PCIT Vs Atria Wind (Kadambur) Pvt Ltd (Karnataka High Court)
No incriminating material, no reassessment u/s 153A- Conversion of firm into company not taxable when 47(xiii) conditions met & no incriminating evidence found Karnataka HC
Revenue filed appeal u/s 260A against the order of ITAT Bangalore in ITA No.692/Bang/2024 dated 15.10.2024, which had granted relief to Atria Wind (Kadambur) Pvt. Ltd. for A.Y. 2017-18.
A search u/s 132 was conducted on 17.12.2020 in Assessee’s office, followed by assessment u/s 153A r.w.s. 143(3), wherein AO made an addition of ₹191.95 crore as capital gains on the ground that conversion of a partnership firm (M/s Perpetual Investments) into a private limited company was a “transfer” attracting capital gains. AO held that conditions prescribed u/s 47(xiii) were not fully satisfied. CIT(A) confirmed the addition.
Before the ITAT, the Assessee contended that all conditions under clauses (a) & (c) of section 47(xiii) were duly fulfilled — the entire assets & liabilities were transferred, & shares were allotted to erstwhile partners proportionately. ITAT accepted this factual position & also held that no incriminating material had been found during the search.
High Court’s Observations
The Division Bench noted that ITAT had rightly found:
- Assessee satisfied all conditions u/s 47(xiii);
- AO’s allegation regarding disproportionate shareholding was unsupported by any analysis or evidence;
- The documents found during the search — such as board resolutions, legal opinions, valuation reports, deeds of retirement, & partnership reconstitution papers — were regular business documents & not “incriminating material.”
- HC relied on Supreme Court in CIT v. Abhisar Buildwell (P) Ltd. [2024] 2 SCC 433, which affirmed Delhi HC in Kabul Chawla (2016) 380 ITR 573 & Gujarat HC in Saumya Construction (2016) 387 ITR 529, holding that in absence of incriminating material, completed assessments cannot be disturbed under s.153A.
Held
- No incriminating material was found; hence 153A assessment is invalid.
- Conversion of firm to company fulfilling s.47(xiii) conditions does not constitute transfer for capital gains purposes.
- No substantial question of law arises.
- Appeal dismissed. Pending applications disposed of.
Essence
