The appeal was filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals), Karnal, for Assessment Year 2008-09, arising from reassessment proceedings completed under section 143(3) read with section 148 of the Income-tax Act, 1961.

The assessee, a partnership firm engaged in the solvent extraction business, had filed its return declaring a nominal taxable income. Subsequently, the assessment was reopened, and the Assessing Officer made additions treating the alleged transfer of land and building as long-term capital gains, on the premise that the partnership firm had been converted into a sole proprietorship concern, amounting to dissolution of the firm. The additions were made by invoking the provisions relating to transfer of capital assets, aggregating to substantial long-term capital gains.

The CIT(A) deleted the additions, observing that the partnership had come into existence on 31.03.2008 and holding that the conditions necessary for taxing capital gains on dissolution or transfer of assets were not fulfilled. Aggrieved by this decision, the Revenue preferred an appeal before the Tribunal.

Before the Tribunal, the Revenue contended that the CIT(A) erred in deleting the additions without proper verification of original partnership deeds and audit reports. It was further argued that inconsistencies existed regarding the retirement or continuation of one of the partners, which were not adequately explained by the assessee. According to the Revenue, these aspects were crucial to determine whether there was a transfer of capital assets liable to tax under the Act.

After considering the submissions of both parties and examining the material on record, the Tribunal observed that certain factual aspects, particularly relating to the constitution of the partnership and the status of partners at the relevant time, required fresh verification. The Tribunal held that, in the interest of natural justice, these issues ought to be re-examined at the level of the CIT(A) after providing adequate opportunity of being heard to the assessee.

Accordingly, the Tribunal set aside the order of the CIT(A) and remanded the matter for fresh adjudication. The appeal of the Revenue was thus allowed for statistical purposes.

SOURCE LINK

https://itat.gov.in/public/files/upload/1767948747-zzkMKJ-1-TO.pdf

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