TaxTMI 
TaxTMI 
2025 (12) TMI 1177
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....onal Faceless Appeal Centre, Delhi ["Ld.CIT(A)"] has erred in law and on facts in sustaining the addition of Rs. 113,46,87,657/- made by the Assessing Officer u/s. 68 of the Income Tax Act, 1961 ("the Act"), by treating the credits in the capital account during the relevant assessment year as unexplained. 2. That the Ld.CIT(A) has failed to appreciate that the amount of Rs. 19,83,67,287/- received by the appellant as gifts in the form of property settlements from his father and brother is exempt from tax and, therefore, cannot be brought to tax u/s. 68 of the Act. 3. That the Ld.CIT(A) has erred in not considering that the gain of Rs. 93,63,20,420/- arsing from business succession is exempt from tax u/s. 47(xiv) of the Act, and hence the provisions of section 68 are inapplicable to such amount. 4. That the Ld.CIT(A) has erred in law and on facts in upholding the action of the Assessing Officer in invoking section 68 of the Act, despite the explanations and documentary evidence furnished by the appellant demonstrating the genuineness and source of the credits. 3. During the course of hearing before us, the Ld.AR submitted that the assessee had raised a ....
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.... proprietor and that, on 31.03.2017, he had entered into a Business Succession-cum-Transfer Agreement with the company M/s.Amar Prakaash Developers Private Limited, whereby his proprietorship concern was transferred as a going concern to the company for a consideration of Rs. 110,03,66,310/-. The consideration was discharged by way of allotment of equity shares valued at Rs. 188.70 per share by the Company. The assessee relied upon a valuation advisory report issued by M/s.S.L.Gadhiya & Co., Chartered Accountants, in support of the computation of the consideration. It was further submitted that the assessee had received immovable properties by way of gifts from his father and brothers aggregating to Rs. 19,83,67,287/-, which had been duly credited to the capital account. On this basis, the assessee sought to justify the increase in capital. 9. The AO observed that the assessee had disclosed fixed assets of only Rs. 1,21,28,099/- and finished goods/stock of Rs. 3,99,81,447/- under current assets, which were taken over by the company. However, in the valuation report the same assets were classified as ongoing projects, upcoming projects and long-term holdings valued at Rs. 134,94,....
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..../s. 14A of the Act. 14. The impugned assessment was thus completed u/s. 143(3) of the Act on 29.12.2019 determining the total income at Rs. 122,11,04,812/- after making the following additions: - i. Unexplained cash credit u/s. 68 of the Act on account of increase in capital amounting to Rs. 115,26,13,606/-; ii. Unexplained investment u/s. 69 of Rs. 4,30,62,000/-; iii. Disallowance u/s. 14A of Rs. 25,152/-. 15. Aggrieved by the assessment order and the consequential additions, the assessee carried the matter in appeal before the Ld.CIT(A). 16. The Ld.CIT(A), vide order dated 21.11.2022 passed u/s. 250 of the Act, dismissed the appeal of the assessee without affording a reasonable opportunity of being heard and rendered an ex-parte, non-speaking order without adjudicating the grounds on merits. Aggrieved by the said order, the assessee preferred an appeal before this Tribunal. This Tribunal, vide order dated 08.09.2023 in ITA No. 20/Chny/2023, set aside the aforesaid order of the Ld.CIT(A) and remitted the matter back to his file with a direction to consider the issues on merits and to pass a speaking order after providing due opportunity to the a....
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....l of the PCIT, thereby acting contrary to binding CBDT Instructions prohibiting unauthorized conversion of limited scrutiny cases into complete scrutiny. On this ground, the assessee urged that the assessment order was void ab initio and liable to be quashed. 20. The assessee additionally brought to the notice of the Ld.CIT(A) that the addition u/s. 68 of the Act also erroneously included the current year's income of Rs. 2,54,04,050/-, which had already been subjected to tax and was merely credited to the capital account. 21. With respect to the addition of Rs. 4,30,62,000/- made u/s. 69 of the Act towards alleged unexplained investment, the assessee submitted that the land in question had been duly recorded in the books of account and had subsequently been transferred to the company as part of the business succession. Therefore, its absence from the Balance Sheet as on 31.03.2017 could not be treated as unexplained investment. Hence, no addition u/s. 69 of the Act was warranted. 22. On the issue of disallowance of Rs. 25,252/- u/s. 14A of the Act, the assessee submitted that no expenditure had been incurred for earning exempt income and that the disallowance made by the A....
