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TMI Blog2024 (11) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... roleum." 3. Accordingly, statutory notices u/s 142(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') were issued and served on the assessee to which, the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details. 4. During the course of assessment proceedings the Assessing Officer noted from the capital account of the partner that an amount has been debited to the extent of Rs. 62,70,540/- under the head 'lands' during the year under consideration. On being questioned by the Assessing Officer, it was submitted that the said lands were purchased by the assessee firm for its business use but the purchase deeds were made in the name of the partners who had contributed the capital for purchase of the properties and the amount for purchase of the lands was paid by the firm. As no business was carried out on this land, the partners decided to transfer the said land to both the partners at cost price by passing necessary journal entries. 5. However, the Assessing Officer was not satisfied with the arguments of the assessee. He noted that the assessee firm and the sister concern has purchased the lands for business pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer." 6.2. Here, the key word is "or otherwise". Thus, the provision was inserted to plug loophole in the Act. It now included distribution of assets of a firm among partners, on dissolution and otherwise, as transfer. That is, the expression 'otherwise has to be read with the words transfer of the capital assets. If so read, it becomes clear that even when a firm is in existence and there is a transfer of capital assets, it comes within expression 'otherwise'. The word 'otherwise' takes into sweep not only cases of dissolution but also cases of transferring of assets by existing partnership firms. 7. This view was finally upheld by the Hon'ble Supreme court in the case of Mansukh Dyeing and Printing Mills, [2022] 145 taxmann.com 151 (SC), wherein it held, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,70,540.00 may please be deleted. 3 The learned CIT(Appeals) has erred in not deleting the impugned addition of Rs. 62,70,540.00 made by the learned Assessing Officer which is contrary to the well settled principles of law explained by the Hon. Bombay High Court in the case of CIT v/s J.M. Mehta and Sons reported in 214 ITR Page 716 the same may please be deleted. 4 The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal. 8. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A)/NFAC in confirming the addition of Rs. 62,70,540/-. Referring to the copy of the Balance Sheet placed at page 3 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the partners capital account and submitted that an amount of Rs. 62,70,540/- was shown as withdrawal from the capital account of Sameer A Pimple and Rs. 1,65,58,640/- as withdrawal from the capital account of Shirish K Sankhe. He submitted that the assessee firm had purchased four pieces of lands during the assessment year 2006-07 which were registered in the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the lands were transferred to the respective partners by passing a journal entry and neither there was a sale deed nor any agreement, therefore, in view of the decision of the Hon'ble Bombay High Court in the case of CIT vs. M.J. Mehta and Bros. (1995) 214 ITR 716 (Bom), it is not a valid transaction. He submitted that the Hon'ble Bombay High Court in the said decision has held that the transfer of immovable property belonging to the firm to its partners by means of book entry was not valid. He accordingly submitted that the CIT(A)/NFAC was not justified in confirming the addition made by the Assessing Officer. 9. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the CIT(A)/NFAC. He submitted that the provisions of section 45(4) are clearly applicable to the present case. 10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer made addition of Rs. 62,70,540/- in the hands of the assessee firm on the ground that when the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit was in effect distribution of increased value of assets to partners, and as said credits were available to partners for withdrawal, assets so revalued and credited into capital accounts could be said to be 'transfer' which would fall in category of 'otherwise' under section 45(4) and accordingly it was held that the said lands were chargeable to short term capital gain. The relevant observations of the Hon'ble Supreme Court read as under: "7.5 In the present case, the assets of the partnership firm were revalued to increase the value by an amount of Rs. 17.34 crores on 01.01.1993 (relevant to A.Y. 1993-1994) and the revalued amount was credited to the accounts of the partners in their profit-sharing ratio and the credit of the assets' revaluation amount to the capital accounts of the partners can be said to be in effect distribution of the assets valued at Rs. 17.34 crores to the partners and that during the years, some new partners came to be inducted by introduction of small amounts of capital ranging between Rs. 2.5 to 4.5 lakhs and the said newly inducted partners had huge credits to their capital accounts immediately after joining the partnership, which amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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