TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 407
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....sfer 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 Associates. The assessee formed an AOP along with JKG Associates and Mantra Majestiq....
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.... 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 consideration of the land. Further, the clause 10 of the agreement also does not allow the third....
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....rs 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 stock in the profit and loss account. This explains that assessee had not treated land as stock-in-trade....
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....e 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 Parties herein hereby confirm having formed into as an Association of Persons (AOP) to be known in the name and style of "MANTRA MAJESTIQUE ASSOCIATES (AOP)" 7.1 Thus, vide the Arti....
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....me 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 contribution in a firm in which the assessee becomes a partner, it would certainly have a character of capital asset only having regard to the capital natural of the transaction and nature of rights acquired by a partner in the firm on his becoming a partner. In other words, whatever ....
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....alue 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 such person 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 amount was received and the income taxable shall be calculated in such manner as may be prescribed (2) Notwithstanding anything contained in sub-section (1), the profits or gains arising fr....
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....al 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 account of the partnership firm as the value of the land shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the land as so provided under sub-section (3) of the section 45 of the Act, effective from the assessment year 1988-89." Unquote. 9.1 Respectfully following the decision of ITAT Special Bench(supra), we hold that the transaction of impugned land intro....