AI Drafter 
TaxTMI 
TaxTMI 
2017 (3) TMI 1879
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....are of profit transferred from partnership firm Viz,M/s Salarpuria Soft Zone 3. Subsequently proceedings u/s.147 of the Act were initiated 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 reads 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. 259,23,53,313/- 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. TAct, 1961. Notice u/s 148 be issued." 4. The facts with regard to revaluation of assets by M/S. Salarpuria Softzone, are that one M/s. Gate Global Solutions Ltd was the owner of industrially converted land mearsuring 3,12,092 sq. ft. in Bellandur Village, Varthur Hobli, Bangalore East taluk (hereinafter referred to as "the said land"). The said land was advertised for sale....
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....ts movable and immovable properties. The said firm subsequently obtained such loan/credit facilities to the extent of Rs. 250 crores. 7. The said three companies transferred the said land to the said firm on January 9, 2006 at cost and such cost was the amount recorded in the books of account of the said firm for the year ended March 31, 2006 as the value of the said land with corresponding credit to the capital accounts of each of the said three companies. The said firm accounted for the said land as work in progress and reflected it under "Current Assets" in its balance sheet. Diverse amounts were thereafter spent by the said firm on the development of the said land as an industrial park including construction thereon. Funds for the said purpose were provided by the assessee. The completed industrial park was mostly leased out by March, 2008. 8. On March 30, 2008, the said firm converted the said land, building and its amenities, which were shown as inventory in its accounts, into fixed assets. On March 31, 2008 the said land and building were revalued. Such revaluation was made in order to reflect the-market value of the land and building in the books of account and to jus....
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....to avoid the market value of the land of Rs. 314,29,74,600/- being taken into consideration and consequently to avoid higher taxes on capital gains in the hands of the said three companies. (d) The revaluation amount of Rs. 370,33,61,874/- was real profit and not notional and had been credited to the current accounts of the four partners in their profit sharing ratio each of whom had withdrawn substantial amounts almost equal to the cost of the land/money brought in. The said firm was taxable in respect of its profits but the revaluation profit was not disclosed by it as its income for the assessment year 2008-09 and no tax was paid thereon. Each of the partners was thus liable for tax on its share of revaluation profit. The said three companies were each liable to be taxed on Rs. 37,03,36,187/- as partners entitled to 10% share in the partnership land the assessee company having 70% share was liable to be taxed on Rs. 259,23,53,313/-. 11. The AO thus computed the total income of the Assessee in the order u/s.147 of the Act . 12. Before CIT(A) the assessee submitted that initiation of re-assessment proceedings u/s 148 of the Act are not valid. It was contended that t....
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....x had escaped assessment and the AO acted without 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." 14. Aggrieved by the order of CIT(A) the Revenue has preferred the present appeal before the Tribunal. Grounds of appeal raised by the revenue read as follows :- "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/s147 of the I.T. Act, 1961. 2. The Ld. CIT(A) has erred in law and on the facts & circumstances of the case in deleting the addition of share of Revaluation Profit for Rs. 259,24,63,701/-, by holding that the profit is notional and is not taxable. 3. The Ld. CIT(A) has erred in on the facts & circumstances of the case by allowing relief for Rs. 259,24,63,701/- on this issue of share of Revaluation profit to the assesse where as Rs. 259,23,53,313/- only was added on account of share of Revaluation Profit in the assessment order U/s 143(3) dtd.25.03.2013. ....
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.... the submissions as were made before CIT(A) and relied on the order of CIT(A). He further placed reliance on the decision of the Hon'ble Supreme Court in the case of Sanjeev Wollen Mills Vs. CIT 279 ITR 434 (SC) wherein the Hon'ble Supreme Court held that by showing Market value of closing stock, assessee cannot be said to have made profit which was necessary for taxing income under the Act. 26. We have given a very careful consideration to the rival submissions. As far as the validity of initiation of reassessment proceedings u/s.147 of the Act is concerned, we are of the view that the conclusions of the CIT(A) are just and proper and calls for no interference. The reasons recorded by the AO before issuing notice u/s.148 of the Act for making reassessment u/s.147 of the Act, shows that the AO had information that the Partnership Firm had revalued its assets. If at all any income accrues or arises owing to such revaluation, it was an issue which had to be dealt with in the assessment of the firm, which is a separate taxable entity. The Assessee's source of income is "share income from partnership firm". Even assuming that income accrued and arose in the hands of the firm c....