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TMI Blog2024 (11) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... amount other than the cost of the lands has been credited to the capital accounts of the partners which is otherwise eligible for withdrawal by the partners. It is also an admitted fact that the lands were transferred to the capital accounts of the partners at book value only and therefore, no capital gain has arisen. Since there was no revaluation of any asset and the assets were transferred at cost price to the partners, therefore, the decision of Mansukh Dyeing and Printing Mills [ 2022 (11) TMI 1180 - SUPREME COURT] is not applicable to the facts of the present case. As assets in question were transferred to the two partners by passing a journal entry only. The Hon ble Bombay High Court in the case of CIT vs. M.J. Mehta and Bros. [ 1992 (9) TMI 11 - BOMBAY HIGH COURT] has held that the transfer of immovable property belonging to the firm to its partners by means of book entry was not valid. Once the transfer is treated as not valid because of mere passing of book entry, therefore, in our opinion, there cannot be any capital gain. While the AO has brought the amount being transfer of land to Sameer A Pimple, however, the amount transferred to Shirish K Sankhe towards the land ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not satisfied with the arguments of the assessee. He noted that the assessee firm and the sister concern has purchased the lands for business purpose. However, as no business was carried on in these lands, the same was transferred to the partners which amounts to a transfer resulting into a capital gain. Further, the valuation report of the said land was not filed by the assessee. In absence of any documentary evidence, the capital gain could not be calculated, he, therefore, made addition of Rs. 62,70,540/- in the hands of the assessee firm on account of transfer of land from the firm to the partners. 6. In appeal, the CIT(A)/NFAC confirmed the action of the Assessing Officer by observing as under: 5 I have carefully considered materials available and facts involved in the case. Coming to the Grounds of Appeal the first and the last one are general in nature and, therefore, do not need any adjudication. 5.1. Ground of Appeal at 2 is the main grievance of the appellant. Ground at 3 is only supportive in nature in the present case, the contention of the appellant is that mere book entry through capital account of the partners cannot lead to any transfer of asset. As a sequitur, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme court in the case of Mansukh Dyeing and Printing Mills, [2022] 145 taxmann.com 151 (SC), wherein it held, 7.2 The object and purpose of introduction of section 45(4) was to pluck the loophole by insertion of section 45(4) and omission of section 2(47)(ii) While introduction to section 45(4), clause (ii) of section 2(47) came to be omitted. Earlier, omission of clause (ii) of section 2(47) and Section 47(ii) exempted the transform by way of distribution of capital assets from the ambit of the definition of transfer The same helped the assessee in avoiding the levy of capital gains tax by revaluing the assets and then transferring and distributing the same at the time of dissolution. The said loophole came to be plucked by insertion of section 45(4) and omission of section 2(47)(ii) At this stage, it is required to be noted that the word used OR OTHERWISE in section 45(4) is very important. 8 In the present case also, a subsisting firm had transferred its asset to its partners at Rs. 62,70,540/-. This tantamount to transfer, within the meaning of section 2(47) of the Act. Details of purchase of the asset were not available with the AO. Same has not been produced eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad purchased four pieces of lands during the assessment year 2006-07 which were registered in the name of the partners but the money was given out of the funds of the partnership firm and were shown in the Balance Sheet of the partnership firm in the asset side for the year ending 31.03.2016. The capital accounts of the partners were debited with cost of the lands at book value and those lands were not re-valued. Referring to the fixed assets schedule as on 31.03.2017, he submitted that such lands appearing in the Balance Sheet at Rs. 2,28,29,180/- was shown as reduction and the value has been shown as zero in the Balance Sheet as on 31.03.2017. The Ld. Counsel for the assessee submitted that although the Assessing Officer has not brought to tax the cost of the lands reduced from the capital account of the partner Mr. Shirish K Sankhe at Rs. 1,65,58,640/-, however, he has taxed an amount of Rs. 62,70,540/- shown as withdrawal in the hands of Shirish K Sankhe towards the cost of the land. He submitted that since the lands were not revalued and such excess amount due to revaluation has not been credited to the capital account of the partners and since they have not withdrawn any amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of Rs. 62,70,540/- in the hands of the assessee firm on the ground that when the assessee firm had purchased the lands for business purpose and due to no business activity carried on in these lands, the same were transferred to the partners, therefore it amounts to transfer resulting into capital gain. Since the assessee has not filed valuation report of the same and in absence of any documentary evidence the capital gain could not be calculated, he, made addition of Rs. 62,70,540/- which was shown as withdrawal of the land from the capital account of the partner Sameer A Pimple. We find the CIT(A)/NFAC sustained the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that four pieces of lands were purchased in the name of two partners, the funds were given out of the funds of the firm and the assets were shown in the Balance Sheet of the assessee firm and since no business activity was carried out on the said lands, these were transferred to the capital accounts of the two partners at book value only by passing a journal voucher entry and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their capital accounts immediately after joining the partnership, which amount was available to the partners for withdrawal and in fact some of the partners withdrew the amount credited in their capital accounts. Therefore, the assets so revalued and the credit into the capital accounts of the respective partners can be said to be transfer and which fall in the category of OTHERWISE and therefore, the provision of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01.04.1988 shall be applicable. 7.6 Now, so far as the reliance placed upon the decision of this Court in the case of Hind Construction Ltd. (supra) is concerned, at the outset, it is required to be noted that the said decision was pre-insertion of Section 45(4) of the Income Tax Act inserted by Finance Act, 1987 and in the earlier regime pre-insertion of Section 45(4), the word OTHERWISE was absent. Therefore, in the case of Hind Construction Ltd. (supra), this Court had no occasion to consider the amended/inserted Section 45(4) of the Income Tax Act and the word used OTHERWISE . Under the circumstances, for the purpose of interpretation of newly inserted Section 45(4), the decision of this Court in the case of Hind ..... 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