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The ACIT (OSD) -I, Central Range-7, Mumbai Versus Shri Sukhraj B. Nahar

2018 (1) TMI 507 - ITAT MUMBAI

Capital gains assessed in the hands of the assessee on account of assessee's assignment and relinquishment of rights in the firm's assets on the reconstitution of the firm - Held that:- The coordinate Bench of the Tribunal has already decided the identical issue in favour of the assessee in ITO vs. Paru D Dave (2006 (12) TMI 168 - ITAT BOMBAY-F) holding that revaluation of assets of partnership and the credit of revalued amount to the capital account of partners in their respective share ratio d .....

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llowed the appeal filed by the appellant/assessee against assessment order passed u/s 143 read with section 153A of the Income Tax Act, 1961 (for short the Act ). 2. Brief facts of the case are that the assessee a partner in M/s Nahar & Seth Enterprises, M/s Nahar Builders and M/s Shanti Enterprises, having income from salary, business, capital gain and other sources, filed his return of income u/s 139(1) of the Act, for the assessment year under consideration declaring the total income of & .....

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e course of assessment it was noticed that the assets of the firm M/s Shanti Enterprises, had revalued the assets of the firm on the basis of appreciation in the value of landed property and the amount of appreciation was credited to the accounts of the partners. Accordingly, a sum of ₹ 43,27,322/- was credited to the capital account of the assessee. The AO relying on the judgment of Hon ble Bombay High Court delivered in CIT vs. A.N. Naik Association 265 ITR 346 treated the said amount ta .....

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to appreciate the fact that the revaluation of assets of the firm instead of being kept in Revaluation Reserve had been credited directly to the Partners Capital thereby enriching the personal capital. ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that this amount is nothing but an income in the hands of the partners to be assessed to taxed as income under the head Income from Other Sources read with Sec. 28 of the IT Act. iii. Whethe .....

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aluation reserve; that the amount in question is nothing but an income in the hands of the partners including the assessee under the head income from other sources read with section 28 of the Act. Ld. DR further submitted that since the impugned order is erroneous, the same is liable to be set aside. 6. On the other hand, the Ld counsel for the assessee relying on the order passed by the Ld. CIT(A) submitted that since, the findings of the Ld. CIT(A) are based on the principles of law laid down .....

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CIT vs. Hind Construction Ltd.1974 CTR 157(SC), ii) CIT vs. Kunnamkulam Mill Board 257 ITR 544, iii) ITO vs. Paru D Dave 110 ITD 410 Mum. ( Tribunal) , iv) DCIT vs. Manish M Chheda 29 SOT 138 Mum. (Tribunal) and v) Girish Textile Industries vs. ACIT 10 SOT, Mum (Tribunal) 8. The concluding para of the impugned order passed by the Ld. CIT(A) reads as under: 12. In view of the above discussion, as also in view of the case laws discussed hereinabove, I hold that revaluation of assets by the partne .....

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ot amount to any benefit or transfer to the partners. In any case this credit cannot be treated as unexplained in the hands of the assessee. Further it does not constitute transfer of assets as defined u/s 2(47) of the Act. Such an arrangement also does not attract the provisions of Sec. 45(4) of the Act, which are attracted only on dissolution of partnership firm. Accordingly, I hold that the amount of ₹ 43,27,322/- credited to the capital account of the appellant on revaluation of the as .....

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he revaluation of assets of partnership and the credit of revalued amount to the capital account of partners in their respective share ratio do not entail any transfer as defined under s. 2(47) of the IT Act. The introduction of new partners to a partnership firm owning immovable assets and consequent reduction in the share ratio of present partners do not entail any relinquishment of their rights in the partnership property. On introduction of new partners, there is realignment of share ratio i .....

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