE SHARES HELD BY T HE AGARWAL GROUP. OUT OF THIS AGREED SALE CONSIDERATION OF RS. 160 CR ORE, THE MAHESHWARI GROUP PAID RS. 5 CRORE TO SHRI AJAY AGARWAL EVEN IN ADVANCE ON BEHALF OF THE AGARWAL GROUP. FINALLY, ORDER DATED 01.11.2006 OF THE HONBLE CLB WAS PASSED SETTLING THE DISPUTE BETWEEN BOTH GROUPS AND CONFIRMING THE SALE OF SHARES BY THE AGARWAL GROUP TO THE MAHESHWA RI GROUP AT A TOTAL SALE CONSIDERATION OF RS. 155 CRORE ALONG WITH RS. 5 CRORE WHICH WAS ALREADY PAID IN ADVANCE TO SHRI AJAY AGARWAL AND TH US TOTAL SALE CONSIDERATION OF RS. 160 CRORE WAS RECEIVED BY THE AGARWAL GROUP. AFTER REALIZING RS.160 CRORE SALE CONSIDERATION, THE AGAR WAL GROUP DID NOT INSIST ON PURSUING ANY LITIGATION WITH THE MAHESHWARI GROU P TO ENSURE THAT THE TERMS OF THE CONDITIONS OF FUNDING AS WERE ORIGINAL LY PLACED ON THEM, THE PAYOUT WHICH WERE SAME FOR THE MAHESHWARI GROUP HAD BEEN VIOLATED OR NOT BECAUSE AS ARGUED BY THE LD. AR , THE AGARWAL GROUP AS PER THEIR STRATEGY, ULTIMATELY SUCCEEDED IN THEIR GOAL TO REALIZE THE B EST VALUE OF THE SHARES HELD BY THEM IN BOTH COMPANIES AND THEY WERE NOT AT ALL INTERESTED IN ACQUIRING THE COMPANY AND TO RUN IT AS ALSO OBSERVED BY THE H ONBLE CLB IN ITS ORDER DATED 10.07.2010 AS DISCUSSED EARLIER . I AGREE WIT H THE LD. AR THAT SUCH SEQUENCE OF EVENTS GOES FURTHER TO PROVE AND ESTABL ISH THE POINT THAT THE AGARWAL GROUP ALWAYS WANTED AN EXIT ROUTE AT A GOOD VALUE WHICH COULD BE ACHIEVED ONLY BY LITIGATING BEFORE THE CLB AND STRA TEGICALLY PLANNING WITH THE HELP OF VARIOUS PARTIES TO WHOM PAYMENTS WERE M ADE ONLY AFTER THE RECEIPT OF THE CONSIDERATION. 12.8 AS PER THE LD. AR IN THE PROCEEDING BEFORE TH E CLB, ALL LEGAL AND PROFESSIONAL PERSONS ENGAGED BY THE AGARWAL GROUP V IZ: MR. S.R. HALBE, MRS BINA GUPTA, M/S CHURU TRADING COMPANY PVT. LTD. , M/S RABO INDIA SECURITIES PVT. LTD., MR. SUDIPTO SARKAR, MR DAYAL SARAN , CONTRIBUTED TO MAKE THE STRATEGY OF THE AGARWAL GROUP SUCCESSFUL T O REALIZE THE BEST VALUE OF THE SHARES HELD BY THEM IN BOTH COMPANIES AND TH EREFORE, IT WAS ARGUED BY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 93 THE LD. AR THAT PAYMENTS MADE TO ALL OF THEM SHOULD BE FULLY ALLOWED U/S 48(I) AS EXPENSES INCURRED IN CONNECTION WITH TRANS FER OF SHARES AS CLAIMED BY THE APPELLANT WHILE COMPUTING THE CAPITAL GAIN I N THE RETURN OF INCOME INSTEAD OF ALLOWING ONLY PART OF THE PAYMENTS MADE TO SHRI. S.R. HALBE AND SMT. BINA GUPTA IN THE ASSESSMENT ORDER AS DISCUSSE D IN PARA NO. 7 OF THIS ORDER. I ALSO FIND FORCE IN THE ARGUMENT OF THE LD. AR THAT THE MAHESHWARI GROUP AGREED TO PAY RS. 22 CRORE EXTRA SO THAT THE SHARES WHICH WERE PLEDGED AS SECURITY WITH M/S MEDIA WEST COULD BE LI FTED AND SHARES ARE SOLD TO THE MAHESHWARI GROUP. FOR THIS PURPOSE THE ARRAN GER M/S CHURU TRADING CO. DEMANDED FOR 50% OF THE EXTRA AMOUNT RE ALIZED BY THE AGARWAL GROUP BUT ULTIMATELY AS PER THE INITIAL AGREEMENT, ONLY RS. 8.5 CRORE WAS PAID. IN VIEW OF THE ABOVE BACKGROUND OF THE FACTS OF THE CASE, THE LD. AR ARGUED THAT SINCE BECAUSE OF INTERVENTION OF M/S CH URU TRADING CO., THE SHARE VALUE WAS FURTHER GOT ENHANCED BY RS. 22 CROR E, THE PAYMENT MADE TO M/S CHURU TRADING CO. AMOUNTING TO RS. 8.5 CRORE SH OULD BE ALLOWED TO HAVE BEEN PAID FOR TRANSFER OF SHARES. HOWEVER, THE CONTENTION OF THE AO DURING THE DISCUSSION WAS THAT THE INTENTION OF THE AGARWAL GROUP WAS INITIALLY NOT TO SELL THE SHARES, OTHERWISE THEY WO ULD NOT HAVE PLEDGED THE 35.33% OF THEIR SHARES HOLDING AS SECURITY FOR OBTA INING THE FUND. THEREFORE IN HIS OPINION, INITIALLY THE INTENTION OF THE APPE LLANT WAS TO BUY THE MAJORITY SHARE HOLDING AND HENCE THE EXPENDITURE INCURRED FO R ARRANGING THE FUND FOR BUYING THE MAJORITY SHARE HOLDING SHOULD NOT BE ALL OWED AND HENCE HE CONTENDED THAT THE PAYMENT MADE TO M/S CHURU TRADIN G CO. AND OTHER CONSULTANT FOR ARRANGING THE FUND AND PREPARATION O F CLB PETITION AND APPEARING BEFORE THE CLB FOR ARGUING THE CASE OF TH E APPELLANT SHOULD NOT BE ALLOWED U/S 48(I). 12.9 AS FAR AS THE INTENTION OF THE AGARWAL GROUP F OR BUYING THE SHARES OF MAJORITY GROUP IS CONCERNED FOR WHICH THE AO IS DRA WING INFERENCE ON THE BASIS OF PLEDGING OF 35.33% SHARES WITH THE LENDER, IT HAS BECOME QUITE CLEAR FROM THE ORDER DATED 10.07.2006 OF THE HONBL E CLB ITSELF THAT THE FINANCIAL ARRANGEMENT WITH M/S MEDIA WEST ( WHICH W AS ALSO NOT HAVING ANY FINANCIAL CAPACITY TO LEND SUCH HEAVY AMOUNT OF FUN D AND THIS COMPANY BEING A FRONT FOR ZEE GROUP, THE FUND WAS ULTIMATEL Y TO COME FROM ZEE GROUP) WAS MADE IN SUCH A MANNER THAT ULTIMATELY TH E SHARES OF THE COMPANY WAS TO BE SOLD TO THE LENDER OR SOME OUTSID E AGENCY BY PRIVATE PLACEMENT AND THEREFORE, THE HONBLE CLB CANCELED I TS EARLIER ORDER GIVING OPTION TO THE AGARWAL GROUP TO BUY THE SHARES OF TH E MAHESHWARI GROUP BY RECORDING ITS OBSERVATION IN THE SAID ORDER DATED 1 0.07.2006 THAT THE TERMS OF THE MOU ARE SO UNREALISTIC, THAT NO MAN OF ORDIN ARY PRUDENCE, LEAVE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 94 ALONE A BUSINESS PERSON, WOULD BE CONVINCED THAT IT IS PURE AND SIMPLE FINANCIAL ARRANGEMENT. THEREFORE, JUST ON THE BASIS OF PLEDGING OF THE SHARES WITH THE LENDERS, IT CANNOT BE SAID THAT INTENTION OF THE APPELLANT WAS INITIALLY TO BUY THE SHARES OF THE COMPANY AS ARGUED BY THE A O. NOTICING THE ULTERIOR MOTIVE OF THE AGARWAL GROUP, THEY WERE ORDERED BY T HE HONBLE CLB VIDE ITS ORDER DATED 04.04.2006 TO DEPOSIT THEIR SHARES IN ESCROW ACCOUNT. UNDER THESE FACTS AND CIRCUMSTANCES, ARGUMENT OF THE LD. AR THAT THE FINANCIAL ARRANGEMENT THROUGH M/S CHURU TRADING COMPANY PVT. LTD. WAS MADE IN CONTRAVENTION TO THE TERMS OF THE CLB ORDER UNDER A PLAN OF STRATEGY TO SHOW THAT THE AGARWAL GROUP IS INTERESTED IN BUYING THE SHARES TO COMPELL THE MAHESHWARI GROUP TO BUY THE SHARES AT ENHANCED VALU E, APPEARS TO BE MORE CREDIBLE BECAUSE THE END RESULT OF THE PROCEEDINGS BEFORE THE CLB PROVES THE STRATEGY AS EXPLAINED BY THE LD. AR. THE WHOLE STRA TEGY HAS BEEN SUMMARISED BY THE LD. AR IN PARA NO. 5 OF HIS SUBMI SSION FILED ON 14.03.2011 AND THE SAME HAS BEEN REPRODUCED IN PARA 8.4 OF THIS ORDER ON PAGE NO.53 & 54. THEREFORE, PAYMENT MADE TO M/S CHU RU TRADING COMPANY PVT. LTD. APPEARS TO BE VERY MUCH PART OF THE STRAT EGY OF THE AGARWAL GROUP TO GET THE VALUE OF SHARES ENHANCED BEFORE THESE SH ARES ARE SOLD. SINCE THE SHARES OF THE AGARWAL GROUP WERE PLEDGED WITH LENDE R (M/S MEDIA WEST) THAT WAS ARRANGED BY M/S CHURU TRADING COMPANY PVT. LTD. AND IT HAS ALSO BEEN ADMITTED BY THE AO THAT THESE SHARES WERE PLED GED, THEREFORE, THE ARGUMENT OF THE LD. AR THAT THE MAHESHWARI GROUP AG REED TO PAY RS. 22 CRORE EXTRA SO THAT THE SHARES WHICH WERE PLEDGED A S SECURITY WITH M/S MEDIA WEST COULD BE LIFTED AND SHARES ARE SOLD TO T HE MAHESHWARI GROUP AND FOR THIS PURPOSE THE ARRANGER M/S CHURU TRADING CO. WAS PAID RS. 8.5 CRORE AS PER THE INITIAL AGREEMENT DESPITE ITS DEMA ND FOR 50% OF THE EXTRA AMOUNT REALIZED BY THE AGARWAL GROUP, APPEARS TO BE QUITE CONVINCING AND THEREFORE, I FIND FORCE IN THE ARGUMENT OF THE LD. AR THAT SINCE BECAUSE OF INTERVENTION OF M/S CHURU TRADING CO., THE SHARE VA LUE WAS FURTHER GOT ENHANCED BY RS. 22 CRORE, THE PAYMENT MADE TO M/S C HURU TRADING CO. AMOUNTING TO RS. 8.5 CRORE SHOULD BE ALLOWED TO HAV E BEEN PAID FOR TRANSFER OF SHARES. 12.10 FOR ALLOWABILITY OF DEDUCTION U/S 48(I), BOTH THE AO AS WELL AS THE LD. AR HAVE RELIED ON A DECISION OF AUTHORITY FOR ADVAN CE RULING (AAR) IN CASE OF COMPAGNIE FINANCE HAMON (2009) 310 ITR 1 (AAR) IN WHICH IT HAS BEEN HELD IN PARA NO. 15 OF ITS ORDER AS UNDER: 15BY REASON OF EMPLOYING SUCH A WIDE EXPRESSION I.E., IN CONNECTION WITH ,SOMETHING MORE THAN ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 95 WHAT IS ATTRIBUTABLE TO THE FINAL ACT OF TRANSFER O F SHARES IS ALSO ADMISSIBLE FOR DEDUCTION PROVIDED THE INTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE ACT OF TRANSFERRING SHARES IS ESTABLISHED . FOR INSTANCE, IF THE SERVICES OF LEGAL OR OTHER PRO FESSIONAL EXTENDED TO THE PROCESS OF VALUATION OF SHARES OR T HE PARTICIPATION IN THE DELIBERATIONS THAT LED TO THE SETTLEMENT CONCERNING THE TRANSFER OF SHARES, THE LEGAL CHARGE S ON THAT ACCOUNT WILL ALSO BE ALLOWABLE AS DEDUCTION. WE DO NOT THINK, HOWEVER, THAT THE LEGAL FEES ETC. PAID TO THE LAWYERS FOR FILING THE PETITIONS UNDER SECTIONS 397 AND 398 IN THE COMPANY LAW BOARD AND FOR MAKING APPEARANCE BEFORE THE BOARD PRIOR TO THE PASSING OF FINAL ORDE R GIVING GREEN SIGNAL FOR THE TRANSFER OF SHARES ARE ADMISSI BLE FOR DEDUCTION. IN OTHER WORDS, THE LEGAL EXPENSES FOR T HE INITIAL PERIOD OF DISPUTE ARE NOT INTRINSICALLY LINKED WITH THE TRANSFER OF SHARES AND THEREFORE IT CANNOT BE ALLOW ED AS DEDUCTION THE OPERATIVE PART OF THE DECISION CITED ON PREVIOU S PAGE IS DIVIDED IN THREE PARTS SHOWN UNDER BOLD LETTER, WHICH MAY ACT AS GUIDING PRINCIPLE IN THE PRESENT CASE FOR DECIDING THE ALLOWABILITY OF A NY LEGAL OR PROFESSIONAL EXPENSES AS DEDUCTION UNDER SECTION 48(I). HOWEVER, IN THE ABOVE DECISION WITH THE GUIDING PRINCIPLES AS DISCUSSED IN ITS PAR A 15, THE ISSUE OF ALLOWABILITY OF EXPENSES U/S 48(I) WAS LEFT OPEN FO R THE AO TO QUANTIFY THE ADMISSIBLE AMOUNT AND IF THE ASSESSEE IS NOT IN A P OSITION TO FURNISH THE DETAILS OF EXPENDITURE TOWARDS PROFESSIONAL FEES TO LAWYERS, THE AO WAS ASKED TO ALLOW A REASONABLE AMOUNT TOWARDS THIS ITE M. CONSIDERING THE ARGUMENT OF THE AO THAT THE PAYMENT MADE TO M/S CHU RU TRADING CO. PVT. LTD. AND OTHER CONSULTANTS FOR ARRANGING THE FUND A ND PREPARATION OF CLB PETITION AND APPEARING BEFORE THE CLB FOR ARGUING T HE CASE OF THE APPELLANT SHOULD NOT BE ALLOWED U/S 48(I), THE ALLOWABILITY O F DEDUCTION U/S 48(I) FOR PAYMENTS MADE TO THESE PROFESSIONALS AND LAWYERS HA S BEEN EXAMINED KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE SO FAR ANALYSED IN THIS PARA AND THE PRINCIPLES AS LAID DOWN IN PARA 1 5 OF THE ORDER OF AAR. MY DECISION FOR ALLOWABILITY OF DEDUCTION U/S 48(I) FO R EACH PAYMENT MADE TO VARIOUS LAWYERS AND PROFESSIONALS IS AS UNDER: ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 96 12.10.1 PAYMENT OF RS. 8,50,00,000/- TO CHURU TRADING CO. P VT. LTD. MUMBAI & RS. 2,50,000/- TO RABO INDIA SECURITIES PV T. LTD., MUMBAI BOTH THESE PARTIES WERE ENGAGED BY THE AGARWAL GRO UP FOR PROVIDING FINANCIAL ADVISORY SERVICES AND ASSISTING THEM TO A RRANGE FUNDS TO ACQUIRE SHARES OF MAJORITY GROUP IN BOTH COMPANIES. IN THIS PROCESS, THE AGARWAL GROUP FIRST APPROACHED RABO INDIA SECURITIES PVT. LTD. THAT ACTED AS STRATEGIC AND FI NANCIAL ADVISOR TO AGARWAL GROUP FOR ACQUISITION OF SHARES AND THROUGH THIS PA RTY AS EXPLAINED BY THE LD. AR, THEY WERE INTRODUCED TO THE SECOND PARTY I. E. M/S CHURU TRADING COMPANY PVT. LTD. THAT LATER PLAYED IMPORTANT ROLE TILL THE SHARES HELD BY THE AGARWAL GROUP WERE SOLD INSTEAD OF PURCHASING THE S HARES OF MAJORITY SHARE HOLDER AS PER THEIR STRATEGY. AS AFTER M/S CH URU TRADING COMPANY PVT. LTD. CAME INTO PICTURE AND WERE GOT INVOLVED I N THE FORMULATION OF THE STRATEGY OF THE AGARWAL GROUP, ROLE OF M/S RABO IND IA SECURITIES PVT. LTD. ENDED VERY SOON AND THEREFORE, THEY WERE PAID A NOM INAL AMOUNT OF RS. 2,50,000/- ON 01.02.2006 INSTEAD OF A CONSIDERATION OF RS. 5,00,000/- PAYABLE AS INITIATION FEES AND 1% OF GROSS TRANSACTION VALUE SUBJECT TO A MINIMUM OF RS. 3,00,00,000/- AS SUCCESS FEES AS PER THE AGREEMENT DATED 10.01.2006 ENTERED WITH THEM. THIS PAYMENT WAS MADE MUCH BEFORE THE DATE OF THE ORDER OF HONBLE CLB I.E. 10.07.2006, WHEN T HE MAHESHWARI GROUP WAS ORDERED TO PURCHASE THE SHARE HOLDING OF THE AG ARWAL GROUP AND THEREFORE, THE ARGUMENT OF THE LD. AR IN RESPECT OF THE ROLE OF M/S RABO INDIA SECURITIES PVT. LTD. CANNOT BE ACCEPTED THAT IT PLAYED ANY ROLE IN ENHANCING THE VALUE OF SHARES BEFORE THEY ARE SOLD. MY THIS VIEW GETS FURTHER STRENGTHENED BY THE FACT THAT NO SUCCESS FEES WAS PAID BY THE APPELLANT TO M/S RABO INDIA SECURITIES PVT. LTD. AS PER THE AGRE EMENT AFTER FINAL ORDER WAS PASSED BY THE HONBLE CLB ON 01.11.2006 IN WHIC H THE APPELLANT SUCCEEDED AS PER HIS STRATEGY. IN VIEW OF THE ABOVE FACTS AND LOOKING TO THE LIMITED ROLE PLAYED BY THIS PARTY IN ARRANGING FINA NCIERS FOR THE AGARWAL GROUP IN ACQUISITION OF SHARES AND ITS EXIT AT VERY INITIAL STAGE, THERE WAS NO CHANCE FOR IT TO PLAY ANY ROLE IN FORMULATION OF AN Y STRATEGY AS EXPLAINED BY THE LD. AR, WHICH COMPELLED THE MAHESHWARI GROUP TO PURCHASE SHARES FROM THEM AT ENHANCED VALUE FEARING SALE OF THE COM PANY TO ZEE GROUP AT SUBSEQUENT STAGE DUE TO A FINANCIAL ARRANGEMENT MAD E WITH ITS FRONT COMPANY THROUGH ANOTHER ARRANGER I.E. M/S CHARU TRA DING COMPANY PVT. LTD. THEREFORE, IN RESPECT OF THE PAYMENT MADE TO M /S RABO INDIA SECURITIES PVT. LTD., I AGREE WITH THE AO THAT THE PROCESS INI TIATED BY AGARWAL GROUP ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 97 FOR THE ACQUISITION AND AMOUNT PAID TO RABO INDIA S ECURITIES PVT. LTD. WAS IN NO WAY CONNECTED WITH THE PROCESS OF TRANSFER OF SH ARES AND HENCE SUCH EXPENDITURE CANNOT BE CONSIDERED AS EXPENSE DISTINC TLY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES. A PPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE AAR IN THE CASE OF COMPAGNIE FINANCE HAMON(SUPRA) ALSO, THE PAYMENT MADE TO M/S RABO INDIA SECURITIES PVT. LTD. WOULD NOT BE ALLOWABLE AS DEDUCTION U/S 48(I) BECAUSE ITS SERVICES DID NOT EXTEND TO THE PROCESS OF VALUATION OF SHARES OR THE PARTICIPATION IN THE DELIBERATIONS THAT LED TO THE SETTLEMENT CONCERNING THE TRANSFER OF SHARES. THEREFORE, I CONFIRM THE DECISION OF THE AO TO DISA LLOW DEDUCTION OF RS. 2,50,000/- U/S 48(I) FOR PAYMENT MADE TO RABO INDIA SECURITIES PVT. LTD. SIMILARLY, DURING THE PROCESS OF ACQUISITION OF MA JORITY SHARE HOLDING OF MAHESHWARI GROUP, THE AGARWAL GROUP ALSO ENTERED INTO ANOTHER AGREEMENT WITH M/S CHURU TRADING PVT. LTD. THAT ACT ED AS ARRANGER FOR ARRANGING RS. 252 CRORES TO ACQUIRE MAJORITY SHAREH OLDING IN THE COMPANIES. AS PER THE TERMS OF AGREEMENT DATED 01.0 2.2006 WITH M/S CHURU TRADING CO. PVT. LTD, THE AGARWAL GROUP WAS TO PAY RS. 8.5 CRORES AS ARRANGER FEE TO IT FOR ARRANGING THE FUND. THE ARRA NGER FEE WAS TO BECOME DUE ON ACHIEVING THE FINANCIAL CLOSURE OF RS. 252 C RORES NOTWITHSTANDING WHETHER THE AGARWAL GROUP SHALL BE ABLE TO DRAW DOW N THE ARRANGED FUNDS OR NOT. IN VIEW OF THESE TERMS OF AGREEMENT WITH M/ S CHURU TRADING, THE MAIN CONTENTION OF THE AO IS THAT AS M/S CHURU TRAD ING CO. WAS ENGAGED TO ARRANGE THE FUND, PAYMENT MADE TO THEM ARE FOR ARRA NGING THE FUND AND NOT IN CONNECTION WITH THE TRANSFER OF SHARES AND HENCE PAYMENT OF RS. 8.5 CRORE MADE TO M/S CHURU TRADING CO. SHOULD NOT BE ALLOWED AS DEDUCTION U/S 48(I). HOWEVER, THE LD. AR EXPLAINED DURING THE AP PEAL PROCEEDING THAT THE AGARWAL GROUP WENT TO THE CLB UNDER A STRATEGY TO G ET THE VALUE OF SHARES OF BOTH THE COMPANIES ENHANCED AND FREEZED FOR WHIC H FIRST THEY SHOWED THAT THEY ARE INTERESTED IN BUYING THE SHARES KNOWING VE RY WELL THAT THEY HAD NO CAPACITY TO BUY THE SHARES HELD BY THE MAJORITY SHA RE HOLDERS (64.67%) AND THEREFORE, THEY MADE SUCH FINANCIAL ARRANGEMENTS WH ICH WAS IN CONTRAVENTION OF THE CONDITIONS FIXED BY THE CLB IN ITS ORDER DATED 25.01.2006 TO ARRANGE FINANCE IN WHICH M/S CHURU TR ADING CO. HELPED THEM THROUGH M/S MEDIA WEST AND OTHER MERCHANT BANKERS. HE FURTHER ARGUED THAT BECAUSE OF THIS ARRANGEMENT, THE OTHER PARTY I .E. THE MAHESHWARI GROUP GOT ALARMED AND THEY FURTHER MOVED TO CLB TO RESTRA IN THE AGARWAL GROUP TO BUY MAJORITY SHARE HOLDING AND EVEN AGREED TO PA Y RS. 22 CRORE EXTRA AMOUNT OVER AND ABOVE THE 35.33% OF VALUATION OF SH ARES OF RS. 390 CRORE WHICH COMES TO RS. 138 CRORE AND FINALLY AS PER THE IR STRATEGY AS EXPLAINED ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 98 EARLIER, THE AGARWAL GROUP GOT RS. 160 CRORE BY SELLING THEIR 35.33% OF SHARE HOLDING. THE LD. AR ARGUED THAT THE EXCESS RE ALIZATION OF RS. 22 CRORE COULD BE MADE POSSIBLE PRIMARILY WITH THE INTERVENT ION OF THE ARRANGER I.E. M/S CHURU TRADING CO. HE ALSO ARGUED THAT THE MAHES HWARI GROUP AGREED TO PAY RS. 22 CRORE EXTRA SO THAT THE SHARES WHICH WERE PLEDGED AS SECURITY WITH M/S MEDIA WEST COULD BE LIFTED AND SHARES ARE SOLD TO THE MAHESHWARI GROUP. FOR THIS PURPOSE, THE ARRANGER M/S CHURU TRA DING CO. DEMANDED FOR 50% OF THE EXTRA AMOUNT REALIZED BY THE AGARWAL GROUP BUT ULTIMATELY AS PER THE INITIAL AGREEMENT ONLY RS. 8.5 CRORE WAS PAID. IN VIEW OF THE ABOVE BACKGROUND OF THE FACTS OF THE CASE, THE LD. AR ARG UED THAT SINCE BECAUSE OF INTERVENTION OF M/S CHURU TRADING CO., THE SHARE VA LUE WAS FURTHER GOT ENHANCED BY RS. 22 CRORE, THE PAYMENT MADE TO M/S C HURU TRADING CO. AMOUNTING TO RS. 8.5 CRORE SHOULD BE CONSIDERED TO HAVE BEEN PAID FOR TRANSFER OF SHARES AND HENCE SHOULD BE ALLOWED AS D EDUCTION U/S 48(I). IN ORDER TO UNDERSTAND THE NATURE OF PAYMENT MADE TO M/S CHURU TRADING CO., THE AGREEMENT DATED 01.02.2006 MADE WI TH THIS PARTY IS PRODUCED AS UNDER: FURTHER TO OUR LETTER DATED 20.01.2006 AND SUBSEQ UENT MEETING WE HAD YOU, THEREIN OUR HAVE GIVEN US THE C OPY OF THE COMPANY LAW BOARD ORDER DATED JANUARY 25, 2006 RECO RDING THE TERMS OF AGREEMENT BETWEEN YOU ON ONE HAND AND MAHESHWARI GROUP ON THE OTHER HAND, TO ACQUIRE 64.6 7% SHARES OF AMAR UJALA PUBLICATION LTD. AND A & M PUBLICATIO NS PVT. LTD. (HEREINAFTER REFERRED TO AS COMPANIES) HELD BY MAHE SHWARI GROUP FOR A CONSIDERATION OF RS. 252 CRORES. WE WOULD LIKE TO STATE THAT WE HAVE CAREFULLY EXAMI NED THE SAID CLB ORDER DATED JANUARY 25, 2006 AND ALSO SOUG HT LEGAL ADVICE TO UNDERSTAND THE VARIOUS IMPLICATIONS EMERG ING OUT OF THE SAID ORDER. WE HAVE ARRIVED AT CONCLUSION THAT THE PROPOSAL OF ACQUIRING 64.67% SHARES HELD BY MAHESHWARI GROUP IN THE COMPANIES, BY AGARWAL GROUP IS A BANKABLE PROPOSITI ON. HOWEVER, IT IS IMPORTANT TO BRING TO YOUR KIND NOTI CE THAT DUE TO CERTAIN CONDITIONS OF THE ORDER, WHICH ARE RESTRICT IVE OR PROHIBITIVE IN NATURE, THE MARKET APPETITE TO THIS KIND OF LENDING WOULD BE AFFECTED. WITH THE BACKGROUND, WE ARE AGREEABLE TO ACT AS AN ARRANGER OF ARRANGING RS. 252 CRORES THROUGH SYNDIC ATION WITH BANKS, FINANCIAL INSTITUTIONS AND OTHERS FOR THE AC QUISITION OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 99 64.67% SHARES HELD BY MAHESHWARI GROUP IN THE COMPA NIES IN TERMS OF THE COMPANY LAW BOARD ORDER DATED JANUARY 25, 2006 ON THE FOLLOWING TERMS AND CONDITIONS: WE AS ARRANGER SHALL ARRANGE RS. 252 CRORES FOR AGARWAL GROUP TO ACQUIRE 64.67% EQUITY SHARES OF AM AR UJALA PUBLICATION LTD. AND A & M PUBLICATIONS PVT. LTD. I N TERM OF THE ABOVE REFERRED ORDER OF THE COMPANY LAW BOARD ON SU CH TERMS AND CONDITIONS, WHICH ARE NOT PREJUDICIAL TO THE CO MPANY LAW BOARD ORDER DATED JANUARY 25, 2006 AND TO BE DECIDE D IN CONSULTATION WITH AGARWAL GROUP. WE SHALL PUT OUR BEST EFFORTS TO ENSURE THAT THE FU NDS ARE ARRANGED TO BE AVAILABLE ON OR BEFORE THE DUE D ATES OF PAYMENTS AS PER THE SCHEDULE OF PAYMENT GIVEN IN TH E CLB ORDER. AGARWAL GROUP IN CONSIDERATION OF ARRANGING RS. 252 CRORES FOR THE ACQUISITION OF 64.67% SHARES OF THE COMPANIES SHALL PAY RS. 8.5 CRORES (ALL INCLUSIVE) TOWARDS ARRANGER FEE TO US. THE ARRANGER FEES SHALL BE DUE ON ACHIEVING THE FINANCIAL CLOSURE OF RS. 252 CRORES NOT WITHSTA NDING WHETHER THE AGARWAL GROUP SHALL BE ABLE TO DRAW DOW N THE ARRANGED FUNDS OR NOT . IT WILL BE AN ALL INCLUSIVE AND NON- REFUNDABLE FEES . THE PAYMENT OF THE SAID FEES SHALL BE MADE TO US WITHIN 30 DAYS FROM THE DATE OF THE ACQUISITION OF 64.67% SHARES HELD BY MAHESHWARI GROUP BY WAY OF THE TRANS FER IN THE NAME OF AGARWAL GROUP OR 31 ST DECEMBER, 2006, WHICHEVER IS EARLIER. WE HOPE, THE ABOVE TERMS SHALL BE ACCEPTABLE TO YOU . WE SHALL APPRECIATE YOUR ACKNOWLEDGEMENT OF THE SAID L ETTER BY COUNTER SIGNING IT AS A TOKEN OF YOUR CONFIRMATION. WE LOOK FORWARD TO WORK WITH YOU FOR FACILITATING Y OUR PROPOSED ACQUISITION. AS PER THE ABOVE AGREEMENT, ARRANGER FEES OF RS. 8. 5 CRORE WAS TO BECOME DUE ON ACHIEVING THE FINANCIAL CLOSURE OF RS . 252 CRORE (NOT WITHSTANDING WHETHER THE AGARWAL GROUP DRAWS DOWN T HE ARRANGED FUND OR NOT) AND ONLY AFTER ARRANGING THE FULL FUND OF RS. 252 CRORE, THE ARRANGER FEES WAS TO BE PAID WITHIN 30 DAYS FROM THE DATE OF THE ACQUISITION OF 64.67% ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 100 SHARES HELD BY MAHESHWARI GROUP BY WAY OF THE TRANS FER IN THE NAME OF AGARWAL GROUP OR 31 ST DECEMBER, 2006, WHICHEVER IS EARLIER. THUS IT IS V ERY CLEAR FROM THIS AGREEMENT THAT CONDITION FOR PAYMEN T OF ARRANGER FEES WAS MAKING OF ARRANGEMENT OF FULL AMOUNT OF RS. 252 CRO RE BY M/S CHURU TRADING CO. AND ITS PAYMENT WAS TO BE MADE IRRESPEC TIVE OF ACQUISITION OF 64.67% SHARES, IF SHARES HAD BEEN ACQUIRED, IT SHOULD HAVE BEEN P AID WITHIN 30 DAYS FROM THE DATE OF THE ACQUISITION OF THESE S HARES OTHERWISE PAYMENT WAS TO BE MADE BY 31 ST DECEMBER 2006. WITH SUCH TERMS IN THE AGREEMENT, THE QUESTION OF PAYMENT OF SUCH ARRANGER FEES WOULD HAVE ARISEN ONLY WHEN THE FUND OF RS. 252 CRORE WAS ARRANGED. SUCH AGREEM ENT IS IN FORM OF A CONTINGENT CONTRACT AS PROVIDED IN THE SECTION 31 O F THE INDIAN CONTRACT ACT, 1872, WHICH DEPENDS ON HAPPENING OR NOT HAPPEN ING OF SOME EVENT, COLLATERAL TO SUCH CONTRACT. IN THE PRESENT CASE, L IABILITY TO PAY THE ARRANGER FEES BY THE AGARWAL GROUP TO THE M/S CHURU TRADING CO PVT. LTD. WOULD HAVE ARISEN ONLY IN CASE OF THE EVENT OF ARRANGING THE FUND OF RS. 252 CRORE HAD HAPPENED. BUT BY THE TIME M/S CHURU TRADING CO. PVT. LTD COULD ARRANGE FUND OF RS. 12.5 CRORE, THE HONBLE CLB ON THE PETITION OF THE MAHESHWARI GROUP (FILED FEARING THE SUSPECTED TAKEO VER BY ZEE GROUP AS ALREADY DISCUSSED IN DETAIL IN PARA 5.15) , PASSED AN ORDER DATED 04.04.2006 DEFERRING THE PAYMENTS OF FURTHER INSTALLMENTS AND THEREAFTER, VIDE ORDER DATED 10.07.2006 CANCELLED ITS EARLIER ORDER OF GIV ING OPTION TO THE AGARWAL GROUP TO PURCHASE 64.67% SHARES AND ORDERED THE MAH ESHWARI GROUP TO PURCHASE 35.33% SHARES OF THE AGARWAL GROUP. AFTER THIS ORDER HAD BEEN PASSED BY THE CLB, THE CONDITION FOR ARRANGING THE FUND OF RS. 252 CRORE BY M/S CHURU TRADING CO. AS PER THE AGREEMENT DATED 01 .02.2006 WAS NOT POSSIBLE TO BE FULFILLED AND HENCE IN VIEW OF SECTI ON 32 OF THE INDIAN CONTRACT ACT, 1872, THIS AGREEMENT BECAME VOID AND HENCE PAY MENT OF ARRANGER FEES OF RS. 8.5 CRORE DID NOT BECOME DUE AND THEREFORE, LIABILITY FOR PAYMENT OF SUCH FEES OF RS, 8.5 CRORE TO M/S CHURU TRADING CO. FOR ARRANGING THE FUND OF RS. 252 CRORE DID NOT ARISE. HOWEVER, RS. 8.5 CR ORE WAS STILL PAID TO M/S CHURU TRADING CO. AND THEREFORE, THE QUESTION IS AS TO FOR WHAT SERVICES THIS PAYMENT WAS MADE. IN THE LIGHT OF THE FACTS AND CIR CUMSTANCES AS DISCUSSED ABOVE, IT IS VERY CLEAR THAT CONTENTION OF THE AO T HAT RS. 8.5 CRORE PAID TO M/S CHURU TRADING CO. IS FOR ARRANGING THE FUND OF RS. 252 CRORE IS NOT CORRECT. THE AO HAS ALREADY ACCEPTED THE FORMULATIO N OF STRATEGY AND ALLOWED THE PAYMENT OF FEES TO SHRI S.R. HALBE FOR THIS PURPOSE AND AS PER THE FACTS OF THE CASE ALREADY DISCUSSED IN THIS ORD ER IN PARA 5 AND 8, IT IS QUITE CLEAR THAT M/S CHURU TRADING CO. PLAYED AN IM PORTANT ROLE IN THIS STRATEGY BY WHICH THE AGARWALL GROUP WERE ULTIMATEL Y ABLE TO SELL THEIR SHARE HOLDING AT ENHANCED VALUE. THEREFORE, I FIND FORCE IN THE ARGUMENT OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 101 THE LD. AR THAT SINCE BECAUSE OF INTERVENTION OF M/ S CHURU TRADING CO., THE SHARE VALUE WAS FURTHER GOT ENHANCED BY RS. 22 CROR E, THE PAYMENT OF RS 8.5 CRORE WAS MADE TO M/S CHURU TRADING CO. ON 15.11.20 06 ( AFTER FINAL ORDER DATED 01.11.2006 WAS PASSED BY THE HONBLE CLB) AS AGREED EARLIER, THOUGH THEY DEMANDED 50% OF SUCH EXTRA AMOUNT REALIZED BY THE AGARWAL GROUP AND THEREFORE, PAYMENT OF RS. 8.5 CRORE SHOULD BE A LLOWED AS DEDUCTION U/S 48(I) TO HAVE BEEN PAID FOR TRANSFER OF SHARES. ANO THER ARGUMENT OF THE AO THAT THE PAYMENT MADE TO M/S CHURU TRADING CO. INCL UDES INTEREST ON THE FUND ARRANGED BY IT IS ALSO NOT FOUND TO BE TENABLE AS DISCUSSED IN PARA 11.4. TAKING INTO ACCOUNT ALL THESE FACTS AND CIRCUMSTANC ES OF THE CASE, I FIND THAT PARTICIPATION OF M/S CHURU TRADING CO. IN THE STRAT EGY FORMULATED BY THE AGARWAL GROUP HELPED THEM IN THE DELIBERATIONS BEFO RE THE HONBLE CLB FROM 04.04.2006 ONWARDS TILL FINAL SETTLEMENT ON 01 .11.2006 TO REALIZE RS. 22 CRORE MORE SALE CONSIDERATION AND ULTIMATELY LED TO FINALIZING THE SALE OF SHARES BY THE AGARWAL GROUP AND THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE PAYMENT OF RS 8.5 CRORE MADE TO M/S CHURU TRADING CO. SHOULD BE ALLOWED AS DEDUCTION U/S 48(I) BECAUSE AS PER THE P RINCIPLE LAID DOWN BY THE HONBLE AAR IN THE CASE OF COMPAGNIE FINANCE HAMON(SUPRA) ALSO, SUCH PAYMENTS SHOULD BE ALLOWED AS DEDUCTION U/S 48(I) B EING PAID FOR SERVICES EXTENDED BY IT TO THE PROCESS OF VALUATION OF SHARE S BY HELPING THE AGARWAL GROUP DURING THE PARTICIPATION IN THE DELIBERATIONS BEFORE THE HONBLE CLB THAT LED TO THE SETTLEMENT CONCERNING THE TRANSFER OF SHARES. THEREFORE, THE AO IS DIRECTED TO ALLOW DEDUCTION OF RS. 3,00,00,00 0/- U/S 48(I) FOR PAYMENT MADE TO M/S CHURU TRADING CO. PVT. LTD. AS PART OF THE SHARE OF APPELLANT OUT OF TOTAL PAYMENT OF RS. 8.5 CRORE. IN VIEW OF MY ABOVE DECISION, OUT OF TOTAL DISALLOW ANCE OF RS.3,02,50,000/- MADE BY THE AO IN RESPECT OF THESE TWO PAYMENTS DIS PUTED IN GROUND NO. 4, DEDUCTION FOR RS, 3,00,00,000/- PAID TO M/S CHURU T RADING CO. PVT. LTD. IS ALLOWED AND DISALLOWANCE OF DEDUCTION FOR RS, 2,50, 000/-PAID TO M/S RABO INDIA SECURITIES LTD. IS CONFIRMED AND ACCORDINGLY GROUND NO. 4 IS PARTLY ALLOWED. 12.10.2 PAYMENT OF RS. 2,24,24,000/- + RS. 3,13,200/- TO M/ S S.R. HALBE & ASSOCIATES, MUMBAI: A PAYMENT OF RS. 2,24,24,000/- HAVE BEEN CLAIMED ON ACCOUNT OF FEES PAID TO M/S S. R. HALBE AND ASSOCIATES, MUMBAI FOR FORMU LATION OF THE STRATEGY FOR FILING PETITION BEFORE THE CLB FOR PROTECTION O F THE INTEREST OF MINORITY SHAREHOLDERS, APPEARANCE AND ATTENDING THE PROCEEDI NGS BEFORE CLB, ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 102 BRIEFING THE LAWYERS AND ATTENDING THE HEARING BEFO RE HONBLE ALLAHABAD HIGH COURT AND HONBLE SUPREME COURT, ADVISING AND DRAFTING THE TERMS OF SETTLEMENT IN CONNECTION WITH TRANSFER, HOLDING DIS CUSSIONS AND CONFERENCING WITH MINORITY SHAREHOLDERS. THE PAYMENT OF RS. 2,24 ,24,000/- IS A LUMP-SUM PAYMENT FOR THE SERVICES RENDERED BY M/S S.R. HALBE . THE PAYMENT OF RS. 2,24,24,000/- HAS BEEN ACCEPTED BY THE AO AS INCURR ED IN CONNECTION WITH THE TRANSFER OF SHARES AND DEDUCTION OF RS. 78,56,8 00/- HAS BEEN ALLOWED U/S 48(I) BEING SHARE OF THE APPELLANT IN THE TOTAL PAY MENT OF RS. 2,24,24,000/- MADE TO MR HALBE BECAUSE HE FOUND THAT THERE WAS NO ITEM-WISE BILLING FOR VARIOUS ACTIVITIES AND THE MAJOR PORTION OF FEE WAS ATTRIBUTABLE TO THE PROCEEDINGS BEFORE CLB IN CONNECTION WITH TRANSFER OF SHARE,. AFTER HAVING ACCEPTED THAT THE PAYMENT OF FEES MADE TO SHRI HALBE WAS ATTRIBUTABLE TO THE PROCEEDINGS BEFORE THE HONBLE CLB IN CONNECTION WITH TRANSFER OF SHARES, HE DISALLOWED THE CLAIM OF THE APPELLANT FOR DEDUCTION OF RS. 3,13,200/- PAID TO SHRI HALBE TOWARDS THE REIMB URSEMENT OF TRAVELING, LODGING AND BOARDING EXPENSES WHICH HE CLAIMED ON A CCOUNT OF INCURRING THESE EXPENDITURE WHILE VISITING DELHI IN CONNECTIO N WITH PROCEEDING BEFORE CLB. THESE EXPENSES WERE DISALLOWED BY THE AO GIVIN G HIS FINDING IN THE ASSESSMENT ORDER THAT SUCH EXPENSES DO NOT FIND ANY PLACE TO BE DIRECTLY CONNECTED WITH TRANSFER OF SHARES OF THE AGARWAL GR OUP AND THE NATURE OF EXPENSES ITSELF SHOWS THAT IT HAS NOTHING TO DO WIT H TRANSFER OF SHARES AND CANNOT BE CONSTRUED THAT SUCH EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF SHAR ES. AS AGAINST THIS DECISION OF THE AO, IN THE GROUND NO. 5, THE APPELLANT HAS C ONTENDED THAT WHEN THE FEES PAID TO HIM IS HELD TO HAVE BEEN INCURRED IN C ONNECTION WITH THE TRANSFER OF SHARES, OTHER INCIDENTAL EXPENSES REIMBURSED TO HIM IN CONNECTION WITH PROCEEDING BEFORE CLB SHOULD ALSO BE ALLOWED. IT HA S BEEN ARGUED BY THE LD. AR THAT EVEN PER SE THE EXPENSES OF RS. 3,13,20 0/- PAID TO SHRI S.R.HALBE WERE IN THE NATURE OF REIMBURSEMENT AND FOR LOGISTI CS THEN THEY OUGHT TO HAVE BEEN ALLOWED IN PARTICULAR WHEN PAYMENTS OF FE ES MADE TO HIM IS HELD TO HAVE BEEN INCURRED IN CONNECTION WITH THE TRANSF ER OF SHARES BY THE AO. I ALSO CONSIDER THAT ONCE THE AO HAS FOUND THAT THE S ERVICES RENDERED B YSHRI HALBE WAS MAINLY RELATED TO THE PROCEEDINGS BEFORE CLB IN CONNECTION WITH TRANSFER OF SHARE AND ALLOWED THE FULL FEES PAID TO HIM FOR DEDUCTION U/S 48(I), THERE IS NO LOGIC TO DENY THE DEDUCTION FOR THE REIMBURSEMENT OF INCIDENTAL EXPENSES ON TRAVELLING, LODGING, BOARDIN G ETC., WHICH HE INCURRED WHILE VISITING DELHI IN CONNECTION WITH THE PROCEED ING BEFORE CLB THAT WAS SEIZED WITH THE MATTER OF SETTLING THE DISPUTE BETW EEN THE AGARWAL GROUP AND THE MAHESHWARI GROUP TO DECIDE AS TO HOW SHARES OF ONE GROUP IS SOLD ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 103 TO OTHER GROUP SO THAT BOTH COMPANIES UNDER DISPUTE REMAIN IN CONTROL OF ONE GROUP ONLY AND THE OTHER GROUP GETS BEST PRICE ON SALE OF THEIR SHARES AND ULTIMATELY IT WAS DECIDED THAT THE AGARWAL GROU P WAS TO SELL ITS SHARES TO THE MAHESHWARI GROUP AT MUTUALLY AGREED PRICE. C ONSIDERING THIS BACKGROUND OF THE PROCEEDINGS BEFORE THE CLB, THE A O HAS ALREADY ACCEPTED THE ACTIVE ROLE OF SHRI HALBE IN THESE PROCEEDINGS BEFORE THE HONBLE CLB AND ALLOWED THE FEES PAID TO HIM CONSIDERING THAT T HE FEES PAID TO HIM WAS IN CONNECTION WITH THE TRANSFER OF SHARES AND THERE FORE, IF ANY EXPENDITURE WAS INCURRED BY HIM WHILE VISITING DELHI TO ATTEND THESE PROCEEDINGS AND THE AGARWAL GROUP REIMBURSED THOSE EXPENSES , THEY SHOU LD ALSO BE ALLOWED AS BEING INCURRED IN CONNECTION WITH THE TRANSFER OF S HARES. AS THE FULL AMOUNT OF THESE EXPENSES BEING RS. 3,13,200/ HAS BEEN CLAI MED BY THE APPELLANT, AO IS DIRECTED TO ALLOW DEDUCTION FOR RS.3,13,200/- AL SO U/S 48(I) AND ACCORDINGLY GROUND NO. 5 IS ALLOWED. 12.10.3 PAYMENT OF RS. 44,22,400/- TO MRS. BINA GUPTA, ADVO CATE, NEW DELHI THE AO HAS GIVEN HIS FINDING IN THE ASSESSMENT ORDE R THAT THE PAYMENT OF RS. 44,22,400/- WAS CLAIMED TO HAVE BEEN MADE TO SMT. B INA GUPTA AS FEE FOR PREPARATION OF PETITION, APPEARANCE BEFORE THE CLB AND FEE FOR APPEARANCE BEFORE HONBLE ALLAHABAD HIGH COURT AND HONBLE SUP REME COURT INCLUDING CONSULTATION FROM TIME TO TIME IN RESPECT OF TRANSFER OF SHARES. OUT OF TOTAL PAYMENT OF RS. 44,22,400/- MADE TO SMT. BI NA GUPTA BY ALL THE MEMBERS OF AGARWAL GROUP, THE APPELLANTS SHARE OF PAYMENT MADE TO HER IS RS.15,40,000/- . OUT OF THE AMOUNT OF RS.15,40,000/ - CLAIMED BY THE APPELLANT AS DEDUCTION U/S 48(I) ON ACCOUNT OF PAYM ENTS MADE TO SMT. BINA GUPTA, IT WAS NOTICED BY THE AO THAT CERTAIN EXPENS ES WERE INCURRED IN CASH ON VOUCHERS WHICH ARE BASICALLY REIMBURSEMENT OF EX PENSES RELATED TO TRAVELING, LODGING AND BOARDING ETC. TOTALING TO AN AMOUNT OF RS. 6,25,000/- AND HENCE LOOKING AT THE SUPPORTING BILLS, HE CONCL UDED THAT SUCH PAYMENTS FELL UNDER THE CATEGORY OF VARIOUS MISCELLANEOUS AC COUNTS OF LOGISTIC EXPENSES WHICH ARE NOT DISTINCTLY RELATED AND INTEG RALLY CONNECTED WITH THE TRANSFER OF SHARES AND THEREFORE, HE HELD THAT RS. 6,25,000/- IS NOT ADMISSIBLE FOR DEDUCTION U/S 48(I). DISPUTING THIS DISALLOWANC E, THE APPELLANT IN GROUND NO.6 CONTENDED THAT ALL PAYMENTS HAVE BEEN MADE WHO LLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE CAPITAL ASSET A ND HENCE THE ADDITION MADE IS LIABLE TO BE DELETED. IN ORDER TO EXAMINE THE AL LOWABILITY OF DEDUCTION U/S 48(I) FOR PAYMENTS MADE TO SMT. BINA GUPTA, THE BIL L WISE DETAILS OF PAYMENTS MADE TO HER IS GIVEN AS UNDER: ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 104 BILL DATE DETAILS OF BILL AMOUNT PAID DATE 04.04.2005 RETAINER FEES, DRAFTING AND FINALIZING COMPANYPETITION, CONFERENCE WITH CLIENTS AND OTHER ADVOCATES AND APPEARANCE BEFORE CLB RS.1,00,000/ - 04.04.2005 26.06.2005 CONTESTING CLB ORDER IN ALLAHABAD HIGH C OURT RS. 30,000/ - 23.04.2005 16.07.2005 DRAFTING, FILING SLP BEFORE SC AND APPEARANCEBEFORE THE COURT RS. 50,000/ - 06.10.2005 05.10.2005 FEES FOR APPEARANCE BEFORE CLB ON 26.09. 2005, 27.09.2005, 30,09,2005 AND 03.10.2005 RS.1,00,000/ - 01.03.2006 30.05.2005 FEES FOR CONFERENCE WITH OTHER ADVOCATES AND APPEARANCE BEFORE CLB ON 25.07.2005 AND 26.07.2005 RS. 85,000/ - 05.02.2006 29.08.2005 FEES FOR ENGAGING SUDIPTO SARKAR TO APPE AR BEFORE CLB ON 24.08.2005 INCLUDING CONFERENCE RS. 75,000/ - 23.03.2006 06.10.2005 FEES FOR ENGAGING SUDIPTO SARKAR TO APPE AR BEFORE CLB ON 03.10.2005 INCLUDING CONFERENCE RS. 75,000/ - 23.03.2006 27.01.2006 FEES FOR APPEARANCE BEFORE CLB ON 17.01. 2006, 24.01.2006 AND 25.01.2006 RS. 50,000/ - 05.04.2006 29.07.2005 FEES FOR ENGAGING SUDIPTO SARKAR TO APPE AR BEFORE CLB ON 25.07.2005 INCLUDING CONFERENCE RS.1,00,000/ - 12.07.2006 01.08.2006 LUMP-SUM PAYMENT MADE ON FINALIZATION OF CLB CASE AFTER SETTLEMENT INCLUDING WORKING AS ESCROW AGENT RS.8,75,000/ - 03.02.2007 RS.15,40,000/ - LOOKING TO ABOVE DETAILS OF THE BILLS, IT IS CLEAR THAT WHILE DISALLOWING, RS.6,25,000/- OUT OF ABOVE EXPENSES, THE AO HAS WRO NGLY HELD THESE BILLS AS RAISED ONLY FOR TRAVELLING, LODGING, BOARDING AND O THER LOGISTICS WHILE ,IT CAN BE SEEN FROM THE ABOVE CHART THAT THESE BILLS WERE MAINLY RAISED BY SMT. BINA GUPTA IN CONNECTION WITH THE PROCEEDINGS BEFOR E THE CLB AFTER PETITION U/S 397 & 398 OF THE COMPANIES ACT WAS FILED BEFORE IT. LOOKING TO THE FACTS OF THE CASE AS DISCUSSED IN DETAIL IN PARA 5 OF THI S ORDER , INITIALLY WHEN PETITION WAS FILED BEFORE THE CLB, THE AGARWAL GROU P MAINLY WANTED THE PUBLICATION BUSINESS BEING PARTITIONED AMONG THE FA MILY MEMBERS AS PER THE INITIAL AGREEMENT ARRIVED BETWEEN THEM ON 02.12.200 4 BUT ONLY AFTER MANY ROUNDS OF HEARING BEFORE THE CLB, IT BECAME CLEAR T HAT PARTITION OF THE PUBLICATION BUSINESS IS NOT POSSIBLE, A COMPROMISE WAS REACHED BEFORE THE CLB THAT ONE GROUP HAS TO GO OUT AND THE OUTGOING G ROUP WOULD SELL THEIR SHARE HOLDING AT THE BEST POSSIBLE VALUE OF SHARES AND THEREAFTER ORDER DATED 25.01.2006 WAS PASSED BY THE CLB GIVING FIRST OPTIO N TO THE AGARWAL GROUP TO BUY SHARES AND THEREFORE, IF ANY STRATEGY WAS FO RMULATED BY THE AGARWAL GROUP FOR ENHANCING THE VALUE OF SHARES, IT WOULD H AVE COME INTO PLAY ONLY AFTER THIS DATE AND HENCE ALL THE PAYMENTS TO PARTI ES INVOLVED IN THIS STRATEGY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 105 WAS MADE AFTER FINAL SETTLEMENT AND PASSING OF FINA L ORDER BY THE CLB ON 01.11.2006 ALLOWING THE AGARWAL GROUP TO SELL THEIR SHARES AT MUTUALLY AGREED PRICE OF RS.160 CRORE WHICH WAS ENHANCED BY RS.22 CRORE THAN THE ORIGINAL VALUATION OF RS. 138 CRORE AND THUS THE AG ARWAL GROUP SUCCEDED IN HIS STRATEGY WITH THE HELP OF THOSE PARTIES WHO WER E PAID AFTER THIS SETTLEMENT SUCH AS MR. S.R. HALBE, M/S CHURU TRADING CO. PVT L T., MR. DAYAL SARAN. OTHER THAN THESE THREE PARTIES, IF MRS. BINA GUPTA HAD PLAYED ANY ROLE IN THIS STRATEGY, SUCH ROLE WOULD HAVE BEEN PLAYED BY HER ONLY AFTER 25.01.2006 AND FINALLY SHE ALSO ACTED AS AGENT FOR ESCROW ACCO UNT FOR MAKING PAYOUT TO ALL MEMBERS OF THE AGARWAL GROUP AS WELL AS TRANSFE RRING THE SHARES RECEIVED FROM THE AGARWAL GROUP IN THE ESCROW ACCOU NT TO THE MAHESHWARI GROUP. THE PAYMENT OF RS.8,75,000/- HAS BEEN MADE O N 03.02.2007 AFTER FINAL SETTLEMENT AND CLEARING ALL PAYMENTS AND TRAN SFER OF SHARES FROM ESCROW ACCOUNT. THEREFORE, PAYMENTS OF RS. 8,75,000 /- IS ALLOWABLE AS DEDUCTION U/S 48(I) BEING IN CONNECTION WITH THE TR ANSFER OF SHARES AS RIGHTLY ALLOWED BY THE AO, THOUGH NOTHING HAS BEEN DISCUSSE D IN THE ASSESSMENT ORDER WHILE ACCEPTING THE CLAIM OF THE APPELLANT IN RESPECT OF THE AMOUNT OF RS. 8,75,000/-. OTHER PAYMENTS TOTALING TO RS. 6,65 ,000/- HAS BEEN PAID TO MRS. BINA GUPTA IN THE INITIAL STAGE OF CLB PROCEED ING IN CONNECTION WITH PREPARATION OF PETITION , APPEARING BEFORE THE CLB , ENGAGING OTHER LAWYERS FOR CONSULTATION AND MAKING APPEARANCE BEFORE THE C LB AND ALSO TO CONTEST THE CASE OF THE AGARWAL GROUP BEFORE THE HIGH COURT AND THE SUPREME COURT AND THESE PAYMENTS WERE MAINLY MADE IN CONNEC TION WITH PROTECTING THE MINORITY RIGHTS OF THE AGARWAL GROUP U/S 397 AN D 398 OF THE COMPANIES ACT AND TO ARGUE THEIR CASE FOR PARTITIONING OF PUB LICATION BUSINESS AMONG THE FAMILY MEMBERS. SUCH PAYMENTS TO SMT. BINA GUPT A HAD NOTHING TO DO WITH THE TRANSFER OF SHARES AS HELD BY THE HONBLE AAR IN CASE OF COMPAGNIE FINANCE HAMON(SUPRA), THAT SUCH LEGAL FEES ETC. PAID TO THE LAWYERS FOR FILING THE PETITIONS UNDER SECTIONS 397 AND 398 IN THE COMPANY LAW BOARD AND FOR MAKING APPEARANCE BEFORE THE BOAR D PRIOR TO THE PASSING OF FINAL ORDER GIVING GREEN SIGNAL FOR THE TRANSFER OF SHARES ARE NOT ADMISSIBLE FOR DEDUCTION. SINCE FINAL DECISION FOR TRANSFER OF SHARES FROM EITHER OF TWO GROUPS WAS TAKEN IN THE CLB ORDER DAT ED 25.01.2006, ANY PAYMENT MADE TO SMT. BINA GUPTA FOR THE BILLS RAISE D FOR HER SERVICES ON OR PRIOR TO THIS DATE WOULD NOT BE ALLOWABLE AS DEDUCT ION U/S 48(I). SUM OF SUCH PAYMENTS COMES TO RS. 6,65,000/- ON ADDING ALL BILL S OF SMT. BINA GUPTA RAISED FOR SERVICES RENDERED ON OR BEFORE 25.01.200 6 AND LISTED IN THE CHART SHOWN ON PAGE NO.90 & 91 OF THIS ORDER. IN THE ASSE SSMENT ORDER, THE AO HAS NOT GIVEN ANY COMPUTATION AS TO HOW HE ARRIVED TO THE AMOUNT OF DISALLOWANCE OF RS. 6,25,000/- AND SINCE AFTER ADDI NG ALL THE BILLS FOR WHICH ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 106 DEDUCTION U/S 48(I) CANNOT BE ALLOWED, IT COMES TO RS. 6,65,000/- , AO IS DIRECTED TO DISALLOW DEDUCTION U/S 48(I) FOR RS. 6, 65,000/- INSTEAD OF RS.6,25,000/- IN RESPECT OF PAYMENT MADE TO SMT. BI NA GUPTA. THEREFORE, GROUND NO. 6 IS DISMISSED AND AMOUNT OF DISALLOWANC E IS ENHANCED FROM RS. 6.25,000/- TO RS. 6,65,000/-. THOUGH NO SPECIFIC NOTICE FOR ENHANCEMENT OF THIS DISALLOWANCE WAS GIVEN TO THE APPELLANT BUT IN THE HEARING HELD ON 29.03.2011, THE LD. AR WAS TOLD THAT FOR OTHER PAYM ENTS MADE TO CONSULTANTS, ONLY THAT PAYMENT WOULD BE ALLOWED WHI CH IS PAID IN CONNECTION WITH TRANSFER OF SHARES AND NOT FOR MAKING PETITION TO BE FILED BEFORE THE HONBLE CLB AND APPEARANCE BEFORE CLB AND FOR THIS PURPOSE, THE LD. AR WAS REQUIRED TO SUBMIT THE CHART OF BILL-WISE PAYME NT MADE TO EACH CONSULTANT GIVING PURPOSE OF PAYMENT. WHILE SUBMITT ING SUCH CHART, IT WAS SUBMITTED BY THE LD. AR THAT SMT. BINA GUPTA WAS AP POINTED AS ESCROW AGENT BY THE COMPANY LAW BOARD AND HER PROFESSIONAL SERVICES WERE INVOLVED IN THE TRANSFER OF THE SHARES WHICH ARE IN CLUDED IN THE PAYMENTS MADE TO HER. THE TOTAL CONSIDERATION REALISED BY TH E ASSESSEE ON THE TRANSFER OF SHARES IS RS. 160 CRORES AND AT LEAST THE PAYMEN T MADE TO SMT. BINA GUPTA WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFIC ER BE TREATED AS EXPENSES IN CONNECTION WITH TRANSFER SINCE THEY C AN REASONABLY BE ATTRIBUTED TO THE PROFESSIONAL CHARGES FOR ESCROW A GENT. SINCE, THERE WAS NO SPECIFIC DISCUSSION MADE BY THE AO IN THE ASSESSMEN T ORDER TO ALLOW THE PAYMENTS MADE TO SMT. BINA GUPTA AND ONLY AN AMOUNT OF RS. 6,25,000/- WAS MENTIONED FOR DISALLOWANCE WITHOUT GIVING ANY C OMPUTATION, I MADE THE COMPUTATION OF ALLOWABLE PAYMENTS AND DISALLOWABLE PAYMENTS AS MENTIONED ABOVE ON THE BASIS OF THE PRINCIPLE LAID DOWN BY THE HONBLE AAR IN THE CASE OF COMPAGNIE FINANCE HAMON(SUPRA) RELIED UPON BY BOTH THE AO AS WELL AS LD. AR AND I FIND THAT IT WOULD BE AP PROPRIATE TO DISALLOW DEDUCTION FOR RS. 6,65,000/- AND ALLOW DEDUCTION FO R RS. 8,75,000/- OUT OF TOTAL CLAIM OF RS.15,40,000/- MADE IN RESPECT OF PA YMENTS MADE TO SMT. BINA GUPTA. 12.10.4 PAYMENT OF RS. 1,50,000/- TO MR. SUDIPTO SARKAR, AD VOCATE THE APPELLANT HAS CLAIMED TO HAVE MADE PAYMENT OF RS. 1,50,000/- TO MR. SUDIPTO SARKAR, ADVOCATE ON ACCOUNT OF APPEARAN CE FEES BEFORE THE CLB ON 17.01.2006, 24.01.2006 AND 25.01.2006. THE AO NO TED ON PERUSAL OF ORDERS OF CLB THAT SHRI SARKAR APPEARED ON BEHALF O F AGARWAL GROUP DURING THE ACQUISITION PROCESS OF MAJORITY SHAREHOL DING OF MAHESHWARI GROUP ON BEHALF OF PETITIONERS (AGARWAL GROUP). THE CONSOLIDATED PAYMENTS ALSO INCLUDED EXPENSES ON ACCOUNT OF LOGISTIC PROVI SIONS AND THEREFORE HE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 107 HELD THAT SUCH EXPENSES ARE NOT DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES AND HENCE, IT CANNOT BE TREATED AS THE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SHARES. THEREFORE, HE DID NOT ALLOW DEDUCTION FOR PAYMENT O F THIS AMOUNT U/S 48(I) OF I.T.ACT. THE APPELLANT DISPUTED THIS DISALLOWANCE C ONTENDING THAT THE AO HAS IGNORED THE FACT THAT ACQUISITION OF SHARES WAS STR ATEGY ONLY TO ENHANCE THE VALUATION OF THE COMPANIES. THE PAYMENT HAS BEEN MA DE EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE CAPITAL ASSET A ND THE APPELLANT PRAYED FOR DELETION OF THIS ADDITION. AFTER TAKING INTO ACCOUNT ALL THE FACTS OF THE CASE SO FAR DISCUSSED IN THIS ORDER IN PARA NO. 5, 8 ,11 AND FROM 12.1 TO 12 .9, I FIND THAT ALL THE PERSONS WHO HELPED THE AGARWAL GROUP TO ACHIEVE THE IR ULTIMATE AIM OF SELLING THE SHARES AT BEST PRICE REMAINED INVOLVED IN THE WHOLE PROCESS TILL THE FINAL ORDER DATED 01.11.2006 WAS PASSED BY THE HONBLE CLB ORDERING THE MAHESHWARI GROUP TO PAY RS. 155 CRORE AS SALE C ONSIDERATION OF SHARES PURCHASED BY THEM FROM THE AGARWAL GROUP , OUT OF T OTAL MUTUALLY AGREED SALE CONSIDERATION OF RS. 160 CRORE BECAUSE, RS. 5 CRORE WAS ALREADY PAID IN ADVANCE. THESE PERSONS WHO FORMED THE STRATEGY OR H ELPED THE AGARWAL GROUP IN THIS STRATEGY TO ACHIEVE THE ULTIMATE AIM WERE SHRI S.R. HALBE, M/S CHURU TRADING COMPANY PVT. LTD. AND SHRI DAYAL SARA N AND THEREFORE, FINAL PAYMENTS WERE MADE TO THEM AFTER THE STRATEGY FORME D BY THEM WAS SUCCEEDED AND SHARES OF THE AGARWAL GROUP WERE SOLD AS DESIRED BY THEM AFTER RECEIVING THE ENHANCED SALE PROCEEDS AND THER EFORE PAYMENTS MADE TO THEM WAS FOUND TO BE IN CONNECTION WITH TRANSFER OF SHARES AND ALLOWED AS DEDUCTION U/S 48(I) BY ME. SMT BINA GUPTA ALSO CONT RIBUTED PARTLY IN TRANSFER OF SHARES BEING APPOINTED AS ESCROW ACCOUN T AGENT AND HENCE PAYMENT MADE TO HER IN RESPECT OF THIS SERVICE WAS ALLOWED AS DEDUCTION U/S 48(I). IT HAS ALSO BEEN FOUND FROM THE FACTS OF THE CASE THAT INITIALLY THE AIM OF THE AGARWAL GROUP WAS TO GET THE PUBLICATION BUS INESS OF THE FAMILY PARTITIONED AMONG ALL THE FAMILY MEMBERS OF BOTH GR OUPS AS PER THEIR AGREEMENT ARRIVED ON 02.12.2004 ( WHICH WAS NOT HON OURED BY THE MAHESHWARI GROUP) AND THEREFORE, FOR PROTECTING THE IR RIGHT BEING MINORITY SHAREHOLDER, THEY WENT TO CLB U/S 397 AND 398 AND O NLY AFTER SERIES OF HEARING BEFORE THE CLB WHEN IT BECAME CLEAR THAT SU CH PARTITION OF PUBLICATION BUSINESS WAS NOT POSSIBLE, THEY POSSIBL Y MADE A STRATEGY TO GET THE VALUE OF SHARES ENHANCED BEFORE SELLING THEM. I N THIS FORMULATION OF STRATEGY, ROLE OF M/S RABO INDIA SECURITIES LTD., S MT. BINA GUPTA (TO THE EXTENT OF PREPARATION OF CLB PETITION AND APPEARING BEFORE THE CLB FOR HEARING TILL THE DATE AGARWAL GROUP WAS CONTESTING FOR PARTITION OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 108 PUBLICATION BUSINESS AND ACQUISITION OF MAJORITY SH ARE HOLDING) AND SHRI SUDIPTO SARKAR, ADVOCATE (FOR APPEARING BEFORE THE CLB FOR HEARING RELATING TO ACQUISITION OF SHARES) WAS LIMITED AND THEY DO N OT APPEAR TO BE PART OF THE STRATEGY OF THE AGARWAL GROUP AND THEREFORE, THEIR PAYMENT WITH RESPECT TO THEIR APPARENT SERVICES WAS SETTLED MUCH BEFORE THE FINAL ORDER WAS PASSED BY THE HONBLE CLB BECAUSE SINCE THEY WERE NOT PART OF THE STRATEGY, THEY DID NOT WAIT TILL ITS SUCCESS AND THEY ONLY RECEIVE D THE PAYMENT FOR THE SERVICES FOR WHICH THEY WERE ENGAGED. ON LOOKING TO THE BILL OF THE SUDIPTO SARKAR, IT IS CLEAR THAT HE WAS PAID RS. 1,50,000/- FOR APPEARING BEFORE THE CLB ON 17.01.2006, 24.01.2006 AND 25.01.2006 IN WHI CH HE ARGUED THE CASE OF THE AGARWAL GROUP FOR ACQUISITION OF MAJORITY SH ARE HOLDING AND SINCE NOT BEING PART OF THE STRATEGY OF THE AGARWAL GROUP (THAT THEY WERE NOT INTERESTED IN ACQUISITION OF SHARES BUT ULTIMATELY WANTED TO SELL THE SHARES BY ENHANCING THEIR VALUE BY CREATING ACTIONS AND DRAMA TO SHOW THAT THEY ARE INTERESTED IN ACQUIRING THE SHARES OF THE MAJORITY SHAREHOLDERS WITH THE HELP OF SUCH CONCERN WHICH WAS FRONT FOR ZEE GROUP AND H ENCE TRYING TO CREATE A FEAR IN THE MIND OF THE MAHESHWARI GROUP THAT COMPA NY MAY GO IN THE HAND OF ZEE GROUP AND COMPELLING THEM TO AGREE FOR PURCH ASING THEIR SHARE HOLDING AT A HIGHER SALE CONSIDERATION), HE ONLY RE CEIVED HIS FEES ON 02.04.2006 FOR HIS APPEARANCE BEFORE THE CLB FOR PR OCEEDINGS RELATING TO ACQUISITION OF SHARES AND DID NOT WAIT FOR THE FINA L OUTCOME OF THE STRATEGY FORMULATED BY THE AGARWAL GROUP. THEREFORE, I AGREE WITH THE AO THAT SUCH PAYMENTS MADE TO SHRI SUDIPTO SARKAR ARE NOT DISTIN CTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES AN D HENCE, IT CANNOT BE TREATED AS THE EXPENSES INCURRED WHOLLY AND EXCLUSI VELY IN CONNECTION WITH TRANSFER OF SHARES. AS PER THE PRINCIPLE LAID DOWN BY THE HONBLE AAR IN THE CASE OF COMPAGNIE FINANCE HAMON(SUPRA) ALSO, SUCH EXPENSES ARE NOT ALLOWABLE FOR DEDUCTION U/S 48(I) BECAUSE THIS PAYM ENT IS IN THE NATURE OF LEGAL FEES PAID TO A LAWYER FOR MAKING APPEARANCE B EFORE THE COMPANY LAW BOARD PRIOR TO THE PASSING OF FINAL ORDER GIVING GR EEN SIGNAL FOR THE TRANSFER OF SHARES. THEREFORE, I CONFIRM THE DISALLOWANCE OF DEDUCTION U/S 48(I) MADE BY THE AO FOR RS. 1,50,000/- PAID TO SHRI SUDIPTO S ARKAR. ACCORDINGLY GROUND NO. 7 IS DISMISSED. 12.10.5 PAYMENT OF RS. 10,00,000/- TO MR. DAYAL SA RAN, ADVOCATE, AGRA A CONSOLIDATED PAYMENT OF RS. 10,00,000/- (RS. 5, 00,000/- EACH BY AJAY AGARWAL FAMILY AND KAMLESH AGARWAL FAMILY) HAS BEEN SHOWN AS FEE FOR CONSULTATION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 109 THE AO HAS DISCUSSED IN THE ASSESSMENT ORDER THAT T HERE IS NO EVIDENCE WHICH CAN CORROBORATE THAT ANY LEGAL SERVICES HAVE BEEN EXTENDED IN THE PROCESS OF VALUATION OF SHARE OR IN THE PROCESS OF COMPROMISE CONCERNING THE TRANSFER OF SHARES. IN HIS VIEW SUCH A LEGAL EX PENSE DOES NOT FIND ANY PLACE THAT THEY ARE INTRINSICALLY LINKED WITH THE T RANSFER OF SHARES AND THEREFORE, HE HELD THAT IT CANNOT BE ALLOWED AS DED UCTION U/S 48(I). IN GROUND NO. 8, THE APPELLANT HAS DISPUTED THIS DISALLOWANCE CONTENDING THAT THE AO HAS IGNORED THAT THE BILL OF SHRI DAYAL SARAN FILED AMPLY PROVES THAT THE PAYMENT HAS BEEN MADE WHOLLY AND EXCLUSIVELY IN CON NECTION WITH THE TRANSFER OF THE CAPITAL ASSET AND THEREFORE THE ADD ITION MADE IS PRAYED TO BE DELETED. I HAVE GONE THROUGH THE BILL OF SHRI DAYAL SARAN AND FIND THAT IN THE BILL, IT IS CLEARLY WRITTEN THAT THIS BILL WAS RAIS ED FOR CHARGING THE FEES FOR CONSULTATION IN RESPECT OF THE TRANSFER OF SHARES I NCLUDING TRAVEL AND OTHER OUT OF POCKET EXPENSES FOR VISITING DELHI FROM TIME TO TIME. CASE OF THE AO IS NOT THAT THIS PAYMENT IS NOT MADE. HE ALSO COULD NO T PROVE, IF THIS PAYMENT IS NOT MADE FOR THE CONSULTATION IN RESPECT OF THE TRA NSFER OF SHARES, THEN WHAT WERE OTHER POSSIBLE SERVICES FOR WHICH THIS PAYMENT COULD HAVE BEEN MADE BY THE APPELLANT TO HIM. FROM THE FACTS OF THE CASE , IT IS VERY CLEAR THAT SHRI DAYAL SARAN BEING A CHARTERED ACCOUNTANT WAS ASSOCI ATED WITH THE AGARWAL GROUP SINCE THE BEGINNING OF THE DISPUTE AN D THEREFORE, HIS CONTRIBUTION IN SETTLING THE DISPUTE TILL A COMPROM ISE WAS REACHED BETWEEN BOTH GROUPS AND FINAL ORDER WAS PASSED BY THE HONB LE CLB ON 01.11.2006 FOR SALE AND TRANSFER OF SHARES OF THE AGARWAL GROU P, CANNOT BE DENIED AND THEREFORE, HIS PAYMENT WAS SETTLED ONLY AFTER PASSI NG OF FINAL ORDER BY THE HONBLE CLB GIVING GREEN SIGNAL FOR THE TRANSFER OF SHARES SIMILAR TO SHRI S.R. HALBE AND THEREFORE, IN MY CONSIDERED OPINION PAYMENT MADE TO SHRI DAYAL SARAN IS ALSO ALLOWABLE FOR DEDUCTION U/S 48( I) ON THE BASIS OF BILL RAISED BY HIM BEING FOR THE SERVICES PROVIDED FOR C ONSULTATION IN RESPECT OF THE TRANSFER OF SHARES UNLESS ANY CONTRARY FINDING IS GIVEN BY THE AO , WHICH HE HAS FAILED TO BRING ON RECORD IN THE ASSESSMENT ORDER. THEREFORE, THE AO IS DIRECTED TO ALLOW DEDUCTION FOR RS. 5,00,000/- U /S 48(I) BEING HALF PORTION OF THE PAYMENT MADE TO SHRI DAYAL SARAN AND CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. ACCORDINGLY GROUND NO. 8 IS A LLOWED. 12.11 IN VIEW OF MY DECISION FOR GROUND NO.4 TO GROUND NO. 8 DISCUSSED IN PREVIOUS SUB-PARAS, CERTAIN DISALLOWAN CE MADE BY THE AO ARE DELETED AND CERTAIN DISALLOWANCES WERE CONFIRMED/EN HANCED AS PRESENTED BELOW IN A CHART: ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 110 SL. NO. NAME OF LAWYER/ PROFESSIONAL TO WHOM PAYMENT WAS CLAIMED AMOUNT DISALLOWED BY THE AO (RS.) AMOUNT ALLOWED IN APPEAL (RS.) AMOUNT CONFIRMED/ENHANCED IN APPEAL (RS.) 1. M/S RABO INDIA SECURITIES PVT. LTD. 2,50,000/- - 2,50,000/- 2. M/S CHURU TRADING COMPANY PVT. LTD. 3,00,00,000/- 3,00,00,000/- - 3 SHRI S.R. HALBE 3,13,200/- 3,13,200/- - 4. SMT. BINA GUPTA 6,25,000/- - 6,65,000/- 5. SHRI SUDIPTO SARKAR 1,50,000/- - 1,50,000/- 6. SHRI DAYAL SARAN 5,00,000/- 5,00,000/- - TOTAL 3,18,38,200/- 3,08,13,200/- 10,65,000/- IN VIEW OF ABOVE DETAILS RELATING TO ALLOWANCE/DIS ALLOWANCES OF VARIOUS EXPENSES CLAIMED AS DEDUCTION BY THE APPELL ANT U/S 48(I), OUT OF TOTAL DISALLOWANCES OF RS. 3,18,38,000/0 MADE BY THE AO , THE DISALLOWANCE OF RS. 10,25,000/- ( 2,50,000/-+ 6,25,000/- + 1,50,000/-) IS CONFIRMED AND FURTHER ENHANCED BY RS. 40,000/- AS DISCUSSED IN PARA 12.10 .3 AND THEREFORE TOTAL DISALLOWANCE OF DEDUCTION U/S 48(I) COMES TO RS. 10 ,65,000/- AND THEREFORE, THE APPELLANT GETS A NET RELIEF OF RS. 3,07,73,200/ -. 12.12 WHILE DECIDING THE GROUNDS OF THIS APPEAL RE LATING TO ALLOWANCE OF DEDUCTION U/S 48(I) IN RESPECT OF PAYMENTS MADE BY THE APPELLANT TO VARIOUS LAWYERS AND PROFESSIONAL AS DISCUSSED IN PR EVIOUS SUB-PARAS, I HAVE CONSIDERED ALL CASE LAWS CITED BY THE AO AS WELL AS THE APPELLANT BUT THE FACTS OF NONE OF THE CASE LAWS WAS FOUND IN CONFORM ITY WITH THE FACTS OF THE CASE OF THE APPELLANT EXCEPT THE CASE OF COMPAGNIE FINANCE HAMON (2009) 310 ITR 1(AAR) TO SOME EXTENT. BOTH THE AO AS WELL AS THE LD. AR H AS RELIED UPON THIS CASE LAW TO SUPPORT THEIR ARGUMENT S. AFTER GOING THROUGH THIS DECISION, I HAVE ALSO DECIDED THE APPEAL OF TH E APPELLANT ON THE BASIS OF THE PRINCIPLES LAID DOWN BY THE HONBLE AUTHORITY F OR ADVANCE RULING IN THIS CASE AS DISCUSSED IN PARA NO. 12.10 OF THIS ORDER. 13.1 IN GROUND NO. 9, THE APPELLANT HAS TAKEN ANOTH ER PLEA FOR ALLOWANING DEDUCTION FOR EXPENSES U/S 48(I) CONTENDING THAT TH E APPELLANT FALLING UNDER AGARWAL GROUP HAD REALIZED RS. 22 CRORES OVER AND ABOVE THE COMPROMISED AMOUNT OF RS. 138 CRORES AS PER THE ORD ER OF THE HONBLE COMPANY LAW BOARD TOTALING TO RS. 160 CRORES, THE E XCESS INCLUDED THE COST OF THE REIMBURSEMENT OF EXPENSES AND HENCE THESE EX PENSES SHOULD BE ALLOWED. IN SUPPORT OF THIS GROUND, IN THE WRITTEN SUBMISSION FILED ON 15.10.2010, IT WAS SUBMITTED BY THE LD. AR THAT FIN AL VALUE OF SHARES FIXED BY ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 111 THE COMPANY LAW BOARD, PRINCIPAL BENCH, NEW DELHI F OR THE MINORITY GROUP OF SHAREHOLDERS WAS RS. 138 CRORES. TO AVOID DISPUTE, PURCHASE PEACE BOTH THE FAMILY GROUPS FINALLY AGREED AND SET TLED VALUE OF SHARES AT RS.160 CRORES CONSIDERING THAT MINORITY GROUP ACTUA LLY INCURRED EXPENDITURE IN RELATION TO CAPITAL ASSET. THEREFORE , IN THE ALTERNATIVE, IT IS HEREBY CLAIMED THAT NET CONSIDERATION ACCRUING/FINA LLY RECEIVED BE CONSIDERED AS REDUCED BY SUCH EXPENDITURE WHOLLY AN D EXCLUSIVELY INCURRED IN CONNECTION WITH THE TRANSFER AS ENVISAGED IN EXP LANATION 5 TO SECTION 54E OF THE INCOME TAX ACT, 1961. ACCORDINGLY EVEN OTHER WISE THE LD. AR ARGUED THAT THE AMOUNT OF EXPENSES INCURRED AND CLAIMED AG AINST CAPITAL GAIN IS ALLOWABLE AGAINST THE GROSS RECEIPTS ON TRANSFER OF SHARES AND THE REMAINING AMOUNT LEFT, ATTRACTS THE CAPITAL GAIN TAX LIABILIT Y. HE ALSO CONTENDED THAT IT WOULD ALSO BE APPRECIATED THAT THE MAJOR PART HAS B EEN ASSESSED IN THE HANDS OF THE RECIPIENTS. I HAVE CONSIDERED THIS PLE A OF THE APPELLANT ALSO. IN EXPLANATION 5 TO SECTION 54E FOR COMPUTATION OF NET CONSIDERATION ALSO, ONLY THOSE EXPENDITURE ARE REDUCED FROM THE VALUE OF SAL E CONSIDERATION, WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION W ITH THE TRANSFER OF A CAPITAL ASSET AND THIS PROVISION IN RESPECT OF CLAI M OF DEDUCTION FOR EXPENSES ARE SIMILAR TO THE PROVISION OF SECTION 48(I) WHICH HAVE ALREADY BEEN CONSIDERED BY ME WHILE DECIDING THE GROUNDS FROM 4 TO 8 IN PREVIOUS PARA AND HENCE NO SEPARATE DECISION IS REQUIRED ON THIS GROUND. THEREFORE, FOR STATISTICAL PURPOSES, THIS GROUND MAY ALSO BE TREAT ED AS PARTLY ALLOWED. 13.2 WHILE FILING REJOINDER TO THE REMAND REPORT OF THE AO, THE LD. AR TOOK ALTERNATIVE PLEA THAT THERE IS NO DOUBT THAT THE EX PENDITURE INCURRED ALTERNATIVELY CAN BE CONSIDERED ADMISSIBLE UNDER SE CTION 57(III). IN HIS VIEW, THERE IS IN FACT NOTHING IN THE LANGUAGE OF SECTION 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FR UCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME. HE FURTHER CO NTENDED THAT THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF SECTION 57( III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECT ION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RES ULT OF THE EXPENDITURE. AS OUT OF TOTAL DISALLOWANCE OF RS.3,18,38,200/-, I HAVE ALREADY ALLOWED EXPENSES OF RS. 3,07,73,200/- AND ONLY BALANCE AMOU NT OF RS. 10,65,000/- IS HELD TO BE DISALLOWABLE U/S 48(I) AND THEREFORE, IN VIEW OF ABOVE PLEA OF THE APPELLANT, I HAVE AGAIN EXAMINED WHETHER THE REMAIN ING EXPENSES OF RS. 10,65,000/- CAN BE ALLOWED U/S 57(III) OR NOT. THE ONLY ARGUMENT TAKEN BY THE LD. AR FOR ALLOWING DEDUCTION U/S 57(III ) IS THAT EXPENSE UNDER THIS SECTION SHOULD BE ALLOWED, WHETHER ANY INCOME HAS B EEN EARNED OR NOT. IRRESPECTIVE OF EARNING OF ANY INCOME, FOR CLAIMING DEDUCTION U/S 57(III), ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 112 THERE SHOULD BE ANY SOURCE FOR EARNING INCOME AGAIN ST WHICH ANY EXPENSE IS INCURRED. AS PER THE DETAILS OF EXPENSES OF RS.10,6 5,000/- DISALLOWABLE U/S 48(I) AVAILABLE IN THE CHART IN PARA NO. 12.11, THE SE EXPENSES ARE INCURRED ON THE FEES OF LAWYERS FOR PROTECTING RIGHT OF MINORIT Y SHARE HOLDERS AND FOR PAYING INITIATION FEES TO A CONSULTANT TO ARRANGE F INANCIER. BY PROTECTING THE RIGHT OF MINORITY SHARE HOLDER AND BY PAYING INITIA TION FEES FOR ARRANGING FINANCIER TO BUY SHARES, ONLY SOURCE FOR EARNING IN COME AS DIVIDEND INCOME IS BEING PROTECTED AND FOR EARNING OF DIVIDEND INCO ME BEING EXEMPTED FROM THE TAX, NO EXPENSE IS ALLOWABLE AS PER THE PROVISI ONS SECTION 14A, THEREFORE, THE REMAINING EXPENSES OF RS. 10,65,000/- CANNOT BE ALLOWED U/S 57(III) IN VIEW OF PROVISIONS OF SECTION 14A. ANOTHER PLEA OF THE LD. AR TO ALLOW SUCH EXPENSES AS SHORT TERM CAPITAL LOSS IS ALSO NOT FOU ND TO BE TENABLE AS DISCUSSED IN PARA NO. 11.2 (PG 67). THEREFORE, BOTH PLEAS TAKEN BY THE LD. AR FOR ALLOWING THE BALANCE EXPENSE OF RS. 10,65,00 0/- IN OTHER PROVISIONS OF THE INCOME-TAX ACT, 1961 IS REJECTED. 14.1 IN GROUND NO. 10, IT IS CONTENDED BY APPELLANT THAT THE AO HAS ERRED ON FACTS AND IN LAW IN IGNORING THAT THE CONSIDERAT ION RECEIVED BY HIM IS IN PURSUANCE TO FAMILY SETTLEMENT TOWARDS AN AMICABLE SETTLEMENT OF THE DISPUTES AND THE SAME IS NOT A TRANSFER AND TAXABLE UNDER THE HEAD CAPITAL GAINS. FURTHER IN VIEW OF THE APPELLANT THE DEFINI TION OF FAMILY GIVEN IN THE EXPLANATION TO SECTION 10(5) OF THE INCOME TAX ACT 61 AS TAKEN BY THE AO IN THE ASSESSMENT ORDER IS FOR A LIMITED PURPOSE ONLY. IN SUPPORT OF THIS GROUND IN THE WRITTEN SUBMISSION FILED BY THE LD. AR ON 15 .10.2010, HE CONTENDED THAT THE SECTION 10(5) APPLIES TO LEAVE TRAVEL CONC ESSION OR ASSISTANCE RECEIVED BY A PERSON AND HENCE THIS DEFINITION OF F AMILY IS FOR A LIMITED PURPOSE ONLY. HE ALSO REFERRED TO A DECISION OF THE SUPREME COURT IN THE CASE OF M.N. ARUMURTHY VS. M.L. SUVVRAYIA SETTY AIR 1972 SC 1279, NARRATING THE SALIENT FEATURES OF A FAMILY SETTLEME NT IN THE FOLLOWING WORDS: I) THERE MUST BE AN AGREEMENT AMONGST THE VARIOUS M EMBERS OF THE FAMILY INTENDED TO BE GENERALLY AND REASONAB LY FOR THE BENEFIT OF THE FAMILY. II) THE AGREEMENT SHOULD BE WITH THE OBJECT, EITHER OF COMPROMISING DOUBTFUL OR DISPUTED RIGHTS, OR FOR PR ESERVING THE FAMILY PROPERTY, OR THE PEACE AND SECURITY OF THE F AMILY BY AVOIDING LITIGATION, OR FOR SAVING ITS HONOUR. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 113 III) BEING AN AGREEMENT, THERE IS CONSIDERATION FOR THE SAME, THE CONSIDERATION BEING THE EXPECTATION THAT SUCH A N AGREEMENT OR SETTLEMENT WILL RESULT ESTABLISHING OR ENSURING AMITY AND GOODWILL AMONGST THE RELATIONS. BY CITING THE ABOVE DECISION OF THE HONBLE SUPREME COURT, THE LD. AR ARGUED THAT FAMILY IS NOT TO BE UNDERSTOOD IN NARRO W SENSE; COMMON TIE OF RELATIONS IS ENOUGH. THERE SHOULD BE A LEGAL CLAIM AS MEMBER HELD IN KRISHNA BIHARILAL VS. GULABDAS AIR 1971 SC 1041. 14.2 BY CITING THE ABOVE DECISION OF THE HONBLE SU PREME COURT, IT WAS SUBMITTED BY THE LD. AR THAT IF THE CONSIDERATION R ECEIVED BY THE ASSESSEE IS TAKEN IN PURSUANCE TO FAMILY SETTLEMENT THEN THE SA ME DOES NOT INVOLVE TRANSFER AS HELD IN THE CASE OF RAM CHARAN DAS VS. GIRJA NANDINI DEVI AIR 1965 SC 323, WHEREIN IT WAS HELD THAT THE TRANSACTI ON OF A FAMILY SETTLEMENT ENTERED INTO BY THE PARTIES WHO ARE MEMBERS OF A FA MILY BONA FIDE WITH THE OBJECT TO PUT AN END TO DISPUTES AMONG THEMSELVES I S NOT A TRANSFER, AND THAT IT IS ALSO NOT THE CREATION OF AN INTEREST. IN A FA MILY SETTLEMENT, EACH PARTY WOULD TAKE A SHARE IN THE PROPERTY BY VIRTUE OF THE INDEPENDENT TITLE WHICH IS ADMITTED TO THE EXTENT OF THE OTHER PARTY. EVERY PA RTY WHO TAKES BENEFIT UNDER IT , NEED NOT NECESSARILY BE SHOWN TO HAVE UNDER TH E LAW, A CLAIM TO A SHARE IN THE PROPERTY. ALL THAT IS NECESSARY TO SHOW THAT THE PARTIES ARE RELATED TO EACH OTHER IN SOME WAY AND HAVE A POSSIBLE CLAIM TO THE PROPERTY OR EVEN A SEMBLANCE OF A CLAIM ON SOME OTHER GROUND, AS AFFEC TION. IT IS FURTHER ARGUED THAT IN THE MATTER OF TAXATION, THE FAMILY ARRANGEM ENTS HAVE BEEN HELD NOT TO GIVE RISE TO ANY LIABILITY TO CAPITAL GAINS TAX AS HELD IN CIT VS. R PONNANMMAL (1987) 164 ITR 706 (MAD), CIT VS. A.L. R AMANATHAN (2000) 245 ITR 494 (MAD) AND CIT VS. KAY AAR ENTERPRISES ( 2008) 299 ITR 348 (MAD) TO HOLD THAT NO LIABILITY TO CAPITAL GAINS TA X WOULD BE ATTRACTED ON ACCOUNT OF CHANGE IN SHARE HOLDING AND CONTROL AS A RESULT OF FAMILY ARRANGEMENT/SETTLEMENTS BEING IMPLEMENTED TO EFFECT UATE THE SAME. IT IS THEREBY CLAIMED BY THE LD. AR THAT GAIN OF RS. 50,8 5,60,103 WHICH HAS BEEN SHOWN UNDER THE HEAD INCOME FROM CAPITAL GAINS IS NOT TAXABLE, AND PRAYED THAT THE SAME BE HELD ACCORDINGLY. IN THE END OF THE SUBMISSION, IT IS SUBMITTED BY TH E LD. AR THAT THE CLAIM IN RESPECT OF FAMILY SETTLEMENT AROSE FOR THE FIRST TIME DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS ON THE PRETEXT OF THE LE ARNED ASSESSING OFFICER AND IT WAS THE ASSESSEE WHO HIMSELF HAD SHOWN THE A MOUNTS UNDER THE HEAD LONG TERM CAPITAL GAINS AND HAD PAID TAX THERE ON. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 114 14.3 IT IS NOT UNDERSTOOD AS TO WHY THIS GROUND WAS RAISED IN APPEAL WHEN THE APPELLANT HIMSELF OFFERED THE CAPITAL GAIN ARIS ING ON SALE OF SHARES FOR TAXATION AND ALSO PAID THE FULL TAX CONSIDERING THA T HIS CASE IS NOT OF FAMILY SETTLEMENT. EVEN IF THE AO HAS RAISED THIS ISSUE DU RING THE COURSE OF ASSESSMENT PROCEEDING, THIS ISSUE WAS CONCLUSIVELY DEALT BY HIM IN THE ASSESSMENT ORDER AND THERE WAS NO NEED FOR RAISING THIS ISSUE FURTHER IN APPEAL TO PLEAD THAT INCOME OFFERED BY THE APPELLAN T UNDER THE HEAD INCOME FROM CAPITAL GAINS IS NOT TAXABLE WHEN THI S INCOME WAS OFFERED BY HIM VOLUNTARILY FOR TAXATION. HOWEVER, SINCE THE APPELLANT HAS RAISED THIS ISSUE DURING APPEAL, I HAVE DEALT WITH THE GROUND N O. 10. IN THE ASSESSMENT ORDER, THE AO HAS DEALT WITH THIS ISSUE IN PARA NO. 9 AND FINALLY HE HAS ALSO GIVEN FINDING IN PARA NO. 10 OF THE ASSESSMENT ORDE R THAT THE ASSESSEE HIMSELF BY CONSIDERING THE APPLICABILITY OF PROVISI ONS OF SECTION 45 HAVE OFFERED THE GAINS UNDER THE HEAD LONG TERM CAPITAL GAIN, THERE IS NO DOUBT THAT THE CONSIDERATION RECEIVED ON TRANSFER OF SHAR E HOLDING BY THE ASSESSEE IS TAXABLE AS CAPITAL GAIN. 14.4 IN THE GROUND TAKEN BEFORE ME, THE APPELLANT H AS DISPUTED THE DEFINITION OF FAMILY TAKEN BY THE AO GIVEN IN THE P ROVISION OF SECTION 10(5) CONTENDING THAT THIS DEFINITION IS FOR A LIMITED PU RPOSE FOR CLAIMING EXEMPTION FROM TAXATION OF AMOUNT RECEIVED ON ACCOU NT OF LEAVE TRAVEL CONCESSION AND FURTHER ARGUING THAT FAMILY SETTLEME NT SHOULD BE TAKEN IN WIDER SENSE IN VIEW OF VARIOUS COURTS DECISION INCL UDING HONBLE SUPREME COURT. INSTEAD OF GOING INTO THE DISPUTE OF THE DEF INITION OF FAMILY APPLICABLE IN THIS CASE, I HAVE EXAMINED WHETHER ON THE FACTS OF THIS CASE, THE COMPROMISE UNDER WHICH SHARES OF THE AGARWAL GROUP WAS SOLD TO THE MAHESHWARI GROUP CAN BE REGARDED AS FAMILY SETTLEME NT IN VIEW OF CASE LAWS CITED BY THE LD. AR. WHILE CITING THE CASE LAW OF RAM CHARAN DAS VS. GIRJA DEVI AIR 1965 SC 323, THE LD. AR HAS DISCUSS ED IN THE WRITTEN SUBMISSION THAT IN A FAMILY SETTLEMENT, EACH PARTY WOULD TAKE SHARE IN THE PROPERTY BY VIRTUE OF THE INDEPENDENT TITLE WHICH I S ADMITTED TO THE EXTENT OF THE OTHER PARTY. IN THE PRESENT CASE, THE PROPERTY BEING TWO COMPANIES, THE APPELLANT HAS NOT GOT ANY SHARE IN THE COMPANY BUT HE HAS TO SELL HIS SHARES IN THE COMPANY TO EXIT FROM THE COMPANY. HAD THERE BEEN ANY PARTITION OF THE PUBLICATION BUSINESS BEING RUN BY BOTH COMPANIE S AS PER THE AGREEMENT DATED 02.12.2004 BETWEEN BOTH GROUS FOR WHICH PETIT ION U/S 397 AND 398 OF THE COMPANIES ACT WAS FILED BY THE APPELLANT ALONG WITH OTHER MEMBERS OF THE AGARWAL GROUP, SUCH PARTITION OF BUSINESS WOULD HAVE COME UNDER THE PURVIEW OF THE TERM FAMILY SETTLEMENT. THE DIRECT IONS OF THE HONBLE CLB CONTAINED IN THE ORDER DATED 01.11.2006 PASSED AFTE R A COMPROMISE WAS ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 115 REACHED BETWEEN BOTH GROUPS FOR SALE OF SHARES BY T HE AGARWAL GROUP TO THE MAHESHWARI GROUP, IT IS VERY CLEAR THAT THE COMPROM ISE ARRIVED BETWEEN TWO GROUPS WAS NOT A FAMILY SETTLEMENT BUT THE AGAR WAL GROUP EXITED FROM BOTH PUBLICATION COMPANIES EARLIER BEING CONTROLLED BY BOTH GROUPS BY SELLING THEIR SHARE HOLDING AND RECEIVING THE BEST PRICE AS PER THE STRATEGY FORMULATED BY THEM. THE FOLLOWING TWO DIRECTIONS CL EARLY SHOWS THAT AFTER THIS ORDER, BOTH COMPANIES WENT INTO EXCLUSIVE CONT ROL OF THE MAHESHWARI GROUP AND THE AGARWAL GROUP CEASED TO HAVE ANY ROLE IN THESE TWO COMPANIES AFTER THEY GOT PRICE OF THEIR SHARE ON SA LE/TRANSFER OF THESE SHARES TO THE MAHESHWARI GROUP. THEY ARE : 3. THE RESPONDENTS (MAHESHWARI GROUP) ARE AT LIBER TY TO MANAGE THE AFFAIRS AND SHAREHOLDING OF THE COMPANY IN ANY MANNER WITHOUT ANY INTERFERENCE BY THE PETITIONERS GROUP 4. THE PETITIONERS GROUP (AGARWAL GROUP) SHALL CEA SE TO REMAIN EITHER AS SHAREHOLDER/S OFFICE BEARER/S OR DIRECTOR /S OF THE COMPANY AND SHALL HAVE NO CONCERN WHATSOEVER WITH T HE COMPANY. ALL THE MEMBERS OF THE AGARWAL GROUP (INCLUDING THE APPELLANT) WERE CONSCIOUS OF THIS FACT THAT THERE WAS NO FAMILY SET TLEMENT IN THE FINAL ORDER DATED 01.11.2006 OF THE HONBLE CLB AND AS PER THEI R STRATEGY, THEY HAVE EXTRACTED BEST PRICE OF THEIR SHARES BY SELLING THE M TO THE MAHESHWARI GROUP AND THEREFORE, THEY CONSCIOUSLY COMPUTED LTCG ON SA LE OF THESE SHARES AND PAID TAXES AND ACCORDINGLY SHOWED THIS LTCG IN THEI R RETURN OF INCOME. NOW IT APPEARS, THE APPELLANT IS RAKING UP THIS ISS UE ONLY BECAUSE THE AO DURING THE ASSESSMENT PROCEEDING RAISED A QUERY REL ATING TO FAMILY SETTLEMENT. DESPITE THIS ISSUE WAS SETTLED BY THE A O IN THE ASSESSMENT ORDER, THE APPELLANT HAS STILL CONTINUED THIS DISPUTE IN A PPEAL BEFORE ME IGNORING THE FACT THAT HE HIMSELF HAS VOLUNTARILY DECLARED T HE CAPITAL GAIN ON SALE OF THESE SHARES AND PAID THE TAX. SUCH APPROACH OF THE APPELLANT IS NOT ACCEPTABLE CONSIDERING THE FACT THAT THE ORDER OF T HE CLB PASSED IN THIS REGARD IS NOT FOR FAMILY SETTLEMENT BUT TO RESOLVE A DISPUTE BETWEEN TWO WARRING FACTIONS CONTROLLING TWO PUBLISHING COMPANI ES AND THE SAME WAS SETTLED BY EXIT OF ONE GROUP I.E. THE AGARWAL GROUP TO WHOM THE APPELLANT BELONGS, BY SELLING THEIR SHARES ON GETTING A DECEN T PRICE AFTER NEGOTIATION. THEREFORE, THE CONTENTION RAISED BY THE APPELLANT I N GROUND NO. 10 FOR EXEMPTING THE CAPITAL GAIN DECLARED BY HIM FROM TAX ATION TERMING IT AS ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 116 EARNED ON ACCOUNT OF FAMILY SETTLEMENT IS NOT FOUND TO BE TENABLE AT ALL AND HENCE DISMISSED. ACCRDINGLY GROUND NO. 10 IS DISMIS SED. 15. IN GROUND NO. 11, THE APPELLANT HAS RAISED ANOT HER ISSUE THAT RECEIPT OF THE CONSIDERATION BY VIRTUE OF LOSS OF SOURCE OF INCOME AND LIVELIHOOD IS A CAPITAL RECEIPT AND IS NOT LIABLE TO BE TAXED UNDER SECTION 4 OF THE INCOME TAX ACT61 AND BY IGNORING THIS FACT, THE AO HAS ER RED ON FACTS AND IN LAW. THIS GROUND ALSO APPEARS TO HAVE BEEN TAKEN BY THE APPELLANT JUST TO ENTER INTO UNNECESSARY LITIGATION AS THE PREVIOUS GROUND WAS TAKEN WHEN HE HIMSELF HAS VOLUNTARILY OFFERED THE CAPITAL GAIN EA RNED BY HIM ON SALE OF SHARES AND IN THE ASSESSMENT ORDER THE AO HAS ALSO CLEARLY DISCUSSED THAT THERE IS NO LOSS OF LIVELIHOOD TO THE APPELLANT AFT ER SALE OF SHARES OF HIS PREVIOUS COMPANY BECAUSE HE STARTED ANOTHER PUBLISH ING COMPANY IN AGRA BY USING THE MONEY RECEIVED BY HIM ON SALE OF SHARE S OF PREVIOUS COMPANIES. AT ONE PLACE THE APPELLANT HAS ARGUED THAT IT FORMU LATED A STRATEGY TO REALIZE THE BEST PRICE ON SALE OF SHARES, WHICH SHOWS HIS I NTENTION TO SELL THE SHARES OF THE COMPANY AND AT OTHER PLACE HE IS SAYING THAT BY SELLING THESE SHARES, HE LOST HIS SOURCE OF LIVELIHOOD. BOTH THE ARGUMENT S CANNOT HOLD GOOD TOGETHER BECAUSE SHARES HELD BY HIM IN THE COMPANY WAS HIS LONG TERM CAPITAL ASSET AND BY SELLING THIS CAPITAL ASSET, A LONG TERM CAPITAL GAIN WAS EARNED BY HIM AND THEREFORE, HE DECLARED THIS CAPIT AL GAIN IN HIS RETURN OF INCOME AND ALSO PAID THE TAX. THEREFORE, IN MY OPIN ION AFTER DECLARING THIS INCOME AND PAYING TAX VOLUNTARILY, RAISING OF SUCH GROUND AT APPELLATE LEVEL THAT THE RECEIPT ON SALE OF SHARES IS CAPITAL RECEI PT IN VIEW OF LOSS OF LIVELIHOOD IS A FUTILE EXERCISE. IN SUPPORT OF THIS GROUND, THE LD. AR RELIED ON A DECISION OF HONBLE SUPREME COURT IN THE CASE OF OBEROI HOTEL P LTD. VS. CIT (1999) 236 ITR 903 (SC) WHEREIN IT HAS BEEN HEL D THAT WHERE CERTAIN AMOUNT WAS RECEIVED BECAUSE THE ASSESSEE HAD GIVEN UP ITS RIGHT TO PURCHASE AND /OR OPERATE CERTAIN HOTEL AND IT WAS LOSS OF SO URCE OF INCOME TO THE ASSESSEE, AMOUNT RECEIVED BY ASSESSEE WOULD BE CAPI TAL RECEIPT AND THEREFORE, IT WAS ARGUED BY HIM THAT THE TRANSFER O F SHARES PURSUANT TO THE SETTLEMENT BETWEEN THE FAMILY GROUPS IS A CAPITAL R ECEIPT NOT LIABLE TO TAX. IN THE CASE LAW CITED BY THE LD. AR, THE ASSESSEE WAS RUNNING A HOTEL ON CONTRACT, WHICH WAS SOLD BY ITS OWNER AND ON SALE O F THE HOTEL, COMPENSATION WAS PAID TO THE ASSESSEE. SINCE ON SALE OF HOTEL, T HE ASSESSEE LOST SOURCE OF ITS INCOME WHICH IT WAS RECEIVING ON RUNNING OF HOT EL IN FORM OF FEE, THE HONBLE SUPREME COURT HELD THE RECEIPT OF COMPENSAT ION AS CAPITAL RECEIPT BECAUSE THE AMOUNT RECEIVED BY THE ASSESSEE WAS IN FORM A COMPENSATION ON LOSING ITS RIGHT TO RUN THE HOTEL. IN THE PRESENT C ASE, WHAT THE APPELLANT HAS RECEIVED IS NOT A COMPENSATION ON LEAVING THE COMPA NY BUT HE HAS RECEIVED ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 117 THE SALE CONSIDERATION ON SALE OF SHARES HELD BY HI M IN THE COMPANY AND FOR RECEIVING THE BEST PRICE, HE ALSO FORMULATED A STRA TEGY COMPELLING THE OTHER GROUP TO PAY THE BEST PRICE. THEREFORE, THE AMOUNT RECEIVED BY THE APPELLANT IN THIS CASE IS THE SALE CONSIDERATION OF SHARES AN D NOT A COMPENSATION FOR LEAVING THE COMPANY AND HENCE SUCH AMOUNT RECEIVED BY THE APPELLANT CANNOT BE SAID TO BE CAPITAL RECEIPT BUT RECEIVED O N SALE OF A CAPITAL ASSET BEING IN FORM OF SHARES AND HENCE FOR SALE OF THIS CAPITAL ASSET, HE WOULD BE LIABLE FOR CAPITAL GAIN AND THEREFORE, KNOWING ALL THESE FACTS OF HIS CASE, HE CONSCIOUSLY DECLARED CAPITAL GAIN EARNED BY HIM AND PAID TAXES. NOW, RAISING THE ISSUE OF CONSIDERING THIS RECEIPT AS CA PITAL RECEIPT IN APPEAL IS NOT FOUND TO BE TENABLE WHEN THIS ISSUE HAS ALREADY BEEN REJECTED IN THE ASSESSMENT ORDER ON THE GROUND THAT THE APPELLANT H AS VOLUNTARILY DECLARED THE CAPITAL GAIN AND PAID THE TAX AND ALSO LOOKING TO THE NATURE OF RECEIPT AS DISCUSSED ABOVE, THE RECEIPT ON SALE OF SHARES CANN OT BE SAID TO BE CAPITAL RECEIPT. THEREFORE THE GROUND NO. 11 IS DISMISSED. 16.1 IN GROUND NO. 13, THE APPELLANT HAS DISPUTED LEVY O F INTEREST U/S 234C AMOUNTING TO RS. 19,89,621/- CONTENDING THAT HE WAS PREVENTED BY SUFFICIENT CAUSE TO DEPOSIT THE SECOND INSTALLMENT OF THE ADVA NCE TAX ON OR BEFORE 15.12.2006 ON ACCOUNT OF NON AVAILABILITY OF NOTIFI ED BONDS SPECIFIED AS LONG TERM CAPITAL ASSET IN TERMS OF SECTION 54EC OF THE INCOME TAX ACT61 AND HENCE THE INTEREST CHARGED IS TO BE LIAB LE TO BE DELETED/REDUCED. IN SUPPORT OF THIS GROUND IN THE WRITTEN SUBMISSION FILED ON 15.10.2010, IT WAS ARGUED BY THE LD. AR THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT WHEN THE LONG TE RM CAPITAL GAINS AROSE, THE ASSESSEE WAS UNDER RIGHTFUL OBLIGATION TO SAVE TAX LIABILITY BY INVESTING THE SAME IN NOTIFIED BONDS FOR CLAIMING EXEMPTION U NDER SECTION 54EC OF THE INCOME TAX ACT61. VIDE CBDT NOTIFICATION NO. 142 O F 2006 DATED 29.06.2006, THE BONDS ISSUED BY NHAI WERE SPECIFIED AS LONG TERM CAPITAL ASSET AND VIDE CBDT NOTIFICATION NO. 143 OF 2006 D ATED 29.06.2006, THE BONDS ISSUED BY REC WERE SPECIFIED AS LONG TERM CA PITAL ASSET FOR THE PURPOSES OF SECTION 54EC OF THE INCOME TAX ACT, 196 1. HOWEVER, AFTER THE DATE OF SALE I.E., 03.11.2006, THERE WERE NO SUCH B ONDS AVAILABLE. THE CBDT VIDE NOTIFICATION NO. 380 OF 2006 DATED 22.12.2006 PROVIDED A CONDITION OF CAPPING SUCH BONDS TO RS. 50,00,000 AND HENCE THE A SSESSEE WAS PRECLUDED FROM MAKING COMPLETE INVESTMENT AND SAVE HIS TAX LI ABILITY AS ORIGINALLY ENVISAGED UNDER SECTION 54EC AS WILL BE EVIDENT WIT H REFERENCE TO THE CORRESPONDENCE FILED. THUS THE ASSESSEE WAS PREVENT ED BY SUFFICIENT CAUSE FROM DEPOSITING THE SECOND INSTALMENT OF THE ADVANC E TAX. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 118 16.2 I HAVE CONSIDERED THE ABOVE SUBMISSION AND I F IND THAT THE APPELLANT BECAME AWARE OF THE CAPITAL GAIN ACCRUING TO HIM AF TER THE ORDER OF THE HONBLE CLB WAS PASSED ON 01.11.2006 WELL BEFORE TH E DUE DATE OF THE INSTALMENT OF ADVANCE TAX DUE ON 15.12.2006. AS FAR AS THE BONDS TO BE SPECIFIED FOR 54EC WAS CONCERNED, IT WAS NOTIFIED W ELL IN ADVANCE ON 29.06.2006 BEFORE THE DATE OF ACCRUING OF CAPITAL G AIN TO THE APPELLANT ON 01.11.2006 , THE DATE ON WHICH THE ORDER OF THE CLB WAS PASSED. IF BY SUBSEQUENT NOTIFICATION, INVESTMENT IN BONDS WAS CA PED AT RS. 50,00,000/- , IT CANNOT BE SAID TO BE SUFFICIENT REASON FOR PAYIN G SHORT ADVANCE TAX BY THE APPELLANT. HAD THE APPELLANT MADE THE INVESTMENT OF FULL AMOUNT OF CAPITAL GAIN IN REC BOND BEFORE 22.12.2006, THINKING THAT T HE WHOLE AMOUNT WOULD BE EXEMPTED WITHOUT ANY KNOWLEDGE OF ITS CAPPING SU BSEQUENTLY, HIS CASE WOULD HAVE BEEN ON STRONGER FOOTING FOR ARGUING THA T HE WAS PREVENTED BY THE REASONABLE CAUSE TO PAY ADVANCE TAX CORRECTLY I N TIME BUT THE APPELLANT MADE THE SAID INVESTMENT ON 17.03.2007 AND ACCORDIN GLY PAID THE ADVANCE TAX IN THE MONTH OF MARCH 2007. THEREFORE, IN MY OP INION THERE WAS NO REASONABLE CAUSE FOR THE APPELLANT FOR DELAYING PAY MENT OF ADVANCE TAX BY HIM AND HENCE HE IS LIABLE FOR PAYING INTEREST U/S 234C. IT HAS ALSO BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ANJUM M.H. GHASWALA & ORS 252 ITR 1 (2001)(SC) THAT WORD SHALL OCCURRING IN SECTION 234A, 234 B AND 234C INDICATE CLEAR MANDATE OF CHARGING INTEREST FOR DEFAULTS. THE DECISION OF THE HONBLE SUPREME C OURT IN THIS CASE RELATING TO CHARGING OF INTEREST IN THESE SECTIONS IS REPROD UCED AS UNDER: THE EXPRESSION SHALL USED IN THE SECTIONS 234A, 2 34B AND 234C CANNOT BY ANY STRETCH OF IMAGINATION BE CONSTR UED AS MAY. THERE ARE SUFFICIENT INDICATIONS IN THE SCH EME OF THE ACT TO SHOW THAT THE EXPRESSION SHALL USED IN SECTION S 234A, 234B AND 234C IS USED BY THE LEGISLATURE DELIBERATELY AN D IT HAS NOT LEFT ANY SCOPE FOR INTERPRETING THE SAID EXPRESSION AS MAY. THIS IS CLEAR FROM THE FACT THAT PRIOR TO THE AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT, 1987, THE LEGISLATURE IN THE CO RRESPONDING SECTION PERTAINING TO IMPOSITION OF INTEREST USED T HE EXPRESSION MAY THEREBY GIVING A DISCRETION TO THE AUTHORITIE S CONCERNED TO EITHER REDUCE OR WAIVE THE INTEREST. THE CHANGE BR OUGHT ABOUT BY THE AMENDING ACT (FINANCE ACT, 1987) IS A CLEAR IND ICATION OF THE FACT THAT THE INTENTION OF THE LEGISLATURE WAS TO MAKE THE COLLECTION OF STATUTORY INTEREST MANDATORY. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 119 16.3 IN VIEW OF ABOVE DECISION OF THE HONBLE SUPRE ME COURT, IT IS VERY CLEAR THAT CHARGING OF INTEREST U/S 234A, 234B AND 234C IS MANDATORY AND NO DISCRETION IS LEFT TO THE ASSESSING AUTHORITIES TO REDUCE OR WAIVE THESE INTEREST CONSIDERING ANY CAUSE WHICH PREVENTED THE ASSESSEE TO PAY THE ADVANCE TAXES CORRECTLY OR FILE THE RETURN LATE. HO WEVER, CHIEF COMMISSIONERS OF INCOME-TAX HAVE BEEN GIVEN POWER B Y THE CENTRAL BOARD OF DIRECT TAXES TO REDUCE OR WAIVE SUCH INTEREST UN DER CERTAIN CONDITION. BUT THE ASSESSING AUTHORITY UNDER NO CONDITION CAN DECI DE TO WAIVE OR REDUCE CHARGING OF INTEREST UNDER THESE SECTIONS, IF THE A SSESSEE IS AT DEFAULT IN PAYING THE ADVANCE TAXES OR FILING THE RETURN LATE. IT HAS ALREADY BEEN DISCUSSED BY ME THAT THE APPELLANT WAS AT DEFAULT I N NOT PAYING THE ADVANCE TAX ON 15.12.2006 DESPITE THE CAPITAL GAIN HAS ACCR UED TO HIM WELL BEFORE THIS DATE. THE INTEREST U/S 234C WOULD BE COMPUTED BY THE AO AFTER DETERMINING THE FINAL ASSESSED INCOME AFTER GIVING EFFECT TO THIS APPEAL ORDER HOWEVER, AS FAR AS THE GROUND NO 13 CHALLENGING THE LEVY OF INTEREST IS CONCERNED, IT IS DISMISSED. 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES. THE ASSESSEE CLAIMED EXPENDITURES UNDER SECTION 48(I) OF THE ACT IN CALC ULATION OF LONG TERM CAPITAL GAIN. THE CIT(A) PARTLY ALLOWED ASSESSEES CLAIM, THEREFO RE, BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE SUMMARY OF DISPUTED A MOUNT IN CASE OF SHRI AJAY AGARWAL THROUGH VARIOUS GROUNDS OF APPEAL ARE AS UN DER:- PARTICULARS CLAIMED DISALLOWED BY AO DISALLOWED BY CIT(A) REVNUES GROUND OF APPEAL ASSESSEES GROUND OF APPEAL PARA PAGE PARA PAGE AJAY AGARWAL CHURU TRADING CO. P. LTD. S.R. HALVE, ADVOCATE S.R. HALVE, ADVOCATE EXP. BINA GUPTA, 3,00,00,000 78,56,800 3,13,200 15,40,000 3,00,00,000 NIL 3,13,200 6,25,000 12.1 12.2 12.3 16 16 17 NIL NIL NIL 6,65,000 12.10.1 12.10.2 12.10.3 86-88 88-90 90-93 G NO.1 -- G.NO.2 -- -- -- -- G. NO.2&3 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 120 ADVOCATE SUDIPTO SARKAR, ADVOCATE RABO INDIA SECURITIES (P) LTD. DAYAL SARAN, ADVOCATE TOTAL 1,50,000 2,50,000 5,00,000 4,06,10,000 1,50,000 2,50,000 5,00,000 3,18,38,200 12.4 12.1 12.5 17 15 17 1,50,000 2,50,000 NIL 12.10.4 12.10.1 12.10.5 94.95 82-83 96 -- -- G. NO.3 G.NO.4 G.NO.1 9. THE ISSUE UNDER CONSIDERATION WHETHER SUCH EXPEN SES ARE ALLOWABLE UNDER SECTION 48(I) OF THE ACT FOR COMPUTING LONG TERM CA PITAL GAIN. TO APPRECIATE THE ISSUE, WE WOULD LIKE TO GO THROUGH SECTION 48(I) AN D RELEVANT SCHEME OF THE ACT. FOR THE PURPOSE OF READY REFERENCE, THE SECTION 48 IS REPRODUCED AS UNDER :- 48. THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN S SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY I N CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO: PROVIDED THAT IN THE CASE OF AN ASSESSEE, WHO IS A NON-RESI DENT, CAPITAL GAINS ARISING FROM THE TRANSFER OF A CAPITA L ASSET BEING SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY SHALL BE CO MPUTED BY CONVERTING THE COST OF ACQUISITION, EXPENDITURE INC URRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND TH E FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET INTO THE SAME FOREIGN CURRENCY AS WAS INITIALLY UTILISED IN THE PURCHASE OF THE SHARES OR DEBENTURES, AND THE C APITAL GAINS SO ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 121 COMPUTED IN SUCH FOREIGN CURRENCY SHALL BE RECONVER TED INTO INDIAN CURRENCY, SO, HOWEVER, THAT THE AFORESAID MANNER OF COMPUTATION OF CAPITAL GAINS SHALL BE APPLICABLE IN RESPECT OF CAP ITAL GAINS ACCRUING OR ARISING FROM EVERY REINVESTMENT THEREAFTER IN, A ND SALE OF, SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY : PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER THAN C APITAL GAIN ARISING TO A NON-RESIDENT FROM THE TRANSFER OF SHARES IN, OR D EBENTURES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, TH E PROVISIONS OF CLAUSE (II) SHALL HAVE EFFECT AS IF FOR THE WORDS COST OF ACQUISITION AND COST OF ANY IMPROVEMENT, THE WORDS INDEXED C OST OF ACQUISITION AND INDEXED COST OF ANY IMPROVEMENT HAD RESPECTIVELY BEEN SUBSTITUTED: [ PROVIDED ALSO THAT NOTHING CONTAINED IN THE SECOND PROVISO SHALL APPLY TO THE LONG-TERM CAPITAL GAIN ARISING FROM TH E TRANSFER OF A LONG- TERM CAPITAL ASSET BEING BOND OR DEBENTURE OTHER TH AN CAPITAL INDEXED BONDS ISSUED BY THE GOVERNMENT :] [ PROVIDED ALSO THAT WHERE SHARES, DEBENTURES OR WARRANTS REFERRED TO IN THE PROVISO TO CLAUSE (III) OF SECTION 47 ARE TR ANSFERRED UNDER A GIFT OR AN IRREVOCABLE TRUST, THE MARKET VALUE ON THE DA TE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF TRANSFER FOR THE PURPOSES O F THIS SECTION :] [ PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS IN RESPECT OF ANY SUM PAID ON ACCOUNT OF SECURITIES TRANSACTION TAX U NDER CHAPTER VII OF THE FINANCE (NO. 2) ACT, 2004.] EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (I) FOREIGN CURRENCY AND INDIAN CURRENCY SHAL L HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN SECTION 2 OF THE FOREIGN EXCHANGE REGULATION ACT, 1973 (46 OF 1973); (II) THE CONVERSION OF INDIAN CURRENCY INTO FOREIG N CURRENCY AND THE RECONVERSION OF FOREIGN CURRENCY INTO INDIAN CURREN CY SHALL BE AT THE RATE OF EXCHANGE PRESCRIBED IN THIS BEHALF; ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 122 (III) INDEXED COST OF ACQUISITION MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HEL D BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON THE 1ST DAY OF APRIL, 198 1, WHICHEVER IS LATER; (IV) INDEXED COST OF ANY IMPROVEMENT MEANS AN AMO UNT WHICH BEARS TO THE COST OF IMPROVEMENT THE SAME PROPORTIO N AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE; [(V) COST INFLATION INDEX, IN RELATION TO A PREVI OUS YEAR, MEANS SUCH INDEX AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO SEVENTY-FIVE PER CENT OF AVERAGE RISE IN THE CONSUMER PRICE INDE X FOR URBAN NON- MANUAL EMPLOYEES FOR THE IMMEDIATELY PRECEDING PREV IOUS YEAR TO SUCH PREVIOUS YEAR, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY, IN THIS BEHALF.]] 10. WHAT CAN BE DEDUCTED UNDER SECTION 48(I) OF THE ACT IS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANS FER CONTEMPLATED BY SECTION 45. IN COMPUTING CAPITAL GAINS, EXPENDITURE INCURRED WH OLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF A CAPITAL ASSET HAS TO BE DEDUCTED UNDER SECTION 48(I) OF THE ACT. THE WORDS IN CONNECTION WITH SU CH TRANSFER OCCURRING IN THAT SECTION MEANS INTRINSICALLY RELATED TO THE TRANSFER . THESE WORDS ARE VERY WIDE IN THEIR AMBIT. THERE IS NO WARRANT FOR IMPORTING A R ESTRICTION THAT, TO QUALIFY FOR DEDUCTION, THE EXPENDITURE MUST NECESSARILY HAVE BE EN INCURRED PRIOR TO THE PASSING OF TITLE. IT IS IMMATERIAL WHETHER THE ELIGIBLE EX PENDITURE WAS INCURRED PRIOR OR SUBSEQUENT TO THE PASSING OF TITLE. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 123 11. IT IS CLEAR FROM ABOVE LEGAL PROVISIONS OF THE ACT, ONE SHOULD KEEP IN MIND CERTAIN PRINCIPLES FOR WORKING OUT CAPITAL GAIN OR LOSS ALONGWITH ACCOUNTING PRINCIPLES. THE PRINCIPLES THAT HAVE TO BE APPLIED ARE THOSE WHICH ARE A PART OF THE COMMERCIAL PRACTICE OR WHICH CAN AN ORDINARY MAN OF BUSINESS WILL RESORT TO WHEN MAKING COMPUTATION FOR HIS BUSINESS PURPOSES. THE ACCOUNTING PRINCIPLES ARE THAT IF EXPENDITURES ARE INCURRED IN CONNECTION WITH ACQ UIRING OF ASSETS, THE SAME ARE CAPITAL EXPENDITURES AND ARE TO TAKE AS PART OF THE COST OF THE ASSETS. THE REVERSE POSITION IS THAT EXPENDITURES INCURRED WHOLLY AND E XCLUSIVELY IN CONNECTION WITH TRANSFER OF ASSET, SUCH EXPENDITURE IS ALLOWABLE UN DER SECTION 48(I) OF THE ACT FOR THE PURPOSE OF CALCULATION OF CAPITAL GAIN. TO FUR THER APPRECIATE THIS ASPECT, WE WOULD LIKE TO REFER CERTAIN JUDICIAL PRONOUNCEMENTS WHICH ARE AS UNDER:- (I) COMMISSIONER OF INCOME-TAX VS. DR. P. RAJENDRAN, 12 7 ITR 810 (KER.) - THE BRIEF FACTS OF THIS CASE ARE THAT THE STATE GOV ERNMENT ACQUIRED IN MARCH 1967, THE ASSESSEE'S IMMOVABLE PROPERTY AND A WARDED A COMPENSATION OF RS.47,000/-. THE ASSESSEE CLAIMED B EFORE THE CIVIL COURT AN ENHANCED COMPENSATION OF RS.2,58,233/-. WHILE THIS CLAIM WAS STILL PENDING BEFORE THE SUB-JUDGE, THE ITO TREATED THE SAID AMOU NT OF RS.2,58,233/- AS THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFE R OF THE PROPERTY AND DETERMINED THE CAPITAL GAINS AT RS.2,35,233/- AFTER DEDUCTING RS.23,000/- AS ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 124 ITS COST OF ACQUISITION AND IMPROVEMENT. ON APPEAL , THE AAC NEGATED THE ASSESSEE'S CONTENTION THAT THE CAPITAL GAIN COMPUTA TION SHOULD NOT HAVE BEEN MADE BY THE ITO ON THE BASIS OF HIS CLAIM FOR ENHAN CED COMPENSATION AS THE COURT'S DECISION WAS UNPREDICTABLE. HE, HOWEVER, R EDUCED THE CAPITAL GAINS OF RS.1,06,773/- (COMPRISING RS.1,19,773/- AS THE T RANSFER CONSIDERATION LESS RS.10,000/- AS COST OF ITS IMPROVEMENT). THE REVEN UE APPEALED TO THE TRIBUNAL. HOWEVER, BY THE TIME THE TRIBUNAL HEARD T HE REVENUE'S APPEAL, THE HIGH COURT HAD RENDERED THE FINAL DECISION. THE TR IBUNAL, ACCORDINGLY, SET ASIDE THE ASSESSMENT AND REMANDED THE CASE TO THE I TO DIRECTING HIM (A) TO ADOPT THE FINAL FIGURE OF COMPENSATION AND SOLATIUM SETTLED BY THE HIGH COURT AS THE FULL VALUE OF THE TRANSFER OF THE PROP ERTY, AND (B) TO ALLOW A FURTHER DEDUCTION OF THE AGGREGATE COST CERTIFIED F OR THE ASSESSEE BY THE CIVIL COURT AND THE HIGH COURT, SUBJECT TO THE CONDITION THAT THE CAPITAL GAINS SHOULD NOT BE ALLOWED TO GO BELOW THE FIGURE FIXED BY THE AAC. ON REFERENCE, THE REVENUE CONTENDED, INTER ALIA, (I) T HAT THE TRIBUNAL HAD ACTED ILLEGALLY IN PERMITTING THE ASSESSEE TO PUT FORWARD BEFORE IT FOR THE FIRST TIME THE CLAIM FOR DEDUCTION OF THE EXPENDITURE INCURRED IN PROSECUTING THE CLAIM FOR ENHANCEMENT OF THE COMPENSATION BEFORE THE CIVI L COURTS, AND (II) THAT THE AFORESAID EXPENDITURE WAS INCURRED ONLY SUBSEQUENT TO THE TRANSFER WHICH SHOULD BE TAKEN AS HAVING BECOME COMPLETE WHEN THE TITLE PASSED TO THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 125 STATE GOVERNMENT ON ITS TAKING POSSESSION OF THE PR OPERTY UNDER SECTION 18 OF THE LAND ACQUISITION ACT, 1864. THE COURT HELD AS UNDER:- 'THE FURTHER QUESTION TO BE CONSIDERED IS WHETHER T HE TRIBUNAL WAS RIGHT IN ITS VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN PROSECUTING THE LAND ACQUISITION REFERENCE CASE BEF ORE THE CIVIL COURT IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY I N CONNECTION WITH THE TRANSFER OF THE LAND. IT IS STRONGLY ARGUED BY COUNSEL FOR THE REVENUE THAT THE SAID EXPENDITURE WAS INCURRED ONLY SUBSEQUENT TO THE TRANSFER WHICH SHOULD BE TAKEN AS HAVING BECOME COM PLETE WHEN POSSESSION OF THE LAND WAS TAKEN BY THE STATE UNDER SECTION 18 OF THE ACT AND TITLE THERETO BECAME VESTED IN THE STATE GO VT. THE WORDS 'IN CONNECTION WITH' USED IN CLAUSE (1) OF SECTION 48 A RE VERY WIDE IN THEIR AMBIT AND HENCE THERE IS NO WARRANT FOR IMPOR TING A RESTRICTION THAT TO QUALIFY FOR DEDUCTION THE EXPENDITURE MUST NECESSARILY HAVE BEEN INCURRED PRIOR TO THE PASSING OF TITLE. THE CR UCIAL TEST TO BE APPLIED IS WHETHER THE EXPENDITURE WAS INCURRED WHO LLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND IT IS IMMATERIAL WHETHER IT WAS INCURRED PRIOR OR SUBSEQUENT TO THE PASSING OF TITLE. IT CANNOT ADMIT OF DOUBT THAT IN AN ORDINARY TRANSACTI ON OF TRANSFER OF PROPERTY INTER PARTIES THE FIXATION OF THE CONSIDER ATION OR THE PRICE IS AN INTEGRAL PART OF THAT TRANSACTION. BY VIRTUE OF THE DEFINITION CONTAINED IN SECTION 2(47) OF THE ACT THE EXPRESSIO N ' TRANSFER ' WILL INCLUDE THE COMPULSORY ACQUISITION OF A CAPITAL ASS ET UNDER ANY LAW. HENCE, THE COMPULSORY ACQUISITION OF PROPERTY UNDER THE LAND ACQUISITION ACT HAS TO BE TREATED AS A TRANSFER FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS UNDER THE ACT. UNDER T HE SCHEME OF THE KERALA LAND ACQUISITION ACT, THE CONSIDERATION FOR SUCH A TRANSFER IS TO BE FIXED IN THE FIRST INSTANCE BY THE LAND ACQUI SITION OFFICER BY THE AWARD TO BE MADE BY HIM UNDER SECTION 11 OF THE SAI D ACT AND IN CASE THE OWNER OF THE PROPERTY IS DISSATISFIED WITH THE AWARD THE QUANTUM OF COMPENSATION IS TO BE FINALLY FIXED BY THE CIVIL COURT TO WHICH A REFERENCE IS TO BE MADE UNDER SECTION 20 OF THE ACT . IN A CASE WHERE THE MATTER IS SO TAKEN TO THE CIVIL COURT BY WAY OF REFERENCE UNDER SECTION 20 OF THE LAND ACQUISITION ACT, THE FIXATIO N OF THE QUANTUM OF CONSIDERATION FOR THE TRANSFER IS FINALLY EFFECTED ONLY BY THE DECISION RENDERED BY THE CIVIL COURT. SUCH FIXATION FORMS AN INTEGRAL PART OF THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 126 PROCESS OF TRANSFER BY WAY OF COMPULSORY ACQUISITIO N PROVIDED BY THE LAND ACQUISITION ACT. THE EXPENDITURE INCURRED BY T HE ASSESSEE IN CONDUCTING THE LAND ACQUISITION REFERENCE PROCEEDIN GS BEFORE THE CIVIL COURT CANNOT, THEREFORE, BUT BE REGARDED AS EXPENDI TURE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE TRANSFE R. OUR ATTENTION HAS BEEN DRAWN TO A RECENT DECISION OF A LEARNED SINGLE JUDGE OF THIS COURT WHEREIN AN IDENTICAL VIEW HAS BEEN EXPRESSEDVASUMA THY V. CIT [1980] 123 ITR 94. WE ARE IN COMPLETE AGREEMENT WIT H THE DICTUM LAID DOWN IN THE SAID DECISION. WE ACCORDINGLY HOLD THAT THE TRIBUNAL WAS PERFECTLY RIGHT IN INCORPORATING IN ITS DECISIO N A DIRECTION TO THE ITO THAT WHILE COMPUTING THE CAPITAL GAINS ON THE B ASIS OF THE COMPENSATION AWARDED TO THE ASSESSEE BY THE HIGH CO URT THE COSTS CERTIFIED FOR THE ASSESSEE BY THE SUB-COURT AND THE HIGH COURT SHOULD BE ALLOWED AS A DEDUCTION SUBJECT TO THE CONDITION THAT BY SUCH DEDUCTION THE CAPITAL GAINS SHOULD NOT GO BELOW THE FIGURE FIXED BY THE AAC AGAINST WHOSE ORDER NO APPEAL HAS BEEN FILED. (II) V.A. VASUMATHI VS. COMMISSIONER OF INCOME-TAX, 123 ITR 94 (KER) - THE BRIEF FACTS OF THIS CASE ARE THAT CERTAIN EXPEN DITURE WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF PROSECUTING IN A CIVIL COURT HIS CLAIM FOR ENHANCEMENT OF THE COMPENSATION UNDER THE LAND ACQU ISITION ACT. THE COMMISSIONER DISALLOWED SUCH EXPENDITURE IN COMPUTI NG CAPITAL GAINS TAX LIABILITY ON THE GROUND THAT IT WAS NOT INCURRED IN CONNECTION WITH THE TRANSFER OF CAPITAL ASSET. ON REFERENCE, THE REVENUE PLEADED THAT THE IMPUGNED EXPENDITURE WAS INCURRED SUBSEQUENT TO TRANSFER AND WAS, THUS, NOT ALLOWABLE. THE COURT HELD AS UNDER:- 1. THE WORDS IN CONNECTION WITH SUCH TRANSFER, U SED UNDER SECTION 48(I), MEAN INTRINSICALLY RELATED TO THE TR ANSFER. ONLY SUCH ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 127 EXPENDITURE, AS IS WHOLLY AND EXCLUSIVELY RELATED I N AN INTRINSIC MANNER TO THE TRANSFER, IS A DEDUCTIBLE EXPENDITURE . 2. THE PROCESS OF TRANSFER BY COMPULSORY ACQUISITIO N IS COMPLETED ONLY UPON THE FINAL DETERMINATION OF THE COMPENSATI ON BY THE COMPETENT AUTHORITY. THE LITIGATION EMANATING FROM A REFERENCE UNDER SECTION 20 OF THE LAND ACQUISITION ACT WAS A PROCEE DING INTIMATELY AND INTRINSICALLY CONNECTED WITH THE ACQUISITION. 3. FOR THE PURPOSE OF SECTION 48, IT IS IMMATERIAL THAT THE EXPENDITURE WAS INCURRED SUBSEQUENT TO THE AWARD SO LONG AS IT WAS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE COMPULSORY ACQUISITION. 4. THE ACTION OF THE COMMISSIONER IN DISALLOWING TH E IMPUGNED EXPENDITURE WAS QUASHED AND THE REVENUE WAS DIRECTE D TO DETERMINE THE NATURE OF THE AMOUNT AND PASS APPROPRIATE ORDER . (SEE ALSO CITV SMT M SUBAIDA BEEVI (1986) 160 ITR 557 (KER) AND CI T V R. RANGA SETTY (1986) 159 ITR 797(KER)-LEGAL EXPENSES ALLOWA BLE) (III) COMMISSIONER OF INCOME-TAX VS. R. RAMANATHAN CHETTI AR (MAD) 152 ITR 489 (MAD.) - THE BRIEF FACTS OF THE CASE DECIDED BY THE MADRAS H IGH COURT ARE THAT THE ASSESSEE SOLD CERTAIN LANDS AFTER CONVERTING TH EM AS HOUSE SITES AND FOR THIS PURPOSE, MAINTAINED AN OFFICE FOR PREPARING LA Y-OUT PLANS AND FOR LOCATING PROSPECTIVE PURCHASERS. IN THE COMPUTATIO N OF CAPITAL GAINS, THE ASSESSEE CLAIMED DEDUCTION OF EXPENDITURE INCURRED ON TRAVELLING, STATIONERY, SALARY AND REPAIRS TO OFFICE PREMISES. THE ITO HEL D THAT THE DEDUCTION WAS NOT ALLOWABLE, EITHER AS COST OF IMPROVEMENT OR AS EXPENSES INCURRED SOLELY IN CONNECTION WITH THE TRANSFER OF THE LAND. THOUG H THE COMMISSIONER ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 128 (APPEALS) HELD THAT THE ASSESSEE WILL BE ENTITLED T O DEDUCTION OF FIFTY PER CENT OF THE EXPENSES INCURRED, THE TRIBUNAL ALLOWED THE CLAIM IN FULL. IT ALSO REJECTED THE REVENUE'S REFERENCE APPLICATION UNDER SECTION 250(1). THE COURT HELD THAT IT WAS NOT THE DISPUTE THAT THE ASSESSEE HAD IN FACT PREPARED LAY-OUTS AND GOT THEM APPROVED FROM THE REQUISITE AUTHORITY AND SOLD THE LANDS AS HOUSE PLOTS. THE SALE OF THE LANDS AS IT WOULD NOT HAVE FETCHED SUCH A PRICE WHICH THE ASSESSEE ACTUALLY GOT NOW AFTER CONVERTIN G THE LANDS INTO HOUSE SITES. THEREFORE, ALL THE EXPENSES INCURRED IN CONN ECTION WITH THE PREPARING OF THE LAY-OUTS AND GETTING THEM SANCTIONED SHOULD BE TAKEN TO BE EXPENSES SOLELY INCURRED FOR THE TRANSFER OF THE LAND FOR A BETTER PRICE. THE OTHER EXPENSES SUCH AS SALARY PAID TO THE CLERK WHO WAS A TTENDING TO THE PREPARATION OF THE LAY-OUTS AND ALSO FOR FINDING SU ITABLE PURCHASERS SHOULD ALSO BE TAKEN TO BE EXPENSES INCURRED EXCLUSIVELY F OR THE TRANSFER OF THE LAND. THE MAINTENANCE OF AN OFFICE WHICH HAD TO BE LOCATE D IN A BUILDING SITUATED IN THE LAND ITSELF BY MAKING SOME IMPROVEMENT SHOUL D ALSO BE TAKEN TO BE EXCLUSIVELY FOR THE PURPOSES OF THE TRANSFER OF LAN D. THEREFORE, THE COURT HELD THAT THE TRIBUNAL WAS RIGHT IN ALLOWING THE ASSESSE E'S CLAIM AND NO REFERABLE QUESTION OF LAW AROSE FROM ITS ORDER. (IV) ARUNA MILLS LIMITED VS COMMISSIONER OF INCOME TAX, 31 ITR 153 (BOMB). ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 129 THE COURT HELD AS UNDER:- HE HAS DRAWN OUR ATTENTION TO AN OBSERVATION OF TH E TRIBUNAL IN THE STATEMENT OF THE CASE THAT THE SO-CALLED ORD INARY PRINCIPLES OF COMMERCIAL ACCOUNTING ARE NOT FOUND TO BE DEFINED I N ANY CODE AND THE TRIBUNAL IS UNABLE TO UNDERSTAND AS TO WHAT ARE THOSE PRINCIPLES. NOW, WE HAVE HAD OCCASION TO POINT OUT IN SEVERAL D ECISIONS THAT WHAT THE INCOME-TAX ACT PURPORTS TO TAX IS BUSINESS PROF ITS, AND BUSINESS PROFITS ARE THE TRUE PROFITS OF A BUSINESS AS ASCER TAINED ACCORDING TO COMMERCIAL PRINCIPLES. THERE MAY BE AN EXPENDITURE OR THERE MAY BE A LOSS WHICH MAY NOT BE AN ADMISSIBLE LOSS UNDER AN Y OF THE PROVISIONS OF SECTION 10(2) AND YET SUCH AN EXPENDI TURE OR LOSS WOULD HAVE TO BE ALLOWED IN ORDER TO DETERMINE WHAT WERE THE TRUE PROFITS OF A BUSINESS, AND IT IS THE DUTY OF EVERYONE WHO HAS ANYTHING TO DO WITH TAXING BUSINESS-PEOPLE TO UNDERSTAND WHAT ARE THE P RINCIPLES OF COMMERCIAL EXPEDIENCY. UNLESS ONE UNDERSTANDS THESE PRINCIPLES IT IS DIFFICULT TO MAKE A PROPER ASSESSMENT ON A BUSINESS OR ON A BUSINESSMAN. BUT THIS QUESTION DOES NOT ARISE HERE BECAUSE, AS ALREADY POINTED OUT, NO FURTHER ASPECT OF THE CASE HAS TO BE CONSIDERED UNDER THIS HEAD DIFFERENT FROM WHAT WE HAVE ALREADY CONSIDERED UNDER SECTION 10(2)(XV). (V) CIT V DHANARAJGIRJI NARASINGIRGI, 91 ITR 544 (SC) . THE COURT HELD AS UNDER:- ALL THAT THE COURT HAS TO SEE IS WHETHER THE LEGAL EXPENSES WERE INCURRED BY THE ASSESSEE IN HIS CHARACTER AS A TRAD ER, IN OTHER WORDS, WHETHER THE TRANSACTION IN RESPECT OF WHICH PROCEED INGS ARE TAKEN AROSE OUT OF AND WAS INCIDENTAL TO THE ASSESSEE'S B USINESS. FURTHER, WE HAVE TO SEE WHETHER THE EXPENDITURE IN QUESTION WAS BONA FIDE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS-IT WAS THE DUTY OF THE ASSESSEE TO SEE THE PROSECUTION WAS PRO PERLY CONDUCTED. HE WAS INTERESTED IN SUCCESSFULLY PROSECUTING THE C ASE. THE FACT THAT HE DID NOT LEAVE THE CARRIAGE OF THE CASE IN THE HA NDS OF THE PROSECUTING AGENCY OF THE GOVERNMENT IS NO GROUND F OR DISALLOWING THE EXPENDITURE. IT IS NOT OPEN TO THE DEPARTMENT T O PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CI RCUMSTANCES HE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 130 SHOULD INCUR THAT EXPENDITURE. EVERY BUSINESSMAN KN OWS HIS INTEREST BEST (VI) SIDDHO MAL & SONS VS. ITO (DELHI), 122 ITR 839 (DEL HI ) - THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER :- ( HEAD NOTE) HELD, ON THE FACTS THAT THERE WAS ENOUGH MATERIAL FOR THE CONCLUSION THAT THE PAYMENT OF COMMISSION TO THE MI NORS WAS NOT EXCLUSIVELY FOR THE PURPOSES OF THE ASSESSEES BUSI NESS; NOR WAS THERE ANY MISDIRECTION IN ARRIVING AT THAT CONCLUSION AND , THEREFORE, IN DISALLOWING THE COMMISSION AS A DEDUCTION UNDER S.1 0(2)(XV) OF THE INDIAN I.T. ACT,1922. THE WORD WHOLLY IN S.10(2)(XV) REFERS TO THE QUAN TUM OF EXPENDITURE BUT THE WORD EXCLUSIVELY REFERS TO TH E MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. AN EXPENDITURE IS TO BE ALLOWED IF IT SATISFIED THE TEST OF COMMERCIAL EXPEDIENCY AND COMMERCIAL EXPEDIENCY HAS TO BE JUDG ED FROM THE POINT OF VIEW OF ASSESSEE WHO KNOWS BEST HOW HIS BU SINESS HAS TO BE RUN BUT SUCH A POINT OF VIEW HAS TO BE A PRUDENT AN D REASONABLE POINT OF VIEW WHICH IS FREE FROM AN APPARENT TAINT OF EXC ESSIVENESS, COLLUSIVENESS OR COLORABLE DISCRETION. THUS, ON TH E ONE HAND, IT IS NOT FOR THE ITO TO JUDGE WHETHER THE ASSESSEE COULD HAV E AVOIDED TO REDUCE A PARTICULAR EXPENDITURE BUT ON THE OTHER, A N UNREASONABLY HIGH OR EXCESSIVE EXPENDITURE WOULD NORMALLY AND CO RRECTLY CAUTION THE ITO TO EXAMINE IT MORE CAREFULLY AND, IF COMBIN ED WITH OTHER CIRCUMSTANCES, IT LEADS TO THE CONCLUSION THAT THE MOTIVE BEHIND THE EXPENDITURE IS TO UNDULY BENEFIT SOMEONE, THE ITO I S WELL WITHIN HIS RIGHTS TO COME TO A FINDING THAT THE EXPENDITURE IS NOT EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. RELATIONSHIP BY ITSELF, WITHOUT MORE, CANNOT LEAD T O THE INFERENCE OF EXCLUDING THE POSSIBILITY OF A PAYMENT BEING WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. DEALING WITH RELATIVE S IN CONTRAST WITH OR IN PREFERENCE TO STRANGERS IS NEITHER PROHIBITED BY LAW NOR CAN BE TABOOED. INDEED, IT IS NATURAL TO DO SO BUT THIS D OES NOT GIVE A LICENCE TO COVER UP DISHONEST TRANSACTIONS OR IMPERMISSIBLE TRANSFERS. THE COURTS AND AUTHORITARIANS ARE NOT TO WEAR BLINKERS TO OVERLOOK OR ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 131 CONDONE THE PASSING OFF OF PUBLIC REVENUE TO ONES OWN KITH AND KIN BY SUBTERFUGE OR CLANDESTINE OR CLEVER DEVICES CLOTHED IN LEGALISTIC JARGON. INSTEAD IT IS THEIR DUTY TO LIFT THE VEIL OF APPARENT LEGALITY AND GET TO THE TRUTH OR SUBSTANCE OF A TRANSACTION TO D EAL WITH IT IN ACCORDANCE WITH LAW. IT IS ONLY APPROPRIATE, INDEE D NORMAL, THAT DEALINGS INVOLVING TRANSFER OF FUNDS TO NEAR AND DE AR ONES NEED TO BE LOOKED INTO WITH CARE AND CAUTION AND NECESSARY INF ERENCES DRAWN IF THERE ARE ABNORMALITIES ATTACHING TO SUCH TRANSACTI ONS. IT IS NOT FOR THE COURT TO GO INTO APPRECIATION OF EVIDENCE OF CIRCUMSTANCES ATTACHING TO A TRANSFER TO DETERMINE WHETHER THE TRIBUNAL WAS JUSTIFIED IN ARRIVING AT THE FINDING T HAT A CERTAIN PAYMENT WAS NOT EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AS THIS IS WHOLLY A QUESTION OF FACT AND NOT OF LAW. (VII) COMMISSIONER OF INCOME TAX VS. SHAKUNTALA KAN TILAL [(1991) 190 ITR 56](BOMB). IN THIS CASE, IT IS HELD BY THE BOMBAY HIGH COURT T HAT THE EXPRESSION USED IN SECTION 48 OF THE ACT, VIZ., EXPENDITURE I NCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER HAS W IDER CONNOTATION THAN THE EXPRESSION, FOR THE TRANSFER. SIMILAR VIEW HAS B EEN TAKEN BY THE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. BRADFORD TRADING CO. P. LTD. [261 ITR 222]. 12. FROM THE ABOVE DISCUSSIONS, WE FIND THAT WHAT I S ALLOWABLE EXPENDITURE UNDER SECTION 48(I) DEPENDS UPON THE FACTS OF EACH CASE. WHEN A CASE IS TO BE DECIDED ON ITS FACTS, THEN THE ENTIRE FACTS, CIRCUM STANCES INCLUDING SURROUNDING ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 132 CIRCUMSTANCES AND COMMERCIAL EXPEDIENCIES ALL ARE R EQUIRED TO BE CONSIDERED TOGETHER. IN THE CASE UNDER CONSIDERATION, WHAT IS IMPORTANT POINT TO BE CONSIDERED IS WHETHER UNDER THE FACTS AND CIRCUMSTANCES EXPEND ITURE INCURRED WAS WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SHARES. 13. IN THE LIGHT OF ABOVE DISCUSSION, IF WE CONSIDE R THE FACTS OF THE CASE UNDER CONSIDERATION, WE NOTICE THAT THERE IS NO DISPUTE R EGARDING THE FACT THAT THE EXPENDITURES WERE INCURRED BY THE ASSESSEE. THAT T HE AGARWAL GROUP WENT TO CLB UNDER A STRATEGY TO GET THE VALUE OF SHARES OF BOTH THE COMPANIES ENHANCED AND FROZEN FOR WHICH FIRST THEY SHOWED THAT THEY ARE IN TERESTED IN BUYING THE SHARES KNOWING VERY WELL THAT THEY HAD NO CAPACITY TO BUY THE SHARES HELD BY THE MAJORITY SHARE HOLDERS (64.67%) AND THEREFORE, THEY MADE SUC H FINANCIAL ARRANGEMENTS WHICH WAS IN CONTRAVENTION OF THE CONDITIONS FIXED BY CLB IN ITS ORDER DATED 25.01.2006 TO ARRANGE FINANCE IN WHICH M/S. CHURU T RADING CO. PVT. LTD. HELPED THEM THROUGH MEDIA WEST AND OTHER MERCHANT BANKERS. THAT BECAUSE OF THIS ARRANGEMENT, THE OTHER PARTY I.E. THE MAHESHWARI GR OUP GOT ALARMED AND THEY FURTHER MOVED TO CLB TO RESTRAIN THE AGARWAL GROUP TO BUY MAJORITY SHARE HOLDING AND EVEN AGREED TO PAY RS.22 CRORES EXTRA AMOUNT OV ER AND ABOVE THE 35.33% OF VALUATION OF SHARES OF RS.390 CRORES WHICH COMES TO RS.138 CRORES AND FINALLY IN VIEW OF THEIR STRATEGY, THE AGARWAL GROUP GOT RS.16 0 CRORES BY SELLING THEIR ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 133 35.33% OF SHARE HOLDING IN BOTH THE COMPANIES. THE EXCESS REALIZATION OF RS.22 CRORES COULD BE MADE POSSIBLE PRIMARILY WITH THE IN TERVENTION OF THE ARRANGER I.E. M/S. CHURU TRADING CO. PVT. LTD. THAT MAHESHWARI G ROUP AGREED TO PAY RS.22 CRORES EXTRA SO THAT THE SHARES WHICH WERE PLEDGED AS SECURITY WITH M/S. MEDIA WEST COULD BE LIFTED AND SHARES ARE SOLD TO THE MAH ESHWARI GROUP. FOR THIS PURPOSE, THE ARRANGER M/S. CHURU TRADING CO. PVT. L TD. DEMANDED FOR 50% OF THE EXTRA AMOUNT REALIZED BY THE AGARWAL GROUP BUT ULTI MATELY AS PER THE INITIAL AGREEMENT ONLY RS.8.5 CRORES WAS PAID. THE CASE OF THE A.O. IS THAT CLB GAVE OPTION TO THE AGARWAL GROUP, EITHER TO BUY MAJORITY SHARES HOLDING (64.67%) OR TO SELL THEIR SHARE HOLDING (35.33%) BUT THEY FIRST CH OSE TO BUY MAJORITY SHARE HOLDING AND HENCE WHATEVER EXPENDITURE WAS INCURRED FOR ARR ANGING THE FINANCE SHOULD NOT BE CONSIDERED TO HAVE BEEN INCURRED IN CONNECTION W ITH THE TRANSFER OF SHARES. THEREFORE, IN THE VIEW OF A.O., SINCE M/S. CHURU TR ADING CO. PVT. LTD. WAS ENGAGED TO ARRANGE THE FUND, PAYMENT MADE TO THEM A RE FOR ARRANGING THE FUND AND NOT IN CONNECTION WITH THE TRANSFER OF SHARES AND H ENCE PAYMENT OF RS.8.5 CRORES MADE TO M/S. CHURU TRADING CO. PVT. LTD. SHOULD NOT BE ALLOWED AS DEDUCTION UNDER SECTION 48(I) OF THE ACT. THE A.O. ALSO POIN TED OUT THAT THE INTENTION OF THE AGARWAL GROUP WAS INITIALLY NOT TO SELL THE SHARES; OTHERWISE THEY WOULD HAVE NOT PLEDGED THE 35.33% OF THEIR SHARE HOLDING AS SECURI TY FOR OBTAINING THE FUND. THEREFORE, IN HIS OPINION, INITIALLY THE INTENTION OF THE ASSESSEE WAS TO BUY THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 134 MAJORITY SHARE HOLDING AND HENCE THE EXPENDITURE IN CURRED FOR ARRANGING THE FUND FOR BUYING THE MAJORITY SHARE HOLDING SHOULD NOT BE ALLOWED AND HENCE HE CONTENDED THAT THE PAYMENT MADE TO M/S. CHURU TRADI NG CO. PVT. LTD. AND OTHER CONSULTANTS FOR ARRANGING THE FUND AND PREPARATION OF CLB PETITION AND APPEARING BEFORE THE CLB FOR ARGUING THE CASE OF THE ASSESSEE WAS NOT ALLOWED U/S 48(I). 14. WE HAVE CONSIDERED THE PAYMENT-WISE FACTS OF TH E CASE UNDER CONSIDERATION AS UNDER:- PAYMENT OF RS.2,24,24,000/- + RS.3,13,200/- TO M/S S.R. HALBE & ASSOCIATES, MUMBAI: 15. THE PAYMENT OF RS.2,24,24,000/- IS A LUMP-SUM P AYMENT FOR THE SERVICES RENDERED BY M/S. S.R. HALBE AND ASSOCIATES. THE PA YMENT OF RS.2,24,24,000/- HAS BEEN ACCEPTED BY THE A.O. AS INCURRED IN CONNECTION WITH THE TRANSFER OF SHARES AND DEDUCTION OF RS.78,56,800/- HAS BEEN ALLOWED UNDER SECTION 48(I) BEING SHARE OF THE ASSESSEE IN THE TOTAL PAYMENT OF RS.2,24,24,000 /- MADE TO SHRI HALBE BECAUSE HE FOUND THAT MAJOR PORTION OF FEE WAS ATTRIBUTABLE TO THE PROCEEDINGS BEFORE CLB IN CONNECTION WITH THE TRANSFER OF SHARES. 16. AFTER HAVING ACCEPTED THAT THE PAYMENT OF FEES MADE TO SHRI HALBE WAS ATTRIBUTABLE TO THE PROCEEDINGS BEFORE THE CLB IN C ONNECTION WITH TRANSFER OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 135 SHARES, THE A.O. DISALLOWED THE CLAIM OF THE ASSESS EE FOR DEDUCTION OF RS.3,13,200/- PAID TO SHRI HALBE TOWARDS THE REIMBU RSEMENT OF TRAVELING, LODGING AND BOARDING EXPENSES WHICH HE CLAIMED ON ACCOUNT O F INCURRING EXPENDITURE WHILE VISITING DELHI IN CONNECTION WITH PROCEEDING BEFORE THE CLB. WHEN THE FEES PAID IS HELD TO HAVE BEEN INCURRED IN CONNECTION WI TH THE TRANSFER OF SHARES, OTHER INCIDENTAL EXPENSES REIMBURSED TO HIM IN CONNECTION WITH PROCEEDING BEFORE THE CLB IS ALSO ALLOWABLE. WE, THEREFORE, ARE OF THE C ONSIDERED OPINION THAT ONCE THE A.O. HAS FOUND THAT THE SERVICES RENDERED BY SHRI H ALBE WAS MAINLY RELATED TO THE PROCEEDINGS BEFORE THE CLB IN CONNECTION WITH TRANS FER OF SHARES AND ALLOWED THE FULL FEES PAID TO HIM FOR DEDUCTION UNDER SECTION 4 8(I), THERE IS NO LOGIC TO DENY THE DEDUCTION FOR THE REIMBURSEMENT OF INCIDENTAL EXPEN SES ON TRAVELLING, LODGING, BOARDING ETC., WHICH HE INCURRED WHILE VISITING DEL HI IN CONNECTION WITH THE PROCEEDING BEFORE THE CLB THAT WAS SEIZED WITH THE MATTER OF SETTLING THE DISPUTE BETWEEN THE AGARWAL GROUP AND THE MAHESHWARI GROUP TO DECIDE AS TO HOW SHARES OF ONE GROUP IS SOLD TO OTHER GROUP SO THAT BOTH HE COMPANIES UNDER DISPUTE REMAIN IN CONTROL OF ONE GROUP ONLY AND THE OTHER GROUP GE TS BEST PRICE ON SALE OF THEIR SHARES AND ULTIMATELY IT WAS DECIDED THAT THE AGARW AL GROUP WAS TO SELL ITS SHARES TO THE MAHESHWARI GROUP AT MUTUALLY AGREED PRICE. CONSIDERING THIS BACKGROUND OF THE PROCEEDINGS BEFORE THE CLB, THE A.O. HAS ALR EADY ACCEPTED THE ACTIVE ROLE OF SHRI HALBE IN THESE PROCEEDINGS BEFORE THE CLB AND ALLOWED THE FEES PAID TO HIM ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 136 CONSIDERING THAT THE FEES PAID TO HIM WAS IN CONNEC TION WITH THE TRANSFER OF SHARES AND THEREFORE, IF ANY EXPENDITURE WAS INCURRED BY H IM WHILE VISITING DELHI TO ATTEND THESE PROCEEDINGS AND THE AGARWAL GROUP REIM BURSED THOSE EXPENSES, THEY SHOULD ALSO BE ALLOWED AS BEING INCURRED IN CONNECT ION WITH THE TRANSFER OF SHARES. AS THE FULL AMOUNT OF THESE EXPENSES BEING RS.3,13, 200/ HAS BEEN CLAIMED BY THE ASSESSEE IS ALLOWABLE. WE, THEREFORE, FIND THAT TH E CIT(A) HAS RIGHTLY DIRECTED THE A.O. TO ALLOW DEDUCTION FOR RS.3,13,200/- ALSO UNDE R SECTION 48(I) OF THE ACT. PAYMENT OF RS. 8,50,00,000/- TO CHURU TRADING CO. P VT. LTD. MUMBAI & RS.2,50,000/- TO RABO INDIA SECURITIES PVT. LTD., M UMBAI- 17. BOTH THESE PARTIES WERE ENGAGED BY THE AGARWAL GROUP FOR PROVIDING FINANCIAL ADVISORY SERVICES AND ASSISTING THEM TO A RRANGE FUNDS TO ACQUIRE SHARES OF MAJORITY GROUP IN BOTH COMPANIES. IN THIS PROCESS, THE AGARWAL GROUP FIRST APPROACHED M/S. RABO INDIA SECURITIES PVT. LTD. THA T ACTED AS STRATEGIC AND FINANCIAL ADVISOR TO AGARWAL GROUP FOR ACQUISITION OF SHARES AND THROUGH THIS PARTY THEY WERE INTRODUCED TO THE SECOND PARTY I.E. M/S. CHURU TRADING COMPANY PVT. LTD. THAT LATER PLAYED IMPORTANT ROLE TILL THE SHAR ES HELD BY THE AGARWAL GROUP WERE SOLD INSTEAD OF PURCHASING THE SHARES OF MAJORITY S HARE HOLDER AS PER THEIR STRATEGY. AS AFTER M/S. CHURU TRADING COMPANY PVT. LTD. CAME INTO PICTURE AND WERE GOT INVOLVED IN THE FORMULATION OF THE STRATEGY OF THE AGARWAL GROUP, ROLE OF M/S. RABO INDIA SECURITIES PVT. LTD. ENDED VERY SOON AND THEREFORE, THEY WERE PAID A ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 137 NOMINAL AMOUNT OF RS.2,50,000/- ON 01.02.2006 INSTE AD OF A CONSIDERATION OF RS.5,00,000/- PAYABLE AS INITIATION FEES AND 1% OF GROSS TRANSACTION VALUE SUBJECT TO A MINIMUM OF RS.3,00,00,000/- AS SUCCESS FEES AS PER THE AGREEMENT DATED 10.01.2006 ENTERED WITH THEM. THIS PAYMENT WAS MAD E MUCH BEFORE THE DATE OF THE ORDER OF CLB I.E. 10.07.2006, WHEN THE MAHESHW ARI GROUP WAS ORDERED TO PURCHASE THE SHARE HOLDING OF THE AGARWAL GROUP. I N VIEW OF THE ABOVE FACTS AND LOOKING TO STARTING ROLE PLAYED BY THIS PARTY IN AR RANGING FINANCIERS FOR THE AGARWAL GROUP IN ACQUISITION OF SHARES, THE PAYMENT TO M/S. RABO INDIA SECURITIES PVT. LTD. IS PART OF THE STRATEGY. MERELY ON THE BASIS OF TH E FACT THAT THIS PARTY WAS ORIGINAL PARTY TO STRATEGY AND DID NOT CONTINUE DOES NOT EFF ECT IN ALLOWING AS EXPENDITURES UNDER SECTION 48(I) OF THE ACT. SIMILARLY, DURING THE PROCESS OF ACQUISITION OF MAJORITY SHARE HOLDING OF MAHESHWARI GROUP, THE AGA RWAL GROUP ALSO ENTERED INTO ANOTHER AGREEMENT WITH M/S. CHURU TRADING PVT. LTD. THAT ACTED AS ARRANGER FOR ARRANGING RS.252 CRORES TO ACQUIRE MAJORITY SHAREHO LDING IN THE COMPANIES. AS PER THE TERMS OF AGREEMENT DATED 01.02.2006 WITH M/ S. CHURU TRADING CO. PVT. LTD, THE AGARWAL GROUP WAS TO PAY RS.8.5 CRORES AS ARRANGER FEE TO IT FOR ARRANGING THE FUNDS. THE ARRANGER FEE WAS TO BECOME DUE ON A CHIEVING THE FINANCIAL CLOSURE OF RS.252 CRORES NOTWITHSTANDING WHETHER THE AGARWA L GROUP SHALL BE ABLE TO DRAW DOWN THE ARRANGED FUNDS OR NOT. THAT THE AGAR WAL GROUP WENT TO THE CLB UNDER A STRATEGY TO GET THE VALUE OF SHARES OF BOTH THE COMPANIES ENHANCED AND ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 138 FROZEN FOR WHICH FIRST THEY SHOWED THAT THEY ARE IN TERESTED IN BUYING THE SHARES KNOWING VERY WELL THAT THEY HAD NO CAPACITY TO BUY THE SHARES HELD BY THE MAJORITY SHARE HOLDERS (64.67%) AND THEREFORE, THEY MADE SUC H FINANCIAL ARRANGEMENTS WHICH WAS IN CONTRAVENTION OF THE CONDITIONS FIXED BY THE CLB IN ITS ORDER DATED 25.01.2006 TO ARRANGE FINANCE IN WHICH M/S. CHURU T RADING CO. PVT. LTD. HELPED THEM THROUGH M/S. MEDIA WEST AND OTHER MERCHANT BAN KERS. THAT BECAUSE OF THIS ARRANGEMENT, THE OTHER PARTY I.E. THE MAHESHWARI GR OUP GOT ALARMED AND THEY FURTHER MOVED TO CLB TO RESTRAIN THE AGARWAL GROUP TO BUY MAJORITY SHARE HOLDING AND EVEN AGREED TO PAY RS.22 CRORES EXTRA AMOUNT OV ER AND ABOVE THE 35.33% OF VALUATION OF SHARES OF RS.390 CRORES WHICH COMES TO RS.138 CRORES AND FINALLY AS PER THEIR STRATEGY AS EXPLAINED EARLIER, THE AGARWA L GROUP GOT RS.160 CRORES BY SELLING THEIR 35.33% OF SHARE HOLDING. THAT THE EX CESS REALIZATION OF RS.22 CRORES COULD BE MADE POSSIBLE PRIMARILY WITH THE INTERVENT ION OF THE ARRANGER I.E. M/S. CHURU TRADING CO. PVT. LTD. THAT THE MAHESHWARI GR OUP AGREED TO PAY RS.22 CRORES EXTRA SO THAT THE SHARES WHICH WERE PLEDGED AS SECURITY WITH M/S. MEDIA WEST COULD BE LIFTED AND SHARES ARE SOLD TO THE MAH ESHWARI GROUP. FOR THIS PURPOSE , THE ARRANGER M/S. CHURU TRADING CO. PVT. LTD. DEMANDED FOR 50% OF THE EXTRA AMOUNT REALIZED BY THE AGARWAL GROUP BUT ULTI MATELY AS PER THE INITIAL AGREEMENT ONLY RS.8.5 CRORES WAS PAID. AS PER THE AGREEMENT, ARRANGER FEES OF RS.8.5 CRORES WAS TO BECOME DUE ON ACHIEVING THE FI NANCIAL CLOSURE OF RS.252 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 139 CRORES, NOT WITHSTANDING WHETHER THE AGARWAL GROUP DRAWS DOWN THE ARRANGED FUND OR NOT AND ONLY AFTER ARRANGING THE FULL FUND OF RS.252 CRORES, THE ARRANGER FEES WAS TO BE PAID WITHIN 30 DAYS FROM THE DATE OF THE ACQUISITION OF 64.67% SHARES HELD BY MAHESHWARI GROUP BY WAY OF THE TRANS FER IN THE NAME OF AGARWAL GROUP OR 31ST DECEMBER, 2006, WHICHEVER IS EARLIER. THUS, IT IS CLEAR FROM THE AGREEMENT THAT CONDITION FOR PAYMENT OF ARRANGER FE ES WAS FOR MAKING OF ARRANGEMENT OF FULL AMOUNT OF RS.252 CRORES BY M/S. CHURU TRADING CO. PVT. LTD. AND ITS PAYMENT WAS TO BE MADE IRRESPECTIVE OF ACQU ISITION OF 64.67% SHARES, IF SHARES HAD BEEN ACQUIRED, IT SHOULD HAVE BEEN PAID WITHIN 30 DAYS FROM THE DATE OF THE ACQUISITION OF THESE SHARES OTHERWISE PAYMENT W AS TO BE MADE BY 31ST DECEMBER 2006. WITH SUCH TERMS IN THE AGREEMENT, T HE QUESTION OF PAYMENT OF SUCH ARRANGER FEES WOULD HAVE ARISEN ONLY WHEN THE FUND OF RS.252 CRORES WAS ARRANGED. IN THE PRESENT CASE, LIABILITY TO PAY TH E ARRANGER FEES BY THE AGARWAL GROUP TO THE M/S. CHURU TRADING CO. PVT. LTD. WOULD HAVE ARISEN ONLY IN CASE OF THE EVENT OF ARRANGING THE FUND OF RS.252 CRORES HA D HAPPENED. BUT BY THE TIME M/S. CHURU TRADING CO. PVT. LTD COULD ARRANGE FUND OF RS.12.5 CRORES, THE CLB ON THE PETITION OF THE MAHESHWARI GROUP, PASSED AN ORD ER DATED 04.04.2006 DEFERRING THE PAYMENTS OF FURTHER INSTALLMENTS AND THEREAFTER , VIDE ORDER DATED 10.07.2006 CANCELLED ITS EARLIER ORDER OF GIVING OPTION TO THE AGARWAL GROUP TO PURCHASE 64.67% SHARES AND ORDERED THE MAHESHWARI GROUP TO P URCHASE 35.33% SHARES OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 140 THE AGARWAL GROUP. RS.8.5 CRORES WAS PAID TO M/S. CHURU TRADING CO. PVT. LTD. AND THEREFORE, THE QUESTION IS AS TO FOR WHAT SERVI CES THIS PAYMENT WAS MADE. THE A.O. HAS ALREADY ACCEPTED THE FORMULATION OF STRATE GY AND ALLOWED THE PAYMENT OF FEES TO SHRI S.R. HALBE FOR THIS PURPOSE AND AS PER THE FACTS OF THE CASE, IT IS CLEAR THAT M/S. CHURU TRADING CO. PLAYED AN IMPORTANT ROL E IN THIS STRATEGY BY WHICH THE AGARWAL GROUP WERE ULTIMATELY ABLE TO SELL THEIR SH ARE HOLDING AT ENHANCED VALUE. THAT SINCE BECAUSE OF INTERVENTION OF M/S. CHURU TR ADING CO. PVT. LTD., THE SHARE VALUE WAS FURTHER GOT ENHANCED BY RS.22 CRORES, THE PAYMENT OF RS.8.5 CRORES WAS MADE TO M/S. CHURU TRADING CO. PVT. LTD. ON 15.11.2 006 AS AGREED EARLIER, THOUGH THEY DEMANDED 50% OF SUCH EXTRA AMOUNT REALIZED BY THE AGARWAL GROUP AND THEREFORE, PAYMENT OF RS.8.5 CRORES IS ALLOWABLE AS DEDUCTION UNDER SECTION 48(I) OF THE ACT TO HAVE BEEN PAID FOR TRANSFER OF SHARES . PAYMENT OF RS.44,22,400/- TO MRS. BINA GUPTA, ADVOC ATE, NEW DELHI 18. THAT THE PAYMENT OF RS.44,22,400/- WAS CLAIMED TO H AVE BEEN MADE TO SMT. BINA GUPTA AS FEE FOR PREPARATION OF PETITION, APPE ARANCE BEFORE THE CLB AND FEE FOR APPEARANCE BEFORE HONBLE ALLAHABAD HIGH COURT AND HONBLE SUPREME COURT INCLUDING CONSULTATION FROM TIME TO TIME IN RESPECT OF TRANSFER OF SHARES. OUT OF TOTAL PAYMENT OF RS.44,22,400/- MADE TO SMT. BINA G UPTA BY ALL THE MEMBERS OF AGARWAL GROUPS SHARE OF PAYMENT MADE TO HER IS RS. 15,40,000/-. OUT OF THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 141 AMOUNT OF RS.6,25,000/- CLAIMED BY THE ASSESSEE AS DEDUCTION UNDER SECTION 48(I) OF THE ACT ON ACCOUNT OF PAYMENTS MADE TO SMT. BINA GUPTA. IT WAS NOTICED BY THE A.O. THAT CERTAIN EXPENSES WERE INCURRED IN CASH ON VOUCHERS WHICH ARE BASICALLY REIMBURSEMENT OF EXPENSES RELATED TO TRAVELING, LOD GING AND BOARDING ETC. TOTALING TO AN AMOUNT OF RS.6,25,000/-. LOOKING AT THE SUPP ORTING BILLS, THE A.O. CONCLUDED THAT SUCH PAYMENTS FELL UNDER THE CATEGORY OF VARIO US MISCELLANEOUS ACCOUNTS OF LOGISTIC EXPENSES WHICH ARE NOT DISTINCTLY RELATED AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES. THEREFORE, HE HELD THAT RS.6,2 5,000/- IS NOT ADMISSIBLE FOR DEDUCTION UNDER SECTION 48(I) OF THE ACT. THE CIT( A) HAS CONFIRMED THE ORDER OF THE A.O. IN THE LIGHT OF DETAILED DISCUSSIONS MADE IN PARAGR APH NOS.8 TO 18 OF THIS ORDER, THE CLAIM OF THE ASSESSEE IS ALLOWABLE AS EX PENDITURES INCURRED WAS PART OF THE STRATEGY IN RESPECT OF TRANSFER OF SHARES. PAYMENT OF RS.1,50,000/- TO SHRI SUDIPTO SARKAR, AD VOCATE 19. THE ASSESSEE HAS CLAIMED TO HAVE MADE PAYMENT O F RS.1,50,000/- TO SHRI SUDIPTO SARKAR, ADVOCATE ON ACCOUNT OF APPEARANCE F EES BEFORE THE CLB. THE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 142 CIT(A) CONFIRMED THE ORDER OF THE A.O. IN THE LIGH T OF DETAILED DISCUSSION MADE IN PARAGRAPH NOS.8 TO 18 OF THIS ORDER, THE CLAIM OF T HE ASSESSEE IS ALLOWABLE. PAYMENT OF RS.10,00,000/- TO SHRI DAYAL SARAN, ADVO CATE, AGRA 20. A CONSOLIDATED PAYMENT OF RS.10,00,000/- (RS.5, 00,000/- EACH BY AJAY AGARWAL FAMILY AND KAMLESH AGARWAL FAMILY) HAS BEEN SHOWN AS FEE FOR CONSULTATION TAKEN FROM TIME TO TIME IN RESPECT OF THE TRANSFER OF SHARES. THE A.O. HAS DISCUSSED IN THE ASSESSMENT ORDER THAT THERE IS NO EVIDENCE WHICH CAN CORROBORATE THAT ANY LEGAL SERVICES HAVE BEEN EXTEN DED IN THE PROCESS OF VALUATION OF SHARE OR IN THE PROCESS OF COMPROMISE CONCERNING THE TRANSFER OF SHARES. IN HIS VIEW SUCH A LEGAL EXPENSE DOES NOT FIND ANY PLACE T HAT THEY ARE INTRINSICALLY LINKED WITH THE TRANSFER OF SHARES AND THEREFORE, HE HELD THAT IT CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 48(I) OF THE ACT. THE CIT( A) HAS GONE THROUGH THE BILL OF SHRI DAYAL SARAN AND FOUND THAT IN THE BILL, IT IS CLEARLY WRITTEN THAT THIS BILL WAS RAISED FOR CHARGING THE FEES FOR CONSULTATION IN RE SPECT OF THE TRANSFER OF SHARES INCLUDING TRAVEL AND OTHERS OUT OF POCKET EXPENSES FOR VISITING DELHI FROM TIME TO TIME. THE CASE OF THE A.O. IS NOT THAT THIS PAYMEN T IS NOT MADE. THE CIT(A) HELD THAT SHRI DAYAL SARAN BEING A CHARTERED ACCOUNTANT WAS ASSOCIATED WITH THE AGARWAL GROUP SINCE THE BEGINNING OF THE DISPUTE AN D THEREFORE, HIS CONTRIBUTION IN ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 143 SETTLING THE DISPUTE TILL A COMPROMISE WAS REACHED BETWEEN BOTH GROUPS AND FINAL ORDER WAS PASSED BY THE CLB ON 01.11.2006 FOR SALE AND TRANSFER OF SHARES OF THE AGARWAL GROUP, CANNOT BE DENIED AND THEREFORE, HIS PAYMENT WAS SETTLED ONLY AFTER PASSING OF FINAL ORDER BY THE CLB GIVING GREEN SIGN AL FOR THE TRANSFER OF SHARES SIMILAR TO SHRI S.R. HALBE AND THEREFORE, PAYMENT M ADE TO SHRI DAYAL SARAN IS ALSO ALLOWABLE FOR DEDUCTION UNDER SECTION 48(I) OF THE ACT ON THE BASIS OF BILL RAISED BY HIM BEING FOR THE SERVICES PROVIDED FOR CONSULTATIO N IN RESPECT OF THE TRANSFER OF SHARES UNLESS ANY CONTRARY FINDING IS GIVEN BY THE A.O., WHICH HE HAS FAILED TO BRING ON RECORD IN THE ASSESSMENT ORDER. THEREFORE , THE CIT(A) DIRECTED THE A.O. TO ALLOW DEDUCTION FOR RS.5,00,000/- UNDER SECTION 48(I) OF THE ACT BEING HALF PORTION OF THE PAYMENT MADE TO SHRI DAYAL SARAN AND CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. IN THE LIGHT OF DETAILED DIS CUSSION MADE IN PARAGRPAH NOS.8 TO 18, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E CIT(A). 21. AFTER EXAMINING ITEM-WISE PAYMENTS OF EXPENDITU RES, WE FIND THAT IN PRINCIPLE, THE A.O. AND CIT(A) BOTH AGREED WITH THE ASSESSEE THAT THE CLAIM OF EXPENDITURES ARE ALLOWABLE WHILE COMPUTING CAPITAL GAIN UNDER SECTION 48(I) OF THE ACT. BUT THE A.O. HAS DEMARCATED A LINE ON PRESUMP TION THAT PART OF THE EXPENDITURES WERE INCURRED FOR ACQUISITION OF SHARE S OF MAJORITY HOLDERS. THE CIT(A) ALSO PARTLY DISALLOWED FOLLOWING AN ORDER OF AUTHORITY FOR ADVANCE RULING ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 144 IN THE CASE OF COMPAGNIE FINANCIERE HAMON (2009) 31 0 ITR 1 (AAR) ON THE GROUND THAT THE SERVICES FOR WHICH PAYMENT MADE DID NOT EXTEND TO THE PROCESS OF VALUATION OF SHARES OR PARTICIPATION IN DELIBERATIO N TO THAT LEAD TO SETTLEMENT CONCERNING THE TRANSFER OF SHARES. 22. IN THE CASE UNDER CONSIDERATION, IT IS ADMITTED FACT THAT THE ASSESSEE IS A MINORITY SHARE HOLDING IN HIS GROUP I.E. 35.33% AND MAJORITY SHARE HOLDERS WERE MAHESHWARI GROUP 64.67%. THE DIVISION AND DISTRIBU TION OF BUSINESS COULD NOT BE SETTLED MUTUALLY BY BOTH THE GROUPS. THE ASSESSEE WAS IN MINORITY SHARE HOLDING, THEREFORE, IN THEIR INTEREST THEY APPROACHED TO THE CLB. THE CLB PASSED AN ORDER DATED 25.01.2006 OF WHICH A DETAILED DISCUSSION HAS BEEN MADE BY CIT(A) IN HIS ORDER IN PARA NO.5.14. AS PER THE PROVISIONS OF CL B, THE TOTAL VALUE OF SHARES FROZE AT RS.390 CRORES BY MAHESHWARI GROUP, ACCORDINGLY R S.252 CRORES (64.67%) SHARE TO MAHESHWARI GROUP AND RS.138 CRORES (35.33 %) TO AGARWAL GROUP. THE AGARWAL GROUP FORMULATED STRATEGY TO SHOW THAT THEY ARE GOING TO PURCHASE THE SHARES HELD BY MAHESHWARI GROUP AND MADE ARRANGEMEN T ACCORDINGLY. WHEN THIS STRATEGY CAME TO THE NOTICE OF MAHESHWARI GROUP THE Y FILED APPLICATION BEFORE THE CLB FOR DIRECTION TO THE AGARWAL GROUP TO DEPOSIT T HEIR SHARES IN ESCROW ACCOUNT ALLEGING THAT AGARWAL GROUP HAS VIOLATED THE TERMS OF THE CONCERNED ORDER DATED 25.01.2006. THE AGARWAL GROUP DID NOT DEPOSIT THEI R SHARES IN THE ESCROW ACCOUNT ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 145 AS THAT IS ALSO PART OF STRATEGY TO CREATE PRESSURE AGAINST MAHESHWARI GROUP SO THAT THE AGARWAL GROUP GETS MORE CONSIDERATION OF THEIR SHARES. AFTER A PROLONGED LITIGATION CARRIED BEFORE THE CLB, THE SALE CONSIDE RATION OF SHARE HOLDING OF AGARWAL GROUP INCREASED AT 116 CRORES AND ACCORDING LY MAHESHWARI GROUP PURCHASED THE SHARE OF AGARWAL GROUP. THE CASE OF THE A.O. IS THAT THE EXPENDITURES INCURRED WERE NOT DISTINCTLY RELATED T O AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARES. THEREFORE, THE SAME IS NOT ADMISSIBLE DEDUCTION UNDER 48(I) OF THE ACT. HOWEVER, PART OF THE EXPENDITURE HAS B EEN ACCEPTED BY THE A.O. ON THE GROUND THAT FEE PAID TO M/S.S.R. HALBE & ASSOCIATES WERE INCURRED FOR FORMULATION OF STRATEGY FOR FILING PETITION BEFORE CLB FOR PROT ECTION OF INTEREST OF MINORITY SHARE HOLDERS. THE CASE OF THE ASSESSEE IS THAT TH E EXPENDITURES WERE INCURRED IN FORMULATING A STRATEGY TO GET THE MAXIMUM SALE CONS IDERATION OF THE MINORITY SHARE HOLDINGS. UNDER THE FACTS AND CIRCUMSTANCES, WHETH ER THE EXPENDITURE INCURRED BY THE ASSESSEE IS COVERED BY SECTION 48(I) OF THE ACT , EXPENDITURES INCURRED ARE WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRAN SFER. THE HONBLE KERALA HIGH COURT IN THE CASE OF DR. P. RAJENDRAN (SUPRA) HELD THAT THE WORDS IN CONNECTION WITH USED IN CLAUSE (I) OF SECTION 48 ARE VERY WID E IN THEIR AMBIT AND HENCE THERE IS NO WARRANT FOR IMPORTING A RESTRICTION THAT TO Q UALIFY FOR DEDUCTION THE EXPENDITURE MUST NECESSARILY HAVE BEEN INCURRED PRI OR TO THE PASSING OF TITLE. THE CRUCIAL TEST TO BE APPLIED IS WHETHER THE EXPENDITU RE WAS INCURRED WHOLLY AND ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 146 EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND IT IS IMMATERIAL WHETHER IT WAS INCURRED PRIOR OR SUBSEQUENT TO THE PASSING OF TITL E. AS STATED ABOVE, THAT THE ASSESSEE WAS MINOR SHARE HOLDING IN THE COMPANY AND WAS HAVING NO CAPACITY TO BUY THE MAJORITY SHARE HOLDING. THAT IS THE REASO N THE MINORITY SHARE HOLDER I.E. THE ASSESSEE MERELY MADE THE ARRANGEMENT AND SUCH S TRATEGY CAN BE SAID TO BE A PART OF STRATEGY WHICH AN ORDINARY MAN OF BUSINESS CAN RESORT TO IN GETTING MAXIMUM CONSIDERATION OF MINORITY SHARE HOLDING. I N THE CASE OF CIT VS. DR. P. RAJENDRAN (SUPRA), THE HONBLE KERALA HIGH COURT HE LD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONDUCTING LAND ACQUISI TION PROCEEDING BEFORE THE CIVIL COURT ARE EXPENDITURES WHOLLY AND EXCLUSIVELY INCUR RED IN CONFECTION WITH THE TRANSFER. IN THE CASE UNDER CONSIDERATION, WHEN TH E ASSESSEE WAS ABLE TO GET ENHANCED HIS SHARE HOLDING FROM RS.138 CRORES TO RS .160 CRORES THE EXPENDITURES INCURRED FOR FORMULATING STRATEGY IS CERTAINLY EXPE NDITURE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH TRANSFER. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. R. RAMANATHAN CHETTIAR (SUPRA) HELD THA T SUCH EXPENDITURES ARE ALLOWABLE EXPENDITURES UNDER SECTION 48(I) OF THE A CT, OTHERWISE IN THAT CASE THE SALE OF THE LAND, AS IT WAS, WOULD NOT HAVE FETCHED SUCH A PRICE WHICH THE ASSESSEE ACTUALLY GOT NOW AFTER CONVERTING THE LAND INTO HOU SE SITES. SIMILAR SITUATION IS IN THE CASE UNDER CONSIDERATION. IF THE ASSESSEE DID FORMULATE SUCH STRATEGY AND INCURRED EXPENDITURE, THE ASSESSEE COULD NOT HAVE G OT CONSIDERATION OF RS.160 ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 147 CRORES IN THEIR MINORITY SHARE HOLDING. IN THE LIG HT OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ARUNA MILL S LIMITED VS. CIT (SUPRA) THE CLAIM OF THE ASSESSEE IS ALLOWABLE, CONSIDERING THE PRINCIPLE OF COMMERCIAL EXPEDIENCY. FOR CALCULATING THE CORRECT PROFIT ON SALE OF SHARES, THE EXPENDITURE INCURRED IN RESPECT OF TRANSFER OF SHARE HOLDING IS ALLOWABLE EXPENDITURE UNDER SECTION 48(I) OF THE ACT. THE APEX COURT IN THE CA SE OF CIT VS. DHANARAJGIRJI NARASINGIRGI (SUPRA) HELD THAT IT IS NOT OPEN TO TH E DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CI RCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVERY BUSINESSMAN KNOWS HIS INTE REST BEST. IN THE CASE UNDER CONSIDERATION, THE ASSESSEE KNEW HIS INTEREST BEST; THEREFORE, HE FORMULATED A STRATEGY SO THAT HE CAN GET MORE CONSIDERATION FOR HIS MINORITY SHARE HOLDINGS. THE EXPENDITURES INCURRED WERE WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF TRANSFER OF THE SHARES, THEREFORE, IN THE LIGHT OF RATIO LAID D OWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SIDDHO MAL & SONS VS. ITO (SUP RA) THE CLAIM OF THE ASSESSEE IS ALLOWABLE. IF WE JUDGE THE TEST OF COMMERCIAL E XPEDIENCY FROM THE POINT OF VIEW OF THE ASSESSEE, THE EXPENDITURE CLAIMED BY THE ASS ESSEE IS ALLOWABLE UNDER SECTION 48(I) OF THE ACT. THE A.O. HAS HIMSELF ACCEPTED TH E PART CLAIM OF THE ASSESSEE IN RESPECT OF PAYMENT MADE TO M/S S.R. HALVE & ASSOCIA TES ON ACCOUNT OF PAYMENT OF FEE WHICH WAS PAID FOR ATTENDING THE PROCEEDINGS BEFORE THE CLB. IT IS IMPORTANT TO NOTE THAT CASE BEFORE CLB WAS FOR BUSI NESS SETTLEMENT BETWEEN TWO ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 148 GROUPS. HOWEVER, THE A.O. DID NOT ACCEPT REIMBURSE MENT CLAIM OF EXPENSES TO M/S. S.R. HALBE & ASSOCIATES WHEREAS THE NATURE OF EXPENDITURES WERE SAME. HOW ONE CAN BIFURCATE SUCH FEE AND ITS RELATED EXPENDIT URES SEPARATELY FIRST ONE FEE IS TO ALLOW AND OTHER PART OF REIMBURSEMENT OF EXPENSES O N THE GROUND THAT THESE WERE NOT IN CONNECTION WITH TRANSFER OF SHARES. THIS FI NDING OF THE A.O. IS ON PRESUMPTION BASIS AND NOT ON FACTS. ONCE IT IS FOU ND THAT FEE PAID TO S.R. HALVE & ASSOCIATES FOR APPEALING BEFORE CLB IS IN CONNECTIO N WITH TRANSFER OF SHARE THEN ON THE SAME REASON AND BASIS REIMBURSEMENT OF EXPENSES ARE ALSO CARRIED SAME NATURE OF EXPENDITURE. IT CAN NOT BE BIFURCATED ARTIFICIA LLY ON PRESUMPTION BASIS. SIMILAR IS THE POSITION OF EXPENDITURE PAID TO M/S. CHURU T RADING CO. PVT. LIMITED, RABO INDIA SECURITIES LIMITED & OTHERS. FOR DISALLOWING THIS EXPENDITURE THE A.O. SAID THAT THESE EXPENDITURES WERE RELATED TO PURCHASES O F SHARES OF MAHESHWARI GROUP WHEREAS FINALLY THAT WAS NOT THE CASE. THE FINAL R ESULT OF ALL THESE EFFORTS WAS THAT THE ASSESSEE WAS ABLE TO GET RS.160 CRORES OF SALE CONSIDERATION OF THEIR SHARES. THIS FACT ESTABLISHED BY VARIOUS CIRCUMSTANCES INCL UDING THE FACT THAT CLB WAS TO DECIDE THE ISSUE TWO TIMES AND FINALLY THE ASSESSEE ACHIEVED THE OBJECT IN REALIZING WITH SALE CONSIDERATION OF THEIR SHARES. EVEN FOR THE SAKE OF ARGUMENT, IF WE ACCEPT THE A.O.S VIEW THAT ONLY FEE PAID TO M/S. S.R. HAL BE & ASSOCIATES IS ONLY EXPENSES IN CONNECTION WITH TRANSFER OF SHARES, THI S IS NOT CORRECT TO SAY SO BECAUSE WITHOUT OTHER PART OF STRATEGY THIS ALONE THING TO APPEARING BEFORE CLB WILL NOT ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 149 SERVE THE PURPOSE. THE ASSESSEE GETS SUCCESS BECAU SE OF THE CONSOLIDATED EFFORTS. THE CASE UNDER CONSIDERATION IS NOT A SIMPLE CASE O F FILING PETITION BEFORE THE CLB BUT FILING OF PETITION BEFORE CLB BY THE ASSESSEE I S PART OF STRATEGY. ON CONSIDERATION OF ENTIRE ASPECT OF STRATEGY, WE FIND THAT EXPENSES INCURRED BY THE ASSESSEE WERE INTEGRALLY CONNECTED WITH TRANSFER OF SHARES. THEREFORE, ON CONSIDERATION OF ENTIRETY OF FACTS, WE ARE OF THE V IEW THAT THESE EXPENDITURES ARE ALLOWABLE. 23. AS REGARDS FINDING OF THE CIT(A) FOLLOWING AN O RDER OF AUTHORITY FOR ADVANCE RULING IN THE CASE OF COMPAGNIE FINANCIERE HAMON (2009) 310 ITR 1 (AAR) WE FIND THAT THE CIT(A) WITHOUT APPRECIATING THE FACTS OF THAT CASE AND FACTS OF THE CASE UNDER CONSIDERATION FOLLOWED THE SAID J UDGEMENT. IN THE SAID CASE, EXPENDITURES WERE NOT RELATED TO TRANSFER OF SHARES BUT RELATED TO INITIAL PERIOD OF THE DISPUTE. IN THE CASE UNDER CONSIDERATION, THE SOLE OBJECT OF THE EXPENDITURES INCURRED ARE LEGAL FEE IN CONNECTION WITH TRANSFER AS THOSE EXPENDITURES WERE PART AND PARCEL TO STRATEGY. RATHER THIS JUDGEMENT RELI ED UPON BY THE CIT(A) SUPPORTS THE CASE OF THE ASSESSEE. IF WE SEE THIS JUDGEMENT FROM ANOTHER ANGLE, FOR THAT PURPOSE, WE WOULD LIKE TO REITERATE THE LAW LAID DO WN BY THE APEX COURT IN THE CASE OF CIT VS. DHANARAJGIRJI NARASINGIRGI (SUPRA) WHERE IN IT WAS HELD THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 150 WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE . EVERY BUSINESSMAN KNOWS HIS INTEREST BEST. WHEN IN PRINCIPLE IT HAS BEEN A CCEPTED THAT THE EXPENDITURES WERE INCURRED FOR STRATEGY IN CONNECTION WITH GETTING MO RE CONSIDERATION FOR THE PURPOSE OF TRANSFER OF SHARES, ALL SUCH EXPENDITURES ARE AL LOWABLE MAY BE IN RESPECT OF LEGAL SERVICES OR OTHERS. OTHERWISE ALSO, AS STATED ABOV E, THAT IN SUCH CIRCUMSTANCES, EACH CASE IS TO DECIDE ON ITS FACTS, THEREFORE, THE ORDER RELIED UPON BY THE CIT(A) IS DISTINGUISHABLE ON FACTS. 24. IF WE CONSIDER THE ENTIRE PRINCIPLES LAID DOWN IN ABOVE JUDGMENTS INCLUDING ACCOUNTING AND PRINCIPLE OF COMMERCIAL EXPEDIENCY I N THE LIGHT OF THE PROVISIONS OF THE ACT INCLUDING SECTION 48(I) OF THE ACT, WE FIND THAT THE EXPENDITURES WERE INCURRED IN COMMERCIAL EXPEDIENCY WHICH RESULTED IN TO HIGHER SALE CONSIDERATION. THE SETTLEMENT OF BUSINESS DISPUTE AND INCURRING EX PENDITURE RELATED TO SETTLEMENT AMOUNTS TO COMMERCIAL EXPEDIENCY. EVEN OTHERWISE A LSO, ON ACCEPTANCE OF REVENUES VIEW THE ACCOUNTING PRINCIPLE SUGGEST THA T THE EXPENDITURES INCURRED FOR PURCHASING SHARES OF MAHESHWARI GROUP BY THE AGARWA L GROUP THEREFORE SUCH EXPENDITURES ARE ALLOWABLE UNDER SECTION 48(I) OF T HE ACT BECAUSE FINAL OUTCOME OF EXPENDITURES INCURRED WAS FOR SELLING SHARES BY AGA RWAL GROUP AND REALIZATION OF HIGHER SALE CONSIDERATION OF HOLDING OF AGARWAL GRO UP. WE ACCORDINGLY ALLOW THE CLAIM OF THE ASSESSEE. WE SET ASIDE THE ORDER OF T HE A.O. AND MODIFY THE ORDER OF ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 151 THE CIT(A) ALLOWING ASSESSEES CLAIM WHERE HE SUSTA INED THE ADDITIONS. THE ORDER OF THE CIT(A) TO THE EXTENT OF CLAIM ALLOWED IS CON FIRMED. ITA NO.405/AGR/2011 BY THE REVENUE IN THE CASE OF S HRI AJAY AGARWAL 25. IN THE LIGHT OF DETAILED DISCUSSIONS MADE ABOVE IN PARAGRAPH NOS.8 TO 24 OF THIS ORDER, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.404/AGR/2011 BY THE REVENUE IN THE CASE OF S MT. RENU AGARWAL 26. IN THIS APPEAL THE SOLE GROUND RAISED BY THE RE VENUE IS IN RESPECT OF DELETION OF ADDITION OF RS.1,00,00,000/- MADE BY THE CIT(A) ON ACCOUNT OF PAYMENT MADE TO M/S. CHURU TRADING CO. PVT. LTD. UNDER SECTION 4 8(I) OF THE ACT. 27. IN THE LIGHT OF DETAILED DISCUSSIONS MADE ABOVE IN PARAGRAPH NOS.8 TO 24 OF THIS ORDER, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.406/AGR/2011 BY THE REVENUE IN THE CASE OF S MT. KAMLESH AGARWAL ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 152 28. IN THIS APPEAL THE REVENUE HAS RAISED GROUND IN RESPECT OF DELETION OF ADDITION OF RS.85,00,000/- MADE BY THE CIT(A). THE PAYMENT WAS MADE TO M/S. CHURU TRADING CO. PVT. LTD. 29. IN THE LIGHT OF DETAILED DISCUSSIONS MADE ABOVE IN PARAGRAPH NOS.8 TO 24 OF THIS ORDER, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.466/AGR/2011 BY THE REVENUE IN THE CASE OF S HRI HEMANT ANAND 30. IN THIS APPEAL THE REVENUE HAS RAISED GROUND IN RESPECT OF DELETION OF ADDITION OF RS.25,00,000/- MADE BY THE CIT(A). THE A.O. MADE THE ADDITION DISALLOWING PAYMENT MADE TO M/S. CHURU TRADING CO. PVT. LTD. UNDER SECTION 48(I) OF THE ACT. 31. IN THE LIGHT OF THE DETAILED DISCUSSIONS MADE A BOVE IN PARAGRAPH NOS.8 TO 24 OF THIS ORDER, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.407/AGR/2011 BY THE REVENUE IN THE CASE OF S HRI SAGAR ANAND ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 153 32. IN THIS APPEAL THE REVENUE HAS RAISED GROUND IN RESPECT OF DELETION OF ADDITION OF RS.1,70,00,000/- MADE BY THE CIT(A) BEI NG THE AMOUNT PAID TO M/S. CHURU TRADING CO. PVT. LTD. UNDER SECTION 48(I) OF THE ACT. 33. IN THE LIGHT OF THE DETAILED DISCUSSIONS MADE A BOVE IN PARAGRAPH NOS.8 TO 24 OF THIS ORDER, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.348/AGR/2011 BY THE ASSESSEE SHRI AJAY AGARW AL 34. GROUND NOS.1 & 2 ARE IN RESPECT OF ADDITION OF RS.2,50,000/- BEING PAYMENT MADE TO RABO INDIA SECURITIES (P) LTD. & RS.6,65,00 0/- BEING PAYMENT MADE TO MRS. BINA GUPTA CONFIRMED BY THE CIT(A). THE A.O. MADE THESE DISALLOWANCES UNDER SECTION 48(I) OF THE ACT AND THE CIT(A) HAS C ONFIRMED THE ACTION OF THE A.O. IN RESPECT OF ABOVE AMOUNTS PAID TO RABO INDIA SECU RITIES (P) LTD. & MRS. BINA GUPTA. GROUND NO.3 IS IN RESPECT OF ENHANCED DISAL LOWANCE OF RS.40,000/- BEING PAYMENT MADE TO MRS. BINA GUPTA. GROUND NO.4 IS IN RESPECT OF DISALLOWANCE OF RS.1,50,000/- BEING PAYMENT MADE TO SHRI SUDIPTO SA RKAR, ADVOCATE. 35. AS PER THE DETAILED DISCUSSIONS MADE IN PARAGRA PH NOS.8 TO 24 OF THIS ORDER, WE FIND FORCE IN THE GROUND OF APPEAL OF THE ASSESS EE AND IN THE LIGHT OF ABOVE ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 154 DISCUSSIONS, ADDITION SUSTAINED BY THE CIT(A) ARE D ELETED INCLUDING THE ENHANCED ADDITION OF RS.40,000/- IN RESPECT OF DISALLOWANCE OF AMOUNT PAID TO MRS. BINA GUPTA, SHRI SUDIPTO SARKAR AND M/S. RABO INDIA SECU RITIES (P) LTD. 36. IN GROUND NO.5 THE ASSESSEE HAS RAISED THE ISSU E PERTAINING TO CHARGING OF INTEREST UNDER SECTION 234C OF THE ACT. THE MAIN C ONTENTION OF THE ASSESSEE IS THAT THERE WAS SUFFICIENT CAUSE FOR NOT DEPOSITING THE S ECOND INSTALLMENT OF ADVANCE TAX ON OR BEFORE 15.12.2006 AS NO CAPITAL GAIN WAS PAYA BLE AS THE ASSESSEE INTENDED TO DEPOSIT THE SAME IN NOTIFIED BONDS IN TERMS OF SECT ION 54EC OF THE ACT, BUT THE SAME WERE NOT AVAILABLE TIMELY. 37. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT TH ERE WAS SUFFICIENT CAUSE FOR NOT DEPOSITING THE ADVANCE TAX BEFORE THE DUE DATE. LD. AUTHORISED REPRESENTATIVE WITH REFERENCE TO VARIOUS C.B.D.T. CIRCULARS AND OT HERS SUBMITTED THAT DURING THE PERIOD THE NOTIFIED BONDS WERE NOT AVAILABLE OR WER E ENHANCED THE CAPPING OF THE BOUND TO THE EXTENT OF RS.50,00,000/-. LD. AUTHORI SED REPRESENTATIVE IN SUPPORT OF HIS CONTENTION RELIED UPON VARIOUS DECISIONS DETAIL ED AS UNDER :- ACIT VS. JINDAL IRRIGATION SYSTEMS LTD. (1996) 56 I TD (HYD.) 164 STAR INDIA (P) LTD. VS. CCE (2006) 280 ITR 321 (SC) CIT VS. REVATHI EQUIPMENT LTD. (2008) 298 ITR 67 (M AD.) CIT VS. ANAND PRAKASH (2009) 316 ITR 141 (DEL.) CIT VS. SMT. PREMLATA JALANI (2003) 264 ITR 744 (RA J.) ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 155 38. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT IT IS SETTLED LEGAL POSIT ION THAT INTEREST IS MANDATORY. HE RELIED UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF KARANVIR SINGH GOSSAL VS. CIT, 349 ITR 692 (SC). 39. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. IN THE LIGHT OF LAW LAID DOWN BY THE APEX COURT IN THE CASE OF KARANVIR SINGH GOSSAL VS. CIT, 349 ITR 692 (SC) WHEREIN IT HAS BEEN HELD THAT CHARGING OF INTEREST UNDER SECTION 234B/234C IS MANDATORY. FOLLOWING THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF KARANVIR SINGH GOSSAL (SUPRA), WE DO NOT FIND ANY SUBSTANCE IN THIS GROUND OF APPEAL OF THE ASSESSEE, THEREFORE, THE SA ME IS DISMISSED. THUS, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.349/AGR/2011 BY THE ASSESSEE SMT. RENU AGARW AL 40. GROUND NO.1 IS IN RESPECT OF SUSTENANCE OF ADDI TION OF RS.7,37,000/- BY THE CIT(A) BEING PAYMENT MADE TO MRS. BINA GUPTA. 41. IN THE LIGHT OF THE DETAILED DISCUSSION MADE IN THIS ORDER VIDE PARAGRAPH NOS.8 TO 24, WE DELETE THE ADDITION AND GROUND OF A PPEAL OF THE ASSESSEE IS ALLOWED. ITA NOS.405,348,349,404,406,407& 466/AGR/2011 A.YS. 2007-08 156 42. THE SECOND GROUND OF APPEAL IS IN RESPECT OF CH ARGING OF INTEREST UNDER SECTION 234C OF THE ACT. 43. IN THE LIGHT OF THE DETAILED DISCUSSIONS MADE I N PARAGRAPH NOS.36 TO 39 OF THIS ORDER, THIS GROUND OF APPEAL OF THE ASSESSEE IS DIS MISSED. THUS, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 44. IN THE RESULT, ITA NOS.405, 404, 406, 407 & 466 /AGR/2011 FILED BY THE REVENUE ARE DISMISSED AND ITA NOS.348 & 349/AGR/201 1 FILED BY THE ASSESSEE ARE PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY