2015 (8) TMI 5 - AT - Income Tax

Tribunal remands case for fresh assessment on capital gains classification and asset revaluation

The Tribunal allowed the Revenue's appeal for statistical purposes and remanded the case back to the Assessing Officer for a fresh assessment based on a ... Sale of land - Revaluation Reserve - land and building was transferred to Malhotra Group for ₹ 5 crore, the book value of which was ₹ 1,12,98,740/- Held that:- The main dispute revolves around the land shown in the Revaluation Reserve Account in the balance sheet. The land and building was transferred to Malhotra Group for ₹ 5 crore, the book value of which was ₹ 1,12,98,740/- The Assessing Officer held the difference of ₹ 3,87,01,260/- is nothing but a capital gain. The assessee had shown this amount of ₹ 3,87,01,260/- as Capital Revaluation Reserve in the balance sheet. The learned CIT(A) has held that there is no revaluation of asset and it was mistake on the part of the auditor to classify it as Capital Revaluation Reserve and, therefore, there is no transfer or taxability of capital gain. Since there is no clarity of facts, therefore, in the interest of justice, we are of the opinion that this matter should be restored back to the file of the Assessing Officer to correctly appreciate the facts after taking into consideration the contentions of the assessee and the observations made by the CIT(A) in the light of the material on record. - Decided in favour of revenue for statistical purpose. Issues involved:1. Addition of Long Term Capital Gain on sale of land2. Classification of gain as Short Term Capital Gain and Long Term Capital Gain3. Revaluation of assets vs. transfer of assets as per court settlementIssue 1: Addition of Long Term Capital Gain on sale of landThe Revenue filed an appeal against the order of CIT(A) deleting the addition of Long Term Capital Gain of Rs. 3,73,81,280 on account of the sale of land. The Assessing Officer considered the transaction between the assessee company and the erstwhile shareholder as a transfer of asset under section 2(47), resulting in capital gains. The assessee argued that the distribution of assets between two groups was a court-approved settlement without any money transaction, hence no capital gain was involved. The CIT(A) held that the amount represented the value of transfer of assets as per the court settlement, not revaluation, and there was no change in asset value in the balance sheet. The Tribunal found divergent reasons given by the Assessing Officer and CIT(A) and decided to remand the matter back to the Assessing Officer for a fresh decision considering all contentions and observations.Issue 2: Classification of gain as Short Term Capital Gain and Long Term Capital GainThe Assessing Officer suggested splitting the addition of Rs. 3,73,81,280 into Short Term Capital Gain and Long Term Capital Gain. The CIT(A) disagreed, stating that there was no revaluation of assets but a transfer as per the court settlement. The Tribunal found discrepancies in the treatment of the transaction and ordered a reevaluation by the Assessing Officer to determine the correct nature of the gain.Issue 3: Revaluation of assets vs. transfer of assets as per court settlementThe dispute revolved around the classification of the amount in the balance sheet as Capital Revaluation Reserve. The Assessing Officer treated it as revaluation leading to capital gains, while the CIT(A) clarified it as a value of transfer of assets as per the court settlement. The Tribunal noted the lack of clarity and instructed the Assessing Officer to reexamine the facts and contentions to arrive at a proper decision in accordance with the law.In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes and remanded the case back to the Assessing Officer for a fresh assessment based on a correct understanding of the facts and legal provisions.