TMI Blog2018 (6) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... for exemption u/s.10(2A). Sum received as exempt as capital receipt - Held that:- when the assessee company had not accounted for the revaluation reserve in the past when it had accrued and consciously left it in the hands of the firm, it cannot claim that the receipt in the present year relates to the above said revaluation despite the fact that assessee had retired duly relinquishing its rights and properties in the said firm. Hence, in our considered opinion, the ld. Commissioner of Income Tax (Appeals) has clearly erred in holding that this sum has been received upon retirement from the firm and it is a capital receipt. - Decided in favour of revenue - I.T.A. No.2752/Mum/2014 And I.T.A. No.3366/Mum/2014 - - - Dated:- 1-6-2018 - SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that capital gains has to be levied on the amount of ₹ 10,48,51,708 received from the partnership firm Pranik Landmark Associates. Computation of book profits under section H5JB ( 3) In computing the book profit under section 115JB, the learned Commissioner (Appeals) erred in not specifically directing the Assessing Officer to allow deduction under clause (ii) of Explanation 1 to section 115JB in respect of the amount of ₹ 10,48,51,708 claimed exempt by the appellant under section 10(2A). 4. Brief facts of the case are as under: The assessee is a Private Limited Company engaged in investment and financing activities. During the course of assessment the assessing officer learned from the notes to the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see passed an entry in its books of account during the year on 06.11.2009. By way of this entry, the assessee company debited the said firm by ₹ 10,48,51,708/- and credited revaluation reserve by ₹ 10,48,51,708/-. Now the explanation of the assessee is that since the said amount was received pursuant to revaluation from the partnership firm, the said amount has its origin in the revaluation reserve created by the said firm in earlier years but not accounted for by the assessee company. Hence the assessee s claim in this regard was that since it had received the amount from partnership firm, the receipt was exempt u/s.10(2A) of the Act. The assessing officer has rejected this explanation of the assessee by concluding as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee's appeal in this regard, the ld. Commissioner of Income Tax (Appeals) affirmed the action of the assessing officer in denying the claim of exemption u/s.10(2A) by holding as under: 4.3 I have considered the facts and circumstances of the case. The appellant had claimed net value of revaluation of ₹ 10,48,51,708/- as exempt income u/s. 10(2A) and also there was some other income from other firms. Total amount claimed for exemption was ₹ 10,489,57,598/-. Sec.10(2A) reads as under: S. 10(2A) In the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm; Explanation -For the purposes of this clause, the share of a partner in the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minative of the tax liability and that revaluation of property cannot give rise to profits. He concluded that just an accounting entry will not be considered as profit and loss, but what is taxable in the income tax law is important. He further held that it is clear that revaluation is in the nature of capital receipt, hence, income tax cannot be levied on that revaluation amount. Hence, it is not taxable under the I. T. Act. 8. Against the above order, the assessee and the Revenue are in cross appeal before us. 9. We have heard both the counsel and perused the records. We find that in this case the assessee is a company. Earlier it was partner in the firm Pranik Landmark Associates. It had retired from the firm with effect from 01.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the assessing officer is quite correct in holding that assessee is not eligible for exemption u/s.10(2A). 11. Now we come to the claim that the sum received was exempt as capital receipt. The ld. Commissioner of Income Tax (Appeals) has held the sum to be capital receipt by holding that it was received on account of erstwhile partnership firm from which the assessee had retired. The facts of the case clearly indicate that the assessee had retired from the partnership firm and the retirement deed was duly executed. There was no mention of any remaining claim of the assessee in the assets of the firm or revaluation reserve. Hence, the assessee had relinquished its right into the properties of the partnership firm in lieu of outst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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