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2015 (10) TMI 2175 - AT - Income TaxGifts made - whether transaction resulted into transfer of capital asset u/s 45 giving rise to capital gain? - CIT(A) confirming the application of provisions of Section 50B to the aforesaid gift made by the assessee - Held that - Fact worth mentioning is that in the gift deed dated 31/12/2007, the signatories are the assessee on one part and in second part also the assessee and Ms. Neha Nitin Dessai (as Director of the Company), thus, the donor and the donee, as a signatory, are the same person, thus, gift to himself, under the facts available on record, is quite unjustified. Further, as per para 3 and 6(iii) of the gift deed, it is clearly mentioned that the donor was expanding his business activity to fulfill his personal dreams for creating a world class studio and with that intention, the donor (assessee), transferred the business undertaking along with asset and liabilities. The donor still retains the goodwill of his name for expansion of his business and still is de-facto owner, having 49% shares being Chairman cum MD. So far as the argument of the ld. counsel for the assessee that stamp duty of ₹ 60 lakh was paid, there is uncontroverted finding in the impugned order that the stamp duty was not paid by the donor but by the donee and the capital gain tax was not paid in lieu of this gift but for transfer of share by the assessee to RBE, thus, from this angle also, the assessee is not having a good case. Even otherwise, the provision of section 47(v) of the Act is an exclusion clause for the cases which are otherwise a transfer. Under the present set off facts, the assessee was absolute owner of NDAW upto 24/07/2007 and transferred his 51% shares to RBE and then made the gift to NDAW, in which he still holds 49% stakes, thus, the transfer is covered by exclusion clause u/s 47(XIV) of the Act, consequently, is liable to Gift Tax So far as, computation of capital gain by the Assessing Officer taking the full value of asset at ₹ 23,52,49,025/-, as per section 50B of the Act, there was no valuation in books of the assessee and the valuation made in the case of transferee, on the date of gift is ₹ 23,52,49,025/-, meaning thereby, revalued asset has been transferred and not the book valued asset. It is also noted that the assessee claimed bad debt written off as on 31/12/2007, meaning thereby, the book value of asset and liability, so transferred, has been revalued on the date of transfer in the books of the assessee, thus, the value of consideration, for the purposes of capital gain, has to be at ₹ 23,52,49,025/-. However, the transfer was effected along with liability, therefore, the net worth is to be considered for the purpose of computation of the capital gain u/s 50B of the Act, consequently, the sale consideration would be considered at ₹ 23,52,49,025/-minus liabilities transferred and valued at ₹ 22,26,07,330/-. In view of this position in long term capital gain will be at ₹ 1,26,41,695/-, thus, so far as, taxability of capital gain is concerned, we find no infirmity in the impugned order, in giving direction to the Assessing Officer. So from this angle also, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided against assessee. Depreciation disallowed - not considering that a gift of running business results into succession - Held that - The share holding was reduced to 49% and the assessee was given handsome remuneration. Even otherwise, depreciation is calculated on the written down value of the block of asset. Since, we have affirmed the stand of the ld. Commissioner of Income Tax (Appeals) that the claimed gift is a sham transaction/colorable device for the purposes of capital gains, thus, there is no question of proportionate depreciation. The fifth proviso to section 32(2) applies in case of succession of business as the assessee has transferred 51% share of NDAW on 24/12/2007 to RBE and the transfer was a sham transaction, consequently, there is no succession of business as there was no asset in the balance sheet, therefore, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided against assessee. Disallowance of setting off of unabsorbed depreciation u/s 32 (2), against salary income - Held that - Assessee sold out only part of the business of earlier years meaning thereby, the assessee discontinued his business and the same was not carried on in the current year, further part of the business was transferred by way of alleged gift, therefore, the claim of set off of unabsorbed depreciation of earlier year is not allowable as per the provisions of section 32(2) of the Act as amended w.e.f. 01/04/2002. We are also of the view that set off of unabsorbed depreciation cannot be allowed to be set off against the income from salaries, in view of section 71(2A) of the Act. - Decided against assessee. Disallowance of right off of sundry debts, which were no longer realisable in the books of the assessee - Held that - There is uncontroverted finding in the impugned order that the assessee has gifted/transferred all his asset and liabilities to NDAB as going concern, therefore, the claim of bad debts written off on the pretext that these were written off prior to 31/12/2007 is sham and part of colorful tax planning. We also note that, as claimed by the assessee, during hearing, that asset and liabilities were transferred on 31/12/2007, thus, the sundry debtors of earlier year cannot be written off as bad debts. There is further finding that the details of bad debts ledger and journal copy also shows that these bad debts were written off on 31/12/2007 and even the book entry was passed on 31/12/2007 in the books of the assessee, whereas, such asset and liabilities were transferred on 31/12/2007. We are of the view, the written off indeed should be genuine and bona-fide debt, based on commercial expediency, thus, the decision in DIT vs Oman International Bank SAOG (2009 (2) TMI 54 - BOMBAY HIGH COURT ) supports our view. Since the entire claim of the assessee is a colorable device, therefore, we find force in the argument of the ld. DR - Decided against assessee. Disallowance of preoperative project expenses and deferred revenue expenses written off - Held that - Totality of facts clearly indicates that these expenses are not allowable as the business was transferred as a going concern with all liabilities. Such expenditure are admissible in the year, when they were incurred as per the method of accounting. The assessee has also not brought on record to show that the claimed expenses were crystallized during the year, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). - Decided against assessee.
Issues Involved:
1. Taxability of gifts made by the assessee under Section 45 and applicability of Section 50B. 2. Consideration of net value of assets for capital gains. 3. Disallowance of depreciation claim under Section 32(1). 4. Setting off of unabsorbed depreciation against salary income under Section 71. 5. Disallowance of write-off of sundry debtors. 6. Disallowance of project expenses and deferred revenue expenses. Issue-Wise Analysis: 1. Taxability of Gifts and Applicability of Section 50B: The assessee contended that the gift made to a private limited company should not be considered a transfer of capital asset under Section 45, and thus, Section 50B regarding slump sale should not apply. The Tribunal analyzed the facts, noting that the assessee held 100% shares in the donee company before selling 51% to Reliance Big Entertainment and subsequently transferring all assets and liabilities of his proprietary concerns to the donee company as a gift. The Tribunal concluded that the gift was a colorable device to avoid tax, as the donor retained significant control and shareholding in the donee company. The transaction was deemed a sham and taxable under Section 50B. 2. Consideration of Net Value of Assets: The Tribunal upheld the Assessing Officer's computation of capital gains by considering the full value of assets at Rs. 23,52,49,025, revalued in the books of the donee company. The net worth was calculated by deducting liabilities, resulting in a long-term capital gain of Rs. 1,26,41,695. The Tribunal found no merit in the assessee's argument that Section 50B only applies to slump sales and considers net wealth as per Explanation-1. 3. Disallowance of Depreciation Claim under Section 32(1): The assessee claimed depreciation on a proportionate basis until the date of the gift. The Tribunal rejected this claim, stating that the transaction was a sham and not a genuine succession of business. As the transfer was not recognized as a valid gift, there was no question of proportionate depreciation under the fifth proviso to Section 32(2). 4. Setting Off of Unabsorbed Depreciation Against Salary Income: The Tribunal upheld the disallowance of setting off unabsorbed depreciation against salary income, citing Section 71(2A). The assessee's business was discontinued, and part of it was transferred by way of a sham gift, making the unabsorbed depreciation claim inapplicable. The Tribunal relied on the decision in DCIT vs Times Guarantee Ltd., which held that unabsorbed depreciation from earlier years cannot be set off against income from subsequent years post-2002-03. 5. Disallowance of Write-Off of Sundry Debtors: The Tribunal confirmed the disallowance of write-off of sundry debtors, noting that the assessee transferred all assets and liabilities to the donee company as a going concern. The write-off was deemed a part of the colorable tax planning and not a bona fide claim. The Tribunal emphasized that the write-off should be genuine and based on commercial expediency, which was not the case here. 6. Disallowance of Project Expenses and Deferred Revenue Expenses: The Tribunal upheld the disallowance of preoperative project expenses and deferred revenue expenses written off in the books of accounts. The assessee failed to provide evidence that these expenses crystallized during the year. The Tribunal noted that such expenses are admissible only in the year they were incurred as per the method of accounting followed by the assessee. The claimed expenses were not allowable as the business was transferred as a going concern with all liabilities. Conclusion: The Tribunal dismissed the appeal of the assessee, finding no merit in the grounds raised. The transaction was deemed a sham and a colorable device to avoid tax, and the disallowances made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) were affirmed. The order was pronounced in the open court on 24/09/2015.
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