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2016 (3) TMI 1128 - ITAT MUMBAI

2016 (3) TMI 1128 - ITAT MUMBAI - TMI - Capital gain computation - transfer of property as per the provisions of section 2(47) - transfer of leasehold rights by the firm to its retiring partners - Held that:- The provisions of section 45(4) of the Act are not applicable for the year under consideration, i.e. A.Y. 2010-11 as there is no retirement of any partner during this period. - There is no transfer of leasehold rights in the said property by the assessee firm to the retiring partners; w .....

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ue - ITA No. 3052/Mum/2014 - Dated:- 16-3-2016 - Shri Jason P. Boaz, Accountant Member and Shri Sandeep Gosain, Judicial Member Appellant by: Shri Javed Akhtar O R D E R Per Jason P. Boaz, A.M. This appeal by the Revenue is directed against the order of the CIT(A)- 34, Mumbai dated 28.02.2014 for A.Y. 2010-11. 2. The facts of the case, briefly, are as under: - 2.1 The assessee firm, engaged in the manufacture and processing of Bhagar and by-product Konda (used as cattle fodder), filed its return .....

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ired from the firm and were replaced by Shri Ashish Ashok Sakhala and Smt. Shweta Pritish Sakhala with each holding 25% of the profits and loss in the firm. In view of this change in constitution, the assessee firm, in accordance with the regulations of MIDC, since it held leasehold rights in a factory situated at H- 32, MIDC, Ambad, Nashik, intimated MIDC this change in constitution and drafted and furnished a new Deed of Assignment dated 17.12.2009. The assessee paid stamp duty of ₹ 3,77 .....

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s put forth by the assessee as he was of the view that the provisions of section 45(4) of the Act were applicable in view of the following reasons: - (i) There was a change of 50% in the constitution of the assessee firm by Deed of Assignment dated 17.12.2009. (ii) That there is a transfer of capital assets, i.e. transfer for leasehold rights by the firm to its retiring partners. (iii) There is a transfer of capital asset in the case on hand as it falls within the ambit of the expression otherwi .....

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provisions of section 45(4) of the Act are not applicable for A.Y. 2010-11, the year under consideration, as there was no retirement of any partner during this period. Regarding the assessment/addition of ₹ 37,80,250/- under section 45(4) of the Act, on account of transfer of leasehold rights by the assessee firm to the retiring partners, observing that the leasehold rights in this said property continued to be vested with the assessee firm even after change in its constitution and that n .....

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termining the income chargeable to the head Income from capital gains . In this manner, the learned CIT(A) allowed the assessee s appeal vide the impugned order dated 28.02.2014. 4. This appeal was fixed for hearing on five occasions and on all the scheduled dates, none was present on behalf of the assessee. It appears that even the notices for hearing sent by RPAD on three occasions have returned back unserved from the assessee s given address. In these circumstances, we proceed to dispose off .....

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, ignoring the facts that the Deed of Assignment was registered on 1711212009 and the value adopted by the Authority was ₹ 75,56,000/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's appeal ignoring the facts that the change in constitution for firm was considered as relinquishment of rights by one partner in favour of another and such relinquishment was considered as transfer of capital asset as interpreted in the case .....

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y considered the material on record. The findings of the learned CIT(A), on the issue before us in this appeal, at paras 6 and 6.1 of the impugned order is as under: - 6. I have carefully considered the submissions made by the appellant and the impugned assessment order on this issue. It is found that the appellant firm was formed on 01/01/2001 with for partners with 25% share each in the profits and losses of the firm. On 01/09/2008, two partners retired and two new partners were admitted in th .....

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on 01/09/2008 i.e. during the year ended 31.03.2009 i.e. A.Y. 2009-10 and so the question of applicability of provisions of Section 45(4) for AY. 2010-11 does not arise at all and assessment order is bad in law. The contention of the appellant is correct. The provisions of Section 45(4) are not applicable for A.Y. 2010- 11 as there is no retirement of any partner during this period. 6.1. Regarding addition of ₹ 37,78,250 made u/s 45(4) of the I.T. Act on account of transfer of lease right .....

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ted to the accounts of retiring partners. The appellant had relied on the following decisions, which support the case of the appellant: - (a) Decision of Hon'ble Mumbai Income Tax Appellate Tribunal in the case of ITO vs Fine Developers (55 SOT 122) wherein it was held that provisions of 45(4) of the Income Tax Act cannot be invoked unless there is distribution of any capital asset by the, firm. . b) Recent case of CIT vs M/s Dynamic Enterprises (Order passed on 16/09/2013 - I.T.A. No. 1414/ .....

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nued with the firm. So the Provisions of Section 45(4) do not operate. I agree with the following contentions of the Authorised Representative of the appellant: a) The provisions of Section 45(4) of the I.T. Act, 1961 are not applicable as there is no retirement of partners during the year ended 31.03.2010 i.e. A.Y. 2010-11. b) There is no transfer of leasehold rights by the firm to its retiring partners as they continue with the firm. The documents in support of that are filed. No compensation .....

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cquisition of capital asset should be deducted from the full value of consideration computed u/s 48 for determining income, chargeable under the head 'Income from Capital Gains' and cannot be taxable under the 'Profits and Gains of Business'. In view of the above, the Assessing Officer is directed to delete the addition of ₹ 37,78,250 made u/s. 45(4). The grounds taken are allowed. 5.2.2 Before us, except for raising the grounds (supra), Revenue has not been able to bring o .....

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