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.... approval. 27. The assessee contended that the rectification proceedings initiated during the pendency of the appellate proceedings amounted to an attempt by the AO to convert an invalid assessment order into a valid one, which is impermissible in law. It was submitted that a jurisdictional defect, such as the absence of mandatory approval from the ld.PCIT, cannot be cured by resorting to the provisions of section 154 of the Act. The assessee further argued that a perusal of the remand report itself reveals that the AO had not obtained the approval of the ld.PCIT prior to passing the impugned assessment order. Accordingly, the assessee prayed before the Ld.CIT(A) that the assessment order, being void and unsustainable in law, be set aside. 28. Upon a careful consideration of the submissions advanced by the assessee, the Ld.CIT(A) rejected the legal ground raised challenging the validity of the assessment order on account of the alleged absence of approval of the Ld. PCIT. On merits, the Ld.CIT(A) granted partial relief. 29. With regard to the addition of Rs. 4,30,62,000/- made by the AO towards unexplained investment u/s. 69 of the Act, the Ld.CIT(A) recorded that the asse....
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....ifts aggregating to Rs. 19.83 crores, the Ld.CIT(A) noted that although copies of gift deeds and settlement deeds were furnished, the assessee had failed to rebut the discrepancies pointed out by the AO in respect thereof. The Ld.CIT(A) held that the assessee had not established the identity and creditworthiness of the donors nor the genuineness of the alleged gift transactions. The Ld.CIT(A) therefore concluded that the assessee failed to discharge the onus cast upon him u/s. 68 of the Act, and accordingly confirmed the addition of Rs. 19.83 crores. 34. With respect to the sum of Rs. 93.63 crores representing consideration arising on succession of the assessee's proprietary business by M/s.APDPL, the Ld.CIT(A) concurred with the findings of the AO. The Ld.CIT(A) noted that the valuation report relied upon by the assessee formed the sole basis of the assessee's claim. The AO had, after a detailed analysis of the said report, identified several inconsistencies and specific instances of artificial inflation of asset values. The Ld.CIT(A) further noted material discrepancies such as variations between cash balances as per the ITR as on 31.03.2017 and those reflected in the valuatio....
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....ce of Rs. 25,152/- made u/s. 14A of the Act. As the said issue has not been challenged before us, no discussion thereon is warranted. 40. The Ld. CIT(A), vide order dated 31.03.2025, thus partly allowed the appeal. Aggrieved by the said order, the assessee is now in further appeal before us. 41. Assessee was represented by Shri R.Venkata Raman, Chartered Accountant (hereinafter referred to as the "Ld.AR"), and the Revenue was represented by Shri Shiva Srinivas, CIT (hereinafter referred to as the "Ld.DR"). Both parties advanced their respective submissions with considerable emphasis. The arguments so placed on record have been duly considered, and the same are discussed by us in a concise manner in the succeeding paragraphs. 42. The Ld.AR, in support of the additional ground raised, submitted that cases selected for scrutiny may fall under either limited scrutiny or complete scrutiny. In instances of complete scrutiny, the AO possesses wider powers to examine any issue arising in the assessment proceedings, without the requirement of any specific approval. Conversely, in limited scrutiny cases, the AO is mandated to confine his enquiry, examination, and additions strictly ....
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.... the assessee considering the transfer of the aforesaid land, any separate addition u/s. 69 of the Act would, in effect, fall within the broader parameter of "share capital/capital". The Ld.AR vehemently challenged this reasoning as hyper-technical and illogical. The Ld.AR submitted that the reasons for limited scrutiny must be interpreted strictly and as they stand, without any expansion or artificial interpretation. The Ld.AR argued that "capital" represents a liability, while "investment" represents an asset, and that the two are conceptually and legally distinct. When the reason for limited scrutiny is confined to a liability item, the AO cannot traverse to an asset-side item on the premise that assets and liabilities are intrinsically linked. Accepting such reasoning, according to the Ld.AR, would obliterate the very purpose of limited scrutiny. By way of illustration, the Ld.AR submitted that business profits are credited to the capital account; however, it would be erroneous to infer therefrom that the AO may examine business income (items of profit and loss account) merely because it ultimately forms part of the capital. The Ld.AR therefore submitted that the finding of the....
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....dditionally contended that, as on the date of passing of the assessment order, the order suffered from a jurisdictional infirmity owing to the absence of approval from the PCIT, as mandated for expansion of limited scrutiny. Such an invalid assessment order, according to the Ld. AR, cannot be cured or revived by any subsequent rectification proceedings. 50. On the merits of the matter, the Ld.AR drawing our attention to the assessee's capital account as on 31.03.2017 (placed at page 2 of the Paper Book), submitted that the addition of Rs. 113,46,87,657/- sustained by the Ld.CIT(A) u/s. 68 of the Act is wholly misconceived, inasmuch as the impugned sum comprises two distinct and fully explained components. The first component is Rs. 93,63,20,420/-, representing capital gains arising on account of the succession of the assessee's sole-proprietorship business by a company. The second component is Rs. 19,83,67,287/-, being gifts and family settlements received from the assessee's father and brothers. 51. The Ld. AR submitted that save and except for issues marginally relating to valuation there is no factual dispute that the sum of Rs. 93.63 crores represent capital gains arising....
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.... submitted that the exemption contemplated under Section 47(xiv) is subject to the satisfaction of the three conditions stipulated in the proviso thereto, namely: (i) that all the assets and liabilities of the sole proprietary concern relating to the business immediately before succession become the assets and liabilities of the company; (ii) that the shareholding of the sole proprietor in the company is not less than 50% of the total voting power and such shareholding continues for a period of five years from the date of succession; and (iii) that the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company. 56. Inviting our attention to the Business Succession-cum-Transfer Agreement ("BTA") dated 31.03.2017, placed at pages 4 to 35 of the paper book, the Ld. AR submitted that it is an undisputed fact that the assessee's sole proprietorship business was succeeded by M/s.Amar Prakaash Developers Private Limited. Referring to Annexures I, II and III to the BTA (pages 22 to 35 of the paper book), the Ld.AR submitted that all assets and liabilities of the proprietorship conc....
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....ad acquired the same. This implies irrespective of the valuation at which business has been transferred, the cost originally incurred shall prevail. 60. The Ld.AR further submitted that, in view of the aforesaid statutory provision, the original cost incurred by the assessee in acquiring the stock-intrade and other assets would alone be allowable as deduction in the hands of M/s.Amar Prakaash Developers Private Limited at the time of recognition of profits arising from the sale of such assets. Accordingly, it was contended that the consideration of Rs. 110.03 crores as determined under the BTA has no bearing on the computation of taxable income and, therefore, does not result in any loss to the Revenue. 61. The Ld.AR emphasised that, having regard to this specific deeming provision governing the allowability of cost, the statute has consciously not prescribed any mechanism for determination or substitution of the valuation of the business transferred u/s. 47(xiv) of the Act. It was thus argued that the allegation of higher or abnormal valuation, as made by the lower authorities, is wholly irrelevant for the purpose of denying the exemption available to the assessee u/s. 47(xi....
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....he transaction fails to satisfy the conditions prescribed u/s. 47(xiv) of the Act. Consequently, the impugned transaction is not eligible for exemption under the said provision and the amount credited is liable to be brought to tax u/s. 68 of the Act. 66. In the rejoinder, the Ld.AR submitted that since all the conditions prescribed u/s. 47(xiv) of the Act stand duly satisfied, the gains arising from the said transaction are squarely covered by the exclusion provided therein and, therefore, do not constitute a transfer chargeable to tax. The Ld.AR further contended that the credit arising in the capital account on account of succession of business is purely a book / notional entry without any inflow of cash or monetary consideration. It was submitted that such notional credit cannot be brought to tax u/s. 68 of the Act. In support of the aforesaid submissions, the Ld. AR placed reliance on the following judicial precedents: - i. Jatia Investment Co v. CIT [1994] 206 ITR 718 (Cal); ii. V.R. Global Energy (P.) Ltd v. ITO [2018] 407 ITR 145 (Mad); iii. ITO v. V.R. Global Energy (P.) Ltd [2020] 268 Taxman 392 (Sc); iv. DCIT v. NCR Business Park (P....
