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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-I, Coimbatore, dated 28.10.2013 and pertains to assessment year 2009-10.
Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that the only issue arises for consideration is with regard to assessment of capital gain. According to the Ld. D.R., the assessee purchased immovable property in his individual capacity and the sale consideration is also paid by the assessee in his individual capacity. Subsequently, the assessee claimed that the property purchased in his individual name was transferred to partnership firm as capital contribution. Referring to the judgment of Apex Court in Karthikeya V. Sarabhai v. CIT (1985) 49 CTR 172, the Ld. D.R. submitted that when a partner contributes to partnership firm, there was transfer of property and the partner is liable to pay the capital gain. In this case, the partner has not paid any capital gain tax when the property was said to be transferred to the partnership firm. Subsequently, the property was sold by the assessee. However, no capital gain was disclosed to the Department. The assessee contended before the Assessing Officer that the property belonged to partnership firm and the partnership firm has already paid taxes by treating the profit on sale of land as business income. The Ld. D.R. further submitted that the sale proceeds of the land were deposited in the bank account of the assessee, therefore, it cannot be treated as income of the partnership firm.
On the contrary, Mrs. Lakshmi Sriram, the Ld.counsel for the assessee, submitted that the property was contributed to the partnership firm as capital by the assessee. Therefore, it becomes the property of the partnership firm. According to the Ld. counsel, for the financial year 2008-09, business income was offered in the hands of the partnership firm M/s Baba & Company on sale of the very same property. When the business income was offered by the partnership firm M/s Baba & company, according to the Ld. counsel, the same cannot be treated as income in the hands of the present assessee. The Assessing Officer without considering the fact that the income was already offered in the hands of the partnership firm, assessed the same as short term capital gain in the hands of the assessee. On a query from the Bench – if the property belongs to partnership firm, why the sale proceeds were deposited in the bank account maintained by the assessee? The Ld.counsel clarified that the assessee is illiterate. He does not know the art of book keeping.
Due to his lack of education and proper guidance, the entire sale proceeds were deposited in the individual bank account of the assessee. However, the entire transaction was recorded in the books of the firm. Therefore, according to the Ld. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the property was purchased by the assessee in his individual capacity from his own funds. Subsequently, the assessee claimed that the property was transferred to partnership firm M/s Baba & Company.
Therefore, it has to be verified how the property was transferred to the partnership firm as capital contribution of the assessee. The assessee claimed before the CIT(Appeals) that the entire transaction of the sale of property was recorded in the books of the partnership firm. The assessee further claimed that the profit on sale of the property was offered in the hands of the partnership firm as business income. The fact remains that the Assessing Officer had no occasion to examine the material to indicate how the property was transferred to partnership firm. The observation made by the CIT(Appeals) shows that even the sale deed was executed by the assessee in his individual capacity and not on behalf of the partnership firm. If the property was transferred to partnership firm, it is not known how the sale deed executed by the assessee in his capacity would be valid in law. The Assessing Officer had no occasion to examine the books of the assessee and the partnership firm. In those circumstances, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue afresh and find out whether the property purchased by the assessee in his individual capacity was transferred to the partnership firm and whether the partnership firm subsequently sold the property in the course of its business activity. It has also to be verified whether the partnership firm has already offered the profit on sale of the land as business income. The Assessing Officer shall verify all the facts and thereafter decide the issue in accordance with law after giving reasonable opportunity to the assessee.
In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced on 5th February, 2016 at Chennai.