Shiri Ashesh Nanalal Doshi, Surat V. Pr. CIT - 1, , Surat

ITA 33/SRT/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2491 (ITAT-SURAT)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-01-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 05-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAURABH SOPARKAR SENIOR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Income from undisclosed sources; Period of limitation; Fair market value; Set aside; Capital Gains
• Section: 263; 132; 143(3); 50C; 142(1); 48; 13; 22; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No.33/SRT/2021 (AY 2015-16) (Hearing in Virtual Court) Ashesh Nanalal Doshi, 804, Abhushan Apartment, Athwalines Road, Parle Point, Surat – 395007. PAN: AAZPD 2576 P Vs The Principal Commissioner of Income Tax-1, Surat. Appellant/ Revenue Respondent/ Assessee Assessee by Shri Saurabh Soparkar – Senior Advocate with Ms. Urvashi Shodhan Advocate Revenue by Shri H.P.Meena – CIT-DR Date of hearing 20/01/2021 Date of pronouncement 07/02/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the Assessee is directed against order of learned Principal Commissioner of Income Tax (Central) (PCIT), Surat passed under section 263 of Income Tax Act (Act) dated 27.12.2017 for the assessment year (A.Y.) 2015-16. The Assessee raised following grounds of appeal: “1. On the facts and in the circumstances of the case as well as law on the subject, the learned Principal Commissioner of the Income Tax has grievously erred in initiating the proceedings u/s.263 of the Act, 1961. 2. On the facts and in the circumstances of the case as well as law on the subject, The learned Principal Commissioner of Income Tax has grievously erred in holding that the assessing Officer had not verified the properly transaction from the angle of section 50C of the Act during the course of ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 2 proceedings and not made proper inquiry or verification finalized the order of assessment u/s.143(3) of the I.T. Act is contrary to the fact of the case. 3. On the facts and in the circumstances of the case as well as law on the subject, the entire proceedings are bad-in-law and invalid as assessment order u/s.143(3) of the Act for the same year were framed, wherein due inquiry was made during personal hearing. 4. On the facts and in the circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax has grievously erred in holding that section 50C is applicable where revaluation has been made to get fair market value of assets on transfer by partner to firm. 5. On the facts and in the circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax has grievously erred in setting aside the assessment order framed u/s.14.(3) of the I.T.Act without pointing out as to how the order is erroneous and prejudicial to interest of revenue especially when there is no revenue effect on the transaction of 45(3) of section 50C is not applicable to the transactions covered u/s.45(3) of the Act as per Apex Court’s judgment. 2. Brief facts of the case are that the assessee while filing his individual return of income for the A.Y. 2015-16 on 13.12.2015 declared income of Rs.4.45 Crore (Approx.). The case was selected for scrutiny. The assessing officer (AO) while making the assessment order noted that a search action under section 132 of the Act was carried out on 04.09.2015 in case of Param properties, Surat. During the course of search action certain incriminating evidence related to unaccounted income earned by the assessee were found and seized. Consequent upon search action, ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 3 jurisdiction over the case of assessee was transferred to Central Circle. Subsequently, notice under section 153C of the Act was issued to the assessee on 01.08.2017 for filing return for various assessment years, including the subject assessment year. In response to notice under section 153C of the Act, the assessee filed his return of income on 11.09.2017 declaring the same income as declared in the return filed under section 139. The assessment was completed under section 143 r.w.s 153C of the Act on 27.12.2017. The AO while passing assessment order made certain additions, some of the additions were made on substantive basis and same addition on protective basis. Subsequently, the assessment order was revised ld. PCIT by exercising his power under section 263 of the Act vide order dated 19.03.2021. The ld. PCIT before revising the assessment order issued show cause notice under section 263 dated 01.03.2021. 3. In the show cause notice under section 263, the ld. PCIT recorded that on verification of sale deeds in respect of three immovable properties situated at Itwara, Navsari being block No. 795,724 & 697 vide sale deed dated 07.03.2015, the assessee has shown sale consideration at Rs.9,15,000/-, Rs.8,74,000/- and Rs.5,07,000/- respectively. Further, in respect of two properties, the assessee has shown Short Term Capital Gain of Rs.6,500/- ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 4 and Rs.7,150/- and in respect of 3 rd property, the assessee has shown loss of Rs.1,53,969/-. During the assessment proceedings, the ld.AO has not investigated the sale consideration of the above property from the angle of provision of section 50C of the Act, though the provision of section 50C of the Act is applicable. As a result of omission on the part of AO, the AO order passed by the AO for A.Y. 2015-16 under section 143(3) r.w.s. 153C of the Act is erroneous in so far as prejudicial to the interest of the revenue. 4. The ld. PCIT recorded that learned authorised representative (AR) of the assessee attended the hearing and explained his case by filing reply dated 01.03.2021 (typing mistake it is of 09.03.2021). The ld. PCIT recorded that in the reply, the assessee stated that assessee is a partner in Adam Developers. During the year under consideration, the assessee transferred three pieces of land to partnership firm as a capital contribution and as a result offered gain/loss in return of income. The assessee also provided working of such details. The AO during the assessment proceedings asked to provide complete details of capital gain. The assessee provided complete details along with chart of working of capital gain/loss, with copy of sale deed and purchased deed. During the personal hearing ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 5 conducted in assessment proceedings, it was explained that value recorded in the books of partnership firm [Adam Developers] as capital contribution has taken as a sale consideration as per section 45[3] and resultant gain/loss has been offered in the Income Tax Return. The AO after verifying the submission and on his satisfaction passed the assessment order. The assessment order is neither erroneous, nor prejudicial to the interest of the revenue. The transfer land was actually agricultural land on which permission to convert in non-agricultural land have been received before the date of transfer, thus, for the purpose of transfer to the firm, Stamp Duty was paid as per non-agricultural land rates. There is no violation as per section 50C of the Act as the land has been transferred at agricultural land valuation. 5. In alternative submission, the assessee explained that transfer of capital asset by partner to the firm as capital contribution is covered by special provision of section 45(3) of the Act. The provision of section 45(3) deals with special cases of transfer of capital asset where profit or gain arising from the transfer to capital asset by way of capital contribution shall be chargeable to tax income previous year in which transfer took place. Provision of section 45(3) of the Act came into operation only in special ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 6 cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation as per the value recorded in books of accounts of the firm. In case of assessee, the amount recorded in the books of firm has been taken as deemed sale consideration as per section 45(3) of the Act. The assessee specifically contended that provision of section 50C of the Act does not apply to the capital contribution by partner covered under section 45(3) of the Act. The assessee also relied on the certain case laws. 6. The reply of assessee was not accepted by the ld. PCIT. The ld. PCIT held that the assessee raised two contentions. In first contention, the assessee contended that properties in question was transferred to the firm were agricultural land and valuation of the same was done accordingly and no violation of provision of section 50C of the Act was made. In second contention, the assessee stated that transferred of capital asset by transferred to firm as a capital contribution is covered under special provision of section 45(3) of the Act. As per provision of section 45(3) of the Act, the value recorded in the books of partnership firm has been taken as deemed sale consideration. On first contention, the ld. PCIT held that properties transferred by the assessee to partnership firms were agricultural land, were ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 7 factually incorrect. The assessee submitted that the land was transferred to the firm on 07.03.2015 and permission to convert the same as non- agricultural land was received before the date of transfer on 10.09.2014. Thus, there was no ambiguity on the status of properties transferred to partnership firm was agricultural land or rather a capital asset on the date of transfer and such transfer effected through registered sale deed. Since the valuation shown by the assessee was not in accordance with the prevailing rules and regulation and Jantri rates applicable to such properties. The AO has not considered these aspects while finalising the assessment. The assessee was completed without proper verification. The capital asset of the assessee was transferred to firm account after re-valuation of capital asset by the assessee. If capital asset of the assessee was transferred to the books of the firm without any addition, then there was no question of arising capital gain. The capital asset in question is immovable property and its ownership is transferred from the hands of the partners to the firm. Therefore, the provision of section 50C of the Act is applicable. It was a case of abated assessment in view of the search assessment proceedings, therefore, the scope of such assessment was not restricted to the seized material. The AO has not enquired and verified whether capital gain shown ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 8 in the return of income was in accordance with the provision of section 50C of the Act. It is only during the course of revision proceedings, the documentary evidence related to transfer of capital asset by the assessee to the partnership firm was brought on record, otherwise, there was no evidence brought on record to corroborate the above facts. Therefore, the contention of assessee that issue was examined by the AO is factually incorrect. The assessment order is passed without making enquires or verification which should have been made as per Clause (a) of Explanation- 2 of section 263(1) of the Act and the assessment order is erroneous and prejudicial to the interest of the revenue. The ld PCIT set-aside the assessment order with the direction to AO to enquire into the issue and pass the order afresh after giving opportunity to the assessee. Aggrieved by the order of ld.Pr.CIT, the assessee has filed present appeal before this Tribunal. 7. We have heard the submission of Shri Saurabh Soparkar learned senior Advocate assisted by Ms. Urvashi Shodhan Advocate hereinafter called as ld Senior Counsel and Shri H.P.Meena learned Commissioner of Income- tax –departmental representative hereafter referred as ld.CIT-DR for the Revenue. The ld. Senior Counsel for the assessee submits that the ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 9 assessment order passed by the AO on 27.12.2017 under section 143(3) r.w.s 153C is not erroneous and in so far as not prejudicial to the interest of the Revenue. During the assessment proceedings, the AO asked for complete details of capital gain. The AO issued show cause notice under section 142(1) of the Act vide notice dated 10.07.2017 to provide details of capital asset sold during the year in a format attached with the show cause notice. The assessee in response to such notices filed his detailed reply on 27.09.2017 and furnished the details of short term and long term capital gain along with calculation thereof with copy of purchase and sale deed in the form of Annexure-D-1 and Annexure-E. The ld. Senior Counsel submits that copy of show cause notice issued by the AO and the reply of assessee is filed are filed on record. The assessee in the Annexure filed along with the reply furnished the details of the capital gain including the particulars of asset on which the assessee earned capital gain by way of capital contribution in the form wherein the assessee is a partner. The ld. Senior Counsel for assessee further submits that during the assessment, the AO was explained in a personal hearing that the assessee contributed the these three pieces of land as his capita contribution in the firm in which the assessee is partner and explained the value recorded in the books of ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 10 partnership firm as capital contribution has been taken as a sale consideration as per section 45(3) of the Act and the resultant gain/loss earned by assessee is offered to tax in the return of income. The AO after verification of details and the submission furnished and on her satisfaction on the point of taxability accepted the version of assessee and passed the assessment order. 8. The ld. Senior Counsel for the assessee submits that the AO took reasonable, plausible and legally sustainable view which cannot be in any way termed as erroneous. Before the ld. PCIT, the assessee in its reply dated 09.03.2021 explained that all lands were transferred to partnership firm on 07.03.2015. The transferred land was actually agricultural land on which permission to convert a non-agricultural land has been received before transfer date on 10.09.2014, thus, for the purpose of transfer to the firm Stamp Duty was paid as per rate applicable for non-agricultural land. It is clearly discernible from the sale deeds. Thus, there is no violation of section 50C of the Act. 9. In alternative submission, it was explained before the ld. PCIT that transfer to capital asset by partner to firm as the capital contribution is covered under special provision of section 45(3) of the Act. The provision of ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 11 section 45(3) deals with the special case of transfer of capital asset where the profit or gain arising from the transfer of capital asset by way capital contribution shall be chargeable to tax in the previous year in which such transfer took place and for the purpose of section 48 of the Act, the amount recorded in the books of accounts of the firm shall be deemed to be full value of consideration received or accrued as a result of transfer. The ld. Senior Counsel for the assessee submits that in case of assessee the amount recorded in the partnership firm namely, Adam Developers, wherein the assessee is a partner, has been taken as deemed sale consideration as per section 45(3) of the Act. On the observation of ld PCIT while issuing show cause notice that the transaction was not verified from the angel of section 50C of the Act, the ld. Senior Counsel for assessee submits that section 50C does not apply to the transaction which is covered under the capital contribution by partner under section 45(3) of the Act as there cannot be a legal fiction against the another legal fiction. The ld. Senior Counsel for assessee further submits that provision as it deals with the value of consideration which otherwise not computable under shown provision of the law and it is applicable to a specific situation with regard to capital contribution by a partner, however, the provision of section 50C of the Act ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 12 are show in nature applicable whether consideration is known and determinate. As a rule of construction that a special provision prevailed over the general provision. Thus, there is no applicability of section 50C of the Act on the transaction; thus, the observation of ld. PCIT in its show cause notice is misplaced. 10. The ld. Senior Counsel for the assessee submits that the issue identified by ld. PCIT in its show cause notice is covered against the Revenue by the decision of Mumbai Tribunal in ACTI Vs Amartave (P) Ltd reported in [2021] 128 taxmann.com 125 (Mumbai) and the decision of Chennai Tribunal in Sarrangan Ashok vs. ITO in ITA No.544/CHNY/2019 dated 19.08.2019. The ld. Senior Counsel submits that the Tribunal in both the cases held that where assessee, partner transferred land as a capital contribution to his partnership firm and the case of assesse falls within the ambit of section 45(3) of the Act which is a deeming section, another deeming section provided by section 50C of the Act could not extended to determine the full value of consideration arising sale of such transfer. The ld. Senior Counsel for assessee finally submitted that once the AO examined the transaction by issuing specific enquiry, the assessee in the reply furnished the relevant details and complete explanation in show cause ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 13 notice and the AO after considering those material has come to a certain conclusion, though it has not been mentioned explicitly in the assessment order, if the ld. PCIT is not agreed with the conclusion and have a different view, the action under section 263 of the Act cannot be held to be justified. To support his submission, the ld. Senior Counsel relied on the following decisions;  Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 832 (SC),  CIT Vs Gabriel India Ltd (233 ITR 108 Bom /71 Taxman 585),  Aryan Arcade Ltd., Vs PCIT (2019) 412 ITR 277 (Gujarat),  CITVs Nirma Chemical Works (P) Ltd (2009) 309 ITR 67 and  Nilakanth Stone Industries vs. PCIT reported in [2021] 128 taxmann.com 416 (Surat Tribunal). 11. On the other hand, the ld. CIT-DR for the Revenue supported the order of ld. PCIT. The ld. CIT-DR for the revenue submits that the assessment order is silent about the inquiries carried out and the conclusion arrived by the AO. The ld.CIT-DR for the revenue further submits that the provision of section 45(3) and 50C of the Act are separate and independent and capital gain is to be determined in accordance with the provision of section 50C of the Act as has been clearly held by ld. PCIT while exercising his power under section 263 of the Act issued show cause notice to the assessee. ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 14 12. We have considered the submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various documentary evidences furnished by the assessee and various case laws relied by the ld. Senior Counsel for the assessee while making his submission. 13. The Supreme Court in celebrated/ leading case of Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 832 (SC), held that the prerequisite for the exercise of jurisdiction by the Commissioner suo-motu is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 15 interests of the revenue' is not an expression of art and is not defined in the Act. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. 14. Further, Hon’ble Bombay High Court in CIT Vs Gabriel India Ltd (233 ITR 108 Bom /71 Taxman 585) held that the power of suo-motu revision under sub-section (1) of section 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 16 specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; and (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. One finds that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. The Hon’ble High Court also held that from the definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an assessing officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 17 order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous*. Cases may be visualized where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo- ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 18 motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo-motu revision cannot be exercised. Any and every erroneous order cannot be the subject- matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. Therefore, in order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 19 initiate proceedings for revision. Exercise of power of suo-motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objectives were available from the records called for and examined by such authority. The decision of the ITO could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous, he simply asked the ITO to re-examine the matter, which was not permissible (*under line by us). The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., Vs PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 20 15. In CIT Vs Nirma Chemical Works (P) Ltd (2009) 309 ITR 67, the Hon’ble High Court also held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. The Hon’ble Court in para 22 of its order on the objection of the revenue that there is no discussion of the issue in the assessment order held that the contention on behalf of the revenue that the assessment order does not reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted, to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 21 16. Now adverting to the facts of the case in hand, we find that the ld PCIT while issuing show cause notice recorded that after perusal of assessment record he found that the AO while passing the assessment order has not examined the transaction by the angle of section 50C of the Act. We find that the assessee contested the revision proceedings by filing his reply dated 09.03.2021. On considering the reply of the assessee the ld PCIT held that there is no ambiguity that the states of property has transferred to the partnership firm was non-agricultural land or rather a capital asset on the date of transfer as transfer took place through registered sale deed. The assessee himself made a valuation of those properties and computed capital gain accordingly. The ld. PCIT concluded the valuation shown by assessee is not in accordance with prevailing rule and regulation and that the Stamp Valuation Authority valued the property at higher rate after taking account the relevant rules at the relevant time. The AO has not considered these aspects while finalising the assessment orders and completed assessment without proper verification of correctness of capital gain shown by the assessee. 17. Before us, the ld. Senior Counsel for the assessee vehemently submitted that the AO during the assessment, made enquiry vide notice dated 10.07.2017 ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 22 and vide 18.09.2017, which was relied and on his satisfaction took reasonable and legally sustainable view. We find that the assessee during the assessment, furnished details of short term and long term capital gain along with its working. The working of the capital gain/loss earned on capital contribution to partnership firm was also furnished in the following manner: l No. Particulars Purchase Price Sale Consideration Profit 1 Land at Dumas No. 108 7225040 7270000 44960 (28/03/2013) (18/06/2014) (As per note 1) (As per note 2) 2 Land at Dumas No. 107 9421407 9500000 78593 (21/08/2012) (18/06/2014) (As per note 3) (As per note 4) 3 Itarva (Navsari) Block No. 795 908500 915000 6500 (15/05/2013) (07/03/2015) 4 Itarva (Navsari) Block No. 724 866850 874000 7150 (17/06/2013) (07/03/2015) 137203 The working capital gain of third property i.e. Itarva (Navsari) Block No. 697 was furnished in the following manner; Value of land (07.03.2015) Less index cost of property (note-1) Capital gain (A) Rs.507000/- Rs.660969/- Rs.(-153969/-) ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 23 18. No doubt that the transaction of capital contribution was examined by the AO. However, it is a matter of fact that there is no reference in the assessment order about the examination of issue. As recorded above that Hon’ble Jurisdictional High Court in case of Nirma Chemical works (supra) held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. 19. However, on examining the applicability of the provisions of section 50C, on the asset which was contributed as a capital contribution by a partners to a firm where he is a partner, we find that Co-ordinate Bench of Tribunal in Sarrangan Ashok Vs ITO (supra) while considering the grounds of appeal raised in that case whether the ld.CIT(A) erred in not considering that provision of section 45(3) overwrites the provision of section 50C of the Act, the Co-ordinate Bench after considering the submission of both the parties, passed the following order: “7. We heard the rival submissions and perused the material on record. The appellant entered into partnership in the name and style of M/s. K G P Builders with one Shri K G Pandian. Towards the capital contribution, the appellant contributed land whose value was recorded in the books of firm at Rs.29,77,300/-. The AO had treated 8 I.T.A. No. 544/Chny/2019 the ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 24 transaction of capital contribution as the case of transfer of asset and accordingly worked out the capital gains by adopting the market value of the land as revalued subsequently by the firm in the books of accounts. While doing so, the AO adopted 50% of the revalued value of the entire land owned by the firm as the consideration and accordingly computed the capital gains. While doing so, the AO assumed that the revalued figure is the market value which is required to be adopted under the provisions of Section 50C of the Act. Accordingly, AO had impliedly applied Section 50C of the Act and assessed to capital gains. On appeal before the CIT(A), the Ld.CIT(A) upheld the applicability of provisions of Section 45(3) of the Act as well as Section 50C of the Act, however directed the AO to adopt the revalued value proportionate to the share of land contributed by the partner. 7.1 Therefore, the question that arises to be addressed is whether the transfer of asset by a partner to the firm constitutes a transfer? The provisions of Section 45(3) of the Act provides that profits or gains arising from the transfer of a capital asset by a person who is a partner to the firm by way of capital contributions shall be 9 I.T.A. No. 544/Chny/2019 chargeable to tax in the year in which such transfer takes places and it further provides that the value recorded in the books of accounts of the firm shall be deemed to be full value of consideration accrued as a result of such transfer for the purpose of Section 48 of the Act. The CBDT circular No.495 dated 22.09.1987 had explained the purpose intend of introducing the provisions of Section 45(3) of the Act w.e.f. 01.04.1988. It is mentioned that the provisions of Section 45(3) of the Act was introduced in order to overcome the decision of the Hon’ble Supreme Court in the case of Karthikeya V Sarabhai, reported in 94 Taxman 164 which held that there is no liability to capital gains in the case of contribution of capital asset by a partner in a firm, since the value of consideration cannot be determined. It was further held that the credit entry made in the partner’s capital account in the books of partners firm does not ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 25 represent the true value of the consideration. Therefore in the present case, the partnership firm viz., M/s. K G P Builders had recorded the consideration at Rs.29,77,300/-. Having regard to these facts, the transaction of introduction of land into the firm by the appellant fairly attracts the capital gains. Therefore we hold that the provision of 10 I.T.A. No. 544/Chny/2019 Section 45(3) of the Act are squarely applicable to the facts of the present case. 8. Then the question that may arise is, can the AO disturb the value of consideration recorded in the books of accounts of the firm. The provision of Section 45(3) of the Act are exhaustive and does not confer any power on the AO to adopt consideration different from what is recorded in the books of accounts of the firm. The Hon’ble Jurisdictional High Court in the case of Pr.CIT vs. Dr.D. Ramamurthy, reported in 410 ITR 236 (Madras) held that the value recorded in the books of the firm is conclusive as to the consideration received on transfer of asset by a partner to the firm. Therefore, the Hon’ble Madras High Court further held that the assessment has to be done on the basis of value of asset when the firm was constituted, not on the basis of revalued value of the assets. Applying the ratio to the facts of the present case, the value to be adopted by the AO is only Rs.29,77,300/- lakhs which was recorded in the books of accounts of the firm as on date when the firm was constituted. 11 I.T.A. No. 544/Chny/2019. 9. Then the issue that may crop up is whether the provision of Section 50C of the Act are applicable to the case covered by the Section 45(3) of the Act. We had already discussed the rationale behind the introduction of Section 45(3) of the Act. The provisions of Section 50C of the Act, provides that for the purpose of computing the capital gains U/s. 48 of the Act, the higher of two values i.e., the actual consideration received and the value adopted for stamp duty purpose for the valuation of the property shall be deemed to be consideration received. From the mere reading of the provisions of Section 50C of the Act, it would suggest ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 26 that the provisions are applicable in the cases where there is actual receipt of consideration. The term “actual receipt” implies that there should be physical flow of money. Therefore the provisions of Section 50C cannot be applied to the case of deeming the value of consideration like cases covered by provisions of 45(3). Therefore it is clear that provisions of Section 45(3) and 50C of the Act operates in different spheres. There is no overlapping. Further if we were to hold that the provisions of Section 50C of the Act overrides the provisions of Section 45(3) of the Act, it would result in a situation where the provisions of Section 45(3) of the Act would become otiose. It is a settled principle of interpretation 12 I.T.A. No. 544/Chny/2019 of statute that one should avoid an interpretation which renders a provision otiose. Further had it been the intention of the legislature to make Section 50C of the Act, applicable even to the transaction of the contribution of immovable property by a partner into the firm, the Parliament could have either repelled the Section 45(3) of the Act, while introducing the provisions of Section 50C of the Act, but however the Parliament in its wisdom had retained the Section 45(3) of the Act which shows that the Parliament intended to keep the provisions of Section 45(3) of the Act. Further the provisions of Section 45(3) of the Act, are special provisions as it deems value of consideration which otherwise is not computable under general law and it is applicable to the specific situations of introduction of capital by partner to the firm and whereas the provisions of Section 50C of the Act are general in nature applicable whether consideration is known and determinate. It is a rule of construction that the special provisions prevail over general provisions as per Latin Maxim. The Hon’ble Supreme Court in the case of D.R. Yadhav v. R.K. Singh [2003] 7 SCC 110 held, that when there are two conflicting provisions of law in operation in the same field, the rule that specifically operates in that field would apply over the general rule. Therefore, 13 I.T.A. No. 544/Chny/2019 when there is a specific provision in the statute to deal with a particular kind of transaction then it would be squarely applied. Thus having regard to the ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 27 principles enunciated above, it cannot be said that provision of Section 50C of the Act overrides the provision of Section 45(3) of the Act. 10. In the light of the legal principles enunciated above, we cannot uphold the action of the lower authorities, therefore the orders of the lower authorities are hereby set aside. 11. In the result, the appeal filed by the assessee is allowed.” 20. Further, the Co-ordinate Bench of Mumbai Tribunal in ACIT vs. Amartara (P) Ltd., (supra) while considering the similar grounds of appeal held as follows: “The provisions of section 45(3) deals with special cases of Transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall b chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it clear that it comes into operation only in special cases of transfer between partnership firm at partners and in such circumstances, a deemed full value of consideration shall be considered for the purposeof computationof capital gain as per which the amount recorded in the booksof account of the firm shall be taken as full value of consideration. Though the provisions of section 45(3) is not a specific provision that overrides the other provisions of the Act, importing a deeming fiction provided in section 50C cannot be extended to another deeming fiction created by the statute by way section 45(3) to deal with special cases of transfer. The purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism capital gain and also provides for consideration to be adopted for the purpose of determination of value of consideration. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48, another deeming fiction provided In way of section 50C cannot be extended compute deemed full value of consideration as a result of transfer of capital asset by partner in a firm a capital ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 28 contribution. Therefore, the profit;, or gains arising from the transfer of a capital asset by a part to a 'firm in which he is or becomes a partner by way of capital contribution, then for the purpose section 48, the amount recorded in the books of account of a firm shall be deemed to be full value consideration received or accruing as a result of transfer of a capital asset. The Assessing Officer can import another deeming fiction created for the purpose of determinationof full value of consideration in resultof transferof a capital asset by importing the provisions of section50C.” 21. Now, again adverting to the fact of the present case the stand of the assessee before the AO as well as before the ld. PCIT is that the assessee has contributed three pieces of land as his contribution in the partnership firm, thus, keeping in view, the decision of Co-ordinate Bench in Sarrangan Ashok vs. ITO and Mumbai Bench in ACIT vs. Amartara (P) Ltd.(supra), wherein it was held that where the partner transferred land as a capital contribution to its partnership firm and the transaction falls under the scope of section 45(3) of the Act, which itself is a deeming section, another deeming section prescribed in section 50C of the Act could not be extended to determine the value of consideration. Thus, in view of the aforesaid legal decisions, in our considered view the view taken by the AO in accepting the capital gain/loss on capital contribution of (03)three pieces of land is not erroneous. Therefore, the twin condition as enunciated under section 263 of the Act is not made out ITA No.33/SRT/2021 (AY 2015-16) AsheshNanalalDoshi, Surat 29 in the present case, thus, the order passed by the ld. PCIT is set-aside, accordingly, grounds of appeal raised by the assessee are allowed. 22. In the result, appeal of the assessee is allowed. Order announced on 07 February, 2022 in open court and result was also placed on the notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 07/02/2022 /SGR* Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By order / / TRUE COPY / / Sr.Pvt. Secretary, ITAT, Surat