AMARTARA PVT. LTD., MUMBAI V. DCIT - 9(1)(1), MUMBAI

ITA 6114/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7825 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 14-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: R S KHANDELWAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Earning of tax free income; Fair market value; Valuation report
• Section: 50C; 14A

Judgement Text

1 AMARTARA PVT LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.6050/MUM/2016) (ASSESSMENT YEAR:2012-13) DY.CIT-9(1)(1), MUMBAI VS M/S AMARTARA PVT LTD 2 ND FLOOR, INDIAN CORK MILLS COMPOUND, SAKI VIHAR ROAD, POWAI, MUMBAI-72 PAN : AADCA9217F APPELLANT RESPONDEDNT I.T.A NO.6114/MUM/2016) (ASSESSMENT YEAR:2012-13) M/S AMARTARA PVT LTD 2 ND FLOOR, INDIAN CORK MILLS COMPOUND, SAKI VIHAR ROAD, POWAI, MUMBAI-72 PAN : AADCA9217F VS DY.CIT-9(1)(1), MUMBAI APPELLANT RESPONDEDNT ASSESSEE BY SHRI R.S. KHANDELWAL RESPONDENT BY SHRI RAJESHKUMAR YADAV DATE OF HEARING 23-11-2017 DATE OF PRONOUNCEMENT 29-12-2017 O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE REVENUE AS WELL A S THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-16, MUMBAI DATED 19-07-2016 AND IT PERTAINS TO AY 2012-13. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR 2 AMARTARA PVT LTD THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD T OGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. ITA 6114/MUM/2016 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- GROUND NO. I: ADDITION MADE IN RESPECT OF LONG TERM CAPITAL CAIN - RS. 3,81,78,500/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-16, MU MBAI ['THE CIT (A)'] ERRED IN CONFIRMING THE ADDITION OF RS. 3,81,78,500/- MADE BY THE LEARNED ASSESSING OFFICER ('THE AO') IN COMPUTING OF LONG TERM CAPITAL GAIN ON THE TRANS FER OF LAND AS CAPITAL CONTRIBUTION TO A LIMITED LIABILITY PART NERSHIP BY INVOKING SECTION 50C OF THE INCOME TAX ACT, 1961 (' THE ACT') BY IGNORING THE SPECIFIC PROVISIONS OF SECTION 45(3) O F THE ACT. 3. T HE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, HA S DURING THE YEAR UNDER CONSIDERATION ENTERED INTO LIMITED LIABI LITY PARTNERSHIP VIDE AN AGREEMENT DATED DECEMBER 28, 2011 WITH AN OBJECT OF DEVELOPING, CONSTRUCTING AND OPERATING RESORTS, HOTELS AND APARTMENT HOTELS AND / OR FOR CARRYING OUT SUCH OTHER HOSPITALITY BUSINESS. THEREAFTER, THE PARTIE S TO THE SAID AGREEMENT ENTERED INTO A SUPPLEMENTARY AGREEMENT DATED DECEMBER 29, 2 011, IN ORDER TO INCORPORATE CERTAIN AMENDMENTS TO THE EARLIER AGREE MENT. VIDE THE SAID SUPPLEMENTARY AGREEMENT, THE ASSESSEE TRANSFERRED A N IMMOVABLE PROPERTY BEING A PLOT OF LAND ADMEASURING 6869.959 MTS SITUATED AT VILLAGE PASSPOLI, POWAI, MUMBAI AS ITS CAPITAL CONTRIBUTION INTO ATL HOSPITA LITY, LLP (FIRM). THE ASSESSEE AT THE TIME OF CONTRIBUTION TO THE FIRM, A S PER THE VALUATION REPORT 3 AMARTARA PVT LTD OBTAINED IN RESPECT OF THE SAID PLOT OF LAND, TAKEN VALUE AT RS.5.60 CRORES AND THE SAME WAS RECORDED IN THE BOOKS OF THE PARTNERSHIP F IRM. THE AFORESAID SUPPLEMENTARY AGREEMENT WAS REGISTERED ON APRIL 24, 2012 AND THE STAMP DUTY AUTHORITY HAS DETERMINED THE MARKET VALUE OF THE PR OPERTY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY AT RS.9,41,78,500. THE ASSES SEE, WHILE COMPUTING CAPITAL GAIN ON TRANSFER OF LAND INTO PARTNERSHIP F IRM IN ACCORDANCE WITH THE PROVISIONS OF SECTION 45(3) OF THE ACT, HAS TAKEN T HE VALUE AS RECORDED IN THE BOOKS OF THE FIRM, I.E. RS.5.60 CRORES, AS THE FULL VALUE OF CONSIDERATION DEEMED TO HAVE BEEN RECEIVED OR ACCRUED AS A RESULT OF TRA NSFER OF CAPITAL ASSET TO THE PARTNERSHIP FIRM. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED UPON THE ASSESSEE TO FURNISH NECESSARY EVIDENCES TO JUSTIFY COMPUTATION OF LONG TERM CAPITAL GAIN IN RESPECT OF TRANSFER OF CAPITAL ASSE T BEING PLOT OF LAND INTO PARTNERSHIP FIRM AS PER THE PROVISIONS OF SECTION 4 5(3) OF THE ACT. AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO ON ANALYSIS OF PROVISIONS OF SECTIONS 45(3) AND 50C OF THE ACT, TH E AO OBSERVED THAT SINCE THERE IS A TRANSFER OF LAND INTO THE PARTNERSHIP FI RM, THE PROVISIONS OF SECTION 50C OF THE ACT SHALL APPLY AND ACCORDINGLY, THE FULL VA LUE OF CONSIDERATION FOR THE PURPOSE OF COMPUTING CAPITAL GAIN SHALL BE TAKEN AT RS.9,41,78,500, BEING THE VALUE DETERMINED BY THE STAMP VALUATION AUTHORITY A T THE TIME OF REGISTRATION OF THE SUPPLEMENTARY PARTNERSHIP DEED. THE AO, FURTHE R OBSERVED THAT AS REGARDS 4 AMARTARA PVT LTD APPLICABILITY OF SECTION 45(3) OF THE ACT AND SECTI ON 50C OF THE ACT, BY RELYING UPON THE DECISION OF ITAT, LUCKNOW BENCH IN THE CAS E OF CARLTON HOTEL PVT LTD VS ACIT 122 TTJ 515 (LUCK) OBSERVED THAT ITAT HAS GIVEN A FINDING INSOFAR AS APPLICABILITY OF SECTION 50C OF THE ACT IN THE CAS ES WHERE CAPITAL ASSET HAS BEEN TRANSFERRED UNDER THE PROVISIONS OF SECTION 45(3) A ND HELD THAT SECTION 50C OF THE ACT BEING A SPECIFIC PROVISION WOULD OVERRIDE THE P ROVISIONS OF SECTION 45(3) OF THE ACT. THE AO FURTHER OBSERVED THAT PROVISIONS O F SECTION 45(3) OF THE ACT DOES NOT BEGIN WITH A NON OBTANTE CLAUSE AND THEREF ORE, THERE IS NO SPECIFIC MENTION OF NON APPLICABILITY OF SECTION 50C OF THE ACT IN THE CASES COVERED BY SECTION 45(3) OF THE ACT. AS A CONSEQUENCE, THE AO HELD THAT THE PROVISIONS OF SECTION 50C OF THE ACT COULD BE INVOKED WHERE THE M ARKET VALUE OF THE PROPERTY IS MORE THAN THE VALUE SHOWN IN THE REGISTERED DOCU MENT. ACCORDINGLY COMPUTED LONG TERM CAPITAL GAIN BY ADOPTING FAIR MA RKET VALUE DETERMINED BY THE STAMP DUTY AUTHORITY AND RECOMPUTED LONG TERM C APITAL GAIN OF RS.8,74,96,093 AS AGAINST RS.4,93,17,593 DECLARED B Y THE ASSESSEE. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS WHICH WERE REPRODUCED BY CIT(A) IN HIS ORDER ON PAG ES 17 TO 25. THE SUM AND SUBSTANCE OF THE ARGUMENTS OF THE ASSESSEE BEFORE T HE CIT(A) IS THAT THE PROVISIONS OF SECTION 45(3) ITSELF IS A DEEMING FIC TION CREATED FOR TAXING TRANSFER OF CAPITAL ASSET BETWEEN PARTNERSHIP FIRM AND PARTN ERS WHEREIN IT WAS 5 AMARTARA PVT LTD CATEGORICALLY MENTIONED THAT FOR THE PURPOSE OF SEC TION 48, THE FULL VALUE OF CONSIDERATION DEEMED TO BE THE VALUE RECORDED IN TH E BOOKS OF ACCOUNT OF THE PARTNERSHIP FIRM. THEREFORE, THE AO WAS INCORRECT IN GOING TO ANOTHER DEEMING FICTION CREATED BY WAY OF SECTION 50C WHICH IS APPL ICABLE FOR GENERAL TRANSFERS, THEREFORE, THE QUESTION OF APPLYING SECTION 50C VAL UE FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN DOES NOT ARISE. THE CI T(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYI NG UPON THE DECISION OF ITAT, LUCKNOW BENCH IN THE CASE OF CARTON HOTELS PVT LTD (SUPRA), CONFIRMED THE ADDITION MADE BY THE AO TOWARDS RE-COMPUTATION OF L ONG TERM CAPITAL GAIN. RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 6.2.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY A PPELLANT AND THE MATERIAL AVAILABLE ON RECORD. THE HON 'ABLE LUC KNOW BENCH OF ITAT HAS CONSIDERED THIS POINT IN THE CASE OF CARLT ON HOTEL PVT. LTD. 122-TTJ WHEREIN IT WAS HELD THAT SEC. 50C OVER -RIDES SEC. 45(3). THE HON'BLE TRIBUNAL OBSERVED THAT IN A CASE WHERE DOCUMENT OF TRANSFER IS REGISTERED AS PER THE PROVI SIONS OF REGISTRATION ACT, 1908 AND THE STAMP DUTY PAID TO T HE STATE GOVT. ON REGISTRATION OF SUCH DOCUMENT, SEC. 50C COMES IN TO PLAY AND AS SUCH, THE PROVISION OF SEC. 50C OVER-RIDES THE PROV ISION OF SEC.45(3) OF THE ACT. IN PARA 24 OF THE ORDER, THE LD. TRIBUN AL HAS HELD AS UNDER: 24. WE ARE OF THE CONSIDERED VIEW THAT SECTION 45(3 ), SEC. 50C AND SECTION 55A OPERATE IN DIFFERENT SPHER ES AND THEY CAN BE INVOKED WHEN CONDITIONS LAID DOWN IN THOSE SECTIONS ARE SATISFIED. INVOKING THE POWER CONTAINED IN ONE OF THESE SECTIONS DOES NOT COME INTO CONFLICT WITH EACH OTHER. AS MENTIONED ABOVE, PROVISIONS OF SEC,50C CAN BE INVOKED WHEN THERE IS A REGISTRATION OF TRANSFER UNDER REGISTRAT ION ACT AND STAMP DUTY IS PAID FOR THE PURPOSES OF REGISTERING THE SALE. IF THE TRANSFER BY WAY OF SAL E IS 6 AMARTARA PVT LTD NOT REGISTERED UNDER REGISTRATION ACT AND NO STAMP DUTY IS PAID THEN SECTION SOC CANNOT BE INVOKED. SECTION 55A, ON THE OTHER HAND EMPOWERS THE ASSESSING OFFICER TO REFER THE PROPERTY UNDER TRANS FER TO A DVO IF SECTION IF HE HAS MATERIAL ON RECORD ON THE BASIS OF WHICH HE FORMS AN OPINION THAT VALUE DECLARED BY THE ASSESSEE AS PER ESTIMATE OF THE REGISTERED LLP IS LESS THAN ITS FAIR MARKET VALUE O R FAIR MARKET VALUE IS MORE BY CERTAIN PERCENTAGE TO WHAT IS DECLARED BY THE ASSESSEE AS SALE CONSIDERATION, OR THERE A ARE OTHER RELEVANT FACTORS WHICH NECESSITATED THE ASSESSING OFFICER TO REFER THE CAPITAL ASSET UNDER TRANSFER TO THE DVO. SECTION 55A CAN BE INVOKED FOR THE PURPOSE OF THIS CHAPTER. ON THE OTHER HAND, WHERE A TRANSFER COVERED UNDER SECTION 45(3) IS SOUGHT TO BE REGISTERED BY THE FIR M AND STAMP DUTY IS PAID BY THE PARTIES THEN PROVISIO NS OF SECTION 50C COULD STILL BE INVOKED EVEN THAT CASE M AY BE COVERED UNDER SECTION 45(3). IN OUR CONSIDERED VIEW , IN THAT CASE, PROVISION OF SECTION 45(3) WOULD NOT BE APPLI CABLE BUT IT IS ONLY SECTION SOC WHICH ALONE CAN BE INVOKED A S THERE IS A REGISTRATION OF SALE DEED UNDER REGISTRATION ACT. THUS WHERE A SALE TRANSACTION IS REGISTERED BY PAYING STAMP DUTY THEN IT IS ONLY SECTION 50C WHICH CAN OPERATE. IN THAT SITUATION SECTION 50C WOULD OVERRIDE SECTION 45(3) IF THE SAL E DEED IS SOUGHT TO BE REGISTERED BY PAYING STAMP DUT Y. BUT WHERE SUCH REGISTRATION DOES NOT TAKE PLACE BY PAYI NG STAMP DUTY THAT CASE WOULD ONLY BE COVERED UNDER SECTION 45(3) AND THEREFORE, VALUE RECORDED BY THE FIRM IN ITS BO OKS WOULD ONLY BE THE FULL VALUE OF CONSIDERATION FOR THE PUR POSES OF COM PUTTING CAPITAL GAINS. 6.2.4. THE HONBLE TRIBUAL HAS ACCORDINGLY HELD THAT SECTI ON 45, SUB SECTION (3) AS A GENERAL PROVISION AND SECTION 50C IS A SPECIAL PROVISION WHICH WOULD OVER-RIDE SECTION 45( 3. THE APPELLANT COULD NOT PRODUCE ANY OTHER JUDGEMENT WHI CH COULD SUPPORT THE ARGUMENT TAKEN BY THE APPELLANT. THERE FORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HONBLE TRIBUNAL IN THE CASE OF CARLTON HOTELS PVT LTD VS ACIT(16), THE ADDITION MADE BY THE AO IS CONFIRMED AND APPEAL OF THE ASSES SEE ON THIS GROUND IS DISMISSED. 6. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) WAS 7 AMARTARA PVT LTD ERRED IN CONFIRMING ADDITION MADE BY THE AO TOWARDS RECOMPUTATION OF CAPITAL GAIN WITHOUT APPRECIATING THE FACTS IN A PR OPER PERSPECTIVE WHICH IS EVIDENT FROM THE FACT THAT THE CIT(A) HAS SIMPLY FOLLOWED LUCKNOW BENCH OF THE TRIBUNAL DECISION WHICH WAS RE NDERED UNDER DIFFERENT FACTS. THE LD.AR REFERRING TO THE PROVIO SIONS OF SECTIONS 45(3) AND 45(4) SUBMITTED THAT THESE ARE SPECIAL PR OVISIONS FOR COMPUTATION OF CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS BETWEEN PARTNERSHIP FIRM AND PARTNERS WHEREIN THE LEGISLATU RE HAS CONSCIOUSLY USED DIFFERENT WORDS FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN WHEN CAPITAL ASSET HAS BEEN TRANSFERRED INTO PARTNE RSHIP FIRM AS CAPITAL CONTRIBUTION. AS PER THE SAID SECTION, WHEN A CAPI TAL ASSET IS TRANSFERRED TO A PARTNERSHIP FIRM AS A CAPITAL CONT RIBUTION, THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSET SH ALL BE CHARGEABLE TO TAX AS ITS INCOME OF THE PREVIOUS YEAR IN WHICH SUC H TRANSFER TAKES PLACE AND FOR THE PURPOSE OF SECTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT OF THE FIRM SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER. THE LD.AR FURTHER SUBMITTED THAT THE LEGISLATURE HAS TAKEN A DIFFERENT VIEW IN THE CASE OF TRANSFER OF ASSETS IN THE EVENT OF DISSOLUT ION OF PARTNERSHIP FIRM WHERE IT WAS CONSIDERED FAIR MARKET VALUE OF THE PR OPERTY AS ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VAL UE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER. THE LD.AR FURTHER 8 AMARTARA PVT LTD SUBMITTED THAT SINCE BOTH THE PROVISIONS ARE GENERA L PROVISIONS, WITHOUT ANY NON OBSTANTE CLAUSE AND ALSO BOTH PROVISIONS AR E DEEMING FICTION CREATED FOR THE PURPOSE OF TAXATION OF TRANSFERS OF CAPITAL ASSET IN SPECIAL CASES, THE QUESTION OF IMPORTING ANOTHER DE EMING FICTION TO DETERMINE THE DEEMED FULL VALUE OF CONSIDERATION IS INCORRECT. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF CIT VS MOON MILLS LTD, (1966) 59 ITR 574. THE LD.AR REFERRING TO THE LUCKNOW BENCH DECISION IN THE CASE OF CARLTON HOTEL PVT LTD (SUPRA) SUBMITTED THAT THE DECISION RENDERE D BY THE LUCKNOW BENCH IS PER INCURIAM IN THE LIGHT OF DECISION OF H ONBLE SUPREME COURT IN THE CASE OF CIT VS MOON MILLS LTD, AS PER WHICH DEEMING FICTION CANNOT BE EXTENDED BY IMPORTING ANOTHER DEE MING FICTION FOR THE PURPOSE OF DETERMINATION OF FULL VALUE OF CONSI DERATION. THEREFORE, THE LOWER AUTHORITIES WERE ERRED IN FOLLOWING THE D ECISION OF ITAT, LUCKNOW BENCH TO HOLD THAT SECTION 50C IS APPLICABL E FOR THE PURPOSE OF DETERMINATION OF FULL VALUE OF CONSIDERATION WHE N ASSET IS TRANSFERRED INTO CAPITAL CONTRIBUTION OF PARTNERSHI P FIRM FOR THE PURPOSE OF SECTION 45(3) OF THE ACT. 7. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTED TH E ORDER OF THE CIT(A). THE LD.DR SUBMITTED THAT THE CIT(A) HAS BR OUGHT OUT CLEAR FACTS IN THE LIGHT OF ITAT, LUCKNOW BENCH DECISION WHEREIN IT WAS CLEARLY HELD THAT SECTION 50C OVERRIDES PROVISIONS OF SECTION 45(3) 9 AMARTARA PVT LTD WHEN DOCUMENT OF TRANSFER IS REGISTERED AS PER THE PROVISIONS OF REGISTRATION ACT, 1908 AND THE STAMP DUTY PAID FOR REGISTRATION OF SUCH DOCUMENT, THE VALUE DETERMINED BY THE STAMP DUTY AU THORITY SHALL BE REPLACED AS FULL VALUE OF CONSIDERATION AS PER THE PROVISIONS OF SECTION 50C OF THE ACT. THEREFORE, THE ORDERS OF CIT(A) SH OULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA LS AVAILABLE ON RCORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BE LOW. THE AO HAS RECOMPUTED LONG TERM CAPITAL GAIN FROM TRANSFER OF CAPITAL ASSET BEING PLOT OF LAND INTO PARTNERSHIP FIRM AS CAPITAL CONTR IBUTION U/S 45(3) OF THE INCOME-TAX ACT , 1961 BY APPLYING DEEMING PROVI SIONS OF SECTION 50C FOR THE PURPOSE OF DETERMINATION OF FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF TRANSFER OF CAPI TAL ASSET. ACCORDING TO THE AO, THE PROVISIONS OF SECTION 50C OVERRIDES THE PROVISIONS OF SECTION 45(3) WHICH IS EMANATING FROM THE LANGUAGE USED IN BOTH THE SECTION WHERE NO NON OBSTANTE CLAUSE IS USED IN BOT H THE SECTIONS. THE AO FURTHER WAS OF THE OPINION THAT THE RATIO LAID D OWN BY ITAT, LUCKNOW BENCH IN THE CASE OF CARLTON HOTEL PVT. LTD (SUPRA) REITERATES THE POSITION OF LAW ENUMERATED BY WAY OF SECTIONS 4 5(3) AND 50C AS PER WHICH WHERE THE CONSIDERATION RECEIVED OR ACCRU ED AS A RESULT OF TRANSFER OF CAPITAL ASSET IS LESS THAN MARKET VALUE DETERMINED FOR THE PURPOSE OF PAYMENT OF STAMP DUTY, THEN THE VALUE DE TERMINED BY THE STAMP DUTY AUTHORITY SHALL BE DEEMED TO BE THE FULL VALUE OF 10 AMARTARA PVT LTD CONSIDERATION AS A RESULT OF TRANSFER OF CAPITAL AS SET. IT IS