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TMI Blog2023 (8) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... on and transfers land property to such partnership firm by way of capital contribution. This is a specific transaction between partnership and partner for which there is special provision enacted by the legislator vide section 45(3) of the Act. Therefore, in our considered view the consideration in the hand of the partner (present assessee) shall be determined as per the provision of section 45(3) of the Act and not as per the provisions of section 50C. Disallowance of indexed cost of improvement from the computation of capital gain - assessee against the sale of land and transfer of land to partnership firm claimed certain amount incurred in different years as cost of improvement which includes interest paid to one Shri Suresh Patel in different years and compensation paid in lieu of cancellation deed executed by the impugned party and parties from whom the assessee purchased the impugned land property - HELD THAT:- We find that the lower authority failed to point out any infirmity in the evidence made available by the assessee but rejected the claim of the assessee merely on the reasoning that the cancellation deed did not contain the detail of payment and party has not offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of plastic raw materials into articles under the name and style of M/s Gokul Plastic . The assessee is also a partner in the firm namely M/s Pooja Buildcon . The assessee in the F.Y. 2009-10 along with other person acquired an immovable property for Rs. 70 Lakh in which his share was 50% only. During the year under consideration i.e. F.Y. 2013-14, the assessee along with co-owner sold 5% of impugned property for a consideration of Rs. 18,35,000/- and the remaining 95% of property was transferred to partnership firm M/s Pooja Buildcon as partner s capital contribution at Rs. 1,47,01,250/- (assessee share). The AO, considering the market value of 5% of impugned property, believed that the remaining property should have been transferred to partnership firm at Rs. 3,48,65,000/- in which assessee share comes at Rs. 1,74,32,500/- only instead of at Rs. 1,47,01,250/- only. Therefore, the AO purposed to invoke the provision of section 50C of the Act and treat the consideration in hand of the assessee at Rs. 1,74,32,500/- instead of Rs. 1,47,01,250/- only. 4.1 The assessee in reply submitted that he transferred the impugned property as capital contribution to the firm. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased a property in P.Y. 2009-10 in which he had 50% share. Further, that during the year under consideration, the appellant sold 5% of his share in the property for Rs. 10,35,000/-, Remaining share in property 1.e. 95% of his share in property was introduced in a partnership firm Pooja Bulldcon as his capital contribution at value of Rs. 1,47,01,250/-. The AO held that section 50C of the Act was applicable to Introduction of land as capital contribution in firm. The AO held that, based on market value of 5% of property sold by appellant, the stamp duty value of land (95%) Introduced in firm comes to Rs. 1,74,32,500/- as against value of Rs. 1,47,01,250/- shown by the appellant. Accordingly, the AO added Rs. 27,31,250/- u/s 50C of the Act. The appellant is in appeal against this action of the AO. During the appeal proceedings, the appellant primarily submitted that the case of the appellant does not fall in section 50C of the Act but it falls within the ambit of section 45(3) of the Act. Hence the value recorded in books of accounts would be the value of for the purpose of capital gains tax. The appellant submitted that section 45(3) of the Act creates a fiction of an amount to ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the hon'ble Court answered the above question in favour of Revenue and against the assessee. SLP filed by the assessee against above judgment was dismissed by Hon'ble Supreme Court in SLP (C) No (S) 28637/2017, 2017-TIOL-417-SC-IT. It must be mentioned that facts in CIT Vs Carlton Hotels (supra) are identical to the facts of the present case. In CIT vs Carlton Hotels (supra) also the assessee (Carlton Hotels) had transferred land to the firm as its capital contribution. In this case the court held as follows:- 90. In the present case, in the garb of entering into a partnership and taking recourse to some earlier laws, an attempt was made to avoid execution of a registered document which would have needed stamp duty to the State and, as result thereof, there could have been an occasion for payment of tax under the Act, 1961. The requirement registration consideration in the light of fact that contribution of Immovable property as partnership asset by a person transfer and has the effect of extinguishing or limiting rights and interest the owner partner..... (Emphasis supplied) As said above also, facts of the above case are identical to the facts of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Special provision for full value of consideration in certain cases. 50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority ) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. 11.1 From the perusal of the provisions of section 45(3) of the Act, it is transpired that the said provision is specific provision dealing with regard to value of consideration in the case of a capital asset transferred by the assessee to a firm or AOP/BOI in which such assessee is partner or member and such capital asset is transferred as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50C of the Act. In this regard we also find support and guidance from the order of the special bench of Delhi Tribunal in case of DLF Universal Ltd vs. DCIT reported in 36 SOT 1 wherein in identical facts and circumstances the special bench of tribunal held that personal assets contributed by the partner into firm as capital contribution is capital transaction and the same shall be taxed as capital gain and the consideration for the same shall be taken as per the provision of section 45(3) of the Act. The relevant observation of special bench is extracted as under: Undoubted proposition of law is that that there is no transfer on mere conversion of stock-in-trade into capital assets and/or on revaluation thereof in the assessee s books and no income arises on such conversion. In other words, there cannot be any actual profit or loss on withdrawal of stock-in-trade from a trading business and its conversion into capital asset. There is no deeming fiction to deem the conversion of stock-in-trade into capital assets as a transfer or to deem the fair market value as on the date of conversion as the cost of acquisition of the capital assets. However, a transfer does take place wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax as profits or gains under the head Capital gain under section 45, and for that purpose, the amount of Rs. 11.50 crores recorded in the books of account of the partnership firm as the value of the land would be deemed to be the full value of the consideration received or accruing as a result of the transfer of the land as so provided under sub-section (3) of the section 45. 11.3 Before parting it is also important to highlight that the learned CIT(A) while confirming the order of the AO, refer the judgment of Hon ble Allahabad High Court in case of CIT vs. Carlton Hotel Pvt. Ltd. reported in 88 taxmann.com 257. We have perused the judgment of Hon ble Allahabad High Court in the above-mentioned case and find that one M/s Carlton Hotel Pvt Ltd (CHPL) was holding a land property admeasuring to 364937 sq. ft. out of which a minor portion of land admeasuring to 10000 sq ft was sold to Sahara India Commercial Corporation Ltd (SICCL) vide sale deed and offered capital gain on the same as per the provision of section 50C of the Act. Subsequently, CHPL, SICCL and an individual Mr. I Ahmad entered into agreement to form partnership firm in the name and style of M/s India Housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above paragraph, we hereby set aside the finding of the learned CIT(A) and direct the AO to take full value of consideration as prescribed under section 45(3) of the Act and work out the amount of capital gain accordingly. Hence the ground of appeal of the assessee is hereby allowed. 12. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of claim representing cost of improvement for Rs. 59,91,687.00 only. 13. The necessary facts continue from the previous ground of appeal are that the assessee against the sale of land and transfer of land to partnership firm claimed certain amount incurred in different years as cost of improvement which includes interest paid to one Shri Suresh Patel in different years and compensation paid to one Shri Sanat Non-Trading Association of Rs. 25 Lakh in lieu of cancellation deed executed by the impugned party and parties from whom the assessee purchased the impugned land property. 13.1 However, the AO during the assessment proceedings found that the assessee along with his brother purchased impugned property vide purchases deed dated 10-08-2009 for a consideration of Rs. 70 Lakh out of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanat Trading Owner s Association and M/s Pooja Buildcon but not with the assessee. The assessee failed to file copy of ITR of the party i.e. Om Shri Sanat Trading Owner s Association and failed to demonstrate that the party has offered income of Rs. 50 Lakh on account of compensation paid by the assessee. Thus, the AO disallowed the claim of index cost of improvement of Rs. 46,65,140/- on account of payment of compensation for Rs. 25 Lakh and stamp duty charges of Rs. 6,72,595/-. 13.3 Thus, the AO in view of the above made aggregate disallowances of indexed cost of improvement for Rs. 59,91,687/- from the computation of capital gain. 14. The aggrieved assessee preferred an appeal before the learned CIT(A) who confirmed the disallowances made by the AO by observing as under: During appeal proceedings, the appellant submitted that the landowners were demanding money from the appellant and hence the appellant has borrowed amount from Shri Ghanshyambhai Patel on 12.8.2009 and paid the consideration to the landlord. Subsequently, the appellant acquired the loan from Shri Sureshbhai patel to repay the loan taken from Shri Ghanshyambhai Patel and hence cheque was cleared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Deed) is between Om Shree Sanat and Pooja Bulldcon. Out of the above, while the appellant may not be required to file Information at Sr.No.3 above, rest of the Information has to be filed and the objections raised by AO need to be clarified. However, even at the appellate stage, the appellant has falled to clarify the above objections. Further, perusal of the Cancellation Deed showed that it is between Om Shree Sanat Non- Trading Owners' Association and Pooja Bullcon, partnership firm in which the appellant is a partner. When asked to clarify this, the appellant could not give a satisfactory reply. In view of above, the AO was justified in not allowing deduction of Rs. 25,00,000/- (after indexation) from cost of purchase. The case laws relled on by the appellant are not applicable as the same are distinguished on facts. In view of discussion above, the AO was justified In disallowing Rs. 59,91,687/- out of total Indexed cost of Improvement. Accordingly, addition of Rs. 59,91,687/- Is upheld. Thus ground of appeal is rejected. 15. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 16. The learned AR before us submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lakh and utilized the same for repayment of loan taken from Shri Ghanshyambhai Patel. The explanation of the assessee was not accepted by the learned CIT(A) in absence of documentary evidence such as copy of bank statement of the assessee as well copy of bank statement of Shri Ghanshayambhai Patel and his confirmation, ITR etc. Now the learned AR for the assessee before us filed the copy of abovementioned documentary evidence and pleaded to admit the same as additional evidence. At the outset, we find that these additional evidences are crucial evidence in order to decide the issue whether the loan taken by the assessee form Shri Suresh Patel was utilized for acquiring the land property or not and consequently the assessee should be allowed the claim of interest expenses as cost of improvement or not. Therefore, considering the importance of the additional evidence which has direct bearing on the outcome of the dispute, we hereby exercise the power conferred under rule 29 of Income Tax (Appellate Tribunal) Rule 1963 and admit the same. However, we are also conscious of the fact that the revenue authority has not got the opportunity to verify the veracity of these additional eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee merely on the reasoning that the cancellation deed did not contain the detail of payment and party has not offered income on receipt of such compensation. In our considered opinion, the reasons assigned by the AO and by the learned CIT(A) to reject the claim of the assessee is not justified especially considering the documentary evidence made available by the assessee qualifying the payment of compensation. 18.3 Be that as it may be, we find identical claim of cost of improvement on account of compensation to Om Shri Sanat Non-Trading Owners Associations made by the Co-owner i.e. brother of the assessee Shri Manubhai Ishwarbhai Patel which has been accepted by the Revenue in the assessment framed under section 143(3) of the Act. Therefore, in our considered view when the same claim of cost of improvement made by the co-owner has been accepted, then the assessee cannot be treated differently. In this regard, we find support and guidance from the order of coordinate bench of this tribunal in case of M. Ambalal Desai v. ITO [IT Appeal No. 1870 (AHD.) of 2015, dated 7-1-2021 wherein it was held as under: 7. We have considered the submission of both the parties an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. As per stamp duty authority the assessee's share being 6.25% of sale value in the property comes to Rs. 25,56,310/-. Thus capitalgain comes to Rs. 1,33,363/-, which was taxable in the hands of the assessee. The capitalgain of Rs. 1,33,363 has now been shown by the assessee in the Return of Income filed in response to notice u/s 148 of the Act. However, the assessee has not declared suo moto Long Term CapitalGain as he has not filed return of Income. The assessee has consciously not filed return of income to avoid payment of tax. Therefore, Penalty proceedings u/s. 271(1)(c) of the Act are initiated on this issue for concealment of income. 10. We have noted that identical worded assessment order was passed in other co-ownercasei. e. Smt. Prabhaben Harshadrai Desai, relevant part of the assessment order is extracted below;: 3. On perusal of records and details submitted by the assessee it was found that the assessee was co-owner having share of 6.25% in the property sold for Rs. 2,00,00,001/- on 19-1-2009 situated at Survey No. 86, Lunsikui, Navsari. Value of property as per stamp duty valuation was determined at Rs. 4,09,01,000/-. The assessee has not declared ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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