New Gujarat Tin Printing Works, Baroda V. The Income tax Officer,Ward-5(4), Baroda

ITA 345/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9574 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 31-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Depreciation; Additional evidence; Fair market value; Valuation report; Assessment record; Revised return
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH A AA A BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI BHAVNESH BHAVNESH BHAVNESH BHAVNESH SAINI SAINI SAINI SAINI, , , , JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI, , , , ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER DATE OF HEARING :28-9-10 DRAFTED ON:29- 9-2010 ITA NO. 345 /AHD/ 2008 ASSESSMENT YEAR : 2001-02 M/S . NEW GUJARAT TIN PRINTING WORKS, OPP. BIRLA FARM, DABHOI ROAD, KAPURAI CHOWKDI,BARODA. VS. INCOME TAX OFFICER, WARD 5(4), AAYAKAR BHAVAN, NEAR RACE COURSE CIRCLE, BARODA. PAN/GIR NO. : AADFN 3717 A (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : S HRI J.P. SHAH, ADVOCATE RESPONDENT BY: SHRI ANIL KUMAR D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V BARODA, DATED 26-11-2007. 2. GROUND NO.1 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPE LLANT CASE AND IN LAW, THE HON'BLE COMMISSIONER HAS ERRED IN UPHOLDING THE DECISION OF LEARNED ASSESSING OFFICER IN RESPECT OF RE-OPENING AND RE-ASSESSMENT OF YOUR APP ELLANTS CASE. 3. AT THE TIME OF THE HEARING THE LEARNED AUTHORISE D REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THIS GROUND OF APPEAL AND THEREFORE THE SAME IS DIS MISSED AS NOT PRESSED. GROUND NOS. 2 TO 4 OF APPEAL READS AS UNDER:- - 2 - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE COMMISSIONER OF INCOME TAX (APP EALS)-V, BARODA HAS ERRED IN CONFIRMING THE ADDITION MADE BY LEARNED ASSESSING OFFICER ON ACCOUNT OF SHORT TERM CAPITAL GAIN AMOUNTING TO `.2,88,00,255/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) HAS ERRED IN NOT ACCEPTING THE PLEA OF YOUR APPELLANT IN RESPECT OF MATTER TO BE REFERRED TO VALUATION CELL FOR THE PURPOSE OF VALUATION OF THE ALLEGED PROPERTY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) HAS ERRED IN NOT TAKING COGNIZ ANCE IN RESPECT OF ARGUMENTS PUT FORWARD BY YOUR APPELLANT TOWARDS 4.01. THAT THE ALLEGED VALUATION REPORT DATED 1-4- 2000 INCLUDES COST OF LAND ALSO WHICH IS NOT OWNED BY TH E FIRM AND NOT CONSIDERING THE FRESH VALUATION REPORT SUBMITTE D BY YOUR APPELLANT. 4.02. NOT TAKING INTO CONSIDERATION FACTS SUBMIT TED BY YOUR APPELLANT IN RESPECT OF DEPRECIATION CLAIMED BY THE NEWLY FORMED PVT. LTD. CO. NAMELY NEW GUJARAT TIN CIRCLE DEPOT PVT. LTD. 4.03 IN RESPECT OF PLEA MADE BY YOUR APPELLANT T O CALL DATA FROM SUB-REGISTRAR WHICH IS AUTHENTICATED BODY FOR VALUATION OF EVERY PROPERTY. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDER ATION TWO PARTNERS OF THE ASSESSEE-FIRM I.E. ABBASI H. TINWAL A AND ABBEDIN H. TINWALA HAVE WITHDRAWN RATANPUR FACTORY BUILDING FR OM THE ASSESSEE FIRM AND THE SAME WAS INTRODUCED IN ANOTHE R FIRM M/S. GUJARAT TIN CIRCLE DEPOT ON THE SAME DAY I.E. 1-4-2 000. IN THE NEXT FINANCIAL YEAR THIS FIRM M/S. GUJARAT TIN CIRCLE D EPOT WAS CONVERTED INTO A COMPANY CALLED NEW GUJARAT TIN CIR CLE DEPOT PVT. LTD. THE LEARNED ASSESSING OFFICER NOTICED THAT TH E SAID RATANPUR FACTORY BUILDING WHICH WAS WITHDRAWN BY THE PARTNER AT A WRITTEN - 3 - DOWN VALUE OF `.34,64,745/- WAS VALUED BY A REGISTE RED VALUER FOR `.3,22,65,000/- FOR THE PURPOSE OF NEW FIRM AND THE COMPANY. 5. THE LEARNED ASSESSING OFFICER HELD THAT THE WITH DRAWAL OF THE FACTORY BUILDING WAS DISTRIBUTION OF CAPITAL AS SET AND IS A TRANSFER LIABLE TO TAX UNDER PROVISIONS OF SECTION 45(4) READ WITH SECTION 45 OF THE INCOME TAX ACT. THE ASSESSEE DID NOT FILE RETURN IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT WIT HIN TIME. HOWEVER, ON 20-3-2006 THE ASSESSEE FILED A REVISED RETURN AND DECLARED `.1,59,255/- AS SHORT TERM CAPITAL GAIN ON TRANSFER OF RATANPUR FACTORY BUILDING. 6. THE LEARNED ASSESSING OFFICER FOUND THAT THE VAL UE OF FACTORY BUILDING HAS BEEN CREDITED IN THE PARTNERS CAPITAL ACCOUNT BY PASSING JOURNAL ENTRIES BY THE ASSESSEE. THE LEARNE D ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY CAPITAL G AIN AS PER SECTION 45(4) SHOULD NOT BE LEVIED ON THE TRANSFER PRICE OF `.3,22,65,000/-. THE ASSESSEE EXPLAINED THAT THE VA LUATION REPORT DATED 1-4-2000 RELIED UPON BY THE LEARNED ASSESSING OFFICER WAS OBTAINED FOR GETTING CREDIT FACILITY FROM BANK. TH E LEARNED ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT THE VALUATION REPORT DATED 1-4-2000 I S AUTHENTIC. HE STATED IN THE ASSESSMENT ORDER THAT VALUATION HAS B EEN DONE AT THE INSTANCE OF THE PARTNERS OF THE ASSESSEE-FIRM. THE NEW COMPANY M/S. NEW GUJARAT TIN CIRCLE DEPOT PVT. LTD., HAD TA KEN OVER THE ENTIRE BALANCE SHEET OF NEW GUJARAT TIN CIRCLE DEPO T ON 30-9-2001, AND THE VALUE OF FACTORY BUILDING SHOWN IN THE BALA NCE SHEET OF NEW GUJARAT TIN CIRCLE DEPOT WAS `.3,22,65,000/-.TH E LEARNED ASSESSING OFFICER EXAMINED THE ASSESSMENT RECORDS O F NEW GUJARAT TIN CIRCLE DEPOT FOR ASSESSMENT YEAR 2001-02 AND FO UND THAT IN THE NOTES TO ACCOUNT THERE WAS A MENTION OF RE-VALUATIO N OF ASSETS AND THE EXCESS AMOUNT AFTER RE-VALUATION WAS CREDITED T O THE PARTNERS CAPITAL ACCOUNT. THE RE-VALUATION OF FACTORY BUILDI NG IS AT `.3,22,65,000/-. LATER ON THE NEW COMPANY NEW GUJAR AT TIN CIRCLE DEPOT PVT. LTD., HAS CLAIMED DEPRECIATION ON THIS V ALUE. THE - 4 - LEARNED ASSESSING OFFICER THEREFORE, CONCLUDED THAT FAIR MARKET VALUE OF FACTORY BUILDING SHOULD BE `.3,22,65,000/- . THE PARTNERS HAVE WITHDRAWN THESE ASSETS FROM THE FIRM AND INTRO DUCED THIS AS CAPITAL IN ANOTHER FIRM. THEREFORE, THERE WAS A TRA NSFER AND CAPITAL GAIN IS LEVIABLE ON THE DIFFERENCE OF `.2,88,00,255 /-. 