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Income Tax Appellate Tribunal, “SMC” – ‘A’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश /O R D E R
This appeal by the Revenue is directed against the order of the Commissioner of Income-tax(Appeals)-2, Coimbatore dated 30.01.2017 for assessment year 2009-10.
- - 2 ITA 1200/Mds/17
The grounds raised by the Revenue in this appeal is as under :
The order of the learned CIT(A) is against facts and circumstances of the case.
2. The learned CIT(A) has erred in not considering the fact that the transfer of the properties in question were not done by way of a conveyance deed.
3. The learned CIT(A) has erred in not considering the fact that no capital gains is offered by the assessee in the year in which the transfer took place and the stand taken by the AO that no transfer took place.
4. The learned CIT(A) ought to have considered that the assessee and her husband have sold the properties in their individual capacities only and not in the capacity of the firm.
5. The learned CIT(A) ought to have considered the fact that the sale proceeds were deposited in the individual accounts of the assessee and her husband and not in the bank account of the firm.
6. The learned CIT(A) has erred in not giving an opportunity to rebut the claim made by the assessee.”
On perusing the appeal, we find that the AO had filed the appeal with delay of 04 days. The learned AO has submitted a Petition dated 12.05.2017 seeking condonation of delay and the AO stated in this petition that the delay of 04 days in filing the appeal before this Tribunal is on account of ascertaining the - - 3 ITA 1200/Mds/17 correct facts, evidences, law of the issue and it took time to locate the same and as soon as he traced the records, he filed the appeal on 15.05.2017. In our opinion, the reasons explained by the AO for filing the appeal belatedly is bonafide. Accordingly, the delay is condoned and the appeal is admitted.
The facts of the case are that the AO received intimation from the AO in the case of the assessee’s husband that she along with her husband Shri Anwar Basha sold certain immovable properties and that the capital gains from that sale was not offered to tax by him. As per the information received, they sold two properties vide document No.2128/2008 dated 30.4.2008 for ₹ 27,00,000/- (guide-line value- ₹ 37,05,000/-) and document No.2129/2008 dated 30.4.2008 for ₹ 27,00,000/- (guide-line value- ₹ 37,05,000/-). The AO observed that in the return filed by the assessee for the A.Y. 2009-10, her share of capital gains was also not admitted in that return. Therefore, the AO reopened the assessment proceedings by issuing notice u/s.148 of the Act. In response, the assessee stated that the - - 4 ITA 1200/Mds/17 original return filed on 21.1.2010 may be treated as return in response to notice u/s.148 of the Act.
4.1 During the reassessment proceedings, the assessee’s representative explained that the properties sold were held as this year’s opening stock of the partnership firm called M/s. Baba & Company, wherein the assessee and her husband were partners. The properties in question were originally purchased by the partners i.e. the assessee and her husband and had been introduced into the firm as capital after the constitution of the firm on 1.4.2006. Those properties were sold by the partnership firm and relevant transactions were reflected in the return filed by the firm. The assessee along with her husband were only Authorized Signatories for the documents executed on behalf of the firm. So, the sale of properties cannot be held as sales made by them in their individual capacities and there was no question of computing the capital gains in their individual hands.
The AO was however not convinced with the submissions of the assessee. According to the AO, the properties were purchased by the assessee and her husband in their individual capacities and they could not have become the properties of the - - 5 ITA 1200/Mds/17 partnership firm without any deed conveying the properties to the firm. Further, the name of the partnership did not appear in the sale deeds. On that reasoning, the AO did not accept the assessee’s claim that the said properties have been introduced into the firm. According to the AO, the assessee converted the lands as stock in trade in her business and therefore the gains on sale should have been offered as short term capital gains in her hands. Hence, the AO proceeded to compute the capital gains in her hands by applying the provisions of sec.50C and made the addition of short term capital gains amounting to ₹31,52,250/-. Aggrieved, the assessee went in appeal before the CIT(Appeals).
4.2 Before the CIT(Appeals), the ld. AR of the assessee explained the facts of the case and filed written submissions along with the documents evidencing the sale of lands, the income-expenditure and balance sheet statements of the assessee and her husband for A.Ys 2007-08 to 2009-10, profit and loss account and balance sheet of M/s. Baba & Company for the years relevant to the A.Ys 2007-08 to 2010-11, copies of returns filed by the assessee, her husband and the partnership
- - 6 ITA 1200/Mds/17 firm for the above years in a paper book form. The ld. AR explained before the CIT(Appeals) that the said lands were purchased by the assessee and her husband through Power of Attorneys executed in their favour. Thereafter, the lands were brought into books of accounts of the partnership firm M/s. Baba & Co. In the accounts filed by the partnership form along with the return for A.Y 2007-08 itself, the purchase amount paid was reflected as an asset side in the balance sheet of the firm upon introduction of the same by the partners into the firm and crediting the partner’s current capital account. The said properties continued to be shown in AY 2008-09 also by transferring them to the purchases and when the properties have been actually sold in the FY 2008-09 i.e. in the assessment year in question, the sales were shown in the profit and loss account of the partnership firm and the profits from the sale of these properties has been offered to tax by the firm. Copies of relevant accounts and a reconciliation of purchases and sales reflected in the books of the firm have been filed in the paper book. So, the AR argued that the AO was not correct in holding that the assessee sold the properties in her individual capacity. Since
- - 7 ITA 1200/Mds/17 the purchases of the impugned properties were made by the assessee and her husband through Power of Attorney but not through a conveyance deed, the same were introduced in the firm as such without executing any conveyance deed in favour of the partnership firm. The ld. AR further argued that the partnership firm is not a distinct legal entity different from the partners constituting the partnership and therefore no separate conveyance is required when those lands were contributed as capital in the firm, more so, when the purchases were through Power of Attorney. He submitted that the return for the firm for all the above years i.e. from the A.Ys 2006-07 to 2009-10 were filed within stipulated time reflecting the above transactions.
Therefore, there is no question of an afterthought in showing the sales in the hands of the firm. In fact, the firm was genuinely constituted for carrying on business of real estate and the assessments in the case of the firm have been separately completed without disputing the sales shown in the accounts of the firm. The AR also brought to the notice of the CIT(Appeals) that similar addition made by the AO in the case of assessee’s husband, Shri Anwar Basha has been deleted by the CIT(A). In - - 8 ITA 1200/Mds/17 his case also, the assessment was completed by assessing his share of capital gains on the sale of the very same properties along with his wife i.e. the assessee, ignoring the fact that the sale of those lands was reflected in the account of the partnership firm, M/s./ Baba & Co. and profit offered to tax.
Against that assessment, the CIT(A)-I, Coimbatore vide order in Appeal No.237/11-12 dated 28.10.2013 deleted the addition of short term capital gains by holding that profits offered in the hands of the firm should not have been reassessed as income in the hands of Shri Anwar Basha as short term capital gains.
The CIT(Appeals) observed that as per the assessment order, the AO came to a view that gains on sale of the said properties should be assessed in the hands of the assessee, since she was a signatory for the sale deed executed in favour of the buyers on sale of those properties. Further, the CIT(Appeals) observed that the AO was of the opinion that the properties should have been conveyed to the firm through separate deeds, when they had been introduced in the books of the firm and the assessee’s version that the properties were introduced in the firm and profits on sales were offered to tax by the firm was an - - 9 ITA 1200/Mds/17 afterthought. The CIT(Appeals) did not agree with the AO because the fact that the properties were introduced into the firm, M/s. Baba & Co. is evident from the returns filed by the firm even before this assessment. According to the CIT(Appeals), there is no requirement of transferring the properties to the firm through a separate conveyance deed, whey they were introduced as capital in the firm. The properties of the firm are usually held in the name of the partners even when funds of the firm are used for purchase, since the partnership firm is not a legal person capable of holding the properties. The CIT(Appeals) observed that the partnership firm is only a compendium of individuals, who unite for a common business purpose and secondly, the sale of the impugned properties in the assessment year in question has been reflected in the books of accounts of the firm and net profit has been arrived at in its profit and loss account submitted along with the return for this assessment year. The CIT(Appeals) further observed that scrutiny assessment of the firm has also been completed accepting the sale of these properties shown under sales and the profits so worked out. Without disputing that, according to 10 - - ITA 1200/Mds/17 the CIT(Appeals), the AO once again intends to tax the profit on the sale of the very same properties in the hands of the assessee, which amounts to double taxation of the same profits, which is not permissible in law. Therefore, the CIT(Appeals) observed that the AO is not justified in assessing the short term capital gains on sale of the impugned properties in the hands of the assessee and deleted the addition. Against this, the Revenue is in appeal before us.
After hearing the ld.D.R and perusing the materials on record, I am of the opinion that the Ld.CIT(A) decided the issue in favour of assessee on the reason that the impugned property was introduced into the firm, namely, M/s.Baba & Company According to him, it was disclosed to the Department in the return of income filed by the firm, viz. M/s.Baba & Company. It is also noted by the Ld.CIT(A) that funds of the firm was used for purchase of property. Furhter, all the impugned property was reflected in the books of account of the firm and net profit shown in the P&L A/c disclosed in the return of income filed by the firm.
In the assessment of the firm, the ld. Assessing Officer accepted
11 - - ITA 1200/Mds/17 the same and completed the assessment. The AO without disputing these facts, the sale of impugned property was brought into tax in the hands of assessee, which was not correct and it amounts to double taxation. Being so, in my opinion, I do not find any infirmity in the order of Ld.CIT(A) and the same is to be confirmed. Hence, this ground of appeal raised by the Department stands rejected.
7. In the result the appeal of Revenue is dismissed. Order pronounced on 21st August, 2017 at Chennai.