ACIT, Faridabad v. M/s Central Hospital & Research Centre,, Faridabad

ITA 3882/DEL/2012 | 2008-2009
Pronouncement Date: 31-07-2013 | Result: Allowed

Appeal Details

RSA Number 388220114 RSA 2012
Assessee PAN AAEFC7937Q
Bench Delhi
Appeal Number ITA 3882/DEL/2012
Duration Of Justice 1 year(s) 3 day(s)
Appellant ACIT, Faridabad
Respondent M/s Central Hospital & Research Centre,, Faridabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2013
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 31-07-2013
Date Of Final Hearing 13-05-2013
Next Hearing Date 13-05-2013
Assessment Year 2008-2009
Appeal Filed On 27-07-2012
Judgment Text
IN THE INCOME TAX APPELLATE TR IBUNAL (DELHI BENCH B: NEW DELHI) BEFORE SMT. DIVA SINGH JUDICIA L MEMBER AND SHRI T. S. KAPOOR ACCOUNTANT MEMBER ITA NO.4174/DEL/2012 (ASSESSMENT YEA R: 2008-09) CENTRAL HOSPITAL & RESEARCH CENTRE VS. ACIT PLOT NO. 69 SECTOR-20A CIRCLE-1 AJRONDA CHOWK FARIDABAD FARIDABAD AAEFC7937Q (APPELLANT) (RESPONDENT) ITA NO. 3882/DEL/2012 ACIT VS. CENTRAL HOSPITAL & RESEARCH CENTRE CIRCLE-1 PLOT NO. 69 SECTOR-20A FARIDABAD AJRONDA CHOWK FARIDABAD AAEFC7937Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA ROHIT JAIN ADV. DEEPASHREE RAO CA REVENUE BY : DR. SUDHA KUMARI CIT DR ORDER PER DIVA SINGH JUDICIAL MEMBER: THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND R EVENUE AGAINST THE ORDER DATED 28 TH APRIL 2012 OF CIT(A) FARIDABAD PERTAINING TO 2008- 09 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS:- ITA 4174/DEL/2012 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRE D ON FACTS AND IN LAW IN AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN ASSESSING RS .12 32 35 145 AS 'LONG-TERM CAPITAL GAINS' ON ACCOUNT OF ALLEGED DISTRIBUTION OF CAPITA L ASSETS BY THE APPELLANT-FIRM OTHERWISE THAN ON DISSOLUTION UNDER SECTION 45(4) O F THE INCOME-TAX ACT 1961 ('THE ACT'). 1.1 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING/ CONCLUDING THAT ON RECONSTITUTION OF THE PARTNERSHI P FIRM THE PARTNERSHIP ASSETS WERE ITA NOS.4174 &3882/ DEL/2012 2 CONVERTED INTO INDIVIDUAL ASSETS OF THE RETIRING PA RTNERS WHICH CONSTITUTE DISTRIBUTION OF ASSETS OTHERWISE THAN ON DISSOLUTION FALLING UNDER SECTION 45(4) OF THE ACT. 1.2 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IN THE ABSENCE OF TRANSFER OR DIS TRIBUTION OF ANY 'CAPITAL ASSET' BY THE APPELLANT-FIRM PROVISIONS OF SECTION ~5(4) OF THE A CT WERE NOT ATTRACTED AT ALL. 1.3 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DISREGARDING THE MATERIAL FACT THAT THE OWNERSHIP AS WELL AS POS SESSION OF THE LAND ALWAYS REMAINED WITH THE APPELLANT-FIRM AND CONSEQUENTLY THE PROVI SIONS OF SECTION 45(4) OF THE ACT WERE NOT ATTRACTED. 1.4 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN FURTHER FAILING TO APPRECIATE THAT THE TWO CONTINUING PARTN ERS HAD INFACT PURCHASED SHARE OF THE FOUR RETIRING PARTNERS BY PAYMENT OF AMOUNT STANDIN G TO THEIR CREDIT IN RESPECTIVE CAPITAL ACCOUNTS OUT OF THEIR OWN INDIVIDUAL RESOURCES AND HENCE THERE WAS NO TRANSFER WHATSOEVER BY THE APPELLANT-FIRM. 1.5 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) E RRED ON FACTS AND IN LAW IN DISREGARDING THE FACT THAT THE CHARGEABILITY OF CA PITAL GAINS IF ANY WOULD ARISE ONLY IN THE HANDS OF THE RETIRING PARTNERS FOR CONSIDERATIO N RECEIVED IN CONSEQUENCE OF RELINQUISHMENT OF THEIR RIGHTS IN THE ASSETS OF THE APPELLANT FIRM. 2. WITHOUT PREJUDICE THE COMMISSIONER OF INCOME-T AX (APPEALS) ERRED ON FACTS AND IN LAW IN DISMISSING THE APPELLANT'S ALTERNATE PLEA OF RES TRICTING THE AMOUNT OF CAPITAL GAINS TO RS.8 77 92 897 (BEING THE AMOUNT ACTUALLY RECEIVED BY THE RETIRING PARTNERS) UNDER SECTION 45(4) OF THE ACT. ITA NO. 3882/DEL/2012 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. C!T(A) HAS ERRED ON FACTS AND IN LAW IN ALLOWING THE STATUS OF THE ASSESSEE A S OF PARTNERSHIP FIRM WHEREAS NO FIRM WAS IN EXISTENCE FOR THE PERIOD 25.08.2007 TO 24.10 .2007. WHILE DOING SO LD. C!T(A) HAS OVERLOOKED THE FOLLOWING VITAL FACTS:- (A) AS ADMITTED BY THE ASSESSEE NO RETIREMENT DEE D WAS EXECUTED SO THE MOU DATED 24.08.2007 IS TO BE TREATED AS RETIREMENT DEED. (B) AS PER TERMS OF MOU THE RETIREMENT OF THE FOU R PARTNERS HAS TO BE TAKEN AS ON 24.08.2007 AND NOT ON EXECUTION OF A PARTNERSHIP DE ED DATED 25.10.2007 TO WHICH THE RETIRING PARTNERS WERE NOT THE PARTIES. (C) THERE WAS NO PARTNERSHIP DEED BETWEEN THE REMA INING PERSONS DR. SANJEEV GUPTA AND DR. VIBHA GUPTA FOR THIS PERIOD AND LEAST ANY CHANGE IN CONSTITUTION OF THE ERSTWHILE FIRM. . IN VIEW OF ABOVE FACTS THERE WAS NO FIRM IN EXIS TENCE FOR THE PERIOD FORM 25.08.2007 TO 24.10.2007 THE STATUS HAS TO BE CONSIDERED AS AOP FOR THIS PERIOD.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. C!T(A) HAS ERRED ON FACTS AND IN IN DIRECTING THE AO TO ALLOW SET OFF OF BUSINESS LOSS INCURRED DURING' THE YEAR AGAINST THE LONG TERM CAPITAL GAIN/INCOME OF THE FIRM DURIN G THE YEAR WHEREAS THE SAME IS NOT ALLOWABLE IN THE LIGHT OF THE FOLLOWING FACTS:- (A) LOSSES FOR THE PERIOD 01.04.2007 TO 24.08.2007 PERTAINS TO OLD FIRM WHICH WAS NOT IN EXISTENCE W.E.F. 25.08.2007 HENCE CANNOT BE ADJUSTED AGAINST LONG TERM CAPITAL GAINS DETERMINED FOR THE YEAR UNDER CONSIDERATION A ND WOULD ALSO NOT BE ALLOWED TO BE CARRIED FORWARD IN NEW FIRM WHICH WAS CONSTITUTED W .EJ. 25.10.2007. ITA NOS.4174 &3882/ DEL/2012 3 (B) LOSSES FOR THE PERIOD 25.08.2007 TO 24.10.2007 DETERMINED IN THE STATUS OF AOP CAN BE ADJUSTED ONLY AGAINST THE INCOME OF AOP AND HENC E CANNOT BE ADJUSTED AGAINST. LONG TERM CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION. THE STATUS OF AOP WAS ENDED W.E.F 24.08.2007 SO WOULD ALSO NOT BE ALLOWED TO BE CARRI ED FORWARD IN THE NEW FIRM WHICH WAS CONSTITUTED W.E.F. 25.10.2007. (C) LOSSES FOR THE PERIOD 25.10.2007 TO 31.03.2008 RELATES TO NEW FIRM CONSTITUTED WITH TWO ERSTWHILE PARTNERS HAVING 30% SHARE OF PROFIT HENCE CANNOT BE ADJUSTED AGAINST LONG TERM CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION .' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. C!T(A) HAS ERRED FACTS AND IN IN DELETING THE DISALLOWANCE OF RS.3 00 000/ - THOUGH THE DEDUCTION CLAIMED IS NOT ADMISSIBLE U/S 36(1)(VII) OF THE ACT BECAUSE THE CONDITION OF SUB-SECTION 2 OF SECTION 36 OF THE ACT HAVE NOT BEEN FULFILLED AND NO EVIDENCE HAS BEEN FURNISH ED IF THE DEBT OR PART THEREOF WAS TAKEN INTO ACCOUNTING IN COMPUTING THE INCOME OF THE ASSE SSEE 4. 'THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL.' 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSE SSEE DECLARED LOSS OF 4 38 06 887/- BY WAY OF FILING ITS RETURN AND FRING E BENEFITS WERE SHOWN RS.1 65 480/- HOWEVER AS PER THE COMPUTATION OF TOT AL INCOME FURNISHED DURING THE ASSESSMENT PROCEEDINGS THE LOSS FROM BUSINESS WERE SHOWN AT RS.2 98 85 411 AND AN UNABSORBED DEPRECIATION AT RS.1 39 21 476/-. 2.1 THE ASSESSEES CASE WAS TAKEN FOR SCRUTINY UND ER THE CASS SCHEME AS SUCH NOTICE U/S 143(2) WERE ISSUED. A PERUSAL OF THE AS SESSMENT ORDER SHOWS THAT AS PER THE AUDIT REPORT IN FORM NO-3 CD THE NAMES OF THE F OLLOWING PARTNERS ALONG WITH SHARE OF PROFITS WERE MENTIONED: 3.1 AS PER AUDIT REPORT IN FORM NO. 3CD THE NAME S OF PARTNERS AND THEIR SHARE OF PROFITS IS MENTIONE D AS UNDER:- QRG ENTERPRISES LTD. 70% DR. SANJEEV GUPTA 15% DR. VIBHA GUPTA 15% 2.3. THE ASSESSING OFFICER HOWEVER REFERRING TO T HE DETAILS OF THE PARTNERS AND THEIR SHARE OF PROFIT AS ON 1/4/2007 OBSERVED THAT THE FOLLOWING PARTNERS WITH THEIR SHARE OF PROFITS WERE MENTIONED: A) DR. PUNITA HASIJA 16.66% B) DR. ANOOP CHOPRA 16.67% C) DR. LALIT HASIJA 16.66% D) DR. SANJEEV GUPTA 16.67% ITA NOS.4174 &3882/ DEL/2012 4 E) DR. VIBHA GUPTA 16.67% F) DR. SANGITA CHOPRA 16.67% 2.3. THE ASSESSING OFFICER OBSERVED THAT AS PER INF ORMATION DISCLOSED IN NOTE NOS- 4 & 5 FORMING PART OF THE BALANCE-SHEET IT WAS OBVI OUS THAT THE ASSESSEE HAD REVALUED ITS LAND ONLY BECAUSE PARTNERS HOLDING MAJORITY SHA RE OF 66.67% WENT OUT OF THE FIRM AND MOU WAS EXECUTED ON 24/8/2007 AND A NEW PARTNER SHIP DEED WAS EXECUTED ON 25/10/2007 AND A NEW PARTNER WITH 70% SHARE WAS ADM ITTED NOTE NO-4 & 5 REFERRED TO BY THE A.O ARE REPRODUCED AS UNDER:- 3.3 NOTE NO.4. DURING THE YEAR UNDER REVIEW PARTNERS HOLDING MA JORITY STAKE (HOLDING 66.66%) RETIRED AND NEW PARTNERS WITH MAJORITY STAKE (HOLDI NG 70%) ENTERED W.E.F 25/10/2007. NOTE NO.5 DURING THE YEAR UNDER REVIEW BOTH RETIREMENT OF OL D PARTNERS AND MAJORITY STAKE (HOLDING 66.67%) AND JOINING OF NEW PARTNERS WITH M AJORITY STAKE (HOLDING 70%) TOOK PLACE AT MARKET VALUE OF THE PROJECT. TO GIVE EFFECT TO THE ABOVE GOODWILL OF THE FIRM WAS CALCULATED AND LAND WAS ALSO REVALUED AT ITS CURRENT MARKET VALUE. NECESSARY ADJUSTMENTS HAS BEEN MADE IN BOOKS TO GIV E EFFECT TO ABOVE. 2.4. THE A.O TOOK NOTE OF THE FACT THAT IN THE MOU DATED 24/8/2007 BETWEEN DR. SANJIV GUPTA AND DR. VIBHA GUPTA (PARTY NO.1) A ND DR. ANOOP CHOPRA DR. SANGITA CHOPRA AND DR. LALIT HASIJA AND DR. PUNEET HASIJA (PARTY NO-2) THE FOLLOWING TERMS WERE AGREED TO:- A. IN SO FAR AS THE BUSINESS OF PARTNERSHIP IS CONCERN ED THE PARTIES AGREE THAT THE HOSPITAL WOULD BE RUN BY THE PARTIES OF IST PART AN D PARTIES OF THE IIND PART WOULD RETIRE SUBJECT TO THE FULFILLMENT OF THE OTHER TER MS AND CONDITIONS BY THE PARTY OF THE IST PART AS LAID DOWN IN THIS MOU. B. THE PARTIES AGREE THAT AFTER MAKING A PROVISION FOR ALL THE LIABILITIES OF HOSPITAL TOWARDS THE VENDORS/SUPPLIES/CONTRACTORS/GOVT. LIAB ILITIES ETC(WHICH ACCORDING TO THE PARTIES OF THE IST PART COMES TO RS.15-16 CRORE S INCLUDING THE TOTAL OUTSTANDING PAYABLE TO THE BANK/FINANCIAL INSTITUTIONS) THE CU RRENT NET WORTH OF THE HOSPITAL COMES TO BETWEEN RS.16-17 CRORES. C. PARTIES AGREE THAT THE CURRENT VALUE OF THE SHARES OF THE PARTIES OF THE IIND PART COLLECTIVELY COMES TO RS.8.85 CRORES ( RUPEES EIGHT CRORES AND EIGHTY FIVE LACS ONLY) TO WHICH THE PARTIES OF THE IIND PART HAVE AG REED TO ACCEPT AS THE CONSIDERATION FOR RELINQUISHING THEIR SHARE OF 66.6 6% OF THEIR SHARE IN THE PARTNERSHIP. IN ADDITION PARTIES OF THE 1ST PART H AVE AGREED THAT AN AMOUNT OF ITA NOS.4174 &3882/ DEL/2012 5 RS.I.80 CRORES( RUPEES ONE CRORE AND EIGHTY LACS ON LY) IS TO BE PAID TO SHRI JITENDER DHINGRA AGAINST THE BORROWINGS BY THE HOS PITAL/SUPPLIES WHICH DURING THE COMMISSIONING OF THE HOSPITAL/ SUPPLIED. IN ALL A SUM OFRS.10.65 CRORES IS TO BE PAID TO THE PARTIES TO THE IIND PART (RS.8.85 CR ORES) AND ABOVE SAID SHRI JATINDER DHINGRA AND GEETANAJALI DHINGRA ( RS. I .8 0 CORES) AFORESAID . D. PARTIES OF THE 1ST PART UNDERTAKE TO MAKE THE AB OVE PAYMENTS TO THE PARTIES OF THE IIND PART AND AFORESAID SHRI JITENDER DHINGRA AS A GREED HEREINABOVE TOWARDS THEIR FULL AND FINAL PAYMENTS. F. PARTIES OF THE 1ST PART AGREE AND UNDERTAKE TO M AKE THE ABOVE PAYMENTS TO THE PARTIES OF THE IIND PART AND SHRI JATINDER DHINGRA AND SMT. GEETANAJLI DHINGRA IN THE FOLLOWING MANNERS:- SR. NO. PAYMENT TO PARTY PAYMENT TO SHRI TOTAL.AMOUNT. DUE DATE OF THE IIND PART JATINDER DHING RA & OF PAYMENT SMT. G EETANJLI DHINGRA 1. 1.00 CRORES 0.50 CRORES 1.50 CROR ES 24/08/07 2. 1.00 CRORES 0.50 CRORES 1.50 CRORES 03/09/07 3. 1.50 CRORES 0.50 CRORES 2.00 CRORES 24/09/07 4. 5.35 CRORES 0.30 CRORES 5 .65 CRORES 24/10/07 THE ABOVE SCHEDULE OF PAYMENT IS TO BE FOLLOWED STR ICTLY HOWEVER SUBJECT TO A GRACE PERIOD OF NOT MORE THAN 5 DAYS FROM THE DATE OF THE CHEQUE DATE. UNDER NO CIRCUMSTANCES THE LAST PAYMENT WOULD BE EXTENDED B EYOND 29/1 0/07 I.E. 5 (FIVE) DAYS FROM THE LAST DATE I.E. 24/10/07. IT IS FURTHE R AGREED THAT SUCH GRACE PERIOD WOULD NOT AFFECT THE UNDERSTANDING THAT TIME IS THE ESSENCE OF CONTRACT. PARTIES TO THE 1ST PART HAVE PAID A SUM OF RS.L.00 CRORES ( RU PEES ONE CRORE ONLY) TO THE PARTY OF THE IIND PART AND 0.50 CRORES (RUPEES FIFT Y LAKHS ONLY )TO SHRI JATINDER DHINGRA AND SMT. GEETANJALI DHINGRA TODAY UPON TH E SIGNING OF THE MOU AND AGREE AND UNDEL1AKE TO SECURE THE BALANCE PAYMENTS THROUGH POST DATED CHEQUES AND IN TOKEN OF THEIR UNDERTAKING HAD GIVEN THE FOL LOWING CHEQUES TO THE PARTIES OF THE IIND PART AND SHRI JATINDER DHINGM AND GEETANJA LI DHINGRA AFORESAID:- DATE OF CHEQUE CHEQUE NOS. AMOUNT DRAWN ON HDFC BANK SECTOR 16 FARIDABAD. 03/09/07 440335 12.50 LACS DR. ANOOP CHOPRA 03/09/07 440336 12.50 LACS DR. SANGITA CHOPRA 03/09/07 440337 12.50 LACS DR.LALIT HASIJA 03/09/07 440338 1 2.50 LACS DR. PUNITA HASIJA 03/09/07 440339 50 .00 LACS SH. JATINDER/ GEETANJLI 03/09/07 440340 25 .00 LACS DR.ANOOP CHOPRA & DR.SANGITA CHOPRA 03/09/07 440341 25.0 0 LACS DR. LALIT HASIJA & DR.PUNITA HASIJA ITA NOS.4174 &3882/ DEL/2012 6 24/09/07 434044 12.50 LACS DR. ANOOP CHOP RA 24/09/07 434045 12.50 LACS DR. SANGITA CH OPRA 24/09/07 440342 12.50 LACS DR. LALIT HASI JA 24/09/07 440343 12.50 LACS DR. PUN ITA HA SIJA 24/09/07 440344 50.00 LACS SH. JATINDER /G EETANJLI 24/09/07 440345 50.00 LACS DR.ANOOP CHOPRA & DR.SANGITA CHOP RA 24/09/07 440346 50.00 LACS DR.LALIT HASIJA & DR.PUNITA HASIJA 24/10/07 434046 25.00 LACS DR. ANOOP CHOPR A 24/10/07 434047 25.00 LACS DR. SANGITA CHO PRA 24/10/07 440347 25.00 LACS DR. LALIT HASIJA 24/10/07 440348 25.00 LACS DR. PUN ITA HASI JA 24/10/07 434048 10.00 LACS SMT. GEETANJLI D HINGRA 24/10/07 434049 217.50 LACS DR.ANOOP CHOPRA & DR.SANGITA CHOPRA 24/10/07 440349 217.50 LACS DR.LALIT HASIJA & DR.PUNITA HASI JA 24/1 0/07 434050 20.00 LACS SH. JATINDER/GEE TAJALI GRAND TOTAL RS.9.15CRORES ( RUPEES NINE CRORES AN D FIFTEEN LAKHS ONLY) G. PARTIES OF THE IIND PART AGREE THAT ALL THE PAYM ENT IF NOT EFFECTED THROUGH THE ABOVE CHEQUES WOULD BE MADE IN THE PRESENCE OF ALL THE P ARTIES OF THE ILND PART AND IN THE ABSENCE OF WITNESS MENTIONED LATER IN THIS PARA. IN CASE THE PAYMENTS ARE MADE UNDER/THROUGH ANY OTHER MODE OF PAYMENT THE SAME S HALL BE MADE AND ACKNOWLEDGED ONLY IN THE COLLECTIVE PRESENCE OF SHRI ANIL ARORA SHRI R.K. HASIJA SHRI P. K. BEHL SHRI PARAMJIT SINGH SHRI J. P. GUPTA. SHRI VIPIN G UPTA AND SHRI M.K.GUPTA AND IN CASE THE PAYMENT IS MADE THROUGH ANY OTHER MODE TH E CHEQUE WOULD BE RETURNED SIMULTANEOUSLY IN THE PRESENCE OF THE ABOVE WITNESS ES. ANY TENDER OF MONEY OR RECEIPT/ACKNOWLEDGMENT IN SUCH EVENT WOULD NOT BE VALID UNTIL SIGNED BY THE ALL THE WITNESSES MENTIONED HEREIN. THE PARTIES TO THE 1ST AND IIND PART HAVE AGREED TO THE ABOVE CONDITION AND CLARIFY THAT THAT NO TENDER WOU LD BE VALID WITHOUT THEIR SIGNING AS WITNESSES UNLESS THE PAYMENT IS EFFECTED THROUGH T HE CHEQUES ALREADY SUBMITTED AT THE TIME OF SIGNING OF THIS MOU. IN CASE ALL THE WITNE SSES ARC NOT PRESENT TOGETHER THE ABOVE CONDITION CAN BE RELAXED UPTO ABSENCE OF TWO WITNESSES. ACCORDINGLY IT IS AGREED THAT NO PAYMENTS WOULD BE DEEMED VALID UNLESS AND U NTIL ATLEAST (5) FIVE WITNESSES FROM THE PERSONS NAMED ABOVE ARE PRESENT AND WITNES S THE PAYMENT. ALL THE WITNESSES HAVE CONSENTED AND HAVE SHOWN THEIR WILLINGNESS TO BE PRESENT AT THE T IME AND DATE COMMUNICATED AS ABOVE OR SUCH DATE AND TIME AS MAY BE COMMUNICATED TO THEM BY THE PARTIES. IT IS FURTHER AGREED THAT THE PLACE OF THE PAYMENTS WOULD BE THE DR. BHARATI GUPTA'S EYE CENTRE B.K.CHOWK N.I.T. FARIDABAD. H. PARTIES AGREE THAT THE ABOVE PAYMENTS WOULD BE MADE STRICTLY AS PER SCHEDULE AND ANY FAILURE TO PAY OR NON-PAYMENT OF ANY PART P AYMENT INCLUDING DISHONOR OF ANY OF THE CHEQUES WOULD RENDER THIS MOU AS INVALID N ULL AND VOID AND INEFFECTIVE AND THE ITA NOS.4174 &3882/ DEL/2012 7 AMOUNTS PAID UNDER THE MOU WOULD STAND FORFEITED R EGARDLESS WHETHER SUBSTANTIAL PAYMENTS HAVE BEEN MADE. IN CASE OF DISHONOUR OF AN Y CHEQUE GIVEN UNDER THE MOD THE PARTY OF THE RIND PART WOULD GIVE A WRITTEN NOT ICE OF 5 DAYS ONLY FOR MAKING THE PAYMENT AGAINST THE DISHONORED CHEQUE . 1. IT SHALL BE THE LIABILITY OF THE PARTIES OF THE SECOND PART TO SIGN A RETIREMENT DEED UPON FULL AND FINAL PAYMENTS BEING MADE AS MEN TIONED ABOVE SUBJECT TO THE CONDITION THAT THE PARTIES TO THE FIRST PART WHO W OULD CONTINUE AS PARTNERS IN THE SAID BUSINESS/HOSPITAL WOULD UNDERTAKE ALL LIABILITIES OF THE HOSPITAL WHETHER DIRECT OR INDIRECT WHETHER CONTRACTUAL OR STATUTORY( STATE G OVT. OR CENTRAL GOVT.) WHETHER FINANCIAL OR OTHERWISE DISCLOSED OR HIDDEN AND ARIS ING OUT OF ANY TRANSACTION DONE IN THE NAME OF THE HOSPITAL OR OTHERWISE WITHIN THE KNOWLEDGE OF THE PARTIES OF THE ILND PART OR NOT. BESIDES THE PARTIES OF THE 1ST PART WOULD ALSO TAKE OVER ALL THE LIABILITIES OF LOAN VENDORS SUPPLIERS CONTRACTORS OUTSOURCING AGENCIES ETC. AND FURTHER ENSURE THAT THE PARTIES OF THE IIND PART WOULD BE KEPT SECURED AND INDEMNIFIED AGAINST ALL CLAIMS/LIABILITIES ETC. ARISING OUT OF ANY TRANSACT IONS DONE IN THE NAME OF THE HOSPITAL. SHOULD THERE BE ANY LIABILITY IMPOSED UPON THE PART IES OF THE IIND PART IN RELATION TO THE WORKING OF THE HOSPITAL LOANS AND ADVANCES OBTAINE D ANY LEGAL CLAIMS TAXES RECOVERIES ETC. PERTAINING TO THE HOSPITAL ALL THE LIABILITIES WOULD BE MET WITH BY THE PARTIES OF THE 151 PART WITHOUT ANY LIABILITY OVE R THE PARTIES OF THE IIND PART. IT WOULD BE THE SOLE RESPONSIBILITY OF THE PARTIES OF THE 1ST PART TO GET THE PERSONAL PROPERTIES OF THE PARTIES OF THE IIND PART RELEASED FROM THE MORTGAGE/LIEN OR GUARANTEE ETC. AND CANCELLATION OF PERSONAL GUARANT EES GIVEN BY THE PARTIES OF THE IIND PART EITHER BY MAKING ENTIRE PAYMENT TO THE SYNDIC ATE BANK BALLABGARH OR BY SUBSTITUTION OF FRESH SURETIES/SECURITIES/GUARANTEE S AT THEIR OWN LEVEL OR SUCH OTHER PERMISSIBLE MEANS AS MAY BE FOUND PRACTICABLE. THE PARTIES OF THE 1ST PART WOULD ALSO UNDERTAKE ALL LIABILITIES BY SIGNING! EXECUTING ALL THE NECESSARY DOCUMENTS/ UNDERTAKINGS ETC. IN FAVOUR OF THE BANK AND IT SHAL L ALSO BE LIABILITY OF THE PARTIES OF THE 1ST PART TO SATISFY THE BANK AND ENSURE SUCH RELEAS E OF THE COLLATERAL SECURITIES GIVEN BY THE PARTIES 0FTHE LIND PART AT THEIR OWN LEVEL. IN THE EVENT OF THE CURRENCY/CONTINUATION OF THE LOAN ARRANGEMENTS WITH SYNDICATE BANK BALLA BGARH THE PARTIES OF THE 1ST PART WOULD ALSO ENSURE FRESH SURETIES/ SECURITIES/GUARAN TEES AT THEIR OWN LEVEL. IT IS CLEARLY UNDERSTOOD AND UNDERTAKEN BY THE PARTIES OF THE 1ST PART THAT MERE PAYMENT OF AMOUNTS UNDER THE PRESENT MOU WOULD NOT BE COMPLETE COMPLIA NCE UNDER THE PRESENT MOU UNLESS THE PERSONAL PROPERTIES/GUARANTEES/COLLATERA L SECURITIES OF THE PARTIES OF THE LIND PART ARE GOT RELEASED FROM THE LIEN/MORTGAGE/ ENCUM BRANCES/ CHARGES OR GUARANTEE(S) GIVEN TO THE BANK AGAINST THE LOAN(S)/FINANCIAL ARR ANGEMENTS WITH THE BANK/ FINANCIAL INSTITUTION. AS AGREED EXPRESSLY THE RETIREMENT DE ED WOULD BE SIGNED AT THE TIME OF MAKING FULL AND FINAL PAYMENT SUBJECT HOWEVER TO T HE CONDITION THAT THE RETIREMENT WOULD BE REMAIN SUSPENDED UNTIL AND UNLESS THE RELE ASE/DISCHARGE OF THE PARTIES OF THE IIND PART AND THEIR PERSONAL PROPERTIES FROM THE GU ARANTEES/SECURITIES/SURETIES FROM THE BANK/FINANCIAL INSTITUTION IS COMPLETED AND TITLE P APER. ARE HANDED OVER TO THE PARTIES OF THE IIND PART. IT IS FURTHER AGREED THAT THIS ARRAN GEMENT WOULD NOT COVER THE PERSONAL LOANS OF THE PARTIES OF THE IIND PART IF ANY AND THE PERSONAL LOANS WOULD BE PAID BY THE INDIVIDUAL PARTNERS BEFORE THE RELEASE . ITA NOS.4174 &3882/ DEL/2012 8 J. PARTIES AGREE THAT THE PAYMENT OF ABOVE NET AMOU NTS TO THE PARTIES OF THE LIND PART HAVE BEEN WORKED OUT AFTER CONSIDERING ALL LIABILIT IES STATUTORY OR OTHERWISE ALL OUTSTANDING AND DUES PAYABLE BY THE HOSPITAL. THE P ARTIES OF THE IIND PART WOULD NOT BE LIABLE FOR ANY OF THE DUES OF THE HOSPITAL UNDER A NY CIRCUMSTANCES WHATSOEVER. HOWEVER AFTER THE FULL AND FINAL PAYMENT TO THE PARTIES OF THE IIND PART: AND SHRI JATINDER DHINGRA AND SMT. GEETANJLI DHINGRA THE PARTIES OF THE IIND PART WOULD NOT BE LEFT WITH ANY SHARE WHATSOEVER IN THE HOSPITAL AND WOULD RETIRE ACCORD INGLY SUBJECT HOWEVER TO THE CONDITION THAT THE PERSONAL PROPERTIES/SURETIES/GUA RANTEES OF THE PARTIES OF THE IIND PART LYING MORTGAGED WITH THE SYNDICATE BANK BALLABGARH WOULD BE GOT RELEASED FROM THE BANK AS DETAILED HEREINABOVE . K. FAILING ANY PAYMENT OR ANY PART THEREOF UNDER THIS MOU THE PARTIES OF IIND PART WOULD CONTINUE TO BE PARTNERS AND IN ADDITION ENTI TLED TO FORFEITURE OF ALL OR ANY AMOUNTS PAID UNDER THE PRESENT MOU. SIMILARLY IF THE PARTI ES OF THE SECOND PART FAIL TO PRESENT THE CHEQUE OR TO ACCEPT THE PAYMENT IN THE PRESENCE OF THE WITNESSES MENTIONED HEREINABOVE THE SECOND PARTY WOULD BE DEEMED TO HA VE RETIRED SUBJECT HOWEVER TO THE OTHER CONDITIONS OF THE MOU AND THEIR RIGHT TO CLAI M AND APPROPRIATE ABOVE PAYMENTS/BALANCE WOULD REMAIN UNAFFECTED. IT IS FUR THER CLARIFIED THAT SUBJECT TO THE FULL AND FINAL PAYMENTS BEING MADE AND RELEASE OF THE SU RETIES AS DETAILED HEREINABOVE IF THE PARTIES OF THE SECOND PART FAIL TO SIGN OR EXECUTE THE RETIREMENT DEED THE PRESENT MOU WOULD BE TREATED AS A RETIREMENT DEED. L. PARTIES OF THE IIND PART WOULD SIGN ALL PAPERS REQUISITE FOR THE EFFECTING THE CHANGES IN THE RECORD OF THE REGISTRAR OF FIRMS AND SOCIETIES AND OTHER CONCERNED AUTHORITIES AFTER THE COMPLETION OF ALL THE OBLIGATIONS BY THE PARTIE S OF THE 1ST PART. M. PARTIES TO THE PRESENT MEMORANDUM OF UNDERSTAN DING HAVE UNDERTAKEN TO BIND THEMSELVES WITH THE TERMS AND CONDITIONS SET FORTH HEREINABOVE AND FURTHER UNDERTAKE NOT TO CHALLENGE OR DISPUTE THE TERMS RECORDED HEREINAB OVE. THE PARTIES OF THE 1ST PART WOULD RETURN ALL THE CHEQUES UNUSED ON THE DATE OF FREEZING OF ACCOUNT AND CO-SIGNED BY THE PARTIES OF THE IIND PART AND WOULD ENSURE THEIR CAN CELLATION IN THE PRESENCE OF THE PARTIES OF THE IIND PART. BESIDES IT IS ALSO AGREED AND AC CEPTED BY THE PARTIES THAT THEY HAVE ENTERED INTO THIS UNDERSTANDING ON THE EXPRESS COND ITION THAT IF ANY MISUSE OR CHEQUE/DOCUMENTS ETC. IS FOUND TO HAVE TAKEN PLACE THE PRESENT UNDERSTANDING WOULD FAIL WITHOUT ANY LIABILITY ON THE PARTIES OF THE IIND PA RT. IT HAD BEEN ASSURED BY THE PARTY OF THE FIRST PART THAT THEY DO NOT HAVE ANY BANK SIGNE D CHEQUE OR PAPERS AS APPREHENDED BY THE PARTY OF THE SECOND PART NOR HAVE THEY MISUSED ANY CHEQUE OR BLANK PAPER. IT IS FURTHER AGREED THAT THE PARTY OF THE 1ST PART WOULD BE LIABLE FOR ALL THE CONSEQUENCE FINANCIAL OR PENAL IN ANY SUCH EVENT. N. PARTIES AGREE THAT CHEQUES BOOKS PERTAINING TO ALL THE BANK ACCOUNTS OF THE HOSPITAL BEING OPERATED UNDER THE CO-SIGNATURES OF THE PARTN ERS AMONGST FROM THE PARTIES OF THE IIND PART WOULD BE RETURNED FORTHWITH BY THE PARTI ES OF THE 1ST PART WITH DUE AND CLEAR UNDERTAKINGS TO BE BANK AS TO CANCELLATION OF THE C HEQUES. IF ANY CHEQUE IS USED ALL LIABILITIES ARISING OUT OF THE SAME WOULD REST WITH THE PARTIES OF THE 1ST PART. ITA NOS.4174 &3882/ DEL/2012 9 O. THE PARTIES HAVE FURTHER AGREED AND ACCEPTED TH AT THE PRESENT MEMORANDUM OF UNDERSTANDING HAS BEEN CONDITIONALLY AGREED UPON BY THE PARTIES WITHOUT PREJUDICE TO THEIR RIGHTS IN THE EVENT OF THE FAILURE OF THE PAR TIES TO CONCUR WITH OR ACT UPON AS PER THE TERMS AND CONDITIONS OF THE RETIREMENT DEED TO BE SIGNED BY THE PARTIES OF THE IIND PART. WOULD FALL WITHIN THE BROADER FRAMEWORK OF THIS MOU . P. ALL THE PARTIES HAVE DEARLY UNDERSTOOD THE TERMS AND HAVE AGREED UPON THE SAME WITHOUT ANY COERCION PRESSURE OR MISREPRESENTATION . THIS MOU REPRESENTS FULL AND FINAL SETTLEMENT OF THE PARTIES AND SUBJECT TO THE FAITHF UL COMPLIANCE OF THE TERMS AGREED UPON HEREIN NO PARTY SHALL BE ENTITLED TO GO BEYOND THE SAME. AFTER THE COMPLETE FULFILLMENT OF THE TERMS AND CONDITIONS BOTH THE PARTIES SHALL HA VE NO DISPUTE/CLAIM WHATSOEVER AGAINST EACH OTHER AND THEY WOULD NOT FILE OR PROSE CUTE ANY PROCEEDINGS EVEN IF PENDING AT THE TIME OF MOU. Q. PARTIES AGREE THAT THE PRESENT MOU IS SIGNED IN TH E PRESENCE OF THE PANCHAYTNAMA DATED 20 TH AUGUST 2007 AND THE SAME WOULD BE TREATED AS THE PART AND PARCEL OF THE PRESENT OF THE PRESENT MOU. SHOULD T HERE BE ANY CONFLICT IN TERMS OF THE PRESENT MOU AND THE PANCHYATNAMA THE PRESENT MOU W OULD PREVAIL. 2.5. FROM PERUSAL OF THE ABOVE IT WAS CONCLUDED THA T IT CLEARLY SHOWED THAT THE PARTIES OF THE IIND PART HAD RELINQUISHED THEIR RI GHTS IN THE FIRM FORTHWITH I.E WITH IMMEDIATE EFFECT ON PAYMENT OF CONSIDERATION PART LY IMMEDIATELY AND BALANCE BY POST DATED CHEQUES AND THE BUSINESS WAS TAKEN OV ER BY THE PARTY OF THE IST PART. HOWEVER SINCE NO DEED OF PARTNERSHIP WAS EXECUTED BETWEEN THE REMAINING PARTNERS WHO ARE HUSBAND AND WIFE AND A NEW PARTNER SHIP WAS EXECUTED BY DEED OF PARTNERSHIP DATED 25/10/2007 WHEN A NEW PARTNER WAS INTRODUCED WITH 70% SHARE OF PROFIT WITH 30% PROFIT OF SHARE REMAINING WITH DR. SANJIV GUPTA AND DR. VIBHA GUPTA. CONSEQUENTLY IT WAS CONCLUDED THAT I T IS EVIDENT THAT DURING THE PERIOD 24/8/2007 THERE WAS NO FIRM IN EXISTENCE AND THE ACCOUNTS HAD NOT BEEN PREPARED FOR THE PERIOD 1/4/2007 TO 24/8/2007 24/8 /2007 TO 25/10/2007 AND 25/10/2007 TO 31/3/2008 NO SEPARATE BOOKS OF ACCOUN TS FOR THE PERIOD WERE AVAILABLE. THE A.O OBSERVED THAT INSTEAD ACCOUNTS HAD BEEN PREPARED FOR THE PERIOD 1/4/2007 TO 31/3/2008 AND GROSS LOANS OF RS. 3 21 20 284/- HAD BEEN APPORTIONED BETWEEN SIX PARTNERS FOR THE PERIOD 1/4 /2007 TO 24/10/2007 AT ITA NOS.4174 &3882/ DEL/2012 10 RS.1 82 88 776/- AND BALANCE LOSS OF RS.1 38 31 50 8/- AND TAKEN TO BALANCE SHEET AS ON 31/3/2008. 2.6. ACCORDINGLY THE A.O ISSUED THE SHOW CAUSE NO TICE ON 6/12/2010 WHICH HAS BEEN EXTRACTED IN THE ASSESSMENT ORDER ITSELF A T PAGES 7 TO 9. ON A PERUSAL OF THE SAME IT IS SEEN THAT THE AO OBSERVED THAT THE BOOKS OF ACCOUNTS WERE NOT RELIABLE AS THE PROFIT AND LOSS FOR THE SEPARATE PE RIOD I.E 1/4/2007 TO 24/8/2007 24/8/2007 TO 24/10-/2007 AND 25/10/2007 TO 31/3/200 8 ON ACCOUNT OF DISSOLUTION OF THE ORIGINAL PARTNERSHIP AND FORMATION OF THE NE W PARTNERSHIPS WERE NEITHER SEPARATELY SHOWN NOR DETERMINABLE AND THE BOOKS OF ACCOUNTS AS SUCH WERE NOT CORRECT AND RELIABLE AND THE AFFAIRS WERE MADE UP ACCOUNTS AND THERE COULD BE A HIDDEN AGREEMENT BETWEEN THE PARTNERS WHICH HAS NOT BEEN DISCLOSED AS SUCH THE ASSESSEES ARGUMENTS THAT THE ASSESSEES STATUS BE CONSIDERED AS A FIRM WAS NOT ACCEPTABLE AS THE CONDITIONS OF SUB SECTION (1) (2) (3) AND (4) OF SECTION 184 WERE HELD TO BE NOT FULFILLED AND HOLDING THAT THE ASSESSEES ACCOUNT WERE NEITHER CORRECT NOR COMPLETE ALSO NOT GENUINE THE AO CONVE YED HIS INTENTION TO INVOKE THE PROVISIONS OF SECTION 184 (S) RELYING ON SECTIO N 188 AND ALSO INVOKE SECTION 145(3) AND MAKING ASSESSMENT U/S 144. BEING OF THE VIEW THAT SEPARATE ASSESSMENT WAS REQUIRED TO BE MADE IN VIEW OF THE R ELINQUISHMENT BY THE FOUR PARTNERS AS PER THE MOU HE REQUIRED THE ASSESSEE T O EXPLAIN WHY THE PROVISIONS OF SECTION 45(4) WERE ALSO ATTRACTED. THE VALUE OF THE ASSETS OF THE GOOD WILL OF THE ASSESSEE AS PER VALUATION OF THE ASSESSEE ITSEL F WAS HELD TO BE NOT CORRECT. FURTHER REFERRING TO THE FACT THAT AS PER FORM NO. 3CD CONSULTANCY CHARGES HAVE BEEN PAID TO SHRI SANJIV GUPTA AND DR. VIBHA GUPTA OF 41 65 605/- AND 26 00 549/- AND NOTHING HAD BEEN PAID TO THE OTHER PARTNERS DESPITE THE FACT THAT PARTNERSHIP DEED DATED 26 TH MAY 2003 MENTIONED THAT ALL THE PARTNERS WERE WORKING PARTNERS JUSTIFICATION FOR PAYMENT TO DR. S ANJIV GUPTA AND DR. VIBHA GUPTA WAS ALSO REQUIRED. ITA NOS.4174 &3882/ DEL/2012 11 2.7. IN REPLY TO THE DETAILED SHOW CAUSE NOTICE ISS UED BY THE A.O THE ASSESSEE ALSO MADE A DETAILED REPLY WHICH IS EXTRACTED IN PA RA NO.7 AT PAGES 9 TO 12 OF THE ASSESSMENT ORDER. A PERUSAL OF THE SAME SHOWS THAT REFERRING TO THE MEMORANDUM OF UNDERSTANDING (MOU) DATED 25/8/2007 IT WAS STATED THAT THE CONCLUSION OF THE A.O THAT THE FOUR PARTNERS HAVE R ETIRED FROM THE PARTNERSHIP FIRM ON 24/8/2007 VIDE MOU DATED 24/8/2007 WAS NOT CORRECT. IT WAS STATED THAT THE PARTIES HAD EXCITED ON 25/10/2007 AND DUE TO A DISPUTE AMONGST THE PARTNERS A FORMAL RETIREMENT DEED COULD NOT BE EXECUTED. THE ASSERTION OF THE AO THAT THE ACCOUNTS ARE MADE UP AFFAIRS AND NOT GENUINE IT WAS SUBMITTED WAS NOT CORRECT AS SINCE THE PARTNERS RETIRED ON 25/10/2007 IT WAS STA TED THE PROFIT AND LOSS FOR THE YEAR WAS ALLOCATED BETWEEN TWO PERIODS FROM 1/4/200 7 TO 24/10/2007 AND 25/10/2007 TO 31/3/2008. ATTENTION WAS INVITED TO CLAUSE 7 OF THE PARTNERSHIP DEED DATED 26/5/2003 TO JUSTIFY ITS STAND AS SUCH I T WAS SUBMITTED THAT SUB SECTIONS (1) (2) (3) & (4) OF SECTION 184 ARE NOT ALLOCATED. FOR READY REFERENCE WE REPRODUCE THE RELEVANT PORTION FROM THE ASSESSME NT ORDER:- 3.02.01.