2014 (1) TMI 1268 - AT - Income Tax

Gains arising u/s 41(1) of the Act No amount actually received by the assessee Held that - The order of Hon ble Tribunal in the case of assessee dated 20-12- 2007 is followed which was passed by it subsequent to the order of Tribunal in the case of M/s Hemraj Trading Company - the directions given by the Tribunal to the assessing officer were very clear that only if the amount has been received by the partners of the firm, the same can be taxed in the hands of the assessee - Before assessing officer partners have field affidavits mentioning that no such amount has been received by them which were accepted by assessing officer - Even then he has gone ahead with taxing this amount in the hands of the assessee - the addition made by AO and sustained by Ld. CIT(A) deserves to be deleted - CIT(A) has mentioned that though the sale tax authorities had initially issued sales tax refund in the name of M/s Hemraj Trading Company but the revisionary authorities realized the mistake and demanded back the refund along with the interest from the recipient - The matter was under litigation till the time Ld. CIT(A) passed his order - Therefore in case in between sales tax refund amount is received by the partners, assessing officer will be free to proceed as per law Decided in favour of Assessee.

Summary

Issues involved:
1. Taxability of gains arising under section 41(1) in the hands of the appellant firm.
2. Application of income and transfer of the right to receive a refund through a deed of assignment.
3. Taxability of amounts not actually received by the appellant firm.
4. Disregarding findings of the ITAT in a previous order.

Detailed Analysis:
Issue 1: The appeals were filed against the orders of the Ld CIT(A) regarding the taxability of gains under section 41(1). The assessing officer had taxed the amount in the hands of the appellant firm, leading to a dispute over the applicability of the provision. The ITAT upheld the CIT(A) order in a similar case involving M/s Hemraj Trading Company, setting the stage for further proceedings.

Issue 2: The deed of assignment transferring assets and liabilities to M/s Hemraj Trading Company was a key point of contention. The appellant argued that no evidence existed to show that the sales tax refunds were due at the time of the assignment deed. The CIT(A) confirmed the action of the assessing officer, highlighting a collusive arrangement between the appellant firm and M/s Hemraj Trading Company to avoid tax liabilities.

Issue 3: The primary focus was on whether the sales tax refund amounts received by M/s Hemraj Trading Company should be taxed in the hands of the appellant firm. The CIT(A) upheld the addition made by the assessing officer, emphasizing that the appellant firm had ceased to exist, and any gains under section 41(1) should be taxable in its hands.

Issue 4: The disagreement over the findings of the ITAT in a previous order added complexity to the case. The Tribunal's directions regarding the taxation of the sales tax refund amount if received by the partners of the appellant firm were not followed by the assessing officer. The ITAT, after considering the directions given in the earlier order, ruled in favor of the appellant, directing the deletion of the addition made by the assessing officer and upheld by the CIT(A).

In conclusion, the judgment revolved around the taxability of gains under section 41(1) in the context of a deed of assignment transferring assets and liabilities. The decision emphasized the importance of following tribunal directions and ensuring proper verification of facts before making tax assessments.