M/s Shre Dhanwantri Herbals, Amritsar. V. The income Tax Officer, Amritsar.

ITA 357/ASR/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7005 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAM BAHL
• Keywords: Depreciation; Maximum Marginal Rate
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BEN CH, AMRITSAR BEFORE SH. A.D. JAIN, HONBLE JUDICIAL MEMBER, A ND SH. B.P. JAIN, HONBLE ACCOUNTANT MEMBER I.T.A. NO.357/ASR/2014 (ASSESSMENT YEAR: 2009-10) M/S SHREE DHANWANTRI HERBALS, 277, EAST MOHAN NAGAR, AMRITSAR. PAN:AABFD6876G(APPELLANT) VS. THE INCOME TAX OFFICER, WARD 3(4), AMRITSAR. (RESPONDENT) AND S.A. NO. 60/ASR/2014 [IN I.T.A. NO.357/ASR/2014] (ASSESSMENT YEAR: 2009-10) M/S SHREE DHANWANTRI HERBALS, 277, EAST MOHAN NAGAR, AMRITSAR. PAN:AABFD6876G(APPELLANT) VS. THE INCOME TAX OFFICER, WARD 3(4), AMRITSAR. (RESPONDENT) APPELLANT BY: SH. P ADAM BAHL, CA. RESPONDENT BY: SH. T ARSEM LAL, DR. DATE OF HEARIN G: 10.12.2014 DATE OF PRONOU NCEMENT: 29.12.2014 ORDER PER: A.D. JAIN (JM): THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009 -10 AGAINST THE ORDER DATED 13.3.2014 PASSED BY THE LEA RNED CIT (A), AMRITSAR. 2. THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN T AKEN: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS), AMRITSAR HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN TREATING THE AGREEMENT OF MERG ER AS DISSOLUTION OF THE FIRM AND RESORTING TO REVALUE THE CLOSING S TOCK AT MARKET VALUE AND THUS MAKING AN ADDITION OF RS.19,67,816/- BY APPLYING GROSS PROFIT RATE OF 38%. ITA NO.357/ASR/2014 2 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPE ALS), AMRITSAR HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER INVOKING SECTION 45(4) OF THE INC OME TAX ACT TO MAKE ADDITION OF RS.6,73,942/- AS SHORT TERM CAPITA L GAIN ON MACHINERY BY INCREASING THE VALUE BY 15% ON ADHOC B ASIS. 3. THAT THE LEARNED COMMISSION OF INCOME TAX(APPEAL S), AMRITSAR HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICE IN MAKING ADDITION OF RS.8,06,252/ - ON ACCOUNT OF ALLEGED GOODWILL OF THE FIRM TAKING LAST TWO YEARS PROFITS AS GOODWILL. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPE ALS), AMRITSAR HAS GROSSLY ERRED IN APPLYING THE SUPREME COURT DECISION IN THE CASE OF A.L.A. FIRM VS. CIT(1991) 189 ITR 28 5(SC) TO THE FACTS OF THIS CASE. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPE ALS), AMRITSAR HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN PASSING AN ORDER WHICH IS ILLE GAL, ARBITRARY AND AGAINST THE FACTS ON RECORD. 6. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPE ALS), AMRITSAR HAS FAILED TO APPRECIATE THAT THE ADDITION S AN ON ACCOUNT OF CLOSING STOCK, VALUE OF MACHINERY AND GOODWILL S HARE INCREASE THE VALUE OF THESE ASSETS IN THE HANDS OF M/S SHREE DHANWANTRI HERBALS, KISHANPURA, SOLAN (H.P) AND THE SAID FIRM WOULD BE ENTITLED TO CLAIM THE BENEFIT OF THIS INCREASE. 3. THE FACTS OF THE CASE, AS AVAILABLE FROM THE RECORD ARE THAT THE ASSESSEE E-FILED HIS INCOME TAX RETURN FOR THE A.Y.2009- 10 ON 31.07.2009 DECLARING AN INCOME OF RS.5,76,030 /- UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CASE WAS SELECTED FOR SCRUTINY UNDER THE CBDT GUIDELINES AS IT WAS A SURVEY CASE. DURING THE COURSE OF ASSESSMENT PROCEE DINGS THE STATUS OF THE ASSESSEE WAS TAKEN AS AOP TO BE A SSESSED AT MAXIMUM MARGINAL RATE AS ON BUSINESS ACTIVITIES WER E CARRIED ON DURING THE YEAR UNDER CONSIDERATION. THE BOOKS ITA NO.357/ASR/2014 3 OF ACCOUNT WERE REJECTED UNDER SECTION 145(3) OF TH E INCOME TAX ACT, 1961 AS THE FIRM M/S SHREE DHANWANTRI HERB ALS, AMRITSAR IN THE EYES OF LAW CLOSED ON 01.04.2008 AN D THE STOCK OF M/S SHREE DHANWANTRI HERBALS, AMRITSAR WAS TRANSFERRED TO M/S SHREE DHANWANTRI HERBALS, KISHANPURA(SOLAN). EXCEPT TRANSFER ENTRIES NO SALE BILLS WERE PRODUCED AND FURTHER NO REVALUATION OF ASSETS WAS M ADE. THE FIRM M/S SHREE DHANWANTRI HERBALS, AMRITSAR AND M/S SHREE DHANWANTRI HERBALS KISHANPURA (H.P) WERE SEPARATE IDENTITIES AND THE STOCK TRANSFERRED BY M/S SHREE D HANWANTRI HERBALS, AMRITSAR TO M/S SHREE DHANWANTRI HERBALS KISHANPURA SOLAN WAS TAKEN AT MARKET PRICE INSTEAD OF COST PRICE/BOOK VALUE. A SURVEY U/S 133A WAS CARRIED OUT AT ASSESSEES PREMISES ON 10.02.2009, DURING WHICH PAR TNERS OF THE ASSESSEE CONCERN MADE DISCLOSURE OF RS.65 LAKH IN THEIR INDIVIDUAL CAPACITIES. 3.1 THE ASSESSING OFFICER REJECTED THE BOOKS OF THE ASSESSEE U/S 145(3) OF THE INCOME TAX ACT, 1961. TH E ASSESSING OFFICER HELD THAT THE AMRITSAR FIRM STOOD VIRTUALLY DISSOLVED W.E.F. 01.04.2008 AND APPLIED THE DECISIO N OF ITA NO.357/ASR/2014 4 SUPREME COURT IN A.L.A FIRM V/S CIT REPORTED AT 189 ITR 285(SC). HE THEREFORE VALUED THE CLOSING STOCK OF FINISHED & SEMI FINISHED GOODS AT THE MARKET PRICE BY APPLYI NG GROSS PROFIT RATE OF 38% AS PER GROSS PROFIT RATE SHOWN B Y THE AMRITSAR FIRM IN A/YEAR 2008-09. HE THEREFORE ENHAN CED THE VALUE OF STOCK HELD ON 01.04.2008 BY RS.19,67,816/- AND TREATED IT AS INCOME OF AMRITSAR FIRM. THE ACTION O F THE ASSESSING OFFICER WAS UPHELD BY WORTHY COMMISSIONER OF INCOME TAX(APPEALS), AMRITSAR BY FOLLOWING THE DECI SION OF A.L.A. FIRM(SUPRA). 4. BEFORE US, BESIDES THE GROUNDS OF APPEAL RAISED, IN THE WRITTEN SUBMISSIONS, AT PAGE 46, LAST PARA, THE FOL LOWING ALTERNATIVE PLEA HAS BEEN RAISED BY THE ASSESSEE: ALTERNATIVELY A DIRECTION MAY BE GIVEN TO ADOPT TH E MARKET VALUE OF PLANT & MACHINERY AND GOODWILL ETC. TO BE THE W.D.V. OF THE KISHANPURA FIRM AS ON 1.4.2008 FOR CLAIM OF DEPRECIATION TO THE PURCHASER FIRM, SO THAT DOUBLE TAXATION OF THE SAME INCOME IS AVOIDED. 5. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT THE ENDS OF JUSTICE WOULD BE MET IF THE ALTERNATIVE PLEA TAKEN BY THE ASSESSEE IS ACCEPTED. 6. ON THE OTHER HAND, THE LEARNED DR HAS PLACED STRONG RELIANCE ON THE ORDER UNDER APPEAL. ITA NO.357/ASR/2014 5 7. HAVING HEARD BOTH THE PARTIES IN THE LIGHT OF THE M ATERIAL PLACED ON RECORD, WE FIND THAT IF THE ALTERNATIVE P LEA OF THE ASSESSEE IS ACCEPTED, THE ENDS OF JUSTICE WOULD IND EED BE MET. THOUGH THE STOCK, PLANT AND MACHINERY AND GOOD WILL WERE TRANSFERRED BY THE ASSESSEE TO THE SOLAN FIRM AT THE COST PRICE, THE SAME WERE ASSESSED AT MARKET PRICE, WHIC H ASSESSMENT IS NOT BEING DISPUTED. THIS IS SO, SINCE THE CLOSING STOCK OF THE ASSESSEE WILL FORM THE OPENING STOCK OF THE SOLAN FIRM. SIMILARLY, THE ASSESSED/MARKET VALU E OF THE PLANT AND MACHINERY AND GOODWILL WILL BECOME THE PU RCHASE PRICE OF THE SOLAN FIRM. 8. THEREFORE, WITHOUT GOING INTO THE ISSUE AS TO WHETH ER THERE WAS OR WAS NOT A LEGAL MERGER OF THE TWO FIRMS, WE, ACCEPTING THE ALTERNATIVE CONTENTION OF THE ASSESSE E, DIRECT THAT THE MARKET VALUE OF THE STOCK, PLANT AND MACHI NERY AND GOODWILL, ETC. BE TAKEN AS THE PURCHASE PRICE QUA M /S. SHREE DHANWANTRI HERBALS, KISHANPURA(SOLAN) AS ON 1.4.200 8, FOR THE PURPOSES OF THE INCOME TAX ASSESSMENT OF THAT F IRM. THIS DIRECTION IS BEING ISSUED TO OBVIATE DOUBLE TAXATIO N OF THE SAME INCOME. ITA NO.357/ASR/2014 6 9. IN VIEW OF THE ABOVE DIRECTION, THE GROUNDS OF APPE AL RAISED BY THE ASSESSEE ARE NOT REQUIRED TO BE GONE INTO AN D WE ARE, THEREFORE, NOT DEALING WITH THESE GROUNDS 10. FOR THE ABOVE DISCUSSION, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED ON THE ALTERNATIVE PLEA RAISED, AS ABOVE. T HE APPLICATION FOR STAY IS DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D, AS INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2014. SD/- SD/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: .12.2014 PK. PS COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S SHREE DHANWANTRI HERBALS, 2. THE INCOME TAX OFFICER, WARD NO.3(4), AMRITSAR 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.