(I) THE CLAUSE (7) OF THE DEED O/PARTNERSH IP DATED 26/05/2003 READS AS UNDER:- A) 10% OF NET PROFIT WILL BE PROVIDED FOR FUTURE EX PANSION AND REPLACEMENT OF FIXED ASSETS. B) 50% OF THE NET PROFIT TO HE DISTRIBUTED AMONGST THE SIX PARTNERS EQUALLY AS AN INVESTMENT SHARE. C) 40% OF NET PROFIT TO BE FURTHER DISTRIBUTED TOWA RDS ACTIVE PARTICIPATION AS A WORKING SHARE OF PARTNERS AS UND ER:- PARTY OF THE IST PART TO 5TH PART 17.50% E ACH PARTY OF THE 6TH PART 12. 50% (II) THAT AS PER THE ABOVE CLAUSE THE PROFITS OF B USINESS WERE TO BE DISTRIBUTED AS UNDER:- A) 50% OF PROFITS AMONGST 6 PARTNERS EQUALLY- 8.333 % B) 40% OF PROFIT AMONGST PARTNERS OF FIRST TO FIFTH PART- 7% AND PARTNERS OF SIXTH PART- 5% (III) THUS THE FIRST 5 PARTNERS WERE TO BE ALLOCAT ED @ 15.333% AND THE 61H PARTNER WAS TO BE ALLOCATED AT 13.333% (IV) THAT BALANCE 10% WAS TO BE KEPT IN RESERVE FOR FUTURE EXPANSION. 3.02.02 THE ASSESSEE FIRM HAS ALLOCATED LOSSES AS U NDER:- ITA NOS.4174 &3882/ DEL/2012 12 S.NO. 1. 50% OF LOSSES 40% OF LO SSSES 100% LOSS ALLOCATED 8.33% 7% 17.037%(100* 15.33/90) 2. 8.33% 7% 17.037%(100* 15.33/90) 3. 8.33% 7% 17.037%(100* 15.33/90) 4. 8.33% 7% 17.037%(100* 15.33/90) 5. 8.33% 7% 17.037%(100* 15.33/90) 6. 8.33% 5% 14.815%(100* 13.33/90) 3.02.03. THAT IN THE AUDIT REPORT THE RATIO HAS B EEN MENTIONED EQUALLY WHILE THIS IS NOT CORRECT AS PER THE TERMS OF PARTNERSHIP DEED. 3.02.04. THAT THE BALANCE IN REVALUATION RESERVE OF RS.133169000/- WAS DISTRIBUTED IN THE FOLLOWING RATIOS CALCULATED AS UNDER:- S.NO. NAME OF PARTNER TOTAL LOSS ALLOCATE D AMOUNT. (RS.) 1. DR. SANJEEV GUPTA 17.037% 22688052/- 2. DR. VIBHA GUPTA 17.037% 22688052/- 3. DR. ANOOP CHOPRA 17.037% 22688052/- 4. DR. SANGEETA CHOPRA I7.037% 22 688052/- 5. DR. LALIT HASIJA 17.037% 22688052/- 6. DR. PUNITA HASIJA 14.815% 19728741 /- 100% 1331690 00/- 3.02.05THAT AS ALLEGED THERE IS NO HIDDEN AGREEMENT AND THE ASSESSEE FIRM IS A GENUINE FIRM. 3.03(I) THAT AS STATED ABOVE THERE IS NO DISCREPAN CY AND ALL THE CONDITIONS LAID DOWN IN SECTION 1 2 3 4 OF SECTION 184 ARE FULFILLE D AND THE FIRM IS A GENUINE FIRM AND SHOULD BE ASSESSED AS SUCH. (II) THAT SINCE THE ACCOUNTS HAVE BEEN PROPERLY MAI NTAINED AND ARE DULY AUDITED THE FRAMING OF THE ASSESSMENT U/S 144 IS W RONG INCORRECT AND AGAINST THE PROVISIONS OF THE INCOME TAX ACT 1961 AND TO I NVOKE THE PROVISIONS OF SECTION 184(5) IS AGAINST THE FACTS AND BAD IN LAW. (III) HOWEVER THE ASSESSEE FIRM HAS MADE THE FOLLO WING PAYMENTS TO PARTNERS. CONSULTANCY CHARGES TO THE FOLLOWING PARTNERS AS RE PORTED IN ANNEXURE I OF FORM 3CD:- DR. SANJEEV GUPTA- RS.4165604/ DR. VIBHA GUPTA - RS.2600549/- 2.8. IT WAS FURTHER STATED THAT THE ASSESSEE HAS BE EN MAINTAINING CORRECT AND COMPLETE ACCOUNTS AND HAS BEEN FOLLOWING THE MERCAN TILE SYSTEM OF ACCOUNTING. THE ACCOUNTS ARE AUDITED AND DULY SUPPORTED BY THE VOUCHERS AND RECORDS AND ITA NOS.4174 &3882/ DEL/2012 13 STATED TO BE VERIFIABLE. ACCORDINGLY THE PROVISIO NS OF SECTION 187 AND 188 IT WAS STATED ARE NOT APPLICABLE AS THE FIRM WAS IN EXISTE NCE FROM 24/8/2007 TO 24/10/2007 AND THEREAFTER THE CONSTITUTION CHANGED IN TERMS OF THE DEED OF PARTNERSHIP DATED 25/10/2007. IT WAS SUBMITTED THA T IN THE FIGURES REFERRED TO IN THE MEMORANDUM OF UNDERSTANDING WHICH WERE ESTIMATE D FIGURES AND THE EXACT VALUATION RESULTING IN CHANGE OF RETIRING PARTNERS SHOWN FROM 8.85 CRORES TO 87792897/- WAS MINOR AS SUCH THERE IS NO DIFFERENC E IN THE FIGURES IN THE ESTIMATED FIGURES AND THE ACTUAL FIGURES. SIMILARL Y IT WAS STATED THAT THE PROVISIONS OF SECTION 45(4) WERE NOT APPLICABLE ON ACCOUNT OF THE FACT THAT (A) THERE WAS NO TRANSFER OF ANY ASSET AS THE ASSESSEE FIRM MERELY REVALUED THE LAND AS WOULD BE EVIDENT FROM THE SCHEDULE OF FIXED ASSET(A S PER ANNEUXRE-1) AND THE LAND REMAINED IN THE OWNERSHIP OF THE FIRM BOTH BEF ORE REVALUATION AND AFTER REVALUATION; (B) THAT THE AMOUNT OF REVALUATION RES ERVE AFTER ADJUSTING THE LOSSES HAS BEEN CREDITED TO ALL THE PARTNERS INCLUDING THE RETIRED PARTNERS THUS THERE WAS NO TRANSFER; AND (C) THAT THE ASSESSEE FIRM HAD NOT TRANSFERRED ANY RIGHTS IN THE LANDS TO THE RETIRING PARTNERS. THUS IT WAS SUBMIT TED THAT SINCE THERE WAS NO CHANGE IN OWNERSHIP AND NO TRANSFER IS INVOLVED THE PROVISIONS OF SECTION 45(4) WERE NOT APPLICABLE. THE CONSULTANCY CHARGES PAID T O DR. SANJIV GUPTA AND DR. VIBHA GUPTA IT WAS STATED WERE AS PER AUDIT REPORT IN FORM NO. 3CD AND SINCE OTHER PARTNERS DID NOT RENDER ANY SERVICES IN THE M EDICAL FIELD NO AMOUNT WAS PAID AS CONSULTANCY DR. SANJIV GUPTA AND DR. VIBHA GUPTA IT WAS STATED WERE BOTH DOCTORS AND WERE INCOME TAX ASSESSEES AND THE PAYMENTS WERE MADE TO THEM FOR RENDERING SPECIFIC SERVICES TO THE ASSESSE E FIRM AND HAS BEEN PAID IN THE ORDINARY COURSE OF BUSINESS AS SUCH SHOULD BE ALLOW ED. 2.9. THE A.O WAS NOT CONVINCED WITH THE EXPLANATIO N OF THE ASSSESSEE. RELYING UPON THE PARTNERSHIP DEED DATED 26/5/2003 HE HELD THAT PROFIT SHARING AS SET OUT IN THE DEED COULD RESULT ONLY IF PROFITS HA D BEEN AVAILABLE AND SHARE OF ITA NOS.4174 &3882/ DEL/2012 14 PROFIT TO BE DISTRIBUTED EQUALLY WAS REPORTED BECAU SE THEY WERE NO PROFIT AND LOSSES OF PARTNERSHIP OF 10% PROFIT TO BE APPLIED F OR FURTHER EXPENSES ETC AND 40% FOR NET PROFIT TO BE DISTRIBUTED TOWARDS ACTIVE PAR TICIPATION COULD NOT BE IMPLEMENTED. OBSERVING THAT THE HOSPITAL WAS BEING RUN ON LOANS RAISED FROM BANK THE ASSESSEE FIRM WAS SHOWING LOSSES WHICH WER E NOT DEBITED TO THE PARTNERS CAPITAL ACCOUNT AND HAD IT BEEN APPORTION ED EQUALLY IT WAS CONCLUDED THE ENTIRE CAPITAL OF THE PARTNERS WOULD HAVE BEEN ERODED AND DESPITE THIS FACT THE AO OBSERVED THE FOUR PARTNERS AS PER THE MOU WERE G IVEN RS.8 77 92 897/- AGAINST RS.8.85 CRORES. THE EXPLANATION CALLED FOR TH OF THE ASSESSEE WAS NOT ACCEPTED AS IT WAS NOT A CASE OF CHANGE IN CONSTITU TION AND CAPITAL GAINS U/S 45(4) WAS HELD TO BE ATTRACTED. CONSIDERING THE MOU AND THE PARTNERSHIP DEED DATED 25/10/2007 THE PROFITS AND LOSSES OF THE CORRECT PE RIODS WERE HELD TO BE NOT DISCLOSED. THE AO ALSO DID NOT ACCEPT THE EXPLANAT ION OF THE ASSESSEE EXPLAINING THAT THE RETIREMENT DEED WAS NOT EXECUTED BY THE SE COND PARTY DUE TO DISPUTE BETWEEN THE PARTNERS AS THE ASSESSEE HAD FAILED TO POINT OUT THE NATURE OF THE DISPUTE. ACCORDINGLY IT WAS CONCLUDED THAT THE FOU R PARTNERS HAVE RETIRED FROM 28/10/2007 AND NONE OF THE FOUR OUTGOING PARTNERS W ERE ENTITLED TO SHARE THE PROFIT AND LOSS AS THEY HAD NO LOCUS STANDI IN THE BUSINESS AFTER THAT DATE AND THE PROFIT AND LOSS WAS TO BE DETERMINED FOR 3 SEPARATE PERIODS I.E 1/4/2007 TO 24/8/2007; 25/8/2007 TO 24/10/2007 AND 25/10/2007 T O 31/3/2008. ACCORDINGLY FOR THE PERIOD 25/8/2007 TO 24/10/2007 THE STATUS W AS CONSIDERED AS AOP. THE AO FURTHER REFERRING TO CLAUSE 9 OF THE PARTNERSHIP DEED DATED 26/5/2003 FAULTED THE INDUCTION OF NEW PARTNER AS PER PARTNERSHIP DEE D DATED 25/10/2003. THE SAID CLAUSE STIPULATED AS UNDER:- THAT NO OUTSIDER CAN BE ADMITTED TO PARTNERSHIP WIT HOUT THE UNANIMOUS CONSENT OF EXISTING PARTNERS TO THIS DEED DULY RECEIVED IN WRITING. ITA NOS.4174 &3882/ DEL/2012 15 2.10. EXAMINING THE ASPECT FROM ANOTHER ANGLE THE A O OBSERVED THAT THE FOUR OUTGOING PARTNERS HAD NOT GIVEN THEIR CONSENT IN T HEIR WRITING FOR THE ADMISSION OF THE NEW PARTNER NOTICED ON 25/10/2007 ACCORDINGL Y IT CONFIRMED THE FACT THAT THE FIRM DISSOLVE ON 24/8/2007. THUS IT WAS CONCL UDED THAT ON CONSIDERATION FROM ALL ASPECTS IT IS CLEAR THAT THE OLD FIRM HAD SEIZED ON 24/8/2007 AND WAS DISSOLVED AND NO NEW FIRM CAME INTO EXISTENCE DURI NG THE PERIOD TO 24/10/2007. THUS THE PROVISION TO SECTION 45(4) WERE HELD TO B E ATTRACTED. TAKING NOTE OF THE FACT THT THE CAPITAL ACCOUNT OF DR. SANJEEV GUP TA AT PAGE 18-20 OF THE AO AND DR. VIBHA GUPTA FOR THE PERIOD 1/4/2007 TO 24/10/20 07 SHOWED THAT THE OUTGOING PARTNERS HAD BEEN PAID ON DIFFERENT DATES FROM THE AMOUNTS REFUNDED FROM THE AMOUNTS RECEIVED FROM QRG ENTERPRISE THE NEW PARTNE RS AS SUCH IT WAS HELD ON THE BASIS OF THE DISCUSSION IN PARAS 15 TO 18.1 THA T THE ASSESSEE HAD ADOPTED A COLOURABLE DEVICE TO AVOID PAYMENT OF TAX ON THE CA PITAL GAIN U/S 45(4) AS SUCH IT WAS HELD THAT THE PRINCIPLES LAID DOWN BY THE APEX COURT IN MC DOWELL AND CO. LTD. VS. COMMERCIAL TAX OFFICER (1985) 154 ITR 148 (SC) WERE ATTRACTED. RELIANCE WAS ALSO PLACED ON ACIT VS. DD INTERNATION AL (GOBAL) [2009] 125 TTJ (ASR.) 112; CIT VS. A. N. NAIR AND ANR (2004) 265 I TR 346 (BOM) AND CIT VS. DAVANGERE VS. GURUNATH TALKIES (2010) 189 TAXMAN 17 1 (KAR) ETC. ACCORDINGLY IT WAS HELD THAT SECTION 45(4) OF THE ACT WAS ATTRA CTED. 24.2 ON THE FACTS STATED ABOVE AND IN VIEW OF THE ABOVE MENTIONED JUDGMENTS I AM OF THE CONSIDERED OPINION THAT THE ASSESSSEE FIRM IS LIABLE TO CAPITAL GAINS IN TERMS OF SECTION 45(4) OF THE ACT BECAUSE FOUR PARTNERS HAD RELINQUISHED THEIR RIGHTS IN THE ASSETS OF THE FIRM ESTIMATED IN THE MOU AT RS.8.85 CRORES (THEIR SHARE BEING 66.66%)WHEREAS TH E OTHER TWO PARTNERS WERE BENEFITED WITH ASSETS WORTH RS.4.44 CORES ACC ORDING TO THEIR SHARE AT 33.34 % IN ALL AT RS.13 28 82 882/- BUT IT IS A FA CT THT NO NEW FIRM WAS IN EXISTENCE FROM 24/8/2007 TO 24/10/2007 THOUGH BUS INESS OF HOSPITAL MAY HAVE BEEN RUN BUT PARTNERSHIP DEED WAS EXECUTED ON 25/10/2007. ON THESE FACT AND IN VIEW OF THE ABOVE MENTIONED JUDGMENTS IT IS CONSIDERED THAT THE ASSESSEE FIRM IS LIABLE TO BE ASSESSED TO CAPITAL G AINS U/S 45(4) OF THE ACT. ITA NOS.4174 &3882/ DEL/2012 16 2.11. THE AO ALSO OBSERVED THAT THE ASSESSEE IS SIL ENT ON THE MARKET VALUE OF THE HOSPITAL BUILDING CONSTRUCTED ON THE SAME LAND ON T HE DATE OF DISSOLUTION OF THE FIRM I.E 24/8/2007 ACCORDINGLY HE REFERRED THE SAME TO THE VALUATION CELL OF THE DEPARTMENTAL ON 24/12/2010. ACCORDINGLY REFERRING T O THE DISCREPANCIES FOR THESE PERIODS IN PARA 25.1 HE HELD THE ACCOUNTS TO BE NON -GENUINE AND HELD THAT SECTION 187 WOULD BE APPLICABLE ONLY IN THE CONDITION PRESC RIBED IN (A) OR (B) IN SECTION 187. IN THE FACTS OF THE PRESENT CASE IT WAS HELD THERE WAS NO FIRM IN EXISTENCE W.E.F 24/8/2007 TO 24/10/2007 AND THE ASSESSMENT AS SUCH WAS TO BE MADE FOR 3 DIFFERENT PERIODS. THE BOOKS OF ACCOUNTS WERE ALSO HELD TO BE NOT RELIABLE AS FOR THE THREE DIFFERENT PERIODS NO SEPARATE ACCOUNTS HA VE BEEN SHOWN AND THE SHARE OF PROFIT DATED 24/10/2007 TO THE CAPITAL ACCOUNTS OF THE FOUR OUTGOING PARTNERS ON THE BASIS OF ACCOUNTS PRIOR TO 31/3/2008 MADE THE A CCOUNTS NOT GENUINE. 2.12. SIMILARLY THE FACT THAT CONSULTANCY FEES WAS PAID ONLY TO DR. SANJIV GUPTA AND DR. VIBHA GUPTA IN REGARD TO WHICH NO EVI DENCE FOR SERVICES RENDERED WAS FILED HE OBSERVED THAT WHERE IN THE LAST YEAR CONSULTANCY FEES DEBITED WAS 71 11 231/- AS OPPOSED TO RECEIPTS OF 3 97 48 549/- IN THE YEAR UNDER CONSIDERATION THE RECEIPTS WERE 4 95 95 595/- IN RE GARD TO WHICH CONSULTANCY CHARGES PAID WAS CLAIMED TO BE RS.1 40 99 034/- AND DESPITE SPECIFIC NOTICES INFORMATION IN REGARD TO SERVICES RENDERED BY DR. S ANJEEV GUPTA AND DR. VIBHA GUPTA WERE NOT PLACED ON RECORD. THE GENUINENESS O F THE CLAIM WAS QUESTIONED AND THE CLAIM WAS DISMISSED AS FABRICATED SECTIONS 145(3) WAS INVOKED AND THE ALLEGED PAYMENT OF CONSULTANCY FEE WAS ADDED FACT R ESULTING IN ADDITION OF RS. 67 66 153/-. 2.13. APART FROM THAT CONSIDERING THE BAD DEBTS C LAIMED AT RS.11 86 305/- THEY WERE DISALLOWED. THE SAID SUM CONSTITUTED OF RS. 8 86 305/- CLAIMED TO BE THE PROVISIONS OF BAD DEBT IN THE NAME OF M/S E. MEDITE K SOLUTION LTD. FAMILY ITA NOS.4174 &3882/ DEL/2012 17 HEALTH PLAN LTD VIPUL MEDCORP PVT. LTD DEDICATED HEALTH CARE PVT. LTD. MEDSAVE HEALTH LTD AND TTK HEALTH CARE PVT. LTD. SH OWN AS A PROVISION AND NOT WRITTEN OFF THE CLAIM WAS REJECTED. APART FROM THAT THE AO FURTHER OBSERVED THAT RS.3 00 000 STATED TO BE ADVANCE FOR SUPPLY TO MAX HEALTH CARE PVT. LTD WAS NOT SUPPORTED BY EVIDENCE THE SAME WAS HELD AS NOT ADMISSIBLE U/S 36(1) (VII) BECAUSE THE CONDITIONS OF SUB-SECTION (2) OF SECTION 36 WERE STATED TO BE NOT FULFILLED. CONSEQUENTLY THE DEDUCTION OF 11 86 305 /- WAS NOT ALLOWED. 2.14. THE AO FURTHER OBSERVED THAT THE AMOUNT OF RS .5 10 472/- CLAIMED ON ACCOUNT OF WATER CHARGES AS PER DETAILS SHOWED THAT IT INCLUDED CHARGES OF RS.4 00 000/- AGAINST WHICH RS.77 600/- WAS PAID ON 8/7/2009. THE BASIS OF PROVISION OF RS. 4 LAC AND EXPENDITURE CLAIMED WAS NOT SUPPORTED SPECIALLY WHEN IT WAS CLAIMED THAT IT HAS BEEN PAID ON A SPECIFIC DATE. ACCORDINGLY IT WAS CONCLUDED THE DEDUCTION HAS BEEN CLAIMED IN EXCESS OF RS. 4 LAC. ACCORDINGLY ADITION OF THE SAID AMOUNT WAS ALSO MADE. 3. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL BE FORE THE LD. CIT(A). THE FACTS AS CONSIDERED BY THE CIT (A) ARE SET OUT IN P ARA 4 OF THE IMPUGNED ORDER. THE SAME IS REPRODUCED FOR READY REFERENCE:- THE BRIEF FACTS OF THE CASE ARE THT THE RETURN OF INCOME DECLARING LOSS OF RS.4 38 06 887/- WAS FILED BY THE ASESSEE ON 8/8/20 08. THE ASSESSEE FIRM WAS CONSTITUTED ON 26/5/2003 HAVING SIX PARTNERS NAMEL Y DR. SANJEEV GUPTA DR. VIBHA GUPTA DR. ANOOP CHOPRA DR. SANGITA GUPTA DR. LA LIT KUMAR HASIJA AND DR. PUNITA HASIJA AND HAS BEEN RUNNING A HOSPITAL AT PL OT NO. 69 SECTOR-20A AJRONDA CHOWK FARIDABAD. A MOU WAS EXECUTED ON 24/8/2007 BETWEEN THE DR. SANJEEV GUPTA AND DR VIBHA GUPTA AS PARTIES OF FIRST PART AND THE REMAINING 4 PARTNERS AS PARTIES OF SECOND PART WITH THE UNDERSTANDING THAT THE HOSPITAL WOULD BE RUN BY PARTIES OF FIRST PART AND 'PARTIES OF SECOND PART ' WOULD RETIRE SUBJECT TO FULFILLMENT OF TERMS AND CONDITIONS LAID DOWN IN MOU INCLUDING THE PAYMENT OF THEIR SHARE IN PROFIT/ASSETS OF THE FIRM TILL 24.10.2007 AND RELEA SE OF SECURITIES GIVEN BY THE PARTIES OF SECOND PART. THE ASSESSEE FIRM GOT THE LAND REVA LUED AS PER THE GOVT. VALUER'S REPORT AT RS.20 94 46 000/- AND CREATED A REVALUATI ON RESERVE OF RS.18 80 37 829/ - AFTER REDUCING THE COST OF ACQUISITION OF LAND AT R S.2 14 08 171/- THEREFROM. THERE WAS HOWEVER NO REVALUATION OF BUILDING AND GOOD WI LL (PURPORTEDLY ON ACCOUNT OF ITA NOS.4174 &3882/ DEL/2012 18 RECURRING LOSSES). AFTER REDUCING THE BROUGHT FORWA RD LOSSES AND PREOPERATIVE EXPENSES THE NET WORTH WAS CALCULATED AT RS.13 31 69 001/- WHICH WAS ALLOCATED AMONGST ALL THE PARTNERS IN THEIR PROFIT/LOSS SHARI NG RATIO AND CREDITED IN THEIR CAPITAL ACCOUNTS. IT WAS DECIDED THAT THE CONTINUING PARTNE RS SHALL PAY THE AMOUNT OF RS.8.85 CRORES TO THE RETIRING PARTNERS AS PER THE PAYMENT PLAN SPECIFIED IN THE MOU TOWARDS THEIR SHARE IN THE CAPITAL/ ASSETS OF THE FIRM. THE FUNDS FOR MAKING SUCH PAYMENTS WERE MADE AVAILABLE BY QRG ENTERPRISES LTD. AND PAI D THROUGH THE 'PARTIES OF FIRST PART'. QRG ENTERPRISES LTD WAS ADMITTED AS A NEW PA RTNER ALONG WITH DR. SANJEEV GUPTA AND DR. VIBHA GUPTA THE CONTINUING PARTNERS VIDE NEW PARTNERSHIP DEED EXECUTED ON 25.10.2007 ALLOWING 70% SHARE IN THE PR OFIT/LOSS TO QRG ENTERPRISES LTD. THE AO HAS APPLIED THE PROVISIONS OF SECTION 4 5(4) OF THE ACT AND AFTER RELYING UPON SEVERAL DECISIONS AS MENTIONED IN THE ASSESSME NT ORDER THE LONG TERM CAPITAL GAIN OF RS:12 32 35 145/- BEING THE SHARE OF ASSET S DISTRIBUTED BY THE ASSESSEE FIRM TO 4 RETIRING PARTNERS HAS BEEN ADDED TO THE INCOME A FTER ALLOWING BENEFIT OF INDEXED COST OF ACQUISITION OF LAND. THE AO HAS ALSO REFERR ED THE MATTER OF ASCERTAINING FAIR MARKET VALUE OF BUILDING TO THE DISTRICT VALUATION OFFICER ROHTAK ON 24.12.2010 AND FINALIZED THE ASSESSMENT PENDING RECEIPT OF VALUATI ON REPORT SUBJECT TO APPROPRIATE ACTION LATER ON. THE AO HAS ALSO DISALLOWED CONSULT ANCY FEES OF RS.67 66 153/- PAID TO DR. SANJEEV GUPTA AND DR. VIBHA GUPTA FOR WANT O F NECESSARY DETAILS. AFTER CONSIDERING THE TERMS OF THE MOU THE AO HAS HELD T HAT THE FIRM WAS DISSOLVED ON 24.08.2007 AS THE 4 RETIRING PARTNERS DID NOT SIGN THE RETIREMENT DEED ON 24.10.2007 AND THERE WAS NO FIRM IN EXISTENCE FROM 24.08.2007 TO 24.10.2007. CONSEQUENTLY THE ASSESSMENT HAS BEEN MADE IN THE STATUS OF PFAS FROM THE PERIOD FROM 1.04.2007 TO 23.08.2007 IN THE STATUS OF AOP FROM 24.08.2007 TO 1.10.2007 AND IN THE STATUS OF FIRM FROM 25.10.2007 TO 31.03.2008. THE LOSS PERTAI NING TO THE FIRM UPTO 23.08.2007 AND THAT OF AOP HAS BEEN ALLOWED TO BE SET OFF AGAI NST THE LONG TERM CAPITAL GAIN. BESIDES THE CLAIM OF BAD DEBT OF RS. 11 86 305/- HA S ALSO BEEN DISALLOWED. AGGRIEVED WITH THE ORDER APPELLANT FILED THE PRESENT APPEAL. 3.1. CONSIDERING THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE WHICH ARE REPRODUCED IN PAGES 5 TO PAGE 44 OF THE IMPUGNE D ORDER THE LD. CIT(A) ADMITTED FRESH EVIDENCES SOUGHT TO BE FILED BY THE ASSESSEE ON THE GROUND THAT ASSESSMENT WAS MADE WITHOUT GIVING PROPER OPPORTUNI TY TO THE ASSESSEE. WHEREAS THE CIT(A) AGREED WITH THE CONTENTIONS OF T HE ASSESSEE THAT THE ASSESSMENT AS AOP FOR THE PERIOD 24/8/2007 TO 25/10 /2007 WAS NOT CALLED FOR HE DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE THAT SECTION 45(4) WAS NOT ATTRACTED. HE HELD THAT THE SCOPE OF THE PROVISION WAS EXPLAINED IN PARA 24.3 OF THE CBDTS CIRCULAR NO. 495 DATED 24 TH SEPTEMBER 1989 AS A RESULT OF IT NOT ONLY ON THE DISTRIBUTION OF THE ASSETS ON THE DISSOLUTI ON OF THE FIRM BUT ALSO ON THE ITA NOS.4174 &3882/ DEL/2012 19 DISTRIBUTION OF ASSETS OTHERWISE THEN DISSOLUTION T HE SAID PROVISION WAS THAT HE CONFIRMED THE ADDITION OF RS.12 32 35 145 AND ALLOW ED RELIEF QUA THE CONSULTANCY CHARGES PAID TO THE DR. SANJEEV GUPTA AND DR. VIBHA GUPTA AND ALSO HELD THE PAYMENT OF RS.3 00 000/- AS PAID TO MAX IN ORDINARY COURSE OF BUSINESS FOR USE OF LOGO VIDEO CONFERENCING DATA TRANSFER OF PATIENTS ETC. WHICH STOOD FORTIFIED. IT WAS ALSO HELD THAT NO COGNIZANCE OF THE DVOS REPOR T BE TAKEN. AGGRIEVED BY THE DECISION BOTH THE ASSESSEE AND THE DEPARTMENT ARE I N APPEAL. 4. SINCE THESE ARE CROSS APPEALS BY TH E ASSESSEE AND THE REVENUE IT WAS A COMMON STAND OF THE PARTIES THAT THE ARGUMENTS MAY BE ADVANCED BY THE LD. A.R. ACCORDINGLY IN THE ABOVE BACKGROUND LD. AR INVITING ATTENTION TO THE MOU DATED 24/8/2007 SUBMITTED THAT THE AO HAD SELECTIVE LY READ THE SAID MOU AND ARRIVED AT A CONCLUSION THAT ACCOUNTS FOR 3 PERIODS SHOULD HAVE BEEN SEPARATELY MADE. SIMILARLY CLAUSE 7 OF THE ORIGINAL PARTNERSH IP DEED ON ACCOUNT OF INCORRECT INTERPRETED OF CLAUSE H I & K OF THE MOU IT WAS S UBMITTED THAT THE AO ARRIVED AT A WRONG CONCLUSION TO HOLD THAT THE PARTNERSHIP STOOD DISSOLVED ON 24/8/2007. AS SUCH HEAVY RELIANCE WAS PLACED ON THE FINDING AR RIVED AT IN THE IMPUGNED ORDER FOR THE DEPARTMENTAL APPEAL. ADDRESSING THE G ROUNDS ARISING FROM THE ASSESSEES APPEAL IT WAS SUBMITTED THAT THE PAYMEN TS WERE MADE FROM THE ACCOUNTS OF THE REMAINING PARTNERS AND ONLY WHEN IN COMPLIANCE WITH THE CONDITIONS IN THE MOU WHEN ALL PAYMENTS STOOD MADE THE NEW PARTNERSHIP CAME INTO EXISTENCE. THE LAND AND BUILDING IT WAS SUBMI TTED CONTINUED TO REMAIN WITH THE FIRM AS SUCH THE OCCASION TO INVOKE SECTION 45( 4) DID NOT ARISE. VARIOUS JUDGMENTS IN SUPPORT OF THE SAID CLAIM WERE RELIED UPON. 4.1. THE LD. CIT (DR) ON THE OTHER HAND QUA THE DEPARTMENTAL GROUNDS RELIED HEAVILY UPON THE ASSESSMENT ORDER STATING TH AT THE ASSESSEE HAS RESORTED TO A COLOURABLE DEVICE SO AS TO AVOID THE CONSEQUENCES O F SECTION 45(4). VARIOUS ITA NOS.4174 &3882/ DEL/2012 20 JUDGMENTS DEPRECATING SUCH A STAND HAD BEEN RELIED UPON BY THE AO THE POSITION UNDER LAW ON THE SPECIFIC REASONS AND OBSERVATION O F THE AO HAVE NOT BEEN DISCUSSED OR CONSIDERED BY THE CIT (A). THESE FINDI NGS ON RECORD IT WAS SUBMITTED CANNOT BE IGNORED AND THE IMPUGNED ORDER IGNORING THESE OBSERVATIONS HAS DECIDE THE ISSUE IN FAVOUR OF THE ASSESSSEE. A CCORDINGLY IT WAS HER SUBMISSION THAT THE ASSESSMENT ORDER BE UPHELD AS FAR AS THE DEPARTMENTS APPEAL IS CONCERNED. QUA THE GROUNDS OF THE ASSESSEE IT WA S HER SUBMISSION THAT THE SAME DESERVED TO BE DISMISSED AS DETAILED REASONS AND FI NDINGS ARE AVAILABLE IN THE ASSESSMENT ORDER AND THE IMPUGNED ORDER ON WHICH RE LIANCE IS BEING HEAVILY PLACED BY THE REVENUE. THE JUDGMENTS RELIED UPON IT WAS SUBMITTED HAVE ALREADY BEEN CONSIDERED BY THE CIT (A). 5. WE HAVE HEARD THE RIVAL SUBMISSION S AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE WE PROCEED TO DECIDE TH E GROUNDS RAISED BY THE ASSESSEE AND THE REVENUE WE WOULD FIRST CONSIDER IT NECESSARY TO REFER TO A MATERIAL FACT ON RECORD. IT IS SEEN FROM THE ASSES SMENT ORDER THAT THE RETURN WAS FILED ON 8/8/2008 NOTICE U/S 143(2) DATED 17/8/200 9 WAS ISSUED AND SERVED ON 18/8/2009 FIXING THE DATE OF HEARING ON 27/8/2009. SHOW CAUSE NOTICE FOR THE FIRST TIME AS PER PAGE 7 OF ASSESSMENT ORDER WAS IS SUED TO THE ASSESSEE AND THE ASSESSEE RESPONDED TO IT VIDE SUBMISSIONS DATED 15/ 12/2010. CONSIDERING THESE THE ASSESSMENT ORDER WAS PASSED ON 29/12/2010. IT IS A MATTER OF RECORD THAT BEFORE THE LD. CIT(A) ADDITIONAL EVIDENCES WERE FIL ED ON THE GROUND THAT ASSESSMENT WAS COMPLETED WITHOUT GIVING A PROPER OP PORTUNITY TO EXPLAIN THE CASE. THIS FACT IS BORNE OUT FROM THE ASSESSMENT O RDER AND THE IMPUGNED ORDER AS A RESULT OF WHICH FRESH EVIDENCES WERE ADMITTED. A DDRESSING THE ARGUMENT OF THE DEPARTMENT IT IS SEEN THAT A.O IN THE COURSE OF TH E ASSESSMENT PROCEEDS HAS MADE THE FOLLOWING OBSERVATIONS IN PARAS 15 TO 18.1 OF H IS ORDER. THE SAME ARE REPRODUCED HEREUNDER FOR READY REFERENCE:- ITA NOS.4174 &3882/ DEL/2012 21 THE ABOVE STATED DETAILED FACTS CLEARLY PROVE T HAT OUTGOING FOUR PARTNERS WERE PAID THEIR SHARE OF REVALUED LAND ONLY BECAUSE THEY RELINQUISHED THEIR RIGHTS IN THE ASSET OF THE PARTNERSHIP FIRM AS PER MOU EXECUTED ON 24/8/2007 AND THE FIRM HAD CEASED TO EXIST EITHER BY DISSOLUTION OR OTHERWISE . ACCORDINGLY THE PROVISIONS OF SECTION 45(4) ARE CLEARLY ATTRACTED. I AM THUS OF THE CONSIDERED OPINION THAT THE ASSESSEE FIRM IS LIABLE TO CAPITAL GAIN IN TERMS O F SECTION 45(4) OF THE ACT ON THE VALUE OF LAND KEEPING IN VIEW THE FACTS ADMITTED IN CLAU SE C OF THE MOU DATED 24/8/2007 AND DISCUSSED SUPRA. 16. THE ASSESSEES CLAIM THAT THERE WAS CHANGE IN THE CONSTITUTION OF THE FIRM IS FACTUALLY NOT CORRECT BECAUSE THERE WAS NO FIRM IN EXISTENCE IMMEDIATELY AFTER THE FOUR PARTNERS LEFT THE FIRM BY MOU ON 24/8/2007 WIT H IMMEDIATE EFFECT AND NEW FIRM HAD COME INTO EXISTENCE ONLY 25/10/2007. IN T HESE CIRCUMSTANCES THREE ASSESSMENTS ARE REQUIRED TO BE MADE I.E. ONE FOR TH E PERIOD FROM 1/4/2007 TO 24/8/2007 SECOND FROM 25/8/2007 TO 24/10/2007 AND THIRD FROM 25/10/2007 TO 31/3/2008 BUT THE ASSESSEE HAS NOT FURNISHED ANY W ORTHWHILE INFORMATION IN THIS RESPECT AND THE ACCOUNTS WERE PREPARED ONLY FOR THE PERIOD FROM 1/4/2007 TO 31/3/2008. I AM THEREFORE LEFT WITH NO ALTERNATI VE EXCEPT TO MAKE ASSESSMENT BY TAKING PROPORTIONATE FIGURES OF PROFIT & LOSS AS P ER INCOME AND EXPENDITURE STATEMENT PRESENTED BY THE ASSESSEE. 17. IT WOULD BE RELEVANT TO STATE THAT CAPITAL OF T HE FIRM AS ON 1/4/2007 WAS AT RS.1 74 81 000/- BUT AS ON 31/3/2008 IT IS AT RS.1 5 07 00 000/- AND THE INCREASE IS ONLY BECAUSE THE NEW PARTNER INTRODUCED W.E.F 25/10 /2007 HAD BROUGHT IN FRESH CAPITAL AND WAS ALLOTTED 70% SHARE OF PROFIT ONLY BECAUSE THE OUTGOING PARTNERS WITH SHARE OF PROFIT OF 66.66% WERE TO BE PAID THE VALUE OF LAND OF THE ASSESSEE FIRM. IN THIS WAY THE NEW PARTNER HAD ACQUIRED INTEREST IN THE LAND WHICH WAS REVALUED AT MARKET RATES. IT WOULD ALSO BE RELEVANT TO ADD THAT ULTIMATELY THE NEWLY ADMITTED PARTNER VIA. M/S QRG ENTERPRISES LTD HAS TAKEN OVE R THE FIRM IN FEBRUARY 2010 AND THE TWO PARTNERS NAMELY DR. SANJEEV GUPTA AND D R. VIBHA GUPTA WERE ALSO PAID THEIR SHARE OF RIGHTS IN THE VALUE OF ASSETS LAND IN PARTICULAR. HOWEVER THE POSITION IN LAW RELEVANT TO A.Y 2010-11 WOULD BE CO NSIDERED SEPARATELY. 18.1 THAT ALL THE ABOVE STATED FACTS WOULD PROV E THAT THE ASSESSEE FIRM HAD DISSOLVED W.E.F 24/8/2007 BY EXECUTING MOU BUT SIMU LTANEOUSLY WITH AN UNDERSTANDING MADE WITH M/S QRG ENTERPRISES LTD WH ICH WAS ADMITTED AS NEW PARTNER BY PARTNERSHIP DEED DATED 25/10/2007 AND FI NALLY THE TWO PARTNERS ALSO LEFT BY TAKING THEIR SHARE OF RIGHTS IN THE VALUE OF LAN D AT MARKET RATES AND HANDING OVER THE ENTIRE ASSETS THOUGH WITH LIABILITIES AS WELL TO M/S QRG ENTERPRISES LTD AS THE EXCLUSIVE OWNER OF THE HOSPITAL. ALL THE SEQUENCE OF EVENTS WOULD CLEARLY PROVE THT THE ASSESSSEE HAS ADOPTED A COLOURABLE DEVICE TO AV ID PAYMENT OF TAX ON THE CAPITAL GAIN U/S 45(4) OF THE ACT. IT IS INTERESTING TO NO TE THAT WHEREAS THE FOUR PARTNERS WHO HAD DEFICIT CAPITAL OF ABOUT RS.73 LAKHS AS ON 31/3 /2007 WITH FURTHER LOSSES FROM 1/4/2007 TO 24/8/2007 THEY WEE PAID RS.7.85 CRORES (BY CREDITING THEIR CAPITAL ACCOUNTS WITH ABOUT RS.8.85 CRORES) AND ALL THIS AR RANGEMENT WAS MADE BY GETTING AMOUNTS FROM M/S QRG ENTERPRISES LTD BUT PAID THRO UGH DR. SANJEEV GUPTA AND DR. VIBHA GUPTA (HUSBAND AND WIFE) AND WHO ALSO GOT HU GE AMOUNTS LATER ON AND HANDED OVER THE REIN OF THE HOSPITAL TO M/S QRG ENT ERPRISES AND THIS EXERCISE WAS ITA NOS.4174 &3882/ DEL/2012 22 UNDERTAKEN WITH THE APPARENT CONSIDERATION THE MARK ET PRICE OF PLOT OF LAND NO. 69(MEASURING 5823 SQ.YD) IN SECTOR 20A ON 23/8/2004 ALLOTTED BY HUDA ON RESERVE PRICE @ RS.3 750 PER SQ.YD I.E FOR RS.2 18 37 975/- TO THE OLD FIRM CONSISTING OF SIX PARTNERS HAD APPRECIATED WHICH WAS VALUED BY THE OLD FIRM AT RS.18 80 CRORES AS ON 24/8/2007. ACCORDINGLY THE OLD PARTNERS ARRANGED A COLOURABLE DEVICE BY MA KING ARRANGEMENT WITH M/S QRG ENTERPRISES AND INITIALLY FOUR PARTNERS LEFT THE FIELD WHICH WAS FOLLOWED BY THE OTHER TWO PARTNERS AS DI SCUSSED ABOVE AND FINALLY THE HOSPITAL WITH LAND WAS TAKEN OVER BY M/S QRG ENTER PRISES LTD DESPITE WHEN HUDA AT THE TIME OF ALLOTMENT OF THE PLOT OF LAND H AD LAID DOWN THE CONDITION THT THE ALLOTTEE SHALL NOT TRANSFER RIGHTS/TITLE OR INT EREST THEREON IN ANY MANNER IN TERMS OF CLAUSE 13 MENTIONED BELOW:- THE ALLOTTEE SHALL HAVE NO RIGHT TO TRANSFER BY WA Y OF SALE GIFT MORTGAGE OR OTHERWISE PLOT/BUILDING OR ANY THEIR RIGHTS/TITLE OR INTEREST THEREON. 5.1. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE DEPARTMENTAL ARGUMENTS ADDRESSING THESE ISSUES ARE CORRECT AS QU A THESE ISSUES THERE IS NO DISCUSSION IN THE IMPUGNED ORDER. IT IS ALSO SEEN THAT BASED ON THE ABOVE REASON IN PARA 18.2 REFERENCE SPECIALLY HAS BEEN BY THE AO TO THE PRINCIPLES LAID DOWN IN MC DOWELL AND CO. LTD VS. CTO.(1985) 154 TO 148 (SC ). IT IS ALSO SEEN THAT WHEREAS THE ADDITION OF RS.8 86 305/- WAS ACCEPTED BY THE ASSESSEE BEFORE THE CIT(A) QUA THE ADDITION OF RS. 3 LAC CIT(A) HAS ACC EPTED THE ASSESSEES CLAIM BASED ON MERE NARRATION OF THE EXPENDITURE AND NO E VIDENCES/DOCUMENTS/ ARGUMENT IN SUPPORT OF THE SAID CLAIM THAT THE AMOU NTS WERE FORFEITED HAVE BEEN EITHER PLACED BEFORE THE AUTHORITIES NOR BEFORE US. SIMILARLY FOR THE CONSULTANCY CHARGES PAID TO THE REMAINING TWO PARTNERS NO EVIDE NCE WAS FILED BEFORE THE AO AND THE SAME WAS FILED BEFORE THE CIT(A). ON A CONS IDERATION OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE VIEW TH AT IT WOULD BE APPROPRIATE IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE TH AT IT WOULD APPROPRIATE IN THE INTEREST OF SUBSTANTIAL JUSTICE TO SET ASIDE THE IM PUGNED ORDER AND RESTORE THE ISSUE BACK TO THE ASSESSING OFFICER. THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER AFTER GIVING THE ASS ESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE SHALL BE AT LIBERTY T O FILE FRESH EVIDENCES IF NEED BE ITA NOS.4174 &3882/ DEL/2012 23 IN SUPPORT OF ITS CLAIM AND THE AO SHALL CONSIDER T HE SAME BEFORE PASSING THE ORDER. ACCORDINGLY THE GROUNDS OF THE ASSESSEE AN D THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST /07/ 2013. SD/- SD/- (T. S. KAPOOR) (DIVA SIN GH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF JULY 2013 R. NAHEED COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT) NEW DELHI. AR ITAT NEW DELHI.