AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 407
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....n agreed value to the HUF capital does not amount to transfer of asset to the partnership firm(AOP), giving rise to taxable profit. 3. On the facts and circumstances of the case and in law, the Ld.CIT(A) failed to consider the decision of the Special Bench of the ITAT, Delhi in the case of DLF Universal Vs DCIT order dated 31/12/2009, where it has been held that provision of section 45(3) of the Act will also apply when stock in trade is introduced into a firm as capital contribution. 4. The appellant craves leave to add, modify or delete any or all of the aforesaid grounds of appeal" Brief facts of the case : 2. The assessee filed return of income for A.Y.2013-14 on 28.09.2013 by declaring total income of Rs.3,13,66,950/-. The assessee is a proprietor of Vikram Constructions, engaged in the business of land development and Builder. The case was taken up for scrutiny. The Assessing Officer passed order under section 143(3) of the Act on 29.03.2016. During the assessment proceedings, the AO observed that assessee was owner of the land at Survey No.72/2d, Hissa No.2 to 7, Hadapsar, Pune. During the year, the assessee sold half of the said land to JKG Associate....
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....ent. There is no power of attorney provided to the AOP or to any member of the AOP to deal in the property. The stamp authorities have also not treated it as a transfer, as the stamp duty collected on the same is not on the market value of the property but on the refundable advances received by two of the members. The clause 8(v) of the articles of agreement, mentions that all the papers required. pertaining to sanction of the building plans and other clearances shall be obtained by the land owners namely the appellant and JKG Associates. As per the penalty clause 9(B) of the agreement, if the construction of the building of the said property is not commenced by the third party namely M/s Mantra Majestique Associates within six calendar months with the date of execution of .the agreement without any just and sufficient reason, the land owners would be entitled to cancel this agreement and return the deposit without any interest. This clause clearly indicates that there is no absolute transfer of the property by the appellant and the other party JKG Associates, as they have retained the right to cancel the agreement, for any non starting of the project and not for non-payment of the....
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....lats to be-constructed.. The consideration as and when received on transfer to the final purchasers has to be assessed in the year of such transfer on proportionate basis of transfer of land. In view of the reason cited above, the addition made by the AO on the ground of the entry, in the books of the AOP cannot be taxed in the current year, as there is no transfer of any stock in trade in the current year. Therefore, the addition made is deleted." Submission of ld.Departmental Representative (ld.DR) : 4. The ld.DR submitted a paper book. The ld.DR submitted that as per the Balance Sheet of the assessee, the land is shown as current asset and not as closing stock. In the Balance Sheet for A.Y. 2012- 13 and 2013-14 the closing stock is shown separately and land is show separately. The ld.DR submitted that therefore the ld.CIT(A) erred in stating that assessee has treated land as stock-in-trade. Had the assessee treated the land as stock-in-trade, then it would have also appeared in the profit and loss account of the assessee as closing stock and opening stock, but on perusal of the profit and loss account, it is observed that land is not appearing as closing stock, opening sto....
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....at the land was stock in trade. However, we do not agree with the Ld.CIT(A)'s these findings. The Ld.CIT(A) had failed to appreciate the fact that "stock in trade" has to be shown in the Profit & Loss Account as Stock in trade which the assessee has not shown. Similarly, the assessee has not shown the impugned land as "Stock in Trade" in the Balance Sheet also. The Ld.CIT(A) in para 6, 6.1 of his order held that since the land was "stock in trade" the section 45(3) will not be applicable for stock in trade. However, we have already mentioned that the Ld.CIT(A) has failed to appreciate that the impugned land was not shown by the assessee as Stock in Trade in Profit and Loss Account, Balance Sheet, hence, the findings of the Ld.CIT(A) are factually incorrect. 6.3 The assessee entered into an "Articles of Agreement" dated 02.11.2012 which is duly registered with Joint Sub-Registrar, Haveli, Pune. The assessee is described as party of the first part, JKG Associates is described as the party of the second part and Mantra Majestique Associates is described as the party of the third part. The Article-1 of the said "Articles of Agreement" is reproduced here as under : "1. The P....
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....buted land as capital in the AOP. 7.3.1 It is mentioned in the Article 24 of the "Article of the Agreement" that the agreement of sale to be entered with the purchaser of proposed housing residential flat and other premises shall be in the name of AOP and the proposed purchaser. This explains that the Assessee had relinquished its rights in the land in favour of the AOP. Therefore as per Section 2(47)(ii) of the Act it is Transfer . Section 2(47) of the Act is reproduced here as under : (47) ["transfer", in relation to a capital asset, includes,- (i) **************** or (ii) the extinguishment of any rights therein37 ; or 7.3.2 Thus, extinguishment of Right in Land is Transfer . 7.4 The Special Bench of ITAT Delhi in the case of DLF Universal Ltd. Vs Dy.Commissioner of Income Tax [2010] 3 ITR (T) 635 (Delhi)(SB) vide order dated 4/01/2010 has held as under: Quote, "It is altogether a different matter that before contributing any personal asset by the partner to a firm, it might have a character of stock-in-trade or capital asset or any other asset in the hands of a partner, but at the time when the same is contributed as capital contribu....
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....thout a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Explanation.-For the purposes of this sub-section, the expression "insurer" shall have the meaning assigned to it in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938). [(1B) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any amount under a 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, including the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by su....
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....n 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. " Unquote. 8. In the case under consideration the assessee has introduced his land as his share of Capital in the AOP. The land partakes character of Capital Asset as discussed in earlier paragraph. Therefore, provisions of Section 45(3) are applicable in the case of the assessee. Section 45(3) is a deeming provision. 9. On identical facts the Special Bench of ITAT Delhi in the case of DLF Universal Ltd. Vs Dy.Commissioner of Income tax [2010] 3 ITR (T) 635 (Delhi)(SB) vide order dated 4/01/2010 has held in para 16.49 (x) as under : Quote, "In the light of the view we have taken above, we, therefore, hold that the surplus arising to the assessee from the transaction of contribution of land held by it to a firm as capital contribution shall be assessable to tax as profit or gains under the head "capital gain" under section 45 of the Income-tax Act, and for that purpose, the amount of 11.50 crore recorded in the books of accoun....
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.... as his share of capital in the AOP is taxable u/s 45(3) of the act, as discussed in earlier paragraphs, accordingly, grounds of appeal of the revenue are allowed. 12. We will also like to mention here that M/s.J.K.G Associates in its return of Income for A.Y.2013-14 has shown the introduction of capital of Rs.5,00,00,000/- in the AOP Mantra Majestique Associates(AOP) and offered it for taxation. The said amount of Rs.5,00,00,000/- is shown in the Profit & Loss Account under the head Sale. This fact is mentioned here because the Ld.AR has argued that no addition has been made in the case of JKG Associates by department. The Department has not made any addition on this issue because the JKG Associates have Suo-moto offered it for taxation. Rebuttal of case laws relied by the ld.AR: 13. The Ld.AR has relied on the following case laws. • Dheeraj Amin Vs ACIT (ITAT Bangaloe) • Chaitanya properties Vs JCIT (ITAT bangalore) • Shri Challa Ramakrishna Anantapur vs ACIT (ITAT Hyderabad) • Ito Vs Shri Vilas Babanroa Rukari (ITAT Pune) • Ashok Gordhandas Kirpalani Vs ITO (ITAT Pune) • DCIT Vs Clean City Est....