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Case Law Details

Case Name : ITO Vs Shri Mahendrabhai D. Zalavadia (ITAT Rajkot)
Appeal Number : ITA No. 610/RJT/2015
Date of Judgement/Order : 29/11/2019
Related Assessment Year : 2007-2008
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ITO Vs Shri Mahendrabhai D. Zalavadia (ITAT Rajkot)

The issue under consideration is whether section 45(2) will be applicable in situation where Land transferred by partner as capital contribution recorded as stock-in-trade in the books of firm?

In the given case, ITAT state that the impugned land was transferred by the partners to the firm as capital contribution which was recorded as stock-in-trade in the books of the firm. As such there was no transfer of capital assessee as stock-in-trade in the books of the assessee. Therefore in their considered view, there cannot be any application of the provisions of section 45(2) of the Act in the hands of the assessee.

Further, ITAT also note that the provisions of section 45(3) of the Act requires to take the sale consideration in the case of transfer of any capital asset by the partner to the firm as capital contribution which was recorded in the books of accounts of the firm. In the case on hand, there is no dispute that the value of  such assets transferred by the partner to the firm was recorded at the book value which can be verified from the financial statements of the assessee. Accordingly, there cannot be any income in the hands of the assessee on account of transfer of such assets as capital contribution.

Hence the appeal of the Revenue is dismissed.

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