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Income Tax Appellate Tribunal, MUMBAI BENCH “ C ”, MUMBAI
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-3, Thane [in short ‘the CIT(A)’] dated 23/08/2016 for the assessment year 2006-07.
The Revenue in appeal has assailed the findings of CIT(A) on two grounds. The relevant grounds raised by the Revenue read as under:
“1. On the facts and in the circumstances of the case and in the law, the Ld. CIT(A)-3, Thane, erred in deleting the addition of Rs 1,77,12,916/- made on account of undisclosed part of sale proceeds. 2. On the facts and in the circumstances of the case and in the law, the Ld. CIT(A)-3, Thane, erred in deleting the addition of Rs 1,12,50,000/- made on account of advance from Evershine Developers for grant of Development rights.”
Shri Ravinder Sindhu representing the Department submitted that the assessee sold parcel of land to the tune of Rs.17,27,84,665/- and executed conveyance deed on 09/08/2005 and 08/02/2006. The assessee in its books has only disclosed an amount of Rs.10,16,13,000/-. The remaining amount of sale proceeds Rs.7,11,71,665/- is not reflected in the P&L Account. Hence, the Assessing Officer made addition of Rs.1,77,12,916/- being profit @ 25% of undisclosed sales Rs.7,11,71,665/-. The CIT(A) has deleted the aforesaid amount without appreciating the fact that the assessee has sold the land held as stock-in-trade and not capital asset. The provisions of Section 50B of the Act are applicable only on capital asset and not on stock- in -trade. The stock- in-trade is valued at market price or cost. In respect of ground No.2 the ld.Departmental Representative submitted that the assessee has not disclosed amount of Rs.1,12,50,000/- received as advance from Evershine Developers for grant of Development Rights. The ld.Departmental Representative strongly supported the assessment order and prayed for reversing the findings of CIT(A) on both the above issues.
We have heard the submissions made by ld.Departmental Representative and have examined orders of authorities below. The Assessing Officer in reassessment proceedings has made addition of Rs.1,77,92,916/- and Rs.1,12,50,000/- as the aforesaid amounts were not offered to tax by the assessee. Aggrieved by the assessment order dated 30/03/2014 passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 [ in short ‘ the Act’ ] the assessee filed appeal before the CIT(A).
The CIT(A) deleted the addition of Rs.1,77,12,916/- by observing as under:
“ 8.(ii) In the instant case, the appellant firm, prior to its dissolution hand conveyed a part of land held by it on 09.08.2005 for a sale consideration of Rs.10,16,13,000/- .Thereafter, the appellant firm was dissolved w.e.f. 15.10.2005 and all the assets and liabilities of the firm were taken over by one of its partners, M/s Housing Development and Improvement India Ltd. (HDIL) on 15.10.2005 by way of a slump sale u/s 50B of the I.T. Act, 1961 and surplus arising on account of such slump sale has already been offered for taxation as long term capital gains. Subsequently, on dissolution of the firm, M/s. HDIL has become proprietor of the appellant firm Palghar Land Development Corporation(PLDC) and post dissolution, the said proprietor, M/s.HDIL had conveyed the balance portion of land amounting to Rs.7,11,71,665/- to the Evershine Developers, vide Development agreement dated 08.02.2006 and accordingly disclosed the sales as well as profit amounting to Rs. 1,77,12,916/-. This fact is supported by the documentary evidence i.e. Annual Report of HDIL for F.Y.2005-06 and certified sale's schedule mentioning the aforesaid sales to Evershine Developers. The A.R. of the appellant has demonstrated the said sale as well the profits in the books of the PLDC, proprietorship concern of HDIL. In short, the said income of Rs.1,77,12,916/- is duly reflected and taxed in the hands of M/s.HDIL. At page 149 of PB dated 27.07.2015, M/s.HDIL has shown taxable profit of Rs.44,81,60,312.16/- including a sum of Rs.l,77,12,916/-. Therefore, similar addition of Rs.1,77,12,916/- in the hands of the appellant is unwarranted. As a result, the appeal of the appellant on this ground is allowed and the addition of Rs.1,77,12,916/- made by the A.O. is deleted.”
The CIT(A) deleted the addition of Rs.1,12,50,000/- for the following reasons: [ “9.0 Ground No.5 is directed against the taxing of advances of Rs.1,12,50,000/- which is a liability transferred to the M/s.HDIL, post its conversion from the erstwhile partnership to proprietorship. (i) I have carefully considered the submissions of the appellant, the observations of the AO in the assessment order and the facts of the case. (ii) This ground pertains to addition made by the AO by holding that the Appellant has received part advances of Rs. 1,12,50,000/- as per agreement dated 09.08.2005 and the same has not been reflected in the profit & loss account. The appellant has received an advance(pending conveyance) amounting to Rs. 1,12,50,000/- from M/s
Evershine Developers for grant of Development Rights. The appellant has submitted that since the conveyance of the said land was pending, the appellant firm had disclosed the said advance under the sub head "Advance from Customers" under Net Current Assets in the Balance Sheet. This advance was subsequently assigned to M/s HDIL, post dissolution and was adjusted against the amount to be received against the sale consideration for the conveyance of the balance land. Since the appellant firm had rightly disclosed the said amount in the balance sheet and ultimately the said advances are also taken over and appropriated as part of the slump sale, there is no reason for making this addition. As a result, the appeal of the appellant on this ground is allowed and the addition of Rs.l,12,50,0007- made by the AO is deleted.”
The fact of dissolution of partnership firm and transfer of assets and liabilities of the assessee firm to M/s Housing Development and Improvement India Ltd.(HDIL) by way of slump sale is not disputed. HDIL has offered the income to tax in its return of income. Once the amount has been offered to tax subsequently by HDIL, there is no question of again taxing the same amount in the hands of the assessee. We see no reason to reverse the findings of CIT(A). The appeal of Revenue is dismissed being devoid of any merit.
In the result, appeal by Revenue is dismissed.
Order pronounced in the open court on Friday the 30th day of September, 2022.