9911796707
TMI Blog2024 (8) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... et held by the firm and the same has been assessed under proper provisions of section and as per facts available on record. Therefore, we are of the considered view that there is no merit in the legal grounds taken by the assessee challenging the powers of the CIT (A) u/s 251(1) and thus, the additional grounds of appeal taken by the assessee are rejected. Capital gain computation - appellant firm has revalued its assets held in the books of account - whether the revaluation of assets and crediting the amount of said revaluation amount to the capital account of the partners is amounts to or tantamount to transfer of a capital asset by way of distribution of capital asset on the dissolution of a firm or otherwise ? - HELD THAT:- The provisions of section 45(4) of the I.T. Act, 1961 deals with the profits or gains arising from the transfer of a capital asset by way of distribution of capital asset on the dissolution of a firm or otherwise and as per the said provisions, the profits or gains shall be chargeable to tax as income of the firm of the previous year in which the said transfer takes place and for the purpose of section 48, the fair market value of the asset on the date of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be taken as deemed full value of the consideration for the purpose of section 48. In the present case, the appellant has obtained a certificate from the Sub-Registrar, Shankarpally, RR District. As per the said certificate, the market value/guideline value of the property as on 1.1.2017 is at Rs. 7 lakh per acre. Since the appellant has filed relevant evidences to prove the fair market value of the property at Rs. 7 lakh per acre on the date of transfer of the capital asset, in our considered view for the purpose of section 48 of the I.T. Act, 1961, the fair market value of the asset on the date of such transfer should be adopted as per the guideline value of the property which is further supported by certificate issued by the stamp duty authorities. Capital gain arising out of transfer of capital asset by way of revaluation of asset and crediting said amount of revaluation to partners capital account should be computed in terms of section 45(4) of the I.T. Act, 1961 by considering the fair market value of the property at Rs. 7 lakh per acre to total extent of land revalued by the assessee. Thus, we reverse the findings of the learned CIT (A) on this aspect - Decided partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished by the assessee and according to the Assessing Officer, the assessee could not substantiate increase in capital account of the partners with necessary evidences, therefore, treated the entire capital account as unexplained credit and brought to tax u/s 68 of the I.T. Act, 1961. 3. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT (A). Before the learned CIT (A), the assessee explained the nature and source of increase in capital account of partners and submitted that the lands held by the firm has been revalued and the revalued amount has been credited to the capital account of the partners. The assessee had filed the relevant details of the names addresses of the partners, ledger account and also filed necessary evidence to prove the credits found in the capital account of the partners. The learned CIT (A) after considering the relevant submission of the assessee and also taken note of evidences filed by the assessee to explain increase in capital account observed that there is no fresh introduction of capital by the partners in the assessee firm by way of any cash or bank transfer, but the increase in capital account is due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Prasad, CA, referring to the petition filed by the assessee for admission of additional ground submitted that the assessee has taken a legal ground challenging the jurisdiction of the learned CIT (A) to tax a new source of income in light of certain judicial precedents and therefore, in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs Commissioner Of Income Tax on 4th Dec. 1996 reported in (1998) (229 ITR 383) the additional ground filed by the assessee should be admitted. The learned Counsel for the assessee further referring to the powers of the learned CIT (A) u/s 251(1)(a) of the I.T. Act, 1961 submitted that the word enhance or annul the assessment are confined to the assessment reached through a particular process which cannot be extended to the amount which ought to have been computed. There being other provisions which allow escaped income from new sources to be taxed after following certain prescribed procedures. The enhancement powers of the CIT(A) cannot be stretched beyond the issues which are subject matter of assessment by the Assessing Officer. Since the Assessing Officer has taxed capital account under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the asset on the date of such transfer shall be deemed to be a full value of the consideration. If we consider the fair market value of the property as on the date of transfer, the market value of the property as per stamp duty authority was Rs. 7 lakh per acre and if we consider the fair market value as per the stamp duty authority, the value considered by the learned CIT (A) on the basis of revaluation amount credited to the partners capital account is incorrect. Therefore, he submitted that the capital gain should be computed on the basis of provisions of section 48 of the Act and full value of the consideration should be adopted as per market value of the property but not as per the accounting method followed by the assessee. 7. The learned DR, Sri. Kumar Pranav, CIT, on the other hand, submitted that there is no merit in the additional grounds taken by the assessee on the powers of the CIT (A) u/s 251(1)(a) of the I.T. Act, 1961. The learned CIT (A) has co-terminus powers with that of the Assessing Officer is empowered to assessee the total income of the assessee which includes enhancement of assessment as held by various Courts. However, as contended by the learned Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT (A) having deleted the addition made by the Assessing Officer u/s 68 of the Act towards increase in capital account of the partners is erred in directing the Assessing Officer to assess the said capital account under the provisions of section 45(4) of the I.T. Act, 1961. 9. The provisions of section 251(1)(a) of the Act and the proviso provided therein deals with the powers of the learned CIT (A) to decide an appeal and as per the said provision, the learned CIT (A) is having wide powers to decide an appeal and consider the issues appealed against by the assessee and also the issues arising out of the proceedings from which the order appealed germinates. In other words, the learned CIT (A) can consider any issues which is raised out of the appeal filed by the assessee and also any other issues which comes to its knowledge from the assessment proceedings and also return of income filed by the assessee for the relevant A.Y. This is because, the learned CIT (A) is having co-terminus powers with that of the Assessing Officer and it can decide any issues which is arising out of the appeal filed by the assessee and also any other issues which is forming part of the assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on record. Therefore, we are of the considered view that there is no merit in the legal grounds taken by the assessee challenging the powers of the learned CIT (A) u/s 251(1) and thus, the additional grounds of appeal taken by the assessee are rejected. 10. Coming back to the issue in hand. There is no dispute with regard to the fact that the appellant firm has revalued its assets held in the books of account. The appellant firm possesses 14 acres and 22 guntas of land in various survey numbers and the said land has been revalued upward to the tune of Rs. 12,66,24,460/-, thereby increasing the value of the land in books of account. The said revaluation amount has been credited to the capital account of the partners. The issue now needs to be considered is, whether the revaluation of assets and crediting the amount of said revaluation amount to the capital account of the partners is amounts to or tantamount to transfer of a capital asset by way of distribution of capital asset on the dissolution of a firm or otherwise . The provisions of section 45(4) of the I.T. Act, 1961 deals with the profits or gains arising from the transfer of a capital asset by way of distribution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property. The amount recorded in the books of account of the assessee firm cannot be considered as the fair market value of the property because there is no basis on which the assessee has determined the value of the property is not ascertainable. Further, entries recorded by the assessee in its books of account is not determinative and gospel truth as income should be computed as per the provisions of Income Tax act, 1961. There is yet another reason for not accepting the valuation given by the assessee in its books of account as sacrosanct and binding on the Revenue. More particularly, in some given cases, the assessee may devalue by decreasing the value of the assets, in that situation, it is not expected from Revenue to accept revaluation without any independent verification or valuation. Therefore, we are of the opinion that in the case, the assessee either enhanced the valuation or decreased the valuation, in both the situation, it is incumbent upon the Assessing Officer to determine the fair market value of the assets by referring to the DVO or compute the correct fair market value of the asset in accordance with other methods as provided by the Act/Rules after affor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Shankarpally, RR District. As per the said certificate, the market value/guideline value of the property as on 1.1.2017 is at Rs. 7 lakh per acre. Since the appellant has filed relevant evidences to prove the fair market value of the property at Rs. 7 lakh per acre on the date of transfer of the capital asset, in our considered view for the purpose of section 48 of the I.T. Act, 1961, the fair market value of the asset on the date of such transfer should be adopted as per the guideline value of the property which is further supported by certificate issued by the stamp duty authorities. Therefore, we are of the considered view that capital gain arising out of transfer of capital asset by way of revaluation of asset and crediting said amount of revaluation to partners capital account should be computed in terms of section 45(4) of the I.T. Act, 1961 by considering the fair market value of the property at Rs. 7 lakh per acre to total extent of land revalued by the assessee. Thus, we reverse the findings of the learned CIT (A) on this aspect and direct the Assessing Officer to compute the capital gain in light of our discussion given in terms of section 45(4) of the I.T. Act, 1961 by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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