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TMI Blog2017 (5) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal, and without considering the fact that shares were held by partners during A.Y 1986- 87 as found High Court and when there is nothing on record to show that said shares were transferred by partners to appellant firm or when there is nothing on record to prove that the appellant firm was the owner of the said shares on the date of its conversion into stock in trade. (ii) Whether Income Tax Appellate Tribunal was justified in upholding the said conversion merely because it is allowed under the provisions of law without considering the connected facts that the shares were allegedly converted into stock in trade, sold to the partners at a huge loss, conveniently adjusted against huge profits of appellant firm, arising on such conversion, and further when one of those partners to whom 90%of those shares were transferred, sold said shares in the market, earning huge profits that were adjusted against its business loss in construction activities. (iii)" Whether on the peculiar facts and the special circumstances especially on the ground taken herein above Income Tax Appellate Tribunal was right in upholding finding of first appellate order in applying provisions of Section 45 (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des that transferee company (M/s Jaypee Rewa Cement Limited) shall issue at par and allot to the transferor company M/s JPAPL's shareholders in proportion of 75 equity share of Rs. 10/- per share in the transferee company credited as fully paid up for every one fully paid up equity share of Rs. 100/- per share held in the transferor company on such date. Later on M/s Jaypee Rewa Cement Limited changed its name to M/s jaiprakash Industries Limited (hereinafter referred to as JIL). As per this amalgamation scheme, shareholding of Assessee Firm amounted to Rs. 1,37,195,500/-. Assessee after converting its stock of shares of different companies, held as investment into stock-in-trade of business w.e.f 01.01.1990, resulted into surplus of Rs. 11,66,08,127/-. This amount of surplus was credited to the accounts of partners in their profit sharing ratio. Surplus arose on account of the fact that equity shares of M/s JIL was on the date of conversion quoted at Rs. 18.50 per share as against book value of Rs. 10/- per share. 8. Assessing Officer (hereinafter referred to as " A.O") held that action of Assessee to convert share holding which was shown as investment into stock-in-trade was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion allowance, if any, is allocated to the partners, who alone were entitled to set off loss allocated to them in their individual assessment. Once loss can be allocated to the partners, then conversion is also true and in case there is any profit of the registered firm, naturally it has to be allocated to the partners in the same ratio. Thus action of Assessee Firm by crediting the amount of appreciation in shareholding to respective capital account of partners was justified and thus A.O was not justified to take adverse view of the fact. 12. Tribunal then also discussed about assumption on the part of A.O. that entire conversion was to avoid payment of due taxes, and in this regard, in para-61 of judgment, held as under:- " The whole case of the assessee was that by conversion of investment of shareholding into stock-in-trade and subsequent sale of the shares to some of the partners by the assessee was a device to avoid payment of due taxes and it should not be allowed. The explanation of the assessee was that by adopting this method, the assessee and its partners have paid more taxes, otherwise the assessee firm, if allowed to retain the shares as investment and would have so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .75% 16,05,23,423/- TOTAL TAX PAID 16,23,23,023/- Effective rate 64.66% 13. Tribunal thus has said that working given by Assessee has not been challenged by Revenue nor C.I.T (D.R) has pointed out any mistake in the said calculation. In absence of any defect/calculation mistake pointed out by Revenue in this working which was submitted before C.I.T (A), the whole case of Revenue falls and thus the very basis of A.O that Assessee adopted a colourable device to avoid payment of due taxes remains no more alive. 14. Tribunal also considered A.O`s view that after purchase by partners, shares were sold by respective partners at higher prices and they earned more profits. This plea was found without any basis and in para-63 of the judgment, Tribunal has said as under:- " Another point raised by the A.O was that after purchase made by partners, shareholdings was sold by the respective partners at higher prices and they have earned more profits. This plea is again of without any substance. It is admitted fact that the assessee firm has converted its investment into stock-in-trade on 01.01.1990 and valued the share at the market value. The shares have been transferred on 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot purchased shares as only 16 partners out of 18 purchased and that too, not in their profit sharing ratio as explained by Assesses. More that 90% shares were purchased by M/s Siddharth Construction Co. Pvt. Ltd while it was having 41% share in the Assesses Firm. Hence, Section 45 (4) is not attracted. 16. Learned counsel for Revenue repeatedly referred to the findings of A.O to contend that the entire transaction was a device to avoid tax in the same transaction but could not dispute that CIT(A) and Tribunal have considered each and every aspect on which the matter has been examined by A.O. in detail and concurrent findings of fact have been recorded by both appellate authorities that there was no shame transaction as presumed/assumed by A.O. and his finding was clearly incorrect and conjectured. 17. In view of concurrent findings recorded by both the appellate authorities and also considering the fact that learned counsel for Revenue, except of referring to the observation made by A.O could place nothing before us to show that findings recorded by CIT(A) and Tribunal are perverse or incorrect, we find no reason to take a different view then what has been taken by Tribunal. 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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