M/s. Mona Tiles & Marble Co., Baroda V. The ACIT.,Circle-2(1), Baroda

ITA 564/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9746 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 14-02-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value; Valuation report; Liquidation; Capital Gains
• Section: 271(1)(c); 234B; 207

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM M/S MONA TILES & MARBLE CO., NEAR CHHANI JAKAT NAKA, CHHANI ROAD, BARODA. VS. ASSTT. CIT, CIRCLE 291), BARODA. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S. N. SOPARKAR, AR SHRI JAIMIN GANDHI REVENUEBY:- SHRI S. C. TIWARI, SR.DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (1) LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRM ING ADDITION MADE BY AO OF RS.38,20,249/- AS INCOME FROM LONG TE RM CAPITAL GAIN ON SALE OF LAND AND NOT ACCEPTING COMP UTATION OF THE CAPITAL GAIN AS SUBMITTED BY THE APPELLANT. THE LD. CIT(A) HAS FURTHER ERRED IN GROSSLY IGNORING THE VARIOUS S UBMISSIONS AND CASE LAWS RELIED UPON BY THE APPELLANT IN SUPPO RT OF COST OF ACQUISITION AS COMPUTED BY THE ASSESSEE. (2) LD. CIT(A) HAS FURTHER ERRED IN NOT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS TO NON-APPLICABILITY OF ANY CAPI TAL GAINS ON THIS SALE OF LAND, SINCE PROVISIONS OF SECTION 45(3 ) WERE EFFECTED FROM 1.4.1988 WHEREAS THE LAND IN QUESTION WAS INTR ODUCED IN THE PARTNERSHIP FIRM BY PARTNERSHIP DEED DATED 26.9 .1985 THAT WAS PRIOR TO THE INTRODUCTION OF SECTION 45(3) OF T HE ACT. FURTHER LD. CIT(A) ERRED IN IGNORING THE SUBMISSION THAT AS PER THE PROVISIONS OF SECTION 49(III)(B) COST OF ACQUISITIO N OF THE ASSET SHOULD BE THE FAIR MARKET VALUE AS ON 1.4.1981. ITA NO.564/AHD/2008 ASST. YEAR :2004-05 2 (3) INITIATION OF PENALTY U/S 271(1)(C) OF THE ACT IS N OT JUSTIFIED. (4) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE LEVY OF INTEREST UNDER SECTION 234A, 234B, 234C & 2 34D OF THE ACT. 2. GROUND NO.3 AT THIS STAGE IS PRE-MATURE AND HENC E REJECTED WHEREAS GROUND NO.4 RELATING TO LEVY OF INTEREST UNDER SECT ION 234A, 234B & 234C IS CONSEQUENTIAL AND WOULD DEPEND UPON THE ASS ESSED INCOME. 3. PART OF GROUND NO.4 INTEREST UNDER SECTION 234 D IS COVERED BY THE DECISION OF THE TRIBUNAL, DELHI (SPECIAL BENCH) IN THE CASE OF ITO VS. EKTA PROMOTERS P. LTD. (2008) 305 ITR (AT) 1 (DEL) (SB). WE RESPECTFULLY FOLLOW THE DECISION OF ITAT (SPECIAL B ENCH) IN ITO VS. EKTA PROMOTERS P. LTD. IN THIS REGARD AND CONFIRM THE CH ARGING OF INTEREST AFTER 1.6.2003. 