ON

13.09.2022

COMING

ON

FOR

PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S.DINESH

KUMAR J, PRONOUNCED THE FOLLOWING:-

JUDGMENT

This appeal by the assessee challenging the

order dated 23.01.2017 in ITA No.1550/Bang/2013

for the A.Y. 2009-10 has been admitted to consider

the questions framed in the memorandum of

appeal. After hearing learned Advocates on both

sides, in our view, only the following questions arise

for consideration:

1.

Whether the Tribunal is justified in law in

holding that the provisions of section 45(4) are

attracted when there has been no distribution or

dissolution of the firm and consequently confirming

the addition to an extent of Rs.68,86,826/- as short

term capital gains in respect of the building at

Audugodi on the facts and circumstances of the case.

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2.

Without prejudice, whether the computation

of short term capital gains at Rs.68,86,826/- is in

accordance with law and whether the excess over the

cost of the building ought to have been taxed as long

term capital gains on the facts and circumstances of

the case.

3.

Whether the Tribunal was justified in law in

holding that an amount of Rs.1,47,79,298/- is to be

taken as deemed profit on transfer of stock and

consequently passed a perverse order on the facts

and circumstances of the case.

4.

Whether

the

Tribunal

was

justified

in

confirming the disallowance of Rs.53,367/- under

Section 14A of the Act on the facts and circumstances

of the case.

5.

Whether

the

Tribunal

was

justified

in

confirming the disallowance of Rs.3,33,333/- being

the disallowance of premium paid on Keymen

Insurance Policy taken in the name of the partner of

the Appellant firm on the facts and circumstances of

the case.

2.

Heard Shri. A Shankar, learned Senior

Advocate for the assessee and Shri. E.I. Sanmathi,

learned Advocate for the Revenue.

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3.

Brief facts of the case are, assessee, a

partnership firm engaged in trading of pipes, tubes

and fittings, transferred certain assets and stock to

M/s. Evergreen Seamless Pipes and Tubes Pvt. Ltd.,

under a BTA¹. The Partners of the Firm were the

Directors in the Private Limited Company. Assessee

filed its return for A.Y. 2009-10 declaring an income

of Rs.2,02,10,167/-. The assessment under Section

143(3) was completed determining a total income

of Rs.19,00,48,398/- by making various additions

and disallowances. The CIT(A)² partly allowed

assessee's appeal. Feeling aggrieved, both assessee

and Revenue filed their appeals before ITAT and the

ITAT has dismissed both appeals. In this appeal,

assessee is aggrieved by:

(i)

disallowance

of

Rs.53,367/-

under

Section 14A of the IT Act;

1 Business Transfer Agreement

2 The Commissioner of Income Tax (Appeal)

5

(ii)

addition under Section 45(4) with regard

to:

(a) land at Adugodi Rs.54,89,677/-

(b)

Building Rs.68,86,826;

(iii) disallowance of premium on Insurance

Policy of Rs.3,33,333/-.

4.

Re-disallowance

of

Rs.53,367/-

under Section 14A of the IT Act.

Shri. Shankar submitted that assessee had

made investment of Rs.1,06,73,419/- in various

mutual funds from out of the Bank loans and

Partners' Capital Account and paid interest on the

borrowings. The Assessing Officer called upon the

assessee to show cause as to why disallowance

should be made under Section 14A of the IT Act

and Rule 8(D) of the Rules. The assessee has

explained that the investment is in the nature of

savings or to keep some amount out of the

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business mainly to pay the advance Income tax

whenever

required.

Further,

assessee

had

suo moto disallowed Rs.1,39,239/- as expenditure

incurred towards exempt income and the total

exempt income earned is Rs.2,12,146/-. He

contended that in order to disallow a portion of the

expenditure, the Assessing Officer ought to have

satisfied himself that the suo moto disallowance

made

is

incorrect.

Without

recording

such

satisfaction, the Assessing Officer could not have

arbitrarily disallowed the amount of Rs.53,367/- by

invoking Rule 8D of the Rules. In support of this

contention, he