Capital gains from the sale of partnership assets post-dissolution are taxable in the hands of the legal heirs, not the dissolved partnership itself.

आदेश /ORDER

PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:

This appeal filed by the assessee is directed against the order dated 19.03.2024 passed by the ld. Principal Commissioner of Income Tax, Chennai-4, Chennai for the assessment year 2017-18 under section 263 of the Income Tax Act, 1961 [“Act” in short].

2. We find that this appeal is filed with a delay of 4 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.

3. The assessee raised 6 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. PCIT is justified in setting aside the assessment order passed under section 143(3) r.w.s. 147 r.w.s. 144B of the Act in the given facts and circumstances of the case.

4. Brief facts relating to the case are that the assessee is an individual and filed her return of income for the A.Y. 2017-18 on 31.07.2017 admitting returned income of ₹.9,49,240/- and claimed refund of ₹.4,683/-. The return of income was processed on 29.08.2017 resulting in refund of ₹. 4,680/-. As per the information available with the department, the Assessing Officer noted that during the F.Y. 2016-17, vide sale deed in Doc. No.7223/2016-17 executed on 02.03.2017, the firm M/s. Baliga Lighting Company had sold factory building at Bengaluru for total consideration of ₹.5,30,00,000/-. The firm M/s. Baliga Lighting Company had two partners viz. Shri Ramesh Baliga and Shri Mahesh Baliga. Shri Mahesh Baliga expired on 14.12.2015 and accordingly, as per deed of the firm on that date i.e. on 14.12.2015, the assessee firm ceased to exist. However, the transfer of above property happened on 02.03.2017 which is after the date when the firm ceased to exist. Since the assessee firm ceased to exist the return of income filed on 31.07.2017 is void-ab- initio/infructuous, the capital gain arising on sale of land and factory building at Bangalore is to be taxed in the hands of the legal heirs of the deceased partner viz., Ms.Arthi Baliga, Ms.Smrithi Baliga, Ms.Premalata U. Balliga and Ms.Gayathiri Balliga and the surviving partner of the assessee firm viz. Shri Ramesh Baliga. Hence, the Jurisdictional Assessing Officer has initiated proceeding under section 147 in respect of assessee for assessment year 2017-18. The Jurisdictional Assessing Officer recorded the reason and reproduced the same at page 2 of the assessment order. Accordingly, the Assessing Officer issued notice under section 148 of the Act and in response to the notice, the assessee filed revised return of income on 18.05.2021 admitting income of ₹.9,49,240/- and claimed refund of ₹.4,680/-. After considering the response filed on 13.12.2021 & 24.12.2021, the Assessing Officer accepted the returned income of the assessee at ₹.9,49,240/- vide his order dated 30.03.2022 passed under section 147 r.w.s. 144B of the Act.

5. On verification of the assessment records, the ld. PCIT noted that the Assessing Officer completed the assessment by not making any addition in respect of the share of capital gains arising in the hands of the assessee on account of sale of the said immovable property at Bangalore, whereas, in the case of two of the other legal heirs of Shri Mahesh Baliga, Mrs. Premalatha U. Baliga and Ms. Gayathri Baliga,