Bimco Electrical Products Private Limited, Hyderabad V. Asst.Commissioner of Income Tax Circle 1(3), Hyderabad

ITA 1600/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82571 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 27-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: AJAY GANDHI
• Keywords: Capital asset; Cost of acquisition; Fair market value; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1600/HYD/2013 ASSESSMENT YEAR : 2006-07 BIMCO ELECTRICAL PRODUCTS PVT. LTD., HYDERABAD PAN AAACB8279R ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 1(3), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI AJAY GANDHI REVENUE BY SHRI RAJAT MITRA DATE OF HEARING 10-11-2014 DATE OF PRONOUNCEMENT 26-11-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST OR DER DATED 12/08/13 OF LD. CIT(A)-V, HYDERABAD RELATING TO AY 2006-07. 2. ASSESSEE HAS RAISED 7 GROUNDS BEFORE US GROUND N O. 7 BEING A GENERAL GROUND DOES NOT REQUIRE ANY SPECIFIC ADJU DICATION. GROUND NOS. 1 TO 4 RELATES TO THE COMMON ISSUE OF COMPUTATION OF CAPITAL GAIN BY ADOPTING THE COST OF ACQUISITION OF LAND SOLD AT RS. 10,000 PER ACRE. AS AGAINST RS. 13,40,000 ADOPTED B Y ASSESSEE. 3. BRIEFLY THE FACTS ARE, ASSESSEE IS A PRIVATE LTD . COMPANY. FOR THE AY UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF INCOME DECLARING 2 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. TOTAL INCOME OF RS. 1,00,08,846. DURING THE ASSESSM ENT PROCEEDING FOR AY 2004-05, AO NOTICED THAT OUT OF 9680 SQ.YDS LAND ALLOTTED TO IT BY A.P. GOVERNMENT IN FY 1973-74, ASSESSEE HAS S OLD LAND ADMEASURING 5807 SQ.YD. IN THE BOOKS OF ACCOUNT, A SSESSEE HAD SHOWN COST OF ACQUISITION OF LAND FOR THE ENTIRE 96 80 SQ.YD. AT RS. 13,40,000. HE FURTHER NOTICED THAT OUT OF THE TOTAL 5897 SQ.YDS OF LAND SOLD BY ASSESSEE, DURING 2004-05, ASSESSEE HAD RECEIVED SALE CONSIDERATION OF RS. 2,78,73,600 AND CLAIMED BROKER AGE PAYMENT OF RS. 1.00 LAKH. WHILE GOING THROUGH THE LONG TERM CAPITAL GAIN COMPUTED BY ASSESSEE, AO NOTICED THAT TO ARRIVE AT THE INDEX COST OF ACQUISITION, ASSESSEE HAS TAKEN THE YEAR OF ACQU ISITION AS 1991- 92 AND INDEXED COST OF ACQUISITION WAS COMPUTED AT RS. 18,17,291. ON THE BASIS OF AFORESAID INFORMATION, AO CALLED UP ON ASSESSEE TO PRODUCE ALL RELEVANT DOCUMENTS RELATING TO PURCHASE AND SALE OF LAND ALONG WITH DETAILS OF BROKERAGE PAID FOR COMPU TATION OF CAPITAL GAIN. IN RESPONSE TO THE QUERY MADE BY AO, ASSESSEE SUBMITTED COMPUTATION SHEET FOR LONG TERM CAPITAL GAIN AND SA LE DEED COPY. WHEN AO AGAIN INSISTED UPON ASSESSEE TO FURNISH SAL E DEED COPY PERTAINING TO FY 1991-92 WHEREIN THE LAND WAS CLAIM ED TO HAVE BEEN ACQUIRED, ASSESSEE SUBMITTED THAT THE LAND WAS ALLOTTED BY GOVT. OF A.P, HENCE, THERE IS NO PURCHASE DEED FOR LAND. IT WAS FURTHER SUBMITTED THAT ORIGINALLY LAND BELONGED TO M/S BIMCO PRODUCTS, A PARTNERSHIP FIRM, WHICH WAS LATER CONVE RTED INTO A PRIVATE LTD. COMPANY ON 01/10/91 AND ALL THE ASSETS AND LIABILITIES WERE TAKEN OVER BY THE COMPANY. EXPLAINING FURTHER, ASSESSEE SUBMITTED A LETTER ON 21/08/06 GIVING DETAILS OF TR ANSFER OF LAND. AS PER THE DETAILS FURNISHED BY ASSESSEE, PARTNERSHIP FIRM IN THE NAME AND STYLE OF BIMCO PRODUCTS HAVING TWO PARTNERS WAS CONSTITUTED IN 1973 AND CARRIED ON BUSINESS OF MANUFACTURE OF ISOL ATORS, AB SWITCHES AND OTHER ELECTRICAL PRODUCTS REQUIRED FOR TRANSMISSION OF POWER. M/S BIMCO PRODUCTS WAS ALLOTTED TWO ACRES OF INDUSTRIAL LAND 3 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. BY AP GOVT. VIDE G.O.NO. 849 DATED 19/09/1973. THER E WAS A CHANGE IN THE CONSTITUTION OF FIRM ON 03/09/1985 WI TH ADMISSION OF TWO NEW PARTNERS NAMELY ASWHIN BUVA AND PANKAJ BUVA IN ADDITION TO TWO OTHER CONTINUING PARTNERS. ON 23/03/1990 UND ER A RETIREMENT DEED TWO PARTNERS NAMELY L.B. PRASADA RAO AND SMT. L. RAJESWARI RETIRED FROM THE PARTNERSHIP. WHEREAS, THE OTHER TW O PARTNERS CONTINUED THE PARTNERSHIP BUSINESS. AGAIN, THERE WA S A RECONSTITUTION OF FIRM ON 1 ST APRIL, 1991 BY ADMISSION OF A THIRD PARTNER I.E. BIMCO ELECTRICALS PVT. LTD AS PER THE PARTNERSHIP DEED DATED 1 ST APRIL, 1991. ON FIRST OCTOBER, 1991, TWO PARTNERS NAMELY MR. ASWHIN BHUVA AND PANKAJ BHUVA RETIRED FROM THE PARTNERSHIP FIRM LEAVING THE REMAINING PARTNER M/S BIMCO ELECTR ICALS PVT. LTD., WHICH TOOK OVER THE PARTNERSHIP BUSINESS WITH ALL T HE ASSETS AND LIABILITIES AND THE STATUS OF THE FIRM WAS CHANGED FROM PARTNERSHIP TO PRIVATE LTD. COMPANY. IN SUPPORT OF SUCH CLAIM, ASSESSEE ALSO PRODUCED THE DOCUMENTARY EVIDENCE IN THE FORM OF PA RTNERSHIP RETIREMENT DEED, ASSIGNMENT LETTER CERTIFICATE ISSU ED BY TAHSILDAR, ANNUAL REPORT OF THE COMPANY IN FY 1991-92. IT WAS SUBMITTED, AS ASSESSEE COMPANY HAD TAKEN OVER ASSETS AND LIABILIT IES DURING FY 1991-92 INDEX COST OF ACQUISITION AS ON THE DATE OF TRANSFER I.E. 1991-92 WAS CONSIDERED FOR COMPUTATION OF CAPITAL G AIN. AS NOTED BY AO, THOUGH, THE COMPANY WAS ASKED TO PRODUCE SUP PORTING EVIDENCE TO SHOW AT WHAT POINT OF TIME LAND VALUE C HANGED FROM RS. 20,000 FOR TWO ACRES TO RS. 13,40,000 AND WHAT IS T HE MARKET VALUE OF LAND AS ON 01/04/1981, SINCE, ASSESSEE DID NOT C OMPLY WITH THE SAME, AO PROCEEDED TO COMPUTE CAPITAL GAIN BY ADOPT ING COST OF ACQUISITION OF LAND AT RS. 10,000 PER ACRE AS ON 01 /04/1981, WHICH RESULTED IN DETERMINATION OF LONG TERM CAPITAL GAIN AT RS. 2,78,18,050. BEING AGGRIEVED OF THE SAID ASSESSMENT ORDER, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 4 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. 4. WHEN THE APPEAL WAS STILL PENDING BEFORE LD. CIT (A), SCRUTINY ASSESSMENT PROCEEDING FOR THE IMPUGNED YEAR WAS TAK EN UP BY AO. IN COURSE OF SCRUTINY ASSESSMENT PROCEEDING, AO NOT ICED OUT OF 9680 SQ.YDS. OF LAND AVAILABLE TO ASSESSEE, IT SOLD 5807 IN AY 2004-05 AND THE BALANCE 3873 SQ.YDS. WAS SOLD BY A SSESSEE IN THE IMPUGNED AY AND AS PER THE SRO VALUE ASSESSEE RECEI VED SALE CONSIDERATION OF RS. 1,89,00,684. ASSESSEE ALSO DEC LARED LONG TERM CAPITAL GAIN OF RS. 1,73,76,510 BEFORE CLAIMING DED UCTION U/S 54EC. FROM THE COMPUTATION OF LONG TERM CAPITAL GAIN, AO NOTICED THAT ASSESSEE HAS ADOPTED COST OF ACQUISITION OF LAND OF THE ENTIRE 9680 SQ.YDS. AT RS. 13,40,000. AO FOLLOWING THE OBSERVAT ION MADE IN THE ASSESSMENT ORDER PASSED FOR AY 2004-05, HOWEVER ADO PTED THE COST OF ACQUISITION OF LAND AT RS. 10,000 PER ACRE AS ON 01/04/1981, WHICH RESULTED IN DETERMINATION OF LONG TERM CAPITA L GAIN AT RS. 1,11,18,460. BEING AGGRIEVED OF SUCH COMPUTATION OF CAPITAL GAIN, ASSESSEE CHALLENGED THE SAME IN APPEAL BEFORE CIT(A ). 5. IN COURSE OF HEARING OF APPEAL BEFORE LD. CIT(A) ON THE BASIS OF THE SUBMISSIONS MADE BY ASSESSEE LD. CIT(A) CALL ED FOR A REMAND REPORT FROM AO. IN THE REMAND REPORT, AO AFT ER EXAMINING THE BOOKS OF ACCOUNT AND ALL OTHER RELATED DOCUMENT S NOTED THAT IN THE YEAR 1987, THE PARTNERSHIP FIRM, WHICH WAS THE OWNER OF THE PROPERTY HAD REVALUED THE LAND OF TWO ACRES AT RS. 13,40,000 AND CREDITED TO THE PARTNERS CAPITAL ACCOUNT. HE FURTHE R NOTED THAT ON 01/10/1991, AFTER RETIREMENT OF SHRI ASHWIN BHUVA A ND PANKAJ BHUVA FROM THE PARTNERSHIP FIRM, WHICH RESULTED IN DISSOLUTION OF THE FIRM, ASSESSEE COMPANY TOOK OVER THE ASSETS AND LIABILITIES OF THE PARTNERSHIP FIRM. THUS, THE COMPANY ACQUIRED TW O LAKHS OF LAND AT THE BOOK VALUE AS APPEARING IN THE PARTNERSHIP F IRM AT RS. 13,40,000. AO IN THE REMAND REPORT NOTED THAT IN CA SE OF ASSESSEE, COST OF ACQUISITION OF ASSET SHOULD BE EITHER HISTO RICAL COST AT RS. 5 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. 