2022 (10) TMI 347 - AT - Income Tax

Capital gain - land introduced in the firm and the same is accounted as capital and other liability of the partner of the firm - grievance of the revenue is that the assessee has introduced the land in the firm books at price more than DLC rate value and thereby the same is accounted as capital contribution as well as other liability and thereby the value is created much more than the DLC rate in the books of the firm - HELD THAT - As we have not been the satisfactory proof whether the impugned land was an agricultural land or not? If the land is considered as nonagricultural land than the same is not accounted as capital assets in the firm s books. Whether the excess amount accounted in the books are chargeable in accordance with the provision of section 28(iv) is also not considered by the AO by passing a speaking order while making the addition in this case. All these issues require an examination of facts of the impugned land for which we believe that the opportunity is required to be given in the interest of justice to both the parties to take into consideration their respective arguments for which is necessary records to show the land was agricultural land or non-agricultural land is not clear before us. Assessee not placed on records in rebuttal of the arguments of this argument. Moreover, the arguments of the ld. DR on the provision of section 45(3) read with section 2(14) is also not examined in the absence of the evidence on record. As section 2(14) specific exclude the capital assets being agricultural land whereas section 45(3) deals with the capital assets and ld. CIT(A) have not examined this issue even though the issue was before him and it is appearing in his order. Thus, when agricultural land introduced in the firm under section 45(3) is not in capital asset then how the benefit of section 45(3) can be given to the assessee firm, there is no clear finding in the assessment order whether the land is agricultural land or not and therefore Assessing Officer is directed examine this aspect afresh and decide as to whether in the year of the transfer the land was agricultural land and thereby examine the applicability of the provision of and decided the issue after giving property opportunity to the assessee. In terms of these observation the appeal filed by the revenue is allowed for statistical purpose.

Summary

Issues Involved:

1. Deletion of addition on account of unexplained new capital introduced in the firm.
2. Deletion of addition on account of unexplained other liability booked in the firm.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained New Capital Introduced in the Firm:

The Revenue challenged the deletion of an addition of Rs. 5,59,28,300/- made by the Assessing Officer (AO) on account of unexplained new capital introduced in the firm. The AO had questioned the source of the new capital introduced by a partner, Sh. Ram Chandra Gurjar, in the form of agricultural land valued at Rs. 6,62,75,000/-. The AO obtained the DLC rate from the Sub-Registrar, Neemrana, which valued the land at Rs. 1,03,46,700/-. The AO added the difference of Rs. 5,59,28,300/- to the total income of the assessee as unexplained capital.

The Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO was not justified in taking the DLC value instead of the value recorded in the books of accounts, as per the provisions of Section 45(3) of the Income Tax Act, 1961. The CIT(A) noted that the Act specifies that the value recorded in the books of accounts should be deemed the full value of consideration. Additionally, the CIT(A) considered the conversion charges and various obligations of the partner as per the joint venture agreement, concluding that the higher valuation was justified.

2. Deletion of Addition on Account of Unexplained Other Liability Booked in the Firm:

The Revenue also challenged the deletion of an addition of Rs. 16,09,09,900/- made by the AO on account of unexplained other liability booked in the firm. The AO had questioned the source of a liability of Rs. 19,19,50,000/- shown in the name of Sh. Ram Chandra Gurjar. The AO obtained the DLC rate, which valued the land at Rs. 3,10,40,100/-. The AO added the difference of Rs. 16,09,09,900/- to the total income of the assessee as unexplained liability.

The CIT(A) found that the AO was not justified in taking the DLC value instead of the value recorded in the books of accounts, as per the provisions of Section 45(3) of the Income Tax Act, 1961. The CIT(A) noted that the Act specifies that the value recorded in the books of accounts should be deemed the full value of consideration. Additionally, the CIT(A) considered the conversion charges and various obligations of the partner as per the joint venture agreement, concluding that the higher valuation was justified.

Tribunal's Decision:

The Tribunal noted that the primary issue was whether the land introduced in the firm was agricultural or non-agricultural. The Tribunal found that this fact was not clear from the records and required further examination. The Tribunal directed the AO to verify whether the land was agricultural or non-agricultural at the time of transfer and to re-examine the applicability of Section 45(3) in conjunction with Section 2(14) of the Act. The Tribunal allowed the Revenue's appeal for statistical purposes, directing the AO to re-examine the issues and provide a clear finding on the nature of the land and the applicability of the relevant provisions of the Act.

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, directing the AO to re-examine the nature of the land introduced in the firm and the applicability of the relevant provisions of the Income Tax Act, 1961. The Tribunal emphasized the need for a clear finding on whether the land was agricultural or non-agricultural at the time of transfer.