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....of the assessee for the impugned assessment year was selected for limited scrutiny for the purpose of examining the expenses incurred in relation to earning exempt income and capital. On examination of the records, we note that the capital account of the assessee for the assessment year under consideration reflected an increase of Rs. 115,26,13,606/-, which was treated as unexplained and added by the AO u/s. 68 of the Act. Out of the said addition, an amount of Rs. 113,46,87,657/- was confirmed by the Ld.CIT(A). We further observe that the sustained addition of Rs. 113,46,87,657/- comprises the following two components: i. a sum of Rs. 93,63,20,420/- representing gain arising on account of succession of the assessee's sole proprietorship concern by a company, namely M/s.Amar Prakaash Developers Private Limited, which the assessee contends is not chargeable to tax in view of the provisions of section 47(xiv) of the Act; and ii. a sum of Rs. 19,83,67,287/- representing gifts and settlements received by the assessee from his father and brothers, which, according to the assessee, are not taxable in view of section 56(2)(x) of the Act. 72. Both the lower authorities....
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....raised by the assessee deserves to be admitted. Accordingly, the additional ground raised by the assessee is admitted for adjudication. 74. Admittedly, for the impugned assessment year, the case of the assessee was selected for limited scrutiny with the specific purpose of examining the following issues: i. expenses incurred for earning exempt income; and ii. share capital/capital. 75. It is a matter of record that, while completing the assessment, the AO proceeded to make three additions, namely: a. addition on account of unexplained cash credits u/s. 68 of the Act; b. addition on account of unexplained investment u/s. 69 of the Act; and c. disallowance of expenses allegedly incurred for earning exempt income u/s. 14A of the Act. 76. Before adverting to the merits of the additions so made, we deem it appropriate, at the threshold, to examine the jurisdiction and scope of enquiry permissible to the AO in cases selected for limited scrutiny. For this purpose, it would be relevant to refer to the instructions issued by the CBDT governing the procedure to be followed and the extent of enquiry permissible in limited scrutiny assessm....
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....amination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date. 4. In case, during the course of assessment proceedings, it is found that there is potential escapement of income exceeding Rs. 10 lakhs (for nonmetro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance." 78. Further, relevant part of Instruction No.20/2015 dated 29.12.2015 issued by CBDT reads as unde....
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....duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance." 79. Further, relevant part of Instruction No.5/2016 dated 14.07.2016 issued by CBDT reads as under: - "2. In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny....
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.... for which the case was selected. The idea behind such stipulations was to enforce checks and balances upon powers of an AO to do fishing and roving inquiries in cases selected for limited scrutiny. 2. Further, the guidelines for proper maintenance of order sheets have been given in the Manual of Office Procedure issued by the Directorate of Organisation and Management Services. The Manual clearly lays down: A. The minutes of the hearing must be entered with date, in the order-sheet. B. Make proper order-sheet entries for each posting, hearing and seeking and granting of adjournments. C. If nobody attends a hearing or the request for adjournment comes after the hearing date, enter the facts in the order-sheet. Maintenance of a cursory and cryptic order sheet shows irresponsible, ad hoc and undisciplined working of any officer. 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.20....
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....ligence/regulatory authority or agency regarding tax evasion by an assessee, it has been decided by the Board that issues arising from such information can also be examined during the course of conduct of assessment proceedings in such 'Limited Scrutiny' cases with prior administrative approval of the concerned Pr. CIT/CIT. 4. It is pertinent to mention that unlike CASS 2015 and 2016 cycles, where consideration of any additional issue lead to the conversion of case to 'Complete Scrutiny' as laid down in Instruction No. 5/2016 dated 14.07.16, the pending 'Limited Scrutiny' cases of CASS 2017 and 2018 cycles would not be taken up for 'Complete Scrutiny' as the present directive is only to facilitate consideration of those issues wherein specific information of taxevasion has been furnished by any law-enforcement/intelligence/regulatory authority or agency. Therefore, in such 'Limited Scrutiny' cases, Assessing Officer shall not expand the scope of enquiry/investigation beyond the issue(s) on which the case was flagged for 'Limited Scrutiny' & issue arising from nature of information mentioned in para 2 and 3, above. 5.....
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....e effective checks and balances on the powers of the AO and to prevent fishing and roving enquiries in limited scrutiny assessments. 84. The CBDT instructions further provide that where, during the course of limited scrutiny assessment proceedings, the AO notices potential escapement of income exceeding Rs. 5,00,000/- in non-metro charges and Rs. 10,00,000/- in metro charges, the case may be converted into complete scrutiny, subject to prior approval of the Principal Commissioner of Income-tax (PCIT)/Director of Income-tax (DIT). Such approval is required to be accorded in writing after due satisfaction regarding the merits of the proposal. The AO is mandatorily required to record reasons justifying the expansion of the scope of scrutiny and place the same before the PCIT/DIT for approval. Only upon grant of such approval can the AO legally expand the scope of assessment from limited scrutiny to complete scrutiny. 85. It is also clarified that if the AO proceeds to examine issues other than those for which the case was originally selected under limited scrutiny, without following the prescribed procedure, such action would tantamount to an impermissible conversion of limited ....
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....interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions". Under sub-section (2) of section 119, without prejudice to the generality of the Board's power set out in sub-section (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to the assessee's the guidelines, principles or procedures to the followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board, thus, has powers, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the pow....
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....ected for limited scrutiny. 92. However, the addition of Rs. 4,30,62,000/- made by the AO towards alleged unexplained investment u/s. 69 of the Act, in our considered opinion, is clearly dehors the scope of the limited scrutiny assessment. By making the said addition, the AO has evidently travelled beyond the issues for which the case was selected under the CASS for limited scrutiny. In effect, the AO has assumed jurisdiction to conduct a complete scrutiny assessment, despite the fact that no authority is vested in him to do so in the absence of conversion of the case from limited scrutiny to complete scrutiny in the manner prescribed under law. 93. We further note that the addition made u/s. 69 of the Act does not emanate from any information pertaining to tax evasion received from an external agency. It is also evident from the assessment order as well as the remand report that no prior approval of the ld.PCIT was obtained by the AO for widening the scope of scrutiny, as mandatorily required under the CBDT Instructions governing limited scrutiny cases. 94. In our considered view, the reasons for selection of a case under CASS for 'limited scrutiny' have to be read strict....
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....e CBDT vide F.No.225/402/2018/ITA.II dated 28.11.2018. 99. We draw support for the above conclusion from the decision of the Coordinate Bench of Kolkata in the case of Weilburger Coatings (India) Pvt. Ltd. v. DCIT [ITA No. 753/Kol/2019, dated 28.03.2023], wherein it has been categorically held that unless a limited scrutiny case is validly converted into a complete scrutiny by following the prescribed procedure, the AO has no jurisdiction to examine issues beyond the scope of limited scrutiny. In the absence of such conversion, the assessment order passed by the AO was held to be bad in law and unsustainable. The relevant observations of the Tribunal are reproduced hereunder: ".....Considering the facts of the assessee's case and also the ratio laid down drawn in the above decisions and also the CBDT Instruction No. 5/2016, we are of the considered view that the AO has exceeded his jurisdiction in enquiring into those issues beyond the scope of limited scrutiny which is in clear violation of mandate given by CBDT in the said Circular and has been held by the Co-ordinate Bench in the case of Shri Vijay Kumar (supra) to be bad in law. We note that CBDT has in para 4 of th....
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....terwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. Therefore, the question of part of the provision being procedural is an incorrect interpretation of the scheme provided under Section 143 of the Act. Further, as noted above, the CIT(A) has examined the merits of the matter and after taking note of the facts granted relief to the assessee to the extent indicated therein. Thus, for the above reasons, we find that the revenue has not made out any case for interference of the order passed by the Tribunal. Accordingly, the appeal fails and is dismissed. The substantial questions of law are answered against the revenue. The application for stay being GA 1 of 2023 is also dismissed." In the light of the above, no grounds have been made out to interfere wit....
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.... 10,000.00 " Bank Interest 14,826.00 " PPF Interest Received 19,868.00 " Dividend Receipts 25,152.05 To Drawings 99,414.21 " Gift Made to Wife Jyothi Surana 10,51,979.00 " Gift Made to Mother Smt.Sunitha Surana 13,16,990.00 " School Tuition Fees 87,295.00 " Share of Loss from A SQUARE Properties 91,301.80 " income Tax 50,04,260.00 " Interest on Income Tax 5,230.00 " Max New York Life Insurance Premium 15,410.00 " L.I.C. Premium 14,180.00 " Closing Balance 12088,94,849.48 12165,80,909.49 12165,80,909.49 105. It is an admitted fact that the assessee was engaged in the business of real estate, which was hitherto carried on in the status of a sole proprietorship concern. As on 31.03.2017, the said sole proprietorship concern stood succeeded by a company, namely M/s. Amar Prakaash Developers Private Limited, pursuant to a Business Succession-cum-Transfer Agreement (hereinafter referred to as "the BTA").....
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....he Ld.DR is that the valuation adopted, which formed the basis for determining the net consideration, is abnormal and grossly inflated. According to him, such inflated valuation renders the entire transaction of succession a sham arrangement, thereby disentitling the assessee from the exemption contemplated u/s. 47(xiv) of the Act. On this premise, it was argued that the amount of Rs. 93.63 crores credited to the capital account of the assessee is liable to be taxed as unexplained cash credit u/s. 68 of the Act. 112. Keeping in view the aforesaid undisputed facts, it is apposite to advert to the provisions of section 47(xiv) of the Act. For the sake of ready reference, the said provision is reproduced hereinbelow: - "(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company : Provided that- (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; (b) the sha....
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....ess or profession, subject only to specific exclusions provided therein. The expression "property of any kind" has consistently been interpreted by courts to encompass both tangible and intangible assets. Thus, capital assets may comprise tangible properties such as land, building, plant and machinery, as well as intangible properties such as rights, interests, licenses, goodwill, and other business or commercial rights. A running business or an industrial undertaking, when transferred as a going concern, is undoubtedly a capital asset within the meaning of section 2(14) of the Act. 116. Equally important is the requirement of "transfer" of such capital asset. Section 2(47) of the Act defines the term "transfer" in an inclusive and expansive manner so as to bring within its fold various modes by which ownership or enjoyment of a capital asset is relinquished. Sale, exchange, or relinquishment of an asset squarely fall within the ambit of the said definition. In the case before us, the assessee, who was carrying on business as a sole proprietor, transferred the entire sole proprietorship business to a private limited company. It is well settled that a proprietary concern and a co....
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....viso to section 47(xiv). It is an admitted position that all the assets and liabilities of the proprietary concern relating to the business immediately before succession became the assets and liabilities of the company upon such succession. It is also undisputed that the assessee, being the sole proprietor, held not less than fifty per cent of the total voting power in the company after succession. Further, consideration was also discharged to the assessee in the form of equity shares and no other direct or indirect benefit have been passed on to the assessee. Thus, the assessee has undisputedly fulfilled all the conditions provided in section 47(xiv) of the Act. 121. The only grievance of the Revenue is alleged inflation of the value pertains to the assets and liabilities of the business of the assessee. According to the Revenue, since the shares were allotted at a value exceeding the book value of the assets transferred, the succession of the business of the assessee by the company is a sham transaction. 122. We find this objection to be misconceived and untenable. A plain and harmonious reading of section 47(xiv) of the Act it is abundantly clear that what is prohibited is....
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....cribe any condition for withdrawal or denial of the exemption granted u/s. 47(xiv) of the Act on account of any alleged discrepancy in the valuation of the assets taken over or the issue price of shares allotted by the successor company. 127. We find support from the decisions of the Co-ordinate Benches of the Tribunal, wherein it has been consistently held that once the conditions stipulated u/s. 47(xiv) of the Act are duly satisfied, the assessee is entitled to the exemption provided therein, and no addition can be made merely on account of revaluation of assets or valuation of shares. 128. The Panaji Bench of this Tribunal in ACIT v. Joe Marcelinho Mathias [2013] 143 ITD 132 (Panaji - Trib) has held as under: - "14. As per Section 47(xiv) it is apparent that where the sole proprietorship concern is succeeded by a company in the business carried on by it, as a result of which some proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company, the transactions are not treated as transfer subject to the three conditions laid down therein. It is not denied by the revenue that all the assets and liabilities of the same proprietor....
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....ts were also revalued. According to the revenue by doing so shares were issue at a higher cost to the Assessee and in future when Assessee transfers such shares cost of acquisition of the shares will be higher and consequently there would be a benefit of lesser capital gain on transfer of those shares. At the outset we are not convinced with this line of reasoning adopted by the AO. The section envisages denial of exemption under section 47(xiv) under proviso (c) only in a case where consideration benefit for transfer of the business is received other than by way of allotment of shares in the company. It is not the case of the revenue that any other consideration or benefit directly or indirectly received by the Assessee other than allotment of shares the section does not contemplate a future benefit which the Assessee is likely to get (even such benefit is only contingent and not certain). As rightly contended on behalf of the Assessee receipt of higher number of shares because of revaluation cannot be treated as consideration or benefit received other than by allotment of shares." 15. In the case of Asstt. CIT v. Madan Mohan Chandak [2011] 14 taxmann.com 27/47 SOT 207 (C....
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....see and such credit represents a real and tangible receipt of money, the nature and source of which remains unexplained. The provisions of section 68 of the Act cannot be invoked in respect of notional entries or book adjustments which do not result in the introduction of any fresh funds into the business of the assessee. A mere accounting entry, without any corresponding receipt of cash or equivalent consideration, cannot be brought to tax u/s. 68 of the Act. In the present case, it is an undisputed fact that the amount of Rs. 93.63 crores has arisen solely on account of the vesting of the proprietorship business in the successor company and represents the difference arising from the revaluation or transfer of assets and liabilities. Such an entry is purely notional in nature and does not partake the character of a cash credit. Therefore, the fundamental pre-condition for invoking the provisions of section 68 of the Act, namely, the existence of a cash credit, itself remains unfulfilled. Accordingly, we hold that the AO was not justified in invoking the provisions of section 68 of the Act to make the addition of Rs. 93.63 crores. Our aforesaid view is fortified by the following ju....
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....ecision of the Special Bench of this Tribunal comprising of five members in the case of Manoj Agarwal Vs. CIT (supra) is also found to be of much relevance, wherein this Tribunal had held as under: " The argument that section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account cannot be accepted having regard to the settled legal position that it is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself wa....
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....r self contradiction in the Income-tax Officer's finding that, if there was no real cash entry on the credit side of the cash book, but merely a notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise. One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-andcapital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital. Again, as regards the Tribunal's refusal to take notice of the directions of the Reserve Bank, it is not correct for the Tribunal to hold that the said document was a new evidence in the true sense of the term. The assessee has been....
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....iability of assessee to the said company, since no cash was involved in the transaction of said allotment of shares. conversion of this liability in which share capital and share premium could not be treated as unexplained cash credits under Section 68 of the Act. The Revenue filed an appeal against the said judgement and the same was dismissed by the Hon'ble Supreme Court in ITO v. V.R. Global Energy (P) Ltd. [2020] 113 taxmann.com 31. The decision of the Hon'ble Division Bench of the High Court of Delhi in case of CIT v. Ritu Anurag Aggarwal 2009 (7) TMI 1247/2 taxmann.com 134, the same also stands in aid to the case of the respondent/assessee. 5. The decision of the Hon'ble Division Bench of this Court in Jatia Investment Co. v. CIT [1994] 206 ITR 78 will also support the case of the respondent/assessee. In the said decision, the Court found that cash did not pass at any stage though entries were made in cash book showing payment and receipts; but since the entries made a complete round, no passing of cash was necessary for the purpose of making entries. Further, it was held that if there was no real cash entry on credit side of the cash book by merely an em....
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....e Act. 139. At the outset, it is an admitted and undisputed fact that the assessee has received the impugned immovable properties through duly registered settlement/gift deeds executed by his father and brothers. The relationship between the assessee and the donors has not been doubted by the AO. It is also not in dispute that the transfer of the properties stood completed in accordance with the provisions of the Transfer of Property Act, 1882, and the entries in the capital account of the assessee are supported by such registered instruments. 140. The AO has made the impugned addition mainly on the ground that there exists a substantial variation between the value mentioned in the registered settlement deeds and the value adopted by the valuer in the valuation report, and on that basis, concluded that the valuation adopted by the assessee is artificially inflated. Accordingly, the AO invoked the provisions of section 68 of the Act and treated the credit appearing in the capital account as unexplained. The Ld.CIT(A) confirmed the action of the AO by holding that the assessee failed to prove the identity and creditworthiness of the donors and the genuineness of the transaction....
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....ons were colourable devices. 144. Further, we find that the provisions of section 56(2)(x) of the Act squarely apply to the facts of the case. The said provision expressly excludes from taxation any receipt of immovable property from a 'relative' as defined therein. It is an undisputed position that the father and brothers of the assessee fall within the definition of 'relative'. Once the receipt itself is excluded from the ambit of taxation u/s. 56(2)(x) of the Act, the same cannot be indirectly brought to tax by invoking the provisions of section 68 of the Act, in the absence of any independent incriminating material. It is a settled principle of law that what is expressly excluded by the statute cannot be taxed indirectly by resorting to a general provision. 145. The contention of the Ld.DR that alleged abnormal valuation disentitles the assessee from the benefit of section 56(2)(x) of the Act is devoid of merit. The statute does not provide for any such exception based on valuation differences for the purpose of making additions under the provisions of the Act. When the legislature, in its wisdom, has granted an unconditional exclusion in respect of gifts received from re....