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TMI Blog2017 (1) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... retirement of assessee partner from the firm, there was no element of transfer of interest in partnership assets by the retiring partner to the continuing partners and the amount received by him was not liable for capital gains. In view of the above judgements, it is abundantly clear that when a partner retires from the partnership firm, whatever amount received by the partner over and above his capital account is not liable for capital gain tax. Though, there is no transfer within the meaning of section 2(47)(v) of the Act, the assessee himself offered the capital gain on account of relinquishment of his right in the partnership firm, therefore, we are of the view that there is no prejudice is caused to the revenue and hence the CIT was not correct in coming to the conclusion that the order passed by the A.O. is prejudicial to the interest of the revenue. - Decided in favour of assessee. - I.T.A.No.451/Vizag/2013 - - - Dated:- 8-11-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri C. Subrahmanyam, AR For The Respondent : Shri P. Hari Prasada Rao,DR ORDER PER G. MANJUNATHA, Accountant Member: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains on relinquishment of share in partnership firms. The assessee further submitted that he had admitted capital gain on the amount received from the partnership firms towards relinquishment of his share by adopting the amount standing credit in the capital account as cost of acquisition. The assessing officer, while completing the assessment has examined the issue in detail and after analyzing the indexed cost of acquisition adopted, re-determined the capital gain and made additions of ₹ 1,08,474/-, therefore, the assessment order passed by the A.O. cannot be considered as erroneous in so far as it is prejudicial to the interest of the revenue. 5. The CIT, after considering the submissions of the assessee, held that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue, as the assessing officer has failed to examine the issue of capital gains towards amount received from two partnership firms on relinquishment of his share in the assets of the firm. The CIT, further, observed that since the assessee does not have any right over the assets of the firm and unless there is a dissolution of partnership firm, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chosen to accept the computation made by the assessee, therefore, the order passed by the A.O. cannot be held as erroneous in so far as it is prejudicial to the interest of the revenue. As regards the second observation of the CIT, that the amount received by the assessee over and above his capital account is in the nature of goodwill which is to be taxed in total without allowing any cost of acquisition, the A.R. submitted that when a partner retires from the partnership firm taking his share, no element of transfer of interest in the partnership share by the retiring partner to the continuing partner was involved. Further, the amount received in full and final settlement of a partner s share and such adjustment of his right is not a transfer in the eyes of law. Therefore, even though the assessee himself has admitted capital gains, there is no transfer within the meaning of section 2(47)(v) of the Act on account of relinquishment of his share in partnership firm. Accordingly, there is no prejudice is caused to the revenue and hence the order passed by the A.O. cannot be considered as prejudicial to the interest of the revenue. On the other hand, the Ld. D.R. strongly supported th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of section 2(47)(v) of the Act and hence the question of computation of capital gain on the amount received from the partnership firm does not arise. Though, there is no transfer towards relinquishment of his rights in the partnership firm, the assessee himself computed capital gain and offered to tax. Therefore, there is no prejudice is caused to the revenue and hence the order of the A.O. cannot be considered as prejudicial to the interest of the revenue. 9. Having heard both the parties and considered materials available on record, we find that the CIT assumed jurisdiction to revise the assessment order on the ground that there is a lack of enquiry on the part of the A.O. in examining the issue of computation of capital gain towards relinquishment of share in partnership firm. But, on perusal of the assessment order passed by the A.O. and CIT order, we find that the issue pointed out by the CIT in the revision proceedings has been considered by the A.O. at the time of assessment. The A.O. after satisfied with the explanations furnished by the assessee, accepted long term capital gain declared by the assessee. Therefore, we are of the view that once the issue which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. In view of the above judgements, it is abundantly clear that when a partner retires from the partnership firm, whatever amount received by the partner over and above his capital account is not liable for capital gain tax. Though, there is no transfer within the meaning of section 2(47)(v) of the Act, the assessee himself offered the capital gain on account of relinquishment of his right in the partnership firm, therefore, we are of the view that there is no prejudice is caused to the revenue and hence the CIT was not correct in coming to the conclusion that the order passed by the A.O. is prejudicial to the interest of the revenue. 11. The CIT has power to revise assessment order u/s 263 of the Act, but to invoke the provisions of section 263 of the Act, the twin conditions must be satisfied i.e. (1) the order of the A.O. is erroneous (2) further it must be prejudicial to the interest of the revenue. Unless both the conditions are satisfied, the CIT cannot assume jurisdiction u/s 263 of the Act. It is not necessary that every order which is erroneous may be prejudicial to the interest of the revenue or vice versa. In some cases the order passed by the A.O. may be erroneous b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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