Income Tax Appellate Tribunal - Lucknow
Shri Sandeep Kumar Bansal, Kanpur vs Department Of Income Tax
1
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH "A", LUCKNOW
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA No.548/LKW/2013
Assessment year:2009-10
Dy.C.I.T.-II, Vs. Shri Sandeep Kumar Bansal,
Kanpur. 117/H-1/260, Pandu Nagar,
Kanpur.
PAN:ABWPB8753C
(Appellant) (Respondent)
ITA No.549/LKW/2013
Assessment year:2009-10
Dy.C.I.T.-II, Vs. Late Om Prakash Bansal,
Kanpur. Through son & L/h Shri Sandeep
Kumar Bansal,
117/H-1/260, Pandu Nagar,
Kanpur.
PAN:ABWPB8754F
(Appellant) (Respondent)
ITA No.550/LKW/2013
Assessment year:2009-10
Dy.C.I.T.-II, Vs. Shri Vinay Kumar Bansal,
Kanpur. 117/H-1/260, Pandu Nagar,
Kanpur.
PAN:ABWPB8755E
(Appellant) (Respondent)
C.O. No.33/LKW/2013
(in ITA No.550/LKW/2013)
Assessment year:2009-10
Shri Vinay Kumar Bansal, Vs. Dy.C.I.T.-II,
117/H-1/260, Pandu Nagar, Kanpur.
Kanpur.
PAN:ABWPB8755E
(Objector) (Respondent)
2
C.O. No.34/LKW/2013
(in ITA No.549/LKW/2013)
Assessment year:2009-10
Late Om Prakash Bansal, Vs. Dy.C.I.T.-II,
Through son & L/h Shri Kanpur.
Sandeep Kumar Bansal,
117/H-1/260, Pandu Nagar,
Kanpur.
PAN:ABWPB8754F
(Objector) (Respondent)
C.O. No.35/LKW/2013
(in ITA No.548/LKW/2013)
Assessment year:2009-10
Shri Sandeep Kumar Bansal, Vs. Dy.C.I.T.-II,
117/H-1/260, Pandu Nagar, Kanpur.
Kanpur.
PAN:ABWPB8753C
(Objector) (Respondent)
Revenue by Shri Y. P. Srivastava, D.R.
Assessee by Shri Rakesh Garg, Advocate
Date of hearing 04/03/2014
Date of pronouncement 11/04/2014
ORDER
PER SUNIL KUMAR YADAV:
These appeals are preferred by the Revenue on common grounds relating to computation of long term capital gain against the order of CIT(A) whereas the assessee has filed Cross Objections in all the appeals in support of the order of CIT(A). Since the appeals and the Cross Objections were heard together, the same are being disposed of through this consolidated order.3
2. The facts, in brief, borne out from the Revenue's appeals on aforesaid common grounds, are that all the assessee i.e. Shri Sandeep Kumar Bansal, Shri Vinay Kumar Bansal along with Shri Sanjeev Gupta, Shri Rajeev Gupta and Shri Sanjay Gupta jointly purchased 2822.45 sq. mtrs. of commercial/ industrial premises No.123/810 Fazalganj, Kanpur along with plant & machinery from one Habib Adam Power of attorney holder of Rahematulla Haji and others vide purchase deed executed on 09/08/1985 for a total consideration of Rs.7,50,000/-. The said premises was a commercial / industrial premises and was being used for business purposes under the name and style of 'Fulara Mills' by the erst-while owners.
2.1 A partnership deed was executed on 5/8/1985 and on 27/09/1985 consisting of the following as partners Shri OmPrakash Bansal, Shri Hari Ram Gupta, Shri Vinay Kumar Bansal, Shri Sandeep Bansal, Shri Sanjeev Gupta, Shri Rajeev Gupta and Shri Sanjay Gupta to carry on the business of Oil Mills under name and style of Hari Om Oil & General Mills.
2.2 The immovable property No 123/810 Fazalganj, Kanpur purchased jointly by the assessees, Shri Vinay Bansal, Shri Sandeep Bansal, Shri Sanjiv Gupta, Shri Rajiv Gupta and Shri Sanjay Gupta was introduced by them towards their capital in the firm. Clause 4 of partnership deed dated 27/09/1985 reads "that the parties of the 3 rd part, party of the 4th part, party of the 5th part and party of the 6 th part and party of the 7 th part have contributed their respective shares in premises No. 123/810, Fazalqanj, Kanpur as their share capital in this partnership firm and further capital shall be contributed by the parties to the deed. And in clause -5 that the capital of the partnership business shall be duly credited to their respective accounts of the parties as and when contributed by them and unless otherwise agreed upon no interest shall be allowed thereon. Shri Hari Ram Gupta and Shri Om Prakash Bansal contributed their capital by way of cash. The capital account of the respective partners were credited in the books of the firm and 4 correspondingly, the same was debited to the property account. Later on the partnership firm M/s Hari Om Oil & General Mills acquired another 202.03 sq. meters of the same premises for Rs.50,000/- vide purchase deed 09/08/1985. Thus, the total area of the land aggregated to 3024.48 sq. meters. Thus, the property initially contributed by the partners and purchased thereafter became the business assets/property of the partnership firm namely Hari Om Oil & General Mills. The contribution of the property in the partnership firm does not require registration nor execution of any title deed.
2.3 The business in partnership continued upto 30/06/1986. Thereafter Shri Hari Ram Gupta, Sanjiv Gupta, Rajiv Gupta and Sanjay Gupta retired from the partnership firm. The firm was reconstituted with the remaining partners namely Shri Om Prakash Bansal, Shri Vinay Bansal and Sandeep Bansal i.e. the assessees w.e.f. 01/07/1986. The business continued under the same name and style of M/s Hari Om Oil & General Mills. The reconstituted firm had taken over all the assets and liabilities as a going concern.
2.4 There arose a dispute between the retiring and the continuing partners in respect of settlement of accounts. The same was referred for arbitration. An arbitration award was passed. The amounts due to the retiring partners were determined and settled. The retiring partners namely Shri Hari Ram Gupta, Rajiv Gupta, Sanjeev Gupta and Sanjay Gupta were paid by way of bank drafts, their respective capital in the firm. As far as the retiring partners were concerned, their association with the partnership firm came to an end.
2.5 The reconstituted firm carried on its business of oil mill. Fresh constructions were made. Sometime in December 1987 the partners of the firm felt that that the business of oil mill was not a profitable venfure. They decided to discontinue the same and to dissolve the firm. The partnership 5 firm was dissolved with effect from 31/12/1987. The assets and liabilities were taken stock off and were valued at the market price. The firm was dissolved. Balance Sheet on the date of dissolution was drawn up. The assets were distributed and demarcated amongst the partners. As a result of the dissolution, all the three partners got 1/3rd share each in the said property. This property was sold by all the co-owners/partners i.e. Shri Om Prakash Bansal, Shri Vinay Bansal and Sandeep Bansal for a consideration of Rs.3,03,00,000/- through sale deed dated 18/11/2008 in favour of My Car Pvt. Ltd. The individual assessee has computed the long term capital gain of his proportionate share as under:
Sale Consideration 3,03,00,000/-
(i) Land acquired in 1987
Value 2822.45 [email protected]=9,20,119x582/150) 35,70,062/-
(ii) Land acquired in 1987
Value 202.03 sq. [email protected] =6,612x582/150 25,655/-
(iii) Construction cost Rs.25,76,046 =25,76,046x582/150 99,95,058/-
(iv) Improvement during F.Y.93-94 =1,23,258x582/244 2,94,001/-
(v) Improvement during F.Y.95-96 =1,52,770x582/281 3,16,413/-
Total indexed cost of acquisition 1,42,01,189/-
Net long term capital gain 1,60,98,811/-
Assessee's share =1/3rd of Rs1,60,98,811 53,66,270.33
2.6 During the course of assessment proceedings the Assessing Officer has noted that this property was acquired by the assessee in 1985 and the assessee has shown the cost of acquisition as on 31/12/87 when the partnership firm was dissolved and the assessee acquired his share on dissolution of the firm. Accordingly, the assessee was asked to justify the capital gains accrued. In response thereto, it was submitted on behalf of the assessee that he became the owner of the property in December, 1987 when the partnership firm was dissolved and assets were distributed and it was only on dissolution of the firm the property ceased to be capital asset of the firm and became the property of the partners. All the assessees got the Fair Market Value of the property on dissolution of the firm in 1987 ascertained by the approved valuer and the respective share of the assessees was valued 6 at Rs.35,61,927/- as on December, 1987. Accordingly, the cost of acquisition of the said property in the hands of the assessee was adopted at Rs.35,61,927/- taking the date of acquisition to be the date on dissolution of the partnership firm. The assessee along with two co-owners invested Rs.1,23,258/- in financial year 93-94 and Rs.1,52,770/- in financial year 95- 96 respectively. The Assessing Officer was not convinced with the explanation of the assessee and estimated the cost of acquisition on the basis of the cost for which the property was purchased before being introduced or contributed by the respective owners as their capital in the partnership firm M/s Hari Om Oil & General Mill as against Fair Market Value estimated by the firm on the basis of approved valuer on the date of dissolution and distributed between the partners. Accordingly, the long term capital gain in the hands of the assessee at Rs.87,93,792/- was computed against the declared capital gain at Rs.53,66,270/- resulting into addition of Rs.34,27,520/- as long term capital gain.
3. Aggrieved, the assessees have preferred appeals before the CIT(A) with the submission that the Assessing Officer has overlooked the provisions of section 45(4) read with section 49(iii)(b) of the Income Tax Act (hereinafter referred to as "the Act") and made the impugned additions. It was also contended before the CIT(A) that the property in question was introduced by the assessees after its purchase in 1985 as their capital in the partnership firm. The property ceased to be individual property of the assessee and became property of the partnership firm. It was only on dissolution of the firm in 1987, the said property became individual asset of the assessee. It was further contended that the Assessing Officer has not been able to appreciate the fact that the assessee became the owner of the property not in the year 1985 but in December, 1987 when partnership firm Hari Om Oil & General Mill was dissolved. He also placed reliance upon the arbitration award through which the disputes between the retiring and 7 continuing partners in respect of settlement of accounts were settled. The CIT(A) re-examined the issue in the light of the provisions of section 45(4) and 49(iii)(b) of the Act and circular No. 495 dated 22 September, 1987. Being convinced with the explanation of the assessee, the CIT(A) accepted the computation of capital gain offered by the assessee and deleted the addition. For the sake of reference, relevant portion of the order of CIT(A) is extracted hereunder:
"I have considered the facts and circumstances of the case, gone through the assessment order, written submissions filed by the Ld. A.R. as well as perused the paper book and the case records. The AR has disputed the levy and computation of long term capital gains, on two counts namely market value of the assets as on the date of dissolution of the partnership firm on 31.12.1987 should be taken as the cost of acquisition and thereafter cost inflated index be applied to arrive at the cost of acquisition on the date of sale and secondly on the ground that the AO erred in not considering the Valuation Report of the Approved Valuer determining the cost of acquisition of the property. Considering the second submission of the Ld. AR, the undisputed facts are that property No. 123/810, Fazalganj, Kanpur was jointly owned by Shri Om Prakash Bansal, Sandeep Bansal and Vinay Bansal, each having 1/3rd share. The said property was held in partnership firm under the name and style of Messrs Hari Om Oil and General Mills vide partnership deed executed on 27.09.1985 where in Shri Om Prakash Bansal, Shri Sandeep Bansal and Shri Vinay Bansal were partners alongwith Shri Hari Ram Gupta, Shri Sajeev Gupta Shri Rajeev Gupta and Shri Sanjay 6upta. A dispute arose between the partners. The matter was referred for Arbitration. As per the arbitration award Shri Hari Ram Gupta, Shri Sajeev Supta Shri Rajeev Gupta and Shri Sanjay Gupta retired from the parternhip firm on 30.06.1986. Thereafter the remaining partners namely Shri Om Prakash Bansal, Shri Sandeep Bansal and Shri Vinay Bansal reconstituted themselves into a partnership firm and continued the business of Messrs Hari Om Oil & General Mills. The said firm so reconstituted was dissolved on 31.12.1987 and the assets of the partnership firm of Messrs Hari Om Oil & General Mills were estimated at the market value at Rs.35,46,165/- by the 8 approved valuer's report dated 31-12-1987 and was distributed between the existing partners namely Shri Om Prakash Bansal, Shri Sandeep Bansal and Shri Vinay Bansal. The facts as narrated above by the Ld. A.R. and reproduced in his submissions are not in dispute.
The assessee, Shri Sandeep Bansal along with Om Prakash Bansal and Vinay Bansal, sold the said property for a total consideration of Rs.3,03,00,000/- to Messrs My Car Pvt. Ltd. during the year. Long Term Capital Gains was computed at Rs.1,60,98,811/- and 1/3rd of the same i.e. Rs.53,66,270/- was declared by each co-owner in his individual return. It has been claimed that a sum of Rs.25,76,046/- was spent over the construction of the property during the year 1986-87 i.e. before dissolution on 31.12.1987. Thereafter Rs.1,23,258/- during F.Y.1993-94 and Rs.1,52,770/- during F.Y. 1995-96 respectively. The cost of acquisition of the property as on date of sale, was got determined by an Approved Valuer. The Approved Valuer Shri J.N. Dubey vide his report dated 12.12.2008, estimated the cost of acquisition of the said property on the basis of Cost Inflated Index at Rs.1,42,01,189/-. After deducting the cost of acquisition of Rs.1,42,01,189/- as estimated by the Approved Valuer net capital gains of Rs.1,60,98,811/- was computed and declared in the ratio of 1/3rd each by the respective co-owner. The AO after considering the Approved Valuer's Report dt. 12.12.2008, chose not to accept the cost of construction of Rs.25,76,046/- incurred during the year 1986-87, for want of evidence of the expenditure having being actually incurred and consequently the indexed cost of acquisition thereof as estimated by the Approved Valuer in his report. The AO computed the capital gains at Rs.2,36,81,376/- and the proportionate share of each co-owner at Rs.87,93,792/-; after deducting the capital gains as declared, made an addition of Rs.34,27,520/-. The AR has argued that the AO is not justified in rejecting the cost of acquisition as determined by the Approved Valuer by partly accepting the same and partly rejecting the same. The A.R. has relied upon several decisions for the proposition that the AO was not justified at all in calling for evidence in respect of an expenditure incurred specially considering the factor of time. The A.R. has drawn my attention to the decision of S. Hastimal vs CIT 49 ITR 273 (Madras) for the proposition that after lapse of a decade the assessee should not be placed upon the rack and 9 called upon to explain not merely the origin and the source of a capital contribution, but also the origin of the origin and the source of source as well as. The A.R. has pleaded that the explanation given by the assessee cannot be rejected arbitrarily or capriciously on suspicion or on imaginary or irrelevant grounds. The Ld. A.R. has vehemently argued that the explanation cannot be rejected merely on the ground that the department is unable to verify its correctness. Relying upon the decision in the case of Mehta Parikh & Co. vs CIT 159 ITR 78 (SC) and Lal Chand Bhagat Ambica Ram vs CIT 37 ITR 288(SC) it has been argued that the AO cannot accept the explanation in part and reject it in part and an explanation cannot be rejected merely on conjecture and surmises. The A.R. has also argued that in drawing inferences it cannot be assumed in the absence of any material that there has been some illegality, at the same time the AO cannot merely reject unreasonably a good explanation, convert good proof into no proof, as also the statute does not mandate to maintain records for times immemorial.
The AO has not disputed the valuation report dt. 12.12.2008 prepared by the Approved Valuer and filed by the assessee, neither the AO has questioned the veracity of the same. Admittedly, the valuation report has been prepared by an Approved Valuer, a technical person after necessary inspection of the property. It cannot be said that the valuation report prepared by the Approved Valuer is not genuine and cannot be relied upon. The AO has also not said so. The Approved Valuer's Report estimating the cost of acquisition as on date of sale at Rs.99,95,058/- was well before the AO. If the AO had any doubt or suspicion in respect of the same he could have made an on the spot inquiry or at best could have referred the matter to the Valuation Cell for determination of correct cost of acquisition on the basis of cost inflated index. The AO did not examine the Approved Valuer also. Undoubtedly, it has to be accepted that the matter is quite old (relating to 1986-87) and the assessee is not expected to maintain the records of over last 20 years or more. It is also true, that suspicion howsoever grave cannot form part of proof. In such kind of matters, the Valuer's Report is the only evidence which has to be relied upon. I fail to understand as to how the AO can accept the Valuation Report in part and decline to accept the remaining part. Once if a valuation report is filed in evidence, 10 the same has to be accepted in toto or has to be rejected in limine. Before rejecting any evidence, the AO has to record reasons as to why the said evidence is not acceptable. In this case, the AO has merely observed that the assessee has not been able to furnish any evidence with reference to the cost of construction of Rs.25,76,046/- incurred during the year 86-87. In the peculiar facts of the present case the best evidence is the Valuer's Report alone. The assessee has also filed the balance sheets of Messrs Hari Om Oil & General Mills as on 30.06.1986, 30.06.1987 and 31.12.1987, wherein the value of the property has been shown at Rs.33,61,450/- on 30-06-1987 and Rs.35,46,165/- on 31-12-1987. The assessee on his part furnished all the necessary evidences as was within his control. Considering the fact that the Approved Valuer's Report has not been completely rejected but on the contrary has been partly accepted as also the fact that the assessee has filed the balance sheets showing the additions made, the computation of capital gains as declared by the assessee cannot be brushed aside. In such circumstances, the computation made by the AO of long term capital gains is not correct. The computation of Long Term Capital Gains made by the AO by partly rejecting the Approved Valuer's Report is arbitrary and cannot be sustained.
As far as the A.R's submission that cost of acquisition of the property should be taken at the fair market value as on the date of dissolution on 31.12.1987 is concerned, Section 49 of the Income Tax Act, 1961, defines, "Cost with reference to certain modes of acquisition" has to be computed. As per Section 49(iii)(b) in cases where the capital asset becomes the property of the assessee on any distribution of assets on the dissolution of a firm, where such dissolution had taken place at any time before 01.04.1987, the cost of acquisition of the assets shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Accordingly as per Section 49(iii)(b) the cost of an asset on distribution of assets on the dissolution of the firm after 01.4.1987 shall be the cost on which the asset has been acquired or the FMV of the assets as on the date of dissolution. Section 48 of the Act, states that the income chargeable under the head capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the 11 transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of the any improvement thereto. Section 45(4) states that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm shall be chargeable to tax as the income of the firm of the previous year in which the said transfer takes place and for the purposes of section 48 the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received as a result of the transfer. Since the assessee received the property on dissolution of the partnership firm in December 1987, the FMV of the property as on the date of dissolution itself is to be taken as the cost of acquisition of the property to the assessee.
The reason for inserting clause iii(b) in Section 49 has been explained by the CBDT in its circular No 495 dated September 22, 1987 as under:
Capital gains on transfer of firms' asset to partners and vice versa:
"24.3 Conversion of partnership assets into individual assets on dissolution or otherwise also forms part of the same scheme of tax avoidance. Accordingly the Finance Act 1987, has inserted new sub-section (4) in section 45 of the Income-tax Act, 1961. The effect is that profits or gains arising from transfer of a capital asset by a firm to a partner on dissolution or otherwise shall be chargeable as the firms' income in the previous year in which the transfer took place and for the purposes of computation of capital gains the fair market value of the asset on the date of transfer shall be deemed to be the full value of the consideration received or accrued as a result of the transfer.
24.4 As a consequential measure, clause (ii) of section 47 has been omitted and sub-clause (b) of clause (iii) of section 49(1) has been amended.
24.7 These amendments will come into force with effect from 1st April, 1988, and will, accordingly apply from assessment year 1988-89 and subsequent years."12
The assessee became owner of the proportionate share of the property, 123/810, Fazalganj, Kanpur in December 1987, the market value as on the date of dissolution i.e. 31.12.1987 as estimated on dissolution would be the cost of acquisition to the assessee and not the cost of acquisition in the year 1985 when the property was actually purchased.
On the basis of the above also, the capital gains has to be computed, taking the cost of acquisition as on 31.12.1987, in this case, the fair market value of the assets as received on the dissolution of the partnership firm and thereafter applying the Cost Inflated Index, which would be the cost of as on the date of sale. On this count also there would be no issue of any additional capital gains liability. This being a high demand case, inspite of specific direction to the AO to attend, no compliance has been made.
The addition of Rs.34,27,520/- is deleted."
4. Aggrieved, the Revenue has preferred appeal before the Tribunal and placed reliance upon the assessment order whereas the learned counsel for the assessee besides placing heavy reliance upon the order of CIT(A) invited our attention to the provisions of section 45(4) and 49(iii)(b) and circular No. 495 dated 22 September, 1987 issued by CBDT.
5. Having given a thoughtful consideration to the rival submissions and from a careful perusal of orders of the lower authorities, we find that the sole dispute before us is whether the cost of acquisition of the property is to be taken as on 09/08/1985 when the property was originally purchased by the assessees or as on December, 1987 when the respective shares of the property were distributed to the assessees on dissolution of the partnership firm.
5.1 The genuineness of the formation of the partnership firm and its dissolution was not disputed by the Revenue. Therefore, when the property was initially purchased and was contributed by the owners as their respective share capital in the partnership firm, the impugned property ceased to be the 13 individual property/capital asset of all the three assessees as it became the capital or the property of the partnership firm. On the dissolution of the partnership firm through dissolution deed dated 31/12/1987, the assets of the firm were distributed and all the three assessees got their respective 1/3rd share each in the said property. The said property was later on sold through sale deed dated 18/11/2008 to M/s My Car Pvt. Ltd. for a total sale consideration of Rs.3,03,00,000/- on which the long term capital gain are required to be computed. Therefore, the controversy before us only with regard to cost of acquisition of the property and the cost of improvement made thereafter. For computing the capital gain, our attention was invited to the provision of section 45(4) of the Act where Fair Market Value of the asset on the date of dissolution or transfer of capital asset shall be deemed to be the full value of consideration received or acquired as a result of transfer in the hands of the firm. Therefore, the said Fair Market Value should be the cost of acquisition in the hands of the partner. For the sake of reference, we extract the provisions of section 45(4) of the Act as under:
"The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer."
5.2 Our attention was also invited to the provisions of section 49(1)(iii)(b) of the Act, according to which the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it as increased by cost for improvement of asset incurred borne by the previous owners or the assessee, as the case may be, where the capital asset becomes property of the assessee on dissolution of the firm which had 14 taken place at any time before 1st day of April, 1987. For the sake reference, we extract the provisions of section 49(1) of the Act as under:
"49. Cost with reference to certain modes of acquisition.
(1) Where the capital asset became the property of the assessee-
(i) on any distribution of assets on the total or partial partition of a Hindu undivided family;
(ii) under a gift or will;
(iii) (a) by succession, inheritance or devolution, or
(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or
(e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) of section 47 ;
(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.
Explanation.--In this sub-section the expression "previous owner of the property" in relation any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section."
5.3 In the instant case the distribution of assets on dissolution of firm admittedly took place on 31 st April, 1987. Therefore, the provisions of this section could not apply to the present case and the cost of acquisition shall not be the cost for which the previous owner of the property acquired it. Again we have to revert back to the provisions of section 45(4) of the Act, 15 according to which the profit or gains arising from transfer of capital asset by way of distribution of capital asset on dissolution of a firm or other association of persons, shall be chargeable to tax as income of the firm of the previous year for which the said transfer took place and for the purpose of section 48 of the Act, the Fair Market Value of the asset on the date of such transfer shall be deemed to be the full value of consideration received or acquired as a result of transfer. When the Fair Market Value of the asset as on date of dissolution of the firm is deemed to be the full value of consideration received or acquired as a result of transfer, the said Fair Market Value shall be the cost of acquisition in the hands of the transferee / the partners who received the property/capital asset.
5.4 We have also examined the circular No. 495 dated 22 nd September, 1987 issued by CBDT clarifying the doubt raised with regard to the computation of capital gain or profit & gains of the partnership firm on conversion of partnership asset into individual asset on dissolution of the firm. The Board has clarified that conversion of the partnership asset into individual asset on dissolution or otherwise also forms part of scheme of tax avoidance. Accordingly, Finance Act 1987 has inserted new sub section (4) to section 45 of the Act, the effect is that profit or gains arising from transfer of capital assets be a firm or otherwise shall be chargeable as firm's income for the previous year for which the transfer took place and for the purpose of computation of capital gain the Fair Market Value of the asset on the date of transfer shall be deemed to be the full value of consideration received or accrued as a result of transfer.
5.5 Keeping in view the clarification given by the CBDT and the provisions of section 45(4) of the Act, we are of the considered opinion that on dissolution of the firm, if the capital assets are distributed, the cost of acquisition of capital asset in the hands of the recipients or the partners, would be the Fair Market Value of the asset on the date of transfer, which 16 was taken into account for computing the profit and gains of the firm on transfer of capital asset on its dissolution. In the light of these legal propositions, we are of the view that the CIT(A) has properly adjudicated the issue and deleted the addition. Since we do not find any infirmity in the order of CIT(A), we confirm the same.
6. The Cross Objections are filed in support of the order of CIT(A) and since we have confirmed the order of CIT(A), the Cross Objections become infructuous and accordingly we dismiss the same.
7. In the result, the appeals of the Revenue as well as the Cross Objections of the assessee are dismissed.
(Order was pronounced in the open court on 11/04/2014) Sd/. Sd/.
( A. K. GARODIA ) (SUNIL KUMAR YADAV) Accountant Member Judicial Member Dated:11/04/2014 *C.L.Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar