1978 (3) TMI 127 - AT - Income Tax

Issues Involved:

1. Dissolution of the firm and subsequent disputes.
2. Appointment of a receiver and arbitrator.
3. Auction and sale of assets.
4. Computation of capital gains.
5. Acceptance of valuation and affidavit evidence.
6. Decision of the Income Tax Officer (ITO) and Appellate Assistant Commissioner (AAC).

Detailed Analysis:

1. Dissolution of the Firm and Subsequent Disputes:

The firm, M/s. Ajmer Merwara Cotton Press Company, Kekri, was dissolved in October 1956. Post-dissolution, disputes arose among partners regarding the settlement of the firm's accounts and disposal of its assets. One partner, Shri Bhanwarlal, filed a suit for partition and distribution of assets, leading to the involvement of the Civil Court.

2. Appointment of a Receiver and Arbitrator:

The Civil Court appointed a receiver to settle the firm's accounts and an arbitrator who gave an award. However, the arbitrator could not dispose of all the assets, prompting the court to direct the receiver to auction the assets. The auction held on 27th and 29th August 1966 fetched a highest bid of Rs. 1,50,000, with the receiver executing a sale deed on 1st October 1966.

3. Auction and Sale of Assets:

The sale proceeds were classified as Rs. 25,000 for property and land, and Rs. 1,25,000 for machinery. The Court informed the ITO Beawar about the sale, leading to the issuance of a notice under Section 139(2) of the Income Tax Act. The official receiver filed a return declaring capital gains of Rs. 80,695, later revised to Rs. 838, citing discrepancies in the sale deed's valuation to save registration charges.

4. Computation of Capital Gains:

The assessee contended that the sale price of the immovable property should have been Rs. 1,25,000 and that of the machinery Rs. 25,000 due to depreciation and long use. The ITO rejected this, relying on the sale deed values. The ITO computed capital gains at Rs. 1,05,695, based on the sale deed's figures and disallowed the evidence provided by the assessee, including an affidavit and a valuer's report.

5. Acceptance of Valuation and Affidavit Evidence:

The assessee's affidavit detailed the circumstances leading to the undervaluation of the immovable property and overvaluation of machinery in the sale deed. The affidavit stated that the machinery was obsolete and the property value appreciated, supported by a valuer's report showing the property's value in 1954 and 1965. The ITO did not cross-examine the deponent or contest the valuer's report, which detailed the property's valuation using PWD standards and other relevant factors.

6. Decision of the ITO and AAC:

The AAC upheld the ITO's decision, relying on the sale deed values. However, the Tribunal found that the authorities below did not provide reasons for rejecting the detailed affidavit and valuer's report. The Tribunal emphasized the need to accept uncontroverted affidavits and reports, citing precedents like Mehta Parikh & Co. vs. CIT and L. Sohanlal Gupta vs. CIT. The Tribunal concluded that the capital gains should be computed based on the valuer's report and the affidavit, resulting in a capital gain of Rs. 838, not Rs. 1,00,695 as determined by the ITO.

Conclusion:

The Tribunal allowed the appeal, directing that the capital gains tax be charged based on the revised computation of Rs. 838, thereby overturning the ITO's and AAC's decisions.

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