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2022 (2) TMI 861 - AT - Income TaxRevision u/s 263 by CIT - Wrong Capital gain computation as AO not examined the transaction by the angle of section 50C - asset which was contributed as a capital contribution by a partners to a firm where he is a partner - scope of provision of section 45(3) and 50C of the Act are separate and independent and capital gain is to be determined in accordance with the provision of section 50C of the Act as has been clearly held by ld. PCIT while exercising his power under section 263 of the Act issued show cause notice to the assessee - HELD THAT - No doubt that the transaction of capital contribution was examined by the AO. However, it is a matter of fact that there is no reference in the assessment order about the examination of issue. As recorded above that Hon ble Jurisdictional High Court in case of Nirma Chemical works 2008 (2) TMI 373 - GUJARAT HIGH COURT held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. The stand of the assessee before the AO as well as before the ld. PCIT is that the assessee has contributed three pieces of land as his contribution in the partnership firm, thus, keeping in view, the decision of Co-ordinate Bench in Sarrangan Ashok vs. ITO 2019 (8) TMI 1527 - ITAT CHENNAI and Mumbai Bench in ACIT vs. Amartara (P) Ltd. 2020 (4) TMI 222 - ITAT MUMBAI wherein it was held that where the partner transferred land as a capital contribution to its partnership firm and the transaction falls under the scope of section 45(3) of the Act, which itself is a deeming section, another deeming section prescribed in section 50C of the Act could not be extended to determine the value of consideration. Thus, in view of the aforesaid legal decisions, in our considered view the view taken by the AO in accepting the capital gain/loss on capital contribution of (03)three pieces of land is not erroneous. Therefore, the twin condition as enunciated under section 263 of the Act is not made out in the present case, thus, the order passed by the ld. PCIT is set-aside, accordingly, grounds of appeal raised by the assessee are allowed.
Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act. 2. Verification of property transactions under Section 50C during the assessment. 3. Validity and legality of the assessment order under Section 143(3). 4. Applicability of Section 50C to the revaluation of assets transferred by a partner to a firm. 5. Setting aside of the assessment order by the Principal Commissioner of Income Tax (PCIT). Detailed Analysis: 1. Initiation of Proceedings under Section 263 of the Income Tax Act: The Assessee challenged the initiation of proceedings under Section 263 by the PCIT, arguing that the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The PCIT had issued a show-cause notice under Section 263, indicating that the AO failed to verify the sale consideration of certain properties in accordance with Section 50C, rendering the assessment order erroneous and prejudicial to the revenue. 2. Verification of Property Transactions under Section 50C: The PCIT noted that the AO did not investigate the sale consideration of three immovable properties from the perspective of Section 50C during the assessment proceedings. The properties were transferred by the Assessee to a partnership firm as a capital contribution, and the Assessee had shown gains/losses in the return of income. The PCIT argued that the AO's omission to apply Section 50C made the assessment order erroneous and prejudicial to the revenue. 3. Validity and Legality of the Assessment Order under Section 143(3): The Assessee contended that the AO had made due inquiries during personal hearings and that the assessment order under Section 143(3) was valid. The Assessee provided complete details of the capital gain/loss and argued that the AO had verified these details before passing the assessment order. The Assessee also argued that the properties were transferred at agricultural land valuation, and there was no violation of Section 50C. 4. Applicability of Section 50C to the Revaluation of Assets Transferred by a Partner to a Firm: The Assessee argued that the transfer of capital assets by a partner to a firm as a capital contribution is covered under Section 45(3) of the Act, which provides a special provision for such transfers. The Assessee contended that Section 50C does not apply to these transactions, as Section 45(3) deems the value recorded in the firm's books as the full value of consideration. The Assessee relied on case laws to support this argument, including decisions from the Mumbai and Chennai Tribunals. 5. Setting Aside of the Assessment Order by the PCIT: The PCIT did not accept the Assessee's arguments and held that the properties transferred were not agricultural land at the time of transfer. The PCIT concluded that the AO had not properly verified the transactions and that the assessment order was erroneous and prejudicial to the revenue. The PCIT set aside the assessment order and directed the AO to re-examine the issue. Tribunal's Decision: The Tribunal considered the submissions of both parties and reviewed the relevant case laws. The Tribunal noted that the AO had made inquiries during the assessment and that the Assessee had provided detailed information regarding the capital gains. The Tribunal also referred to the decisions of the Mumbai and Chennai Tribunals, which held that Section 50C does not apply to transactions covered under Section 45(3). The Tribunal concluded that the AO had taken a reasonable and legally sustainable view, and the assessment order was not erroneous. The Tribunal held that the twin conditions for invoking Section 263, namely, the order being erroneous and prejudicial to the interests of the revenue, were not satisfied in this case. Therefore, the Tribunal set aside the PCIT's order and allowed the Assessee's appeal. Conclusion: The Tribunal allowed the Assessee's appeal, setting aside the PCIT's order under Section 263. The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the revenue, as the AO had made due inquiries and the provisions of Section 50C did not apply to the transactions covered under Section 45(3).
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