4. THE MAIN ISSUE INVOLVED IN THE APPEAL IS ABOUT D ETERMINATION OF COST OF ACQUISITION OF THE LAND AND INDEXATION THER EOF FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. 5. THE FACTS OF THE CASE ARE THAT ASSESSEE FIRM SHO WED LONG TERM CAPITAL GAINS OF RS.18,01,722/- ON SALE OF LAND ADM EASURING 811.00 SQ.METRES AT PLOT NO.70 (R. SURVEY NO.69). THE ASSE SSEE RECEIVED A SUM OF RS.40,00,000/- AS SALE CONSIDERATION WHICH IS NO T IN DISPUTE. FOR THE PURPOSE OF CAPITAL GAINS ASSESSEE HAD ALSO FILED TH E VALUATION REPORT FROM REGISTERED VALUER VALUING THE PROPERTY AS ON 1.4.19 85. AS PER VALUATION REPORT THE VALUATION WAS SHOWN AT RS.5,97,000/- WHE REAS AS PER VALUE SHOWN IN THE BALANCE SHEET THE VALUE OF THE PLOT OF LAND SO GIVEN FOR LAND DEVELOPMENT WAS WORKED OUT AT RS.17,164/-. THIS WAS THE COST WORKED OUT BY THE AO AT WHICH PARTNERS HAD INTRODUCED THE LAND IN THE FIRM AS 3 THEIR CAPITAL CONTRIBUTION. THE WORKING OF THE COST OF ACQUISITION OF THE LAND ITS INDEXATION AND THEREAFTER COMPUTATION OF C APITAL GAIN AS GIVEN BY THE AO IS AS UNDER :- FOR THE FIRM, EVEN IF THE PARTNERS BROUGHT THE LAN D PROPERTY IN FIRM, COST OF ACQUISITION WILL BE THE BOOK VALUE AT WHICH THE FIRM ACQUIRED. NO VALUATION REPORT IS ACCEPTED, AS THE ACQUISITION IS NOT PRIOR TO 1.4.1981. THE COST OF ACQUISITION IS ALREADY SHOWN IN BOOKS A T WHICH FIRM ACQUIRED. AS PER BALANCE SHEET AND FIXED ASSET CHART, THE VAL UE OF CONCERNED LAND PROPERTY (R.S.NO.69 PLOT NO.70) IS TAKEN AT RS.70,9 21.55 FOR WHOLE LAND AREA CONSISTING OF 3351.00 SQ.MT. FOR THE LAND AREA FOR WHICH DEVELOPMENT AGREEMENT IS MADE IS ONLY 811 SQ.MT. FOR WHICH THE COST OF ACQUISITION COMES AT RS.17,164/-. THEREFORE, THE CALCULATION OF LONG TERM CAPITAL GAIN WILL BE AS FOLLOWS: SALES CONSIDERATION RS.40,00,000/- LESS: BROKERAGE PAID RS.1,20,00 0/- INDEXATION COST OF ACQUISITION 17164 X 463/133 = RS.59,751/- RS.1,79,751/- RS.38,20,249/- HENCE, LONG TERM CAPITAL GAIN FOR ASSESSEE IS RS. 38,20,249/- THUS THE AO COMPUTED THE CAPITAL GAINS BY INDEXING RS.17,164/- BEING THE COST OF THE PIECE OF LAND SOLD BY THE ASSESSEE FIRM. 6. ON THE OTHER HAND, THE ASSESSEE SOUGHT TO ADOPT THE MARKET VALUE OF THE LAND AS ON 1.4.1985 AS RS.5,97,000/-. 7. IT WAS STATED BY THE ASSESSEE THAT THE LAND ORIG INALLY BELONGED TO M/S PRE-CAST PIPE & COLUMN CO. THE AO EXAMINED THE DISSOLUTION AGREEMENT OF M/S PRE-CAST PIPES & COLUMN CO. AND AC CORDING TO WHICH THE LAND RELATING TO SURVEY NO.69 WAS DISTRIBUTED T O SMT. TARABEN SATYENDRA PRASAD PATEL, SHRI SANJAY PRASAD PATEL, S MT. AMITA SATYENDRA 4 PATEL AND SMT. ANJANA PRASHANT PATEL. IT WAS INITIA LLY CLAIMED BEFORE THE AO THAT THE PLOT OF LAND WAS DIRECTLY TRANSFERRED F ROM PRE-CAST PIPES & COLUMN CO. TO THE ASSESSEE FIRM BUT THIS CLAIM WAS NOT FOUND CORRECT. IN FACT FIRM M/S MONA TILES & MARBLE CO. I.E. THE ASSE SSEE WAS CONSTITUTED ON 27.9.1985 AND THE PARTNERS WERE SHRI PRASHANT SA TYENDRA PATEL, SHRI SANJAY SATYENDRA PRASAD PATEL, SHRI SATYENDRA PRASA D PUNJALAL PATEL AND SMT. TARABEN SATYENDRA PRASAD PATEL. THUS THE PARTN ERS IN M/S PRE-CAST PIPES & COLUMN WERE NOT THE SAME AS PARTNERS IN THE PRESENT ASSESSEE FIRM. ACCORDINGLY THE AO INFERRED THAT COST OF ACQU ISITION OF THE LAND IN THE CASE OF THE FIRM WOULD BE THE COST AT WHICH LAN D WAS BROUGHT INTO THE FIRM BY THE PARTNERS, AND NOT THE VALUE PRIOR TO 1. 4.1981 SO AS TO ENABLE THE FIRM TO ADOPT THE VALUATION AS ON 1.4.1981. THE AO ACCORDINGLY INDEXED THE SUM OF RS.17164 BY FACTORS OF 463/133 ( WHICH IS NOT IN DISPUTE) BEING THE COST OF LAND OF PLOT IN THE BOOK S OF THE ASSESSEE FIRM. THE LD. CIT(A) CONFIRMED THE ORDER OF AO AS UNDER : - 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL AND FACTS OF THE CASE. THE ISSUE INVOLVED IS WHETHER COST OF ACQ UISITION OF THE PROPERTY SHOULD BE TAKEN THE PRICE AT WHICH IT WAS ACQUIRED BY THE FIRM FOR RS.17,164/- OR THE SAME SHOULD BE AT THE MARKET VAL UE ON THAT DAY. THE BASIC FACT IS THAT ONE OF THE PARTNERS RECEIVED PRO PERTY ON FAMILY SETTLEMENT AND THE SAID PROPERTY WAS INTRODUCED IN THE APPELLANT FIRM AS CAPITAL. FIRM ACQUIRED THIS PROPERTY FROM THE PARTN ER BY WAY OF CAPITAL CONTRIBUTION AND THEREFORE THE COST OF ACQUISITION IN THE BOOKS OF THE FIRM FOR THE LAND AREA OF 811 SQ. MT, WORKS OUT AT RS.17 ,164/-, AS AGAINST THIS, APPELLANT VALUED COST OF ACQUISITION AS PER VALUATI ON REPORT AT RS. 5,97,0007-. THE TOTAL LAND IN THE BOOKS OF FIRM IS 3351 SQ. MT. SHOWN IN THE BALANCE-SHEET AND FIXED ASSET CHART AT 70921.55 . THE COST FOR THE PLOT WAS A PORTION TO THE AREA SOLD I.E. 811 SQ. MT. AND THEREFORE COST OF ACQUISITION IN THE FIRM IS ONLY 17164- IT IS NOT MA TERIAL FROM WHERE THE PARTNER RECEIVED THE PROPERTY AND WHAT WAS THE COST OF PREVIOUS OWNER. WHAT IS IMPORTANT IS THAT AT WHAT COST THE PROPERTY WAS INTRODUCED IN THE BOOKS OF THE FIRM. MARKET RATE ON THE DATE OF INTRO DUCTION OF LAND IN THE FIRM BY WAY OF PARTNER'S CAPITAL IS NOT RELEVANT, 5 THE APPELLANT'S ARGUMENT IN THE LIGHT OF SECTION 45 (3} IS NOT RELEVANT SINCE THAT IS APPLICABLE IN THE CASE OF DISSOLUTION OF TH E PARTNERSHIP FIRM OR DISTRIBUTION OF THE FIRM'S ASSET. IT IS A CASE OF I NTRODUCTION OF CAPITAL BY INTRODUCING