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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ORDER
Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)-XXX, Kolkata vide appeal No. 291/CIT(A)-XXX/Wd-48(2)/2011-12 dated 09.01.2013. Assessment was framed by ITO, Ward-48(2), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 16.12.2011.
The assessee had raised the following grounds of appeal before us :- “1. That on facts and circumstances of the case and in law the Ld. CIT(A) has grossly erred in upholding the determination of Long Term Capital Gain at an amount of Rs.3727532/-, arrived at in the manner prescribed Vis 50B, even after specifically emphasizing and concluding the inapplicability of the section 50B to the very nature of transfer, effected by the Appellant. That on the facts and circumstances of the case and in law the Ld. CIT(A) has grossly erred, in endorsing the adoption of Net Worth, arbitrarily determined at Rs.1272468/-, as against the substantiated and accepted aggregate cost of acquisition and improvement, amounting to Rs.5276000/-, as the cost deductible, in the computation of Capital Gain, in the absence of any Slump Sale, defined Vis 2(42C) as well as any Audit Report in Form in form 3CEA.
3. That on the facts and circumstances of the case and in law the Ld. CIT(A) should have appreciated that there being only a Sale of share in Investment in Cold Storage, not being in the nature of Slump Sale, defined Vis 2(42C), the Deductible Cost of Rs.5276000/- should not have been arbitrarily reduced by proportionate Liability of Rs.3227532/-, to arrive at Net Worth.
4. Even otherwise, on the facts and circumstances of the case and in law the Ld. CIT(A) should not have endorsed the reduction and adjustment of Cost of Rs.5276000/-by an arbitrarily determined liability amount ofRs.3227532/-, to arrive at the Net Worth, while the underlying liability or loan of personal nature neither had any nexus with the corresponding investment in Cold Storage nor taken over by the purchaser.
5. That the Ld. CIT(A), on the facts and circumstances of the case and in law, given the full value of consideration of Rs.5000000/- and the Cost of Acquisition of Rs.5276000/-, ought to have upheld the determination of Long Term Capital Loss, arising from both from the Samir Kumar Maity, AY 2009-10 transfer of partnership interest and Sale of share of Investment in Cold Storage, at an amount of Rs.276000/-, under the provisions of Section 48. 6. That the Appellant craves leave to go for additional grounds, modify withdraw, any of the foregoing grounds, either before or during the appeal hearing.”
We find that the central issue revolving the aforesaid grounds is as to whether the ld CITA was justified in upholding the invocation of provisions of section 50B of the Act in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is an individual who had previously entered into a partnership with one Shri Prodyut Kumar Das vide partnership deed executed on 17.2.2005. The assessee along with his co-partner sought to purchase a running cold storage plant jointly. The investment in the said cold storage plant styled as “Nutan Sarda Himghar” (Previously known as “M/s Sarda Himghar” at the time of purchase) had been made by the assessee and his co-partner jointly. The assessee and his co-partner had, instead of buying the same in firm’s name instead , decided to make the said investments in the lands and building forming part of in their own names. The registration of such purchases had therefore taken place in their own names as undivided owners . As a result, the cold storage plant continued to appear in their respective names rather than in the books of the firm. The assessee’s own investment in the said infrastructure amounted to Rs. 52,76,000/- in aggregate over the years as under:-
Original investment by Accepted and given effect to by Assessee in cold storage plant Rs 45 lacs Ld AO Further investment over the Held admissible by Ld CITA. Period Rs 7.76 lacs Not appealed against by Dept Total Investment by the a’ee Rs 52.76 lacs Represents cost of investment In capital asset 3.1. The assessee had also shown this investment in cold storage plant in his balance sheet as on 31.3.2008 (i.e immediately preceding year) which is reproduced in the assessment order. Subsequently, in April 2008, the assessee and his co-partner decided to split and dissolve the partnership due to various reasons and accordingly assessee decided to retire from the firm. As a result, a deed of dissolution had been executed on 17th April
Samir Kumar Maity, AY 2009-10 2008 pursuant to which the assessee was given a full and final consideration of Rs. 50,00,000/- for discharging all his rights and obligations from the partnership firm with effect from 30th April 2008 and the business of cold storage plant shall be carried on by the continuing partner and all its assets , credits, goodwill and benefits thereof shall prevail on the continuing partner. The retiring partner (i.e the assessee) agreed to take back his share of money, his share of investments and profits appearing in the books of the firm calculated as on 31.3.2008 within two months. It was also specified in the dissolution deed that the continuing partner shall use the property of the partnership and run the cold storage business after its dissolution as sole proprietor or in partnership taking third party as partner to run the business under the name and style of “M/s Sarda Himghar” now known as “Nutan Sarada Himghar”.
3.2. Effectively pursuant to this dissolution deed, the retiring partner (i.e the assessee herein) was paid Rs 50,00,000/- towards his capital, share of profits and relinquishing his right , title and interest in the assets and credits, goodwill, book debts, fittings and fixtures, benefits of contracts and orders and and all effect thereof and get himself released from all accounts of the partnership business. The Deed of dissolution had provided that consequent upon the relinquishment of all rights, title and interests, made by the assessee in favour of the co-partner, leading to vesting of the entire fixed asset (represented by cold storage) at a stipulated final price of Rs. 50 lacs, the co-partner, instead of making a direct payment from his end, arranged to discharge and pay off such due, by making the assessee sell his investment in the cold storage, represented by its land and building, in favour of his wife, viz Smt Sikha Das. The details of such sale are as under:-
Doc. No. 3614 for Rs. 17,00,000/- Doc. No. 3612 for Rs. 8,60,000/- Doc. No. 3613 for Rs. 1,40,000/- Doc. No. 3604 for Rs. 23,00,000/- ----------------- 50,00,000/- In other words, the assessee relinquished all his assets and rights in the partnership including investment made by him in the cold storage by receiving Rs 50 lacs as return of Samir Kumar Maity, AY 2009-10 capital and others from the partnership firm. Accordingly, the assessee claimed the capital loss in his returns as below:-
Amount received on retirement of partnership firm Running the cold storage 50,00,000 Less: Investment in cold storage 52,76,000 --------------- Loss incurred thereon 2,76,000 ---------------
The ld AO by taking into consideration the balance sheet of the assessee as on 31.3.2008 which contained investment in partnership firm M/s Sarda Himghar at Rs. 52,76,000/- on the asset side along with other assets and various personal liabilities reflected in the balance sheet, concluded that the assessee had made a slump sale and proceeded to compute capital gains u/s 50B of the Act. Since the Audit Certificate in Form 3CEA certifying the net worth figure as mandated in section 50B of the Act was not available, he computed the capital gains u/s 50B of the Act as under:-
Cost of acquisition of cold storage plant as per Balance sheet of the year 2005-06 45,00,000 Add: Addition claimed to have been made amounting To Rs 7,76,000/- disallowed for want of evidence NIL Less: Proportionate Liability in relation to the cold Storage 76,90,581 / 1,25,71,682 * 52,76,000 32,27,532 ------------------ Net Worth of the Asset 12,72,468 ----------------- Computation of long term capital gains u/s 50B of the Act Sale consideration of the plant 50,00,000 Less : Net worth of asset as computed above 12,72,468 --------------- Long Term Capital Gain on cold storage plant 37,27,532 --------------- This long term capital gain was brought to tax by the ld AO u/s 50B of the Act.
Samir Kumar Maity, AY 2009-10 5. In the appellate proceeding, the deduction towards additions made in the cold storage plant in the sum of Rs. 7,76,000/- was accepted by the ld CITA and accordingly the cost of acquisition and improvement of cold storage plant came to Rs. 52,76,000/-. The ld CITA on going through the facts of the case and contentions of the assessee held as under:-
Therefore , it is clear that the transaction was not simply dissolution of the firm on which the appellant was given his share of assets of the firm but the retirement of the appellant from the partnership firm and transfer of these shares. Even otherwise the appellant has not been able to provide any information even during appeal proceeding regarding the actual value of net worth of the asset or the balance sheet and other details in respect of the partnership firm and whether the firm had offered to tax any amount consequent to its alleged dissolution u/s 45(4) of the Income Tax Act. Therefore, it is observed that eventhough the A.O. has considered the sale as slump sale which is not the correct approach considering that the appellant had only retired from the partnership firm and received his investments and profit therefrom, however the same are liable to be taxed as capital gains after reducing the cost of acquisition, therefore the action by the A.O. in taxing the transaction as LTCG in the hands of the appellant is held to be justified and upheld. Further in the absence of the relevant details, the estimate of net worth of the asset worked by the A.O. by reducing the proportionate liability is held to be justified. However, as discussed in para 1 above, the amount of Rs 7,76,000/- is to be allowed as part of the cost of acquisition while calculating the LTCG.
The final effect of ld CITA order would be determination of LTCG u/s 50B of the Act at Rs. 29,51,532/- as against the determination by the ld AO at Rs. 37,27,532/-. Aggrieved, the assessee is in appeal before us.
The ld AR reiterated the facts and stated that it is a simple consideration received from retirement of partnership firm by the assessee and loss claimed in the sum of Rs. 2,76,000/- (52,76,000 – 50,00,000) , being a capital loss was omitted to be disallowed in the memo of income. The proportionate liabilities reduced by the lower authorities are factually incorrect as they represent personal liabilities of the assessee and no way connected with the cold storage plant. Moreover, those liabilities are reflected in the balance sheet of the assessee as on 31.3.2009 for which he drew the attention to Page 1 of the Paper Book. He argued that the lower authorities had completely miscarried themselves by erroneously applying the provisions of section 50B of the Act to the facts of the instant case. In response thereto, the ld DR vehemently relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. We find that the ld CITA having categorically concluded that the adoption of slump sale
Samir Kumar Maity, AY 2009-10 provisions us/ 50B of the Act by the ld AO is not the correct approach, further proceeded to uphold the computation of Long Term Capital Gains (LTCG) after granting relief to the extent of Rs. 7,76,000/- alone. The facts stated herein remain undisputed and hence the same are not reiterated for the sake of brevity. We find that this is a case of simple retirement of the assessee from a partnership firm for which he received consideration of Rs. 50,00,000/- against his investment made thereon. It is not in dispute that he had invested Rs 52,76,000/- in the firm. Hence the resultant capital loss of Rs. 2,76,000/- had to be disallowed in the memo of income by the assessee. The assessee had rightly treated the loss on sale of Rs. 2,76,000/- in his profit and loss account but had omitted to disallow the same in the memo of income. This is the only mistake committed by the assessee in our considered opinion. We find that the lower authorities had completely misdirected themselves by erroneously applying the provisions of section 50B of the Act by taking into account proportionate liabilities (which are not related to the cold storage plant) and ignoring the fact that those liabilities are still reflected in the balance sheet as on 31.3.2009. Accordingly, we direct the ld AO to disallow Rs. 2,76,000/- being capital loss in the assessment and reframe the same accordingly. Accordingly, the grounds raised by the assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed. Order is pronounced in the open court on 10.03.2017 Sd/- Sd/- (S. S. Viswanethra Ravi) (M. Balaganesh) Judicial Member Accountant Member Dated : 10th March, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: APPELLANT – Shri Samir Kumar Maity, Vill, Dehibursut, Dist. 1. Howrah-712408 2 Respondent – ITO, Ward-48(2), Kolkata 3. The CIT(A), Kolkata 4. CIT, Kolkata. 5. DR, Kolkata Benches, Kolkata /True Copy, By order,