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Facts
The assessee firm, engaged in solvent extraction, filed its return for AY 2008-09. The case was reopened under Section 148, and additions were made for Long Term Capital Gain (LTCG) due to the conversion of the partnership firm to a proprietorship. The assessee appealed to the CIT(A), who allowed the appeal.
Held
The Tribunal observed that the Revenue contended the CIT(A) did not pass a well-reasoned order and erred in deleting additions without proper verification of documents. The assessee's representative argued that the CIT(A)'s order was well-reasoned. The Tribunal decided to re-examine the issues at the CIT(A)'s level for natural justice.
Key Issues
Whether the CIT(A) was justified in deleting the LTCG additions without proper verification of documents and explanations, especially concerning the changes in partnership and retirement of partners.
Sections Cited
143(3), 148, 148
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Income Tax Appellate Tribunal, DELHI BENCH “F”, DELHI
Before: SH. S. RIFAUR RAHMAN & SH. SUDHIR KUMAR
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the Revenue is directed against the order of the Ld. CIT(A), Karnal vide order dated 18-07-2017 pertaining to A.Y. 2008-09 arising out the assessment order dated 28-03-2014 passed u/s. 143(3) read with section 148 of the Income-tax Act, 1961, (in short ‘the Act’). 2. The Revenue has raised the following grounds in its appeal :-
Whether on the facts and in the circumstances of the case, the CIT(A) Karnal was right in law in deleting the addition made on account of LTCG of Rs. 1,53,19,432/- and Rs. 1,63,32,725/- when no original partnership deed and original copy of Audit Report for verification / examination was produced at the time of assessment proceedings?
2(a). Whether on the facts and in the circumstances of the case, the CIT(A) Karnal was right in law in deleting the addition on account of LTCG made by the AO after conserving the partnership deed dated 1.4.2008 furnished by the assessee during assessment proceedings for the AY 2009-10 in which the name of sh. Anil Sahni is not indicated as retiring partner whereas of other two retiring partners, Sh. Tarik Khurana and sh. Vijay Kumar has been shown as retiring partner as on 31.3.2008?
(b) Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Karnal was right in law in deleting the addition on account of LTCG made by the AO whereas the assessee did not file any explanation as to what happened to Sh. Anil Sahni claimed as entered on 31.3.2008 and neither he had been shown as retired in the new partnership on 1.4.2008 nor he had been shown as continuing partner and the assessee was totally silent on this issue?
Brief facts of the case are that the assessee firm was engaged in the solvent extraction business at Taraori. The assessee filed return of income for the assessment year 2008- 09 on 29.09.2008 and declared taxable income at Rs. 69,720/-. The case of the assessee was reopened u/s. 148 of the Act and income of the assessee assessed at Rs. 3,17,21,880/-. The AO has made an addition of Rs. 1,53,19,432/- and Rs. 1,63,32,725/- as Long Term Capital Gain on account of land and building respectively due to change in constitution of the firm i.e. conversion of the partnership firm to sole proprietorship concern. The AO made the addition of Rs. 31,17,21,880/- assuming the same as Long Term Capital Gain on transfer of assets by the firm on dissolution of the firm. Aggrieved, the order of the AO the assessee preferred the appeal before the Ld. CIT(A) who vide his order dated 18-08-2017 allowed the appeal of the assessee by observing that it is a fact that the partnership came into existence on 31.3.2008. Being aggrieved the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
We heard both the parties and perused the records. At the time of hearing, Learned authorized representative for Department submitted that Ld. CIT(A) has not passed a well- reasoned order. She submitted that Ld. CIT(A) erred in deleting the addition on account of LTCG of Rs. 1,53,19,432 and Rs. 1,63,32,725/- when no original partnership deed and original copy of Audit Report for verification/ examination was produced at the time of assessment proceedings. She further submitted that ld. CIT(A) erred in deleting the addition on account of LTCG made by the AO after conversing the partnership deed dated 12.4.2008 furnished by the Assesee during assessment proceedings for the AY 2009-10 in which the name of Sh. Anil Sahni is not indicated as retiring partner whereas names of other two retiring partners Sh. Tarik Khurana and Sh. Vijay Kumar has been shown as retiring partner as on 31.3.2008. She further submitted that the Ld. CIT(A) erred in deleting the addition made by the AO whereas the assessee did not file any explanation as to what happened to Sh. Anil Sahni claimed as entered on 31.3.2008 and neither he had been shown as retired in the new partnership on 1.4.2008 nor he had been shown as continuing partner and the assessee was totally silent on this issue. She further submitted that addition was made after considering the fact that there was a long capital gain on transfer of assets as the partnership firm was converted into proprietorship concern on 31.3.2008, which fact has not been considered by the Ld. CIT(A) appropriately and has not considered the remand report of the AO properly. However, Ld. AR for the assessee submitted that Ld. CIT(A) has passed a well reasoned order which does not need any interference, because the partnership came into existence on 31.3.2008. In view of aforesaid factual matrix, we find considerable cogency in the contention of the Ld. CIT(DR) that in view of the above discussions and in the interest of natural justice, the aspect as narrated above by the Ld. CIT(DR) needs to be examined and verified at the level of the Ld. CIT(A) afresh, and thereafter decide the issues in dispute afresh, after giving adequate opportunity of being heard to the assessee. We hold and direct accordingly.
In the result, the appeal of the Revenue is allowed for statistical purposes. Order pronounced in the open court 9.01.2026.