TMI Blog2013 (4) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... rokers (P.) Ltd. [2007 (5) TMI 197 - SUPREME Court] intimation u/s.143(1)(a) cannot be treated to be an order of assessment and there being no assessment u/s.143(1)(a). The Section 153D has been amended w.e.f. 01.06.2007 whereas the A.O. has passed orders u/s. 153C in all the years on 24/03/2006. Thus, no approval of JCIT/ACIT is required. Thus CIT(A) was right in confirming the action of the A.O. u/s.153 - Against assessee. Addition of capital gain u/s. 45(4) relying on CIT v. A.N. Naik Associates [2003 (7) TMI 46 - BOMBAY High Court] - Held that:- As per Section 2(47) the distribution of capital assets that dissolution of a firm would be regarded as transfer. It is now clear that when the assets are transferred to a partner that falls within the expression 'otherwise' and the rights of the other partners in those assets of the partnership firm extinguished. In appellant's case, the land and building had been revalued as against book value and credited the amount on account of revaluation in the respective partners' capital account in their ratio in the firm. The retiring partner paying his share. As decided in Suvardhan v CIT [2006 (8) TMI 142 - KARNATAKA High Court] any distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook place. The assessee filed return for all the years on 18.01.2005 in all the years against the notice issued u/s.153C of the IT Act. The appellant challenged the proceeding initiated u/s.153C of the Act on the ground that no satisfaction was recorded by the A.O. of case in which a search conducted i.e. Shri Yakub A Colddrink. There was no document, assets etc. found during the course of search of the appellant. It was argued by the ld. Counsel that during the course of search at the partners no assets belonging to firm as well as no books of account were found. The statutory requirements of recording the satisfaction is also not satisfied. The assessment is finalized by making the addition in respect of the capital gain and disallowance of expenses on estimate basis. 3. The ld. CIT(A) observed that assessment u/s. 153C in case of other persons is required to issue satisfaction note that any money, bullion, jewellery or other valuable articles or things or books of account or document seized, requisition belonged to a person other than the person referred to in Section 153A. During the course of search from the residence premises certain documents and note books pertaining to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee. (3) The issue was raised before C.I.T.(A). He has held that 153C applicable if undisclosed income of third persons is found. He has erroneously applied principles of 158 BD. The requirement u/s. 153C is that something belonging to the assessee must be found. (4) The department is bound to show as to which document thing etc found during search belongs to the assessee. In spite of several adjournments the onus is not discharged. The reply to the RTI clearly shows that A.O. denies that any thing belonging to the assessee was found the onus to prove that ingredient of 153C are satisfied is on the A.O. Agra Bench. 144 to 149/Agra 2011 (Para no.9.4 to 9.7). (5) On an earlier occasion when matter substantially progressed for about 45 minutes the Hon'ble Bench was taken through all the papers. The synopsis of that proceeding has been prepared filed. Kindly refer to our submitted dated 30-11-2012 and 18-06-2012. In the submission dated 30-11-2012 the reference to made to the paper book filed on 30-09-2012 to the paper book filed on 03-09-2012. (6) Further the perusal of assessment order will show that same has been passed without permission of joint C.I.T. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suing notice. Besides above, number of cases have also been referred by the ld. A.R. Therefore, he requested that the proceeding initiated u/s.153C is to be declared null and void. At the outset, ld. CIT D.R. argued that both the lower authorities were right in confirming the action u/s.153C of the IT Act as during the course of search at the residence premises of Shri Yakub A. Colddrink, books of the firm as per Annexure A/11 A/12 were found and seized which were admitted by the partner belonging to the appellant firm in his statement dated 29.08.2003 recorded u/s. 132(4) of the IT Act. Thus, he prayed to confirm the action of the CIT(A). 5. We have heard the rival contentions and perused the material on record. The search operation was carried out at the residence as well as business premises of Shri Yakub A. Colddrink where from the books of account of the firm as per Annexure A/11 A/12 and loose paper as per Annexure-3 were found and seized. As per Section 153C, the books of account belonging to the other person is required to be found and seized at the premises of the search took place where assessment u/s. 153A has been made i.e. searched party. For initiating proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership firm. On account of re-constitution of the partnership firm, the assets of the firm i.e. land and building had been re-valued on mutual understanding to Rs.47,86,081/- as against Rs.6,44,958/-and credited the amount on account of revaluation in respective partners Capital Accounts in their ratios in the firm. Accordingly, the firm had paid Rs.23,93,040/- to the retiring partners on account of revaluation of assets of the firm as under: 1. Shri Bharat H Shah 25%share Rs.11,96,520/- 2. Shri Kinal B Shah 12.5%share Rs. 5,98,260/- 3. Shri Pragnesh B Shah 12.5%share Rs. 5,98,260/- Therefore, the A.O. invoked provisions of Section 45(4) of the IT Act. The assessee was given reasonable opportunity of being heard on this issue. After considering the assessee's reply as well as Hon'ble Bombay High Court decision in case of CIT v A.N. Naik Associates. The A.O. concluded that the assessee transferred the building otherwise u/s. 45(4) of the IT Act. Therefore, he made addition of Rs. 23,93,040/- on account of Long Term Capital Gain in the income of the firm. 7. Being aggrieved by the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Section 45(4) is applicable when assets change hand then capital gain is applicable. The capital assets revalued cannot be transferred through formation of firm. Even in the case when firm is dissolved but the assets continue to remain with the firm and liquidator is carrying out the finding of process even in that case also, Section 45(4) is not applicable. He further relied in case of ITO v. Fine Developers, wherein the plot in question was part of stock in trade of the firm which was 50% transferred in favour of new partner but shown still in the current accounts of the firm. Thus, the Mumbai 'F' Bench held no capital gain is leviable u/s. 45(4) r.w.s. 2(47) of the IT Act. He also relied in case of CIT v. Vijayalakshmi Metal Industires, wherein dissolution of partnership by operation of law does not imply that on that day there is a notional transfer of capital assets erstwhile firm stand transferred to other partner or to other persons entitled to claim share of deceased partner. He further relied upon the decision of ITAT, Ahmadabad 'A' Bench, in case of ITO v. Gulabdas Printers [2010] 4 ITR (Trib.) 264, wherein conversion of partnership firm into Limited company on revalua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and credited the amount on account of revaluation in the respective partners' capital account in their ratio in the firm. The retiring partner had paid Rs.23,93,040/-. The Hon'ble Karnatka High Court in case of Suvardhan v CIT, held that any distribution of capital assets and dissolution of firm was chargeable tax as the income of the firm in the light of the fact that a transfer had taken place. In this case, one partner retired and two were continue in the partnership firm. In another case, CIT v. Gurunath Talkies, wherein two partners retired and two new partners inducted. The Court held that provisions of Section 45(4) is applicable as it amounts to transfer. Hence, capital gain is applicable. After considering the various legal position and factual aspect, we have considered view that the assessee's case is fully covered u/s. 45(4) of the IT Act and accordingly, we confirm the order of the CIT(A). 10. Ground no.3 in A.Y. 1999-2000 and Ground no.2 in all other years are against confirming the addition disallowance of salary and wages. The A.O. observed that on verification of the books of account and vouchers of payment on wages to the seasonal and other regular wage worke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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