Rajendra, Accountant Member - Challenging the order dtd. 28-03-2011 of the CIT(A)-35, Mumbai, Assessing Officer (AO) has raised following Grounds of Appeal :

(i) "On the facts and in the circumstances of the case, and in law, the ld CIT(A) erred in directing the A.O. to delete the entire addition of capital gain u/s. 45(4) of the Income Tax Act, 1961 without appreciating the fact that HDIL was admitted as partner in the partnership firm with 50% share of profit, by this arrangements 50% of the interest of the existing partners have been transferred in favour of incoming partner w.e.f. 06-07-2007 resulting in transfer of assets within the meaning of section 45(5) r.w.s. 2(47) of the Income Tax Act 1961."

(ii) The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing officer be restored."

(iii) The appellant craves leave to amend or alter any ground or add a new ground."

Assessee firm, engaged in the business of builders and developers, filed its return of income on 22.07.2008 admitting total income at Rs. Nil. Initially the return was processed u/s. 143(1) of the Income-tax Act, 1961 (Act). Later on the case was selected for scrutiny. AO completed the assessment u/s. 143(3) of the Act determining the total income at Rs. 86,72,80,450/-.

2. During the assessment proceedings, AO noted that the original partnership deed was signed on 25.11.2005 and following were the partners :-

2.1. On 06.07.2007, Housing Development and Infrastructure Limited (HDIL) was introduced as a new partner and the profit sharing ratios of the partners was as under:

2.2. AO further noticed that the assessee firm had purchased a piece of plot of land from Bhandary Metallurgical Corpn. Ltd. (BMCL) for a consideration of Rs. 28 Crores. He was of the opinion that 50% of the value of the plot of the land was transferred in favour of the HDIL on 06.07.2007 and thereby the assessee firm was liable to be taxed u/s. 45(4) of the Act. AO further found that on 15.10.2007 HDIL had entered into an agreement with Mumbai International Airport Ltd (MIAL). He held that agreement between MIAL & HDIL was the proof that the new partner had become 100% owner of the plot. On 01.04.2008, the said plot of land was revalued at Rs. 2,68,37,42,000/-. He issued a show cause notice to the assessee firm for taxing the entire value of plot amounting to Rs. 268.37Crores u/s. 45(4) of the Act under the head 'Capital Gains'. After considering the submissions of the assessee, he held that HDIL had already dealt with the property of the firm as its own property when it had signed an MOU with MIAL for rehabilitation of the slums on the land of the firm, that it had claimed that all the ownership rights of the plot of land belonged to it, that a copy of the MOU was furnished by the assessee during the course of the assessment proceedings, that no document supporting the MOU was submitted by the assessee-firm, that capital gain arising out of the transfer on land had to be calculated by adopting the market value of the land as on the date of the transfer. Finally, he held that the capital gains for the AY under consideration worked out to Rs. 1,86,72,80,452/- and he added the same amount to the total income of the assessee. AO relied upon the case of CIT v. Gurunath Talkies [2010] 328 ITR 59/ 189 Taxman 171 (Kar.).

3. Assessee-firm preferred an appeal before the First Appellate Authority (FAA). After considering the assessment order and th