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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SANDEEP SINGH KARHAIL, JM
The learned Assessing Officer is aggrieved with that and has raised the following grounds of appeal:-
“1 Whether on the facts and circumstances of the case the Ld.CIT(A) erred in deleting the addition of Rs. 13,96,40,040/- disregarding the fact that the assessee had violated fundamental accounting principles by revaluing the land without routing the corresponding entries through the profit and loss account and without giving corresponding credits to the capital accounts of the partners, and without giving corresponding credits to the capital accounts of the partners, and as such, the book results were ex facie incorrect and misleading."
"2. Whether on the facts and circumstances of the case the Ld.CIT(A) erred in deleting the addition of Rs. 13,96,40,040/- without asking the assessee to furnish the copies of the partner capital accounts and without verifying the facts claimed by the assessee."
The assessee is also aggrieved with the appellate order and has raised cross objection in CO. No. 83/Mum/2023 raising the following grounds of appeal:-
“1. The Ld Assessing Officer has erred in completing the assessment vide an order dated 29/12/2018 passed u/s 143(3) r.w.s 147 of the I.T. Act, 1961 without having provided the copy of approval/sanction sought if any from the competent authority as per provisions of sec 151 of the I.T. Act, 1961 along with the copy of reasons recorded to justify that the Ld assessing officer and the approving authority has applied their mind before re- initiation of Re-assessment proceedings.
2. The Ld assessing officer has erred in initiating the Re-assessment proceedings merely based on borrowed satisfaction, i.e. based on information stated to have been received from the assessing officer who had completed the assessment of the partnership firm for the year under consideration in a very casual manner in as much as from the copy of
3. The Ld assessing officer i.e. ACIT 31(1), Mumbai has erred in completing the assessment without having a valid jurisdiction as is evident from the notice issued u/s 148 of the I.T Act, 1961 dated 22/03/2018 by the Income Tax Officer, Ward 31(1)(1), Mumbai (the then JAO).
4. The Ld assessing officer has erred in completing the assessment without having complied with the provisions of sec 129 of the I.T Act, 1961 as is evident from the assessment order dated 29/12/2018 passed u/s 143(3) r.w.s 147 of the I.T Act, 1961 (i.e. the Ld assessing officer has not given any reference of change of jurisdiction from ITO Ward 31(1)(1), Mumbai to ACIT 31(1), Mumbai)”
Brief facts of the case show that the assessee is an individual who filed his return of income for A.Y. 2013-14, declaring a total income of ₹5,52,340/- on 5 October 2013. The return of income was processed and not scrutinized.
The assessee filed its return of income on 29 November 2018, reiterating the original return filed. On 30 November 2018, reasons were requested which were provided on 3 December 2018. The assessee filed objections on 5 December 2018, and 10 December 2018, which were rejected on 11 December 2018. Thus, the reassessment proceedings commenced.
The assessee was asked to submit the details concerning the introduction of land. The assessee submitted that the above land was introduced in the partnership firm in the year 2010 at nil cost. Subsequently, in A.Y. 2013-14, the partnership firm revalued the land. It was stated that
The learned Assessing Officer found that the assessee is a partner in M/s Abdul Sattar Suleman and Others. He is the co-owner of the land along with the other partners. The said land was introduced in the partnership firm in A.Y. 2011-12 and no amount was recorded in the books of account of the partnership firm for transfer of such land. However, during the assessment year 2013-14, the partnership firm recorded the value of the land in its books of account and account of other partners, consequently, on account of the assessee was credited of ₹13,96,40,040/-. Therefore, the assessee has the right to receive the amount from the partnership firm. It was further noted that the said land is not at the disposal of the partners and partners have not withdrawn the same. The learned Assessing Officer further noted that the assets were transferred in A.Y. 2011-12, however, the amount was recorded in the books of the firm first time in A.Y. 2013-14 and therefore, the above sum is the full value consideration received or receivable to the assessee only in A.Y. 2013-14. Therefore, capital gain is chargeable to tax in A.Y. 2013-14. Accordingly, the learned Assessing Officer considered the above transfer as long-term capital gain chargeable to tax in the hands of the assessee under Section 45(3) of the Act amounting to ₹13,96,40,040/-
The assessee aggrieved with the same preferred the appeal before the learned CIT (A). The learned CIT (A) passed the appellate order holding that no capital gain had accrued or arose to the assessee in A.Y. 2013-14 on account of the revaluation of land which was brought into the books of the firm in A.Y. 2011-12 at ₹ nil. The learned CIT (A) relied upon the decision of the Hon'ble Supreme Court in the case of Sanjeev Woolen Mills vs. CIT reported in 279 ITR 434 (SC) and also of the co-ordinate Bench in the case of ITO ward 1(4), Calcutta, Vs. M/s. Orchid Griha Nirman Pvt. Ltd. in ITA No.2269/Kol/2013. Accordingly, the appeal of the assessee was allowed. The learned Assessing Officer aggrieved with the appellate order has preferred this appeal before us.