10,000 PER ACRE AND YEAR OF ACQUISITION SHOULD BE 1 981 (SINCE IT WAS ACQUIRED IN 1973) OR THE COST OF ACQUISITION OF ASSET IS TO BE TAKEN AS NIL AND THE YEAR OF ACQUISITION AS 1991 BE ING THE YEAR IN WHICH THE LAND WAS TRANSFERRED TO ASSESSEE COMPANY THOUGH AT PEAK VALUE. AO REFERRING TO THE PROVISIONS OF SECTI ON 45(4) AND THE DEFINITION OF TRANSFER UNDER SECTION 2(47), ULTIMAT ELY, OBSERVED AS UNDER: NOTE: SINCE THE FAIR MARKET VALUE OF 1991-92 CANNOT BE ASCERTAINED FOR THE LAND, THE REVALUATION COST OF THE LAND (AS IN 1987) IS TAKEN AS THE FAIR MARKET VALUE OF THE LAND IN 1991-92. IF THE DISSOLVED FIRM (MLS.BIMCO PRODUCTS) HAD RECEIVED THE CONSIDERATION OF RS. 13,20,000 FROM THE COMPANY AND AS A PROOF OF RECEIPT OF SUCH SUM IF THE FIRM HAD PAID TAXES ULS.45(4) FOR THE AY 1992-93, THEN IT IS ACCEPTED THAT THE COST TO THE COMPANY IN RESPECT OF THE LAND (2 ACRES) WOULD BE RS. 13,40,000. BUT IT HAS BEEN ASCERTAINED FROM THE ASS ESSEE COMPANY THAT THE DISSOLVED FIRM DID NOT RECEIVE ANY CONSIDERATION FR OM THE ASSESSEE- COMPANY OR THE PARTNERS. THEREFORE, IN THE ABSENCE OF ANY PROF ITS OR GAINS ARISING TO THE DISSOLVED FIRM ON ACCOUNT OF T RANSFER OF LAND, IT IS TO BE TAKEN THAT THE LAND OF 2 ACRES (ACQUIRED AT RS.2 0,000 PER 2 ACRES IN 1973) WAS TRANSFERRED IN 1991-92 TO THE ASSESSEE-COMPANY AT NIL VALUE. THEREFORE, THE ORIGINAL COST ONLY I.E ., AT RS.20,000 PER 2 ACRES, SHOULD BE TAKEN AS THE COST OF ACQUISITION I N THE HANDS OF THE ASSESSEE-COMPANY FOR THE PURPOSES OF COMPUTATION OF LONG TERM CAPITAL GAINS. THEREFORE , UPON CONSIDERATION OF THE CASE LAW 287 ITR 404 (KAR) AND IN VIEW OF THE ABOVE DISCUSSION , THE COST OF ACQUISITION OF LAND IN THE HANDS OF THE ASSESSEE- COMPANY SHOULD BE AS FOL LOWS: COST OF ACQUISITION IN THE HANDS OF THE COMPANY IN 1991-92 = RS. 20,000 PER 2 ACRES (1 ACRE = 4840 SQ.YDS). SINCE THE ASSESSEE-COMPANY SOLD 5807 SQ.YDS OF LAND IN FY 2003-04 RELEVANT TO THE AY 2004-05, THE COST OF ACQUISITIO N OF 5807 SQ.YDS = {RS. 10000/4840 SQ.YDS}X 5807 SQ. YDS. = RS. 11,998. INDEXED COST OF ACQUISITION OF 5807 SQ.YDS OF LAND = 11,998 X 463/199 = 27,915. 6 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. FURTHER TO THE ABOVE, THE SALE DOCUMENTS IN RESPECT OF THE SALE OF 5807 SY.YDS HAVE BEEN OBTAINED FROM SRO. AS SEEN FROM THE SALE DEEDS, THE SALE WAS EXECUTED IN TWO S ALE DEEDS. LD. CIT(A) INVITED ASSESSEES COMMENTS ON THE REMAN D REPORT SUBMITTED BY AO. THOUGH, ASSESSEE OBJECTED TO THE O BSERVATION MADE IN THE REMAND REPORT, BUT, LD. CIT(A) REJECTIN G THE CONTENTIONS RAISED BY ASSESSEE, CONFIRMED THE COMPUTATION OF CA PITAL GAIN MADE BY AO BY OBSERVING AS UNDER: 5.5 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE REASONINGS OF THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER AND AS WELL AS REMAND REPORT AND THE REPLY OF THE APPELLANT TO THE REMAND REPORT. THE A.O. HAS RIGHTLY DETERMIN ED THE LONG TERM CAPITAL GAINS AT RS/ 1,11,18,460 BY ADOPTING R S. 20,000 AS COST OF LAND OF 2 ACRES AND RS. 8002 FOR COST OF LA ND OF 3873 SQ.YDS SOLD BY THE APPELLANT ON THE BASIS OF THE RE CORDS FOR THE A.Y,2004-05, WHERE THE COST OF LAND WAS ADOPTED AT RS. 20,OOO (AS ON 1-4-1981) BY REJECTING THE APPELLANT'S CLAIM OF COST AT 13,40,OOO. THE APPELLANT ALSO NOT FURNISHED ANY DET AILS TO JUSTIFY THE ORIGINAL COST ADOPTED AT RS. 13,40,OOO REJECTED BY THE DEPARTMENT. HENCE, I CONFIRM THE ACTION OF THE ASSE SSING OFFICER AND UPHELD THE DETERMINATION OF LONG TERM CAPITAL G AINS AT RS. 1,11,18,460. 6. THE LEARNED AR SUBMITTED BEFORE US THAT IN THE R EMAND REPORT, AO HAS NOT DISPUTED THE FACT THAT AS PER SE CTION 45(4) OF THE ACT, DISTRIBUTION OF ASSETS ON DISSOLUTION OF A PAR TNERSHIP FIRM RESULTS IN A TRANSFER. HE SUBMITTED THAT THERE IS A LSO NO DISPUTE TO THE FACT THAT BOOK VALUE OF THE ASSET AT THE TIME O F TRANSFER WAS RS. 13,40,000. THEREFORE, WHEN THERE IS NO DISPUTE TO T HE FACT THAT AT THE TIME OF TRANSFER OF LAND TO ASSESSEE, THE BOOK VALUE OF LAND WAS RS. 13,40,000, THEN, THE COST OF ACQUISITION CANNOT BE ADOPTED AT RS. 10,000 PER ACRE, WHICH IS THE COST OF ACQUISITI ON OF PREVIOUS OWNER IN THE YEAR 1973-74. IN SUPPORT OF SUCH CONTE NTION, LD. AR RELIED UPON A DECISION OF THE HONBLE KARNATAKA HIG H COURT IN CASE OF SUVARDHAN VS. CIT, 287 ITR 404. 7 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. 7. THE LEARNED DR ON THE OTHER HAND SUPPORTING THE ORDER OF AO AND LD. CIT(A) SUBMITTED THAT AS ASSESSEE HAS NOT P RODUCED ANY EVIDENCE EITHER BEFORE AO OR BEFORE LD. CIT(A) REGA RDING TRANSFER OF LAND AND VALUE OF LAND AS ON 01/04/1981, THE COST O F ACQUISITION TAKEN BY AO AT RS. 10,000 PER ACRE IS CORRECT. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL A S OTHER MATERIALS ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS PLACED BEFORE US. THE FACTS WHICH ARE NOT IN DISPUTE ARE, THE LAND IN QUESTION ADMEASURING TWO ACRES WAS ALLO TTED TO PARTNERSHIP FIRM M/S BIMCO PRODUCTS IN THE YEAR 197 3 AT THE COST OF RS. 10,000 PER ACRE. IT IS ALSO A FACT THAT ASSESSE E JOINED AS A PARTNER IN M/S BIMCO PRODUCTS ON 01/04/1991 AND UL TIMATELY ON DISSOLUTION OF FIRM ON 01/10/1991 TOOK OVER THE AS SETS AND LIABILITIES OF PARTNERSHIP FIRM WHICH WAS CONVERTED INTO A PRIVATE LIMITED COMPANY. IT IS ALSO A FACT ON RECORD AND WH ICH IS ALSO EVIDENT FROM THE REMAND REPORT THAT THE LAND WAS RE VALUED IN THE YEAR 1987 IN THE BOOKS OF THE PARTNERSHIP FIRM AT R S. 13,40,000 AND IT WAS APPORTIONED TO THE CAPITAL ACCOUNT OF THE PA RTNERS. THEREFORE, THERE IS NO DISPUTE TO THE FACT THAT WHEN THE ASSET S AND LIABILITIES OF PARTNERSHIP FIRM WAS TAKEN OVER BY ASSESSEE IN THE YEAR 1991-92, WHICH ALSO INCLUDED THE LAND IN QUESTION, THE VALUE OF THE LAND IN THE BOOKS WAS RS. 13,40,000. 9. SECTION 45(4) OF THE ACT, ENVISAGES THAT PROFITS AND GAINS ARISING FROM TRANSFER OF CAPITAL ASSETS BY WAY OF D ISTRIBUTION OF CAPITAL ASSETS ON DISSOLUTION OF FIRM SHALL BE CHAR GEABLE TO TAX AS INCOME OF THE FIRM OF THE PREVIOUS YEAR IN WHICH TH E TRANSFER TAKES PLACE AND FOR THE PURPOSE OF SECTION 48, THE FMV OF THE ASSET ON 8 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER. AS CAN BE SEEN FROM A PLAIN READING OF THE AFORESAID PROVI SION, IT IS A DEEMING PROVISION, HENCE, CAPITAL GAIN HAS TO BE CH ARGED TO TAX AT THE HANDS OF THE FIRM IRRESPECTIVE OF THE FACT WHE THER ANY CONSIDERATION WAS RECEIVED BY FIRM OR NOT. AS CAN B E SEEN FROM THE REMAND REPORT, THOUGH AO HAS ACCEPTED THE AFORESAID POSITION OF LAW, HOWEVER, HE HAS COMMENTED THAT AS NO CONSIDERA TION HAS BEEN PAID TO THE DISSOLUTED FIRM EITHER BY ASSESSEE COMPANY OR ERSTWHILE PARTNERS AND AS THE FIRM HAS NOT OFFERED ANY CAPITAL GAIN, TRANSFER TO ASSESSEE COMPANY IN THE YEAR 1991-92 HA S TO BE TAKEN AT NIL VALUE, HENCE, ORIGINAL COST OF RS. 20,000 PE R TWO ACRES SHOULD BE TAKEN AS COST OF ACQUISITION AT THE HANDS OF ASSESSEE COMPANY. 10. IN OUR VIEW, THIS IS AN INCORRECT INTERPRETATI ON OF THE STATUTORY PROVISION. IT IS TRITE LAW THAT WHEN PROVISIONS OF TAXING STATUTE ARE PLAIN AND UNAMBIGUOUS LITERAL INTERPRETATION HAS TO BE GIVEN TO IT. ON A PLAIN READING OF SECTION 45(4) IT BECOMES CLEA R THAT IF THERE IS TRANSFER OF ASSETS ON DISSOLUTION OF PARTNERSHIP FI RM, THEN, PROFITS AND GAINS DERIVED FROM SUCH TRANSFER HAS TO BE CHAR GED TO TAX AT THE HANDS OF THE FIRM AND THE CONSIDERATION RECEIVE D HAS TO BE DEEMED TO BE THE FMV OF THE LAND AS ON THE DATE OF TRANSFER. THEREFORE, CONSIDERED IN THE AFORESAID PERSPECTIVE, BOOK VALUE OF THE LAND AS ON THE DATE OF TRANSFER I.E. RS. 13,40, 000 SHOULD BE TAKEN TO BE THE CONSIDERATION PAID BY ASSESSEE TO P ARTNERSHIP FIRM, WHICH, IN OTHER WORDS, MEANS THE COST OF ACQUISITIO N AT THE HANDS OF ASSESSEE FOR THE LAND IN QUESTION WOULD BE RS. 13,4 0,000 IN THE YEAR OF ACQUISITION I.E. 1991-92. THEREFORE, UNDER NO CIRCUMSTANCES RATE OF RS. 10,000 PER ACRE WHICH IS THE COST TO THE ORIGINAL OWNER I.E. PARTNERSHIP FIRM IN THE YEAR 19 73 CAN BE 9 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. CONSIDERED AS COST OF ACQUISITION AT THE HANDS OF A SSESSEE. THIS COULD HAVE BEEN THE SITUATION IF THE TRANSFER ON DI SSOLUTION OF PARTNERSHIP FIRM HAD TAKEN PLACE PRIOR TO FIRST APR IL, 1987 AS SECTION 49(1)(III)(B) PROVIDES THAT COST OF ACQUISI TION IN CASE OF TRANSFER ON ACCOUNT OF DISTRIBUTION OF ASSETS ON DI SSOLUTION OF PARTNERSHIP FIRM PRIOR TO 1 ST APRIL, 1987 SHALL BE DEEMED TO BE THE COST AT WHICH THE PREVIOUS OWNER ACQUIRED THE PROP ERTY. HOWEVER, SINCE IN THE APPEAL BEFORE US DEPARTMENT DOES NOT D ISPUTE THAT THE TRANSFER OF ASSET TO THE ASSESSEE COMPANY HAS TAKEN PLACE ON DISSOLUTION OF PARTNERSHIP FIRM IN FY 1991-92, THE PROVISIONS OF SECTION 49(1)(III)(B) WILL NOT APPLY. IN THAT VIEW OF THE MATTER, AS THE TRANSFER HAS TAKEN PLACE IN TERMS OF SECTION 45(4) OF THE ACT, ON DISSOLUTION OF PARTNERSHIP FIRM IN THE FY 1991-92, THE VALUE OF THE ASSET AS PER THE BOOKS ON THE DATE OF TRANSFER HAS TO BE TAKEN AS COST OF ACQUISITION. IN THIS REGARD, WE REFER TO TH E DECISION OF THE HONBLE KARNATAKA HIGH COURT IN CASE OF SUVARDHAN V S. CIT, 287 ITR 404. IN THE AFORESAID VIEW OF THE MATTER, WE HO LD THAT AO AND LD. CIT(A) WERE NOT JUSTIFIED IN ADOPTING THE COST OF ACQUISITION OF LAND AT RS. 10,000 PER ACRE AS AGAINST RS. 13,40,00 0 AS SHOWN IN THE BOOKS AT THE TIME OF TRANSFER ON DISSOLUTION OF THE PARTNERSHIP FIRM. ACCORDINGLY, WE DIRECT THE AO TO COMPUTE CAPI TAL GAINS BY ADOPTING THE COST OF ACQUISITION AT RS. 13,40,000 F OR TWO ACRES OF LAND. 11. THE NEXT ISSUE WHICH ARISES IN GROUND NOS. 5 & 6 IS WITH REGARD TO ADDITION OF RS. 18,82,901 AS DEEMED DIVID END U/S 2(22)(E) OF THE ACT. 12. BRIEFLY THE FACTS RELATING TO THIS ARE, DURING THE ASSESSMENT PROCEEDING, AO NOTICED THAT ASSESSEE COMPANY HAS RE CEIVED CERTAIN ADVANCES FROM ITS SISTER CONCERN M/S BIMCO ISOLATORS LTD. 10 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. AO NOTED THAT SHRI ASHWIN BHUVA AND PANKAJ BHUVA AR E COMMON SHAREHOLDERS IN BOTH THE COMPANIES AND ARE HOLDING MORE THAN 20% OF THE SHARE. HE FURTHER NOTED THAT M/S BIMCO ISOLA TORS, WHICH IS A DOMESTIC COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIA LLY INTERESTED, IS ALSO HAVING ACCUMULATED PROFITS OF RS. 4,92,649 AS ON 31/03/2005 AND RS. 1,15,85,795 AS ON 31/03/2006. AO , THEREFORE, PROPOSED TO TREAT ADVANCES RECEIVED AS DEEMED DIVID END U/S 2(22)(E) OF THE ACT. THOUGH, ASSESSEE OBJECTED TO THE PROPOSED ADDITION, BUT, AO REJECTING THE SUBMISSIONS MADE BY ASSESSEE TREATED AN AMOUNT OF RS. 18,82,901 AS DEEMED DIVID END U/S 2(22)(E) OF THE ACT. ASSESSEE CHALLENGED THE ADDITI ON BEFORE LD. CIT(A), WHO CONFIRMED THE ADDITION WITH THE FOLLOWI NG OBSERVATIONS: 6.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE FINDINGS OF THE ASSESSING OFFICER . THE APPELLANT COMPANY HAD RECEIVED PAYMENTS BY WAY OF ADVANCE FRO M ITS SISTER CONCERN M/S BIMCO ISOLATERS LIMITED, HYDERAB AD: SHRI ASWIN BHUVA AND SRI PANKAJ BHUVA HAVE SHARE-HOLDING OF 24% EACH IN THE APPELLANT COMPANY AND 34% AND 28% RESPE CTIVELY IN MLS BIMCO ISOLATERS LIMITED, HYDERABAD. THE AA HAS RIGHTLY HELD THAT THE SHAREHOLDERS WERE HOLDING MORE THAN 10% SH ARES IN MLS BIMCO ISOLATERS LIMITED AND HAVING MORE THAN 20% SH ARES IN THE APPELLANT COMPANY, THE PAYMENTS MADE BY WAY OF ADVA NCES BY MLS BIMCO ISOLATERS TO THE APPELLANT COMPANY AMOUNT S TO DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFITS OF ML S BIMCO ISOLATERS LIMITED WITHIN THE MEANING OF SECTION 2(2 2)(E) OF THE ACT AND THE AO HAS RIGHTLY WORKED OUT DEEMED DIVIDEND A T RS. 18,82,901. HENCE, I DO NOT FIND ANY INFIRMITY IN TH E ACTION OF THE AO IN ARRIVING AT THE DIVIDEND INCOME OF RS. 18,82, 901 AND THE CASE-LAWS RELIED UPON THEREIN AND CONFIRM THE ADDIT ION. 13. THE LEARNED AR SUBMITTED BEFORE US THAT AS ASSE SSEE IS NOT A REGISTERED SHAREHOLDER OF M/S BIMCO ISOLATORS, THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. IN SUPPORT OF SUCH CONTENTION, LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: 1. ACIT VS. BHAUMIC COLOURS PVT. LTD., 118 ITD 1 (MUM.)(SB). 11 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. 2. CIT VS. STANDIPACK (P) LTD., 20 TAXMANN.COM 19 3. CIT VS. SARVA EQUITY (P) LTD., 44 TAXMANN.COM 2 8 4. CIT VS. IMPACT CONTAINERS (P) LTD., 48 TAXMANN. COM 294 14. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF REVENUE AUTHORITIES. 15. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL A S OTHER MATERIALS ON RECORD. THIS ISSUE IS NO MORE RES-INTE GRA IN VIEW OF DECISION OF ITAT, MUMBAI BENCH IN CASE OF ACIT VS. BHAUMIC COLOURS P. LTD., (SUPRA), WHICH HAS BEEN APPROVED B Y DIFFERENT HONBLE HIGH COURTS. THERE IS NO DISPUTE TO THE FAC T THAT ASSESSEE IS NOT A REGISTERED SHAREHOLDER OF M/S BIMCO ISOLAT ORS LTD. ONLY BECAUSE BOTH THE COMPANIES ARE HAVING COMMON SHAREH OLDERS WILL NOT BE A GROUND TO TREAT ADVANCES RECEIVED AS DEEME D DIVIDEND AT THE HANDS OF ASSESSEE U/S 2(22(E) OF THE ACT. THERE FORE, FOLLOWING THE RATIO LAID DOWN IN THE DECISIONS REFERRED TO AB OVE, WE HOLD THAT AS CONDITIONS OF SECTION 2(22)(E) ARE NOT SATISFIED , ADDITION OF RS. 18,82,901CANNOT BE SUSTAINED. ACCORDINGLY, WE DIREC T AO TO DELETE THE ADDITION MADE. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 26/11/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 26 TH NOVEMBER, 2014 KV 12 ITA NO. 1600/HYD/2013 BIMCO ELECTRICAL PRODUCTS PVT. LTD. COPY TO:- 1) BIMCO ELECTRICAL PRODUCTS PVT. LTD., C/O GANDHI & GANDHI, CAS., 1002, PAIGAH PLAZA, BASHEERBAGH, HYDERA BAD 500 063 2) DCIT, CIRCLE 3(1), HYDERABAD 3) CIT(A)-V, HYDERABAD 4) CIT-I, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.