TaxTMI 
TaxTMI 
2015 (10) TMI 2175
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the fact that the appellant had not received any consideration. 4. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in not considering that a gift of running business results into succession and thus erred in confirming the disallowance of depreciation claim under section 32(1). 5. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in not allowing setting off of unabsorbed depreciation against salary income, when such unabsorbed depreciation becomes part of current year depreciation and is eligible for set off u/s 71. 6. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of write off of sundry debtors which were no longer realisable in the books of the assessee. 7. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of project expenses and deferred revenue expenses written off in the books of accounts." 2. During hearing of this appeal, we have heard, Shri M.C. Naniwadekar, ld. counsel for the assessee and Shri Vijay Kumar Soni, ld. DR. The crux of argument advanced on behalf of the assessee, with respect to grounds 1 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iabilities stated in the balance sheet, the Donor also transfers to the Donee company all intangible assets such as goodwill, patents, trademarks. registrations, licenses and legal and commercial rights and also the benefit of all continuing contracts, business assignments and so on. 13. The Donee company hereby accepts from the said Donor; the said gift of the said business undertaking as a going concern, including all assets and liabilities of the said two proprietary concerns namely Namely Nitin Chandrakant Desai Proprietary concern and Trimitik Construction company on the terms and conditions herein before stipulated." 2.1. In view of the above, clauses in gift deed, the slump gift was claimed to be not taxable, as per section 47 (iii) of the Act, under the head capital gains. In para 3 of the gift deed, it was stated that 'said transferred is for nil consideration in view of the sentimental attachment'. The ld. Assessing Officer raised the following questions:- (i) Can a gift be received by a company (ii) Why the so called slump gift, to the donee company, may not be held as colorable device to escape the provision of taxation under the head capital gains, (iii)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts shows that the so called gift made by the appellant was sham, a mirage. chimera in the cloak by which a manipulated transaction is effected to avoid taxable long term capital gain. The alleged gift is colorable device as the gift is being made by the appellant to a company of which he was 100% owner before a week. and still holds 49% share and he is Chairman cum Managing Director of the donee company. Therefore. the AO has rightly observed that how the donor and done can be same person and gift can be regarded when the donor still has 49% stake in the assets gifted. Therefore, the alleged gift under consideration is sham and colorful tax planning to avoid incidence of tax." 1.3.1. It is further seen that para 3 of gift deed states that the said transfer is for Nil consideration in view of the sentiment attachment. How there can be sentimental attachment to a company which is artificial person and not a living thing: The gift is generally given out of love and affection, but in the case of the assessee there cannot be any love and affection attached to an artificial person created by statute. 1.3.2 Further, the gift has been made by the appellant on 31-12-07 to a company....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., assets and liabilities. Thus gift cannot be treated as without consideration because the donor still retains the goodwill of his 'name for expansion of his business of which he still is de-facto owner by holding 49% share and being chairman cum MD. 1.3.5 The claim of AR that gift is not slump and there is no attempt to evade tax as stamp duty of Rs. 60 lacs is paid and tax on capital gain is paid at Rs. 40 lees. I find that the stamp duty is not paid by donor but donee and capital gain tax is not paid in lieu of this gift but in lieu of transfer of share of by the appellant to RBE. hence. these argument do not have any force and therefore immaterial in case of gift made by the appellant. 1.3.6 The provisions of section 47(xiv) are an exclusion clause for cases which are otherwise a transfer. Since the donor Was absolute owner of NDAW up to 24-7-07 and transfers his 51 % share to RBE and then makes gift to NDAW in which he still has 49% stake is a transfer is covered by exclusion clause u/s. 47(xiv) and hence the appellant is liable to gift tax. Reliance is placed in the case of decision of Chennai Bench of Tribunal reported in [2011] 14 taxman.com 27 (Chennai - Trib.) Where....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 1,26,41,695/- instead of -Rs. 23, 52,49,025 considered by the AO. In the light of above facts and circumstances, the findings as related to taxability as capital gain is upheld, subject to recalculation of capital gain as is revised as computed above. Accordingly, the above grounds of appeal are treated as partly allowed." 2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that as on 24/12/2007, the assessee was 100% share holder of NDAW and proprietor of two concern namely Nitin Dessai Chandrakant Dessai and Trimitik Construction Company. The assessee sold/transferred his 50% shares in NDAW to Reliance Big Entertainment (hereinafter in short RBE) on 24/12/2007 and thereafter, transferred asset and liabilities of his two proprietary concerns by way of gift. As per the Revenue, it is a colorable tax planning. Admittedly, the assessee made gift of two concerns to a third person/third concern of which he is still share holder to the extent of 49%,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....poses of receiving gift. The ratio laid down by Hon'ble Apex Court in Mcdowell & Company 154 ITR 148 (SC), clearly comes to the rescue of the Revenue, because, as discussed earlier, it is merely a colorable tax avoidance planning. Another fact worth mentioning is that in the gift deed dated 31/12/2007, the signatories are the assessee on one part and in second part also the assessee and Ms. Neha Nitin Dessai (as Director of the Company), thus, the donor and the donee, as a signatory, are the same person, thus, gift to himself, under the facts available on record, is quite unjustified. Further, as per para 3 and 6(iii) of the gift deed, it is clearly mentioned that the donor was expanding his business activity to fulfill his personal dreams for creating a world class studio and with that intention, the donor (assessee), transferred the business undertaking along with asset and liabilities. The donor still retains the goodwill of his name for expansion of his business and still is de-facto owner, having 49% shares being Chairman cum MD. 2.6. So far as the argument of the ld. counsel for the assessee that stamp duty of Rs. 60 lakh was paid, there is uncontroverted finding in the im....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities transferred and valued at Rs. 22,26,07,330/-. In view of this position in long term capital gain will be at Rs. 1,26,41,695/-, thus, so far as, taxability of capital gain is concerned, we find no infirmity in the impugned order, in giving direction to the Assessing Officer. So from this angle also, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). Thus, grounds no.1 to 3, raised by the assessee, are having no merit, therefore, dismissed. 3. Now, we shall take up the ground (ground no.4) with respect to not considering that a gift of running business results into succession and confirmation of disallowance and deprecation u/s 32(1) was challenged by the assessee. The crux of argument advanced on behalf of the assessee is identical to the ground raised by contending that if the gift is a sham transaction then what was transferred by the assessee. It was explained that the depreciation was claimed on proportionate basis. On the other hand, the ld. DR, strongly defended the conclusion arrived at in the impugned order. 3.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act. At the outset, the ld. DR, contended that this issued is covered against the assessee in the case of Chandra Kumar vs ACIT (2010) 36 DTR 378 (Chennai) order dated 20/11/2009. On the other hand, the ld. counsel for the assessee contended that in the case of Shri V. Laxmanan vs ITO (ITA No.198/Mds/2010), vide order dated 10/12/2010, the issue has been decided in favour of the assessee. 5.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that in the computation of income, the assessee has set off current years unabsorbed depreciation to the extent of Rs. 37,72,499/- against the head salary income. Pursuance to the query, (vide order sheet entry dated 18/08/2010 and 14/09/2010) as to why the set off of depreciation claimed against the head salary may not be disallowed the assessee vide submission dated 19/10/2010 claimed that it has to be read with section 71(2A) and also section 72 of the Act, which discuses about the treatment to be given to the business loss. Reliance was placed upon the decision in CIT vs Jaipuria Clay Mines Pvt. Ltd. 59 ITR 555, which deals with section 24(2) of the 1922 Act (corresponding to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this ground also. It is dismissed. 6. The next ground ie. Ground no.7, pertains to confirming the disallowance of right off of sundry debts, which were no longer realisable in the books of the assessee. The crux of argument on behalf of the assessee is that the appellant transferred by way of gift the asset and liabilities which existed as on 31/12/2007 in the balance sheet of the proprietary concern to NDAW and just standing in the books of accounts, on the asset side, without any real value. It was claimed that they are nothing but fictitious asset, therefore, gifting such fictitious and worthless would not have amounted to gift at all. On the other hand, the ld. DR, strongly opposed the contention of the assessee and defended the impugned order. 6.1. We have considered the rival submissions and perused the material available on record. There is uncontroverted finding in the impugned order that the assessee has gifted/transferred all his asset and liabilities to NDAB as going concern, therefore, the claim of bad debts written off on the pretext that these were written off prior to 31/12/2007 is sham and part of colorful tax planning. We also note that, as claimed by the ass....