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TMI Blog2015 (8) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be seen is whether explanation of the assessee is a reasonable explanation or not. In our considered view, for the detailed reasons set out the explanation of the assessee so far as non taxability of capital gains, even if that be so, on dissolution of partnership firm was a reasonable explanation which ought to have been accepted. As regards the disallowance of vehicle repairs, miscellaneous, printing and stationery expenses.for want of complete supporting evidence, such a disallowance cannot be reason enough to impose concealment penalty under section 271(1)(c). Not only that the assessee has an explanation for this claim but the explanation has been substantially accepted inasmuch as the disallowance is only for a small portion of the expenses. In view of this fact, as also bearing in mind entirety of the case, it was not a fit case for imposition of penalty on this count either. Thus it is a fit case for deletion for the impugned penalty - Decided in favour of assessee. - ITA No. 285/Asr/2012 - - - Dated:- 2-6-2015 - Pramod Kumar, AM And A. D. Jain, JM,JJ. For the Petitioner : Tarun Bansal For the Respondent : Tarsem Lal ORDER Per Pramod Kumar, AM. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, observed as follows: 3. As already concluded in the assessment order, the firm was dissolved on 19.02.2006 and the assets of the firm were taken over by Smt. Neelam Ralhan one of the partner as proprietor. Subsequently, the land under the Sheller building was sold by Smt. Neelam Ralhan on 24.01.2007 for a sum of ₹ 33,13,50/- against the book value of ₹ 42,628/-. Being a clear cut case where the provision of section 45(4) were attracted, during the assessment proceedings, the assessee firm was called upon to explain as to why the long term capital gain arising on the date of dissolution i.e., 19.02.2006 should not be charged to tax in the hands of the firm. The stand of the assessee that it was case of change of constitution and not dissolution of firm, in the facts of the case, was rejected and adopting the fair market value of ₹ 33,13,500/- for which the land was subsequently sold the long term capital gain was computed at ₹ 31,01,639/- after allowing the cost of ₹ 42,628/- as per book value and further increased to ₹ 2,11,861/- after indexation. It is gathered from records that no appeal has been filed by the assessee disputing the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of section 45(4) of the Act capital gains arose in the case of firm on the dissolution of the partnership. However, in the case of CIT vs. Moped Machines (supra), relied upon by the ld. AR, the Hon'ble High Court have held that when a firm consisted of only two partners, and on the death of one partner the other partner continues the business it would not be taken to be a case of dissolution. The Hon'ble High court have held that a transfer u/s. 2(47) of the Act was difficult to conceive under these circumstances. It has also been contended by the appellant that no particular mentioned in the return has been found to be incorrect and that all the facts were disclosed by the appellant upfront. It is seen that section 45(4) of the Act brings to tax the capital gins arising from the transfer of the capital asset by way of distribution of capital assets on the dissolution of the firm or other body as income of the previous year in which the transfer takes places. Thus, the requirements for attracting section 45(4) are there should be dissolution of firm and there should be distribution of the asset of the firm on dissolution. In the present case, a dissoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the CIT(A). When this matter travelled before Hon'ble Delhi High Court, Their Lordships confirmed the stand so taken by the Tribunal and put the seal of approval on the school of thought that there could not be a taxation of capital gain even on dissolution of a partnership firm as the partnership firm ceases to exist. Learned CIT(A) was thus clearly in error when he rejected assessee's reliance on Moped Machines (supra) decision on the ground that when surviving partners were aware of the dissolution, and accepting it in writing, the reliance on (this decision) for contending that there was no dissolution can only be an afterthought . In the line of reasoning approved by Their Lordships, the fact of dissolution was relegated to insignificance by the fact that, as held therein, transfer takes place after transferor ceases to exists and, therefore, capital gains could not be brought to tax. The underlying reason for giving relief in this case did not, as we have seen in the preceding paragraph, much to do with dissolution aspect. The decision of Thermoflics (supra), which was relied upon by the Tribunal in this case, was also a case in which dissolution had taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st April, 1988 will not make any difference. This subsection, before its omission provides exemption from capital gains tax in respect of distribution of capital assets on the dissolution of the firm, body of individuals or AOP. However, as we have held that the distribution of assets on the dissolution of firm is not Transfer so as to make the assessee liable for capital gains tax. Therefore, when the assessee is not liable to capital gains tax, there is no necessity for claiming any exemption under s. 47(2). 8. Let us, in this light, take a look at the scheme of Section 271(1)(c). The scheme of s. 271(1)(c visualizes imposition of penalty when the assessee has concealed income or when the assessee has furnished inaccurate particulars of income. In addition to these two situations, penalty can also be imposed, inter alia, when assessee is deemed to have concealed particulars of income under Expln. 1 to s. 271(1)(c). This Explanation provides that the assessee will be deemed to have concealed particulars of income where in respect of any facts material to the computation of the total income of any person under this Act, (i) when the assessee fails to provide an explanation, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were approved by the Hon'ble Supreme Court in the case of CIT vs. Mussadilal Ram Bharose [(1987) 165 ITR 14 (SC)] wherein Their Lordships, inter alia, observed that The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted. We agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact-finding body. 10. What is thus really required to be seen by the authorities below was there was an explanation offered by the assessee which could be acceptable to a fact finding body and whether such an explanation could be said to be a bonafide explanation. We find that the explanation of the assessee is supported by the decisions of the Tribunal in Thermoflic's case (supra) and by Hon'ble Delhi High Court in Moped and Machine's case (supra). The explanation is not only an acceptable explanation but it has been indeed accepted, on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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