CAPITAL ASSET, THEREFORE, THERE IS NO P ROVISIONS UNDER THE ACT BY WHICH COST OF ACQUISITION CAN BE TAKEN AT MARKET VALUE IF THE SAME IS AFTER 1.4.1981. THERE IS NO DISPUTE THAT THE FIRM R ECEIVED THE AFORESAID PROPERTY IN 1985 AND THEREFORE VALUING THE SAME AT MARKET RATE IS NOT AS PER ANY PROVISIONS OF THE ACT. THE MOMENT PARTNER B RINGS IN ANY CAPITAL ASSET IN THE FIRM AT WHATEVER RATE, THAT BECOMES TH E PROPERTY OF THE FIRM AT THAT VALUE OF THE MARKET VALUE. HOW THE PARTNER ACQ UIRED THE SAME NOT AT ALL RELEVANT. THEREFORE, THE MARKET VALUATION OF TH E PROPERTY AND INDEXATION ON THE BASIS OF THE SAME ARE NOT AS PER THE LAW, I THEREFORE FIND NO REASON TO INTERFERE WITH THE CAPITAL GAIN WORKED OUT BY THE ASSESSING OFFICER. APPELLANT REFERRED THE DE CISION IN THE CASE OF SMT. LAXMI JAIN VS DCIT 89 ITD 470 (MUM). I HAVE GO NE THROUGH THE SAID DECISION. THIS DECISION IS ON THE ISSUE OF CHA RGING CAPITAL GAIN ON THE ASSETS RECEIVED BY RETIRING PARTNER. HERE THE FIRM IS SELLING THE PROPERTY ACQUIRED BY IT AS CAPITAL CONTRIBUTION FROM THE PAR TNER. THEREFORE, FACTS AND THE ISSUE INVOLVED IN THIS CASE ARE ALTOGETHER DIFFERENT AND DOES NOT HELP APPELLANT. THE CAPITAL GAIN WORKED OUT BY THE AO IS THEREFORE CONFIRMED. 8. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT COST OF THE ASSET IN THE CASE OF THE FIRM WOULD BE THE COST AT WHICH PREVIOUS OWNER HAD ACQUIRED IT AND SINCE PREVIOUS OWNERS I.E. PART NERS HAD ACQUIRED IT PRIOR TO 1.4.1981 AS A RESULT OF DISSOLUTION OF PRE -CAST PIPE & COLUMN CO. THEN THE VALUE AS ON 1.4.1981 AS AN OPTION OF THE A SSESSEE COULD BE ADOPTED AS COST OF ACQUISITION TO THE FIRM. ACCORDI NG TO THE LD. AR THIS FACT IS NOT IN DISPUTE THAT PRE-CAST PIPE & COLUMN CO. WAS DISSOLVED PRIOR TO 1.4.1981. THE LD. AR SUBMITTED THAT THE AO AND T HE LD. CIT(A) HAVE WRONGLY INVOKED PROVISIONS OF SECTION 43 OF THE I.T . ACT IN ORDER TO HOLD THE COST OF THE LAND AS PER BOOK ENTRY IN THE FIRM S CASE. SUB-SECTION (3) TO SECTION 43 WAS INTRODUCED BY THE FINANCE ACT, 1987 W.E.F. 1.4.1988. ONCE THAT PROVISION WAS NOT APPLICABLE AS ON THE DATE WH EN FIRM RECEIVED CAPITAL CONTRIBUTION FROM THE PARTNERS IN FORM OF L OAN THEN THE COST OF 6 ACQUISITION TO THE FIRM WOULD BE THE COST TO THE PR EVIOUS OWNER AND THIS COST TO THE PREVIOUS OWNER WOULD BE THE COST PRIOR TO 1.4.1981 AND HENCE INDEXING SHOULD BE DONE WITH RESPECT TO MARKET VALU E AS ON 1.4.1981. THE LD. AR ALSO RELIED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF SMT. LAXMI JAIN VS. DCIT (2004) 89 ITD 470 (MUM). 