The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) held that the capital gain under Section 47(xiii) of the Income Tax Act, 1961 cannot be attracted on the failure to prove the existence of the firm and its succession with the company.
The assessee is an individual who filed his return of income by declaring taxable income of Rs.2,40,000/- which comprises income from other sources. During the assessment proceedings, it was found that the assessee along with Sri Nihar Ranjan Pradhan has incorporated a company by name M/s. Digital Campus Services Private Limited and got allotted shares of the company which was in lieu of the introduction of the ERP package in the ratio of 60:40.
The assessee received shares worth Rs.8,92,98,000/- which attract provisions of Section 45 of the Income Tax Act. As the assessee did not admit the income from capital gains or otherwise in the return filed, the assessment was reopened under Section 147 of the Income Tax Act and notice under Section 148 of the Income Tax Act was issued.
The Assessing Officer (AO) was constrained to complete the assessment and accordingly passed an assessment order under Section 144 read with Section 147 of the Income Tax Act interalia making an addition of Rs.8,92,98,000/- towards undisclosed income, thereby determining the total income at Rs.8,95,38,000/-. The Commissioner of Income Tax (Appeal) [CIT(A)] has allowed the appeal of the assessee.
The partnership deed filed by the assessee to prove his case was neither registered nor was witnessed by any individuals at the time of the formation of the Partnership Deed nor any Income Tax Return (ITR) was filed.
The CIT(A) despite the remand report, while granting the relief to the assessee, had blindly believed that the partnership firm was in existence and thereafter granted the relief relying upon Sections 184/185 of the Income Tax Act read with Sections 47(XII) of the Income Tax Act.
The Two-member bench comprising of R. K. Panda (Vice-President) and Laliet Kumar (Judicial member) held that the CIT(A) had wrongly granted the relief to the assessee and therefore, the order passed by the CIT(A) was set aside and was restored to the AO. Thus, the appeal of the revenue was allowed.
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