Deepak Gurushankar Tripathi Vs DCIT (ITAT Panaji)
Advisory and Deal Execution Fees Deductible from Capital Gains: ITAT Deletes Rs. 83.47 Lakh Disallowance
The Income Tax Appellate Tribunal, Panaji Bench, in Deepak Gurushankar Tripathi v. DCIT, ITA No. 258/PAN/2025, allowed deduction of Rs. 83,47,183 towards professional advisory fees and event and execution expenses incurred in selling unlisted equity shares. The Tribunal held that the expenditure had a direct nexus with the share transfer and qualified for deduction under Section 48(i) of the Income-tax Act, 1961.
The order, pronounced on 23 October 2026, concerned Assessment Year 2016–17. The Bench comprised Dr. Manish Borad, Accountant Member, and Shri Vinay Bhamore, Judicial Member. It reversed the CIT(A)’s findings and allowed the assessee’s appeal.
Background of the Share Sale
The assessee, an individual, filed his return on 13 October 2016, declaring total income of Rs. 33,54,12,110.
A major transaction during the year involved the sale of unlisted shares in M/s Lilac Medicare Private Limited. The assessee reported capital gains of Rs. 25,48,97,024 from the transaction.
The gross sale consideration was Rs. 26,60,62,500. The shares had an original purchase cost of Rs. 12,36,250 and an indexed cost of Rs. 26,22,174.
The assessee claimed total incidental expenses of Rs. 85,43,302 in computing the capital gains. The dispute concerned the deductibility of a substantial portion of those expenses.
Assessing Officer Questions Connection with Transfer
During scrutiny, the Assessing Officer examined expenses primarily relating to advisory services and event and execution arrangements.
He considered that the assessee had failed to establish the connection between those payments and the sale consideration.
The officer also observed that the expenditure was not directly connected with the securities sold and could not be added to their acquisition cost.
He consequently disallowed Rs. 83,47,183, determining total income at Rs. 34,37,59,290 through an assessment order dated 23 December 2018.
The genuineness of the underlying share sale itself was not disputed.
CIT(A) Upholds the Disallowance
The assessee challenged the adjustment before the CIT(A)/NFAC, Delhi, filing detailed submissions.
However, the first appellate authority upheld the disallowance through an order dated 23 June 2025.
It held that the assessee bore the burden of demonstrating that the expenses satisfied the requirements of Section 48(i).
The assessee then approached the Tribunal, maintaining that the disputed payments arose directly from identifying a buyer, negotiating the transaction and completing the transfer.
The Revenue supported the first appellate authority’s order and sought confirmation of the disallowance.
Agreement and Professional Records Produced
Before the Tribunal, the assessee relied on a 303-page paper book containing details of the share sale, the agreement with 7i Advisors LLP, invoices and particulars of the disputed expenditure.
The assessee held 49,500 equity shares, representing 24.75% of the company’s shareholding.
He and the other shareholders collectively engaged 7i Advisors LLP to locate a buyer for the business and acquire their shareholding.
The professional mandate therefore related to the transaction that ultimately generated the capital gains, rather than general advisory services disconnected from the sale.
The Tribunal examined the supporting records when evaluating this link.
Advisors Located Buyer and Completed the Deal
The Tribunal noted that the shareholders sought professional assistance to obtain an appropriate buyer and the best available price.
The advisors’ work included identifying buyers, preparing documents and finalising the transaction.
The deal involved a Japanese buyer and was concluded at Rs. 5,375 per share for the company’s two lakh equity shares.
Other professionals, including J. Sagar Associates and S. R. Divatia, were involved in due diligence, valuation reports and related work.
The Tribunal considered these services part of the professional effort necessary to bring the transaction to completion.
Officer Could Not Substitute Commercial Judgment
The Tribunal observed that the Assessing Officer’s objection effectively questioned how the assessee should conduct his business and financial affairs.
The officer had doubted how the professional advice justified the substantial fees or helped secure a favourable deal.
However, the records established that professional services had been engaged for the actual share sale and that the transaction had been completed.
The relevant inquiry was whether the expenditure was connected with the transfer, rather than whether the officer would have chosen the same advisory arrangements or considered the charges commercially desirable.
Event and Execution Expenses Also Connected
The Tribunal also examined expenditure concerning functions arranged for buyer representatives and the formal exchange and signing of purchase agreements.
It held that these were incidental expenses connected with completing the transaction.
Both the advisory fees and the event and execution expenditure were therefore incurred wholly and exclusively in connection with the transfer.
The Tribunal relied on Kaushalya Devi v. CIT (2018) 92 taxmann.com 335, recognising the significance of an established and inextricable connection between expenditure and transfer of a capital asset.
Final Decision
The Tribunal deleted the Rs. 83,47,183 disallowance and allowed the assessee’s appeal.
The ruling recognises that documented professional and execution expenses directly attributable to a share sale can qualify under Section 48(i) when computing capital gains.
Cases Discussed
- Kaushalya Devi Vs CIT (Delhi High Court) — (2018) 92 taxmann.com 335. The Tribunal relied on this judgment for the principle that expenditure having an established and inextricable connection with the transfer of a capital asset is deductible under Section 48(i). The cited decision concerned liquidated damages paid in connection with a property transfer.
FULL TEXT OF THE ORDER OF ITAT PANAJI
The captioned appeal at the instance of assessee pertaining to A.Y. 2016-17 is directed against the order dated 23.06.2025 of ld. NFAC, Delhi emanating out of Assessment Order dated 23.12.2018 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. The sole grievance of the assessee is against the disallowance of expenses at Rs.83,47,183/- allegedly claimed against transfer of capital gains.
3. Brief facts of the case are that the assessee is an individual and declared income of Rs.33,54,12,110/- in the income-tax return for A.Y. 2016-17 furnished on 13.10.2016. Case selected for scrutiny under CASS followed by validly serving statutory notices u/s.143(2) and 142(1) of the Act. Ld. Assessing Officer observed that one of the main transaction during the year is the income from capital gain of Rs.25,48,97,024/- from sale of unlisted shares of M/s. Lilac Medicare Pvt. Ltd. In the said transaction, assessee has claimed expenses of Rs.85,43,302/- which are mainly towards Advisory fees and Event and Execution expenses. Ld. Assessing Officer was not satisfied with the said claim as in his view the assessee failed to establish the link between the Advisory fees and Event and execution expenses paid with the sale consideration and observed that they are not directly connected to the securities sold during the year and therefore cannot be loaded to the cost of acquisition. Accordingly, disallowance of expenses at Rs.83,47,183/- made and income assessed at Rs.34,37,59,290/-.
4. Aggrieved assessee preferred appeal before ld.CIT(A) but inspite of filing detailed submissions could not succeed as ld.CIT(A) held that burden of proof lies squarely on the assessee to demonstrate that the expenses fall within the strict parameters of section 48(i) of the Act. Now the assessee is in appeal before this Tribunal.
5. Ld. Counsel for the assessee made reference to the written submissions filed before ld.CIT(A) and also the paper book running into 303 pages which contains the details of transaction of sale of equity shares, copy of Agreement with 7i Advisors LLP and the invoices raised by them and the details of all other expenses allegedly disallowed by the ld. Assessing Officer. Reliance also placed on the judgment of Hon’ble Delhi High Court in the case of Kaushalya Devi Vs. CIT (2018) 92 taxmann.com 335 (Delhi) where the Hon’ble court held that since there is close nexus and connect between payment of liquidated damages and transfer of property resulting in income by way of capital gains it had to be treated as expenditure incurred wholly and exclusively in connection with transfer of immovable property and thus is allowable u/s.48(i) of the Act. Reliance also placed on other decisions mentioned in the case law paper book running into 61 pages.
6. On the other hand, ld. DR supported the order of ld.CIT(A).
7. We have heard the submissions made by both the sides and perused the record. The only issue for our consideration is the disallowance of expenses of Rs.83,47,183/- claimed by the assessee to have been incurred wholly and exclusively in connection with transfer of shares deductible u/s.48(i) of the Act. We observe that major transaction of sale of unlisted equity shares of M/s. Lilac Medicare Pvt. Ltd. took place during the year and genuineness of the sale transaction is not in dispute. Gross sale proceeds are to the tune of Rs.26,60,62,500/-. Cost of purchase is Rs.12,36,250/- and indexed cost is Rs.26,22,174/- and the incidental expenses incurred for carrying out the sale transaction is claimed at Rs.85,43,302/-. Ld. Assessing Officer has only disputed the claim made by the assessee u/s.48(i) of the Act for the following expenses :
| i. | Advisory fees | Rs.78,05,396/- |
| ii. | Event and Execution charges | Rs.5,71,788/- |
| Total | Rs.83,47,183/- | |
8. We observe that in the income-tax return assessee has claimed total expenses at Rs.85,43,302/- which includes Advisory fees at Rs.76,35,901/-, Stamp duty and Notary charges at Rs.3,65,613/- and Event and Execution expenses at Rs.5,71,788/-. It therefore shows that the stamp duty and notary charges have been straight away allowed by the Assessing Officer. The remaining two heads, i.e. Advisory fees and Event and Execution expenses. Now the only basis for disallowing the two expenses by the Assessing Officer are that he was unable to ascertain as to how the advises given by the professionals to whom such huge Advisory fees paid help in getting good deal as claimed by the assessee. We note that observation of the Assessing Officer is rather questioning the way a person has to carry out its business/financial affairs. In this case, the assessee held number of equity shares of M/s. Lilac Medicare Pvt. Ltd. and has actually sold the unlisted shares. Assessee owns 24.75% share holding in the form of 49,500 equity shares. 7i Advisors LLP is a consultant company and the assessee along with other shareholders were awaiting for a buyer of the business of the company and for getting the best price they have to hire the financiers and transaction advisors which in this case is 7i Advisors LLP which has finally got the deal done with Tosoh Corporation and Tosoh Asis Pte Ltd. Japan and the total deal was locked at Rs.5,375/- per share for sale of 2 lakh equity shares. For all these advisory work, preparing the documents, finding good buyers and then locking the deal at the best price needs lot of professional advice and service. In this work other professional firms J. Sagar Associates and S.R. Divatia also included for carrying out due diligence, preparation of valuation reports for finalising the deal. We have gone through all these details which are furnished in the paper book and find that the assessee along with other shareholders have collectively given the mandate to 7i Advisors LLP to find a buyer for purchasing the business and acquire their shareholding in the Private Limited company namely M/s. Lilac Medicare Pvt. Ltd. which finally ended up finding a Japanese buyer and the transaction has been duly completed.
9. We find that payment of consultancy fees to the advisors is having direct nexus with the transaction of sale of equity shares by the assessee and the expenses incurred towards professional advisory fees vis-a-via Event and Execution expenses were incurred for setting up buyer representatives functions held for the formal exchange and signature of purchase agreements and are part of incidental expenses. Therefore, in our considered view the alleged expenses have been incurred wholly and exclusively for carrying out the transaction of sale of unlisted equity shares and is allowable u/s.48(i) of the Act. Our view is fortified by the judgment of Hon’ble Delhi High Court in the case of Kausalya Devi Vs. CIT (supra) wherein the Hon’ble Court has held that if the link and connection with the transfer of a capital asset and expenditure is inextricable and established then such expenses are to be allowed as have been incurred wholly and exclusively for the transfer of immovable property and expenditure is to be deducted while computing the capital gain. Finding of ld.CIT(A) is reversed and the disallowance made by the Assessing Officer towards at Rs.83,47,183/- is hereby deleted. Grounds of appeal raised by the assessee are allowed.
10. In the result, the appeal of the assessee is allowed.
Order pronounced on 23rd October 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.
