Shri Prakashchandra S.Soni,HUF, Ahmedabad V. The ACIT.,Range-2, Ahmedabad

ITA 1081/AHD/2011

• Counselvise Citation: 108120514 RSA 2011
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Principle of natural justice; Cost of acquisition
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI D. K. TYAGI, JUDICIAL MEM BER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.1081/ AHD/2011 (ASSESSMENT YEAR 2008-09) PRAKASHCHANDRA S SONI HUF PROP. SUVARNA MAHAL, OPP. MIRCHI POLE, RATANPOLE, AHMEDABAD VS. ACIT, RANGE 2, AHMEDABAD PAN/GIR NO. : AAFHP0690E (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI S.N.SOPARKAR, SR. ADV. RESPONDENT BY: SHRI ALOK JOHRI, CITDR DATE OF HEARING: 04.08.2011 DATE OF PRONOUNCEMENT: 23.09.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A) XVI, AHMEDABAD DATED 30.03.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS NOS. 1, 2 & 3 ARE INTERCONNECTED WHI CH ARE REPRODUCED AS UNDER: 1. THE ID. CIT (A) HAS ERRED IN LAW AND ON FA CT IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN ADDING RS.45,26,5447/- ON ACCO UNT OF DIFFERENCE IN VALUATION OF CLOSING STOCK AT MARKET VALUE AS AGAIN ST 'COST OR MARKET VALUE WHICHEVER IS LOWER' METHOD CONSISTENTLY FOLLOWED BY THE APPELLANT. LD. CIT (A) OUGHT TO HAVE DELETED TH E ADDITION MADE TO CLOSING STOCK BY AO. 2. BOTH THE LOWER AUTHORITIES HAVE ERRED IN L AW IN APPLYING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF A . L. A. FIRM (189 ITR 285) TO THE FACTS OF THE CASE WITHOUT APPRECIAT ING THAT THE BUSINESS OF THE APPELLANT HAS CONTINUED WITHOUT ANY BREAK I.T.A.NO.1081 /AHD/2011 2 WHATSOEVER. FURTHER THEY HAVE ERRED IN NOT APPRECIA TING THAT THE RATIO OF THE SAID DECISION MAY BE APPLICABLE WHERE FIRM I S DISSOLVED AND THE BUSINESS ALSO IS DISCONTINUED. THE FACTS OF THE CASE ARE SIMILAR TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF SAKTHI TRADING CO. (250 ITR 871) WHEREIN IT WAS HELD THAT THE RATI O OF THE A.L.A. FIRM(SUPRA) WOULD NOT APPLY WHERE THE FIRM IS DISSO LVED BUT BUSINESS IS NOT DISCONTINUED. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, IF IT IS HELD THAT CLOSING STOCK IS REQUIRED TO BE VALUED AT MARKET PRICE IN T HE HANDS OF THE APPELLANT, CORRESPONDING PURCHASE COST IN THE HANDS OF PARTNERSHIP FIRM MAY KINDLY BE INCREASED TO THAT EXTENT TO AVOI D DOUBLE TAXATION. 3. THE BRIEF FACTS IN THIS ISSUE ARE THAT IT WAS NO TED BY THE A.O. IN PARA 3.1 OF THE ASSESSMENT ORDER THAT THE PROPRIETORSHIP CONCERN OF THE ASSESSEE WAS CLOSED ON 24.02.2008. THE A.O. ASKED THE ASSES SEE AS TO WHY THE VALUATION OF THE CLOSING STOCK MAY NOT BE TAKEN AT MARKET VALUE IN VIEW OF THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM VS CIT AS REPORTED IN 189 ITR 255 (S.C.). IN REPLY, I T WAS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT THE ASSESSEE WAS CARR YING ON THE BUSINESS OF JEWELLERY AS PROPRIETORSHIP CONCERN UP TO 24.02.200 8 AND THE SAID PROPRIETORSHIP BUSINESS WAS INTRODUCED TO THE PARTN ERSHIP BUSINESS AND AS SUCH THE BUSINESS WHICH WAS CARRIED OUT AS PROPRIET OR WAS CONTINUED IN THE PARTNERSHIP CONCERN WITH OTHER PARTNERS AS PER COPY OF THE PARTNERSHIP DEED ENCLOSED, WAS THE REPLY SUBMITTED BY THE ASSESSEE B E FORE THE A.O. REGARDING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF A.L.A. FIRM, IT WAS SUBMITTED THAT THIS JUDGMENT IS NOT AP PLICABLE BECAUSE THE FACTS ARE DIFFERENT. IT WAS SUBMITTED THAT IN THE PRESEN T CASE, THE SUBSEQUENT JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SHAKTI TRADING CO. VS ACIT AS REPORTED IN 250 ITR 871 (S.C.) IS APPLIC ABLE. THE A.O. WAS NOT SATISFIED AND HE MADE ADDITION OF RS.45,26,549/- BY HOLDING THAT VALUE OF CLOSING STOCK AS PER MARKET VALUE AS ON 24.02.2008 COMES TO I.T.A.NO.1081 /AHD/2011 3 RS.2,18,94,190/- AS AGAINST THE BOOK VALUE OF THE S AME ON THAT DATE OF RS.1,73,67,646/-. THE A.O. MADE THIS ADDITION BY F OLLOWING THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA F IRM (SUPRA) BY HOLDING THAT THIS JUDGMENT IS SQUARELY APPLICABLE IN THE PR ESENT CASE. REGARDING THE SUBSEQUENT JUDGMENT OF HONBLE APEX CORRUPT RENDERE D IN THE CASE OF SHAKTI TRADING CO., IT WAS HELD BY THE A.O. THAT TH E FACTS OF THAT CASE ARE QUITE DIFFERENT AND HENCE, THIS JUDGEMENT OF HONBL E APEX COURT IS NOT APPLICABLE IN THE PRESENT CASE. BEING AGGRIEVED, T HE ASSESSEE CARRIED THE MATTE IN APPEAL BEFORE CIT(A) BUT WITHOUT SUCCESS A ND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSE SSEE THAT IN THE FACTS OF THE PRESENT CASE, THE JUDGMENT OF HONBLE APEX C OURT RENDERED IN THE CASE OF SHAKTI TRADING CO. (SUPRA) IS APPLICABLE AND THE OTHER DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) IS NOT APPLICABLE AS THE FACTS ARE DIFFERENT. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME ARGUMENTS WHICH WERE RAISED ON THIS ISSUE BEFORE TH E LD. CIT(A) INCLUDING RELIANCE PLACED ON THE JUDGMENT OF HONBLE MADRAS H IGH COURT RENDERED IN THE CASE OF M. KATHIRESAN AS REPORTED IN 285 ITR 20 6 (MAD.). 5. LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. RELIANCE WAS ALSO PLACED BY HIM ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DLF UNIVERSAL LTD. AS REPORTED IN 128 TTJ (DEL.) (S.B.) 121 AND ALSO ON THE JUDGEMENT OF HON' BLE HIGH COURT OF BOMBAY RENDERED IN THE CASE OF CIT VS AN NARAYAN AS SOCIATES AS REPORTED IN 265 ITR 346 (BBY.). RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF KARNATAKA HIGH COURT RENDERED IN THE CASE OF SUVARD HAN VS CIT AS REPORTED IN 287 ITR 404 (KARNATAKA) AND ALSO ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF ACIT VS DD INTERNATIONAL (GLOBAL) AS RE PORTED IN 125 TTJ (AMRITSAR) 112 AND ON THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL I.T.A.NO.1081 /AHD/2011 4 RENDERED IN THE CASE OF ACIT VS G H REDDY AND ASSOC IATES AS REPORTED IN 120 TTJ (CHENNAI) 89. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. THERE IS NO DISPUTE REGARDING THE FACTS. THIS IS THE ADMITTE D POSITION OF THE FACT THAT THE PRESENT ASSESSEE (HUF) WAS CARRYING ON BUSINESS AS PROPRIETORSHIP CONCERN IN THE NAME AND STYLE OF M/S. SUVARNAMAHAL TILL 24. 02.2008. FROM 25.02.2008, THE SAME BUSINESS WAS TAKEN OVER BY THE PARTNERSHIP FIRM IN THE SAME NAME M/S. SUVARNA MAHAL AND THE ASSESSEE (HUF) WAS A PARTNER IN THE SAID FIRM FORM 25.02.2008 HAVING 25% SHARE IN THE P ROFITS OF THE SAID FIRM. THERE WERE THREE MORE PARTNERS OUT OF WHICH ONE WAS THE KARTA OF THIS HUF IN HIS INDIVIDUAL CAPACITY AND THE REMAINING TWO PA RTNERS WERE MAJOR SONS OF THE KARTA OF THIS ASSESSEE HUF. ALL THE FOUR PARTN ERS WERE HAVING 25% SHARE EACH IN THE PROFITS OF THE NEW FIRM CONSTITUTED FOR M 25.02.2008. THE CLOSING STOCK AS ON 24.02.2008 WAS TAKEN OVER BY THE SAID F IRM AT BOOK VALUE. THE CLAIM OF THE ASSESSEE IS THAT THIS JUDGMENT OF HON BLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) IS NOT APPLICABLE I N THE PRESENT CASE AND INSTEAD OF THIS, THE SUBSEQUENT JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SHAKTI TRADING CO.(SUPRA) IS APPLICABLE IN THE PRESENT CASE WHEREAS THE CASE OF THE A.O. IS THAT THE SUBSEQUENT JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SHAKTI TRADING C O.(SUPRA) IS DISTINGUISHABLE ON FACTS AND HENCE, NOT APPLICABLE IN THE PRESENT CASE WHEREAS EARLIER DECISION OF THE HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) IS IDENTICAL AND HENCE, APPLICABLE IN THE PRESENT CASE. RELIANCE WAS ALSO PLACED BY THE LD. A.R. ON A JUDGM ENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS M KATHIRE SAN (SUPRA) IN WHICH THE JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF ALA FIRM VS CIT 102 ITR 622 WAS CONSIDERED AND THE JUDG EMENT OF HONBLE I.T.A.NO.1081 /AHD/2011 5 APEX COURT IN THAT CASE WAS NOT CONSIDERED BUT THE SUBSEQUENT JUDGMENT RENDERED IN THE CASE OF SHAKTI TRADING CO.(SUPRA) W AS DULY CONSIDERED. SINCE THE EARLIER JUDGEMENT OF HONBLE APEX COURT I N THE CASE OF ALA FIRM (SUPRA) WAS NOT CONSIDERED IN THE CASE OF CIT VS M A KATHIRESAN (SUPRA), WE FEEL THAT WE HAVE TO FIRST DECIDE AS TO WHETHER THIS JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) IS APPLICABLE IN THE PRESENT CASE OR THE SUBSEQUENT DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF SHAKTI TRADING CO. (SUPRA) IS APPLICABL E. 7. WHEN WE GO THROUGH THESE TWO JUDGEMENTS OF HONB LE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) AND IN THE CASE OF SHAKTI TRDING COMPANY (SUPRA), WE FIND THAT THERE IS NO INCONSIST ENCY IN THESE TWO JUDGEMENTS AND THE SAME WERE RENDERED IN TWO DIFFER ENT SET OF FACTS AS HAS BEEN NOTED BY HONBLE APEX COURT ITSELF ON PAGE 878 OF 250 ITR, WHICH IS THE JUDGEMENT RENDERED IN THE CASE OF SHAKTI TRADIN G COMPANY (SUPRA). THIS PARA OF THE JUDGMENT OF HONBLE APEX COURT REN DERED IN THE CASE OF SHAKTI TRADING CO. (SUPRA) IS REPRODUCED BELOW: FROM THE ABOVE, IT IS EVIDENT THAT IN A. L. A. FIR M'S CASE [1991] 189 ITR '285, THIS COURT WAS CONSIDERING THE QUESTION O F VALUATION OF CLOSING STOCK AT MARKET VALUE IN A CASE WHERE THERE WAS DISSOLUTION AND ALSO DISCONTINUANCE OF THE BUSINESS OF THE FIRM . IN THAT CASE AFTER DISSOLUTION, TWO GROUPS WERE CARRYING ON SEPARATE B USINESSES WITH THE ASSETS AND LIABILITIES WHICH FELL TO THEIR SHARES F ROM THE DISSOLUTION OF THE FIRM. IN THE PRESENT CASE, HOWEVER, THOUGH THER E WAS DISSOLUTION ON ACCOUNT OF THE DEATH OF ONE OF THE PARTNERS, THERE WAS NO DISCONTINUANCE OF THE BUSINESS. THE UNCHALLENGED FI NDING RECORDED BY THE TRIBUNAL IS THAT THERE WAS NO DISCONTINUANCE OF BUSINESS. EVEN AS PER PRINCIPLES LAID DOWN IN A. L A. FIRM'S CASE [19 91] 189 ITR 285 (SC) IN SUCH A CASE THE CLOSING STOCK IS TO BE VALU ED AT THE COST OR MARKET PRICE, WHICHEVER IS LOWER. THAT IS AN ESTABL ISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. THE HIGH COURT WAS CLEARLY IN ERROR IN RELYING UPON THE DECISIONS OF THE MADRAS H IGH COURT IN THE CASES OF G.R. RAMACHARI AND CO.'S CASE [19(51] 41 I TR 142 AND A. L A. FIRM'S CASE [1976] 102 ITR 622 FOR COMING TO THE CONCLUSION THAT I.T.A.NO.1081 /AHD/2011 6 ASSETS HAD TO BE VALUED AT MARKET VALUE. AS ALREAD Y NOTICED, IN THE PRESENT CASE, THERE WAS NO CESSATION OF BUSINESS AN D, THEREFORE, THE CLOSING STOCK COULD NOT BE DIRECTED TO BE VALUED AT THE MARKET RATE. 8. FROM THE ABOVE PARA OF THE JUDGMENT OF HONBLE A PEX COURT RENDERED IN THE CASE OF SHAKTI TRADING CO. (SUPRA), WE FIND THAT IT IS NOTED BY THE HONBLE APEX COURT THAT IN THE CASE OF ALA FIRM (SU PRA), THERE WAS DISSOLUTION AND DISCONTINUANCE OF THE BUSINESS OF T HE FIRM AND AFTER DISSOLUTION, TWO GROUPS WERE CARRYING ON SEPARATE B USINESSES WITH THE ASSETS AND LIABILITIES WHICH FELL TO THEIR SHARES FROM THE DISSOLUTION OF THE FIRM. BUT IN THE CASE OF SHAKTI TRADING CO. (SUPRA), IT IS A FINDING GIVEN BY THE TRIBUNAL IN THAT CASE THAT THERE WAS NO DISCONTINUA NCE OF BUSINESS AND HENCE, EVEN AS PER THE PRINCIPLES LAID DOWN IN ALA FIRM (S UPRA) CASE, CLOSING STOCK IS TO BE VALUED AT THE COST OR MARKET PRICE, WHICHE VER IS LOWER. HENCE, ASCERTAINING OF THE FACTUAL POSITION IS RELEVANT AS TO WHETHER IN THE PRESENT CASE, BUSINESS OF THE ASSESSEE HAS BEEN DISCONTINUE D OR NOT. WHEN WE EXAMINE THE FACTS OF THE PRESENT CASE, WE FIND THAT TILL 24.02.2008, THE BUSINESS WAS BEING RUN BY THE ASSESSEE (HUF) AS A S OLE PROPRIETOR AND FROM 25.02.2008, THE BUSINESS WAS TAKEN OVER BY A NEW FI RM IN WHICH THE ASSESSEE IS ALSO A PARTNER HAVING SHARE OF 25%. HENCE, IN O UR CONSIDERED OPINION, SO FAR THE ASSESSEE (HUF) IS CONCERNED, THE BUSINESS H AS DISCONTINUED AND THEREFORE, THE FACTS ARE SIMILAR TO THE FACTS IN TH E CASE OF ALA FIRM (SUPRA) AND, THEREFORE, THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) IS APPLICABLE IN THE PRESENT CASE. THE FACTS IN THE CASE OF LATER DECISION OF HONBLE APEX COURT RENDERED IN TH E CASE OF SHAKTI TRADING COMPANY (SUPRA), ARE DIFFERENT. IN THAT CASE, THER E WAS NO DISCONTINUANCE OF THE BUSINESS BECAUSE OUT OF THE TOTAL SIX PARTNERS OF THE ASSESSEE FIRM, ONE PARTNER EXPIRED AND THE ASSESSEE FIRM WAS RECONSTIT UTED WITH THE REMAINING FIVE PARTNERS WITHOUT ANY DISCONTINUANCE OF THE BUS INESS OF THE ASSESSEE FIRM. I.T.A.NO.1081 /AHD/2011 7 HENCE, IN THAT CASE, THERE WAS ONLY RECONSTITUTION OF THE ASSESSEE FIRM AND THERE WAS NO DISCONTINUANCE OF THE BUSINESS OF THE ASSESSEE FIRM WHEREAS, IN THE PRESENT CASE, SO FAR THE PRESENT ASSESSEE (HUF) IS CONCERNED, THE BUSINESS HAS BEEN DISCONTINUED BECAUSE THE ASSESSEE DOES NOT HAVE ANY BUSINESS W.E.F. 25.02.2008 AND FROM THIS DATE, THE BUSINESS IS OWNE D BY A NEW FIRM OF WHICH THE ASSESSEE IS ONLY A PARTNER HAVING 25% SHARE OF THE PROFIT AND THEREFORE, IN OUR CONSIDERED OPINION, THE BUSINESS OF THE ASSESSE E (HUF) HAS BEEN DISCONTINUED AND THEREFORE, THIS LATER JUDGEMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF SHAKTI TRADING CO. (SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE. 9. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT THE I SSUE IN THE PRESENT CASE IS COVERED AGAINST THE ASSESSEE BY THE JUDGEME NT OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA). THE JUDG MENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS M KATAHIR ESAN (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE IS NOT RELEVANT BE CAUSE IN THAT JUDGMENT, THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA) WAS NOT CONSIDERED AND IN THE PRESENT CASE, WE ARE FOLLOWING THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA). BY RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HONBLE AP EX COURT RENDERED IN THE CASE OF ALA FIRM (SUPRA), WE HOLD THAT NO INTERFERE NCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, GR OUNDS NO.1 & 2 OF THE ASSESSEE ARE REJECTED. REGARDING GROUND NO.3, WE F EEL THAT THIS CLAIM MAY BE RAISED BY THE FIRM BEFORE ITS A.O. BUT IN THE PRESE NT CASE, NO SUCH DIRECTION CAN BE GIVEN BECAUSE THAT ASSESSEE IS NOT BEFORE US . 10. GROUNDS NO. 4 & 5 ARE INTERCONNECTED WHICH ARE REPRODUCED AS UNDER: 4. THE ID. CIT (A) HAVE ERRED IN LAW AND ON F ACTS IN CONFIRMING ADDITION MADE BY ASSESSING OFFICER OF RS . 5,00,00,000/- UNDER THE PROVISIONS OF SECTION 28 (VA) OF THE ACT. BOTH THE LOWER AUTHORITIES HAVE I.T.A.NO.1081 /AHD/2011 8 FAILED TO CONSIDER THE FACT THAT 'TRADE MARK' HAS B EEN VALUED BY THE PARTNERSHIP FIRM AND NOT BY THE APPELLANT AS IS APP ARENT FROM THE AUDITED ACCOUNTS OF THE APPELLANT AS ON 24/02/2008. THE PROVISIONS OF SECTION 28 (VA) ARE TOTALLY MISPLACED IN ABSENCE OF ANY RECEIPT ON ACCOUNT OF EITHER NON COMPETE FEES OR USAGE OF EXCL USIVITY OF RIGHTS BY THE APPELLANT. LD. CIT (A) OUGHT TO HAVE DELETED TH E ADDITION MADE BY AO UNDER WRONG PROVISIONS OF LAW. 5. THE ID. CIT (A) HAS FURTHER ERRED IN LAW A ND ON FACTS IN HOLDING THAT THERE WAS A COLLUSION IN MANAGING THE AFFAIRS OF THE NEWLY CONSTITUTED FIRM AND THAT THERE WAS A GOODWILL THAT WAS TRANSFERRED BY THE APPELLANT HUF WITHOUT ANY CHARGE WHICH BECAM E TAXABLE CONSIDERING THE COST THEREOF TO BE NIL IN TERMS OF PROVISIONS OF SECTION 55(L)(B)(L) OF THE ACT. LD. CIT (A) HAS GROSSLY ERR ED IN CONFIRMING THE ADDITION ON ALTOGETHER NEW GROUND THAT WAS NEVER THE CASE OF AO WITHOUT GRANTING ANY OPPORTUNITY TO THE APPELLANT. THIS ACTION OF ID. CIT (A) BEING BAD, PERVERSE AND AGAINST THE PRINCIP LES OF NATURAL JUSTICE DESERVES TO BE QUASHED. 11. THE BRIEF FACTS OF THE CASE ARE THAT IT IS NOTE D BY THE A.O. IN PARA 4.1 OF THE ASSESSMENT ORDER THAT THERE IS AN ENTRY MADE IN THE BOOKS OF ACCOUNTS OF THE PARTNERSHIP FIRM FOR TRADE MARK RIGHT THE VALUA TIONS OF WHICH IS OPENED AT RS.5 CRORES. VIDE ORDER SHEET ENTRY DATED 22.10.20 10, THE A.O. ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF ENTRY MADE IN THE CASE OF PARTNERSHIP FIRM OF RS.5 CRORES WRITTEN AS TRADE MARK. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT THE BALANCE SHEET OF PARTNERSHIP FIRM M/S. SWARNMAHAL AS ON 31.03.2008 IS ENCLOSED AND THE ASS ESSEE HAS ALSO ENCLOSED THE COPY OF THE REPLY OF THE PARTNERSHIP FORM ON TH IS ISSUE. THE RELEVANT PORTION OF SUCH REPORT OF PARTNERSHIP FIRM HAS BEEN REPRODUCED BY THE A.O. ON PAGE 9 OF THE ASSESSMENT ORDER. IN THIS REPLY, IT WAS STATED BY THE SAID PARTNERSHIP FIRM THAT THE VALUE OF THE TRADE MARK S HOWN IN THE BALANCE SHEET IS THE VALUE OF TRADE MARK ACCOUNTED FOR IN THE BOO KS OF THE FIRM BY MAKING CORRESPONDING CREDITS IN THE PARTNERS CAPITAL ACCO UNTS. AFTER RECEIPT OF THE REPLY, THE A.O. RAISED FURTHER QUERY AND ASKED THE ASSESSEE TO GIVE THE BASIS I.T.A.NO.1081 /AHD/2011 9 OF VALUATION OF THE TRADE MARK, COPY OF THE AGREEME NT ENTERED INTO FOR TRANSFER OF SUCH TRADE MARK OF THE PARTNERSHIP FIRM AND DETAILS OF COMPENSATION WHICH IS RECEIVED ON THE TRANSFER OF T RADE MARK. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT THE ACTUAL PROPERTY HAD NOT BEEN VALUED AND THE TRADE MARK AND, THEREFORE, BASIS OF VALUATION IS NOT GIVEN. IT AS ALSO SUBMITTED THAT THE ASSESSEE HU F HAD NOT ENTERED INTO ANY AGREEMENT WITH THE PARTNERSHIP FIRM M/S. SUVARNAMAH AL FOR ASSIGNMENT/TRANSFER OF TRADE MARK AND SINCE THERE I S NO QUESTION OF SUBMITTING COPY THEREOF. IT WAS ALSO SUBMITTED T HAT NO COMPENSATION HAS BEEN RECEIVED FOR THIS TRADE MARK. THE A.O. WAS NO T SATISFIED AND RAISED FURTHER QUERY ON THIS ISSUE. IN FURTHER REPLY, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT THE HUF HAS NOT SHOWN ANY TRAN SFER OF TRADE MARK INCLUDING RELINQUISHMENT THEREOF OR ANY RIGHT THERE OF IN ITS BOOKS AND HENCE IT WAS DENIED THAT ASSESSEE HUF HAVE SHOWN IN ITS R ECORDS TRANSFER OF TRADE MARK FOR RS.5 CRORES. REGARDING THE BASIS OF VALUA TION OF TRADE MARK, IT WAS AGAIN SUBMITTED THAT SINCE THE ASSESSEE HUF HAS NOT GOT TRADE MARK VALUED, THE ASSESSEE HUF DOES NOT KNOW ABOUT THE BASIS OF V ALUATION OF THE TRADE MARK. THE A.O. INVOKED THE PROVISIONS OF SECTION 28(VA) AND MADE ADDITION OF RS.5 CRORES. BEING AGGRIEVED, THE ASSE SSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) BUT THIS ISSUE WAS ALS O DECIDED BY THE LD. CIT(A) AGAINST THE ASSESSEE AND NOW, THE ASSESSEE I S IN FURTHER APPEAL BEFORE US. 12. IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASS ESSEE THAT LD. CIT(A) HAD GIVEN A NEW DECISION TO THE ENTIRE ISSUE AND IT WAS HELD BY HIM THAT THE ASSETS IN QUESTION FOR THE VALUE OF RS.5 CRORES HAS BEEN ACCOUNTED FOR BY THE PARTNERSHIP FIRM ON 31.03.2008 IS GOODWILL AND NOT TRADEMARK. IT WAS HIS SUBMISSION THAT THIS REALLY DOES NOT CHANGE THE ISS UE IN DISPUTE BECAUSE WORTH IT TAKEN AS TRADE MARK OR AS GOODWILL, THE EN D RESULT WILL BE THE SAME I.T.A.NO.1081 /AHD/2011 10 BECAUSE THE PROVISIONS OF SECTION 55(1B) REGARDING ADOPTING NIL VALUE TO THE COST OF ACQUISITION FOR THE PURPOSE OF COMPUTAT ION OF CAPITAL GAIN IS APPLICABLE FOR BOTH THESE ITEMS I.E. GOODWILL AND T HE TRADE MARK. IT WAS HIS SUBMISSION THAT THE ISSUE HAS TO BE DECIDED ON THIS BASIS THAT THE PROVISIONS OF SECTION 45(3) ARE NOT APPLICABLE IN THE PRESENT CASE BECAUSE NO VALUE HAS BEEN ACCOUNTED FOR REGARDING THIS ASSET I.E. TRADE MARK/GOODWILL ON THE DATE OF ITS TRANSFER I.E. 25.03.2008 AND THE SUBSEQUENT VALUE GIVEN BY THE PARTNERS FOR THE SAME IN THE BOOKS AS ON 31.03.2008 IS NOT R ELEVANT FOR THE PURPOSE OF DECIDING THE TAXABILITY U/S 45(3). RELIANCE WAS PL ACED BY HIM ON THE BOARDS CIRCULAR NO.495 DATED 22.09.1997 WHICH IS EXPLANATO RY NOTE ON THE PROVISIONS OF THE FINANCE ACT 1987 AS PER WHICH, TH E PROVISIONS OF SECTION 45(3) WERE INSERTED IN THE INCOME TAX ACT. OUR ATT ENTION WAS DRAWN TO PARA 24.1 TO 24.2 OF THIS BOARDS CIRCULAR AS PER WHICH, IT WAS SPECIFIED THAT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN THE VALU E RECORDED IN THE BOOKS OF THE FIRM ON THE DATE OF TRANSFER SHOULD BE DEEMED T O BE THE VALUE OF THE CONSIDERATION RECEIVED AND ACCRUED AS A RESULT OF T RANSFER OF CAPITAL ASSET. IT WAS HIS SUBMISSIONS THAT THE RELEVANT DATE OF TRANS FER IS 25.03.2008 AND HENCE NO VALUE WAS RECORDED IN THE BOOKS OF THE FIR M ON THAT DATE, SECTION 45(3) IS NOT APPLICABLE WITH REGARD TO THE SUBSEQUE NT ENTRIES RECORDED IN THE BOOKS OF THE FIRM ON 31.03.2008. 13. THE LD. D.R. OF THE REVENUE SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. FIRST OF ALL, WE REPRODUCE THE PROVISIONS OF SUB-SECTION (3) OF S ECTION 45, WHICH ARE RELEVANT FOR DECIDING THE ISSUE BEFORE US. THE SAM E IS AS UNDER: 45 (3) : THE PROFITS OR GAINS ARISING FROM THE T RANSFER OF A CAPITAL ASSET BY A PERSON TO A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF I.T.A.NO.1081 /AHD/2011 11 INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) IN WHICH HE IS OR BECOMES A PARTNER OR MEMBER, BY WAY OF CAP ITAL CONTRIBUTION OR OTHERWISE, SHALL BE CHARGEABLE TO TAX AS HIS INC OME OF THE PREVIOUS YEAR IN WHICH, SUCH TRANSFER TAKES PLACE AND, FOR T HE PURPOSES OF SECTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACC OUNT OF THE FIRM, ASSOCIATION OR BODY AS THE VALUE OF THE CAPITAL ASS ET SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. 15. FROM THE ABOVE PROVISIONS OF SUB-SECTION (3) OF SECTION 45, WE FIND THAT THE SAME IS APPLICABLE WHEN A CAPITAL ASSET IS TRANSFERRED BY A PERSON TO A FIRM OF WHICH HE IS A PARTNER AT THE TIME OF BECOMI NG PARTNER OR WHEN HE IS CONTINUING AS A PARTNER AND HENCE, EVEN IF THE ASSE T IN QUESTION IS TRANSFERRED BY THE ASSESSEE (HUF) TO THE PARTNERSHIP FIRM ON 31 .03.2008, THE PROVISIONS OF SECTION 45(3) ARE APPLICABLE. THE ARGUMENT OF L D. COUNSEL FOR THE ASSESSEE IS THIS THAT SINCE NO VALUE WAS ASSIGNED BY THE PAR TNERSHIP FIRM TO THE ASSETS IN QUESTION ON 25.3.2008 BEING THE DATE ON WHICH TH E ASSESSEE (HUF) HAS BECOME THE PARTNER OF THE NEW FIRM, THE PROVISIONS OF SECTION 45(3) ARE NOT APPLICABLE. WE DO NOT FIND ANY MERIT IN THIS ARGUM ENT BECAUSE AS PER THE PROVISIONS OF SUB-SECTION (3) OF SECTION 45 OF THE INCOME TAX ACT, IF AN ASSET IS TRANSFERRED BY A PERSON TO A PARTNERSHIP FIRM IN WHICH HE IS A PARTNER DURING HIS CONTINUATION AS PARTNER OF THE SAID FIRM , THEN ALSO, THE PROVISIONS OF SUB-SECTION (3) OF SECTION 45 ARE APPLICABLE. T HE BALANCE SHEET OF THE ASSESSEE (HUF) AS ON 24.02.2008 IS AVAILABLE ON PAG ES 20-25 OF THE PAPER BOOK AND IN THE SAME, WE FIND THAT THIS ASSET IN QU ESTION I.E. TRADE MARK OR GOODWILL IS NOT APPEARING. THE COPY OF THE PARTNE RSHIP DEED DATED 25.02.2008 IS ALSO APPEARING ON PAGES 15-19 OF THE PAPER BOOK AND ON PAGE 16, IT HAS BEEN STATED IN THE PARTNERSHIP DEED THAT ALL THE ASSETS OF THE BUSINESS OF THE ASSESSEE EXCEPT IMMOVABLE PROPERTY INCLUDING BUSINESS OF M/S. SUVARNA MAHAL AS ON 25.02.2008 AT THE OPENING OF THE BUSINESS SHALL BE CONSIDERED THAT OF THE PARTNERSHIP FIRM AS PER THIS PARTNERSHIP AGREEMENT. IN I.T.A.NO.1081 /AHD/2011 12 OUR CONSIDERED OPINION, AS PER THESE PROVISIONS OF THE PARTNERSHIP DEED, ALL THE ASSETS WHICH ARE APPEARING IN THE BALANCE SHEET OF THE ASSESSEE (HUF) ON THE CLOSE OF THE BUSINESS AS ON 24.02.2008, EXCLUDI NG IMMOVABLE PROPERTY, WERE TAKEN OVER BY THE NEW PARTNERSHIP FIRM BUT SIN CE THERE IS NO MENTION OF TRADEMARK OR GOODWILL IN THE BALANCE SHEET OF THE A SSESSEE (HUF) AS ON 24.02.2008, IT CANNOT BE ACCEPTED THAT THE SAME WAS ALSO TAKEN OVER BY THE NEW FIRM ON 25.02.2008 AT NIL VALUE AS HAS BEEN C ONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US. IN OUR CONSI DERED OPINION, THE ASSETS IN QUESTION I.E. TRADE MARK / GOODWILL WAS TRANSFERRED TO THE NEW FIRM ON 31.03.2008 WHEN THE SAME WAS VALUED AT RS.5 CRORES AND ACCOUNTED FOR BY THE NEW PARTNERSHIP FIRM IN ITS BOOKS OF ACCOUNT AN D HENCE THE SAME IS COVERED BY THE PROVISIONS OF SECTION 45(3) AS REPRO DUCED ABOVE. 16. MUCH RELIANCE HAS BEEN PLACED BY THE LD. COUNSE L FOR THE ASSESSEE ON THE BOARDS CIRCULAR NO.495 DATED 22.09.1997 AS PER WHICH, FOR THE PURPOSE OF CAPITAL GAIN, THE VALUE OF THE ASSETS RECORDED I N THE BOOKS OF THE FIRM ON THE DATE OF TRANSFER, SHOULD BE DEEMED TO BE OF FUL L VALUE OF CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. IT WAS CONTENDED BEFORE US THAT SINCE NO VALUE WAS ASSIGNE D BY THE NEW PARTNERSHIP FIRM TO THE ASSET IN QUESTION ON 25.02.2008, THE SU BSEQUENT VALUATION OF THE ASSET AND ITS ENTRY IN THE BOOKS OF THE FIRM ARE NO T RELEVANT BUT NO EVIDENCE HAS BEEN BROUGHT OUT ON RECORD BEFORE THE AUTHORITI ES BELOW OR BEFORE US TO SHOW THAT THE ASSETS IN QUESTION I.E. TRADEMARK / G OODWILL WAS TRANSFERRED BY THE ASSESSEE (HUF) TO THE NEW PARTNERSHIP FIRM ON 2 5.02.2008 ITSELF. HENCE, THIS BOARDS CIRCULAR IS OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE. MOREOVER, THE BOARDS CIRCULAR CANNOT OVERRIDE THE PROVISION OF THE ACT AND AS PER THE PROVISIONS OF SUB-SECTION (3) OF SECTION 45 OF THE INCOME TAX ACT, IT IS NOT RELEVANT AS TO WHETHER THE ENTRY IN THE B OOKS OF THE FIRM WAS PASSED ON THE DATE OF TRANSFER OR ON A SUBSEQUENT DATE. T HE ONLY REQUIREMENT IS THAT I.T.A.NO.1081 /AHD/2011 13 THE AMOUNT RECORDED IN THE BOOKS OF THE FIRM AS THE VALUE OF THE CAPITAL ASSET SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATI ON RECEIVED OR ACCRUED AS A RESULT OF TRANSFER OF THE CAPITAL ASSET AND HENCE, EVEN IF THE ASSET WAS TRANSFERRED ON 25.02.2008 BUT ENTRY IN THE BOOKS OF THE FIRM WERE MADE ON 31.03.2008, THE PROVISIONS OF SUB-SECTION (3) OF SE CTION 45 ARE APPLICABLE AND THE BOARDS CIRCULAR CANNOT OVERRIDE THE PROVIS IONS OF THE ACT. 17. REGARDING THE ALTERNATIVE CONTENTION OF THE ASS ESSEE THAT EVEN IF IT IS HELD THAT THE PROVISIONS OF SUB-SECTION (3) OF SECT ION 45 ARE APPLICABLE, THE FULL AMOUNT OF RS.5 CRORES CANNOT BE TAXED IN THE H ANDS OF THE ASSESSEE BECAUSE ONLY RS.1.25 CRORES WAS CREDITED TO THE CAP ITAL ACCOUNT OF THE ASSESSEE (HUF), WE FEEL THAT THIS ARGUMENT OF THE L D. COUNSEL FOR THE ASSESSEE IS ALSO DEVOID OF ANY MERIT BECAUSE AS PER THE PROVISIONS OF SUB- SECTION (3) OF SECTION 45, WHAT IS RELEVANT IS THE AMOUNT RECORDED IN THE BOOKS OF THE FIRM AS THE VALUE OF THE CAPITAL ASSET AND THE SAME HAS TO BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIV ED OR ACCRUED AS A RESULT OF TRANSFER OF THE CAPITAL ASSET AND IT IS NOT REQU IRED THAT THE SAME SHOULD BE CREDITED TO THE CAPITAL ACCOUNT OF THE CONCERNED PA RTNER. HENCE, IN OUR CONSIDERED OPINION, EVEN IF NO AMOUNT IS CREDITED T O THE CAPITAL ACCOUNT OF THE ASSESSEE (HUF) AND THE ENTIRE AMOUNT IS CREDITE D TO RESERVE ACCOUNT OR TO SOME OTHER ACCOUNT, THEN ALSO, THE ENTIRE AMOUNT OF THE ASSETS IN QUESTION RECORDED IN THE BOOKS OF THE FIRM HAS TO BE CONSIDE RED AS A CONSIDERATION RECEIVED AND ACCRUED AS A RESULT OF TRANSFER OF THE CAPITAL ASSET AND, THEREFORE, IN OUR CONSIDERED OPINION, THE A.O. HAS RIGHTLY MAD E THE ADDITION IN THE PRESENT CASE OF THE ENTIRE AMOUNT OF RS.5 CRORES AT WHICH THE ASSET IN QUESTION WAS ACCOUNTED FOR BY THE FIRM IN ITS BOOKS . 18. IN VIEW OF THE ABOVE DISCUSSION, WE FIND THAT N O INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO A ND HENCE, GROUNDS NO.4 & 5 OF THE ASSESSEE ARE ALSO REJECTED. I.T.A.NO.1081 /AHD/2011 14 19. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DI SMISSED. 20. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEP., 2011. SD./- SD./- (D.K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 23.09.2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 19/9 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/9 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 22/09 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 23/09 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.23/09 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23/09/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..