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2017 (3) TMI 1881 - AT - Income TaxReopening of assessment u/s 147 - Addition towards capital gains u/s 45(3) - profit accrued to assessee company on transfer/contribution of capital by way of contribution in the form of its share of land asset to the partnership firm - HELD THAT - As rightly pointed out that even assuming that income accrued and arose in the hands of the firm consequent to revaluation of the assets by the firm, the income that might accrue in the hands of the partner would be in the nature of share income from the firm . In terms of Sec.10(2A) of the Act, partner s share in the total income of the firm is not to be included in the total income of the partner. Therefore, looked at from any angle, the AO could not on the basis of the reasons recorded formed belief that income chargeable to tax in the hands of the Assessee has escaped assessment. Considering the factual position, we are of the view that ld CIT (A) has rightly deleted the addition therefore we confirm the order of ld CIT (A). - Decided in favour of assessee.
Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act. 2. Applicability of Section 45(3) of the Income Tax Act regarding capital contribution and revaluation. 3. Taxability of revaluation profit credited to partners' accounts. Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147/148: The Assessee challenged the initiation of reassessment proceedings, arguing that the reasons recorded by the Assessing Officer (AO) did not indicate a belief that income chargeable to tax had escaped assessment. The CIT(A) agreed, stating that the reasons recorded did not refer to Section 45(3) and did not suggest that any income chargeable to tax under this section had escaped assessment. The CIT(A) emphasized that any taxable income resulting from the revaluation should be considered in the hands of the firm, not the partners. The Tribunal upheld the CIT(A)'s decision, noting that the AO could not have formed a belief that income chargeable to tax in the hands of the Assessee had escaped assessment based on the reasons recorded. Therefore, the initiation of reassessment proceedings was deemed invalid. 2. Applicability of Section 45(3) Regarding Capital Contribution and Revaluation: The AO contended that the revaluation of land and its subsequent transfer to the partnership firm should be considered a capital contribution, thus attracting tax under Section 45(3). The AO argued that the revalued figure should be deemed the full value of consideration for the transfer of the capital asset, resulting in short-term capital gains. However, the CIT(A) and the Tribunal disagreed, ruling that the revaluation did not constitute a transfer that would trigger Section 45(3). The Tribunal confirmed that the Assessee did not make any short-term capital gains taxable under Section 45(3) or otherwise. 3. Taxability of Revaluation Profit Credited to Partners' Accounts: The AO argued that the revaluation profit credited to the partners' accounts was real and taxable. The CIT(A) countered this by stating that any income from revaluation should be considered in the firm's assessment, not the partners'. The Tribunal supported this view, highlighting that the partner's share in the firm's total income is exempt under Section 10(2A). Consequently, the revaluation profit of ?37,03,36,187/- credited to the Assessee's account was not taxable. The Tribunal upheld the CIT(A)'s deletion of the addition on account of alleged revaluation profit. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming that the reassessment proceedings under Section 147/148 were invalid, the provisions of Section 45(3) were not applicable, and the revaluation profit credited to the partners' accounts was not taxable. The order of the CIT(A) was upheld, and the additions made by the AO were deleted.
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