ASST CIT CEN CIR 17 & 28, MUMBAI V. NIRMAL DEVELOPERS, MUMBAI

ITA 3625/MUM/2011

• Counselvise Citation: 362519914 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Search and seizure; Fair market value
• Section: 153A; 132

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NOS.3625 & 3626/MUM/2011 ASSESSMENT YEARS: 2005-06 & 2006-07 ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-17 & 28, ROOM NO.401, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S NIRMAL DEVELOPERS, JAWAHAR TALKIES COMPOUND, DR. R.P. ROAD, MULUND (WEST), MUMBAI-400080 ( ! / REVENUE) ( '#$ % /ASSESSEE) P.A. NO. AAAFN1817G CROSS OBJECTION NOS. 51 & 52/MUM/2014 (ARISING OUT OF ITA NOS.3625 & 3626/MUM/2011) ASSESSMENT YEARS: 2005-06 & 2006-07 M/S NIRMAL DEVELOPERS, JAWAHAR TALKIES COMPOUND, DR. R.P. ROAD, MULUND (WEST), MUMBAI-400080 / VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-17 & 28, ROOM NO.401, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( '#$ % /ASSESSEE) ( ! / REVENUE) P.A. NO. AAAFN1817G ! / REVENUE BY SHRI N.P.SINGH CIT-DR '#$ % / ASSESSEE BY SHRI BHUPENDRA SHAH M/S NIRMAL DEVELOPERS ITA NO.3625,3626/MUM/2011 & C.O. 51 & 52 /MUM/2014 2 & '!' ( % ) / DATE OF HEARING : 06/08/2015 ( % ) / DATE OF ORDER: 16/09/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDERS BO TH DATED 01/02/2011 FOR ASSESSMENT YEARS 2005-06 AND 2 006- 07, AND THE ASSESSEE HAS PREFERRED CROSS OBJECTIONS FOR THE RESPECTIVE YEARS, OF THE LD. FIRST APPELLATE AUTHOR ITY, MUMBAI, ON IDENTICAL GROUNDS FOR DELETING THE ADDITIONS OF RS.5,65,99,819/- AND RS.12,62,99,445/- RESPECTIVELY MADE U/S 45(4) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING OF THESE APPEALS, SHRI N.P.SINGH , LD. CIT-DR, ADVANCED HIS ARGUMENTS, WHICH ARE IDENTICAL TO THE GROUND RAISED BY CONTENDING THAT THE LD. COMMISSION ER OF INCOME TAX (APPEALS) WRONGLY DELETED THE ADDITION M ADE U/S 45 (4) OF THE ACT BY STATING THAT THE PROVISION OF SECTION 45(4) IS NOT APPLICABLE, MORE SPECIFICALLY WHEN THE RETIR ING PARTNERS RECEIVED ASSET OVER AND ABOVE THEIR CAPITAL BALANCE . ON THE OTHER HAND, SHRI BHUPENDRA SHAH, LD. COUNSEL FOR TH E ASSESSEE DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDERS BY EXPLAINING THAT THERE WERE SEVERAL PARTNE RS IN THE FIRM AND MS. SNEHLATA DESHMUKH RETIRED ON 01/03/200 5, THUS, SECTION 45(4) OF THE ACT IS NOT APPLICABLE AS IT IS A SIMPLE CASE OF RETIREMENT. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, M/S NIRMAL DEVELOPERS ITA NO.3625,3626/MUM/2011 & C.O. 51 & 52 /MUM/2014 3 ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. A SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CARRIED OUT O N NIRMAL LIFESTYLE GROUP BY THE INVESTIGATION WING ON 15/11/ 2007. IN RESPONSE TO NOTICE U/S 153A OF THE ACT DATED 04/09/ 2008, THE ASSESSEE FILED ITS RETURN WHICH ARE SUMMARIZED AS U NDER:- S. NO. A.Y. INCOME DECLARED AS PER ORIGINAL RETURN DATE OF FILING OF ORIGINAL RETURN INCOME RETURNED U/S 153A DATE OF FILING 1 2002-03 (-)32,010 30.10.2002 (-)32,010 06.10.2008 2 2003-04 23,75,090 28.11.2003 23,75,090 06.10.2008 3 2004-05 14,07,246 30.10.2004 14,07,246 06.10.2008 4 2005-06 13,46,957 31.10.2005 13,46,957 06.10.2008 5 2006-07 27,29,302 30.10.2006 27,29,302 06.10.2008 6 2007-08 39,94,418 28.10.2007 39,94,418 06.10.2008 7 2008-09 90,81,830 28.09.2008 90,81,830 16.03.2009 2.2. ON GOING THROUGH THE RETURNS/DETAILS, FILED B Y THE ASSESSEE, IT WAS FOUND THAT MS. SNEHLATA DESHMUKH, PARTNER OF THE ASSESSEE FIRM RETIRED ON 01/03/2005. AS PER THE DEED OF RETIREMENT OF RS.3.5 CRORES, AFTER ADJUSTING THE DE BIT BALANCE APPEARING IN HER CURRENT CAPITAL ACCOUNT PLUS ALLOT MENT RESIDENTIAL/COMMERCIAL UNIT AGGREGATING TO 1855 SQ. FT. SALEABLE BUILT UP AREA, WAS FOUND PAYABLE TO HER ON RETIREMENT FROM THE FIRM. THE ASSESSING OFFICER INVOKED THE P ROVISION OF SECTION 45(4) AND TAXED THE AMOUNT RECEIVED ON RETI REMENT AS CAPITAL GAINS IN THE HANDS OF THE FIRM IN THE YEAR OF TRANSFER OF THE ASSET. THE ASSESSEE IN RESPONSE PLACE RELIANCE UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF CIT VS G.K. ENTERPRISES (79 TTJ 82), WHEREIN, IT WAS HELD THAT LIABILITY U/ S 45 OF THE ACT AROSE ONLY IF THE PARTNER RECEIVES CONSIDERATIO N AT THE TIME OF DISSOLUTION OF THE FIRM. THE ASSESSING OFFICER M ADE A M/S NIRMAL DEVELOPERS ITA NO.3625,3626/MUM/2011 & C.O. 51 & 52 /MUM/2014 4 REFERENCE TO THE DECISION FROM HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS A.N. NAIK ASSOCIATES 265 ITR 346 (BOMBAY). THE ASSESSEE CONTRADICTED THE STAND OF THE ASSESSIN G OFFICER ON THE GROUND THAT IN THE CASE OF A.N. NAIK ASSOCIA TES, THERE WAS A SETTLEMENT BETWEEN THE FAMILY, WHEREIN, DEED OF FAMILY SETTLEMENT WAS EXECUTED, WHEREAS, THERE WAS NO FAMI LY SETTLEMENT IN THE PRESENT CASE AND THE FIRM CONTINU ED TO EXIST EVEN ON THE RETIREMENT OF A PARTNER, NO REVALUATION OF ASSET, BANK ACCOUNTS WERE NOT CLOSED AND NO PARTNER WAS AD MITTED. RELIANCE WAS ALSO PLACED UPON THE DECISION IN CIT V S KUNNAMKULAM MILL BOARD 257 ITR 544, WHEREIN THE CAS E WAS IDENTICAL AND THERE WAS RETIREMENT OF PARTNERS. TH E LD. ASSESSING OFFICER WAS OF THE VIEW THAT IN THE PRESE NT CASE, THE PARTNER (RETIRED) RECEIVED THE AMOUNT AFTER ADJUSTI NG THE DEBIT BALANCE IN THEIR ACCOUNT, THUS, THE ASSESSEE FIRM I S CHARGEABLE TO TAX ON THE PROFITS ARISING OUT ON THE ASSET CALC ULATED AT ITS FAIR MARKET VALUE, THUS, HE TAXED THE AMOUNT OF RS.5,65,99,819/- (RS.42,46,659/-- DEBIT BALANCE APP EARING IN CAPITAL ACCOUNT, RS.3,50,00,000/- LUMP SUM AMOUNT P AID BY POST DATED CHEQUES AND RS.1,73,53,160/- FAIR MARKET VALUE OF THE FLATS TRANSFERRED). ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME T AX (APPEALS), THE BALANCE SHEET AND OTHER DOCUMENTS/DE TAILS WERE EXAMINED BY HIM, IT WAS HELD THAT THE COMPENSA TION GIVEN TO THE RETIRING PARTNER DOES NOT TANTAMOUNT T O DISTRIBUTION OF CAPITAL ASSET AS PROVIDED IN SECTIO N 45(4) OF THE ACT. HE PLACE RELIANCE UPON THE DECISION FROM THE HONBLE ALLAHABAD HIGH COURT IN CIT VS S.N. GUPTA 270 ITR 3 25 (ALL.), M/S NIRMAL DEVELOPERS ITA NO.3625,3626/MUM/2011 & C.O. 51 & 52 /MUM/2014 5 WHEREIN, IT WAS HELD THAT TAKEN OVER OF ASSET OF T HE FIRM BY A PARTNER ON DISSOLUTION OF FIRM ON PAYMENT OF AGREED AMOUNT TO THE OTHER PARTNERS (ASSESSEE) DID NOT RESULT IN ANY TRANSFER OF ASSET AND THUS NO CAPITAL GAIN AROSE. THE RATIO LAI D DOWN IN CIT VS MOPED & MACHINES 281 ITR 52 (MP), WHEREIN, I T WAS HELD THAT THERE WAS NO TRANSFER AS CONTEMPLATED U/S 2(47) OF THE ACT ON DISSOLUTION OF FIRM UPON THE DEATH OF ON E OF THE TWO PARTNERS, THEREFORE, NO CAPITAL GAIN WAS CHARGEABLE TO TAX U/S 45(4) OF THE ACT. IDENTICAL RATIO WAS LAID DOWN BY HONBLE APEX COURT IN CIT VS R.L. RAGHUKUMAR 247 ITR 804 (SC) AN D 257 ITR 544(KARNATAKA), CIT VS KUNNAMKULAM MILLS. IT I S ALSO NOTED WHILE COMING TO A PARTICULAR CONCLUSION, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DULY CONSIDERE D THE VARIOUS CLAUSES OF THE RETIREMENT DEED AS DISCUSSED IN PARA 7.3 ONWARDS OF THE IMPUGNED ORDER, THUS, WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. COMMISSIONER O F INCOME TAX (APPEALS), THAT NO CAPITAL ASSET WAS DISTRIBUTE D, THUS, SECTION 45(4) OF THE ACT IS NOT ATTRACTED. THUS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS). BOTH THE APPEALS OF THE REVE NUE ARE, THEREFORE, DISMISSED. 2.3. NOW, WE SHALL TAKE UP THE CROSS OBJECTIONS OF THE ASSESSEE. DURING HEARING OF THIS APPEAL, THE LD. C OUNSEL FOR THE ASSESSEE BROADLY DEFENDED THE CONCLUSION ARRIVE D AT IN THE IMPUGNED ORDER WITH RESPECT TO APPLICATION OF SECTI ON 45(4) OF THE ACT. SINCE, WE HAVE ALREADY CONFIRMED THE VIEW TAKEN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THERE FORE, NOTHING MUCH REMAINS IN THE CROSS OBJECTIONS OF THE ASSESSEE, M/S NIRMAL DEVELOPERS ITA NO.3625,3626/MUM/2011 & C.O. 51 & 52 /MUM/2014 6 THEREFORE, THE CROSS OBJECTIONS RAISED BY THE ASSES SEE ARE DISMISSED. FINALLY THE APPEALS OF THE REVENUE AS WELL AS CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 06/08/2015. SD/ - (R.C.SHARMA) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER & ' MUMBAI; *' DATED : 16/09/2015 F{X~{T? P.S/. '. . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. & 1% ( +, ) / THE CIT, MUMBAI. 4. & 1% / CIT(A)- , MUMBAI 5. 3!4 /%'# , +,) +# 5 , & ' / DR, ITAT, MUMBAI 6. 6 7' / GUARD FILE. / BY ORDER, 03,% /% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI