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TMI Blog2008 (4) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO that the assessee firm sold all its assets and liabilities to a company M/s Aum Adhesive (P) Ltd. for a consideration of Rs. 7,79,310. The said consideration was distributed between the partners as under: Name of the partner Amount (Rs.) 1. Shri Vivek M. Punatar 4,58,376 2. Shri Viren M. Mehta 3,20,934 -------- 7,79,310 -------- 5. As per the agreement, the said amount was to be paid to the partners of the dissolved firm at their option by allotment of 4,000 fully paid equity shares of Rs. 100 each and partly in case for further allotment of shares to them. It was also noticed by the AO that coming to s. 45(4) from asst. yr. 1988-89 onwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99,077 ------------------------------------------------------------ Stock 3,92,363 4,31,599 39,232 ------------------------------------------------------------ Total 3,45,311 --- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(3) are not applicable to asst. yr. 1998-99 as the same has come into effect from 1st April, 2000. The learned counsel for the assessee further submitted that under the circumstances of the case, nothing could be taxed as 'short-term capital gain'. The learned counsel for the assessee in support of this contention relied upon following judgments: (i) Sakthi Trading Co. vs. CIT (2001) 169 CTR (SC) 297 : (2001) 250 ITR 871 (SC); (ii) CIT vs. S. Kader (1998) 233 ITR 620 (Ker); (iii) CIT vs. Texspin Engg. & Mfg. Works (2003) 180 CTR (Bom) 497 : (2003) 263 ITR 345 (Bom); (iv) Well Pack Packaging vs. Dy. CIT (2003) 78 TTJ (Ahd) 448; (v) CIT vs. Kunnamkulam Mill Board (2002) 178 CTR (Ker) 356 : (2002) 257 ITR 544 (Ker); (vi) CIT vs. Vijayalakshmi Metal Industries (2002) 177 CTR (Mad) 43 : (2002) 256 ITR 540 (Mad); (vii) Smt. Durdana Khatoon vs. Dy. CIT (2005) 93 TTJ (Hyd) 753 : (2005) 93 ITD 15 (Hyd). 9. The learned Departmental Representative, on the other hand, relied upon the order of CIT(A) pertaining to second time reopening and also relied upon the order of the AO which was passed originally. The learned Departmental Representative submitted that there is failure on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at reassessment proceedings cannot be initiated beyond a period of 4 years from the end of the assessment year where scrutiny assessment is made under s. 143(3) unless the escapement of income is attributable to the assessee's failure to make a return under s. 139 or S. 142(1) or s. 148 or to disclose fully and truly all material facts necessary for that assessment year. The Courts have taken a rigid view against the Revenue in a number of cases where it was found that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment and a reassessment notice issued after 4 years. The Hon'ble Bombay High Court in the case of Grindwell Norton Ltd. vs. Jagdish Prasad Jangid, Asstt. CIT & Ors. (2004) 186 CTR (Bom) 530 : (2004) 267 ITR 673 (Bom) found that deduction under ss. 80-I and 80-IA was allowed in regular assessment. It was also found that the reasons recorded nowhere indicated any failure on the part of the assessee to disclose material facts. Similarly, in the case of Bhogwati Sahakari Sakhar Karkhana Ltd. vs. Dy. CIT (2004) 188 CTR (Bom) 393 : (2004) 269 ITR 186 (Bom), wherein the Hon'ble Bombay High Court held is un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 7,79,310 -------- As per agreement the said amount was to be paid to partners of the dissolved firm at their option by allotment of Rs. 4,000 fully paid up equity shares of Rs. 100 each and partly in cash or further allotment of shares to them. Under the provision of s. 45(4) of the IT Act from asst. yr. 1988-89 onward, distribution of capital assets on dissolution of firm is chargeable to tax as short-term capital gain. Thus, a sum of Rs. 7,79,310 was liable for taxation as capital gain for asst. yr. 1998-99. As such there was escapement of assessment within the meaning of s. 147 of IT Act to the extent of Rs. 7,79,310. A notice under s. 148 was accordingly issued to assessee firm, on 20th Feb., 2002 duly served on 20th Feb., 2002, enclosing therewith a letter showing reasons for reopening the assessment." The finding of the AO on first time reopening is as under: "As mentioned above, there is crystal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 7,79,310 -------- From the perusal of the balance sheet of the appellant firm for the financial year 1996-97, it is seen that the value of asset less liabilities was at Rs. 7,79,310 which is the total of credit balance of the partners as on 31st March, 1997. Assessment for asst. yr. 1997-98 has already been completed under s. 143(3). The credit balance of the partners totalling at Rs. 7,79,310 is thus accepted by the Department under the scrutiny assessment. It is seen that all the fixed assets and liabilities of the appellant firm have been taken at book value in the books of account of M/s Aum Adhesive (P) Ltd. w.e.f. 1st April, 1997. There has been no revaluation in the value of the assets and liabilities in the books of transferee, M/s Aum Adhesive (P) Ltd. Partners of the appellant firm, have been given credits in the books of M/s Aum Adhesive (P) Ltd. as per their credit in the books of the appellant firm. The business of the appellant firm as a going conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee comes to a stand still or is dissolved, the stock-in-trade should have been valued at market price for working out the real value of the stock for calculating the interest of the partners of the firm. In the said case, stock was valued at cost instead of market price for working out the interest of the partners of the firm. Further, when conversion of a firm to a company takes place the income arising to the said firm on such transfer has to be taxed in the status of BOI which was not done." From above facts, we notice that the AO has reopened the case second time on same set of facts beyond 4 years. It has also been noticed that there is no failure on the part of the assessee. The assessee has disclosed fully and truly all the material facts necessary for his assessment at the time of assessment proceeding when first time case was reopened. The AO while making first reopening assessment noticed that the assessee has transferred his entire business to a private limited company and on the same reason the AO wants to reopen the case second time to take a different view which is not permissible in law. We accordingly hold that the second time of reopening of completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates (2004) 187 CTR (Bom) 162 : (2004) 265 ITR 346 (Bom), after considering object of insertion of s. 45(4), held that the said section was inserted with a purpose to avoid mischief whereby assets were brought into firm or taken out from the firm. The expression "otherwise" has not to be read "ejusdem genrus" with the expression "dissolution of a firm". The expression "otherwise" has to be read with the words "transfer of capital assets by way of distribution of capital assets". In the light of above discussions if we consider the facts of the case, we noticed that, all the assets and liabilities including benefits of all the licenses, certificates, quota and concessions and all other rights and privileges were transferred as going concern on book value to a private limited company, Aum Adheshive Print Ltd. vide agreement dt. 1st April, 1997. A financial statement including balance sheet on 31st March, 1997 was prepared and all assets and liabilities were transferred to the books of the company on book value on 1st April, 1997. The shares of the company were given to the partners to the extent of credit balances in their capital account. A dissolution deed dt. 4th April, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he counsel for the Revenue and that is that the second condition required to be satisfied for attracting s. 34(3)(b) cannot be said to have been satisfied in the case. It is necessary that the sale or transfer of assets must be by the assessee to a person. Now, every dissolution must in point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of assets effected by a deed takes place eo instanti with the dissolution or that it is effected by the dissolved firm." As stated above, that s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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