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2023 (10) TMI 914 - AT - Income TaxArtificial capital gains loss - colourable device to evade tax - Allegation of transfer of agricultural land to LLP to generation artificial loss to set off with capital gain - LLP created after conversion of Limited Company into LLP - Transfer as capital contribution at a value less than the cost of acquisition - HELD THAT:- Firstly, according to the learned AR, the transfer of shares was to LLP wherein the assessee and her relative have stake each whereas transfer of land was to Smilax Corporate Services LLP where the assessee and some others had a stake and, therefore, similar treatment has given in both the cases. It means that if the capital gains arising out of transfer of shares is accepted, the capital loss arising out of transfer of land should also be accepted. This argument is not convincing because, the composition of the LLPs, need, motive and other attendant circumstances of sale of shares need not be identical to the transfer of land. Parties having stakes in both the LLPs are not the same parties. We do not know what considerations weighed the sale of shares. There were no suspicious circumstances attending such a transaction of sale of shares. Authorities, however, delineated certain circumstances raising suspicion in respect of the transfer of land to Smilax Corporate Services LLP and such suspicion needs to be dispelled by the assessee with cogent reasons. Merely because the sale of shares is accepted, that by itself does not absolve the assessee from the need to explain the transaction of transfer of land. There is no such rule that one genuine transaction and one suspicious transaction, if any, have to be set-off against each other on the sole ground that in both the LLPs the assessee is a common partner. Such a concept is alien to law. We, therefore, brush aside this argument. One of the factors that provoked the suspicion of AO is in respect of the transfer of land to Smilax Corporate Services LLP is the conversion of Smilax Corporate Services Pvt. Ltd. into Smilax Corporate Services LLP just before the transfer of land at a value less than the cost of acquisition by the assessee. He held that such a transfer did not bring about any change either from the point of Smilax Corporate Services LLP or from assessee. This factor on an analysis led him to conclude that the conversion is only to bring the transaction within the purview of section 45(3) of the Act, recording of lesser value in the books of LLP in respect of such land than her cost of acquisition is only to introduce the artificial capital loss, and in that way, it is not a case of tax avoiding by proper tax planning, but it is a case of tax evading through a colourable devise. We can understand the genuineness of either conversion of company into LLP or the transfer of land if such conversion/transfer happens in the proximity of such a need. Except to introduce a colourable device, no other meaning is indicated in this transaction. Question here is, therefore, not whether the percentage of stake holding either in company or in the LLP changes the character of a transaction, but it throws some light to view the things in their proper perspective. Having regard to the common course of natural events, human conduct and public and private business, in their relation to the facts of this particular case, we are of the considered opinion that the capital losses said to have been incurred by the assessee are only notional and introduced artificially. Authorities below rightly disallowed the same. With this view of the matter, we do not find any illegality or irregularity in the findings of the authorities below and the same are upheld. Grounds of appeal are accordingly found devoid of merits. Decided against assessee.
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