TaxTMI 
TaxTMI 
2022 (10) TMI 347
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....d circumstances of the case and in law Ld. CIT(A) erred in deleting the addition of Rs. 16,09,09,900/- made by the AO on account of unexplained other liability booked in the firm without appreciation the material facts of the case." 3. Succinctly, the fact as culled out from the records is that E return declaring Nil income was filed on 20.11.2016 for the year under consideration. During the year under consideration, the assessee firm was working as a real estate developer (Builders). The case was selected under limited scrutiny through CASS. Notice u/s 143(2) was issued on 23.09.2015 by the undersigned, which was duly served upon the assessee fixing the case for hearing on 29.09.2015. In compliance to notice issued, AR of the assessee firm attended the assessment proceedings from time to time and produced requisite information and documents. The AR of the assessee submitted books of account consisting of cash book, bank statement, sale deed, computation of income and copy of ITR, bills and vouchers which were examined on test check basis and the facts of the case were discussed with him. 3.1 The assessee has introduced new capital of Rs. 6,62,50,000/- during the year under c....
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.....11.2016, which is being reproduced as under "As per discussion you have asked about the treatment of the land transferred to the firm by Mr. Ram Chandra Gurjar and you have asked that why the capital gain tax will not imposed upon Mr. Ram Chandra Gurjar. Now we are telling you the complete history of the land transferred. The said land was acquired by Mr. Ram Chandra Gurjar in between 2001-2006 copies of the purchase deed is already provided to you during the previous hearing. At The time of purchase the land was an agricultural land. After that the land was converted in to the non agriculture (Resort) with effect from 31 May 2006. In the conversion order it was mentioned that if the converted land was not used for the purpose or which it was converted than it will be suo moto reconverted in to agriculture(copy of order attached). So as per the conditions of the conversion order the land was not used for the resort purpose that why it was reconverted in to the agriculture land with effect from 01 June, 2008. After that the land was transferred t the assessee during the financial year 2013-14. So we are of the opinion that th capital gain tax cannot be imposed on ....
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....f the Rs. 5,59,28,300/- remains unexplained and added to the total income of the assessee for the year under consideration. Accordingly, an addition of Rs. 5, 59,28,300- is made to the total income of the assessee on account of unexplained capital introduced in the form of new capital for the year under consideration. 7. The assessee firm has also booked as other liabilities of Rs 19,19,50,000/- as per balance sheet submitted during the year under consideration. During the course of assessment proceedings, the assessee was asked vide AO's office note sheet dated 04.11.2016 as per para (iv) that the assessee firm was shown other liabilities of Rs.19,19,50,000/- verify source of that investment from Shri Ram Chandra, partner of the firm. In this regard, the AR of the assessee firm has filed his reply dated 04.11.2016. He has submitted that the value adopted by the firm on transfer of agricultural land by Shri Ram Chandra Gurjar, Village- Janaksinghpura, Neemrana who is one of the partner of the firm. The reply of the AR of the assessee was considered and not found fully tenable by the ld. AO. As the assessee has not furnished the documents in support of his investment shown as oth....
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.... "5.5 I have perused the assessment order as well as remand report of the AO, submissions and cross reply made by the appellant. Following facts have emerged; 1. That the assessee firm has come into existence by way of a partnership deed signed on 25/02/2013 where Sh. Dharam Vir and "Sh. Ram Chander came together as partners and form the firm under the name of M/s Stanford Developers. 2. That the firm is created to carry on the business of builders and developers of properties and civil construction. 3. That the partners will have stake in the firm in the ratio of 75%:25% between Sh. Dharam Vir and Sh. Ram Chander. 4. That in pursuant to the partnership deed, a joint venture agreement was signed between the firm M/s Stanford Developers and Sh. Ram Chander vide agreement dated 10/06/2013. 5. That as per the joint venture agreement it was decided that Sh. Ram Chander, owner of the land situated at Village Neemrana will contribute 12,500 sq. meters land to the firm and this will include 10,000 sq. meters of land for which Sh. Ram Chander had obtained the license to develop it as a resort. 6. That the total value of land contributed....
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....ital by one of the partner Sh. Ram Chander. The A.O has taken the value as per prevalent DLC rate where as the partner has introduced the value of the land at a mutually accepted valuation which is much higher than the DLC rate. In this regard, the provision of the Act as per sub-section 3 of section 45 of the Act reads as under; The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. In this section, the Act has made it very clear that when an asset is introduced as capital in the firm then the value recorded in the books of accounts shall be deemed to be the full value of ....
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.... since the cost of the said land is more than the share of the second party therefore, it has been agreed by the parties to the present IV that the excess investment of the second party be refunded back to him and for this purposes the value of the said land has been assessed to Rs. 265,000,000/-. 1.3 That the first party, in addition to the development on the said land as agreed hereinabove shall also pay a sum of Rs. 198.750,000/- (Rupees Nineteen Core Eighty Seven laces and Fifty Thousand only) to the second party. However, the balance of the value of the land money shall be treated as investment/share of the second party in the partnership firm in terms of the partnership deed. The manner partnership firm shall be the sole and exclusive owner of the said land with all payments to the second party by the first party shall be made in the following manner. 2.3 That after vesting the said land into partnership firm, the said land will become the exclusive domain of the partnership firm and no individual including the second party can claim any kind of right, title or interest in respect of the said land. The proprietary rights. 2.4 That once the said land....
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....ount of Rs. 6,62,50,000/- was contributed as partners capital and remaining amount of Rs. 19,19,50,000/- stands as liability in the hand of firm. which the partner Sh. Ram Chander will get back in due course. 3. That during the course of assessment proceedings, the A.O has got the DLC rate of the property contributed by Sh. Ram Chander from the Sub- Registrar, Neemrana. As per the DLC rate the value per bigha was determined at Rs.79,59,000/-. The A.O has taken the DLC value of the property to determine the value of at Rs. 3,10,40,100/- and thereby making addition of Rs. 16,09,09,900/- as excess value introduced in the partner's liability in the books of accounts as unexplained. 4. That the appellant has submitted that nowhere in the Act has given liberty to A.O to make an addition on account of higher valuation than the DLC and construing the difference in valuation between the DLC rate and the valuation as per books of accounts as unexplained. In this regard the appellant has cited the provision of section 45(3) of the Act where, the Act has given importance to the valuation taken in the books of accounts rather than the DLC value. The appellant has also cite....
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.....26.5 crores that includes Rs. 19,19,50,000/- as liability in the hand of the firm. Therefore, A.O is not justified in taking the DLC value rather the value as recorded in the books of accounts. Even otherwise, I do not see any justification in holding the higher value of the land asset introduced as partner's capital as unexplained investment in the hand of the firm. Further, the valuation of an asset is based on the market value and also the perceived escalation in the valuation of the property particularly if the property is slated to be exploited as a business asset. In this case, the A.O while taking the valuation of the land asset as per DLC rate has lost sight of the fact that the partner Sh. Ram Chander has also got license to develop the property as a resort which naturally would fetch a much higher intrinsic value than what has been given by the Sub Registrar as per the prevalent DLC rate. In fact, the appellant has incurred an expenditure of Rs.5,31,59,347/- (as mentioned in the remand report submitted by the A.O) towards conversion charges. I have also taken into account various obligations to be fulfilled by the appellant as per the JV agreement, which also has to ....
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....onsideration flowing there upon is also not referred in the partnership deed executed between the partners. The ld. DR further pointed out the Joint Venture agreement is dated 10.06.2013 whereas the partnership deed is dated 25.2.2013. There is no basis how the value of the land is arrived at. The ld. DR further submitted that the ld. CIT(A) has granted the benefit of section 43(5) without verifying the fact that the assessee has accounted the said assets as current assets and not as capital assets. Not only that the assessee claims that the land is agricultural land then as per provision of section 2(14) the capital assets exclude the agricultural land and when the assets is not capital asset the benefit of section 45(3) given by the ld. CIT(A) is not in accordance with the law and the therefore, the findings of the ld. CIT(A) is erroneous on law as well as on facts. The ld. DR drawn our attention to the submission of the assessee [ as extracted in the assessment order page - 3 ] which is reiterated here in below for the sake of brevity : The said land was acquired by Mr. Ram Chandra Gurjar in between 2001-2006 copies of the purchase deed is already provided to you during....
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.... submitted that the ld. CIT(A) has considered the additional evidence, remand report and various other facts of the transaction, terms of joint venture deed, future obligations of the parties and payment terms of the price agreed in the joint venture agreement which is associated with the risk of payment. The ld. AR of the assessee further submitted that the law is silent about the capital assets as well as non-capital assets. The ld. AR of the assessee further submitted that since the assessee has not introduced any money in the books of the firm then the provision of section 68 is not be applicable and cannot be added in the hands of the firm. After considering all these aspects he has considered the transaction as genuine and benefit of the provision of section 45(3) has been correctly granted by a well-reasoned order. As regards the applicability of section 28(iv) the ld. AR of the assessee submitted that these provisions were never referred in the proceeding before the lower authorities and therefore, at this stage the same is not subject matter of the appeal. The ld. AR of the assessee further submitted that the benefit is in exercise of capital introduced in the firm and not....
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....nd Exchange Board of India Act, 1992 (15 of 1992); 7[(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,] but does not include- (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. Explanation 1.-For the purposes of this sub-clause, "jewellery" includes- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or....
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.... (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); Section 28(iv) Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; 12. As the issue orbited around the land introduced in the firm and the same is accounted as capital and other liability of the partner of the firm. First of all we have not been the satisfactory proof whether the impugned land was an agricultural land or not? If the land is considered as nonagricultural land than the same is not accounted as capital assets in the firm's books. Whether the excess amount accounted in the books are chargeable in accordance with the provision of section 28(iv) is also not considered by the AO by passing a speaking order while making the addition in this case. All these issues require an examination of facts of the impugned land for which we believe that the opportunity is required to be given in the interest....