The learned Departmental Representative submitted the facts of the case stating that the assessee introduced the land in the books of the partnership firm in A.Y. 2011-12. On that date, no sum was credited to the partner's account and similarly, no amount was debited as value of land in the books of the partnership firm. Subsequently, in A.Y. 2013-14, the sum of ₹13.96 crores was credited to the account of the assessee by putting the valuation of the land. He referred to the provisions of Section 45(3) of the
11. The learned Authorized Representative filed a factual paper book containing 96 pages and a case law
We have carefully considered the rival contention and perused the orders of lower authorities. In this case admittedly transfer took place in AY 2011-12, It did not happen in AY 2013-14 as per finding of ld AO also.
Section 45 (3) provides that :-
14. As the year of chargeability as per section 45(3) is the „year in which transfer takes place‟. The AY in which transfer took place is AY 2011-12 and not the impugned Ay in which assessment is made. On this sole reason, the appeal of the ld AO fails.
Further Decision relied up on of ITAT by the ld CIT (A) has been upheld by Honourable High court Principal Commissioner of Income-tax, Kolkata-1 V Blue Heaven Griha Nirman (P.) Ltd.* [2022] 135 taxmann.com 3 (Calcutta)/[2022] 285 Taxman 663 [ SLP dismissed [2023] 154 taxmann.com 17 (SC)/[2023] 295 Taxman 11 (SC) holding as under :-
“9. For the purpose of deciding whether the substantial questions of law as suggested arise for consideration, it would suffice to refer to the case of the assessee who is the respondent in ITAT No.
10. Subsequently, proceedings under section 147 of the Act were initiated and notice dated 3-11- 2011 was issued under section 148 of the Act. The reasons for reopening was that the partnership firm M/S. Salapuria Soft Zone had revalued its assets and transferred the revalued reserve to its partners' account and the assessee being a partner had received certain sum of money on account of such revaluation reserve. Therefore, the Assessing Officer opined that he had reasons to believed on examination of record that the above has escaped assessment within the meaning of section 147 of the Act. The assets which were the subject matter was a large tract of land measuring about 3,19,086 sq. ft. owned by one M/s. I Gate Global Solutions Ltd. The said land was advertised for sale. The
On 9-1-2006, these three companies and another company M/s. Wellgrowth Griha Nirman Private Limited. (the assessee in ITAT No. 239 of 2017) formed the partnership firm namely M/S. Salapuria Soft Zone and the three companies transferred the said land to the partnership firm. The fourth company (the assessee in ITAT No. 239 of 2017) was to arrange the finance required for development of the land. Each of the said three companies had 10% share in the profit/loss and the fourth company's share was 70%. The partnership business was deemed to have commenced from 1-4-2005. By supplementary deed of partnership dated 13-3-2006 between the four partners (companies) provided that the partnership firm M/S. Salapuria Soft Zone was entitled to avail a loan/credit facilities from commercial banks/financial institutions by mortgaging the movable and immovable properties. The firm, M/S. Salapuria Soft Zone, obtained the loan/credit facilities to the tune of Rs. 250 crores. The transfer effected by the three companies in favour of the firm was at cost and such cost was the amount recorded in the books of account of the firm for the year ended 31-3-2006, as the value of the said land with corresponding
12. The Assessing Officer while examining the return in the assessment which was reopened was of the view that the credit to the "Current Asset" of the assessee in the partnership firm M/s. Salapuria
13. Thus, the Assessing Officer concluded that the revaluation amount was real profit and not notional and the firm was taxable in respect of its profits but the revaluation profit was not disclosed by it as its income for the assessment year 2008-09 and no tax was paid thereon. Thus, the three assesses were made liable for tax on its share of revaluation profit. With the above reasoning the assessment was completed. The assessee carried the matter on appeal to the Commissioner of Income-tax Appeal [CIT(A)] firstly questioning the validity of the re- assessment proceedings apart from the merits of the matter. The CIT(A) held that even if the case made out in the reasons recorded by the Assessing Officer is accepted, no belief could have been entertained by the Assessing Officer that any income in respect of which the partner was chargeable to tax had escaped assessment, and therefore held that the Assessing Officer acted without jurisdiction by issuing notice under section 148 of the Act. With regard to the merits of the matter, the assessee contended before the CIT(A) that the transfer of the land by the three companies to the partnership was by way of capital
14. Subsequently the land price in the area continued to rapidly rise and the state government kept on revising the guideline value for stamp duty purpose thrice. The assessee contended notwithstanding such price rise, in accordance with the accounting principles, the land held as inventory could only be shown at its costs. The revaluation of the asset by the firm was justified by contending that it was to bring it in line with the current market value of the land and building and for justifying the bank finance obtained by the firm to the tune of Rs. 250 crores. Thus, it was submitted that the revaluation was not the colourable device. Other factual details with regard to the loan availed by the firm were also placed for consideration.
The books of account of the said firm for the financial year ended March 31, 2006 clearly
With regard to the revaluation, tribunal re- appreciated the facts which were considered by the CITA. With regard to the development of the area in question, as to how there was steep rise in the value of the properties and the state government revised the guideline value for the purpose of stamp duty several times between 2004-07 and after noting the price rise the tribunal held notwithstanding the said fact in accordance with the accounting principles the land held as inventory was shown at its cost and therefore it cannot be said that under valuation was done by the assessee as alleged by the Assessing Officer.
17. Further more on facts the tribunal agreed with CIT(A) that after conversion of inventory into fixed
Further more on facts it was held that there was no withdrawal by the partners from capital accounts and therefore there cannot be any income liable to tax in their hands.
19. After having given our anxious consideration to the entire matter we find that a thorough examination of the factual position has been done by the CIT(A) and the tribunal as well. We find no questions of law, much less substantial questions of law arises for consideration in this appeal. In the result, the appeals are dismissed. No costs.”
16. Therefore respectfully following the decision of Honourable High court and also on plain reading of the provision of section 45 (3) of the Act , no addition could have been made in AY 2013-14 in absence of transfer of capital assets in this year.
Honourable Gujarat High court in case of Manoj Dwarkadas Pritmani v Assistant Commissioner of Income-
“11. It appears from the record that the assessee had transferred his land to M/s. Swaminarayan Enterprise as part of capital contribution in the partnership firm as per Partnership Deed duly executed on 15-8-2008. Undisputedly, the land in question was not transferred in the name of Firm. It is a settled law that where immovable property is transferred by a partner to the firm as a capital contribution and registration does not take place by paying stamp duty, the case would be covered under section 45(3) of the Act. As per Section 45(3) of the Act, whenever a partner contributes any capital asset in the partnership firm, then the value of capital asset recorded in the books of account of the firm is to be considered as the full value consideration for the purpose of computing capital gain.
12. Section 45(3) says that the profits or gains arising from the transfer of capital asset by the person to a firm in which he is or becomes a partner by way of a contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and for the purposes of Section 48, the amount recorded in the books of account of the firm, as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of transfer of capital asset.
In view of the provisions of law and facts of the present case, we are of the view that the reasons lack validity and the AO had proceeded on erroneous premise and there was no sufficient material before the AO to take a prima-facie view that income of the assessee for the year under consideration has escaped assessment.”
18. In view of above facts and following decision of Honourable High courts , in absence of any contrary decision shown to us, we confirm the order of the learned CIT [A] and hence all grounds of appeal of the ld AO fails and hence dismissed.
In the result appeal of learned Assessing officer for A. Y. 2013-14 is dismissed.
As we have dismissed the appeal of the ld Ao co filed by assessee becomes academic as no adjudication is required on validity of assessment challenged there in.
Accordingly, appeal of the ld AO is dismissed on merits and CO of the assessee is dismissed as academic.
Order pronounced in the open court on 21.12. 2023.