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TMI Blog2015 (10) TMI 2175X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation becomes part of current year depreciation and is eligible for set off u/s 71. 6. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of write off of sundry debtors which were no longer realisable in the books of the assessee. 7. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of project expenses and deferred revenue expenses written off in the books of accounts." 2. During hearing of this appeal, we have heard, Shri M.C. Naniwadekar, ld. counsel for the assessee and Shri Vijay Kumar Soni, ld. DR. The crux of argument advanced on behalf of the assessee, with respect to grounds 1 to 3 is that the assessee gifted the amount to this private limited company. Section 50B of the Act is not applicable in the case of a gift. Our attention was invited to page 36 of the paper book containing the gift deed by pointing out that it is a registered gift deed on which stamp duty was paid. It was contended that section 50B speaks about slump sale, therefore, in the present appeal, it is not a question of sale but of a gift. Reliance was placed upon the decision in CIT vs Bharat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely Namely Nitin Chandrakant Desai Proprietary concern and Trimitik Construction company on the terms and conditions herein before stipulated." 2.1. In view of the above, clauses in gift deed, the slump gift was claimed to be not taxable, as per section 47 (iii) of the Act, under the head capital gains. In para 3 of the gift deed, it was stated that 'said transferred is for nil consideration in view of the sentimental attachment'. The ld. Assessing Officer raised the following questions:- (i) Can a gift be received by a company (ii) Why the so called slump gift, to the donee company, may not be held as colorable device to escape the provision of taxation under the head capital gains, (iii) Why such an alleged gift, claimed as exempt u/s 47(iii) of the Act, is not covered by provision of section 47(XIV) of the Act, since the condition prescribed u/s 47(XIV) are not complied with, why the transaction may not be regarded as transfer as per section 47(XIV) of the Act, an exclusion clause for cases which are otherwise a transfer, yet have been kept out of the preview of capital gains. 2.2. The ld. Assessing Officer considered the submissions of the assessee as contained in para 4.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gift can be regarded when the donor still has 49% stake in the assets gifted. Therefore, the alleged gift under consideration is sham and colorful tax planning to avoid incidence of tax." 1.3.1. It is further seen that para 3 of gift deed states that the said transfer is for Nil consideration in view of the sentiment attachment. How there can be sentimental attachment to a company which is artificial person and not a living thing: The gift is generally given out of love and affection, but in the case of the assessee there cannot be any love and affection attached to an artificial person created by statute. 1.3.2 Further, the gift has been made by the appellant on 31-12-07 to a company and before the amendment by Finance Act 2010, the company or firm was not recognized to receive a gift as per provisions of section 56(2) of the Act. Thus at the prevalent time when the gift was made by the appellant only Individual or HUF were entitled to be receive a gift. Therefore, so called gift is not recognized in the Act and was not in accordance with provisions of the Gift Tax Act. It is seen that section 2(xviii) of Gift Tax Act, 1958 includes company as a person, and makes a gift as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x is not paid in lieu of this gift but in lieu of transfer of share of by the appellant to RBE. hence. these argument do not have any force and therefore immaterial in case of gift made by the appellant. 1.3.6 The provisions of section 47(xiv) are an exclusion clause for cases which are otherwise a transfer. Since the donor Was absolute owner of NDAW up to 24-7-07 and transfers his 51 % share to RBE and then makes gift to NDAW in which he still has 49% stake is a transfer is covered by exclusion clause u/s. 47(xiv) and hence the appellant is liable to gift tax. Reliance is placed in the case of decision of Chennai Bench of Tribunal reported in [2011] 14 taxman.com 27 (Chennai - Trib.) Where assessee had sold his proprietary concern as a going concern for a consideration to a company, and received consideration by way of allotment of shares of company and retained , more than 51 per cent of shareholding in company for a period of six years, sale transaction was a transfer within meaning of section 47(xiv). Thus the appellant's case is squarely covered by aforesaid decision; hence, there is transfer within exclusion clause of section 47(xiv). The AO has relied in case of Vodafone Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that as on 24/12/2007, the assessee was 100% share holder of NDAW and proprietor of two concern namely Nitin Dessai Chandrakant Dessai and Trimitik Construction Company. The assessee sold/transferred his 50% shares in NDAW to Reliance Big Entertainment (hereinafter in short RBE) on 24/12/2007 and thereafter, transferred asset and liabilities of his two proprietary concerns by way of gift. As per the Revenue, it is a colorable tax planning. Admittedly, the assessee made gift of two concerns to a third person/third concern of which he is still share holder to the extent of 49%, meaning thereby, the assessee is a person, who is making a gift to himself, a company who still bears the name of the assessee and who is a Managing Director of the said company holding 49% share. In view of the uncontroverted fact, the so called gift is nothing but a sham/colorable device/manipulation to avoid taxability of long term capital gain, because, the gift was made by the assessee to a company of which he was 100% owner, before the alleged gift and still ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 2.6. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re having no merit, therefore, dismissed. 3. Now, we shall take up the ground (ground no.4) with respect to not considering that a gift of running business results into succession and confirmation of disallowance and deprecation u/s 32(1) was challenged by the assessee. The crux of argument advanced on behalf of the assessee is identical to the ground raised by contending that if the gift is a sham transaction then what was transferred by the assessee. It was explained that the depreciation was claimed on proportionate basis. On the other hand, the ld. DR, strongly defended the conclusion arrived at in the impugned order. 3.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee, in its computation of total income, claimed depreciation of ₹ 2,03,88,627/-, which was revised during the course of assessment, when the assessee was asked to furnish the details and manner of computation vide order sheet entry dated 14/09/2010. The assessee vide submissions dated 25/11/2010 revised the same to ₹ 1,66,18,172/-, wherein, assessee claimed proportionate depreciation till 31/12/2007, which was subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the material available on record. The facts, in brief, are that in the computation of income, the assessee has set off current years unabsorbed depreciation to the extent of ₹ 37,72,499/- against the head salary income. Pursuance to the query, (vide order sheet entry dated 18/08/2010 and 14/09/2010) as to why the set off of depreciation claimed against the head salary may not be disallowed the assessee vide submission dated 19/10/2010 claimed that it has to be read with section 71(2A) and also section 72 of the Act, which discuses about the treatment to be given to the business loss. Reliance was placed upon the decision in CIT vs Jaipuria Clay Mines Pvt. Ltd. 59 ITR 555, which deals with section 24(2) of the 1922 Act (corresponding to section 72 of the 1961 Act) and section 10(2) of 1922 Act (Corresponding to section 32(2) of the 1966 Act). The ld. Assessing Officer by following the decision in Chandra kumar vs ACIT (2010) 5 ITR (Trib) 540 (Chennai), where the assessee had income by way of salary from spinning mill, income from house property and income from other sources, filed his return of income with reduction towards unabsorbed depreciation, it was held that unabsorb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, on the asset side, without any real value. It was claimed that they are nothing but fictitious asset, therefore, gifting such fictitious and worthless would not have amounted to gift at all. On the other hand, the ld. DR, strongly opposed the contention of the assessee and defended the impugned order. 6.1. We have considered the rival submissions and perused the material available on record. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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