M/s. ABC Peripherals Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 2818/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53343 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: A B BANSAL
• Keywords: Capital asset

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENC H BEFORE SHRI I P BANSAL , JM & SHRI A.N. PAHUJA, AM ITA NO.2818/DEL/2010 ASSESSMENT YEAR:2006-07 M/S ABC PERIPHERALS PVT. LTD. E-117, PREET VIHAR, DELHI 110 092. V/S . ITO,WARD-1(1), NEW DELHI. [PAN:AAFCA3570P] APPELLANT (RESPONDENT) ASSESSEE BY SHRI A.B. BANSAL, ,AR REVENUE BY MRS. ANUSHA KHURANA, DR DATE OF HEARING 25-11-2011 DATE OF PRONOUNCEMENT 30-11-2011 O R D E R A.N. PAHUJA: THIS APPEAL FILED ON 7.6.2010 BY THE ASS ESSEE AGAINST AN ORDER DATED 26 TH APRIL, 2010 OF THE LD. CIT(A)- IV NEW DELHI, RAIS ES THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, O RDER OF THE LEARNED CIT(APPEALS) IS BAD BOTH IN THE EYES OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED WHILE HOLDING THAT A CAPITAL GAIN OF ` ` ` `2,92,000/- HAS ACTUALLY ARISEN AND THUS CONFIRMING THE ADDITION OF ` ` ` 2,92,000/- MADE BY LEARNED AO AS TAXABLE SHORT TERM CAPITAL GAIN IN THE HANDS OF THE APPELLANT U/S 45(1) 3. THE LEARNED CIT(APPEAL) HAS ALSO ERRED IN LAW AND FACTS OF THE CASE WHILE MISINTERPRETING THE PROVISION OF SECTION 47 INCLUDI NG SECTION 47(XIII) AND THEREBY DEFEATING THE WHOLE OBJECTIVE UNDERLYING TH E SAID PROVISIONS. ITA NO. 2818/DEL/10 2 4. APPELLANT CRAVES LEAVE TO ADD, DELETE, MODIFY AND ALTER ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF ` ` ` `42,715/- FILED ON 27.11.2006 BY THE ASSESSEE, TRAD ING IN COMPUTER HARDWARE, SOFTWARE AND ITS PERIPHERALS, AFTER BEING PROCESSED U/S 143(1) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT), WAS SELE CTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE OF SECTION 143(2) OF THE ACT. DURING THE C OURSE OF ASSESSMENT. PROCEEDINGS, THE ASSESSING OFFICER (AO IN SHORT) NOTICED THAT A SSESSEE COMPANY HAD TAKEN OVER THE RUNNING BUSINESS OF PARTNERSHIP FIRM M/S. ABC P ERIPHERALS ON 21 ST AUGUST, 2005 WITH ALL ITS ASSETS AND LIABILITIES AT BOOK VALUE W ITH THE CONDITION THAT THE FIRM WILL CEASE TO EXIST IMMEDIATELY ON SUCH TAKEOVER BY THE ASSESSEE COMPANY . AS ON THE DATE OF TAKE OVER THE CAPITAL ACCOUNT OF THE PARTNE RS IN THE FIRM AND SHARE OF CAPITAL ALLOTTED IN THE COMPANY WERE AS UNDER :- M/S. ABC PERIPHERALS AMOUNT[IN ` ] PROPORTION AMOUNT IN CAPITAL ACCOUNT OF SHRI PANKAJ KALRA AS ON 21.8.05 1,85,283/- NA AMOUNT IN CAPITAL ACCOUNT OF SHIR ACHAL KHANNA AS ON 21.8.05 1,51,000/- NA M/S. ABC PERIPHE RALS PRIVATE LIMITED AMOUNT PROPORTION AMOUNT IN CAPITAL ACCOUNT OF SHRI PANKAJ KALRA AS ON 21.8.05 98,000/- 0.39 AMOUNT IN CAPITAL ACCOUNT OF SHRI ACHAL KHANNA AS ON 21.8.05 1,51,000/- 0.61 AMOUNT IN CAPITAL ACCOUNT OF SHRI PANKAJ KALRA AS ON 31.3.06 1,48,000/- 0.49 AMOUNT IN CAPITAL ACCOUNT OF SHRI ACHAL KHANNA AS ON 31.03.06 1,51,000/- 0.51 2.1. SINCE THE SHARES ALLOTTED TO THE AFORESAID T WO DIRECTORS IN THE COMPANY WERE NOT IN PROPORTION TO THE CAPITAL OF THE PARTNERS IN THE FIRM AS ON THE DATE OF TAKEOVER I.E.21.8.2005, THE AO ASKED THE ASSESSEE AS TO WHY THE PROVISIONS OF CAPITAL GAIN U/S 45(1) OF THE ACT WERE NOT APPLICABLE, THE ASSESSEE HAVING CONTRAVENED THE PROVISIONS OF SECTION 47(XIII) OF THE ACT. IN RESPO NSE, THE ASSESSEE REPLIED THAT THE FIRM DID NOT HAVE ANY FIXED OR CURRENT ASSET AS ON THE DATE OF SUCCESSION NOR THERE ANY EFFECTIVE VALUE OF INTANGIBLE ASSETS WHILE ALL THE LIABILITIES WERE TAKEN OVER BY THE ITA NO. 2818/DEL/10 3 COMPANY. AS SUCH PROVISIONS OF CAPITAL GAIN WERE NO T APPLICABLE. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT PROVISIONS CONTAINED IN PROVISO (B) TO SECTION 47 (XIII) OF TH E ACT WERE NOT COMPLIED WITH IN THIS CASE AND THEREFORE, THIS TRANSACTION IS TO BE REGAR DED AS TRANSFER FOR THE PURPOSE OF SECTION 45(1) OF THE ACT. SINCE 14,800 SHARES OF TH E VALUE OF ` ` `1,48,000/- WERE ALLOTTED TO SHRI PANKAJ KALRA AND THE AMOUNT OF ` ` ` `3,42,000/- WAS RECEIVED BY THE COMPANY FROM SHRI PANKAJ KALRA, PARTNER IN THE ERST WHILE FIRM AND DIRECTOR IN THE COMPANY WHILE SHARES OF THE VALUE OF ` ` ` `50,000/- WERE ALLOTTED TO SHRI PANKAJ KALRA DURING THE YEAR, THE AO WORKED OUT SHORT TERM CAPIT AL GAIN OF ` ` ` 2,92,000/- (3,42,000 - 50,000),RESULTING IN TOTAL INCOME OF ` ` `3,34,715/- . 3. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS OF AO IN THE FOLLOWING TERMS :- I HAVE GONE THROUGH THE FACTS OF THE CASE, OBSERVAT IONS OF THE ASSESSING OFFICER AND THE CONTENTIONS OF THE AR OF THE APPELLANT. THE ASSESSING OFFICER HAS PRIMARILY ARGUED THAT THE RE WAS A DIFFERENCE IN THE PROPORTION IN WHICH THE CAPITAL STOOD IN THE BOOKS OF THE FIRM FOR THE PARTNERS OF THE ACCOUNT AND THE PROPORTION IN WHICH THE SHAREHOLDINGS OF THE PARTNERS WERE THERE IN THE ASSESSEE COMPANY ON THE DATE OF SUCCESSION. THE ASSESSING OFFICER HAS HIGHLIGHTED THAT THE COMPANY HAD EFFECTIVELY TRANSFERRED 14,800 SHARES OF RS. 10/- TO THE PARTNER, WHEREAS T HE AMOUNT RECEIVED BY THE COMPANY WAS RS. 3,42,000/-. IT WAS FURTHER SUBMITTE D BY THE ASSESSING OFFICER THAT THE SHARES ALLOTTED TO MR. PANKAJ KALR A WAS ONLY WORTH RS. 50,000/- AND ACCORDINGLY THE AMOUNT IN EXCESS OF TH E SAME AMOUNTING TO RS. 2,92,000/- SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN. I HAVE GONE THROUGH THE PROVISIONS OF SECTION 47 (X III)(B) IN WHICH THE EXEMPTION FROM CAPITAL GAIN HAS BEEN DEFINED IN THE INCOME TAX ACT. EVEN THOUGH THE AR OF THE APPELLANT HAS ARGUED THAT THIS PARTICULAR SECTION WAS ENVISAGED FOR THOSE SUCCESSIONS INVOLVING TRANSFER OF LAND AND BUILDING GENERALLY CARRYING HIGHER MARKET VALUATIONS, THE AR HAS NOT BEEN ABLE TO CONTROVERT THE BASIC LOGIC OF THE PROVISION OF SECT ION 47 (XIII)(B) IN WHICH IT IS CLEAR THAT THE PROPORTION OF THE SHARE OF THE PARTN ERS BEFORE CONVERSION AND THE PROPORTION OF THE SHAREHOLDING ON CONVERSION SH OULD REMAIN THE SAME. IT IS IMPORTANT TO APPRECIATE THAT THE ENTITY OF PARTNERS HIP AND COMPANY ARE SEPARATE AND THE AR OF THE APPELLANT HAS NOT BEEN A BLE TO EXPLAIN THE DIFFERENCE IN THE AMOUNT OF RECEIPT AMOUNTING TO RS . 2,92,000/-. THE AR HAS SUBMITTED THAT ON THE DATE OF SUCCESSION I.E. 22/8/ 2005, NO SHARES WERE ALLOTTED TO SHRI PANKAJ KALRA AND 15,100 EQUITY SHA RES WERE ALLOTTED TO MR. ACHAL KHANNA SINCE HE HAD A CREDIT BALANCE OF RS. 1 ,51,000/-. THE SHARES ALLOTTED TO SHRI PANKAJ KALRA WORTH RS. 50,000/- WE RE ALLOTTED ON 31.3.2006 OUT OF FRESH SUM OF RS. 50,000/- APPROPRIATED FROM HIS PERSONAL ACCOUNT. ITA NO. 2818/DEL/10 4 AFTER CAREFUL CONSIDERATION OF THE SUBMISSIONS OF T HE AR OF THE APPELLANT IT IS OBSERVED THAT THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH AS TO HOW IT WAS EXEMPTED U/S 47 (XIII) OF THE INCOME TAX ACT. IT IS ALSO CLEAR THAT THERE WAS RECEIPT OF RS. 3,42,000/- FROM THE ACCOUN T OF SHRI PANKAJ KALRA WHICH WAS EFFECTIVELY RECEIVED BY THE APPELLANT COM PANY. NO PROPER EXPLANATION FOR THE SAME HAS ALSO BEEN PROVIDED BY THE APPELLANT. THE APPELLANT COMPANY MAY HAVE RESORTED TO VARIOUS TRAN SACTIONS AND ISSUE OF SHARES ON DIFFERENT OCCASIONS. THE BASIC OBJECTION OF THE ASSESSING OFFICER HAS NOT BEEN CLARIFIED BY THE APPELLANT THAT AN AMO UNT OF RS. 3,42,000/- WAS RECEIVED BY THE APPELLANT FOR WHICH THERE WAS ONLY A PAYMENT OF RS. 50,000/-. THE BALANCE AMOUNT RECEIVED BY THE APPELLANT HAS TH EREFORE RIGHTLY BEEN TREATED AS SHORT TERM CAPITAL GAIN BY THE ASSESSING OFFICER. AS A RESULT I AM INCLINED TO AGREE WITH THE OBJECTIONS OF THE ASSESS ING OFFICER. THIS GROUND OF THE APPELLANT IS TREATED AS DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSE E WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT SINCE THEY FULFILLED ALL THE FIVE CONDITIONS STIPULATED IN PROVISO TO SECTION 47 (XIII) OF THE ACT ,THE ASSESS EE WAS NOT LIABLE TO CAPITAL GAIN. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE..AT THE OUTSET, WE MAY HAVE A LOOK AT THE RELEVANT PROVISIO NS OF SECTION 47 (XIII) OF THE ACT, WHICH READ AS UNDER :- NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS:- . (XIII) ANY TRANSFER OF A CAPITAL ASSET OR INTANGIBL E ASSET BY A FIRM TO A COMPANY AS A RESULT OF SUCCESSION OF THE FIRM BY A COMPANY IN TH E BUSINESS CARRIED ON BY THE FIRM, OR ANY TRANSFER OF A CAPITAL ASSET TO A COMPANY IN THE COURSE OF DEMUTUALISATION OR CORPORATISATION OF A RECOGNIZED STOCK EXCHANGE IN I NDIA AS A RESULT OF WHICH AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS IS SU CCEEDED BY SUCH COMPANY: PROVIDED THAT- (A) ALL THE ASSETS AND LIABILITIES OF THE FIRM OR O F THE ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS RELATING TO THE BUSI NESS IMMEDIATELY BEFORE THE SUCCESSION BECOME THE ASSETS AND LIABILITIES OF THE COMPANY; (B) ALL THE PARTNERS OF THE FIRM IMMEDIATELY BEFORE THE SUCCESSION BECOME THE SHAREHOLDERS OF THE COMPANY IN THE SAME PROPORTION IN WHICH THEIR CAPITAL ACCOUNTS STOOD IN THE BOOKS OF THE FIRM ON THE DATE OF SUCCESSION; ITA NO. 2818/DEL/10 5 (C) THE PARTNERS OF THE FIRM DO NOT RECEIVE ANY CON SIDERATION OR BENEFIT, DIRECTLY OR INDIRECTLY, IN ANY FORM OR MAN NER, OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; AND (D) THE AGGREGATE OF THE SHAREHOLDING IN THE COMPAN Y OF THE PARTNERS OF THE FIRM IS NOT LESS THAN FIFTY PER CEN T. OF THE TOTAL VOTING POWER IN THE COMPANY AND THEIR SHAREHOLDING CONTINUES TO BE AS SUCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESSION; (E) THE DEMUTUALISATION OR CORPORATISATION OF A REC OGNIZED STOCK EXCHANGE IN INDIA IS CARRIED OUT IN ACCORDANCE WITH A SCHEME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVE D BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF I NDIA ACT, 1992 (15 OF 1992); 5.1 THE ASSESSEE COMPANY WAS INCORPORATED ON 15-7- 2005 WITH AUTHORIZED CAPITAL OF ` 5,00,000/-AND ON THAT DATE SHRI PANKAJ KALRA SUBSC RIBED TO 9,800 SHARES OF THE VALUE OF ` 98,000/- WHILE SHRI ACHAL KHANNA AND MRS. LIPIKA K ALRA, 100 SHARES EACH. HOWEVER, EXACT DETAILS AS TO WHEN THE PAYMEN T WAS MADE FOR THESE SUBSCRIBED SHARES IS NOT EVIDENT FROM RECORDS .AS O N THE DATE OF TAKEOVER OF THE FIRM BY THE ASSESSEE COMPANY ,SHRI PANKAJ KALRA HAD DEB ITED BALANCE OF ` 1,85,283/- IN HIS CAPITAL ACCOUNT WITH THE FIRM. CONSEQUENTLY, NO SHARE COULD BE ALLOTTED TO HIM. HOWEVER, SH. ACHAL KHANNA WAS ALLOTTED SHARES OF ` 1,50,000/- ON 21.8.2005,SINCE HE WAS HAVING CAPITAL OF ` 1,55,117/- IN THE FIRM AS ON THAT DATE. THE LD. AR WHILE INVITING OUR ATTENTION TO THE WRITTEN SUBMISSIONS F ILED BEFORE THE LD. CIT(A) CONTENDED THAT IN FACT, NO SHARES WERE ALLOTTED TO SHRI PANK AJ KALRA ON THE DATE OF TAKEOVER, THERE BEING DEBIT BALANCE IN HIS CAPITAL ACCOUNT WI TH THE FIRM AND 9,800 SHARES HAVING BEEN SUBSCRIBED ON INCORPORATION OF THE COM PANY AND THE REMAINING 5000 SHARES ONLY ON 31.3.2006. SHRI PANKAJ KALRA IS STAT ED TO HAVE BROUGHT IN A SUM OF ` 3,42,000 THROUGH CHEQUES BETWEEN 22.8.2005 TO 31.3 .2006 ,INTER ALIA,IN ORDER TO DISCHARGE HIS LIABILITY IN THE ERSTWHILE FIRM . AP PARENTLY, THE ASSESSEE DID NOT VIOLATE THE CLAUSE (B) OF THE PROVISO TO SECTION 47 (XIII) OF THE ACT, AS HAS BEEN CONCLUDED BY THE LD. CIT(A) AND THE AO . IN THE LIGHT OF THESE F ACTS, ESPECIALLY WHEN THE ASSESSEE DID NOT VIOLATE ANY OF THE FIVE CLAUSES IN THE PROV ISO TO SEC. 47(XIII) OF THE ACT WHILE THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTRARY TO THESE FACTS, WE ARE OF THE OPINION THAT THE ASSESSEE IS NOT LIABLE TO ANY CAPITAL GAINS. IN VIEW THEREOF, WE ITA NO. 2818/DEL/10 6 VACATE THE FINDINGS OF THE LD. CIT(A) AND DELETE TH E ADDITION ON ACCOUNT OF SHORT TERM CAPITAL GAIN. THEREFORE, GROUND NOS. 2 TO 3 IN THE APPEAL ARE ALLOWED. 6. GROUND NO. 1 IN APPEAL BEING GENERAL IN NATURE, DOES NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 4 IN THE APPEAL, ACCORDINGLY, BOTH THESE GROUNDS ARE DISMISSED. 7. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPE N COURT SD/- SD/ - (I.P. BANSAL) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA COPY OF THE ORDER FORWARDED TO :- 1. ITO,WARD-1(1),NEW DELHI 2. M/S ABC PERIPHERALS PVT. LTD., E-117, PREET VIHAR, DELHI 110 092. 3. CIT(A)-IV, NEW DELHI. 4. CIT CONCERNED. 5. DR, ITAT,A BENCH, NEW DELHI 6. GUARD FILE.