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2012 (10) TMI 579 - AT - Income TaxAddition of capital gain u/s. 45(4) - CIT(A) directed to delete the addition - Held that:- Allocation of assets of the firm to the retiring partners is the basis for invocation of provisions of Section 45(4). In the case under consideration, neither there was any dissolution nor other event took place that had an effect of allocation of exclusive interest in any capital asset to the retiring partners. In these circumstances, FAA was justified in holding that conditions of Section 45(4) were not fulfilled as during the relevant AY there was only admission of HDIL as new partner in the firm, that there was neither retirement nor distribution of assets, nor revaluation of plot of land during the assessment year under consideration. Retiring partners had relinquished their rights in the assets of the firm and in lieu of that firm had paid the retiring partners money lying in their capital account. Obviously, assessee-firm had not transferred any right in capital asset to the retiring partners rather it is the retiring partners who have transferred the rights in capital assets in favour of the continuing partners. So, even if capital gain has to be taxed it has to be in the hands of the retiring partners not in the case of the assessee-firm. Thus there was no transfer of a capital asset by the assessee-firm by way of distribution or otherwise in the AY under consideration . From the very beginning of the partnership the plot of land in question was treated stock in trade by the assessee firm. Even on 31.03.2008 it was shown as current asset (i.e. W-I-P) in the balance sheet. AO has nowhere rebutted/ doubted this factual position, therefore, no reason to disagree with the logical findings given by the FAA - in favour of assessee.
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