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2023 (8) TMI 1114 - AT - Income TaxShort Term Capital Gain - conversion of the Partnership Firms into Companies - Additions in the hands of partners - provisions of section 47(xiii) have not been fulfilled by the assessee and thereby made an addition being the difference in the revaluation of land and assessed as Short Term Capital Gain (STCG) - CIT[A] deleting the addition on the ground that the provisions of sections 45 and 47(xii) are not applicable to the stock in trade - HELD THAT:- It is seen from records that when the Partnership Firms were converted into four companies, at that time entire Capital and Reserves were not converted into equity of the company, but rather the Revaluation Reserve was converted into unsecured loans in the hands of share holders namely erstwhile Partners. The transfer and vesting at para 3 clearly pointed out that the undertaking of the transferor companies shall be transferred to and vested in the transferee company as a going concern and undertaking was to include all assets and interest of the transferee companies further all debts, liabilities, contingent liabilities and obligations of every kind of the transferor companies were now to be discharged by the transferee company. Based on the above facts the Ld CIT (Appeals) correctly deleted the additions on account of capital gain made in the hands of the Partners as he was of the opinion that the applicability of section 47(xiii)(b) at the time of conversion of the Partnership Firms into Companies can be considered only in the hands of the Partnership Firms to which the land belongs. CIT[A] order that has referred to case of ITO -Vs- Orchid Gruh Nirman Pvt. Ltd. [2016 (11) TMI 247 - ITAT KOLKATA] - Revenue’s Appeal is also dismissed in the case of PCIT -Vs- Orchid Gruh Nirman Pvt. Ltd. [2022 (2) TMI 186 - CALCUTTA HIGH COURT] observing that Section 45(3) would be applicable only in respect of a capital asset; thus, where a land was brought in a firm at its cost as current asset and said firm upon receipt of said land also accounted same as a current asset, in instant case section 45(3) would not be applicable merely because said land was converted into fixed asset and revalued in relevant assessment year. Thus no hesitation in confirming the order of the order of the Ld CIT[A] who deleted the additions made by the assessing officer. Decided in favour of assessee.
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