Aravali Polymers LLP, Kolkata V. ACIT, CIR-34, KOLKATA, Kolkata

ITA 222/KOL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2836 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition; Benefit of exemption
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 222/KOL/201 5 ASSESSMENT YEAR : 2011-1 2 ARAVALI POLYMERS LLP -VS- ACIT, CIRCLE-34 KOLKATA [PAN: AASFA 0747 L ] (APPELLANT) (RESPONDENT) I.T.A NO. 267/KOL/2015 ASSESSMENT YEAR : 2011-1 2 ACIT, CIRCLE-34, KOLKATA -VS- ARAVALI PO LYMERS LLP [PAN: AASFA 0747 L] (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI R.N. BAJORIA, SR. COUNSEL SHRI A.K. GUPTA, FCA FOR THE DEPARTMENT : SHRI P.K. SRIHARI, CIT (D R) DATE OF HEARING : 13.08.2018 DATE OF PRONOUNCEMENT : 29.08.2018 ORDER PER M.BALAGANESH, AM 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -10, KOLKATA [ IN SHORT THE LD CITA] IN NEW APPEAL NO. 70/CIT(A)-10/CIR-34/2014-15/KOL DATED 29 .12.2014 AGAINST THE ORDER PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INC OME TAX , CIRCLE -34, KOLKATA [ IN 2 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 2 SHORT THE LD AO] UNDER SECTION [ IN SHORT U/S] 254/ 143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) DATED 5.9.201 4 FOR THE ASSESSMENT YEAR ( IN SHORT ASST YEAR) 2011-12. BOTH THE APPEALS ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THE AP PEAL OF THE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN STRUCKING DOWN THE ORD ER PASSED BY THE LD AO U/S 253/143(3) OF THE ACT DATED 5.9.2014 WHEREIN THE SH ORT TERM CAPITAL GAINS OF RS 53,56,69,88/- WAS BROUGHT TO TAX, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THE APPEAL OF THE ASSESSEE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN PASSING CERTAIN COMMENTS ABOUT THE TAXABILITY OF SHORT TERM CAPITAL GAINS AS ABOVE AFTER HAVING STRUCK DOWN THE ADDITION MADE BY THE LD AO IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE LLP CAME INTO EXISTENCE ON 13.8.2010 BY CONVERSION OF ARAVALI POLYMERS PVT LTD (APPL) IN TERMS OF THE PROVISIONS OF SECTION 58(4) OF THE LLP ACT, 2008, A LL THE TANGIBLE, MOVABLE OR IMMOVABLE, AND INTANGIBLE PROPERTIES VESTED IN APPL , ALL ASSETS, INTEREST, RIGHTS, PRIVILEGES, LIABILITIES AND OBLIGATIONS RELATING TO APPL AND THE WHOLE OF THE UNDERTAKING OF APPL STOOD TRANSFERRED TO AND VESTED IN THE ASSE SSEE LLP AND APPL WAS DEEMED TO BE DISSOLVED AND REMOVED FROM THE RECORDS OF THE RE GISTRAR OF COMPANIES. ALL THE ASSETS AND LIABILITIES OF APPL STOOD TRANSFERRED AN D VESTED IN THE ASSESSEE LLP AT ITS COST OR BOOK VALUE IN THE HANDS OF APPL. THE ASSESSEE T HUS BECAME THE OWNER OF 3184807 SHARES OF EIH LTD AT ITS COST IN THE BOOKS OF APPL OF RS 2,84,37,180/-. OUT OF THE SAID 3184807 SHARES SO TRANSFERRED AND VESTED IN THE ASS ESSEE, 3000000 EQUITY SHARES OF EIH LTD WERE SOLD BY ASSESSEE LLP FOR RS 55,20,00,000/- LEADING TO LONG TERM CAPITAL GAINS OF RS 53,56,69,888/-. THE ASSESSEE OFFERED LONG TE RM CAPITAL GAINS ACCORDINGLY IN THE RETURN FILED BY IT FOR THE ASST YEAR 2011-12 ARISIN G OUT OF SALE OF SAID 3000000 EQUITY 3 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 3 SHARES OF EIH LTD WITHOUT CLAIMING THE BENEFIT OF I NDEXATION ON ITS COST ON CONVERSION FROM APPL, DULY PAID THE TAX LEVIABLE U/S 112 OF TH E ACT AT 10% AMOUNTING TO RS 5,51,73,999/-. SUCH OFFER OF LONG TERM CAPITAL G AINS ON SALE OF SAID 3000000 EQUITY SHARES OF EIH LTD BY THE ASSESSEE WAS DULY ACCEPTED BY THE LD AO IN THE ORDER OF ORIGINAL ASSESSMENT AND THERE WAS NO CONTROVERSY AN D / OR DISPUTE RELATING THERETO. INFACT THE SAID FACT WAS EVEN SUBJECTED TO DETAILED VERIFICATION BY THE LD AO BY POSING A SPECIFIC QUERY AS TO WHY THE SUBJECT MENTIONED CAPI TAL GAINS SHOULD NOT BE TREATED AS SHORT TERM CAPITAL GAINS. THE ASSESSEE GAVE A DETA ILED REPLY IN RESPONSE TO THE SAID SHOW CAUSE NOTICE DURING THE COURSE OF ORIGINAL ASSESSME NT PROCEEDINGS. 4. ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF TH E ACT A. THE LD AO ACCEPTED THE CLAIM OF LONG TERM CAPITA L GAINS RETURNED BY THE ASSESSEE IN RESPECT OF SALE OF 3000000 EQUITY SHARES OF EIH LTD POST CONVERSION OF PRIVATE LIMITED COMPANY INTO LLP IN THE SUM OF RS 53,56,69,888/-. B. THE ASSESSEE CLAIMED EXEMPTION U/S 47(XIIIB) IN THE RETURN FILED IN RESPECT OF CONVERSION OF PRIVATE LIMITED INTO LLP. THE LD AO HOWEVER OBSERVED THAT THE ASSESSEE LLP POST ITS CONVERSION, HAD GRANTED LOANS TO ITS P ARTNERS WHICH HAD RESULTED IN VIOLATION OF PROVISIONS OF SECTION 47(XIIIB) OF THE ACT. ACC ORDING TO LD AO, THE PROVISIONS OF SECTION 47(XIIIB) OF THE ACT MANDATES THAT POST CON VERSION, THERE SHOULD NOT BE ANY PAYMENT TO PARTNERS FOR PRESCRIBED PERIOD OF TIME. ACCORDINGLY, THE LD AO RESORTED TO REJECT THE CLAIM OF EXEMPTION U/S 47(XIIIB) OF THE ACT AND COMPUTED THE CONSIDERATION OF CAPITAL GAINS FOR CONVERSION OF PRIVATE LIMITED COM PANY INTO LLP BY REPLACING THE BOOK VALUE OF ASSETS WITH MARKET VALUE OF ASSETS. THIS W AS UPHELD BY THE LD CITA. THE ASSESSEE PREFERRED AN APPEAL BEFORE THIS TRIBUNAL A ND THIS TRIBUNAL HAD HELD THAT THE SUBSTITUTION OF CONSIDERATION AT MARKET VALUES IS N OT IN ACCORDANCE WITH LAW AS THE CONVERSION FROM PRIVATE LIMITED COMPANY INTO LLP HA D HAPPENED AT BOOK VALUES ONLY. 4 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 4 HENCE THERE IS NO QUESTION OF REPLACING THE CONSIDE RATION FIGURE AT MARKET VALUES. THE TRIBUNAL UPHELD THE ACTION OF THE LD AO IN REJECTIN G THE CLAIM OF EXEMPTION U/S 47(XIIIB) OF THE ACT IN RESPECT OF CONVERSION OF PRIVATE LIMI TED COMPANY INTO LLP. HOWEVER, THE TRIBUNAL HAVING HELD THAT THE ASSESSEE IS NOT ENTIT LED FOR EXEMPTION U/S 47(XIIIB) OF THE ACT AND ACCORDINGLY HELD THAT THE CONSIDERATION THE REON SHOULD BE ADOPTED ONLY AT BOOK VALUES INSTEAD OF MARKET VALUES, RESTORED THE MATTE R BACK TO THE FILE OF THE LD AO FOR COMPUTATION OF CAPITAL GAINS BY ADOPTING BOOK VALUE S FOR ASSETS. 