TMI Blog2016 (3) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... from exemption under section 47(xiii) of the Act. This finding of fact recorded by the learned Commissioner of Income- tax (Appeals) have not been rebutted 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. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of processing and dyeing of yarn/cloths and resale of dyes and chemicals. The partners and their shares in the firm were as under : 1. Vijay Sood S/o Sh. Ram Murti Sood 25% 2. Sh. Narinder Sood S/o do- 25% 3. Sh. Rajat Sood S/o Sh. Narinder Sood 25% 4. Sh. Vijay Sood (HUF) Karta Vijay Sood 25% 4. As per the assessment order, as huge liability of capital gain is attracted in the process of transfer of capital asset by way of distribution of capital asset on the dissolution of the firm, a notice under section 148 was issued on March 24, 2006 and served upon the assessee on March 27, 2006. In response to the queries of the Assessing Officer with regard to capital gains arising on the taking over of the assets of the firm by the private limited company as above, it was contended that no capital gain is chargeable under section 45(4) as it is exempt by virtue of clause (xiii) of section 47 of the Act. As all the relevant conditions laid down therein have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 36 lakhs and ₹ 21 lakhs as claimed to be made by Shri Vijay Sood to him by Shri Rajat Sood as per the agreement dated December 7, 1998 was ever made. Certain contradictions in the statement of Shri Vijay Sood were also pointed out during the assessment proceedings by the assessee to contend that the, alleged agreement dated December 7, 1998 was not a genuine document. The Assessing Officer, however, did not accept the contention of the assessee. He observed that Shri Vijay Sood was having substantial share in the firm of 50 per cent. in his individual and Hindu undivided family capacity and that the business premises of the assessee-firm were located in the prime business place, i.e., Industrial Area A , Ludhiana. The Assessing Officer further observed that a very high value of goodwill is attached to the industrial houses located in this area. As per him, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 provisions of section 45(4) in this case as under : (Rs.) (Rs.) The consideration passing on the transfer of capital assets as per the agreement dated December 7, 1998 as discussed above 2,04,00,000 Less : Index cost of land (13,49,123 x 351/223) 21,23,508 Written down value of other assets 24,13,112 45,36,620 Long-term capital gain 1,58,63,380 10. He added this amount to the total income of the assessee in the assessment year under consideration. 11. The addition was challenged before the learned Commissioner of Income-tax (Appeals) and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the so called agreement. All the allegations are false, without any sub-stratum of factual content. The agreement is only an afterthought of Shri Vijay Sood, who created this false agreement to harass, Shri Rajat Sood and his family members as would be apparent from a consideration of the follow ing facts : Mr. Vijay Sood tried to harass the partners of the appellant-firm at various levels, e.g., by filling a civil suit against for declaration of the agree ment dated December 7, 1998 as null and void whereas the said agreement never existed and upon the replication of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 30, 1999 to give an effect to the terms and conditions of the agreement dated April 1, 1999 for takeover of firm by the company. His act of denying the fact of having signed such an agreement vide para 6 of his cross-exami nation, even after the fact that such an agreement was signed before the Sub-Registrar, Ludhiana, further proves his mala fide and that whatever he is stating is false and the fabrication of the alleged agreement dated December 7, 1998 is just a means to harass the other party and it was never executed and the agreement dated April 1, 1999 is the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore 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 Deputy Commissioner of Income-tax Circle-VI, Ludhiana has been received vide letter No. 317 dated July 11, 2007. In this report the Assessing Officer stated that the agreement dated December 7, 1998 is a genuine document and that, therefore, the action of the Assessing Officer in making the assessment on the basis of this document is fully justified. In this report the Assessing Officer has reiterated that the conditions laid down in provisos (c) and (d) of clause (xiii) of section 47 are not satisfied in the case of the assessee and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-examination before the Assessing Officer Shri Vijay Sood stated that the amounts in the document were writ ten by Shri Vijay Jain, a witness to the said agreement dated Decem ber 7, 1998, after these figures were arrived at by the two witnesses, whereas both witnesses in their statements before the Deputy Direc tor of Income-tax (Investigation)-II, Ludhiana have shown their igno rance about the contents of the agreement. It is also to be noted that Shri Vijay Jain in his witness has said that the documents were signed in the dyeing mill wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1998 does not appear to be a valid and genuine agree ment. 14. Coming to the applicability of section 45(4), as per clause (xiii) of section 47 of the Act no capital gain is chargeable to tax under sec tion 45(4), if the following four conditions are satisfied : (11) As per clause (xiii) of section 47 of the Income-tax Act 1961, 'any transfer of a capital asset or intangible asset by a firm to a com pany as a result of succession of the firm by a company in the busi ness carried on by the firm is not regarded as a trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 the matter. 17. On the other hand, learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that agreement in question dated December 7, 1998 is a forged document and the assessee and its partners have denied signature thereon. The agreement for taken over on April 1, 1999 and dated December 30, 1999 are genuine documents. The witnesses to the agreement dated December 7, 1998 have denied the contents of the same. The other agreement dated April 1, 1999 and December 30, 1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 also not be admissible in evidence against the interest of the assessee-firm as well as its partners. It is also interesting to note that Shri Vijay Sood filed a civil suit making a prayer that agreement dated December 7, 1998 is null and void. This suit for declaration was filed against the assessee Shri Rajat Sood only. It would mean that Shri Vijay Sood himself did not place reliance upon the agreement dated December 7, 1998. Shri Rajat Sood has been claiming since beginning that there were no such agreements executed be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 Vijay Sood has never disputed the contents of this registered document through any evidence or material on record. Therefore, on the face of these registered documents on record, no reliance could be placed on unregistered disputed agreement dated December 7, 1998. 20. It is also important to note here that when entire management and business of the assessee-firm was taken over by the company and as per agreement dated April 1, 1999, the transferee company allotted fully paid up equity shares to all the partners of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 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 representative further contended that conditions of section 47(xiii)(c)(d) have not been satisfied by the assessee. However, on going through the same provisions as reproduced in the findings of the learned Commissioner of Income-tax (Appeals), we are of the view that conditions of section 47(xiii) have been fulfilled by the assessee in this case. The facts of the case clearly support the findings of the learned Commissioner of Income-tax (Appeals) that there was a transfer of capital asset or intangible asset by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 appeal, the same is accordingly dismissed. 25. In the result, the Departmental's appeal is dismissed. I. T. A. Nos. 286 of 2008 and 287 of 2008 26. Both the Departmental's appeals are directed against the different orders of the learned Commissioner of Income-tax (Appeals)-II Ludhiana dated January 17, 2008 for the assessment years 1999-2000 and 2000-01 in which the Revenue challenged the deletion of additions of ₹ 21 lakhs and ₹ 23,50,000 on account of income from undisclosed sour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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