Lupin Investments Private Limited Vs DCIT (ITAT Mumbai)
Conclusion: Since assessee did not receive any sum over and above the value of its investments from partnership firm on revaluation of assets, therefore, there could not be any levy of capital gains or any levy in the nature of income upon retirement of assessee from firm within the meaning of Section 2(24) in the hands of assessee.
Held: Assessee was a partner in the firm Pranik Landmark Associates (‘Firm’). On 1st April 2007, the said firm revalued its asset ‘Development rights in land’ which resulted in an appreciation of Rs 262,12,92,699/- and credited Partners’ Current Account in their profit-sharing ratio and accordingly a sum of Rs 10,48,51,708 was credited to assessee’s account (4% share). Assessee retired with effect from 1 April 2009 and upon retirement, assessee received Rs 11,34,07,570/- being the amount standing to its credit in the books of Pranik Landmark Associates. Assessee credited Rs 10,48,51,708/-as share in revaluation profit from Firm and claimed an exemption u/s 10(2A) in the Return of Income. Assessee also reduced the said amount while computing book profits under Section 115JB. AO observed that assessee was not eligible for exemption u/s.10(2A) as amount was received from firm on revaluation of assets. AO also levied capital gains on the ground that assessee had relinquished / assigned its rights in the firm and assets in favour of the continuing partners. It was held that much prior to the retirement i.e. on 01/04/2007, the firm re-valued its asset i.e “Development rights in land” which resulted in appreciation of Rs.262,12,92,699/- and correspondingly credited partner’s current account in their respective profit sharing ratio in the books of that firm. In response to this revaluation, no entry was passed in the books of the assessee firm as on 31/03/2008, by correspondingly increasing the investment made in Pranik Landmark Associates with corresponding credit to current account of the partners of the assessee firm. Assessee passed this entry belatedly only in the year of receipt of actual money from Pranik Landmark Associates i.e. during the F.Y.2009-10 relevant to A.Y.2010-11 in which year, it retired from Pranik Landmark Associates. Pursuant to assessee passing this entry during A.Y.2010-11 in its books for the revaluation, the amounts ultimately received by assessee from the partnership firm exactly matched with the investments made in the partnership firm. Assessee did not receive any sum over and above the value of its investments from Pranik Landmark Associates. Hence, there could not be any levy of capital gains or any levy in the nature of income within the meaning of Section 2(24) in the hands of assessee.
FULL TEXT OF THE ITAT JUDGEMENT
These cross appeals in ITA No.2752/Mum/2014 & 3366/Mum/2014 for A.Y.2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-21, Mumbai in appeal No.CIT(A)21/IT/189/2013-14 dated 28/02/2014 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2013 by the ld. Dy. Commissioner of Income Tax-10(1), Mumbai (hereinafter referred to as ld. AO).
2. At the outset, we find that the ground Nos.1 & 3 raised by the assessee in its appeal was stated to be withdrawn vide letter dated 23/01/2018. At the time of hearing, the assessee stated that the ground No.2 raised by the assessee was not pressed before us. Accordingly, the entire appeal of the assessee is dismissed as withdrawn / not pressed, as the case may be. Hence, we proceed to adjudicate the grounds raised by the revenue in its appeal for the A.Y.2010-11.
2.1. The revenue has raised the following grounds in its appeal:-
“1.1 “On the facts and in the circumstances of the case and in law , the Ld.CIT(A) erred in deleting of Rs.6,72,30,150/-assessed as capital gain.
1.2 “On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the decision of the Hon’ble ITAT in the case of Sudhakar Shetty (130ITD197(Mum) and thereby treating the amount of Rs.10,48,51,708/- as capital receipt not chargeable to tax u/s.45.
2.1 “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction of Rs.10,45,51,708/-while computation of book profit U/S.115JB.
3. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.
4. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored.
3. The brief facts of this issue are that the assessee was a partner in the firm Pranik Landmark Associates (‘Firm’). On 1st April 2007, the said firm revalued its asset ‘Development rights in land’ which resulted in an appreciation of Rs 262,12,92,699/- and credited Partners’ Current Account in their profit-sharing ratio and accordingly a sum of Rs 10,48,51,708 was credited to assessee’s account (4% share). The assessee had followed conservative treatment for accounting of revaluation reserve credit and hence, had not passed entry in its books of accounts in Financial Year 2007-08, for revaluation done by the firm. Vide retirement deed dated 6 November 2009, the assessee retired with effect from 1 April 2009. Upon retirement, assessee received Rs 11,34,07,570/- being the amount standing to its credit in the books if Pranik Landmark Associates. Assessee credited Rs 10,48,51,708/-as share in revaluation profit from Firm and claimed an exemption u/s 10(2A) of the Income Tax Act, 1961 (‘Act’) in the Return of Income. Assessee also reduced the said amount while computing book profits under Section 115JB of the Act.
Assessment proceedings before the Assessing Officer
4. The ld AO completed the assessment u/s.143(3) of the Act on 31/03/2013 by determining total income of Rs.6,76,87,410/- under normal provisions of the Act and Rs.8,71,88,755/- as book profits u/s.115JB of the Act. In the said assessment, the ld. AO observed that assessee is not eligible for exemption u/s.10(2A) of the Act as amount was received from firm on revaluation of assets. The ld. AO also levied capital gains on the ground that assessee had relinquished / assigned its rights in the firm and assets in favour of the continuing partners. To support this proposition, the ld. AO placed reliance on the Co-ordinate Bench decision of this Tribunal in the case of Sudhakar M Shetty vs. ACIT (2011) 130 ITD 197 (Bom). These two adjustments were made by the ld. AO while computing income under normal provisions of the Act.
4.1. The ld. AO while computing book profits u/s.115JB of the Act denied the claim of exemption u/s.10(2A) of the Act in the sum of Rs.10,48,51,708/- being the amount received from partnership firm and revaluation of asset.
Proceedings before Commissioner of Income Tax (Appeals)
5. Aggrieved by the said order, the assessee preferred an appeal before the Hon’ble Commissioner of Income Tax (Appeals) which was disposed off by the ld. CIT(A) vide order dated 28/02/2014 wherein it was held that:-
