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2014 (4) TMI 308 - ITAT MUMBAIValidity of reopening of assessment u/s 147 of the Act - The original assessment was not framed u/s 143(3), there was merely processing of return u/s 143(1) – the return of assessee was just processed u/s 143(1), there is nothing wrong in the initiation of reassessment proceedings - ground taken by the assessee challenging the validity of reopening u/s 147 is dismissed. Revaluation of capital network rights – Capital gain in the hands of the partner - Revaluation reserve was credited to partners’ capital account and the assets account was debited in the books of the partnership firm – Held that:- There is neither division of assets nor any realsiation of assets - there is no official dissolution of the firm and distribution on assets of the firm among the partners, even the provisions of Section 45(4) will not be applicable to the firm or to the partner - there is absence of word “transfer” as envisaged u/s 2(47), the charging provisions of Section 45(1) will not be applicable, since the vesting of property in the company from the firm is not consequent to a transfer - crediting the amount of revaluation reserve to partners’ capital account does not amount to transfer of partnership firm’s assets to the individual partner. During continuation of partnership, partners do not have separate rights over the assets of firm in addition to interest in the share of profits – the rights were property of partnership firm till the date of conversion into the company by operation of law as per Part IX of the Companies Act - Relying upon CIT Vs. Texspin Engineering and Manufacturing Works [2003 (3) TMI 56 - BOMBAY High Court] - Section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied – thus, the latter part of Section 45(4), which refers to computation of capital gains u/s 48 by treating fair market value of the asset on the date of transfer, does not arise - there was no merit in the action of the lower authorities for brining gains on revaluation under the tax net on revaluation of assets of partnership firm, which was distributed to the partner and partnership firm was converted into company by operation of law under Part IX of the Companies Act – Decided partly in favour of Assessee.
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