Desu Babu Rao, Machilipatnam V. The Commissioner of Income-tax, Vijayawada

ITA 451/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9732 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P HARIPRASADA RAODR
• Keywords: Capital asset; Revision of order; Cost of acquisition; Assessment record
• Section: 143(3); 263

Judgement Text

ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.451/VIZAG/2013 ( / ASSESSMENT YEAR: 2008-09) DESU BABU RAO MACHILIPATNAM VS. CIT, VIJAYAWADA [PAN: ACPPD8892G ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM, AR / RESPONDENT BY : SHRI P. HARI PRASADA RAO,DR / DATE OF HEARING : 15.09.2016 / DATE OF PRONOUNCEMENT : 08.11.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT, VIJAYAWADA U/S 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) AND IT PERTAINS TO THE ASSESSMENT YEA R 2008-09. ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL DERIVING INCOME FROM BUSINESS, HOUSE PROPERTY AND O THER SOURCES FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-0 9 ON 31.3.2009 DECLARING TOTAL INCOME OF RS.35,495/-. SUBSEQUENTL Y, THE CASE WAS CONVERTED INTO SCRUTINY AND THE ASSESSMENT WAS COMP LETED U/S 143(3) OF THE ACT ON 27.12.2010 DETERMINING THE TOTAL INCOME OF RS.3,93,710/-. 3. THE CIT, VIJAYAWADA ISSUED A SHOW CAUSE NOTICE D ATED 21.3.2013 AND ASKED TO EXPLAIN WHY THE ASSESSMENT ORDER PASSE D BY THE A.O. U/S 143(3) OF THE ACT DATED 27.12.2010, SHALL NOT BE RE VISED UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. THE CIT, PRO POSED TO REVISE THE ASSESSMENT ORDER FOR THE REASON THAT ON EXAMINATION OF THE ASSESSMENT RECORDS CERTAIN OMISSIONS AND COMMISSIONS WERE NOTI CED, WHICH RENDER THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS P REJUDICIAL TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 263 OF THE ACT. THE CIT IN THE SAID SHOW CAUSE NOTICE, OBSERVED THAT THE A.O. HAS COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT, WITHOUT EXAMINING THE ISSUE OF COMPUTATION OF CAPITAL GAIN BY THE ASSESSEE ON RELI NQUISHMENT OF HIS SHARE IN TWO PARTNERSHIP FIRMS. THE CIT, FURTHER, OBSERVED THAT THE ASSESSEE HAS COMPUTED LONG TERM CAPITAL GAIN TOWARD S RELINQUISHMENT OF HIS RIGHT IN THE PARTNERSHIP FIRMS, WHEREAS THE AMO UNT RECEIVED FROM THE ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 3 PARTNERSHIP FIRM, OVER AND ABOVE THE AMOUNT CREDITE D IN THE CAPITAL ACCOUNT OF THE PARTNER IS IN THE NATURE OF GOODWILL CANNOT BE CONSIDERED UNDER THE HEAD CAPITAL GAINS. THE A.O. WITHOUT EXA MINING THE ABOVE ISSUE AND ALSO WITHOUT APPLICATION OF MIND AS TO WH ETHER COMPUTATION OF CAPITAL GAIN BY DEDUCTING COST OF ACQUISITION IS CO RRECT OR NOT, SIMPLY ACCEPTED THE CAPITAL GAIN DECLARED BY THE ASSESSEE AND COMPLETED THE ASSESSMENT, WHICH RENDERED THE ASSESSMENT ORDER ERR ONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE . 4. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE S UBMITTED THAT THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, DAT ED 27.12.2010 IS NOT ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE, AS THE A.O. HAS EXAMINED THE ISSUE OF CAPITAL GAINS ON RELINQUISHMENT OF SHARE IN PARTNERSHIP FIRMS. THE ASSESSEE FURTHER S UBMITTED THAT HE HAD ADMITTED CAPITAL GAIN ON THE AMOUNT RECEIVED FROM T HE PARTNERSHIP FIRMS TOWARDS RELINQUISHMENT OF HIS SHARE BY ADOPTING THE AMOUNT STANDING CREDIT IN THE CAPITAL ACCOUNT AS COST OF ACQUISITIO N. THE ASSESSING OFFICER, WHILE COMPLETING THE ASSESSMENT HAS EXAMINED THE IS SUE IN DETAIL AND AFTER ANALYZING THE INDEXED COST OF ACQUISITION ADO PTED, RE-DETERMINED THE CAPITAL GAIN AND MADE ADDITIONS OF RS.1,08,474/ -, THEREFORE, THE ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 4 ASSESSMENT ORDER PASSED BY THE A.O. CANNOT BE CONSI DERED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. 5. THE CIT, AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, HELD THAT THE ASSESSMENT ORDER PASSED BY THE A.O. IS ERR ONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, AS T HE ASSESSING OFFICER HAS FAILED TO EXAMINE THE ISSUE OF CAPITAL GAINS TOWARD S AMOUNT RECEIVED FROM TWO PARTNERSHIP FIRMS ON RELINQUISHMENT OF HIS SHARE IN THE ASSETS OF THE FIRM. THE CIT, FURTHER, OBSERVED THAT SINCE THE ASSESSEE DOES NOT HAVE ANY RIGHT OVER THE ASSETS OF THE FIRM AND UNLE SS THERE IS A DISSOLUTION OF PARTNERSHIP FIRM, THERE IS NO TRANSF ER OF ASSETS, HENCE, THE ASSESSEE IS NOT CORRECT TO CLAIM INDEXED COST OF AC QUISITION WHILE CALCULATING CAPITAL GAINS. THE CIT, FURTHER, OBSER VED THAT THE AMOUNT RECEIVED OVER AND ABOVE WHAT IS DUE TO THE ASSESSEE TOWARDS HIS CAPITAL IS IN THE NATURE OF GOODWILL AGAINST WHICH THE ASSE SSEE CANNOT CLAIM DEDUCTION TOWARDS COST OF ACQUISITION OF ASSETS OR W.D.V. OF THE ASSETS OR INDEXED COST OF ACQUISITION, SINCE THE ASSESSEE IS NOT THE OWNER OF THE ASSET AND THE ASSESSEE WAS NOT TRANSFERRING THE ASS ET, BUT TRANSFERRED HIS SHARE OF RIGHT IN THE PARTNERSHIP FIRM. SINCE, THE A.O. FAILED TO EXAMINE THE ISSUE IN PROPER PERSPECTIVE AND ALSO FA ILED TO APPLY HIS MIND BEFORE ALLOWING THE DEDUCTION CLAIMED BY THE ASSESS EE TOWARDS COST OF ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 5 ACQUISITION, THE ASSESSMENT ORDER PASSED BY THE A.O . U/S 143(3) IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER PASSED BY THE A.O . U/S 143(3) OF THE ACT HAS BEEN SET ASIDE AND DIRECT THE A.O. TO RE-DO THE ASSESSMENT DE- NOVO AFTER GIVING THE ASSESSEE A REASONABLE OPPORTU NITY OF BEING HEARD. AGGRIEVED BY THE CIT ORDER, THE ASSESSEE IS IN APPE AL BEFORE US. 6. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, DATED 27. 