DCIT v. Abdulsattar Suleman

Case snapshot

Sections / provisions: 45(3)

Questions before the Court / Tribunal

• Partner contribution of land and later revaluation: The reported order concerns land introduced into a firm and later revalued/credited to partners. It focuses on the correct year and event for section 45(3), rejecting taxation of a later book revaluation as though it were a fresh transfer.

Material facts and background

Brief facts of the case show that the assessee is an individual who filed his return of income for A.Y. 2013-14, declaring a total income of ₹5,52,340/- on 5 October 2013. The return of income was processed and not scrutinized.

Page | 5 ITA No.1658/Mum/2023, CO No. 83/Mum/2023 Abdulsattar Suleman Ghaswala; A.Y. 13-14

Subsequently, during the assessment proceedings of

Abdul Sattar Suleman and others for A.Y. 2013-14, it was found that the assessee introduced capital in the above partnership firm in the form of land amounting to ₹13,96,40,040/-. It was also found that the capital gain is chargeable to tax in the hands of the assessee under Section 45(3) of the Act. On perusal of the return of the assessee, the learned Assessing Officer found that the assessee has not offered any capital gains and therefore, the reasons were recorded by the learned Assessing Officer stating that he has reason to believe that income to the extent of ₹13,96,40,040/- for A.Y. 2013-14 has escaped assessment. Accordingly, notice under Section 148 of the Income-tax Act, 1961 (the Act) was issued on 22 March 2018. 06.

The assessee filed its return of income on 29 November 2018, reiterating the original return filed. On 30 November 2018, reasons were requested which were provided on 3 December 2018. The assessee filed objections on 5 December 2018, and 10 December 2018, which were rejected on 11

The assessee was asked to submit the details concerning the introduction of land. The assessee submitted that the above land was introduced in the partnership firm in the year 2010 at nil cost. Subsequently, in A.Y. 2013-14, the partnership firm revalued the land. It was stated that

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Appellant / assessee submissions

The assessee was asked to submit the details concerning the introduction of land. The assessee submitted that the above land was introduced in the partnership firm in the year 2010 at nil cost. Subsequently, in A.Y. 2013-14, the partnership firm revalued the land. It was stated that

Revenue / respondent submissions

010. The learned Departmental Representative submitted the facts of the case stating that the assessee introduced the land in the books of the partnership firm in A.Y. 2011-12. On that date, no sum was credited to the partner's account and similarly, no amount was debited as value of land in the books of the partnership firm. Subsequently, in A.Y. 2013-14, the sum of ₹13.96 crores was credited to the account of the assessee by putting the valuation of the land. He referred to the provisions of Section 45(3) of the

Court / Tribunal analysis and reasoning

computation of capital gain. He submitted that this sum was credited in the A.Y. 2013-14 and therefore, the order of the learned Assessing Officer is correct in charging the income under the head capital gains for A.Y. 2013-14. He stated that the learned CIT (A) has incorrectly relied upon the decision of the Kolkata Bench. He further submitted that it is not the case of revaluation of assets but is a case of recording the sale consideration in the books of account of the firm by crediting the capital account of the partner. He, therefore, submitted that there is the transfer of a capital asset by the partner to the partnership firm and there is a consideration in the firm of the amount credited to the account of the partner being the amount recorded as the value of the asset transferred. He, therefore, submitted that the income is chargeable to tax in the hands of the assessee. 011. The learned Authorized Representative filed a factual paper

credited the sum to the account of the partners. The firm had not claimed the revalued amount as the cost of the land and stated that there was no cost. He further stated that none of the partners had withdrawn the above sum from the partnership firm. He submitted that the transfers happened in A.Y. 2010-11, as the sale consideration is nil and the amount of consideration recorded in the books of account of the firm as ₹ nil, no capital gain arose in A.Y. 2010-11. In A.Y. 2013-14, when it is credited to the partners or partners' capital account in the form of revaluation, there is no transfer of capital assets and therefore, capital gain cannot be taxed in that year. He further referred to the ledger account of the partners in the partnership firm. 012. We have carefully considered the rival contention and perused the orders of lower authorities. In this case admittedly transfer took place in AY 2011-12, It did not happen in AY 2013-14 as per finding of ld AO also. 013. Section 45 (3) provides that :-

processed under section 143(1) of the Act. 10. Subsequently, proceedings under section 147 of the Act were initiated and notice dated 3-112011 was issued under section 148 of the Act. The reasons for reopening was that the partnership firm M/S. Salapuria Soft Zone had revalued its assets and transferred the revalued reserve to its partners' account and the assessee being a partner had received certain sum of money on account of such revaluation reserve. Therefore, the Assessing Officer opined that he had reasons to believed on examination of record that the above has escaped assessment within the meaning of section 147 of the Act. The assets which were the subject matter was a large tract of land measuring about 3,19,086 sq. ft. owned by one M/s. I Gate Global Solutions Ltd. The said land was advertised for sale. The

increased to Rs. 22,36,79,266/- on the basis that the said land measured 3,19,08 sq. ft. in contrast with the original measurement of 3,12,092 sq. ft. An agreement was entered into on 14-6-2004 and it appears that the re-measurement of the area was done and it was found that correct extent was only 3,12,092 sq. ft., therefore, the final price stood

of the firm to avoid the market value of the land being taken into consideration and consequently to avoid higher taxes on capital gains in the hands of the assessee company. 13. Thus, the Assessing Officer concluded that the revaluation amount was real profit and not notional and the firm was taxable in respect of its profits but the revaluation profit was not disclosed by it as its income for the assessment year 2008-09 and no tax was paid thereon. Thus, the three assesses were made liable for tax on its share of revaluation profit. With the above reasoning the assessment was completed. The assessee carried the matter on appeal to the Commissioner of Income-tax Appeal [CIT(A)] firstly questioning the validity of the reassessment proceedings apart from the merits of the matter. The CIT(A) held that even if the case made out in the reasons recorded by the Assessing Officer is accepted, no belief could have been entertained by the Assessing Officer that any income in respect of which the partner was chargeable to tax had escaped assessment, and therefore held that the Assessing Officer acted without jurisdiction by issuing notice under section 148 of the Act. With regard to the...

"Current Asset". The partners transferred the said land at cost and there was no profit in the hands of the partners upon transfer of the said land to the firm. Therefore, it was contended that section 45(3) of the Act was inapplicable. It was further contended that after the firm received the land as the capital contribution, it was developed by infusing substantial funds during the financial year 2005-06 and thereafter. It was only on March 30, 2008

Operative decision and relief

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019. In the result appeal of learned Assessing officer for A. Y. 2013-14 is dismissed. 020. As we have dismissed the appeal of the ld Ao co filed by assessee becomes academic as no adjudication is required on validity of assessment challenged there in. 021. Accordingly, appeal of the ld AO

1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai

Authorities and precedents appearing in the judgment

• Court in the case of Sanjeev Woolen Mills vs. CIT reported
• Chainrup Sampatram v. CIT

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Partner contribution of land and later revaluation. The operative result is classified as Dismissed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Partner contribution of land and later revaluation. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Use the judgment as a fact-specific precedent: match the statutory version, assessment period, procedural stage and evidentiary record before relying on the result.
• Check whether a later High Court/Supreme Court order has affirmed, reversed, distinguished or rendered the decision academic.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

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