2017 (9) TMI 1227 - AT - Income Tax

Addition on account of income from alleged sale of land - assessment in who s hand - to be taxed in the hands of partnership firm or successor company - AO did not accept the dissolution of partnership firm - The assessee claims that on dissolution of partnership firm, the land was passed on to M/s. Vascon Engineers Ltd. (the successor company) - Held that - Departmental Representative for the Revenue has failed to controvert the documents filed by the assessee in this regard and in view of the said facts and circumstances and in view of the fact that certain portion of consideration not being paid to the assessee, it cannot be held that the possession was handed over and hence, the deal was completed in the hands of assessee on 07.05.2007 itself. We reject the claim of learned Departmental Representative for the Revenue in this regard. In any case, the Assessing Officer had not accepted the fact of dissolution of assessee firm and taxed the profits; but the learned Departmental Representative for the Revenue has tried to improve and stated that even if dissolution is there, but possession was handed over on 07.05.2007 and hence, taxable. We find no merit in both the stands As the taxes have been paid on the profits arising on sale of said land by M/s. Vascon Engineers Ltd. in the instant year itself at higher rates and no benefit has arisen to the said concern on this account. There is no merit in disturbing the same. Accordingly, we delete the addition made in the hands of assessee on account of sale of land at Hadapsar. Another aspect which has to be considered is the approach of Revenue Department, wherein the balance land was also developed. In case there is no dissolution of assessee s firm, then the profit arising on the development of balance land should have been assessed in the hands of assessee. However, they have not been assessed in the hands of assessee. The said profits were declared by M/s. Vascon Engineers Ltd. and Mr. Atul Chordia in their joint venture agreement and have been so assessed. Because of inconsistency, we find no merit in the stand of Revenue and since due taxes have been paid on the transaction, the ratio laid down in CIT Vs. Excel Industries Ltd. and Mafatlal Industries P. Ltd. 2013 (10) TMI 324 - SUPREME COURT is squarely applicable and we apply the same and delete the addition in the hands of assessee.

Summary

Issues Involved:
1. Validity of the order passed under section 143(3) r.w.s. 153A of the Income-tax Act.
2. Validity of assessment made in the name of the firm.
3. Requirement of incriminating material for assessment.
4. Violation of principles of natural justice.
5. Addition of ?13,82,94,326 on account of income from alleged sale of land to M/s. Suzlon Energy Ltd.
6. Treatment of taxes paid by M/s. Vascon Engineers Ltd. as taxes paid by the appellant.

Detailed Analysis:

1. Validity of the order passed under section 143(3) r.w.s. 153A of the Income-tax Act:
This issue was not pressed by the assessee and hence dismissed as 'not pressed'.

2. Validity of assessment made in the name of the firm:
This issue was also not pressed by the assessee and hence dismissed as 'not pressed'.

3. Requirement of incriminating material for assessment:
This issue was not pressed by the assessee and hence dismissed as 'not pressed'.

4. Violation of principles of natural justice:
This issue was not pressed by the assessee and hence dismissed as 'not pressed'.

5. Addition of ?13,82,94,326 on account of income from alleged sale of land to M/s. Suzlon Energy Ltd.:
The primary issue revolved around the addition of ?13,82,94,326 on account of income from the alleged sale of land to M/s. Suzlon Energy Ltd. The assessee argued that the sale was recognized in the books of M/s. Vascon Engineers Ltd. after the firm was dissolved on 29-05-2007, and the possession was handed over on 29-06-2007. The Assessing Officer (AO) did not accept this explanation, noting that certain documents suggested the firm continued to exist after the dissolution date. The AO held that the dissolution and subsequent agreements were a colorable device to shift income to M/s. Vascon Engineers Ltd. for better valuation of shares. The CIT(A) upheld the AO's findings, rejecting the assessee's contentions and confirming the addition.

6. Treatment of taxes paid by M/s. Vascon Engineers Ltd. as taxes paid by the appellant:
The assessee argued that since M/s. Vascon Engineers Ltd. had declared the income from the sale and paid taxes on it, the same should be treated as taxes paid by the appellant. The Tribunal examined the facts and documents, including the dissolution deed, balance sheets, and agreements. It found that the dissolution was genuine and the income from the sale was rightly declared by M/s. Vascon Engineers Ltd. The Tribunal noted that the taxes had been paid at higher rates by M/s. Vascon Engineers Ltd., and there was no merit in disturbing the same.

Conclusion:
The Tribunal concluded that the addition of ?13,82,94,326 in the hands of the assessee was not justified as the dissolution of the firm was genuine and the income from the sale was rightly declared by M/s. Vascon Engineers Ltd. The Tribunal deleted the addition made in the hands of the assessee and allowed the appeal partly. The judgment emphasized the principle that the substance of the transaction should prevail over the form, and due taxes had already been paid on the transaction by M/s. Vascon Engineers Ltd.