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2022 (2) TMI 186 - HC - Income TaxReopening of assessment u/s 147 - Short Term Capital Gain - applicability of Section 45(3) - capital gain arose from transfer of land to the partnership firm by way of capital contribution as the assets was converted to Fixed Capital Asset by the partnership firm on March 31, 2008 - Whether Tribunal, erred in law in upholding the order of the CIT (Appeals) in deleting the Short Term Capital Gainignoring the sham arrangement between the ground concerned wherein the nomenclature of the impugned asset was intentionally shown as stock-in-trade and undervalued to escape the provision of Section 45(3) whereas it is evident from the audited accounts of the year that the asset taken over by the firm was nothing but a capital asset? - As contended that Section 45(3) not come into operation for the assessment year 2008-09 and by reason of conversion of the developed land and building into fixed asset by the firm or due to revaluation by the firm of the asset so converted during the previous year ended March 31, 2008. HELD THAT:- After elaborately considering the facts the tribunal held that, if at all any income accrues or arises owing to such revaluation, it is an issue which had to be dealt with in the assessment of the firm M/S. Salapuria Soft Zone which is the separate taxable entity. After noting the facts the tribunal held that in terms of the Section 10 (2A) of the Act partners’ share in the total income of the firm is not to be included in the total income of the partner. Therefore, it was held that the there was no reason for initiating proceedings under section 147 of the Act. Section 45(3) applicability in the year of transfer by the partner of his capital asset to the partnership firm by way of capital contribution - In the instant case, the year of transfer was the financial year ended March 31, 2006. The ITO was wholly unjustified in invoking Section 45(3) which had no application in the assessment year 2008-09 or for that matter in the assessment year 2006-07. Even otherwise, Section 45(3) seeks to determine the capital gains with reference to the value of the asset recorded in the books of account of the firm. The value so recorded is statutorily deemed to be the full value of consideration received or accruing to the partner as a result of the transfer of the capital asset to the firm. Thus, Section 45(3) does not seek to substitute by any other figure the value agreed between the partners at which the asset is transferred by a partner to the firm. With regard to the revaluation, tribunal re-appreciated the facts which were considered by the CIT-A. With regard to the development of the area in question, as to how there was steep rise in the value of the properties and the state government revised the guideline value for the purpose of stamp duty several times between 2004-07 and after noting the price rise the tribunal held notwithstanding the said fact in accordance with the accounting principles the land held as inventory was shown at its cost and therefore it cannot be said that under valuation was done by the assessee as alleged by the Assessing Officer. Tribunal agreed with CIT(A) that after conversion of inventory into fixed asset the firm revalued the developed land including construction thereon in order to bring it in line with the current market value to justify the business assistance secured by the firm from the banks to extent of nearly ₹ 250 crores. Therefore, on facts the tribunal concluded that the revaluation was not a colourable device. There was no withdrawal by the partners from capital accounts and therefore there cannot be any income liable to tax in their hands. No substantial questions of law arises for consideration in this appeal. In the result, the appeals are dismissed
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