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2021 (8) TMI 746 - AT - Income TaxCapital gain computation - LTCG - addition invoking section 50C - as per AO assessee had transferred certain ancestral plot of land by way of his capital contribution as a partner in two partnership firms - HELD THAT - As decided in own case 2019 (10) TMI 1453 - ITAT MUMBAI once the price recorded in the joint venture's books is treated as full value of consideration, the provisions do not permit substitution of any value so as to make addition under section 45(3). In fact the approach of the A.O. is also not correct in the sense that under section 45(3) once the full value of consideration is taken as the amount recorded in the books of the joint venture, the capital gain can be worked out by reducing the cost of purchase as per the books of assessee. In case the A. O. substitutes the cost of purchase, by whatever means, then that cost price has to be adjusted in the capital gains. This may result in a loss of equal amount as the books of joint venture show the book value as consideration and substituted cost price (value determined by AO in the order) as a deduction. This working would result in a loss but not a gain. This simple arithmetic calculation was missed by the A.O and he ma de the addition under section 45 (3) which does not permit him to substitute the full value of consideration other than the amount recorded in the books of account of the joint venture. As the Assessing Officer's action is not according to the provisions of Sec 45 (3) , there is no justification or upholding the contentions of Revenue CIT(A) had rightly vacated the addition that was made by the A.O by substituting the market value of the property as per the ready reckoner rates u/s 50C, as against the amount recorded in the books of accounts‟ of the respective firms, which was adopted by the assessee as the full value of consideration received or accruing as a result of the transfer. - Decided in favour of assessee.
Issues Involved:
1. Application of Section 50C in the context of capital contribution by a partner to a firm. 2. Reopening of assessment based on findings from a previous assessment year. 3. Determination of the full value of consideration under Section 45(3) versus Section 50C. 4. Addition as “deemed dividend” under Section 2(22)(e). Issue-wise Detailed Analysis: 1. Application of Section 50C in the context of capital contribution by a partner to a firm: The primary issue was whether Section 50C of the Income Tax Act, which deals with the adoption of stamp duty value as the deemed full value of consideration, could be applied to the transfer of a capital asset by a partner to a partnership firm as a capital contribution. The Tribunal found that Section 45(3) explicitly provides that the amount recorded in the books of accounts of the firm shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. The Tribunal upheld the CIT(A)’s view that Section 50C does not apply to such transactions because it would render Section 45(3) otiose and inoperative. The Tribunal cited the decision in the case of ITO vs. Chirayu Estate Developers Pvt. Ltd., where it was held that the provisions do not permit substitution of any value other than the amount recorded in the books of account of the joint venture. 2. Reopening of assessment based on findings from a previous assessment year: The case was reopened by the Assessing Officer (AO) based on findings in the assessee’s own case for the Assessment Year (A.Y.) 2012-13. The CIT(A) had relied on the order passed by the predecessor for A.Y. 2012-13 and granted relief to the assessee. The Tribunal noted that the CIT(A)’s order for A.Y. 2012-13 had been upheld by the Tribunal in the previous instance, thus providing a precedent for the current case. 3. Determination of the full value of consideration under Section 45(3) versus Section 50C: The Tribunal observed that both Section 45(3) and Section 50C contain deeming provisions for determining the full value of consideration for the purpose of calculating capital gains. However, Section 45(3) specifically applies to the transfer of a capital asset by a partner to a firm, deeming the amount recorded in the books of accounts as the full value of consideration. The Tribunal held that applying Section 50C to such transactions would disrupt the intended operation of Section 45(3). The Tribunal also emphasized that special provisions (Section 45(3)) prevail over general provisions (Section 50C) as per the rule of construction, citing the Supreme Court’s observation in D.R Yadav Vs. R.K Singh. 4. Addition as “deemed dividend” under Section 2(22)(e): The AO had added substantial advances received by M/s Gayatri Films & Music Pvt. Ltd. from M/s Sagar Entertainment Ltd. as “deemed dividend” under Section 2(22)(e) in the hands of the assessee. The CIT(A) vacated this addition, observing that none of the shareholders of M/s Gayatri Films & Music Pvt. Ltd. held more than 20% of equity capital while simultaneously holding more than 10% shareholding in the lending company. The Tribunal upheld the CIT(A)’s decision, agreeing that the shareholding in individual capacity could not be clubbed with shareholding in other capacities. Conclusion: The Tribunal dismissed the revenue’s appeal, upholding the CIT(A)’s order that: - Section 50C does not apply to the transfer of a capital asset by a partner to a firm as a capital contribution. - The amount recorded in the books of accounts of the firm is deemed to be the full value of consideration under Section 45(3). - The addition as “deemed dividend” under Section 2(22)(e) was not sustainable. The appeal of the Revenue was dismissed, and the order was pronounced on 16/08/2021.
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