AI Drafter 
TaxTMI 
TaxTMI 
2018 (5) TMI 1876
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....yards out of 2420 sq. yards for a consideration of Rs. 25,20,000/-. The assessee claimed long term capital loss of Rs. 22,02,277/- on the aforesaid transaction. On verification it was noticed that the cost of acquisition of 2420 sq. yards was adopted by the assessee at Rs. 31,68,080/- by revaluing since the cost of the land as per the balance sheet as on 31.03.1997 was Rs. 1,08,467/-. 4. It may be noticed that the land was allotted by APIIC in the industrial area, for industrial purposes, to M/s. Veena Industries, which was a proprietary concern of Smt. C. Rajkumari. Possession of the land was delivered to her by APIIC on 28th November, 1973. The business was run as a proprietary concern in the said premises. The said concern was converted into a partnership firm on 01.04.1986 which consists of four persons. In other words, the proprietrix had taken three more persons and constituted a partnership firm and the land was utilised by the said firm since the firm succeeded to the business of the proprietary concern. Vide partnership deed dated 17.04.1986 it was declared that the business run in the name and style of M/s. Veena Industries, as a proprietary concern, was convered into ....
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....as converted into partnership firm by induction of three persons which amounts to continuation of business upon succession in which event the fair market value of the land as on 01.04.1981 should be taken into consideration. With regard to the disallowance of interest, the claim of the assessee is that notional interest was sought to be considered which is not permissible in law. It was contended that the amount was paid to Sri K.L. Jaiswal and Sri S.P. Jaiswal in respect of acquisition of property and income from the said property was admitted to tax and therefore, disallowance of notional interest is not called for. 9. Before the Ld. CIT(A) assessee contended that a part of the land, which was sold during the year under consideration, was allotted to M/s. Veena Industries on 20.11.1973 and the same business continued by the firm by way of succession by inducting three more persons as partners in which event the cost of acquisition would be the cost as on 20.11.1973, in which event fair market value of the land as on 01.04.1981 has to be adopted for determining the capital gains. It was also submitted that the fair market value as per the Registered Valuers report was Rs. 500/-....
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....nd was originally allotted to Smt. C. Raj Kumari in 1973 but later on formal sale deed was entered into in 1990 in the name of the partnership firm. It was strongly submitted that there is succession to the business with induction of three more partners, without disturbing the identity and continuity of the business, in which event the cost of the asset in the hands of the assessee should be taken as a cost at which it was first allotted i.e., on 20.11.1973. In this regard, assessee relied upon the decision of the Apex Court in the case of ED Sassoom & Co. Ltd (86 ITR 757) (SC). Reliance was also placed upon another decision of the Hon'ble Supreme Court in the case of CIT vs. K.H. Chambers (55 ITR 674 at 680-681) wherein the Court considered the provisions of section 170 of the I.T. Act, 1961 to hold that if a business was taken over as a going concern, it implies that the identity and the continuity of the business is preserved. Reliance was also placed upon the decision of the Hon'ble jurisdictional High Court in the case of P. Koteshwar Rao (46 ITR 882) (AP). 11. In short, the case of the assessee was that so long as the identity and continuity is proved, it amounts to succes....
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....d by adopting cost as on 07.08.1990. 14. With regard to the second issue, the contention of the assessee was that the assessee received amount from Smt. Rashmi Chakravarthi which was paid to Sri K.L. Jaiswal and Sri S.P. Jaiswal for acquiring a house. Though it was paid towards sale consideration, sale deed was executed later and rent received on the property was offered to tax in the next year. Thus, it is not a diversion of income for other purpose. 15. The Ld. CIT(A) did not take note of the contention of the Learned Counsel for the Assessee though it was categorically mentioned in para of the statement of facts and in Ground No.7 Ld. CIT(A) merely observed as under: "Ground No.7: The Assessing Officer on examination of profit and loss account, found that the assessee had debited Rs. 1,70,000/- as interest payment on loan availed from Smt. Rashmi Chakravarthi amounting to Rs. 26 lakhs. The said loan was advanced to Sri K L Jaiswal and Sri S P Jaiswal. Even though the assessee has availed interest-bearing loan from Smt. Chakravarthi, no interest was charged from Sri K L Jaiswal and Sri S P Jaiswal. Therefore, I hold that A.O. is justified in making disallowance of ....
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....ut ownership was formalised in 1990, in the name of the firm / 4 persons named through the abovementioned deed. The first party of the second part i.e., Smt. Raj Kumari was not paid any amount by APIIC which indicates that the possession was already given to M/s. Veena Industries in 1973 and in 1986 there was a mere succession of business of M/s. Veena Industries from the proprietary concern to partnership firm, in which event provisions of section 55(2)(b) r.w.s 49(1) of the Act comes into play. He referred to the decision of the Supreme Court in the case of E.D. Sassoom & Co. Ltd., (86 ITR 757) to submit that if an assessee takes over the business of predecessor of a going concern, it amounts to 'succession of the business' falling within the meaning of section 49(1) in which event the cost of the previous owner has to be taken into consideration. Section 170 of the Act was also referred to contend that when a person is carrying on a business and that has been succeeded by any other person and continues to carry on that business, it can be considered as a 'succession to business'. Though the said section was with reference to income assessable to tax in the hands of the previous ....
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....oney was advanced, overlooking the fact that the money was not advanced to Sri S P Jaiswal and Sri K L Jaiswal as a loan but it was an advance towards purchase of the property and the firm in fact owned the property and rents received therefrom were offered to tax in the subsequent year. Learned Counsel for the Assessee submitted that this aspect was overlooked by the A.O. as well as the Ld. CIT(A). 21. On the other hand, Learned Departmental Representative relied upon the orders passed by the Tax Authorities and it was submitted that the case law relied upon by the assessee are distinguishable on facts. The cases referred to by the assessee were pertaining to succession simpliciter i.e., where the same property, which was owned by predecessor assessee, was passed on to the successor assessee, whereas in the instant case, the sale deed between APIIC and the partners upon payment of Rs. 15,000/- towards purchase consideration by the firm leaves no doubt that it was a case of purchase of property from APIIC by the assessee-firm, as otherwise there was no need for making payment of Rs. 15,000/- by the firm. 22. I have carefully considered the rival submissions and perused the re....