Gift to Company Deemed Tax Evasion; Tribunal Upholds Assessing Officer's Decision

The Tribunal held that the gift made by the assessee to a private limited company was a colorable device to avoid tax, as the donor retained significant control and shareholding in the donee company. The transaction was deemed a sham and taxable under Section 50B. The Tribunal upheld the Assessing Officer's computation of capital gains and disallowed the depreciation claim, write-off of sundry debtors, and project expenses. The appeal was dismissed, affirming the disallowances and finding no merit in the grounds raised by the assessee.

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Issues Involved:
1. Taxability of gifts made by the assessee under Section 45 and applicability of Section 50B.
2. Consideration of net value of assets for capital gains.
3. Disallowance of depreciation claim under Section 32(1).
4. Setting off of unabsorbed depreciation against salary income under Section 71.
5. Disallowance of write-off of sundry debtors.
6. Disallowance of project expenses and deferred revenue expenses.

Issue-Wise Analysis:

1. Taxability of Gifts and Applicability of Section 50B:
The assessee contended that the gift made to a private limited company should not be considered a transfer of capital asset under Section 45, and thus, Section 50B regarding slump sale should not apply. The Tribunal analyzed the facts, noting that the assessee held 100% shares in the donee company before selling 51% to Reliance Big Entertainment and subsequently transferring all assets and liabilities of his proprietary concerns to the donee company as a gift. The Tribunal concluded that the gift was a colorable device to avoid tax, as the donor retained significant control and shareholding in the donee company. The transaction was deemed a sham and taxable under Section 50B.

2. Consideration of Net Value of Assets:
The Tribunal upheld the Assessing Officer's computation of capital gains by considering the full value of assets at Rs. 23,52,49,025, revalued in the books of the donee company. The net worth was calculated by deducting liabilities, resulting in a long-term capital gain of Rs. 1,26,41,695. The Tribunal found no merit in the assessee's argument that Section 50B only applies to slump sales and considers net wealth as per Explanation-1.

3. Disallowance of Depreciation Claim under Section 32(1):
The assessee claimed depreciation on a proportionate basis until the date of the gift. The Tribunal rejected this claim, stating that the transaction was a sham and not a genuine succession of business. As the transfer was not recognized as a valid gift, there was no question of proportionate depreciation under the fifth proviso to Section 32(2).

4. Setting Off of Unabsorbed Depreciation Against Salary Income:
The Tribunal upheld the disallowance of setting off unabsorbed depreciation against salary income, citing Section 71(2A). The assessee's business was discontinued, and part of it was transferred by way of a sham gift, making the unabsorbed depreciation claim inapplicable. The Tribunal relied on the decision in DCIT vs Times Guarantee Ltd., which held that unabsorbed depreciation from earlier years cannot be set off against income from subsequent years post-2002-03.

5. Disallowance of Write-Off of Sundry Debtors:
The Tribunal confirmed the disallowance of write-off of sundry debtors, noting that the assessee transferred all assets and liabilities to the donee company as a going concern. The write-off was deemed a part of the colorable tax planning and not a bona fide claim. The Tribunal emphasized that the write-off should be genuine and based on commercial expediency, which was not the case here.

6. Disallowance of Project Expenses and Deferred Revenue Expenses:
The Tribunal upheld the disallowance of preoperative project expenses and deferred revenue expenses written off in the books of accounts. The assessee failed to provide evidence that these expenses crystallized during the year. The Tribunal noted that such expenses are admissible only in the year they were incurred as per the method of accounting followed by the assessee. The claimed expenses were not allowable as the business was transferred as a going concern with all liabilities.

Conclusion:
The Tribunal dismissed the appeal of the assessee, finding no merit in the grounds raised. The transaction was deemed a sham and a colorable device to avoid tax, and the disallowances made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) were affirmed. The order was pronounced in the open court on 24/09/2015.

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