TMI Blog2016 (11) TMI 1708X X X X Extracts X X X X X X X X Extracts X X X X ..... respectfully following the established judicial reasoning referred to above, hold that the facts of the case do not warrant any interference with the impugned order of the learned CIT(Appeals) on the aspect of proceedings under section 147 of the Act, and accordingly, uphold the same. Ground No 1 of the Revenue stands dismissed. - I.T.A. No. 2270/Kol/2013 - - - Dated:- 16-11-2016 - Shri P.M. Jagtap, AM And Shri K. Narasimha Chary, JM For the Appellant : Shri Niraj Kumar, CIT, DR. For the Respondent : Shri S. Jhajharia, CA Shri Sujoy Sen, Advocate. ORDER Per Shri K. Narasimha Chary, JM: This appeal by revenue is arising out of order of CIT(A)-I, Kolkata vide appeal No. 393/CIT(A)-1/1(4)/12-13 dated 23.05.2013. Assessment was framed by ITO, Ward-1(4), Kolkata u/s. 143(3)/147 of the Income-tax Act, 1961(hereinafter referred to as the Act ) for AY 2008-09 vide his order dated 25.03.2013. 2. Brief facts of the case are that the assessee along with two other companies viz. Command Construction Pvt. Ltd. and Orchid Griha Griha Nirman Pvt. Ltd. (hereinafter collectively referred to as the said three companies ) purchased a piece of land at ₹ 21,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after revaluation are as under :- Particulars Additions during the period Revaluation during the year Cost as on 31.3.2008 Land Building ₹ 25,16,17,696/- ₹ 289,13,56,904/- ₹ 314,29,74,600/- ₹ 119,02,85,430/- ₹ 81,20,04,970/- ₹ 200,22,90,400/- Revaluation during the year ₹ 370,33,61,874/- The amount of revaluation was credited to the current accounts of the partners in their profit sharing ratio. Thus, the current account of each of the said three companies was credited by ₹ 37,03,36,187/-. For AY 2008-09, the Assessee filed a return of income on 28.9.2008 showing current year loss at ₹ 93,755/-. The income declared by the Assessee was on account of share profit transferred from the partnership firm M/S. Salarpuria Soft Zone. The return so filed was processed u/s.143(1) of the Act on 24.9.2009. 3. Subsequently, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revalued figure of ₹ 314,29,74,600/- recorded in the books of account of the said firm as on March 31, 2008 was to be deemed as the full value of consideration received or accruing as a result of transfer of the capital asset by way of capital contribution. The revaluation amount of ₹ 289,13,56,904/- was the profit which accrued to the said three companies and each of them was liable to be taxed on one-third of such profit i.e. ₹ 96,37,85,635/- as short term capital gains. (c) The land was grossly undervalued till it was part of inventory in the books of the said firm to avoid the market value of the land of ₹ 314,29,74,600/- being taken into consideration and consequently to avoid higher taxes on capital gains in the hands of the said three companies. (d) The revaluation amount of ₹ 370,33,61,874/- was real profit and not notional and had been credited to the current accounts of the four partners in their profit sharing ratio each of whom had withdrawn substantial amounts almost equal to the cost of the land/money brought in. The said firm was taxable in respect of its profits but the revaluation profit was not disclosed by it as its in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. CIT(A) has erred in law and on the facts circumstances of the case in deleting the addition of share of Revaluation Profit of ₹ 37,03,36,187/- received by the assessee by holding that such profit is notional and is not taxable. 4. The Ld. CIT(A) has erred in law and on the facts circumstances of the case by holding and adjudicating that addition of Short Term Capital Gains for ₹ 96,37,85,635/- and addition of Revaluation Profit received for ₹ 37,03,36,187/- has resulted towards additions of the same amount twice where as both the issues of addition are different from each other and have been added back for different reasons. 5. The Ld. CIT(A) has erred in law and on the facts circumstances of the case in deleting the additions of ₹ 96,37,85,635/- added as Short Term Capital Gains and addition of Revaluation Profit for ₹ 37,03,36,187/-, by not giving cognizance to the issue fact that this assessee company along with other all of the partner companies and their Partnership Firm has adopted the means of colourable transaction, in collusion with each other, to achieve the purpose of avoiding taxes. 7. We have heard the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act had escaped assessment. The assumption of jurisdiction under section 147 cannot be justified upon the basis that income chargeable to tax in terms of section 45(3) of the Act had escaped assessment. The only fact referred to in the recorded reasons is the revaluation by the firm of its assets and consequent transfer of the revaluation amount to the partners accounts alleged to have been received by the partners. One has to bear in mind the scheme of the Act in the matter of taxation of a Firm and its partners. According to section 10(2A) of the Act the share of a partner in the total income of the firm is exempt in his hands. What is taxed in the hands of the partner is only the amount of interest, salary, bonus, commission or remuneration which has been allowed as a deduction in the assessment of the firm in terms of section 40(b) of the Act. If the revaluation by the firm resulted in any taxable income, such income had to be considered in the hands of the firm alone and the partner s share in such income would be exempt in his hands. Even if the case made out in the recorded reasons is taken as correct, the AO could not have formed the belief that any income in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income-tax law that it is the real income, which is taxable under the Act. This proposition was enunciated in CITv. Birla Gwalior (P.) Ltd [1973J 89 ITR 266 (SC), which was pronounced in CIT v. Shoorji Vallabhdas and CO. [1962J 46 ITR 144 (Se). 9. Further more, along with the assessee, one M/s. Orchid Griha Nirman Pvt. Ltd., one of the partners of M/S.Salarpuria Soft Zone also faced the same situation of reassessment under section 147 of the Act. They have challenged the order under section 147 of the Act in I.T.O. Vs. M/s. Orchid Griha Nirman Pvt. Ltd. ITA No.2269/Kol/2013. A coordinate Bench of this Tribunal, by way of order dated 25.08.2016 (A.Yr.2008-09), allowed the appeal. Observations of the Bench on the aspect of propriety of proceedings under section 147 of the Act are as follows: 26. We have given a very careful consideration to the rival submissions. As far as the validity of initiation of reassessment proceedings u/s.147 of the Act is concerned, we are of the view that the conclusions of the CIT(A) are just and proper and calls for no interference. The reasons recorded by the AO before issuing notice u/s.148 of the Act for making reassessment u/s.147 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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