Principal Commissioner Of Income Tax - 1, Kolkata v. M/S. Orchid Griha Nirman Pvt. Ltd

OD - 17 & 18 ORDER SHEET IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE IA NO.GA/1/2021ITAT/108/2021 PRINCIPAL COMMISSIONER OF INCOME TAX - 1, KOLKATAVS. M/S. ORCHID GRIHA NIRMAN PVT. LTD. IA NO.GA/2/2021ITAT/108/2021 PRINCIPAL COMMISSIONER OF INCOME TAX - 1, KOLKATAVS.M/S. ORCHID GRIHA NIRMAN PVT. LTD. BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAM A N DTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADATED JANUARY 31, 2022. [Via Video Conference] Appearance :Mr. P.K. Bhowmick, Adv.Mr. Asok Bhowmick, Adv.… for the appellantMr. J.P. Khaitan, Sr. Adv.Ms. Swapna Das, Adv.Mr. Siddharth Das, Adv...for the respondent The Court :- We have heard Mr. P.K. Bhowmick, learnedstanding counsel for the appellant/revenue duly assisted by Mr. Asok Bhowmick and Mr. J.P. Khaitan, learned senior counsel forrespondent/assessee duly assisted by Ms. Swapna Das and Mr.Siddharth Das. There is a delay of 874 days in filing this appeal. We haveperused the affidavit filed in support of the petition and we find thereis absolutely no reason given for the inordinate delay in filing theappeal. However, considering the facts that identical issues wereconsidered in the assessee’s own case for the subsequent assessmentyear 2008-2009 along with other connected matters and decision wasrendered in ITAT/164/2017 dated 18[th] January 2022, we exercisediscretion and condone the delay. Accordingly, the delay is condoned. The petition for condonation of delay is disposed of. ITAT/108/2021 This appeal filed by the revenue under Section 263A of theIncome Tax Act, (the Act) is directed against the order of the IncomeTax Appellate Tribunal “C” Bench Kolkata (Tribunal) dated 26[th]September, 2018 in ITAT/569/Kol/2015 for the assessment year2006-07. The revenue has raised the following substantial questionsof law for consideration. 1.Whether on the facts and circumstances and points oflaw, the Learned Income Tax Appellate Tribunal waslaw, the Learned Income Tax Appellate Tribunal was committed substantial error of law and justified byignoring the detailed factual discussions in theassessment order wherein the Assessing Officer madeobservations about the adoption of colourable devices toavoid paying taxes, in the light of the Judgment of theHon’ble Supreme Court of India in Mcdowell & Co Ltd -vs- CTO (1985) 154 ITR 148/22 Taxman 11 (SC) ? 2.Whether on the facts and circumstances of the caseLearned Income Tax Appellate Tribunal committedsubstantial error of law by granting relief to the assesseeon the ground that Land in question in the instant case isnot a capital asset, where the said piece of land wasacquired with intent to transfer it as Capital contributionin the Partnership firm and is beyond the scope ofSection 45(3) of the Income Tax Act 1961?Learned Income Tax Appellate Tribunal committedsubstantial error of law by granting relief to the assesseeon the ground that Land in question in the instant case isnot a capital asset, where the said piece of land wasacquired with intent to transfer it as Capital contributionin the Partnership firm and is beyond the scope ofSection 45(3) of the Income Tax Act 1961? 3.Whether on the facts and circumstances of the case, theLearned Tribunal failed to appreciate the facts andoverlooked the merits of the case as found by theAssessing Officer and as such the conclusion arrived bythe Learned Tribunal as perverse and as such the saidorder of the learned Tribunal is not sustainable in law?Learned Tribunal failed to appreciate the facts andoverlooked the merits of the case as found by theAssessing Officer and as such the conclusion arrived bythe Learned Tribunal as perverse and as such the saidorder of the learned Tribunal is not sustainable in law? We have heard Mr. Bhowmick, and Mr. J. P. Khaitan, SeniorAdvocate for the respondent/assessee. 3.Whether on the facts and circumstances of the case, theLearned Tribunal failed to appreciate the facts andoverlooked the merits of the case as found by theAssessing Officer and as such the conclusion arrived bythe Learned Tribunal as perverse and as such the saidorder of the learned Tribunal is not sustainable in law?Learned Tribunal failed to appreciate the facts andoverlooked the merits of the case as found by theAssessing Officer and as such the conclusion arrived bythe Learned Tribunal as perverse and as such the saidorder of the learned Tribunal is not sustainable in law? We have heard Mr. Bhowmick, and Mr. J. P. Khaitan, SeniorAdvocate for the respondent/assessee. It is not disputed before us that the substantial questions oflaw which have been raised in this appeal by the revenue have beenheld to be not substantial questions of law in the assessee’s own casefor subsequent assessment year in ITAT/250/2017 which was heardand disposed of along with ITAT/164/2017 and ITAT /239/2017 byjudgment dated 18[th] January, 2022. The operative portions of thejudgment are reproduced below. “15. The CIT (A) accepted the contention raised by the assessee.After examining the factual issues it specifically held that revaluation ofan asset is not a business transaction resulting in any pecuniary gainwhich can form subject matter of taxation. Ultimately by a wellreasoned order, the CIT(A)allowed the appeal filed by the assessee.Aggrieved by the same, the revenue preferred the appeal before thetribunal. The tribunal firstly considered the validity of the reopening ofthe assessment under section 147 of the Act. After elaboratelyconsidering the facts the tribunal held that, if at all any income accruesor arises owing to such revaluation, it is an issue which had to be dealtwith in the assessment of the firm M/S. Salapuria Soft Zone which isthe separate taxable entity. After noting the facts the tribunal held thatin terms of the Section 10 (2A) of the Act partners’ share in the totalincome of the firm is not to be included in the total income of thepartner. Therefore, it was held that the there was no reason forinitiating proceedings under section 147 of the Act. With regard to theapplicability of Section 45(3) of the Act, the tribunal after consideringthe books of accounts of the firm recorded the following factualfindings:- The books of account of the said firm for the financial year endedMarch 31, 2006 clearly reflected the receipt of the said land by itby way of capital contribution from three of its partners as alsothe value thereof with corresponding credit to the partners’ The books of account of the said firm for the financial year endedMarch 31, 2006 clearly reflected the receipt of the said land by itby way of capital contribution from three of its partners as alsothe value thereof with corresponding credit to the partners’ capital accounts. The land upon purchase was shown by thesaid three companies as part of their current assets. The saidfirm upon receipt of the said land during the financial yearended March 31, 2006 also accounted for it as a current asset.The partners transferred the said land at cost. As such, therewas no profit in the hands of the partners upon transfer of thesaid land to the said firm. Section 45(3) of the Act is applicableonly in respect of a capital asset. The said provision has noapplication in the instant case since what was transferred bythe partners was a current asset and not a capital asset. Section45(3) of the Act did not come into operation for the assessmentyear 2008-09 by reason of conversion of the developed land andbuilding into fixed assets by the said firm or due to revaluationby the said firm of the asset so converted during the previousyear ended March 31, 2008. Section 45(3) of the Act isapplicable in the year of transfer by the partner of his capitalasset to the partnership firm by way of capital contribution. Inthe instant case, the year of transfer was the financial yearended March 31, 2006. The ITO was wholly unjustified ininvoking Section 45(3) which had no application in theassessment year 2008-09 or for that matter in the assessmentyear 2006-07. Even otherwise, Section 45(3) seeks to determinethe capital gains with reference to the value of the assetrecorded in the books of account of the firm. The value sorecorded is statutorily deemed to be the full value ofconsideration received or accruing to the partner as a result ofthe transfer of the capital asset to the firm. Thus, Section 45(3)does not seek to substitute by any other figure the value agreedbetween the partners at which the asset is transferred by apartner to the firm. 16. With regard to the revaluation, tribunal re-appreciated thefacts which were considered by the CITA. With regard to thedevelopment of the area in question, as to how there was steep rise in the value of the properties and the state government revised theguideline value for the purpose of stamp duty several times between2004-07 and after noting the price rise the tribunal heldnotwithstanding the said fact in accordance with the accountingprinciples the land held as inventory was shown at its cost andtherefore it cannot be said that under valuation was done by theassessee as alleged by the Assessing Officer. 17. Further more on facts the tribunal agreed with CIT(A) thatafter conversion of inventory into fixed asset the firm revalued thedeveloped land including construction thereon in order to bring it in linewith the current market value to justify the business assistancesecured by the firm from the banks to extent of nearly Rs. 250 crores.Therefore, on facts the tribunal concluded that the revaluation was nota colourable device. 18. Further more on facts it was held that there was nowithdrawal by the partners from capital accounts and therefore therecannot be any income liable to tax in their hands.” Thus following the above decision, the appeal filed by therevenue stands dismissed on the ground that there is no question oflaw, much less substantial questions law arising for consideration. Stay petition consequently, stands dismissed. (T. S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)