M/s. Radhu Palace, New Delhi V. Addl. CIT, New Delhi

ITA 4710/DEL/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4736 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 31-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MADHUKAR KR BHAGAT SENIOR
• Assessee Lawyers: RANO JAIN CAS
• Keywords: Capital asset; Fair market value; Bad and doubtful debts; Onus to prove
• Section: 43B; 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.4710/DEL/2009 (ASSESSMENT YEAR : 2006-07 M/S. RADHU PALACE, VS. ADDL.CIT, RANGE 36, D 953, NEW FRIENDS COLONY, NEW DELHI. NEW DELHI. (PAN : AAAFR5956Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN & MS. RANO JAIN, CAS REVENUE BY : SHRI MADHUKAR KR. BHAGAT, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE CIT (APPEALS)-XXVII, NEW DELHI DATED 22.10.2009. 2. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF EXHIBITION OF FILMS. THE RETURN OF INCOME WAS FILED ON 31.10.2006 DECLARING A LOSS OF RS.4,32,011/-. 3. THE ASSESSEE IS IN APPEAL BEFORE US BY TAKING TH E FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE LD C.I.T.(APPEALS) HAS ERRED BOTH ON F ACTS AND IN LAW IN THE DISALLOWANCE OF THE CLAIM OF BAD DEBTS A MOUNTING TO RS.3,70,892/-. THE DISALLOWANCE AS SUSTAINED IS WHO LLY ILLEGAL, ARBITRARY AND AGAINST THE SETTLED LEGAL POSITION. T HE FINDING THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS TO PROVE TO THE ITA NO.4710/DEL/2009 2 SATISFACTION OF THE AO THAT DEBT HAD BECOME BAD, IS WHOLLY PERVERSE AND CONTRARY TO THE PROVISIONS OF LAW. THE SUBMISSIONS MADE AND EVIDENCE PRODUCED HAS ARBITRARILY BEEN BRU SHED ASIDE. 2. THAT THE LD C.I.T.(APPEALS) HAS ERRED BOTH ON FA CTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.L,20,816/- BEING THE ALLEGED PRIOR PERIOD EXPENSES. THE LD C.I.T.(APPEAL S) HAS FAILED TO APPRECIATE THAT THE LIABILITY ON ACCOUNT OF LEAS E RENTAL PAID TO DDA ON CONVERSION OF LEASE HOLD LAND INTO FREE HOLD LAND, HAVING BEEN ACTUALLY PAID DURING THE YEAR, THE SAME WAS ALLOWABLE U/S 43B OF THE ACT. 3. THAT THE LD C.I.T.(APPEALS) HAS ERRED BOTH ON FA CTS AND IN LAW IN SUMMARILY UPHOLDING THE ASSESSMENT OF ALLEGE D LONG TERM CAPITAL GAINS OF RS.5,80,04,265/- U/S 45(4) OF THE ACT, ALLEGED AROSE ON REVALUATION OF CERTAIN ASSETS AT THE TIME OF INDUCTION OF TWO NEW PARTNERS TO THE PARTNERSHIP. THE DETAILED S UBMISSIONS MADE HAVE ARBITRARILY BEEN DISREGARDED. 3.1 THAT THE FINDING OF THE LD C.I.T.(A) THAT THE C ASE OF THE ASSESSEE GETS COVERED UNDER THE 'OR OTHERWISE' CLAU SE OF THE PROVISIONS OF SECTION 45(4), IS BASED ON MISREADING AND MIS- INTERPRETATION OF THE RELEVANT PROVISIONS AND IS TH US WHOLLY UNSUSTAINABLE. 3.2 THAT THE LD C.I.T.(APPEALS) HAS FAILED TO APPRE CIATE THAT PROVISIONS OF SECTION 45(4) OF THE ACT WERE WHOLLY INAPPLICABLE ON THE FACTS OF THE INSTANT CASE AS THERE HAD NOT B EEN ANY DISSOLUTION OF THE FIRM OR DISTRIBUTION OF ASSETS O F THE PARTNERSHIP FIRM OR 'TRANSFER' OF ANY ASSET WITHIN THE MEANING OF PROVISIONS CONTAINED IN SECTION 2(14) OR 45(4) OF THE ACT. 3.3 THAT THE LD C.I.T.(APPEALS) HAS FAILED TO APPRE CIATE THAT THE CASE LAW RELIED UPON BY THE LD AO OF HON'BLE BO MBAY HIGH COURT IN 265 ITR 346 (BORN) WAS NOT APPLICABLE ON T HE FACTS AND WAS DISTINGUISHABLE. 4. THAT THE LD C.I.T. (APPEALS) HAS ERRED IN NOT DI SPOSING OF GROUND NO.6 RELATING TO CHARGING OF INTEREST U/S 23 4 A, B, C & D OF THE ACT. ITA NO.4710/DEL/2009 3 4. IN THE GROUND NO.1, THE ISSUE INVOLVED IS CONFIR MING THE DISALLOWANCE OF RS.3,70,892/- ON ACCOUNT OF BAD DEBTS. THE LD. AR S UBMITTED THAT THIS DISALLOWANCE WAS SUSTAINED BY CIT (A) AGAINST THE S ETTLED LEGAL POSITION. THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS TO PROVE TO THE SATISFACTION OF THE ASSESSING OFFICER THAT DEBT HAS BECOME BAD, IS WHOLLY PERVERSE AND CONTRARY TO THE PROVISI ONS OF LAW. THE ASSESSING OFFICER AS WELL AS THE CIT (A) HAS NOT CONSIDERED T HE EVIDENCES PRODUCED BEFORE THEM AND THEY HAVE JUST BRUSHED ASIDE THE DO CUMENTS SUBMITTED BEFORE THEM. THE ASSESSING OFFICERS ONLY REASON FOR DISAL LOWING THE AMOUNT WAS THAT NO EVIDENCE WAS FILED TO SHOW THAT THE EFFORTS WERE MADE TO RECOVER THE DEBT. THE CIT (A) HAS CONFIRMED THIS DISALLOWANCE B Y HOLDING THAT NO EVIDENCE WAS PRODUCED BEFORE THE ASSESSING OFFICER THAT THE DEBT HAS INDEED BECOME BAD. LD. AR SUBMITTED THAT ASSESSEE HAS SUBM ITTED LEDGER ACCOUNT FOR ALL THE PARTIES WHICH ARE ALSO PLACED AT PAGES 23 T O 52 IN THE PAPER BOOK TO SUPPORT THAT THE DEBTS WERE OLD AND THESE WERE OUTS TANDINGS SINCE LONG AND HAS BECOME NON-RECOVERABLE. LD. AR ALSO SUBMITTED T HAT PROVISIONS OF SECTION 36(1)(VII) OF THE INCOME-TAX ACT, 1961 DOES NOT REQ UIRE THE ASSESSEE TO ESTABLISH THAT THE DEBTS IN FACT HAS BECOME BAD. HE RELIED ON THE FOLLOWING CASE LAWS :- (I) TRF LIMITED VS. CIT 323 ITR 397 (SC); (II) CIT VS. MORGAN SECURITIES & CREDITS (P) LTD. 292 ITR 339 (DEL.) (III) CIT VS. AUTOMETERS LTD. 292 ITR 345 (DEL.) ITA NO.4710/DEL/2009 4 4. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HA VE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HOLD THAT ALL THES E DEBTS WERE VERY OLD AND OUTSTANDING SINCE LONG IN THE ACCOUNTS OF THE ASSES SEE FIRM. THE BAD DEBTS ARE ALLOWABLE U/S 36(1)(VII) OF THE INCOME-TAX ACT, 196 1. BAD DEBTS OR PART OF THE DEBTS ARE ALLOWABLE WHEN THESE WERE REVENUE IN NATU RE. THE NATURE OF THE DEBT WAS NOT DOUBTED BY THE REVENUE. THE ONLY APPREHENSI ON CASTED WAS THAT ASSESSEE HAS NOT CARRIED OUT ANY EFFORT TO RECOVER THE AMOUNTS. THESE DEBTS WERE IN RESPECT OF BUSINESS CARRIED OUT BY THE ASSE SSEE WHICH ALSO CONTINUED DURING THE RELEVANT PREVIOUS YEAR. THESE DEBTS HAV E BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN THOSE RE LEVANT YEARS. THE ASSESSEE ALSO SUBMITTED THAT THE LEDGER ACCOUNT OF ALL THESE PERSONS AGAINST WHOM THE DEBT WAS OUTSTANDING. WE FIND FROM THE PAPER BOOK T HAT IN THE CASE OF J.S. SHAAN, THE AMOUNT WAS OUTSTANDING SINCE MARCH 1999. SIMILARLY, IN THE CASES OF PRAKASH KOUR, U.P. CHEMICALS & SALES CORPORATION , K.K. GHAI, VED PRAKASH RALHAN, J.B. LAL, VED PRAKASH MALHOTRA, THE AMOUNT WAS OUTSTANDING SINCE 1998. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT, CITED SUPRA, AFTER THE AMENDMENT OF SECTION 36 (1)(VII) OF THE INCOME-TAX ACT, 1961 W.E.F. 01.04.1989, IN ORDER TO OBTAIN A D EDUCTION IN RELATION TO BAD DEBTS IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT, IN FACT, HAS ITA NO.4710/DEL/2009 5 BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN T HE ASSESSEES CASE, THIS CONDITION OF WRITTEN OFF HAS BEEN FULFILLED. SIMILA RLY, IN THE CASE OF CIT VS. MORGAN SECURITIES AND CREDITS P. LTD., CITED SUPRA, HON'BLE DELHI HIGH COURT HAS HELD AS UNDER :- HELD, DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) AND THE ASSESSING OFFICER WERE INFLUENCED BY THE FA CT THAT THERE HAD BEEN NO PREVIOUS DEALINGS BETWEEN THE ASSESSEE AND SHC ; NO SECURITY WAS TAKEN FOR THE LOAN AND THE SEQUENCE OF EVENTS FROM THE ADVANCE OF THE LOAN TO ITS WRITING OFF DID NOT SPAN EVEN ONE YEAR. THESE FACTORS WOULD BE RELEVANT IF THE ST AND OF THE REVENUE WAS THAT THE TRANSACTION ITSELF WAS SHAM OR FALSE. ONCE IT WAS ACCEPTED BY THE REVENUE THAT THE TRANSACTION S ACTUALLY TOOK PLACE, THESE FAC-TORS WOULD IN FACT QUELL A DO UBT THAT THE DECISION TO WRITE OFF THE LOAN AS A BAD DEBT WAS A CONSEQUENCE OF AN HONEST JUDGMENT. ANY PRUDENT PERSON ON LEARN-ING THAT AN UNSECURED LOAN HAD BECOME PERILOUSLY IRRECOVERABLE WOULD EXPE-DITIOUSLY INITIATE EACH AND EVERY LEGAL REMEDY AVAILABLE TO HIM AS HAD BEEN MANIFESTED ITSELF IN THE CASE OF TH E ASSESSEE. THUS, THE TRIBUNAL HAD RIGHTLY DELETED THE DISALLOW ANCE OF RS. 4 CRORES. SIMILARLY, IN THE CASE OF CIT VS. AUTOMETERS LIMITE D, CITED SUPRA, HON'BLE DELHI HIGH COURT HAS HELD AS UNDER :- HELD ACCORDINGLY, DISMISSING THE APPEAL, THAT WHAT THE ASSESSEE HAD WRITTEN OFF AS IRRECOVERABLE IN ITS BOOKS OF AC COUNT IN THE FINANCIAL YEAR 1993-94 RELEVANT TO THE ASSESSMENT Y EAR 1994-95 WAS A BAD DEBT. THE COMMISSIONER (APPEALS) AND THE TRIBUNAL RIGHTLY TOOK THE VIEW THAT IN TERMS OF SECTION 36(1 )(VII) ALL THAT THE ASSESSEE HAD TO DO WAS TO WRITE OFF A BAD DEBT AS IRRECOVERABLE AND THAT HAD BEEN DONE IN THE ASSESSE ES CASE AND THE ORDER OF THE ASSESSING OFFICER REQUIRING THE AS SESSEE TO PROVE THAT THE DEBTS HAD BECOME BAD WAS NOT CORRECT . ITA NO.4710/DEL/2009 6 CONSIDERING THE CASE LAWS RELIED UPON AND THE FACTS OF THE CASE, WE FIND THAT THE CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER. THEREFORE, WE SET ASIDE ORDER OF THE AUTHO RITIES BELOW ON THIS ISSUE AND ALLOW THE RELIEF TO THE ASSESSEE IN RESPECT OF BAD DEBTS CLAIMED IN THE YEAR OF RS.3,70,892/-. 6. IN THE GROUND NO.2, THE ISSUE INVOLVED IS DISMIS SING THE CLAIM OF RS.1,20,816/- TREATED AS PRIOR PERIOD EXPENSES. THE LD. AR SUBMITTED THAT THE ASSESSEE WAS GIVEN LEASEHOLD LAND BY DDA IN 19787 A ND STARTING PAYING LEASE RENT EVERY YEAR SINCE 1983. THE ASSESSEE WAS DEPOSI TING LEASE RENT ON ITS OWN ESTIMATE BASIS. DURING THE YEAR, THE ASSESSEE APPLI ED FOR CONVERSION OF LEASEHOLD LAND RIGHT TO FREEHOLD. THE DDA OFFICE WO RKED OUT THE TOTAL DUES TO THE TUNE OF RS.1,20,816/- WHICH HAS BEEN PAID BY TH E ASSESSEE DURING THE YEAR. THIS LIABILITY WAS ACTUALLY QUANTIFIED BY THE LEASI NG AUTHORITY - DDA IN THIS YEAR ONLY. THEREFORE, IT HAS BEEN CRYSTALLIZED ONLY DURING THIS YEAR. SINCE IT HAS BEEN CRYSTALLIZED DURING THE YEAR THE ASSESSEE HAS MADE THE PAYMENT AND MADE THE CLAIM. THEREFORE, THE CIT (A) WAS NOT JUST IFIED IN CONFIRMING THE SAME. 7. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW. 8. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE H AVE ALSO PERUSED THE RELEVANT PAPERS IN THE PAPER BOOK. THE FACTS OF THE CASE SHOW THAT THIS OUTSTANDING DUES OF LEASE AMOUNT HAS BEEN WORKED OU T BY THE DDA DURING THE ITA NO.4710/DEL/2009 7 YEAR WHEN THE ASSESSEE APPROACHED THE AUTHORITIES T O CONVERT THE LEASEHOLD LAND TO FREEHOLD. PRIOR TO THAT, THE LESE RENT BEIN G PAID BY THE ASSESSEE ON ITS ESTIMATE BASIS. THUS, THE ACTUAL QUANTIFICATION OF THE LIABILITY WAS DURING THE YEAR ITSELF. THE AUDITORS REPORT THAT THIS EXPENDI TURE WAS RELATED TO THE PRIOR PERIOD IS ONLY RELEVANT TO THE EXTENT THAT WHILE CA LCULATING THE LEASE RENT TO CONVERT THE LEASEHOLD LAND TO THE FREEHOLD LAND. TH E ACTUAL WORKING OF THE LEASE RENT FOR THE PAST YEARS FOR WHICH THE ASSESSE E HAS PAID ON HIS OWN ESTIMATE BASIS HAS BEEN CONSIDERED. CONSIDERING THE SE FACTS IN VIEW, WE FIND NO MERITS IN THE ADDITION, THEREFORE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW WITH THIS ISSUE ALSO. 9. IN THE GROUND NO.3 TO 3.3, THE ISSUE INVOLVED IS UPHOLDING THE ADDITION MADE ON ACCOUNT OF LONG TERM CAPITAL GAIN OF RS.5,8 0,04,265/- U/S 45(4) OF THE INCOME-TAX ACT, 1961. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD. AR SUBMITTED THAT ASSESSEE IS A PARTNERSHIP FIRM WH ICH HAS SEVEN PARTNERS AS PER PARTNERSHIP DEED DATED 10.12.1998. COPY OF THE PARTNERSHIP DEED IS PLACED PAGES 82 TO 86 OF THE PAPER BOOK. DURING THE YEAR U NDER CONSIDERATION, TWO NEW PARTNERS, SHRI C.D. BHANDARI AND SHRI J.D. BHAN DARI WERE ADMITTED TO PARTNERSHIP WITH CAPITAL CONTRIBUTION OF RS.8,73,57 ,853/- EACH. THE LAND WHICH WAS SHOWN AT RS.12,70,000/- AS ON 01.04.2005 WAS REVALUED AT RS.18,30,48,800/-. THE INCREASE IN THE CAPITAL RESU LTING FROM THE REVALUATION WAS ADDED TO THE CAPITAL ACCOUNT IN EACH OF THE EXI STING PARTNERS. THE COPY OF ITA NO.4710/DEL/2009 8 THE CAPITAL ACCOUNT OF THE PARTNERS IS PLACED AT PA GES 108 OF THE PAPER BOOK. THE LD. AR FURTHER SUBMITTED THAT ASSESSING OFFICER HAS INVOKED SECTION 45(4) AND ALSO RELIED ON THE JUDGMENT OF HON'BLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. A.N. NAIK ASSOCIATES REPORTED IN 265 ITR 34 6. THE LD. AR SUBMITTED THAT THE PROVISIONS OF SECTION 45(4) WAS NOT AT ALL APPLICABLE TO THE ASSESSEES CASE AS THERE WAS NO DISSOLUTION OF THE FIRM NOR AN Y PARTNER HAS RETIRED DURING THE YEAR. IN ASSESSEES CASE, ONLY TWO NEW PARTNERS HAVE JOINED DURING THE YEAR. THERE IS NO DISTRIBUTION OF THE ASSETS OF THE FIRM. THE FIRM CONTINUES TO BE THE OWNER OF THE ASSETS. THIS FACT IS EVIDENT FO RM THE BALANCE SHEET AS ON 31.03.2006. THE LD. AR SUBMITTED THAT THE CASE OF H ON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. A.K. NAIK ASSOCIATES, CITED SUPRA, RELIED ON BY THE ASSESSING OFFICER RATHER SUPPORTS THE CASE OF T HE ASSESSEE. IN THAT CASE, THE ASSETS OF THE FIRM WERE TRANSFERRED TO THE RETIRING PARTNER AND IN THAT CONTEXT, THE HON'BLE HIGH COURT HAS HELD THAT IT WAS A TRANS FER OF ASSETS BY THE FIRM TO A PARTNER AND AS SUCH, IT FALLS WITHIN THE MEANING OF DISTRIBUTION OF ASSETS OTHERWISE. THE FACTS OF ASSESSEES CASE ARE DIFFE RENT AS NO ASSET OF THE FIRM HAS BEEN TRANSFERRED TO ANY OF THE PARTNERS. THE FI RM CONTINUES TO BE THE OWNER OF THE ASSETS. THE FIRM HAS JUST ADDED TWO NEW PART NERS WHO HAD BOUGHT THE CAPITAL WHICH HAS BEEN CREDITED IN THEIR CAPITAL AC COUNT. HE FURTHER SUBMITTED THAT THE OTHER JUDGMENTS RELIED UPON BY THE ASSESSI NG OFFICER IS OF SUVARDHAN VS. CIT 287 ITR 404 (KAR.). THE LD. AR SUBMITTED THAT THE FACTS OF THIS CASE ITA NO.4710/DEL/2009 9 ARE ALSO DIFFERENT. THEREFORE, THE RATIO OF THAT JU DGMENT IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. IN THAT CASE, THE BUSINESS OF THE FIRM AFTER DISSOLUTION WAS TAKEN OVER BY ONE OF THE PARTNERS. THUS, THERE WAS A TRANSFER OF ASSETS BY A FIRM TO A PARTNER. IN THAT VIEW, THE HON'BLE COURT HAS HELD THAT THERE WAS TRANSFER OF ASSETS BY THE FIRM. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. KUNNAMKULAM MILL BOARD REPORTED IN 257 ITR 544. LD. AR FURTHER SUBMITTED THAT THE ITAT, DELHI COORDINATE B ENCH IN THE CASE OF DELHI INDUSTRIES & ENTERPRISES VS. ACIT (2012) 150 TTJ 765 HAS ELABORATELY DISCUSSED THE PROVISIONS AND HELD THAT THE PROVISIO NS OF SECTION 45(4) ARE NOT APPLICABLE TILL SUCH TIME ANY ASSET OF THE FIRM IS TRANSFERRED TO ANY OF THE PARTNERS WHETHER IT IS BY WAY OF DISSOLUTION OR OTH ERWISE. HE RELIED ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F CIT VS. KUNNAMKULAM MILL BOARD, CITED SUPRA, AND REQUESTED TO ALLOW THE RELIEF TO THE ASSESSEE. LD. AR ALSO SUBMITTED THAT ITAT, MUMBAI BENCH IN THE CA SE OF ITO VS. FINE DEVELOPERS IN ITA NO.4630/DEL/2011 VIDE ORDER DATED 12 TH OCTOBER, 2010 HAS ALSO GRANTED THE RELIEF TO THE ASSESSEE WHERE THE A SSESSEE HAS NOT TRANSFERRED ANY RIGHT IN THE CAPITAL ASSET IN FAVOUR OF THE RET IRING PARTNER. HE ALSO RELIED ON THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. GURUNATH TALKIES REPORTED IN 328 ITR 59 AND ALSO CI T VS. P.N. PANJAWANI IN ITA NO.1316 TO 1318 OF 2006 DATED 12.05.2012. ITA NO.4710/DEL/2009 10 10. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 11. AFTER HEARING BOTH THE SIDES, WE DECIDE THE ISS UE AS UNDER :- THE ASSESSEE IS A PARTNERSHIP FIRM. DURING THE YEA R, TWO NEW PARTNERS, SHRI C.D. BHANDARI AND SHRI J.D. BHANDARI ADMITTED AD PARTNERS. BOTH THESE NEW PARTNERS BROUGHT INTO CAPITAL OF RS.8,73,57,853 /- EACH. THE LAND OWNED BY THE ASSESSEE FIRM WAS REVALUED AS ON 01.04.2005 AT RS.18,30,48,800/-. THE INCREASE IN THE CAPITAL ON ACCOUNT OF REVALUATION O F THE LAND WAS ADDED TO THE CAPITAL ACCOUNT OF EXISTING PARTNERS. THIS FACT IS EVIDENT FROM PAGE 108 OF THE PAPER BOOK WHICH SHOWS THE BALANCE IN CAPITAL ACCOU NT OF PARTNERS AS ON 31.03.2006. SECTION 45 (4) READ AS UNDER :- (4) THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON T HE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY O F INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIR M, ASSOCIATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTI ON 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANS FER SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. SUB-SECTIONS (3) & (4) TO SECTION 45 OF THE ACT APP LICABLE TO THE YEAR UNDER ASSESSMENT WERE INSERTED IN THE STATUE BY THE FINAN CE ACT, 1987 W.E.F. 01.04.1988. PRIOR TO THAT, TRANSFER OF ASSET BY A F IRM TO A PARTNER WAS NOT LIABLE TO PAY THE TAXES ON TRANSFER OF ASSESSEE. THE IMPLI CATION OF THIS AMENDMENT IS THAT WHEN A FIRM TRANSFERS ANY ASSET TO A PARTNER T HEN THE SAME WILL BE LIABLE TO CAPITAL GAIN ON THE FAIR MARKET VALUE ON THE DATE OF TRANSFER. THIS TRANSFER ITA NO.4710/DEL/2009 11 CAN BE AT THE TIME OF THE DISSOLUTION OF THE FIRM W HEN THE ASSETS WERE TRANSFERRED TO THE PARTNERS OR THIS TRANSFER CAN BE OTHERWISE ALSO WHEN A PARTNER IS ALLOCATED ANY ASSET OF THE FIRM WHILE LE AVING THE FIRM. THUS, THERE HAS TO BE A TRANSFER OF AN ASSET OF THE FIRM TO THE PARTNER. IN THE ABSENCE OF ANY TRANSFER OF ANY ASSET OF THE FIRM TO THE PARTNERS, THE PROVISIONS OF SECTION 45(4) OF THE INCOME-TAX ACT, 1961 CANNOT BE INVOKED. IN O UR CONSIDERED VIEW, IN THE PRESENT CASE, THERE IS NO SUCH TRANSFER OF ASSET AN D HENCE PROVISIONS OF SECTION 45(4) OF THE INCOME-TAX ACT, 1961 IS NOT APPLICABLE . THE FIRM CONTINUES TO BE THE OWNER OF THE LAND AND NO TRANSFER TOOK PLACE WH ICH IS NECESSARY TO INVOKE THE PROVISIONS OF SECTION 45(4) FOR LEVYING THE CAP ITAL GAIN ON THE TRANSFER OF THE CAPITAL ASSET. THE RELIANCE OF REVENUE ON THE D ECISION OF HON'BLE BOMBAY HIGH COURT IN CIT VS. A.N. NAIK ASSOCIATES, CITED S UPRA, IS ALSO OF NO HELP AS THE FACTS OF THAT CASE WERE QUITE DIFFERENT. IN THA T CASE, THE ASSETS OF THE FIRM WERE TRANSFERRED TO A RETIRING PARTNER. IN THAT CON TEXT, THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT IT IS A TRANSFER OF ASSET BY THE FIRM TO A PARTNER AND AS SUCH, IT FALLS WITHIN THE MEANING OF DISTRIBUTION O F ASSETS OTHERWISE. THUS, THERE WAS A TRANSFER OF ASSET OF THE FIRM TO ONE OF THE PARTNER. SUCH POSITION IS NOT IN THE ASSESSEES CASE. THE FIRM CONTINUES TO B E THE OWNER OF THE ASSET. ONLY TWO NEW PARTNERS HAVE JOINED THE FIRM AND THES E HAVE BROUGHT IN CAPITAL WHICH CREDITED TO THEIR RESPECTIVE CAPITAL ACCOUNT. IN THE CASE OF SUVARDHAN VS. CIT, CITED SUPRA, RELIANCE OF THE REVENUE IS AL SO OF NO HELP. IN THAT CASE, THE ITA NO.4710/DEL/2009 12 FACTS WERE ALSO DIFFERENT. IN THAT CASE, THE BUSINE SS OF THE FIRM AFTER DISSOLUTION WAS TAKEN OVER BY ONE OF THE PARTNERS. THUS, THERE WAS A TRANSFER OF ASSETS OF A FIRM TO A PARTNER. IN THAT VIEW OF THE MATTER, HON' BLE KERALA HIGH COURT HAS HELD THAT THERE IS A TRANSFER OF ASSET FROM THE FIR M TO A PARTNER. THE THIRD CASE RELIED ON BY THE REVENUE IS CIT VS. SOUTHERN TUBES 306 ITR 216 WAS ALSO HAVING THE VARIATION IN FACTS FROM THE ASSESSEES C ASE. IN THAT CASE, THERE WAS DISSOLUTION OF FIRM AND THE ASSETS WERE TAKEN OVER BY THE PARTNERS. SUCH POSITION IS NOT IN THE ASSESSEES CASE. MOREOVER, T HE ASSESSEES CASE IS COVERED BY THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. KUNNAMKULAM MILL BOARD REPORTED IN 257 ITR 544 WHER EIN THE HON'BLE HIGH COURT HAS HELD AS UNDER :- THE FIRM IS THE ASSESSEE WHILE IT HAD FIVE PARTNER S OR SEVEN PARTNERS OR EVEN WHEN IT HAD ONLY TWO PARTNERS. THE RE IS NO CHANGE IN THE STATUS OF THE ASSESSEE. WHAT FURTHER HAS TO BE NOTICED IS THAT THE FIRM HAS ITS OWN RIGHTS AND LIA BILITIES AND IT CAN INCUR LIABILITIES OR OWN AND POSSESS PROPERTIES . IN A CASE OF THIS NATURE WHAT HAPPENS IS THAT WITH THE ADMISSION OF NEW PARTNERS, THE RIGHTS OF THE EXISTING PARTNERS ARE R EDUCED AND THAT A RIGHT IS CREATED IN FAVOUR OF THE NEWLY INDUCTED PA RTNERS. BUT THE OWNERSHIP OF THE PROPERTY DOES NOT CHANGE EVEN WITH THE CHANGE IN THE CONSTITUTION OF THE FIRM. AS LONG AS THERE I S NO CHANGE IN OWNERSHIP OF THE FIRM AND ITS PROPERTIES MERELY FOR THE SIMPLE REASON THAT THE PARTNERSHIP OF THE FIRM STOOD RECON STITUTED, THERE IS NO TRANSFER OF CAPITAL ASSET. LIKEWISE, IF A PAR TNER RETIRES HE DOES NOT TRANSFER ANY RIGHT IN THE IMMOVABLE PROPER TY IN FAVOUR OF THE SURVIVING PARTNER BECAUSE HE HAD NO SPECIFIC RIGHT WITH RESPECT TO THE PROPERTIES OF THE FIRM. WHAT TRANSPI RES IS THE RIGHT TO SHARE THE INCOME OF THE PROPERTIES STOOD TRANSFE RRED IN FAVOUR OF THE SURVIVING PARTNERS, AND THERE IS NO TRANSFER OF OWNERSHIP OF THE PROPERTY IN SUCH CASES. WHEN A PARTNERSHIP I S ITA NO.4710/DEL/2009 13 RECONSTITUTED BY ADDING A NEW PARTNER, THERE IS NO TRANSFER OF ASSETS WITHIN THE MEANING OF S. 45(4).' MOREOVER, THE ASSESSEES CASE IS ALSO COVERED BY TH E DECISION OF ITAT, COORDINATE BENCH IN THE CASE OF DELHI INDUSTRIES & ENTERPRISES VS. ACIT REPORTED IN 150 TTJ (DEL.) 765 WHEREIN THE ITAT HAS HELD AS UNDER :- 30. ON AN ANALYSIS OF ALL THESE DECISIONS AND THE DETAILS, WE FIND THAT THERE IS CONFLICT OF OPINION BETWEEN THE VARIOUS HON'BLE HIGH COURTS. THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. KANNAMKULAM MILLS BOAR D IS IN FAVOUR OF THE ASSESSEE. LEARNED DR BROUGHT TO OUR N OTICE THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F SOUTHERN TUBE REPORTED IN 306 ITR 216 IN FAVOUR OF THE REVEN UE BUT WE FIND IN THAT CASE THE FIRM WAS DISSOLVED AND ASSETS WERE TAKEN BY ONE OF THE PARTNERS IN HIS PROPRIETARYSHIP CONCE RN. THE LATEST DECISION OF HON'BLE KERALA HIGH COURT IS AGAIN IN F AVOUR OF THE ASSESSEE. SIMILARLY, THERE ARE DECISIONS AT THE END OF THE ITAT WHICH ARE IN FAVOUR OF ASSESSEE. THE DECISION OF HO N'BLE MADHAYA PRADESH HIGH COURT IS ALSO IN FAVOUR OF THE ASSESSEE. ON THE OTHER HAND, THE DECISION OF HON'BLE KARNATAK A HIGH COURT AND HON'BLE MUMBAI HIGH COURT ARE IN FAVOUR O F THE REVENUE. FACED WITH THIS SITUATION, WE DEEM IT APPR OPRIATE TO FOLLOW THE DECISIONS WHICH ARE IN FAVOUR OF THE ASS ESSEE. HON'BLE KERALA HIGH COURT IN ITS LATEST DECISION RE NDERED ON 28.10.2010 IN ITA NO.474 OF 1999 IN THE CASE OF CIT VS. SHRI M.V. NARAYANAN HAS HELD THAT ON RETIREMENT OF PARTN ER, IF THE FIRM, CONTINUES WITH THE BUSINESS THEN THERE IS NO DISTRIBUTION OF ASSETS AND SECTION 45(4) OF THE ACT WOULD NOT BE APPLICABLE. THOUGH THE PARTIES HAVE NOT ADVANCED ANY AGREEMENT BUT AT THE TIME OF DECISION, IT STRUCK TO OUR MIND, THAT TRUE SENSE NOTHING WAS GAINED BY THE FIRM. THE ITAT, MUMBAI BENCH IN THE CASE OF ITO VS. FINE DEVELOPERS IN ITA NO.4630/MUMBAI/2011 VIDE ORDER DATED 12 TH OCTOBER 2012 HAS HELD AS UNDER:- ITA NO.4710/DEL/2009 14 5.3.3 FROM THE ABOVE, IT CAN SAFELY BE HELD THAT ALLOCATION OF ASSETS OF THE FIRM TO THE RETIRING PA RTNERS IS THE BASIS FOR INVOCATION OF PROVISIONS OF SECTION 45(4) . IN THE CASE UNDER CONSIDERATION, NEITHER THERE WAS ANY DISSOLUT ION NOR OTHER EVENT TOOK PLACE THAT HAD AN EFFECT OF ALLOCA TION OF EXCLUSIVE INTEREST IN ANY CAPITAL ASSET TO THE RETI RING PARTNERS. IN THESE CIRCUMSTANCES, FAA WAS JUSTIFIED IN HOLDING T HAT CONDITIONS OF SECTION 45(4) WERE NOT FULFILLED. IN OUR OPINION THE FIRM OR THE CONTINUING PARTNERS WERE NOT LIABLE TO BE TAXED UNDER THE HEAD 'CAPITAL GAINS', AS HELD BY THE FAA. RETIRING PARTNERS HAD RELINQUISHED THEIR RIGHTS IN THE ASSET S OF THE FIRM AND IN LIEU OF THAT FIRM HAD PAID THE RETIRING PART NERS MONEY LYING IN THEIR CAPITAL ACCOUNT. OBVIOUSLY, ASSESSEE -FIRM HAD NOT TRANSFERRED ANY RIGHT IN CAPITAL ASSET TO THE RETIR ING PARTNERS RATHER IT IS THE RETIRING PARTNERS WHO HAVE TRANSFE RRED THE RIGHTS IN CAPITAL ASSETS IN FAVOUR OF THE CONTINUING PARTN ERS. SO, EVEN IF CAPITAL GAIN HAS TO BE TAXED IT HAS TO BE IN THE HANDS OF THE RETIRING PARTNERS NOT IN THE CASE OF THE ASSESSEE-F IRM. 6. WE HAVE CONSIDERED THE CASES RELIED UPON BY THE DR AND THE AR. AS FAR AS MATTER OF GURUNATH TALKIES (SUPRA ) IS CONCERNED, WE ARE OF THE OPINION THAT FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE, AS HELD BY THE FAA. IN THE CAS E UNDER CONSIDERATION ASSETS WERE NOT TAKEN OVER BY THE NEW PARTNERS. AS STATED EARLIER, SECTION 45 WAS AMENDED TO OVERCO ME THE DIFFICULTIES FACED BY THE REVENUE BECAUSE OF THE DE CISIONS OF MALABAR FISHRIES AND KARTIKEYA SARABHAI (SUPRA). SO , IN OUR OPINION THEY ARE OF NO HELP AFTER INTRODUCTION OF S UB-SECTION 3 AND 4 TO THE SEC. 45 OF THE ACT. CASE RELIED UPON B Y THE AR SUPPORT THE VIEW TAKEN BY THE FAA. 6.1 AS THERE WAS NO TRANSFER OF A CAPITAL ASSET BY THE ASSESSEE-FIRM BY WAY OF DISTRIBUTION OR OTHERWISE I N THE AY UNDER CONSIDERATION, THEREFORE, WE DO NOT SEE ANY R EASON TO DISAGREE WITH THE LOGICAL FINDINGS GIVEN BY THE FAA . UPHOLDING HIS ORDER WE DECIDE THE GROUNDS AGAINST T HE AO. CONSIDERING THE FACTS OF THE ASSESSEES CASE AND TH E LEGAL POSITION IN VIEW OF THE VARIOUS DECISIONS OF ITAT AND HON'BLE HIGH COUR TS, WE FIND THAT REVENUE AUTHORITIES WERE NOT JUSTIFIED IN MAKING AND SUSTAI NING THE ADDITION. ITA NO.4710/DEL/2009 15 THEREFORE, WE SET ASIDE THE ORDERS OF AUTHORITIES B ELOW ON THIS ISSUE AND ALLOW THE RELIEF TO THE ASSESSEE ON THIS GROUND. 12. IN GROUND NO.4, THE ASSESSEE HAS PLEADED THAT C IT (A) HAS NOT DISPOSED OF GROUND NO.6 RELATING TO CHARGING OF INTEREST U/S 234A, B, C & D OF THE INCOME-TAX ACT, 1961. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE CHARGING OF INTEREST IS MANDATORY. THEREFORE, THIS GROUND IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 27 TH DAY OF AUGUST, 2013. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 27 TH DAY OF AUGUST, 2013 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT, MEERUT 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.