B.V. STAR, MUMBAI V. ASST CIT CEN CIR 24 & 26, MUMBAI

ITA 3631/MUM/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9017 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 22-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SASHI TULSIAN
• Keywords: Capital asset converted into stock in trade; Capital asset; Additional evidence; Fair market value
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI R.L. NEGI, JUDICIAL MEMBER ITA NO.3631 /MUM/2012 (ASSESSMENT YEAR: 2005-06) M/S. B.V. STAR VS. ACIT, CENTRAL CIRCLE - 24 & 26 PLOT NO. 55, SEEPZ ANDHERI (E) MUMBAI 400096 MUMBAI PAN AANFN8964B APPELLANT RESPONDENT APPELLANT BY: SHRI SASHI TULSIAN RESPONDENT BY: SHRI PURUSHOTTAM KUMAR DATE OF HEARING: 11.10.2017 DATE OF PRONOUNCEMENT: 11.10.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-39, MUMBAI DATED 23.02.2012 FOR A.Y. 2005-06 BY TAKING AS MANY AS SEVEN GROUNDS OF APPEAL. SUBSEQUENTLY THE ASSESS EE FILED REVISED GROUNDS OF APPEAL WHICH READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ASSESSMENT OF TH E CAPITAL GAINS OF RS. 8,59,06,527/- ON ALLOCATION OF ASSETS AND LI ABILITIES ON RECONSTITUTION OF THE FIRMS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT A) THE APPELLANT FIRM COULD NOT TRANSFER THE LEASE HOLD PROPERTIES AS THE CONTINUANCE OF LEASE GRANTED BY SEEPZ HAD LA PSED FOR ITS FAILURE TO SEEK RENEWAL AFTER 31.03.2002. B) THAT THE ASSETS OF THE FIRM HAVE NOT BEEN ACTUA LLY TRANSFERRED TO ANY ONE IN A.Y. 2005-06 AS ITS WRITTEN DOWN VALUE A T RS. 3.69 CRORES ON 31.03.2004 IS STILL REFLECTED IN ITS BALA NCE SHEET AS ON 31.03.2005. ITA NO. 3631/MUM/2012 M/S. B.V. STAR 2 3) THAT THERE BEING NO TRANSFER U/S 2(47) OF IT AC T 1961, THE ASSUMPTION U/S 45(4) THAT THERE WAS A TRANSFER IS I NCORRECT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN RECORDING A FINDING THAT THE PR OVISIONS OF SEC 45(4) IS APPLICABLE ON TRANSFER OF ASSETS AS THIS P ROVISION COVERS TRANSFER ARISING ON DISSOLUTION OF THE FIRM OR OTHE RWISE AND THE TERM 'OTHERWISE' USED IN THE SECTION DOES NOT INCLU DE RETIREMENT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN APPLYING PROVISIONS OF SEC 45(4 ) TO CONFIRM THE ASSESSMENT OF CAPITAL GAINS EVEN THOUGH THE ASSESSI NG OFFICER HAD INVOKED THE PROVISION OF SEC 50B AND 45(2) OF T HE INCOME TAX ACT. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) FAILED TO APPRECIATE THAT EVEN IF THERE WAS ANY TRANSFER OF ASSET SUCH T RANSFER PERTAINED TO ONLY HALF OF THE PROPERTY RELATING TO THE SHARE OF THE OUTGOING PARTNERS AS PER CONSENT TERMS AND DEED OF RETIREMENT. 2. BEFORE US THE ASSESSEE HAVE MOVED AN APPLICATION VI DE LETTER DATED 02.05.2013 WHICH WAS FILED ON 06.05.2013 REQUESTING FOR ADMISSION OF THE ADDITIONAL EVIDENCE WHICH HAS COME INTO EXISTENCE S UBSEQUENT TO THE FILING OF THE APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. THIS EVIDENCE CONSISTS OF THE FOLLOWING: - I) COPY OF PUBLIC NOTICE FOR THE AUCTION OF PROPERTY- M/S. B.V. JEWELS ON 19.03.2013 II) COPY OF FORM OF NOTICE OF PUBLIC PREMISES DATED 15. 04.2013 III) COPY OF CANCELLATION OF SUB-LEASE AGREEMENT DATED 1 8.03.2013 IV) COPY OF SUB-LEASE AGREEMENT DATED 14.09.1993 WE NOTED THAT THE ISSUE INVOLVED IN THIS APPEAL REL ATES TO THE LEVY OF CAPITAL GAIN ON THE ASSESSEE WHICH WAS HELD AS LEASED OUT P ROPERTY AND WAS TAKEN AS TRANSFER BEING MADE BY THE ASSESSEE SITUATED AT SEEPZ. THE AO LEVIED CAPITAL GAIN ON THE ASSESSEE FIRM BY INVOKING PROVI SIONS OF SECTION 45(4) TAKING THE FAIR MARKET VALUE OF THE SAID PROPERTY A T ` 8,59,06,527/-. WE NOTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAG ED IN THE BUSINESS OF MANUFACTURING JEWELLERY. DURING THE IMPUGNED ASSESS MENT YEAR ASSESSEE FILED ITS RETURN DECLARING TOTAL LOSS OF ` 61,257/- ON 31.03.2009 IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 148. THERE WERE TWO GROUPS, SHAH ITA NO. 3631/MUM/2012 M/S. B.V. STAR 3 GROUP AND MEHTA GROUP CARRYING ON THE BUSINESS OF M ANUFACTURING JEWELLERY IN THE NAME AND STYLE OF M/S. B.V. JEWELS AND M/S. B.V. STAR AT SEEPZ, MUMBAI. THE JEWELLERY BUSINESS WAS CARRIED O N MAINLY THROUGH M/S. B.V. JEWELS AND FAMILY MEMBERS OF MEHTA GROUP WERE ACTIVELY INVOLVED IN THE DAY TO DAY FUNCTIONING OF BOTH THE FIRMS. MEHTA GROUP USED TO MANAGE THE BUSINESS AND MAINTAINED THE ACCOUNTS OF BOTH THE FIRMS ON BEHALF OF SHAH GROUP BUT IN DUE COURSE SERIOUS DIFF ERENCES, DISPUTES HAVE ARISEN BETWEEN THE TWO FIRMS IN RESPECT OF THE BUSI NESS OF M/S. BV. STAR AND M/S. B.V. JEWELS. THEREFORE BOTH THE GROUPS FIL ED CASES AGAINST EACH OTHER IN THE COURT OF LAW. DUE TO THE PRESENCE OF A RBITRATION CLAUSE IN THE PARTNERSHIP DEED THE COURT DIRECTED THE PARTIES TO RESOLVE THE ISSUE THROUGH ARBITRATION. ACCORDINGLY, BOTH THE GROUPS REFERRED THE DIFFERENCES AND DISPUTED TO JUSTICE D.R. DHANUKA (RETD.), JUSTICE S .M. JHUNJHUNWALA (RETD.) AND SHRI ARUN R. MEHTA IN ARBITRATION PROCE EDINGS WHICH CONCLUDED ULTIMATELY AND PARTIES AGREED BY WAY OF CONSENT TER MS DATED 08.04.2004. FURTHER, CONSENT TERMS DATED 12.05.2004 AND A COMMO N CONSENT AWARD WAS ULTIMATELY PASSED ON 19.04.2004. AS PER THE CON SENT AWARD IT WAS DECIDED AS UNDER: - I. SHAH GROUP WILL RETIRE FROM THE FIRM B.V. JEWEL S AND MEHTA GROUP WILL RETIRE FROM THE FIRM B.V. STAR, W.E.F. FROM CLOSE O F BUSINESS ON 31 ST MARCH, 2004. SEPARATE DEED OF RETIREMENT OF M/S. B. V. JEWELS AND M/S. B. V. STARS TO BE DRAFTED WITH EFFECT FROM 1 ST APRIL, 2004. II. B.V. JEWELS TO BE RETAINED BY MEHTA GROUP WITH ALL ASSETS INCLUDING STOCK, RECOVERIES AND BANK BALANCES. III. B. V. STARS TO BE RETAINED BY SHAH GROUP: A. BUILDING IN SEEPZ TO BE JOINTLY OWNED BY MEHTA GROUP. B. STOCK, RECOVERIES AND BANK BALANCES TO BE ALLOT TED TO MEHTA GROUP. C. MACHINERIES AND OTHER MOVEABLE TO BE DIVIDED BE TWEEN TWO GROUPS EQUALLY. D. LIABILITIES OF B.V. JEWELS TOWARDS VYSYA BANK UP TO 4 CRORE IS OF MEHTA GROUP AND EXCESS OVER RS. 4 CRORE TO BE DIVID ED IN EQUAL PROPORTION. E. ALL CARS ALLOTTED TO MEHTA GROUP. F. RIGHT IN THE BHARAT DIAMOND BOURSE ALLOTTED TO SHAH GROUP. G. FOUR FLATS OF SHANTI NAGAR ALLOTTED TO SHAH GRO UP. ITA NO. 3631/MUM/2012 M/S. B.V. STAR 4 H. WORKMAN & RETRENCHMENT COMPENSATION LIABILITIES TO BE BORNE BY MEHTA GROUP. ON SEPARATION AS PER ARBITRATION AWARD M/S. MEHTA G ROUP, WHO HAD BEEN MANAGING THE AFFAIRS OF THE FIRM AND AS WELL MAINTA INING THE ACCOUNTS, DECLINED TO HAND OVER THE ACCOUNTING RECORDS ALONG WITH THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE FIRM IN O RDER TO ENABLE IT TO MAINTAIN ACCOUNTS THEREAFTER AS THE FIRM RETAINED B Y SHAH GROUP THE LEARNED A.R. FURTHER CONTENDED THAT DUE TO THIS ASS ESSEE WAS NOT IN A POSITION TO PREPARE BALANCE SHEET, PROFIT & LOSS AC COUNT AND OTHER BOOKS OF ACCOUNT FOR ASSESSMENT YEARS 2004-05, 2005-06 AN D 2006-07 AS REQUIRED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO, THEREFORE, COMPLETED THE ASSESSMENT EX-PARTE UNDER SECTION 144. THE ASSESSEE ALSO COULD NOT GET THE DOCUMENTS IN RESPEC T OF THE INCOME WHICH HAS BEEN ASSESSED BY THE AO. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND THE TRIBUNAL. THE APPEAL BEFORE THE TRIBUNAL WAS FILED ON 22.05.2012. THE IMPUGNED PROPERTY IN RESPECT OF WHICH CAPITAL GAINS BEEN ASS ESSED BY THE AO WAS LEASE HOLD PROPERTY AND THE ASSESSEE GOT THE NOTICE FOR AUCTION OF THE SAID PROPERTY ON 19.03.2013 AS THE LEASE OF THE PROPERTY WAS CANCELLED. THUS, IT WAS CONTENDED THAT THESE DOCUMENTS WHICH ARE BEING FILED NOW HAVE VITAL BEARING ON DETERMINATION OF CAPITAL GAIN IN THE HAN DS OF THE ASSESSEE. THE ASSESSEE COULD NOT FILE THESE DOCUMENTS BEFORE THE AO OR CIT(A) AS THE DOCUMENTS HAVE COME TO THE ASSESSEE ONLY SUBSEQUENT TO THE ORDERS OF THE AO AND CIT(A). 4. THE LEARNED D.R., ON THE OTHER HAND, AGITATED THAT THESE DOCUMENTS SHOULD HAVE BEEN FILED BEFORE HAND. 5. WE ARE CONVINCED WITH THE SUBMISSIONS OF THE LEARNE D A.R. AND WE NOTED THAT ALL THESE DOCUMENTS ARE BEING FILED NOW WILL HAVE BEARING ON DETERMINATION OF CAPITAL GAIN. WE, THEREFORE, ADMIT THE ADDITIONAL EVIDENCES. SINCE THESE EVIDENCES WERE NOT BEFORE TH E AO, WE SET ASIDE THE ASSESSMENT ORDER AND DIRECT THE AO TO FRAME A FRESH ASSESSMENT ON THE ASSESSEE AFTER CONSIDERING ALL THESE EVIDENCES IN A CCORDANCE WITH LAW. THE ITA NO. 3631/MUM/2012 M/S. B.V. STAR 5 ASSESSEE IS ALSO DIRECTED TO PRODUCE ALL THESE EVID ENCES BEFORE THE AO AND COOPERATE WITH THE AO WHILE MAKING THE ASSESSMENT. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS STATISTICALLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCTOBER, 2017. SD/ - SD/ - (R.L. NEGI) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 11 TH OCTOBER, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -39, MUMBAI 4. THE CIT, CENTRAL - II, MUMBAI 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.