ITO, Alwar V. KUNDAN LAL BADSHAH, Alwar

ITA 383/JPR/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9699 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRITHIVI RAJ MEENA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation
• Section: 50C

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 383/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 THE INCOME TAX OFFICER, WARD-1(1), ALWAR. CUKE VS. SH. KUNDAN LAL BADSHAH, PLOT NO.-109, ANAND NAGAR, KHAIRTHAL, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ABOPB 2616 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI PRITHIVI RAJ MEENA (ADDL. CIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 01/03/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT:10/03/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A), ALWAR DATED 14.03.2014 FOR A.Y. 2010-11 . THE SOLE GROUND OF APPEAL TAKEN BY THE REVENUE IS AS UNDER:- (I) THE COMMISSIONER OF INCOME TAX (APPEALS), ALWA R HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF TH E CASE IN DELETING THE ADDITION OF RS.1,18,75,507/- U/S 50C OF THE ACT MADE BY THE AO ON A/C OF SHORT TERM CAPITAL GAIN IN THE HANDS OF T HE ASSESSEE. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 2 2. THE FACTS AND THE CHRONOLOGY OF THE EVENTS RELEV ANT FOR THE ISSUE UNDER CONSIDERATION ARE AS UNDER: (I) ASSESSEE HAS PURCHASED AGRICULTURE LAND AT KHA SRA NO.230 (0.62 HECTARE) AT VILLAGE NAURANGABAD TEHSIL ALWAR ON 23. 06.2006 FOR RS.210,800/-. (II) THEREAFTER, ASSESSEE FORMED A PARTNERSHIP FIRM ON 19.07.2006 IN THE NAME OF M/S SWAMI GRIT UDYOG IN WHICH HE ALON GWITH WITH SMT. INDU BAI WERE EQUAL PARTNERS. AS PER CLAUSE 11 OF T HE PARTNERSHIP DEED, THE ASSESSEE CONTRIBUTED THE AFORESAID AGRICULTURE LAND AS HIS CAPITAL CONTRIBUTION IN THE FIRM. AS PER THE ASSESSEE, THOU GH THE LAND REMAINED IN THE NAME OF THE ASSESSEE IN THE REVENUE RECORDS, IT BECAME THE PROPERTY OF THE FIRM AND SHOWN IN THE FIRMS BALANC E SHEET. (III) THE FIRM HAS PURCHASED ANOTHER AGRICULTURE LA ND AT KHASRA NO.228 (0.12 HECTARE) FOR RS.52000/- AND KHASRA NO. 231 (0 .27 HECTARE) FOR RS.116100/- AT VILLAGE NAURANGABAD, TEHSIL ALWAR ON 24.07.2006 IN THE NAME OF ONE OF ITS PARTNERS I.E, THE ASSESSEE SH. K UNDAN LAL BADSHAH. THE FIRM HAS DEBITED THIS AMOUNT IN LAND A/C IN ITS BOOKS OF ACCOUNTS. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 3 (IV) ASSESSEE HAS NOT REFLECTED THESE THREE PIECES OF LAND IN HIS BALANCE SHEET. IT IS ONLY THE FIRM WHICH HAS SHOWN ALL THE THREE PIECES OF LAND IN ITS BALANCE SHEET. (V) THE SAID KHASRA NO. 230 (0.62 HECTARE) WAS CONV ERTED FOR INDUSTRIAL USE VIDE ORDER DATED 24-02-2007 FOR WHIC H CONVERSION CHARGES OF RS.6200/- WAS PAID ON 14.02.2007. THE CONVERSION ORDER IS IN THE NAME OF THE ASSESSEE AS IN REVENUE RECORDS, THE LAN D STOOD IN THE NAME OF THE ASSESSEE BUT THE EXPENDITURE ON CONVERSION W AS DEBITED TO LAND ACCOUNT IN THE FIRMS BOOKS OF ACCOUNTS BECAUSE LAN D WAS THE PROPERTY OF THE FIRM. (VI) THE FIRM WAS RECONSTITUTED ON 19.12.2007 WHERE IN SMT. SHARDA RANI AGRAWAL W/O SHRI NARESH KUMAR AGRAWAL WAS INTR ODUCED AS PARTNER. AS PER CLAUSE 15 OF THIS DEED, IT WAS SPECIFIED THA T ALL THE LANDS AND LEASE ACQUIRED AT NAURANGABAD ARE THE ASSET OF THE FIRM AND THE ASSESSEE HAS NO INDIVIDUAL RIGHT IN THE SAME. (VII) THE FIRM SOLD AGRICULTURE LAND AT KHASRA NO.2 28 (0.12 HECTARE) AND KHASRA NO.231 (0.27 HECTARE) FOR RS.180000/- AT VIL LAGE NAURANGABAD, TEHSIL ALWAR TO THE ASSESSEE THROUGH AGREEMENT TO S ELL DATED 02.01.2008. THE FIRM HAS DECLARED THIS TRANSACTION IN THE BALANCE SHEET BY DEDUCTING 180000/- FROM LAND A/C IN THE FIXED AS SET CHART & DEBITED ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 4 KUNDAN LAL BADSHAH PARTNERS CAPITAL A/C. SIMULTANE OUSLY ASSESSEE REFLECTED THESE TWO LANDS AT RS.180000/- IN HIS BAL ANCE SHEET. (VIII) THE CONSTITUTION OF THE FIRM WAS AGAIN CHANG ED ON 11-06-2008 WHEREBY SMT. INDU BAI AND SMT. SHARDA DEVI AGRAWAL RETIRED AND SH. RAMESH CHAND AND SH. RATAN SINGH WERE INTRODUCED AS PARTNER. THE SHARE OF THE ASSESSEE WAS REDUCED TO 6% AND THE OTH ER TWO PARTNERS HAVE SHARE OF 47% EACH. ALONGWITH THIS PARTNERSHIP DEED, ASSESSEE EXECUTED A GENERAL POWER OF ATTORNEY DATED 11.06.20 08 FOR LAND AT KHASRA NO.230 IN FAVOUR OF ONE OF THE PARTNER SH. R ATAN SINGH. AS PER CLAUSE 5 OF THIS DEED, IT IS MENTIONED THAT THE CON TINUING PARTNERS HAVE TAKEN OVER ALL THE RIGHTS OVER INDUSTRIAL CONVERTED LANDS AT KHASRA. NO.230 AND THE RETIRING PARTNER HAVE RELEASED AND R ELINQUISHED ALL THEIR RIGHT AND CLAIMS IN THE ASSETS OF THE FIRM. (IX) THE CONSTITUTION OF THE FIRM WAS AGAIN CHANGED ON 01.04.2009, WHERE THE ASSESSEE RETIRED FROM THE FIRM AND SH. RA TAN SINGH AND SH. RAMESH CHAND CONTINUED THE FIRM WITH EQUAL SHARE. A S PER CLAUSE 5 OF THIS DEED, THE CONTINUING PARTNERS HAVE TAKEN OVER ALL THE RIGHTS OVER INDUSTRIAL CONVERTED LAND AT KHASRA. NO.230 AND THE RETIRING PARTNER I.E. THE ASSESSEE HAS RELEASED AND RELINQUISHED ALL HIS RIGHT AND CLAIMS IN THE ASSETS OF THE FIRM. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 5 (X) AFTER THE RETIREMENT OF ASSESSEE FROM THE FIRM, SH. RATAN SINGH ON THE BASIS OF POWER OF ATTORNEY DATED 11.06.2008, EX ECUTED A SALE DEED DATED 12.05.2009 IN HIS OWN NAME THOUGH THE PROPERT Y CONTINUED TO BE THE PROPERTY OF THE FIRM. AS PER ASSESSEE, THIS WAS DONE TO SAFEGUARD THE INTEREST OF THE FIRM SO THAT AT ANY POINT OF TI ME, ASSESSEE MAY NOT MAKE ANY CLAIM OVER THE SAID PROPERTY BY FILING ANY CIVIL SUIT. 3. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED B EFORE THE LD. CIT(A) AND REITERATED BEFORE US THAT IN LIGHT OF AB OVE FACTS, IT CAN BE NOTED THAT THE VARIOUS OBSERVATIONS MADE BY THE AO ARE INCORRECT AS EXPLAINED HEREUNDER: (I) ON 19.07.2006, THE ASSESSEE WAS NOT OWNING ANY AGRICULTURE LAND AT VILLAGE NAURANGABAD EXCEPT THE LAND AT KH. NO.23 0. THIS LAND WAS PURCHASED BY THE ASSESSEE ON 23.06.2006 FOR RS.1,94 ,700/- AND AFTER CONSIDERING THE EXPENSES ON STAMP DUTY AND OTHER EX PENSES OF RS.16100/-, THE TOTAL COST OF THE LAND TO THE ASSES SEE WAS RS.2,10,800/-. IT IS THIS LAND WHICH IS CONTRIBUTED BY THE ASSESSE E TO THE FIRM AS ITS CAPITAL CONTRIBUTION. IN CLAUSE 11 OF PARTNERSHIP D EED DATED 19.07.2006 IT IS CLEARLY STATED THAT LAND AND LEASE ACQUIRED B Y THE ASSESSEE IN JUNE 2006 SHALL BE DEEMED TO BE THE ASSET OF THE FIRM W. E.F. 19.07.2006 AND HENCEFORTH ASSESSEE SHALL HAVE NO INDIVIDUAL RIGHT ON THE SAID LAND ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 6 EXCEPT AS A PARTNER OF THE FIRM. THIS LAND IS RECOR DED IN THE BOOKS OF THE FIRM AT RS.2,10,800/- (194700+16100) BY CREDITING T HE CAPITAL ACCOUNT OF THE ASSESSEE. THEREFORE IT IS INCORRECT ON PART OF THE AO TO PRESUME THAT IT IS NOT POSSIBLE TO ASCERTAIN THAT THE LAND UNDER CONSIDERATION WAS THE PROPERTY WHICH WAS INTRODUCED AS CAPITAL CONTRI BUTION BY THE ASSESSEE IN THE FIRM. (II) THE LAND AT KH. NO.288 & KH. NO.231 WERE PURCH ASED BY THE FIRM ON 24.07.2006 IN THE NAME OF THE ASSESSEE. THE COST OF THESE LAND INCLUDING EXPENSES WAS RS.168100/- WHICH WERE RECOR DED IN THE BOOKS OF THE FIRM. THEREFORE THESE LAND ARE DIFFERENT THA N THE LAND WHICH WAS CONTRIBUTED BY THE ASSESSEE AS HIS CAPITAL CONTRIBU TION IN THE FIRM. (III) IN RESPECT OF LAND AT KH. NO.230, THE FIRM GO T IT CONVERTED INTO INDUSTRIAL LAND ON 14.02.2007. CONVERSION CHARGES O F RS.6200/- WAS DEBITED BY THE FIRM IN THE LAND ACCOUNT. THEREFORE ONLY BECAUSE THE CONVERSION ORDER IS IN THE NAME OF THE ASSESSEE AND THE CHALLAN OF RS.6200/- WAS DEPOSITED IN THE NAME OF THE ASSESSEE WOULD NOT MAKE THIS LAND AS INDIVIDUAL PROPERTY OF THE ASSESSEE WH EN IT HAS BEEN CONTRIBUTED BY HIM TO THE FIRM AND RECORDED IN THE BOOKS OF THE FIRM AS ITS OWN PROPERTY. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 7 (IV) IN THE RECONSTITUTED DEED DATED 19.12.2007, IN CLAUSE 15 IT HAS BEEN STATED THAT THE LAND AND LEASE ACQUIRED AT NAU RANGABAD IN THE NAME OF FIRST PARTNER IS DEEMED TO BE THE ASSET OF FIRM W.E.F. 19.07.2006 AND ALL THE PARTNERS SHALL HAVE RIGHT ON THE SAME A S PER THEIR PROFIT SHARING RATIO. AGAIN IN THE RECONSTITUTED DEED DATE D 01.06.2008, IN CLAUSE 5 IT IS STATED THAT CONTINUING PARTNERS HAVE TAKEN OVER ALL THE RIGHTS OVER THE INDUSTRIAL CONVERTED LAND AT KH. NO .230 AND THE RETIRING PARTNER HAVE RELEASED AND RELINQUISH ALL THEIR RIGH T AND CLAIM IN THE ASSET OF THE FIRM. THUS FROM THESE DEEDS IT IS CLEAR THAT LAND AT KH. NO.230 IS THE PROPERTY OF THE FIRM AND THERE IS NO AMBIGUITY, AS MENTIONED BY THE AO, REGARDING CONTRIBUTION OF THIS LAND BY THE ASSE SSEE TO THE FIRM AS HIS CAPITAL CONTRIBUTION. (V) IN THE POWER OF ATTORNEY EXECUTED BY THE ASSESS EE ON 11.06.2008 IN FAVOUR OF ANOTHER PARTNER SH. RATAN SINGH, OF CO URSE, THERE IS NO MENTION IN P/A THAT LAND AT KH. NO.230 IS THE PROPE RTY OF THE FIRM, BUT THIS WOULD NOT MAKE ANY DIFFERENCE WHEN IT IS CLEAR LY ESTABLISHED THAT THIS LAND WAS CONTRIBUTED BY THE ASSESSEE TO THE FI RM AS HIS CAPITAL CONTRIBUTION ON 19.07.2006. IN FACT FOLLOWING CLAUS ES ARE MENTIONED IN VARIOUS PARTNERSHIP DEED/RETIREMENT DEED WHICH ARE CLEARLY SHOWING THAT THE SUBJECT LAND IS THE ASSET OF THE FIRM: ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 8 A) PARTNERSHIP DEED DATED 19/07/2006- CLAUSE NO.11- THE LAND AND LEASE ACQUIRED AT NAURANGABAD IN JUNE, 2006 IN THE NAME OF FIRST PARTNER SHALL BE DEEMED TO BE CONSIDERED THE ASSETS OF THE FIRM WITH EFFECT FROM 19/07/2006. BOTH THE PARTNERS WILL HAVE EQUAL RIGHT S ON SUCH ASSETS. THE FIRST PARTNER SHALL HAVE NO INDIVIDUAL RIGHT ON THE SAID LEASE AND LAND EXCEPT AS A PARTNER OF THE FIRM. B) PARTNERSHIP DEED DATED 19/12/2007 CLAUSE NO.15 ALL LAND AND LEASE ACQUIRED AT NAURANGABAD IN THE NAME OF FIRST PARTNER SHALL DEEMED TO BE CONSIDERED THE ASSETS OF THE FIRM WITH EFFECT FROM 19/12/2007. THE FIRST PARTNER SHALL HAVE NO INDIVIDUAL RIGHT ON THE SAID LEASE AND LAND EXCEPT AS A PARTNER OF THE FIRM. ALL THE PARTNERS S HALL HAVE RIGHT ON SUCH ASSETS ON THE BASIS OF PROFIT SHARING RATIO MENTION ED IN POINT NO.7 OF THIS DEED IN CASE OF ANY DISPUTE OR DISSOLUTION OF THE F IRM. C) PARTNERSHIP DEED DATED 11/06/2008- CLAUSE NO. 5 - THAT THE REST OF THE PARTIES HAVE TAKEN OVER ALL THE RIGHTS OVER INDUSTRIAL CONVERTED LAND AT KHASRA NO.230 AREA 6200 SQ. MTR AT GRAM NAU RANGABAD, ALWAR AND BUILDINGS, PLANT & MACHINERY, SECURITY, DEPOSIT S. THEY WILL BE LIABLE TO REPAY LOANS AND OTHER LIABILITIES FROM 12/06/200 8. THUS THE FOURTH & FIFTH PARTY HAS RELEASED AND RELINQUISHED ALL THEIR RIGHTS AND CLAIMS IN THE ASSETS OF THE FIRM AND ALSO FREE OF LIABILITIES. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 9 D) RETIREMENT DEED DATED 01/04/2009- CLAUSE NO.5- THAT THE REST OF THE PARTIES HAVE TAKEN OVER ALL THE RIGHTS OVER INDUSTRIAL CONVERTED LAND AT KHASRA NO.230 AREA 6200 SQ. MTR AT GRAM NAU RANGABAD, ALWAR AND BUILDINGS, PLANT & MACHINERY, SECURITY, DEPOSIT S. THEY WILL BE LIABLE TO REPAY LOANS AND OTHER LIABILITIES FROM 01/04/200 9. THIS THE THIRD PARTY HAS RELEASED AND RELINQUISHED ALL THEIR RIGHTS AND CLAIMS IN THE ASSETS OF THE FIRM AND ALSO FREE OF LIABILITIES. E) RETIREMENT DEED DATED 01.04.2009 BY WHICH ASSESS EE RETIRED FROM THE FIRM, IN CLAUSE 5 IT IS SPECIFICALLY MENTIONED THAT THE CONTINUING PARTNERS HAVE TAKEN OVER ALL THE RIGHTS OVER THE IN DUSTRIAL CONVERTED LAND AT KH. NO.230 AND THE RETIRING PARTNER HAVE RELEASE D AND RELINQUISHED ALL THIS RIGHT AND CLAIM IN THE ASSET OF THE FIRM. THE SAME FACT IS ALSO MENTIONED IN THE RETIREMENT DEED DATED 11.06.2008 S PECIFICALLY. THIS MAKES IT ABUNDANTLY CLEAR THAT THE LAND UNDER CONSI DERATION IS NOT THE PROPERTY OF THE ASSESSEE BUT IS THE PROPERTY OF THE FIRM. ACCORDINGLY OBSERVATION OF THE LD. AO IN PARA NO. 2, P. NO. 5 THAT IT IS NOT SPECIFIED THAT WHICH KHASRA NO. AT NAURA NGABAD WAS DECLARED TO BE THE PROPERTY OF THE FIRM AS ASSESSEE WAS HAVI NG MORE THAN ONE PROPERTY AT NAURANGABAD AND THEREFORE IT IS NOT POS SIBLE TO ASCERTAIN THAT THE PROPERTY UNDER QUESTION WAS INTRODUCED AS CAPITAL CONTRIBUTION ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 10 IN THE FIRM, IS BASELESS AND ARBITRARY BECAUSE EVE RY WHERE IT IS CLEAR THAT THE SUBJECT LAND IS THE ASSETS OF THE FIRM. (VI) ON THE BASIS OF THE ABOVE POWER OF ATTORNEY, S H. RATAN SINGH, AFTER THE ASSESSEE RETIRED FROM THE FIRM, EXECUTED THE SALE DEED IN HIS FAVOUR. THE EXECUTION OF THIS SALE DEED DOES NOT IM PLY THAT ASSESSEE HAS SOLD THE LAND AT KH. NO.230 TO SH. RATAN SINGH MORE PARTICULARLY WHEN THE LAND IN QUESTION IS PROPERTY OF THE FIRM AND AS SESSEE AFTER RETIREMENT FROM THE FIRM HAS RELEASED AND RELINQUISH ALL THIS RIGHT AND CLAIM IN THE ASSET OF THE FIRM. THE SALE DEED WAS EXECUTED BY SH . RATAN SINGH IN HIS NAME ONLY TO AVOID ANY LEGAL/CIVIL CONSEQUENCES IN FUTURE SINCE IN THE REVENUE RECORDS THE LAND STOOD IN THE NAME OF THE A SSESSEE WHO WAS NO LONGER A PARTNER IN THE FIRM FROM 01.04.2009. THERE FORE ON THE BASIS OF THIS SALE DEED NO INFERENCE CAN BE DRAWN THAT ASSES SEE HAS SOLD LAND AT KH. NO.230 TO SH. RATAN SINGH PARTICULARLY WHEN HE HAS NO RIGHT IN IT AND THE LAND CONTINUES TO BE THE PROPERTY OF THE FIRM A S PER ITS BALANCE SHEET AS ON 31.03.2012. 3. IT MAY BE NOTED THAT AS PER SECTION 14 OF INDIAN PARTNERSHIP ACT, 1932, THE PROPERTY OF THE FIRM INCLUDES ALL PROPERT Y AND RIGHTS AND INTEREST IN PROPERTY ORIGINALLY BROUGHT INTO THE ST OCK OF FIRM, OR ACQUIRED, BY PURCHASE OR OTHERWISE, BY OR FOR THE FIRM OR FOR THE PURPOSE AND IN ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 11 COURSE OF BUSINESS OF FIRM, AND INCLUDES ALSO THE G OODWILL OF THE BUSINESS. THEREFORE ANY INDIVIDUAL PROPERTY OWNED B Y A PARTNER AND CONTRIBUTED TO THE FIRM BECOMES THE FIRMS PROPERTY AND INDIVIDUAL GOES NOT REMAIN THE EXCUSIVE OWNER OF SUCH PROPERTY. IN CASE OF ADDL. CIT VS. MANJEE ENGINEERING INDUSTRIES [154 ITR 509] (DEL.) AND IN CASE OF CIT VS. A.V. BHANOJI RAO [142 ITR 706] (AP) IT IS HELD THAT NO PARTICULAR MODE OR FORM IS PROVIDED FOR BRINGING IN A SEPARATE PROPERTY INTO THE STOCK OF THE FIRM BY A PARTNER AND NO DEED WHATSOEV ER, REGISTERED OR OTHERWISE IS REQUIRED TO BE EXECUTED BY THE PARTNER FOR DOING SO. IT MAY BE NOTED THAT AFTER THE LAND UNDER CONSIDERATION BE CAME THE PROPERTY OF THE FIRM, IT CONSTRUCTED A FACTORY BUILDING BY INCU RRING EXPENDITURE OF 11.95 LACS UPTO 31.03.2008 (P.B.78-81) AND ALSO INS TALLED PLANT AND MACHINERY TO CARRY ON THE BUSINESS OF MANUFACTURING OF GRIT. ALL THESE ASSETS WERE THE PROPERTY OF THE FIRM. THEREFORE THE SALE DEED DATED 12.05.2009 EXECUTED BY SH. RATAN SINGH AS POWER OF ATTORNEY HOLDER OF THE ASSESSEE IN HIS FAVOUR COMPRISING OF THE LAND A ND CONSTRUCTION THEREON IS ONLY TO AVOID ANY PROBABLE DISPUTE IN FU TURE. THIS CANNOT BE CONSTRUED AS SALE BY THE ASSESSEE TO SH. RATAN SING H WHEN THE PROPERTY CONTINUES WITH THE FIRM. NO CONSIDERATION AS MENTIO NED IN THE SALE DEED HAS PASSED FROM SH. RATAN SINGH TO THE ASSESSEE. IN FACT THE ASSESSEE WAS PAID HIS CAPITAL BALANCE IN THE FIRM OF RS.24,5 9,001/- BEFORE ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 12 31.03.2009 ITSELF. THEREFORE WHEN ASSESSEE IS NEITH ER THE ACTUAL OWNER NOR THE BENEFICIAL OWNER OF THE SAID PROPERTY, THE QUESTION OF ASSESSING THE CAPITAL GAIN IN HIS HAND DOES NOT ARISE FOR CON SIDERATION. 4. UNDER THE INCOME TAX ACT, 1961 NO TAX CAN BE IMPOS ED ON A PERSON UNLESS THE TRANSACTION FALLS IN THE FOUR COR NERS OF TAXABILITY. IN PRESENT CASE AO HAS CONSIDERED THE SALE DEED EXECUT ED BY SH. RATAN SINGH AS CHARGEABLE TO TAX AS CAPITAL GAIN IGNORING THE FACT THAT ON THE DATE THE SALE DEED IS EXECUTED, THE ASSESSEE HAS NO RIGHT OR CLAIM IN THE SAID PROPERTY WHICH IS THE PROPERTY OF THE FIRM. TH ERE IS NO TRANSFER OF PROPERTY BY THE ASSESSEE TO ANYBODY SINCE HE HAS AL READY CONTRIBUTED THE LAND AT KHASRA. NO. 230 TO THE FIRM ON 19.07.20 06 AS HIS CAPITAL CONTRIBUTION AND BY THIS ACT IT HAS BECOME THE PROP ERTY OF THE FIRM. ASSESSEE HAS FILED AN AFFIDAVIT DATED 11.02.2013 BE FORE THE AO EXPLAINING THIS POSITION WHICH IS NOT CONTROVERTED BY THE AO. THEREFORE ON EXECUTION OF THE SALE DEED, IN THE ABOVE PECULIA R FACT OF THE CASE, THERE IS NOT TRANSFER BY THE ASSESSEE OF ANY CAPITA L ASSET AND THEREFORE NO CAPITAL GAIN IS CHARGEABLE TO TAX U/S 45 OF THE INCOME TAX ACT. 4. WE NOW REFER TO THE FINDINGS OF THE LD CIT(A)WHI CH ARE UNDER CHALLENGE BEFORE US. THE LD. CIT(A) WHILE DELETING THE ADDITION HAS OBSERVED AS UNDER: ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 13 5.12 HAVING CONSIDERED THE SUBMISSIONS MADE AND THE MATERIAL AVAILABLE ON RECORD, I FIND THAT MAIN ISSUE FOR CON SIDERATION IS WHETHER TRANSFER DEED EXECUTED FOR LAND I.E. KHASRA NO. 230 , VILLAGE- NAURANGABAD, TEH. ALWAR BY THE GPA HOLDER OF THE AP PELLANT (SH. RATAN SINGH) WOULD CONSTITUTE A TRANSFER BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY OR AS A PARTNER OF THE FIRM M/S SWAMI GRIT . 5.18 HOWEVER, THE INCOME TAX ACT RECOGNIZES THE FI RM AS A DISTINCT ASSESSABLE LEGAL ENTITY APART FROM ITS PARTNERS. S UB-SECTIONS (3) AND (4) OF SECTION 45 WERE INTRODUCED BY FINANCE ACT, 1987, WHICH CAME INTO EFFECT FROM 01.04.1988. IN SUB-SECTION (3) WHAT IS SOUGHT TO BE TAXED IS THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY A PERSON TO A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS. AFTER SUCH TRANSFER, HE IS OR BECOMES A PARTNER OR MEMBER, BY WAY OF CAPITAL CONTRIBUTION OR OTHERWISE. THEN THE SAID CA PITAL CONTRIBUTION SHALL BE CHARGEABLE TO TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTI ON 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT OF THE FIRM, ASSOC IATION OR BODY AS THE VALUE OF THE CAPITAL ASSET SHALL BE DEEMED TO BE TH E FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET. WHEN A PARTNER BRINGS IN HIS PERSONA L ASSET INTO A ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 14 PARTNERSHIP FIRM AS HIS CONTRIBUTION TO ITS CAPITAL , AN ASSET WHICH WAS ORIGINALLY EXCLUSIVELY BELONGING TO HIM, BECOMES TH E TRADING ASSET OF THE FIRM, IN WHICH ALL PARTNERS ACQUIRE INTEREST IN PRO PORTION TO THEIR RESPECTIVE SHARE IN THE FIRM. HIS RIGHT DURING THE SUBSISTENCE OF THE PARTNERSHIP IS TO GET HIS SHARE OF PROFITS FROM TIM E TO TIME AS REGARD UPON AMONG THE PARTNERS. 5.19 SUB-SECTION (4) OF SECTION 45 DEALS WITH A DI STRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCI ATION OF PERSONS OR BODY INDIVIDUALS OR OTHERWISE. IF IN THE COURSE OF SUCH DISTRIBUTION OF CAPITAL ASSET THERE IS A TRANSFER OF A CAPITAL ASSE T BY THE FIRM IN FAVOUR OF A PERSON AND IT RESULTS IN PROFITS OR GAINS TO THE FIRM, THEN THE SAID PROFITS OR GAINS SHALL BE CHARGEABLE TO TAX AS INCO ME OF THE FIRM AND AGAIN FOR COMPUTING SUCH INCOME, SECTION 48 IS ATTR ACTED. IN OTHER WORDS, IN THE PROCESS OF DISSOLUTION OF A FIRM, IF A CAPITAL ASSET IS TRANSFERRED TO A PARTNER WHICH RESULTS IN PROFITS O R GAINS, THEN THAT INCOME IS CHARGEABLE AT THE HANDS OF THE FIRM UNDER THIS PROVISION. IN ORDER TO ATTRACT SUB-SECTION (4) OF SECTION 45, THE CONDITION PRECEDENT IS, (1) THERE SHOULD BE A DISTRIBUTION OF CAPITAL ASSET S OF FIRM; (2) SUCH DISTRIBUTION SHOULD RESULT IN TRANSFER OF A CAPITAL ASSET BY FIRM IN FAVOUR OF THE PARTNER; AND ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 15 (3) ON ACCOUNT OF THE TRANSFER THERE SHOULD BE A PR OFIT OR GAIN DERIVED BY THE FIRM. (4) SUCH DISTRIBUTION SHOULD BE ON DISSOLUTION OF T HE FIRM OR OTHERWISE. 5.20 IN THE INSTANT CASE, THE PARTNER HAD PURCHASE D THE PROPERTY UNDER A REGISTERED SALE DEED IN HIS NAME AND THE PROPERTY WAS SUBSEQUENTLY TRANSFERRED IN THE FIRM AS HIS CAPITAL CONTRIBUTION . THE OTHER PARTNER BROUGHT IN CASH BY WAY OF CAPITAL WHEN THE FIRM WAS CONSTITUTED ON 19.07.2006. THE FIRM WAS RECONSTITUTED ON 19.12.200 7 WITH THE INDUCTION OF A NEW PARTNER MRS. SHARDA RANI AGARWAL . AGAIN, THE FIRM WAS RECONSTITUTED ON 11.06.2008 BY WAY OF RETIREMEN T OF THE ERSTWHILE TWO PARTNERS MRS. INDU BAI AND MRS. SHARDA RANI AGA RWAL WHO TOOK THEIR SHARE IN THE PARTNERSHIP AND WENT OUT OF THE PARTNE RSHIP. AFTER THE RETIREMENT OF TWO PARTNERS, THE PARTNERSHIP CONTINU ED TO EXIST WITH THE INTRODUCTION OF TWO NEW PARTNERS SH. RAMESH CHAND A ND SH. RATAN SINGH AND THE BUSINESS WAS CARRIED ON BY THE REMAIN ING THREE PARTNERS. WHAT WAS GIVEN TO THE RETIRING PARTNERS IS CASH REP RESENTING THE VALUE OF THEIR SHARE IN THE PARTNERSHIP. NO CAPITAL ASSET WA S TRANSFERRED ON THE DATE OF RETIREMENT UNDER THE DEED OF RETIREMENT DEE D DATED 11.06.2008. FURTHER, THERE WAS A RECONSTITUTION OF THE FIRM ON 01.04.2009, WHEN SH. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 16 KUNDAN LAL BADSHAH RETIRED FROM THE FIRM AND SH. RA TAN SINGH AND SH. RAMESH CHAND CONTINUED AS PARTNERS OF THE FIRM WITH EQUAL SHARES IN THE PROFITS/LOSSES. AS PER THIS DEED THE CONTINUING PARTNERS HAVE TAKEN OVER ALL THE RIGHTS OVER THE INDUSTRIAL LAND AT KHA SRA NO.230 AND THE RETIRING PARTNER HAS RELEASED AND RELINQUISHED ALL HIS RIGHTS/CLAIMS IN THE ASSETS OF THE FIRM. AFTER, THE RETIREMENT OF THE A SSESSEE FROM THE FIRM, SH. RATAN SINGH ON THE BASIS OF GPA DATED 11.06.200 8 EXECUTED A SALE DEED ON 12.05.2009 IN HIS OWN NAME, THOUGH THE PROP ERTY CONTINUED TO BE THE PROPERTY OF THE FIRM. THIS WAS DONE TO SECUR E AND SAFE GUARD THE RIGHTS OF THE FIRM SO THAT AT ANY POINT OF TIME THE ASSESSEE MAY NOT MAKE ANY CLAIM OVER THE SAID PROPERTY BY FILING ANY SUIT IN THE COURT OF LAW. 5.21. AO HAS CONFIRMED IN THE REMAND REPORT THAT S AID PROPERTY HAS BEEN DECLARED BY THE FIRM IN ITS ITR FILED (FOR THE LAST MORE THAN FIVE YEARS) AS ITS FIXED ASSET AND DEPRECIATION THEREON HAS ALSO BEEN CLAIMED CONSISTENTLY OVER ALL THESE YEARS. FURTHER, IT IS NOT DENIED THAT LAND AND BUILDING CONTINUES TO EXIST IN THE BOOKS OF THE FIR M. THE APPELLANT HAS ALSO BEEN EXAMINED BY THE AO IN THE COURSE OF REMAN D PROCEEDINGS AND THE SAME FACTUAL POSITION HAS BEEN REITERATED BY TH E APPELLANT. THE APPELLANT HAS TAKEN BACK HIS SHARE IN THE FIRM AMOU NTING TO RS.24.95 ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 17 LACS AND THIS FACT HAS BEEN DULY RECORDED IN THE BO OKS OF ACCOUNTS OF THE FIRM AND IN THE RETURNS OF INCOME FILED BY THE FIRM . 5.22 AFTER CONSIDERING THE FACTS AS STATED ABOVE, IT IS FOUND THAT AO HAS INVOKED THE PROVISIONS OF SECTION 50C OF THE IT ACT FOR THE PURPOSES OF LEVY OF CAPITAL GAINS TAX IN THE HANDS OF THE APPEL LANT, WHEREAS THE FACT THAT THE ASSET WAS SHOWN BY THE FIRM SINCE INCEPTIO N IN THE RETURNS FILED HAS REMAINED UNCONTROVERTED AND IS NOT DENIED. THIS IS THE SUBSTANCE OF THE TRANSACTION WHICH EMERGES OUT OF THE EXAMINATIO N CARRIED OUT DURING THE REMAND PROCEEDINGS EVEN THOUGH ON THE FACE OF I T A TRANSFER DEED HAS BEEN EXECUTED BY THE NEW PARTNER (AS GPA HOLDER OF THE RETIRING PARTNER) IN FAVOUR OF HIMSELF. FURTHER, NO CONSIDER ATION IS STATED TO HAVE BEEN PASSED AS HE COULD NOT HAVE PAID THE SAME TO H IMSELF. IT WOULD BE RELEVANT AT THIS STAGE TO REFER TO THE DECISION OF THE HONBLE SUPREME COURT WHEREIN THE APPLICATION OF DOCTRINE OF SUBST ANCE OVER FORM IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS VS. UOI-341 ITR 1 (SC) AND IN THE CASE OF MCDOWELL CO. LTD. VS. CTO-154 ITR 148 ( SC) HAS BEEN UPHELD. THE APPELLANT HAS RECEIVED HIS SHARE OF MON EY STANDING TO THE CREDIT OF CAPITAL ACCOUNT FROM THE FIRM AT THE TIME OF HIS RETIREMENT AND THE ASSET HAS REMAINED WITH THE FIRM. THE APPELLANT HAS ADMITTED ON OATH THESE FACTS AND RATIFIED AGAIN BEFORE THE AO I N THE COURSE OF ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 18 REMAND PROCEEDINGS. THEREFORE, I HOLD THAT THE LIAB ILITY TO PAY TAX ON CAPITAL GAINS, IF ANY, ARISES IN THE HANDS OF THE A PPELLANT, WHEN THE PROPERTY (PURCHASED BY THE APPELLANT) WAS TRANSFERR ED TO THE BOOKS OF THE PARTNERSHIP FIRM. THUS, THE CAPITAL GAINS, IF ANY, IN THE HANDS OF THE APPELLANT WOULD ARISE IN FY 2006-07 UNDER THE PROVI SIONS OF SECTION 45(3) OF THE IT ACT I.E. IN THE YEAR WHEN SUCH PROP ERTY IS TRANSFERRED TO THE BOOKS OF THE FIRM AS CAPITAL CONTRIBUTION. THE ISSUE WHICH MAY ARISE IS THAN IN WHOSE HANDS THE GAINS ON TRANSFER OF PRO PERTY, IF ANY ARE TAXABLE. UNDER THE PROVISIONS OF SECTION 45(4) OF THE IT ACT, IN THE CASE OF DISSOLUTION OF A FIRM THE LIABILITY TO PAY TAX A RISES IN THE HANDS OF THE FIRM. HONBLE SUPREME COURT HAS HELD IN THE CASE OF A.L.A. FIRM REPORTED IN 189 ITR 285 THAT MARKET VALUE OF ASSETS HAS TO B E ADOPTED FOR THE PURPOSES OF COMPUTING CAPITAL GAINS ARISING IN THE HANDS OF THE FIRM. HOWEVER, THIS ISSUE HAS TO BE EXAMINED BY THE AO CO NCERNED (HAVING JURISDICTION OVER THE CASE OF THE FIRM). 5.23. IN VIEW OF THE ABOVE DISCUSSION, I DO NOT FIN D ANY JUSTIFICATION IN THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF SECTION 50C OF THE IT ACT AND THEREFORE, DELETE THE ADDITION OF RS.1,18,7 5,507 ON ACCOUNT OF SHORT TERM CAPITAL GAINS MADE BY THE AO IN THE HAND S OF THE APPELLANT. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 19 5. THE LD. AR HAS FURTHER RELIED UPON THE DECISION OF COORDINATE BENCH IN CASE OF SHRI RATAN SINGH IN ITA NO.388 & 3 52/JP/2014 DATED 11.08.2016 WHEREIN SHRI RATAN SINGH WHO HAS ACQUIRE D THE SUBJECT LAND FROM THE ASSESSEE SH KUNDAN LAL BADSHAH HAS SUBSEQU ENTLY SOLD A PART OF THE SAID LAND TO THE INCOMING PARTNERS UNDER SIM ILAR CIRCUMSTANCES THOUGH THE LAND CONTINUED IN THE BOOKS OF THE FIRM. IN THAT CASE, THIS BENCH HAS CONFIRMED THE FINDING OF THE LD. CIT(A) W ITH THE FOLLOWING OBSERVATIONS: ON THE ABOVE FINDING, IT IS EVIDENT THAT LD. CIT(A ) HAS VERIFIED THE FACT THAT THE CAPITAL ASSET REMAINED IN THE BOOKS O F ACCOUNT OF THE FIRM. IT IS ALSO A FACT THAT THE CAPITAL ASSET WAS INTROD UCED INTO THE FIRM BY THE PARTNERS. THE LD. CIT(A) HAS RELIED UPON THE JUDGME NT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF SUNIL SIDDHAR THBHAI VS. CIT, 156 ITR 509 (SC). THE REVENUE HAS NOT SUBMITTED ANY CON TRARY BINDING PRECEDENT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A), WHICH IS HEREBY AFFIRMED. THE GROUND RAISED BY THE REVENUE IS REJECTED. 6. THE LD DR IS HEARD WHO HAS RELIED ON THE PROVISI ONS OF SECTION 50C AND HAS STATED THAT THE AO WAS CORRECT IN INVOKING THE PROVISIONS OF SECTION 50C AS THERE IS A TRANSFER THROUGH A REGIST ERED DEED BY THE ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 20 ASSESSEE (THROUGH ITS POWER OF ATTORNEY HOLDER) IN FAVOUR OF SHRI RATAN SINGH. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LAND UNDER CONSIDERATION I S AN AGRICULTURAL LAND AT VILLAGE NAURANGABAD (KHASRA NO.230) WHICH WAS PU RCHASED BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY AND THEREAFTER CONTRIBUTED BY THE ASSESSEE TO THE FIRM AS HIS CAPITAL CONTRIBUTION. T HE SAME IS EVIDENT FROM CLAUSE-11 OF THE PARTNERSHIP DEED DATED 19.07.2006 WHEREIN IT IS STATED THAT THE LAND AND LEASE ACQUIRED AT NAURANGABAD IN JUNE, 2006 IN THE NAME OF FIRST PARTNER (THE ASSESSEE) SHALL BE DEEM TO BE CONSIDERED AS THE ASSETS OF THE FIRM W.E.F. 19.07.2006 AND BOTH T HE PARTNERS WILL HAVE EQUAL RIGHTS ON SUCH LAND. THE FIRST PARTNER SHALL HAVE NO INDIVIDUAL RIGHT ON THE SAID LEASE AND LAND EXCEPT AS A PARTNER OF T HE FIRM. THEREAFTER, THE FIRM WAS RECONSTITUTED ON 19.12.2007 AND THEREA FTER ON 11.06.2008. EACH OF THESE RECONSTITUTION OF THE FIRM IS REFLECT ED THROUGH THE RECONSTITUTED PARTNERSHIP DEED WHICH CONTAIN A SIMI LAR CLAUSE IN RESPECT OF LAND AT KHASRA NO.230 AS THE ASSET WHICH CONTINU E TO REMAIN AS THAT OF THE FIRM AND THE FACT THAT RETIRING PARTNERS HAV E RELEASED AND RELINQUISHED ALL THE RIGHTS AND CLAIMS IN THE SAID ASSET OF THE FIRM. AT A TIME WHEN THE FIRM WAS RECONSTITUTED ON 11.06.2008 WHEREIN THE SHARE ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 21 OF THE ASSESSEE WAS REDUCED TO 6%, THE ASSESSEE ALS O EXECUTED A GENERAL POWER OF ATTORNEY DATED 11.06.2008 IN FAVOU R OF ONE OF THE PARTNERS OF THE FIRM, SHRI RATAN SINGH WHO WAS NEWL Y INTRODUCED AS PARTNER OF THE RECONSTITUTED FIRM EFFECTIVE 11.06.2 008 WHEREBY SHRI RATAN SINGH WAS AUTHORIZED TO DEAL WITH THE LAND KH ASRA NO.230. IN OUR VIEW, THE CONTENTS OF THE GENERAL POWER OF ATTORNEY DATED 11.06.2008 HAVE TO BE READ ALONGWITH THE CONTENTS OF THE RECON STITUTED PARTNERSHIP DEED DATED 11.06.2008 EVEN THOUGH IN THE POWER OF A TTORNEY, THERE IS NO SPECIFIC MENTION THAT LAND AT KHASRA NO.230 IS T HE PROPERTY OF THE FIRM. AS PER CLAUSE V OF THE RECONSTITUTED PARTNERS HIP DEED DATED 11.06.2008, IT IS MENTIONED THAT REST OF THE PARTN ERS (EXISTING AS WELL AS NEW PARTNERS) HAVE TAKEN OVER ALL THE RIGHTS OVER I NDUSTRIAL CONVERTED LAND AT KHASRA NO.230, AREA 6200 SQM AT GRAM NAURAN GABAD, ALWAR AND BUILDING PLANT & MACHINERY, SECURITY DEPOSITS. THEY WILL BE LIABLE TO REPAY LOANS AND OTHER LIABILITIES FROM 12.06.2008. THUS T HE 4 TH & 5 TH PARTY (RETIRING PARTNERS) HAVE RELEASED AND RELINQUISHED ALL THE RIGHTS AND CLAIMS IN THE ASSETS OF THE FIRM AND ALSO FREE OF L IABILITY. IT THEREFORE TRANSPIRES THAT THE POWER OF ATTORNEY HAS BEEN GRAN TED BY THE ASSESSEE IN FAVOUR OF SHRI RATAN SINGH NOT IN HIS INDIVIDUAL CAPACITY BUT AS ONE OF THE WORKING PARTNERS OF THE FIRM AND TO DEAL WITH T HE SAID LAND NOT IN AN INDIVIDUAL CAPACITY BUT AS REPRESENTATIVE OF THE FI RM. BOTH THE ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 22 DOCUMENTS, RECONSTITUTED PARTNERSHIP DEED DATED 11. 06.2008 AND POWER OF ATTORNEY DATED 11.6.2008 HAVE TO BE READ TOGETHE R AND NOT ON STAND ALONE BASIS AND ALSO TAKING INTO CONSIDERATION THE TREATMENT OF THE SAID PROPERTY AND ACCEPTANCE THEREOF BY THE ASSESSEE, TH E FIRM, THE INCOMING AND THE RETIRING PARTNERS. THERE IS ONE COMMON THRE AD WHICH IS EMERGING AND WHICH IS THAT, THE SUBJECT LAND HAS BE EN CONTRIBUTED AS CAPITAL CONTRIBUTION BY THE ASSESSEE TO THE FIRM AN D THE SAID LAND CONTINUES TO REMAIN AS PROPERTY OF THE FIRM ALL ALO NG OVER THE YEARS AND BEEN SHOWN AND REFLECTED IN THE BOOKS OF ACCOUNTS O F THE FIRM. 8. PROCEEDING FURTHER, IT IS NOTED THAT THE CONSTIT UTION OF THE FIRM WAS AGAIN CHANGED ON 01.04.2009 WHERE THE ASSESSEE RETI RED FROM THE FIRM AND THE OTHER TWO PARTNERS NAMELY, SHRI RATAN SINGH AND SHRI RAMESH CHAND CONTINUED THE FIRM WITH THE EQUAL SHARE AND T HE PROPERTY CONTINUED IN THE NAME OF THE FIRM AND THE RETIRING PARTNER NOT HAVING ANY RIGHTS AND CLAIMS IN THE ASSETS OF THE FIRM. AL L THESE FACTS CLEARLY DEMONSTRATE THAT BEFORE THE EXECUTION OF SALE DEED DATED 12.05.2009 (WHICH IS A SUBJECT MATTER OF DISPUTE BEFORE US), T HE LAND AT VILLAGE NAURANGABAD, KHASRA NO.230 WAS A PROPERTY OF THE FI RM AND NO INDIVIDUAL PARTNER HAVE ANY INDIVIDUAL RIGHT OVER T HE SAID PROPERTY AND ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 23 THE SAID PROPERTY CONTINUED TO BE REFLECTED IN THE BOOKS OF ACCOUNTS OF THE PARTNERSHIP FIRM. 9. HERE, IT WOULD BE RELEVANT TO REFER TO THE FINDI NGS OF THE LD CIT(A) WHEREIN HE HAS STATED THAT THE APPELLANT HAS TAKEN BACK HIS SHARE IN THE FIRM AMOUNTING TO RS.24.95 LACS AND THIS FACT H AS BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE FIRM AND IN THE RET URNS OF INCOME FILED BY THE FIRM. AND THEREAFTER, HE HAS STATED THAT THE APPELLANT HAS RECEIVED HIS SHARE OF MONEY STANDING TO THE CREDIT OF CAPITA L ACCOUNT FROM THE FIRM AT THE TIME OF HIS RETIREMENT AND THE ASSET HA S REMAINED WITH THE FIRM. THE REVENUE HAS NOT CHALLENGED THE SAID FINDI NGS IN TERMS OF VALUATION OF ASSESSEES SHARE IN THE FIRM AT THE TI ME OF RETIREMENT AS TO WHETHER THE SAME REFLECTS THE APPROPRIATE VALUE TAK ING INTO CONSIDERATION THE VALUATION OF THE UNDERLYING ASSET S OR NOT. IN ANY CASE, THE UNDISPUTED FACT REMAINS IS THAT THE SAID PROPER TY CONTINUED TO BE REFLECTED IN THE BOOKS OF ACCOUNTS OF THE PARTNERSH IP FIRM. 10. NOW, COMING TO THE EXECUTION OF SALE DEED DATED 12.05.2009, IT IS NOTED THAT AFTER THE RETIREMENT OF THE ASSESSEE FRO M THE FIRM, SHRI RATAN SINGH, ON THE BASIS OF POWER OF ATTORNEY DATED 11.0 6.2008, EXECUTED A SALE DEED DATED 12.05.2009 IN HIS OWN NAME. IT IS H ERE THAT THE MAIN ISSUE FOR CONSIDERATION ARISES AS TO WHETHER THE SA LE DEED HAS BEEN ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 24 EXECUTED BY THE ASSESSEE (THROUGH ITS POWER OF ATTO RNEY HOLDER, SHRI RATAN SINGH) IN WHOSE NAME THE PROPERTY STAND IN TH E LAND RECORDS OR THE SALE DEED HAS BEEN EXECUTED BY THE FIRM M/S SWA MI GRIT UDYOG, IN WHOSE NAME THE PROPERTY STANDS AND ALL THE RIGHTS R EMAINED VESTED AS PER THE PARTNERSHIP DEED AND ITS BOOKS OF ACCOUNTS. AS WE HAVE STATED ABOVE, ONCE THE LAND HAS BEEN CONTRIBUTED BY THE AS SESSEE AS HIS SHARE OF CAPITAL CONTRIBUTION AND ACKNOWLEDGED BY THE FIR M WHICH IS DULY EVIDENT BY THE PARTNERSHIP DEED DATED 19.07.2006, T HE SAID PROPERTY BECOMES THE PROPERTY OF THE FIRM AND THE TRANSFER T HEREOF IS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE BY VIRTUE OF PR OVISIONS OF SECTION 45(3) OF THE ACT. IN CASE OF ADD. CIT VS. MANJEET E NGINEERING INDUSTRIES [154 ITR 509] (DEL.) AND IN CASE OF CIT VS. A.V. BH ANOJI RAO [142 ITR 706] (AP), IT IS HELD THAT NO PARTICULAR MODE OR FO RM IS PROVIDED FOR BRINGING IN A SEPARATE PROPERTY INTO THE STOCK OF T HE FIRM BY A PARTNER AND NO DEED WHATSOEVER REGISTERED OR OTHERWISE IS R EQUIRED TO BE EXECUTED BY THE PARTNER FOR DOING SO. IN THE PRESEN T CASE, THE FACTS ARE ON A STRONGER FOOTING AS THE CAPITAL CONTRIBUTION I S EVIDENCED BY A DEED OF PARTNERSHIP AND THE SAME WOULD BE CONSIDERED AS A TRANSFER IN RELATION TO CAPITAL ASSET IN TERMS OF SECTION 2(47) READ WITH SECTION 45(3) OF THE ACT. THEREFORE, WE AGREE WITH THE FINDING OF THE LD CIT(A) THAT THE LIABILITY TO PAY TAX ON CAPITAL GAINS, IF ANY, ARISES IN THE HANDS OF THE ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 25 APPELLANT, WHEN THE PROPERTY (PURCHASED BY THE APPE LLANT) WAS TRANSFERRED TO THE BOOKS OF THE PARTNERSHIP FIRM. THUS, THE CAPITAL GAINS, IF ANY, IN THE HANDS OF THE APPELLANT WOULD ARISE I N FY 2006-07 UNDER THE PROVISIONS OF SECTION 45(3) OF THE IT ACT I.E. IN T HE YEAR WHEN SUCH PROPERTY IS TRANSFERRED TO THE BOOKS OF THE FIRM AS CAPITAL CONTRIBUTION. 11. AS PER THE LD. CIT(A), AS PER THE PROVISIONS OF SECTION 45(4) OF THE ACT, THE TAXABILITY WILL ARISE ON SUCH TRANSFER IN TERMS OF SALE DEED DT. 12.05.2009 IN CASE OF DISSOLUTION OF THE FIRM AND T HE ISSUE HAS TO BE EXAMINED BY THE CONCERNED A.O HAVING JURISDICTION O VER THE FIRM. IT IS HERE THAT WE DO NOT AGREE WITH THE FINDING OF THE L D. CIT(A). HERE IT WOULD BE RELEVANT TO REFER TO THE DECISION OF HONB LE BOMBAY HIGH COURT IN CASE OF CIT VS. A.N. NAIK ASSOCIATES 136 TAXMAN 107 (BOMBAY) WHEREIN THE HONBLE COURT HAVE EXAMINED THE PROVISI ONS OF SECTION 45(4) OF THE ACT. IT HELD THAT THE EXPRESSION OTHE RWISE USED IN SECTION 45(4) HAS TO BE READ WITH THE WORDS TRANSFER OF CAP ITAL ASSETS BY A DISTRIBUTION OF CAPITAL ASSETS, IF SO READ, IT BECO MES CLEAR EVEN WHEN A FIRM IS IN EXISTENCE AND THERE IS A TRANSFER OF CAP ITAL ASSETS, IT COMES WITHIN THE EXPRESSION OTHERWISE AS THE OBJECT OF THE AMENDING ACT WAS TO REMOVE THE LOOPHOLE WHICH EXISTED WHEREBY CAPITA L GAIN TAX WAS NOT CHARGEABLE. IN THE INSTANT CASE, THE FIRM CONTINUE TO EXIST AND THE ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 26 SUBJECT LAND HAS BEEN TRANSFERRED BY THE FIRM (AS W E HAVE HELD ABOVE) IN FAVOUR OF ONE OF THE PARTNERS OF THE FIRM, SHRI RAT AN SINGH. THEREFORE, IT IS FOR THE REVENUE TO DECIDE WHETHER SUCH TRANSFER IN FAVOUR OF RATAN SINGH IS TAXABLE IN HANDS OF THE FIRM UNDER SECTION 45(4) OF THE ACT OR NOT. TO THAT EXTENT, THE ABOVE FINDINGS OF LD CIT( A) STAND MODIFIED. 12. IN LIGHT OF ABOVE DISCUSSION TAKING INTO CONSID ERATION THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, IT IS THE F IRM IN WHOSE NAME THE ASSET STOOD PRIOR TO THE DATE OF THE TRANSFER WHICH HAS TRANSFERRED THE ASSET (AND NOT THE ASSESSEE) VIDE THE SALE DEED DAT ED 12.05.2009. THEREFORE, IT IS CLEAR THAT THE ASSESSEE CANNOT BE BROUGHT TO TAX IN RESPECT OF SUCH TRANSFER. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISPO SED OFF WITH ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 10/03/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 10/03/2017. * SANJEEV*. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ITO, WARD-1(1), ALWAR. ITA NO.383/JP/2014 ITO, WARD-1(1) VS. KUNDAN LAL BADSHAH, ALWAR 27 2. IZR;FKHZ@ THE RESPONDENT- SH. KUNDAN LAL BADSHAH, PLOT NO.-10 9, ANAND NAGAR, KHAIRTHAL, ALWAR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 383/JP/2014}. VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR