TMI Blog2010 (3) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the purpose of capital gain. Closing stock taken over by the partner - Assessing Officer to compute the business profit after including the difference in market value in closing stock as on 17-9-1991 and book value of closing stock as shown by the assessee in profit and loss account and such difference should be added in business income of the assessee. Allowability of deduction to the assessee under section 80-I - industrial undertaking – whetehr benefit of section 80-I were attached to the undertaking and not to the owner thereof and the assessee having taken over the running under taking which was otherwise entitled to the benefit of section 80-I – Held that:- Assessee-firm was formed by the reconstruction of a business already in existence as a sole proprietory concern of Shri M.M. Goel and hence, the assessee does not fulfill the conditions laid out in section 80-I(2)(i) and therefore, the assessee is not entitled for deduction under section 80-I of the Act - ground of the revenue is also allowed - appeal of the revenue is allowed - IT APPEAL NO. 947 (DELHI) OF 2008 - - - Dated:- 26-3-2010 - I.P. BANSAL AND A.K. GARODIA, JJ. Mahesh Gupta for the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried the matter in appeal before the Tribunal and the Tribunal restored back the matter to the file of the ld. CIT(A) for a fresh decision after considering the judgment of Hon ble Apex Court rendered in the case of ALA Firm v. CIT [1991] 189 ITR 285 and also other judgments cited by the ld. DR of the revenue being the judgment of Hon ble Court rendered in the case of CIT v. Nathulal Jawarchand [1997] 227 ITR 251 (MP) and also in the case of CIT v. Raj Kumar Bafna [1997] 226 ITR 822 (Raj.) and other cases which may be relied upon by the AR of the assessee at the time of hearing to be granted by him. Regarding 80-I issue also, the matter was remanded back by the Tribunal to the file of ld. CIT(A). The ld. CIT(A) has again decided both the issues in favour of the assessee without giving any finding regarding applicability of those three decisions which were required to be considered by him as per the Tribunal order dated 4-2-2002 in first round of the appeal in assessee s own case. Now, the revenue is in appeal before us against the order of ld. CIT(A) in second round. 4. Ld. DR of the revenue supported the assessment order. Reliance was placed by him on the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value only which will not result into any capital gain. In support of this contention, reliance was placed on the judgment of Hon ble Apex Court rendered in the case of Sakthi Trading Co. v. CIT 250 ITR 871 and also on the judgment of Hon ble Apex Court rendered in the case of ALA Firm ( supra ). 6. Regarding the second issue, i.e., allowability of deduction to the assessee under section 80-I, it is submitted that this issue is now covered in favour of the assessee by the Tribunal decision rendered in the case of Dy. CIT v. PSPPL [IT Appeal No. 4846 (Delhi) of 1995, dated 31-5-2001]. It is submitted by him that this Tribunal decision is available on page No. 5 of the paper book. It was submitted that the issue involved in this appeal before the Tribunal was allowability of deduction under section 80-I in respect of the same industrial undertaking owned by the assessee which was transferred to M/s. PSPPL and in that case, it was held by the Tribunal that the benefit of section 80-I were attached to the undertaking and not to the owner thereof and the assessee having taken over the running under taking which was otherwise entitled to the benefit of section 80-I, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-9-1991. All assets and liabilities of the firm M/s. Goel Udyog shall be vested on the party of the second part with effect from 18th September, 1991." 8. The above clause of the deed of transfer of business also shows that these assets were belonging to the assessee-firm Ms. Goel Udyog as per this deed of transfer of business also. Under these facts, we are of the considered opinion that the assessee-firm was the owner of these assets on the date of dissolution of the partnership firm i.e., 17-9-1991. It might be that the legal ownership of the land and building was not transferred in the name of the assessee firm but this is a settled position by now that such transfer of legal title in the name of the assessee-firm is not essential to hold that the assessee-firm is the owner of those assets if such assets are transferred by a partner to the firm. The judgments of Hon ble Apex Court rendered in the case of Kedarnath Jute Mfg. Co. Ltd. ( supra ) does not help the assessee in the present case because we have seen that not only the assets and liabilities were accounted for in the books of the firm and were shown in the balance sheet of the assessee-firm but deduction on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are different. In that case, the assessee was a registered firm and as a result of death of one out of six partners on 6-2-1984, the firm was reconstituted with remaining five partners and hence there was no distribution of assets on dissolution of the firm and there was no discontinuance of business and under these facts, it was held by Hon ble Apex Court that the closing stock of the assessee-firm was to be valued at cost or market price whichever is lower but in the present case, the business stand discontinued, the firm was dissolved and the assets were taken over by one of the partners which amounts to distribution of the assets between the partners and hence this judgment is not applicable in the present case. 11. Now, we examine the applicability of other two judgments which are cited by ld. DR of the revenue before us and before the Tribunal in the first round also and ld. CIT(A) was directed by the Tribunal to consider these judgments but were not so considered by him. The first judgment is of Hon ble Rajasthan High Court rendered in the case of Raj Kumar Bafna ( supra ). We find that this judgment has no relevance in the present case because in this case, the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Firm ( supra ). Regarding change in head of income, reliance was placed by the ld. DR of the revenue on the decision of the Special Bench of the Tribunal rendered in the case of DLF in 34 DTR 105 (SB). Since no other defect is pointed out before us in the market price adopted by the Assessing Officer of these assets, we direct the Assessing Officer to compute the business profit after including the difference in market value in closing stock as on 17-9-1991 and book value of closing stock as shown by the assessee in profit and loss account and such difference should be added in business income of the assessee. For the excess of market value over book value with regard to other assets i.e., land and building and plant and machinery, the same should be assessed as capital gain. Ground No. 1 of the revenue is allowed. 12. Regarding ground No. 2 of the revenue, we find that the assessee has relied upon the Tribunal decision rendered in the case of PSPPL ( supra ). We find that in para No. 3 of this Tribunal decision, it is noted by the Tribunal that the issue relating to adjustment by way of disallowance of assessee s claim of deduction under section 80-I(2)( ii ) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any article or thing specified in the list in the Eleventh Schedule" had been omitted." 13. From the above, we find that for the assessee being eligible for deduction under section 80-I of the Act, the assessee s industrial undertaking has to fulfill all the four clauses under section 80-I(2) and if the assessee does not fulfill even one clause thereof, 80-I deduction is not allowable. In the present case, this is admitted position that till 31-8-1991, this industrial undertaking was owned by Shri MM Goel as a sole proprietor and from 1-9-1991, it was reconstructed as a partnership firm between Shri M.M. Goel and M/s. PSPPL. There was no existence of the assessee-firm prior to 1-9-1991 and hence the assessee-firm has been formed by the reconstruction of the sole proprietory concern which was already in existence and hence in the present case, the assessee-firm is not fulfilling clause ( i ) of section 80-I(2) and hence the assessee is not eligible for deduction under section 80-I of the Act. In this regard, we find that similar issue was considered by the Hon ble Bombay high Court in the case of CIT v. Dandeli Ferro Alloys (P.) Ltd. [1995] 212 ITR 1 and although in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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