TMI Blog2024 (1) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... MAHARISHI, AM: 01. ITA No.1658/Mum/2022 is filed by the Dy. Commissioner of Income Tax, Circle 41(4)(1), Mumbai (the learned Assessing Officer) for A.Y. 2013-14 against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 14th March 2023, wherein the appeal filed by the assessee against the assessment order dated 29th December 2018, passed under Section 143(3) of the Income-tax Act, 1961 (the Act) by the Asst. Commissioner of Income, Circle 3(1), Mumbai, is allowed. 02. The learned Assessing Officer is aggrieved with that and has raised the following grounds of appeal:- 1 Whether on the facts and circumstances of the case the Ld.CIT(A) erred in deleting the addition of Rs. 13,96,40,040/- disregarding the fact that the assessee had violated fundamental accounting principles by revaluing the land without routing the corresponding entries through the profit and loss account and without giving corresponding credits to the capital accounts of the partners, and without giving corresponding credits to the capital accounts of the partners, and as such, the book results were ex facie incorrect and misleading. 2. Whether on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change of jurisdiction from ITO Ward 31(1)(1), Mumbai to ACIT 31(1), Mumbai) 04. Brief facts of the case show that the assessee is an individual who filed his return of income for A.Y. 2013-14, declaring a total income of ₹5,52,340/- on 5 October 2013. The return of income was processed and not scrutinized. 05. Subsequently, during the assessment proceedings of M/s Abdul Sattar Suleman and others for A.Y. 2013-14, it was found that the assessee introduced capital in the above partnership firm in the form of land amounting to ₹13,96,40,040/-. It was also found that the capital gain is chargeable to tax in the hands of the assessee under Section 45(3) of the Act. On perusal of the return of the assessee, the learned Assessing Officer found that the assessee has not offered any capital gains and therefore, the reasons were recorded by the learned Assessing Officer stating that he has reason to believe that income to the extent of ₹13,96,40,040/- for A.Y. 2013-14 has escaped assessment. Accordingly, notice under Section 148 of the Income-tax Act, 1961 (the Act) was issued on 22 March 2018. 06. The assessee filed its return of income on 29 November 2018, reit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the learned CIT (A). The learned CIT (A) passed the appellate order holding that no capital gain had accrued or arose to the assessee in A.Y. 2013-14 on account of the revaluation of land which was brought into the books of the firm in A.Y. 2011-12 at ₹ nil. The learned CIT (A) relied upon the decision of the Hon'ble Supreme Court in the case of Sanjeev Woolen Mills vs. CIT reported in 279 ITR 434 (SC) and also of the co-ordinate Bench in the case of ITO ward 1(4), Calcutta, Vs. M/s. Orchid Griha Nirman Pvt. Ltd. in ITA No.2269/Kol/2013. Accordingly, the appeal of the assessee was allowed. The learned Assessing Officer aggrieved with the appellate order has preferred this appeal before us. 010. The learned Departmental Representative submitted the facts of the case stating that the assessee introduced the land in the books of the partnership firm in A.Y. 2011-12. On that date, no sum was credited to the partner's account and similarly, no amount was debited as value of land in the books of the partnership firm. Subsequently, in A.Y. 2013-14, the sum of ₹13.96 crores was credited to the account of the assessee by putting the valuation of the land. He r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is nil and the amount of consideration recorded in the books of account of the firm as ₹ nil, no capital gain arose in A.Y. 2010-11. In A.Y. 2013-14, when it is credited to the partners or partners' capital account in the form of revaluation, there is no transfer of capital assets and therefore, capital gain cannot be taxed in that year. He further referred to the ledger account of the partners in the partnership firm. 012. We have carefully considered the rival contention and perused the orders of lower authorities. In this case admittedly transfer took place in AY 2011-12, It did not happen in AY 2013-14 as per finding of ld AO also. 013. Section 45 (3) provides that :- [(3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Command Construction Private Limited and Blue Haven Griha Nirman Private Limited, the assessee in (ITAT No. 164 of 2017) offered to purchase for a sum of Rs. 16,94,34,666/-. Subsequently the price was increased to Rs. 22,36,79,266/- on the basis that the said land measured 3,19,08 sq. ft. in contrast with the original measurement of 3,12,092 sq. ft. An agreement was entered into on 14-6-2004 and it appears that the re-measurement of the area was done and it was found that correct extent was only 3,12,092 sq. ft., therefore, the final price stood fixed at Rs. 21,87,76,492/- and supplementary agreement dated 28-12-2004 was entered into. The three companies paid the agreed sale consideration and possession was handed over. The Deed of Sale was executed and registered in their favour on 30-3-2005. The guideline value for the purpose of stamp duty as fixed by the Government at the relevant time was Rs. 260/- per sq. ft. and the purchase price paid by the three companies was Rs. 701/- per sq. ft. The total cost of the land paid by the three companies, inclusive of stamp duty and registration charges was Rs. 24,54,54,125/-. The land was purchased with a proposal to develop an industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was credited in the accounts is not of much relevance for us. The above factual position is not in dispute. 