TaxTMI 
TaxTMI 
2015 (8) TMI 1090
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....h Ralhan, passed away and another partner, namely Shri Sumit Ralhan, retired from partnership on that date. The business of the firm was thus taken over by Smt Neelam Ralhan. On these facts, during the course of the scrutiny assessment proceedings, the Assessing Officer required the assessee to show cause as to why the capital gains, on transfer of assets of the partnership firm on dissolution of the partnership firm as such, not be brought to tax under section 45(4) of the Act. The stand of the assessee was that there is no occasion of taxability of such capital gains as the business of the firm was continued by the remaining partner, i.e. Smt Neelam Ralhan, and, as such, it was only a case of change of constitution of the firm. The stand so taken by the assesse did not, however, find favour with the Assessing Officer. Relying upon decision of this Tribunal, in the case of Dhingra Cold Storage & Ice Factory Vs ITO [ITA No. 128(2002) of 2002; order dated 19th October 2007], he rejected the plea of the assessee and brought to tax capital gains of Rs. 31,01,639. The Assessing Officer also disallowed, on estimate basis and for want of full supporting evidence, an amount of Rs. 11,534 ....
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....factory and penalty provisions are clearly attracted. 5. Keeping in view of the above discussion, I am satisfied, that the assessee has furnished inaccurate particulars of income relating to long term capital gain at Rs. 31,01,639/- arising out of the transfer of assets at the time of dissolution of the firm as on 19.02.2006 and disallowance of unvouched expenses for Rs. 11,534/- as discussed above. 4. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. While confirming the action of the Assessing the Officer, the CIT(A) concluded as follows: I have considered the submissions carefully. The return of income by he assessee firm was filed on 31.10.2006. As per the dissolution deed drawn on 21.3.2006 w.e.f. 19.2.2006 on the death of Sri Om Prakash, the business of the firm stood dissolved w.e.f. 19.2.2006 since Sh. Sumit Rahlan expressed his inability to carry on as a partner. In the assessment order dated 12.12.2008 it has been noted that the assessee had contended vide reply dated 27.11.2008 that there was no dissolution of the firm as per the provisions of the section 45(4) o....
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....on in the case of CIT vs. Reliance Petro Products Ltd. (supra) will not assist the assessee, since this is a clear case of attempt to evade payment of taxes. The penalty levied by the AO is upheld. 5. The assessee is not satisfied and is in further appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. We find that, in the case of CIT Vs Moped & Machines [(2006) 281 ITR 52 (Del)], Hon'ble High Court was in session of a situation in which a partnership firm had two partners and one of the partners passed away. The question arose whether in such circumstances, the assets of the firm can be said to have been transferred to the surviving partner who thus became sole proprietor of the partnership firm. On these facts, the Assessing Officer brought to tax the capital gains on transfer of partnership firm's assets to the surviving partner. Aggrieved, assessee carried the matter in appeal before the CIT(A) but, as noted by Hon'ble High Court, CIT(A) deleted the addition on the ground that the partnership firm ceased to exists and that "that levy of ....
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....ndment in sub-s. (47) of s. 2, i.e., (Definition of word "Transfer") and cl. (iv) was inserted therein, so as to include, the conversion of any asset by owner thereof as stockin- trade, within the definition of word "Transfer". Thus, the legislature was aware that s. 45 is not a complete code in itself and to charge assessees under s. 45(2) for conversion of capital asset into stockin- trade, simultaneous amendment in the definition of word "Transfer" under s. 2(47) is essential. Amendment in definition of word "Transfer" under s. 2(47) was so made by inserting cl. (iv). However, we find that subs. (4) to s. 45 was inserted by the Finance Act, 1987, w.e.f. 1st April, 1988. By the same date, there were insertion of cls. (v) and (vi) in sub-s. (47) of s. 2, but these two clauses do not cover the cases of distribution of assets on the dissolution of the firm. Thus, the definition of the word "Transfer" is not amended or modified, so as to enlarge the definition of word "Transfer" to cover the cases of distribution of assets on the dissolution of firm. We have already mentioned that for chargeability of capital gains tax as per the newly inserted sub-s. (4) of s. 45, "Transfer" of capi....
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.... That is obviously not the case in the present situation. Clearly, therefore, the penalty can only be invoked in the event of deeming fiction coming to play. As for this deeming fiction, it can come into play when either the assessee does not give an explanation or when assessee gives an explanation which is found to be false, or in respect of which bonafides are not proved, in addition, of course to a situation in which there is a failure to disclose facts necessary of computation of income. Non disclosure of facts necessary for computation of income, as we have noted above, is not even alleged in this case. Coming to the existence of explanation of the assessee, and its bonafdides, we find that in the case of CIT vs. Nathulal Agarwala & Sons [(1985) 153 ITR 292 (Pat)(FB)] Full Bench of Hon'ble Patna High Court had, inter alia, observed as follows : "As to the nature of the explanation to be rendered by the assessee, it seems plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed upon him would be discharged and the presumption rebutted. It is not the law and perhaps hardly can be that any and ev....