JUDGMENT
1. On a Misc. Appln. No. 44 of 1999 in DB IT Ref. No. 33 of 1983, this Court has recalled its main order dt, 20th Jan., 1995, which includes the order dt. 11th July, 1995, whereby some correction has been made in the order dt. 20th Jan., 1995. After recalling the order dt. 20th Jan., 1995, we hear this reference afresh.
2. In the reference under Section 256(1), the Tribunal has referred the following questions for our opinion:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that scope of assessments made by the ITO in pursuance of the directions issued under Section 250 of the IT Act by the AAC was limited and the ITO was not competent to include in the taxable income the amount of Rs. 4,29,593 when at the time of original assessment, the same was not included?”
“If the answer to the above question is in the negative, whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 4,29,593 made by the ITO on account of profit after the amalgamation of the companies by adopting the cost of the shares in the trading account at Rs. 5,33,333 against the value of the closing stock thereof at Rs. 11,26,923 taken by the assesses?”
3. There were two companies, viz., Shree Vijay Laxmi Trading Co. Ltd., Pali and the Eastern Trading Syndicate (P) Ltd., which were amalgamated with the assessee-company during the relevant previous year.
4. The assets worth Rs. 8,19,418 of Shree Vijay Laxmi Trading Company Ltd. were taken over and against that shares of the value of Rs. 5,00,000 were issued to the amalgamating company. The balance of Rs. 3,19,418 was transferred by the assessee-company to the credit of its capital reserve account.
5. Similarly the assets of Eastern Trading Syndicate (P) Ltd. were taken over. The net worth of assets was amounted to Rs. 1,39,330 against which the assessee-company had issued the shares to the tune of Rs. 33,333 to the amalgamating-company. The balance of Rs 1,05,997 was transferred by the assessee-company to the credit of its capital reserve account.
6. In the original assessment, the assessee claimed that by taking over the asset of the company, allotment of share against that is not a transfer for the purpose of Section 45 of the IT Act. Especially he referred Clause (vi) of Section 47. That was accepted by the AO in the original assessment. But there was a dispute as to whether on transfer of some other asset, provision of Section 52(2) can be invoked.
7. While the assessee challenged the action of the AO invoking the provisions of Section 52(2) can be invoked., the AAC has remitted the matter back directing the AO to make further detailed enquiry and make the assessment de novo.
8. While making the assessment de novo, the AO has not only touched that particular asset, which was in dispute before the AAC, but he has also touched the issue regarding the profit on amalgamation, whether that be treated a transfer or not under Section 45 of the Act.
9. The assessee challenged this action of the ITO again in appeal before CIT(A) that when there was no direction to the AO to reopen the issue of profit on amalgamation and the taking over of the asset in consequence of the amalgamation of two companies in the assessee-company, whether provision of Clause (vi) of Section 47 is attracted or not and held that taken over of assets by assessee is transfer.
10. The CIT(A) has allowed the appeal holding that when there was no such issue before the AAC in the first round in appeal nor there was any direction by the AAC to consider the issue whether taken over of the asset is a transfer under Section 45 of the Act, the AO was not justified and appeal was allowed.
11. The view taken by the CIT(A) has been affirmed by the Tribunal holding that there was no direction by the AAC to the AO to reopen the issue as to whether on amalgamation the assets taken over by the assessee-company should be treated as transfer or not for the purpose of Section 45 of the Act.
12. Heard learned counsel for the parties.
13. Mr. Kasliwal, learned counsel for the assessee submits that similar issue has been considered by this Court in the case of CIT v. Lal Chand Agarwal (2002) 259 ITR 497 (Raj), wherein this Court has taken the view that the power of the AO is limited in giving affect to the order of the CIT(A) or AAC. The AO cannot go beyond the direction in reframing of the assessment in consequence of the direction of the appellate authority.
14. In the case in hand, in order dt. 17th Feb., 1976, the issue before the AAC was regarding the computation of capital gain at Rs. 1,13,000, which the ITO has refused to allow deduction for repairs under Section 24(1) of the IT Act, inclusion of the rent. There was no issue before the AAC at that time that by taking over the assets of two companies by the assessee-company on amalgamation whether that should be a transfer under Section 45 of the Act nor any direction has been given by the AAC in that order. The direction given was that the assessment is set-aside for the purpose of recomputing the capital gains after affording the proper opportunity to the assessee.
15. When there was no direction by the AAC to the AO to touch the issue whether on amalgamation, the assets taken over by the assessee-company be treated as transfer for the purpose of Section 45 of the Act, we agree with the Tribunal that AO has committed the mistake touching that issue, which was not before the AAC nor any direction has been given by the AAC to this effect.
16. In the result, we answer the question No. 1 in affirmative, i.e., in favour of the assessee and against the Revenue.
17. As we have answered question No. 1 in affirmative, question No. 2 need not be answered.
18. The reference so made stands disposed of accordingly.