ASST CIT (OSD) -I CEN RG 7, MUMBAI V. SUKHRAJ B NAHAR, MUMBAI

ITA 5730/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9062 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Keywords: Salary income
• Section: 153A; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 5730 /MUM/20 1 4 ASSESSMENT YEAR: 2006 - 07 THE ACIT (OSD) - I, CENTRAL RANGE - 7, ROOM NO. 413, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020 VS. SHRI SUKHRAJ B. NAHAR, B - 1, MAHALAXMI CHAMBERS, 22, BHULABHAI DESAI ROAD, MAHALAXMI - 8, MUMBAI 400026 PAN: AARPN9313R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI A. MOHAN ( CIT ) ASSESSEE BY : SHRI VIMAL PUNAMIYA (A R) DATE OF HEARING: 18 /09 /201 7 DATE OF PRONOUNCEMENT: 13 / 10 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 25/06/2014 PASSED BY THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) - 40 , MUMBAI , FOR THE A S S ESSMENT YEAR 2006 - 07 , WHEREBY THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE APPELLANT/ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 READ WITH SECTION 153A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PARTNER IN M/S NAHAR & SETH ENTERPRISES, M/S NAHAR BUILDERS AND M/S SHANTI ENTERPRISES, HAVING INCOME FROM SALARY, BUSINESS, CAPITAL GAIN AND OTHER SOURCES , FILED HIS RETURN OF INCOME U/S 139 (1) OF THE ACT, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 32 , 53 , 096/ - ON 31.03.2007 . SUBSEQUENTLY, SEARCH AND SURVEY ACTION WAS CARRIED OUT ON 2 ITA NO. 5730 / MUM/2014 ASSESSMENT YEAR: 2006 - 07 02.02.2012 ON NAHAR GROUP OF CASES, ITS INDIVIDUALS AND ASSOCIATE CONCERNS. BASED ON THE SEIZED PAPERS AND OTHER INCRIMINATING DOCUMENTS FOUND DURING THE COURSE OF SEARCH , THE ASSESSEE WAS CONFRONTED AND HIS STATEMENT WAS RECORDED. ACCORDINGLY, NOTICE U/S 153A OF THE ACT WAS SERVED UPON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICE THE ASSESSEE FILED RETURN OF INCOME DECLARING UNDISCLOSED INCOME. DURING THE COURSE OF ASSESSMENT IT WAS NOTICED THAT THE ASSETS OF THE FIRM M/S SHANTI ENTERPRISES, HAD REVALUED THE ASSETS OF THE FIRM ON THE BASIS OF APPRECIATION IN THE VALUE OF LANDED PROPERT Y AND THE AMOUNT OF APPRECIATION WAS CREDITED TO THE ACCOUNTS OF THE PARTNERS. ACCORDINGLY, A SUM OF RS. 43,27,322/ - WAS CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE. THE AO RELYING ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT DELIVERED IN CIT VS. A . N . NAIK ASSOCIATION 265 ITR 346 TREATED THE SAID AMOUNT TAXABLE IN THE HANDS OF THE ASSESSEE AND DETERMINED THE INCOME OF THE ASSESSEE AT RS.78,80,420/ - . 3. IN THE FIRST APPEAL, THE LD. CIT(A) DELETED THE ADDITION RELYING ON THE JUDGMENTS/ORDERS OF THE HONB LE SUPREME COURT, HIGH CO U RT AND THE INCOME TAX TRIBUNAL . 4 . AGGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING EFFECTIVE GROUNDS: - I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) FAILED TO APPRECIATE THE FACT THAT THE REVALUATION OF ASSETS OF THE FIRM INSTEAD OF BEING KEPT IN REVALUATION RESERVE HAD BEEN CREDITED DIRECTLY TO THE PARTNERS CAPITAL THEREBY ENRICHING THE PERSONAL CAPITAL. 3 ITA NO. 5730 / MUM/2014 ASSESSMENT YEAR: 2006 - 07 II. WHETHER ON TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THIS AMOUNT IS NOTHING BUT AN INCOME IN THE HANDS OF THE PARTNERS TO BE ASSESSED TO TAXED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES READ WITH SEC. 28 O F THE IT ACT. III. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 43,27,322/ - MADE BY THE ASSESSING OFFICER UNDER INCOME FROM OTHER SOURCES. 5. BEFORE US, THE LD. DEPARTMENTAL REP RESENTATIVE RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT THE LD. CIT(A) HAS DELETED THE ADDITION WITHOUT APPRECIATING THE FACT THAT THE FIRM HAS CREDITED THE REVALUATION OF ASSETS OF THE FIRM TO THE CAPITAL ACCOUNTS OF THE FIRM INSTEAD OF KEEPING THE SAM E IN REVALUATION RESERVE; THAT THE AMOUNT IN QUESTION IS NOTHING BUT AN INCOME IN THE HANDS OF THE PARTNERS INCLUDING THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES READ WITH SECTION 28 OF THE ACT. LD. DR FURTHER SUBMITTED THAT SINCE THE IMPUGNED ORDER IS ERRONEOUS, THE SAME IS LIABLE TO BE SET ASIDE. 6. ON THE OTHER HAND, THE LD COUNSEL FOR THE ASSESSEE RELYING ON THE ORDER P ASSED BY THE LD. CIT(A) SUBMITTED THAT SINCE, THE FINDINGS OF THE LD. CIT(A) ARE BASED ON THE PRINCIPLES OF LAW LAID DOWN B Y THE HONBLE SUPREME COURT, VARIOUS HIGH COURTS AND THE DECISIONS OF THE VARIOUS BENCHES OF THE ITAT, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ENTIRE RECORD INCLUDING THE CAS ES RELIED UPON BY THE AUTHORITIES BELOW. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS WRONGLY 4 ITA NO. 5730 / MUM/2014 ASSESSMENT YEAR: 2006 - 07 DELETED THE ADDITION MADE BY THE AO. WE NOTICE THAT T HE LD. CIT(A) HAS DELETED THE ADDITION RELYING ON THE FOLLOWING JUDGMENTS/ORDERS: I) CIT VS. HI ND CONSTRUCTION LTD.1974 CTR 157(SC), II) CIT VS. KUNNAMKULAM MILL BOARD 257 ITR 544, III) ITO VS. PARU D DAVE 110 ITD 41 0 MUM. ( TRIBUNAL) , IV) DCIT VS. MANISH M CHHEDA 29 SOT 138 MUM. (TRIBUNAL) AND V) GIRISH TEXTILE INDUSTRIES VS. ACIT 10 SOT, MUM (TRIBUNAL ) 8. THE C ONCLUDING PARA OF THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) READS AS UNDER: 12. IN VIEW OF THE ABOVE DISCUSSION, AS ALSO IN VIEW OF THE CASE LAWS DISCUSSED HEREINABOVE, I HOLD THAT REVALUATION OF ASSETS BY THE PARTNERSHIP FIRM AND CREDITING OF HIS SHARE S IN SUCH INCREASED VALUE TO THE CAPITAL ACCOUNT OF THE PARTNERS, IS NOT A TAXABLE EVENT. FURTHER RELEVANT DETAILS REGARDING REVALUATION OF ASSETS (PROPERTY) HAS BEEN FURNISHED. THIS PROPERTY WAS INITIALLY VALUED AT RS. 7,15,957/ - BUT AS PER FRESH EVALUATIO N ITS VALUE IS WORKED OUT AT RS. 2.07,15,957/ - . INCREASED VALUE HAS BEEN CREDITED TO THE CAPITAL ACCOUNT OF THE PARTNERS, OTHERWISE BALANCE SHEET OF THE ASSESSEE CANNOT BE BALANCED. IT HOWEVER DOES NOT AMOUNT TO ANY BENEFIT OR TRANSFER TO THE PARTNERS. IN ANY CASE THIS CREDIT CANNOT BE TREATED AS UNEXPLAINED IN THE HANDS OF THE ASSESSEE. FURTHER IT DOES NOT CONSTITUTE TRANSFER OF ASSETS AS DEFINED U/S 2(47) OF THE ACT. SUCH AN ARRANGEMENT ALSO DOES NOT ATTRACT THE PROVISIONS OF SEC. 45(4) OF THE ACT, WHIC H ARE ATTRACTED ONLY ON DISSOLUTION OF PARTNERSHIP FIRM. ACCORDINGLY, I HOLD THAT THE AMOUNT OF RS. 43,27,322/ - CREDITED TO THE CAPITAL ACCOUNT OF THE APPELLANT ON REVALU A TION OF THE ASSETS OF PARTNERSHIP FIRM IS NOT CHARGEABLE TO TAX. THEREFORE, THE ADDIT ION OF RS. 43,27,322/ - MADE BY THE AO IS DIRECTED TO BE DELETED AND THE GROUNDS OF APPEAL TAKEN BY THE APPELLANT IN THIS REGARD ARE ALLOWED. 5 ITA NO. 5730 / MUM/2014 ASSESSMENT YEAR: 2006 - 07 9. IN THE CASE OF ITO VS. PARU D DAVE 110 ITD 410 MUM .(SUPRA) THE COORDINATE BENCH OF THE TRIBUNAL HAS DECIDED TH E IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: 16R EVALUATION OF ASSETS BY PARTNERSHIP FIRM DOES NOT ATTRACT CAPITAL GAINS. THE REVALUATION OF ASSETS OF PARTNERSHIP AND THE CREDIT OF REVALUED AMOUNT TO THE CAPITAL ACCOUNT OF PARTNERS I N THEIR RESPECTIVE SHARE RATIO DO NOT ENTAIL ANY TRANSFER AS DEFINED UNDER S. 2(47) OF THE IT ACT. THE INTRODUCTION OF NEW PARTNERS TO A PARTNERSHIP FIRM OWNING IMMOVABLE ASSETS AND CONSEQUENT REDUCTION IN THE SHARE RATIO OF PRESENT PARTNERS DO NOT ENTAIL ANY RELINQUISHMENT OF THEIR RIGHTS IN THE PARTNERSHIP PROPERTY. ON INTRODUCTION OF NEW PARTNERS, THERE IS REALIGNMENT OF SHARE RATIO INTER SE BETWEEN THE PARTNERS ONLY TO THE EXTENT OF SHARING THE PROFITS OR LOSSES, IF ANY, OF THE PARTNERSHIP BUSINESS. WHE N ANY NEW PARTNER IS INTRODUCED INTO AN EXISTING PARTNERSHIP FIRM, THE PROFIT SHARING RATIOS UNDERGO A CHANGE, WHICH DOES NOT AMOUNT TO TRANSFER AS DEFINED UNDER S. 2(47) OF THE ACT, AS THERE IS NO CHANGE IN THE OWNERSHIP OF ASSETS BY THE PARTNERSHIP FIRM. AS DURING THE SUBSISTENCE OF THE PARTNERSHIP FIRM, THE PARTNERS HAVE NO DEFINED SHARE IN THE ASSETS OF THE PARTNERSHIP AND THUS ON REALIGNMENT OF PROFIT SHARING RATIO, ON INTRODUCTION OF NEW PARTNERS, THERE IS NO RELINQUISHMENT OF ANY NON - EXISTENT SHARE I N THE PARTNERSHIP ASSETS AS THE ASSETS REMAINED WITH THE FIRM. SUCH AN ARRANGEMENT IS NOT COVERED BY THE PROVISIONS OF S. 45(4) OF THE ACT, WHICH COVERS THE CASE OF DISSOLUTION OF PARTNERSHIP FIRM. ACCORDINGLY, NO CAPITAL GAINS ARISE ON SUCH RELINQUISHMENT OF SHARE RATIO IN THE PARTNERSHIP FIRM. WE CONFIRM THE ORDER OF CIT(A) AND DISMISS 10. THE COORDINATE BENCH OF THE TRIBUNAL HAS ALREADY DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ITO VS. PARU D DAVE (SUPRA) 6 ITA NO. 5730 / MUM/2014 ASSESSMENT YEAR: 2006 - 07 HOLDING THAT REVALUATION OF ASS ETS OF PARTNERSHIP AND THE CREDIT OF REVALUED AMOUNT TO THE CAPITAL ACCOUNT OF PARTNERS IN THEIR RESPECTIVE SHARE RATIO DO NOT ENTAIL ANY TRANSFER AS DEFINED UNDER S. 2(47) OF THE IT ACT. WE FIND THAT T HE LD. CIT(A) HAS PASSED THE IMPUGNED ORDER FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITO VS. PARU D DAVE (SUPRA) AND OTHER CASES REFERRED IN THE ORDER . THE REVENUE HAS NOT BROUGHT TO OUR NOTICE ANY JUDGMENT/ORDER CONTRARY TO THE DECISION S RELIED UPON BY THE LD. CIT(A). ON T HE OTHE R HAND THE FACTS OF THE JUDGMENT RELIED UPON BY THE AO ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) . WE , THEREFORE, UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS ALL TH E GROUNDS OF APPEAL OF THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR A SSESSMENT YEAR 2006 - 2007 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH . OCTO BER , 2017 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 13 / 10 / 2017 ALINDRA, PS 7 ITA NO. 5730 / MUM/2014 ASSESSMENT YEAR: 2006 - 07 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT (A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI