2024 (1) TMI 355 - AT - Income Tax

Capital gain addition - Year of chargeability - transfer of capital assets in this year or not? - HELD THAT - As the year of chargeability as per section 45(3) is the year in which transfer takes place . The AY in which transfer took place is AY 2011-12 and not the impugned Ay in which assessment is made. On this sole reason, the appeal of the ld AO fails. As following the decision of Honourable High court Blue Heaven Griha Nirman (P.) Ltd 2022 (2) TMI 186 - CALCUTTA HIGH COURT and also on plain reading of the provision of section 45 (3) of the Act , no addition could have been made in AY 2013-14 in absence of transfer of capital assets in this year. Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 13,96,40,040/- by CIT(A).
2. Validity of reassessment proceedings initiated by the Assessing Officer.

Summary:

Deletion of Addition of Rs. 13,96,40,040/- by CIT(A):

The learned Assessing Officer challenged the deletion of Rs. 13,96,40,040/- by CIT(A), arguing that the assessee violated fundamental accounting principles by revaluing the land without proper routing through the profit and loss account or crediting the partners' capital accounts. The CIT(A) held that no capital gain accrued to the assessee in A.Y. 2013-14 on account of the revaluation of land, which was initially brought into the books of the firm in A.Y. 2011-12 at nil value. The CIT(A) relied on the Supreme Court decision in Sanjeev Woolen Mills vs. CIT and the ITAT Kolkata decision in ITO vs. M/s. Orchid Griha Nirman Pvt. Ltd. The ITAT upheld the CIT(A)'s decision, emphasizing that the year of transfer was A.Y. 2011-12, making the addition in A.Y. 2013-14 incorrect under Section 45(3) of the Act.

Validity of Reassessment Proceedings:

The assessee contested the reassessment proceedings, arguing that the Assessing Officer initiated them based on borrowed satisfaction without proper application of mind and failed to provide necessary approvals and reasons as required u/s 151 of the Act. The ITAT noted that the reassessment proceedings were initiated after it was found that the assessee introduced land into the partnership firm in A.Y. 2011-12, and the revaluation of this land in A.Y. 2013-14 led to a credit of Rs. 13,96,40,040/- in the assessee's account. However, the ITAT concluded that since the transfer took place in A.Y. 2011-12, any capital gain should be assessed in that year, not in A.Y. 2013-14, rendering the reassessment proceedings for A.Y. 2013-14 invalid.

Conclusion:

The appeal by the learned Assessing Officer was dismissed on merits, confirming the CIT(A)'s order, and the cross-objection by the assessee was dismissed as academic.

Order pronounced in the open court on 21.12.2023.