Assessee cannot be Treated Differently when Cost of Improvement made by Co Worker has been Accepted U/S 143(3): ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) that when the same claim of cost of improvement made by the co-owner has been accepted, then the assessee cannot be treated differently.

The assessee in the present is an individual and engaged in the proprietary business of processing of plastic raw materials into articles under the name and style of “M/s Gokul Plastic”. The assessee is also a partner in the firm namely “M/s Pooja Buicon”. The assessee in the F.Y. 2009-10along with other person acquired an immovable property for Rs. 70 Lakh in which his share was 50% only. During the year under consideration i.e. F.Y. 2013-14,the assessee along with co-owner so 5% of impugned property for a consideration of Rs. 18,35,000/- and the remaining 95%of property was transferred to partnership firm “M/s Pooja Buicon” as partner’s capital contribution at Rs. 1,47,01,250/- (assessee share).

The AO, considering the market value of 5% of impugned property, believed that the remaining property shou have been transferred to partnership firm at Rs. 3,48,65,000/- in which assessee share comes at Rs. 1,74,32,500/- only instead of at Rs. 1,47,01,250/-only. Therefore, the AO purposed to invoke the provision of section50Cof the Act and treat the consideration in hand of the assessee at Rs. 1,74,32,500/-instead of Rs. 1,47,01,250/- only.

The assessee in reply submitted that he transferred the impugned property capital contribution to the firm. Therefore, the transaction falls under the provision of section 45(3) of the Act wherein it is provided that a capital asset transferred to a firm by a partner by way of capital contribution, then the amount at which, the firm records such capital assets in its books shall be deemed as full of value of consideration for the purpose of section 48 of the Act. Hence, the provision of section 50C of the Act cannot be applied to the impugned transfer of property.

However, the AO disagreed with the contention of the assessee and he that provision under section 50C of the Act is a special provision with respect to capital assets, being land or buiing. As per section 50C of the Act, the full value of consideration on transfer of land or buiing shall be the value at which stamp duty is assessed or assessable and in the case of assessee, such value comes at Rs. 1,74,32,500/- (50%) only. Thus, the AO added an amount of Rs. 27,31,250/-(1,74,32,500 – 1,47,01,250) to the total income of the assessee.

Aggrieved assessee preferred an appeal before the learned CIT(A). However, the learned CIT(A) after considering the facts in totality confirmed the findings of the AO. Aggrieved, the assessee appealed before the tribunal.

After hearing both the parties, the tribunal found identical claim of cost of improvement on account of compensation to “Om Shri Sanat Non-Trading Owners Associations” made by the Co-owner i.e. brother of the assessee Shri Manubhai Ishwarbhai Patel which has been accepted by the Revenue in the assessment framed under section 143(3) of the Act. Therefore, the bench he that when the same claim of cost of improvement made by the co-owner has been accepted, then the assessee cannot be treated differently.

The two member bench comprising of T.R Senthil Kumar (Judicial member) and Waseem Ahmed (Accountant member) set aside e finding of learned CIT(A) regarding the claim of cost of  improvement on account of compensation paid to “Om Shri Sanat Non-Trading Owners Association” and direct the AO to allow the claim of the assessee in this regard. Hence, in totality the claim of the assessee on the issue raised by him vide impugned grounds of appeal was allowed.

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