2018 (12) TMI 190 - AT - Income Tax

Tribunal rules on asset value, exemption eligibility, and deduction under Sections 47A(4) and 80-IA

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objections. It held that the book value of assets constituted the full ... Transfer of the property, assets, liabilities etc. on conversion of the Private company into LLP - Charging capital gains u/s 45 in the hands of the successor assessee LLP by invoking the provisions of section 47A of the Act - Transactions not regarded as transfer - superseding effect of Sec. 58(4) of the Limited Liability Partnership Act, 2008, on conversion the assessee LLP - Held that:- We have given a thoughtful consideration to the issue under consideration and are unable to persuade ourselves to accept the same. We find ourselves as being in agreement with the view taken by the CIT(A), that sub-section (4) of Sec. 58 of the Limited Liability Partnership Act, 2008 is only in context of the tangible and intangible property, interests, rights etc., and has nothing to do with the 'carry forward' of losses, which is the creature of a specific statute in the form of the Income-tax Act, 1961. We are of the considered view that Sec. 72A(6A) which entitles a LLP to 'carry forward' the losses of the erstwhile private limited company, is in clear and loud terms preconditioned by a statutory requirement that the assessee should have complied with the conditions of the proviso to clause (xiiib) of section 47. In the backdrop of our aforesaid observations, we are of the considered view that as the claim of the assessee LLP as regards 'carry forward' of the loss of the erstwhile private limited company, de hors satisfaction of the conditions laid down in the proviso to clause (xiiib) of section 47, clearly militates against the aforesaid statutory provision, thus, the same cannot be accepted. Our aforesaid view is further fortified from a perusal of the 'Memorandum' explaining the Finance Act, 2010. We thus in terms of our aforesaid observations find no infirmity in the order of the CIT(A), who in our considered view, after taking cognizance of the fact that the assessee had failed to satisfy the conditions laid down in the proviso to clause (xiiib) of section 47 had rightly declined the 'carry forward' of the losses of the erstwhile company by the assessee LLP. The order of the CIT(A) to the said extent is upheld. The Cross-Objection No. IV of the assessee is dismissed. Entitlement to claim of deduction under Sec. 80-IA - non-filing of the 'audit report' - CIT(A) after necessary deliberations admitted as 'additional evidence' the Audit Report' filed by the assessee in 'Form 10CCB' in respect of its claim of deduction under Sec. 80-IA - Held that:- On a perusal of the order of the CIT(A), it emerges that it was the contention of the assessee before him, that as the A.O had in the course of the assessment proceedings only raised two issues as far as its claim of deduction under Sec. 80-IA was concerned viz. (1) the applicability of sub-section (12A) of Sec. 80IA; and (ii). the reason as to why no deduction was claimed in the 'return of income', therefore, the assessee which had replied to the said queries, thereafter remained under a bonafide belief that non-filing of the 'audit report' would not jeopardize its entitlement towards claim of deduction under Sec. 80-IA of the Act. Be that as it may, we find that the assessee had in the course of the appellate proceedings before the CIT(A) filed the audit report in 'Form 10CCB'. We find that filing of an audit report is procedural and directory in nature, and the same could also be validly filed by an assessee at the appellate stage. CIT(A) after calling for the objections of the A.O had fairly exercised his discretion and admitted the 'audit report' filed by the assessee in 'Form 10CCB' before him as an 'additional evidence'. We have further deliberated on the merits as regards the allowing of the claim of deduction under Sec. 80-IA by the CIT(A), and are persuaded to subscribe to the view taken by him. We thus being of the considered view that the CIT(A) has rightly admitted the 'audit report' filed by the assessee in 'Form 10CCB' during the course of the appellate proceedings, and therein allowed the claim of deduction raised by the assessee under Sec. 80-IA, thus uphold his order in context of the issue under consideration. - Decided against revenue Issues Involved:1. Determination of the consideration received on the transfer of assets.2. Computation of capital gains under section 47A(4) of the Income Tax Act, 1961.3. Claim of deduction under section 80-IA of the Income Tax Act, 1961.4. Taxability of conversion of a private limited company into a Limited Liability Partnership (LLP).5. Carry forward of losses of the erstwhile private limited company by the LLP.Issue-wise Detailed Analysis:1. Determination of Consideration Received on Transfer of Assets:The revenue contended that the consideration received on the transfer of assets should be the value computed by the Assessing Officer (A.O) for capital gains purposes. The CIT(A) held that the consideration received was the same as the book value of the assets in M/s Celerity Power Co. Pvt. Ltd. The Tribunal upheld the CIT(A)'s view that the book value could only be regarded as the full value of consideration for the purposes of Section 48 of the Act.2. Computation of Capital Gains under Section 47A(4):The A.O added an estimated amount as capital gains under Section 47A(4) due to the conversion of the company into an LLP, which was contested by the assessee. The Tribunal observed that Section 47A(4) is invoked only for withdrawing an exemption earlier availed under Section 47(xiiib). Since the assessee did not claim the exemption under Section 47(xiiib), invoking Section 47A(4) was incorrect. The Tribunal concluded that the capital gains could not be taxed in the hands of the LLP under Section 45 r.w.s. 5 of the Act.3. Claim of Deduction under Section 80-IA:The A.O denied the assessee's claim for deduction under Section 80-IA due to the non-filing of the audit report in Form 10CCB. The CIT(A) admitted the audit report as additional evidence and allowed the deduction, reasoning that the benefit of deduction under Section 80-IA is attached to the undertaking and not to its owner. The Tribunal upheld the CIT(A)'s decision, stating that filing the audit report is procedural and directory, and it could be validly filed at the appellate stage.4. Taxability of Conversion of a Private Limited Company into an LLP:The revenue argued that the conversion involved a taxable transfer chargeable under Section 45 of the Act. The CIT(A) and the Tribunal noted that the conversion did involve a transfer but, due to the book value being the full value of consideration, the machinery provision for computing capital gains under Section 48 was rendered unworkable. The Tribunal also clarified that the provisions of Section 47A(4) were not applicable for determining eligibility for exemption in the year of claim.5. Carry Forward of Losses of the Erstwhile Private Limited Company:The A.O rejected the carry forward of losses of the erstwhile company by the LLP. The CIT(A) upheld this view, stating that the conditions laid down under Section 47(xiiib) were not complied with, and thus, the provisions of Section 72A(6) were attracted. The Tribunal agreed, noting that Section 58(4) of the Limited Liability Partnership Act, 2008, only pertains to tangible and intangible property and not to the carry forward of losses, which is governed by the Income-tax Act, 1961.Conclusion:The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objections. The key findings were that the book value of assets was considered the full value of consideration, Section 47A(4) was not applicable for determining eligibility for exemption, and the claim for deduction under Section 80-IA was valid despite the late filing of the audit report. The carry forward of losses was denied due to non-compliance with the conditions under Section 47(xiiib).