12. The Assessing Officer while examining the return in the assessment which was reopened was of the view that the credit to the Current Asset of the assessee in the partnership firm M/s. Salapuria Soft Zone gives rise to income chargeable to tax. The Assessing Officer in the reassessment proceedings held that bringing of land into the firm by way of inventory without crediting partners capital account and without bringing it as fixed asset cannot be considered as capital contribution by the partners during the financial year ended March 31, 2006. The land was contributed by the three companies during the previous year ended March 31, 2008 relevant to the assessment year 2008-09 by way of capital contribution when it was converted into fixed assets from inventory by the firm. The Assessing Officer held that section 45(3) was applicable in respect of such transfer made during the previous year relevant to the assessment year 2008-09. It was further held that the revaluation figure recorded in the books of accounts in the firm M/s. Salapuria Soft Zone as on March 31, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the financial year ended March 31, 2006 for their capital contribution by way of bringing in the said land is contrary to facts. The said land was brought in by the partners as inventory/current assets and it does not in any way alter the fact that the partners had in fact brought in the land into partnership business as their capital contribution. Further, by relying on the books of account of the firm M/s. Salapuria Soft Zone for the previous year ended March 31, 2006, it was demonstrated that the receipt of the said land by the firm was by way of capital contribution from the three assessees as also the value thereof with corresponding credit to the partners' capital account. Further it was contended that the firm upon receipt of the said land during the financial year ended March 31, 2006 also accounted for it as Current Asset . The partners transferred the said land at cost and there was no profit in the hands of the partners upon transfer of the said land to the firm. Therefore, it was contended that section 45(3) of the Act was inapplicable. It was further contended that after the firm received the land as the capital contribution, it was developed by infusing subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area underwent major development and became a premium destination for IT and ITES and several IT parks and SEZ zones and also high end residential projects were developed in the year. The area which was revalued was in a Gram Panchayat, was brought under the limits of the Municipal Corporation of Bangalore and it carried out various developmental activities by constructing flyovers under passes etc. water supply and sewerage facilities were provided and the FAR ratio of construction of buildings was also increased on account of the road width of 150 feet. 14. Subsequently the land price in the area continued to rapidly rise and the state government kept on revising the guideline value for stamp duty purpose thrice. The assessee contended notwithstanding such price rise, in accordance with the accounting principles, the land held as inventory could only be shown at its costs. The revaluation of the asset by the firm was justified by contending that it was to bring it in line with the current market value of the land and building and for justifying the bank finance obtained by the firm to the tune of Rs. 250 crores. Thus, it was submitted that the revaluation was not the colourab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oped land and building into fixed assets by the said firm or due to revaluation by the said firm of the asset so converted during the previous year ended March 31, 2008. Section 45(3) of the Act is applicable 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 account of the firm. The value so recorded is statutorily deemed to be the full value of consideration received or accruing to the partner as a result of the transfer of the capital asset to the firm. Thus, section 45(3) does not seek to substitute by any other figure the value agreed between the partners at which the asset is transferred by a partner to the firm. 16. With regard to the revaluation, tribunal re-appreciated the facts which were considered by the CITA. With regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g stamp duty, the case would be covered under section 45(3) of the Act. As per Section 45(3) of the Act, whenever a partner contributes any capital asset in the partnership firm, then the value of capital asset recorded in the books of account of the firm is to be considered as the full value consideration for the purpose of computing capital gain. 12. Section 45(3) says that the profits or gains arising from the transfer of capital asset by the person to a firm in which he is or becomes a partner by way of a contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and for the purposes of Section 48, the amount recorded in the books of account of the firm, as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of transfer of capital asset. 13. In the present case, we find that no any amount was credited by the firm in the account of the assessee as a consideration for the land in question during the year AY 2009-10. The record further indicates that the full value of consideration of the transfer of said land being recorded was NIL. Under su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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