TaxTMI 
TaxTMI 
2022 (2) TMI 861
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....er had not verified the properly transaction from the angle of section 50C of the Act during the course of proceedings and not made proper inquiry or verification finalized the order of assessment u/s.143(3) of the I.T. Act is contrary to the fact of the case. 3. On the facts and in the circumstances of the case as well as law on the subject, the entire proceedings are bad-in-law and invalid as assessment order u/s.143(3) of the Act for the same year were framed, wherein due inquiry was made during personal hearing. 4. On the facts and in the circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax has grievously erred in holding that section 50C is applicable where revaluation has been made to get fair market value of assets on transfer by partner to firm. 5. On the facts and in the circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax has grievously erred in setting aside the assessment order framed u/s.14.(3) of the I.T.Act without pointing out as to how the order is erroneous and prejudicial to interest of revenue especially when there is no revenue effect on the transacti....
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....omission on the part of AO, the AO order passed by the AO for A.Y. 2015-16 under section 143(3) r.w.s. 153C of the Act is erroneous in so far as prejudicial to the interest of the revenue. 4. The ld. PCIT recorded that learned authorised representative (AR) of the assessee attended the hearing and explained his case by filing reply dated 01.03.2021 (typing mistake it is of 09.03.2021). The ld. PCIT recorded that in the reply, the assessee stated that assessee is a partner in Adam Developers. During the year under consideration, the assessee transferred three pieces of land to partnership firm as a capital contribution and as a result offered gain/loss in return of income. The assessee also provided working of such details. The AO during the assessment proceedings asked to provide complete details of capital gain. The assessee provided complete details along with chart of working of capital gain/loss, with copy of sale deed and purchased deed. During the personal hearing conducted in assessment proceedings, it was explained that value recorded in the books of partnership firm [Adam Developers] as capital contribution has taken as a sale consideration as per section 45[3] and result....
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....e consideration. On first contention, the ld. PCIT held that properties transferred by the assessee to partnership firms were agricultural land, were factually incorrect. The assessee submitted that the land was transferred to the firm on 07.03.2015 and permission to convert the same as nonagricultural land was received before the date of transfer on 10.09.2014. Thus, there was no ambiguity on the status of properties transferred to partnership firm was agricultural land or rather a capital asset on the date of transfer and such transfer effected through registered sale deed. Since the valuation shown by the assessee was not in accordance with the prevailing rules and regulation and Jantri rates applicable to such properties. The AO has not considered these aspects while finalising the assessment. The assessee was completed without proper verification. The capital asset of the assessee was transferred to firm account after re-valuation of capital asset by the assessee. If capital asset of the assessee was transferred to the books of the firm without any addition, then there was no question of arising capital gain. The capital asset in question is immovable property and its ownershi....
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....t copy of show cause notice issued by the AO and the reply of assessee is filed are filed on record. The assessee in the Annexure filed along with the reply furnished the details of the capital gain including the particulars of asset on which the assessee earned capital gain by way of capital contribution in the form wherein the assessee is a partner. The ld. Senior Counsel for assessee further submits that during the assessment, the AO was explained in a personal hearing that the assessee contributed the these three pieces of land as his capita contribution in the firm in which the assessee is partner and explained the value recorded in the books of partnership firm as capital contribution has been taken as a sale consideration as per section 45(3) of the Act and the resultant gain/loss earned by assessee is offered to tax in the return of income. The AO after verification of details and the submission furnished and on her satisfaction on the point of taxability accepted the version of assessee and passed the assessment order. 8. The ld. Senior Counsel for the assessee submits that the AO took reasonable, plausible and legally sustainable view which cannot be in any way termed as....
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.... on the transaction; thus, the observation of ld. PCIT in its show cause notice is misplaced. 10. The ld. Senior Counsel for the assessee submits that the issue identified by ld. PCIT in its show cause notice is covered against the Revenue by the decision of Mumbai Tribunal in ACTI Vs Amartave (P) Ltd reported in [2021] 128 taxmann.com 125 (Mumbai) and the decision of Chennai Tribunal in Sarrangan Ashok vs. ITO in ITA No.544/CHNY/2019 dated 19.08.2019. The ld. Senior Counsel submits that the Tribunal in both the cases held that where assessee, partner transferred land as a capital contribution to his partnership firm and the case of assesse falls within the ambit of section 45(3) of the Act which is a deeming section, another deeming section provided by section 50C of the Act could not extended to determine the full value of consideration arising sale of such transfer. The ld. Senior Counsel for assessee finally submitted that once the AO examined the transaction by issuing specific enquiry, the assessee in the reply furnished the relevant details and complete explanation in show cause notice and the AO after considering those material has come to a certain conclusion, though it h....
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....r being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of t....
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....by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo- motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo-motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to s....
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.... Hon'ble High Court also held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. The Hon'ble Court in para 22 of its order on the objection of the revenue that there is no discussion of the issue in the assessment order held that the contention on behalf of the revenue that the assessment order does not reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted, to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved....
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.... cost of property (note-1) Rs. 660969/- Capital gain (A) Rs.(-153969/-) 18. No doubt that the transaction of capital contribution was examined by the AO. However, it is a matter of fact that there is no reference in the assessment order about the examination of issue. As recorded above that Hon'ble Jurisdictional High Court in case of Nirma Chemical works (supra) held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. 19. However, on examining the applicability of the provisions of section 50C, on the asset which was contributed as a capital contribution by a partners to a firm where he is a partner, we find that Co-ordinate Bench of Tribunal in Sarrangan Ashok Vs ITO (supra) while considering the grounds of appeal raised in that case whether the ld.CIT(A) erred in not considering that provision of section 45(3) overwrites the provision of section 50C of the Act, the Co-ordinate Bench after considering the submission of both the parties, passed the following order....
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.... consideration cannot be determined. It was further held that the credit entry made in the partner's capital account in the books of partners firm does not represent the true value of the consideration. Therefore in the present case, the partnership firm viz., M/s. K G P Builders had recorded the consideration at Rs. 29,77,300/-. Having regard to these facts, the transaction of introduction of land into the firm by the appellant fairly attracts the capital gains. Therefore we hold that the provision of 10 I.T.A. No. 544/Chny/2019 Section 45(3) of the Act are squarely applicable to the facts of the present case. 8. Then the question that may arise is, can the AO disturb the value of consideration recorded in the books of accounts of the firm. The provision of Section 45(3) of the Act are exhaustive and does not confer any power on the AO to adopt consideration different from what is recorded in the books of accounts of the firm. The Hon'ble Jurisdictional High Court in the case of Pr.CIT vs. Dr.D. Ramamurthy, reported in 410 ITR 236 (Madras) held that the value recorded in the books of the firm is conclusive as to the consideration received on transfer of asset by a partner to the....
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....isions of Section 45(3) of the Act. Further the provisions of Section 45(3) of the Act, are special provisions as it deems value of consideration which otherwise is not computable under general law and it is applicable to the specific situations of introduction of capital by partner to the firm and whereas the provisions of Section 50C of the Act are general in nature applicable whether consideration is known and determinate. It is a rule of construction that the special provisions prevail over general provisions as per Latin Maxim. The Hon'ble Supreme Court in the case of D.R. Yadhav v. R.K. Singh [2003] 7 SCC 110 held, that when there are two conflicting provisions of law in operation in the same field, the rule that specifically operates in that field would apply over the general rule. Therefore, 13 I.T.A. No. 544/Chny/2019 when there is a specific provision in the statute to deal with a particular kind of transaction then it would be squarely applied. Thus having regard to the principles enunciated above, it cannot be said that provision of Section 50C of the Act overrides the provision of Section 45(3) of the Act. 10. In the light of the legal principles enunciated above, we....