Case Law Details

Case Name : Dy. CIT-9(1)(1) Vs. M/s Amartara Pvt Ltd (ITAT Mumbai)
Appeal Number : I.T.A No. 6050/Mum/2016
Date of Judgement/Order : 29/12/2017
Related Assessment Year : 2012-13
Courts : All ITAT (5166) ITAT Mumbai (1632)

Dy. CIT  Vs. M/s Amartara Pvt Ltd (ITAT Mumbai)

Provisions of section 45(3) deals with special cases of transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer.

A plain reading of provisions of section 45(3) makes it clear that it comes into operation only in special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration.

Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. The purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism of capital gain and also provides for consideration to be adopted for the purpose of determination of full value of consideration.

Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset.

This legal proposition is further supported by the decision of Honorable Supreme Court in the case of CIT vs Moon Mills Ltd (supra) wherein it was observed that one deeming fiction cannot be extended by importing another deeming fiction. Therefore, we are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a firm in which he is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be full value of consideration received or accruing as a result of transfer of a capital asset.

The AO cannot import another deeming fiction created for the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C of the Act. The CIT(A), without appreciating the facts, simply upheld addition made by the AO by following the decision of ITAT, Lucknow Bench in the case of ACIT vs Carlton Hotel Pvt Ltd (supra) where the ITAT has simply observed that the provisions of section 50C overrides the provisions of section 45(3) but not given a categorical finding. The ITAT has give its findings under different facts considering the fact that when a document is registered under the Provisions of Registration Act, 1908, the value determined by the stamp duty authority shall be replaced to determine full value of consideration. Therefore, we reverse the finding of the CIT(A) and delete the addition made towards re computation of long term capital gain on account of transfer of capital asset into partnership firm.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

These cross appeals filed by the revenue as well as the assessee are directed against the order of the CIT(A)-16, Mumbai dated 19-07-2016 and it pertains to AY 2012-13. Since facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this common order.

ITA 6114/Mum/2016

2. The assessee has raised the following grounds of appeal:-

“GROUND NO. I: ADDITION MADE IN RESPECT OF LONG TERM CAPITAL CAIN – RS. 3,81,78,500/-

On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-16, Mumbai [“the CIT (A)”] erred in confirming the addition of Rs. 3,81,78,500/- made by the Learned Assessing Officer (“the AO”) in computing of Long Term Capital Gain on the transfer of land as capital contribution to a Limited Liability Partnership by invoking section 50C of the Income Tax Act, 1961 (“the Act”) by ignoring the specific provisions of section 45(3) of the Act.”

3. The brief facts of the case are that the assessee company, has during the year under consideration entered into limited liability partnership vide an agreement dated December 28, 2011 with an object of developing, constructing and operating resorts, hotels and apartment hotels and / or for carrying out such other hospitality business. Thereafter, the parties to the said agreement entered into a supplementary agreement dated December 29, 2011, in order to incorporate certain amendments to the earlier agreement. Vide the said supplementary agreement, the assessee transferred an immovable property being a plot of land ad measuring 6869.959 mts situated at Village Passpoli, Powai, Mumbai as its capital contribution into ATL Hospitality, LLP (firm). The assessee at the time of contribution to the firm, as per the valuation report obtained in respect of the said plot of land, taken value at Rs. 5.60 crores and the same was recorded in the books of the partnership firm. The aforesaid supplementary agreement was registered on April 24, 2012 and the stamp duty authority has determined the market value of the property for the purpose of payment of stamp duty at Rs. 9,41,78,500. The assessee, while computing capital gain on transfer of land into partnership firm in accordance with the provisions of section 45(3) of the Act, has taken the value as recorded in the books of the firm, i.e. Rs. 5.60 crores, as the full value of consideration deemed to have been received or accrued as a result of transfer of capital asset to the partnership firm.

4. During the course of assessment proceedings, the AO called upon the assessee to furnish necessary evidences to justify computation of long term capital gain in respect of transfer of capital asset being plot of land into partnership firm as per the provisions of section 45(3) of the Act. After considering relevant submissions of the assessee and also on analysis of provisions of sections 45(3) and 50C of the Act, the AO observed that since there is a transfer of land into the partnership firm, the provisions of section 50C of the Act shall apply and accordingly, the full value of consideration for the purpose of computing capital gain shall be taken at Rs. 9,41,78,500, being the value determined by the Stamp Valuation Authority at the time of registration of the Supplementary partnership deed. The AO, further observed that as regards applicability of section 45(3) of the Act and section 50C of the Act, by relying upon the decision of ITAT, Lucknow Bench in the case of Carlton Hotel Pvt Ltd vs ACIT 122 TTJ 515 (Luck) observed that ITAT has given a finding insofar as applicability of section 50C of the Act in the cases where capital asset has been transferred under the provisions of section 45(3) and held that section 50C of the Act being a specific provision would override the provisions of section 45(3) of the Act. The AO further observed that provisions of section 45(3) of the Act does not begin with a non obtante clause and therefore, there is no specific mention of non applicability of section 50C of the Act in the cases covered by section 45(3) of the Act. As a consequence, the AO held that the provisions of section 50C of the Act could be invoked where the market value of the property is more than the value shown in the registered document. Accordingly computed long term capital gain by adopting fair market value determined by the stamp duty authority and recomputed long term capital gain of Rs. 8,74,96,093 as against Rs. 4,93,17,593 declared by the assessee.

5. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions which were reproduced by CIT(A) in his order on pages 17 to 25. The sum and substance of the arguments of the assessee before the CIT(A) is that the provisions of section 45(3) itself is a deeming fiction created for taxing transfer of capital asset between partnership firm and partners wherein it was categorically mentioned that for the purpose of section 48, the full value of consideration deemed to be the value recorded in the books of account of the partnership firm. Therefore, the AO was incorrect in going to another deeming fiction created by way of section 50C which is applicable for general transfers, therefore, the question of applying section 50C value for the purpose of computation of capital gain does not arise. The CIT(A), after considering relevant submissions of the assessee and also relying upon the decision of ITAT, Lucknow Bench in the case of Carton Hotels Pvt Ltd (supra), confirmed the addition made by the AO towards re-computation of long term capital gain. Relevant portion of the order is extracted below:-

“6.2.3. I have considered the submissions made by appellant and the material available on record. The Hon ‘able Lucknow Bench of ITAT has considered this point in the case of Carlton Hotel Pvt. Ltd. 122-TTJ wherein it was held that sec. 50C over-rides sec. 45(3). The Honorable Tribunal observed that in a case where document of transfer is registered as per the provisions of Registration Act, 1908 and the Stamp Duty paid to the State Govt. on registration of such document, sec. 50C comes into play and as such, the provision of sec. 50C over-rides the provision of sec.45(3) of the Act. In para 24 of the order, the Ld. Tribunal has held as under:

24. We are of the considered view that section 45(3), sec. 50C and section 55A operate in different spheres and they can be invoked when conditions laid down in those sections are satisfied. Invoking the power contained in one of these sections does not come into conflict with each other. As mentioned above, provisions of sec,50C can be invoked when there is a registration of transfer under Registration Act and stamp duty is paid for the purposes of registering the sale. If the transfer by way of sale is not registered under Registration Act and no stamp duty is paid then section Soc cannot be invoked. Section 55A, on the other hand empowers the Assessing Officer to refer the property under transfer to a DVO if section if he has material on record on the basis of which he forms an opinion that value declared by the assessee as per estimate of the registered LLP is less than its fair market value or fair market value is more by certain percentage to what is declared by the assessee as sale consideration, or there a are other relevant factors which necessitated the Assessing Officer to refer the capital asset under transfer to the DVO. Section 55A can be invoked for the purpose of this chapter. On the other hand, where a transfer covered under section 45(3) is sought to be registered by the firm and stamp duty is paid by the parties then provisions of section 50C could still be invoked even that case may be covered under section 45(3). In our considered view, in that case, provision of section 45(3) would not be applicable but it is only section soc which alone can be invoked as there is a registration of sale deed under Registration Act. Thus where a sale transaction is registered by paying stamp duty then it is only section 50C which can operate. In that situation section 50C would override section 45(3) if the sale deed is sought to be registered by paying stamp duty. But where such registration does not take place by paying stamp duty that case would only be covered under section 45(3) and therefore, value recorded by the firm in its books would only be the full value of consideration for the purposes of com putting capital gains.”

6.2.4. The Honorable Tribunal has accordingly held that section 45, sub section (3) as a general provision and section 50C is a special provision which would over-ride section 45(3. The appellant could not produce any other judgement which could support the argument taken by the appellant. Therefore, respectfully following the judgement of the Honorable Tribunal in the case of Carlton Hotels Pvt Ltd vs ACIT(16), the addition made by the AO is confirmed and appeal of the assessee on this ground is dismissed”.

6. The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in confirming addition made by the AO towards re computation of capital gain without appreciating the facts in a proper perspective which is evident from the fact that the CIT(A) has simply followed Lucknow Bench of the Tribunal decision which was rendered under different facts. The Ld.AR referring to the provisions of sections 45(3) and 45(4) submitted that these are special provisions for computation of capital gain on transfer of capital assets between partnership firm and partners wherein the legislature has consciously used different words for the purpose of computation of capital gain when capital asset has been transferred into partnership firm as capital contribution. As per the said section, when a capital asset is transferred to a partnership firm as a capital contribution, the profits or gains arising from the transfer of capital asset shall be chargeable to tax as its income of the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of the consideration received or accruing as a result of transfer. The Ld.AR further submitted that the legislature has taken a different view in the case of transfer of assets in the event of dissolution of partnership firm where it was considered fair market value of the property as on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer. The Ld.AR further submitted that since both the provisions are general provisions, without any non obstante clause and also both provisions are deeming fiction created for the purpose of taxation of transfers of capital asset in special cases, the question of importing another deeming fiction to determine the deemed full value of consideration is incorrect. In this regard, he relied upon the decision of Honorable Supreme Court in the case of CIT vs Moon Mills Ltd, (1966) 59 ITR 574. The Ld.AR referring to the Lucknow Bench decision in the case of Carlton Hotel Pvt Ltd (supra) submitted that the decision rendered by the Lucknow Bench is per incuriam in the light of decision of Honorable Supreme Court in the case of CIT vs Moon Mills Ltd, as per which deeming fiction cannot be extended by importing another deeming fiction for the purpose of determination of full value of consideration. Therefore, the lower authorities were erred in following the decision of ITAT, Lucknow Bench to hold that section 50C is applicable for the purpose of determination of full value of consideration when asset is transferred into capital contribution of partnership firm for the purpose of section 45(3) of the Act.

7. The Ld.DR, on the other hand, strongly supported the order of the CIT(A). The Ld.DR submitted that the CIT(A) has brought out clear facts in the light of ITAT, Lucknow Bench decision wherein it was clearly held that section 50C overrides provisions of section 45(3) when document of transfer is registered as per the provisions of Registration Act, 1908 and the stamp duty paid for registration of such document, the value determined by the stamp duty authority shall be replaced as full value of consideration as per the provisions of section 50C of the Act. Therefore, the orders of CIT(A) should be upheld.

8. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The AO has recomputed long term capital gain from transfer of capital asset being plot of land into partnership firm as capital contribution u/s 45(3) of the Income-tax Act , 1961 by applying deeming provisions of section 50C for the purpose of determination of full value of consideration received or accrued as a result of transfer of capital asset. According to the AO, the provisions of section 50C overrides the provisions of section 45(3) which is emanating from the language used in both the section where no non obstante clause is used in both the sections. The AO further was of the opinion that the ratio laid down by ITAT, Lucknow Bench in the case of Carlton Hotel Pvt. Ltd (supra) reiterates the position of law enumerated by way of sections 45(3) and 50C as per which where the consideration received or accrued as a result of transfer of capital asset is less than market value determined for the purpose of payment of stamp duty, then the value determined by the stamp duty authority shall be deemed to be the full value of consideration as a result of transfer of capital asset. It is the contention of the assessee that both the provisions are deeming fictions created by the statute to deal with special cases of transfer of capital asset. Therefore, it is incorrect to extend one deeming fiction to another deeming fiction for the purpose of determination of consideration received as a result of transfer of capital asset. The assessee further contended that section 45(3) itself is a deeming provision. It comes into operation when the assessee transfer capital asset into capital contribution of partnership firm, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration, therefore, importing another deeming fiction where it applies to general transfer of capital asset in the cases where the considered received or accrued is less than the consideration determined for the purpose of payment of stamp duty. The assessee further contended that section 50C of the Act has no application where no consideration is received or accrued and hence, computing full value of consideration by applying provisions of section 50C in a case where transfer between partners and partnership firm without there being nay actual consideration received or accrued is incorrect. The assessee further submitted that if the provisions of section 45(3) were not in the statute book, then the question of application of section 50C does not arise, therefore, section 45(3) itself is a specific provision dealing with special cases of transfer of capital asset and hence, provisions of section 50C cannot be brought in the case of transfer of capital asset between partners and partnership firm. Therefore, it can be rightly said that section 45(3)| of the Act itself is a code for computing capital gains in respect of transfer made by a partner to a firm. In the absence of section 45(3) of the Act, taxing any amount is not possible. Since the consideration cannot be determined in absence of section 45(3) of the Act as the consideration lies within womb of the law in the case of transfer of such nature.

9. Having heard both the sides, we find merit in the argument of the assessee for the reason that the provisions of section 45(3) deals with special cases of transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it clear that it comes into operation only in special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration. Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. The purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism of capital gain and also provides for consideration to be adopted for the purpose of determination of full value of consideration. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. This legal proposition is further supported by the decision of Honorable Supreme Court in the case of CIT vs Moon Mills Ltd (supra) wherein it was observed that one deeming fiction cannot be extended by importing another deeming fiction. Therefore, we are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a firm in which he is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be full value of consideration received or accruing as a result of transfer of a capital asset. The AO cannot import another deeming fiction created for the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C of the Act. The CIT(A), without appreciating the facts, simply upheld addition made by the AO by following the decision of ITAT, Lucknow Bench in the case of ACIT vs Carlton Hotel Pvt Ltd (supra) where the ITAT has simply observed that the provisions of section 50C overrides the provisions of section 45(3) but not given a categorical finding. The ITAT has give its findings under different facts considering the fact that when a document is registered under the Provisions of Registration Act, 1908, the value determined by the stamp duty authority shall be replaced to determine full value of consideration. Therefore, we reverse the finding of the CIT(A) and delete the addition made towards re computation of long term capital gain on account of transfer of capital asset into partnership firm.

10. In the result, appeal filed by the assessee is allowed.

ITA No. 6050/Mum/2016

14. The only issue came up for our consideration from revenue appeal is dis allowance of expenses incurred in relation to exempt income u/s 14A of the Act r.w.s. Rule 8D of I.T. Rules, 1962. The AO has disallowed a sum of Rs.42,85,198 u/s 14A by invoking Rule 8D(2)(ii) and 8D(2)(iii) of I.T. Rules, 1962. According to the AO, the assessee has made huge investments in share of domestic companies and capital contribution to partnership firms, income from which does not or shall not form part of total income. However, the assessee has not disallowed expenditure incurred in relation to earn exempt income and hence, issued a show cause notice and asked as to why dis allowance shall not be worked out by invoking Rule 8D(2)(ii). In response to show cause notice, the assessee submitted that it has not incurred any expenditure in relation to income which is exempt under the Income-tax Act, 1961 and that all its investments are made out of its own interest free funds and no part of interest bearing funds has been used to make investments. Therefore, the question of dis allowance of interest expenditure and expenses by invoking Rule 8D(2)(ii) and 8D(2)(iii) does not arise. The assessee further submitted that during the year under consideration, it has not earned any exempt income in the form of dividends or share of profit from partnership firms, and therefore, in the absence of any exempt income, no dis allowance could be made towards expenditure incurred in relation to earning exempt income u/s 14A of the Act. In this regard, he relied upon the decision of Honorable Delhi High Court in the case of CIT vs Cheminvest Ltd 2015) 317 ITR 86 (Del). The assessee also relied upon the decision of the Mumbai Tribunal in the case of Ousesh Mercantile Pvt Ltd vs DCIT 26 Taxman.Com 43 (Mum) and also the judgement of Honorable Bombay High Court in the case of CIT vs Deloitte Enterprises in ITA No.110 of 2009. The AO, after considering relevant submissions of the assessee and also considering the relevant provisions of section 14A, observed that from AY 2008-09 on wards dis allowance u/s 14A needs to be worked out as per the prescribed method provided u/r 8D of Income-tax Rules, 1962 and such dis allowance does not depend upon earning of exempt income. The AO further observed that even if no exempt income is earned during the year under consideration, expenses incurred in relation to exempt income should be disallowed. Therefore, by relying upon certain judicial precedents worked out dis allowance u/s 14A by invoking Rule 8D(2)(ii) and 8D(2)(iii) and determined total dis allowance of Rs.45,82, 198.

12. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions which was reproduced by CIT(A) in his order on page 4 to 16. The sum and substance of the arguments of the assessee before the CIT(A) is that the AO has merely based on the general observations, applied Rule 8D and made dis allowance u/s 14A of the Act without any nexus between expenditure incurred by the assessee to the exempt income. The assessee further submitted that in the absence of any exempt income dis allowance contemplated u/s 14A shall not be disallowed by invoking Rule 8D(2). The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents including the decision of Honorable Delhi High Court in the case of CIT vs Cheminvest Ltd (supra) and also the Honorable Bombay High Court in the case of CIT vs Deloitte Enterprises (supra) held that where the investments have not generated any exempt income, the deduction on account of the interest component on borrowed funds which were utilized for making investments cannot be made. The CIT(A) further observed that since the assessee has not earned any exempt income during the year under consideration, the question of dis allowance contemplated u/s 14A shall not be disallowed. With these observations, the CIT(A) deleted addition made by the AO. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 13. The Ld.DR submitted that the Ld.CIT(A) erred in deleting dis allowance u/s 14A without appreciating that Rule 8D starts with heading – “Formula for determination of expenditure” and the 3 steps prescribed under this Rule to compute the expenditure in relation to exempt income shall be applied collectively. The Ld.DR submitted that dis allowance contemplated u/s 14A has to be the aggregate of the amounts determined u/r 8D. Therefore, the AO has rightly disallowed expenditure incurred in relation to exempt income as the assessee has invested huge amounts in shares of companies and capital of partnership firms, the income from which shall not form part of total income. The Ld.DR referring to the CBDT circular No.5 of 2014 dated 1-02-2014 submitted that the Board has clarified that the term ‘includible’ in the heading of section 14A of the Act and the heading in Rule 8D of IT Rules, 1962 indicates that for invoking dis allowance u/s 14A, it is not material that the assessee should have earned such exempt income during the financial year under consideration.

14. On the other hand, the Ld.AR for the assessee submitted that the CIT(A) has rightly deleted addition made by the AO by following the decision of Hon’ble Delhi High Court in the case of CIT vs Cheminvest Ltd (supra), wherein it was categorically held that where there is no exempt income, no dis allowance can be made u/s 14A of the Act. The fact that the assessee has not earned any exempt income has not been disputed by the revenue. The assessee also explained before the lower authorities that it has investments in group companies and firms, which are out of its own funds and no part of interest bearing funds has been used. Therefore, the question of dis allowance of interest as well as expenditure by invoking Rule 8D does not arise. The CIT(A) has rightly considered the facts of the case to delete additions made by the AO and his order should be upheld.

15. We have heard both the parties and perused material available on record. The AO disallowed expenditure incurred in relation to exempt income u/s 14A by invoking Rule 8D(2)(ii) and 8D(2)(iii) and determined dis allowance of Rs. 42,85,198. According to the AO, earning exempt income is not a pre- condition for dis allowance of expenditure u/s 14A. Even if no exempt income is earned for the year under consideration, dis allowance contemplated u/s 14A shall be worked out by applying Rule 8D(2) which provides for determination of dis allowance for interest and expenses. According to the AO, the Board has clarified the term ‘includible’ in section 14A as per which there is no requirement of any exempt income to invoke the provisions of Rule 8D. If the assessee has investments in shares, income from which shall not form part of total income, then the expenditure incurred by the assessee by way of interest and other expenses shall be worked out. It is the contention of the assessee that when there is no exempt income for the year under consideration, dis allowance contemplated u/s 14A shall not be made as earning exempt income is a pre- condition for dis allowance of expenditure u/s 14A of the Act. The assessee further contended that the fact that the assessee has not earned any exempt income has not been disputed by the lower authorities. The assessee further contended that in the absence of any nexus between expenditure incurred and exempt income merely on the basis of general observations, Rule 8D cannot be applied for dis allowance of interest and expenditure u/s 14A.

16. Having heard both the sides and considered material available on record, we find force in the arguments of the assessee for the reason that the Honorable Delhi High Court in the case of CIT vs Cheminvest Ltd (supra) has held that where there is no exempt income, dis allowance contemplated u/s 14A shall not be worked out. The Honorable jurisdictional High Court in the case of CIT vs Deloitte Enterprises in ITA No. 110 of 2009 held that where the investments have generated any exempt income, the deduction on account of interest paid on borrowed funds which were utilized for making investments cannot be disallowed. The sum and substance of the ratios laid down by the Delhi High Court are that when there is no exempt income, no dis allowance can be made u/s 14A by invoking Rule 8D(2)(ii). In this case, the fact that the assessee has not earned any exempt income, has not been disputed by the revenue. Therefore, we are of the view that the AO was erred in disallowing expenditure incurred in relation to exempt income u/s 14A by invoking Rule 8D(2)(ii) & (iii) of I.T. Rules, 1962. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. We do not find any error in the order of the CIT(A); hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the revenue.

17. In the result, appeal filed by the assessee is allowed and appeal filed by the revenue is dismissed.

Order pronounced in the open court on 29th December, 2017.

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Tags : Capital Gain (400) ITAT Judgments (5350)

One response to “Immovable Property introduction as capital in LLP- Tax will be computed on amount recorded in books of account of firm”

  1. vswami says:

    INSTANT
    “….it is incorrect to extend one deeming fiction to another deeming fiction for the purpose of determination of consideration received as a result of transfer of capital asset.”
    < 'to extend one deeming fiction to another deeming fiction' – may be better put, in one word, , 'telescopically' !

    Now, the view the ITAT has taken, following the righteous principle laid down by the SC in a decided case, as imagined, with full merits and rightly so, might go a long way in putting an end to the legislature's /FM's escapade and fanciful resort to the 'deeming' concept, – impudently so, with no, or sky as the, limit /or to the end of vast horizon deceptively in virtual vision!

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