TaxTMI 
TaxTMI 
2016 (8) TMI 1174
X X X X Extracts X X X X
X X X X Extracts X X X X
....the facts and circumstances of the case in deleting the addition of Rs. 19,91,110/- made by the AO on a/c of undisclosed investment in purchase of immovable property. 2. Briefly stated the facts are that the case of the assessee was reopened and the assessment under section 147 read with section 144 of the I.T. Act, 1961 (hereinafter referred to as the Act) was framed vide assessment order dated 21.12.2012. While framing the assessment, the AO computed capital gain at Rs. 29,21,631/- and also made addition on account of unexplained investment of Rs. 19,91,110/- apart from addition on account of agricultural income disallowed on account of lack of supporting evidence. Thus the AO computed income at Rs. 52,78,130/- against the declared income of Rs. 1,54,990/-. The assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering the submissions partly allowed the appeal. While partly allowing the appeal, the ld. CIT (A) deleted the addition of Rs. 29,21,631/- on the ground that the capital asset was being reflected in the books of account of the firm. The ld. CIT (A) also deleted the addition of Rs. 19,91,110/- and confirmed the addition of Rs. 2,10,400....
X X X X Extracts X X X X
X X X X Extracts X X X X
....executed for transfer of land i.e. 1/8th share + 1/8th share in Khasra No.230, village-Naurangabad, Teh. Alwar would constitute a transfer by the appellant in his individual capacity or as a partner of the firm M/s. Swami Grit Udhyog. Consequently, the gains would be taxable in the hands of the individual or of the firm. 5.11 Before deciding the issues raised above, it would be appropriate to consider the provisions of section 14 of the Indian Partnership Act, 1932 which deals with the property of the firm, and it is as under:- "14. The property of the firm- Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business." 5.12 It would be also relevant to consider the legal position as provided under the Partnership Act. Under the provisions of the Partnership Act, 1932, a firm is not recognized as a legal entity. A partnership Firm is not a distinct legal entity apart from the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m as his contribution to its capital, an asset which originally was subject to the entire ownership of the partner becomes now subject to the rights of other partners in it. It is not an interest which can be evaluated immediately. It is an interest which is subject to the operation of future transactions of the partnership, and it may diminish in value depending on accumulating liabilities and losses with a fall in the prosperity of the partnership firm. The evaluation of a partner's interest takes place only when there is a dissolution of the firm or upon his retirement from it. It has some times been said, and we think erroneously, that the right of a partner to a share in the assets of the partnership firm arises upon dissolution of the firm or upon the partner retiring from the firm. We think it necessary to state that what is envisaged here is merely the right to realize the interest and receive its value. What is realized is the interest, which the partner enjoys in the assets during the subsistence of the partnership firm by virtue of his status as a partner and in accordance with the terms of the partnership agreement. What the partner gets upon dissolution or upon retirem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n."......... 5.15 The Supreme Court in the case of Malabar Fisheries Co. Vs. CIT reported in 120 ITR 49 explaining the position of a partnership under the partnership Act as well as Income Tax Act held as under:- "A partnership Firm under the Indian Partnership Act, 1932 is not a distinct legal entity apart from the partners constituting it and equally in law the Firm as such has no separate rights of its own in the Partnership Assets and when one talks of firm's property or the firm's assets all that is meant is property or assets in which all partners have a joint or common interest. It can not, therefore, be said that, upon dissolution, the firm's rights in the partnership assets are extinguished. It is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of sec.2(47) of the IT A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... distribution of capital asset there is a transfer of a capital asset by the firm in favour of a person and it results in profits or gains to the firm, then the said profits or gains shall be chargeable to tax as income of the firm and again for computing such income, Section 48 is attracted. In other words, in the process of a dissolution of a firm, if a capital asset is transferred to a partner which results in profits or gains, then that income is chargeable at the hands of the firm under this provision. In order to attract sub-section (4) of Section 45, the condition precedent is, (1) There should be a distribution of capital assets of firm; (2) Such distribution should result in transfer of a capital asset by firm in favour of the partner; and (3) On account of the transfer there should be a profit or gain derived by the firm. (4) Such distribution should be on dissolution of the firm or otherwise. 5.18 In the instant case, the appellant had registered/executed the sale deed in his name on 11.06.2008 at the time of retirement of an earlier partner of the firm M/s Swami Grit Udhyog ( in whose name the property deed was registered). T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e true nature of the transactions executed in this regard before considering the issue of their taxability. Thus, AO is required to examine whether on retirement of a partner, there is a dissolution of firm or not. Further, whether there has been a distribution of assets amongst the partners or not. If the answer to these questions is yes, than the liability to pay tax on capital gains arises in the hands of a firm under the provisions of section 45(4) of the IT Act. In this regard, it would be pertinent to note that Hon'ble Supreme Court has held in the case of A.L.A. Firm reported in 189 ITR 285 that market value of assets has to be adopted for the purposes of computing capital gains arising in the hands of the Firm. However, this issue has to be examined by the AO concerned (having jurisdiction over the case of the firm.) 5.21 The appellant has stated in the counter comments filed that on retirement of the partner, the incoming partners have paid their contribution by cheque. The capital account of the appellant was credited with the money contributed by the incoming partners. After adjustment of the accounts, capital account of the incoming partners was credited with t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said transaction. The assessee had made payment of Rs. 10,00,000/- towards purchase amount and Rs. 9,91,110/- as the stamp duty and registration expenses. The ld. D/R submitted that before the AO, no explanation was given with regard to source of such investment. 5.2. On the other hand ld. Counsel for the assessee submitted that no amount was paid on account of purchase consideration as the property was transferred by the appellant himself as GPA holder of the earlier partner Shri Kundan Lal Badshah in favour of the appellant. This was done to secure the legal rights in the immovable property of the firm. Accordingly no consideration was paid for this deed. In respect of Rs. 9,91,110/-, the ld. Counsel submitted that these expenditure was incurred out of cash withdrawal of Rs. 71.50 lacs on 06.07.2008 from bank account, copy of bank account was duly produced before the AO and after examining the same, he has accepted that cash was withdrawn from the bank account. He, therefore, requested to upheld the order of ld. CIT (A). 5.3. We have heard rival contentions and perused the material available on record. We find that the ld. CIT (A) has given a finding of fact by observing as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficient cash balance in the account of the assessee to meet the expenses incurred on registration. In view of the above finding of fact, which is not controverted by the revenue by bringing any contrary material on record, we do not see any reason to interfere in the order of ld. CIT (A). The same is hereby upheld. This ground of the revenue's appeal is rejected. 6. Now we take up assessee's appeal pertaining to assessment year 2010-11. The assessee has raised the solitary ground as under :- "That the ld. AO has not justified by making an addition of Rs. 2,10,400/- on account of agriculture income." 7. The grievance of the assessee is with regard to confirmation of addition of Rs. 2,10,400/- made on account of unexplained agricultural income. The ld. Counsel for the assessee submitted that both the authorities below have failed to appreciate the fact. The assessee was having the agricultural land and copy of Jamabandi was given to demonstrate the ownership of the land. 7.1. On the contrary, the ld. D/R opposed the submissions made by the ld. Counsel for the assessee and submitted that both the authorities below have given a finding of fact that the assessee has fa....