M/s.Kaycees Tourist Home, Kottayam V. The ACIT, Kottayam

ITA 13/COCH/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6270 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 01-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-01-2014
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Keywords: Business expenditure; Principle of natural justice; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 13 /COCH/2014 ASSESSMENT YEAR : 2006-07 M/S. KAYCEES TOURIST HOME, YMCA ROAD, KOTTAYAM-1. [PAN:AAEFK 6419R] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI MATHEW JOSEPH, CA REVENUE BY SHRI K.K. JOHN, SR. DR DATE OF HEARING 01/05//2014 DATE OF PRONOUNCEMENT 02/05/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 12.11.2013 PASSED BY LD CIT(A)-IV, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS URGED FOUR GROUNDS BEFORE US. THE LD A.R, DURING THE COURSE OF HEARING, DID NOT PRESS THE GROUND NO.1 AND HENCE THE SAME IS DISMISSED AS WITHDRAWN. THE GROUND NO.4 IS GENERAL IN NATURE. THE REMAINING TWO GROUNDS READ AS UNDER:- (A) THE ASSESSING OFFICER HAS NOT GIVEN THE BENEFI T OF THE NET WORTH AND TAXED THE ENTIRE RECEIPT AS CAPITAL GAIN IGNORING THE FAC TS. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THIS WITHOUT APP RECIATING THE ACTUAL FACTS. (B) THE ASSESSING OFFICER DISALLOWED A PORTION OF THE BAR LICENCE FEE IGNORING THE FACTS OF THE CASE. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THIS WITHOUT LOOKING INTO ACTUAL AVAILABLE DETAILS. I.T.A. NO13./COCH/2014 2 3. THE FIRST ISSUE RELATES TO THE NON-DEDUCTION OF THE VALUE OF NET WORTH FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN IN TERMS OF SEC. 50B OF THE ACT. THE SAID SECTION PRESCRIBES THE METHODOLOGY FOR COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE. THE ASSESSEE HEREIN HAD SOLD ITS BUSINESS AS A GOING CONCERN AND HENCE THE ASSESSING OFFICER COMPUTED THE CAPITAL GAIN IN TERM S OF SEC. 50B OF THE ACT BY TREATING THE SALE AS A CASE OF SLUMP SALE. THOUGH THE ASSES SEE OBJECTED TO THE SAME BEFORE THE TAX AUTHORITIES, YET BEFORE US, IT HAS ACCEPTED THE COMPUTATION OF CAPITAL GAIN AS SLUMP SALE IN TERMS OF SEC. 50B OF THE ACT BY NOT PRESSIN G GROUND NO.1. THUS, IT IS SEEN THAT THE ASSESSEE IS ACCEPTING THAT THE SALE EFFECTED BY IT CAN BE TREATED AS A CASE OF SLUMP SALE. 3.1 HOWEVER, WHILE COMPUTING THE CAPITAL GAIN U/ S 50B OF THE ACT, THE AO DID NOT ALLOW DEDUCTION OF THE VALUE OF NET WORTH IN TERM S OF THE ABOVE SAID SECTION IN THE ABSENCE OF ANY DATA FURNISHED BY THE ASSESSEE. THE LD CIT(A) ALSO CONFIRMED THE SAME. HOWEVER, BEFORE US, THE ASSESSEE HAS FURNISH ED A COPY OF AUDIT REPORT IN FORM NO. 3CEA AS REQUIRED IN TERMS OF SUB. SEC. 3 OF SEC . 50B AND SUBMITTED THAT THE NET WORTH DETAILS HAVE BEEN CERTIFIED BY THE AUDITOR IN THE ABOVE SAID REPORT. ACCORDINGLY, THE LD A.R PLEADED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR DETERMINING THE CAPITAL GAIN U/S 50B OF THE ACT BY DULY CONSIDERING THE AUDIT REPORT AND OTHER DETAILS. 3.2 WE ALSO HEARD LD D.R. WE NOTICE THAT THE A SSESSING OFFICER DID NOT ALLOW DEDUCTION OF THE VALUE OF NET WORTH ONLY FOR THE REASON THAT THE ASSESSEE DID NOT I.T.A. NO13./COCH/2014 3 FURNISH THE RELEVANT DETAILS TO HIM. FURTHER IT IS SEEN THAT THE ASSESSEE HAS ALSO FAILED TO FURNISH THE AUDIT REPORT IN TERMS OF SEC. 50B(3) OF THE ACT BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSEE HAS FURNISHED A COP Y OF AUDIT REPORT BEFORE US AND ACCORDING TO THE ASSESSEE, THE SAID AUDIT REPORT CO NTAINS THE DETAILS OF NET WORTH. IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE NON-FURN ISHING OF AUDIT REPORT IS A TECHNICAL DEFAULT AND THE SAME CAN BE CURED AT APPELLATE STAG E ALSO. SINCE THE ASSESSEE HAS FURNISHED THE AUDIT REPORT, WHICH WAS SAID TO CONTA IN THE DETAILS OF NET WORTH, WE ARE OF THE VIEW THAT THE ISSUE OF COMPUTATION OF CAPITA L GAIN U/S 50B OF THE ACT, IN THE INTEREST OF NATURAL JUSTICE, MAY BE CONSIDERED AFRE SH AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIO N TO RECONSIDER THE ISSUE RELATING TO THE COMPUTATION OF CAPITAL GAIN U/S 50B OF THE ACT BY D ULY CONSIDERING THE AUDIT REPORT AND OTHER DETAILS THAT MAY BE FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. THE ASSESSEE IS ALSO DIRE CTED TO FURNISH ALL THE DETAILS THAT MAY BE CALLED FOR BY THE ASSESSING OFFICER. 4. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F PART OF LICENCE FEE. THE ASSESSEE HAD PAID A SUM OF RS18.00 LAKHS AS LICENCE FEE FOR RUNNING THE BAR FOR ONE YEAR. HOWEVER, ALL THE EXISTING PARTNERS RETIRED FROM THE FORM ON 31.10.2005 AND THE NEW PARTNERS TOOK OVER THE BUSINESS THEREAFTER. SINCE THE BUSINESS WAS CARRIED ON BY THE ASSESSEE FIRM ONLY UP TO 31.10.2005, I.E. FOR 7 MON THS, THE ASSESSING OFFICER ALLOWED PROPORTIONATE BAR LICENSE FEE FOR SEVEN MONTHS AND ACCORDINGLY DISALLOWED A SUM OF I.T.A. NO13./COCH/2014 4 RS.7.50 LAKHS AS PERTAINING TO FIVE MONTHS. THE LD CIT(A) HAS ALSO CONFIRMED THE SAME. 4.1 ACCORDING TO LD A.R, THE LICENCE FEE PAID B Y THE ASSESSEE FIRM IS A ONETIME PAYMENT VALID FOR ONE YEAR AND THE SAME IS NOT REFU NDABLE. HE FURTHER SUBMITTED THAT THE SALE CONSIDERATION WAS DETERMINED BY DULY CONSI DERING THE UNEXPIRED PERIOD OF LICENCE FEE ALSO. ACCORDINGLY HE SUBMITTED THAT TH E ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING PART DISALLOWANCE OF LICENCE FEE. ON THE CO NTRARY, THE LD D.R STRONGLY SUPPORTED THE ORDER OF THE TAX AUTHORITIES. 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE FIND FORCE IN THE CONTENTIONS OF THE LD A.R. IT IS SUBMITTED THAT TH E LICENCE FEE WAS PAID BY THE ASSESSEE AS A ONETIME PAYMENT, WHICH WAS VALID FOR ONE YEAR AND FURTHER THE SAME WAS NOT REFUNDABLE. IT IS ALSO A FACT THAT THE ASSESSEE H AS RUN BAR FOR SEVEN MONTHS ON THE STRENGTH OF THE LICENCE GRANTED TO IT. THUS IT IS SEEN THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE RELATING TO LICENCE FEE IN THE NORMAL C OURSE OF CARRYING ON ITS BUSINESS. THE ASSESSEE WAS CONSTRAINED TO STOP THE RUNNING OF BAR, SINCE IT TRANSFERRED THE BUSINESS AS A GOING CONCERN. HENCE, IT IS NOT A CA SE, WHERE THE BENEFIT OF LICENCE IS DEFERRED TO A NEXT YEAR. EVEN OTHERWISE, UNDER THE INCOME TAX PROVISIONS, THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE. HENCE, T HE BENEFIT OF LICENCE FEE PAID BY THE ASSESSEE, THOUGH VALID FOR ONE YEAR, COULD BE UTILI SED BY IT FOR SEVEN MONTHS ONLY. SINCE THE SAID LICENCE FEE IS NOT REFUNDABLE TO THE ASSESSEE AND THE ASSESSEE HAS ALSO USED THE BENEFIT OF THE SAME FOR ITS BUSINESS, IN O UR VIEW, THERE IS NO JUSTIFICATION IN I.T.A. NO13./COCH/2014 5 RESTRICTING THE DEDUCTION OF LICENCE FEE PROPORTION ATELY. IT IS ALSO A FACT THAT THE ASSESSING OFFICER HAS ASSESSED THE TRANSFER OF BUSI NESS U/S 50B OF THE ACT BY TREATING THE SALE AS A SLUMP SALE. AS SUBMITTED BY LD A.R, THE SALE CONSIDERATION IS NORMALLY FIXED BY CONSIDERING ALL THE ASSETS AND LIABILITIES . HENCE, ACCORDING TO LD A.R, THE VALUE RELATING TO THE UNEXPIRED LICENCE PERIOD STOOD ASSE SSED U/S 50B OF THE ACT. IF THE CONTENTIONS OF LD A.R ARE FACTUALLY CORRECT, THEN T HE DISALLOWANCE OF A PORTION OF LICENCE FEE WOULD LEAD TO ASSESSMENT OF SAME AMOUNT TWICE, WHICH IS NOT PERMITTED UNDER THE INCOME TAX ACT. EVEN OTHERWISE, WE HAVE HELD THAT THE ENTIRE AMOUNT OF LICENCE FEE SHOULD BE TREATED AS NORMAL BUSINESS EXPENDITURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF LICENCE FEE MADE BY HIM. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 02-05-2 014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 2ND MAY, 2014 GJ I.T.A. NO13./COCH/2014 6 COPY TO: 1. M/S. KAYCEES TOURIST HOME, YMCA ROAD, KOTTAYAM-1 . 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I. 4.THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN