Dy.CIT, Aligarh v. Smt. Sonal Agarwal, Aligarh

ITA 32/AGR/2009 | 1999-2000
Pronouncement Date: 27-08-2010 | Result: Dismissed

Appeal Details

RSA Number 3220314 RSA 2009
Assessee PAN AAVPG1199B
Bench Agra
Appeal Number ITA 32/AGR/2009
Duration Of Justice 1 year(s) 6 month(s) 23 day(s)
Appellant Dy.CIT, Aligarh
Respondent Smt. Sonal Agarwal, Aligarh
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 27-08-2010
Date Of Final Hearing 22-06-2010
Next Hearing Date 22-06-2010
Assessment Year 1999-2000
Appeal Filed On 04-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH AGRA BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI P.K. BANSAL ACCOUNTANT MEMBER ITA NO.29/AGR/2009 ASST. YEAR: 1999-2000 D.C.I.T. CIRCLE-1 ALIGARH. VS. SMT. KIRAN GARG C/O. PRAG OIL MILLS LIMITED RAMGHAT ROAD ALIGARH. (PAN : AAVPG 1199 B). ITA NO.30/AGR/2009 ASST. YEAR: 1999-2000 D.C.I.T. CIRCLE-1 ALIGARH. VS. SMT. SHOBHA AGRA WAL C/O. PRAG OIL MILLS LIMITED RAMGHAT ROAD ALIGARH. (PAN : AAUPA 2115 L). ITA NO.31/AGR/2009 ASST. YEAR: 1999-2000 D.C.I.T. CIRCLE-1 ALIGARH. VS. SHRI PRAVEEN NAR AYAN AGRAWAL C/O. PRAG OIL MILLS LIMITED RAMGHAT ROAD ALIGARH. (PAN : AAUPA 2116 K). ITA NO.32/AGR/2009 ASST. YEAR: 1999-2000 D.C.I.T. CIRCLE-1 ALIGARH. VS. SMT. SONAL AGRAW AL C/O. PRAG OIL MILLS LIMITED RAMGHAT ROAD ALIGARH. (PAN : ACOPA 8844 L). ITA NO.33/AGR/2009 ASST. YEAR: 1999-2000 D.C.I.T. CIRCLE-1 ALIGARH. VS. SHRI AJAI NARAYA N AGRAWAL C/O. PRAG OIL MILLS LIMITED RAMGHAT ROAD ALIGARH. (PAN : AAUPA 2114 M). (APPELLANT) (RESPONDENTS) 2 APPELLANT BY : SMT. SEEMA RAJ CIT (D.R.) RESPONDENTS BY : SHRI DEEPAK SINGH ADVOCATE ORDER PER P.K. BANSAL A.M.: ALL THESE APPEALS HAVE BEEN FILED BY THE REVENUE AG AINST THE COMMON ORDER OF THE CIT(A) DATED 17.10.2008. SINCE THE ISSUES INVOLVED IN ALL THESE APPEALS ARE COMMON THEREFORE ALL THESE APPEALS ARE DISPOSED OF BY THIS COMMON OR DER. THE COMMON GROUNDS TAKEN BY THE REVENUE READ AS UNDER :- (1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (APPEALS) WAS RIGHT IN HOLDING THAT THERE EXISTED NO LIABILIT Y ON THE DATE OF MERGER OF THE FIRM M/S PRAG AGRO FARM WITH THE COMPANY INSPITE O F THE FACTS THAT LIABILITY ON THE FIRM EXISTED ON THE DATE OF MERGER OF THE FIRM WITH THE COMPANY I.E. M/S PRAG AGRO FARM LTD. AND RELYING ON THE FUTURE OCCURRING THAT DURING THE TENURE OF LEASE PERIOD THERE WERE NEITHER ANY ARBITRATION PRO CEEDINGS NOR LIABILITY WAS CLAIMED OR DISPUTED BY THE LESSOR/LESSEE? (2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE LD. CIT (APPEALS) ERRED IN HOLDING THE LIABILITY AS CONTINGENT LIABIL ITY ON THE DATE OF MERGER OF THE FIRM M/S PRAG AGRO FARM WITH THE COMPANY INSPITE O F THE FACTS THAT THE LIABILITY ON THE FIRM STOOD CONFIRMED BY THE RECASTED BALANC E SHEET OF THE FIRM M/S PRAG AGRO FARM AND AS THE COMPANY M/S PRAG AGRO FARM LTD . HAS TAKEN OVER THE TOTAL ASSETS AND LIABILITIES OF THE FIRM SO THIS LIABILI TY MUST HAVE BEEN TAKEN OVER BY THE COMPANY AS A RESULT OF TAKE OVER OF THE FIRM BY THE COMPANY ? 2. THE BRIEF FACTS OF THE CASE ARE THAT IN ALL THES E CASES NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO ALL THE FIVE ASSESSEES NAMELY SMT. KI RAN GARG SMT. SHOBHA AGRAWAL SHRI PRAVEEN NARAYAN AGRAWAL SMT. SONAL AGRAWAL & SHRI AJAI NAR AYAN AGARWAL FOR THE ESCAPEMENT OF 3 CAPITAL GAINS CHARGEABLE TO TAX FOR THE A.Y. 1999-2 000 DETAILED AS UNDER AFTER RECORDING THE REASONS AS APPEARED FROM PAGE 2 TO 9 OF ASSESSMENT ORDER :- SL. NO. NAME OF THE PERSON LOSS DECLARED BY THE ASSESSEE CAPITAL GAINS DETERMINED AS ABOVE CONCEALMENT OF INCOME 1 2 3 4 5 1. AJAY NARAIN AGRAWAL 760000 10362712 11122712 2. PRAVEEN AGRAWAL 633333 1055556 10555560 3. SONAL AGRAWAL 253333 3454236 3707569 4. SHOBHA AGRAWAL 253333 3454234 3707567 5. KIRAN GARG 380000 5181382 5561382 3. THE REASONS UNDER SECTION 148 WERE RECORDED ON T HE BASIS OF THE OBSERVATIONS MADE BY THE AUDITOR OF THE COMPANY AS REPRODUCED HEREUNDER :- THE COMPANY WAS INCORPORATED ON APRIL 25 TH 1997 ON CONVERSION OF THE ERSTWHILE PARTNERSHIP FIRM M/S PRAG AGRO FARM AS PE R PROVISION OF PART IX OF THE COMPANYS ACT 1956. THE ASSETS AND LIABILITIES OF THE FIRM INCLUDING THE LEASE HOLD LAND AT KICHCHHA DISTRICT UDHAM SINGH NAGAR U TTAR PRADESH BELONGING TO THE PARTNERS OF THE FIRM VALUED AT RS.3 80 00 000/- AND CASH IN HAND OF RS.200/- WERE TRANSFERRED TO THE COMPANY AND 38 00 020/- EQU ITY SHARES OF RS.10 CASH WERE ISSUED AT PAR IN LIEU THEREOF. THE ERSTWHILE PARTNERSHIP FIRM M/S. PRAG AGRO FARM HAD ENTERED INTO A SUB-LEASE OF THE LEASEHOLD LAND OF THE COMPANY FOR 8 YEARS WITH M/S WIMCO GREENS W.E.F. OCT. 01 1996 AND ADVANCE FOR THE FULL PERIOD HAD BEEN RECEIVED BY THE PARTNERS OF THE FIRM. THE AMOUNT PERTAINING TO THE UNEXPIRED PERIOD WAS NEITHER TRANSFERRED TO THE PARTNERSHIP FIRM NOR TO THE COMPANY ON INCORPORATION. IN VIEW THEREOF LEASE RENTALS AMOUNTING TO RS.64 3 1 967/- FOR THE CURRENT PERIOD AND ADVANCE LEASE RENTALS OF RS.2 50 50 000/- AS AT JUNE 30 1998 PERTAINING TO THE LAND OF THE COMPANY HAVE NOT BEEN CONSIDERED IN THE ACCOUNTS. 