TaxTMI 
TaxTMI 
2019 (6) TMI 845
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.... However, the assessee did not file any return of income in response to the statutory notices. Since the assessee was not responding to the statutory notices issued u/s. 153A, 142 (1) and 143 (2), the Assessing Officer completed the assessment u/s. 144 of the Act on 21.12.2009 determining the total income at Rs. 110,12,38,532/-. 3. The assessee moved an application before the CIT(Central)-II, New Delhi under the provisions of section 264 on 14.06.2010. The CIT(Central)-II, New Delhi vide order dated 16.03.2012 disposed of the application of the assessee with a direction to the Assessing officer to reframe the assessment afresh after making required enquiries, investigation and verifications. 4. The Assessing Officer thereafter issued notice to the assessee asking for various details. However, a perusal of the assessment order shows that there was no proper compliance from the side of the assesse. Therefore, the Assessing Officer proceeded to pass the order again u/s. 144 of the IT Act on the basis of information collected from third party enquiries during initial assessment and documents seized at the time of search. 5. The Assessing Officer noted that the assessee company....
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....at the payments made by M/s. Vatika Ltd to MDLR Group companies is for the partnership share in M/s. Trishul Industries which includes the rights, title and interest embedded in the partnership share. e) On 15.12.07 a deed of partnership was signed between MDLR Group and Vatika Group. By this deed 85% of partnership is transferred to M/s. Vatika Ltd and 1% to Shri Anil Bhalla by MDLR Group. The deed does not contain any details regarding the payments made for the purpose of acquisition of partnership share by Vatika Group. f) A total of Rs. 178 Cr was paid to MDLR Group for acquisition of the partnership firm. The details of payment as on 31.01.08 is as under -:- g) The partnership share in a firm according to the Assessing Officer is a capital asset within the meaning of Section 2 (14) of the Income Tax Act, 1961. The MDLR Group transferred partnership share held by it to Vatika Ltd and Anil Bhalla. This according to the Assessing Officer is covered well within the scope of transfer of capital assets defined in section 2(45) of the IT Act. h) The Assessing Officer noted that the deed of retirement dated 29.11.07 clearly states that in pursuance ....
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....,41,00,000/- vide letter dated 16.06.2008. He, therefore, added the same to the total income of the assessee as undisclosed income. 7. The Assessing Officer accordingly determined the total income of the assessee at Rs. 1,10,12,38,532/-. 8. Before CIT(A) the assessee made elaborate submissions and filed various details based on which the Ld. CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer send three remand reports on various dates which were confronted to the assessee. After considering the remand reports of the Assessing Officer and the rejoinder of the assessee to such remand reports the CIT(A) held that the sum received on retirement from the partnership firm is taxable as income of the assessee company as share of partner in partnership firm is capital asset and on retirement of the firm there is capital gain which accrues to the assesse which is taxable as such. For the above proposition he relied on the decision of Hon'ble Karnataka High Court of CIT Vs. Gurunath Talkies reported in 328 ITR 59 (Karnataka) and the decision of Hon'ble Bombay High Court in the case of CIT Vs. A. K. Naik Associates reported in 265 ITR 346. He however note....
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.... 10. The assessee filed detailed submissions and claimed loss of Rs. 13.06 crores on account of purchase and sale of shares the details of which are as under :- 11. However, the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee. He observed that the aforesaid losses are on account of transactions between group entities of shares of group entities. It is clearly a collusive transaction that has been done only to offset the income on sale of shares in the partnership firm M/s. Trishul Industries and thus is not allowable losses. According to the Ld. CIT(A) it is not a genuine loss since there is no corroborative evidence in this regard. He, therefore, directed the Assessing Officer to enhance the income of the assessee to this extent being the loss claimed by the assessee on account of purchase and sale of shares which is not allowable. 12. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal :- Grounds of appeal Ground No. 1) That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in making a disallowance of Rs. 13,04,50,800/- representing ....
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....he partner on retirement from the partnership firm and hence addition so made and sustained is invalid and therefore, unsustainable Linked to ground Ground No. 2.2) That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there is no estoppel against statute and mere declaration in the capital gain could not be a ground to sustain any addition. Linked to ground no.2 Ground No. 2.3) That while upholding the addition, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence placed on record alongwith judicial pronouncements to submit that addition made and sustained is not in accordance with law. Linked to ground no.2 Prayer It is therefore, prayed that it be held that sum received on account of retirement from the partnership firm was not assessable as income and therefore ought to have been excluded while computing income of the appellant company. Apart from the above, it be also held that enhancement of income by disallowing the loss claimed on purchase and sale of shares is also illegal, both on merits and even otherwise beyond the scope of powers of the learned Commissioner of Income Tax (Appeals) under s....
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....ital gain in the return cannot be a ground to make addition on account of short term capital gain :- 1. CIT Vs. Mahalaxmi Sugar Mills Co. Ltd. 160 ITR 920 (SC) 2. CIT Vs. Bharat General Reinsurance Ltd. Co. 81 ITR 303 (Del) 3. Vijay Gupta Vs. CIT 386 ITR 643 (Del) 4. DIT (E) Vs. Ahay G. Piramal Foundation 52 taxmann.com 226 (Del) 5. CIT Vidarbha and Marathwada Vs. Smt. Archana R. Dhanwatay 136 ITR 355 (Bom) 6. Nirmala L. Mehta Vs. A. Balasubramaniam 269 ITR 1 (Bom) 17. Referring to the following decisions he submitted that reconstitution of firm does not result into invocation of section 45 (4) :- 1. CIT Vs. P. N. panjawani 356 ITR 676 (Karnataka) 2. DCIT Vs. G. K.Enterprises 79 TTJ 82 (Mad) 18. Referring to the following decisions he submitted that taxability of sum received by firm is neither a determinative and nor a conclusive consideration to determine the taxability of the sum received by partner from firm :- 1) Roshan Di Hatti Vs. CIT 107 ITR 938 (SC) 2) State bank of Travancore Vs. CIT 158 ITR 102 (SC) 3) Income Tax Officer Vs. Ch. Atchaiah 218 ITR 239 (SC) 4) G....
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....vest & Holding Ltd. v. Asstt. CIT 23. The Ld. DR on the other hand strongly relied on the order of the CIT(A) and submitted that there was non compliance by the assessee before the Assessing Officer during the original assessment proceedings for which order was passed u/s. 144 / 153 A on 21.12.2009. Similarly when the matter was set aside by the CIT u/s. 264 of the IT Act with a direction to the Assessing Officer to frame the assessment afresh, even then also there was total non compliance. She submitted that the Ld. CIT(A) has given valid reasons for bringing to tax the amount received by the assessee on account of relinquishment of its rights in the partnership firm. Similarly there are certain intra group transactions on account of purchase and sale of shares for which no details were filed either before the Assessing Officer or before the CIT(A). The assessee also failed to furnish any evidence that the share transactions were genuine. The basis of share pricing was also not provided. The Ld. CIT(A) passed the order after calling for three remand reports from the Assessing Officer. Accordingly the Ld.CIT(A), whose powers are conterminous with that of the powers of the Assess....
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....Kukreja and the firm acquired land measuring 11.28 acres for a cost of Rs. 11,41,895/-. As per Partnership Deed of M/s Trishul Industries dated 15.06.2005 An amount of Rs. 19.2 Crores in the firm Trishul Industries contributed by the following mentioned parties with an agreement: i) M/s MDLR Builders (P) Ltd. ii) M/s MDLR Estates (P) Ltd. iii) Sh. Gopal Kumar Goyal Therefore as per partnership deed of M/s Trishul Industries dated 25.10.2006 the all above mentioned parties became partners of the firm M/s Trishul Industries and the status of all partners with Profit and Loss percentage was as under: As per Partnership Deed of M/s Trishul Industries dated 27.11.2006 Out of seven existing partner first four partners were retired and new profit and loss sharing ratio was as under: i) Shri R. L. Kukreja (First Partner) Profit/loss sharing ratio 1% ii) Shri Subhash Chandra Babbar (Second Partner) Profit/loss sharing ratio 1% iii) Shri Ravi Shanker (Third Partner) Profit/loss sharing ratio 1% iv) Shri Satish Chandra Babbar (Fourth Partner) Profit/loss sharing ratio 1% v) M/s MD....
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..... We find in the said case under a deed of dissolution, the petitioner assessee received a sum of Rs. 50 lacs on retirement from the partnership firm which were claimed as capital receipt and not offered to tax. The revenue initiated the proceedings u/s. 147 to bring to tax the above amount. In the writ petition filed by the assessee, the Hon'ble High Court held as under :- 13. During the subsistence of a partnership, a partner does not possess an interest in specie in any particular asset of the partnership. During the subsistence of a partnership, a partner has a right to obtain a share in profits. On a dissolution of a partnership or upon retirement, a partner is entitled to a valuation of his share in the net assets of partnership which remain after meeting the debts and liabilities. An amount paid to a partner upon retirement, after taking accounts and upon deduction of liabilities does not involve an element of transfer within the meaning of section 2(47), Chief Justice P.N. Bhagwati (as the learned Judge then was) speaking for a Division Bench of the Gujarat High Court in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 dealt with the issue in the following observations:....
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....iring partner is entitled to claim a share. It is, therefore, not possible to predicate that a particular amount is received by the retiring partner in respect of his share in a particular partnership asset or that a particular amount represents consideration received by the retiring partner for extinguishment of his interest in a particular asset." 14. The appeal against the judgment of the Gujarat High Court was dismissed by a Bench of three learned Judges of the Supreme Court in Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 . The Supreme Court relied upon its judgment in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. The Supreme Court reiterated the same principle by relying upon the judgment in Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300. The Supreme Court held that what is envisaged on the retirement of a partner is merely his right to realise his interest and to receive its value. What is realised is the interest which the partner enjoys in the assets during the subsistence of the partnership by virtue of his status as a partner and in terms of the partnership agreement. Consequently, what the partner gets upon dissolution or upon retirement is t....
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....th effect from 1-4-1988. Simultaneously, sub-section (4) of section 45 came to be inserted by the same Finance Act. Subsection (4) of section 45 provides that profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place. The fair market value of the assets on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer for the purpose of section 48. Ex facie subsection (4) of section 45 deals with a situation where there is a transfer of a capital asset by way of a distribution of capital assets on the dissolution of a firm or otherwise. Evidently, on the. admitted position before the Court, there is no transfer of a capital asset by way of a distribution of the capital assets, on a dissolution of the firm or otherwise in the facts of this case. What is to be b noted is that even in a situation....
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.... 20. In L. Raghu Kumar (supra), a Division Bench of the Andhra Pradesh High Court followed the judgment of the Gujarat High Court in CIT v. Mohanbhai Pamabhai[1973] 91 ITR 393 (Guj.) and held that no transfer is involved when a retiring partner receives at the time of retirement from the firm, his share in the partnership assets either in cash or any other asset. It further held that for the purpose of Section 45 of the I.T. Act, no distinction can be drawn between an amount received by the partner on the dissolution of the firm and that received on his retirement, since both of them stand on the same footing. 21. In PH. Patel (supra), a Division Bench of the AP High Court noticed that the judgment in Mohanbhai Pamabhai (supra) was approved by the Supreme Court in Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 and following the judgment in L. Raghukumar (supra) held that when a partner retires from a partnership firm taking his share of partnership interest, no element of transfer of interest in the partnership asset by the retiring partner to the continuing partner was involved. 22. In the light of the above decisions, which are binding on us, we hold t....
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....refore the contention of the assessee has to be accepted and that of the Revenue is liable to be rejected. 27. We find the Ld. CIT(A) has relied on the decision of Hon'ble Karnataka High Court in the case of Gurunath Talkies (supra) and the decision of Hon'ble Bombay High Court in the case of A. N. Naik Associates (supra). We find both these decisions were rendered in the context of section 45 (4) of the IT Act. 1961 and were the subject matter of consideration before the full bench of the Hon'ble Karnataka High Court in the case of CIT Vs. Dynamic Enterprises (supra). We find due to conflicting decisions of the same High Court, the following substantial questions of law were framed with the following observations :- "A division bench of this court felt that there is a conflict between the proposition of law laid down in the case of CIT Vs. Mangalore Ganesh Beedi works [2004] 265 ITR 658/136 Taxman 42 (Kar.) and in the case of CIT Vs. Gurunath Talkies [2010] 328 ITR 59 /189 Taxman 171 (kar.) in order to resolve the said conflict, passed an order on 27.08.2013 directing the matter to be listed before the Bench. Substantial question of law "The substanti....
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....s in whose favour the transfer is made should acquire that interest. Then only the profits or gains arising- from such transfer is liable to tax under Section 45(4.) of the Act. 25. In the instant case, the partnership firm had purchased the property under a registered sale deed in the name of firm. The property did-not stand in the name of any individual partners. No individual partners brought that ital asset as capital contribution into the firm. Five partners brought /in cash by way of capital when the firm' reconstituted on 28.04.1993. Nearly a year thereafter on 01.04.1994 by way of retirement, the erstwhile three partners took their, share in the partnership asset and went out of the partnership. After the retirement of three partners, the partnership continued to exist and the business was carried on by the remaining five partners. There " no dissolution of the firm, or at any rate there was no distribution of capital asset on 01.04.1994 when three partners retired from the partnership firm. What was given to the retiring partners-is cash representing the value of retirement share in the partnership. No capital asset was' transferred on the date of retirement u....
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.... partitioned. The term has also provided that such of those assets or liabilities belonging to or due from any of the firms allotted, the parties thereto in the schedule annexed shall be transferred or assigned irrevocably and possession made over and all such documents, deeds, declarations, affidavits, petitions, letters and alike as are reasonably required by the party entitled to such transfer would be effected. It is based on this document and subsequent deeds of retirement of partnership that the order of assessment was made holding that the assessees are liable for tax on capital gains. . 28. In that context, the Bombay High Court held that when the assets of the partnership is transferred to a retiring partner, the partnership which is assessable to tax ceases to have a right or its right in the property stands "distinguished in favour of the partner to whom it is transferred. If so read, it will further the object and the purpose and intent of the amendment of Section 45. Once that be the case, the transfer of assets of the partnership to the retiring partners would amount to the transfer of capital assets in the nature of capital gains and business profits which i....
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....onsideration was, whether the firm is liable to pay capital gain tax. Therefore, the said question of law is not answered. 33. For the aforesaid reasons, we pass the following : (i) The substantial question of law is answered in favour of the assessee and against the revenue. (ii) Consequently, the appeal stands dismissed (iii) No costs. Therefore, the decisions relied on by Ld. CIT(A) are distinguishable and not applicable to the facts of the present case. 29. The various other decisions relied on by Ld. Counsel for the assessee also support his case to the proposition that amount paid to partner on retirement does not involve an element of transfer within the meaning of section 2 (47). 30. Respectively following the above decisions cited (supra) we hold that the assessee is not liable to any capital gain tax on account of the sum received by it as a partner on retirement from the partnership firm. The order of the CIT(A) on this issue is accordingly set aside and the Assessing Officer is directed to delete the addition of Rs. 43,49,47,500/- sustained by the CIT(A). 31. The grounds of appeal No. 2 to 2.3 are accordingly allowed. 3....
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....e this issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate with evidence to his satisfaction regarding the genuineness of the loss of Rs. 13,04,95,600/- on account of purchase and sale of shares of group companies. Needless to say the Assessing officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds of appeal No. 1 to 1.4 are accordingly allowed for statistical purpose. 33. In the result, the appeal filed by the assessee is allowed for statistical purpose. ITA No. 8215/Del/2018 (MDLR Estate Private Limited) The assessee raised following grounds of appeal :- Grounds of Appeal Tax Effect Ground No. 1 ) That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in making a disallowance of Rs. 13,04,94,600/- representing the loss incurred on purchase and sale of shares Rs. 4,43,55,115/- Ground No.1.1)That the learned Commissioner of Income Tax (Appeals) while making the aforesaid disallowance has acted in excess of jurisdiction and therefore, the same is beyond the scope a....
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....pel against statute and mere declaration in the capital gain could not be a ground to sustain any addition. Linked to ground no. 2 Ground No. 2.3)That while upholding the addition, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence placed on record alongwith judicial pronouncements to submit that addition made and sustained is not in accordance with law. Linked to ground no.2 Prayer It is therefore, prayed that it be held that sum received on account of retirement from the partnership firm was not assessable as income and therefore ought to have been excluded while computing income of the appellant company. Apart from the above, it be also held that enhancement of income by disallowing the loss claimed on purchase and sale of shares is also illegal, both on merits and even otherwise beyond the scope of powers of the learned Commissioner of Income Tax (Appeals) under section 251 of the Act. It is thus prayed that appeal of the appellant may kindly be allowed as such. 34. After hearing both the sides. We find the above grounds are identical to grounds of appeal in ITA No. 8214/Del/2015. We have already decided the issue and....