MDLR Builders P.Ltd, New Delhi V. DCIT, Central circle-14, New Delhi

ITA 8214/DEL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1670 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARAMITA M BISWAS
• Assessee Lawyers: GAUTAM JAIN SH LALIT MOHAN
• Keywords: Capital asset; Opportunity of being heard; Question of law; Cost of acquisition; Fair market value; Corroborative evidences; Valuation report; Tax effect; Capital receipt; Documents seized; Set aside
• Section: 2(14); 147; 144; 15

Judgement Text

PAGE NO. 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND SH. KULDIP SINGH, JUDICIAL MEMBER ITA NO.8214/DEL/2018 ASSESSMENT YEAR: 2008-09 MDLR BUILDERS P. LTD. FLAT NO.4R.R APARTMENTS, 3-4 MANGLAPURI, MEHRAULI, NEW DELHI -110030 PAN NO. AAECM5223C VS DCIT CENTRAL CIRCLE 14 NEW DELHI (APPELLANT) (RESPONDENT) ITA NO.8215/DEL/2018 ASSESSMENT YEAR: 2008-09 MDLR ESTATES P. LTD. FLAT NO.4R.R APARTMENTS, 3-4 MANGLAPURI, MEHRAULI, NEW DELHI -110030 PAN NO. AAECM5222D VS DCIT CENTRAL CIRCLE 14 NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. GAUTAM JAIN, ADVOCATE SH. LALIT MOHAN, CA RESPONDENT BY MS. PARAMITA M. BISWAS, CIT DR DATE OF HEARING: 13/03/2019 DATE OF PRONOUNCEMENT: 11/06/2019 PAGE NO. 2 ORDER PER R.K. PANDA, AM: THE ABOVE TWO APPEALS FILED BY THE RESPECTIVE ASSES SEES ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 27.11.20 18 OF THE CIT(A)- 26, NEW DELHI RELATING TO A. Y. 2008-09. SINCE IDE NTICAL GROUNDS HAVE BEEN TAKEN BY THE RESPECTIVE OF ASSESSEES IN THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.8214/DEL/2018 (MDLR BUILDERS INDIA LTD.) 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY DEALING IN REAL ESTATE LAND TRADING AND DEVELOPMENT . A SEARCH WAS CONDUCTED AT THE OFFICE PREMISES OF THE COMPANY ON 31.01.2008. ACCORDINGLY NOTICE U/S. 142 (1) WAS ISSUED ON 11.07 .2009 AND AGAIN ON 17.09.2009 WITH A QUESTIONNAIRE. HOWEVER, THE AS SESSEE DID NOT FILE ANY RETURN OF INCOME IN RESPONSE TO THE STATUT ORY NOTICES. SINCE THE ASSESSEE WAS NOT RESPONDING TO THE STATUTORY NO TICES ISSUED U/S. 153A, 142 (1) AND 143 (2), THE ASSESSING OFFICER CO MPLETED THE PAGE NO. 3 ASSESSMENT U/S. 144 OF THE ACT ON 21.12.2009 DETERM INING THE TOTAL INCOME AT RS.110,12,38,532/-. 3. THE ASSESSEE MOVED AN APPLICATION BEFORE THE CIT (CENTRAL)-II, NEW DELHI UNDER THE PROVISIONS OF SECTION 264 ON 14 .06.2010. THE CIT(CENTRAL)-II, NEW DELHI VIDE ORDER DATED 16.03.2 012 DISPOSED OF THE APPLICATION OF THE ASSESSEE WITH A DIRECTION TO THE ASSESSING OFFICER TO REFRAME THE ASSESSMENT AFRESH AFTER MAKI NG REQUIRED ENQUIRIES, INVESTIGATION AND VERIFICATIONS. 4. THE ASSESSING OFFICER THEREAFTER ISSUED NOTICE T O THE ASSESSEE ASKING FOR VARIOUS DETAILS. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THERE WAS NO PROPER COMPLIANCE FRO M THE SIDE OF THE ASSESSE. THEREFORE, THE ASSESSING OFFICER PROCEEDED TO PASS THE ORDER AGAIN U/S. 144 OF THE IT ACT ON THE BASIS OF INFORM ATION COLLECTED FROM THIRD PARTY ENQUIRIES DURING INITIAL ASSESSMENT AND DOCUMENTS SEIZED AT THE TIME OF SEARCH. 5. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE CO MPANY HAS SOLD ITS SHARE IN THE PARTNERSHIP FIRM M./S. TRISHUL IND USTRIES TO M/S. VATIKA LTD. AND ITS PROMOTER SHRI ANIL BHALLA DURIN G THE YEAR. M/S. PAGE NO. 4 TRISHUL INDUSTRIES HOLDS 11 ACRES OF LAND ALONG THE NH-8 AND HAS LICENSE TO SET UP AND OPERATE A RESORT CUM HOTEL AT THIS SITE. THE DETAILS OF ACQUISITION AND TRANSFER OF PARTNERSHIP SHARE IN THE FIRM M/S. TRISHUL INDUSTRIES HAS BEEN NARRATED BY THE AS SESSING OFFICER WHICH IS AS UNDER :- A) ON 15.06.05 M/S. MDLR ESTATES PRIVATE LTD, M/S. MDLR BUILDERS P. LTD (M/S. MDLR GROUP COMPANIES) AND SHR I GOPAL KUMAR GOYAL (CMD OF MDLR GROUP OF COMPANIES), ENTER ED INTO AN AGREEMENT TO SELL WITH THE EXISTING PARTNERS O F M/S. TRISHUL INDUSTRIES, I.E. SHRI RAVI SHANKAR, SHRI S.C, BABBE R, SHRI SATISH CHANDRA BABBER AND SHRI RL KUKREJA FOR TRANSFER OF PARTNERSHIP SHARE OF THE FIRM TO MDLR GROUP OF COMPANIES AS MEN TIONED ABOVE. TOTAL PAYMENT OF RS.19.2 CR WAS MADE TO FOUR PARTNERS IN LIEU OF TRANSFER OF PARTNERSHIP SHARES BY THEM. RS.9,50,00,000/- WAS PAID BY M/S. MDLR ESTATES PVT LTD AND RS.9,50,00,000/- WAS PAID BY M/S. MDLR BUILDERS PVT . LTD. B) ON 25.10.06 A DEED OF RETIREMENT WAS SIGNED BETW EEN THE ABOVE MENTIONED PARTIES WHICH FORMALIZED THE AGREEM ENT TO SELL SIGNED ON 15.06.05. AS PER THE DEED OF RETIREMENT T HE ORIGINAL FOUR PARTNERS RETIRED FROM THE FIRM AND THE PLACE O F BUSINESS ALSO CHANGED TO THE REGISTERED OFFICE OF MDLR GROUP OF COMPANIES. BY THIS DEED OF RETIREMENT THE MDLR GROU P TOOK FULL CONTROL OF THE FIRM. THE PARTNERSHIP SHARES WERE HE LD AS GIVEN BELOW:- PAGE NO. 5 C) THE RETIRING PARTNERS WERE GIVEN THE CAPITAL BAC K FROM THE FIRM. IT IS TO BE NOTED THAT THEY PAID TAX ON CAPIT AL GAIN IN ASSESSMENT YEAR 2007-08, EARNED FROM SELL OF PARTNE RSHIP SHARE IN M/S TRISHUL INDUSTRIES. D) ON 29.11.07, THE MDLR GROUP COMPANIES ENTERED IN TO A DEED OF RETIREMENT WITH M/S. VATIKA LTD. BY WHICH I T AGREED TO TRANSFER 85% OF PARTNERSHIP SHARE IN M/S TRISHUL IN DUSTRIES TO M/S. VATIKA LTD & SHRI ANIL BHALLA. THE DEED STATES THAT ' THE AMOUNTS PAID BY THE CONTINUING PARTNERS IS IN CONSI DERATION OF ALL RIGHTS, TITLE AND INTEREST OF THE RETIRING PARTNERS IN THE SAID PARTNERSHIP' I.E. M/S. TRISHUL INDUSTRIES. THIS, ACCORDING TO TH E ASSESSING OFFICER, MEANS THAT THE PAYMENTS MADE BY M/S. VATIKA LTD TO MDLR GROUP COMPANIES IS FOR THE PARTNERSHIP SHARE IN M/S. TRISHUL INDUSTRIES WHICH INCLUDES THE RIGHTS, TITLE AND INTEREST EMBEDDED IN THE PARTNERSHIP SHARE. E) ON 15.12.07 A DEED OF PARTNERSHIP WAS SIGNED BETWEEN MDLR GROUP AND VATIKA GROUP. BY THIS DEED 85% OF PARTNER SHIP IS NAME OF MDLR GROUP ENTITY PARTNERSHIP SHARES MDLR ESTATES PVT LTD 47.5%' MDLR BUILDERS PVT LTD 47.5% SHRI GOOAL GOYAL 5% . - PAGE NO. 6 TRANSFERRED TO M/S. VATIKA LTD AND 1% TO SHRI ANIL BHALLA BY MDLR GROUP. THE DEED DOES NOT CONTAIN ANY DETAILS R EGARDING THE PAYMENTS MADE FOR THE PURPOSE OF ACQUISITION OF PAR TNERSHIP SHARE BY VATIKA GROUP. F) A TOTAL OF RS.178 CR WAS PAID TO MDLR GROUP FOR ACQUISITION OF THE PARTNERSHIP FIRM. THE DETAILS OF PAYMENT AS ON 31.01.08 IS AS UNDER -: G) THE PARTNERSHIP SHARE IN A FIRM ACCORDING TO THE ASSESSING OFFICER IS A CAPITAL ASSET WITHIN THE MEA NING OF SECTION 2 (14) OF THE INCOME TAX ACT, 1961. THE MDL R GROUP TRANSFERRED PARTNERSHIP SHARE HELD BY IT TO VATIKA LTD AND ANIL BHALLA. THIS ACCORDING TO THE ASSESSING OFFICER IS COVERED WELL WITHIN THE SCOPE OF TRANSFER OF CAPITAL ASSETS DEFI NED IN SECTION 2(45) OF THE IT ACT. H) THE ASSESSING OFFICER NOTED THAT THE DEED OF RET IREMENT DATED 29.11.07 CLEARLY STATES THAT IN PURSUANCE TO THE DEED, RIGHTS, TITLE AND INTERESTS OF THE RETIRING PARTNER S I.E. MDLR GROUP HAVE BEEN TRANSFERRED AND MONEY IS BEING PAID BY VATIKA GROUP IN CONSIDERATION FOR THE RIGHTS, TITLE AND INTERESTS ACQUIRED BY IT. THE RIGHTS, TITLE AND INT ERESTS REFERRED TO HERE, IS A BUNDLE OF RIGHTS AND INTERESTS WHICH INCLUDE THE TITLE TO 11 ACRES OF LAND AND LICENSE TO OPERATE AN D SET UP A HOTEL, HELD BY M/S TRISHUL INDUSTRIES. THUS BY TRAN SFERRING THE PARTNERSHIP SHARE IN THE FIRM, THE MDLR GROUP H AS TRANSFERRED THE RIGHTS, TITLE, AND INTERESTS HELD B Y IT IN THE FIRM. THESE ARE CAPITAL ASSETS WITHIN THE MEANING O F SECTION 2(14) AND THEIR TRANSFER IS TRANSFER OF CAPITAL ASS ETS U/S 2 (47) OF THE INCOME TAX ACT,1961. THE MDLR GROUP IS THERE FORE, LIABLE TO PAY TAX ON CAPITAL GAINS EARNED ON THIS T RANSFER. I) THE TRANSFER OF PARTNERSHIP SHARE TOGETHER WITH RIGHTS, TITLE AND INTERESTS EMBEDDED IN IT TOOK PLACE WITHI N 36 MONTHS OF ITS ACQUISITION. THEREFORE THE MDLR GROUP OF COM PANIES IS PAGE | 8 LIABLE TO PAY SHORT TERM CAPITAL GAINS TAX ON CAPIT AL GAINS ACCRUED TO IT. J) THE ASSESSING OFFICER NOTED THAT WHILE GOING THR OUGH THE ELECTRONIC DATA SEIZED DURING THE SEARCH OPERATION ANNEXURE A-91 CONTAINED THE VALUATION REPORT OF LAND BELONGI NG TO M/S. TRISHUL INDUSTRIES, AT VILL-SHIKOHPUR DISTT-GURGAON HARYANA. THE VALUATION HAS BEEN DONE BY ER. I.S. CHAUHAN AND THE PURPOSE OF VALUATION IS TO ASSESS THE FAIR MARKET V ALUE OF THE PROPERTY. IN THE SAID VALUATION REPORT TOTAL VALUE OF THE PROPERTY HAS BEEN EVALUATED AT RS.1800 MILLION I.E. RS.180,00,00,000/- (RS.180 CRORES). THEREFORE, HE C ONCLUDED THAT THE RECEIPT OF RS. 178,42,77,068/-IN VARIOUS C OMPANIES IS NOTHING BUT CONSIDERATION FOR SALE OF LAND OWNED BY M/S. TRISHUL INDUSTRIES. K) SINCE A TOTAL OF 85% OF PARTNERSHIP SHARE WAS TR ANSFERRED OUT OF WHICH 42.5% WAS TRANSFERRED BY THE ASSESSEE COMPANY AND SINCE THE TOTAL SALE CONSIDERATION RECEIVED IS RS. 178,42,77,063/-, THEREFORE, THE ASSESSING OFFICER T OOK HALF OF THIS SUM I.E. RS.89,21.38,532/- AS SALE CONSIDERATI ON RECEIVED IN THE HANDS OF THE ASSESSEE COMPANY. THE COST OF ACQUISITION IN THE HANDS OF ASSESSEE IS RS.9,50,00, 000/-. HE ACCORDINGLY DETERMINED THE SHORT TERM CAPITAL GAIN AT RS.79,71,38,532/- AND ADDED THE SAME TO THE TOTAL I NCOME OF THE ASSESSEE. 6. THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSE E HAS ADMITTED UNDISCLOSED INCOME OF RS.30,41,00,000/- VI DE LETTER PAGE | 9 DATED 16.06.2008. HE, THEREFORE, ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS UNDISCLOSED INCOME. 7. THE ASSESSING OFFICER ACCORDINGLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.1,10,12,38,532/-. 8. BEFORE CIT(A) THE ASSESSEE MADE ELABORATE SUBMIS SIONS AND FILED VARIOUS DETAILS BASED ON WHICH THE LD. CI T(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. TH E ASSESSING OFFICER SEND THREE REMAND REPORTS ON VARIOUS DATES WHICH WERE CONFRONTED TO THE ASSESSEE. AFTER CONSIDERING THE R EMAND REPORTS OF THE ASSESSING OFFICER AND THE REJOINDER OF THE ASSESSEE TO SUCH REMAND REPORTS THE CIT(A) HELD THA T THE SUM RECEIVED ON RETIREMENT FROM THE PARTNERSHIP FIRM IS TAXABLE AS INCOME OF THE ASSESSEE COMPANY AS SHARE OF PARTNER IN PARTNERSHIP FIRM IS CAPITAL ASSET AND ON RETIREMENT OF THE FIRM THERE IS CAPITAL GAIN WHICH ACCRUES TO THE ASSESSE WHICH IS TAXABLE AS SUCH. FOR THE ABOVE PROPOSITION HE RELIE D ON THE DECISION OF HONBLE KARNATAKA HIGH COURT OF CIT VS. GURUNATH TALKIES REPORTED IN 328 ITR 59 (KARNATAKA) AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. A. K. NAIK ASSOCIATES REPORTED IN 265 ITR 346. HE HOWEVER NOTE D FROM PAGE | 10 THE RETIREMENT DEED DATED 28.11.2007 BETWEEN M/S. M DLR ESTATE PRIVATE LIMITED, M/S. MDLR BUILDERS PRIVATE LIMITED, MR. GOPAL KUMAR, M/S. VATIKA LIMITED AND MR. ANIL B HALLA THAT SUM INFUSED BY M/S. VATIKA LIMITED WAS RS.112,00,00,000/- AND NOT RS.178.42 CRORES AS HELD BY THE ASSESSING OFFICER. HE, THEREFORE, HELD THAT THE SU M PAID BY VATIKA LIMITED TO ANY OTHER ENTITY OF MDLR GROUP CA NNOT BE A GROUND TO BRING TO TAX AS CAPITAL GAIN IN THE HANDS OF THE ASSESSEE ON TRANSFER OF SHARES IN M/S. TRISHUL INDU STRIES. HE, THEREFORE, DIRECTED THE ASSESSING OFFICER TO EXCLUD E FIGURE OF RS.72.42 CRORES FOR COMPUTATION OF THE CAPITAL GAIN IN THE HANDS OF THE ASSESSEE ON TRANSFER OF SHARES IN THE PARTNERSHIP FIRM M/S. TRISHUL INDUSTRIES. HE FURTHER NOTED THA T THE SUM OF RS.45.50 CRORES STANDS RECEIVED IN THE CASE OF THE ASSESSEE, RS.47.12 CRORES IN THE CASE OF MDLR ESTATE PRIVATE LIMITED AND RS.3 CRORES IN THE HAND OF SH. GOPAL KUMAR GOYA L. THE LD. CIT(A) IN THE CASE OF SH. GOPAL KUMAR GOYAL HAS CONFIRMED THE ADDITION. THEREFORE, THE ASSESSING OFFICER OUG HT TO HAVE ADOPTED THE SUMS BASED ON THE RETIREMENT DEED AT A FIGURE OF RS.112 CRORES WITH 47.50% SHARE WHICH WORKOUT TO RS .53.20 PAGE | 11 CRORES. AFTER DEDUCTING THE COST OF SHARE IN THE FI RM AT RS.9,70,52,500/- THE LD. CIT(A) DIRECTED THE ASSESS ING OFFICER TO TAX THE AMOUNT OF RS.43,49,47,500/- AS CAPITAL G AIN ARISING TO THE ASSESSEE ON THE SUM RECEIVED ON RETIREMENT F ROM THE PARTNERSHIP FIRM. 9. THE LD. CIT(A) WHILE DECIDING THE APPEAL FOUND C ERTAIN DISCREPANCIES IN THE COMPUTATION OF INCOME. HE, THE REFORE, ISSUED AN ENHANCEMENT NOTICE TO THE ASSESSEE, THE D ETAILS OF WHICH ARE AS UNDER :- IT IS SEEN FROM THE RETURN AND THE SUBMISSIONS THA T YOU HAVE DECLARED INCOME OF RS. 30.44 CRORES APP. I T IS, HOWEVER, SEEN FROM THE DETAILS ABOUT THE TRANSACTIO NS INVOLVING THE RETIREMENT OF THE PARTNERS FROM M/S T RISHUL INDUSTRIES THAT YOU HAVE REPORTEDLY RECEIVED A PAYM ENT OF RS. 53.20 CRORES AND HAVE CLAIMED AN EXPENDITURE OF RS. 9.7 CRORES. THE SAME DOES NOT TALLY WITH THE RETURN OF INCOME NOR WITH THE COMPUTATION OF INCOME. THERE IS A SHORT DE CLARATION OF [RS. 43.5 CRORES - 30.44] = 13.06 CRORES ACCORDINGLY, YOU ARE REQUIRED TO SHOW CAUSE AS TO W HY YOUR INCOME BE NOT ENHANCED BY THE LIKE AMOUNT OF RS. 13 .06 CRORES SO AS TO RECONCILE THE FIGURES AS ABOVE, TO BRING THE DUE INCOME AS PER LAW OF TAX. PAGE | 12 10. THE ASSESSEE FILED DETAILED SUBMISSIONS AND CLA IMED LOSS OF RS.13.06 CRORES ON ACCOUNT OF PURCHASE AND SALE OF SHARES THE DETAILS OF WHICH ARE AS UNDER :- 11. HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. HE OBSERVED THA T THE AFORESAID LOSSES ARE ON ACCOUNT OF TRANSACTIONS BET WEEN GROUP ENTITIES OF SHARES OF GROUP ENTITIES. IT IS CLEARLY A COLLUSIVE TRANSACTION THAT HAS BEEN DONE ONLY TO OFFSET THE I NCOME ON SALE OF SHARES IN THE PARTNERSHIP FIRM M/S. TRISHUL INDUSTRIES AND THUS IS NOT ALLOWABLE LOSSES. ACCORDING TO THE LD. CIT(A) IT IS NOT A GENUINE LOSS SINCE THERE IS NO CORROBORATI VE EVIDENCE IN THIS REGARD. HE, THEREFORE, DIRECTED THE ASSESS ING OFFICER TO ENHANCE THE INCOME OF THE ASSESSEE TO THIS EXTENT B EING THE PAGE | 13 LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF PURCHASE AND SALE OF SHARES WHICH IS NOT ALLOWABLE. 12. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL :- GROUNDS OF APPEAL GROUND NO. 1) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN MAKING A DISALLOWANCE O F RS. 13,04,50,800/- REPRESENTING THE LOSS INCURRED ON PURCHASE AND SALE OF SHARES. TAX EFFECT RS. 4,43,40,227/- GROUND NO. 1.1) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHILE MAKING THE AFORESAID DISALLOWANCE HAS ACTED IN EXCE SS OF JURISDICTION AND THEREFORE, THE SAME IS BEYOND THE SCOPE AND POWERS VESTED IN T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) UNDER SECTION 25 L(L)(A) OF TH E ACT. LINKED TO GROUND NO.L GROUND NO.1.2) THAT NO VALID SHOW CAUSE NOTICE WAS GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BEFORE MAKING THE IMPUGNED DISALLOWANCE AND HENCE THE SAME ON THIS GROUND ALONE IS WITHOUT JURISDICTION AND CONTRARY TO THE PROVISIONS CONTAINED IN SECTION 251(2) OF THE ACT. LINKED TO GROUND NO.L GROUND NO. 1.3) THAT EVEN OTHERWISE, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE DOCUMENTARY EVIDENCE FURNISHED IN SUPPORT OF THE LOSS INCURRED BY THE ASSESSEE COMPANY AND THEREFORE, GEN UINE BUSINESS LOSS INCURRED BY THE ASSESSEE OUGHT TO HAVE BEEN ALLOWED AS SUCH. LINKED TO GROUND NO.L GROUND NO. 1.4) THAT THE FINDING OF THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) THAT THE AFORESAI D LOSS IS OF TRANSACTION BETWEEN GROUP ENTITIES OF SHARES OF GROUP ENTITIES AND IT IS CLEARLY A COLLUSIVE TRA NSACTION THAT HAS BEEN DONE ONLY TO OFFSET THE INCOME ON SALE OF SHARES IN THE PARTNERS HIP FIRM OF M/S. TIRSHUL INDUSTRIES AND THUS IS NOT ALLOWABL E LOSS AND THE PURPORTED LOSS SO CLAIMED IS CLEARLY INADMISSIBLE TRANSACTION TO ARTIFICIALLY EVADE LAWF UL TAX OBLIGATIONS AND IT IS NOT GENUINE LESS AS THERE IS NO CORROBORATIVE EVIDENCE IN THIS REGARD, IS FACTUALLY INCORRECT, CONTRARY TO EVIDENCE ON RECOR D, LEGALLY MISCONCEIVED AND WHOLLY UNTENABLE IN LAW AND HENCE UNSUSTAINABLE. LINKED TO GROUND NO.L GROUND NO. 2) THAT FURTHERMORE, THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN UPH OLDING THE INCLUSION OF RS. 43,49,47,500/- (SALES CONSIDERATION OF RS. 53,20,00 ,000 - COST OF SHARE IN PARTNERSHIP FIRM OF RS. 9,70,52,500) REPRESENTING THE ALLEGED C APITAL