4. IN RESPONSE TO THE NOTICE UNDER SECTION 148 EAC H OF THE ASSESSEE FILED WRITTEN REPLY STATING THEREIN THAT THE RETURN ALREADY FILED BE TAKEN AS F ILED IN RESPONSE TO THE NOTICE. THE BRIEF FACTS AS 4 GATHERED FROM THE RECORD ARE THAT AFTER THE DEATH O F SHRI PRAG NARAIN ALL THE FIVE MEMBERS WERE HOLDING LAND IN THE FOLLOWING RATIOS :- SHRI AJAY NARAIN AGRAWAL 33.33% SHRI PRAVEEN NARAIN AGRAWAL 27.77% SMT. KIRAN GARGH 16.68% SMT. SHOBHA 11.11% SMT. SONAL 11.11% 5. ON 16.07.1996 A PARTNERSHIP FIRM UNDER THE NAME AND STYLE OF M/S PRAGB AGRO FARM WAS CONSTITUTED BY THE AFORESAID FIVE PERSONS. THE OWN ERSHIP RIGHTS OF ALL THE LAND MEASURING ABOUT 1000 ACRES WERE DEVOLVED INTO THE PARTNERSHIP FIRM AND THE PARTNERS ACCOUNT WERE CREDITED IN THE BOOKS OF THE FIRM BY FOLLOWING AMOUNT:- SHRI AJAY NARAIN AGRAWAL 1 26 66 670/- SHRI PRAVEEN AGRAWAL 1 05 55 560/- SMT. KIRAN GARG 63 33 330/- SMT. SHOBHA 42 22 220/- SMT. SONAL 42 22 220/- 6. SUBSEQUENTLY THE SAID LAND WAS LEASED OUT TO M/S WIMCO GREEN FOR 8 YEARS W.E.F. 01.10.1996 TO 30.09.2004 AND THE TOTAL LEASE RENT P AYABLE FOR THE SAID PERIOD WAS DECIDED AT RS.3 71 95 000/- IN THE FOLLOWING MANNER :- RENT FOR THE PERIOD 01.10.1996 TO 31.03.1997 RS.5 0 000/- RENT FOR THE PERIOD 01.04.1997 TO 30.09.1997 RS.12 00 000/- RENT FOR EACH OF THE BALANCE COMPLETED YEAR ENDING ON 30 TH SEPTEMBER RS.51 35 000/- PER YEAR 5 7. IT WAS MUTUALLY DECIDED THAT IN CASE RENT IS PAI D IN ADVANCE M/S WIMCO GREENS WILL PAY RS.3 20 50 000/- AND ACCORDINGLY M/S WIMCO GREENS P AID LEASE RENT FOR THE PERIOD OF 8 YEARS AT RS.3 20 50 000/- IN LUMP SUM. SUBSEQUENTLY ON 25. 04.1997 THE FIRM M/S PRAG AGRO FARM WAS CONVERTED INTO A COMPANY M/S PRAG AGRO FARM LIMITED WHICH TOOK OVER ALL ASSETS AND LIABILITIES OF THE FIRM INCLUDING GIVEN ON LAND. LATER ON THE RETURN OF INCOME OF THE COMPANY FOR THE A.Y. 1998-99 WAS FILED. IN LIEU OF THE CAPITAL ACCOUNT OF THE PARTNERS OF THE ERSTWHILE FIRM PRAG AGRO FARM SHARES WERE ALLOTTED TO THEM AS UNDER :- SL.NO. NAME OF SHARE HOLDER BALANCE SHOWN IN CAPITAL ACCOUNT OF FIRM AS ON 31.03.97 NO. OF SHARES HELD VALUE OF SHARES 1. AJAY NARAIN AGRAWAL 1266670 126666 1266670 2. PRAVEEN AGRAWAL 10555560 1055556 10555560 3. SONAL AGARWAL 4222220 422222 4222220 4. VIVEK AGRAWAL 100 10 100 5. KAMAL AGRAWAL 100 10 100 6. KIRAN GARG 6333330 633333 6333330 7. SHOBHA AGRAWAL 4222220 422222 4222220 TOTAL 38000200 3800020 38000200 8. SHRI AJAY NARAIN AGRAWAL AND FAMILY MEMBERS SOLD ALL THEIR SHARES TO M/S GLADHILL TRADING PVT. LTD. A SUBSIDIARY OF M/S WIMCO LIMITED . THESE SHARES WERE SOLD AT RS.3 80 00 200/- IN JUNE 1998 RELEVANT TO A.Y. 1999 -2000. M/S GLADHILL TRADING PVT. LTD. LATER ON MERGED INTO M/S WIMCO SEEDLINGS