ITO Vs. Chiraayu Estate & Dev. (P) Ltd. (ITAT Mumbai)
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.
A plain reading of the said provision would reveal that the profits or gains arising from the transfer of a capital asset to another entity by way of capital contribution or otherwise shall be chargeable to tax. The profit or gain would arise only when the transfer has been made at a price which is more than the cost price and the difference between the cost price and amount at which transfer has taken place can be charged under section 45(3). In the instant case the purchase price of land as recorded in the transferors book and recorded in the books of the joint venture are the same. As per provisions of section 45(3) price of land recorded in the books of joint venture is required to be considered as receipt of full value of consideration received or accrued as a result of transfer of capital assets. Once the price recorded in the joint ventures books is treated as full value of consideration, the provisions do not permit substitution of any value so as to make addition under section 45(3). In fact the approach of the A.O. is also not correct in the sense that under section 45(3) once the full value of consideration is taken as the amount recorded in the books of the joint venture, the capital gain can be worked out by reducing the cost of purchase as per the books of assessee. In case the A.O. substitutes the cost of purchase, by whatever means, then that cost price has to be adjusted in the capital gains. This may result in a loss of equal amount as the books of joint venture show the book value as consideration and substituted cost price (value determined by AO in the order) as a deduction. This working would result in a loss but not a gain. This simple arithmetic calculation was missed by the A.O. and he made the addition under section 45(3) which does not permit him to substitute the full value of consideration other than the amount recorded in the books of account of the joint venture. As the Assessing Officers action is not according to the provisions of section 45(3), there is no justification for upholding the contentions of Revenue. We uphold the order of the CIT(A) and reject the ground of appeal.
ITO v. Chiraayu Estate & Dev. (P) Ltd.
In the ITAT, Mumbai C Bench
ITA No. 263 (Mum) of 2010
24 August, 2011 A.Y. 2006- 07