GAIN ARISING ON SUM RECEIVED BY THE ASSESSEE AS PARTNER ON RETIREMENT F ROM THE PARTNERSHIP FIRM THOUGH THE SAME IS EXEMPT UNDER SECTION 10(2A) OF THE ACT. RS. 14,78,38,655/ - PAGE | 14 GROUND NO. 2.1) THAT THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) WHILE UPHOLDING THE INCLUSION, HAS FAILED TO APPRECIATE THAT NO CAP ITAL GAIN AROSE TO THE PARTNER ON RETIREMENT FROM THE PA RTNERSHIP FIRM AND HENCE ADDITION SO MADE AND SUSTAINED IS INVALID AND THEREFORE, UNSUST AINABLE. LINKED TO GROUND GROUND NO. 2.2) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS FAILED TO APPRECIATE THAT THERE IS NO ESTOPPEL AGAI NST STATUTE AND MERE DECLARATION IN THE CAPITAL GAIN COULD NOT BE A GROU ND TO SUSTAIN ANY ADDITION. LINKED TO GROUND NO.2 GROUND NO. 2.3) THAT WHILE UPHOLDING THE ADDITION, THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE TH E EVIDENCE PLACED ON RECORD ALONGWITH JUDICIAL PRONOUNCEMENTS TO SUBMIT THAT ADDITION MADE AND SUSTAINED IS NOT IN ACCORDANCE WITH LAW. LINKED TO GROUND NO.2 PRAYER IT IS THEREFORE, PRAYED THAT IT BE HELD THAT SUM RECEIVED ON ACCOUNT OF RETIREMENT FROM THE PARTNERSHIP FIRM WAS NOT ASSESSABLE AS INCOME AND THEREFORE OUGHT TO HAVE BEEN EXCLUDED WHILE COMPUTI NG INCOME OF THE APPELLANT COMPANY. APART FROM THE ABOVE, IT BE ALSO HELD THAT ENHANCEMENT OF INCOME BY DISALLOWING THE LOSS CLAIMED ON PURCHA SE AND SALE OF SHARES IS ALSO ILLEGAL, BOTH ON MERITS AND EVEN OTHERWISE BEYOND T HE SCOPE OF POWERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) UNDER SECTION 251 OF THE ACT. IT IS THUS PRAYED THAT APPEAL OF THE APPELL ANT MAY KINDLY BE ALLOWED AS SUCH. 13. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOS ED THE ORDER OF THE CIT(A). HE SUBMITTED THAT PROVISIONS OF SECTION 45 (4) DO NOT APPLY TO PARTNER AND APPLIES TO A FIRM. HE SUBMITTED THAT LD. CIT(A) INCORRECTLY CAME TO THE CONCLUSION THAT THE AMOUNT OF RS.43,49,47,500/- REPRESENT THE CAPITAL G AIN ARISING ON SUM RECEIVED BY THE ASSESSEE AS PARTNER ON RETIR EMENT FROM THE PARTNERSHIP FIRM, THOUGH THE SAME IS EXEMPT U/S 10 (2A) OF THE IT ACT. HE SUBMITTED THAT NO CAPITAL GAIN AROS E TO THE PARTNER ON RETIREMENT FROM THE PARTNERSHIP FIRM AND HENCE PAGE | 15 ADDITION SO MADE BY THE ASSESSING OFFICER WHICH HAS BEEN SUSTAINED BY THE CIT(A) IS INVALID. 14. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT SUM RECEIVED ON RETIREMENT FROM PARTNERSHIP FIRM WH ICH IS OUTSTANDING AS CAPITAL BALANCE TO THE CREDIT OF ACC OUNT OF PARTNERS ACCOUNT IS NOT TAXABLE :- 1. PRASHANT S. JOSHI VS. ITO 324 ITR 154 (BOM) 2. CHALASANI VENKATESARA RAO VS. ITO 349 ITR 423 (A. P .) 3. CIT VS. DYNAMIC ENTERPRISES 359 ITR 83 (KAR) 4. CIT VS. MOHANBHAI PAMABHAI 91 ITR 393 (GUJ) HE ALSO RELIED ON VARIOUS DECISIONS OF THE COORDINA TE BENCHES OF THE TRIBUNAL ON THIS PROPOSITION. 15. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT SUM STANDING TO THE CREDIT IN THE CURRENT ACCOUNT O R CAPITAL ACCOUNT OF THE RETIRING PARTNER CANNOT BE DEEMED AS TRANSFER OF INTEREST IN THE ASSETS OF PARTNERSHIP FIRM U/S. 2 (47) OF THE ACT AND AS SUCH THERE IS NO LIABILITY UNDER THE HEA D CAPITAL GAIN IN THE HANDS OF THE RETIRING PARTNER U/S. 45 OF THE ACT :- 1) CIT VS. DEWAS CINE CORPN 68 ITR 240 2) CIT VS. BANKEY LAL VAIDYA 79 ITR 594 PAGE | 16 3) CIT VS. MOHANBHAI PAMABHAI 165 ITR166 4) TRIBHUVAN G. PATEL VS. CIT 236 ITR 515 5) PRASHANT S. JOSHI VS. ITO 324 ITR 154 (BOM) 6) CHALASANI VENKATSARA RAO VS. ITO 349 ITR 423 (A) 7) CIT VS. L. RAGHU KUMAR 141 ITR 674 (AP) 8) CIT VS. P. H. PATEL 171 ITR 128 (AP) 9) CIT VS. G. SESHAGIRI RAO 213 ITR 304 (AP) 10) BANKEY LAL VAIDYA VS. CIT 55 ITR 400 (ALL) 11) CIT VS. KUNAMKULAM MILL BOARD 257 ITR 544 ( KER) 16. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT THERE IS NO ESTOPPEL AGAINST STATUE AND MERE DECLAR ATION OF CAPITAL GAIN IN THE RETURN CANNOT BE A GROUND TO MA KE ADDITION ON ACCOUNT OF SHORT TERM CAPITAL GAIN :- 1. CIT VS. MAHALAXMI SUGAR MILLS CO. LTD. 160 ITR 920 (SC) 2. CIT VS. BHARAT GENERAL REINSURANCE LTD. CO. 81 ITR 303 (DEL) 3. VIJAY GUPTA VS. CIT 386 ITR 643 (DEL) PAGE | 17 4. DIT (E) VS. AHAY G. PIRAMAL FOUNDATION 52 TAXMANN.COM 226 (DEL) 5. CIT VIDARBHA AND MARATHWADA VS. SMT. ARCHANA R. DHANWATAY 136 ITR 355 (BOM) 6. NIRMALA L. MEHTA VS. A. BALASUBRAMANIAM 269 ITR 1 (BOM) 17. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT RECONSTITUTION OF FIRM DOES NOT RESULT INTO INVOCAT ION OF SECTION 45 (4) :- 1. CIT VS. P. N. PANJAWANI 356 ITR 676 (KARNATAKA) 2. DCIT VS. G. K.ENTERPRISES 79 TTJ 82 (MAD) 18. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT TAXABILITY OF SUM RECEIVED BY FIRM IS NEITHER A DET ERMINATIVE AND NOR A CONCLUSIVE CONSIDERATION TO DETERMINE THE TAXABILITY OF THE SUM RECEIVED BY PARTNER FROM FIRM :- 1) ROSHAN DI HATTI VS. CIT 107 ITR 938 (SC) 2) STATE BANK OF TRAVANCORE VS. CIT 158 ITR 102 (SC) 3) INCOME TAX OFFICER VS. CH. ATCHAIAH 218 ITR 239 (SC) 4) GODHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 746 (SC ) PAGE | 18 19. REFERRING TO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DYNAMIC ENTERPRISES HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID D ECISION HAS HELD THAT WHERE RETIRING PARTNER TOOK CASH TOWA RDS VALUE OF HIS SHARE IN PARTNERSHIP FIRM AND THERE WA S NO DISTRIBUTION OF CAPITAL ASSETS AMONG PARTNERS, THER E WAS NO TRANSFER OF CAPITAL ASSET AND, THEREFORE, NO PROFIT S OR GAINS IS CHARGEABLE TO TAX UNDER SECTION 45 (4). 20. SO FAR AS THE GROUNDS OF APPEAL NO. 1 TO 1.4 AR E CONCERNED WHEREIN THE CIT(A) HAS DIRECTED THE ASSES SING OFFICER TO ENHANCE THE INCOME BY RS.13,04,50,800/-, HE SUBMITTED THAT THE CIT(A) HAS NO POWER TO ENHANCE T HE ASSESSMENT FOR INCOME FROM A NEW SOURCE SINCE THE ASSESSING OFFICER IN THE INSTANT CASE HAS NOT CONSI DERED THIS ASPECT AND THERE IS NOT A WHISPER IN THE ORDER REGA RDING LOSS INCURRED ON PURCHASE AND SALE OF SHARES. THEREFORE, THE LD. CIT(A) HAS NO POWER TO ADD A NEW SOURCE OF INCOME A ND THEREBY ENHANCE THE INCOME OF THE ASSESSEE. SO FAR AS THE MERIT OF THE CASE IS CONCERNED HE SUBMITTED THAT FU LL DETAILS WERE GIVEN AND MERELY BECAUSE THE TRANSACTIONS WERE ENTERED INTO BY TWO SISTER CONCERNS, THE SAME CANNO T BE A VALID GROUND FOR TREATING THE SAME AS COLLUSIVE AND THEREBY MAKING THE ADDITION. PAGE | 19 21. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT THE CIT (A) HAS NO POWER TO ENHANCE THE ASSESS MENT FOR INCOME FROM NEW SOURCE :- 1. CIT VS SHAPOORJI PALLONJI MISTRY 44 ITR 891 (SC) 2. CIT VS RAI BAHADUR HARDUTROY MOTILAL CHAMARIA 66 IT R 443 (SC) 3. SHAPOORJI PALLONJI MISTRY 34 ITR 342 (BOM) 4. CIT VS UNION TYRES 240 ITR 556 (DELHI) 5. CIT VS. SARDARI LAI & CO. 251 ITR 864 (DELHI) 6. CIT VS CHANGANLAL KAILAS & CO. 19 TAXMANN 536 (MAD) 7. CIT VS. ASSOCIATED GARMENTS MAKERS 197 ITR 350 (RAJASTHAN) 8. CIT VS. NATIONAL CO. LTD. 199 ITR 445 (CALCUTTA) 9. CIT VS. BP SHERAFUDDIN 399 ITR 524 (KERELA) 22. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITT ED THAT TRANSACTIONS ENTERED INTO BY TWO SISTER CONCER NS CANNOT BE A VALID GROUND FOR ADDITION :- 1. ITA NO. 596/KOL/2011 M/S PLUTO FINANCE (P) LTD 2. ITA NO. 1840/MUM/2005 SHRI JAYESH P. CHOKSI V. ACIT 3. ZAHEER MAURITIUS V. DIT (IT) 270 CTR 244 (DEL) 4. ITA NO. 729/DEL/2011 M/S CONSOLIDATED FINVEST & HOL DING LTD. V. ASSTT. CIT PAGE | 20 23. THE LD. DR ON THE OTHER HAND STRONGLY RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THERE WAS NO N COMPLIANCE BY THE ASSESSEE BEFORE THE ASSESSING OFF ICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS FOR WHIC H ORDER WAS PASSED U/S. 144 / 153 A ON 21.12.2009. SIMILARL Y WHEN THE MATTER WAS SET ASIDE BY THE CIT U/S. 264 O F THE IT ACT WITH A DIRECTION TO THE ASSESSING OFFICER TO FR AME THE ASSESSMENT AFRESH, EVEN THEN ALSO THERE WAS TOTAL N ON COMPLIANCE. SHE SUBMITTED THAT THE LD. CIT(A) HAS GIVEN VALID REASONS FOR BRINGING TO TAX THE AMOUNT RECEIV ED BY THE ASSESSEE ON ACCOUNT OF RELINQUISHMENT OF ITS RIGHTS IN THE PARTNERSHIP FIRM. SIMILARLY THERE ARE CERTAIN INTR A GROUP TRANSACTIONS ON ACCOUNT OF PURCHASE AND SALE OF SHA RES FOR WHICH NO DETAILS WERE FILED EITHER BEFORE THE ASSES SING OFFICER OR BEFORE THE CIT(A). THE ASSESSEE ALSO FAI LED TO FURNISH ANY EVIDENCE THAT THE SHARE TRANSACTIONS WE RE GENUINE. THE BASIS OF SHARE PRICING WAS ALSO NOT PR OVIDED. THE LD. CIT(A) PASSED THE ORDER AFTER CALLING FOR T HREE REMAND REPORTS FROM THE ASSESSING OFFICER. ACCORDIN GLY THE LD.CIT(A), WHOSE POWERS ARE CONTERMINOUS WITH THAT OF THE POWERS OF THE ASSESSING OFFICER, ISSUED AN ENHANCEM ENT NOTICE AND AFTER CONSIDERING THE SUBMISSIONS FILED BY THE ASSESEE HELD THAT THE LOSS ON ACCOUNT OF TRANSACTIO N BETWEEN GROUP ENTITIES OF SHARES OF GROUP ENTITIES IS A COLLUSIVE TRANSACTION WHICH HAS BEEN DONE ONLY TO O FFSET THE INCOME ON SALE OF SHARES IN THE PARTNERSHIP FIRM OF M/S. PAGE | 21 TRISHUL INDUSTRIES AND THEREFORE, IS NOT AN ALLOWAB LE DEDUCTION. SHE ACCORDINGLY SUBMITTED THAT SINCE TH E ORDER OF THE CIT(A) IS IN ACCORDANCE WITH LAW ON BOTH THE ISSUES, THEREFORE, THE SAME SHOULD BE UPHELD. 24. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITI ES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER IN THE INSTANT CASE BROU GHT TO TAX AN AMOUNT OF RS.79,71,38,532/- BEING SHORT TERM CAP ITAL GAIN ON ACCOUNT OF TRANSFER OF SHARES IN THE PARTNE RSHIP FIRM M/S. TRISHUL INDUSTRIES BY THE ASSESSEE COMPANY TO M/S. VATIKA LIMITED. THE ARGUMENT OF THE ASSESSEE THAT NO CAPITAL GAIN ARISES ON SUM RECEIVED BY A PARTNER ON RETIREMENT FROM THE PARTNERSHIP FIRM WAS NOT ACCEPT ED BY THE ASSESSING OFFICER ON THE GROUND THAT ASSESSEE H AS APPLIED AN UNSUCCESSFUL TECHNIQUE TO TRANSFER HIS C APITAL GAIN INTO ITS ACCOUNT FROM PARTNERSHIP FIRM WITHOUT GIVING ANY TAX. ACCORDING TO THE ASSESSING OFFICER THE PA RTNERSHIP SHARE IN A FIRM IS A CAPITAL ASSET WITHIN THE MEANI NG OF SECTION 2 (14) AND THEIR TRANSFER IS TRANSFER OF CA PITAL ASSET WITHIN THE MEANING OF SECTION 2 (47) OF THE IT ACT. , 1961. WE FIND ALTHOUGH THE LD. CIT(A) RESTRICTED THE ADDI TION TO RS.43,49,47,500/-, HOWEVER IN-PRINCIPLE HE UPHELD T HE ACTION OF THE ASSESSING OFFICER THAT CAPITAL GAIN A RISES TO THE PAGE | 22 PARTNER ON THE SUM RECEIVED ON RETIREMENT FROM THE PARTNERSHIP FIRM. A CHRONOLOGICAL SEQUENCE OF EVEN TS THAT LED TO THE RETIREMENT FROM THE PARTNERSHIP FIRM IS GIVEN BY THE ASSESSING OFFICER IN HIS REMAND REPORT DATED 20.08.2018, COPY OF WHICH IS PLACED BY THE LD. DR I N THE PAPER BOOK AND WHICH IS UNDER :- AS PER PARTNERSHIP DEED OF M/S TRISHUL INDUSTRIES DATED 04.03.1985 ON 04.03.1985 A PARTNERSHIP FIRM, NAMED AND STYLED AS TRISHUL INDUSTRIES HAD BEEN FORMED BY THE FOLLOWING FOUR PARTNERS: I) SHRI RAVI SHANKER II) SHRI SUBHASH CHANDRA BABBAR III) SHRI SATISH CHANDRA BABBAR IV) SHRI R. L. KUKREJA AND THE FIRM ACQUIRED LAND MEASURING 11.28 ACRES FO R A COST OF RS. 11,41,895/-. AS PER PARTNERSHIP DEED OF M/S TRISHUL INDUSTRIES D ATED 15.06.2005 AN AMOUNT OF RS.19.2 CRORES IN THE FIRM TRISHUL IND USTRIES CONTRIBUTED BY THE FOLLOWING MENTIONED PARTIES WITH AN AGREEMENT: I) M/S MDLR BUILDERS (P) LTD. II) M/S MDLR ESTATES (P) LTD. III) SH. GOPAL KUMAR GOYAL THEREFORE AS PER PARTNERSHIP DEED OF M/S TRISHUL INDUSTRIES DATED 25.10.2006 THE PAGE | 23 ALL ABOVE MENTIONED PARTIES BECAME PARTNERS OF THE FIRM M/S TRISHUL INDUSTRIES AND THE STATUS OF ALL PARTNERS WITH PROFIT AND LOSS PERCENT AGE WAS AS UNDER: AS PER PARTNERSHIP DEED OF M/S TRISHUL INDUSTRIES D ATED 27.11.2006 OUT OF SEVEN EXISTING PARTNER FIRST FOUR PARTNERS W ERE RETIRED AND NEW PROFIT AND LOSS SHARING RATIO WAS AS UNDER: VII SHRI GOPAL KUMAR GOYAL (SEVENTH PARTNER) (5%) AS PER PARTNERSHIP DEED OF M/S TRISHUL INDUSTRIES D ATED 22.11.2007 OUT OF THREE EXISTING PARTNER TWO NEW PARTNERS WERE ENTERED AND NEW PROFIT AND LOSS SHARING RATIO WAS AS UNDER: I) M/S. MDLR ESTATES (P) LTD (FIRST PARTY) PROFIT/ LOSS SHARING RATIO 5% II) M/S. MDLR BUILDERS (P) LTD (FIRST PARTY) PROFIT / LOSS SHARING RATIO 5% III) SH. GOPAL KUMAR GOYAL (FIRST PARTY) PROFIT/ LOSS SHARING RATIO 5% I) SHRI R. L. KUKREJA (FIRST PARTNER) PROFIT/LOSS SHARING RATIO 1% II) SHRI SUBHASH CHANDRA BABBAR (SECOND PARTNER) PROFIT/LOSS SHARING RATIO 1% III ) SHRI RAVI SHANKER (THIRD PARTNER) PROFIT/LOSS SHARING RATIO 1% IV) SHRI SATISH CHANDRA BABBAR (FOURTH PARTNER) PROFIT/LOSS SHARING RATIO 1% V) M/S MDLR ESTATES (P) LTD. (FIFTH PARTNER) PROFIT/LOSS SHARING RATIO 45% VI) M/S MDLR BUILDERS (P) LTD. (SIXTH PARTNER) PROFIT/LOSS SHARING RATIO 45% VII) SH. GOPAL KUMAR GOYAL (SEVENTH PARTNER) PROFIT/LOSS SHARING RATIO 6% I) SHRI R. L. KUKREJA (FIRST PARTNER) (RETIRED) II) SHRI SUBHASH CHANDRA BABBAR (SECOND PARTNER) (RETIRED) III ) SHRI RAVI SHANKER (THIRD PARTNER) (RETIRED) IV ) SHRI SATISH CHANDRA BABBAR (FOURTH PARTNER) (RETIRED) V) M/S MDLR ESTATES (P) LTD. (FIFTH PARTNER) (47.5%) V I ) M/S MDLR BUILDERS (P) LTD. (SIXTH PARTNER) (47.5%) PAGE | 24 IV) M/S. VATIKA LIMITED (SECOND PARTY) PROFIT/ LOS S SHARING RATIO 84% V) SH. ANIL BHALLA (SECOND PARTY) PROFIT/ LOSS SH ARING RATIO 1% AS PER PARTNERSHIP DEED OF M/S. TRISHUL INDUSTRIES DATED 28.11.2007 OUT OF FIVE EXISTING PARTNER FIRST THREE PARTNERS WERE RETIRED AND NEW PROFIT AND LOSS SHARING RATIO WAS AS UNDER : I) M/S. MDLR ESTATES (P) LTD. (FIRST PARTY) RETIR ED II) M/S. MDLR BUILDERS (P) LTD. ( FIRST PARTY) RE TIRED III) SH. GOPAL KUMAR GOYAL (FIRST PARTY) RETIRED IV) M/S. VATIKA LIMITED (SECOND PARTY) PROFIT / LOSS SHARING RATIO 99% V) SH. ANIL BHALLA (SECOND PARTY) PROFIT / LOSS S HARING RATIO 1% 25. THEREFORE, THE QUESTION THAT ARISES FOR OUR CON SIDERATION IS AS TO WHETHER THE AMOUNT RECEIVED BY THE ASSESSE E M/S. MDLR BUILDERS PRIVATE LIMITED ON ACCOUNT OF ITS RET IREMENT FROM THE PARTNERSHIP FIRM WILL ATTRACT CAPITAL GAIN TAX . 26.1 WE FIND AN IDENTICAL ISSUE HAD COME UP FOR CO NSIDERATION BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRASHANT S. JOSHI VS. ITO (SUPRA). WE FIND IN THE SAID CASE UNDER A DEED OF DISSOLUTION, THE PETITIONER ASSESSEE RECEIV ED A SUM OF RS. 50 LACS ON RETIREMENT FROM THE PARTNERSHIP FIRM WHICH WERE CLAIMED AS CAPITAL RECEIPT AND NOT OFFERED TO TAX. THE REVENUE INITIATED THE PROCEEDINGS U/S. 147 TO BRING TO TAX THE ABOVE AMOUNT. IN THE WRIT PETITION FILED BY THE ASS ESSEE, THE HONBLE HIGH COURT HELD AS UNDER :- PAGE | 25 13. DURING THE SUBSISTENCE OF A PARTNERSHIP, A PART NER DOES NOT POSSESS AN INTEREST IN SPECIE IN ANY PARTI CULAR ASSET OF THE PARTNERSHIP. DURING THE SUBSISTENCE OF A PARTNERSHIP, A PARTNER HAS A RIGHT TO OBTAIN A SHAR E IN PROFITS. ON A DISSOLUTION OF A PARTNERSHIP OR UPON RETIREMENT, A PARTNER IS ENTITLED TO A VALUATION OF HIS SHARE IN THE NET ASSETS OF PARTNERSHIP WHICH REMAIN AFTER MEETING THE DEBTS AND LIABILITIES. AN AMOUNT PAID T O A PARTNER UPON RETIREMENT, AFTER TAKING ACCOUNTS AND UPON DEDUCTION OF LIABILITIES DOES NOT INVOLVE AN ELEMEN T OF TRANSFER WITHIN THE MEANING OF SECTION 2(47), CHIEF JUSTICE P.N. BHAGWATI (AS THE LEARNED JUDGE THEN WA S) SPEAKING FOR A DIVISION BENCH OF THE GUJARAT HIGH C OURT IN CIT V. MOHANBHAI PAMABHAI [1973] 91 ITR 393 DEALT WITH THE ISSUE IN THE FOLLOWING OBSERVATIONS: '...WHEN, THEREFORE, A PARTNER RETIRES FROM A PARTN ERSHIP AND THE AMOUNT OF HIS SHARE IN THE NET PARTNERSHIP ASSETS AFTER DEDUCTION OF LIABILITIES AND PRIOR CHARGES IS DETERMINED ON TAKING ACCOUNTS ON THE FOOTING OF NOT IONAL SALE OF THE PARTNERSHIP ASSETS AND GIVEN TO HIM, WH AT HE RECEIVES IS HIS SHARE IN THE PARTNERSHIP AND NOT AN Y CONSIDERATION FOR TRANSFER OF HIS INTEREST IN THE PARTNERSHIP TO THE CONTINUING PARTNERS. HIS SHARE I N THE PARTNERSHIP IS WORKED OUT BY TAKING ACCOUNTS IN THE MANNER PRESCRIBED BY THE RELEVANT PROVISIONS OF THE PARTNERSHIP LAW AND IT IS THIS AND THIS ONLY, NAMEL Y, HIS SHARE IN THE PARTNERSHIP WHICH HE RECEIVES IN TERMS OF MONEY. THERE IS IN THIS TRANSACTION NO ELEMENT OF T RANSFER OF INTEREST IN THE PARTNERSHIP ASSETS BY THE RETIRI NG PARTNER TO THE CONTINUING PARTNERS: VIDE ALSO THE RECENT DECISION OF THE SUPREME COURT IN CIT V. BANKEY LAI VAIDYA. IT IS TRUE THAT SECTION 2 (47 ) DEFINES 'TRANSFER' IN PAGE | 26 RELATION TO A CAPITAL ASSET AND THIS DEFINITION GIV ES AN ARTIFICIALLY EXTENDED MEANING TO THE TERM 'TRANSFER ' BY INCLUDING WITHIN ITS SCOPE AND AMBIT TWO KINDS OF TRANSACTIONS WHICH WOULD NOT ORDINARILY CONSTITUTE 'TRANSFER' IN THE ACCEPTED CONNOTATION OF THAT WORD , NAMELY, RELINQUISHMENT OF THE CAPITAL ASSET AND EXTINGUISHMENT OF ANY RIGHTS IN IT. BUT EVEN IN THI S ARTIFICIALLY EXTENDED SENSE, THERE IS NO TRANSFER O F INTEREST IN THE PARTNERSHIP ASSETS INVOLVED WHEN A PARTNER R ETIRES FROM THE PARTNERSHIP.' THE GUJARAT HIGH COURT HELD THAT THERE IS, IN SUCH A SITUATION, NO TRANSFER OF INTEREST IN THE ASSETS OF THE PARTNERSHIP WITHIN THE MEANING OF SECTION 2 (47). WHEN A PARTNER RETIRES FROM A PARTNERSHIP, WHAT THE PARTNE R RECEIVES IS HIS HARE IN THE PARTNERSHIP WHICH IS WO RKED OUT BY TAKING ACCOUNTS AND THIS DOES NOT AMOUNT TO A CONSIDERATION FOR THE TRANSFER OF HIS INTEREST TO T HE CONTINUING PARTNERS. THE RATIONALE FOR THIS IS EXPL AINED AS FOLLOWS IN THE JUDGMENT OF THE GUJARAT HIGH COURT: '...WHAT THE RETIRING PARTNER IS ENTITLED TO GET IS NOT MERELY A SHARE IN THE PARTNERSHIP ASSETS; HE HAS AL SO TO BEAR HIS SHARE OF THE DEBTS AND LIABILITIES AND IT IS ONLY HIS SHARE IN THE NET PARTNERSHIP ASSETS AFTER SATISFYIN G THE DEBTS AND LIABILITIES THAT HE IS ENTITLED TO GET ON RETIREMENT. THE DEBTS AND LIABILITIES HAVE TO BE DE DUCTED FROM THE VALUE OF THE PARTNERSHIP ASSETS AND IT IS ONLY IN THE SURPLUS THAT THE RETIRING PARTNER IS ENTITLED T O CLAIM A SHARE. IT IS, THEREFORE, NOT POSSIBLE TO PREDICATE THAT A PARTICULAR AMOUNT IS RECEIVED BY THE RETIRING PARTN ER IN RESPECT OF HIS SHARE IN A PARTICULAR PARTNERSHIP AS SET OR THAT A PARTICULAR AMOUNT REPRESENTS CONSIDERATION PAGE | 27 RECEIVED BY THE RETIRING PARTNER FOR EXTINGUISHMENT OF HIS INTEREST IN A PARTICULAR ASSET.' 14. THE APPEAL AGAINST THE JUDGMENT OF THE GUJARAT HIGH COURT WAS DISMISSED BY A BENCH OF THREE LEARNE D JUDGES OF THE SUPREME COURT IN ADDL. CIT V. MOHANBHAI PAMABHAI [1987] 165 ITR 166 . THE SUPREME COURT RELIED UPON ITS JUDGMENT IN SUNIL SIDDHARTHBHAI V. CIT [1985] 156 ITR 509. THE SUPREME COURT REITERATED TH E SAME PRINCIPLE BY RELYING UPON THE JUDGMENT IN ADDANKI NARAYANAPPA V. BHASKARA KRISHNAPPA AIR 1966 SC 1300. THE SUPREME COURT HELD THAT WHAT IS ENVISAGED ON TH E RETIREMENT OF A PARTNER IS MERELY HIS RIGHT TO REAL ISE HIS INTEREST AND TO RECEIVE ITS VALUE. WHAT IS REALISED IS THE INTEREST WHICH THE PARTNER ENJOYS IN THE ASSETS DUR ING THE SUBSISTENCE OF THE PARTNERSHIP BY VIRTUE OF HIS STA TUS AS A PARTNER AND IN TERMS OF THE PARTNERSHIP AGREEMENT. CONSEQUENTLY, WHAT THE PARTNER GETS UPON DISSOLUTIO N OR UPON RETIREMENT IS THE REALISATION OF A PRE-EXISTIN G RIGHT OR INTEREST. THE SUPREME COURT HELD THAT THERE WAS NOTHING STRANGE IN THE LAW THAT A RIGHT OR INTEREST SHOULD EXIST IN PRAESENTI BUT ITS REALISATION OR EXERCISE SHOULD BE POSTPONED. THE SUPREME COURT INTER ALIA CITED WITH APPROVAL THE JUDGMENT OF THE GUJARAT HIGH COURT IN MOHANBHAI PAMABHAI'S CASE (SUPRA) AND HELD THAT THERE IS NO TRANSFER UPON THE RETIREMENT OF A PARTNER UPON T HE DISTRIBUTION OF HIS SHARE IN THE NET ASSETS OF THE FIRM. IN CIT V. R. LINGMALLU RAGHUKUMAR [2001] 247 ITR 801 , THE SUPREME COURT HELD, WHILE AFFIRMING THE PRINCIP LE LAID DOWN IN MOHANBHAI PAMABHAI THAT WHEN A PARTNER RETIRES FROM A PARTNERSHIP AND THE AMOUNT OF HIS SH ARE IN THE NET PARTNERSHIP ASSETS AFTER DEDUCTION OF LIABI LITIES AND PRIOR CHARGES IS DETERMINED ON TAKING ACCOUNTS, PAGE | 28 THERE IS NO ELEMENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSETS BY THE RETIRED PARTNER TO THE CO NTINUING PARTNERS. 15. AT THIS STAGE, IT MAY BE NOTED THAT IN CIT V. TRIBHUVANDAS G. PATEL [1978] 115 ITR 95 (BOM.), WHICH WAS DECIDED BY A DIVISION BENCH OF THIS COURT, UNDE R A DEED OF PARTNERSHIP, THE ASSESSEE RETIRED FROM THE PARTNERSHIP FIRM AND WAS INTER ALIA PAID AN AMOUNT OF RS. 4,77,941 AS HIS SHARE IN THE REMAINING ASSETS OF TH E FIRM. THE DIVISION BENCH OF THIS COURT HAD HELD THAT THE TRANSACTION WOULD HAVE TO BE REGARDED AS AMOUNTING TO A TRANSFER WITHIN THE MEANING OF SECTION 2(47) INASMU CH AS THE ASSESSEE HAD ASSIGNED, RELEASED AND RELINQUISHE D HIS SHARE IN THE PARTNERSHIP AND ITS ASSETS IN FAVOUR O F THE CONTINUING PARTNERS. THIS PART OF THE JUDGMENT WAS REVERSED IN APPEAL BY THE SUPREME COURT IN TRIBHUVANDAS G. PATEL V. CIT [1999] 236 ITR 515. FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN SUNIL SIDDHARTHBHAI'S CASE {SUPRA), THE SUPREME COURT HELD THAT EVEN WHEN A PARTNER RETIRES AND SOME AMOUNT IS PAID TO HIM TOWA RDS HIS SHARE IN THE ASSETS, IT SHOULD BE TREATED AS FA LLING UNDER CLAUSE (IT) OF SECTION 47. THEREFORE, THE QUE STION WAS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. SECTION 47(II) WHICH HELD THE FIELD AT THE MATERIAL TIME PROVIDED THAT NOTHING CONTAINED IN SE CTION 45 WAS APPLICABLE TO CERTAIN TRANSACTIONS SPECIFIED THEREIN AND ONE OF THE TRANSACTIONS SPECIFIED IN CL AUSE (II) WAS DISTRIBUTION OF THE CAPITAL ASSETS ON A DISSOLU TION OF A FIRM. SECTION 47(II) WAS SUBSEQUENTLY OMITTED BY THE FINANCE ACT OF 1987 WITH EFFECT FROM 1-4-1988. SIMULTANEOUSLY, SUB-SECTION (4) OF SECTION 45 CAME TO BE PAGE | 29 INSERTED BY THE SAME FINANCE ACT. SUBSECTION (4) OF SECTION 45 PROVIDES THAT PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHE R ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE, SH ALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM, ASSOCI ATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRA NSFER TAKES PLACE. THE FAIR MARKET VALUE OF THE ASSETS ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FUL L VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESU LT OF THE TRANSFER FOR THE PURPOSE OF SECTION 48. EX FACIE SUB- SECTION (4) OF SECTION 45 DEALS WITH A SITUATION WHERE THERE IS A TRANSFER OF A CAPITAL ASSET BY WAY OF A DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION O F A FIRM OR OTHERWISE. EVIDENTLY, ON THE. ADMITTED POSITION BEFORE THE COURT, THERE IS NO TRANSFER OF A CAPITAL ASSET BY WAY OF A DISTRIBUTION OF THE CAPITAL ASSETS, ON A DISSOLUT ION OF THE FIRM OR OTHERWISE IN THE FACTS OF THIS CASE. WHAT I S TO BE B NOTED IS THAT EVEN IN A SITUATION WHERE SUB-SECTION (4) OF SECTION 45 APPLIES, PROFITS OR GAINS ARISING FROM THE TRANSFER ARE CHARGEABLE TO TAX AS INCOME OF THE FIR M. 26.2 WE FIND, THE HONBLE AP HIGH COURT IN THE CASE OF CHALASANI VENKATESWARA RAO VS. ITO (SUPRA) HELD THA T AMOUNT RECEIVED BY A PARTNER IN FULL AND FINAL SETTLEMENT OF ITS SHARES ON DISSOLUTION OF THE FIRM DOES NOT RESULT IN TRANS FER. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READ S AS UNDER :- PAGE | 30 19. IN BANKEY LAI VAIDYA (SUPRA), THE SUPREME COURT HELD THAT A PARTNER IN A FIRM (CARRYING ON BUSINESS OF MANUFACTURING AND SELLING PHARMACEUTICAL PRODUCTS AND LITERATURE RELATING THERETO) WHOSE ASSETS (WHICH INCLUDED GOOD WILL, MACHINERY, FURNITURE, MEDICINES, LIBRARY AND COPY RIGHT) WERE VALUED AT RS. 2,50,000/-, WAS PAID TOWARDS HIS HALF SHARE, ON THE DISSOLUTION OF THE F IRM, A SUM OF RS. 1,25,000/- IN LIEU OF HIS SHARE, THE ARRANGEMENT BETWEEN THE PARTNERS OF THE FIRM AMOUNTED TO A DISTRIBUTION OF THE ASSETS OF THE FIRM ON DISSOLUTION. IT HELD THAT THERE WAS NO SALE OR EXCHANGE OF THE RESPONDENT'S SHARE IN THE CAPITAL ASSETS TO THE OTHER PARTNER. THE SUPREME COURT OF INDIA FURTHER HELD AS FOLLOWS: 'IN THE COURSE OF DISSOLUTION THE ASSETS OF A FIRM M AY BE VALUED AND THE ASSETS DIVIDED BETWEEN THE PARTNERS ACCORDING TO THEIR RESPECTIVE SHARES BY ALLOTTING THE INDIVIDUAL ASSETS OR PAYING THE MONEY VALUE EQUIVALENT THEREOF. THIS IS A RECOGNIZED METHO D OF MAKING UP THE ACCOUNTS OF A DISSOLVED FIRM. IN TH AT CASE THE RECEIPT OF MONEY BY A PARTNER IS NOTHING B UT A RECEIPT OF HIS SHARE IN THE DISTRIBUTED ASSETS OF THE FIRM. THE RESPONDENT RECEIVED THE MONEY VALUE OF HIS SHARE IN THE ASSETS OF THE FIRM : HE DID NOT AGREE T O SELL, EXCHANGE OR TRANSFER HIS SHARE IN THE ASSETS OF THE FIRM. PAYMENT OF THE AMOUNT AGREED TO BE PAID TO PAGE | 31 THE RESPONDENT UNDER THE ARRANGEMENT OF HIS SHARE WAS THEREFORE NOT IN CONSEQUENCE OF ANY SALE, EXCHANGE OR TRANSFER OF ASSETS.' THE SUPREME COURT UPHELD THE CONTENTION OF THE ASSESSEE THAT NO PART OF THE AMOUNT OF RS. 1,25,000/- RECEIVED BY THE ASSESSEE REPRESENTED CAPITAL GAINS AND RELIED ON DEWAS CINE CORPORATION (SUPRA) REFERRED TO ABOVE. IT HELD THAT .ADJUSTMENT OF THE RIGHTS OF THE PARTNERS IN A DISSOLVED FIRM BY ALLOTMENT OF ITS ASSETS IS NOT A TRANSFER FOR A PRI CE. THE FACTS OF THE INSTANT CASE ARE IDENTICAL WITH THE FACTS OF THE CASE IN BANKEY LAI VAIDYA (SUPRA). 20. IN L. RAGHU KUMAR (SUPRA), A DIVISION BENCH OF THE ANDHRA PRADESH HIGH COURT FOLLOWED THE JUDGMENT OF THE GUJARAT HIGH COURT IN CIT V. MOHANBHAI PAMABHAI[1973] 91 ITR 393 (GUJ.) AND HELD THAT NO TRANSFER IS INVOLVED WHEN A RETIRING PARTNER RECEIVES AT THE TIME OF RETIREMENT FROM THE FIRM, HIS SHARE IN THE PARTNERSHIP ASSETS EITHER IN CASH OR ANY OTHER ASSET. IT FURTHER HELD THAT FOR TH E PURPOSE OF SECTION 45 OF THE I.T. ACT, NO DISTINCTIO N CAN BE DRAWN BETWEEN AN AMOUNT RECEIVED BY THE PARTNER ON THE DISSOLUTION OF THE FIRM AND THAT RECEIVED ON HIS RETIREMENT, SINCE BOTH OF THEM STAND ON THE SAME FOOTING. 21. IN PH. PATEL (SUPRA), A DIVISION BENCH OF THE AP HIGH COURT NOTICED THAT THE JUDGMENT IN MOHANBHAI PAMABHAI (SUPRA) WAS APPROVED BY THE SUPREME PAGE | 32 COURT IN ADDL. CIT V. MOHANBHAI PAMABHAI [1987] 165 ITR 166 AND FOLLOWING THE JUDGMENT IN L. RAGHUKUMAR (SUPRA) HELD THAT WHEN A PARTNER RETIRES FROM A PARTNERSHIP FIRM TAKING HIS SHARE OF PARTNERSHIP INTEREST, NO ELEMENT OF TRANSFER OF INT EREST IN THE PARTNERSHIP ASSET BY THE RETIRING PARTNER TO THE CONTINUING PARTNER WAS INVOLVED. 22. IN THE LIGHT OF THE ABOVE DECISIONS, WHICH ARE BINDING ON US, WE HOLD THAT THE L.T.A.T. WAS NOT CORRECT IN CONFIRMING THE ORDERS PASSED BY THE C.I.T . (APPEALS) AND THE RESPONDENT. WHEN THE APPELLANT WAS PAID RS. 15.00 LAKHS BY Y. KALYANA SUNDARAM IN FULL AND FINAL SETTLEMENT TOWARDS HIS 50% SHARE ON THE DISSOLUTION OF THE FIRM, MERE WAS NO 'TRANSFER' AS UNDERSTOOD IN LAW AND CONSEQUENTLY THERE CANNOT BE TAX ON ALLEGED CAPITAL GAIN. THE APPELLANT WAS CORRE CT IN LAW IN CONTENDING THAT THE AMOUNT HE RECEIVED FROM Y. KALYANA SUNDARAM IS TOWARDS THE FULL AND FINAL SETTLEMENT OF HIS SHARE AND SUCH ADJUSTMENT OF HIS RIGHT IS NOT A 'TRANSFER' IN THE EYE OF LAW. IT IS A RECOGNIZED METHOD OF MAKING UP THE ACCOUNTS OF THE DISSOLVED FIRM AND THE RECEIPT OF MONEY BY HIM IS NOTHING BUT A RECEIPT OF HIS SHARE IN THE DISTRIBUT ED ASSET OF THE FIRM. THE APPELLANT RECEIVED THE MONEY VALUE OF HIS SHARE IN THE ASSETS OF THE FIRM. HE DI D NOT AGREE TO SELL, EXCHANGE OR TRANSFER HIS SHARE IN TH E ASSETS OF THE FIRM. PAYMENT OF THE AMOUNT AGREED TO BE PAID TO THE APPELLANT UNDER THE COMPROMISE WAS PAGE | 33 NOT IN CONSEQUENCE OF ANY SHARE, EXCHANGE OR TRANSFER OF ASSETS TO Y. KALYANA SUNDARAM. MOREOVER , AS RIGHTLY CONTENDED BY THE ASSESSEE, UP TO THE ASSESSMENT YEAR 1987-1988, SECTION 47 (II) OF THE INCOME TAX ACT, 1961 EXCLUDED THESE TRANSACTIONS. FROM ASSESSMENT YEAR 1988-89, IN THE CASE OF DISSOLUTION OF A FIRM, ONLY THE FIRM IS TAXABLE ON CAPITAL GAINS ON DISSOLUTION UNDER SECTION 45(4) OF THE INCOME TAX ACT, 1961 AND NOT THE PARTNER. S.45(4) STATES AS FOLLOWS: 'S.45(4) THE PROFITS OR GAINS ARISING FROM THE TRANS FER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM, ASSOCIATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED T O BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER.' THUS IT IS CLEAR THAT THE LEGISLATURE, EVEN THOUGH IT WAS AWARE OF THE ABOVE DECISIONS, DID NOT CHOOSE TO AMEND THE LAW BY MAKING THE PARTNER LIABLE WHEN IT AMENDED THE I.T ACT, 1961 BY INTRODUCING CLAUSE (4) TO S.45 BY THE FINANCE ACT,1987 W.E.F 1.4.1988 AND MADE ONLY THE FIRM LIABLE. THEREFORE THE CONTENTION OF PAGE | 34 THE ASSESSEE HAS TO BE ACCEPTED AND THAT OF THE REVENUE IS LIABLE TO BE REJECTED. 27. WE FIND THE LD. CIT(A) HAS RELIED ON THE DECISI ON OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF GURUNAT H TALKIES (SUPRA) AND THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF A. N. NAIK ASSOCIATES (SUPRA). WE FIND BOT H THESE DECISIONS WERE RENDERED IN THE CONTEXT OF SECTION 4 5 (4) OF THE IT ACT. 1961 AND WERE THE SUBJECT MATTER OF CONSIDE RATION BEFORE THE FULL BENCH OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DYNAMIC ENTERPRISES (SUPRA). W E FIND DUE TO CONFLICTING DECISIONS OF THE SAME HIGH COURT, TH E FOLLOWING SUBSTANTIAL QUESTIONS OF LAW WERE FRAMED WITH THE F OLLOWING OBSERVATIONS :- A DIVISION BENCH OF THIS COURT FELT THAT THERE IS A CONFLICT BETWEEN THE PROPOSITION OF LAW LAID DOWN IN THE CAS E OF CIT VS. MANGALORE GANESH BEEDI WORKS [2004] 265 ITR 658/136 TAXMAN 42 (KAR.) AND IN THE CASE OF CIT VS. GURUNATH TALKIES [2010] 328 ITR 59 /189 TAXMAN 171 (KAR.) IN ORDER TO RESOLVE THE SAID CONFLICT, PASSED AN ORDER ON 27.08 .2013 DIRECTING THE MATTER TO BE LISTED BEFORE THE BENCH. SUBSTANTIAL QUESTION OF LAW THE SUBSTANTIAL QUESTION OF LAW REFERRED FOR OUR CONSIDERATION ARE AS UNDER :- WHEN A RETIRING PARTNERS TAKES ONLY THE MONEY TOW ARDS THE VALUE OF HIS SHARE, WHETHER THE FIRM SHOULD BE MADE LIABLE TO PAY CAPITAL GAINS EVEN WHEN THERE IS NO DISTRIBUTIO N OF CAPITAL ASSET/ ASSETS AMONG THE PARTNERS PAGE | 35 OR WHETHER THE RETIRING PARTNER WOULD BE LIABLE TO PA Y FOR THE CAPITAL GAINS ? 28. WE FIND THE HONBLE HIGH COURT DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE HOLDING THAT WHEN A RETIRING PARTNER TAKES ONLY MONEY TOWARDS THE VALUE OF HIS SHARE AND WHEN THERE IS NO DISTRIBUTION OF CAPITAL ASSET/ ASSETS G OING TO THE PARTNERS, THERE IS NO TRANSFER OF CAPITAL ASSET AND CONSEQUENTLY NO PROFITS OR GAINS IS CHARGEABLE U/S. 45 (4) OF TH E IT ACT 1961. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT FROM PARA 23 ONWARDS READS AD UNDER :- 23. SUB-SECTION (4) OF SECTION 45 DEALS WITH A DIST RIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHE R ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS OR OTHERWISE. IF IN THE COURSE OF SUCH DISTRIBUTION OF CAPITAL ASSET THERE IS A TR ANSFER OF A CAPITAL ASSET BY THE FIRM IN FAVOUR OF A PERSON AND IT RESULTS IN PROFITS OR GAINS TO THE FIRM, THE SAID PROFITS OR G AINS SHALL BE CHARGEABLE TO TAX AS INCOME OF THE FIRM AND AGAIN F OR COMPUTING SUCH -COME, SECTION 48 IS ATTRACTED. IN O THER WORDS, IN THE PROCESS OF A DISSOLUTION OF A FIRM, IF A CAP ITAL ASSET IS TRANSFERRED TO A PARTNER WHICH RESULTS IN PROFITS O R GAINS, THEN THAT, INCOME IS CHARGEABLE AT THE HANDS OF THE FIRM UNDER THIS PROVISION. IN ORDER TO ATTRACT SUB-SECTION (4) OF S ECTION 45, THE CONDITION PRECEDENT IS (1) THERE SHOULD BE A DISTRIBUTION OF CAPITAL ASSETS O F A FIRM; (2) SUCH DISTRIBUTION SHOULD RESULT IN TRANSFER OF A C APITAL ASSET BY FIRM IN FAVOUR OF THE PARTNER; AND (3 ) ON ACCOU NT OF THE TRANSFER THERE SHOULD BE A PROFIT OR GAIN DERIVED B Y THE .FIRM. PAGE | 36 (4) SUCH DISTRIBUTION SHOULD BE ON DISSOLUTION OF T HE FIRM OR OTHERWISE. 24 . THEREFORE, IN ORDER TO ATTRACT SECTION 45(4) OF T HE ACT. THE CAPITAL ASSET OF THE FIRM SHOULD BE TRANSFERRED IN OUR OF A PARTNER, RESULTING IN FIRM CEASING TO HAVE ANY INTEREST IN T HE CAPITAL ASSET TRANSFERRED AND THE PARTNERS SHOULD ACQUIRE EXCLUSI VE INTEREST IN THE CAPITAL ASSET. IN OTHER WORDS, THE INTEREST THE FIRM HAS IN THE CAPITAL ASSET SHOULD BE EXTINGUISHED AND THE PARTNE RS IN WHOSE FAVOUR THE TRANSFER IS MADE SHOULD ACQUIRE THAT INT EREST. THEN ONLY THE PROFITS OR GAINS ARISING- FROM SUCH TRANSF ER IS LIABLE TO TAX UNDER SECTION 45(4.) OF THE ACT. 25. IN THE INSTANT CASE, THE PARTNERSHIP FIRM HAD P URCHASED THE PROPERTY UNDER A REGISTERED SALE DEED IN THE NAME O F FIRM. THE PROPERTY DID-NOT STAND IN THE NAME OF ANY INDIVIDUA L PARTNERS. NO INDIVIDUAL PARTNERS BROUGHT THAT ITAL ASSET AS CAPI TAL CONTRIBUTION INTO THE FIRM. FIVE PARTNERS BROUGHT /IN CASH BY WA Y OF CAPITAL WHEN THE FIRM' RECONSTITUTED ON 28.04.1993. NEARLY A YEAR THEREAFTER ON 01.04.1994 BY WAY OF RETIREMENT, THE ERSTWHILE THREE PARTNERS TOOK THEIR, SHARE IN THE PARTNERSHIP ASSET AND WENT OUT OF THE PARTNERSHIP. AFTER THE RETIREMENT OF THREE PART NERS, THE PARTNERSHIP CONTINUED TO EXIST AND THE BUSINESS WAS CARRIED ON BY THE REMAINING FIVE PARTNERS. THERE ' NO DISSOLUTION OF THE FIRM, OR AT ANY RATE THERE WAS NO DISTRIBUTION OF CAPITAL ASSET ON 01.04.1994 WHEN THREE PARTNERS RETIRED FROM THE PARTNERSHIP FI RM. WHAT WAS GIVEN TO THE RETIRING PARTNERS-IS CASH REPRESENTING THE VALUE OF RETIREMENT SHARE IN THE PARTNERSHIP. NO CAPITAL ASS ET WAS TRANSFERRED ON THE DATE OF RETIREMENT UNDER THE DEE D OF RETIREMENT DEED DATED 0L.04.1994. IN THE ABSENCE OF DISTRIBUTI ON OF CAPITAL ASSET AND IN THE ABSENCE OF TRANSFER OF CAPITAL ASS ET IN FAVOUR OF THE RETIRING PARTNERS, NO PROFIT OR GAIN AROSE IN T HE HANDS OF THE PARTNERSHIP FIRM. THEREFORE, THE QUESTION OF THE FI RM BEING ASSESSED UNDER SECTION 45 (4) AND CHARGING THEM TAX FOR THE PROFITS OR S WHICH DID NOT ACCRUE TO THEM WOULD NOT ARISE. 26. IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT FIVE INCOMING PARTNERS BROUGHT MONEY INTO THE FIRM. THRE E PAGE | 37 ERSTWHILE PARTNERS WHO RETIRED FROM THE PARTNERS ON 01.04.1994 TOOK MONEY AND LEFT THE PROPERTY TO THE INCOMING PARTNERS. IT IS A DEVICE ADOPTED BY THESE PARTNERS IN ORDER TO EVADE PAYMENT OF PROFITS OR GAINS. AS RIGHTLY HELD BY COURT IN GUNINATHS TALKIES' CASE (SUPRA) IT IS TAXABLE. THIS ARGUMENT PROCEEDS ON THE PREMISE THAT THE IMMOVABLE PROPERT Y BELONGS TO THE ERSTWHILE PARTNERS AND THAT AFTER TH E RETIREMENT THE ERSTWHILE PARTNERS HAVE TAKEN CASH AND GIVEN TH E PROPERTY TO THE INCOMING PARTNERS. THE PROPERTY BELONGS TO T HE PARTNERSHIP FIRM. IT DID NOT BELONG TO THE PARTNERS . THE PARTNERS ONLY HAD A SHARE IN THE PARTNERSHIP ASSET. WHEN THE FIVE PARTNERS CAME INTO THE PARTNERSHIP AND BROUGHT CASH BY WAY OF CAPITAL CONTRIBUTION TO THE EXTENT OF THEIR CONTRIBUTION, THEY WERE ENTITLED TO THE PROPORTIONATE SHARE IN TH E INTEREST IN THE PARTNERSHIP FIRM. WHEN THE RETIRING PARTNERS TO OK CASH AND RETIRED, THEY WERE NOT RELINQUISHING THEIR INTEREST IN THE IMMOVABLE PROPERTY. WHAT THEY RELINQUISHED IS THEIR SHARE IN THE PARTNERSHIP. THEREFORE, THERE IS NO TRANSFER OF A CAPITAL ASSET, AS SUCH, NO CAPITAL GAINS OR PROFIT ARISES I N THE FACTS OF THIS CASE. IN THAT VIEW OF THE MATTER, SECTION 45(4 ) HAS NO APPLICATION TO THE FACTS OF THIS CASE. 27. IN GURUNATH TALKIES' CASE {SUPRA), THE DIVISION BENCH OF THIS COURT FOLLOWED THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE CIT V. A.N. NAIK ASSOCIATES [2004] 265 ITR 346/136 TAXMAN 107 (BOM.). IN A.N. NAIK ASSOCIATES' CASE {S UPRA), THE ASSET OF THE PARTNERSHIP FIRM WAS TRANSFERRED TO A RETIRING PARTNER BY WAY OF A DEED OF RETIREMENT. A MEMORANDU M OF FAMILY SETTLEMENT WAS ENTERED INTO AND THE BUSINESS OF THOSE FIRMS AS SET OUT THEREIN WAS DISTRIBUTED IN TERMS O F THE FAMILY SETTLEMENT AS THE PARTY DESIRED THAT VARIOUS MATTER S CONSISTING THE BUSINESS AND ASSETS THERETO BE DIVID ED PAGE | 38 SEPARATELY AND PARTITIONED. THE TERM HAS ALSO PROVI DED THAT SUCH OF THOSE ASSETS OR LIABILITIES BELONGING TO OR DUE FROM ANY OF THE FIRMS ALLOTTED, THE PARTIES THERETO IN THE S CHEDULE ANNEXED SHALL BE TRANSFERRED OR ASSIGNED IRREVOCABL Y AND POSSESSION MADE OVER AND ALL SUCH DOCUMENTS, DEEDS, DECLARATIONS, AFFIDAVITS, PETITIONS, LETTERS AND AL IKE AS ARE REASONABLY REQUIRED BY THE PARTY ENTITLED TO SUCH T RANSFER WOULD BE EFFECTED. IT IS BASED ON THIS DOCUMENT AND SUBSEQUENT DEEDS OF RETIREMENT OF PARTNERSHIP THAT THE ORDER OF ASSESSMENT WAS MADE HOLDING THAT THE ASSESSEES A RE LIABLE FOR TAX ON CAPITAL GAINS. . 28. IN THAT CONTEXT, THE BOMBAY HIGH COURT HELD THA T WHEN THE ASSETS OF THE PARTNERSHIP IS TRANSFERRED TO A RETIR ING PARTNER, THE PARTNERSHIP WHICH IS ASSESSABLE TO TAX CEASES T O HAVE A RIGHT OR ITS RIGHT IN THE PROPERTY STANDS 'DISTINGU ISHED IN FAVOUR OF THE PARTNER TO WHOM IT IS TRANSFERRED. IF SO READ, IT WILL FURTHER THE OBJECT AND THE PURPOSE AND INTENT OF THE AMENDMENT OF SECTION 45. ONCE THAT BE THE CASE, THE TRANSFER OF ASSETS OF THE PARTNERSHIP TO THE RETIRING PARTNE RS WOULD AMOUNT TO THE TRANSFER OF CAPITAL ASSETS IN THE NAT URE OF CAPITAL GAINS AND BUSINESS PROFITS WHICH IS CHARGEABLE TO T AX UNDER SECTION 45(4) OF THE INCOME TAX ACT. IN THAT CONTEX T, IT WAS HELD THE WORD 'OTHERWISE' TAKES INTO ITS SWEEP NOT ONLY CASES OF DISSOLUTION BUT ALSO CASES OF SUBSISTING PARTNER S OF A PARTNERSHIP, TRANSFERRING ASSETS IN FAVOUR OF A RET IRING PARTNER. IT IS IN THIS CONTEXT THE BOMBAY HIGH COURT HELD TH AT SECTION 45(4) WAS ATTRACTED. THEREFORE, TO ATTRACT SECTION 45(4) THERE SHOULD BE A TRANSFER OF A CAPITAL ASSET FROM THE FI RM TO THE RETIRING PARTNERS, BY WHICH THE FIRMS CEASES TO HAV E ANY RIGHT IN THE PROPERTY WHICH IS SO TRANSFERRED. IN OTHER W ORDS, ITS PAGE | 39 RIGHT TO THE PROPERTY SHOULD STAND EXTINGUISHED AND THE RETIRING PARTNERS ACQUIRES ABSOLUTE TITLE TO THE PR OPERTY. 29. IN THE INSTANT CASE, THE PARTNERSHIP FIRM DID NOT TRANSFER ANY RIGHT IN THE CAPITAL ASSET IN FAVOUR O F THE RETIRING PARTNER. THE PARTNERSHIP FIRM DID NOT CEASE TO HOLD THE PROPERTY AND CONSEQUENTLY, ITS RIGHT TO THE PROPERT Y IS NOT EXTINGUISHED. CONVERSELY, THE RETIRING PARTNER DID NOT ACQUIRE ANY RIGHT IN THE PROPERTY AS NO PROPERTY WAS TRANSF ERRED 'IN THEIR FAVOUR. THE DIVISION BENCH IN GURUNATH TALKIE S' CASE {SUPRA) DID NOT APPRECIATE THIS DISTINGUISHING FACT OR AND BY WRONG APPLICATION OF THE LAW LAID DOWN BY THE BOMBA Y HIGH COURT HELD THE ASSESSEE THAT CASE IS ALSO LIABLE TO PAY CAPITAL GAINS TAX UNDER SECTION 45(4). THEREFORE, THE SAID JUDGMENT DOES NOT LAY THE CORRECT LAW. 30. WE WOULD LIKE TO ADD THAT SEVERAL OTHER ASPECTS OF SECTION 45(4) WAS ADDRESSED IN THE COURSE OF THE AR GUMENTS BY BOTH SIDES WHICH ARE NOT RELEVANT TO ADJUDICATE THE PRESENT ISSUE, AS IN THE PRESENT CASE THERE IS NO DISTRIBUT ION OF ASSETS AND HENCE, ONE OF THE CONDITION PRECEDENT FOR INVOK ING SECTION 45(4) DOES NOT EXIST AND HENCE SECTION 45(4) IS NOT ATTRACTED TO THE FACTS OF THIS CASE. ANSWER 31. THE REFERENCE IS ANSWERED AS UNDER : WHEN A RETIRING PARTNER TAKES ONLY MONEY TOWARDS T HE VALUE OF HIS SHARE AND WHEN THERE IS NO DISTRIBUTION OF C APITAL ASSET/ ASSETS AMONG THE PARTNERS THERE IS NO TRANSF ER OF A CAPITAL ASSET AND CONSEQUENTLY NO PROFITS OR GAINS IS PAYABLE UNDER SECTION 45 (4) OF THE IT ACT. ? 32. IN SO FAR AS THE SUBSTANTIAL QUESTION OF LAW WHETH ER PAGE | 40 THE RETIRING PARTNER WOULD BE LIABLE TO PAY CAPITAL GAIN IS CONCERNED, THE SAID QUESTION DOES NOT ARISE FOR CON SIDERATION IN THE APPEAL AS THE ONLY QUESTION WHICH AROSE FOR CONSIDERATION WAS, WHETHER THE FIRM IS LIABLE TO PA Y CAPITAL GAIN TAX. THEREFORE, THE SAID QUESTION OF LAW IS N OT ANSWERED. 33. FOR THE AFORESAID REASONS, WE PASS THE FOLLOWING : (I) THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVO UR OF THE ASSESSEE AND AGAINST THE REVENUE. (II) CONSEQUENTLY, THE APPEAL STANDS DISMISSED (III) NO COSTS. THEREFORE, THE DECISIONS RELIED ON BY LD. CIT(A) AR E DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 29. THE VARIOUS OTHER DECISIONS RELIED ON BY LD. CO UNSEL FOR THE ASSESSEE ALSO SUPPORT HIS CASE TO THE PROPOSITI ON THAT AMOUNT PAID TO PARTNER ON RETIREMENT DOES NOT INVOL VE AN ELEMENT OF TRANSFER WITHIN THE MEANING OF SECTION 2 (47). 30. RESPECTIVELY FOLLOWING THE ABOVE DECISIONS CITE D (SUPRA) WE HOLD THAT THE ASSESSEE IS NOT LIABLE TO ANY CAPI TAL GAIN TAX ON ACCOUNT OF THE SUM RECEIVED BY IT AS A PARTNER O N RETIREMENT FROM THE PARTNERSHIP FIRM. THE ORDER OF THE CIT(A) ON THIS ISSUE IS ACCORDINGLY SET ASIDE AND THE ASSE SSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.43,49,47,5 00/- SUSTAINED BY THE CIT(A). 31. THE GROUNDS OF APPEAL NO. 2 TO 2.3 ARE ACCORDIN GLY ALLOWED. 32. SO FAR AS THE GROUND NO. 1 TO 1.4 ARE CONCERNED THE SAME RELATE TO THE ORDER OF THE CIT(A) IN MAKING A DISAL LOWANCE OF PAGE | 41 RS.13,04,50,800/- REPRESENTING THE LOSS INCURRED ON PURCHASE AND SALE OF SHARES. IT IS AN ADMITTED FACT THAT TH ERE IS NO SUCH DISCUSSION BY THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER. ONLY WHILE PROCESSING THE APPEAL, CERTAIN DISCREPANCIES WERE FOUND IN THE INCOME COMPUTATION FOR WHICH THE LD. CIT(A) ISSUED AN ENHANCEMENT NOTICE. AFTER CONSIDERING THE VARIOUS ARGUMENTS ADVANCED BY THE A SSESSEE LD. CIT(A) HELD THAT THE LOSS ON ACCOUNT OF TRANSAC TION BETWEEN GROUP ENTITIES OF SHARES OF GROUP ENTITIES IS A COL LUSIVE TRANSACTION THAT HAS BEEN DONE ONLY TO OFFSET THE I NCOME ON SALE OF SHARES IN THE PARTNERSHIP FIRM OF M/S. TRIS HUL INDUSTRIES AND THEREFORE, IS NOT AN ALLOWABLE LOSS. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LD. CIT(A) HAS NO POWER TO ENHANCE THE ASSESSMENT BY BR INGING IN INCOME FROM NEW SOURCE. FOR THE ABOVE PROPOSITION, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISION S. HOWEVER, IT IS A MATTER OF RECORD THAT THE ORIGINAL ASSESSME NTS AS WELL AS ASSESSMENT SUBSEQUENT TO THE ORDER PASSED BY THE LD . CIT U/S. 264 ARE EXPARTE ASSESSMENTS AND THE ASSESSEE A T NO POINT OF TIME HAD GIVEN ANY DETAILS BEFORE THE ASSESSING OFFICER SO AS TO ENABLE HIM TO PASS THE ORDER AS PER LAW. SINCE THE ASSESSMENTS WERE FRAMED U/S 144 OF THE IT ACT AND S INCE THE DISCREPANCIES WERE FOUND IN THE INCOME COMPUTATION DURING THE APPEAL HEARING, THEREFORE, THE CIT(A) IN OUR OP INION, HAS ABSOLUTE POWER TO ISSUE ENHANCEMENT NOTICE TO THE A SSESSEE IN THE INSTANT CASE. THEREFORE, THE VARIOUS DECISIONS RELIED BY THE PAGE | 42 LD. COUNSEL FOR THE ASSESSEE THAT CIT(A) HAS NO POW ER TO ENHANCE ASSESSMENT BY BRINGING A NEW SOURCES OF INC OME IS NOT TENABLE UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE. IT IS THE SETTLED PROPOSITION OF LAW THAT THE POWERS OF C IT(A) ARE CONTERMINOUS WITH THAT OF THE POWERS OF THE ASSESSI NG OFFICER. THEREFORE, WE HOLD THAT THE ENHANCEMENT NOTICE ISSU ED BY CIT(A) IN THE INSTANT CASE IS JUSTIFIED. HOWEVER, W E FIND FROM THE ORDER OF THE CIT(A) THAT WHILE ENHANCING THE IN COME HE HAS GIVEN A FINDING THAT NO CORROBORATIVE EVIDENCES WER E FILED BY THE ASSESSEE TO SUBSTANTIATE THAT THE LOSS IS GENUI NE. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE A ND IN THE INTEREST OF JUSTICE WE DEEM IT PROPER TO RESTORE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO G IVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EV IDENCE TO HIS SATISFACTION REGARDING THE GENUINENESS OF THE L OSS OF RS.13,04,95,600/- ON ACCOUNT OF PURCHASE AND SALE O F SHARES OF GROUP COMPANIES. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GI VING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS OF APPEAL NO. 1 TO 1.4 ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 33. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 8215/DEL/2018 (MDLR ESTATE PRIVATE LIMITED) THE ASSESSEE RAISED FOLLOWING GROUNDS OF APPEAL :- PAGE | 43 GROUNDS OF APPEAL TAX EFFECT GROUND NO. 1 ) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN MAKING A DISALLOWANCE O F RS. 13,04,94,600/- REPRESENTING THE LOSS INCURRED ON PURCHASE AND SALE OF SHARES RS. 4,43,55,115/- GROUND NO.1.1)THAT THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) WHILE MAKING THE AFORESAID DISALLOWANCE HAS ACTED IN EXCE SS OF JURISDICTION AND THEREFORE, THE SAME IS BEYOND THE SCOPE AND POWERS VESTED IN T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) UNDER SECTION 251 (L)(A) OF TH E ACT. LINKED TO GROUND NO.L GROUND NO.1.2) THAT NO VALID SHOW CAUSE NOTICE WAS GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BEFORE MAKING THE IMPUGNED DISALLOWANCE AND HENCE THE SAME ON THIS GROUND ALONE IS WITHOUT JURISDICTION AND CONTRARY TO THE PROVISIONS CONTAINED IN SECTION 251(2) OF THE ACT. LINKED TO GROUND NO.L GROUND NO.1.3) THAT EVEN OTHERWISE, THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE DOCUMENTARY EVIDENCE FURNISHED IN SUPPORT OF THE LOSS INCURRED BY THE ASSESSEE COMPANY AND THEREFORE, GENUINE BUSINESS LOSS INCURRED BY THE ASSESSEE OUGHT TO HAVE BEEN ALLOWED AS SUCH. LINKED TO GROUND NO.L GROUND NO.1.4) THAT THE FINDING OF THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) THAT THE AFORESAID LOSS IS OF TRANSACTION BETWEEN GROUP ENTITIES OF SHARES OF GROUP ENTITIES AND IT IS CLEARLY A COLLUSIVE TRA NSACTION THAT HAS BEEN DONE ONLY TO OFFSET THE INCOME ON SALE OF SHARES IN THE PARTNERS HIP FIRM OF M/S. TRISHUL INDUSTRIES AND THUS IS NOT ALLOWABLE LOSS AND THE PURPORTED LOSS SO CLAIMED IS CLEARLY INADMISSIBLE TRANSACTION TO ARTIFICIALLY EVADE LAWF UL TAX OBLIGATIONS AND IT IS NOT GENUINE LOSS AS THERE IS NO CORROBORATIVE EVIDENCE IN THIS REGARD, IS FACTUALLY INCORRECT, CONTRARY TO EVIDENCE ON RECORD, LEGALLY MISCONCEIVED A ND WHOLLY UNTENABLE IN LAW AND HENCE UNSUSTAINABLE. LINKED TO GROUND NO.L (GROUND NO. 2) THAT FURTHERMORE, THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN UPH OLDING THE INCLUSION OF RS. 43,49,47,500/- (SALES CONSIDERATION OF RS. 53,20,00 ,000 - COST OF SHARE IN PARTNERSHIP FIRM OF RS. 9,70,52,500) REPRESENTING THE ALLEGED C APITAL GAIN ARISING ON SUM RECEIVED BY THE ASSESSEE AS PARTNER ON RETIREMENT F ROM THE PARTNERSHIP FIRM THOUGH THE SAME IS EXEMPT UNDER SECTION 10(2A) OF THE ACT. RS. 14,78,38,655/ - GROUND NO. 2.1) THAT THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) WHILE UPHOLDING THE INCLUSION, HAS FAILED TO APPRECIATE T HAT NO CAPITAL GAIN AROSE TO THE PARTNER L INKED TO GROUND NO.2 PAGE | 44 34. AFTER HEARING BOTH THE SIDES. WE FIND THE ABOVE GROUNDS ARE IDENTICAL TO GROUNDS OF APPEAL IN ITA NO. 8214/ DEL/2015. WE HAVE ALREADY DECIDED THE ISSUE AND GROUNDS RAISE D BY THE ASSESESEE HAVE BEEN PARTLY ALLOWED AS INDICATED THE REIN. FOLLOWING SIMILAR REASONING THE GROUND NO. 2 TO 2.3 ARE ALLOWED AND GROUND OF APPEAL NO.1 TO 1.4 ARE ALLOWE D FOR STATISTICAL PURPOSE. 35. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE SPECTIVE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOS E. ORDER PRONOUNCED IN THE OPEN COURT ON 11.06.2019. SD/- SD/- (KULDIP SINGH) (R.K PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA* DATE:- 11.06.2019 ON RETIREMENT FROM THE PARTNERSHIP FIRM AND HENCE ADDITION SO MADE AND SUSTAINED IS INVALID AND THEREFORE, UNSUSTAINABLE. GROUND NO. 2.2) THAT THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT THERE IS NO ESTOPPEL AGAI NST STATUTE AND MERE DECLARATION IN THE CAPITAL GAIN COULD NOT BE A GROUND TO SUSTAIN A NY ADDITION. LINKED TO GROUND NO.2 GROUND NO. 2.3)THAT WHILE UPHOLDING THE ADDITION, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE E VIDENCE PLACED ON RECORD ALONGWITH JUDICIAL PRONOUNCEMENTS TO SUBMIT THAT AD DITION MADE AND SUSTAINED IS NOT IN ACCORDANCE WITH LAW. LINKED TO GROUND NO.2 PRAYER IT IS THEREFORE, PRAYED THAT IT BE HELD THAT SUM RECEIVED ON ACCOUNT OF RETIREMENT FROM THE PARTNERSHIP FIRM WAS NOT ASSESSABLE AS INCOME AND THEREFORE OUGHT TO HAVE BEEN EXCLUDED WHILE COMPUTING INCOME OF THE APPELLANT COMPANY. APART FROM THE ABOVE, IT BE ALSO HELD THAT ENHANCEM ENT OF INCOME BY DISALLOWING THE LOSS CLAIMED ON PURCHASE AND SALE OF SHARES IS ALSO ILLEGAL, BOTH ON MERITS AND EVEN OTHERWISE BEYOND THE SCOPE OF POWERS OF THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) UNDER SECTION 251 OF THE ACT. IT IS T HUS PRAYED THAT APPEAL OF THE APPELLANT MAY KINDLY BE ALLOWED AS SUCH. PAGE | 45 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 12.06.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER