DILIP PRASAD ACIT CENTRAL CIRCLE 1(3), AHMEDABAD, AHMEDABAD V. VIRENDRA AMRUTBHAI PATEL, AHMEDABAD

ITSSA 177/AHD/2024

AI Insights

The case involves two appeals by the Revenue against separate orders passed by the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, concerning the assessees, Shri Virendrabhai Amrutbhai Patel and Smt. Silvaben Virendrabhai Patel. The appeals were related to the assessment year 2017-18 and involved substantial cash receipts allegedly received by the assessees from a partnership firm, M/s Sagar Developers, upon their retirement. The primary legal contention was whether the cash received was a revenue receipt taxable in the hands of the assessees. The Assessing Officer had treated the cash receipts as taxable revenue, while the CIT(A) had deleted the additions made by the AO, leading to the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714638 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 06-08-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: CIT v. Mohanbhai Pamabhai, Addl. CIT v. Mohanbhai Pamabhai, Sunil Siddharthbhai v. CIT, CIT v. Rajendra Babubhai Modi, PCIT v. Mansukh Dyeing and Printing Mills, Savitri Kadur v. ITO, Ramona Pinto v. DCIT, Smt. Girija Reddy P. v. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: S.N. SOPARKAR
• Keywords: Condonation of delay; Set aside; Capital asset; Unexplained cash credit; Capital receipt; Gift; Capital Gains; Principle of natural justice; Search and seizure; Procedural lapse
• Section: 142(1); 132; 153A; 68; 2(14)

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘C’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ]BEFORE S/SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER IT(SS)A No.175/Ahd/2024 Asstt.Year : 2017-18 The ACIT, Cent.Cir.1(3) Aayakar Bhavan Ashram Road Ahmedabad. Vs. Silvaben Virendrabhai Patel 2A4, Samrat Complex Nr.Choice Snack Bar Navrangpura Ahmedabad Gujarat. PAN : AKIPP 9595 P IT(SS)A No.177/Ahd/2024 Asstt.Year : 2017-18 The ACIT, Cent.Cir.1(3) Aayakar Bhavan Ashram Road Ahmedabad. Vs. Virendrabhai Amrutbhai Patel 9, Ashwa Villa Bungalows Opp: ARA Racquet Academy Sindhu Bhawan Road Ahmedabad 380058. PAN : AAVPP 8848 A (Applicant) (Responent) Assessee by : Shri S.N. Soparkar, Sr.Advocate Revenue by : Shri Rignesh Das, CIT-DR सुनवाई क तारीख/Date of Hearing : 28/07/2025 घोषणा क तारीख /Date of Pronouncement: 06/08/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: These two appeals by the Revenue are directed against separate orders passed by the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad [hereinafter referred to as “CIT(A)”], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], dated 28.08.2024 (in the case of Shri Virendra Amrutbhai Patel) and 29.08.2024 (in the case of Smt. Silvaben Virendrabhai Patel) for the Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 2 assessment year 2017–18. Since common issues arising from identical facts are involved in both appeals, they were heard together and are being disposed of by this consolidated order. 2. Condonation of Delay 2.1 At the outset, there is a delay of five days in filing both the appeals by the Revenue against the respective orders passed by the CIT(A). The Revenue has filed separate petitions praying for condonation of delay. It is stated in both petitions that the delay occurred due to administrative reasons, and the same was neither deliberate nor intentional but on account of bona fide circumstances. The delay is of a minor nature and duly explained. During the course of hearing, no objection was raised by the Learned Authorised Representative (AR) of the assessee to the condonation of delay. 2.2 In view of the submissions made and taking a liberal approach consistent with the settle principles laid down, we are satisfied that sufficient cause has been shown for the delay. Accordingly, the delay of five days in filing the appeals is hereby condoned, and the appeals are admitted for adjudication on merits. 3. Facts of the Case 3.1 The assessees filed their original returns of income under section 139(1) of the Act for the Assessment Year 2017–18 which were processed u/s 143(1). A search and seizure operation under section 132 of the Act was conducted on 08.10.2020 in Popular Group of cases in which both the assessees were also covered. Another search u/s 132 of the Act was conducted on the Shiwala Group of Cases on 08.10.2020 in which premises of Smt. Silvaben Virendrabhai Patel were also covered. Pursuant thereto, notices under section 153A of the Act were issued to both the assessees. Assessees filed their returns of income in response to the notice. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 3 In response to notices u/s 142(1) the assessee submitted the details and documents. Tabulated details of the returns filed are as follows: Particulars Smt. Silvaben Virendrabhai Patel Shri Virendra Amrutbhai Patel Date of filing original return 27.10.2017 27.10.2017 Returned income Rs. 1,90,000/- NIL Date of Issue of Notice u/s 153A relating to search in case of Popular Group 13.10.2021 19.07.2021 Date of filing return of income in response to notice u/s 153A 02.11.2021 02.11.2021 3.2 In the course of assessment proceedings, the Assessing Officer noted that in the case of both assessees, there was a substantial cash of Rs.11.35 crore was received by each during the previous year relevant to A.Y. 2017– 18. This cash, as stated by the Assessing Officer, was received from a partnership firm M/S Sagar Developers on the retirement from the firm. In case of Smt. Silvaben Virendrabhai Patel, the Assessing Officer also observed that a sum of Rs.16.95 Lacs were deposited during demonetisation period. In case of Virendra Amrutbhai Patel it was also observed that he received cash of Rs.11.35 Crore gift from his wife Smt. Silvaben Virendrabhai Patel. The Assessing Officer called upon the assessees to explain the source of the said deposits. Both the assessees submitted that the alleged cash deposits were sourced from the retirement proceeds received from the partnership firm M/s. Sagar Developers. It was submitted that Sagar Developers was engaged in the business of real estate development, and the assessees had retired from the said firm w.e.f. 31.03.2017. At the time of retirement, both received Rs.11.35 crores in cash over and above their capital contribution, representing their individual 24% share in the projected profits of the firm. 3.3 The following material aspects were highlighted: Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 4 • The real estate project was commenced by the firm in 2010–11 and substantial progress was achieved over the years, with approval of project plans obtained on 31.03.2015. By the time of assessee's retirement, construction was substantially completed and the project had an expected sale value of Rs.109.33 crores. • The total project cost was estimated at Rs.62.03 crores (including land and construction), resulting in a projected profit of Rs.47.30 crores. The assessee’s share (24%) in such projected profit was calculated at Rs.11.35 crores. • This amount of Rs.11.35 crores was received in cash prior to 31.03.2017, as part of the retirement settlement. The actual payment was made before executing the retirement deed dated 01.04.2017. Thus, the said sum was in the nature of retirement proceeds, and not an unexplained cash credit. 3.4 It was further submitted that: • Due to the nature of accounting in real estate industry (based on project completion or percentage completion method), the books of accounts did not reflect the actual market value or accrued profits. Hence, to compensate the outgoing partner appropriately, the firm arrived at a market-linked valuation for settlement. • The amount was received by Smt. Silvaben from the firm, and the same was later gifted by her to her husband, Shri Virendrabhai Patel, also one of the assessees herein, who in turn deposited the cash in his bank account. • Detailed workings, including land area, built-up area, saleable units, estimated collection and projected profit figures, were furnished to justify the reasonableness and credibility of the sum received on retirement. 3.5 The Assessing Officer, after considering the submissions and documents filed by the assessee, held that although the assessee was a partner in M/s. Sagar Developers (engaged in real estate development), and that some supporting documents were furnished regarding firm activities and the project status (including land acquisition, plan approvals, and ongoing construction), the claim that the sum of Rs.11.35 crores received on retirement was not taxable was not acceptable. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 5 3.6 The AO noted that: • While substantial work had been completed in the project, no revenue had been recognized in the books. • It is plausible that a retiring partner may receive an amount over and above her capital contribution, but such receipt is taxable as revenue receipt in the hands of the assessee. 3.7 The AO rejected the claim that the cash receipt was not taxable. The AO further reasoned that any benefit that may arise out of the business must be brought to tax. The AO also noted that the amount received over and above the capital contribution from the firm at the time of retirement is a revenue receipt and hence taxable in the hands of the assessee. The AO further stated that the recent amendment by Finance Act, 2021 clarified that any capital asset received in connection with the reconstitution or dissolution of a firm is taxable and the Finance Act 2021 only shifted the liability of tax on the firm which was earlier on the assessee. 3.8 Both the assessees preferred the appeal before CIT(A) and in support of their appeals raised legal and factual contentions. It was submitted that the addition of Rs.11.35 crore was made pursuant to a search, without affording any opportunity to the assessee to explain the documents found or to record a statement under section 132(4) of the Act. Such an omission is particularly significant in light of the specific penal provisions introduced via sections 271AAA, 271AAB, and the linked importance of a statement recorded under oath u/s 132(4). The assessees contended that in the absence of such a statement and without being given an opportunity to present their version, the addition was in gross violation of their rights and vitiated by procedural irregularity. 