Commissioner Of Income Tax v. Shree Agro Chemicals....opponent(S

O/TAXAP/1493/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1493 of 2005 TO TAX APPEAL NO. 1495 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================COMMISSIONER OF INCOME TAX....Appellant(s)COMMISSIONER OF INCOME TAX....Appellant(s) Versus SHREE AGRO CHEMICALS....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI andHONOURABLE MR.JUSTICE K.J.THAKER Date : 09/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1.All these appeals arise out of the common judgment and order rendered by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’ and therefore, they are disposed of by this common judgment. 2.Challenge in these Tax Appeals filed u/s.260A of the Income-tax Act, 1961 is to the judgment and order dated 22.12.2004 passed by the Tribunal in ITAs No.1562/A/2001, 1561/A/2001 and 1553/A/2001 whereby, the appeals filed by the assessee were partly allowed. 3.The facts in brief are that one K.B. Parikh was carrying on business of manufacturing and dealing in plastic agro chemicals along with M.D. Patel through various concerns. They formed four units of firms and increased the number of Partners in each of the firm to seven or more and then converted these firms into Chapter IX Companies u/s.556 of the Companies Act and ultimately, transfer the O/TAXAP/1493/2005 JUDGMENT entire business to a concerned named Ocean Agro India P. Ltd. (for short, “OAIPL”), which was later converted into a public limited company. We are concerned here with three of such firms, viz. M/s.Industrial Plastics, M/s.Shree Agro Chemicals and M/s.Agro Chemicals. 4.For the narration of detailed facts, Tax Appeal No.1493/2005 is taken as the lead matter. The assessee filed two returns of income for two periods. The first return was filed on 28.03.1995 for the period from 01.04.1992 to 30.08.1992 declaring total income at Rs.3,67,800/-. Thereafter, another return of income was filed on 31.03.1995 for the period from 01.09.1992 to 30.09.1992 declaring total income at Rs.1,98,095/-. On 30.09.1992 the assessee claimed to have revalued its fixed assets at a figure of Rs.87,72,858/- as against the written down value as per its books of Rs.9,83,465.70. This resulted in addition of the value of assets of Rs.77,89,392.30 as Short Term Capital Gain. 5.On the same date, ie. on 30.09.1992, the assessee converted itself into joint stock company by a deed of coparcenery under the O/TAXAP/1493/2005 JUDGMENT 5.On the same date, ie. on 30.09.1992, the assessee converted itself into joint stock company by a deed of coparcenery under the O/TAXAP/1493/2005 JUDGMENT name “Dhanshree Agrochemicals P. Ltd.”. In this way, the assessee-firm transferred its total assets of Rs.9,83,465.70. As per the Balance Sheet of M/s. Shree Agrochemicals (assessee in T.A. No.1493/2005), the value of the converted company stood at Rs.87,72,858/- as on 30.09.1992. 6.By a further Memorandum of Understanding dated 14.12.1992, the current assets and liabilities of the assessee-firm were transferred to a private limited company under the same Management, OAPIL, on a “going concern basis” for a consideration of Rs.80,10,780/-, which was the difference between the current assets and current liabilities as on 14.12.1992. According to this MOU, the assets and liabilities were handed over to OAIPL on 30.09.1992. Thus, as on 30.09.1992, the assessee-firm transferred its liabilities to OAIPL. 7.On 14.12.1992, another MOU was also drawn up between DAPL and OAIPL, by which the fixed assets were transferred to OAIPL. The same series of transactions regarding the transfer of fixed assets as well as the business on a “going concern basis” has been carried out in the case of other sister concerns of the O/TAXAP/1493/2005 JUDGMENT assessee-firm. 8.On 18.04.1994 OAIPL was converted into a public limited company – Ocean Agro Limited. Later during July – August 1994, OAL came out with a public issue of equity shares. At the time of the public issue, the value of the shares of promoters was Rs.19,37,50,000/- out of which only 6000 shares had been alloted for consideration received in cash. The entire balance of shares had been alloted in consideration of transfer of fixed assets from the firms through the route of Part IX Companies after revaluation. 9.During the course of assessment scrutiny proceedings, it was noticed that various Part IX Companies had been incorporated much after the date of MOU transferring the assets to OAPL. In the case of DAPL, the date of incorporation is 01.04.1993. It was held accordingly that on the date on which the MOU was signed, ie. 14.12.1992, DAPL did not exist as a legal entity. Moreover, it was brought on record that OAPL had carried on the business of the assessee-firm without a break from 30.09.1992 onwards which would not have been possible without the control of the fixed assets. It was also seen that DAPL had O/TAXAP/1493/2005 JUDGMENT no business activity during the financial year 1992-1993. Only book entries have been passed to show the transfer of assets of OAPL as on the date of incorporation, ie. 01.04.1993. It was held that as on 14.12.1992, DAPL did not exist and as per Section 565 of the Companies Act, no assets would have vested in the Company prior to the date of incorporation. It was held accordingly that OAPL had directly taken over the assets and the business of the assessee-firm as on 30.09.1992 and the assessee was liable to pay tax on short term capital gains computed as per Section 50(2) of the Act worked out at Rs.37,84,129/-. 10.The Assessing Officer passed the order u/s.143(3) of the Act on 29.03.1996 determiningthetotalincomeat Rs.91,30,040/-. Against the order of A.O., appeal was preferred before the CIT(A). The CIT(A) confirmed the order of Assessing Officer. However, in the appeal filed before the Tribunal, the orders of both the authorities below were quashed and set aside and the matter was remanded to the Assessing Officer. 11.Thereafter, the Assessing Officer passed 10.The Assessing Officer passed the order u/s.143(3) of the Act on 29.03.1996 determiningthetotalincomeat Rs.91,30,040/-. Against the order of A.O., appeal was preferred before the CIT(A). The CIT(A) confirmed the order of Assessing Officer. However, in the appeal filed before the Tribunal, the orders of both the authorities below were quashed and set aside and the matter was remanded to the Assessing Officer. 11.Thereafter, the Assessing Officer passed O/TAXAP/1493/2005 JUDGMENT the fresh order of assessment u/s.143(3) on 03.03.2003 determining total income at Rs.81,56,088/-. The CIT(A) partly allowed the appeal, vide order 25.04.2001. Against the above order, appeal was preferred before the Tribunal. The Tribunal partly allowed the appeals by impugned common judgment and order dated 22.12.2004. Hence, these appeals. 12. The appeals were admitted in terms of the following substantial question of law; “Whether the Appellate Tribunal is right in law and on facts in holding that no capital gain arose on transfer of the assets to Ocean Agro (I) Pvt. Ltd.?” 13.We have heard learned counsel for both the sides and perused the material on record. On going through the factual scenario would not permit us to take a different view than what has been taken by the Tribunal as that the main thrust in the facts of this case is that the income is received and since at that time, the Company was liable to tax and had carried on the business. In para-24 of the judgment, the Tribunal has observed as under; “24. Therefore, the fixed assets of the O/TAXAP/1493/2005 JUDGMENT assessee along had not been transferred to OAIPL. It should also not overlook the fact that a part of the transferred assets do not find placein the books of the assessee firms. When the accounts, balance sheet, schedule of fixed assets of the assessee do not disclose the same, then the claim by another person, Shri K.B. Parikh that he had held such assets as undisclosoed, which assets he had disclosed under the Voluntary Disclosure Scheme of 1997 and transfer to the company will not only be reasonable, but would also depict the correct position with regard to the transfer of assets to the ultimate transferee-company.Thedisclosureis evidenced by the prescribed form which clearly shows that the total disclosure of assets of the value of Rs.4,32,02,000/- remained unaccounted between various years, Assessment Year 1974-75 to 1997-98. In such disclosure, where such assets were and by whom they are held had also been mentioned. In the form, it had been mentioned as “self, family members, partners, associates”. In the affidavit accompanying the prescribed form, it has been mentioned that such assets were given to the various units (probably the industrial undertakings) from time to time without adhering to the normal way of legal transaction of sale. The assets have also been stated to have been loaned. In the accompanying statement, a detailed list of plant and machinery declared by Shri Parikh is funished. This formed part of the disclosure papers. In such disclosure and the accompanying papers, it is evident that several assets have been with the assessee firm, which had then been disclosed. The categorization has been done in such accompaying statements as : “(a) with M/s. Industrial Plastics (58 items) (b) with M/s. Agro Chemicals (01 items); (c) with M/s. Shree Agro Chemicals (05 items) (d) with M/s. Om Pesticides (08 items) and with M/s. KB Parikh (17 items).” transaction of sale. The assets have also been stated to have been loaned. In the accompanying statement, a detailed list of plant and machinery declared by Shri Parikh is funished. This formed part of the disclosure papers. In such disclosure and the accompanying papers, it is evident that several assets have been with the assessee firm, which had then been disclosed. The categorization has been done in such accompaying statements as : “(a) with M/s. Industrial Plastics (58 items) (b) with M/s. Agro Chemicals (01 items); (c) with M/s. Shree Agro Chemicals (05 items) (d) with M/s. Om Pesticides (08 items) and with M/s. KB Parikh (17 items).” 14. Looking to the factual scenario, the Tribunal has committed no error. In the above paragraph, the Tribunal has completely answered the issue on hand. Hence, the question of law is answered in favour of the assessee and against the Revenue. The appeals fail and are, accordingly, dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/*