7. ON APPEAL, BEFORE THE LEARNED AUTHORISED REPRESE NTATIVE OF THE ASSESSEE SUBMITTED THAT THE LEARNED ASSESSING O FFICER SHOULD HAVE REFERRED THE CASE TO DISTRICT VALUATION OFFICE R FOR DETERMINATION OF FAIR MARKET VALUE FOR COMPUTING TH E CAPITAL GAIN. IT WAS ARGUED THAT AMOUNT OF `.3,22,65,000/- INCLUDES VALUE OF LAND WHICH REMAINED WITH THE PARTNERS. IT WAS SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS NOT TAKEN COGNIZANCE OF FRESH VALUATION REPORT SUBMITTED BEFORE HIM. IT WAS ALSO SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS RELIED ON THE DEC ISION IN THE CASE OF HIRALAL LOKCHANDANI VS. ITO 290 ITR-258 (CUTTACK ) AND RAJLAXMI TRADING CO. 250 ITR 581 (A.P.). IT WAS SUBMITTED TH AT THE LEARNED ASSESSING OFFICER TOOK THE FAIR MARKET VALUE OF RAT ANPUR BUILDING AT `.3,22,65,000/-. FROM THE VALUERS REPORT DATED 1.4 .2000 WHICH IS A OVERVALUED FIGURE AS IT INCLUDES VALUE OF LAND AND MR. ABBASI AND ABBEDIN TINWALA HAD VALUED LAND AND BUILDING FOR GE TTING FINANCE FROM UNION BANK OF INDIA. THE ASSESSEE SUPPORTED HI S CASE FOR TAKING HIS VALUATION BY REFERRING TO THE FACT THAT THE PARTNERSHIP FIRM M/S. NEW GUJARAT TIN CIRCLE DEPOT HAD SHOWN TH E BOOK VALUE OF THE FACTORY BUILDING AFTER DEPRECIATION AT `.3,19,1 8,525/- AND THE SAME VALUE HAD BEEN TAKEN BY THE PRIVATE LIMITED CO MPANY WHICH WAS FORMED BY THE CONVERSION OF M/S/ NEW GUJARAT TI N CIRCLE DEPOT UNDER CHAPTER IX OF THE COMPANIES ACT. IT WAS FURT HER ARGUED THAT THE LEARNED ASSESSING OFFICER COMPLETELY OVERLOOKED THE FACT THAT THE REQUIREMENT OF THE SECTION 45(4) IS THAT THE FA IR MARKET VALUE OF THE ASSETS TRANSFERRED HAS TO BE ASCERTAINED. 8. HE ALSO SUBMITTED THAT ANOTHER IMPORTANT ASPECT WHICH WAS OVERLOOKED WAS THAT THE VALUATION DONE BY ABBASI AN D ABBEDIN - 5 - TINWALA COMPRISED OF LAND WHICH WAS IN THEIR INDIVI DUAL OWNERSHIP AND THE FACTORY BUILDING WHICH WAS OWNED BY THE FIR M. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE OF THE ASSESSEE OBSERVED THAT THE CAPITAL ASSET HAS BEEN WITHDRAWN FROM THE PARTN ERSHIP FIRM AND INTRODUCED AS CAPITAL IN ANOTHER FIRM AND THEREFORE THE PROVISIONS OF SECTION 45(4) R.W.S. 50 BECAME APPLICABLE AND CA PITAL GAIN WAS LEVIABLE. THE ASSESSEE HAS ALSO ACCEPTED THIS FACT BY FILING A REVISED RETURN. THE VALUATION WAS DONE AT THE INSTA NCE OF PARTNERS OF ASSESSEE FIRM ONLY. THE VALUE WAS AGAIN CONFIRME D BY THE FACT THAT THE SAME AMOUNT HAS BEEN CREDITED ON RE-VALUAT ION IN THE NEW FIRM NEW GUJARAT TIN CIRCLE DEPOT, TO THE PARTNERS CAPITAL ACCOUNT. THE PRIVATE LIMITED COMPANY HAS ALSO CLAIMED DEPREC IATION ON THIS AMOUNT. THE ASSESSEE CANNOT SAY THAT THE ENTIRE CHA IN OF EVENTS WAS A MISTAKE. IT WAS SIGNIFICANT TO NOTE THAT THE COMPANY NEW GUJARAT TIN CIRCLE DEPOT PVT. LTD., WHICH NOW OWNS ALL THE ASSETS HAS ALLOTTED SHARES TO THE PARTNERS OF NEW GUJARAT TIN CIRCLE DEPOT ON THE BASIS OF RE-VALUATION PRICE OF `.3,22,65,000 /-. THEREFORE, IT IS BUT REASONABLE TO TAKE THE VALUE OF THE TRANSFERRED ASSET AT `.3,22,65,000/-. THE TWO CASES RELIED UPON B Y THE ASSESSEE HAVE ALTOGETHER DIFFERENT FACTS AND THEREFORE, ARE NOT A PPLICABLE TO THE CASE OF THE ASSESSEE. THE CASE OF HIRALAL LOKLCHAN DANI (SUPRA) RELATES TO PURCHASE OF ROUGH DIAMONDS. THE TRIBUNAL IN THAT CASE HELD THAT THE VALUATION REPORT SUBMITTED BY THE AS SESSEE SHOULD BE CONSIDERED BY THE LEARNED ASSESSING OFFICER AND TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS).THE TRIBUNAL O BSERVED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA D NO POWER TO ADMIT ADDITIONAL EVIDENCE. IN THE CASE OF THE A SSESSEE A VALUATION REPORT WAS AVAILABLE ON RECORD FROM THE P ARTNERS OF THE ASSESSEE-FIRM FOR THE VERY SAME ASSET BY A REGISTER ED VALUER. BY SEVERAL OTHER EVENTS THE VALUE OF THE ASSET WAS AGA IN RECONFIRMED. THE SAME VALUE WAS TAKEN BY THE NEW PRIVATE LIMITED COMPANY FOR ITS BOOK PURPOSE. SHARES TO THAT EXTENT WERE ISSUED . DEPRECIATION WAS CLAIMED. IN SUCH CIRCUMSTANCES, THERE WAS NO FU RTHER NEED TO - 6 - VALUE THE ASSET AGAIN BECAUSE IT WOULD BE MORE CONV ENIENT TO THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) ACCORDINGLY CONCLUDED THAT THE FAIR MARKET VALUE OF THE FACTORY BUILDING AT THE TIME OF THE TRANSFER WAS `.3,22,65, 000/- AND THEREFORE THE WORKING OUT OF CAPITAL GAIN BY THE LE ARNED ASSESSING OFFICER. 10. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THERE WAS NO DISSOLUTION OF THE FIRM AND HENCE THERE WAS NO TRANSFER OF ASSETS. HE FURTHER SUBMITTED THA T THE TRANSFER OF AN ASSET HAS TO BE BY WAY OF EXECUTED CONVEYANCE. H E REFERRED TO PAGE 1 OF THE PAPER BOOK WHICH CONTAINS REPORT OF T HE REGISTERED VALUER SHRI VIRENDRA F. PANCHAL DATED 1-4-2000 AND POINTED OUT THAT THE NAME OF THE OWNERS GIVEN AT POINT NO.3 OF THE SAID REPORT WAS THAT OF SHRI HAJI ABBASI HUSAMUDDIN TINWALA AND SHRI HAJI ABEDIN HUSAMUDDIN TINWALA. THEREFORE, IT CAN BE SEE N THAT THE ASSESSEE-FIRM IS NOT THE OWNER OF THE BUILDING. HE FURTHER SUBMITTED THAT AT PAGE-63 TO PAGE 72 OF THE PAPER B OOK CONTAINS VALUATION REPORT OF GOVERNMENT APPROVED VALUER WHER EIN AT PAGE 68 IT HAS BEEN OBSERVED AS UNDER :- THE PROPERTY UNDER VALUATION HAVING REGISTERED SAL E DEED AND REVENUE RECORD IN THE NAME OF MR. HAJI HUSAMUDD IN TINWALA AND MR. HAJI ABEDIN HUSAMUDDIN TINWALA SAL E DEED NO.280 DATED 7-3-1996. 11. FROM THIS ALSO IT CAN BE SEEN THAT THE PROPERTY IN QUESTION IS NOT OWNED BY THE ASSESSEE-FIRM. 12. LASTLY, THE LEARNED AUTHORISED REPRESENTATIVE O F THE ASSESSEE ARGUED THAT THE DEFINITION CONTAINED IN SE CTION 2(47) DEFINES TRANSFER AS (I) THE SALE EXCHANGE OR RELINQUISHMENT OF THE AS SET; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; - 7 - 13. AS NONE OF THE ABOVE CONDITIONS EXISTS IN THE C ASE OF THE ASSESSEE THERE WAS NO TRANSFER OF BUILDING MADE BY THE ASSESSEE- FIRM AND THEREFORE WAS NOT LIABLE TO TAX UNDER SECT ION 45(4) OF THE ACT. 14. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THE BUILDING IN QUESTION WAS PART AN D PARCEL OF THE ASSET OF THE ASSESSEE-FIRM. THE FIRM IS OWNER OF T HE PROPERTY AND THE ASSET FORMS PART OF THE WRITTEN DOWN VALUE OF T HE ASSETS OF THE FIRM AND DEPRECIATION WAS REGULARLY BEING CLAIMED B Y THE ASSESSEE ON SUCH ASSETS. AFTER THIS THE FIRM CANNOT TURN A ROUND AND SAY THAT IT IS NOT THE OWNER OF THE RATANPUR FACTORY BE CAUSE IT WAS NOT TRANSFERRED BY WAY OF A CONVEYANCE DEED. THE CONDU CT OF THE ASSESSEE SHOWS THAT THE ASSESSEE WAS THE OWNER OF T HE RATANPUR FACTORY. THE PRIVATE LTD COMPANY WHICH ULTIMATELY B ECAME THE OWNER OF THE RATANPUR FACTORY BUILDING CLAIMED DEPR ECIATION ON THE VALUE OF THIS PROPERTY AT `.3,22,65,000/-. THEREFOR E, THE APPEAL OF THE ASSESSEE HAS NO MERIT AND THE SAME SHOULD BE DI SMISSED. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON BUSINESS OF PRINTING O F TIN PLATES. THE UNDISPUTED FACTS IN THE INSTANT CASE ARE THAT TWO P ARTNERS OF THE ASSESSEE-FIRM NAMELY ABBASI H. TINWALA AND ABBEDIN H. TINWALA WITHDREW RATANPUR FACTORY BUILDING FROM THE ASSESSE E FIRM AT ITS WRITTEN DOWN VALUE `.34,64,745/- ON 1-4-2000. THE S AID TWO PARTNERS CONTRIBUTED THE SAID RATANPUR FACTORY BUIL DING TO ANOTHER PARTNERSHIP FIRM NAMELY M/S. NEW GUJARAT TIN CIRCLE DEPOT ON THE VERY SAME DAY I.E. 1-4-2000. THE ASSESSEE IN ITS RE TURN FILED IN PURSUANCE TO NOTICE UNDER SECTION 148 CLAIMED THAT THE MARKET VALUE OF RATANPUR FACTORY BUILDING WAS `.36,24,000/ - ON 1-4-2000 AND THEREFORE, THE SHORT TERM CAPITAL GAIN TO BE IN CLUDED IN THE ASSESSEE FIRMS TOTAL INCOME WAS `.1,59,255/- ONLY. THE LEARNED ASSESSING OFFICER OBSERVED THAT AS PER VALUATION RE PORT EARLIER - 8 - SUBMITTED BY THE ASSESSEE THE VALUE OF RATANPUR FAC TORY BUILDING WAS `.3,22,65,000/- AND HE REJECTED THE NEW VALUATI ON REPORT DATED 28-2-2006 SUBMITTED BY THE ASSESSEE SHOWING THE VAL UE OF RATANPUR FACTORY BUILDING AT `.36,24,000/-. THE LEA RNED ASSESSING OFFICER ALSO REJECTED THE CONTENTION OF THE ASSESSE E TO THE EFFECT THAT THE VALUATION OF `.3,22,65,000/- MADE BY THE E ARLIER VALUER ALSO INCLUDED THE VALUE OF LAND AS BECAUSE THE COMPANY N AMELY M/S. NEW GUJARAT TIN CIRCLE DEPOT PVT. LTD. WHICH WAS FO RMED BY CONVERSION OF NEW PARTNERSHIP NAMELY NEW GUJARAT TI N CIRCLE DEPOT CLAIMED DEPRECIATION ON ENTIRE VALUE OF `.3,22,65,0 00/-. THE LEARNED ASSESSING OFFICER THEREFORE TREATED THE DIF FERENCE OF `.3,22,65,000/- AND BOOK VALUE OF `.34,64,745/- I.E . `.2,88,00,255/- AS THE SHORT TERM CAPITAL GAIN OF THE ASSESSEE FIRM LIABLE TO TAX DURING THE YEAR UNDER CONSIDERATION. ON APPEAL, TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFICER. 16. WE FIND THAT THE TRANSFER HAS BEEN DEFINED IN S ECTION 2(47) OF THE INCOME TAX ACT AS UNDER:- (I) THE SALE EXCHANGE OR RELINQUISHMENT OF THE AS SET; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; 17. THUS WE FIND THAT IF A TRANSACTION FALLS WITHIN THE AMBIT OF THE ABOVE STATED DEFINITION OF TRANSFER THEN IRRESPECTI VE OF THE FACT WHETHER THE TRANSACTION IS A TRANSFER WITHIN THE TR ANSFER OF PROPERTY ACT, 1881 OR NOT, THE INCOME ACCRUED ON SUCH TRANSA CTION IS CHARGEABLE TO INCOME TAX ACT UNDER SECTION 45(4) OF THE ACT. THUS WE DO NOT FIND FORCE IN THE SUBMISSION OF THE LEARN ED AUTHORISED REPRESENTATIVE OF THE ASSESSEE TO THE EFFECT THAT T RANSFER OF IMMOVABLE PROPERTY BELONGING TO A FIRM IN FAVOUR OF ITS PARTNERS BY MERE BOOK ENTRIES IS NOT AN ACCEPTABLE MODE OF TRAN SFER OF OWNERSHIP UNLESS IT IS FOLLOWED BY REGISTRATION OF A DULY STAMPED DEED OF CONVEYANCE IN FAVOUR OF THE PARTNERS. - 9 - 18. FURTHER SECTION 45(4) OF THE ACT READS AS UNDER :- THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON T HE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF PERSO NS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATI VE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABLE TO TAX A S THE INCOME OF THE FIRM, ASSOCIATION OR BODY, OF THE PRE VIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET O N THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VAL UE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER. A READING OF THE ABOVE PROVISION SHOWS THAT PROFIT ARISING ON TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSET ON DISSOLUTION OF THE FIRM OR OTHERWISE IS CHARGEABLE TO TAX. THUS, THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT AS IN THE INSTANT CASE THE DISTRIBUTI ON OF RATANPUR FACTORY BUILDING TO THE PARTNERS OF THE ASSESSEE FI RM WAS NOT ON ACCOUNT OF DISSOLUTION OF THE FIRM AND THEREFORE, N OT CHARGEABLE TO TAX ALSO CANNOT BE UPHELD. THE WORD OTHERWISE IN OUR OPINION COVERS A SITUATION WHERE THE CAPITAL ASSET OF THE F IRM IS DISTRIBUTED TO ITS PARTNERS OTHERWISE THAN ON DISSOLUTION OF TH E FIRM. MOREOVER, THE ASSESSEE IN THE RETURN OF INCOME FILED IN RESPO NSE TO NOTICE UNDER SECTION 148 DATED 20-2-2006 ADMITTED THAT SHO RT TERM CAPITAL GAIN ARISES ON TRANSFER OF RATANPUR FACTORY BUILDING. THE ASSESSEE IN THE LETTER DATED 21-3-2006 ADDRESSED TO THE LEARNED ASSESSING OFFICER ALSO CONTENDED THAT CAPITAL GAIN ARISES ON TRANSFER OF RATANPUR FACTORY BUILDING (PAPER BOOK P AGE-10). THE ADMITTED FACTS WOULD ALSO SUPPORT THE FINDINGS OF T HE AUTHORITIES BELOW THAT IT IS A CASE OF TRANSFER OF CAPITAL ASSE T IN QUESTION FOR WHICH CAPITAL GAIN ARISES IN ACCORDANCE WITH LAW. 19 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE RELIED UPON THE DECISION IN THE CASES OF (I) CIT VS. DADHA & CO. (1983) 142 ITR 792(MAD) - 10 - (II) ABDUL KAREEMIA & BROS VS. CIT (1984) 145 ITR 442(AP) (III) JANSONS VS. C.I.T. (1985) 154 ITR 432(KAR) (IV) C.I.T. VS. BHARATI ENGINEERING CORPOR ATION (1989) 180 ITR 32(P&H) (V) CIT VS. KEDARNATH PODDAR & CO. (1993) 201 ITR ` 639(CAL) (VI) C.I.T. VS. E.L.NAVANEETHA CHETTIAR & SONS (199 5) 211 ITR 781(MAD) (VII) C.I.T. VS. PALANIAPPA ENTERPRISES (1998) 234 ITR 635 (MAD) (VIII) C.I.T. VS. S. RAJAMANI & THANGARAJAN INDUSTR IES (2000)241 ITR 668(MAD.) (IX) C.I.T. VS. SRI GANGANAGAR FERTILIZER CORPORATI ON (1995) 214 ITR 317 (RAJ.) FOR THE CONTENTION THAT TREATMENT OF ONE OR MORE PA RTIES OF A PROPERTY BELONGING TO THE PARTNERSHIP FIRM AS INDIV IDUAL PROPERTY IS NOT A VALID TRANSFER IN ABSENCE OF A CONVEYANCE DEE D EXECUTED IN FAVOUR OF PARTNER. WE FIND THAT SECTION 45(4) WAS I NSERTED IN THE INCOME TAX ACT W.E.F. 1-4-1988 AND THE ABOVE DECISI ONS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE ARE ALL RELATING TO THE EARLIER ASSESSMENT YEARS. THUS, BY THE INSERTION OF PROVISIONS OF SECTION 45(4) OF THE ACT THE LEGISLAT IVE INTENT IS CLEAR THAT PROFITS OR GAINS ARISING ON DISTRIBUTION OF CA PITAL ASSET OF A FIRM TO ITS PARTNERS IS A TAXABLE EVENT UNDER THE INCOME TAX ACT AND THUS THE LAW ON THE ISSUE HAS UNDERGONE AN AMENDMENT W.E .F. 1-4-1988. THEREFORE, IN OUR VIEW THE ABOVE CITED DECISIONS RE LIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE A RE NOT APPLICABLE TO THE INSTANT CASE AS THE ASSESSMENT YE AR INVOLVED IN THE INSTANT CASE IS ASSESSMENT YEAR 2001-02 WHICH I S AFTER 1-4- 1988. 20 IN VIEW OF THE ABOVE, IN OUR CONSIDERED OPINION THE FAIR MARKET VALUE OF RATANPUR FACTORY BUILDING AS ON 1-4 -2000 IS TO BE TREATED AS FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUED TO THE - 11 - ASSESSEE FIRM AS A RESULT OF DISTRIBUTION OF THE SA ID CAPITAL ASSET TO ITS TWO PARTNERS HENCE THE ONLY ISSUE WHICH WE ARE LEFT WITH IS TO DETERMINE WHAT WAS THE FAIR MARKET VALUE OF RATANPU R FACTORY BUILDING WHICH WAS DISTRIBUTED BY THE ASSESSEE FIRM TO ITS TWO PARTNERS ON 1-4-2000. IT IS THE UNDISPUTED FACT TH AT THE LEARNED ASSESSING OFFICER HAS NOT GOT THE FAIR MARKET VALUE OF THE SAID PROPERTY DETERMINED BY A DEPARTMENTAL VALUER. THE L EARNED ASSESSING OFFICER ADOPTED THE FAIR MARKET VALUE OF THE PROPERTY ON THE BASIS OF A VALUATION REPORT WHICH WAS GOT PREPA RED BY THE ASSESSEE FIRM BY A REGISTERED VALUER ON 1-4-2000. 21. ON THE OTHER HAND THE ASSESSEE CONTENDED BEFORE THE LEARNED ASSESSING OFFICER THAT THE FAIR MARKET VALU E OF THE RATANPUR FACTORY BUILDING WAS `.36,24,000/- ONLY WH ICH WAS SUPPORTED BY THE VALUATION REPORT DATED 28-2-2006 O F A REGISTERED VALUER. A COPY OF THE SAID VALUATION REPORT IS PLAC ED AT PAGE NOS.62 TO 72 OF THE PAPER BOOK. WE FIND THAT IN THE SAID V ALUATION REPORT THE REGISTERED VALUER HAS ESTIMATED THE COST OF CON STRUCTION OF THE SAID FACTORY BUILDING AND NOT ITS FAIR MARKET VALUE AS ON 1-4-2000. MOREOVER, IT IS OBSERVED THAT THE SAID RATANPUR FAC TORY BUILDING ALONG WITH LAND APPURTENANT THERETO WERE CONTRIBUTE D BY THE PARTNERS IN A NEW PARTNERSHIP FIRM NAMELY M/S. GUJA RAT TIN CIRCLE DEPOT ON THE VERY SAME DAY FOR `.3,22,65,000/- AND THE SAME VALUE AGREES WITH THE FAIR MARKET VALUE AS OPINED IN THE REGISTERED VALUERS REPORT DATED 1-4-2000. THE BREAK UP OF `.3 ,22,65,000/- AS PER VALUATION REPORT DATED 1-4-2000 WAS `.86,15,894 /- FOR RATANPUR FACTORY BUILDING AND `.2,36,49,450/- FOR THE LAND A PPURTENANT THERETO. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDE RED VIEW THE LOWER AUTHORITIES WERE JUSTIFIED IN NOT ACCEPTING T HE FAIR MARKET VALUE OF RATANPUR FACTORY BUILDING AS ON 1-4-2000 A T `.36,24,000/-. 22. IT IS OBSERVED THAT IN THE VALUATION REPORT DAT ED 1-4-2000 WHICH IS PLACED AT PAGE NO.1 TO 9 OF THE PAPER BOOK THAT THE REGISTERED VALUER SHRI VIRENDRA F. PANCHAL IN THE S AID VALUATION REPORT OPINED THE FAIR MARKET VALUE OF RATANPUR FAC TORY BUILDING AT - 12 - `.86,15,894/- AND THE VALUE OF LAND APPURTENANT THE RETO AT `.2,36,49,450/- AND THEREFORE THE TOTAL VALUE OF TH E PROPERTY AT `.3,22,65,000/-. 23. THE CONTENTION OF THE ASSESSEE BEFORE THE LEARN ED ASSESSING OFFICER WAS THAT THE FAIR MARKET VALUE OF THE RATAN PUR FACTORY BUILDING WAS ALSO OPINED BY THE REGISTERED VALUER A T `.86,15,894/- ONLY ON 1-4-2000 AND THEREFORE TO DEEM THE VALUE OF CONSIDERATION IN THE HANDS OF THE ASSESSEE FIRM AT `.3,22,65,000/ - IN RESPECT OF RATANPUR FACTORY BUILDING WAS NOT PROPER. THE ASSES SEE CONTENDED BEFORE THE LEARNED ASSESSING OFFICER THAT THE VALUE OF `.3,22,65,000/- INCLUDED THE VALUE OF LAND ALSO WHI CH WAS NOT TRANSFERRED BY THE ASSESSEE FIRM TO ITS PARTNERS. 24. WE FIND THAT THE LEARNED ASSESSING OFFICER HAS NOT DISPUTED THE FACT THAT ONLY RATANPUR FACTORY BUILDING WAS TR ANSFERRED BY THE ASSESSEE FIRM TO ITS PARTNERS AND LAND WHICH WERE A LREADY OWNED BY THE PARTNERS WERE NOT TRANSFERRED BY THE ASSESSE E FIRM TO ITS PARTNERS. THE LEARNED ASSESSING OFFICER REJECTED TH E CONTENTION OF THE ASSESSEE ONLY ON THE GROUND THAT THE NEW COMPAN Y NAMELY M/S. GUJARAT TIN CIRCLE DEPOT PVT. LTD. HAS CLAIMED DEPRECIATION ON ENTIRE VALUE OF `.3,22,65,000/- AND THEREFORE HE AS SUMED THAT THE FAIR MARKET VALUE OF THE SAID FACTORY BUILDING AS O N 1-4-2000 WAS `.3,22,65,000/-. IN OUR CONSIDERED VIEW THIS ASSUM PTION ON THE PART OF THE LEARNED ASSESSING OFFICER IS NOT FACTUALLY S USTAINABLE. WE FIND THAT THE VALUATION REPORT DATED 1-4-2000 WAS N OT DISPUTED BY THE REVENUE. AS PER THE SAID VALUATION REPORT THE F AIR MARKET VALUE OF THE RATANPUR FACTORY BUILDING AS ON 1-4-2000 WAS `.86,15,894/- ONLY AND THE FAIR MARKET VALUE OF LAND WAS `.2,36,4 9,450/-. THUS, IN VIEW OF THE ABOVE IN OUR CONSIDERED VIEW THE FAIR M ARKET VALUE OF THE RATANPUR FACTORY BUILDING AS ON 1-4-2000 WHICH WAS DISTRIBUTED BY THE ASSESSEE FIRM TO ITS TWO PARTNERS WAS `.86,1 5,894/- AND ACCORDINGLY, THE SHORT TERM CAPITAL GAIN IN THE HAN DS OF THE ASSESSEE FIRM UNDER SECTION 45(4) WILL BE DIFFERENC E BETWEEN `.86,15,894 AND THE WRITTEN DOWN VALUE OF `.34,64,7 45/- WHICH IS - 13 - `.51,51,149/-. WE THEREFORE MODIFY THE ORDERS OF TH E LOWER AUTHORITIES TO THE ABOVE EXTENT AND DIRECT THE LEAR NED ASSESSING OFFICER TO RECOMPUTE THE INCOME OF THE ASSESSEE FIR M ACCORDINGLY. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AS STATED ABOVE. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 7 TH DAY OF OCTOBER, 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: ON THIS 7 TH DAY OF OCTOBER, 2010 COMPILED AND COMPARED BY : PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-V, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 28-09-2010 -------------- --- 2. DRAFT PLACED BEFORE AUTHORITY 01-10-2010 ----- ------------ 3. DRAFT PROPOSED & PLACED 01-10-2010 ----------- ------JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 05-10-2010 --------- -------JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 07-10-2010 -------- -------- 6. KEPT FOR PRONOUNCEMENT ON 07-10-2010 -------- -------- 7. FILE SENT TO THE BENCH CLERK 07-10-2010 ------ ---------- 8. DATE ON WHICH FILE GOES TO THE ---------------- ---------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- --------------