B. C. PATEL, D. A. MEHTA, J.

( 1 ) THE applicant-assessee had proposed the following four questions of law under Section 256 (1) of the Income Tax Act,1961 (hereinafter referred to as the Act) :1 "whether, on the facts and in circumstances of the case the Tribunal was right in law in invoking the provision of explanation 3 to Sec. 43 (1) of the I. T. Act,1961 inspite of fact that the provisions were not invoked by the authorities below ?"2 "whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of Sec. 43 (1) expl. 3 of I. T. Act,1961 were applicable to the facts of the case inspite of fact that sufficient evidences like valuation report, dissolution deed etc. , in support of valuation of assets were before the Tribunal ?"3 "whether, on the facts and in the circumstances of the case, Tribunal was right in law in holding that onus of establishing that the purpose of transaction was to reduce the tax liability was discharged by the department ?"4 "whether, on the facts and in circumstances of the case, the Tribunal was right in law in holding that the original cost of the assets of the dissolved firm without ascertaining the market value of the assets on the date of dissolution ?"

( 2 ) HOWEVER, the Income Tax Appellate Tribunal, Ahmedabad Bench, "c" has raised and referred the following question, which in its opinion takes within its sweep all the aspects raised by the proposed question :"whether, on the facts and circumstances of the case, and having regard to the relevant provisions of the Income-tax Act,1961, the assessee was entitled to claim depreciation on the enhanced value of the assets ?"

( 3 ) THE assessee is a Private Limited Company carrying on business of manufacturing vegetable ghee and various types of oil. The assessment years are 1980-81 and 1981-82 and the relevant accounting periods are years ended on 30/6/1979 and 30/6/1980 respectively.

( 4 ) THE controversy arises in backdrop of the following circumstances :[a] Certain members of Thakkar Family entered into a partnership on 28/10/1961 to carry on business in the name of M/s. Ashwin Vanaspati Industries (hereinafter referred to as the firm ). The firm carried on business with minor changes in the constitution from time to time till October,1976. [b] On 21/10/1976 the applicant assessee was incorporated with all the shareholders being erstwhile partners viz. belonging to Thakkar Group. [c] On 24/10/1976 the applicant entered into a partnership with Thakkar Group and joined the running business of the firm M/s. Ashwin Industries. [d] On 30/7/1978 the firm got various assets valued by one Shri R. M. Sheth, a registered valuer. [e] On 5/8/1978 all the shares held by Thakkar Group of the assessee Company were transferred to one Patel Group and Thakkar Group gave up the control and management of the applicant. [f] On 6/8/1978 the partners of the firm entered into a dissolution deed which was made effective from 31/7/1978.

( 5 ) THEREAFTER, the assessee Company filed return of income on 30/6/1980 showing loss of Rs. 21,45,604. 00 for assessment year 1980-81. In the return of income filed by the assessee Company depreciation was claimed on enhanced value of factory building, residential building and plant and machinery, as according to the assessee Company that was the actual cost incurred by the assessee for acquiring the said assets. The Income Tax Officer held that the dissolution of the firm which had taken place during the accounting period was just a method to defraud the revenue by transferring all assets of the firm to the assessee company and this device was adopted for the purpose of claiming higher depreciation. The reasons which weighed with the income tax for arriving at this conclusion were :[i] The assessee Company had been incorporated with the main object of " to acquire and take over from Ashwin Industries, a partnership concern, land and Bldg. , and all other assets". [ii] All machine

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