TaxTMI 
TaxTMI 
2024 (8) TMI 169
X X X X Extracts X X X X
X X X X Extracts X X X X
....the course of assessment proceedings, the Assessing Officer called upon the assessee to furnish the necessary capital account of partners and explain the substantial increase in partners' capital account. In response, the assessee submitted that the partnership was formed with the capital contribution of land parcels by the 2 partners viz, CMG Holdings (P) Ltd and Mallikarjun Raju Chamarthi totaling to 6 acres 19 ½ guntas and Rs. 1.00 lakh contributed by Ms. Valligayahri Chamarthi. The firm had subsequently availed secured loan of Rs. 14,14,38,779/- from Mr. G.V. Ramana Reddy, Smt. A Sandhya Reddy and Smt. G. Sunita Reddy vide loan agreement dated 12.04.2017. Later, the lenders to safeguard their interest joined as minority partners with no capital contribution in the appellant firm. The firm has subsequently revalued the land held by it in its books of account upwards to the tune of Rs. 12,56,24,460/-, thereby increasing the value of the land. The said revaluation amount was credited to the capital account of the partners. Later, three partners namely Shri G.V.Ramana Reddy, Smt. A Sandhya Reddy and Smt. G. Sunita Reddy have converted their loans given to the firm into capit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the transfer of a capital asset by way of distribution of capital asset on the dissolution of the firm or 'otherwise' and held that the revaluation reserve credited to the partners' capital account is available for withdrawal by the partners which fall in the category of 'OTHERWISE' as stated under the provisions of section 45(4) of the I.T. Act, 1961 and thus, by following the decision of the Hon'ble Supreme Court in the case of CIT vs. Mansukh Dyeing and Printing Mills reported in 2022 (145 Taxmann.com 151)(S.C) held that when the firm is revalued its assets and increase in value of land is credited to the capital account of the partners, the said increase in value of assets and credits to partners' capital account is available to the partners for withdrawal. Therefore, the assets so revalued and the amount credited in the capital account of the respective partners can be said to be transfer which fall in the category of 'OTHERWISE, therefore, the provisions of section 45(4) shall be applicable. Thus, he held that the increase in capital account to the tune of Rs. 12,56,24,460/- is nothing but profit or gains arising from the transfer of a capital asset as per section 45(4) of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the I.T. Act, 1961. 6. The learned Counsel for the assessee further submitted that the provisions of section 45(4) of the Act deals with profits or gain that aroused from transfer of capital asset by way of distribution of capital asset on the dissolution of firm or otherwise, and therefore, as per the said provisions the profit or gain shall be chargeable to tax as income of the firm in the previous year in which the said transfer takes place and for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to the full value of the consideration received or accrued as a result of the transfer. The provisions of section 45(4) has two compartments, first one is determination whether it is a transfer and second one is for the purpose of section 48 to determine the capital gain. Although it is not a case of transfer as contended by the learned CIT (A), but because of Hon'ble Supreme Court's decision in the case of CIT vs. Mansukh Dyeing & Printing Mills (Supra) even assuming for a moment it is a transfer but for the purpose of computation of capital gain whether the fair market value as on the date of transfer needs to be take....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... I.T. Act, 1961, the fair market value of the property as per the stamp duty valuation authority is to be taken in to account is incorrect, because the assessee itself has revalued the asset to the tune of Rs. 12,56,24,416/- and the said value is the correct market value of the property. The learned CIT (A) after considering the relevant facts has rightly taxed the income under the head "capital gain" and therefore, their order should be upheld. 8. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. We have also carefully considered the additional grounds of appeal filed by the assessee on the powers of the learned CIT (A). After hearing both sides, the additional grounds of appeal filed by the assessee are admitted for adjudication, because such grounds are purely legal ground which can be taken at any stage of proceedings including the proceedings before the learned Tribunal. Having said so, let's come back to the additional grounds filed by the assessee. The assessee is challenging the powers of the learned CIT (A) in light of provisions of section 251(1)(a) of the I.T. Act, 1961 and argued that such p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dealt by the Assessing Officer as it is or he can deal with the issues under proper provisions of law, if facts so demands but he cannot consider a new issue or new source of income which is either not considered by the Assessing Officer in the assessment proceedings or not emanated from the return of income filed by the assessee and this principle is very well settled by various judicial precedents including the decision of the Hon'ble Supreme Court in the case of CIT vs. The Commissioner of Income-Tax vs Shapoorji Pallonji Mistry (Supra). In the present case, the issue considered by the Assessing Officer is increase in capital account of partners on account of revaluation of the assets held by the firm and credited such revaluation amount to the capital account of the partners and said issues falls under the provisions of section 45(4) of the I.T. Act, 1961, but, the Assessing Officer has considered the issue u/s 68 of the Act as unexplained cash credit. The learned CIT (A) having noticed the fact has rightly invoked the provisions of section 45(4) of the I.T. Act, 1961. Therefore, in our considered view the powers exercised by the learned CIT (A) cannot be said to be beyond ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5(4) inserted by the Finance Act, 1987 w.e.f. 1.4.1988 shall be applicable. Therefore, we are of the considered view that the revaluation of the asset held by the firm and crediting the amount of said revaluation to the partners' capital account is a transfer which falls under section 45(4) of the I.T. Act, 1961 and any profit or gain arising from the transfer needs to be taxed in the hands of the appellant firm. Therefore, to this extent, we fully agree with the findings given by the learned CIT (A). 11. Having said so, let's come back, what is full value of consideration for the purpose of section 48 of the I.T. Act, 1961. The provisions of section 45(4) have two compartments. The first compartment deals with whether it is a transfer or not and we answered the said question in affirmative. The 2nd compartment of provision of section 45(4) deals with computation of capital gain and as per the said provision, for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to the full value of the consideration received or accruing as a result of transfer. What is the fair market value of the property, whether it is on the basis of f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....des for considering the fair market value of the asset on the date of such transfer itself, it is incorrect on the part of the learned CIT(A) to direct the Assessing Officer to consider amount of said revaluation credited to the partners' capital account as full value of the consideration for the purpose of section 48 of the I.T. Act, 1961, without having regard to computation/valuation procedures. Therefore, in our considered view, to this extent, the learned CIT (A) is erred in considering the amount of revaluation credit to the partners' capital account for the purpose of computation of capital gain arising as a result of transfer of capital asset in terms of section 45(4) of the I.T. Act, 1961. Further, the value recorded by the assessee in the books of account for the purpose of revaluation of asset cannot be a fair market value of the property because it is not ascertainable as what is the basis on which said value has been arrived at. Further, the guideline value fixed by the stamp duty authorities reflects the correct fair market value of any property and it may be a yardstick to determine the fair market value of the property. Therefore, in our considered view, in absence ....