THE CONTENTION OF THE ASSESSEE THAT BOTH THE PROVISIONS ARE DEEMING FICTIONS CREATED BY THE STATUTE TO DEAL WITH SPECIAL CASES O F TRANSFER OF CAPITAL ASSET. THEREFORE, IT IS INCORRECT TO EXTEND ONE DE EMING FICTION TO ANOTHER DEEMING FICTION FOR THE PURPOSE OF DETERMIN ATION OF CONSIDERATION RECEIVED AS A RESULT OF TRANSFER OF C APITAL ASSET. THE ASSESSEE FURTHER CONTENDED THAT SECTION 45(3) ITSEL F IS A DEEMING PROVISION. IT COMES INTO OPERATION WHEN THE ASSESS EE TRANSFER CAPITAL ASSET INTO CAPITAL CONTRIBUTION OF PARTNERSHIP FIRM , THEN FOR THE PURPOSE OF SECTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT OF THE FIRM SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATI ON, THEREFORE, IMPORTING ANOTHER DEEMING FICTION WHERE IT APPLIES TO GENERAL TRANSFER OF CAPITAL ASSET IN THE CASES WHERE THE CONSIDERED RECEIVED OR ACCRUED IS LESS THAN THE CONSIDERATION DETERMINED FOR THE PURP OSE OF PAYMENT OF STAMP DUTY. THE ASSESSEE FURTHER CONTENDED THAT SE CTION 50C OF THE ACT HAS NO APPLICATION WHERE NO CONSIDERATION IS RECEIV ED OR ACCRUED AND HENCE, COMPUTING FULL VALUE OF CONSIDERATION BY APP LYING PROVISIONS OF SECTION 50C IN A CASE WHERE TRANSFER BETWEEN PARTNE RS AND PARTNERSHIP FIRM WITHOUT THERE BEING NAY ACTUAL CONSIDERATION R ECEIVED OR ACCRUED IS INCORRECT. THE ASSESSEE FURTHER SUBMITTED THAT IF THE PROVISIONS OF SECTION 45(3) WERE NOT IN THE STATUTE BOOK, THEN TH E QUESTION OF APPLICATION OF SECTION 50C DOES NOT ARISE, THEREFOR E, SECTION 45(3) ITSELF 11 AMARTARA PVT LTD IS A SPECIFIC PROVISION DEALING WITH SPECIAL CASES OF TRANSFER OF CAPITAL ASSET AND HENCE, PROVISIONS OF SECTION 50C CANNOT B E BROUGHT IN THE CASE OF TRANSFER OF CAPITAL ASSET BETWEEN PARTNERS AND PARTNERSHIP FIRM. THEREFORE, IT CAN BE RIGHTLY SAID THAT SECTION 45(3 )| OF THE ACT ITSELF IS A CODE FOR COMPUTING CAPITAL GAINS IN RESPECT OF TRAN SFER MADE BY A PARTNER TO A FIRM. IN THE ABSENCE OF SECTION 45(3) OF THE ACT, TAXING ANY AMOUNT IS NOT POSSIBLE. SINCE THE CONSIDERATION CAN NOT BE DETERMINED IN ABSENCE OF SECTION 45(3) OF THE ACT AS THE CONSI DERATION LIES WITHIN WOMB OF THE LAW IN THE CASE OF TRANSFER OF SUCH NAT URE. 9. HAVING HEARD BOTH THE SIDES, WE FIND MERIT IN THE A RGUMENT OF THE ASSESSEE FOR THE REASON THAT THE PROVISIONS OF SECT ION 45(3) DEALS WITH SPECIAL CASES OF TRANSFER OF CAPITAL ASSET WHERE TH E PROFITS OR GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSET BY WAY O F CAPITAL CONTRIBUTION OR OTHERWISE SHALL BE CHARGEABLE TO TAX IN THE PREV IOUS YEAR IN WHICH SUCH TRANSFER TAKES PLACE AND FOR THE PURPOSE OF SE CTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT OF THE FIRM SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER. A PLAIN READING OF PROVISIONS OF SECTION 45(3) MAKE S IT CLEAR THAT IT COMES INTO OPERATION ONLY IN SPECIAL CASES OF TRANS FER BETWEEN PARTNERSHIP FIRM AND PARTNERS AND IN SUCH CIRCUMSTA NCES, A DEEMED FULL VALUE OF CONSIDERATION SHALL BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN AS PER WHICH THE AMOUNT RECORDED IN THE 12 AMARTARA PVT LTD BOOKS OF ACCOUNT OF THE FIRM SHALL BE TAKEN AS FULL VALUE OF CONSIDERATION. THOUGH THE PROVISIONS OF SECTION 45( 3) IS NOT A SPECIFIC PROVISION OVERRIDES THE OTHER PROVISIONS OF THE ACT , IMPORTING A DEEMING FICTION PROVIDED IN SECTION 50C OF THE ACT CANNOT BE EXTENDED TO ANOTHER DEEMING FICTION CREATED BY THE STATUTE B Y WAY OF SECTION 45(3) TO DEAL WITH SPECIAL CASES OF TRANSFER. THE PURPOSE OF INSERTION OF SECTION 45(3) IS TO DEAL WITH CASES OF TRANSFER BETWEEN PARTNERSHIP FIRM AND PARTNERS AND IN SUCH CASES, THE ACT PROVID ES FOR COMPUTATION MECHANISM OF CAPITAL GAIN AND ALSO PROVIDES FOR CON SIDERATION TO BE ADOPTED FOR THE PURPOSE OF DETERMINATION OF FULL VA LUE OF CONSIDERATION. SINCE THE ACT ITSELF IS PROVIDED FOR DEEMING CONSID ERATION TO BE ADOPTED FOR THE PURPOSE OF SECTION 48 OF THE ACT, A NOTHER DEEMING FICTION PROVIDED BY WAY OF SECTION 50C CANNOT BE EX TENDED TO COMPUTE DEEMED FULL VALUE OF CONSIDERATION AS A RESULT OF T RANSFER OF CAPITAL ASSET. THIS LEGAL PROPOSITION IS FURTHER SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS MOON M ILLS LTD (SUPRA) WHEREIN IT WAS OBSERVED THAT ONE DEEMING FICTION CA NNOT BE EXTENDED BY IMPORTING ANOTHER DEEMING FICTION. THEREFORE, W E ARE OF THE CONSIDERED VIEW THAT THE PROFITS OR GAINS ARISING F ROM THE TRANSFER OF A CAPITAL ASSET BY A PARTNER TO A FIRM IN WHICH HE IS OR BECOMES A PARTNER BY WAY OF CAPITAL CONTRIBUTION, THEN FOR THE PURPOS E OF SECTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT OF THE FIRM SHALL BE DEEMED TO 13 AMARTARA PVT LTD BE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF A CAPITAL ASSET. THE AO CANNOT IMPORT ANOTHER DEEMING FICTION CREATED FOR THE PURPOSE OF DETERMINATION OF FULL VALUE OF CONSIDERATION AS A RESULT OF TRANSFER OF A CAPITAL ASSET BY IMPORTING THE PROVISIONS OF SECTION 50C OF THE ACT. THE CIT(A), WITHOUT APPRECIATING THE FACTS, SIMPLY UPHELD ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF ITAT, LUCKNOW BENCH IN TH E CASE OF ACIT VS CARLTON HOTEL PVT LTD (SUPRA) WHERE THE ITAT HAS SIMPLY OBSERVED THAT THE PROVISIONS OF SECTION 50C OVERRIDES THE PR OVISIONS OF SECTION 45(3) BUT NOT GIVEN A CATEGORICAL FINDING. THE ITA T HAS GIVE ITS FINDIGS UNDER DIFFERENT FACTS CONSIDERING THE FACT THAT WHEN A DOCUMENT IS REGISTERED UNDER THE PROVISIONS OF REGISTRATION ACT, 1908, THE VALUE DETERMINED BY THE STAMP DUTY AUTHORITY SHALL BE REP LACED TO DETERMINE FULL VALUE OF CONSIDERATION. THEREFORE, WE REVERSE THE FINDING OF THE CIT(A) AND DELETE THE ADDITION MADE TOWARDS RECOMPU TATION OF LONG TERM CAPITAL GAIN ON ACCOUNT OF TRANSFER OF CAPITAL ASSET INTO PARTNERSHIP FIRM. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ITA NO. 6050/MUM/2016 11. THE ONLY ISSUE CAME UP FOR OUR CONSIDERATION FR OM REVENUE APPEAL IS DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE ACT R.W.S. RULE 8D OF I.T. RULES, 1962. THE AO HAS 14 AMARTARA PVT LTD DISALLOWED A SUM OF RS.42,85,198 U/S 14A BY INVOKIN G RULE 8D(2)(II) AND 8D(2)(III) OF I.T. RULES, 1962. ACCORDING TO T HE AO, THE ASSESSEE HAS MADE HUGE INVESTMENTS IN SHARE OF DOMESTIC COMP ANIES AND CAPITAL CONTRIBUTION TO PARTNERSHIP FIRMS, INCOME FROM WHIC H DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. HOWEVER, THE ASSESS EE HAS NOT DISALLOWED EXPENDITURE INCURRED IN RELATION TO EARN EXEMPT INCOME AND HENCE, ISSUED A SHOW CAUSE NOTICE AND ASKED AS TO W HY DISALLOWANCE SHALL NOT BE WORKED OUT BY INVOKING RULE 8D(2)(II). IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT IT H AS NOT INCURRED ANY EXPENDITURE IN RELATION TO INCOME WHICH IS EXEMPT U NDER THE INCOME- TAX ACT, 1961 AND THAT ALL ITS INVESTMENTS ARE MADE OUT OF ITS OWN INTEREST FREE FUNDS AND NO PART OF INTEREST BEARING FUNDS HAS BEEN USED TO MAKE INVESTMENTS. THEREFORE, THE QUESTION OF DI SALLOWANCE OF INTEREST EXPENDITURE AND EXPENSES BY INVOKING RULE 8D(2)(II) AND 8D(2)(III) DOES NOT ARISE. THE ASSESSEE FURTHER SU BMITTED THAT DURING THE YEAR UNDER CONSIDERATION, IT HAS NOT EARNED ANY EXEMPT INCOME IN THE FORM OF DIVIDENDS OR SHARE OF PROFIT FROM PARTN ERSHIP FIRMS, AND THEREFORE, IN THE ABSENCE OF ANY EXEMPT INCOME, NO DISALLOWANCE COULD BE MADE TOWARDS EXPENDITURE INCURRED IN RELATION TO EARNING EXEMPT INCOME U/S 14A OF THE ACT. IN THIS REGARD, HE RELI ED UPON THE DECISION OF HONBE DELHI HIGH COURT IN THE CASE OF CIT VS CH EMINVEST LTD 2015) 317 ITR 86 (DEL). THE ASSESSEE ALSO RELIED U PON THE DECISION OF 15 AMARTARA PVT LTD THE MUMBAI TRIBUNAL IN THE CASE OF OUSESH MERCANTIL E PVT LTD VS DCIT 26 TAXMAN.COM 43 (MUM) AND ALSO THE JUDGEMENT OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DELOITTE ENTERPRIS ES IN ITA NO.110 OF 2009. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO CONSIDERING THE RELEVANT PROVISIONS OF SEC TION 14A, OBSERVED THAT FROM AY 2008-09 ONWARDS DISALLOWANCE U/S 14A N EEDS TO BE WORKED OUT AS PER THE PRESCRIBED METHOD PROVIDED U/ R 8D OF INCOME- TAX RULES, 1962 AND SUCH DISALLOWANCE DOES NOT DEPE ND UPON EARNING OF EXEMPT INCOME. THE AO FURTHER OBSERVED THAT EVE N IF NO EXEMPT INCOME IS EARNED DURING THE YEAR UNDER CONSIDERATIO N, EXPENSES INCURRED IN RELATION TO EXEMPT INCOME SHOULD BE DIS ALLOWED. THEREFORE, BY RELYING UPON CERTAIN JUDICIAL PRECEDE NTS WORKED OUT DISALLOWANCE U/S 14A BY INVOKING RULE 8D(2)(II) AND 8D(2)(III) AND DETERMINED TOTAL DISALLOWANCE OFRS.45,82,198. 12. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS WHICH WAS REPRODUCED BY CIT(A) IN HIS ORDER ON PAGE 4 TO 16. THE SUM AND SUBSTANCE OF THE ARGUMEN TS OF THE ASSESSEE BEFORE THE CIT(A) IS THAT THE AO HAS MERELY BASED O N THE GENERAL OBSERVATIONS, APPLIED RULE 8D AND MADE DISALLOWANCE U/S 14A OF THE ACT WITHOUT ANY NEXUS BETWEEN EXPENDITURE INCURRED BY THE ASSESSEE TO THE EXEMPT INCOME. THE ASSESSEE FURTHER SUBMITTED THAT IN THE ABSENCE 16 AMARTARA PVT LTD OF ANY EXEMPT INCOME DISALLOWANCE CONTEMPLATED U/S 14A SHALL NOT BE DISALLOWED BY INVOKING RULE 8D(2). THE CIT(A), AFT ER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYI NG UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS CHEMINVEST LTD (SUPRA) AND AL SO THEHONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DELOITTE EN TERPRISES (SUPRA) HELD THAT WHERE THE INVESTMENTS HAVE NOT GENERATED ANY EXEMPT INCOME, THE DEDUCTION ON ACCOUNT OF THE INTEREST CO MPONENT ON BORROWED FUNDS WHICH WERE UTILISED FOR MAKING INVES TMENTS CANNOT BE MADE. THE CIT(A) FURTHER OBSERVED THAT SINCE THE A SSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONS IDERATION, THE QUESTION OF DISALLOWANCE CONTEMPLATED U/S 14A SHALL NOT BE DISALLOWED. WITH THESE OBSERVATIONS, THE CIT(A) DELETED ADDITI ON MADE BY THE AO. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 13. THE LD.DR SUBMITTED THAT THE LD.CIT(A) ERRED IN DEL ETING DISALLOWANCE U/S 14A WITHOUT APPRECIATING THAT RULE 8D STARTS WITH HEADING FORMULA FOR DETERMINATION OF EXPENDITURE AND THE 3 STEPS PRESCRIBED UNDER THIS RULE TO COMPUTE THE EXPENDITU RE IN RELATION TO EXEMPT INCOME SHALL BE APPLIED COLLECTIVELY. THE L D.DR SUBMITTED THAT DISALLOWANCE CONTEMPLATED U/S 14A HAS TO BE TH E AGGREGATE OF THE AMOUNTS DETERMINED U/R 8D. THEREFORE, THE AO HAS R IGHTLY DISALLOWED EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME A S THE ASSESSEE HAS 17 AMARTARA PVT LTD INVESTED HUGE AMOUNTS IN SHARES OF COMPANIES AND CA PITAL OF PARTNERSHIP FIRMS, THE INCOME FROM WHICH SHALL NOT FORM PART OF TOTAL INCOME. THE LD.DR REFERRING TO THE CBDT CIRCULAR N O.5 OF 2014 DATED 1-02-2014 SUBMITTED THAT THE BOARD HAS CLARIFIED TH AT THE TERM INCLUDIBLE IN THE HEADING OF SECTION 14A OF THE A CT AND THE HEADING IN RULE 8D OF IT RULES, 1962 INDICATES THAT FOR INVOKI NG DISALLOWANCE U/S 14A, IT IS NOT MATERIAL THAT THE ASSESSEE SHOULD HA VE EARNED SUCH EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSI DERATION. 14. ON THE OTHER HAND, THE LD.AR FOR THE ASSESSEE SUBMI TTED THAT THE CIT(A) HAS RIGHTLY DELETED ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS CHEMINVEST LTD (SUPRA), WHEREIN IT WAS CATEGORICALLY HELD THAT WHERE THERE IS NO EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT IN COME HAS NOT BEEN DISPUTED BY THE REVENUE. THE ASSESSEE ALSO EXPLAIN ED BEFORE THE LOWER AUTHORITIES THAT IT HAS INVESTMENTS IN GROUP COMPAN IES AND FIRMS, WHICH ARE OUT OF ITS OWN FUNDS AND NO PART OF INTEREST BE ARING FUNDS HAS BEEN USED. THEREFORE, THE QUESTION OF DISALLOWANCE OF I NTEREST AS WELL AS EXPENDITURE BY INVOKING RULE 8D DOES NOT ARISE. TH E CIT(A) HAS RIGHTLY CONSIDERED THE FACTS OF THE CASE TO DELETE ADDITIONS MADE BY THE AO AND HIS ORDER SHOULD BE UPHELD. 18 AMARTARA PVT LTD 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL AVAILABLE ON RECORD. THE AO DISALLOWED EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A BY INVOKING RULE 8D(2)(II) AND 8D(2)(III) AND DETER MINED DISALLOWANCE OF RS.42,85,198. ACCORDING TO THE AO, EARNING EXEMPT INCOME IS NOT A PRE-CONDITION FOR DISALLOWANCE OF EXPENDITURE U/S 1 4A. EVEN IF NO EXEMPT INCOME IS EARNED FOR THE YEAR UNDER CONSIDER ATION, DISALLOWANCE CONTEMPLATED U/S 14A SHALL BE WORKED OUT BY APPLYIN G RULE 8D(2) WHICH PROVIDES FOR DETERMINATION OF DISALLOWANCE FO R INTEREST AND EXPENSES. ACCORDING TO THE AO, THE BOARD HAS CLARI FIED THE TERM INCLUDIBLE IN SECTION 14A AS PER WHICH THERE IS NO REQUIREMENT OF ANY EXEMPT INCOME TO INVOKE THE PROVISIONS OF RULE 8D. IF THE ASSESSEE HAS INVESTMENTS IN SHARES, INCOME FROM WHICH SHALL NOT FORM PART OF TOTAL INCOME, THEN THE EXPENDITURE INCURRED BY THE ASSESS EE BY WAY OF INTEREST AND OTHER EXPENSES SHALL BE WORKED OUT. I T IS THE CONTENTION OF THE ASSESSEE THAT WHEN THERE IS NO EXEMPT INCOME FO R THE YEAR UNDER CONSIDERATION, DISALLOWANCE CONTEMPLATED U/S 14A SH ALL NOT BE MADE AS EARNING EXEMPT INCOME IS A PRE-CONDITION FOR DISALL OWANCE OF EXPENDITURE U/S 14A OF THE ACT. THE ASSESSEE FURTH ER CONTENDED THAT THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT IN COME HAS NOT BEEN DISPUTED BY THE LOWER AUTHORITIES. THE ASSESSEE FU RTHER CONTENDED THAT IN THE ABSENCE OF ANY NEXUS BETWEEN EXPENDITURE INC URRED AND EXEMPT INCOME MERELY ON THE BASIS OF GENERAL OBSERVATIONS, RULE 8D CANNOT BE 19 AMARTARA PVT LTD APPLIED FOR DISALLOWANCE OF INTEREST AND EXPENDITUR E U/S 14A. 16. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND FORCE IN THE ARGUMENTS OF THE ASSES SEE FOR THE REASON THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CI T VS CHEMINVEST LTD (SUPRA) HAS HELD THAT WHERE THERE IS NO EXEMPT INCOME, DISALLOWANCE CONTEMPLATED U/S 14A SHALL NOT BE WORKED OUT. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS DELOITTE ENTERPRISES IN ITA NO.110 OF 2009 HELD THAT WHERE THE INVESTMENTS HAVE GENERATED ANY EXEMP T INCOME, THE DEDUCTION ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS WHICH WE RE UTILIZED FOR MAKING INVESTMENTS CANNOT BE DISALLOWED. THE SUM AND SUBS TANCE OF THE RATIOS LAID DOWN BY THE DELHI HIGH COURT ARE THAT WHEN THERE IS NO EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A BY INVOKING RULE 8 D(2)(II). IN THIS CASE, THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT IN COME, HAS NOT BEEN DISPUTED BY THE REVENUE. THEREFORE, WE ARE OF THE VIEW THAT THE AO WAS ERRED IN DISALLOWING EXPENDITURE INCURRED IN RELATION TO EXE MPT INCOME U/S 14A BY INVOKING RULE 8D(2)(II) & (III) OF I.T. RULES, 1962 . THE CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY DELETED ADDI TION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A); HENC E, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILE D BY THE REVENUE. 17. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED AND APPEAL FILED BY THE REVENUE IS DISMISSED. 20 AMARTARA PVT LTD ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 29 TH DECEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI