TaxTMI 
TaxTMI 
2014 (12) TMI 1244
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....ell as deciding the grounds raised. The grounds raised in this appeal are as under:- "Being aggrieved by the order passed under section 263 by the Commissioner of Income- tax - 7, this appeal petition is submitted on the following grounds which may considered without prejudice to one another:- "1) On the facts and circumstances of the case and in law the learned CIT - 7 erred in enhancing the assessment made under section 143(3) by holding u/s. 263 that as the Assessment Order contains error of law and the Assessing officer has failed to appreciate the facts in correct perspective, the order is erroneous and prejudicial to the interest of the revenue. 2) On the facts and circumstances of the case and in law the learned CIT - 7 erred in treating amount of Rs. 29,21,67,6501- received on retirement from the partnership firms (viz Rs. 22,90,59,118 from Mis Fine Developers and Rs. 6,31,20,000 from M/s Mahul Construction Corporation) as short term capital gain by holding the same as lumpsum consideration received by the assessee on transfer of its rights in capital assets of the firm in favour of the continuing partners." 2. Both the assesses before us, were....
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.... cause as to why the assessment order dated 26.12.2011, should not be cancelled/revised u/s 263 of the Income Tax Act. The assessee submitted its reply dated 25.4.2013 and 27.5.2013 along with other details. The assessee contended before the CIT that the Assessing Officer had examined the issue of non taxability of the receipt on retirement from the firms and after considering the submissions the assessment was completed. Since the view taken by the Assessing Officer is justified in the light of various decision and further on this issue, there are more than one view is possible, therefore, the CIT cannot seek revision of order u/s 263 of the Act. The CIT did not accept the contention of the assessee and held while passing the impugned order that the amount received by the assessee from the partnership firms on account of revaluation of assets is chargeable to tax on the reasoning that it being a compensation in lieu of relinquishment of the assessee's right in the asset and business of the partnership firm. The CIT supported its finding by citing various decisions which we will discuss while considering the contention of the parties at appropriate stage of our finding. 4. Be....
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....t was also held that the introduction of new partners to a partnership firm owning immovable assets and consequent reduction in the sharing ratio of present partners does not entail any relinquishment of their rights in the partnership property. The assessee also contended in the said reply that even if it is treated as transfer, it is taxable in the hands of the firms u/s 45(4) of the Income Tax Act and not in the hands of the partners. In support of this argument, the assessee relied upon the decision of Hon'ble High Court of Bombay in the case of CIT Vs. A.N. Naik Associates (265 ITR 346) as well as the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Gurunath Talkies26 DTR 214) . The Assessing Officer after considering the relevant details and documents/evidences filed by the assessee as well as the contentions and case laws relied upon by the assessee accepted the claim that the amount received from the partnership firms is not taxable. Thus the Ld. Authorized Representative has submitted that the issue was duly examined by the Assessing Officer and thereafter he took a view which is fully justified as per the decisions relied upon by the assessee. When the Asse....
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.... the judgment of Hon'ble Supreme Court in the case of CIT Vs. Tribhuvandas G. Patel (supra) as well as the decision in the case of CIT Vs. Mohanbhai Pamabhai (91 ITR 393) and other judgments, held that there was no basis for the Assessing Officer to form an opinion that the income chargeable to tax has escaped assessment within the meaning of section 147 on account of the amount received by the assessee from the partnership firms on his retirement. Thus the Ld. Authorized Representative has submitted that after the judgment in the case of Prashant S. Joshi Vs. ITO (supra), the alleged dichotomy no longer exists. 6. As regards the decision of Pune Benches of this Tribunal in the case of Shevantibhai C. Mehta Vs. ITO (83 TTJ 542), which was based on the Judgment of Hon'ble High Court in the case of N.A. Modi Vs. CIT (supra). The said decision was prior to the judgment of the Hon'ble High Court in the case of Prashant S. Joshi (supra). He has further submitted that in the case of Riyaz Shaikh Vs. ITO, the Pune Benches of the Tribunal has decided the issue in favour of the assessee by holding that the compensations received by the assessee on retirement from the partners....
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.... the partnership firm and not dependent upon any assignment of right by the retiring partners in favour of the individual continuing partners. Thus the Ld. Authorized Representative has submitted that the retirement from the partnership firm and receiving the amount would not amount to assignment of any right in respect of the asset of the partnership firm in favour of the continuing partners. 8. On the other hand, the Ld. DR has submitted that the Assessing Officer has overlooked the fact and has not conducted a proper enquiry, therefore, it is case of non application of mind. She has relied upon the judgment of Hon'ble Kerala High Court in the case of P.V. Sreenijin Vs. CIT [2014] 47 taxmann.com 61 (Kerala) and submitted that when the entire material available with the department was not considered by the Assessing Officer then it was erroneous approach on the part of the Assessing Officer resulting in prejudice to the revenue. Consequently, the CIT has the power to revise such erroneous orders. She has further contended that right of the partners in the partnership firm is a capital asset and on his retirement the partner is transferring the capital asset in favour of the con....
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....ssessing Officer issue a notice u/s 142(1) and directed the assessee to comply with the notice on 12.07.2011 at 3.30 PM before the Assessing Officer. As per the annexure of notice u/s 142(1), the Assessing Officer raised following queries.:- a) Please furnish the details of compensation received and the same is credited the Capital reserve A/C in the balance sheet under the schedule B-6 of J. b) Copy of your ledger account in the books of M/s Fine Developers, M/s Mahul Construction Corporation and M/s J.P. Realtors for F.Y. 2008- 09. c) Details of investment made during F.Y. 2008/09 with source thereof along with documentary evidence. d) Details of loan and advances along with the Names & addresses of parties. e) Copy of partnership deed, Retirement deed & amended partnership deed with all the firms. f) Loan confirmations including squared up loans. g) Details of exempt income and disallowable expenses u/s 14A r.w.r 8D. h) Copy of ledger A/c in the books of all subsidiary companies for F.Y. 2008/09/ i) Details of movable & immovable assets, bank A/c etc. 11. In response to the notice, the assessee f....
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....cordingl to the assessee, no income can be assessed in the hands of the assessee." 13. Thus it is clear that the Assessing Officer conducted an enquiry on the issue of taxability the amount received by the assessee on retirement from these two partnership firms and examined the deed of retirement and reconstitution as well as the submissions of the assessee. It is manifest from the notice issued u/s 142(1) along with questionnaire, reply furnished by the assessee along with the relevant documents on the point that the Assessing Officer has examined the issue and then accepted the claim of the assessee. Therefore, it is not a case of lack of enquiry. Even the CIT has also not alleged that the Assessing Officer has not conducted any enquiry. Once the case does not fall under the category of lack of enquiry then the revisionary powers u/s 263 can be invoked by the CIT only when the claim of assessee allowed by the Assessing Officer is impermissible under law. It is settled legal proposition of law that if two views are possible on an issue and Assessing Officer has taken one of the possible views then the Commissioner has no jurisdiction to revise the order of Assessing Officer on ....
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....uld be treated as falling under clause (ii) of section 47. Therefore, following this decision, this question has to be and is answered in favour of the assessee and against the Revenue. Now survives the question No. 1. A few facts need to be stated in that behalf:" 15. Thus the issue of taxability of the amount paid to a retiring partner towards the share in the asset was decided in favour of the assessee and against the revenue. As it is clear from the finding of the Hon'ble Supreme Court that this issue was already settled by the Hon'ble Supreme Court in the case of CIT vs. Mohan Bhai PamaBhai (165 ITR 166) as well as in the case of CIT Vs. Sunil Siddharthbhai Vs. CIT (156 ITR 509). In the case of Mohanbhai Pamabhai (supra), the Hon'ble Gujarat High Court in (91 ITR 393) held that interest of a partner in a partnership firm has no interest in any specific item of partnership firm. It is the right to obtain his share or profit from time to time during the subsistence of the partnership and dissolution of the partnership or towards retirement from partnership to get the value of share in the net partnership asset which remain after satisfying the due debts and liabilitie....
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....s. The judgment in the case of ACIT Vs. Mohanbhani Pamabhai (supra) was reiterated by the Hon'ble Supreme Court. The decisions which are relied upon by the Ld. Commissioner are all based on the judgment of Hon'ble Jurisdictional High Court in the case of Tribhuvandas G. Patel ( supra) which was reversed by the Hon'ble Supreme Court. Even the Hon'ble Jurisdictional High Court in the case of Prashant S. Joshi Vs. ITO (supra) by following the judgment in the case of Tribhuvandas G. Patel ( supra) held in para 16 as under:- "16. At this stage, it may be noted that in CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95 (Bom.), which was decided by a Division Bench of this Court, under a deed of partnership, the assessee retired from the partnership firm and was inter alia paid an amount of Rs. 4,77,941 as his share in the remaining assets of the firm. The Division Bench of this Court had held that the transaction would have to be regarded as amounting to a transfer within the meaning of section 2(47) inasmuch as the assessee had assigned, released and relinquished his share in the partnership and its assets in favour of the continuing partners. This part of the judgm....
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....finding that in case of transfer of a capital asset by way of distribution of capital on dissolution of firm or otherwise, dealt with by section 45(4) and, therefore, there is no transfer of capital asset by way of distribution of capital asset on dissolution of firm or otherwise. The Pune Benches of this Tribunal in the case of Reyaz Shaikh Vs. ITO (supra) has taken a view that the amounts received by the partner on his retirement are exempt from capital gain tax. The tribunal in the said case after discussing the various judgments on the point held in para 8 as under:- "8. We have carefully considered the rival submissions and perused the orders of the authorities below. As noted earlier, the short point Involved In this appeal relates to taxability of amount recelved by the assesseee on retirement from partnership firm. The Hon'ble Supreme Court in the case of Mohanbhai Pamabhai (supra) following its judgment in the case of Sunil Siddharthbhai Vs. CIT 156 ITR 509 (SC) held that when a partner retired from the firm and received his share of an amount calculated on the value of the net partnership assets including goodwill of the firm, there is no transfer of interest....
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.... dated 27.01.2014 in ITA No, 1200/HYD/2010. Even in the case of Sudhakar M. Shetty (supra), the Tribunal has taken note of the dichotomy/diverse view on the question as to whether there is any transfer at all in such situation by the firm in favour of the retiring partner or by the retiring partner in favour of the firm or in favour of its continuing partners. 19. From the facts and circumstances of the case as well as the various decisions as discussed above it is clear that the view taken by the Assessing Officer on this question of taxability of the amount received by the assessee on retirement from the partnership firm is certainly not an impermissible or impossible view rather the view taken by the Assessing Officer is a proper and more logical view as it is fortified by the series of decisions of Hon'ble Supreme Court, Hon'ble High Court as well as of this Tribunal. There is no quarrel on the point that if the Assessing Officer has failed to apply his mind and taken a view which is not permissible under the law then the order will be considered as erroneous so far as prejudicial to the interest of revenue. However, when the Assessing Officer has conducted an enquir....