TMI Blog2022 (2) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... icient to permit Commissioner to exercise his powers under section 263. The stand of the assessee before the AO as well as before the ld. PCIT is that the assessee has contributed three pieces of land as his contribution in the partnership firm, thus, keeping in view, the decision of Co-ordinate Bench in Sarrangan Ashok vs. ITO [ 2019 (8) TMI 1527 - ITAT CHENNAI] and Mumbai Bench in ACIT vs. Amartara (P) Ltd. [ 2020 (4) TMI 222 - ITAT MUMBAI] wherein it was held that where the partner transferred land as a capital contribution to its partnership firm and the transaction falls under the scope of section 45(3) of the Act, which itself is a deeming section, another deeming section prescribed in section 50C of the Act could not be extended to determine the value of consideration. Thus, in view of the aforesaid legal decisions, in our considered view the view taken by the AO in accepting the capital gain/loss on capital contribution of (03)three pieces of land is not erroneous. Therefore, the twin condition as enunciated under section 263 of the Act is not made out in the present case, thus, the order passed by the ld. PCIT is set-aside, accordingly, grounds of appeal raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act as per Apex Court s judgment. 2. Brief facts of the case are that the assessee while filing his individual return of income for the A.Y. 2015-16 on 13.12.2015 declared income of ₹ 4.45 Crore (Approx.). The case was selected for scrutiny. The assessing officer (AO) while making the assessment order noted that a search action under section 132 of the Act was carried out on 04.09.2015 in case of Param properties, Surat. During the course of search action certain incriminating evidence related to unaccounted income earned by the assessee were found and seized. Consequent upon search action, jurisdiction over the case of assessee was transferred to Central Circle. Subsequently, notice under section 153C of the Act was issued to the assessee on 01.08.2017 for filing return for various assessment years, including the subject assessment year. In response to notice under section 153C of the Act, the assessee filed his return of income on 11.09.2017 declaring the same income as declared in the return filed under section 139. The assessment was completed under section 143 r.w.s 153C of the Act on 27.12.2017. The AO while passing assessment order made certain additions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Return. The AO after verifying the submission and on his satisfaction passed the assessment order. The assessment order is neither erroneous, nor prejudicial to the interest of the revenue. The transfer land was actually agricultural land on which permission to convert in non-agricultural land have been received before the date of transfer, thus, for the purpose of transfer to the firm, Stamp Duty was paid as per non-agricultural land rates. There is no violation as per section 50C of the Act as the land has been transferred at agricultural land valuation. 5. In alternative submission, the assessee explained that transfer of capital asset by partner to the firm as capital contribution is covered by special provision of section 45(3) of the Act. The provision of section 45(3) deals with special cases of transfer of capital asset where profit or gain arising from the transfer to capital asset by way of capital contribution shall be chargeable to tax income previous year in which transfer took place. Provision of section 45(3) of the Act came into operation only in special cases of transfer between partnership firm and partners and in such circumstances, a deemed full valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners to the firm. Therefore, the provision of section 50C of the Act is applicable. It was a case of abated assessment in view of the search assessment proceedings, therefore, the scope of such assessment was not restricted to the seized material. The AO has not enquired and verified whether capital gain shown in the return of income was in accordance with the provision of section 50C of the Act. It is only during the course of revision proceedings, the documentary evidence related to transfer of capital asset by the assessee to the partnership firm was brought on record, otherwise, there was no evidence brought on record to corroborate the above facts. Therefore, the contention of assessee that issue was examined by the AO is factually incorrect. The assessment order is passed without making enquires or verification which should have been made as per Clause (a) of Explanation- 2 of section 263(1) of the Act and the assessment order is erroneous and prejudicial to the interest of the revenue. The ld PCIT set-aside the assessment order with the direction to AO to enquire into the issue and pass the order afresh after giving opportunity to the assessee. Aggrieved by the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT, the assessee in its reply dated 09.03.2021 explained that all lands were transferred to partnership firm on 07.03.2015. The transferred land was actually agricultural land on which permission to convert a non-agricultural land has been received before transfer date on 10.09.2014, thus, for the purpose of transfer to the firm Stamp Duty was paid as per rate applicable for non-agricultural land. It is clearly discernible from the sale deeds. Thus, there is no violation of section 50C of the Act. 9. In alternative submission, it was explained before the ld. PCIT that transfer to capital asset by partner to firm as the capital contribution is covered under special provision of section 45(3) of the Act. The provision of section 45(3) deals with the special case of transfer of capital asset where the profit or gain arising from the transfer of capital asset by way capital contribution shall be chargeable to tax in the previous year in which such transfer took place and for the purpose of section 48 of the Act, the amount recorded in the books of accounts of the firm shall be deemed to be full value of consideration received or accrued as a result of transfer. The ld. Senior C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned explicitly in the assessment order, if the ld. PCIT is not agreed with the conclusion and have a different view, the action under section 263 of the Act cannot be held to be justified. To support his submission, the ld. Senior Counsel relied on the following decisions; Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 832 (SC), CIT Vs Gabriel India Ltd (233 ITR 108 Bom /71 Taxman 585), Aryan Arcade Ltd., Vs PCIT (2019) 412 ITR 277 (Gujarat), CITVs Nirma Chemical Works (P) Ltd (2009) 309 ITR 67 and Nilakanth Stone Industries vs. PCIT reported in [2021] 128 taxmann.com 416 (Surat Tribunal). 11. On the other hand, the ld. CIT-DR for the Revenue supported the order of ld. PCIT. The ld. CIT-DR for the revenue submits that the assessment order is silent about the inquiries carried out and the conclusion arrived by the AO. The ld.CIT-DR for the revenue further submits that the provision of section 45(3) and 50C of the Act are separate and independent and capital gain is to be determined in accordance with the provision of section 50C of the Act as has been clearly held by ld. PCIT while exercising his power under section 263 of the Act issued show cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. 14. Further, Hon ble Bombay High Court in CIT Vs Gabriel India Ltd (233 ITR 108 Bom /71 Taxman 585) held that the power of suo-motu revision under sub-section (1) of section 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; and (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. One finds that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. Therefore, in order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo-motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls aggrieved with. 16. Now adverting to the facts of the case in hand, we find that the ld PCIT while issuing show cause notice recorded that after perusal of assessment record he found that the AO while passing the assessment order has not examined the transaction by the angle of section 50C of the Act. We find that the assessee contested the revision proceedings by filing his reply dated 09.03.2021. On considering the reply of the assessee the ld PCIT held that there is no ambiguity that the states of property has transferred to the partnership firm was non-agricultural land or rather a capital asset on the date of transfer as transfer took place through registered sale deed. The assessee himself made a valuation of those properties and computed capital gain accordingly. The ld. PCIT concluded the valuation shown by assessee is not in accordance with prevailing rule and regulation and that the Stamp Valuation Authority valued the property at higher rate after taking account the relevant rules at the relevant time. The AO has not considered these aspects while finalising the assessment orders and completed assessment without proper verification of correctness of capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. 19. However, on examining the applicability of the provisions of section 50C, on the asset which was contributed as a capital contribution by a partners to a firm where he is a partner, we find that Co-ordinate Bench of Tribunal in Sarrangan Ashok Vs ITO (supra) while considering the grounds of appeal raised in that case whether the ld.CIT(A) erred in not considering that provision of section 45(3) overwrites the provision of section 50C of the Act, the Co-ordinate Bench after considering the submission of both the parties, passed the following order: 7. We heard the rival submissions and perused the material on record. The appellant entered into partnership in the name and style of M/s. K G P Builders with one Shri K G Pandian. Towards the capital contribution, the appellant contributed land whose value was recorded in the books of firm at ₹ 29,77,300/-. The AO had treated 8 I.T.A. No. 544/Chny/2019 the transaction of capital contribution as the case of transfer of asset and accordingly worked out the capital gains by adopting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provision of 10 I.T.A. No. 544/Chny/2019 Section 45(3) of the Act are squarely applicable to the facts of the present case. 8. Then the question that may arise is, can the AO disturb the value of consideration recorded in the books of accounts of the firm. The provision of Section 45(3) of the Act are exhaustive and does not confer any power on the AO to adopt consideration different from what is recorded in the books of accounts of the firm. The Hon ble Jurisdictional High Court in the case of Pr.CIT vs. Dr.D. Ramamurthy, reported in 410 ITR 236 (Madras) held that the value recorded in the books of the firm is conclusive as to the consideration received on transfer of asset by a partner to the firm. Therefore, the Hon ble Madras High Court further held that the assessment has to be done on the basis of value of asset when the firm was constituted, not on the basis of revalued value of the assets. Applying the ratio to the facts of the present case, the value to be adopted by the AO is only ₹ 29,77,300/- lakhs which was recorded in the books of accounts of the firm as on date when the firm was constituted. 11 I.T.A. No. 544/Chny/2019. 9. Then the issue t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al provisions prevail over general provisions as per Latin Maxim. The Hon ble Supreme Court in the case of D.R. Yadhav v. R.K. Singh [2003] 7 SCC 110 held, that when there are two conflicting provisions of law in operation in the same field, the rule that specifically operates in that field would apply over the general rule. Therefore, 13 I.T.A. No. 544/Chny/2019 when there is a specific provision in the statute to deal with a particular kind of transaction then it would be squarely applied. Thus having regard to the principles enunciated above, it cannot be said that provision of Section 50C of the Act overrides the provision of Section 45(3) of the Act. 10. In the light of the legal principles enunciated above, we cannot uphold the action of the lower authorities, therefore the orders of the lower authorities are hereby set aside. 11. In the result, the appeal filed by the assessee is allowed. 20. Further, the Co-ordinate Bench of Mumbai Tribunal in ACIT vs. Amartara (P) Ltd., (supra) while considering the similar grounds of appeal held as follows: The provisions of section 45(3) deals with special cases of Transfer of capital asset where the profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has contributed three pieces of land as his contribution in the partnership firm, thus, keeping in view, the decision of Co-ordinate Bench in Sarrangan Ashok vs. ITO and Mumbai Bench in ACIT vs. Amartara (P) Ltd.(supra), wherein it was held that where the partner transferred land as a capital contribution to its partnership firm and the transaction falls under the scope of section 45(3) of the Act, which itself is a deeming section, another deeming section prescribed in section 50C of the Act could not be extended to determine the value of consideration. Thus, in view of the aforesaid legal decisions, in our considered view the view taken by the AO in accepting the capital gain/loss on capital contribution of (03)three pieces of land is not erroneous. Therefore, the twin condition as enunciated under section 263 of the Act is not made out in the present case, thus, the order passed by the ld. PCIT is set-aside, accordingly, grounds of appeal raised by the assessee are allowed. 22. In the result, appeal of the assessee is allowed. Order announced on 07 February, 2022 in open court and result was also placed on the notice board. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
