ACIT, CHENNAI v. M/s. Armcess Engineers P. Ltd., CHENNAI

ITA 755/CHNY/2008 | 2004-2005
Pronouncement Date: 29-03-2012 | Result: Dismissed

Appeal Details

RSA Number 75521714 RSA 2008
Assessee PAN AADCA7103J
Bench Chennai
Appeal Number ITA 755/CHNY/2008
Duration Of Justice 3 year(s) 11 month(s) 17 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. Armcess Engineers P. Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 29-03-2012
Date Of Final Hearing 12-03-2012
Next Hearing Date 12-03-2012
Assessment Year 2004-2005
Appeal Filed On 11-04-2008
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI D BENCH CHENNAI. BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT & SHRI CHALLA NAGENDRA PRASAD JUDICIAL MEMBER I.T.A. NO. 755/MDS/2008 ASSESSMENT YEAR: 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE I(1) CHENNAI 600 034. VS. M/S. ARMCESS ENGINEERS P. LIMITED NO. 10/7 IIIRD MAIN ROAD SOUTH PHASE AMBATTUR INDUSTRIAL ESTATE CHENNAI 600 058. [PAN: AADCA7103J] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ANIRUDH RAI CIT-DR ASSESSEE BY : SHRI R. MEENAKSHISUNDARAM ADVOCATE DATE OF HEARING : 1 2 . 0 3 .201 2 DATE OF PRONOUNCEMENT : 29.03.2012 ORDER PER CHALLA NAGENDRA PRASAD JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST T HE ORDER OF THE CIT(A) III CHENNAI DATED 28.01.2008 IN ITA NO.545/ 06-07/A-III RELEVANT TO THE ASSESSMENT YEAR 2004-05. SHRI ANIRUDH RAI CIT- DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI R. MEENAKSHISUNDARAM ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST DELETING THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS PROF IT ON SALE OF CAPITAL ASSETS WHILE COMPUTING THE BOOK PROFITS. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIL ED ITS RETURN OF INCOME ON 01.11.2004 DECLARING NIL INCOME UNDER NORMAL C OURSE OF THE ACT. THE ASSESSEE DID NOT COMPUTE THE BOOK PROFITS UNDER SEC TION 115JB OF THE ACT. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) O F THE ACT ON 14.11.2006 DETERMINING THE TAXABLE INCOME AT ` .2 08 18 421/- AND BOOK PROFITS AT ` .2 01 95 440/-. 4. THE ASSESSEE COMPANY HAS TRANSFERRED LAND AND B UILDING AT PLOT NO. (A) SUPER A 8 & 9 IN THE SIDCOS INDUSTRIAL COMPLE X AT GUINDY MADRAS 32 IN FAVOUR OF M/S. LEELA SCOTTISH LACE PVT. LTD. FOR A CONSIDERATION OF ` .2.5 CRORES. THE DEAL OF CONVEYANCE WAS EXEMPTED FROM ST AMP DUTY AS PER NOTIFICATION NOS. 2620 AND 5121 OF 1964 DATED 22.10 .1964 OF THE GOVERNMENT OF TAMILNADU SINCE THE TRANSFER OF PROPE RTY WAS FROM THE WHOLLY OWNED SUBSIDIARY TO ITS HOLDING COMPANY. DURING THE COURSE OF ASSESSMENT THE ASSESSEE FILED FORM NO. 29B AND COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB DECLARING TAX PAYABLE AT NIL. THE ASS ESSING OFFICER WAS OF THE VIEW THAT THE PROFIT ON SALE OF CAPITAL ASSETS WHICH WERE INCLUDED IN THE PROFIT AND LOSS ACCOUNT CANNOT BE REDUCED WHILE CO MPUTING BOOK PROFITS UNDER SECTION 115JB. 5. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THERE WAS A MISTAKE IN COMPUTATION OF 115JB AS THE ASSESSEE WRONGLY CREDI TED THE PROFIT AND LOSS ACCOUNT AT ` .2 09 62 152/- WHICH INCLUDED EVEN ` .1 47 73 327/- THAT REPRESENTED NOT ONLY THE PROFIT BUT REALIZATION OF CAPITAL. IT IS SUBMITTED THAT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 3 EARLIER IN THE ORIGINAL ACCOUNTS ADOPTED BY THE ASS ESSEE COMPANY AT ITS ANNUAL GENERAL MEETING THE ASSESSEE HAS WRONGLY TA KEN CREDIT FOR A SUM OF ` .2 09 62 152/- AS INCOME IGNORING THE FACT THAT THE ABOVE SAID SUM INCLUDES A SUM OF ` .1 47 73 327/- REPRESENTING NOT PROFIT BUT REALIZAT ION OF CAPITAL AND HENCE ACCORDING TO ACCEPTED ACCOUNTING PRINCIPLES S HOULD HAVE BEEN TAKEN TO THE CAPITAL RESERVE APPEARING IN THE BALANCE S HEET AND NOT AS INCOME IN THE PROFIT AND LOSS ACCOUNT AND ONLY A SUM OF ` .61 88 825/- WHICH IS THE DEPRECIATION PROVIDED IN THE ACCOUNTS OVER THE YEAR S IN RESPECT OF THE ASSETS TRANSFERRED SHOULD HAVE BEEN TAKEN TO THE P & L ACC OUNT. THIS MISTAKE WAS RECTIFIED BY RECASTING THE ACCOUNTS AND ADOPTING TH E SAME BY THE SHARE HOLDERS IN THE ANNUAL GENERAL MEETING. THE ASSESSEE FURTHER SUBMITTED THAT THE REOPENING/REVISION OF ANNUAL ACCOUNTS OF A COMP ANY AFTER THEIR ADOPTION IN THE ANNUAL GENERAL MEETING IS PERMISSIBLE UNDER SECTION 210 OF THE COMPANIES ACT 1956 IN TERMS OF CIRCULAR NO.1/2003 DT. 13.01.2003 ISSUED BY THE DEPARTMENT OF COMPANY AFFAIRS TO ACHIEVE THE OBJECT OF EXHIBITING TRUE AND FAIR VIEW OF THE ACCOUNTS. THE REVISED ANN UAL ACCOUNTS HAD BEEN ADOPTED IN THE ANNUAL GENERAL MEETING OF THE ASSESS EE HELD ON 30.09.2006 AND WERE DULY FILED WITH THE REGISTRAR OF COMPANIES . IT IS ALSO SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF KUMUDAM PRINTERS IN I.T.A. NO. 1748/MDS/1998 WHICH WAS RELIED ON BY THE ASSESSING OFFICER IS NOT AGAINST THE ASSESSEE AND IN FACT DIRECTLY SUPPORTS THE STA ND OF THE ASSESSEE. THE ASSESSEE ALSO RELIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 4 THE CASE OF CIT V. VIJAYSHREE FINANCE & INVESTMENT CO. P. LTD. IN T.C.(A) NO. 309/2004 DATED 18.12.2007 AND SUBMITTED THAT TH E IDENTICAL QUESTION HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE. 6. THE CIT(A) DISCUSSED ELABORATELY THIS ISSUE AT PARA 2.6 OF HIS ORDER AS UNDER: 2.6. ACTUALLY IN THE RETURN OF INCOME THE CONTENTION OF THE APPELLANT HAS BEEN THAT NO TAX IS PAYABLE EITHER UNDER 115JB OR UNDER CAPITAL GAINS. AS PER THE ACCOUNTING PRINCIPLES ANY REALIS ATION ON SALE OF NON- DEPRECIABLE ASSET TO THE EXTENT OF ITS COST IS TO B E TAKEN DIRECTLY TO THE CAPITAL RESERVE AND THE AMOUNT IN EXCESS OF THE COS T IS TO BE CREDITED TO THE P & L ACCOUNT. IN CASE OF DEPRECIABLE ASSET AN Y EXCESS OVER THE ENTIRE COST WILL GO TO CAPITAL RESERVE AS CAPITAL P ROFIT AND THE DEPRECIATION CLAIMED SO FAR WILL BE CREDITED TO THE P & L ACCOUNT. AS ADMITTED BY THE APPELLANT ITSELF IN THE ACCOUNTS O RIGINALLY ADOPTED ON 26.09.2004 THIS WAS NOT DONE AND THE ENTIRE SALE PR OCEEDS AS REDUCED BY DEPRECIATION PROVIDED WERE CREDITED TO P & L ACCOUNT WHICH WAS NOT CORRECT. THE SAID MISTAKE WAS RECTIFIED AND THE IR ACCOUNTS WERE RECAST BY CREDITING ` . 1 47 73 327/- BEING THE CAPITAL INVESTMENT REALISED TO THE CAPITAL RESERVE UNDER TH E HEAD 'RESERVE AND SURPLUS' IN THE BALANCE SHEET ARID CREDITING ` . 61 88 825/- BEING THE SURPLUS OF SALE PRICE EXCEEDI NG THE WRITTEN DOWN VALUE/COST IN OTHER WORDS DEPRECIATION CLAIMED SO FAR TO THE P & L ACCOUNT. SINCE WORKING AS PER THE REVISED ACCOUNTS IS IN CONFORMITY WITH THE ACCOUNTING PRINCIPLES THE SAME DOES NOT D ESERVE TO BE DISTURBED. IN THIS REGARD I HAVE ALSO CONSIDERED T HE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT-I CHENNAI V. VIJAYASHREE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 5 FINANCE & INVESTMENT CO. P. LTD. CHENNAI (2008-TIOL-29-HC-MA D- IT) WHERE THE REVENUE HAD FILED THE APPEAL ON THE F OLLOWING GROUNDS: A. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE PROFIT ON SALE OF LAN D CARRIED TO CAPITAL RESERVE CANNOT BE ADDED TO BOOK PROFIT U/S 115J. B. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE THE TRIBUNAL WAS RIGHT IN HOLDING THAT SINCE NOTES OR PART OF TH E ACCOUNTS EVEN WHERE PROFITS OF A NON-RECURRING NATURE HAVE NOT BEEN MAD E PART OF THE BOOK PROFITS ALTHOUGH THE SCHEDULE-VI ESTIMATES THE SAME THE AO CANNOT ADD THE SAME TO REWORK THE BOOK PROFIT. FOLLOWING APOLL O TYRES (255 ITR 273) THE MADRAS HIGH COURT DISMISSED THE APPEAL OF THE REVENUE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HENCE IN MY OPINION THE CALCULATION OF BOOK PROFIT U/S 115JB SHOULD BE IN C ONFORMITY WITH THE P & L ACCOUNT RECAST ON THE BASIS OF ACCOUNTING NORMS AND NOT ON THE BASIS OF P & L ACCOUNT WHERE EVEN THE REALISATION O F COST HAS BEEN CREDITED TO P & L ACCOUNT AND SIMILARLY NOT ON THE BASIS OF THE CERTIFICATE OF THE CHARTERED ACCOUNTANT EITHER WHIC H SOUGHT EXEMPTION OF THAT AMOUNT ALSO WHICH WAS EARLIER CLAIMED AS DE PRECIATION. THEREFORE THE AO SHOULD WORK OUT THE BOOK PROFIT F OR THE PURPOSE OF SECTION 115JB ACCORDINGLY AS DISCUSSED ABOVE TAKING A SUM OF ` . 61 88 825/ TO BE CREDITED TO THE P & L ACCOUNT AS A SUM OF ` . 1 47 73 327/- IS TO BE TAKEN TO CAPITAL RESERVE SIN CE SUCH ACCOUNTING TREATMENT IS IN CONFIRMITY WITH THE REVISED ANNUAL ACCOUNTS SUBMITTED BEFORE THE REGISTRAR OF COMPANIES. ACCORDINGLY TO THAT EXTENT THE APPELLANT SUCCEEDS. 7. THE LD. DR STRONGLY RELIED ON THE GROUNDS OF AP PEAL AND THE ORDER OF THE ASSESSING OFFICER AND ALSO RELIED ON THE DECISI ON IN THE CASE OF APOLLO I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 6 TYRES LTD. VS. CIT (2002) 255 ITR 273 (SC). THE LD. DR ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. INDO-MARINE AGENCIE S PVT. LTD. 279 ITR 372 (KER.) TRIBUNALS DECISIONS IN THE CASE OF ACIT VS . M/S. PARK TOWN BENEFIT FUND LTD. IN I.T.A. NOS. 2419 TO 2421/MDS/2007 DATE D 30.04.2009 DCIT VS. M/S. ARUPPUKOTTAI SRI JAHYAVILAS LTD. IN I.T.A. NO. 1738/MDS/2003 DATED 19.01.2007 KOPRAN PHARMACEUTICALS LTD. VS. DCIT (20 09) 121 TTJ (MUMBAI) 77 AND SUBMITTED THAT THE ASSESSING OFFICER WAS COR RECT IN EXCLUDING PROFIT ON SALE OF THE LAND CREDITED TO THE PROFIT AND LOSS ACCOUNT WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB. 8. WE HAVE HEARD BOTH THE SIDES PERUSED THE MATER IALS AVAILABLE ON RECORD. WE SEE NO REASON TO INTERFERE WITH THE REAS ONING GIVEN BY THE CIT(A) IN ALLOWING THE ASSESSEES APPEAL ON THIS ISSUE AS THE ASSESSEE HAS REVISED THE ACCOUNTS BY TAKING ONLY THE PROFIT ON SALE OF A SSETS TO PROFIT AND LOSS ACCOUNT. THIS RECASTING OF ACCOUNTS IS PERMITTED BY COMPANIES ACT UNDER SECTION 210 IN TERMS OF CIRCULAR NO.1/2003 DT. 13.0 1.2003. THE RECAST ACCOUNTS WERE ADOPTED IN THE ANNUAL GENERAL MEETING HELD ON 30.09.2006 AND WERE SUBMITTED TO THE REGISTRAR OF COMPANIES. T HE CASE LAW RELIED ON BY THE LD. DR ARE DISTINGUISHABLE ON FACTS. IN NONE OF THE CASES THE ENTIRE SALE CONSIDERATION INCLUDING PROFIT ON SALE OF ASSE T WAS ROUTED THROUGH PROFIT AND LOSS ACCOUNT IN ORIGINAL ACCOUNTS AND RECAST TH E SAME LATER AND FILED WITH REGISTRAR OF COMPANIES AFTER ADOPTING THE SAME IN SUBSEQUENT ANNUAL GENERAL MEETING. IN THE CASE OF ACIT VS. PARK TOWN BENEFIT FUND LTD. IN I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 7 I.T.A. NO. 2419 TO 2421/MDS/2007 DATED 19.01.2007 R ELIED ON BY THE LD. DR THIS TRIBUNAL FOUND THAT A MERE BOARD RESOLUTION PA SSED BY THE BOARD OF DIRECTORS AUTHORIZING THE CHARTERED ACCOUNTANTS TO RE-AUDIT THE BOOKS OF ACCOUNTS CANNOT GIVE SANCTITY TO THE RE-AUDITED STA TEMENT OF ACCOUNTS UNLESS IT IS APPROVED IN SUBSEQUENT ANNUAL GENERAL MEETING AND SUBMITTED TO REGISTRAR OF COMPANIES. THE OTHER DECISIONS RELIED ON BY THE LD. DR ALSO NOT APPLICABLE TO THE FACTS OF THIS CASE. THEREFORE IN OUR CONSIDERED VIEW THE CIT(A) HAS RIGHTLY ALLOWED THE APPEAL OF THE ASSESS EE ON THIS ISSUE. WE DISMISS THE GROUND OF APPEAL OF THE REVENUE ON THIS ISSUE AND CONFIRM THE ORDER OF THE CIT(A). 9. THE NEXT ISSUE IN REVENUES APPEAL IS AGAINST T HE ORDER OF THE CIT(A) HOLDING THAT THE BUSINESS LOSS SHOULD NOT BE RESTRI CTED FOR EIGHT YEARS FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS. 10. THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFITS REDUCED THE UNABSORBED DEPRECIATION OF ` .5 17 805/- FROM THE BOOK PROFITS AS PER NORMAL COMPUTATION OF INCOME AND NOT REPRESENTING ` .88 08 523/- UNABSORBED DEPRECIATION AS PER THE BOOKS OF ACCOUNTS AS SPECIF IED UNDER PROVISIONS OF SECTION 115JB. THIS ISSUE HAS BEEN CONSIDERED BY TH E CIT(A) AT PARA 2.8 OF HIS ORDER WHICH READS AS UNDER: 2.8 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE WORKING FURNISHED BY THE AR. THE CONTENTION OF THE AR IS TH AT THE BROUGHT FORWARD LOSS AS PER BOOKS IS NOT RESTRICTED BY THE LIMIT LAID DOWN BY I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 8 THE INCOME TAX ACT FOR CARRYING FORWARD THE UNABSOR BED LOSS FOR INCOME TAX PURPOSES. IT IS FURTHER CONTENDED THAT T HE BROUGHT FORWARD LOSS AS PER BOOKS OF ACCOUNTS IS THE BUSINE SS LOSS WHICH IS BEING CARRIED FORWARD BY THE COMPANY. HENCE THE ACT ION OF THE AO ACCORDING TO THE AR IS NOT CORRECT. I AM INCLINED T O ACCEPT THE ARGUMENT OF THE AR ON THIS POINT AS THE WORDS USED IN THE ACT IS 'THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED D EPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNTS' AND HE NCE IF THE BUSINESS LOSS AS PER THE BOOKS OF ACCOUNTS IS NOT R ESTRICTED TO THE LOSSES OF EIGHT YEARS THE AO WILL HAVE TO TAKE INTO ACCOUNT THE ENTIRE BROUGHT FORWARD BUSINESS LOSS OR DEPRECIATIO N AND REDUCE WHICHEVER IS LESS FROM BOOK PROFIT. HENCE THE AO SH OULD VERIFY THE SAME AND WORK OUT THE BOOK PROFIT AS PER SECTION 11 5JB ACCORDINGLY. 11. WE HAVE HEARD BOTH THE SIDES PERUSED THE MATE RIALS AVAILABLE ON RECORD. WE SEE NO REASON TO INTERFERE WITH THE REAS ONING GIVEN BY THE CIT(A) IN ALLOWING THE ASSESSEES APPEAL ON THIS ISSUE AND THEREFORE WE DISMISS THE GROUND OF APPEAL OF THE REVENUE ON THIS ISSUE A ND CONFIRM THE ORDER OF THE CIT(A). 12. THE THIRD AND LAST ISSUE IN THE REVENUES APPE AL IS AGAINST THE ORDER OF THE CIT(A) HOLDING THAT THE TRANSFER OF CAPITAL ASSET BY THE ASSESSEE COMPANY TO THE HOLDING COMPANY IS EXEMPTED UNDER SE CTION 47(V) OF THE ACT. 13. THE ASSESSEE CLAIMED FOR EXEMPTION UNDER SECTI ON 47(V) IN RESPECT OF CAPITAL GAINS ON TRANSFER OF FIXED ASSETS TO ITS HO LDING COMPANY M/S. LEELA I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 9 SCOTTISH LACE (P) LTD. WHO WERE HOLDING THE ENTIRE 3000 SHARES OF THE ASSESSEE COMPANY AS ON THE DATE OF TRANSFER. 14. WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER HELD THAT THE PROFIT ON TRANSFER OF LAND AND BUILDING IS NOT EXEM PTED UNDER SECTION 47(V) OF THE ACT AS THE ASSESSEE HAS NOT FULFILLED THE CONDI TIONS AS LAID DOWN UNDER SECTION 47(V). THE ASSESSING OFFICER HELD THAT THE EXEMPTION UNDER SECTION 47(V) IS ALLOWABLE WHEN THE ASSET IS TRANSFERRED BY A SUBSIDIARY COMPANY IN FAVOUR OF THE HOLDING COMPANY IF THE ENTIRE (100%) SHARE CAPITAL OF THE SUBSIDIARY COMPANY IS HELD BY THE HOLDING COMPANY. HE OBSERVED THAT AS ON THE DATE OF EXECUTION OF CONVEYANCE THE TRANSFEREE HOLDS ONLY 99.4% OF THE SHARE CAPITAL AND THE BALANCE 0.6% IS HELD BY TWO O F ITS DIRECTOR OF THE ASSESSEE COMPANY. THEREFORE THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION UNDER SECTION 47(V) O F THE ACT. 15. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT EXEMPTION UNDER SECTION 47(V) OF THE ACT HAD BEEN CORRECTLY CLAIMED AS THE FIXED ASSET WAS TRANSFERRED DURING THE PREVIOUS YEAR 2003-04 RELEVA NT TO THE ASSESSMENT YEAR 2004-05 TO ITS HOLDING COMPANY M/S. LEELA SCOT TISH LACE PVT. LTD. WHICH WAS HOLDING THE ENTIRE 3000 SHARES OF THE ASS ESSEE COMPANY AS ON THE DATE OF TRANSFER ON 12.08.2003 AND IS EVIDENCED BY THE ANNUAL RETURN FILED WITH THE REGISTRAR OF COMPANIES UNDER SECTION 159 OF THE COMPANIES ACT 1956. THE ASSESSEE SUBMITTED THAT THE STATUTOR Y STATEMENT MADE PURSUANT TO SECTION 212(1)(E) OF THE COMPANIES ACT 1956 IN THE ANNUAL I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 10 REPORT OF THE HOLDING COMPANY M/S. LEELA SCOTTISH L ACE PVT. LTD. SIGNED BY THE DIRECTORS OF THAT COMPANY CONTAINING PARTICULAR S RELATING TO THE EXTENT OF SHARE HOLDING IN THE SUBSIDIARY COMPANIES CLEARLY SHOWS THAT 100% OF THE SHARES IN THE ASSESSEES COMPANY HAD BEEN HELD BY I TS HOLDING COMPANY. THIS VINDICATES THE STAND THAT THE ASSESSEE IS WHOL LY OWNED SUBSIDIARY OF THE HOLDING COMPANY M/S. LEELA SCOTTISH PVT. LTD. THE A SSESSEE ALSO CONTENDED THAT THE EXTENT OF SHARE HOLDING MENTIONED IN THE S ALE DEED DATED 12.08.2003 AS 99.40% WAS EXCLUSIVE OF 20 SHARES HEL D BY THE TWO DIRECTORS OF THE ASSESSEE COMPANY WHO WERE NOT BENEFICIAL SH ARE HOLDERS AND THE BENEFICIAL INTEREST OF THOSE 20 SHARES WERE HELD ON LY BY THE HOLDING COMPANY. IT WAS SUBMITTED THAT THOSE 20 SHARES WERE HELD BY TWO DIRECTORS OF THE ASSESSEE COMPANY AS NOMINEES OF THE HOLDING COMPANY IN ORDER TO COMPLY WITH THE MANDATORY REQUIREMENT OF HAVING MIN IMUM TWO SHARE HOLDERS IN A PRIVATE LIMITED COMPANY. IT WAS ALSO S UBMITTED BEFORE THE CIT(A) THAT THE PRESENT TRANSFER BEING NOT COVERED BY SECTION 2(47) OF THE INCOME TAX ACT SECTION 53 OF TRANSFER OF PROPERTY ACT THE CONVEYANCE HAS TAKEN PLACE ONLY ON 18.09.2003 WHEN THE REGISTRATIO N OF SALE DEED TOOK PLACE AND CONSIDERING THE FACT THAT THE ASSESSING O FFICER HAS NOT QUESTIONED THE BONAFIDE OF THE TRANSFER BUT REJECTING IT ONLY ON THE GROUND THAT IT IS AN AFTERTHOUGHT TO CLAIM EXEMPTION IN THE LIGHT OF THE RECITAL IN THE SALE DEED IS NOT CORRECT. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 11 16. THE CIT(A) HAS EXAMINED THIS ISSUE IN DETAIL I N PARA 3.1 AND 3.2 OF HIS ORDER AND CAME TO THE CONCLUSION THAT THE ASSESSEE HAS COMPLIED WITH THE CONDITIONS STIPULATED IN SECTION 47(V) AND THEREFOR E THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 47(V). THE OBSERVATIONS OF THE CIT(A) ARE AS UNDER: 3.1. I HAVE CONSIDERED THE ABOVE SUBMISSION. THE SOLE CO NTENTION OF THE APPELLANT IS THAT 47(V) IS NOT APPLICABLE BECAU SE THE TRANSFEREE COMPANY HOLDS ONLY 99.4% OF THE SHARE CAPITAL WHILE THE INCOME TAX ACT STIPULATES THAT THE SUBSIDIARY COMPANY SHOULD B E WHOLLY OWNED BY THE HOLDING COMPANY. IN THE OPINION OF THE AO WHOL LY OWNED MEANS 100% SHARES SHOULD BE OWNED BY THE HOLDING COMPANY. IT HAS BEEN ARGUED BY THE AR AND I AM ALSO INCLINED TO ACCEPT T HAT AS PER THE COMPANIES ACT THERE HAVE TO BE TWO MEMBERS WHO CAN FORM A COMPANY. THEREFORE IN EVERY SUBSIDIARY COMPANY ALSO THERE WILL HAVE TO BE TWO MEMBERS MINIMUM WHO CAN FORM A COMPANY. I N OTHER WORDS IF A HOLDING COMPANY WANTS TO FORM A 100% SUBSIDIAR Y ALSO IN THAT CASE ALSO ATLEAST ONE SHARE WILL HAVE TO BE OWNED BY ITS NOMINEE OR SOMEBODY ELSE. HENCE IF THIS