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

ITA 1445/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5954 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 12-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINESS TIRKEY
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 1445 & 1597/AHD/2014 (ASSESSMENT YEAR: 2008-08) SHRI PRAKASHCHANDRA S. SONI HUF PROP. M/S. SUVARANAMAHAL, RATANPOLE, AHMEDABAD- 380001 ACIT, CIRCLE-2, AHMEDABAD V/S V/S ACIT, CIRCLE-2, AHMEDABAD SHRI PRAKASHCHANDRA S. SONI HUF PROP. M/S. SUVARANAMAHAL, RATANPOLE, AHMEDABAD-380001 (APPELLANT) (RESPONDENT) PAN: AAFHP0690E APPELLANT BY : SHRI S. N. SOPARKAR, AR RESPONDENT BY : SHRI ALBINESS TIRKEY, SR. D. R. ( )/ ORDER DATE OF HEARING : 21 -02-201 8 DATE OF PRONOUNCEMENT : 26 -02-2018 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NOS. 144 5 & 1597/AHD/2014 . A.Y. 2008-0 9 2 1. ITA NOS. 1445/AHD/2014 & 1597/AHD/2014 ARE CROSS AP PEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE ORDE R OF THE LD.CIT(A)-VI, AHMEDABAD DATED 24.03.2014 PERTAINING TO A.Y. 2008- 09. 2. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 1445/AHD/2014 ASSESSEES APPEAL FOR A.Y. 20 08-09 3. THE SOLITARY GRIEVANCE OF THE ASSESSEE RELATES TO T HE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT ON THE ALLEGATION THAT THERE W AS UNDER VALUATION OF CLOSING STOCK OF RS. 45,26,544/-. 4. THE ROOTS FOR THE LEVY OF PENALTY LIE IN THE ASSESS MENT ORDER DATED 07.12.2010 FRAMED U/S. 143(3) OF THE ACT. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE PROPRIETARY BUSINESS OF M/S. SUVARNAMAHAL OF WHICH SHRIPRAKASHCHANDRA SHANTILAL HUF WAS THE PROPRIETOR WAS CONVERTED INTO A PARTNERSHIP FIRM AND THE PROPR IETARY CONCERN WAS CLOSED ON 24.02.2008. THE A.O. WAS OF THE FIRM BELIEF THAT THE CLOSING STOCK OF THE PROPRIETARY CONCERN SHOULD HAVE BEEN TAKEN AT MARKE T VALUE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F A.L.A. FIRM 189 ITR 255. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE C LOSING STOCK SHOULD NOT BE VALUED AT MARKET VALUE IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF A.L.A. FIRM (SUPRA). IN ITS RE PLY, THE ASSESSEE STRONGLY CONTENDED THAT THE BUSINESS WAS CONTINUED AND WAS C ARRIED ON BY THE PARTNERSHIP FIRM FROM 21.02.2008 AND ALL THE ASSETS AND LIABILITIES OF THE RUNNING BUSINESS OF THE PROPRIETARY CONCERN BECAME THE OPEN ING BALANCE IN THE CASE OF ITA NOS. 144 5 & 1597/AHD/2014 . A.Y. 2008-0 9 3 THE PARTNERSHIP FIRM. THE SAID TRANSACTION ALSO INC LUDED THE STOCK-IN-TRADE AS ON 24.02.2008 AS PER BOOKS WHICH BECAME THE OWNERSHIP OF PARTNERSHIP FIRM AT THE RELEVANT VALUE. IT WAS ALSO POINTED OUT THAT TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF A.L.A. FIRM AND IS NOT APPLICABLE. 5. THE CONTENTION OF THE ASSESSEE DID NOT FIND ANY FAV OUR WITH THE A.O. WHO PROCEEDED BY VALUING THE STOCK AT MARKET RATE AND M ADE ADDITION OF RS. 45,26,544/- ON ACCOUNT OF UNDER VALUATION OF CLOSIN G STOCK. PENALTY PROCEEDINGS WERE SEPARATELY INITIATED FOR FURNISHIN G INACCURATE PARTICULARS OF INCOME. 6. AFTER GIVING A SHOW CAUSE NOTICE, THE A.O. CONCLUDE D BY LEVYING PENALTY U/S. 271(1)(C) OF THE ACT ON THE IMPUGNED ADDITION OF UN DER VALUATION OF CLOSING STOCK. 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATE THAT THE ASSESSEE NEVER FILED ANY INACCURATE PARTICULARS AND THE METH OD OF VALUATION ADOPTED BY THE ASSESSEE WAS VERY MUCH IN LINE WITH THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF SHAKTI TRADING COMPANY 250 ITR 871. IT IS THE SAY OF THE LD. COUNSEL THAT THE REVENUE AUTHORITIES HAVE ERRED IN DRAWING SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ALA FIRM (SUPRA) INASMUCH AS THE FACTS OF THAT CASE ARE CLEARLY DIST INGUISHABLE FROM THE FACTS OF THE CASE IN HAND. THE LD. COUNSEL CONCLUDED BY SAYI NG THAT THE LEVY OF PENALTY IS ERRONEOUS AND SHOULD BE DELETED. PER CONTRA, THE LD . D.R. STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. ITA NOS. 144 5 & 1597/AHD/2014 . A.Y. 2008-0 9 4 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE BUSINESS OF THE PROPRIET ARY CONCERN M/S. SUVARNAMAHAL WAS CONTINUED AS BUSINESS OF THE PARTN ERSHIP FIRM ON AND FROM 25.02.2008. IIN THE CASE OF ALA FIRM, THE FACTS WER E THAT THE FIRM WAS DISSOLVED AND THE BUSINESS WAS DISCONTINUED. THEREF ORE, THE STOCK IN TRADE WERE RE-VALUED AT MARKET PRICE WHEREAS THE FACTS OF THE CASE IN HAND SHOW THAT THE BUSINESS CONTINUED IN THE HANDS OF THE PARTNERSHIP FIRM AND THE STOCK IN TRADE WERE NEVER VALUED. THE FACTS OF THE CASE IN HAND A RE IN LINE WITH THE FACTS CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF SHAKTI TRADING COMPANY (SUPRA). IN OUR CONSIDERED OPINION, WHEN TH E METHOD ADOPTED BY THE ASSESSEE WAS DULY SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT, IT CANNOT BE SAID THAT THE ASSESSEE HAS FILED INACCURA TE PARTICULARS OF INCOME OR HAS CONCEALED THE PARTICULARS OF INCOME. MOREOVER, WHEN THERE ARE TWO DECISIONS OF THE APEX COURT, ONE IN FAVOUR OF THE A SSESSEE AND ONE IN FAVOUR OF THE REVENUE ITSELF MAKES THE ISSUE HIGHLY DEBATABLE . IN OUR UNDERSTANDING OF THE LAW, PENALTY CANNOT BE LEVIED U/S. 271(1)(C) OF THE ACT UNDER SUCH CIRCUMSTANCES. WE, ACCORDINGLY, SET ASIDE THE FINDI NGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE PENALTY SO LEVIED. AP PEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 1597/AHD/2014 REVENUES APPEAL FOR A.Y. 200 8-09 10. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT TO THE EXT ENT OF RS. 1.13 CRORES ON THE ALLEGED GROUND THAT THE ASSESSEE HAS NOT DISCLOSED THE INCOME ARISING FROM TRANSFER OF TRADEMARK/GOODWILL AMOUNTING TO RS. 5 C RORES IN THE RETURN OF INCOME. ITA NOS. 144 5 & 1597/AHD/2014 . A.Y. 2008-0 9 5 11. WHILE FRAMING THE ASSESSMENT, THE A.O. FOUND THAT T HERE IS AN ENTRY MADE IN THE BOOKS OF ACCOUNTS OF PARTNERSHIP FIRM FOR TRADE MARK RIGHTS, THE VALUE OF WHICH WAS SHOWN AT RS. 5 CRORES. THE ASSESSEE WAS A SKED TO EXPLAIN THE NATURE OF ENTRY MADE IN THE CASE OF PARTNERSHIP FIRM OF RS . 5 CRORES WRITTEN AS TRADE MARK. IT WAS EXPLAINED THAT THE PARTNERSHIP FIRM IN ITS BOOKS OF ACCOUNT HAS SHOWN TRADE MARK AT A VALUE OF RS. 5 CRORES BY MAKI NG CORRESPONDING CREDIT ENTRY IN PARTNERS CAPITAL ACCOUNT. THE A.O. FURTHE R ASKED THE ASSESSEE TO EXPLAIN THE TRANSACTION AND THE BASIS OF VALUATION OF TRADE MARK. THE ASSESSEE REPLIED THAT THE HUF PROPRIETOR NEVER VALUED THE TR ADE MARK AND THEREFORE THE BASIS OF VALUATION IS NOT GIVEN. IT WAS FURTHER EXP LAINED THAT THE HUF PROPRIETOR NEVER ENTERED INTO AGREEMENT WITH THE PA RTNERSHIP FIRM FOR ASSIGNMENT/TRANSFER OF TRADE MARK, HENCE, THERE IS NO QUESTION OF SUBMITTING ANY EVIDENCE THEREOF. THE A.O. WAS NOT SATISFIED WI TH THE CONTENTION OF THE ASSESSEE. THE A.O. WAS OF THE FIRM BELIEF THAT SINC E THERE IS A CREDIT OF RS. 5 CRORES IN THE BOOKS OF ACCOUNT OF THE PARTNERSHIP F IRM, THE SAME IS THE INCOME OF THE PARTNERSHIP FIRM AND ACCORDINGLY MADE THE AD DITION OF RS. 5 CRORES AND SIMULTANEOUSLY INITIATED PENALTY PROCEEDINGS U/S. 2 71(1)(C) OF THE ACT. 12. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN WHY PENALTY SHOULD NOT BE LEVIED U/S. 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME. IN ITS REPLY, THE ASSESSEE STRONGLY OBJECTED FOR THE INITIATION OF PENAL PROCE EDINGS STATING THAT THE HUF PROPRIETARY CONCERN WAS AGREED TO BE TRANSFERRED TO THE PARTNERSHIP FIRM ON AND FROM 25.02.2008 WITH OF ITS ASSETS AND LIABILITIES. THE VALUE OF TRADE MARK WAS CREDITED BY THE PARTNERSHIP FIRM IN THE RESPECTIVE CAPITAL ACCOUNTS OF THE PARTNER. THE A.O. WAS OF THE OPINION THAT THE ASSES SEE WAS IN COMPLETE KNOWLEDGE OF THE FACT THAT THE PARTNERSHIP FIRM HAS CREDITED THE VALUE OF TRADEMARK/GOODWILL IN THE CAPITAL ACCOUNT AND THERE FORE IT IS A CLEAR CASE OF CONCEALMENT AND LEVIED THE PENALTY U/S. 271(1)(C) O F THE ACT ACCORDINGLY. ITA NOS. 144 5 & 1597/AHD/2014 . A.Y. 2008-0 9 6 13. ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED THAT THOUGH THE LD. CIT(A) IN QUANTUM PROCEEDINGS H AD CONFIRMED THE ADDITION BUT THE SAME WAS CONSIDERED U/S. 45(3) OF THE ACT B Y TREATING THE COST OF GOODWILL AS RS. NIL. THE ASSESSEES CONTENTION OF T AKING THE FULL VALUE OF CONSIDERATION AT RS. 1.25 CRORES AS THE SAME WAS TH E AMOUNT CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE HUF WAS ALSO DISMIS SED AND THE FULL VALUE OF CONSIDERATION WAS TAKEN AT RS. 5 CRORES. THE MATT ER TRAVELLED UP TO THE TRIBUNAL AND THE TRIBUNAL CONFIRMED THE FINDINGS OF THE LD. CIT(A). 14. WHILE GIVING THE APPEAL EFFECT, THE A.O. DID NOT CH ANGE THE HEAD OF INCOME AND TAXED THE SAME AS BUSINESS HEAD. ONCE AGAIN THE MAT TER WAS AGITATED BEFORE THE LD. CIT(A) AND LD. CIT(A) WAS CONVINCED THAT THE AP PEAL EFFECT HAS NOT BEEN GIVEN AS PER THE DIRECTIONS OF THE ITAT AND REDUCED THE PENALTY FROM RS. 1.85 CRORES TO RS. 1.28 CRORES. 15. IN THE PRESENT APPEAL, THE LD. CIT(A) OBSERVED THAT THERE IS NO DISPUTE THE FACT THAT THE BASIS OF ASSESSING THE SUM OF RS. 5 CRROES UNDERWENT THE CHANGE FROM BUSINESS INCOME TO LONG TERM CAPITAL GAINS. 16. DRAWING SUPPORT FROM THE DECISION OF THE CO-ORDINAT E BENCH IN THE CASE OF GUJARAT CREDIT CORPORATION 113 ITD 133. THE LD. CIT (A) CONCLUDED BY HOLDING THAT LEVY OF PENALTY WITH REFERENCE TO THIS ADDITIO N IS NOT SUSTAINABLE AND ACCORDINGLY DELETED THE PENALTY TO THE EXTENT OF TH E IMPUGNED ADDITION. 17. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HA S BEEN STATED BEFORE THE LOWER AUTHORITIES. 18. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. INSOFAR AS THE TREATMENT OF THE CONSIDERATI ON OF RS. 5 CRORES IS ITA NOS. 144 5 & 1597/AHD/2014 . A.Y. 2008-0 9 7 CONCERNED, THE DISPUTE IS SETTLED AND THE SAME HAS TO BE TAXED U/S. 45 OF THE ACT. ADMITTEDLY, IT IS A FACT THAT IN SPITE OF THE FINDINGS OF THE TRIBUNAL, THE A.O. TREATED THE SAME AS INCOME UNDER THE BUSINESS HEAD. THE PROVISIONS OF SECTION 45(3) OF THE ACT CLEARLY STATES THAT FOR TH E PURPOSES OF SECTION 48, THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNTS AS THE VAL UE OF THE CAPITAL ASSETS SHALL BE DEEMED TO THE FULL VALUE OF THE CONSIDERAT ION. IN OUR UNDERSTANDING OF THE FACTS, THE HUF PROPRIETARY CONCERN COULD NOT HA VE ENVISAGED THE VALUE OF THE TRADEMARK/GOODWILL TO BE RECORDED BY THE PARTNE RSHIP FIRM IN ITS BOOKS OF ACCOUNTS. THEREFORE, THE ASSESSEE CANNOT BE HELD LI ABLE FOR CONCEALING ANY PARTICULARS OF THE ITS INCOME. MOREOVER, THE A.O. H AS NOT TAXED THE INCOME IN THE HEAD OF INCOME AS DIRECTED BY THE TRIBUNAL BUT HAS TAXED THE SAME UNDER A DIFFERENT HEAD OF INCOME. ON THESE FACTS, WE DO NOT FIND THIS TO BE A CASE FOR THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT AND T HEREFORE THERE IS NO ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 26 - 02- 20 18 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 26/02/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD