TMI Blog2022 (2) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the asset so converted during the previous year ended March 31, 2008. HELD THAT:- After elaborately considering the facts the tribunal held that, if at all any income accrues or arises owing to such revaluation, it is an issue which had to be dealt with in the assessment of the firm M/S. Salapuria Soft Zone which is the separate taxable entity. After noting the facts the tribunal held that in terms of the Section 10 (2A) of the Act partners share in the total income of the firm is not to be included in the total income of the partner. Therefore, it was held that the there was no reason for initiating proceedings under section 147 of the Act. Section 45(3) applicability in the year of transfer by the partner of his capital asset to the partnership firm by way of capital contribution - In the instant case, the year of transfer was the financial year ended March 31, 2006. The ITO was wholly unjustified in invoking Section 45(3) which had no application in the assessment year 2008-09 or for that matter in the assessment year 2006-07. Even otherwise, Section 45(3) seeks to determine the capital gains with reference to the value of the asset recorded in the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against three separate orders the details of which are as follows:- (i) ITAT 164 of 2017 has been filed challenging the order dated 16.11.2016 passed by the Income Tax Appellate Tribunal B Bench Calcutta, (tribunal) in ITA No. 2270/Kol/2013 for the Assessment Year 2008-09. (ii) ITAT No. 239 of 2017 has been filed challenging the order dated 15.03.2017 passed by the Income Tax Appellate Tribunal C Bench Calcutta, (tribunal) in ITA No. 2260/Kol/2013 for the Assessment Year 2008-09. (iii) ITAT No. 250 of 2017 has been filed challenging the order dated 19.10.2016 passed by the Income Tax Appellate Tribunal A Bench Calcutta, (tribunal) in ITA No. 2269/Kol/2013 for the Assessment Year 2008-09. 2. All the three appeals were heard together as the issues arising in all the three appeals were identical though the assessee were different companies. Furthermore, the tribunal followed the decision in ITA No. 2269/Kol/2013, (impugned in ITAT No. 250 of 2017), in the other two appeals and therefore, the appeals were taken up together. 3. The revenue has raised the following substantial questions of law for consideration:- (a) Whether on the facts and in the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed capital assets of the partnership from 31.03.2008. 5. In ITAT No. 239 of 2017 the following substantial questions of law have been raised for consideration:- (a) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law to quash the notice issued under Section 148 of the said Act holding, inter-alia, that the Assessing Officer has acted without jurisdiction in issuing the notice under Section 148 and made re-assessment under Section 147 of the said Act: (b) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law to delete the addition of the re-valuation profit of ₹ 259,23,53,313/- despite the fact that no tax was paid either by the assessee or by the partnership firm on the said profit. (c) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in ignoring the sham arrangement between the group concerns wherein the nomenclature of impugned assets was initially shown as stock- in-trade and undervalued to escape the provision of Section 45(3) which was evident from audited accounts of the year but the assessee was taken ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in ITAT No. 164 of 2017 and ITAT No. 239 of 2017 respectively. The income declared by the assessee was on account of the share of exempt profit from the partnership firm M/S. Salapuria Soft Zone. The return was processed under section 143 (1) of the Act. 10. Subsequently, proceedings under section 147 of the Act were initiated and notice dated 03.11.2011 was issued under section 148 of the Act. The reasons for reopening was that the partnership firm M/S. Salapuria Soft Zone had revalued its assets and transferred the revalued reserve to its partners account and the assessee being a partner had received certain sum of money on account of such revaluation reserve. Therefore, the Assessing Officer opined that he had reasons to believed on examination of record that the above has escaped assessment within the meaning of Section 147 of the Act. The assets which were the subject matter was a large tract of land measuring about 3,19,086 sq. ft. owned by one M/s. I Gate Global Solutions Ltd. The said land was advertised for sale. The assessee company along with the two other companies namely M/s Command Construction Private Limited and Blue Haven Griha Nirman Private Limited, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account of the firm for the year ended 31.03.2006, as the value of the said land with corresponding credit to the capital accounts of each of the said three companies. Accordingly, the capital account of the assessee (respondent in ITAT No. 250 of 2017) was credited ₹ 8,15,00,000/-. The firm M/S. Salapuria Soft Zone accounted for the said land as work in progress and reflected it under Current Assests in its balance sheet. The completed industrial park was leased out during March 2008. On 30.03.2008 the firm converted the land, building and its amenities which were shown as inventory in its account into fixed assets. On 31.03.2008 the land and building were revalued in order to reflect the market value of the land and building in the books of account with a view to justify the bank loan of ₹ 250 crores. The amount of revaluation was credited to the Current Account of the four partners (three assessees before us and M/s. Command Constructions Private Limited) in their profit sharing ratio. Thus the current account of each of the said three companies as well as the fourth company was credited. The amount which was credited in the accounts is not of much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art from the merits of the matter. The CIT(A) held that even if the case made out in the reasons recorded by the Assessing Officer is accepted, no belief could have been entertained by the Assessing Officer that any income in respect of which the partner was chargeable to tax had escaped assessment, and therefore held that the Assessing Officer acted without jurisdiction by issuing notice under section 148 of the Act. With regard to the merits of the matter, the assessee contended before the CIT(A) that the transfer of the land by the three companies to the partnership was by way of capital contribution during the financial year ended March 31, 2006 relevant to the assessment year 2006-07. The other transfer was given effect in the accounts of the partners for the year ended March 31, 2006. The assessee s balance sheet and profit and loss account for the financial year showed that the land is work in progress under Current Asset which was transferred to the firm M/S. Salapuria Soft Zone as capital contribution. It was contended that the finding of the Assessing Officer that the partners capital account were not credited during the financial year ended March 31, 2006 for their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no transfer of any capital asset by the assessee to the said firm during the previous year, relevant to the assessment year 2008-09 for Section 45(3) to apply and therefore, the question of resorting to a device to avoid tax under section 45(3) does not arise. The assessee further contended that the finding of the Assessing Officer that the land was grossly undervalued till it was part of the inventory in the books of the firm M/S. Salapuria Soft Zone is wholly without any basis. There was no under valuation of the land when it was held by the said firm as inventory. By relying to the decision of the Hon ble Supreme Court in Chainrup Sampataram, (1953) 24 ITR 481 (SC), it was contended that for accounting purposes, the stock is valued at cost or market price whichever is lower and the market value is taken only when if falls below cost. Further it was submitted that the three companies paid ₹ 21,87,76,492/- for purchasing the said land which was more than two and half times the guideline value fixed by the Government for stamp duty purposes at the relevant time. Further it was contended that the entire area underwent major development and became a premium d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 45(3) of the Act, the tribunal after considering the books of accounts of the firm recorded the following factual findings:- The books of account of the said firm for the financial year ended March 31, 2006 clearly reflected the receipt of the said land by it by way of capital contribution from three of its partners as also the value thereof with corresponding credit to the partners capital accounts. The land upon purchase was shown by the said three companies as part of their current assets. The said firm upon receipt of the said land during the financial year ended March 31, 2006 also accounted for it as a current asset. The partners transferred the said land at cost. As such, there was no profit in the hands of the partners upon transfer of the said land to the said firm. Section 45(3) of the Act is applicable only in respect of a capital asset. The said provision has no application in the instant case since what was transferred by the partners was a current asset and not a capital asset. Section 45(3) of the Act did not come into operation for the assessment year 2008-09 by reason of conversion of the developed land and building into fixed assets by the said firm or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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