3.9 The assessees submitted that the entire amount of Rs.11.35 crore in question was received by them from M/s. Sagar Developers upon their retirement as partners during the relevant financial year. It was categorically admitted that the said amount was received in excess of their capital contribution. However, reliance was placed on judicial precedents to Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 6 assert that such receipts are capital in nature. It was contended that prior to the amendment brought in by the Finance Act, 2021, there was no charging section under the Income-tax Act, 1961 that taxed the receipt of money or capital asset by a partner on retirement from the firm. The amendment to section 45(4) and insertion of section 9B are prospective in operation and do not apply to A.Y. 2017–18. Therefore, the transaction in question, which occurred in the financial year 2016–17, could not be subjected to tax under those provisions. 3.10 The assessees placed heavy reliance on the judgment of the Hon’ble Gujarat High Court in CIT v. Mohanbhai Pamabhai (1973) 91 ITR 393, wherein it was held that when a partner retires from a partnership, what he receives is his share in the net partnership assets after deducting liabilities, and such receipt does not amount to transfer or give rise to capital gains under section 2(47). The assessees further cited the approval of this principle by the Hon’ble Supreme Court in Addl. CIT v. Mohanbhai Pamabhai [(1987) 165 ITR 166 (SC)] and Sunil Siddharthbhai v. CIT [(1985) 156 ITR 509 (SC)]. They argued that the amount received on retirement is computed based on the share of net assets and is not in the nature of consideration for any transfer of interest in a capital asset. The assessee also referred to the decision of the Hon’ble Gujarat High Court in CIT v. Rajendra Babubhai Modi [(1993) 66 Taxman 462 (Guj.)], wherein it was held that compensation received in lieu of reduction in profit sharing ratio in a partnership was in the nature of capital receipt, not chargeable to tax. 3.11 It was further submitted that the amount received did not involve any transfer of interest in the partnership assets to the continuing partners and, therefore, no transfer within the meaning of section 2(47) was involved. Consequently, no capital gains could be said to arise. To support this contention the assessee relied on the judgment of the Hon’ble Supreme Court in the case of PCIT v. Mansukh Dyeing and Printing Mills in Civil Appeal No. 8258 of 2022 which upheld the decision of the Hon’ble Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 7 Bombay High Court in the case of A.N. Naik Associates and Others (2004) 265 ITR 346 (Bom) which interpreted the word “Otherwise” used in section 45(4) of the Act and observed and held that the word “otherwise” takes into its sweep not only cases of dissolution but also cases of subsisting partners of a partnership, transferring assets in favour of a retiring partner. The assessee contended that the ruling in Mansukh Dyeing and Printing Mills was not applicable as there was no transfer, distribution, or extinguishment of capital asset, the land in question was stock-in-trade and not capital asset, the payment of Rs.11.35 crore was based on estimated future profits therefore the case did not fall under Section 45(4) or involve any colourable device. The assessee also submitted supporting ledger extracts and balance sheets to evidence the nature of the asset as stock-in-trade. 3.12 Based on the facts and the detailed submissions made by the assessee, the learned CIT(A), in case of appeal of Shri Virendra Amrutbhai Patel, concurred with the stand taken by the assessee and rendered a finding that there was no transfer of any capital asset in the present case. It was specifically noted that there was no revaluation of any capital asset nor was there any distribution or extinguishment of rights in a capital asset that could trigger the application of section 45(4) of the Act. The CIT(A) observed that the amount received by the assessee was not attributable to any transfer of capital asset but was in the nature of compensation or consideration based on business projections and accumulated share of profit, as per the assessee’s long-standing involvement in the firm. Accordingly, the CIT(A) held that the transaction did not attract the provisions of section 45(4), since its foundational conditions such as revaluation, transfer, or distribution of capital assets, were absent in the present case. The CIT(A) also accepted the assessee’s submission that the reliance placed by the Assessing Officer on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Mansukh Dyeing and Printing Mills(supra) was misplaced, inasmuch as the factual background in that case was materially distinct and involved specific revaluation and withdrawal of revalued assets. In light of the aforesaid reasoning, the CIT(A) Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 8 concluded that the addition of Rs.11.35 crores made by invoking section 45(4) was devoid of merit and accordingly directed its deletion. 3.13 In the case of Smt. Silvaben Virendrabhai Patel, the learned CIT(A), noting that the facts and issue involved were identical, followed his own findings rendered in the case of her spouse, Shri Virendra Amrutbhai Patel, and accordingly deleted the addition made in her hands as well. 4. Aggrieved by the orders of CIT(A), the Revenue is in appeal before us raising following common grounds of appeal: 1. The Ld.CIT(A) has erred in deleting the addition of Rs. 11,35,00,000/ - on account of cash received by the assessee on retirement of partnership firm i.e. 'Sagar Developers' ignoring the fact of the case that the amount received over and above the capital contribution the firm at the time of retirement was a revenue receipt and taxable in the hands of the assessee. 2. The Revenue craves leave to add/ alter/ armed and/ or substitute any or all grounds of appeal. 4.1 During the course of hearing before us, the learned Departmental Representative (DR) strongly supported the order passed by the Assessing Officer. It was contended that the payment of Rs.11.35 crores received in cash by the assessee on retirement from the partnership firm was liable to be taxed. The Departmental Representative placed reliance on the decision of Co-ordinate Bench in case of Savitri Kadur v. ITO, IT(SS)A No. 34/Bang/2022, order dated 23.02.2023 where the action of the revenue authorities in taxing the excess paid over and above the sum standing to the credit of the capital account of the Assessee as capital gain was upheld. 4.2 The AR, reiterating the assessee’s stand on the facts and relying on the decision of the CIT(A), submitted the following: • That the partnership firm, M/s. Sagar Developers, continued to exist and retained its ownership over the assets (residential/commercial stock-in-trade), and no capital asset was transferred by the firm to the retiring partner. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 9 • That there was no extinguishment of any right in any capital asset of the firm in favour of the assessee. • That it is a settled legal position as held by the Hon’ble Supreme Court and various High Courts (including the jurisdictional Gujarat High Court) that where there is no transfer of a capital asset by way of distribution, the provisions of section 45(4) cannot be attracted. • That Mansukh Dyeing and Printing Mills (supra) is not applicable, as there was no revaluation or transfer of capital asset in the facts of the present case. • That the decision in Savitri Kadur was wrongly relied on by the Revenue, since: o It is based on Sudhakar M. Shetty (130 ITD 197), which has been subsequently distinguished in Anik Industries Ltd. v. DCIT (2020) 116 taxmann.com 385 (Bom.) at para 6.2, where it was held that compensation received for reduction in profit-sharing ratio would not amount to capital gains. o The Hon’ble Bombay High Court in case of Ramona Pinto reported at (2023) 156 taxmann.com 282 explicitly held that reliance on Savitri Kadur and Sudhakar M. Shetty is contrary to the settled law by the Supreme Court in Mohanbhai Pamabhai(supra), and those decisions do not lay down correct law. 4.3 In compliance with the directions of the Bench, the learned Authorised Representative for the assessee furnished a compilation of documents, along with the written summary of submissions, comprising the following: 1. Note on Sagar Developers (Pages 01–02) 2. Partnership Deeds of Sagar Developers, covering various reconstitutions: o Partnership Deed dated 01.04.2010 (Pg. 03) o Partnership Deed dated 19.10.2010 (Pg. 13) o Partnership Deed dated 28.04.2016 (Pg. 25) o Partnership Deed dated 01.04.2017 (Pg. 36) 3. Audited Financial Statements of the firm for the Financial Years 2015–16 and 2016–17 (Pages 67–111). Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 10 4. Acknowledgement of Return of Income filed and the Statement of Total Income for FYs 2015–16 and 2016–17 (Pages 112–146) 4.4 Based on the documents submitted, the Departmental Representative (DR) made detailed rebuttal submissions during the course of hearing before us, primarily to dispute the assessee’s explanation regarding the source and treatment of the alleged cash receipt of Rs.11.35 crores on retirement from the firm M/s Sagar Developers. The DR pointed out the following key issues and requested the matter be remanded to the Assessing Officer for verification: - It was argued that while the assessee had placed reliance on projected profit statements showing 24% of Rs. 47.30 crores amounting to Rs.11.35 crores as cash received, there was no reflection of this transaction in the books of account of the partnership firm, neither in the balance sheet nor in cash book, ledger, or capital accounts. - Although the assessee had submitted partnership deeds and audited financials in response to Tribunal direction, the DR pointed out that even in these records, the said cash transaction was not corroborated, especially in the cash book of M/s Sagar Developers or the assessee's own capital account. The entries substantiating the generation and flow of funds were not evident. - The DR referred to Annexure D (firm’s balance sheet) and emphasized that the firm did not have sufficient cash resources in the relevant financial year (FY 2016–17) to effect a retirement payout of Rs. 11.35 crores to each. This raised serious doubts about the genuineness, source, and taxability of the said amount. - The DR highlighted that the assessee had admitted before the AO that the amount of Rs.11.35 crores were received prior to 01.04.2017 pursuant to a retirement deed dated 01.04.2017. This suggested receipt during FY 2016–17, i.e. the year of demonetisation, thereby warranting greater scrutiny of cash handling and disclosure. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 11 - It was pointed out that the assessee had not disclosed the said receipt in her return of income, although during assessment it was stated to be a capital receipt on retirement. The DR noted that such substantial receipt was later transferred to her spouse, but again, the transaction did not find place in any ledger, cash book or capital account. - In the absence of cash book entries, capital account reflections, or any form of accounting trail, the DR contended that the transaction appeared unexplained, and the assessee’s submission of “receipt based on projected profits” was insufficient to establish authenticity. 4.5 In response, the learned AR submitted that the arguments advanced by the DR in regard to the alleged non-availability of cash in the firm’s books and the request for further inquiry into the source and genuineness of payment fall outside the permissible scope of the present appeal. It was contended that the Revenue’s sole ground of appeal is restricted to the addition of Rs. 11.35 crores on account of amount received by the assessee over and above the capital account balance at the time of retirement. The AR submitted that the Revenue, having not raised any ground challenging the genuineness or source of the payment as unexplained money under section 68 or 69, cannot now be permitted to expand the scope of dispute during appellate proceedings before the Tribunal. 4.6 The learned Authorised Representative (AR) concluded the submissions by reiterating that even assuming for argument’s sake that any tax liability arises in respect of the amount paid at the time of retirement, such tax would be chargeable in the hands of the partnership firm, which continued the business post-retirement, and not in the hands of the individual retiring partner, i.e., the assessee. 5. Before we proceed to record our findings and conclusions on the issues raised in the present appeals, we deem it appropriate to first note and place on record certain material gaps and unanswered questions that Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 12 emerge upon a close examination of the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals), as well as the submissions made by both parties before us. - The impugned assessment orders have been framed under section 153A of the Income Tax Act, pursuant to a search action. However, there is no reference in the assessment orders or in the order of the learned CIT(A) to any incriminating material found during the course of search which evidences receipt of cash by the assessee(s) from the firm. It remains unclear how the Assessing Officer came to the knowledge of the alleged receipt of Rs.11.35 crores in cash by the assessees. No copy of panchnama, seized material or statement recorded during the search is brought on record by the Revenue to justify initiation or sustenance of the addition under section 153A. - The assessees have raised a ground before the CIT(A) alleging denial of opportunity of cross-examination. However, the order of the learned CIT(A) does not specify the nature of the statement or the identity of the person whose testimony the assessee intended to cross-examine. In the absence of any such detail, the question whether principles of natural justice have been violated cannot be conclusively examined. - As evident from the financial statements filed by the assessees, there is no entry recording receipt of the cash amount said to have been received from the firm at the time of retirement. Even the audited books of accounts of the partnership firm for the relevant financial year, as placed on record, do not disclose any withdrawal, cash outflow or corresponding debit indicating payment of the said amount to the assessee. The firm’s balance sheet as on 31.03.2017 reflects a cash balance of merely Rs. 5,41,893/-, which is wholly inconsistent with the alleged payment of Rs. 11.35 crores in cash. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 13 - The retirement deed entered into by the assessees with the continuing partners is conspicuously silent on any consideration, particularly cash, having been paid to the retiring partners. There is no clause in the deed acknowledging or referring to such a large payment, nor is there any declaration or affirmation by the continuing partners of having paid the same. No confirmation statements or affidavits from the continuing partners have been brought on record. - The orders of the Assessing Officer and the CIT(A) are silent on the exact date(s) on which the alleged cash payment was made to the assessees. No documentary or transactional evidence is cited to support the timing of such payment. The Revenue has not established the flow or availability of cash in the firm on or around the relevant period. - As pointed out by the learned DR, the alleged cash receipt of Rs. 11.35 crores by the assessees from the firm occurred during Financial Year 2016–17, which is the year in which demonetisation was announced by the Government of India (on 8 November 2016). The lack of evidence showing movement or withdrawal of such large sums of cash during this sensitive financial year raises serious doubts regarding the authenticity and verifiability of the transaction. - In light of the foregoing, an additional and fundamental question arises, whether the alleged cash was paid by the firm itself or by the incoming partners in their individual capacities. The answer to this question has significant implications for the nature of the transaction and the appropriate tax treatment, and in the absence of any clarity on record, this issue remains open and unresolved. 5.1 It was argued by the learned AR that the ground raised by the Revenue before the Tribunal is limited to the taxability of the amount received over and above the capital account balance and does not permit an enquiry into unrelated or broader aspects. This concern touches upon the Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 14 permissible scope of adjudication in second appeal. At the same time the DR submitted that the Tribunal, being the final fact-finding authority under the Act, has the power to call for such evidence or conduct inquiry as it deems fit in the interest of justice. It was argued that the absence of conclusive facts such as (i) confirmation from the continuing partners, (ii) reference to the cash payment in the retirement deed, and (iii) reflection of the impugned transaction in the books of either the firm or the assessee warranted further factual investigation. Accordingly, placing reliance on the judgement of Hon’ble High Court of Delhi in case of Jansampark Advertising & Marketing (P.)Ltd. (2015) 56 taxmann.com 286, the DR urged that the matter may be restored to the file of the AO with a direction to conduct necessary inquiries in light of the Tribunal’s observations. 5.2 Before we proceed to analyse the judicial precedents relied upon by the parties, it is imperative to first examine the specific factual and legal contours of the transaction in question in order to ascertain whether the same falls within the scope of the expression “transfer” as defined under section 2(47) of the Act, thereby attracting the charging provisions of capital gains under section 45. 5.3 The Assessing Officer, in the impugned assessment orders passed under section 153A, has recorded a specific finding that the receipt of Rs.11.35 crore by both the assessee on retirement from the partnership firm constitutes a benefit and is therefore taxable (The AO is treating the same as Revenue Receipt). While the Assessing Officer has noted that the statutory framework was later amended by the Finance Act, 2021 by substitution of section 45(4) and insertion of section 9B with effect from A.Y. 2021–22, it is his categorical conclusion that these amendments merely clarify and shift the incidence of tax from the retiring partner to the firm without fundamentally altering the underlying chargeability of such receipts under the existing law. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 15 5.4 A critical factual ambiguity that remains unaddressed in the orders of both the Assessing Officer and the learned CIT(A) pertains to the source and character of the alleged cash payment of Rs.11.35 crores received by the assessees upon retirement. It is neither discernible from the firm’s books of account nor established through any contemporaneous documentation whether the said payment, if at all made, originated from the firm itself as a collective entity or was advanced by the incoming partners in their individual capacities, possibly as consideration for acquiring future rights or profit-sharing entitlements. This distinction is not merely academic but is central to determining the legal nature of the transaction, the applicability of section 45(4), and the identity of the person(s) liable to be assessed. In the absence of any clear entries, confirmations, or declarations from the firm or the incoming partners, the issue remains unresolved and warrants thorough verification. 5.5 Presuming that the alleged cash amount was paid by the firm itself, it becomes important to evaluate the true character of the transaction beyond mere accounting treatment. Although the firm follows the project completion method and has not recorded any formal revaluation in its books, this, by itself, does not preclude the applicability of section 45 of the Act. It is a settled proposition in law that the taxability of a transaction must be determined with reference to its substance over form, and not merely by the presence or absence of book entries. The absence of formal revaluation cannot override the legal incidence if the transaction, in substance, involves transfer of a valuable interest. 5.6 “Cash” is undeniably a form of “property” and squarely falls within the inclusive definition of a “capital asset” under section 2(14) of the Act. If such cash is received by a retiring partner from the firm, particularly where the amount significantly exceeds the partner’s capital balance and is unbacked by any corresponding withdrawal from accumulated profits, then such receipt must be presumed to be in consideration of relinquishment of some valuable rights or interests in the partnership. These may include the Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 16 outgoing partner’s share in work-in-progress, goodwill, business potential, or other intangible commercial benefits, all of which may not be separately accounted for, but nonetheless have inherent value. 5.7 Such a relinquishment of rights constitutes a “transfer” within the meaning of section 2(47), especially clause (ii), which includes the extinguishment of any rights in a capital asset. Where the amount paid to the retiring partner is determined with reference to anticipated profits, notional valuation, or commercial estimation of the firm’s business potential, it represents a constructive revaluation of the firm’s assets and liabilities. Even if no formal revaluation entry is passed, the commercial substance of the transaction reflects an internal exercise of valuation, aimed at determining the present worth of the retiring partner’s stake. This gives rise to tax implications which require careful scrutiny, irrespective of the firm’s method of accounting. 5.8 Accordingly, before evaluating the precedents cited, we observe that, subject to proper verification of facts and evidentiary material, the transaction under consideration may, in substance, involve a transfer or relinquishment of interest or rights in the business and its underlying assets. If such is ultimately established on facts, the transaction could fall within the ambit of the charging provision under section 45 of the Act, irrespective of whether the tax liability is attracted in the hands of the retiring partner (under the pre-2021 regime) or the firm (post-amendment by the Finance Act, 2021). 5.9 At this stage, we take note of the judicial precedents cited by both parties – i. Mohanbhai Pamabhai - (91 ITR 393 [Guj], affirmed by Supreme Court in 165 ITR 166) ii. CIT v. R. Lingmallu Raghukumar - (247 ITR 801 [SC]) iii. PCIT v. Mansukh Dyeing and Printing Mills - (449 ITR 439 [SC]) Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 17 iv. Savitri Kadur v. ITO [ITAT Bangalore – relied on by DR] (ITA No.1700/Bang/2016) v. Smt. Girija Reddy P. v. ITO (161 taxmann.com 746 [Telangana HC, 2024]) vi. Ramona Pinto v. DCIT (464 ITR 305 [Bombay HC]) 5.10 While each of the above decisions lays down a certain principle regarding the taxability of amounts received by retiring partners or the interpretation of “transfer” under section 45(4), their application to the present case is not automatic. These precedents are fact-specific and distinguishable. In most cited cases, the amounts received were documented in retirement deeds, partnership accounts, or supported by accounting entries, unlike the present case, where the alleged cash receipt is not recorded in any contemporaneous document, firm’s financials, or partner’s capital account. The payments in earlier decisions were traceable to goodwill, capital balance, or formal settlement agreements, whereas here the basis or computation of the cash amount is not established. Some cases involved formal revaluation of assets; in the present matter, though denied, the quantum of payment suggests possible constructive revaluation without disclosure. Several decisions relied on consistent accounting treatment by the firm; in this case, the firm’s books are silent on the payment. Accordingly, while these precedents offer interpretative value, they cannot be directly applied to the present matter without first establishing a clear and verified factual foundation, which is presently lacking. The Assessing Officer shall consider them appropriately after carrying out detailed verification during de novo assessment. 5.11 At this stage we take note that the AR had raised a preliminary contention that the Revenue’s appeal was confined to the legal issue of taxability of the amount received by the assessee over and above the balance in the capital account, and that any effort to revisit the foundational facts or shift the line of inquiry at this stage would amount to impermissible expansion of scope. While we take note of the above objections, we are unable to accept the argument that the scope of the appeal should be Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 18 narrowly read so as to preclude necessary inquiry into foundational facts which were neither adequately brought on record nor verified by the lower authorities. It is well settled that the Tribunal, being the final fact-finding authority, is not only empowered but duty-bound to ensure that justice is rendered based on complete, accurate, and verified facts. In our opinion we are not bound by the omissions or commissions of the lower authorities and have the power to direct appropriate inquiries in the interest of justice. We draw support from the decision of the Hon’ble Delhi High Court in case of ITO vs. Jansampark Advertising and Marketing (P.) Ltd.(supra). In the present case, the impugned addition is based on a purported cash receipt from the partnership firm at the time of retirement. However, the material facts such as the mode, date, confirmation, and reflection of such payment in the books of either party remain completely unverified. The retirement deed is silent on the alleged cash component; the firm’s audited financials do not record any such outflow; there is no statement under section 132(4); no evidence from the search proceedings has been linked to the impugned receipt; and even the AO’s order does not reference any seized document or corroborative ledger. In such circumstances, we do not consider it a case of expanding the scope of the appeal, but rather a case of fulfilling our duty to return a decision on proper verification of facts, especially when the AO and CIT(A) have both failed to do so. The AO proceeded on assumptions, and the CIT(A) allowed the relief without undertaking factual reconciliation or examining the ledger, financial statements, confirmations, or revaluation workings. These failures cannot be overlooked merely because of the way grounds are worded. The Tribunal’s jurisdiction permits us to look beyond form and ensure substantive justice based on truth and complete facts. 5.12 The learned AR also contended that even assuming that any cash amount was paid on retirement, such sum ought to be taxed, if at all, in the hands of the firm and not in the hands of the individual retired partner. 5.13 We have taken note of this argument, which raises a significant jurisdictional and legal issue regarding the proper person assessable to tax Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 19 under the scheme of the Act as it then stood. However, since the issue of factual occurrence of the transaction itself i.e., whether any amount was actually paid by the firm to the assessee (or by incoming partners) and under what circumstances, remains unverified, it would be premature for us to enter into the merits of such proposition at this stage. Therefore, without expressing any opinion on the correctness or otherwise of this legal contention, we are of the view that the matter requires fresh factual determination at the level of the Assessing Officer. The issue of taxability in the hands of the firm vis-à-vis the individual partner shall be open for consideration in the light of findings recorded by the AO during de novo proceedings. Both parties shall be free to raise all relevant legal and factual contentions, and the AO shall adjudicate the issue by a reasoned and speaking order. 5.14 Having considered the objection raised by the AR, we find ourselves unable to uphold the same at this juncture and hold that, in the facts and circumstances of the case, the matter deserves to be remanded for a de novo assessment with direction to the AO to undertake necessary factual inquiries to determine whether the impugned cash receipt took place, the nature and source of such receipt, and its tax implications, if any. Further, we direct the Assessing Officer to specifically consider and deal with the judicial precedents relied upon by the assessee before the CIT(A) and any other decision cited during appellate proceedings. The AO shall record clear findings on facts and law after affording due opportunity to the assessee. The assessees have not fully disclosed all material facts before the AO and CIT(A), which has led to certain assumptions. It is therefore essential that the assessees place complete and accurate facts on record for proper adjudication. Accordingly, in view of the foregoing discussion and in the interest of justice, we set aside the orders passed by the Assessing Officer as well as the CIT(A) in both cases and restore the matters to the file of the Assessing Officer for de novo assessment. Printed from counselvise.com IT(SS)A.No.175 and 177/Ahd/2024 20 6. In the combined result, the appeals of Revenue are allowed for statistical purposes. Order pronounced in the Court on 6th August, 2025 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 06/08/2025 Printed from counselvise.com "