5. THE PRESENT PROCEEDINGS FRAMED BY THE LD AO U/S 254/143(3) OF THE ACT DATED 5.9.2014 WERE IN PURSUANCE OF THE AFORESAID ORDER O F THIS TRIBUNAL. 6. HENCE IT COULD BE SEEN FROM THE ABOVE, THAT THER E WAS ABSOLUTELY NO DISPUTE WITH REGARD TO THE CLAIM OF LONG TERM CAPITAL GAINS OF R S 53,56,69,888/- ON SALE OF 30 LAKH EQUITY SHARES OF EIH LTD POST CONVERSION INTO LLP B Y THE ASSESSEE IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IN OTHER WORDS, THE SAID I SSUE NEVER TRAVELLED TO ANY APPELLATE FORUMS SUCH AS CITA OR TO TRIBUNAL. HENCE WHEN THE ORDER IS PASSED BY THE LD AO PURSUANT TO THE DIRECTIONS OF THIS TRIBUNAL , HE CO ULD CONFINE HIMSELF ONLY WITH THOSE DIRECTIONS OF THE TRIBUNAL AND CANNOT TRAVEL BEYOND HIS JURISDICTION VESTED THEREON IN THE SECOND ROUND OF PROCEEDINGS. 7. HOWEVER, THE LD AO WHILE PASSING THE FRESH ORDER IN THE SECOND ROUND OF PROCEEDINGS DATED 5.9.2014, PROCEEDED TO COMPUTE THE LONG TERM CAPITAL GAINS FOR CONVERSION OF PRIVATE LIMITED COMPANY INTO LLP AS UNDER:- SALE VALUE OF SHARES OR ASSETS OF THE COMPANY TAKEN OVER BY THE LLP 3,10,92,830 LESS: COST OF ACQUISITION OF THE ASSETS BY THE COMP ANY 3,10,92,830 LONG TERM CAPITAL GAIN NIL 5 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 5 8. THE LD AO FURTHER PROCEEDED TO SHIFT HIS STAND TAKEN BY HIM IN THE ORIGINAL ASSESSMENT PROCEEDINGS, BY PROCEEDING TO TREAT THE SALE OF 30 LAKH EQUITY SHARES OF EIH LTD (POST CONVERSION INTO LLP) AS SHORT TERM CAPITA L GAINS , AS ACCORDING TO HIM, THE PERIOD OF HOLDING OF EIH SHARES BY THE ASSESSEE LLP WAS LESS THAN ONE YEAR AND HENCE THE RESULTANT GAINS THEREON WOULD ONLY HAVE TO BE T AXED AS SHORT TERM CAPITAL GAINS. IN OTHER WORDS, SINCE THE BENEFIT OF EXEMPTION U/S 47( XIIIB) OF THE ACT HAD BEEN DENIED , THE PERIOD OF HOLDING OF SHARES BY THE PREVIOUS OWN ER (I.E PRIVATE LIMITED COMPANY) NEED NOT BE CONSIDERED AS PER SECTION 49(1) OF THE ACT. ACCORDINGLY, HE COMPUTED THE SHORT TERM CAPITAL GAINS AT RS 53,56,69,888/- IN TH E SECOND ROUND OF PROCEEDINGS. 9. THE LD CITA OBSERVED THAT THE ORDER U/S 254/143( 3) OF THE ACT DATED 5.9.2014 PASED BY THE LD AO IS SUPPOSED TO BE FOR LIMITED PURPOSES OF GIVING EFFECT TO THE DIRECTIONS OF THIS TRIBUNAL IN PARA 12 & 13 OF THE ORDER THEREON DATED 27.6.2014. THE LD AO HAS NO JURISDICTION TO TRAVEL BEYOND THE EXPRESS OR IMPLIE D DIRECTION OF THE TRIBUNAL. ACCORDINGLY, THE LD CITA HELD THAT THE DECISION OF THE LD AO TREATING THE SALE OF EIH LTD SHARES AS SHORT TERM CAPITAL GAINS IS TO BE STR UCK DOWN. THE LD CITA HAVING STRUCK DOWN THE ACTION OF THE LD AO SUPRA, PROCEEDED TO MA KE THE FOLLOWING OBSERVATIONS IN HIS ORDER:- THE AOS ACTION WAS OR MAY BE RIGHT BUT HE CHOSE A WRONG PROCEEDING/ METHOD TO RECTIFY OR AMEND ONE OF MISTAKES OR OMISSIONS ON THE PART OF THE INCOME TAX AUTHORITIES CONCERNED TO CHARGE TO TAX SOME INCOMES AS BRIEFLY POINTED OUT IN PARA 2.4. ABOVE. THE A.O. IS HOWEVER FREE TO TAKE R ECOURSE TO OTHER PROCEEDINGS TO TAX THE GAIN AS SHORT TERM CAPITAL GAIN IF HE TH INKS THAT AS LEGALLY PROPER. I TAKE THIS OPPORTUNITY TO POINT OUT THAT THE A.O. IS ALSO FREE TO TAKE RECOURSE TO THE PROCEEDINGS TO LEVY TAX ON CAPITAL GAIN IN RESPECT OF CONVERSION OF SHARES IN THE ERSTWHILE ARAVALI PVT LTD IN THE SHARES OF ARAVALI POLYMERS LLP IN THE HANDS OF THE SHAREHOLDERS OF THE SAID ERSTWHILE COMPANY AS P OINTED OUT IN PARA 2.4. ABOVE. 4. GROUNDS 1,2,3&4 ARE DECIDED THUS IN THE FAVOUR O F THE APPELLANT. AS REGARDS, GROUNDS OF APPEAL NO. 5 & 6, I DO NOT AGREE WITH TH E CLAIM OF THE APPELLANT AND THEREFORE, THESE GROUNDS ARE NOT ALLOWED. 6 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 6 10. AGGRIEVED, BOTH THE REVENUE AS WELL AS THE ASSE SSEE ARE IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- ITA NO. 267/KOL/2015 REVENUE APPEAL 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) ERRED IN STRUCKING DOWN THE ORDER OF THE AO TREATING THE TRA NSFER OF EIH SHARES AS SHORT TERM CAPITAL GAIN. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE HONBLE ITAT HAS GIVEN SPECIFIC FINDING THAT THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISO TO SECTION 47(XIIIB) IS NOT AVAILABLE TO THE ASSESSEE. 3. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) ERRED IN STRUCKING DOWN THE ORDER INSPITE OF THE FACT THAT A O HAS RIGHTLY FOLLOWED THE DIRECTION OF THE HONBLE ITAT AND TREATMENT OF TRA NSFER OF SHARES IS CONSEQUENTIAL EFFECT OF THE ORDER. 4. THE APPELLANT CRAVES THE LEAVE TO MADE ANY ADDITION , ALTERATION, MODIFICATION OF GROUNDS AT THE APPELLATE STAGE. ITA NO. 222/KOL/2015 ASSESSEE APPEAL 1. FOR THAT VARIOUS UNCALLED FOR, ILLEGAL, BASELESS AN D PERVERSE OBSERVATIONS AND FINDINGS GIVEN IN PARA 2.4 OF THE ORDER DATED 29 DE CEMBER 2014 PASSED BY THE (EAST INDIA HOTEL LTD.) SHARES AND DISTRIBUTION OF GAINS OR PROFITS TO THE COMMISSIONER OF INCOME TAX (APPEALS) ARE IN EXCESS OF JURISDICTION, ERRONEOUS AND ARE LIABLE TO BE CANCELLED AND/OR DEL ETED. 2. FOR THAT VARIOUS ALLEGATIONS, PURPORTED FINDINGS AN D OBSERVATIONS IN THE ORDER OF THE CIT(A) TO THE EFFECT THAT (A) ARAVALI POLYMERS PVT LTD. WAS CONVERTED INTO AR AVALI POLYMERS LLP WITH AN INTENTION TO AVOID THE TAX LIABILITY THAT WOULD HAVE ARISEN ON SALE OF EIHL SHAREHOLDERS OF THE ERSTWHILE ARAVALI POLYMERS PVT LTD. U/S. 2(22) OF THE INCOME TAX ACT. (B) THERE APPEARS TO BE AN INTENTION TO AVOID THE T AX LIABILITY THAT WOULD HAVE ARISEN UNDER MAT (SECTION 115JB OF THE I.T. ACT (C) THE SHAREHOLDERS OR PARTNERS OR THE ERSTWHILE A RAVALI POLYMERS PVT LTD. HAVE INTENTION TO AVOID TAX ON DISTRIBUTED PROFITS (SECTION 115-0 OF I.T. ACT). (D) THE ORIGINAL ORDER U/S 143(3) DATED 03.03.2014 SEEMS TO HAVE IGNORED THE 7 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 7 TAX IMPLICATION ON CONVERSION OF COMPANY SHARES INT O LLP SHARES IN THE HANDS OF THE SHAREHOLDERS OF THE ERSTWHILE ARAVALI POLYMERS PVT LTD. (E) CONVERSIONS OF SHARES IN THE ERSTWHILE ARAVALI POLYMERS PVT LTD. TO THE SHARES IN THE APPELLANT LLP (OF THE PARTNERS OF LLP OR THE SHAREHOLDERS OF THE ERSTWHILE COMPANY) SHOULD HAVE BEEN CONSIDERED IN TERMS OF SECTION 45 AS THE SHAREHOLDERS TRANSFERRED THE SHARES IN THE ERST WHILE COMPANY ON SAID CONVERSION. (F) THE SAID TRANSFER BY WAY OF SAID CONVERSION TAK ES THE NATURE OF EXCHANGE AND WHILE COMPUTING CAPITAL GAIN THE MARKET VALUE O F THE SHARE IN THE ERSTWHILE COMPANY OR THE LLP MIGHT HAVE BEEN TAKEN ARE ILLEGAL, PERVERSE, WITHOUT JURISDICTION, CONTRARY TO THE ADMITTED FACT S AND MATERIALS ON RECORD AND ARE LIABLE TO BE DELETED. 3. FOR THAT THE VARIOUS OBSERVATIONS AND FINDINGS AS A BOVE GIVEN IN THE ORDER OF CIT(A) ARE NOT IN RESPECT OF THE MATTER APPEARING A ND/OR ARISING IN THE APPEAL DECIDED BY HIM AND WERE BEYOND HIS JURISDICT ION AND FURTHER NONE OF THE SAID FINDINGS AND OBSERVATIONS ARE BROUGHT OUT FROM THE ASSESSMENT ORDER, EARLIER CIT(A) ORDER DATED 11 TH APRIL, 2014, ITAT ORDER AND THE ORDER OF THE ASSESSING OFFICER GIVING EFFECT TO THE ORDER OF THE TRIBUNAL DATED 5 TH SEPTEMBER, 2014 AND ALL SUCH ALLEGATIONS, PURPORTED FINDINGS AND PERVERSE OBSERVATIONS HAD BEEN ARRIVED AT ON SURMISES AND CO NJECTURES, EXTRANEOUS AND IRRELEVANT CONSIDERATIONS AND ARE ERRONEOUS AND LIABLE TO BE DELETED. 4. FOR THAT THE CIT(A) EXCEEDED HIS JURISDICTION IN GU IDING THE ASSESSING OFFICER TO TAKE RECOURSE TO VARIOUS PROCEEDINGS TO LEVY TAX SOMEHOW ON THE APPELLANT EVEN WHEN NO SUCH TAX IS LEGALLY LIABLE T O BE PAID BY THE APPELLANT AND SUCH GUIDANCE AND/OR OBSERVATION IN PARA 3 ARE WITHOUT JURISDICTION, ILLEGAL AND ARE LIABLE TO BE DELETED AND/OR REVERSE D. 5. FOR THAT THE CIT(A) ERRED IN DISMISSING THE GROUNDS NO. 5 AND 6 RAISED BY THE APPELLANT WITHOUT ANY DISCUSSION WHATSOEVER AND WITHOUT NOTING ANY OF THE ARGUMENTS OF THE APPELLANT AND/OR GIVING ANY FI NDING OF HIS OWN ON SUCH ARGUMENT. THE CRYPTIC ORDER DISMISSING GROUNDS NO. 5 AND 6 IS WITHOUT APPLICATION OF MIND, ERRONEOUS AND PERVERSE AND IS LIABLE TO BE REVERSED. 6. FOR THAT FURTHER AND IN ANY EVENT AND WITHOUT PREJU DICE TO GROUND NO. 5 ABOVE THE CIT(A) SHOULD HAVE HELD THAT THE APPELLAN T WAS ENTITLED TO THE BENEFIT OF EXPLANATION 1(B) TO SECTION 2(42A) READ WITH SECTION 49(1) OF THE ACT. 8 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 8 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS NARRATED HEREINABOVE REMAIN UNDISPUTED AN D HENCE THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. WE FIND THAT THIS TRIBUNA L IN THE ORIGINAL ROUND OF APPELLATE PROCEEDINGS VIDE ITA NO. 718/KOL/2014 DATED 27.6.20 14 HAD OBSERVED AS UNDER :- 12. A PERUSAL OF THE PROVISIONS OF SECTION 45 OF TH E INCOME TAX ACT SHOWS THE LEVY OF CAPITAL GAINS TO BE ON THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR. ADMIT TEDLY, THE ERSTWHILE COMPANY ARAVALI POLYMERS PVT LTD CONVERTED INTO A PARTNERSH IP FIRM ARAVALI POLYMERS LLP, A LIMITED LIABILITY PARTNERSHIP FIRM. THIS TO OK PLACE ON 12.08.2010 BEING THE ASSESSMENT YEAR UNDER APPEAL. THIS CONVERSION OF THE PVT LIMITED COMPANY INTO A LIMITED LIABILITY PARTNERSHIP DOES NOT HAVE THE PROTECTION OF SECTION 47(XIIIB) IN THE ASSESSEES CASE. CONSEQUENTLY THE CAPITAL GAIN ON THE SAME IS LIABLE TO BE CONSIDERED. IN THE COMPUTATION OF CAP ITAL GAINS, NOWHERE IN THE ACT IS THERE PROVISION, MORE SO IN SECTION 45, FOR DEEM ING THE SALE PRICE IN THE CASE OF EQUITY SHARES. THE VALUE AT WHICH THE SHARES OR TH E ASSETS OF THE COMPANY ARAVALI POLYMERS PVT LTD WAS TAKEN OVER BY THE LIMI TED LIABILITY PARTNERSHIP FIRM, WOULD BE THE SALE PRICE AND THE COST OF ACQUI SITION THEREOF IS TO BE AS PER BOOKS OF THE ERSTWHILE COMPANY. IN THESE CIRCUMSTAN CES, THE ISSUE OF COMPUTATION OF THE CAPITAL GAINS UNDER SECTION 45 I S RESTORED TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL TAKE THE SALE CONSIDER ATION AS ON 12.08.2010 AT THE FIGURE, AT WHICH THE ASSETS OF THE ERSTWHILE FIRM H AS BEEN ACQUIRED OR TAKEN OVER BY THE APPELLANT ARAVALI POLYMERS LLP. 13. IN THE RESULT, THE CRUX OF THE FINDING IN THIS ORDER IS (I) THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISO TO SECTION 47(XIIIB). CO NSEQUENTLY, THE BENEFIT OF SECTION 47(XIIIB) IS NOT AVAILABLE TO THE ASSESSEE. (II) AS THE ASSESSEE DID NOT HAVE THE BENEFIT OF SE CTION 47(XIIIB), THE PROVISION OF SECTION 47A94) DOES NOT APPLY. (III) THE CAPITAL GAINS IN RESPECT OF THE TRANSFER OF THE ASSETS IN THE HANDS OF M/S ARAVALI POLYMERS PVT LTD TO THE APPELLANT FIRM ARAV ALI POLYMERS LLP IS TO BE COMPUTED UNDER SECTION 45 OF THE INCOME TAX ACT FOR WHICH PURPOSE, THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PURSUANT TO THE AFORESAID DIRECTIONS, THE LD AO DID COMPUTE THE CAPITAL GAINS ON CONVERSION OF PRIVATE LIMITED COMPANY INTO LLP AT R S NIL BY FIXING THE CONSIDERATION AT 9 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 9 BOOK VALUES AS DIRECTED BY THE TRIBUNAL. ADMITTEDL Y, THIS WAS COMPUTED IN THE HANDS OF ARAVALI POLYMERS LLP (I.E THE ASSESSEE HEREIN) BY T REATING THE ASSESSEE LLP IN THE CAPACITY OF SUCCESSOR TO PRIVATE LIMITED COMPANY. IN OUR CONSIDERED OPINION, THE LD AO OUGHT TO HAVE STOPPED THE PROCEEDINGS WITH THIS ACT ION WHICH WOULD BE IN STRICT CONSONANCE WITH THE DIRECTIONS OF THE TRIBUNAL SUPR A. WE ARE IN COMPLETE AGREEMENT WITH THE ARGUMENTS OF THE LD AR THAT THE ISSUE AS T O WHETHER THE SALE OF 3000000 LAKH EQUITY SHARES OF EIH LTD POST CONVERSION INTO LLP, WOULD RESULT IN LONG TERM OR SHORT TERM CAPITAL GAINS , WAS NEVER IN DISPUTE IN THE FI RST ROUND OF PROCEEDINGS. THE ASSESSEE LLP HAD OFFERED THE LONG TERM CAPITAL GAINS ON SALE OF SUCH SHARES IN THE RETURN WHICH HAS BEEN DULY ACCEPTED BY THE LD AO IN THE ORIGINAL ROUND OF PROCEEDINGS AFTER SUBJECTING THE SAME TO DETAILED ENQUIRY BY ISSUING A SPECIFIC SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE SUBJECT MENTIONED GAINS SHOU LD NOT BE TREATED AS SHORT TERM CAPITAL GAINS. THE LD AO ON EXAMINING THE DETAILED REPLY GIVEN BY THE ASSESSEE BOTH ON FACTS AS WELL AS ON LAW, ACCEPTED THE CONTENTIONS O F THE ASSESSEE THAT THE RESULTANT GAINS ON SALE OF 3000000 SHARES OF EIH LTD WOULD ONLY BE LONG TERM CAPITAL GAINS. SINCE THIS WAS ACCEPTED BY THE LD AO IN THE ASSESSMENT ITSELF, THERE WAS NO OCCASION TO CARRY THE SAID ISSUE TO THE APPELLATE FORUMS SUCH AS CITA OR THE TRIBUNAL. HENCE THE LD AO OUGHT NOT TO HAVE TAKEN A DIFFERENT STAND IN THE PROCEEDI NGS GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL BY TREATING THE RESULTANT GAINS ON SAL E OF 3000000 EQUITY SHARES OF EIH LTD AS SHORT TERM CAPITAL GAINS. WE FIND THAT THIS ACTION OF THE LD AO HAD BEEN RI GHTLY STRUCK DOWN BY THE LD CITA IN HIS ORDER. ACCORDINGLY, GR OUNDS RAISED BY THE REVENUE ARE DISMISSED. 11.1. BUT WE FIND THAT THE LD CITA HAVING STRUCK DO WN THE ACTION OF THE LD AO IN TAXING SHORT TERM CAPITAL GAINS, HAD PROCEEDED TO MAKE SOM E OBSERVATIONS, TO SOMEHOW BRING TO TAX THE SHORT TERM CAPITAL GAINS, WHICH IN OUR C ONSIDERED OPINION, CANNOT BE DONE AS PER LAW AT ALL. IN OUR CONSIDERED OPINION, THESE O BSERVATIONS OF THE LD CITA ARE TOTALLY UNWARRANTED AND ONLY REFLECTS THE CONTRADICTORY STA ND OF THE LD CITA IN AS MUCH AS , THE 10 ITA NO.222&267/KOL/2015 ARAVALI POLYMERS LLP A.YR. 2011-12 10 LD CITA , ON THE ONE HAND, CLEARLY GIVES A FINDING, THAT THE LD AO CANNOT TRAVEL BEYOND HIS JURISDICTION AND HAS TO STRICTLY ABIDE BY THE D IRECTIONS OF THE TRIBUNAL, BUT , ON THE OTHER HAND, THE LD CITA DECIDES TO TRAVEL BEYOND HI S JURISDICTION TO LOOK INTO ISSUES WHICH WERE NOT THE SUBJECT MATTER OF DIRECTIONS OF THE TRIBUNAL. IN VIEW OF THE SAME, WE HOLD THAT THE OBSERVATIONS OF THE LD CITA IN RESPEC T OF GROUND NOS. 5 & 6 RAISED BEFORE HIM DESERVES TO BE EXPUNGED AND ARE HEREBY DIRECTED TO BE EXPUNGED. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29.08.20 18 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29.08.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ARAVALI POLYMERS LLP, 4, MANGOE LANE, 6 TH FLOOR, KOLKATA-700001. 2. ACIT, CIRCLE-34, AAYAKAR PURBA, 110, SHANTIPALLY , KOLKATA-700001. 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S