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2023 (5) TMI 225 - HC - Income TaxReopening of assessment u/s 147 - Undisclosed capital gains - Firm is succeeded by a company with no change either in the number of members or in the value of assets - Transfer by way of distribution of assets - case of the revenue is that the amount of revaluation of the land and building which was credited to the current accounts of the partners which was treated as loans to new companies amounted to accrual of consideration or benefit to the partners which was a transfer and therefore the firm is liable to pay tax on long term capital gain and short term capital gain - whether Tribunal erred in holding that the reassessment was a change of opinion without noting the facts that the AOnever raised any direct question regarding why it should not be held that the conversion of land and building by the assessee from stock-in-trade to capital asset followed by revaluation of land and building should not be taken as an accounting technique adopted to evade tax liability? - Tribunal held that there was change of opinion involved in the reopening the case of the assessee HELD THAT:- On facts it has been established that revaluation of the fixed assets did not give rise to any profit to the partnership firm and there is no accrual of benefits in the hands of the partners and if that be so can there be any tax liability in the hands of the firm as well as in the hands of the partners. The learned tribunal after noting the accounting treatment followed by the assessee on facts found that no profit allotment on account of revaluation has accrued or arisen to the assessee firm and the revaluation of fixed asset did not give any profit to the firm and the revaluation was done so that the value of the fixed assets in the balance sheet would match the market price and the object behind such revaluation is to avail loans from banks and financial institutions by showing market price of the fixed assets in the balance sheet. Thus, in our view, the learned tribunal rightly rejected the contention raised by the revenue and also rightly noted the decision of Sanjeev Woolen Mills Versus Commissioner of Income Tax [2005 (11) TMI 26 - SUPREME COURT] wherein it was held that valuation of the assessee at market value, which was higher than the cost, resulted in the imaginary or notional potential profit out of itself and not any real profit or income which can be taxed. As decided in Ram Krishanan Kulwant Rai Holdings Private Limited. [2019 (8) TMI 58 - MADRAS HIGH COURT] court found that the CIT(A) did not take into consideration the legal issue involved i.e. when the firm is succeeded by a company with no change either in the number of members or in the value of assets with no dissolution of the firm and no distribution of the assets with change in legal status alone, whether there is transfer “as contemplated under Section 2(47) and Section 45(4) of the Act. The legal position having been well settled that when vesting takes place, it vests in the company as they exist. Therefore, unless and until the first condition of transfer by way of distribution of assets is satisfied, Section 45(4) of the Act will not be attracted. Therefore, in the facts and circumstances of the case, we find that there is no transfer by way of distribution of assets. We are of the definite view that the learned tribunal rightly dismissed the appeal filed by the revenue.
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