TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1708
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....t under "Current Assets" in the balance sheet. The Assessee along with M/S. Command Constructions Pvt. Ltd., M/s Orchid Griha Nirman Pvt. Ltd., and M/s. Wellgrowth Grha Nirman Pvt. Ltd., were partners in a partnership firm by name M/S. Salarpuria Soft Zone having executed a deed of partnership in terms of which the said three companies transferred the said land to the partnership firm M/s. Salarpuria Soft Zone as their capital contribution. The fourth company was to arrange the entire finance required for the development of the said land. Each of the said three companies had a 10% share in the profit/loss and the fourth company's share was 70%. The partnership business was deemed to have commenced on and from April 1, 2005. A supplemental deed of partnership was executed on March 13, 2006 between the four partners which, inter alia, provided that the said firm can avail loan/credit facilities from commercial banks/financial institutions by mortgaging/charging its movable and immovable properties. The said firm subsequently obtained such loan/credit facilities to the extent of Rs. 250 crores. The said three companies transferred the said land to the said firm on January 9, 2006 at c....
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....itiated proceedings u/s.147 of the Act by issue of a notice u/s.148 of the Act dated 3.11.2011 which was served on the Assessee on 4.11.2011. The reasons recorded by the AO before issuing notice u/s.148 of the Act read thus: "It transpires from communication from O/o Joint Commissioner of I. T., Range - 56, Kolkata that M/s. Salarpuria Softzone (PAN ABEFS2661L) had revalued its assets and transferred the revalued reserve to its partners' account and the assessee as above being a partner itself had received Rs. 37,03,36,187/- on account of such revaluation reserved. I have reason to believe on examination of record that the above has escaped assessment within the meaning of section 147 of the I. T. Act, 1961. Notice u/s 148 be issued." 4. After hearing the assessee, the Assessing Officer, on considering the question as to whether the credit to the current account of the Assessee in the partnership firm M/S.Salarpuria Soft Zone of a sum of Rs. 37,03,36,187/- gave raise to any income chargeable to tax, added back such sum to the total income of the assessee, on the premise, that, (a) Bringing of land into the said firm by way of inventory as part of the project without credit....
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....e of "Revaluation Profit" Rs. 37,03,36,187 Assesseed Total Income Rs. 1 33,40,28,067/- R/o: Rs. 6. Challenging the said order of the Assessing Officer, the assessee preferred an appeal before the learned CIT(Appeals) contending, inter alia, that the initiation of proceedings under section 147 of the Act was bad in law, order of the Assessing Officer rejecting the contentions raised by the assessee is very cryptic, addition of Rs. 37,03,36,187/- suffers double taxation inasmuch as it was already included in Rs. 96,37,85,635/-, Assessing Officer was wrong in treating the increase in value of assets of firm due to revaluation as income in the hands of the assessee. Learned CIT(Appeals), by way of impugned order, accepted the above contentions of the assessee and allowed the appeal of assessee. Challenging the said findings of the learned CIT(Appeals), the Revenue carried the matter in this appeal on the following grounds: "1. The Ld. CIT(A) has erred in law and on the facts & circumstances of the case by adjudicating that the Assessing officer acted without jurisdiction by issuing notice u/s148 of the I. T. Act, 1961 for making assessment u/s. 147 of the I. T. Act, 1961. ....
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....the notice under section 148 was issued within four years on November 3, 2011. There was no assessment in the appellant's case for the assessment year 2008-09 and its return was processed under section 143(1). It cannot therefore be said that the initiation of proceedings under section 147 was by way of change of opinion. In the absence of an assessment under section 143(3), it cannot be said that the AO formed an opinion which he sought to change. The only question is as to whether the AO formed any belief that any income in respect of which the assessee was chargeable to tax had escaped assessment enabling him to initiate reassessment proceedings. To decide upon this issue reasons recorded for reopening the assessment needs to be examined and such Reasons are reproduced herewith as follows: "It transpires from communication from O/o Joint Commissioner of I. T., Range - 56, Kolkata that M/s. Salarpuria Softzone (PAN ABEFS2661L) had revalued its assets and transferred the revalued reserve to its partners' account and the assessee as above being a partner itself had received Rs. 37,03,36,187/- on account of such revaluation reserved. I have reason to believe on examination ....
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....out jurisdiction by issuing notice under section 148 for making an assessment under section 147 in the partner's case. Hence, these grounds of the appellant are allowed." 8. In Sanjeev Woolen Mills v. CIT, (2005) 279 ITR 434 (at pages 447-8) the Hon'ble Supreme Court held that,- " In the present case, the method adopted by the assessee is to value the closing stock at the market value irrespective of the fact whether the market value of the stock at the relevant time is more than the cost value of the stock, which necessarily results in imaginary or notional profits to the assessee which he has not actually received. In fact such a notional imaginary profit cannot be taxed. It is a well settled principle as held in Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 (SC) the Constitution Bench judgment that the firm cannot make a profit out of itself. The transaction which is not business transaction and does not derive immediate pecuniary gain is not subjected to tax. In the present case by showing the market value of the closing stock the assessee has earned potential profit out of itself in as much as the stock-in-trade remained with the assessee at the closing of the accounting....