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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & T.R. SENTHIL KUMAR
(Applicant) (Responent) : Assessee by None Revenue by : Shri V.K. Singh, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 14/06/2022 घोषणा क� तार�ख /Date of Pronouncement: 24/06/2022 आदेश/O R D E R
PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER
This appeal is filed by the Revenue against order dated 26.7.2019 passed by the Commissioner of Income-tax (Appeals)-6, Ahmedabad relating to the Asst.Year 2009-10.
The grounds of appeal
raised by the assessee are as follows: “1. Whether on the facts and in the Circumstances of the case, the decision of Ld.CIT(A) is justified in allowing relief with regard to the addition of Short term capital gain of Rs.5,98,73,450/- made by the AO, overlooking the facts of the case that the AO has made addition of revaluation of the land in the books of the assessee treating the same as short term capital gain and the Hon'ble ITAT has not considering the decision in the case of Om Namah Shivay Builders & Developers (2011)
43. SOT 397 is applicable in assessee's case?
2 2. Whether on the facts and in the circumstances of the case, the decision of Ld. CIT(A) is justified in allowing relief with regard to the addition made of Rs.12,23,445/- on account of share transaction by resorting Clint Code Modification, overlooking the facts of the case that the assessee has adopting the client Code Modification and shifted out profit of Rs.14,735/- and shifted in loss of Rs.12,08,710/-
Brief facts of the case are that the assessee is Karta of HUF engaged in trading in investment, finance and security and share income from partnership firm. The assessee filed its return of income on 29.9.2009 declaring NIL income. The same was processed under section 143(1) of the Income Tax Act, 1961 ("the Act" for short) and reopened under section 147 of the Act on the ground that the assessee was one of the beneficiaries of Client Code Modification (“CCM” for short) and during the financial year 2008-09 profit shifted out was of Rs.14,735/- and loss shifted of Rs.12,08,710/- resulting into net reduction in income due to CCM of Rs.12,23,445/- . Thus, the assessee has reduced his profit by Rs.12,23,445/- relating to the Asst.Year 2009-10. The assessee filed a NIL return in response to notice under section 148 and contested the reopening of the assessment. During the course of re- assessment proceedings, the AO issued a show cause notice that the assessee introduced land in the said firm for a value of Rs.2,11,41,990/- in the books of the firm viz. Youngstar Infrastructure wherein the assessee is one of the partners. The said amount was re-valued in the books of accounts of the firm at Rs.7,80,02,176/- which has resulted in gain of Rs.5,86,60,186/-. This amount has not been offered as income while filing return of income for Asst.Year 2009-10, and the assessee was requested to show cause why the same be treated as capital gain in the hands of the assessee. The assessee replied that there was no transfer of asset by the partnership firm to partners at any stage and the land rights of the partnership was always with the partnership firm.
3 Thus, there is no transfer of asset and there cannot be a capital gain without transfer. Merely on the basis of crediting of revaluation amount to partner’s capital account was not a capital gain in the hands of the assessee. Thus, there was no transfer of asset of the partnership firm to any partners within the meaning of section 2(47) of the Act, and therefore, there was no question of any capital gain in the above transaction.
On the issue of CCM, the assessee replied that he has not a beneficiary of CCM. If any code modification was made by the broker at the instruction was not with the malafide intention, there should be genuine error of entering client code by the respective person. When the client code was modified on the same day, there could not be any mala fide intention. However, the above explanations have not been accepted by the AO and made addition of Rs.5,86,66,086/- as capital gain on revaluation of land held by the assessee in the partnership firm and also added Rs.12,23,445/- as profit in the share transaction by resorting CCM.
Aggrieved against the reassessment order, the assessee filed an appeal before the ld.CIT(A). The ld.CIT(A) by a detailed order has observed that similar addition was also made in one of the partners viz. Jatin Kanubhai Kotadia and the said addition was also deleted by the ld.CIT(A)-20 in his order dated 18.4.2012. The CIT(A) observed that any asset brought into by a partner in the firm as his capital contribution to the firm was recorded at book value in the books of the partnership firm. As per section 45(3) of the Act, the amount recorded in the books of accounts of the firm as value of the capital asset shall be deemed to be a value of consideration received for the transfer of capital asset contributed by the partner in the firm. In case, where such asset was revalued subsequently, the 4 revalued amount of capital asset which was transferred to capital account of the partners in their respective share of profit was not liable to capital gain tax in view of section 45(4) of the Act, even if such share in capital account was paid to the retiring partners. ITAT, Mumbai Bench in the case of D.S. Corporation in & 3527/Mum/2012 dated 10.1.2019 has been clarified that revaluation of asset by partnership firm which resulted into enhancement of value of asset and this enhanced amount credited in the capital account of the partners, does not give rise to capital gain under section 45(4) of the Act, even when a retiring partner takes amount in his capital account, including enhanced value of asset. The ld.CIT(A) further relied following High Court’s judgment:
i) Kunnamkulam Mill Board, 125 taxman 802 (Ker) ii) Smt. Hemlata S. Sheth, 104 taxmann.com 58 (Bom) iii) Dynamic Enterprises, 40 taxmann.com 318 (Kar) iv) Karnataka Agro Chemicals, 49 taxmann.com 324 (Kar)
5.1 Following the above judicial rulings, the ld.CIT(A)held that revalued amount of capital asset which was transferred to capital account of the partners in their respective shares of profit, was not liable to capital gain tax in view of section 45(4)of the Act, even when such share in capital amount was paid to the retiring partner as the same did not amount to transfer in terms of section 2(47) of the Act. Therefore, addition made by the AO was deleted.
5.2 As regards addition made on account of CCM of Rs.12,23,445/-, the ld.CIT(A) held that the assessee has mainly argued that he has not carried out any CCM and the same has been made by the broker. The AO has compiled date of transaction, closing rate and arrived at alleged gain or loss in CCM. It is 5 pertinent to note that entire addition has been made based upon information received by the AO for alleged CCM whereas the assessee has accounted for such transaction based upon broker’s note and payment has been made through account payee cheques only. During the course of assessment proceedings, the AO has not brought anything on record to prove that there was any transactions in cash against the alleged CCM and the AO has not referred to any statement of broker by accepting alleged CCM or even no statement of original person in whose name transactions recorded were made. Thus, the AO could not make any addition simply on presumptive basis and only there was a CCM. In this connection, the assessee relied upon decisions of ITAT, Ahmedabad Bench in the case of Kunvarji Finance P.Ld., IT(SS)A.No.615/Ahd/2010 dated 19.3.2015, & Amar Mukesh Shah, 81 taxmann.com 450 and ITAT, Mumbai Bench’s decision in the case of Ashok Goyal HUF, 165 TTJ 306, Ashok Goyal HUF, 165 TTJ 306. Following the above decisions, the ld.CIT(A) deleted addition of Rs.12,23,445/- made by the AO.
Aggrieved against the appellate order, the Revenue is before us raising the above grounds of appeal.
During the course of hearing, none on behalf of the assessee appeared in spite of service of notice. The ld.DR appearing for the Revenue supported order of the AO, and pleaded that the addition is to be upheld. He sought support of the Tribunal’s judgment in the case of ITO Vs. Om Namah Shivay Builders & Developers, 43 SOT 397 (Mum-Trib).
We have given our thoughtful consideration to the facts of the case and perused the materials available on record. The ld.DR could not produce before us any judgments in favour of the Revenue, as 6 against the addition made on account of revaluation of the land in the partnership firm. Similarly, the ld.DR could not place before us any contradictory finding as relied by the ld.CIT(A). In the absence of any further materials or judgments, we do not find it necessity to interfere with the order passed by the ld.CIT(A). Further, the fact in the case of Om Namah Shivay Builders & Developers (supra) relied upon by the ld.DR is that one of the partners died and his legal heirs continued in the firm and then retired from the said firm, and this fact is not applicable to the facts of the present case. Thus, the order passed by the ld.CIT(A) does not require any interference on the facts brought out therein are not disputed by the Revenue, therefore, the same is liable to be upheld.
In the result, the grounds raised are rejected and the appeal of the Revenue is dismissed.
Order pronounced in the Court on 24th June, 2022 at Ahmedabad.