Income Tax Appellate Tribunal - Ahmedabad
Kanchanben Manubhai, Ahmedabad vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C", AHMEDABAD
Before Shri Bhavnesh Saini, JM & Shri A.N. Pahuja, AM
I.T.A. No.459/Ahd/1997 - AY 1983-84
I.T.A. No.2040/Ahd/2003 - AY 1984-85
Shri Nalin Manubhai Shah vs ACIT, Circle-2(3)
L/H of Smt. Kanchanben Ahmedabad
Manubhai Parijat,
Near St Xavier's College Corner
HL Commerce College Road
Navrangpura, Ahmedabad
[PAN : Not available]
(Appellant) (Respondent)
Assessee by : Shri MK Patel/Tushar Vasa,AR
Revenue by : Shri MC Pandit, DR
ORDER
AN Pahuja : These appeals by the assessee against two separate orders dated 28.11.1996 for the AY1983-84 of the ld. CIT(A)-VI and dated 28.2.2003 for the AY 1984-85 of the ld. CIT(A)-XVI, Ahmedabad, raise the following grounds.
ITA No.459/Ahd/1997[ AY 1983-84]"I. "1. The learned C.I.T.(A) erred in law and on facts in upholding the decision of the learned Assistant Commissioner of Income Tax, Central Circle-2(3) (hereinafter referred to as the 'learned A.O.'). He sought to have allowed the appeal in full in accordance with the grounds of appeal raised by the appellant before the learned C.I.T.(A).
2. The appellant states that the order of the learned CIT(A) being contrary to law, facts and evidence on record is wholly unsustainable in law and on facts and as such is required to be set aside.
II. 1. The learned CIT(A) grossly erred in law and on facts in reaching the conclusion as he did that the learned A.O. had validly reopened the assessment under the provisions of Section 147 of the Act.
2 ITA No 459/A/97 & I.T.A. No.2040/A/03
2. The appellant states that the learned CIT(A) erred in law and on facts in not considering / failing to consider the various submissions placed before him by the appellant. He ought to have held that the learned A.O. had no ground nor any reason to believe that the income has escaped assessment within the meaning of section 147 read with section 148 of the Act when the appellant had already furnished the return by registered post A.D. and the tax on the basis of the said return was duly paid under amnesty scheme.
3. The learned CIT(A) erred in law and on facts in ignoring / failing to consider the fact that the appellant having already filed the return and the said return having NOT been disposed of by the learned A.O., he had no jurisdiction to issue notice under Section 147 / 148 of the Act.
4. The appellant states that the action of the learned A.O. being contrary to settled law must be held to be wholly without jurisdiction.
III. 1. The learned CIT(A) erred in law and on facts in holding that the appellant was liable to tax on long term capital gain amounting to Rs.11,86,499/- on conversion of its long term capital asset, namely, land into stock-in-trade prior to contribution thereof as her capital in the firm styled M/s Bhoomi Corporation.
2. The learned CIT(A) grossly erred in law and on facts in holding that the appellant was liable to long term capital gains tax on the aforesaid conversion of capital asset into stock-in-trade and thereby bringing to tax the difference between the actual cost of land and the amount determined on conversion into stock-in-trade to capital gains contrary to the settled law on the subject.
3. The learned CIT(A) grossly erred in ignoring/ overlooking the fact that the provisions of Section 2(47)(iv) of the Act were not applicable for the assessment year under appeal.
4. The appellant states that treatment of conversion of capital asset into stock-in-trade which attracts liability to capital gains tax was placed on the statute book with effect from 1.4.1985 and as such the said provisions had 3 ITA No 459/A/97 & I.T.A. No.2040/A/03 absolutely no application for the assessment year under appeal.
5. The learned CIT(A) grossly erred in law and on facts in ignoring the binding decision of the Hon'ble Supreme Court in the case of C.I.T. VS. BAI SHIRINBHAI KOOKA (46 I.T.R. 86) (MAJ. VIEW) which has laid down that the difference between the actual cost and the amount determined on conversion of asset is not exigible to tax.
6. The appellant states that the learned C.I.T.(A) has committed gross judicial impropriety by ignoring the majority view in BAI SHRIINBHAI K. KOOKA's case (supra) and relying on the minority view to support his decision to tax the difference between the converted value and the actual cost of the capital asset. The learned CIT(A)'s action is invalid in law, if not perverse.
7. The appellant further states that the decision of the learned CIT(A) being contrary to law laid down by the Hon'ble Supreme Court deserves to be quashed forthwith.
8. The learned CIT(A) grossly erred in law and on facts in relying on the decision of the Hon'ble Supreme court in the case of Sunil Siddharthbhai and Kartikeya V. Sarabhai (156 ITR 509) to support his view that the appellant has indulged a device or ruse for converting the assets into stock in trade and thereafter contributing the same to the firm in which she was a partner.
9. The learned A.O. as well as the learned C.I.T.(A) failed to discharge the burden which lay upon them to establish by conclusive evidence that the impugned transaction was a device or ruse to avoid the liability to tax
10. The appellant further states that her case is fully covered by the recent binding decision of the Hon'ble Gujarat High Court in the case of BANYAN AND BERRY VS. CIT (222 I.T.R. 831) and as such the findings of the learned CIT(A) to the contrary are wholly untenable in law.
11. The learned CIT(A) grossly erred in law and on facts in upholding the decision of the learned A.O. to adopt the value of consideration of property at Rs. 12,38,000/- being the value taken at the time of conversion of the property for determining the alleged liability to capital gains.
4 ITA No 459/A/97 & I.T.A. No.2040/A/03
12. The appellant states that the said difference as determined by way of capital gains ought not to have been brought to tax in light of the decision in BAI SHIRINBHAI K. KOOKA's case( supra).
IV. 1. The learned CIT(A) grossly erred in holding that the bar of limitation would be lifted for A.Y. 1984-85 in view of the provisions of Section 153(3) of the Act.
2. The appellant states that the directions issued by the learned CIT(A) on the basis of the finding reached while disposing of the appeal for A.Y. 1983-84 are wholly contrary to the settled law on the subject and being contrary to the decision of the Hon'ble Supreme Court in the case of CIT VS MANICK SONS (74 ITR 1) the said directions deserve to be quashed.
3. The learned CIT(A) grossly erred in overlooking / ignoring the fact that he had no jurisdiction to issue directions for A.Y. 1984-85 as no appeal was pending with him for the said year.
4. The learned CIT(A) grossly erred in issuing the said direction relying on various decisions referred to by him in his order.
5. The appellant states that the said decisions have absolutely no application in view of the decision of the Hon'ble Supreme Court in MANICK case (supra)
6. The appellant further states that the alternative findings recorded by the learned CIT(A) being contrary to the settled law deserve to be quashed.
V. The learned CIT(A) grossly erred in law and on facts in upholding the levy of interest as made by the learned A.O. VI. The learned CIT(A) grossly erred in law and on facts in upholding the initiation of penalty proceedings under Sections 271(1)(a) and 273 of the Act by the learned A.O. VII. The appellant reserves its right to add, amend, alter, substitute or modify all or any of the grounds stated hereinbefore.
5 ITA No 459/A/97 & I.T.A. No.2040/A/03 PRAYER The appellant respectfully prays that :-
i) proceedings under Section 147 / 148 of the Act by the learned A.O. may kindly be quashed.
ii) In the alternative the addition of Rs.11,86,499/- as capital gain may kindly be deleted.
iii) The directions issued by the learned CIT(A) to reopen the assessment for A.Y. 1984-85 may kindly be deleted.
iv) Levy of interest may kindly be deleted.
v) Initiation of penalty proceedings may kindly be quashed.
vi) Such and further relief which the appellant is entitled as the facts and circumstances of the case may justify."ITA No.2040/Ahd/2003
In this appeal, the assessee raised the following grounds:
"1. That the order of the learned Commissioner of Income-tax is against law, facts and evidence on record.
2. That the learned Income-tax Officer has erred in confirming the order U/s 144 r.w.s. 147 of the total income of the assessee of Rs. 8,82,499 as against returned / assessed income of Rs.5,791.
3. That the learned Commissioner of Income-tax (Appeals) has not considered the ground of appeal that the Income-tax Officer had wrongly initiated the assessment proceedings and made assessment u/s 144 read with section 147 of the Income Tax Act, 1961; and the appellant contends that the proceedings initiated are time barred and void abinitio.
3.1 The appellant contends that the assessing officer has issued notice U/s 148 r.w.s. 147 served on 13-9-99 which is time barred and is against the provisions of law hence the proceedings and assessment made U/s 144 r.w.s. 147 is against the principles of law.
3.2 The learned Commissioner of Income-tax (Appeals) ought to have held that there was no ground for the Income-tax Officer to believe that income has escaped assessment because return of income was filed under amnesty scheme by the appellant which was accepted and only due to appellate order for A.Y. 83-84 and for the purposes of giving effect to such appellate order the assessment for A.Y. 84-85 6 ITA No 459/A/97 & I.T.A. No.2040/A/03 is finalized which is not an assessment under section 144 r.w.s. 147 of the Act hence the order passed by the assessing officer presuming jurisdiction is not a valid order and hence the order passed requires to be cancelled / annulled.
3.3 That the appellants representative already informed that there was no obligation to file return of income if the order is to be passed to give effect to the appellate order and even if there is obligation to file return of income, return of income filed earlier by the appellant should be considered as return filed under the present proceedings which is ignored and the finalization of assessment made by the ITO is wrong and the compliance made by assessee is ignored, therefore the assessment made under section 144 is incorrect and invalid.
3.4 The assessment order accepting the return of income filed by the appellant was finalized on Dt.25-2-87 and all the particulars of income including the conversion of capital asset to stock in trade and introduction of capital in to the firm as capital of the appellant hence there was no new information on record to justify and authorize reopening of assessment and in particular after the addition is made in A.Y. 83-84 it amounts to double taxation in A.Y. 84-85.
4. That the learned ITO has not taken on record the authorised representative's personal appearance and objections discussed personally at earlier meetings and has wrongly considered that none attended on 6-2-02. In fact it was submitted to him that in A.Y. 84-85 no amount was liable to be included as income and be charged as long term capital gain in A.,Y. 84-85 against the decision of supreme court to the facts of the case. The learned A.O. has not considered that the valuation report was wrongly considered by the learned A.O. for A.Y. 83-84 since it refers value of flat and the addition of income is with reference to the conversion of land.
4.2 The learned Commissioner of Income-tax (Appeals) ought to have considered the submissions of the appellant that the A.O. was making an assessment of income and not giving effect to learned Commissioner of Income-tax (Appeals) directions. He ought to have considered that being an independent assessment order based upon facts of the case and he ought not to have given decision by stating that in 7 ITA No 459/A/97 & I.T.A. No.2040/A/03 A.Y. 83-84 decision was taken which was binding and final for A.Y. 84-85.
5. That the learned Income-tax Officer wrongly considered that the conversion of long term capital assets by the assessee in her own hands was transfer within the definition of transfer under Income-tax Act, 1961 which was sufficient to make the assessee liable for taxing income has long term capital gain on such conversion of assets and the provisions of Income- tax Act, 1961 were attracted to tax such difference credited by the assessee, has income of the assessee in A.Y. 1983-
84.
6. That the learned Income-tax Officer relied on the direction of the CIT(A)-VI given in his order dated 28-11-96 for A.Y. 1983-84 that the assessing officer could re-open the case for A.Y. 1984-85 in order to tax capital gains in assessment year. The assessing officer has not independently come to the conclusion and hence the assessing officer is not satisfied in recording reasons and issuing notice u/s 148 of the IT Act, 1961.
7. The learned Income-tax officer has not appreciated the facts and circumstances of the case and hence erroneously held that the conversion of property as stock in trade in assessee own hand was liable to be taxed as long term capital gain income taxable in the A.Y. 1984-85.
8. The learned Income-tax Officer has not followed the ratio and principles laid down by the Supreme Court Judgment already decided in the case of Shirinbhai Kooka, which had directly decided the issue that there was no income arising in the hands of the assessee when assessee converted her long term capital asset into stock-in-trade in her own hands.
9. The subsequent events which have been considered by the Income-Tax Officer occurring after the relevant assessment year in which conversion took place, cannot have material bearing in deciding the issue in assessment year 1984-85.
10. The appellant contends that the settlement commission and the assessing officer has held that the partnership firm of M/s BHOOMI CORPORATION is a genuine firm carrying on business and hence following supreme court decision in the case of Kartikey Sarabhai in A.Y. 84-85 no addition to income of appellant can be made and maintained.
8 ITA No 459/A/97 & I.T.A. No.2040/A/03
11. The learned Income-Tax Officer has wrongly considered that interest was chargeable under section 234A, B, C of the Act as has this provision was not on the statute book and has wrongly initiated penalty proceedings u/s 271(1)(b) and 271(1)(c) of Income-tax Act, 1961.
12. The appellant contends that the grounds of appeal in A.Y. 83-84 be also included and considered as grounds of appeal for adjudication in A.Y. 84-85 as grounds taken herein. The appellate grounds taken in appeal before Hon'ble ITAT, Ahmedabad and grounds of appeal before CIT (Appeal) for A.Y. 83-84 are enclosed and attached as grounds forming part of these grounds of appeal.
13. The learned Income Tax Officer has wrongly taken the cost price of the property at Rs.51,501/- in determining the income taxable as long term capital gain, he has wrongly not included income of Rs.5,791 disclosed and filed in the return of income by assessee and he has erred in not granting deductions and reliefs under section 80T of the Act.
14. In view of what is stated hereinabove and others that may be urged at the time of hearing the appellant prays that :
(a) the assessment order passed by the Income Tax Officer on 22nd March, 2002 may please be cancelled and or additions made to income may please be deleted.
(b) That the proceedings initiated under section 148 and order passed u/s 144 r.w.s. 147 be declared as void.
(c) Interest charged may please be deleted.
(d) That the income of Rs.8,423,499/- taxable as long term capital gain for the assessment year 1984-85 may please be deleted and or such reduct6ion be granted as the facts and circumstances of the case so requires.
(e) And grant such further relief and deductions according to the facts and circumstances of the case.
15. The appellant craves leave to add, amend, alter and/or to modify any of the grounds, aforesaid, as and when it is necessary to do so."
Since these appeals pertaining to the same assessee raised connected issues, these were heard simultaneously for the sake of convenience and are being disposed of through this common order.
9 ITA No 459/A/97 & I.T.A. No.2040/A/03 ITA No.459/Ahd/1997[ AY 1983-84]
2. At the outset, ground nos. I & II including the sub-grounds pertaining to reopening of the assessment u/s 147 of the Income-tax Act,1961[hereinafter referred to as the 'Act'] in the appeal for the AY 1983-84, were not pressed before us at the time of hearing by the ld. AR on behalf of the assessee. Therefore, these grounds are dismissed as such.
3. Ground nos. III(1) to (12) in the appeal for the AY 1983-84 relate to taxation of capital gains amounting to Rs.11,86,499/- on conversion of land into stock-in-trade prior to contribution thereof towards her capital by the assessee in the firm styled M/s Bhoomi Corporation. Facts, in brief, as per relevant orders are that in pursuance to a notice issued on 22.2.1989 u/s 148 of the Act, the assessee filed return declaring income of Rs.45,555/- on 20.2.1991. During the course of reassessment proceedings, the Assessing Officer [AO in short] noticed that in the year under assessment on 21.9.1982, the assessee converted her 1/4th share in the immovable property known as 'Chaitanya' received on partition of Manubhai Bhikhabhai (HUF ) from capital asset in to stock-in-trade. The actual cost of the said land upto the date of partition was Rs.2,06,300/- while the value of this property had been taken on the date of partition at Rs.5,63,830. On 21-09-1982, the aforesaid property has been valued at Rs.48.64 lakhs - adopting value of land at Rs.45.64 lakhs and the value of superstructure at Rs.3 lakhs. An entry has been passed on 21.9.82 in the assessee's books for Rs.10,78,942, being the appreciation in value over the book value of Rs.1,59,058/-. Accordingly, the assessee was showcaused to explain as to why capital gains should not be charged to tax on conversion of the property under reference. The assessee replied vide her letter dated 18-03-1991 that the value of Chaitanya property as it appeared in the books of accounts of Manubhai Bhikhabhai HUF, before the date of partition was Rs.2,06,300/- and on being valued for partition, value in books increased to Rs.5,63,830/- and therefore, 25% cost towards 10 ITA No 459/A/97 & I.T.A. No.2040/A/03 thereof would be that of the assessee Kanchanben Manubhai. Since the date of partition, the assessee had shown the property as self-occupied property and the assessee was residing therein with her husband and sons. In the balance 75%, 50% property belong to Chaitanya Manubhai HUF and 25% of the property to Nalinbhai Manubhai HUF. It was further stated that on 21.9.82 the property was valued at Rs.48.64 lakhs and the assessee's share being 25% on conversion of capital asset to stock-in-trade, entry of appreciation was passed on the books of the assessee for the differential amount of Rs.10,78,942/-. In the assessee's books of account, the value of property at cost price was appearing at Rs.1,59,058/-, being 25% of the cost recorded in the books of Manubhai Bhikhabhai's HUF .The appreciation between the market value and the book value was credited to her capital account on 21.9.82. Since there was no transfer within the meaning of the provisions of section 2(47) of the Act in A.Y. 1983-84, the assessee pointed out that no question of capital gain arose by valuing the property or converting the property in assessee's own hands at the time of converting the capital asset into stock-in-trade, it was submitted. Continuing, it was further submitted that after converting the property from capital asset to stock-in-trade, the assessee had inducted the property in to the partnership firm for the purpose of development of property on 17.11.82 in the period relevant to the A.Y. 1984-85. The assessee contended that there being no transfer on conversion of capital asset in to stock-in-trade and more so, when such converted property is transferred to the firm at the price for which it is converted into stock-in-trade, no amount would be included as part of capital gain. The assessee added that even the Hon'ble Supreme Court in the case of Bai Shirinbai K Kooka's case(supra) held that no capital gain arises on conversion from capital asset to stock-in-trade while the relevant provisions of sec. 45 were amended only from the A.Y. 1985-86 .
4. However, the AO did not agree with the aforesaid submissions of the assessee and concluded that the facts of the assessee's case were quite different from the facts in the case of Bai Shirinbai K Kooka's case(supra). In the 11 ITA No 459/A/97 & I.T.A. No.2040/A/03 present case, the three owners of the immovable property known as 'Chaitanya' converted their share in the property into stock-in-trade during the accounting year relevant to A.Y. 1983-84 and the entries for appreciation in value were passed in their personal books. The purpose behind the conversion was to form a partnership firm in the name of M/s Bhoomi Corporation to develop the property and to construct flats out of which each partner would get a flat each for their own residence. While referring to the partnership deed of M/s Bhoomi Corp. , the AO observed that upto A.Y. 89-90, the firm developed only one project, i.e. Chaitanya Apartments on the original property known as 'Chaitanya' as mentioned above and no other land or property has been purchased by the firm. The AO noticed from the records of the assessee and records of another partner, Shri Chaitanya Manubhai (HUF) that during the accounting year relevant to A.Y. 1987-88, the assessee received one flat in Chaitanya Apartments constructed by the firm M/s Bhoomi Corp. on the property converted into stock-in-trade as mentioned above. Thus, the main object of converting the property into stock-in- trade was to develop the property by constructing flats and at the same time to get one flat each by partners for their own residence in terms of the agreement entered on 15.12.82 between M/s Bhoomi Corporation and Monolith Construction P Ltd., for construction/ sale of such flats. In the light of these facts, the AO while considering the principles laid down by the Hon'ble Supreme Court in the case of Sunil Sudhakarbhai and Kartikeya V. Sarabhai,156 ITR 509(SC) that if the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to tax on capital gain, it will be open to the I.T. authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse 12 ITA No 459/A/97 & I.T.A. No.2040/A/03 to convert the personal asset into money substantially for the benefit of the assessee while evading tax on capital gain, concluded in the following terms:-
3(v)..................a) The property under reference was first converted into stock-in-trade of the assessee on 21.9.82 and then introduced as capital in the firm of M/s Bhoomi Corporation on 17.11.82. The main purpose behind the conversion of property into stock-in-trade was to introduce it as capital in the firm of M/s Bhoomi Corporation as stock-in-trade. This is evident from the facts that (a) the firm of M/s Bhoomi Corporation came into existence from 9.8.82 i.e. before the property was converted into stock-in-trade in the books of accounts of the assessee on 21.9.82.
b) The assessee did not have any individual business of construction or developing of properties at the time of conversion of the property into stock-in-trade; c) Even after conversion of the property into stock-in-trade, the assessee has not carried any individual business in the construction or development of properties; (d) The value of the property taken at the time of conversion of the same into stock-in-trade in the books of accounts of the assessee and the value taken in the books of accounts of the firm of M/s Bhoomi Corporation is the same. Considering the above facts, the conversion of property and introduction of the same as capital in the firm amounted to transfer of the property during the year under asstt. which attracts the capital gains tax u/s 45 of the I.T. Act in view of the Hon'ble Supreme Court's judgment cited above.
b) The assessee has received a consideration from the firm in respect of the property converted into stock-in-trade, by way of reservation of a flat at the initial stage, the flat having been received during accounting period relevant to A.Y. 87-88. The assessee is also entitled to the share in profits of the firm in construction of flats on the property converted. Moreover, the only property developed by the firm M/s Bhoomi Corp. is the property converted by the 3 partners into stock-in-trade, which shows that the assessee or other co-owners who are her sons had no regular business in construction and the business in construction has been done by them only on the property converted by them into stock-in-trade. These facts attract the provisions of Sec.48 read with Sec.45 of the I.T. Act.
3.vi) Considering the points discussed above, the long term capital gains, which has arisen on conversion of the property into stock-in-trade of the firm, is added to assessee's income. The value of consideration of the property is taken at Rs.12,38,000/-
13 ITA No 459/A/97 & I.T.A. No.2040/A/03 being the value taken at the time of conversion of the property. The cost of the whole property partitioned by the HUF of Manubhai Bhikhabhai was Rs.206,003/- as per details filed by the assessee. The assessee receiving 1/4th share in the said property on partition, the cost of the assessee is taken at Rs.51,501/- (1/4th of Rs.2,06,003)."
4.1 On the above basis, the AO added an amount of Rs.11,86,499/- by way of long term capital gains.
5. On appeal, the assessee argued that no transfer of asset was involved in the instant case as the provisions of section 45(2) were not applicable prior to the AY 1985-86 while sec. 45(3) was applicable w.e.f 1.4.1988. The share of landed property received by the assessee on partition of the HUF in the year 1975 was converted into stock-in-trade on 21-9-1982 in the books of account of the assessee and, therefore, no transfer could be said to have been involved as such and the decision in the case of Sunil Siddharth and Kartikey V. Sarabhai vs. CIT, 156 I.T.R. 509(SC) has wrongly been relied on by the AO. In fact, the said decision supported his case since no capital gain arises on contribution of asset as one's capital to the partnership firm. In the said decision the Hon'ble Supreme Court has clearly laid down that the value at which the asset was transferred to the partnership and the same amount which was credited to the capital account of the partner / partners in lieu of transfer of asset, would not give rise to any capital gain. Since the AO adopted the figure for the purpose of computation of capital gain of Rs.12,38,000 which is the amount credited to the capital account of the partner representing the value of asset introduced by her, the capital gain has been worked out in total disregard to the principles laid down by the Supreme Court in the case of Sunil Siddharthbhai & Kartikey V. Sarabhai, it was argued. The assessee further contended that the asset was transferred as her share of capital only on 17-11-1982, whereas the accounting year of the assessee ended on 15-11-1982. Therefore, the transfer of asset took-place in the previous year relevant to the Assessment Year 1984-85 and not in the Assessment Year 1983-84. The AO wrongly taxed the capital gain in the 14 ITA No 459/A/97 & I.T.A. No.2040/A/03 assessment year 1983-84 though no such jurisdiction vested with him. Moreover, as on 21-9-1982 the assessee had taken the value of stock-in-trade on the date of conversion at Rs.10,78,942/-, whereas the assessing officer has adopted the figure of Rs.51,501 on the date of partition of the HUF property in the year 1975. The assessee, therefore, urged that the figure of Rs.51,501 adopted by the AO as cost of acquisition be substituted by the figure of Rs.10,78,942 i.e the value of asset on conversion into stock-in-trade in the assessee's books of account in view of the Supreme Court decision cited above. However, these submissions did not find favour with the CIT(A) and accordingly, he concluded as under:
"3.5 I have heard the oral arguments put forward by Shri S.D. Phanse, learned A.R. and have also gone through the written submission made on behalf of the appellant as also the relevant documents and papers filed in support of his contention. The issue as to whether transfer of asset was involved or not has been settled once and for all by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai and Kartikey Sarabhai reported in 156 I.T.R. 509 that capital contribution in the form of asset made by any partner to the firm resulted in transfer of asset. However, the Hon'ble Supreme Court in the aforesaid decision has clearly laid down that the amount credited to the partner's capital account in lieu of transfer of such capital asset to the firm would not form consideration received by the appellant for transferring of such asset and no capital gain is leviable on the basis of value of transferred asset credited to the partner's capital account. However, in the present case the Assessing Officer has given a clear finding that as per the written agreement into M/s Bhoomi Corporation and Monolith Construction Pvt Ltd on 15-12-1982 that 3 flats shall not be sold and shall be kept reserve for the partners of M/s Bhoomi Corporation. In other words, the appellant reserves the right to acquire one flat in the house property to be constructed by Monolith Construction Pvt Ltd at a future date on completion of construction of flat. The facts remain that on completion of construction of house property on landed asset contributed by the partners, 3 flats were earmarked for them (one each) and the appellant acquired one flat in consideration for the capital contribution of landed property made by her to the firm. Therefore, the appellant received by way of consideration a ready-made flat and, therefore, the value of flat as on the date of acquisition would be the value of consideration received by her in lieu of transfer of capital asset (landed property)
15 ITA No 459/A/97 & I.T.A. No.2040/A/03 to the firm as her share of capital contribution. The learned A.R. on the last day of hearing on 12-9-1996 was specifically asked to furnish the information regarding the flat allocated to the appellant as per the terms and agreement dated 15-2-19082. The learned A.R. was asked to furnish the details of measurement of the flat, plinth area, its carpet area, its value as on the date of acquisition of flat by the appellant and such informations were to be furnished on 23-9-1996. However, there was no compliance on 23-9-1996 and on request the case was adjourned to 8-10-1996, again there was no compliance on the fixed date of hearing. On request the case was again fixed for hearing on 25-10-1996, again there was no compliance. Therefore, it appears that the A.R. has no intention to furnish the requisite information specifically called for by me. I am of the view that transfer of asset did take place on capital contribution of landed property by the appellant to the firm on 17- 11-1982. This view is also affirmed by the Hon'ble Gujarat High Court in the case of C.I.T. vs. Smt. Gira Sarabhai reported in 209 I.T.R. 356. The Gujarat High Court has held that when a partner of a firm offered capital asset to a firm as his contribution towards capital, there is a transfer of capital asset within the terms of section 45 of the I.T. Act, 1961 because the exclusive interest of the partner is reduced on their entry into the firm into a share interest. The High Court has further held that the consideration for the transfer of the personal asset is the right which arise or accrue to a partner during the subsistence of the partnership to get his share of profit from time to time and after the dissolution of the partnership or that his retirement from the partnership to get the value of his share in the net partnership asset as on the date of the dissolution or retirement after deduction of liability and proper charges. Therefore, it is an undisputed position of law after the Supreme Court verdict subsequently followed by the Gujarat High Court that the contribution of capital by a partner to the firm as his or her share of capital resulted in transfer of asset giving rise to capital gain tax. As I already pointed out, on the consideration for transfer of capital asset the appellant acquired a flat and its market value on the date of acquisition by the appellant has to be treated as consideration for the purpose of working out the capital gain. The Assessing Officer is, therefore, directed to get the market value of the flat acquired by her determined and as has been noted by the Assessing Officer the appellant took possession of the flat in the year 1987-88 and the value of the flat so determined should be treated to be the consideration for transfer of capital asset (landed property) for the purpose of computation of capital gain."
16 ITA No 459/A/97 & I.T.A. No.2040/A/03
6. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while carrying us through the impugned orders and relying on the decisions in the case of Sunil Siddharthbhai and Kartikey Sarabhai vs. CIT,156 ITR 509 (SC) and CIT vs. Smt. Gira Sarabhai,209 ITR 356(Guj) contended that no capital gains arises on conversion of a capital asset in to stock in trade . The ld. AR further pointed out that the ld. CIT(A) did not have the power to vary the previous year, adopted by the assessee and in this connection relied on the decision in the case of Hon'ble Punjab and Haryana High Court in the case of CIT vs. Patiala Sales Corporation Pvt. Ltd. & Another,77 ITR 443. He added that the ld. CIT(A) was not justified in issuing directions for reopening the assessment for the AY 1984-85 while adjudicating their appeal for the AY 1983-84 and in this connection relied upon decision in the case of Sun Metal Factory (I) P Ltd. vs. ACIT,15 DTR(Chennai)(Trib)274.
7. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. As is apparent from the elaborate grounds of appeal in the appeal before us, issue raised in sub-grounds 1 to 7 of ground no. III is as to whether capital gain arises on mere conversion of a capital asset in to stock in trade and its revaluation on 21.9.1982, falling in the year under consideration. Even in the appeal before the ld. CIT(A), the assessee in their ground nos. 6 to 11 raised the issue that the ITO wrongly considered the conversion of long term capital asset by the assessee in her own hands as transfer for taxing long term capital gains and that events occurring after the relevant assessment year could not have material bearing in deciding the issue in this assessment year. Undisputed facts on record reveal that the assessee converted her 1/4th share in the immovable property known as 'Chaitanya' received on partition of Manubhai Bhikhabhai (HUF ) from capital asset in to stock-in-trade on 21.9.1982. The actual cost of the said land upto the date of partition was Rs.2,06,300/- while the value of this property had been taken on the date of partition at Rs.5,63,830. On 21-09-1982, the aforesaid property has been 17 ITA No 459/A/97 & I.T.A. No.2040/A/03 valued at Rs.48.64 lakhs - adopting value of land at Rs.45.64 lakhs and the value of superstructure at Rs.3 lakhs. An entry has been passed on 21.9.82 in the assessee's books for Rs.10,78,942, being the appreciation of value over the book value of Rs.1,59,058/-. The assessee did not have any business of construction and development of properties either before or after conversion of land in to stock in trade. In the assessee's books of account, the value of property at cost price was appearing at Rs.1,59,058/-, being 25% of the cost recorded in the books of Manubhai Bhikhabhai's HUF .The appreciation between the market value and the book value was credited to her capital account on 21.9.82. After converting the property from capital asset to stock-in-trade, the assessee inducted the property in to the partnership firm M/s Bhoomi Corporation for the purpose of development of property, on 17.11.82 in the period relevant to the A.Y. 1984-85. The contention on behalf of the assessee was that there being no transfer on conversion of capital asset in to stock-in- trade and more so, when such converted property was transferred to the firm at the price at which it was converted into stock-in-trade, no capital gain had arisen. Inter alia, the assessee relied upon aforesaid decision in the case of Bai Shirinbai K Kooka(supra) and pointed out that the relevant provisions of sec. 45 were amended only from the A.Y. 1985-86 . However, the AO while relying upon decision in the case of Sunil Siddharthbhai & Kartikya V Sarabhai Vs. CIT,156 ITR 509(SC) observed that since main purpose behind conversion of property in to stock-in-trade was to introduce it as capital in Bhoomi Corporation even when the assessee did not have any business and to have consideration in the form of a flat , the provisions of sec. 45 & 48 were attracted. Accordingly, the AO while adopting the value of Rs. 12,38,000/- credited to the capital account of the assessee and reducing the cost of Rs. 51,501/, being ¼ th of the value shown by the HUF, taxed capital gains of Rs.11,86,499/-.On appeal, the ld. CIT(A) while relying upon the aforesaid decision of the Hon'ble Apex Court in Sunil Siddharthbhai & Kartikya V Sarabhai (supra) concluded that capital contribution in the form of an asset by a partner to the firm resulted in transfer of asset on 17.11.1982 and since in terms of the agreement dated 15.12.1982 between M/s 18 ITA No 459/A/97 & I.T.A. No.2040/A/03 Bhomi Corporation and M/s Monolith Construction Pvt. Ltd., the assessee received consideration in the form of a flat, market value of the flat be treated as consideration for transfer of land. The ld. CIT(A) further held that previous year for assessing the capital gains would be the period of 12 months ending on 31st March and therefore, capital gains was rightly assessed by the AO in the year under consideration. As regards cost of acquisition for working the capital gains, the ld. CIT(A) while relying upon decisions in the case of Ranchodbhai Bhaijibhai Patel vs. CIT,81 ITR 446(Guj) and Keshavji Karsandas vs. CIT,207 ITR 737(Bom.) and distinguishing the aforesaid decision in Bai Shirinbai K Kooka(supra)concluded that cost of acquisition prevailing on the date of partition of HUF has to be adopted. Alternatively, the ld. CIT(A) after analysing the provisions of sec. 153(3) of the Act observed that the AO is free to consider reopening the assessment for bringing the capital gains to tax in the AY 1984-85 since land was transferred to the firm only on 17.11.1982.
7.1 Before adjudicating the various grounds of appeal raised on behalf of the assessee before us, the issue of previous year for assessability of capital gains viz. whether on the date of conversion of property in to stock-in-trade or on the date when the property was contributed towards capital in the firm ,needs to be adverted to. There is no discussion in the assessment order as to what would be the previous year for assessing the capital gains and consequently, no such ground was raised before the ld. CIT(A). We find that the AO adopted SY 2038 or the Diwali year i.e the period ending on 15.11.1982 as the previous year while the ld. CIT(A) concluded on his own that the previous year for assessing capital gains would be 12 months ending on 31.3.1983 and since property was contributed towards capital in the firm M/s Bhoomi Corporation on 17.11.1982, capital gains would be assessable in the AY 1983-84. There is no such finding in the impugned order that capital gains would be chargeable on conversion of property in to stock-in-trade on 21.9.1982. We will advert to this aspect of assessability of capital gains a little later. As regards change in previous year, though no specific ground has been raised before us regarding 19 ITA No 459/A/97 & I.T.A. No.2040/A/03 findings of the ld. CIT(A) in holding that previous year would be the period of 12 months ending on 31st March,1983, the issue being quite relevant for assessing the capital gains, needs to be adjudicated in view of plea of the ld. AR on behalf of the assessee that the ld. CIT(A) did not have the power to vary the previous year adopted by the assessee and in this connection relied on the decision in the case of Hon'ble Punjab and Haryana High Court in the case of CIT vs. Patiala Sales Corporation Pvt. Ltd. & Another,77 ITR 443. The ld. AR while carrying us through the impugned order contended that the ld. CIT(A) was not justified in issuing directions directions in para 7 to 7.2 of the impugned order in relation to provisions of sec. 153(3) of the Act and in this respect relied on decision in the case of Sun Metal Factory(I) P Ltd. vs. ACIT,15 DTR(Chennai)(Trib)274.
7.11 Before proceeding further, we may have a look at the relevant provisions extant provisions relating to previous year read as under:
"3. Previous year" defined.
(1) For the purposes of this Act, "previous year" means-
(a) the financial year immediately preceding the assessment year; or
(b) if the accounts of the assessee have been made up to the date within the said financial year, then, at the option of the assessee, the twelve months ending on such date; or
(c) in the case of any person or business or class of persons or business not falling within clause (a) or clause (b), such period as may be determined by the Board or by any authority authorised by the Board in this behalf; or
(d) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and-
(i) ending with the said financial year, or
(ii) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, ending on that date, or 20 ITA No 459/A/97 & I.T.A. No.2040/A/03
(iii) ending with the period, if any, determined under clause (c), as the case may be; or
(e) in the case of a business or profession newly set up in the twelve months immediately preceding the said financial year-
(i) if the accounts of the assessee have been made up to a date within the said financial year and the period from the date of the setting up of the business or profession to such date does not exceed twelve months, then, at the option of the assessee, such period, or
(ii) if any period has been determined under clause (c), then the period beginning with the date of the setting up of the business or profession and ending with that period, as the case may be; or
(f) where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee's share in the income of the firm, the period determined as the previous year for the assessment of the income of the firm; or
(g) in respect of profits and gains from life insurance business, the year immediately preceding the assessment year for which annual accounts are required to be prepared undeer the Insurance Act, 1938 (4 of 193f8), or under that Act read with section 43 of the Life Insurance Corporation Act, 1956 (31 of 1956).
(2) Where an assessee has newly set up a business or profession in the said financial year and his accounts are made up to a date in the assessment year in respect of a period not exceeding twelve months from the date of such setting up, then, notwithstanding anything contained in sub-clause (iii) of clause (d) of sub-section (1), the assessee shall, in respect of that business or profession, at his option, be deemed to have no previous year for the said assessment year under that clause and such option shall, in relation to the immediately succeeding assessment year, have effect as an option exercised under sub-clause (i) of clause (e) of sub-section (1).
(3) Subject to the other provisions of this section an assessee may have different previous years in respect of separate sources of his income.
(4) Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under clause (b) or sub-clause (ii) of clause (d) or sub-clause (i) of clause (e) of sub-section (1) or has once been assessed, then, he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression "previous year" as then applicable to him, except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose."
21 ITA No 459/A/97 & I.T.A. No.2040/A/03 7.12 As is apparent from the aforesaid provisions, the option to choose previous year for any source of income, vests with the assessee and not with the AO or the CIT(A). Option is given by the above-quoted statutory provision to the assessee and not to the department as held in the case of, Patiala Sales Corporation Pvt. Ltd. & Another(supra). In the light of relevant statutory provisions and the view taken in the aforesaid decision while no contrary decision has been brought to our notice on behalf of the Revenue, we are of the opinion that the ld. CIT(A) was not justified in adopting the period of 12 months ending on 31.3.1983 in order to assess capital gains on the contribution of capital by a partner to the firm as her share of capital on 17.11.1982.
7.2 As regards issue raised in sub-grounds no. 1 to 7 of ground no.III in respect of capital gains on conversion of capital asset in to stock in trade by the assessee on 21.9.1982, we find that the ld. CIT(A) has nowhere recorded any finding that mere conversion of capital assets into stock in trade and/or on revaluation thereof in the assessee's books, any capital gains would arise. Since these grounds do not arise out of the impugned order, therefore, these are treated as infructuous. Even otherwise there is no transfer on mere conversion of capital assets into stock in trade and/or on revaluation thereof in the assessee's books and no income arising on such conversion. In other words, there could not be any actual profit or loss on conversion of capital asset in to stock- in-trade in terms of the extant provisions. In the case of CIT vs. Hind Construction Ltd..83 ITR 211(SC) , it was held that when a person revalues the assets in his accounts, he cannot be considered as having sold the assets and made profits therefrom since a sale should consist of a seller and a buyer. As pointed out by the ld. AR, the relevant provisions of sec. 45(2) deeming such transfer by way of conversion of capital asset in to stock-in-trade liable to capital gains tax in the year in which such stock-in-trade is sold or otherwise transferred, .came in to effect w.e.f 1.4.1985 by the Finance Act,1984. No man can make a profit out of himself or there could not be any actual or real profit or loss on such conversion in the year under consideration. However, the position would be 22 ITA No 459/A/97 & I.T.A. No.2040/A/03 different in cases where on or after such conversion of a capital asset in to stock in trade by an act or conduct of the assessee is contributed to a firm as capital contribution by a partner at the value more than the cost to the assessee. In the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509, after examining the scheme of the Income-tax Act, 1961, and the rights and liabilities of the partner of a firm, it has been held that when the partner of the firm makes over capital assets to a firm as his contribution towards capital, there is a transfer of a capital asset within the terms of section 45 of the Income-tax Act, 1961, because an exclusive interest of the partner in personal assets is reduced, on their entry into the firm, into a share interest. However, regarding consideration, Hon'ble Apex Court observed that the consideration which a partner acquires on making over his personal asset to the firm as his contribution to its capital cannot fall within the terms of section 48 and as that provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether. However, in the instant case undisputedly, the assessee contributed her immovable property to the firm M/s Bhoomi Corporation only on 17.11.1982, which date falls beyond the year under consideration. Therefore, we are not expressing any opinion in this appeal as to whether or not capital gains would arise when the partner made over her asset to a firm as her contribution towards capital nor on the issue raised in sub- grounds no. 8 to 12 of ground no.III that the assessee indulged in a device or ruse for converting the asset in to stock- in-trade and thereafter, contributing to the firm ,in which she was partner, since these issues would be purely academic in the year under consideration and can be considered in the AY 1984-85 alone. With these observations ground no. III in the appeal is disposed of.
8 Ground no. IV in the appeal relates to observations of the ld. CIT(A) in relation to provisions of sec. 153(3) of the Act. The ld. AR contended that the ld. CIT(A) was not justified in issuing any directions for reopening the assessment for the AY 1984-85 after considering the provision of sec. 153 of the Act in the 23 ITA No 459/A/97 & I.T.A. No.2040/A/03 appeal for the AY 1983-84i. We find merit in the contentions of the ld. AR. We are of the opinion that the ld. CIT(A) was not justified in issuing directions on a matter which was not in appeal before him and that too for another assessment year. The Hon'ble Supreme Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14 held that a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is now well-settled that it must be an express direction necessary for the disposal of the case before the authority or court and it must also be a direction which the authority or court is empowered to give while deciding the case before it. In CIT vs. Manick Sons,74 ITR 1(SC), Hon'ble Apex Court held that the Tribunal hearing an appeal may give directions for reopening assessment of the year to which the appeal relates; it cannot give any directions to reassess in case of a period not covered by that year. While adjudicating a similar issue, Hon'ble Kerala High Court in Commissioner Of Income-Tax. Vs Chackola Spinning And Weaving Mills Limited,188 ITR 432(Kerala) held that "The observation that the payment will be deductible for the assessment year 1981-82, while disposing of the appeal for the assessment year 1980-81, was only an incidental one ; such a matter never arose for consideration. The observation was unauthorised and uncalled for. It is true that there is no finding in the strict sense. Even so, the observation aforesaid is illegal and unjustified. We are fortified in this view by the following, among other decisions : ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC); P. J. Udani v. CIT [1967] 63 ITR 766 (AP) and Bakshish Singh v. ITO [1974] 93 ITR 178 (Cal). In this connection, it should be remembered that the Tribunal was disposing of the appeal filed by the Revenue before it for the year 1980-81, and not an appeal filed by the assessee. And there is no material or even whisper to show that an alternate plea or approach was mooted by the assessee for the claim made by it when the Tribunal adjudicated the appeal, namely, that the amount is claimable for the subsequent year 1981-82 and that the alternate plea necessitated the observations made, in which case, the ratio of the decision in Motilal Bawalal v. CIT [1963] 50 ITR 249 (Bom) may call for application. Such is not the case here."
24 ITA No 459/A/97 & I.T.A. No.2040/A/03 8.1 In the instant case, we find that the ld. CIT(A) was disposing of the appeal for the AY 1983-84 & not for the AY 1984-85. The appellate authority can give findings and directions only in respect of the issues and the year , which are before him and no directions or findings can be given in respect of other years, not pending before him. Similar view was taken by a co-ordinate Bench in the case of Sun Metal Factory(I) P Ltd.(supra) wherein while relying upon the decisions in the case of ACIT vs. Rajaram & Brothers,274 ITR 122(MP),CIT & Another vs. Froamer France,264 ITR 566(SC),CIT vs. Banwarilal & Sons (P) Ltd.,257 ITR 518(Del.),ITO vs. Murlidhar Bhagwan Das,52 ITR 335(SC).Pt. Hazari Lal Vs. ITO,39 ITR 265(All),Raj Kishore Prasad vs. ITO,195 ITR 438(All.) and Abdul W ahid Gehlot vs. ITO,93 TTJ(Jodhpur) 232, held that the appellate authority can give findings and directions only in respect of year which is before that authority and no direction or finding can be given in respect of other years. In the light of view taken in the aforecited decisions, we are of the opinion that since the directions/observation of the ld. CIT(A) in the context of provisions of sec. 153(3) of the Act related to the AY 1984-85 and not for the year under consideration , the incidental directions issued and observations made by the ld. CIT(A) for the AY 1984-85 were unauthorised and uncalled for. Therefore, we have no hesitation in vacating these directions and observations of the ld. CIT(A) so far as these relate to the AY 1984-85. Thus, ground nos. IV(1) to 6 in the appeal are allowed.
9. . Ground no. V relates to levy of interest .The ld. AR on behalf of the assessee did not make any submissions on this ground. The levy of interest being mandatory [Commissioner Of Income Tax. vs Anjum M. H. Ghaswala And Others,252 ITR 1(SC), affirmed by Hon'ble Apex Court in the case of CIT v. Hindustan Bulk Carriers [2003] 259 ITR 449(SC) and in the case of CIT v. Sant Ram Mangat Ram Jewellers [2003] 264 ITR 564(SC)] and no infirmity having 25 ITA No 459/A/97 & I.T.A. No.2040/A/03 been pointed out in its levy, this ground is dismissed. However, the AO may allow consequential relief ,if any, while giving effect to this order.
10. Ground VI relates to initiation of penalty proceedings u/s 271 & 273 of the Act. No appeal lies against mere initiation of penalty proceedings nor any submissions have been made before us. Therefore, this ground is also dismissed.
11. No additional ground having been made in terms of residuary ground no.VII, this ground is, therefore, dismissed I.T.A. No.2040/Ahd/2003[AY 1984-85]
12. Ground no. 1 in this appeal being general in nature, does not require any separate adjudication and is, therefore, dismissed.
13. Ground nos. 2 & 3 in the appeal relate to validity of reopening of the assessment u/s 147 of the Act. In this case, the AO is stated to have reopened the assessment u/s 147 of the Act on the basis of findings of the ld. CIT(A) in the AY 1983-84 that the transfer of asset had taken place on contribution of land by the assessee to the firm M/s Bhoomi Corporation on 17.11.1982 and therefore, capital gains had arisen to the assessee in the year under consideration. Inter alia, the ld. CIT(A) suo motu adopted the period ending 12 months on 31.3.1983 as the previous year as also adjudicated on the aspect of limitation in terms of provisions of sec. 153(3) of the Act.
13. In the appeal before us, the ld. AR argued that the AO was not justified in reopening the assessment for the year under consideration in order to assess the capital gains protectively merely on the basis of directions of the ld. CIT(A), which directions were not issue din accordance with law . We find that the ld. CIT(A) did not adjudicate the validity of reopening of assessment independently nor recorded his specific findings on the reasons recorded by the AO for 26 ITA No 459/A/97 & I.T.A. No.2040/A/03 reopening the assessment and merely upheld such reopening of the assessment with the following observations:
"Since the assessment has been reopened consequent upon directions / findings by an equal appellate authority, I do not think it appropriate to go into the details and the action thereof taken by the A.O. is upheld."
14. Vide our aforesaid order in I.T.A. No.459/Ahd/1997 for the 1983-84, we have already concluded that the ld. CIT(A) was not justified in either changing the previous year or issuing directions for the AY 1984-85 while adjudicating appeal for the AY 1983-84. In the light of our findings in the appeal for the AY 1983-84, the aforesaid observations of the ld. CIT(A) while adjudicating validity of reopening of assessment for the AY 1984-85 do not survive. Moreover, the ld. CIT(A) has not recorded his independent findings on the validity of reopening of assessment in the light of reasons recorded by the AO and merely relied on the findings of the ld. CIT(A) for the AY 1983-84 . Even on merits, the ld. CIT(A) followed the order of the ld. CIT(A) for the AY 1983-84, even when the assessee contributed her land towards capital of the firm on 17.11.1982 i.e. in the year under consideration. Thus, any observations made in the context of facts relevant in the AY 1983-84 could not be straight away followed without analyzing the facts and circumstances of the case in the year under consideration. This approach of the ld. CIT(A) in deciding the issues without analyzing the facts and circumstances of the case for the year under consideration, is not in accordance with law .The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. As is apparent from the impugned order, in our opinion, the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The requirement of recording of reasons as also communication thereof has been read as an integral part of the 27 ITA No 459/A/97 & I.T.A. No.2040/A/03 concept of fair procedure and is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. We may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order on the issues raised in various grounds in the appeal before us, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issues raised in these grounds afresh in accordance with law, keeping in mind our findings in the appeal for the AY 1983-84, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these observations, grounds in this appeal are disposed of.
16. In the result, appeal for AY 1983-984 is partly allowed while that for the AY 1984-85 is allowed for statistical purposes.
Order pronounced on this 11th day of June, 2010.
Sd/- Sd/-
(Bhavnesh Saini) (A.N. Pahuja)
Judicial Member Accountant Member
Ahmedabad,
Dated : 11th June,2010
Copy to:
1. The assessee
2. ACIT, Circle-.2(3) , Ahmedabad
3 CIT(A)-VI & CIT(A)-XVI Ahmedabad
4 CIT concerned, Ahmedabad
5 DR, "C" Bench
By order
Deputy Registrar, ITAT, Ahmedabad