TMI Blog2023 (10) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 143(3) of the Income Tax Act, 1961 (for short the Act ), learned Assessing Officer held that the assessee having derived capital gains on the sale of shares in MAA TV, devised a colourable transaction of transfer of agricultural land to Smilax Corporate Services LLP at a value less than the cost of acquisition by the assessee, thereby created artificial capital losses to square up the profits and thereby evaded tax. 3. While adverting to the decision of the Hon ble Apex Court in the case of Sunil Siddharthbhai vs. CIT [1985] 23 Taxman 14w (SC), he did not allow the long-term capital loss of Rs. 28,52,66,503/- and set-off of the same with the long-term capital gains of Rs. 24,77,06,773/- claimed by the assessee. As a result, the learned Assessing Officer determined income of assessee at Rs. 27,42,65,913/- as against total income of Rs. 2,65,59,140/- and losses of current year to be carried forward of Rs. 3,75,59,729/-, returned by the assessee. Aggrieved by such an action of the learned Assessing Officer, assessee preferred appeal before the learned CIT(A). 4. Learned CIT(A) by way of impugned order, held that the assessee, having realized the capital gains by sellin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such a transfer is not a genuine one or that it is a colourable device. He further submitted that the learned CIT(A) is not correct in observing that for want of compliance with the stamp and registration requirement, transfer did not take place. It is also his contention that because of unfavourable business conditions, the erstwhile company or the subsequent LLP could not conduct business from 2013 and that cannot be a ground to say that the company/LLP is a fictious entity. 8. By placing reliance on the decision reported in Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), he submitted that once the transaction is genuine, merely because it was entered into with a motive to avoid tax, it would not become a colourable device nor does it earn any disqualification. His submission is that the decision of the Hon ble Apex Court in the case of Sunil Siddharthbhai (supra), has no application to the facts of the case, because, transaction is covered under section 45 of the Act whereas such case is applicable where the transactions are not covered under section 45 of the Act. He further submitted that provisions of section 45(3) of the Act gives ownership of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only a colorable device to evade the tax. She submitted that the circumstances adverted to by the authorities have to be seen not in isolation to each other, but in a holistic way. Individually each circumstance may be innocuous, but when viewed in a comprehensive way, they cut a sorry picture of dubious means to evade tax. She submitted that the conversion of Company into LLP, transfer of land to LLP towards the capital contribution of the assessee, transactions at Fair Market Value were held by various judicial for a to be legally permissible transactions, but the unholy combination of all these factors establish the device to defeat the interests of Revenue. 11. She brought to our notice certain facts like the timing of conversion of the Smilax Corporate Services Pvt. Ltd. into Smilax Corporate Services LLP, transfer of such land by the assessee to Smilax Corporate Services LLP at a value less than the cost of acquisition by the assessee, the fact of assessee holding 98.17% of stake in Smilax Corporate Services Pvt. Ltd. before the transfer of land and her retaining 98.83% of stake in Smilax Corporate Services LLP subsequent to the transfer of share thereby drawing inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances and deal with the legality of the reasons and conclusions. 13. Firstly, according to the learned AR, the transfer of MAA TV shares was to Swapriya Raj Holdings 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. 14. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07 to 2007-08. The value of property in the books of the LLP was shown as Rs. 11.70 crores as against the cost of acquisition of Rs. 19.53 crores, a decade back. It is not as though there was no guidance as to the value of property, except SRO value. The cost at which the assessee acquired the same was serving as guidance as on the date of transfer to LLP. Assessee did not plead or prove any circumstances, much less compelling reasons, to transfer the property to the LLP at almost one fourth of the indexed cost of acquisition which happened to be at Rs. 40,22,66,503/-. The sale of shares was the result of negotiations for over ten months, namely, negotiations started in February, 2015 and the sale took place on 29/12/2015; whereas the element of such negotiations or the operation of the market forces is conspicuously absent in case of value entered in the books of LLP on such transfer. The value was no doubt at Fair Market Value as per SRO value, but there was no need for the assessee to suffer losses at that point of time. At the same time, this particular transfer did not result in any profit-making conduct of business of the Smilax Corporate Services LLP. Except the unfounde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integra and now it is settled that such an instrument is not necessary. To that extent, we disapprove the observations of the learned CIT(A). For that matter, learned Assessing Officer did not take any such ground. 21. Other aspect agitated by the assessee is that when a transaction takes place at Fair Market Value, even if it results in capital loss, it is not for the learned Assessing Officer to question the same and the learned Assessing Officer cannot sit in the chair of the assessee to pass a judgment on the same. We agree with this contention of the assessee, provided the transactions are free from doubt. It shall be kept in mind that the Hon ble Apex Court in the case of Sunil Siddharthbhai vs. CIT [1985] 156 ITR 509 (SC) held that if the transfer of the personal asset by the assessee to a partnership in which she is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham trans ..... 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