2023 (10) TMI 620 - AT - Income Tax

Capital gain - Land transfered by assessee into partnership firm - stock-in-trade is introduced into a firm - valuation of land was done by the assessee himself more as against the cost price and the same has not been revalued by the joint venture or the firm - HELD THAT - The amount recorded in the books of the firm should be deemed to be the full value of contribution received or accrued as a result of such transfer. CIT (A) has given a finding that the assessee was following method of valuation of closing stock of its business at cost or market price, whichever is lower, as per settled and accepted principles of accountancy. Accordingly, the land in question as well as of other plots of land held by the assessee as stock-in-trade were used to be valued as per the method of valuation at the end of the year when accounts of the assessee were made out - in the current year under consideration, the assessee got the land in question revalued determining market value at Rs. 6.0 crores which is more than the cost to the assessee and the land was then contributed to the newly constituted partnership firm as capital contribution and the surplus of Rs. 4.80 crores arising from the said transaction was credited in the P L Account of the assessee firm and the value of the land was credited in the capital account of the assessee partner in the books of the firm. Special Bench of the Tribunal in DLF Universal 2010 (1) TMI 54 - ITAT DELHI-B held that the provisions of section 45(3) also applies when stock-in-trade is introduced into a firm because the transaction on the capital account and stock-in-trade does not retain its character as stock-in-trade at the point of time of introduction. No infirmity in the order of the learned CIT (A) confirming that there was a transfer resulting in capital gain for the year under consideration and thereby confirming the addition made by the assessee. Accordingly, the grounds of appeal 3 raised by the assessee is dismissed. Deduction u/s 80IB (10) - addition due to transfer of land in question - HELD THAT - As deduction u/s 80IB(10) is applicable to an undertaking developing and building housing projects with certain conditions. However, in the instant case, the assessee is not an undertaking developing and building housing projects but is merely a partner in a joint venture/partnership firm. In our opinion, the deduction u/s 80IB(10), if any, can be claimed by the joint venture and not by the assessee who is merely a partner in the said partnership firm. Therefore, the additional ground raised by the assessee is dismissed.

Summary

Issues Involved:
1. Validity of Re-assessment Proceedings.
2. Applicability of Section 45(3) of the Income Tax Act, 1961.
3. Eligibility for Deduction under Section 80IB(10) of the Income Tax Act, 1961.

Summary:

1. Validity of Re-assessment Proceedings:
The assessee challenged the validity of the re-assessment proceedings initiated under Section 147 of the Income Tax Act, 1961. However, the Tribunal dismissed this ground as the assessee did not press the argument during the hearing. Consequently, the re-assessment proceedings were upheld as valid.

2. Applicability of Section 45(3) of the Income Tax Act, 1961:
The primary issue was whether the transfer of 2.0 acres of land by the assessee to a partnership firm as capital contribution should be treated as a capital asset under Section 45(3). The Assessing Officer (AO) noted that the land, acquired for Rs. 1.20 crores, was valued at Rs. 6.00 crores in the firm's books, resulting in a capital gain of Rs. 4.80 crores. The assessee argued that the land was introduced as stock-in-trade, not a capital asset, and thus Section 45(3) should not apply. However, the Tribunal upheld the AO's decision, referencing the Special Bench decision in DLF Universal vs. DCIT, which stated that Section 45(3) applies to both capital assets and stock-in-trade introduced into a firm. The Tribunal confirmed the addition of Rs. 4.80 crores as capital gain.

3. Eligibility for Deduction under Section 80IB(10):
The assessee claimed a deduction under Section 80IB(10) for the capital gains arising from the transfer of land. The Tribunal dismissed this claim, stating that the deduction under Section 80IB(10) is applicable to an undertaking developing and building housing projects, not to a partner in a joint venture or partnership firm. The Tribunal emphasized that the deduction, if any, should be claimed by the joint venture/partnership firm, not the individual partner.

Conclusion:
All three appeals filed by the assessee were dismissed. The Tribunal upheld the validity of the re-assessment proceedings, confirmed the addition of Rs. 4.80 crores as capital gain under Section 45(3), and denied the deduction under Section 80IB(10). The judgment was pronounced in the Open Court on 11th October 2023.