NITIN CHANDRAKANT DESAI, MUMBAI V. A.C.I.T. 11(1), MUMBAI

ITA 2877/MUM/2012

• Counselvise Citation: 287719914 RSA 2012
• Duration Of Justice: 3 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SONIDR
• Assessee Lawyers: M C NANIWADEKAR
• Keywords: Capital asset; Gift; Depreciation; Salary income; Bad and doubtful debts; Revocable transfer; Unabsorbed depreciation
• Section: 56(2); 32

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2877/MUM/2012 ASSESSMENT YEAR: 2008-09 SHRI NITIN CHANDRAKANT DESAI, 201-B, VENTURA, CENTRAL AVENUE, OPP. D MART, HIRANADANI BUSINESS PARK, POWAI, MUMBAI-400076 / VS. ACIT-11(1), MUMBAI ( '#$ /ASSESSEE) ( / REVENUE) P.A. NO. AAFPD8678Q '#$ / ASSESSEE BY SHRI M.C. NANIWADEKAR / REVENUE BY SHRI VIJAY KUMAR SONI-DR % & ' ( / DATE OF HEARING : 10/08/2015 ' ( / DATE OF ORDER: 24/09/2015 NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 29/02/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: - 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN CONFIRMING THAT GIFTS MADE BY THE A SSESSEE HAS RESULTED INTO TRANSFER OF CAPITAL ASSET U/S 45 GIVI NG RISE TO CAPITAL GAIN. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN CONFIRMING THE APPLICATION OF PROVI SIONS OF SECTION 50B TO THE AFORESAID GIFT MADE BY THE ASSESSEE. 3. WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN CONSIDERING THE NET VALUE OF AS SETS (AFTER DEDUCTING LIABILITIES) AS FULL VALUE OF CONSIDERATI ON IN SPITE OF THE FACT THAT THE APPELLANT HAD NOT RECEIVED ANY CONSID ERATION. 4. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN NOT CONSIDERING THAT A GIFT OF RUNN ING BUSINESS RESULTS INTO SUCCESSION AND THUS ERRED IN CONFIRMIN G THE DISALLOWANCE OF DEPRECIATION CLAIM UNDER SECTION 32 (1). 5. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN NOT ALLOWING SETTING OFF OF UNABSOR BED DEPRECIATION AGAINST SALARY INCOME, WHEN SUCH UNABSORBED DEPRECI ATION BECOMES PART OF CURRENT YEAR DEPRECIATION AND IS EL IGIBLE FOR SET OFF U/S 71. 6. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF WRIT E OFF OF SUNDRY DEBTORS WHICH WERE NO LONGER REALISABLE IN THE BOOK S OF THE ASSESSEE. NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 3 7. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PROJ ECT EXPENSES AND DEFERRED REVENUE EXPENSES WRITTEN OFF IN THE BO OKS OF ACCOUNTS. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD, S HRI M.C. NANIWADEKAR, LD. COUNSEL FOR THE ASSESSEE AND SHRI VIJAY KUMAR SONI, LD. DR. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE, WITH RESPECT TO GROUNDS 1 T O 3 IS THAT THE ASSESSEE GIFTED THE AMOUNT TO THIS PRIVATE LIMI TED COMPANY. SECTION 50B OF THE ACT IS NOT APPLICABLE I N THE CASE OF A GIFT. OUR ATTENTION WAS INVITED TO PAGE 36 OF THE PAPER BOOK CONTAINING THE GIFT DEED BY POINTING OUT THAT IT IS A REGISTERED GIFT DEED ON WHICH STAMP DUTY WAS PAID. IT WAS CONTENDED THAT SECTION 50B SPEAKS ABOUT SLUMP SALE, THEREFORE, IN THE PRESENT APPEAL, IT IS NOT A QUEST ION OF SALE BUT OF A GIFT. RELIANCE WAS PLACED UPON THE DECISI ON IN CIT VS BHARAT BIJLEE LTD. (2014) 365 ITR 258 (BOM.) AND TH E DECISION IN M/S. DP WORLD PVT. LTD VS DCIT (ITA NO.3627/MUM/ 2012) ORDER DATED 12/10/2012. THE LD. COUNSEL CONTENDED T HAT THE CHARGE AGAINST THE ASSESSEE IS WITH RESPECT TO SECT ION 50B AND THERE IS NO ALLEGATION THAT THE ASSESSEE ACTUAL LY RECEIVED ANY MONEY. OUR ATTENTION WAS INVITED TO PAGES 28 AN D 29 OF THE PAPER BOOK. ON THE OTHER HAND, THE LD. DR, CON TENDED THAT IT IS A MERELY A SHAM TRANSACTION, THEREFORE, THE IMPUGNED ORDER WAS STRONGLY DEFENDED. NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 4 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE PROVIDES SERVICES FOR ERECTIN G THE SETS OF FILMS, STAGE SHOW, STAGES FOR MARRIAGE AND OTHER FU NCTIONS. THE ASSESSEE (HEREINAFTER THE DONOR) WAS HAVING ALM OST 100% SHARES IN A COMPANY CALLED NITIN DESSAI ART WORLD P VT. LTD. (HEREINAFTER IN SHORT NDAW), INCORPORATED IN THE YEAR 2002. THE ASSESSEE SOLD 51% SHARES OF NDAW TO RELIANCE BI G ENTERTAINMENT ON 24/01/2007, FOR A CONSIDERATION OF RS.2 CRORES AND SUBSEQUENTLY TRANSFERRED ALL ASSET AND L IABILITIES OF HIS PROPRIETARY CONCERN TO NDAW (HEREINAFTER DONEE) ON 31/12/2007, CLAIMED TO BE OUT OF LOVE AND AFFECTION FOR THE DONEE COMPANY. THE ASSET TRANSFERRED TO THE DONEE I NCLUDED IMMOVABLE PROPERTIES ALSO, WHICH WERE REVALUED IN T HE BOOKS OF THE DONEE COMPANY, WHICH AS PER THE BOOKS OF THE DONEE COMPANY, WAS TAKEN AT RS.23,52,49,025/-, AS PER GIF T DEED DATED 31/12/2007 (PARA 1 & 13), IT WAS STATED AS U NDER:- 1. THE DONOR HEREBY TRANSFERS TO THE DONEE COMPAN Y, THE SAID BUSINESS UNDERTAKING AS A GOING CONCERN, INCLU DING ALL ASSETS AND LIABILITIES OF HIS TWO PROPRIETARY C ONCERNVIZ NITIN CHANDRAKANT DESAI PROPRIETARY CONCERN AND TRI MITIK CONSTRUCTION COMPANY AS APPEARING IN THE BALANCE SH EET OF THE SAID CONCERN AS AT 31/12/2007 IN THE SCHEDUL E FORMING PART OF THIS DEED. IN ADDITION TO THE ASSET S AND LIABILITIES STATED IN THE BALANCE SHEET, THE DONOR ALSO TRANSFERS TO THE DONEE COMPANY ALL INTANGIBLE ASSET S SUCH AS GOODWILL, PATENTS, TRADEMARKS. REGISTRATIONS, LI CENSES NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 5 AND LEGAL AND COMMERCIAL RIGHTS AND ALSO THE BENEFI T OF ALL CONTINUING CONTRACTS, BUSINESS ASSIGNMENTS AND SO O N. 13. THE DONEE COMPANY HEREBY ACCEPTS FROM THE SAI D DONOR; THE SAID GIFT OF THE SAID BUSINESS UNDERTAKI NG AS A GOING CONCERN, INCLUDING ALL ASSETS AND LIABILITIES OF THE SAID TWO PROPRIETARY CONCERNS NAMELY NAMELY NITIN CHANDRAKANT DESAI PROPRIETARY CONCERN AND TRIMITIK CONSTRUCTION COMPANY ON THE TERMS AND CONDITIONS HE REIN BEFORE STIPULATED. 2.1. IN VIEW OF THE ABOVE, CLAUSES IN GIFT DEED, T HE SLUMP GIFT WAS CLAIMED TO BE NOT TAXABLE, AS PER SECTION 47 (III) OF THE ACT, UNDER THE HEAD CAPITAL GAINS. IN PARA 3 OF TH E GIFT DEED, IT WAS STATED THAT SAID TRANSFERRED IS FOR NIL CON SIDERATION IN VIEW OF THE SENTIMENTAL ATTACHMENT. THE LD. ASSES SING OFFICER RAISED THE FOLLOWING QUESTIONS:- (I) CAN A GIFT BE RECEIVED BY A COMPANY (II) WHY THE SO CALLED SLUMP GIFT, TO THE DONEE COM PANY, MAY NOT BE HELD AS COLORABLE DEVICE TO ESCAPE THE PROVISION OF TAXATION UNDER THE HEAD CAPITAL GAINS, (III) WHY SUCH AN ALLEGED GIFT, CLAIMED AS EXEMPT U /S 47(III) OF THE ACT, IS NOT COVERED BY PROVISION OF SECTION 47(XIV) OF THE ACT, SINCE THE CONDITION PRESCRIBED U/S 47(XIV) ARE NOT COMPLIED WITH, WHY THE TRANSACTION MAY NOT BE REGARDED AS TRANSFER AS PER SECTION 47(XIV) OF THE ACT, AN EXCLUSION CLAUSE FOR CASES WHICH ARE OTHERW ISE A NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 6 TRANSFER, YET HAVE BEEN KEPT OUT OF THE PREVIEW OF CAPITAL GAINS. 2.2. THE LD. ASSESSING OFFICER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS CONTAINED IN PARA 4. 4 & 4.5 OF THE ASSESSMENT ORDER AND FURTHER DISCUSSION MADE IN PARA 4.6. THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT COMPANY CANNOT RECEIVE A GIFT AS THERE IS NO MUTUAL LOVE AN D AFFECTION. THE ASSESSING OFFICER OPINED THAT IT IS NOT A GIFT AS SUCH AND IT IS MERELY A COLORABLE DEVICE, MORE SPECIFICALLY, THE DONOR HAS STILL 49% STAKE IN THE ASSET GIFTED AS A DONOR AND FURTHER 49% SHARE HOLDING IN THE COMPANY, THUS, AS PER THE ASSESSING OFFICER, IT IS MERELY A COLORABLE DEVICE. 2.3. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEALS), THE STAND OF THE ASSESSING OFFICER W AS PRACTICALLY AFFIRMED, BY OPINING THAT THE LONG TERM CAPITAL GAINS WOULD BE AT RS.1,26,41,695/- INSTEAD OF RS.23,52,49,025/-. THE FINDING RELATED TO TAXABILIT Y, SUBJECT TO RECALCULATION OF CAPITAL GAIN, WAS UPHELD. THE FACTUAL FINDING RECORDED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS REPRODUCED HEREUNDER FOR READY REFEREN CE:- 1.3. I HAVE CONSIDERED THE FACTS AND PERUSED THE M ATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE WAS 100% SHARE HOLDER OF NDAW AS ON 24-12-07 AND PROPRIETOR OF TWO CONCERNS NAMELY NITIN DESAI CHANDRAKANT DESAI AND TRIMITIK CONSTRUC TION CO. THE APPELLANT HAS SUDDENLY SOLD HIS 51% SHORE IN NDAW T O RELIANCE BIG ENTERTAINMENT (RBE) ON 24-12-07 AND THEREAFTER TRANSFERS NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 7 ASSETS AND LIABILITIES OF HIS TWO PROPRIETARY CONCE RNS TO NDAW BY WAY OF GIFT. THESE SIMULTANEOUS EVENTS TAKEN PLACE SHOWS THAT THE APPELLANT HAS INVENTED SOME UNIQUE IDEA OF AS PART OF COLORFUL TAX PLANNING. A PERSON WHO IS HITHERTO OWNER OF THREE C ONCERNS LE. (TWO PROPRIETARY AND A PRIVATE LIMITED COMPANY) MAK ES GIFT OF TWO CONCERNS TO THIRD CONCERN OF WHICH HE IS STILL 49% SHAREHOLDER. THIS MEANS THE APPELLANT A PERSON WHO IS MAKING A GIFT T O HIMSELF. TO A COMPANY WHO STILL BEARS NAME OF THE ASSESSEE AND WH O IS CHAIRMAN CUM MANAGING DIRECTOR OF THE SAID COMPANY AND HOLDS 49% SHARE. THESE FACTS SHOWS THAT THE SO CALLED GI FT MADE BY THE APPELLANT WAS SHAM, A MIRAGE. CHIMERA IN THE CLOAK BY WHICH A MANIPULATED TRANSACTION IS EFFECTED TO AVOID TAXABL E LONG TERM CAPITAL GAIN. THE ALLEGED GIFT IS COLORABLE DEVICE AS THE GIFT IS BEING MADE BY THE APPELLANT TO A COMPANY OF WHICH HE WAS 100% OWNER BEFORE A WEEK. AND STILL HOLDS 49% SHARE AND HE IS CHAIRMAN CUM MANAGING DIRECTOR OF THE DONEE COMPANY. THEREFORE. THE AO HAS RIGHTLY OBSERVED THAT HOW THE DONOR AND DONE CAN BE SAME PERSON AND GIFT CAN BE REGARDED WHEN THE DONOR STIL L HAS 49% STAKE IN THE ASSETS GIFTED. THEREFORE, THE ALLEGED GIFT UNDER CONSIDERATION IS SHAM AND COLORFUL TAX PLANNING TO AVOID INCIDENCE OF TAX. 1.3.1. IT IS FURTHER SEEN THAT PARA 3 OF GIFT DEED STATES THAT THE SAID TRANSFER IS FOR NIL CONSIDERATION IN VIEW OF THE SE NTIMENT ATTACHMENT. HOW THERE CAN BE SENTIMENTAL ATTACHMENT TO A COMPANY WHICH IS ARTIFICIAL PERSON AND NOT A LIVING THING: THE GIFT IS GENERALLY GIVEN OUT OF LOVE AND AFFECTION, BUT I N THE CASE OF THE ASSESSEE THERE CANNOT BE ANY LOVE AND AFFECTION ATT ACHED TO AN ARTIFICIAL PERSON CREATED BY STATUTE. 1.3.2 FURTHER, THE GIFT HAS BEEN MADE BY THE APPELL ANT ON 31-12- 07 TO A COMPANY AND BEFORE THE AMENDMENT BY FINANCE ACT 2010, THE COMPANY OR FIRM WAS NOT RECOGNIZED TO RECEIVE A GIFT AS PER PROVISIONS OF SECTION 56(2) OF THE ACT. THUS AT THE PREVALENT TIME WHEN THE GIFT WAS MADE BY THE APPELLANT ONLY INDIVI DUAL OR HUF NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 8 WERE ENTITLED TO BE RECEIVE A GIFT. THEREFORE, SO C ALLED GIFT IS NOT RECOGNIZED IN THE ACT AND WAS NOT IN ACCORDANCE WIT H PROVISIONS OF THE GIFT TAX ACT. IT IS SEEN THAT SECTION 2(XVII I) OF GIFT TAX ACT, 1958 INCLUDES COMPANY AS A PERSON, AND MAKES A GIFT AS TAXABLE UNDER THE GIFT TAX ACT. IT IS SEEN THAT SECTION 2(X VIII) OF GIFT TAX ACT. HOWEVER, WHEN THE GIFT WAS NOT IN OPERATION AT TIME WHEN THE GIFT DEED WAS MADE. THIS SHOWS THAT THE COMPAN Y AS A PERSON WAS INCLUDED IN GIFT TAX ACT, ONLY TO MAKE T HE TRANSACTION AS TAXABLE GIFT. SIMILARLY CLAUSE (VII) IN SECTION 56(9) WAS INSERTED W.E.F. 1-6-2010 TO MAKE THE GIFT TAXABLE IN THE HAN D OF A COMPANY. THEREFORE, THE LEGISLATURE'S INTENTION WAS TO HAVE A ENTITY OF COMPANY AS TAXABLE ENTITY WHENEVER THERE IS A GIFT EITHER UNDER GIFT TAX ACT OR INCOME-TAX ACT. THUS THE COMP ANY WAS NOT' AN ENTITY OR PERSON AT THE RELEVANT TIME WHEN GIFT WAS MADE AND THEREFORE THERE WAS NO TAXABILITY OF GIFT TO COMPAN Y. THUS GIFT MADE BY THE APPELLANT AT THE RELEVANT TIME, THE COM PANY WAS NOT A PERSON FOR THE PURPOSE TO RECEIVE A GIFT; HENCE, THE GIFT SO MADE TO COMPANY IS NOT A VALID GIFT UNDER INCOME-TAX ACT . THEREFORE, THE AO HAS RIGHTLY INVOKED THE DECISION OF HON'BLE SUPREME COURT IN CASE OF MCDOWELL & CO.154 ITR 148 (SC) TO HOLD T HAT THE APPELLANT HAS RESORTED COLORFUL TAX AVOIDANCE PLANN ING. 1.3.3 IT IS THEREFORE SEEN FROM GIFT DEED DATED 31- 12-07 THAT IT IS BETWEEN SHRI NITIN CHANDRAKANT DESAI - ONE PART AND SECOND PART ALSO SHRI NITIN CHANDRAKANT DESAI AND MRS. NEHA NIT IN DESAI (AS DIRECTORS OF COMPANY). THUS IN EFFECT DONOR AND DON E AS A SIGNATORY ARE THE SAME PERSON, HENCE, ONE CANNOT MA KE GIFT TO HIMSELF AND GIFT MADE BY SUCH MANNER IS VOID. 1.3.4 FURTHER GIFT MEANS IRREVOCABLE TRANSFER OF AL L ASSET, WHEREAS PARA 6 OF GIFT DEED DATED 31-12-07 STATED THAT THE APPELLANT DONOR IS STILL OWNER OF THE PREMISES ON WHICH TEMPL E, AND STATUS ARE STANDING. FURTHER, AS PER PARA 3 AND 6(III) OF GIFT DEED THE DONOR DESIRES OF EXPANDING HIS BUSINESS ACTIVITY TO FULFILL HIS PERSONAL DREAM OF CREATING A WORLD CLASS STUDIO AND WITH THE SAID NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 9 INTENTION TO DONOR TRANSFERRED THE BUSINESS UNDERTA KING, ASSETS AND LIABILITIES. THUS GIFT CANNOT BE TREATED AS WIT HOUT CONSIDERATION BECAUSE THE DONOR STILL RETAINS THE G OODWILL OF HIS 'NAME FOR EXPANSION OF HIS BUSINESS OF WHICH HE STI LL IS DE-FACTO OWNER BY HOLDING 49% SHARE AND BEING CHAIRMAN CUM M D. 1.3.5 THE CLAIM OF AR THAT GIFT IS NOT SLUMP AND TH ERE IS NO ATTEMPT TO EVADE TAX AS STAMP DUTY OF RS. 60 LACS IS PAID AND TAX ON CAPITAL GAIN IS PAID AT RS. 40 LEES. I FIND THAT THE STAMP DUTY IS NOT PAID BY DONOR BUT DONEE AND CAPITAL GAIN TAX IS NOT PAID IN LIEU OF THIS GIFT BUT IN LIEU OF TRANSFER OF SHARE OF BY THE APPELLANT TO RBE. HENCE. THESE ARGUMENT DO NOT HAVE ANY FORCE AN D THEREFORE IMMATERIAL IN CASE OF GIFT MADE BY THE APPELLANT. 1.3.6 THE PROVISIONS OF SECTION 47(XIV) ARE AN EXCL USION CLAUSE FOR CASES WHICH ARE OTHERWISE A TRANSFER. SINCE THE DON OR WAS ABSOLUTE OWNER OF NDAW UP TO 24-7-07 AND TRANSFERS HIS 51 % SHARE TO RBE AND THEN MAKES GIFT TO NDAW IN WHICH H E STILL HAS 49% STAKE IS A TRANSFER IS COVERED BY EXCLUSION CLA USE U/S. 47(XIV) AND HENCE THE APPELLANT IS LIABLE TO GIFT TAX. RELI ANCE IS PLACED IN THE CASE OF DECISION OF CHENNAI BENCH OF TRIBUNAL R EPORTED IN [2011] 14 TAXMAN.COM 27 (CHENNAI - TRIB.) WHERE ASS ESSEE HAD SOLD HIS PROPRIETARY CONCERN AS A GOING CONCERN FOR A CONSIDERATION TO A COMPANY, AND RECEIVED CONSIDERAT ION BY WAY OF ALLOTMENT OF SHARES OF COMPANY AND RETAINED , MORE THAN 51 PER CENT OF SHAREHOLDING IN COMPANY FOR A PERIOD OF SIX YEARS, SALE TRANSACTION WAS A TRANSFER WITHIN MEANING OF SECTIO N 47(XIV). THUS THE APPELLANT'S CASE IS SQUARELY COVERED BY AFORESA ID DECISION; HENCE, THERE IS TRANSFER WITHIN EXCLUSION CLAUSE OF SECTION 47(XIV). THE AO HAS RELIED IN CASE OF VODAFONE ESSAR GUJARAT LTD. WHICH LAID DOWN THAT GIFT IS NOT AN ARRANGEMENT. THE SCHE ME OF ARRANGEMENT CONTEMPLATES GIVE AND TAKE BETWEEN THE POTTIES AS AGAINST SOMETHING IN THE NATURE OF GIFT. WHICH HAS TO BE WITHOUT CONSIDERATION. THEREFORE. THERE IS NO SUCCESSION AS CONTEMPLATED U/S 47(III) OF THE ACT. SINCE STAMP DUTY IS NOT BO RNE BY THE NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 10 ASSESSEE, THEREFORE, THE ALLEGED GIFT IS SHAM TRANS ACTION IS TAXABLE U/S 47 (XIV) OF THE ACT. 1.3.7 THE AO HAS COMPUTED CAPITAL GAIN AS PER PROVISION O F SECTION 508 BY TAKING THE FULL VALUE OF ASSETS AT RS. 23,52 ,49,025/- BEING REVALUATION IN THE BOOKS OF DONE. HOWEVER, THE AR A RGUED THAT SECTION 508 APPLIES TO SLUMP SALE AND CONSIDERS THE NET WEALTH AS PER EXPLANATION 1. THE AR HAS WORKED OUT NET WORTH AT (-) RS.3,05,10,636/- (19, 20,96,694 - 22, 26,330). HOWE VER, THIS WORKING OF THE ASSESSEE IS NOT-CORRECT. IT IS SEEN THAT THERE IS NO VALUATION IN BOOKS OF ASSESSEE AND VALUATION MADE I N THE CASE OF TRANSFEREE ON THE-DAY OF GIFT AT RS. 23,52,49,025/- . HENCE WHAT HAVE BEEN TRANSFERRED ARE THE REVALUED ASSET AND NO T THE BOOK VALUE OF THE ASSET. FURTHER THE APPELLANT HAVE CLAI MED THE WRITTEN OFF ALL THE BAD DEBTS AS ON 31/12/07 WHICH MEANS TH E BOOK VALUE OF ASSETS AND LIABILITIES SO TRANSFERRED HAS' BEEN REVALUED ON THE DATE OF TRANSFER IN BOOK OF THE APPELLANT. THEREFOR E, THE VALUE OF CONSIDERATION HAS TO BE CONSIDERED AT RS. 23, 52, 4 9,025/- FOR THE PURPOSE OF CAPITAL GAIN. FURTHER, SINCE TRANSFER IS AFFECTED WITH LIABILITIES ALSO, HENCE, NET WORTH IS TO BE CONSIDE RED FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS U/S. 50B OF THE ACT. THEREFORE, THE SALE CONSIDERATION WOULD BE CONSIDER ED AT RS. 23,52,49,025/- MINUS LIABILITIES TRANSFERRED AND VA LUED AT RS.22,26,07,330/-. ACCORDINGLY, LONG TERM CAPITAL G AIN WOULD BE AT RS.1,26,41,695/- (23,52,49,025- - 22,26,07,330). TH E AO IS THEREFORE DIRECTED TO CONSIDER LONG TERM CAPITAL GA IN AT RS.1,26,41,695/- INSTEAD OF -RS. 23, 52,49,025 CONS IDERED BY THE AO. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES, THE FINDINGS AS RELATED TO TAXABILITY AS CAPITAL GAIN IS UPHELD, SU BJECT TO RECALCULATION OF CAPITAL GAIN AS IS REVISED AS COMP UTED ABOVE. ACCORDINGLY, THE ABOVE GROUNDS OF APPEAL ARE TREATE D AS PARTLY ALLOWED. NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 11 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, THERE IS NO DISPUTE TO THE FACT THAT AS ON 24/12/2007, THE ASSESSEE WAS 100% SHARE HOLDER OF NDAW AND PROPRIETOR OF TWO CONCERN NAMELY NITIN DESSAI CHANDRAKANT DESSAI AND TRIMITIK CONSTRUCTION COMPAN Y. THE ASSESSEE SOLD/TRANSFERRED HIS 50% SHARES IN NDA W TO RELIANCE BIG ENTERTAINMENT (HEREINAFTER IN SHORT RB E) ON 24/12/2007 AND THEREAFTER, TRANSFERRED ASSET AND LI ABILITIES OF HIS TWO PROPRIETARY CONCERNS BY WAY OF GIFT. AS PER THE REVENUE, IT IS A COLORABLE TAX PLANNING. ADMITTEDLY, THE ASSESSEE MADE GIFT OF TWO CONCERNS TO A THIRD PERSO N/THIRD CONCERN OF WHICH HE IS STILL SHARE HOLDER TO THE EX TENT OF 49%, MEANING THEREBY, THE ASSESSEE IS A PERSON, WHO IS M AKING A GIFT TO HIMSELF, A COMPANY WHO STILL BEARS THE NAME OF THE ASSESSEE AND WHO IS A MANAGING DIRECTOR OF THE SAID COMPANY HOLDING 49% SHARE. IN VIEW OF THE UNCONTRO VERTED FACT, THE SO CALLED GIFT IS NOTHING BUT A SHAM/COLO RABLE DEVICE/MANIPULATION TO AVOID TAXABILITY OF LONG TER M CAPITAL GAIN, BECAUSE, THE GIFT WAS MADE BY THE ASSESSEE TO A COMPANY OF WHICH HE WAS 100% OWNER, BEFORE THE ALLE GED GIFT AND STILL HOLDS 49% SHARES. IT IS WORTH QUOTING THA T THE ASSESSEE EVEN AFTER THE ALLEGED GIFT IS STILL THE C HAIRMAN AND THE MANAGING DIRECTOR OF THE DONEE COMPANY. IN OTHE R WORDS, IT CAN BE SAID THAT THE DONOR AND THE DONEE ARE THE SAME PERSON. HOWEVER, FOR MAKING A VALID GIFT, THE DONO R AND THE NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 12 DONEE ARE SUPPOSED TO BE DIFFERENT ENTITY, CONSEQUE NTLY, IT CAN BE CONCLUDED THAT IT IS NOTHING BUT A COLORABLE TAX PLANNING TO AVOID THE INCIDENCE OF TAX. 2.5. IF THIS ISSUE IS ANALYZED WITH RESPECT TO MUT UAL LOVE AND AFFECTION, WHICH IS ONE OF THE CONDITION FOR MA KING A GIFT, WE ARE OF THE VIEW, THAT FOR MAKING A GIFT NORMALLY , THERE ARE EMOTIONAL BONDS/ATTACHMENTS, HOWEVER, THE COMPANY, BEING ARTIFICIAL PERSON, CANNOT BE TREATED TO COME WITHIN THE AMBIT OF NATURAL LOVE AND AFFECTION, THUS, THERE CANNOT B E SUCH AFFECTION/LOVE BETWEEN THE DONOR AND THE DONEE AND THE COMPANY IS A MERELY ARTIFICIAL PERSON, CREATED BY TH E STATUTE. IT IS ALSO NOTED THAT THE ALLEGED GIFT/ARRANGEMENT/ COLORABLE DEVICE WAS MADE BY THE ASSESSEE ON 31/12/2007, WHIC H IS CLEARLY BEFORE THE AMENDMENT EFFECTED BY THE FINANC E ACT, 2010. AT THE RELEVANT TIME, WHEN THE GIFT WAS MADE, ONLY THE INDIVIDUAL OR HUF WERE ENTITLED TO RECEIVE GIFT, TH US, SUCH A ARRANGEMENT CANNOT BE RECOGNIZED BECAUSE IT IS NOT ACCORDANCE WITH THE PROVISIONS OF GIFT TAX ACT. EVE N AS PER SECTION 2(XVIII) OF THE GIFT TAX ACT, 1958, IT INCL UDES COMPANY, AS A PERSON, AND CONSIDER THE GIFT AS TAXA BLE, WHICH CLEARLY SHOWS THAT THE COMPANY, AS A PERSON, WAS IN CLUDED IN THE GIFT TAX ACT ONLY TO MAKE THE TRANSACTION TAXAB LE. SIMILARLY, CLAUSE (VII) IN SECTION 56(9), INSERTED WITH EFFECT FROM 01/06/2010, MAKES THE GIFT TAXABLE IN THE HAND S OF THE COMPANY, THEREFORE, THE LEGISLATURE IN ITS WISDOM M ADE THE ENTITY OF COMPANY AS TAXABLE UNDER THE GIFT TAX ACT OR INCOME TAX ACT. UNDER THE PRESENT FACTS, IT CAN BE SAID THAT NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 13 AT THE RELEVANT TIME, THE COMPANY WAS NOT A PERSON FOR THE PURPOSES OF RECEIVING GIFT. THE RATIO LAID DOWN BY HONBLE APEX COURT IN MCDOWELL & COMPANY 154 ITR 148 (SC), CLEARLY COMES TO THE RESCUE OF THE REVENUE, BECAUSE, AS DIS CUSSED EARLIER, IT IS MERELY A COLORABLE TAX AVOIDANCE PLA NNING. ANOTHER FACT WORTH MENTIONING IS THAT IN THE GIFT D EED DATED 31/12/2007, THE SIGNATORIES ARE THE ASSESSEE ON ONE PART AND IN SECOND PART ALSO THE ASSESSEE AND MS. NEHA N ITIN DESSAI (AS DIRECTOR OF THE COMPANY), THUS, THE DONO R AND THE DONEE, AS A SIGNATORY, ARE THE SAME PERSON, THUS, G IFT TO HIMSELF, UNDER THE FACTS AVAILABLE ON RECORD, IS QU ITE UNJUSTIFIED. FURTHER, AS PER PARA 3 AND 6(III) OF THE GIFT DEED, IT IS CLEARLY MENTIONED THAT THE DONOR WAS EXPANDIN G HIS BUSINESS ACTIVITY TO FULFILL HIS PERSONAL DREAMS FO R CREATING A WORLD CLASS STUDIO AND WITH THAT INTENTION, THE DON OR (ASSESSEE), TRANSFERRED THE BUSINESS UNDERTAKING AL ONG WITH ASSET AND LIABILITIES. THE DONOR STILL RETAINS THE GOODWILL OF HIS NAME FOR EXPANSION OF HIS BUSINESS AND STILL IS DE-FACTO OWNER, HAVING 49% SHARES BEING CHAIRMAN CUM MD. 2.6. SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT STAMP DUTY OF RS.60 LAKH WAS PAID, TH ERE IS UNCONTROVERTED FINDING IN THE IMPUGNED ORDER THAT T HE STAMP DUTY WAS NOT PAID BY THE DONOR BUT BY THE DONEE AND THE CAPITAL GAIN TAX WAS NOT PAID IN LIEU OF THIS GIFT BUT FOR TRANSFER OF SHARE BY THE ASSESSEE TO RBE, THUS, FRO M THIS ANGLE ALSO, THE ASSESSEE IS NOT HAVING A GOOD CASE. EVEN OTHERWISE, THE PROVISION OF SECTION 47(V) OF THE AC T IS AN NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 14 EXCLUSION CLAUSE FOR THE CASES WHICH ARE OTHERWISE A TRANSFER. UNDER THE PRESENT SET OFF FACTS, THE ASSESSEE WAS A BSOLUTE OWNER OF NDAW UPTO 24/07/2007 AND TRANSFERRED HIS 5 1% SHARES TO RBE AND THEN MADE THE GIFT TO NDAW, IN WH ICH HE STILL HOLDS 49% STAKES, THUS, THE TRANSFER IS COVER ED BY EXCLUSION CLAUSE U/S 47(XIV) OF THE ACT, CONSEQUENT LY, IS LIABLE TO GIFT TAX. OUR VIEW IS FORTIFIED BY THE DE CISION FROM THE CHENNAI BENCH (2011) 14 TAXMAN.COM 27 (TRIBUNAL ), WHEREIN, THE ASSESSEE SOLD HIS PROPRIETARY CONCERN AS A GOING CONCERN FOR A CONSIDERATION TO A COMPANY AND RECEIV ED CONSIDERATION BY WAY OF ALLOTMENT OF SHARES OF THE COMPANY AND RETAINED MORE THAN 51% OF THE SHARE HOLDING IN THE COMPANY FOR A PERIOD OF SIX YEARS, THE SALE TRANSAC TION WAS HELD TO BE A TRANSFER WITHIN THE MEANING OF SECTION 47(XIV) OF THE ACT, THUS, FROM THIS ANGLE ALSO, THE ASSESSEE I S HAVING NO CASE AT ALL. 2.7. SO FAR AS, COMPUTATION OF CAPITAL GAIN BY THE ASSESSING OFFICER TAKING THE FULL VALUE OF ASSET AT RS.23,52,49,025/-, AS PER SECTION 50B OF THE ACT, I S CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT S ECTION 50B IS APPLICABLE TO SLUMP SALE AND CONSIDERS THE NET W EALTH AS PER EXPLANATION-1. WE ARE NOT IN AGREEMENT WITH TH IS EXPLANATION OF THE ASSESSEE, BECAUSE, THERE WAS NO VALUATION IN BOOKS OF THE ASSESSEE AND THE VALUATION MADE IN THE CASE OF TRANSFEREE, ON THE DATE OF GIFT IS RS.23,52,49,0 25/-, MEANING THEREBY, REVALUED ASSET HAS BEEN TRANSFERRE D AND NOT THE BOOK VALUED ASSET. IT IS ALSO NOTED THAT TH E ASSESSEE NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 15 CLAIMED BAD DEBT WRITTEN OFF AS ON 31/12/2007, MEAN ING THEREBY, THE BOOK VALUE OF ASSET AND LIABILITY, SO TRANSFERRED, HAS BEEN REVALUED ON THE DATE OF TRANSFER IN THE BO OKS OF THE ASSESSEE, THUS, THE VALUE OF CONSIDERATION, FOR THE PURPOSES OF CAPITAL GAIN, HAS TO BE AT RS.23,52,49,025/-. HOW EVER, THE TRANSFER WAS EFFECTED ALONG WITH LIABILITY, THEREFO RE, THE NET WORTH IS TO BE CONSIDERED FOR THE PURPOSE OF COMPUT ATION OF THE CAPITAL GAIN U/S 50B OF THE ACT, CONSEQUENTLY, THE SALE CONSIDERATION WOULD BE CONSIDERED AT RS.23,52,49,02 5/- MINUS LIABILITIES TRANSFERRED AND VALUED AT RS.22,2 6,07,330/- . IN VIEW OF THIS POSITION IN LONG TERM CAPITAL GAI N WILL BE AT RS.1,26,41,695/-, THUS, SO FAR AS, TAXABILITY OF CA PITAL GAIN IS CONCERNED, WE FIND NO INFIRMITY IN THE IMPUGNED ORD ER, IN GIVING DIRECTION TO THE ASSESSING OFFICER. SO FROM THIS ANGLE ALSO, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THUS, GROUND S NO.1 TO 3, RAISED BY THE ASSESSEE, ARE HAVING NO MERIT, THEREFORE, DISMISSED. 3. NOW, WE SHALL TAKE UP THE GROUND (GROUND NO.4) WITH RESPECT TO NOT CONSIDERING THAT A GIFT OF RUNN ING BUSINESS RESULTS INTO SUCCESSION AND CONFIRMATION O F DISALLOWANCE AND DEPRECATION U/S 32(1) WAS CHALLENG ED BY THE ASSESSEE. THE CRUX OF ARGUMENT ADVANCED ON BEH ALF OF THE ASSESSEE IS IDENTICAL TO THE GROUND RAISED BY C ONTENDING THAT IF THE GIFT IS A SHAM TRANSACTION THEN WHAT WA S TRANSFERRED BY THE ASSESSEE. IT WAS EXPLAINED THAT THE DEPRECIATION WAS CLAIMED ON PROPORTIONATE BASIS. ON THE NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 16 OTHER HAND, THE LD. DR, STRONGLY DEFENDED THE CONCL USION ARRIVED AT IN THE IMPUGNED ORDER. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FAC TS, IN BRIEF, ARE THAT THE ASSESSEE, IN ITS COMPUTATION OF TOTAL INCOME, CLAIMED DEPRECIATION OF RS.2,03,88,627/-, WHICH WAS REVISED DURING THE COURSE OF ASSESSMENT, WHEN THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS AND MANNER OF COMPUTAT ION VIDE ORDER SHEET ENTRY DATED 14/09/2010. THE ASSESSEE VI DE SUBMISSIONS DATED 25/11/2010 REVISED THE SAME TO RS.1,66,18,172/-, WHEREIN, ASSESSEE CLAIMED PROPORT IONATE DEPRECIATION TILL 31/12/2007, WHICH WAS SUBSEQUENTL Y GIFTED/TRANSFERRED TO NDAW. THE ASSESSEE WAS ASKED THAT SINCE THE ASSESSEE HAS ALREADY TRANSFERRED THE ASSE T, THEREFORE, HOW, PROPORTIONATE DEPRECIATION CAN BE A LLOWED. THE ASSESSEE CLAIMED THE DEPRECIATION AS PER 5 TH PROVISO TO SECTION 32(2) WHICH PROVIDES THAT IN THE CASE OF SUCCESSION OF BUSINESS, PROPORTIONATE DEPRECIATION WILL BE ALLOWE D TO THE PREDECESSORS. THE ASSESSING OFFICER EXAMINED THE C LAIM OF THE ASSESSEE AND IN VIEW OF SECTION 2(47), WHICH DE FINES TRANSFER IN RELATION TO CAPITAL ASSET DID NOT FIND FAVOUR WITH THE CLAIM. AS MENTIONED EARLIER, THE ASSESSEE WAS 1 00% SHARE HOLDER OF THE COMPANY NAMED NDAW AND 51% SHAR ES OF WHICH WERE SOLD TO RBE ON 24/12/2007 AND SUBSEQU ENTLY ALL ASSET AND LIABILITIES TWO PROPRIETORSHIP COMPAN IES WERE ALSO TRANSFERRED ON 31/12/2007. THE SHARE HOLDING W AS REDUCED TO 49% AND THE ASSESSEE WAS GIVEN HANDSOME NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 17 REMUNERATION. EVEN OTHERWISE, DEPRECIATION IS CALC ULATED ON THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSET. SINCE , WE HAVE AFFIRMED THE STAND OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) THAT THE CLAIMED GIFT IS A SHAM TRANSACTION/COLORABLE DEVICE FOR THE PURPOSES OF CA PITAL GAINS, THUS, THERE IS NO QUESTION OF PROPORTIONATE DEPRECI ATION. THE FIFTH PROVISO TO SECTION 32(2) APPLIES IN CASE OF S UCCESSION OF BUSINESS AS THE ASSESSEE HAS TRANSFERRED 51% SHARE OF NDAW ON 24/12/2007 TO RBE AND THE TRANSFER WAS A SHAM TRANSACTION, CONSEQUENTLY, THERE IS NO SUCCESSION O F BUSINESS AS THERE WAS NO ASSET IN THE BALANCE SHEET, THEREFO RE, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COM MISSIONER OF INCOME TAX (APPEALS). THIS GROUND OF THE ASSESSE E, IS THEREFORE, HAVING NO MERIT, CONSEQUENTLY, DISMISSED . 5. NOW, WE SHALL TAKE UP THE GROUND (GROUND NO.5) WHICH PERTAINS TO NOT ALLOWING SETTING OFF OF UNABS ORBED DEPRECIATION U/S 32 (2), AGAINST SALARY INCOME, WHE N SUCH UNABSORBED DEPRECIATION BECOMES PART OF CURRENT YEA R DEPRECIATION AND IS ELIGIBLE FOR SET OFF U/S 71 OF THE ACT. AT THE OUTSET, THE LD. DR, CONTENDED THAT THIS ISSUED IS COVERED AGAINST THE ASSESSEE IN THE CASE OF CHANDRA KUMAR V S ACIT (2010) 36 DTR 378 (CHENNAI) ORDER DATED 20/11/2009. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CO NTENDED THAT IN THE CASE OF SHRI V. LAXMANAN VS ITO (ITA NO.198/MDS/2010), VIDE ORDER DATED 10/12/2010, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 18 5.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SET OFF CURRENT YEARS UNABSORBED DEPRECIATION TO THE EX TENT OF RS.37,72,499/- AGAINST THE HEAD SALARY INCOME. PUR SUANCE TO THE QUERY, (VIDE ORDER SHEET ENTRY DATED 18/08/2 010 AND 14/09/2010) AS TO WHY THE SET OFF OF DEPRECIATION C LAIMED AGAINST THE HEAD SALARY MAY NOT BE DISALLOWED THE A SSESSEE VIDE SUBMISSION DATED 19/10/2010 CLAIMED THAT IT HA S TO BE READ WITH SECTION 71(2A) AND ALSO SECTION 72 OF THE ACT, WHICH DISCUSES ABOUT THE TREATMENT TO BE GIVEN TO THE BUS INESS LOSS. RELIANCE WAS PLACED UPON THE DECISION IN CIT VS JAI PURIA CLAY MINES PVT. LTD. 59 ITR 555, WHICH DEALS WITH S ECTION 24(2) OF THE 1922 ACT (CORRESPONDING TO SECTION 72 OF THE 1961 ACT) AND SECTION 10(2) OF 1922 ACT (CORRESPOND ING TO SECTION 32(2) OF THE 1966 ACT). THE LD. ASSESSING O FFICER BY FOLLOWING THE DECISION IN CHANDRA KUMAR VS ACIT (20 10) 5 ITR (TRIB) 540 (CHENNAI), WHERE THE ASSESSEE HAD IN COME BY WAY OF SALARY FROM SPINNING MILL, INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES, FILED HIS RETURN OF INCOME WITH REDUCTION TOWARDS UNABSORBED DEPRECIATION, IT WAS HELD THAT UNABSORBED DEPRECIATION IS TO BE TREATED AS CU RRENT DEPRECIATION, THEREFORE, NOT ELIGIBLE FOR SET OFF A GAINST INCOME FROM SALARY, DECIDED AGAINST THE ASSESSEE. ON APPEA L, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THE D ECISION TAKEN IN ASSESSMENT WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 19 5.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE ASSESS EE SOLD OUT ONLY PART OF THE BUSINESS OF EARLIER YEARS MEAN ING THEREBY, THE ASSESSEE DISCONTINUED HIS BUSINESS AND THE SAME WAS NOT CARRIED ON IN THE CURRENT YEAR, FURTHE R PART OF THE BUSINESS WAS TRANSFERRED BY WAY OF ALLEGED GIFT , THEREFORE, THE CLAIM OF SET OFF OF UNABSORBED DEPRECIATION OF EARLIER YEAR IS NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 3 2(2) OF THE ACT AS AMENDED W.E.F. 01/04/2002. WE ARE ALSO OF TH E VIEW THAT SET OFF OF UNABSORBED DEPRECIATION CANNOT BE A LLOWED TO BE SET OFF AGAINST THE INCOME FROM SALARIES, IN VIE W OF SECTION 71(2A) OF THE ACT. OUR VIEW FIND SUPPORTS FROM THE RATIO LAID DOWN IN DCIT VS TIMES GUARANTEE LTD. (2010) 40 SOT 14 MUMBAI (SB), WHEREIN, IT WAS HELD THAT PROVISIONS C ONTAINED IN SECTION 32(2) IS SUBSTANTIVE AND THE SAME IS APP LICABLE PROSPECTIVELY W.E.F. 2002-03 ONWARDS. IT WAS FURTH ER HELD THAT BROUGHT FORWARD AND UNABSORBED DEPRECIATION OF EARLIER YEARS CANNOT BE INCLUDED WITHIN THE SCOPE OF SECTIO N 32(2) OF THE ACT, THEREBY, THE ASSESSEE CANNOT CLAIM SET OFF OF THE SAME AGAINST THE INCOME OF SUBSEQUENT YEARS I.E. A. Y. 2002- 03 ONWARDS. THE LOSS UNDER THE HEAD BUSINESS OR PR OFESSION, INCLUSIVE OF SUCH UNABSORBED DEPRECIATION, IS THERE FORE, NOT ELIGIBLE FOR SET OFF AGAINST INCOME FROM SALARY, IN VIEW OF EXPLICIT BAR, CONTAINED IN SECTION 71(2A) OF THE AC T, THUS, WE FIND NO MERIT IN THIS GROUND ALSO. IT IS DISMISSED . NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 20 6. THE NEXT GROUND IE. GROUND NO.7, PERTAINS TO CONFIRMING THE DISALLOWANCE OF RIGHT OFF OF SUNDRY DEBTS, WHICH WERE NO LONGER REALISABLE IN THE BOOKS OF THE ASSESSEE. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS T HAT THE APPELLANT TRANSFERRED BY WAY OF GIFT THE ASSET AND LIABILITIES WHICH EXISTED AS ON 31/12/2007 IN THE BALANCE SHEET OF THE PROPRIETARY CONCERN TO NDAW AND JUST STANDING IN TH E BOOKS OF ACCOUNTS, ON THE ASSET SIDE, WITHOUT ANY REAL VA LUE. IT WAS CLAIMED THAT THEY ARE NOTHING BUT FICTITIOUS ASSET, THEREFORE, GIFTING SUCH FICTITIOUS AND WORTHLESS WOULD NOT HAV E AMOUNTED TO GIFT AT ALL. ON THE OTHER HAND, THE LD . DR, STRONGLY OPPOSED THE CONTENTION OF THE ASSESSEE AND DEFENDED THE IMPUGNED ORDER. 6.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS UNCONTROVERTED FINDING IN THE IMPUGNED ORDER THAT THE ASSESSEE HAS GIFTED/TRANSFERRED ALL HIS ASSET AND L IABILITIES TO NDAB AS GOING CONCERN, THEREFORE, THE CLAIM OF BAD DEBTS WRITTEN OFF ON THE PRETEXT THAT THESE WERE WRITTEN OFF PRIOR TO 31/12/2007 IS SHAM AND PART OF COLORFUL TAX PLANNIN G. WE ALSO NOTE THAT, AS CLAIMED BY THE ASSESSEE, DURING HEARING, THAT ASSET AND LIABILITIES WERE TRANSFERRED ON 31/1 2/2007, THUS, THE SUNDRY DEBTORS OF EARLIER YEAR CANNOT BE WRITTEN OFF AS BAD DEBTS. THERE IS FURTHER FINDING THAT THE DE TAILS OF BAD DEBTS LEDGER AND JOURNAL COPY ALSO SHOWS THAT THESE BAD DEBTS WERE WRITTEN OFF ON 31/12/2007 AND EVEN THE B OOK NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 21 ENTRY WAS PASSED ON 31/12/2007 IN THE BOOKS OF THE ASSESSEE, WHEREAS, SUCH ASSET AND LIABILITIES WERE TRANSFERRED ON 31/12/2007. WE ARE OF THE VIEW, THE WRITTEN OFF INDEED SHOULD BE GENUINE AND BONA-FIDE DEBT, BASED ON COMM ERCIAL EXPEDIENCY, THUS, THE DECISION IN DIT VS OMAN INTER NATIONAL BANK SAOG (2009) 223 CTR 382 (BOM.) SUPPORTS OUR V IEW. SINCE THE ENTIRE CLAIM OF THE ASSESSEE IS A COLORAB LE DEVICE, THEREFORE, WE FIND FORCE IN THE ARGUMENT OF THE LD. DR. THE TOTALITY OF FACTS CLEARLY INDICATES THAT IT IS NOT A BONA FIDE CLAIM, THEREFORE, WE FIND NO INFIRMITY IN THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THIS GROUND I S DISMISSED. 7. THE LAST GROUND PERTAINS TO CONFIRMING THE DISALLOWANCE OF PREOPERATIVE PROJECT EXPENSES AMOUN TING TO RS.26,71,013/- AND DEFERRED REVENUE EXPENSES WRITT EN OFF AMOUNTING TO RS.23,87,393/- IN THE BOOKS OF ACCOUNT S. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THESE A RE ALLOWABLE EXPENSES TO BE WRITTEN OFF, WHEREAS, THE LD. DR STRONGLY CONTENDED THAT THE IMPUGNED EXPENSES WERE CLAIMED TO BE INCURRED FOR WRONG AND EXTRANEOUS REASON, THE REFORE, CANNOT BE ALLOWED. 7.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE HAS WRITTEN OFF AFOREMENTIONE D PREOPERATIVE EXPENSES AND DEFERRED REVENUE EXPENDIT URE IN HIS PROFIT AND LOSS ACCOUNT. THE CLAIM OF THE ASSE SSEE IS THAT NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 22 THESE EXPENSES WERE INCURRED DURING EARLIER YEARS A ND HAVE BEEN WRITTEN OFF. THE ASSESSEE WAS ASKED AS TO HOW THESE EXPENSES GOT CRYSTALLIZED DURING THE YEAR AND ALSO HOW SHRI NITIN DESAI HAD WRITTEN OFF DEFERRED REVENUE EXPEND ITURE IN HIS BOOKS, MORE SPECIFICALLY, WHEN ALL THE ASSET AN D LIABILITIES HAD ALREADY BEEN GIFTED TO NDAW. THE STAND OF THE ASSESSEE RIGHT FROM ASSESSMENT STAGE IS THAT THESE EXPENSES WERE INCURRED DURING EARLIER YEARS, WHEN THE BUSINESS WA S IN A RUNNING CONDITION. IT WAS NOTED BY THE ASSESSING O FFICER THAT PROFIT OF PARTICULAR YEAR DEPENDS UPON THE METHOD O F ACCOUNTING FOLLOWED BY THE ASSESSEE, THEREFORE, THE CLAIMED EXPENSES ARE ADMISSIBLE ONLY IN THE YEAR WHEN THEY WERE INCURRED AS PER THE METHOD OF ACCOUNTING FOLLOWED B Y THE ASSESSEE. IT WAS FOUND BY THE AUTHORITIES BELOW TH AT NO EVIDENCE WAS BROUGHT ON RECORD TO SUGGEST THAT THES E EXPENSES WERE CRYSTALLIZED DURING THE YEAR. BEFORE US, AND ALSO BEFORE THE LD. COMMISSIONER OF INCOME TAX (APP EALS), IT WAS CLAIMED BY THE ASSESSEE THAT THE TAXABILITY IS AT THE HIGHEST RATE BY FURTHER SUBMITTING THAT DEFERRED RE VENUE EXPENDITURE IS A FICTITIOUS ASSET AND I.E. STANDING IN THE BOOKS OF ACCOUNTS ON THE ASSET SIDE. IT WAS ALSO CLAIMED THAT GIFTING SUCH FICTITIOUS AND WORTHLESS ASSET WOULD NOT HAVE AMOUNTED TO GIFT AT ALL THEREFORE, WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND WERE NOT TRANSFERRED BY WAY OF GIF T. TOTALITY OF FACTS CLEARLY INDICATES THAT THESE EXPE NSES ARE NOT ALLOWABLE AS THE BUSINESS WAS TRANSFERRED AS A GOIN G CONCERN WITH ALL LIABILITIES. SUCH EXPENDITURE ARE ADMISSI BLE IN THE YEAR, WHEN THEY WERE INCURRED AS PER THE METHOD OF NITIN CHANDRAKANT DESSAI ITA NO.2877/MUM/2012 23 ACCOUNTING. THE ASSESSEE HAS ALSO NOT BROUGHT ON R ECORD TO SHOW THAT THE CLAIMED EXPENSES WERE CRYSTALLIZED DU RING THE YEAR, THUS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). FINALLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 24/09/2015. SD/ - (ASHWANI TANEJA) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % & MUMBAI; ) DATED : 24/09/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1 ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1 / CIT(A)- , MUMBAI 5. 34 .' , 0 +( ' 5 , % & / DR, ITAT, MUMBAI 6. 6# 7& / GUARD FILE. / BY ORDER, /3+ . //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI