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TMI Blog2014 (12) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... unt, assessee had shown cost of acquisition of land for the entire 9680 sq.yd. at Rs. 13,40,000. He further noticed that out of the total 5897 sq.yds of land sold by assessee, during 2004-05, assessee had received sale consideration of Rs. 2,78,73,600 and claimed brokerage payment of Rs. 1.00 lakh. While going through the long term capital gain computed by assessee, AO noticed that to arrive at the index cost of acquisition, assessee has taken the year of acquisition as 1991- 92 and indexed cost of acquisition was computed at Rs. 18,17,291. On the basis of aforesaid information, AO called upon assessee to produce all relevant documents relating to purchase and sale of land along with details of brokerage paid for computation of capital gain. In response to the query made by AO, assessee submitted computation sheet for long term capital gain and sale deed copy. When AO again insisted upon assessee to furnish sale deed copy pertaining to FY 1991-92 wherein the land was claimed to have been acquired, assessee submitted that the land was allotted by Govt. of A.P, hence, there is no purchase deed for land. It was further submitted that originally land belonged to M/s Bimco Products, a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Being aggrieved of the said assessment order, assessee preferred appeal before ld. CIT(A). 4. When the appeal was still pending before ld. CIT(A), scrutiny assessment proceeding for the impugned year was taken up by AO. In course of scrutiny assessment proceeding, AO noticed out of 9680 sq.yds. of land available to assessee, it sold 5807 in AY 2004-05 and the balance 3873 sq.yds. was sold by assessee in the impugned AY and as per the SRO value assessee received sale consideration of Rs. 1,89,00,684. Assessee also declared long term capital gain of Rs. 1,73,76,510 before claiming deduction u/s 54EC. From the computation of long term capital gain, AO noticed that assessee has adopted cost of acquisition of land of the entire 9680 sq.yds. at Rs. 13,40,000. AO following the observation made in the assessment order passed for AY 2004-05, however adopted the cost of acquisition of land at Rs. 10,000 per acre as on 01/04/1981, which resulted in determination of long term capital gain at Rs. 1,11,18,460. Being aggrieved of such computation of capital gain, assessee challenged the same in appeal before CIT(A). 5. In course of hearing of appeal before ld. CIT(A) on the basis of the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw 287 ITR 404 (KAR) and in view of the above discussion, the cost of acquisition of land in the hands of the assessee- company should be as follows: Cost of acquisition in the hands of the company in 1991-92 = Rs. 20,000 per 2 acres (1 acre = 4840 sq.yds). Since the assessee-company sold 5807 sq.yds of land in FY 2003-04 relevant to the AY 2004-05, the cost of acquisition of 5807 sq.yds = {Rs. 10000/4840 sq.yds}x 5807 sq. yds. = Rs. 11,998. Indexed cost of acquisition of 5807 sq.yds of land = 11,998 x 463/199 = 27,915. Further to the above, the sale documents in respect of the sale of 5807 sy.yds have been obtained from SRO. As seen from the sale deeds, the sale was executed in two sale deeds." Ld. CIT(A) invited assessee's comments on the remand report submitted by AO. Though, assessee objected to the observation made in the remand report, but, ld. CIT(A) rejecting the contentions raised by assessee, confirmed the computation of capital gain made by AO by observing as under: "5.5 I have carefully considered the submissions of the appellant and the reasonings of the Assessing Officer in his assessment order and as well as remand report and the reply of the appellant to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so evident from the remand report that the land was revalued in the year 1987 in the books of the partnership firm at Rs. 13,40,000 and it was apportioned to the capital account of the partners. Therefore, there is no dispute to the fact that when the assets and liabilities of partnership firm was taken over by assessee in the year 1991-92, which also included the land in question, the value of the land in the books was Rs. 13,40,000. 9. Section 45(4) of the Act, envisages that profits and gains arising from transfer of capital assets by way of distribution of capital assets on dissolution of firm shall be chargeable to tax as income of the firm of the previous year in which the transfer takes place and for the purpose of section 48, the FMV of the asset on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer. As can be seen from a plain reading of the aforesaid provision, it is a deeming provision, hence, capital gain has to be charged to tax at the hands of the firm irrespective of the fact whether any consideration was received by firm or not. As can be seen from the remand report, though AO has accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition. In this regard, we refer to the decision of the Hon'ble Karnataka High Court in case of Suvardhan Vs. CIT, 287 ITR 404. In the aforesaid view of the matter, we hold that AO and ld. CIT(A) were not justified in adopting the cost of acquisition of land at Rs. 10,000 per acre as against Rs. 13,40,000 as shown in the books at the time of transfer on dissolution of the partnership firm. Accordingly, we direct the AO to compute capital gains by adopting the cost of acquisition at Rs. 13,40,000 for two acres of land. 11. The next issue which arises in Ground Nos. 5 & 6 is with regard to addition of Rs. 18,82,901 as deemed dividend u/s 2(22)(e) of the Act. 12. Briefly the facts relating to this are, during the assessment proceeding, AO noticed that assessee company has received certain advances from its sister concern M/s Bimco Isolators Ltd. AO noted that Shri Ashwin Bhuva and Pankaj Bhuva are common shareholders in both the companies and are holding more than 20% of the share. He further noted that M/s Bimco Isolators, which is a domestic company in which public are not substantially interested, is also having accumulated profits of Rs. 4,92,649 as on 31/03/2005 and Rs. 1,15 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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