12.2010 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, AS THE A.O. HAS EXAMINED THE ISSUE OF COMPUTATION OF C APITAL GAIN TOWARDS RELINQUISHMENT OF SHARE IN PARTNERSHIP FIRMS BY THE ASSESSEE. THE A.R. FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSEE HAS FILED COMPLETE DETAILS OF THE TRANSACT IONS AND THE A.O. HAS CONSIDERED THE ISSUE OF COMPUTATION OF CAPITAL GAIN TOWARDS AMOUNT RECEIVED FROM THE PARTNERSHIP FIRMS ON ACCOUNT OF R ELINQUISHMENT OF HIS SHARE AND AFTER SATISFIED WITH THE EXPLANATIONS OFF ERED BY THE ASSESSEE HAS RE-COMPUTED THE CAPITAL GAIN. THE A.O. AFTER C ONSIDERING THE RELEVANT FACTS HAS RE-WORKED THE CAPITAL GAIN COMPU TED BY THE ASSESSEE BY TAKING INDEXED COST FOR THE FINANCIAL YEAR 1992- 93 AS AGAINST INDEXATION ADOPTED BY THE ASSESSEE FOR THE FINANCIA L YEAR 1991-92. THE ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 6 A.R. FURTHER SUBMITTED THAT ONCE THE A.O. HAS CONSI DERED PARTICULAR ISSUE AND TAKES A CONSCIOUS DECISION, IT CANNOT BE SAID T HAT THERE WAS AN ERROR IN THE ORDER PASSED BY THE A.O. IT WAS FURTHER SUB MITTED THAT THE A.O. HAS CONSIDERED THE ISSUE AND HAS CHOSEN TO ACCEPT T HE COMPUTATION MADE BY THE ASSESSEE, THEREFORE, THE ORDER PASSED B Y THE A.O. CANNOT BE HELD AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS REGARDS THE SECOND OBSERVATION OF THE CIT, THAT THE AMOUNT RECEIVED BY THE ASSESSEE OVER AND ABOVE HIS CAPITAL ACCOUNT IS IN THE NATURE OF GOODWILL WHICH IS TO BE TAXED IN T OTAL WITHOUT ALLOWING ANY COST OF ACQUISITION, THE A.R. SUBMITTED THAT WH EN A PARTNER RETIRES FROM THE PARTNERSHIP FIRM TAKING HIS SHARE, NO ELEM ENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP SHARE BY THE RETIRING P ARTNER TO THE CONTINUING PARTNER WAS INVOLVED. FURTHER, THE AMOUNT RECEIVED IN FULL AND FINAL SETTLEMENT OF A PARTNERS SHARE AND SUCH ADJUSTMENT OF HIS RIGHT IS NOT A TRANSFER IN THE EYES OF LAW. THEREFORE, EVEN THOUG H THE ASSESSEE HIMSELF HAS ADMITTED CAPITAL GAINS, THERE IS NO TRA NSFER WITHIN THE MEANING OF SECTION 2(47)(V) OF THE ACT ON ACCOUNT O F RELINQUISHMENT OF HIS SHARE IN PARTNERSHIP FIRM. ACCORDINGLY, THERE IS NO PREJUDICE IS CAUSED TO THE REVENUE AND HENCE THE ORDER PASSED BY THE A.O. CANNOT BE CONSIDERED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORD ER OF THE CIT. ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 7 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE CIT ASSUMED JURISDICTION TO REVISE THE ASSESSMENT O RDER FOR THE REASON THAT THE A.O. HAS NOT CONDUCTED PROPER ENQUIRY BEFO RE COMPLETION OF ASSESSMENT, THEREBY THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT DATED 27.12.2010 IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T REVISED THE ASSESSMENT ORDER FOR THE REASON THAT THE A.O. HAS C OMPLETED THE ASSESSMENT WITHOUT EXAMINING THE ISSUE OF COMPUTATI ON OF CAPITAL GAIN BY THE ASSESSEE TOWARDS RELINQUISHMENT OF HIS SHARE IN PARTNERSHIP FIRMS. ACCORDING TO THE CIT, WHEN A PARTNER RETIRE S FROM THE PARTNERSHIP FIRM THE AMOUNT RECEIVED OVER AND ABOVE THE CAPITAL ACCOUNT OF THE PARTNER IS IN THE NATURE OF GOODWILL AGAINST WHICH THE ASSESSEE CANNOT CLAIM COST OF ACQUISITION. THIS IS BECAUSE WHEN A PARTNER RETIRES FROM THE PARTNERSHIP FIRM, THERE IS NO TRANSFER WHICH EN VISAGES THE COMPUTATION OF CAPITAL GAIN. THE CIT FURTHER OBSER VED THAT WHEN PARTNER RECEIVES AMOUNT TOWARDS RELINQUISHMENT OF H IS RIGHT, THE ENTIRE AMOUNT RECEIVED FROM THE PARTNERSHIP FIRM IS TAXABL E AS CAPITAL GAIN, WHEREAS, THE ASSESSEE HAS COMPUTED CAPITAL GAIN BY ADOPTING COST OF ACQUISITION, WHICH IS INCORRECT. THE A.O. WITHOUT EXAMINING THE ISSUE AND ALSO WITHOUT APPLYING HIS MIND, SIMPLY ALLOWED THE COMPUTATION OF ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 8 CAPITAL GAIN BY THE ASSESSEE, WHICH RENDERS THE ASS ESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. 8. IT IS THE CONTENTION OF THE ASSESSEE THAT HE HAD FURNISHED ALL THE DETAILS PERTAINING TO COMPUTATION OF CAPITAL GAIN T OWARDS RELINQUISHMENT OF HIS SHARE IN PARTNERSHIP FIRM AT THE TIME OF ASS ESSMENT. THE A.O. AFTER SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE HAS RE- WORKED THE COMPUTATION OF CAPITAL GAIN BY ADOPTING DIFFERENT INDEXATION AND MADE ADDITIONS OF RS.1,08,474/-. ONCE THE A.O. EXAMINED THE ISSUE AND TAKES A CONSCIOUS DECISION, IT CANNOT BE SAID T HAT THERE WAS AN ERROR IN THE ORDER OF THE A.O. WHICH IS PREJUDICIAL TO TH E INTEREST OF THE REVENUE. THE ASSESSEE ALSO CONTENDS THAT THE AMOUN T RECEIVED BY THE ASSESSEE OVER AND ABOVE HIS CAPITAL ACCOUNT IN THE PARTNERSHIP FIRM IS NOT TAXABLE, AS WHEN A PARTNER IS RETIRED FROM THE PARTNERSHIP FIRM, THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47)( V) OF THE ACT AND HENCE THE QUESTION OF COMPUTATION OF CAPITAL GAIN O N THE AMOUNT RECEIVED FROM THE PARTNERSHIP FIRM DOES NOT ARISE. THOUGH, THERE IS NO TRANSFER TOWARDS RELINQUISHMENT OF HIS RIGHTS IN TH E PARTNERSHIP FIRM, THE ASSESSEE HIMSELF COMPUTED CAPITAL GAIN AND OFFERED TO TAX. THEREFORE, THERE IS NO PREJUDICE IS CAUSED TO THE REVENUE AND HENCE THE ORDER OF ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 9 THE A.O. CANNOT BE CONSIDERED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 9. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MAT ERIALS AVAILABLE ON RECORD, WE FIND THAT THE CIT ASSUMED JURISDICTIO N TO REVISE THE ASSESSMENT ORDER ON THE GROUND THAT THERE IS A LACK OF ENQUIRY ON THE PART OF THE A.O. IN EXAMINING THE ISSUE OF COMPUTAT ION OF CAPITAL GAIN TOWARDS RELINQUISHMENT OF SHARE IN PARTNERSHIP FIRM . BUT, ON PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE A.O. AND CIT ORD ER, WE FIND THAT THE ISSUE POINTED OUT BY THE CIT IN THE REVISION PR OCEEDINGS HAS BEEN CONSIDERED BY THE A.O. AT THE TIME OF ASSESSMENT. THE A.O. AFTER SATISFIED WITH THE EXPLANATIONS FURNISHED BY THE AS SESSEE, ACCEPTED LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. THEREF ORE, WE ARE OF THE VIEW THAT ONCE THE ISSUE WHICH WAS SUBJECT MATTER O F REVISION U/S 263 OF THE ACT, HAS BEEN EXAMINED BY THE A.O. AT THE TIME OF ASSESSMENT, THE CIT HAS NO JURISDICTION TO ENTERTAIN FRESH ENQUIRY ON THE SAME ISSUE, BECAUSE HE HAD A DIFFERENT OPINION ON THE ISSUE IN OUR CONSIDERED VIEW, THE ISSUE OF CAPITAL GAIN HAS BEEN THOROUGHLY EXAMI NED BY THE A.O., THEREFORE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE A.O. HAS NOT EXAMINED THE ISSUE BEFORE COMPLETION O F ASSESSMENT. ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 10 10. HAVING SAID, LET US EXAMINE WHETHER THE ORDER P ASSED BY THE A.O. IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT OBSERVED THAT WHEN A PARTNER RETIRES FROM A PARTNERSHIP FIRM, THE AMOUNT RECEIVED OVER AND ABOVE THE CAPITAL ACCOUNT OF THE PARTNER I S TAXABLE IN TOTAL WITHOUT ALLOWING ANY DEDUCTIONS TOWARDS COST OF ACQ UISITION OF THE ASSET. THE CIT FURTHER OBSERVED THAT THE A.O. WITHOUT APPL ICATION OF MIND ALLOWED THE COST OF ACQUISITION CLAIMED BY THE ASSE SSEE, WHICH IS OTHERWISE NOT ALLOWABLE, THEREFORE, THE ASSESSMENT ORDER PASSED BY THE A.O. IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS THE CONTENTION OF THE ASSESSEE THAT WHEN A PARTNER RETIRES FROM THE P ARTNERSHIP FIRM TAKING HIS SHARE OF INTEREST IN THE FIRM, NO ELEMEN T OF TRANSFER OF INTEREST IN A PARTNERSHIP FIRM BY THE RETIRING PARTNER TO TH E CONTINUING PARTNER. THE ASSESSEE FURTHER CONTENDED THAT WHEN AMOUNT REC EIVED IN FULL AND SETTLEMENT TOWARDS PARTNERS SHARE, THE AMOUNT RECE IVED OVER AND ABOVE HIS CAPITAL ACCOUNT IS NOT LIABLE TO BE TAXED AS C APITAL GAIN BECAUSE THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47)(V) OF THE ACT WHEN A PARTNER RETIRES FROM THE PARTNERSHIP FIRM. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE COORDINATE BENCH OF ITAT, HYDERABAD, IN THE CASE OF ACIT VS. N. PRASAD ITA NO.1200/HYD/2010 VIDE ORDER DATED 27.1.2014 HELD TH AT WHEN A PARTNER RETIRES FROM THE PARTNERSHIP FIRM, TAKING HIS SHARE OF INTEREST IN THE FIRM, ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 11 NO ELEMENT OF TRANSFER IS INVOLVED THEREBY NOT LIAB LE FOR CAPITAL GAIN TAX. A SIMILAR VIEW WAS EXPRESSED BY THE HONBLE SUPREME COURT, IN THE CASE OF CIT VS. R. LINGAMALLU RAGHU KUMAR (2001) 247 ITR 801, WHEREIN THE SUPREME COURT HELD THAT ON RETIREMENT OF ASSESSEE P ARTNER FROM THE FIRM, THERE WAS NO ELEMENT OF TRANSFER OF INTEREST IN PARTNERSHIP ASSETS BY THE RETIRING PARTNER TO THE CONTINUING PARTNERS AND THE AMOUNT RECEIVED BY HIM WAS NOT LIABLE FOR CAPITAL GAINS. IN VIEW OF THE ABOVE JUDGEMENTS, IT IS ABUNDANTLY CLEAR THAT WHEN A PART NER RETIRES FROM THE PARTNERSHIP FIRM, WHATEVER AMOUNT RECEIVED BY THE P ARTNER OVER AND ABOVE HIS CAPITAL ACCOUNT IS NOT LIABLE FOR CAPITAL GAIN TAX. THOUGH, THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47)( V) OF THE ACT, THE ASSESSEE HIMSELF OFFERED THE CAPITAL GAIN ON ACCOUN T OF RELINQUISHMENT OF HIS RIGHT IN THE PARTNERSHIP FIRM, THEREFORE, WE AR E OF THE VIEW THAT THERE IS NO PREJUDICE IS CAUSED TO THE REVENUE AND HENCE THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE ORDER PASSED BY THE A.O. IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 11. THE CIT HAS POWER TO REVISE ASSESSMENT ORDER U/ S 263 OF THE ACT, BUT TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT, THE TWIN CONDITIONS MUST BE SATISFIED I.E. (1) THE ORDER OF THE A.O. IS ERRONEOUS (2) FURTHER IT MUST BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. UNLESS ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 12 BOTH THE CONDITIONS ARE SATISFIED, THE CIT CANNOT A SSUME JURISDICTION U/S 263 OF THE ACT. IT IS NOT NECESSARY THAT EVERY ORD ER WHICH IS ERRONEOUS MAY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE O R VICE VERSA. IN SOME CASES THE ORDER PASSED BY THE A.O. MAY BE ERRONEOUS BUT IT MAY NOT BE PREJUDICIAL TO THE INTEREST OF THE REVENUE OR VICE VERSA. UNLESS THE ORDER PASSED BY THE A.O. IS ERRONEOUS AND ALSO PREJUDICIA L TO THE INTEREST OF THE REVENUE, THE CIT CANNOT ASSUME JURISDICTION TO REVISE THE ASSESSMENT ORDER, THIS IS BECAUSE THE TWIN CONDITIO NS I.E. THE ORDER IS ERRONEOUS AND THE SAME IS PREJUDICIAL TO THE INTERE ST OF THE REVENUE ARE CO-EXIST. IN THE PRESENT CASE ON HAND, THE ORDER P ASSED BY THE A.O. IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, AS THE A.O. HAS EXAMINED THE ISSUE AND ALSO THERE IS N O LOSS OF REVENUE SO AS TO SAY IT IS PREJUDICIAL TO THE INTEREST OF REVE NUE BECAUSE WHEN A PARTNER RECEIVING AMOUNT ON ACCOUNT RETIREMENT, THE RE IS NO TRANSFER AND HENCE, NOT LIABLE FOR CAPITAL GAIN TAX. 12. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO APPLYING THE RATIOS OF CASE LAWS UPON BY THE ASSESS EE IN THE CASE OF CIT VS. R. LINGAMALLU RAGHU KUMAR (2001) 247 ITR 801 (S C), WHEREIN THE HONBLE SUPREME COURT UNDER SIMILAR CIRCUMSTANCES H ELD THAT ON RETIREMENT OF ASSESSEE PARTNER FROM THE FIRM, THERE WAS NO ELEMENT OF TRANSFER OF INTEREST IN PARTNERSHIP ASSETS BY THE R ETIRED PARTNER TO THE ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 13 CONTINUING PARTNERS AND THE AMOUNT RECEIVED BY HIM WAS NOT LIABLE FOR CAPITAL GAINS AND ALSO BASED ON THE COORDINATE BENC H OF ITAT, HYDERABAD DECISION IN ITA NO.1200/HYD/2010 VIDE ORD ER DATED 27.1.2014, WE ARE OF THE VIEW THAT THE ASSESSMENT O RDER PASSED BY THE A.O. U/S 143(3) OF THE ACT DATED 27.12.2010 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE . THEREFORE, WE SET ASIDE ORDER PASSED BY THE CIT U/S 263 OF THE ACT AN D RESTORE THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF T HE ACT. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8 TH NOV16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 08.11.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SHRI DESU BABU RAO, D.NO.25/266, JAGANNADHAPURAM MACHILIPATNAM. 2. / THE RESPONDENT THE CIT, VIJAYAWADA 3. THE ITO, WARD-1, MACHILIPATNAM 4. + ( ) / THE CIT (A), VIJAYAWADA ITA NO.451/VIZAG/2013 DESU BABU RAO, MACHILIPATNAM 14 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM