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2023 (1) TMI 311 - ITAT SURATSurplus earned on the sale of plot - ‘capital gain‘ OR ‘business income’ - HELD THAT:- The assess-firm has incurred expenses for boundary wall, paid incremental and FSI charges in the office of Surat Municipal Corporation, such expenses were incurred for the purpose of business. Such expenses were debited in the profit and loss account of the assessee-firm and not in the individual hand of the partners of assessee-firm. Surprisingly, the sale deed of the land was executed by partners of the assessee-firm. Again, no capital gain is shown in the hand of the partners for the reasons best known to them. Despite the fact the sale deed was executed by the partners, the capital gain is shown in the hand of assess-firm. The partners of the assessee-firm are acting in accordance with their whims and choice. Once, the land/ plot was introduced as a capital contribution, it loses its control from the hand of the partners of the assessee, as it became the asset of the assess-firm. Now, the partners are raising plea that the accountant of the firm has made wrong entry. No corrective step is shown to have been taken by the partners in showing such expenses in their personal account, as no such evidence is placed on record. Thus, the stand of partners is contrary. The formation of partnership was with the objects of doing business in real estate and such conduct is reflected as asset as business WIP are major factors which cannot be ignored. There is no clause in the partnership deed about making investment in the land and to earn capital gain only. When the expenses were incurred, it was shown at WIP, however, when the asset is sold, the partners claimed that it was as investment only and not business asset, which cannot be allowed. Thus, in our view the ld CIT(A) erred in treating / directing the assessing officer to treat the gain on sale of asset of firm as capital gain in place of business income. Thus, we reverse the order of ld CIT(A) and fully concur with the finding of assessing officer, with our aforesaid observation. Similarly, in none of the case, as relied by assessee, there was no dispute on the nature of asset. The facts in the present case is unique as initially it was introduced as capital contribution, development charges of FSI was paid in Surat Municipal Corporation, it was sold in individual capacity but capital gain was again shown in the hand of assess-firm, when such glaring fact was detected by assessing officer, the partner took the plea that accountant committed mistake, which was never corrected. In the result, the grounds of appeal raised by the revenue are allowed.
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