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TMI Blog2023 (1) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... her the computation of short term capital gains at Rs.68,86,826/- is in accordance with law and whether the excess over the cost of the building ought to have been taxed as long term capital gains on the facts and circumstances of the case. 3. Whether the Tribunal was justified in law in holding that an amount of Rs.1,47,79,298/- is to be taken as deemed profit on transfer of stock and consequently passed a perverse order on the facts and circumstances of the case. 4. Whether the Tribunal was justified in confirming the disallowance of Rs.53,367/- under Section 14A of the Act on the facts and circumstances of the case. 5. Whether the Tribunal was justified in confirming the disallowance of Rs.3,33,333/- being the disallowance of premium paid on Keymen Insurance Policy taken in the name of the partner of the Appellant firm on the facts and circumstances of the case. 2. Heard Shri. A Shankar, learned Senior Advocate for the assessee and Shri. E.I. Sanmathi, learned Advocate for the Revenue. 3. Brief facts of the case are, assessee, a partnership firm engaged in trading of pipes, tubes and fittings, transferred certain assets and stock to M/s. Evergreen Seamless Pipes and Tube ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction by the Assessing Officer. In that case, the Assessing Officer had not recorded any satisfaction with regard to the genuineness of assessee's claim before invoking the powers under Section 14A read with Rule 8D and quashed the order passed by ITAT. 7. In this case also, the Assessing Officer has not recorded his satisfaction with regard to the suo moto deduction made by the assessee. Therefore, following the authority in Hindusthan Aeronautics Ltd., we are of the view that disallowance of Rs.53,367/- under Section 14A read with Rule 8D of the Rules is not sustainable. 8. Re: Addition under Section 45(4) in respect of: (a) land at Adugodi Rs.54,89,677/- (b) Building Rs.68,86,826; Shri. Shankar submitted that a plot was purchased by one of the partners Shri. Mannon M. Aeranpurwala in the year 1994. The same was deleted from the fixed assets. In response to Assessing Officer's notice, assessee explained that the plot was purchased by the partner, but by mistake, it was not debited in Partner's account. The Firm needed an Office, but could not afford to purchase a plot. The Partner had offered his plot and a construction was put up thereon. Shri. Aeranpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the settled position, Section 45(4) of the Act has no application in this case. Consequently, the addition of Rs.54,89,677/- made by the Assessing Officer under Section 45(4) of the IT Act as long term Capital gains, is not sustainable. 13. It was argued by Shri. Shankar that by applying the same logic, the Assessing Officer has added short-term Capital gains at 30% on the building which was constructed on the plot owned by Shri. Aeranpurwala. 14. For the reasons recorded hereinabove, with regard to the plot, we hold that the addition made by the Assessing Officer on the ground of short-term Capital gains is also not sustainable. We may record that the building in question is situated on the plot in respect of which the Assessing Officer had added long term Capital gains Tax. We have held that the plot belonged to the Partner Shri. Aeranpurwala. By logical corollary, the building thereon, also must belong to him. Hence, the short term Capital gains added by the Assessing Officer is not sustainable. 15. Re-Disallowance of premium on Insurance Policy Rs.3,33,333/- Assessee Firm had taken a Insurance Policy on its Partner Shri. Aeranpurwala. The assessee has held that Shri. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At the same time, a portion of the Premium cannot be disallowed as expenses, because, discontinuance of the policy has occurred due to sale of assets. Therefore, in our considered view, the disallowance of Rs.3,33,333/- being 1/3rd of the premium amount, is not sustainable. 19. Addition of profit margin at 8% on transfer of stock - Rs.1,97,05,731/-. Shri. Shankar, learned Senior Advocate submitted that: * the Assessing Officer has held that transfer of assets in favour of the Private Limited Company at book value was not at arm's length price. The Assessing Officer has arbitrarily determined a net margin at 8% on the transfer price of Rs.24,63,21,641/- and added Rs.1,97,05,731/-. The CIT(A) without addressing the grounds of appeal, has mechanically reduced the margin to 6% resulting in net addition of Rs.1,47,79,298/-; * assessee's firm was transferred on 'as is where is' basis as per 'agreement to sell' dated November 15, 2008 (Annexure-H). Among several assets, one of the asset was Stock-in trade valued at Rs.24,63,21,641/-. 20. In substance, Shri. Shankar's argument is, there is no provision in the Act to make a notional addition. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim to put itself in the arm chair of a Businessman or in the position of the Board of Directors and assume their role to decide. In this case, the assessee - Firm has transferred the Stock-in-trade to the Private Limited Company at book value. The assessee, in its reply to the Assessing Officer, has stated that the end user of the products of the firm are Public Sector Units and other Companies. If the firm offered to sell its whole stock, none of those Companies would be interested to purchase the same if there was no requirement. The firm's products cannot be sold in open market like any other consumer goods or Industrial Hardware on account of its unique usage and specifications which are to be certified by various third party inspection agencies. No dealer would be interested to purchase them as these products can be purchased directly from the manufacturers. The stock could not be sold at a price more than the cost price and therefore, it has been sold at cost price. 25. It is not in dispute that the Stock-in-trade are pipes and tubes made of carbon and alloy steel for Refineries, Boiler industries etc. Therefore, they cannot be sold in the open market as any other consu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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