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The appellant firm had purchased lands for business purposes but did not carry out any business activities on those lands. The firm transferred the amounts pertaining to the immovable properties in its balance sheet to the capital accounts of its partners through book entries, without executing any written instruments. The Assessing Officer treated this as a transfer of immovable property, resulting in capital gains. However, the ITAT held that since the lands were transferred to the partners at book value without any revaluation, no capital gains arose. The ITAT relied on the Bombay High Court's decision in CIT vs. M.J. Mehta and Bros., which held that the transfer of immovable property belonging to a firm to its partners by means of book entry is not valid. The ITAT also noted that the Assessing Officer had partly accepted and partly rejected the transaction, which was not justified. Consequently, the ITAT allowed the assessee's grounds and held that no capital gains arose.
The appellant firm had purchased lands for business purposes but did not carry out any business activities on those lands. The firm transferred the amounts pertaining to the immovable properties in its balance sheet to the capital accounts of its partners through book entries, without executing any written instruments. The Assessing Officer treated this as a transfer of immovable property, resulting in capital gains. However, the ITAT held that since the lands were transferred to the partners at book value without any revaluation, no capital gains arose. The ITAT relied on the Bombay High Court's decision in CIT vs. M.J. Mehta and Bros., which held that the transfer of immovable property belonging to a firm to its partners by means of book entry is not valid. The ITAT also noted that the Assessing Officer had partly accepted and partly rejected the transaction, which was not justified. Consequently, the ITAT allowed the assessee's grounds and held that no capital gains arose.
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