Shri Sudarshan P.Amin, Anand V. The CIT-II, Ahmedabad

ITA 1324/AHD/2010

• Counselvise Citation: 132420514 RSA 2010
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 27-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K
• Keywords: Capital asset; Business income; Opportunity of being heard; Principle of natural justice
• Section: 153A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , .. , '# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ./ I.T.A. NO.1324/AHD/2010 ( & ' & ' & ' & ' / / / / ASSESSMENT YEAR : 2005-06) SUDARSHAN P AMIN NEESHTHA VINUKAKA MARG ANAND & & & & / VS. THE CIT-II AHMEDABAD ( '# ./)* ./ PAN/GIR NO. : ACGPA 9629 P ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . ' / APPELLANT BY : SHRI S.N.SOPARKAR, SR.ADV. WITH MS.URVASHI SHODHAN ,-(+ / . ' / RESPONDENT BY : SHRI B.K.S. PANDYA, CIT-DR &0 / # / / / / DATE OF HEARING : 16/10/2012 12' / # / DATE OF PRONOUNCEMENT : 19.10.12 '3/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF LEARNED CIT-II, AHMEDABAD PASSED U/S.263 DATED 31.0 3.2010 AND THE SUBSTANTIVE GROUND READS AS UNDER:- 1. LEARNED CIT HAS ERRED IN LAW AND ON FACTS IN PA SSING ORDER U/S.263 OF THE ACT HOLDING THE ASSESSMENT ORDER PAS SED U/S.143(3) R.W.S. 153A IN SCRUTINY PROCEEDINGS AS ERRONEOUS AN D PREJUDICIAL TO THE INTERET OF REVENUE TO THE EXTENT OF ALLOWING THE CLAIM OF LONG TERM CAPITAL GAIN UNDER SECTION 45 OF THE ACT IN RE SPECT OF GOODWILL RECEIVED UPON RETIREMENT FROM PARTNERSHI P FIRM. THE LEARNED CIT HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSMENT ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 2 - ORDER SOUGHT TO BE REVISED WAS PASSED AFTER PROPER INQUIRY AND VERIFICATION BY AO OF THE CLAIM MADE BY THE APPELL ANT AND HENCE THIS ORDER OF CIT, WHICH IS TOTALLY ERRONEOUS, PREJ UDICIAL, AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE DESERVES TO BE QUASHED. 2. LD. CIT HAS FURTHER ERRED IN HOLDING THE ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IN AS MU CH AS FAILURE ON PART OF AO IN NOT APPLYING PROVISIONS OF SECTION 14 A OF THE ACT TOWARDS EXPENDITURE INCURRED TO EARN EXEMPTED INCOM E. THIS ACTION OF LD.CIT IS HARSH, UNCALLED FOR AND COMPLET ELY AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. AN ASSESSMENT WAS MADE U/S.143(3) R.W.S.153A VID E AN ORDER DATED 24.12.2007 AND THE TOTAL INCOME WAS ASSESSED AT RS.69,16,160/-. IT WAS NOTED BY THE AO THAT THE RETURNED INCOME WAS AC CEPTED. IT HAS ALSO BEEN NOTED BY THE AO THAT A SEARCH U/S.132 WAS CARR IED OUT IN THE CASE OF SWISS GLASS COAT GROUP ON 19.1.2006. ACCORDINGLY, A NOTICE U/S.153A OF THE ACT WAS ISSUED AGAINST THE ASSESSEE AND IN R ESPONSE A RETURN WAS FILED DECLARING AN INCOME OF RS.69,16,160/-. THAT ORDER OF THE AO WAS SUBJECT TO REVISION U/S.263 BY THE LD.COMMISSIONER. ON PERUSAL OF THE SAID ORDER, IT WAS NOTICED BY THE LD.CIT THAT AN AM OUNT OF RS.43,95,339/- WAS RECEIVED AS GOOD WILL ON RETIREMENT FROM M/S. WARD STREAM. IT WAS FOUND BY LD.CIT THAT THE SAID GOOD WILL WAS O FFERED AS LONG TERM CAPITAL GAIN U/S.45 OF IT ACT. THE SAID LON G TERM CAPITAL GAIN WAS ACCEPTED DURING THE ASSESSMENT. ACCORDIN G TO LD.CIT, THE AMOUNT IN QUESTION WHICH WAS RECEIVED BY THE ASSESS EE FROM A PARTNERSHIP-FIRM ON RETIREMENT AS A PARTNER SHOULD HAVE BEEN ASSESSED AS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S AND NOT AS CAPITAL GAIN. ACCORDING TO HIM, CAPITAL GAIN ON GOOD WILL ARISES ONLY WHEN THE FIRMS BUSINESS IS TAKEN OVER BY ANY PERSON ON SALE ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 3 - AMALGAMATION, MERGER, ETC. AND NOT ON RETIREMENT OF A PARTNER. ACCORDING TO LD.CIT, THE INCOME WAS ASSESSED UNDER AN INCORRECT HEAD AND THUS RESULTED INTO SHORT LEVY OF TAX. AN ANOTH ER POINT HAS ALSO BEEN RAISED BY LD.COMMISSIONER THAT THE ASSESSEE HAD EAR NED EXEMPTED INCOME VIZ. DIVIDEND INCOME BUT THE AO HAD NOT MADE ANY DI SALLOWANCE OF EXPENDITURE INCURRED TO EARN THE SAID EXEMPTED INCO ME U/S.14A OF IT ACT. 2.1. THE EXPLANATION OF THE ASSESSEE WAS THAT BE ING A 25% SHARE IN PARTNERSHIP IN M/S.WARD STREAM, THE ASSESSEE RECEIV ED AN AMOUNT OF RS.43,95,338/- AS CONSIDERATION ON RETIREMENT FROM THE SAID FIRM. IT WAS ARGUED THAT THE SHARE IN PARTNERSHIP-FIRM WAS A CAP ITAL ASSET AS PRESCRIBED UNDER SECTION 45(1) AND SECTION 45(4) IT ACT. THE SAID AMOUNT RECEIVED IN PURSUANCE OF RETIREMENT WAS A CAPITAL ASSET, THE REFORE DISCLOSED THE INCOME UNDER THE HEAD CAPITAL GAIN. CASE LAW RE LIED UPON WAS V. RANGASWAMI NAIDU VS. CIT (1957)311 ITR 722 (MAD.). BEFORE LD.COMMISSIONER, THE RETIREMENT-DEED DATED 16/10/20 04 HAS ALSO BEEN DISCUSSED. HOWEVER, LD.CIT HAS COMMENTED THAT THE AO HAD NOT EXAMINED THE DETAILS OF RETIREMENT OF PARTNERS. TH E ASSESSEE HAS FURNISHED BARE MINIMUM DETAIL AND THE AO DID NOT CA LL FOR ANY FURTHER DETAILS. ACCORDING TO HIM, THE AMOUNT IN QUESTION WAS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME. IT HAS ALSO BE EN HELD BY THE LD.COMMISSIONER THAT THE AO HAD FAILED TO APPLY THE PROVISIONS OF SECTION 14A, HENCE THE IMPUGNED ASSESSMENT ORDER WA S ERRONEOUS AS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE HAS DIRECTED AS UNDER:- 4. IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT T HE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICI AL TO THE ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 4 - INTERESTS OF THE REVENUE. THEREFORE, TO ASCERTAIN THE CORRECT FACT AND TO TAKE A COMPREHENSIVE VIEW IN THE MATTER AFTE R CONDUCTING PROPER INVESTIGATION/INQUIRY, IT IS NECESSARY THAT THE WHOLE ASSESSMENT ORDE3R IS SET ASIDE FOR FRAMING THE SAME DE NOVO. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO GIVE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE FIRM BEF ORE FINALIZING THE SET ASIDE ASSESSMENT ORDER. 3. FROM THE SIDE OF THE ASSESSEE, LD.AR MR.S.N.SOPA RKAR APPEARED AND INFORMED THAT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS WRITTEN SUBMISSIONS WERE FURNISHED ALONG WITH THE EXPLANATI ON. THE AMOUNT RECEIVED WAS DULY DISCLOSED UNDER THE HEAD LONG TE RM CAPITAL GAIN. THE INCOME IN QUESTION WAS RIGHTLY DISCLOSED AS CA PITAL GAIN. HOWEVER, THIS INCOME WAS NEITHER A CAPITAL GAIN NOR A BUSINESS INCOME AS HELD IN THE CASE OF CIT VS. BALVANTRAI VITHALDAS SHAH (1992)196 ITR 379 (GUJ.). THERE WAS AN INVESTIGATION IN RESPEC T OF A DEPOSIT IN HDFC BANK, THEREFORE TO EXPLAIN THE SOURCE OF THE SAID D EPOSIT, IT WAS ALSO INFORMED THAT THE IMPUGNED AMOUNT WAS RECEIVED ON RETIREMENT FROM M/S.WARD STREAM. 4. FROM THE SIDE OF THE REVENUE, LD.CIT-DR MR.B.K.S . PANDYA APPEARED AND PLEADED THAT ADMITTEDLY THERE WAS NO D ISCUSSION IN THE ASSESSMENT ORDER ABOUT THE ALLEGED CAPITAL GAIN DIS CLOSED BY THE ASSESSEE. THE SAID ASSESSMENT ORDER IS ABSOLUTELY SILENT ABOU T THE SAID HUGE AMOUNT RECEIVED BY THE ASSESSEE ON RETIREMENT FROM THE FIR M. THERE WAS NO ENQUIRY CONDUCTED BY THE AO, THEREFORE THE ASSESSME NT WHICH LACKS INVESTIGATION AS ALSO ENQUIRY WAS NOTHING BUT AN ER RONEOUS ORDER DUE TO WHICH THERE WAS A LOSS OF REVENUE TO THE REVENUE DE PARTMENT. HE HAS ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 5 - PLACED RELIANCE ON GEE VEE ENTERPRISES VS. ADDL.CIT & ORS. (1975)99 ITR 375(DELHI), ADDL.CIT VS. MUKUR CORPORATION (19 78)111 ITR 312(GUJ.) AND SMT. TARA DEVI AGGARWAL VS.CIT (19 73)88 ITR 323(SC). 5. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO PERUSED THE RELEVANT ORDERS PLACED ON RECORD. AT T HE OUTSET, IT IS WORTH TO MENTION THAT CONSEQUENT UPON THE DIRECTIONS OF LD.C OMMISSIONER MADE U/S.263 AN ASSESSMENT WAS MADE BY THE AO AND THAT A SSESSMENT WAS CHALLENGED BEFORE LD.CIT(A)-IV, VADODARA WHO HAS VI DE AN ORDER DATED 07/09/2012 HAS HELD THAT THE IMPUGNED AMOUNT WHICH WAS TAXED AS BUSINESS INCOME WAS TO BE TAXED UNDER THE HEAD CAP ITAL GAINS. RELEVANT PARA-12 IS REPRODUCED BELOW:- 12. THE REASONS AS MENTIONED BY THE AO IN THE ASS ESSMENT ORDER FOR TREATING THE ABOVE AMOUNT OF ` 43,95,339/- AS BUSINESS INCOME AS WELL AS ABOVE SUBMISSION OF THE APPELLANT HAVE B EEN CONSIDERED. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE AO ON VERIFICATION OF LEDGER ACCOUNT OF THE APPELLANT IN THE BOOKS OF M/S.WARM STREAM FOUND THAT THE APPELLANT HAD RECEIV ED AMOUNT OF ` 43,95,339/- AS GOODWILL UPON HIS RETIREMENT FROM T HE FIRM. THE AO FURTHER IN THE ASSESSMENT ORDER HAS MENTIONED TH AT AS PER THE COPY OF LEDGER ACCOUNT OF THE APPELLANT IN THE BOOK S OF M/S.WARM STREAM, IT WAS FOUND THAT THE APPELLANTS ACCOUNT W AS CREDITED BY ` 43,95,339/- BY CORRESPONDINGLY DEBITING THE GOODWIL L ACCOUNT ON 30-09-2004. THE OBJECTION OF THE AO IS THAT THE AMOUNT IN QUESTION RECEIVED BY THE APPELLANT FROM THE PARTNER SHIP FIRM WAS IN CONNECTION WITH THE BUSINESS CARRIED ON AND ACCORDINGLY SUCH RECEIPT WAS REQUIRED TO BE TREATED AS INCOME LIABLE TO BE TAXED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OF PROFESSION. BUT THE STAND OF THE AO IS CONTRAR Y TO HIS OWN FINDING AS AT ONE PLACE HE SAYS THAT ON VERIFICATIO N OF THE LEDGER ACCOUNT OF THE APPELLANT IN THE BOOKS OF M/S .WARM STREAM, IT IS FOUND THAT THE APPELLANTS ACCOUNT WA S CREDITED ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 6 - BY ` 43,95,339/- BY CORRESPONDINGLY DEBITING THE GOODWIL L ACCOUNT ON 30-09-2004. AS PER FINDING OF THE AO, IT CAN BE SAID THAT THE APPELLANT HAD RECEIVED THIS AMOUNT OF ` 43,95,339/- FROM THE FIRM M/S.WARM STEAM AS GOODWILL UPON HIS RETIREMENT AND THEREFORE IT IS NTO CORRECT TO SAY THAT THIS AMOUNT WAS RECEIVED BY THE APPELLANT IN CONNECTION WITH THE BUSINESS CARRIED ON. IN MY OPINION THE AO IS NOT CORRECT IN TAXING THIS AMOUNT OF ` 43,95,339/- UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AS THI S AMOUNT HAS BEEN RECEIVED BY THE APPELLANT UPON HIS RETIREMENT AS GOODWILL FROM THE PARTNERSHIP FIRM AND THEREFORE THE SAME HA S TO BE TREATED AS CAPITAL ASSET. SINCE THE APPELLANT HAS HIMSELF TREATED THIS AMOUNT OF ` 43,95,339/- AS LONG TERM CAPITAL GAIN AND HAS PAID THE DUE TAX ACCORDINGLY AND THEREFORE THE AO IS WRONG I N TREATING SUCH AMOUNT AS BUSINESS RECEIPT. CONSIDERING THIS FACTS , I HOLD THAT THIS RECEIPT OF ` 43,95,339/- CANNOT BE TAXED UNDER THE HEAD BUSINESS AND PROFESSION AND THEREFORE THE AO IS DIRECTED TO TAX THIS AMOUNT ONLY UNDER THE HEAD CAPITAL GAIN. THUS, THE GROU ND OF APPEAL OF THE APPELLANT IS ALLOWED. 5.1. WE HAVE REPRODUCED THE VIEW TAKEN BY THE LD.CI T(A) PRIMARILY WITH THE OBJECT TO PLACE ON RECORD A POSITION OF LA W AS INTERPRETED BY ONE OF THE REVENUE OFFICIAL, I.E. LD.CIT(A) IN RESPECT OF THE HEAD OF INCOME FOR AN AMOUNT RECEIVED BY PARTNER ON RETIREMENT FRO M THE FIRM. THERE IS A DECISION OF HONBLE ANDHRA PRADESH HIGH COURT PRO NOUNCED IN THE CASE OF RAJLAXMI TRADING CO. VS. CIT 250 ITR 581 (AP), W HEREIN AN ASSESSEE- FIRM WAS DISSOLVED AND ALL THE ASSETS WERE TAKEN OV ER BY ONE PARTNER AT BOOK VALUE. IT WAS HELD THAT THE AO WAS JUSTIFIED IN TAKING MARKET VALUE OF ASSETS SO TRANSFERRED FOR THE PURPOSE OF CAPITAL GAIN TAX AS PER SECTION 45(4) OF THE IT ACT. THERE IS ONE MORE DECISION ACCORDING TO WHICH THE WORD OTHERWISE USED IN SECTION 45(4) TAKES IN TO ITS SWEEP NOT ONLY THE CASES OF DISSOLUTION BUT ALSO THE CASES OF SUBSISTI NG PARTNERS OF A PARTNERSHIP, TRANSFERRING ASSETS IN FAVOUR OF A RET IRING PARTNER CIT VS. A.N.NAYAK ASSOCIATES (2004)136 TAXMAN 107 (BOM.). WE HAVE ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 7 - DISCUSSED THESE DECISIONS FOR THE BASIC REASON THAT NO PRACTICAL PURPOSE IS GOING TO BE SERVED BY UPHOLDING THE VIEW TAKEN BY L D.CIT IN THE IMPUGNED ORDER U/S.263 OF IT ACT BECAUSE OTHERWISE THE INCOME IN QUESTION IS SUBJECT TO CONTROVERSY AND ONE OF THE V IEW IS TO TAX ONLY UNDER THE HEAD CAPITAL GAIN, WHICH WAS ORIGINALLY ASSES SED IN THE ASSESSMENT ORDER IN QUESTION. ON THIS COUNT, WE THEREFORE H OLD THAT THE ASSESSMENT ORDER IN QUESTION WAS WRONGLY HELD BY THE LD.CIT AS AN ERRONEOUS ORDER BECAUSE APPARENTLY; IN THE LIGHT OF THE ABOVE DECIS IONS; NO PREJUDICE WAS CAUSED BY THE SAID ORDER TO THE REVENUE. 5.2 AS FAR AS THE INFORMATION GIVEN BY THE ASSESSEE TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WE HAVE BEEN INFORMED THAT IN THE RETURN OF INCOME THE DISCLOSURE OF THE IMPUGNED AMO UNT RECEIVED ON RETIREMENT FROM THE FIRM WAS PROPERLY DISCLOSED AND LONG TERM CAPITAL GAIN WHICH WAS THEREUPON ASSESSED. NOT ONLY THE INFORMATION GIVEN AS PER THE INCOME-TAX RETURN BUT OTHERWISE ALSO THE RE VENUE DEPARTMENT HAS INVESTIGATED THE DEPOSIT IN HDFC BANK AND IN COMPLI ANCE IT WAS DULY INFORMED THAT THE SOURCE OF THE DEPOSIT WAS THE AMO UNT RECEIVED ON RETIREMENT FROM THE FIRM. WHICH MEANS, ACCORDING T O US, CERTAIN ENQUIRIES WERE RAISED BEFORE THE COMPLETION OF THE ASSESSMENT AND AFTER BEING SATISFIED THE AO HAD THOUGH IT PROPER TO ASSE SS THE IMPUGNED AMOUNT UNDER THE HEAD LONG TERM CAPITAL GAIN. F OR THIS REASON AS WELL, IT IS IMPROPER TO HOLD THAT THERE WAS INSUFFI CIENT ENQUIRY CONDUCTED BY THE AO RESULTING INTO AN ERRONEOUS DECISION ON H IS PART. WE ARE OF THE VIEW THAT NO SUCH IRREGULARITY OR AN ERROR WAS COMMITTED BY THE AO IN THE SAID ORDER FOR WHICH THE AO COULD BE BLAMED THA T THE ORDER PASSED BY HIM WAS PREJUDICIAL TO THE REVENUE. THE ORDER PASS ED BY LD.CIT U/S.263 ITA NO. 1324/AHD/2010 SUDARSHAN P.AMIN VS. CIT-II, AHMEDABAD ASST.YEAR 2005-06 - 8 - IS HEREBY VACATED AND THE ORDER PASSED BY THE AO IS SUSTAINED. GROUND IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. SD/- SD/- ( .. ) ( ) '# ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 19 / 10 /2012 ..&, .&../ T.C. NAIR, SR. PS '3 / ,4 5'4' '3 / ,4 5'4' '3 / ,4 5'4' '3 / ,4 5'4'/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. 6 / CONCERNED CIT 4. 6() / THE CIT (CENTRAL)-II, AHMEDABAD 5. 49: ,& , , / DR, ITAT, AHMEDABAD 6. :; <0 / GUARD FILE. '3& '3& '3& '3& / BY ORDER, -4 , //TRUE COPY// = == =/ // / ) ) ) ) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DIRECT DICTATION ON COMPUTER.16.10.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.10.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S19.10.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.10.12 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