TaxTMI 
TaxTMI 
2020 (11) TMI 370
X X X X Extracts X X X X
X X X X Extracts X X X X
....to appreciate that the impugned assessment order dated 24.03.2016 was completed after adequate enquires by the AO and that the AO was fully satisfied on each of the four issues with replies filed or explained and consequently the impugned assessment order is neither erroneous nor prejudicial to the interests of the revenue. 3. (a) The learned Pr.CIT failed to appreciate that investment held by the appellant were converted into stock-in-trade during the FY 2011-12 relevant to AY 2012-13, which was accepted in the scrutiny assessment for AY 2011-12 dated 22.02.2015 and consequently loss on sale of shares incurred in the subsequent year was properly assessed after adequate enquires (as evidenced by assesses letter dated 29.02.2016 & 14.03.2016) in the impugned assessment. (b) Consequently the directions of the Pr.CIT to conduct de novo enquiry deserves to be cancelled . 4. (a) The learned Pr.CIT grossly erred in setting aside the issue relating to set off of unabsorbed depreciation because she failed to appreciate that the AO, after due and adequate enquires, concluded that the appellant's claim was validly allowable in terms of the provisions of Sec.32(....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been offered by the assessee in the relevant A.Y. Accordingly, a show-cause notice was issued to the assessee, in response to which, the assessee agreed to offer the long term capital gains of Rs. 81,70,729/- to tax. The AO, accordingly, brought it to tax. The AO made a further disallowance of Rs. 2,842/- on account of interest on TDS. Thus, the total assessed income was at Rs. 6,22,02,131/-. 2.2. Subsequently, the Pr.CIT perused the assessment record and observed that the case was selected for scrutiny under CASS to verify the sources for introduction of capital in the year and the large increase in unsecured loans, but the A.O. has completed the assessment u/s 143(3) of the Act, by bringing to tax only the capital gains chargeable on the Development Agreement entered into by the assessee with M/s. Pranit Projects (P) Limited and also disallowing the interest on TDS. She further observed that the following points were not considered by the A.O. "(i) A perusal of profit and loss account revealed that the assessee has claimed an amount of Rs. 8,95,97,600/- as 'loss on sale of shares'. This loss should be treated as 'loss from capital gains', as the assessee is i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to inventory, the Pr.CIT was of the opinion that the provisions of section 45(2) are attracted and that the assessee has to offer loss or gain in respect of these transactions during the relevant A.Y. She observed that the loss on sale of shares has been wrongly allowed as business loss by the AO, instead of treating it as capital loss. 4. Before the Pr.CIT, the assessee submitted that the assessee had invested in the equity shares of many companies over the years and till the F.Y. 2010-11, the same were shown as investments and that during the F.Y. 2011-12, the assessee had converted these shares into stock-in-trade at book value and accordingly, the same were shown under current assets in the audited balance sheet of the assessee on 31.03.2012. Since the shares were converted into stock-in-trade at book value, no capital gains/loss was recorded in the books of the assessee. It was further submitted that the assessee had sold the shares worth Rs. 9,93,97,600/- to Shilpa Mega Projects Pvt.Ltd. for Rs. 98,00,000/- and thereby incurred a business loss of Rs. 8,98,97,600/-. 4.1. To justify the claim of loss, it was submitted that because the assessee was into the business of gen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shares of Shree Swarna Sai Energy Limited which were held as investments by the assessee prior to F.Y. 2011-12. It was submitted that these shares were converted into stock-in-trade at cost/ face value for F.Y. 2011-12 on 03.03.2012 and thereafter, some more additional shares, at face value, were acquired, while some more shares were also allotted to the assessee and all of these were treated as stock-in-trade during the F.Y. 2012-13 relevant to A.Y. 2013-14. He submitted that the AO, during assessment proceedings u/s 143(3) of the Act, has required the assessee to explain the loss on account of sale of shares and the assessee, in his reply to the AO, clearly stated the reasons for the loss. Therefore, according to him, the assessment order is not erroneous and cannot be revised u/s 263 of the Act. He submitted that for invoking the provisions of S.263 both the conditions i.e. the assessment order being erroneous and prejudicial to the interest of revenue have to be satisfied. He submitted that even where the assessment order is prejudicial to the interest of revenue, if it is not erroneous, then such an order cannot be revised u/s 263 of the Act. He submitted that even othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,59,555/- from the income of the relevant A.Y., the Pr.CIT perused the computation statement of total income and observed that in the assessments completed for the A.Y. 2011-12, the brought forward unabsorbed depreciation of Rs. 8,33,93,020/- was allowed to be set off and the taxable income was arrived at Rs. 3,26,980/- and also that for the A.Y. 2012-13, the taxable income was determined at Rs. 6,26,990/-. Therefore, she was of the opinion that the unabsorbed depreciation claimed by the assessee and allowed by the AO needs to be withdrawn. In response to the show-cause letter issued by the Pr.CIT, the assessee submitted that the firm M/s Swarna Properties was originally formed as partnership firm by a partnership deed dated 07.09.1995 with five partners and that one more partner was inducted w.e.f. 1.6.1996 therefore, total number of partners became 6 and that the partnership was "AT WILL". And w.e.f. 01.04.2012, Sri YV Subba Reddy, the assessee herein, has taken over the business of the firm as proprietor, since all the other five partners have retired and had agreed to receive only their capital account balances as on that date and also making it clear that there would not be an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and supported the order of Pr.CIT and submitted that under Sec.78(1), only the firm is entitled to the set off of business loss and if there is a change in the constitution of the firm, the set off is not to be allowed. 5.5. Having considered the rival contentions and the material on record, we find that it is the unabsorbed depreciation of the partnership firm, the business of which has been taken over by the assessee in his individual capacity, which has been set off by the assessee from his income as an individual. The Ld.Counsel for the assessee has relied upon the provisions of sec.170 to argue that the assessee is a successor to the business and, therefore, the unabsorbed depreciation of the business carried forward from the earlier years should be allowed to be set off against the income of the assessee for relevant A.Y. 5.6. We have gone through the partnership deed which is placed at pages 58 to 68 of the paper book and we find that as per Clause 4 of the partnership deed, the duration of the partnership firm was "AT WILL". We have also gone through the "Deed of Retirement and Dissolution and Conversion into Proprietary Concern." The title of this document itself men....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid. (4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section. Explanation.-For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession." 5.7. As per above Section, in case of succession, the predecessor shall be assessed in respect of the income till the date of succession, while the successor shall be assessed in respect of income after the date of succession. Sub-section (2), thereof provides that where the predecessor cannot be found, then the entire income shall be assessed in the hands of the successor only. 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "A reading of section 32(2) would indicate that if full effect for depreciation provided under section 32(1) cannot be given owing to there being no profits or no profits chargeable for the previous year or profits being less than the allowance, then the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of allowance for depreciation for the following year and deemed to be part of that allowance. Thus, the allowance for depreciation is allowed to be carried forward for set off against future years' profits. It is because of this that the unabsorbed depreciation allowance was carried forward in the assessments of the firm and in the partners' assessment full effect of the proportionate carried forward unabsorbed depreciation will have to be given. Therefore, as per section 32(2) read with section 72(2), the unabsorbed depreciation which has been carried forward in the firm's assessment has to be given effect to fully in the individual assessment of the partners. Since tax is chargeable under section 28 on the aggregate of the profits of all the businesses carried on by the assessee, if the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al. (i) Suresh C Mehta vs. ITO Mumbai reported in (2013) 35 taxmann.com 230 (Mum) (ii) Buttepatil Properties vs. ITO in ITA 682/Pun/2018 dated 8.2.2019. 6.3. The Ld.DR, on the other hand, supported the orders of Pr.CIT and submitted that there is no such provision in the Income Tax Act to give any weightage to the difference between the sale consideration received by the assessee and the SRO value of the property. Therefore, he submitted that these two decisions cannot be treated as precedents on the issue. 7. Having regard to rival contentions and material placed on record, we find that: the AO has not looked into this issue at all and therefore, the assessment order is clearly erroneous and prejudicial to the interest of revenue on this issue. As regards the decisions relied upon by the assessee, we find that in the case of Buttepatil Properties cited (supra) the Tribunal has referred to the provisions of Sec.43CA and Sec.50C of the Act to hold that where the difference between the stamp duty valuation adopted by the Valuation Officer u/s 50C(2) and the actual consideration received is less than 10% then such difference shall not be considered for the purp....