9. AGAINST THIS, LD. DR SUBMITTED THAT IT IS A CASE OF TRANSFER OF ASSET TO THE FIRM BY WAY OF CAPITAL CONTRIBUTION WITH REFERE NCE, TO WHICH COST OF ACQUISITION TO THE FIRM SHOULD BE DETERMINED AND IT IS NOT A CASE VICE- VERSA I.E. PARTNER IS NOT RECEIVING ASSET ON DISSOL UTION OF THE FIRM. HE RELIED ON THE JUDGMENT OF HON. MADHYA PRADESH HIGH COURT IN RAJDOOT HOTEL ENTERPRISE CORPORATION VS. CIT (1987) 167 ITR 167 (MP) FOR THE PROPOSITION THAT COST OF ACQUISITION TO THE FIRM WO ULD BE THE COST AT WHICH ASSET WAS TRANSFERRED TO THE FIRM. FOR THIS PROPOSI TION HE ALSO REFERRED TO THE DECISION OF HON. MADRAS HIGH COURT IN ADDL. CIT VS. M.R.M.K. PL FIRM (1980) 124 ITR 340 (MAD) AND IN CIT VS. HARODO SS PURUSHOTHAMDOSS (1998) 234 ITR 711 (MAD). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESS EE FIRM SOLD THE LAND IN THE YEAR RELEVANT TO THE PRESENT ASST. YEAR. SALE C ONSIDERATION OF RS.40 LACS IS NOT IN DISPUTE. OUT OF TOTAL LAND OF 3351 S Q.M. SHOWN IN THE BOOKS OF THE FIRM AT RS.70,921.55 ONLY 811 SQ.M. WAS SOLD WHOSE PRO-RATA COST WAS WORKED OUT TO RS.17,164/-. THUS THE AO SOUGHT T O INDEX RS.17,164/- WHEREAS THE ASSESSEE SOUGHT TO INDEX RS.5,97,000/- BEING THE VALUE AS ON 1.4.85. HOWEVER, THE LD. A.R. CHANGED THE STAND THA T IN PLACE OF INDEXING RS.5,97,000/-, BEING THE VALUE DETERMINED BY APPROV ED VALUER AS ON 1.4.1985, THE COST TO THE PREVIOUS OWNER SHOULD BE ADOPTED AS THE COST OF ACQUISITION OF THE LAND IN THE HANDS OF THE FIRM. S INCE LAND BY THE PARTNERS, 7 BEING PREVIOUS OWNER, WAS ACQUIRED PRIOR TO 1.4.81, ON DISTRIBUTION OF ASSETS TO THE PARTNERS BY THE ERSTWHILE FIRM M/S PR E-CAST PIPES & COLUMN CO. THEN, THE COST OF ACQUISITION OF THE LAND TO TH E PRESENT FIRM WOULD BE THE MARKET VALUE OF THE LAND AS ON 1.4.1981. IN SUP PORT OF THIS PROPOSITION DECISION OF THE TRIBUNAL IN SMT. LAXMI JAIN VS. DCI T (SUPRA) WAS REFERRED. 11. IN OUR CONSIDERED VIEW THE DECISION OF THE TRIB UNAL (MUMBAI BENCH) IN THE CASE OF SMT. LAXMI JAIN VS. DCIT (SUP RA) WOULD NOT BE APPLICABLE AS IT IS RELATED TO DISTRIBUTION OF ASSE TS BY THE FIRM TO THE PARTNERS. SIMILARLY, THE PROVISION OF SECTION 45(3) ARE OF NO CONSEQUENCE AS THEY RELATE TO DETERMINATION OF COST OF ACQUISIT ION IN THE HANDS OF THE PARTNERS AND CHARGING OF CAPITAL GAINS IN THEIR HAN DS WHEN HE TRANSFERRED HIS CAPITAL ASSET TO THE FIRM AS CAPITAL CONTRIBUTI ON WHILE BECOMING ITS PARTNER. FOR THAT PURPOSE FULL VALUE OF THE CONSIDE RATION FOR SALE, IN THE HANDS OF THE PARTNER, WOULD BE THE VALUE AT WHICH P ARTNER WAS CREDITED WHILE ENTERING INTO THE FIRM. IN THE PRESENT CASE I SSUE IS THE DETERMINATION OF COST OF ACQUISITION OF THE ASSET CONTRIBUTED BY THE PARTNER INTO THE FIRM WHICH ACCORDINGLY BECAME THE PROPERTY OF THE FIRM A ND WAS SUBSEQUENTLY SOLD BY THE FIRM FOR RS.40 LACS. THE FACTS OF THE P RESENT CASE ARE SIMILAR TO THE FACTS IN THE CASE OF RAJDOOT HOTEL ENTERPRISE C ORPORATION (SUPRA) REFERRED TO BY THE LD. DR. IN THAT CASE ASSESSEE FI RM WAS CONSISTED OF 8 PARTNERS AND WAS CONSTITUTED IN 1967. THE PARTNERS OWNED A PIECE OF LAND PURCHASED BY THEM AT RS.1.25 LACS IN 1965. THE PART NERS TRANSFERRED THIS LAND TO THE FIRM AT A SUM OF RS. 2 LACS. A LAND ACC OUNT WAS OPENED IN THE BOOKS OF THE FIRM AND THE SUM OF RS.2 LACS WAS DEBI TED AND A CORRESPONDING CREDIT WAS GIVEN TO THE CAPITAL ACCOU NT OF THE PARTNERS TO THE EXTENT OF THEIR SHARES. IN 1970 THE LAND WAS SO LD BY THE FIRM I.E. ASSESSEE FOR RS.2 LACS. ACCORDING TO THE AO, TRANSA CTION RESULTED IN A GAIN 8 OF RS.75,000/-. THE TRIBUNAL CONFIRMED THE ORDER OF THE AO BUT THE HON. M. P. HIGH COURT HELD THAT IN THE INSTANT CASE 8 PA RTNERS OF THE ASSESSEE FIRM BROUGHT A PARCEL OF THE LAND OF WHICH THEY WER E CO-OWNERS, INTO THE PARTNERSHIP FIRM AS THEIR CONTRIBUTION TO THE CAPIT AL. THE AMOUNT OF SUCH CONTRIBUTION WAS CREDITED INTO THE ACCOUNT OF EACH PARTNER AND THE TRANSACTION WAS FOUND TO BE GENUINE. THEREFORE, COS T OF ACQUISITION OF THE LAND INCURRED BY THE ASSESSEE FIRM WOULD BE RS.2 LA CS. HON. MADRAS HIGH COURT IN THE CASE OF ADDL. CIT VS. M.R.M.K. PL FIRM (SUPRA) HELD THAT COST OF ACQUISITION IN THE CASE OF THE FIRM IS TO B E CALCULATED WITH REFERENCE TO THE VALUE AS ON THE DATE OF ACQUISITIO N OF THE ASSET BY THE PARTNERSHIP FIRM. SIMILAR VIEW WAS TAKEN BY HON. MA DRAS HIGH COURT IN CIT VS. HARODOSS PURUSHOTHAMDOSS (SUPRA) WHEREIN IT WAS HELD THAT COST SHOWN IN THE BOOKS OF THE FIRM SHOULD BE TAKEN INTO ACCOUNT AS COST OF ACQUISITION AND NOT THE MARKET VALUE. 12. IN OUR CONSIDERED VIEW ALSO, IT IS NOT NECESSAR Y TO FIND OUT THE COST TO THE PREVIOUS OWNER AS THIS WOULD BE THE REQUIREM ENT ONLY WHEN COST IN THE HANDS OF THE PRESENT HOLDER IS UNCERTAIN. IN AN Y CASE COST OF ACQUISITION OF THE ASSET IN THE HANDS OF THE PRESEN T OWNER AS THE COST OF ACQUISITION IN THE HANDS OF PREVIOUS OWNER IS ONLY A DEEMING FICTION AS LAID DOWN IN SECTION 49(1). THIS SECTION PROVIDES W HERE A CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE UNDER ANY OF TH E MODES PRESCRIBED THEREIN SUCH AS ON DISTRIBUTION OF ASSET ON TOTAL O R PARTIAL PARTITION OF THE HUF, UNDER A GIFT OR WILL, BY SUCCESSION INHERITANC E, DEVOLUTION, ON DISTRIBUTION OF ASSETS ON THE DISSOLUTION OF THE FI RM, BODY OF INDIVIDUALS OR AOP PRIOR TO 1.4.1987, ON DISTRIBUTION OF ASSETS ON THE LIQUIDATION OF THE COMPANY ETC. ETC., COST OF ACQUISITION OF THE ASSET S SHALL BE DEEMED TO BE THE COST FOR WHICH PREVIOUS OWNER OF THE PROPERTY A CQUIRED IT. THE CONTRIBUTION BY THE PARTNERS INTO THE FIRM AS SHARE CAPITAL IS NOT ONE OF THE 9 MODES PRESCRIBED IN SECTION 49(1) FOR ENABLING THE DEEMING SECTION TO COME INTO PLAY. 13. IT IS SETTLED LAW THAT LEGAL FICTIONS ARE CREAT ED ONLY FOR A DEFINITE PURPOSE AND ARE, THEREFORE, LIMITED FOR THAT PURPOS E ONLY AND THEY CANNOT BE EXTENDED BEYOND THEIR LIMITED FIELD. IN OTHER WO RDS LEGAL FICTIONS WILL OPERATE ONLY WHEN THE FACTS AS STATED IN THE PROVIS IONS ARE FOUND TO EXIST. IT WOULD BE UNNECESSARY TO ASSUME ANY OTHER FACTS A ND OPERATE THE LEGAL FICTION THEREON. WHEN THE STATED FACTS ARE PRESENT, THEN LEGAL FICTIONS MUST BE GIVEN FULL EFFECT. OUR VIEW IS SUPPORTED BY THE DECISION OF HON. MADRAS HIGH COURT IN CIT VS. T.S. RAJAN (1980) 125 ITR 207 (MAD), RELIANCE JUTE & INDUSTRIES LTD. VS. CIT (1981) 127 ITR 842 (CAL) AND SMT. RADHADEVI MOHATTA VS. CWT (1981) 129 ITR 229 ( BOM). THUS IF LEGAL FICTION IN THE SECTION 49(1) DOES NOT PROVIDE A SITUATION FOR DEEMING COST OF ACQUISITION WHEN A PARTNER INTRODUCES CAPIT AL IN KIND IN THE FIRM THEN COST OF THE ASSET SO INTRODUCED BY THE PARTNER IN THE FIRM CANNOT BE DEEMED TO BE COST TO THE PREVIOUS OWNER OR OTHER TH AN AT WHICH FIRM DEBITED ITS ASSET ACCOUNT AND CREDITED THE PARTNERS ACCOUNT. 14. THEREFORE, DEEMING SECTION 49(1) COULD NOT BE E XTENDED TO A SITUATION OTHER THAN WHAT IS PROVIDED IN THAT SECTI ON. THEREFORE, THE ARGUMENTS OF THE LD. AR THAT FOR DETERMINING THE CO ST OF ACQUISITION OF THE LAND FOR COMPUTING CAPITAL GAINS IN THE HANDS OF TH E FIRM, THE COST OF THE LAND TO THE PREVIOUS OWNER SHOULD BE ADOPTED. ONCE ASSET HAS BEEN HELD BY THE FIRM WHICH WAS TREATED AS ITS OWN AND ENJOYE D BY IT ALL THROUGH FROM 1985 TILL THE DATE OF SALE AND THE VALUE HAS B EEN ASSIGNED TO THE LAND IN THE BOOKS OF THE FIRM AND PARTNERS HAVE BEEN CRE DITED WITH THAT VALUE BEING THEIR CAPITAL CONTRIBUTION THEN QUESTION OF H OLDING THAT COST TO THE PREVIOUS OWNER SHOULD BE ADOPTED, DOES NOT ARISE. T HEREFORE, THE AO WAS 10 JUSTIFIED IN ADOPTING THE COST AT RS.17,164/- OF TH E PIECE OF LAND SOLD AND, THEREFORE, INDEXING IT FOR COMPUTING THE CAPITAL GA INS. ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 17/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD