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2015 (10) TMI 2175 - AT - Income TaxGifts made - whether transaction resulted into transfer of capital asset u/s 45 giving rise to capital gain? - CIT(A) confirming the application of provisions of Section 50B to the aforesaid gift made by the assessee - Held that:- Fact worth mentioning is that in the gift deed dated 31/12/2007, the signatories are the assessee on one part and in second part also the assessee and Ms. Neha Nitin Dessai (as Director of the Company), thus, the donor and the donee, as a signatory, are the same person, thus, gift to himself, under the facts available on record, is quite unjustified. Further, as per para 3 and 6(iii) of the gift deed, it is clearly mentioned that the donor was expanding his business activity to fulfill his personal dreams for creating a world class studio and with that intention, the donor (assessee), transferred the business undertaking along with asset and liabilities. The donor still retains the goodwill of his name for expansion of his business and still is de-facto owner, having 49% shares being Chairman cum MD. So far as the argument of the ld. counsel for the assessee that stamp duty of ₹ 60 lakh was paid, there is uncontroverted finding in the impugned order that the stamp duty was not paid by the donor but by the donee and the capital gain tax was not paid in lieu of this gift but for transfer of share by the assessee to RBE, thus, from this angle also, the assessee is not having a good case. Even otherwise, the provision of section 47(v) of the Act is an exclusion clause for the cases which are otherwise a transfer. Under the present set off facts, the assessee was absolute owner of NDAW upto 24/07/2007 and transferred his 51% shares to RBE and then made the gift to NDAW, in which he still holds 49% stakes, thus, the transfer is covered by exclusion clause u/s 47(XIV) of the Act, consequently, is liable to Gift Tax So far as, computation of capital gain by the Assessing Officer taking the full value of asset at ₹ 23,52,49,025/-, as per section 50B of the Act, there was no valuation in books of the assessee and the valuation made in the case of transferee, on the date of gift is ₹ 23,52,49,025/-, meaning thereby, revalued asset has been transferred and not the book valued asset. It is also noted that the assessee claimed bad debt written off as on 31/12/2007, meaning thereby, the book value of asset and liability, so transferred, has been revalued on the date of transfer in the books of the assessee, thus, the value of consideration, for the purposes of capital gain, has to be at ₹ 23,52,49,025/-. However, the transfer was effected along with liability, therefore, the net worth is to be considered for the purpose of computation of the capital gain u/s 50B of the Act, consequently, the sale consideration would be considered at ₹ 23,52,49,025/-minus liabilities transferred and valued at ₹ 22,26,07,330/-. In view of this position in long term capital gain will be at ₹ 1,26,41,695/-, thus, so far as, taxability of capital gain is concerned, we find no infirmity in the impugned order, in giving direction to the Assessing Officer. So from this angle also, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided against assessee. Depreciation disallowed - not considering that a gift of running business results into succession - Held that:- The share holding was reduced to 49% and the assessee was given handsome remuneration. Even otherwise, depreciation is calculated on the written down value of the block of asset. Since, we have affirmed the stand of the ld. Commissioner of Income Tax (Appeals) that the claimed gift is a sham transaction/colorable device for the purposes of capital gains, thus, there is no question of proportionate depreciation. The fifth proviso to section 32(2) applies in case of succession of business as the assessee has transferred 51% share of NDAW on 24/12/2007 to RBE and the transfer was a sham transaction, consequently, there is no succession of business as there was no asset in the balance sheet, therefore, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided against assessee. Disallowance of setting off of unabsorbed depreciation u/s 32 (2), against salary income - Held that:- Assessee sold out only part of the business of earlier years meaning thereby, the assessee discontinued his business and the same was not carried on in the current year, further part of the business was transferred by way of alleged gift, therefore, the claim of set off of unabsorbed depreciation of earlier year is not allowable as per the provisions of section 32(2) of the Act as amended w.e.f. 01/04/2002. We are also of the view that set off of unabsorbed depreciation cannot be allowed to be set off against the income from salaries, in view of section 71(2A) of the Act. - Decided against assessee. Disallowance of right off of sundry debts, which were no longer realisable in the books of the assessee - Held that:- There is uncontroverted finding in the impugned order that the assessee has gifted/transferred all his asset and liabilities to NDAB as going concern, therefore, the claim of bad debts written off on the pretext that these were written off prior to 31/12/2007 is sham and part of colorful tax planning. We also note that, as claimed by the assessee, during hearing, that asset and liabilities were transferred on 31/12/2007, thus, the sundry debtors of earlier year cannot be written off as bad debts. There is further finding that the details of bad debts ledger and journal copy also shows that these bad debts were written off on 31/12/2007 and even the book entry was passed on 31/12/2007 in the books of the assessee, whereas, such asset and liabilities were transferred on 31/12/2007. We are of the view, the written off indeed should be genuine and bona-fide debt, based on commercial expediency, thus, the decision in DIT vs Oman International Bank SAOG (2009 (2) TMI 54 - BOMBAY HIGH COURT ) supports our view. Since the entire claim of the assessee is a colorable device, therefore, we find force in the argument of the ld. DR - Decided against assessee. Disallowance of preoperative project expenses and deferred revenue expenses written off - Held that:- Totality of facts clearly indicates that these expenses are not allowable as the business was transferred as a going concern with all liabilities. Such expenditure are admissible in the year, when they were incurred as per the method of accounting. The assessee has also not brought on record to show that the claimed expenses were crystallized during the year, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided against assessee.
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