Sale Proceeds of Land introduced as Share Capital in AOP taxable u/s 45(3): ITAT upholds Addition of Suo Motu Offering for Tax [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune Bench, has recently, in an appeal filed before it, while upholding the addition of suo motu offering for tax, held that sale proceeds of land introduced as share capital in AOP is taxable u/s 45(3).

The aforesaid observation was made by the Pune ITAT, when an appeal was filed before it by the Revenue, as directed against the order of the Commissioner of Income Tax (Appeals), Pune, dated 08.01.2018, emanating from order under section 143(3) of the Income Tax Act, 1961, for the A.Y.2013-14, dated 29.03.2016.

The ground of the Revenue’s appeal being that on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that the transfer of stock in trade as capital contribution by the assessee, is not taxable in the year under consideration, the brief facts of the case were that the assessee was a proprietor of Vikram Constructions, engaged in the business of land development and Builder.

The assessee had filed its return of income for the A.Y.2013-14, on 28.09.2013, by declaring total income of Rs.3,13,66,950/, and the case was taken up for scrutiny. And, the Assessing Officer passed order under section 143(3) of the Act on 29.03.2016.

During the assessment proceedings, the AO observed that assessee was the owner of the land at Survey No.72/2d, Hissa No.2 to 7, Hadapsar, Pune. And that during the year, the assesseehad sold half of the said land to JKG Associates. He also observed that the assessee had formed an AOP along with JKG Associates and Mantra.

Majestique Associates vide ‘Articles of Agreement’, dated 02.11.2012, was duly registered with Joint Sub Registrar, Haveli, Pune. And in the said ‘Articles of Agreement’, the assesseei.e. Vikram Constructions prop Ghanshyamdas J Sukhwani (HUF) was referred as party of the first part, JKG Associates referred as the party of the second part ,and Mantra Majestique Associates was referred as party of the third part.

The said AOP was called as Mantra MajestiqueAssociates (AOP). And as per Article-6(i), of the said ‘Articles of Agreement’, the assessee contributed his undivided title and rights in the impugned land which is at Survey No.72/2d, Hissa No.2 to 7, Hadapsar, Pune, as its capital contribution to the AOP. It was also mentioned in Article-6(i) that the AOP shall be entitled to exploit the rights obtained therein for the purpose of its business.Thus, Rs.5 crores was credited to the capital account of the assessee.

Similarly, JKG Associates contributed its undivided title and rights in the impugned land at Survey No.72/2d, Hissa No.2 to 7, Hadapsar, Pune as their capital contribution. And, for making available the rights, the value of such contribution of the land was taken at Rs.5 crores and credited to the capital account of the JKG Associates.

It was also mentioned at Article-32 that the AOP shall file a separate Income Tax Return and other Tax Returns. It was further mentioned in Article-32 that the AOP shall be responsible for making payment of Income Tax. Accordingly, the AOP filed separate Income Tax Return.

The AO taxed Rs.5 crore as business income of the assessee. And being aggrieved by the assessment order, the assessee filed an appeal before the CIT(A), who vide his order dated 08.01.2018, allowed the appeal of the assessee. And it is being aggrieved by the same that the Revenue has preferred the instant appeal before the Tribunal.

Hearing the opposing contentions of both sides as submitted by Shri Krishna Gujarathi, the AR, and by B.S.Rajpurohit , the DR, the ITAT Panel  S.S.Viswanethra Ravi, the Judicial Member, and Dr, Dipak P. Ripote, the Accountant Member held:

“We hold that the transaction of impugned land introduced by the assessee as his share of capital in the AOP is taxable under Section 45(3) of the Income Tax Act. Accordingly, the Revenue appeal is Allowed.”

To Read the full text of the Order CLICK HERE

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