DEFINITION IS' TO BE T AKEN INTO ACCOUNT THIS DEFINITION OF THE AO IS TO BE CONSIDERED. THEN THE PROVISION OF EXEMPTION ITSELF BECOMES REDUNDANT BECAUSE 100% OWN ED COMPANY CAN NEVER BE FORMED AS PER THE COMPANIES ACT. NOW IN TH E CASE OF THE APPELLANT THE AO HIMSELF MENTIONS IN THE ASSESSMEN T ORDER AS PER THE COPY OF THE ANNUAL RETURN FILED BEFORE THE REGISTRA R OF COMPANIES ON 20.12.2004 IT WAS MENTIONED THAT ON 12.08.2003 THE ABOVE MENTIONED TWO INDIVIDUAL DIRECTORS TRANSFERRED THEIR RESPECTI VE HOLDINGS IN FAVOUR OF THE TRANSFEREE COMPANY. EVEN AS PER THE STATEMEN T OF LEELA SCOTTISH LACE PVT. LTD. PURSUANT TO SECTION 212 OF THE COMP ANIES ACT RELATING TO COMPANY'S INTEREST IN THE SUBSIDIARY COMPANY TH E INTEREST IN THE APPELLANT COMPANY HAS BEEN SHOWN TO BE AS 100% AMOU NTING TO OWNERSHIP OF ENTIRE 3000 SHARES. THIS INFORMATION W HICH FORMS PART OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 12 THE ANNUAL ACCOUNTS OF THE HOLDING COMPANY HAS BEEN FILED BEFORE THE REGISTRAR OF COMPANIES ON 18.11.2004. DETAILS OF TH E SHARES TRANSFERRED AS PER THE APPELLANT IS AS UNDER: DATE OF REG. OF TRANSFER NO. OF EQUITY SHARES OF ` 100/- EACH TRANSFEROR LEDGER FOLIO NAME TRANSFEREE LEDGER FOLIO NAME 12.08.2003 10 31 VIVEK NAIR 36 LEELA SCOTTISH LACE P. LTD. 12.08.2003 10 33 VIVEK NAIR 37 1) LEELA SCOTTISH LACE P. LTD. 2) DINESH NAIR 3.2. IT HAS BEEN SUBMITTED BY THE AR THAT NAME OF DINE SH NAIR HAS BEEN KEPT AS JOINT OWNER IN RESPECT OF 10 SHARES ONLY TO ABIDE BY COMPANIES ACT REGULATIONS. I FIND THAT THE APPELLAN T HAS FULFILLED THE BASIC CONDITION OF SECTION 47(V). OTHER SHAREHOLDER S EARNING 20 SHARES WERE ONLY NOMINEES WHICH WERE THERE TO ABIDE BY THE COMPANIES ACT REGULATIONS. MOREOVER AS PER THE DEFINITION OF THE AO 47(V) WILL BECOME REDUNDANT BECAUSE THERE CANNOT BE ANY EXEMPT ION TO ANY COMPANY BECAUSE NO HOLDING COMPANY CAN BECOME 100% OWNER OF ANY SUBSIDIARY COMPANY AS PER THE PROVISIONS OF THE COM PANIES ACT. FURTHER AS PER THE AO'S OWN ADMISSION THE GOVERNM ENT OF TAMIL NADU HAS ALSO EXEMPTED SUCH TRANSFER OF ASSET FROM A WHOLLY OWNED SUBSIDIARY COMPANY TO A HOLDING COMPANY FROM STAMP DUTY. HENCE I FIND THAT THE APPELLANT HAS MET WITH THE CONDITIONS STIPULATED IN 47(V) AND TRANSFER BEING A TRANSFER FROM A WHOLLY OWNED S UBSIDIARY COMPANY TO A HOLDING COMPANY IT IS EXEMPT FROM CAPITAL GAI NS TAX. APPELLANT SUCCEEDS ON THIS GROUND. 17. THE ABOVE REASONING OF THE CIT(A) IS WELL FOUN DED AND THEREFORE WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CI T(A) WHO ALLOWED THE EXEMPTION UNDER SECTION 47(V) OF THE ACT TO THE ASS ESSEE. THEREFORE WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.75 7575 755 55 5/M/ /M/ /M/ /M/08 0808 08 13 18. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.03.2012. SD/ - SD/ - (DR. O.K. NARAYANAN) VICE - PRESIDENT (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI DATED THE 29.03.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.