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TMI Blog2016 (3) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1961, as capital gains. The assessee challenged the action of the Assessing Officer before the learned Commissioner of Income-tax (Appeals) in working out and assessing long-term capital gains in the case at Rs. 1,58,63,380 on the alleged transfer of factory land and building, etc., and his action in holding that the conditions stipulated in sub-section (xiii)(c) and (d) of section 47 were not fulfilled. 3. The briefs of the case are that original return declaring net income of Rs. 11,47,211 was filed on December 20, 1999. In the month of March, 2006, a report on tax evasion petition is stated to have been received from the office of the Deputy Director of Income-tax (Investigation)-II, Ludhiana reporting that in a process of takeover of business of the assessee-firm under assessment by M/s. Oriental Knit Fab. (P.) Ltd., Ludhiana a private limited company, substantial amount of Rs. 1.02 crores was agreed to be paid by S/Shri Rajat Sood and Narinder Sood, partners (transferees) to Shri Vijay Sood, partner (transferor) vide agreement dated December 7, 1998. This firm was originally evidenced by partnership deed dated April 1, 1992 and it was in the business of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly relinquished all the rights therein in favour of the transferee, i.e., Shri Narinder Sood and Shri Rajat Sood. In view of considering this agreement to be a genuine agreement, the Assessing Officer was of the view that of section 45(4) are applicable in the assessee's case. He accordingly asked the assessee to explain as to why the capital gains should not be brought to tax. 7. During the assessment proceedings it was submitted on behalf of the assessee that the agreement dated December 7, 1998 was never entered or executed between the parties and the allegations made by Shri Vijay Sood were false. As per the assessee the business and management along with assets and liabilities of the assessee were taken over by the company M/s. Oriental Knit Fab. (P.) Ltd. vide agreement dated April 1, 1999. It was explained that Shri Rajinder Pal Sood, one of the witnesses has referred to the agreements dated April 1, 1999 and to agreement dated December 30, 1999 and that if agreement dated December 7, 1998 was entered, then there was no need for any agreement dated April 1, 1999 and dated December 30, 1999. It was submitted that no cash payment of Rs. 36 lakhs and Rs. 21 lakhs as claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of production of original document before the Income-tax Officer-VI(2), Ludhiana. The Assessing Officer also noted that Shri Vijay Sood duly confessed before the Income-tax Officer-VI(2) that he received cash as mentioned in the agreement and that the said cash was spent in purchase of land, marriage of his daughter and in starting new business in the name and style of Kiron Collection. Though the Assessing Officer observed that Shri Vijay Sood corroborated the utilisation of cash with some documentary evidence, the said documentary evidence has not been discussed in the assessment order. 8. Coming to the applicability of the provisions of section 47(xiii) the Assessing Officer observed that in the case of the assessee the conditions stipulated in sub-clause (xiii)(c) and (xiii)(d) are not fulfilled in the assessee's case. This is so, because the shares of the company floated on account of takeover of the assessee-firm, were not retained for a minimum period of five years as per the law. He, therefore, held that capital gains was chargeable in this case under section 45(4) of the Act. 9. In view of the above, the Assessing Officer worked out the capital gains under the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-firm and that this would become the property of the company. This agreement has also been signed by all the parties and this is stated to be read in supplement to the agreement dated April 1, 1999. He submitted that it is on the basis of these agreements that the land and building pertaining to the assessee-firm was transferred to the said company and that the agreement claimed to have been entered on December 7, 1998, is not genuine at all. As per learned counsel the various conclusions drawn by the Assessing Officer are contrary to the facts and contradictory and that this ignore the following factual and legal position : * The said agreement dated December 7, 1998 was the product of the figment of imagination of Shri Vijay Sood with a view to serve his purpose and to create problems for the appellant-firm and its partners. * The statements and cross-examination of Shri Vijay Sood and the statements of the witnesses recorded by the Deputy Director Income-tax- Investigation-II, and other allied evidence and papers go on to prove that no agreement dated December 7, 1998 was ever executed and no payment in cash as alleged by Shri Vijay Sood has ever been made pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned in the dyeing mill where he and Shri Rajinder Pal Sood met Shri Narinder Sood, Vijay Sood and Rajat Sood. Shri Vijay Jain is also mentioning that he signed the papers for take over by the company of firm and also signed the documents which were got registered through his witness in the court, which clearly refer to the agreement dated April 1, 1999 and agreement dated December 30, 1999 which was got registered. Evidently if the said figures have been arrived at and filled in by one of the witnesses, they should evidently have known the contents of this agreement, which further proves that this agreement never existed and its creation is an afterthought on the point of Mr. Vijay Sood. As regards the ignorance of Shri Vijay Sood to the agreement dated April 1, 1999 for takeover of firm by the company as stated in para 4 of his cross-examination, it is humbly submitted that copy of the said agreement duly signed by all the parties on requisite stamp paper is already on the Department's record. Moreover, Shri Vijay Sood executed an agreement/ deed of transfer along with Shri Rajat Sood and Smt. Meena Sood before the Sub-Registrar, Ludhiana (a Revenue authority) dated December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to be genuine and whereas the agreement dated April 1, 1999 which was on revenue stamp paper and duly registered before the Sub- Registrar, Ludhiana on December 3, 1999 wherein it was executed by Shri Vijay Sood in person, has been rejected without giving reasons. He submitted that the Assessing Officer was not justified at all in observing that the agreement dated April 1, 1999 is a sham or collusive document and it was the brain work of an Income-tax consultant when it is duly signed by the parties and the witnesses and duly registered before the Sub-Registrar. Learned counsel also submitted that the assessee fulfils all the conditions laid down in clause (xiii) of section 47. As per him, therefore, no capital gains whatsoever were chargeable under the provisions of section 45(4) of the Act. In view of the above, learned counsel submitted that the appeal of the assessee might be decided in the light of the above submissions and the grounds of appeal should be allowed. 14. The detailed written submission of the assessee were sent to the Assessing Officer for his comments on each and every point that the assessee had raised. The report of the Assessing Officer, i.e., the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Rajat Sood were forged on this document, no adverse inference could have been validly drawn on this document before showing the original document and without meeting the objection as above. 12. The other important aspect of the case is that in a civil suit filed by Shri Vijay Sood he has requested to treat the agreement dated December 7, 1998 to be null and void. This is apparently done against Shri Rajat Sood. However, on the other hand, Shri Rajat Sood himself is contending that there was no such agreement at all. Therefore, in the face of the factual position, it cannot be conclusively said that the agreement dated December 7, 1998 was actually executed amongst the parties involved. 13. Further as pointed by learned counsel, Shri Vijay Jain and Shri Rajinder Pal Sood are stated to be the witnesses and arbitrators in the document dated December 7, 1998. In none of their statements recorded by the Deputy Director of Income-tax (Investigation) or the Assessing Officer they have confirmed that Shri Rajat Sood paid the amount specified in the said document. Both of them were rather ignorant about the contents of the document. As pointed out by learned counsel in his cross-examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect on the ground that whereas he is stating that after the death of his brother Shri Narinder Sood on May 3, 1999, Shri Rajat Sood started refusing to pay him the balance amount as per the agreement dated December 7, 1998, he himself is saying that Rs. 36 lakhs was paid to him by Shri Rajat Sood on June 30, 1999 and an other Rs. 7 lakhs by cheques thereafter. In view of the above con tradiction, also the statements and contention of Shri Vijay Sood with respect to the agreement dated December 7, 1998 cannot be accepted as it is. I am also in agreement with the contention of learned counsel that if any agreement dated December 7, 1998 had been actually entered, there would not have been any agreement dated April 1, 1999 and agreement dated December 30, 1999. However, as already mentioned, the agreements dated April 1, 1999 and December 30, 1999 are there and copies of the same are on record. These agree ments are signed by Shri Rajat Sood and Shri Vijay Sood along with two witnesses S/Shri Vijay Jain and Rajinder Pal Sood. Rather, agree ment dated April 1, 1999 is also registered before the Sub-Registrar. In the face of these two agreements again the agreement dated December 7, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. 16. In view of the above discussion it has to be held that no con sideration whatsoever has gone to Shri Vijay Sood, the partners of the appellant-firm on the basis of the alleged agreement dated December 7, 1998. It is further to be held that the conditions laid down under section 47(xiii) having been fulfilled in this case, no capital gain is chargeable under the provisions of section 45(4) of the Act. It is held accordingly. 17. In the result, the appeal of the appellant is allowed." 16. The learned Departmental representative relied upon order of the Assessing Officer and referred to the agreement in question dated December 7, 1998 and submitted that all the partners of the assessee-firm signed this agreement. Shri Vijay Sood relinquished his shares in the firm. The report of the Deputy Director of Income-tax, Ludhiana was received against the assessee-firm and none of the parties have denied their signatures. The learned Departmental representative submitted that the conditions of section 47(xiii)(c)(d) have not been satisfied by the assessee in this case because shares of Shri Vijay Sood were not kept for five years, therefore, the capital gain is chargeable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-firm. Further, from the assessment order, it is clear that the agreement dated December 7, 1998 was not at all shown to the assessee in original. The Assessing Officer, while framing the assessment also did not appear to have seen the original agreement himself because he has mentioned in the assessment order that original agreement dated December 7, 1998 have been produced by Shri Vijay Sood during the assessment proceedings in the case of Shri Rajat Sood for the assessment year 2000-01. It was also noted by the Assessing Officer in the assessment order that same could not be confronted to the assessee as Shri Vijay Sood had been reluctant to show it publicly. In view of these serious allegations, it was necessary for the Assessing Officer to bring the original agreement dated December 7, 1998 on record and should have verify the genuineness of the signature and genuineness of the agreement in question. However, nothing has been done by the Assessing Officer as noted above, therefore, when such a document is not confronted to the assessee-firm, no adverse inference could be drawn against the assessee-firm or its partners Shri Rajat Sood and Shri Narinder Sood. The same would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany shall allot fully paid up equity shares at par to each of the partners of the assessee-firm immediately before the transfer/succession as mentioned above. As noted above, this agreement dated April 1, 1999 for handing over entire management and business to a private limited company is signed by all the partners of the assessee-firm and is a registered document before the Registrar. Thus, the genuineness of the signatures on the said agreement and genuineness of the transaction could not be disputed. Further, agreement dated December 30, 1999 was also executed between transferor firm through all its partners (and legal heir of Shri Narinder Sood Smt. Meena Sood) and the transferee company which is also registered document in which also, it was confirmed that entire business and management have been taken over by the private limited company of the assessee-firm with effect from April 1, 1999. All assets and liabilities of the firm have been taken over by the private limited company and all immovable assets would vest in the transferee company. This registered agreement is also signed by Shri Vijay Sood, Shri Rajat Sood and Smt. Meena Sood, w/o. Late Shri Narinder Sood. Shri Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and material on record, correctly held that the agreement dated December 7, 1998 is not valid and genuine agreement. No preference can be given of this disputed agreement against the registered agreements dated April 1, 1999 and December 30, 1999 which have also been admittedly signed by Shri Vijay Sood. In both the registered agreements, the signature of the parties have been admitted but on the agreement dated December 7, 1998, the signatures of two of the partners along with the witnesses have been denied. Thus, no evidence have been brought on record for dissolution of the assessee-firm prior to April 1, 1999 when the entire business of the assessee-firm was taken over by the private limited company. Therefore, there is no transfer of the capital asset so as to invoke the provisions of section 45(4) of the Income-tax Act. The evidence and material on record fully support the findings of the learned Commissioner of Income-tax (Appeals) that it is a case of succession of the assessee-firm by a private limited company through genuine transfer agreement dated April 1, 1999 and subsequent registered agreement dated December 30, 1999. 22. The learned Departmental represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted through any evidence or material on record. Further, the findings of fact recorded by the learned Commissioner of Income-tax (Appeals) under section 47(xiii) have not been challenged by the Revenue Department in the present appeal. It may be noted here again that since on the registered agreements dated April 1, 1999 and December 30, 1999, the business of the assessee-firm was taken over by the limited company which have been signed by Shri Vijay Sood as well on behalf of the firm, therefore, story made up by Shri Vijay Sood later on and accepted by the Assessing Officer, will demolish the entire case of the Revenue. 24. In view of the above discussion, the learned Commissioner of Income- tax (Appeals) has correctly held that no consideration, what-so-ever has gone to Shri Vijay Sood, partner of the assessee-firm on the basis of the alleged agreement dated December 7, 1998. The learned Commissioner of Income-tax (Appeals) also correctly held that the conditions laid down under section 47(xiii) of the Act have been fulfilled in this case. Therefore, no capital gain is chargeable under the provisions of section 45(4) of the Act. Thus, there is no merit in the Departmental's ..... 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