TaxTMI 
TaxTMI 
2017 (3) TMI 1881
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..... 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. 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. The facts with regard to revaluation of assets by M/S.Salarpuria Softzone, are that one M/s. I Gate Global Solutions Ltd was the owner of industrially converted land measuring 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. The assessee along with two other companies (hereinafter collectively referred to as ....
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....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 justify the bank loan of Rs. 250 crores. The values of the land and building before and after revaluation are as under :- Cost as on 30.03.08 Revalued figure as on 31.03.08 Ex....
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....s 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 fourth company (Wellgrowth Griha Nirman P.Ltd) 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 the reasons recorded did not spell out the belief of the AO regarding escapement of income chargeable to tax. 13. On the above contention the CIT(A) held as follows :- "The reasons recorded do not refer to the provisions of....
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....eved 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 Rs. 96,37,85,635/-,added as short term capital gains earned by the assessee on transfer of land property to the partnership firm as their capital contribution, by holding that the provisions of section 45(3) of the I.T. Act 1961 is not applicable. 3. 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 of Rs. 37,03,36,187/- received by the assessee by holding that such profit is notional and is not taxable. 4. The Ld. CIT(A) has erred in law and on the facts & circumstances of the case, by holding and adjudicating that addition of Short Term Capital Gains for Rs. 96,37,85,635/- and addition of ....
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....ing that income accrued and arose in the hands of the firm consequent to revaluation of the assets by the firm, the income that might accrue in the hands of the partner would be in the nature of "share income from the firm". In terms of Sec.10(2A) of the Act, partner's share in the total income of the firm is not to be included in the total income of the partner. Therefore, looked at from any angle, the AO could not on the basis of the reasons recorded formed belief that income chargeable to tax in the hands of the Assessee has escaped assessment. Since the formation of such belief is a requirement for initiating proceedings u/s.147 of the Act and since on the facts and circumstances of the present case such formation of belief does not exist, the initiation of reassessment proceedings, were rightly held to be not valid in law by the CIT(A). 30. We therefore confirm the order of the CIT(A) by holding that the assessee did not make any short term capital gains of Rs. 96,37,85,635/- taxable under section 45(3) of the Act or otherwise and that on revaluation of its fixed assets by the firm (of its land and building) there was no income that accrued or arose in the hands of the partn....