LIMITED WHOSE AL L THE HOLDINGS WERE OWNED BY M/S WIMCO LIMITED. M/S WIMCO GREEN WAS DISSOLVED ON 01 .04.2002 AND ALL ITS ASSETS AND LIABILITIES WERE TAKEN OVER BY M/S WIMCO SEEDLINGS LIMITED. TH E A.O. WAS OF THE VIEW THAT THE VALUE OF KICHHA FARM TAKEN OVER BY THE COMPANY WAS SHOWN AT RS.3 80 00 000/- IN THE ASSET SIDE AND ACCORDINGLY THE SHARE CAPITAL WAS ISSUED. THE ASSE SSEE HOWEVER IGNORED TO ACCOUNT FOR THE 6 VALUE OF THESE RENTALS FOR UNEXPIRED PERIOD AMOUNTI NG TO RS.64 31 967/- FOR THE F.Y. 1997-98 AND ADVANCE LEASE RENTALS OF RS.2 50 00 000/- PERTAININ G TO THE LAND OF THE COMPANY FOR THE SUBSEQUENT PERIOD UPTO SEPTEMBER 2004. THUS HE WA S OF THE VIEW THAT THE ASSESSEE SHOULD HAVE SHOWN THE UNEXPIRED LEASE RENTAL ON THE LIABILITY S IDE AMOUNTING TO RS.3 14 81 967/- AND THE PARTNERS CAPITAL SHOULD HAVE STOOD AT RS.65 81 033 /-. THEREFORE THE COST OF ACQUISITION OF THE SHARE OF MA/S PRAG AGRO FARM IN THE HANDS OF THE FA MILY MEMBERS OF SHRI AJAY NARAIN AGRAWAL SHOULD HAVE TAKEN TO BE RS.65 81 033/- NOT RS.3.80 00 000/- AS SHOWN BY THEM IN THEIR INCOME- TAX RETURN FOR THE A.Y. 1999-2000. EACH OF THE ASS ESSEE HAS COMPUTED THE CAPITAL GAIN IN THEIR RETURN IN THE FOLLOWING MANNER :- LATE SHRI AJAI NARAIN AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.1 26 66 670/- LESS: INDEXED COST RS.1 34 26 670/- LOSS RS.7 60 000/- COST OF ACQUISITION OF RS.1 26 66 670/- IN F.Y. 199 7-1998 SMT. KIRAN GARG A.Y. 1999-2000 SALE CONSIDERATION RS.63 33 330/- LESS: INDEXED COST RS.67 13 330/- LOSS RS.80 000/- COST OF ACQUISITION OF RS.63 33 330/- IN F.Y. 1997- 1998 SMT. SHOBHA AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.42 22 220/- LESS: INDEXED COST RS.44 75 553/- LOSS RS.2 53 333/- COST OF ACQUISITION OF RS.42 22 220/- IN F.Y. 1997- 1998 SHRI PRAVEEN NARAIN AGRAWAL A.Y. 1999-2000 7 SALE CONSIDERATION RS.1 05 55 560/- LESS: INDEXED COST RS.1 11 88 893/- LOSS RS.6 33 333/- COST OF ACQUISITION OF RS.1 05 55 560/- IN F.Y. 199 7-1998 MRS. SONAL AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.42 22 220/- LESS: INDEXED COST RS.44 75 555/- LOSS RS.2 53 333/- COST OF ACQUISITION OF RS.42 22 220/- IN F.Y. 1997- 1998. 9. THE A.O. THEREFORE RECOMPUTED THE CAPITAL GAIN IN EACH OF THE CASE AS UNDER :- LATE SHRI AJAI NARAIN AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.1 26 66 670/- LESS: COST OF ACQUISITION RS.21 72 678/- CAPITAL GAINS RS.1 04 93 992/- COST OF ACQUISITION RS.21 72 678/- IN F.Y. 1997-98 SMT. KAIRAN GARG A.Y. 1999-2000 SALE CONSIDERATION RS.63 33 330/- LESS: COST OF ACQUISITION RS.10 86 338/- CAPITAL GAINS RS.52 46 992/- COST OF ACQUISITION RS.10 86 338/- IN F.Y. 1997-98 SMT. SHOBHA AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.42 22 220/- LESS: COST OF ACQUISITION RS.7 24 225/- CAPITAL GAINS RS.34 97 995/- COST OF ACQUISITION RS.7 24 225/- IN F.Y. 1997-98 8 SHRI PRAVEEN NARAIN AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.1 05 55 560/- LESS: COST OF ACQUISITION RS.18 10 565/- CAPITAL GAINS RS.87 44 995/- COST OF ACQUISITION RS.18 10 565/- IN F.Y. 1997-98 SMT. SONAL AGRAWAL A.Y. 1999-2000 SALE CONSIDERATION RS.42 22 220/- LESS: COST OF ACQUISITION RS.7 24 225/- CAPITAL GAINS RS.34 97 995/- COST OF ACQUISITION RS.7 24 225/- IN F.Y. 1997-98 10. THE ASSESSEE BEING AGGRIEVED WENT IN APPEAL B EFORE THE CIT(A). THE CIT(A) AFTER GOING THROUGH THE SUBMISSIONS OF THE ASSESSEE CALL ED FOR THE REMAND REPORT OF THE A.O. AND SUBSEQUENTLY DELETED THE ADDITION MADE ON ACCOUNT O F CAPITAL GAIN IN EACH OF THE CASE BY GIVING THE FOLLOWING COMMON FINDING EXCEPT THE CHANGE OF T HE FIGURE. 11. THE RELEVANT FINDING IN THE CASE OF THE AJAY NA RAIN AGARWAL IN ITA NO.33/AGRA/2009 ARE REPRODUCED HEREUNDER :- THE ISSUE UNDER APPEAL HAS BEEN CONSIDERED ALONG W ITH MATERIAL BROUGHT ON RECORD BY THE AO. THE SUBMISSIONS AND THE ARGUM ENTS TAKEN BY THE LEARNED AR ALONG WITH THE REMAND REPORT OF THE AO HAVE BEEN CONSIDERED. THE SOLE ISSUE UNDER DISPUTE IS WITH RESPECT OF VALUATION OF SHARE S. THE AO HAS CONSIDERED THAT SINCE THE ASSETS WERE LEASED OUT FOR A PERIOD OF 8 YEARS TRANSFER OF SHARES IN RESPECT OF THOSE ASSETS BEFORE EXPIRY OF 8 YEARS WO ULD PROPORTIONATELY REDUCE THE VALUE OF SHARES. THE LEARNED AR HAS TAKEN THE PLEA THAT THE PROPOSIT ION POINTED OUT BY THE AO IS HYPOTHETICAL. THE LEARNED AR HAS POINTED OUT THAT THE LEASE MONEY IS NOT REFUNDABLE IN TERMS OF PROVISIONS OF SUB LEASE DEED DATED 01.10.1996 BETWEEN PRAG AGRO FARMS AND WIMCO GREENS. THE AGREEMENT D OES NOT PROVIDE FOR 9 REFUND OF LEASE MONEY UNDER ANY CIRCUMSTANCE AND HE NCE THERE IS NO SCOPE FOR ALTERING THE VALUE OF SHARES. THE IMPUGNED AGREEMENT HAS BEEN EXAMINED. FROM TH E PERUSAL OF THE AGREEMENT UNDER REFERENCE IT IS SEEN THAT IN TERMS OF PARA 17 IT HAS BEEN ENVISAGED THAT IN CASE OF DISAGREEMENT DIFFERENCES AND DISPUTES THE MATTER HAS TO BE REFERRED TO FOR ARBITRATION TO A SOLE ARBITRATOR TO BE MUTUALLY DECIDED BY ALL PARTIES. IN SHORT IT IS SEEN THAT THOUGH THERE IS NO SCOPE FOR REFUND OF LEASE MONEY THE AGREEMENT ENVISAGES ARBITRATION PROCEEDI NGS IN CASE OF DIFFERENCES BETWEEN THE PARTIES TO THE AGREEMENT. THUS EVEN IF THERE IS NO DIRECT STIPULATION IN RESPECT OF REFUND OF LEASE MONEY IN CASE OF BREACH/ DIFFERENCES BETWEEN THE PARTIES THE AGREEMENT PROVIDES FOR ARBITRATION AND THEREFORE THEORETICALLY THE LEASE MONEY IS POSSIBLE IN CASE OF BREACH OF TERMS OF AGREEMENT. HOWEVER THE REFUND OF AMOUNT IS POSSIBLE ONLY PURSUANT OF ARBIT RATION PROCEEDINGS. THE LEARNED AR HAS STATED THAT SINCE NO ARBITRATION PRO CEEDINGS HAS TAKEN PLACE BETWEEN THE PARTIES THERE IS NO SCOPE OF REFUND AN D HENCE NO ACCRUAL OF LIABILITY. IT HAS ALSO BEEN ARGUED THAT IN CASE OF ARBITRATION PROCEEDINGS AND IN THE CASE OF DETERMINATION OF LIABILITY AS A RESULT OF ARBITRATI ON PROCEEDINGS SUCH A LIABILITY WILL ACCRUE ONLY AS A RESULT OF ARBITRATION PROCEED INGS. IN THE ABSENCE OF ARBITRATION PROCEEDINGS SUCH A LIABILITY IS THEORET ICALLY A CONTINGENT LIABILITY WHICH CANNOT BE CONSIDERED FOR THE VALUATION OF SHA RES. THE TERMS OF AGREEMENT HAS BEEN EXAMINED. THERE AP PEARS TO BE LOGIC IN THE PLEA OF THE LEARNED AR THAT ANY LIABILITY ON AC COUNT OF BREACH OF AGREEMENT WILL ACCRUE ONLY AFTER DETERMINATION OF LIABILITY B Y THE ARBITRATOR. IN ABSENCE OF ANY ARBITRATION PROCEEDINGS ANY LIABILITY REMAINS A CONTINGENT LIABILITY. THE LIABILITY WILL BECOME REAL ONLY WHEN THE SAME IS DE TERMINED IN TERMS OF PARA 17 OF THE SAID AGREEMENT. FURTHER MORE THE LEARNED AR HAS ALSO POINTED THAT THE PERIOD OF 8 YEARS HAVE ALREADY EXPIRED AND NO ARBITRATION PROCEEDINGS HAS BEEN TAKEN PLACE AND HENCE THERE IS NO SCOPE OF ANY LIABILITY WHICH COUL D BE TAKEN INTO ACCOUNT FOR THE VALUATION OF SHARES. THE ISSUE HAS BEEN EXAMINED IN THE LIGHT OF LEGAL P ROPOSITION AS WELL AS MATERIAL FACT BROUGHT ON RECORD. ANY LIABILITY WIL L BE TAKEN INTO ACCOUNT FOR THE VALUATION OF SHARES ONLY WHEN EITHER THE LIABILITY EXISTS OR THE SAME HAS ALREADY ACCRUED. THE FACTS BROUGHT ON RECORD AS WELL AS TH E SUBMISSIONS MADE BY THE LEARNED AR SHOW THAT SINCE ARBITRATION PROCEEDINGS HAS NOT TAKEN PLACE THE LIABILITY HAS NOT ACCRUED IN RESPECT OF THE SAID SH ARES AND HENCE THE SAID LIABILITY REMAINS A CONTINGENTS LIABILITY AND CONTINGENT LIAB ILITY CONNOTE LEGALLY TAKEN INTO ACCOUNT FOR THE DETERMINATION OF VALUE OF SHARES. THE PLEA OF THE AO IN THE REMAND REPORT THAT M/S PR AG AGRO FARM WAS NO LEGAL FIRM AS IT WAS CONSTITUTED TO EARN AGRICUL TURE INCOME NEEDS TO BE SEEN 10 FROM THE PREVIOUS INTENT WHICH IS MANIFESTED IN THE SUBSEQUENT CONDUCT OF THE FIRM. IN THE ENTIRE TRANSACTION THERE IS A DOMINANT COMME RCIAL MOTIVE. IN VIEW OF THE ABOVE THE ACTION OF THE AO IN WORKI NG OUT THE VALUE OF SHARES FOR THE PURPOSE OF CAPITAL GAINS DOES NOT AP PEAR TO BE LEGALLY TENABLE. ACCORDINGLY THE ADDITION MADE ON ACCOUNT OF CAPITA L GAIN AMOUNTING TO RS.1 04 93 992/- IS HEREBY DELETED. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW AS WELL AS THE MATERIAL PLACED BE FORE US. WE NOTED THE ONLY ISSUE IN THIS CASE RELATES TO THE COMPUTATION OF THE CAPITAL GAIN IN T HE HANDS OF EACH OF THE SHARE HOLDERS. EACH OF THE SHARE HOLDERS HAS SOLD THEIR SHARES TO GLAND TR ADING PVT. LTD IN JUNE 1998. THESE SHARES WERE ACQUIRED BY THEM IN M/S PRAG AGRO FARM LIMITED WHEN M/S PRAG AGRO FARM WAS CONVERTED INTO A COMPANY. EACH OF THE SHARE HOLDER S HAS TAKEN THE COST OF ACQUISITION OF THE SHARE TO BE THE VALUE AT WHICH THEY HAVE CONTRIBUTE D LAND IN THE PARTNERSHIP FIRM M/S PRAG AGRO FARM. THE FIRM HAS LEASED OUT THE SAID LAND TO M/S WIMCO GREENS FOR 8 YEARS AND WHATEVER THE LEAST RENT WAS RECEIVED I.E. AMOUNTING TO RS.3 20 50 000/- WHICH WAS SHOWN BY THE FIRM AS ITS INCOME IN THE A.Y. 1998-99 AS ARGUED BY THE LD. A.R . NOT DISPUTED BY THE LD. D.R. THE RENTAL INCOME WAS DULY ASSESSED IN THE HANDS OF THE FIRM. EACH OF THE ASSESSEES HAS ALSO CLAIMED INDEXATION OF THE COST OF ACQUISITION. THE A.O. WA S OF THE VIEW THAT SINCE THE FIRM M/S PRAG AGRO FARM HAS LEASED OUT THE LAND FOR 8 YEARS AND T HE RENT RECEIVED BY THE FIRM ALSO INCLUDES RENT FOR THE PERIOD SUBSEQUENT TO THE YEAR IN WHICH THE RENT WAS RECEIVED THEREFORE THERE REMAINS A LIABILITY TO BE DISCHARGED BY THE FIRM M/S PRAG AGR O FARM AND TO THAT EXTENT THE LIABILITY REMAINS. THE COST OF ACQUISITION WILL GET REDUCED WHICH WILL ULTIMATELY REDUCE THE PARTNERS CAPITAL AND THE FACT WILL BE THAT THE COST OF ACQUISITION OF THE SH ARES IN THE HANDS OF EACH OF THE PARTNERS OF THE ASSESSEE WILL BE REDUCED BY UNEXPIRED LEASE RENTAL. IN OUR OPINION THE APPROACH OF THE A.O. WAS NOT CORRECT. THE FIRM M/S PRAG AGRO FARM HAS DULY RECEIVED THE CONSIDERATION FOR LEASING OUT THE 11 RENT FOR 8 YEARS. THE AMOUNT HAS DULY BEEN ASSESSE D AS ITS INCOME IN THE YEAR IN WHICH THE RENT WAS RECEIVED. 13. THE LD. D.R. COULD NOT FIND OUT ANY PROVISION I N THE LEASE DEED WHICH ENTITLES THE TENANT TO GET THE REFUND FROM THE OWNER UNDER ANY CIRCUMSTANC ES. UNDER THESE FACTS IN OUR OPINION THERE REMAINS NO UNEXPIRED LIABILITY TO BE DISCHARGED BY THE FIRM. THE VALUE OF THE ASSETS OWNED BY THE FIRM REMAINS THE SAME AND THE VALUE OF UNEXPIRE D LEASE RENT HAS NOT TO BE DEDUCTED TO RECOMPUTE THE VALUE OF SHARES. THE CIT(A) HAS GIVE N DETAILED AND EXHAUSTIVE FINDING AFTER APPRECIATING THE FACTS AND THE AGREEMENT. SINCE AT THE TIME OF CONVERSION OF THE FIRM INTO COMPANY THERE REMAINS NO LIABILITY EVEN NO LIABIL ITY CAN BE SAID TO HAVE ACCRUED. IN OUR OPINION THE COST OF ACQUISITION OF THE SHARE CANNO T BE REDUCED IN RESPECT OF LEASE RENT RECEIVED BY THE ASSESSEE FOR UNEXPIRED PERIOD. EVEN WE ALSO NO TED THAT THE PERIOD OF 8 YEARS HAVE ALREADY EXPIRED AND NO DISPUTE ABOUT THE REFUND OF THE LEAS E MONEY HAS ARISEN. THEREFORE THE CIT(A) HAS RIGHTLY HELD THAT NO SCOPE FOR ANY LIABILITY WH ICH COULD BE TAKEN INTO ACCOUNT FOR THE VALUATION OF THE SHARES ARISES. THE A.O. HAS HYPOT HETICALLY REDUCED THE COST OF ACQUISITION BY WORKING OUT THE VALUE OF THE SHARES BY RECASTING TH E BALANCE SHEET AFTER SHOWING THE LIABILITY FOR THE UNEXPIRED PERIOD. THIS APPROACH OF THE A.O. I N OUR OPINION IS NOT CORRECT. M/S. PRAG AGRO FARM LIMITED HAS TAKEN OVER THE ASSETS CONSISTING OF THE LAND VALUED AT RS.3 80 00 200/- AGAINST WHICH IT HAS ISSUED SHARES TO EACH OF THE PERSONS O F THE ERSTWHILE FIRM M/S PRAG AGRO FARM IN WHICH ALL THE FIVE ASSESSEES HAVE CONTRIBUTED THEIR LAND ON 16.07.1996. THE ASSESSMENT OF THE FIRM FOR THE A.Y. 1997-98 WAS NOT REOPENED. THE CA PITAL ACCOUNT OF EACH OF THE OWNERS WERE CREDITED BY THE FOLLOWING AMOUNTS :- 12 SHRI AJAY NARAIN AGRAWAL 1 26 66 670/- SHRI PRAVEEN AGRAWAL 1 05 55 560/- SMT. KIRAN GARG 63 33 330/- SMT. SHOBHA 42 22 220/- SMT. SONAL 42 22 220/- 14. THESE BALANCES IN THE CAPITAL ACCOUNT OF EACH O F THE PARTNERS WERE DULY ACCOUNTED FOR IN THE YEAR ENDED 31.03.1997 AND THE VALUE OF THE LAND WAS ALSO ACCEPTED AT RS.3 80 00 000/-. 15. LD. D.R. HAS NOT DENIED THIS FACT. IT IS ONLY ON 25.04.1997 I.E. DURING THE A.Y. 1998-99 THE FIRM WAS CONVERTED INTO COMPANY WHICH TOOK OVER THIS LAND AND HAS ISSUED THE SHARE IN THE COMPANY TO EACH OF THE PARTNERS TO THE EXTENT THERE WAS BALANCE IN THEIR CAPITAL ACCOUNT. THUS EACH OF THE ASSESSEES GOT THE SHARES IN EXCHANGE OF BALANCE STANDING IN THEIR CAPITAL ACCOUNT. THIS IN OUR OPINION WILL REPRESENT THE COST OF AC QUISITION OF THE SHARES IN THE COMPANY. IN OUR OPINION IT IS NOT A FIT CASE WHICH WARRANT INTERFE RENCE IN THE ORDER OF THE CIT(A). THE CIT(A) HAS RIGHTLY HELD THAT THE ACTION OF THE A.O. WAS NO T CORRECT. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A) DELETING THE CAPITAL GAIN ADDED BY THE A.O. IN THE CASE OF EACH OF THE ASSESSEES. 16. IN THE RESULT ALL THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 27.08.2010). SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 27 TH AUGUST 2010. PBN/* 13 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR ITAT AGRA BENCH AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL AGRA TRUE COPY