ACIT Circle I, V. Goel Udyog,

ITA 947/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5738 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-03-2010
• Assessment Year: 1992-1993
• Appeal Filed On: 12-03-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MAHESH GUPTA
• Assessee Lawyers: PRAKASH NARAIN
• Keywords: Capital asset; Business income; Fair market value; Scheme of amalgamation

Judgement Text

I.T.A. NO.247 /DEL/08 1/12 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO. 947/DEL/2008 ASSESSMENT YEAR : 1992-93 ACIT, M/S GOEL UDYOG, CIRCLE-I, 23-NAYAGANJ, GHAZIABAD. V. GHAZIABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHESH GUPTA, SR. DR. RESPONDENT BY : SHRI PRAKASH NARAIN, ADVOCATE. ORDER PER A.K. GARODIA, AM: THIS IS REVENUE'S APPEAL DIRECTED AGAINST THE ORDER OF LD CIT(A), GHAZIABAD DATED 31.1.2007 FOR ASSESSMENT YEAR 1992- 93. 2. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: - 1. THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS.7,56,478/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF CAPITAL GAIN BEING THE MARKET VALUE OF THE ASSETS NAMELY CLOSING STOCK, LAND AND PLANT & MACHINERY HIGHER THAN THE BOOK VALUE ON THE DATE OF DISSOLUTION, WITHOUT APPRECIATING THE FACT AND MATERIAL ON RECORD AND AL SO IGNORING THE RATIO DECIDED BY HON'BLE SUPREME COURT, 189 ITR 285 ON VA LUATION OF CLOSING STOCK. . I.T.A. NO.947/DEL/08 2/12 2. THAT THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE U/S 80I WITH OUT APPRECIATING THE FACT AND IGNORING THE CONDITIONS AS LAID DOWN U/S 80I(2) AND 80I(1)(A). 3. THAT THE ORDER OF THE LD CIT(A) ON THE ABOVE ISS UES BEING ERRONEOUS IN LAW AND ON FACTS BE SET ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F IRMS DERIVES INCOME FROM MANUFACTURE AND SALE OF WIRES, GI TAPES AND GA STRI PS. EARLIER, THE FIRM WAS A PROPRIETORY CONCERN OF SHRI MAN MOHAN GOEL AND DURI NG THIS YEAR, THE FIRM CARRIED ON BUSINESS FROM 1.9.1991 TO 17.9.1991 ONLY . ON 1.9.1991, SHRI MAN MOHAN GOEL AND M/S PASONDIA STEEL PROFILES PVT LTD. (FOR SHORT PSPPL) BECAME PARTNERS HAVING 90% AND 10% SHARES IN PROFIT RESPECTIVELY. ON 18.9.1991, M/S PSPPL TOOK OVER THE BUSINESS OF THE ASSESSEE FIRM M/S GOEL UDYOG, BEING THE LAND & BUILDING, CLOSING STOCK AND MACHINERY ETC. WHICH HAVE BEEN TRANSFERRED AT THE BOOK VALUE. IN THE FIRST RO UND OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER APPLIED THE PROV ISION OF SECTION 45(4) OF THE INCOME TAX ACT, 1961 AND HE WORKED OUT THE CAPITAL GAIN ON CLOSING STOCK TRANSFER AT RS.5,01,883/-. CAPITAL GAIN ON TRANSFER OF LAND WAS WORKED OUT BY HIM AT RS.1,49,377/-, AND CAPITAL GAIN ON TRANSFER OF P LANT & MACHINERY WAS WORKED OUT BY HIM AT RS.,1,16,238/-. IN THE FIRST ROUND, L D CIT(A) DELETED THE SAME ON THE BASIS THAT SHRI MAN MOHAN GOEL WAS THE EXCLUSIVE OW NER OF THE BUSINESS ASSETS OF THE ASSESSEE FIRM AND M/S PSPPL WAS A SLEEPING P ARTNER. BEING AGGRIEVED, THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL RESTORED BACK THE MATTER TO THE FILE OF THE LD CIT( A) FOR A FRESH DECISION AFTER CONSIDERING THE JUDGMENT OF HON'BLE APEX COURT REND ERED IN THE CASE OF ALA FIRM V. CIT AS REPORTED IN 189 ITR 285 AND ALSO OTH ER JUDGMENTS CITED BY THE LD DR OF THE REVENUE BEING THE JUDGMENT OF HON'BLE APE X COURT RENDERED IN THE CASE OF CIT V. NATHULAL JAWARCHAND AS REPORTED IN 2 27 ITR 251 AND ALSO IN THE CASE OF CIT V. RAJ KUMAR BAPNA AS REPORTED IN 226 I TR 822 AND OTHER CASES WHICH MAY BE RELIED UPON BY THE AR OF THE ASSESSEE AT THE TIME OF HEARING TO BE . I.T.A. NO.947/DEL/08 3/12 GRANTED BY HIM. REGARDING 80I ISSUE ALSO, THE MATT ER WAS REMANDED BACK BY THE TRIBUNAL TO THE FILE OF LD CIT(A). THE LD CIT(A) HA S AGAIN DECIDED BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE WITHOUT GIVING ANY FINDIN G REGARDING APPLICABILITY OF THOSE THREE DECISIONS WHICH WERE REQUIRED TO BE CON SIDERED BY HIM AS PER THE TRIBUNAL ORDER DATED 4.2.2002 IN FIRST ROUND OF THE APPEAL IN ASSESSEES OWN CASE. NOW, THE REVENUE IS IN APPEAL BEFORE US AGAI NST THE ORDER OF LD CIT(A) IN SECOND ROUND. 4. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT OR DER. RELIANCE WAS PLACED BY HIM ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF ALA FIRM REPORTED IN 189 ITR 285. RELIANCE WAS ALS O PLACED BY HIM ON THE JUDGMENT OF HON'BLE MADHYA PRADESH HIGH COURT RENDE RED IN THE CASE OF CIT V. NATHULAL JAWARCHAND AS REPORTED IN 227 ITR 251. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT RENDERED I N THE CASE OF CIT V. RAJ KUMAR BAPNA AS REPORTED IN 226 ITR 822. IT IS ALSO SUBMITTED BY HIM THAT THE FIRST ISSUE REGARDING ASSESSMENT OF CAPITAL GAINS O N TRANSFER OF LAND AND BUILDING, PLANT & MACHINERY ALONG WITH CLOSING STOCK WAS TO B E DECIDED BY LD CIT(A) AFTER CONSIDERING THESE THREE JUDGMENTS WHICH ARE CITED B Y HIM BEFORE US BUT LD CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSE SSEE WITHOUT EVEN REFERRING TO THESE JUDGMENTS AND HENCE THE ORDER OF LD CIT(A) SH OULD NOT BE SUSTAINED. REGARDING SECOND ISSUE I.E. REGARDING CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80-I, IT WAS SUBMITTED BY HIM THAT THE ASSESSEE HAS NOT FULFILLED THE REQUIREMENTS OF SECTION 80I(2) AND HENCE SUCH DEDUCTION IS NOT A LLOWABLE TO THE ASSESSEE. 5. AS AGAINST THIS, LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). HE REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEFORE LD CIT(A) THAT AS PER CLAUSE (8) OF PARTNERSHIP DEED DATED 1.9.1991, THE ASSESSEE FIRM IS NOT THE OWNER OF THESE ASSETS AND OWNERSHIP WAS VESTED WITH SHRI MM GOEL ONLY AND HENCE NO CAPITAL GAIN IS TAXABLE IN THE HANDS OF TH E ASSESSEE ON ACCOUNT OF TRANSFER OF THESE ASSETS TO M/S PSPPL. IT IS SUBMI TTED THAT THE COPY OF PARTNERSHIP DEED IS AVAILABLE ON PAGES 22-23 OF THE PAPER BOOK AND THE DEED OF . I.T.A. NO.947/DEL/08 4/12 TRANSFER OF BUSINESS TO M/S PSPPL IS AVAILABLE ON P AGES 24-25 OF THE PAPER BOOK. HE ALSO SUBMITTED A COPY OF THE BALANCE SHEE T OF THE ASSESSEE FIRM AS ON 17.9.1991. WHEN IT WAS POINTED OUT TO HIM THAT THE ASSETS IN QUESTION ARE SHOWN AS THE ASSETS OF THE ASSESSEE FIRM IN THIS BALANCE SHEET, IT WAS SUBMITTED BY HIM THAT THE BOOK ENTRY IS NOT DECISIVE AND IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED BY HIM ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF KEDAR NATH JUTE MFG. CO. AS REPORTED IN 82 ITR 363. AN ALTERNATIVE CONTENTION WAS ALSO RAISED BY HIM THAT EVEN IF IT IS HELD THAT THE ASSETS WERE BELONGING TO THE ASSESSEE FIRM, THERE IS NO QUESTION OF CAPITAL GAIN BECAUSE THE BUSINESS WAS TRANSFERRED TO M/S PSPPL AS A GOING CONCERN AND HEN CE THE ASSETS IN QUESTION ARE TO BE VALUED AT BOOK VALUE ONLY WHICH WILL NOT RESULT INTO ANY CAPITAL GAIN. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF SAKTHI TRADING CO. V. CIT AS REPORTED IN 250 ITR 871 AND ALSO ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA). 6. REGARDING THE SECOND ISSUE, I.E. ALLOWABILITY OF DEDUCTION TO THE ASSESSEE U/S 80I, IT IS SUBMITTED THAT THIS ISSUE IS NOW COV ERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION RENDERED IN THE CASE OF DCIT V. M/S PSPPL IN I.T.A. NO.4846/DEL/1995 DATED 31.5.2001. IT IS SUBMITTED BY HIM THAT THIS TRIBUNAL DECISION IS AVAILABLE ON PAGE NO.5 OF THE PAPER BOO K. IT WAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL BEFORE THE TRIBUNAL W AS ALLOWABILITY OF DEDUCTION U/S 80I IN RESPECT OF THE SAME INDUSTRIAL UNDERTAKING O WNED BY THE ASSESSEE WHICH WAS TRANSFERRED TO M/S PSPPL AND IN THAT CASE, IT W AS HELD BY THE TRIBUNAL THAT THE BENEFIT OF SECTION 80I WERE ATTACHED TO THE UND ERTAKING AND NOT TO THE OWNER THEREOF AND THE ASSESSEE HAVING TAKEN OVER THE RUNN ING UNDER TAKING WHICH WAS OTHERWISE ENTITLED TO THE BENEFIT OF SECTION 80I, T HERE WAS NO REASON FOR DISALLOWANCE OF THIS CLAIM IN THE ASSESSMENT YEAR 1993-94. IT IS SUBMITTED THAT IN THE PRESENT CASE, THIS ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THIS TRIBUNAL DECISION. . I.T.A. NO.947/DEL/08 5/12 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENTS CITED BY BOTH SIDES. REGARDING FIRST ISSUE, I.E. REGARDING TAXABILITY OF CAPITAL GAIN ON TRANSF ER OF LAND BUILDING, PLANT & MACHINERY AND CLOSING STOCK TO M/S PSPPL, WE FIND T HAT AS PER THE PARTNERSHIP DEED DATED 1.9.1991 AVAILABLE ON PAGES 22-23 OF THE PAPER BOOK, IT WAS PROVIDED IN CLAUSE (8) THAT ALL THE ASSETS AND LIABILITIES S HALL VEST SOLELY ON THE FIRST PARTNER AND THE SECOND PARTY SHALL BE A WORKING PARTNER ONL Y AND SHALL NOT BE ENTITLED TO GOODWILL AND BE NOT LIABLE TO MAKE GOOD THE LOSS BU T AS PER THE AUDITED BALANCE SHEET OF THE ASSESSEE FIRM SUBMITTED BY THE LD AR O F THE ASSESSEE BEFORE US, WE FIND THAT ENTIRE ASSETS SUCH AS LAND & BUILDING, PL ANT & MACHINERY AND CLOSING STOCK ARE SHOWN BY THE ASSESSEE IN THE BALANCER SHE ET OF THE ASSESSEE FIRM. THERE IS ADDITIONS ALSO IN PLANT & MACHINERY OF RS. 95,407/-. THERE IS SECURED LOANS ALSO FROM UPFC OF RS.18.99 LAKHS AND FROM PUN JAB NATIONAL BANK OF 0.31 LAKHS TOTAL RS.19.30 LAKHS. INTEREST ON SUCH BORROW INGS IS CLAIMED BY THE ASSESSEE IN THE P&L A/C TO THE EXTENT OF RS.2,33,28 8/-. AS PER THE DETAILS OF THESE INTEREST AND BANK CHARGES AVAILABLE IN SCHEDU LE-7 ATTACHED TO THE BALANCE SHEET, IT IS FOIUND THAT INTEREST OF RS.65,597/- WA S PAID TO BANK AND INTEREST OF RS.1,31,383/- WAS PAID TO UPFC. TAXABLE INCOME HAS BEEN REPORTED BY THE ASSESSEE BASED ON THIS P&L A/C IN WHICH PROFIT OF T HE ASSESSEE FIRM HAS BEEN WORKED OUT AFTER CLAIMING DEDUCTION ON ACCOUNT OF I NTEREST PAYMENT ON SUCH BORROWINGS AND HENCE IT CANNOT BE SAID AND ACCEPTED THAT THE ASSESSEE FIRM HAS NOT TAKEN OVER THE ASSETS AND LIABILITIES OF THE PR OPRIETORHIP CONCERN OF M/S MM GOEL WHICH WAS CONVERTED INTO PARTNERSHIP FIRM FROM 1.9.1991. WE ALSO FIND THAT AS PER THE DEED OF TRANSFER OF BUSINESS AS PER WHIC H THE ASSETS AND LIABILITIES OF THE ASSESSEE FIRM WAS TRANSFERRED TO M/S PSPPL, IT IS STATED IN SECOND PARA AS UNDER:- THE PARTIES NOW DESIRE TO DISSOLVE THE FIRM AS ON 17 TH SEPTEMBER, 1991 AND THE PARTY OF THE SECOND PART SHALL BECOME THE E XCLUSIVE OWNER W.E.F. 18.9.1991. ALL ASSETS AND LIABILITIES OF THE FIRM M/S GOEL UDYOG SHALL BE VESTED ON THE PARTY OF THE SECOND PART W.E.F. 18 TH SEPTEMBER, 1991. . I.T.A. NO.947/DEL/08 6/12 8. THE ABOVE CLAUSE OF THE DEED OF TRANSFER OF BUSI NESS ALSO SHOWS THAT THESE ASSETS WERE BELONGING TO THE ASSESSEE FIRM M/ S GOEL UDYOG AS PER THIS DEED OF TRANSFER OF BUSINESS ALSO. UNDER THESE FACT S, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE FIRM WAS THE OWNER OF THE SE ASSETS ON THE DATE OF DISSOLUTION OF THE PARTNERSHIP FIRM I.E. 17.9.1991. IT MIGHT BE THAT THE LEGAL OWNERSHIP OF THE LAND & BUILDING WAS NOT TRANSFERRE D IN THE NAME OF THE ASSESSEE FIRM BUT THIS IS A SETTLED POSITION BY NOW THAT SUC H TRANSFER OF LEGAL TITLE IN THE NAME OF THE ASSESSEE FIRM IS NOT ESSENTIAL TO HOLD THAT THE ASSESSEE FIRM IS THE OWNER OF THOSE ASSETS IF SUCH ASSETS ARE TRANSFERRE D BY A PARTNER TO THE FIRM. THE JUDGMENTS OF HONAPEX COURT RENDERED IN THE CASE OF KEDAR NATH JUTE MFG. CO. (SUPRA) DOES NOT HELP THE ASSESSEE IN THE PRESENT C ASE BECAUSE WE HAVE SEEN THAT NOT ONLY THE ASSETS AND LIABILITIES WERE ACCOU NTED FOR IN THE BOOKS OF THE FIRM AND WERE SHOWN IN THE BALANCE SHEET OF THE ASSESSEE FIRM BUT DEDUCTION ON ACCOUNT OF INTEREST PAYMENT WAS ALSO CLAIMED BY THE ASSESSEE FIRM FOR THE PURPOSE OF COMPUTING PROFIT/TAXABLE INCOME OF THE A SSESSEE FIRM FOR THE PERIOD FROM 1.9.1991 TO 17.9.1991 I.E. THE ENTIRE LIFE SPA N OF THE ASSESSEE FIRM. WE HAVE ALSO NOTED THAT THERE IS ADDITION TO PLANT & MACHIN ERY DURING THIS PERIOD OF RS.95,407/- THEN HOW IT CAN BE SAID THAT THE ASSETS IN QUESTION WERE NOT TRANSFERRED TO THE ASSESSEE FIRM. NOT ONLY ADDITION IN THE FIXED ASSETS, THERE IS REPAYMENT OF UN-SECURED LOANS ALSO WHICH HAS COME D OWN TO RS.5 LAKHS AS ON 17.9.1991 AS AGAINST THE OPENING BALANCE OF RS.10 L AKHS. IF THE ASSETS AND LIABILITIES ARE NOT TAKEN OVER BY THE ASSESSEE FIRM HOW DEDUCTION ON ACCOUNT OF INTEREST PAYMENT ON LOAN IS CLAIMED IN THE P&L A/C. 9. NOW, WE CONSIDER THE VARIOUS JUDGMENTS WHICH ARE RELIED UPON BY BOTH SIDES IN ORDER TO DECIDE THE ISSUE AS TO WHETHER TH E CAPITAL GAIN WORKED OUT BY THE ASSESSING OFFICER IS CORRECT OR NOT. IN THIS R EGARD, WE FIND THAT THE PROVISIONS FOR SECTION 45(4) ARE VERY MUCH RELEVANT WHICH ARE AS UNDER:- . I.T.A. NO.947/DEL/08 7/12 THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION O F A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY)OR OTHERWISE SHALL BE CHARGEAB LE TO TAX AS THE INCOME OF THE FIRM, ASSOCIATION OR BODY OF THE PREVIOUS YE AR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTI ON 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHA LL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER. 10. FROM THE PROVISIONS OF SECTION 45(4) AS REPRODU CED ABOVE, IT IS CLEAR THAT IN THE CASE OF TRANSFER OF CAPITAL ASSETS ON THE DI SSOLUTION OF A FIRM, INCOME HAS TO BE WORKED OUT ON THE BASIS OF FAIR MARKET VALUE OF THE CAPITAL ASSETS ON THE DATE OF SUCH TRANSFER. IN THE LIGHT OF THIS SPECIFIC PR OVISIONS OF SECTION 45(4), WE DO NOT FIND ANY MERIT IN THIS CONTENTION OF THE LD AR OF T HE ASSESSEE THAT SINCE THE BUSINESS OF THE ASSESSEE FIRM WAS TAKEN OVER BY M/S PSPPL, AS A GOING CONCERN, THE ASSETS ARE TO BE VALUED AT BOOK VALUE ONLY. REGARDING THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF SHAKT I TRADING CO. (SUPRA), WE FIND THAT THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN THAT CASE, THE ASSESSEE WAS A REGISTE RED FIRM AND AS A RESULT OF DEATH OF ONE OUT OF SIX PARTNERS ON 6 TH FEBRUARY, 1984, THE FIRM WAS RECONSTITUTED WITH REMAINING FIVE PARTNERS AND HENCE THERE WAS NO DISTRIBUTION OF ASSETS ON DISSOLUTION OF THE FIRM AND THERE WAS NO DISCONTINU ANCE OF BUSINESS AND UNDER THESE FACTS, IT WAS HELD BY HON'BLE APEX COURT THAT THE CLOSING STOCK OF THE ASSESSEE FIRM WAS TO BE VALUED AT COST OR MARKET PR ICE WHICHEVER IS LOWER BUT IN THE PRESENT CASE, THE BUSINESS STAND DISCONTINUED, THE FIRM WAS DISSOLVED AND THE ASSETS WERE TAKEN OVER BY ONE OF THE PARTNERS W HICH AMOUNTS TO DISTRIBUTION OF THE ASSETS BETWEEN THE PARTNERS AND HENCE THIS J UDGMENT IS NOT APPLICABLE IN THE PRESENT CASE. . I.T.A. NO.947/DEL/08 8/12 11. NOW, WE EXAMINE THE APPLICABILITY OF OTHER TWO JUDGMENTS WHICH ARE CITED BY LD DR OF THE REVENUE BEFORE US AND BEFORE THE TR IBUNAL IN THE FIRST ROUND ALSO AND LD CIT(A) WAS DIRECTED BY THE TRIBUNAL TO CONSI DER THESE JUDGMENTS BUT WERE NOT SO CONSIDERED BY HIM. THE FIRST JUDGMENT IS OF HON'BLE RAJASHTHAN HIGH COURT RENDERED IN THE CASE OF CIT V, RAJ KUMAR BAPNA (SUP RA). WE FIND THAT THIS JUDGMENT HAS NO RELEVANCE IN THE PRESENT CASE BECAU SE IN THIS CASE, THE ISSUE INVOLVED WAS REGARDING VALIDITY OF THE RE-ASSESSMEN T PROCEEDINGS. THE SECOND JUDGMENT IS OF HON'BLE MADHYA PRADESH HIGH COURT RE NDERED IN THE CASE OF CIT V. NATHULAL JAWARCHAND (SUPRA). IN THIS CASE, THE H ON'BLE MADHYA PRADESH HIGH COURT HAS FOLLOWED THE JUDGMENT OF HON'BLE APEX COU RT RENDERED IN THE CASE OF ALA FIRM (SUPRA) AND IT WAS HELD THAT IN ORDER TO A RRIVE AT THE CORRECT PICTURE OF THE TRADING RESULTS OF THE PARTNERSHIP FIRM ON THE DATE WHEN IT CEASES TO FUNCTION, THE VALUATION OF THE STOCK IN HAND SHOULD BE MADE O N THE BASIS OF PREVAILING MARKET PRICE. WE FIND THAT THE ASSESSMENT YEAR INV OLVED IN THE CASE OF NATHULAL JAWARCHAND WAS ASSESSMENT YEAR 1984-85 WHEREAS THE AMENDMENT IN SECTION 45 BY WAY OF INSERTION OF SUB SECTIONS (3) & (4) IS BY THE FINANCE ACT, 1987 W.E.F. 1.4.1988. AS PER SECTION 45(3) WHEN THE PARTNER TR ANSFERS THE CAPITAL ASSET TO THE FIRM BY WAY OF CAPITAL CONTRIBUTION OR OTHERWISE, F OR THE PURPOSE OF SECTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNTS OF THE FIR M IS TO BE CONSIDERED AS FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET BUT WHEN THERE IS DISSOLUTION OF THE FIRM AND THE CAPITAL ASSETS OF THE FIRM ARE DISTRIBUTED THEN THE MARKET VALUE OF THE A SSET ON THE DATE OF SUCH TRANSFER HAS TO BE CONSIDERED AS FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. IN THE PRESE NT CASE ON 1.9.1991, THE ASSETS WERE TRANSFERRED BY THE PARTNER TO THE ASSESSEE FIR M AND ON THIS DATE, NO INCOME IS CHARGEABLE IN THE HANDS OF SHRI MM GOEL WHO HAS TRANSFERRED THESE ASSETS TO THE ASSESSEE FIRM AS HIS CAPITAL CONTRIBUTION BECAU SE SUCH TRANSFER WAS RECORDED IN THE BOOKS OF THE FIRM AT BOOK VALUE ONLY. BUT O N 17.9.1991 WHEN ON DISSOLUTION OF THE FIRM, THERE IS DISTRIBUTION OF ASSETS TO THE SECOND PARTNER I.E. M/S PSPPL, MARKET VALUE HAS TO BE CONSIDERED FOR THE PURPOSE OF CAPITAL GAIN. THIS RATIO WILL APPLY ONLY TOWARDS CAPITAL ASSETS I.E. LAND & BUILD ING AND PLANT & MACHINERY. FOR . I.T.A. NO.947/DEL/08 9/12 THE PURPOSE OF CLOSING STOCK, THE SAME HAS TO BE VA LUED IN THE P&L A/C ITSELF ON THE DATE OF DISSOLUTION ON MARKET PRICE AND EXCESS OF MARKET PRICE OF CLOSINTG STOCK ON 17.9.1991 OVER THE BOOK VALUE OF CLOSING S TOCK ON THAT DATE HAS TO BE ASSESSED AS PROFIT OF BUSINESS OF THE ASSESSEE FIRM AS HAS BEEN HELD BY THE HON'BLE APEX COURT IN THE CASE OF ALA FIRM (SUPRA). REGARDING CHANGE IN HEAD OF INCOME, RELIANCE WAS PLACED BY THE LD DR OF THE REVENUE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE C ASE OF DLF AS REPORTED IN 34 DTR 105 (SB). SINCE NO OTHER DEFECT IS POINTED OUT BEFORE US IN THE MARKET PRICE ADOPTED BY THE ASSESSING OFFICER OF THESE ASSETS, W E DIRECT THE ASSESSING OFFICER TO COMPUTE THE BUSINESS PROFIT AFTER INCLUDING THE DIFFERENCE IN MARKET VALUE IN CLOSING STOCK AS ON 17.9.1991 AND BOOK VALUE OF CLO SING STOCK AS SHOWN BY THE ASSESSEE IN P&L A/C AND SUCH DIFFERENCE SHOULD BE A DDED IN BUSINESS INCOME OF THE ASSESSEE. FOR THE EXCESS OF MARKET VALUE OVER BOOK VALUE WITH REGARD TO OTHER ASSETS I.E. LAND & BUILDING AND PLANT & MACHI NERY, THE SAME SHOULD BE ASSESSED AS CAPITAL GAIN. GROUND NO.1 OF THE REVEN UE IS ALLOWED. 12. REGARDING GROUND NO.2 OF THE REVENUE, WE FIND T HAT THE ASSESSEE HAS RELIED UPON THE TRIBUNAL DECISION RENDERED IN THE C ASE OF M/S PSPPL (SUPRA). WE FIND THAT IN PARA NO.3 OF THIS TRIBUNAL DECISION, I T IS NOTED BY THE TRIBUNAL THAT THE ISSUE RELATING TO ADJUSTMENT BY WAY OF DISALLOWANCE OF ASSESSEES CLAIM OF DEDUCTION U/S 80I(2)(II) OF THE INCOME TAX ACT, 196 1 WAS DECIDED BY LD CIT(A) BUT WHILE DECIDING THE ISSUE AS PER PARA NO.5 OF TH IS TRIBUNAL DECISION, THERE IS NO FINDING GIVEN AS TO WHETHER SECTION 80I(2) HAS BEEN COMPLIED WITH OR NOT AND THE ISSUE WAS DECIDED ON THE BASIS THAT SECTION 80I BEN EFITS ARE ATTACHED TO THE UNDERTAKING AND NOT TO THE OWNER THEREOF. SINCE IN THIS TRIBUNAL DECISION, THE LEGAL PROVISION CONTAINED IN SECTION 80I(2) WERE NO T CONSIDERED WHICH ARE RELEVANT, WE ARE OF THE HUMBLE OPINION THAT THIS TR IBUNAL DECISION DOES NOT LAY DOWN A BINDING PRECEDENT BECAUSE THE TRIBUNAL HAS N OT CONSIDERED AND DECIDED THE APPLICABILITY OF THE PROVISIONS OF SECTION 80I( 2). THE PROVISION OF SECTION 80I(2) ARE AS UNDER:- . I.T.A. NO.947/DEL/08 10/12 80I (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDE RTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY:-- (I) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RE CONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE ; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSI NESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; (III) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE, OR OPERATES ONE OR MORE COLD STORAGE PLANT OR PLANTS, IN ANY PART OF INDIA, AND BEGINS T O MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR TO OPERATE SUCH PLANT OR PLANTS, AT AN Y TIME WITHIN THE PERIOD OF TEN YEARS NEXT FOLLOWING THE 31ST DAY OF MARCH, 1981, O R SUCH FURTHER PERIOD AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFI CIAL GAZETTE, SPECIFY WITH REFERENCE TO ANY PARTICULAR INDUSTRIAL UNDERTAKING ; (IV) IN A CASE WHERE THE INDUSTRIAL UNDERTAKING MAN UFACTURES OR PRODUCES ARTICLES OR THINGS, THE UNDERTAKING EMPLOYS TEN OR MORE WORK ERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF POWER, OR EMPLOY S TWENTY OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER: PROVIDED THAT THE CONDITION IN CLAUSE (I) SHALL NOT APPLY IN RESPECT OF ANY INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-E STABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AN D WITHIN THE PERIOD SPECIFIED IN THAT SECTION: PROVIDED FURTHER THAT THE CONDITION IN CLAUSE (III) SHALL, IN RELATION TO A SMALL-SCALE INDUSTRIAL UNDERTAKING, APPLY AS IF THE WORDS 'NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE' HAD BEEN OMITTED. 13. FROM THE ABOVE, WE FIND THAT FOR THE ASSESSEE B EING ELIGIBLE FOR DEDUCTION U/S 80I OF THE ACT, THE ASSESSEES INDUSTRIAL UNDER TAKING HAS TO FULFILL ALL THE FOUR CLAUSES U/S 80I(2) AND IF THE ASSESSEE DOES NOT FUL FILL EVEN ONE CLAUSE THEREOF, 80I DEDUCTION IS NOT ALLOWABLE. IN THE PRESENT CASE , THIS IS ADMITTED POSITION THAT TILL 31.8.1991, THIS INDUSTRIAL UNDERTAKING WAS OWN ED BY SHRI MM GOEL AS A SOLE . I.T.A. NO.947/DEL/08 11/12 PROPRIETOR AND FROM 1.9.1991, IT WAS RECONSTRUCTED AS A PARTNERSHIP FIRM BETWEEN SHRI MM GOEL AND M/S PSPPL. THERE WAS NO EXISTENCE OF THE ASSESSEE FIRM PRIOR TO 1.9.1991 AND HENCE THE ASSESSEE FIRM HAS B EEN FORMED BY THE RECONSTRUCTION OF THE SOLE PROPRIETORY CONCERN WHIC H WAS ALREADY IN EXISTENCE AND HENCE IN THE PRESENT CASE, THE ASSESSEE FIRM IS NOT FULFILLING CLAUSE (I) OF SECTION 80I(2) AND HENCE THE ASSESSEE IS NOT ELIGIB LE FOR DEDUCTION U/S 80I OF THE ACT. IN THIS REGARD, WE FIND THAT SIMILAR ISSUE WAS CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. DANDELI FE RRO ALLOYS PVT. LTD. AS REPORTED IN 212ITR 1 AND ALTHOUGH IN THE FACTS OF T HAT CASE, IT WAS HELD THAT INDUSTRIAL UNDERTAKING OF THAT ASSESSEE WAS NOT FOR MED ON ACCOUNT OF RECONSTRUCTION BUT THIS JUDGMENT THROW SOME LIGHT O N THIS ASPECT OF THE MATTER. IN THAT CASE, THE ASSESSEE COMPANY WAS INCORPORATED ON 30.3.1973 AND STARTED MANUFACTURING AND OTHER COMMERCIAL ACTIVITIES FROM 20.6.1973. BY A SCHEME OF AMALGAMATION SANCTIONED BY HON'BLE HIGH COURT ON 14 .12.1973 W.E.F. 31.10.1973, ANOTHER COMPANY WAS AMALGAMATED WITH TH IS ASSESSEE COMPANY AND ALL THE ASSETS AND LIABILITIES OF THE AMALGAMAT ING COMPANY WAS TRANSFERRED TO THE AMALGAMATED COMPANY W.E.F. 31.10.1973. UNDER TH ESE FACTS, IT WAS THE CASE OF THE ASSESSING OFFICER IN THAT CASE THAT THE AMAL GAMATED COMPANY WAS FORMED BY THE TRANSFER TO THE NEW BUSINESS OF MACHINERY OR PLANT, PREVIOUSLY USED FOR SOME OTHER PURPOSES NAMELY THE BUSINESS OF AMALGAMA TING COMPANY AND HENCE DEDUCTION U/S 80J & 80HH IS NOT ALLOWABLE. IT IS OB SERVED BY THE HON'BLE BOMBAY HIGH COURT THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE AMALGAMATED COMPANY WAS FORMED AS AN INDUSTRIAL UNDERTAKING AS A RESULT OF AMALGAMATION WITH THE AMALGAMATED COMPANY. IT IS ALSO OBSERVED T HAT THE FACTS ON RECORD CLEARLY ESTABLISHED THAT THE AMALGAMATED COMPANY WA S ALREADY INCORPORATED AND FORMED AND HAD COME INTO EXISTENCE ON 30.3.1973 AND THAT IT BECAME AN INDUSTRIAL UNDERTAKING CARRYING ON INDUSTRIAL AND C OMMERCIAL ACTIVITIES ON AND FROM JUNE 20TH, 1973 I.E. PRIOR TO THE AMALGAMATION OF THE AMALGAMATING COMPANY WITH THE AMALGAMATED COMPANY WHICH IS EFFEC TIVE FROM 31.10.1973 AND HENCE, IT IS NOBODYS CASE THAT THE AMALGAMATED COM PANY WAS FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS AL READY IN EXISTENCE. THE FACTS IN . I.T.A. NO.947/DEL/08 12/12 THE PRESENT CASE ARE DIFFERENT. IN THE PRESENT CAS E, THE ASSESSEE FIRM WAS FORMED BY THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE AS A SOLE PROPRIETORY CONCERN OF SHRI MM GOEL AND HENCE, THE ASSESSEE DOES NOT FULFILL THE CONDITIONS LAID OUT IN SECTION 80I(2)(I) AND THEREF ORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80I OF THE ACT. THIS GROUND OF T HE REVENUE IS ALSO ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. 15. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH, 2010. SD/- SD/- (I.P.BANSAL) (A .K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 26..3.2010. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. (ITAT, NEW DELHI).