Laliet Kumar, Judicial Member - The present appeal is filed by the assessee arising out of the order of ld. CIT (A)-I, Jaipur dated 06.03.2013. The grounds raised by the assessee are as under :—
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That in the facts and circumstances of the case and in view of the settled legal position the ld. CIT (A) has erred in law in holding that the amendment in section 49(iii)(e) inserting clause (xiii) of section 47 was of clarificatory nature. That such holding resulted in a wrong finding in law and consequently upholding the action of A.O. in assessing the income of the appellant at Rs. 1,57,88,459/- is erroneous and wrong in the eye of law, which deserves to be cancelled. |
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The impugned order is unsustainable in the eye of law on the issue of converting the Short Term Capital Loss into Long Term Capital Gain and taxing the same because the settled position of law is that the validity of an order of a statutory functionary has to be judged on the basis of material available and legal position prevailing at the time when such an action was taken or an order is framed because subsequent happenings if are put into use and considered, it may validate an order which was otherwise an illegal order in law when was made. This is impermissible in the eye of law. Hence the action of ld. A.O. was erroneous and which was liable to be cancelled, by deleting the addition by the ld.CIT (A), which was not done. Hence she erred. The addition may kindly be deleted. |
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That without prejudice to the ground no. 1 and 2 above, the ld. CIT (A) grossly erred in law and in facts in upholding levy of interest u/s 234B of the Act ignoring the submissions and legal position particularly when the amendment in statute was a retrospective charging amendment and the assessee has been denying completely its liability for such a charge of interest even if action of converting the Short Term Capital Loss into Long Term Capital Gain is upheld. |
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That in the facts and circumstances of the case, since the assessee had denied completely its liability to charge of interest u/s 234B, the ld. CIT (A) should have deleted the same cancelling the order of A.O. In not doing so, she has erred. |
2. The brief facts of the case are that the appellant company filed its return on 30.09.2009 declaring total income of Rs. Nil after set off of loss. The same was processed under section 143(1) on 01.11.2010. Thereafter, the case was selected for scrutiny and the notice was issued calling upon the appellant company to furnish the details along with questionnaire. In pursuant thereto, the assessee company filed its reply. The assessee has submitted that the trading of shares and F & O, commodities. During the assessment year under consideration, the assessee company has shown the total sales of Rs. 16,44,997/- and declared a net loss of Rs. 15,54,485/-. During the course of verification of record, it came to the notice of the AO that the assessee company sold a property for a consideration of Rs. 1,05,97,152/-. The assessee company was called upon to furnish the details of the property sold. In response thereto, the assessee company has filed its reply wherein it was submitted that M/s. Sarju Cold Storage (in short SCS) had purchased the land and in the assessment year 2006-07 the value of the land was shown as Rs. 2,50,000/- in the return of income. It is further the case of the assessee that M/s. Sarju Cold Storage in the A.Y. 2007-08 had shown the capital reserve as Rs. 3,67,50,000/-. This capital reserve were shown on the basis of re-valuation of the fixed assets done by M/s. Sarju Cold Storage. The AO had sought clarification on 19.12.2011 and in response thereto it was submitted that M/s. Sarju Cold Storage re-valued the land from Rs. 2,50,000/- to Rs. 3,70,00,000/- during the A.Y. 2006-07 and it was further submitted that re-valuation of asset does not result in any gain and, therefore, no long term capital gain was shown in the return of income in the relevant year. It was further submitted that in terms of sec. 47(xiii), M/s. Sarju Cold Storage was taken over by M/s. Utsav Cold Storage Pvt. Ltd. along with its assets and liabilities and there was no transfer within the meaning of law and, therefore, no tax was payable. It was further submitted that the book value of the assets sold in the hands of the assessee company was Rs. 3,81,62,525/- and, therefore, when the property was sold, a total sale consideration of Rs. 2,00,00,000/- was received as a result thereof. There was a short term capital loss of Rs. 1,81,62,525/- in the hands of the assessee. The AO had examined the submissions made by the assessee and after examining the reply submitted by the assessee has held as under :—
"8. From the above facts it is clear that the assessee has revalued its land to Rs. 3,70,00,000/- from Rs. 2,50,000/- and this has been done simply to inflate the value and revaluation of any asset does not entitle the assessee to claim the revalued figure as cost of the land and the value which has been paid for acquiring the land can only be considered as the cost of asset. Hence, the cost of land can be amount paid by the assessee for acquiring the said land which in the present case is Rs. 2,50,000/- and Rs. 1,83,714/- being the registration and other charges incurred for purchasing the said land, which has also been taken into consideration by the then ACIT, Circle 2(1), Jaipur while assessing the assessee's case (M/s. Sarju Cold Storage PFAS) in AY 1990-91, order of which has been passed on 18.2.1992, therefore, the total value of the land comes to Rs. 4,33,714/- which is taken into consideration for working out the capital gain.
9. Assessee has also incurred an amount of Rs. 7,15,000/- which has been paid to RIICO in the FY 2007-08 for converting the name etc. which has been duly accounted for by the assessee company in the preceding year by capitalizing the same in the value of land. Hence, the same is also taken into considering while working out the capital gain.
10. It is also worthwhile to mention that the assessee who had purchased the land for Rs. 2,50,000/- has revalued it to Rs. 3,70,00,000/- before transferring the assets and liabilities in the assessee company and such revaluation has been done in the FY 2006-07. The said land was sold during the year under consideration for Rs. 2,00,00,000/- and the DLC rate as per the Sub-Registrar was also assessed at Rs. 2,00,00,000/-. Thus the assessee has deliberately revalued the land to a figure of Rs. 3,70,00,000/- in the FY 2006-07 which is more than the DLC rate in FY 2008-09 which is sufficient to establish the mala fide intention of the assessee to evade the Long Term Capital Gain on sale of property by claiming the loss. Further, the assessee has failed to disclose the relevant facts in the return of income filed and has further failed to file revised return in time duly rectifying the mistake made in the original return."
3. Feeling aggrieved by the order passed by the AO, the appellant filed the appeal before the ld. CIT (A). The ld. CIT (A) after elaborately discussing the contention of the assessee has held as under :—
'Thus as per these provisions of the Act the property is to be taken at the value at which it was acquired by the firm that is Rs. 2,50,000/-and the cost of improvement which the AO has taken into consideration that is Rs. 1,83,714/- and Rs. 7,15,000/- being expenses incurred, while calculating the cost of the land. The section significantly mentions the cost at which the property was acquired and does not mention that it should be taken at the value recorded in the books of account of the transferor since that is subject to manipulation or change. Given the fact that the law was clarified and this clarification was made with retrospective effect from 01.04.1999 by the Finance Act, 2012 these provisions are clearly applicable to the facts of the case of the appellant because this amendment with retrospective effect was clarificatory and not substantive in nature.
The AR of the appellant has submitted that the cost could not have been determined u/s 49(1)(iii)(a) which has been done by the AO but should have been done u/s 49(1)(iii)(e). First of all, it is a presumption that the cost worked out by the AO is u/s 49(1)(iii)(a) and not u/s 49(1)(iii)(e) because the assessment order is completely silent regarding the section under which the cost of the property has been worked out. Therefore, the AR of the appellant is making a presumption that the cost of the property has been worked out u/s 49(1)(iii)(a).
The Hon'ble ITAT in the case of Ishrawati Devi v. ITO [2008] 298 ITR (AT) 313 (Allahabad) has held that the CIT (A) "has powers coterminous with the Assessing Officer. The Commissioner (Appeals) can direct the Assessing Officer to do what the latter failed to do. Unless there are specific fetters placed upon the powers of the Commissioner (Appeals) by express words, he exercise the same powers as does the original court or authority. In fact, the entire assessment is thrown open before him. He can travel outside the record, i.e., the return made by the assessee and assessment order passed by the Assessing Officer. He is competent to conduct a detailed examination of any aspect dealt with summarily or briefly by the Assessing Officer."
In view of the above observation of the Hon'ble ITAT Allahabad Bench it is held that the cost of the property for determining the capital gains in the hands of the appellant is to be worked out as per section 49(1)(iii)(e).'
4. Feeling aggrieved by the order passed by the ld. CIT (A), the assessee has filed the present appeal before us.
4.1 The primary contention of the ld. A/R before us and before the authorities below was that the land and building along with other assets were acquired by the assessee company on 29.12.2006 from a partnership firm, namely, M/s. Sarju Cold Storage and in view of section 47(xiii) of the IT Act, there is no transfer in the eyes of law. It was further submitted that the partnership firm i.e. M/s. Sarju Cold Storage was merged with the assessee company in view of section 47(xiii) after revaluation of the assets of the company to Rs. 3,70,00,000/- from Rs 2,50,000/-. Thus the cost of acquisition in the hands of the assessee company was Rs. 3,70,00,000/-. It was also the case of the assessee that on the basis of the book valuation, the share holding of the company was given to the partners of the firm. It was further submitted that after the merger took place, the assessee company sold the asset (land) on 15.5.2008 and has declared the short term capital loss in the revised computation of income during the assessment proceedings. It was submitted before us that section 49(iii)(e) was introduced with effect from 1.4.1999 by the Finance Act, 2012 and, therefore, the ld. CIT (A) was long in applying the provisions of section 49(1)(iii)(e) to the case in hand as the law was amended with effect from 1.4.1999. The ld. Counsel has also taken us to the explanation to the amended provision to show that the amendment will take retrospective effect from 01.04.1999 and accordingly apply in relation to the A.Y. 1999-2000 and subsequent assessment years. It was submitted that section 49(1)(iii)(e) is a charging provision and being a charging provision, the same cannot be retrospectively apply to the transaction which has taken place in the assessment year 2009-10. It was submitted that addition/levy on the basis of retrospective amendment is not permissible in view of various pronouncements of the Hon'ble Supreme Court, particularly, CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48/109 Taxman 342 and Sedco Forex International Drill v. CIT [2005] 279 ITR 310/149 Taxman 352 (SC).
4.2 The next contention of the ld. Counsel for the assessee was that the tax planning within the four corners of the law is an accepted practice. No mala fide can be attributed to the assessee. This has been so recognized by the Hon'ble Supreme Court in the case of Vodaphone International case wherein the principles laid down inMcDowell & Co. Ltd. v. Commercial Tax Officer [1985] 154 ITR 148/22 Taxman 11 (SC) case was upheld.
4.3 It was thereafter contended by the ld. A/R for the assessee that the specific provisions of section 47(xiii) which prevail over the general provisions i.e. section 49(1)(iii)(a) of the Act and on the basis of the above said submission, it was submitted that the AO was wrong in applying the provisions of sec. 49(1)(iii)(a) to determine the cost of acquisition. It was further submitted that even the ld. CIT (A) was wrong in applying the provisions of section 49(1)(iii)(e) as the said provision was not in existence at the time of transaction or during the assessment proceedings as the said provision was inserted by the Finance Act,2012. On the basis of the above said contention, the ld. A/R has submitted that the addition made by the authorities below on the basis of transfer of land was wrong. In fact, the assessee has suffered short term capital loss on account of sale of the assets and there is no short term capital gain to the assessee. In the alternative, it was submitted that provisions of sections 234B & 234C should not be applied for payment of interest on the basis of retrospective amendment on account of non-payment of advance tax.
4.4 The ld. D/R on the other hand, has submitted that the transfer within the meaning of law has taken place and the assessee company is successor and interest of the partnership firm M/s. Sarju Cold Storage and, therefore, the cost of acquisition of M/s. Sarju Cold Storage would be cost of acquisition of the assessee company. As the assets of the partnership firm were sold by construction/merger of the assets and liabilities of the firm of the assessee company, therefore, the assessee company is liable to pay the capital gain arising out of the said transaction.
4.5 We have heard rival contentions and perused the material available on record. Before we deal with the factual aspects of the matter, it is necessary to reproduce sections 47(xiii) and 49 for the purpose of clarity and reference.
"Section 47 : Transactions not regarded as transfer
Nothing contained in section 45 shall apply to the following transfers :—
(xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer or a capital asset to a company in the course of demutualization or corporatization of a recognized stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :
Provided that –
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All the assets and liabilities of the firm or of the association of persons or body of individuals relating to the business immediately before the succession become the assets and liabilities of the company; |
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All the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession; |
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The partners of the firm do 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; and |
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The aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession; |
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The demutualization or corporatization of a recognized stock exchange in India is carried out in accordance with a scheme for demutualization or corporatization which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992). |
Section 49 : Cost with reference to certain modes of acquisition.
(1) Where the capital asset became the property of the assessee—
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On any distribution of assets on the total or partial partition of a Hindu undivided family; |
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Under a gift or will; |
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(a) by succession, inheritance or devolution, or |
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(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or |
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(c) on any distribution of assets on the liquidation of a company, or |
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(d) under a transfer to a revocable or an irrevocable trust, or |
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(e) under any such transfer as is referred to in clause (via) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (vicb) or clause (xiiib) of section 47; |
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such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969, |
The cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be."
From the bare reading of both the provisions i.e. section 47 and section 49 of the Act, it is clear that section 47 deals with the transaction not regarded as transfer whereas section 49 deals with the cost with reference to certain mode of acquisition. Both the sections, in our understanding, operate and work in different forum and there is no over-lapping of the section. Under section 47(xiii), if a firm by way of succession became the company, then the transaction i.e. migration of the firm to the company would not be treated as transfer. However, this section do not provide the calculation of cost of acquisition by way of succession from firm to the company. Section 49, specifically provides the manner in which the cost of acquisition through various conditions is required to be calculated. If we look into section 49(1)(iii), it is specifically provide transfer by way of succession, inheritance/devaluation. The firm is succeeded by the company, therefore, the cost of acquisition of the company would be as that of acquisition of the firm. The valuation of land and assets of firm though valued by the valuer will not change or alter the cost of acquisition of the firm despite valuation of assets of the firm and would remain the same, and therefore the cost of acquisition of the company would be cost of acquisition of the firm. The firm is being succeeded by the company and the company is not buying or purchasing the assets of the firm. The element of sale and purchase of the assets of the firm were not involved in the case of succession of the firm to the company. In view thereof, we decide the issue against the assessee and held that the cost of acquisition of the company (assessee) would be the cost of acquisition of the firm (M/s. Sarju Cold Storage). Therefore, the assessee would only be entitled to the indexation on the cost of acquisition of the firm on the amount of Rs. 2,50,000/-. The argument of the assessee that the AO has wrongly calculated the cost of acquisition of the assessee u/s 49(1)(iii)(a), in our view, is not correct as both the AO and ld. CIT (A) have applied the cost of acquisition on the basis of principles stated herein above i.e. cost of acquisition of the firm. The assessee, in our view, has wrongly got confused with the principles laid down under section 47 which talks about the transaction which are not regarded as transfer, with that of principles for determining of cost of acquisition under section 49. Section 49(1)(iii)(e) was introduced by the Finance Act, 2012 with effect from 1.4.1999. The said section, in our view, is only clarificatory in nature and has specifically provided the cost of acquisition in case of succession of firm to the company. However, the said cost of acquisition was already in existence under section 49(1)(iii)(a) of the IT Act. Therefore, in our view no fresh charge has been created on account of succession of a firm to the company. It has only clarified the existing basis of calculating the cost of acquisition in case of succession of the firm to the company. Therefore, the argument of ld. A/R for the assessee is devoid of any merit and is also dismissed.
5. Ground no. 3 relates to levy of interest under section 234B. Since we have dismissed the ground of the assessee relating to cost of acquisition on the basis of principles stated herein above i.e. cost of acquisition of the firm, therefore, levy of interest u/s 234B is rightly confirmed by the ld. CIT (A). We find no infirmity in the order of ld. CIT (A). The same is hereby upheld.
6. In the result, appeal of the assessee is dismissed.