Recently, the Kolkata Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Aravali Polymers LLP (the taxpayer), held that advancing of loan to its partners by Limited Liability Partnership (LLP) out of reserves and surplus of erstwhile company results in violation of Section 47(xiiib) of the Income-tax Act, 1961 (the Act). Therefore, the benefit of exemption of capital gain under Section 47(xiiib) would not be available to the taxpayer. Since the benefit of capital gain exemption is not available, the provision of Section 47A(4), which withdraws exemption of capital gain, does not apply. Accordingly, the Tribunal held that in the given case capital gains on transfer of assets on conversion of a company into an LLP is to be computed under Section 45 of the Act. The Tribunal sent the matter to AO, with a direction to consider the value at which the assets of the erstwhile company has been acquired or taken over by the taxpayer, as a sale consideration and compute the capital gains accordingly.