M/s. Updater Services Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 421/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64321 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-09-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 28-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR STAND ING
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 148; 263; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.421(MDS)/2012 ASSESSMENT YEAR : 2004-05 M/S.UPDATER SERVICES P. LTD. (SUCCESSOR OF THE FIRM M/S.UPDATER SERVICES) 7, SAKTHI GARDENS, OFF RAJIV GANDHI SALAI, THORAIPAKKAM CHENNAI-600 097. PAN AAAFU0733C. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE II, CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.RAMAKRISHNAN, FCA RESPONDENT BY : SHRI KEB RENGARAJAN, JR.STANDI NG COUNSEL DATE OF HEARING : 20 TH SEPTEMBER, 2012 DATE OF PRONOUNCEMENT : 21 ST SEPTEMBER, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2004-05. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-VI AT - - ITA 421 OF 2012 2 CHENNAI, DATED 18-1-2012 AND ARISES OUT OF THE ASSE SSMENT COMPLETED UNDER SECTION 144 OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INTEGRATED FACILITY MANAGEMENT SERVICING. AT PRESE NT IT IS A PRIVATE LIMITED COMPANY. EARLIER IT WAS A PARTNERS HIP FIRM. THE ERSTWHILE PARTNERSHIP FIRM CONTINUED ITS BUSINESS I N THE STATUS OF THE FIRM TILL 13-11-2003, ON WHICH DATE THE PARTNER SHIP WAS CONVERTED INTO THE PRESENT PRIVATE LIMITED COMPANY BY VIRTUE OF INCORPORATION OF THE PRESENT COMPANY UNDER PART IX OF COMPANIES ACT, 1956. ONCE THE FIRM WAS CONVERTED I NTO A PRIVATE LIMITED COMPANY, ALL THE PARTNERS OF THE ER STWHILE FIRM BECAME THE SHAREHOLDERS OF THE ASSESSEE COMPANY. A LL ASSETS AND LIABILITIES APPEARING IN THE BOOKS OF THE FIRM HAVE BEEN TAKEN OVER BY THE COMPANY. 3. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR 2004-05. THE RETURN W AS FILED INCORPORATING THE INCOME FOR WHOLE OF THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR 2004-05. THAT IS T O SAY, THE ASSESSEE COMPANY HAS RETURNED THE INCOME GENERATED DURING THE ENTIRE PERIOD OF THE PREVIOUS YEAR FROM 1-4-200 3 TO - - ITA 421 OF 2012 3 31-3-2004. AS THE ENTIRE INCOME FOR THE WHOLE ASSE SSMENT YEAR WAS OFFERED IN THE HANDS OF THE ASSESSEE COMPANY, N O RETURN WAS FILED IN THE NAME OF THE ERSTWHILE FIRM. 4. THE ABOVE RETURN WAS SCRUTINIZED BY THE REVENUE AUTHORITIES AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER MADE A DI SALLOWANCE OF ` 10 LAKHS AGAINST DISALLOWANCE OF VARIOUS EXPENSES AND COMPLETED THE ASSESSMENT. 5. WHILE THE MATTER WAS RESTING SO, THE COMMISSION ER OF INCOME-TAX ISSUED A NOTICE UNDER SECTION 263 OF THE INCOME- TAX ACT, 1961, PROPOSING TO REVISE THE ASSESSMENT O RDER ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT CONSIDERE D THE IMPACT OF THE PAYMENT OF ` 1.25 CRORES MADE TO THE PARTNERS OF THE FIRM FOR TAKING OVER OF THE BUSINESS BY THE ASSESSEE COM PANY. THE COMMISSIONER OF INCOME-TAX PROPOSED THE AMOUNT OF ` 1.25 CRORES AS DEEMED INCOME UNDER SECTION 47A(3) OF THE ACT. THE OBJECTIONS OF THE ASSESSEE WERE REJECTED AND ORDER UNDER SECTION 263 WAS PASSED DIRECTING THE ASSESSING OFFI CER TO EXAMINE THE ISSUE AND PASS APPROPRIATE ORDERS. - - ITA 421 OF 2012 4 6. THE ABOVE STATED REVISION ORDER WAS CHALLENGED IN APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, A- BENCH, CHENNAI IN ITA NO.840(MDS)/2009. THE TRIBUNAL HELD THAT REMITTING BACK OF THE CASE FOR RECONSIDERATION MADE BY THE COMMISSIONER OF INCOME-TAX(APPEALS) DID NOT CALL FO R ANY INTERFERENCE AND THE ASSESSING OFFICER WAS ASKED TO EXAMINE THE ISSUES IN DETAIL AFTER PROPER ENQUIRIES. THE APPEA L FILED BY THE ASSESSEE WAS THUS DISMISSED. 7. CONSEQUENTLY, THE ASSESSING OFFICER PROCEEDED T O COMPLETE THE ASSESSMENT IN OBEDIENCE OF THE REVISIO N ORDER PASSED UNDER SECTION 263 OF THE ACT. 8. MEANWHILE, THE ASSESSING OFFICER ISSUED ANOTHER NOTICE UNDER SECTION 148 PROPOSING TO ASSESS THE IN COME FOR THE PERIOD FROM 1-4-2003 TO 13-11-2003 IN THE HANDS OF THE ERSTWHILE FIRM, WHICH AMOUNTED TO ` 1,25,76,728/-. 9. BOTH THE ABOVE MENTIONED ITEMS WERE CONSIDERED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PA SSED ON 31-12-2009, UNDER SECTION 144 OF THE ACT. THE ASSE SSING OFFICER MADE AN ADDITION OF ` 1,25,00,000/- AS SHORT TERM CAPITAL GAINS, AS SUGGESTED BY THE COMMISSIONER OF INCOME-TAX IN H IS REVISION - - ITA 421 OF 2012 5 ORDER. ACCORDING TO THE ASSESSING OFFICER, THE SAI D AMOUNT REPRESENTED THE CONSIDERATION FOR TRANSFER OF GOODW ILL. THE ASSESSING OFFICER ALSO ADDED AN AMOUNT OF ` 1,25,76,728/- IN THE HANDS OF THE FIRM AS ITS PROFIT FOR THE PERIOD FROM 1-4-2003 TO 13-11-2003. 10. THE ABOVE TWO ADDITIONS WERE TAKEN IN FIRST AP PEAL BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS). TH E COMMISSIONER OF INCOME-TAX(APPEALS) CONFIRMED THE A DDITIONS AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 11. IT IS AGAINST THE ABOVE ORDER THAT THE ASSESSE E HAS COME IN SECOND APPEAL BEFORE US. 12. WE HEARD SHRI B.RAMAKRISHNAN, THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE AND SHRI K.E.B.RENGARAJAN, THE LEARNED STANDING COUNSEL APPE ARING FOR THE REVENUE. 13. THERE IS NO DISPUTE REGARDING THE FACT THAT TH E ERSTWHILE FIRM WAS CONVERTED INTO A PRIVATE LIMITED COMPANY WITH EFFECT FROM 13-11-2003, WITHOUT ANY INTERRUPTION IN THE BUSINESS CARRIED ON. IT IS ALSO TO BE SEEN THAT THE CONVERS ION OF THE PARTNERSHIP FIRM INTO A PRIVATE LIMITED COMPANY HAS COMPLIED WITH - - ITA 421 OF 2012 6 ALL THE CONDITIONS LAID DOWN IN CLAUSE(XIII) OF SEC TION 47 OF THE INCOME-TAX ACT, 1961. THEREFORE, ALL THE TRANSACTI ONS CONCLUDED IN THE CONTEXT OF CONVERTING THE ERSTWHILE FIRM INT O THE PRESENT PRIVATE LIMITED COMPANY, CANNOT BE CONSIDERED AS TR ANSFER. THEREFORE, THERE IS NO QUESTION OF COMPUTING ANY CA PITAL GAINS IN THE PRESENT CASE. 14. THE AUTHORITIES BELOW HAVE RELIED ON SECTION 4 7A(3) OF THE ACT TO WITHDRAW THE EXEMPTION TO THE ASSESSE E FROM LEVY OF CAPITAL GAINS TAXATION. THE SAID SUB-SECTION(3) PROVIDES THAT THE EXEMPTION SHALL BE DENIED ONLY IF THE RELEVANT CONDITIONS ARE NOT COMPLIED WITH. IN THE PRESENT CASE, ALL THE AS SETS AND LIABILITIES OF THE FIRM RELATING TO THE BUSINESS IM MEDIATELY BEFORE THE SUCCESSION HAVE BECOME THE ASSETS AND LIABILITI ES OF THE ASSESSEE COMPANY. ALL THE PARTNERS OF THE FIRM IMM EDIATELY BEFORE THE SUCCESSION BECAME THE SHAREHOLDERS OF TH E COMPANY IN THE SAME PROPORTION IN WHICH THEIR CAPITAL ACCOU NT STOOD IN THE BOOKS OF THE FIRM ON THE DATE OF SUCCESSION. THE P ARTNERS HAVE NOT RECEIVED ANY CONSIDERATION OR BENEFIT DIRECTLY OR INDIRECTLY IN ANY FORM OR MANNER THAN BY WAY OF ALLOTMENT OF SHAR ES IN THE COMPANY. EVEN THE GOODWILL APPROXIMATED HAS BEEN A DJUSTED - - ITA 421 OF 2012 7 AGAINST ISSUE OF SHARE CAPITAL. ALL OTHER CONDITIO NS HAVE BEEN COMPLIED WITH. 15. THEREFORE, IN THE FACTS AND CIRCUMSTANCES, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN ADDING ` 1,25,00,000/- TO THE INCOME OF THE ASSESSEE. THE SAID ADDITION OF ` 1,25,00,000/- IS ACCORDINGLY DELETED. 16. THE SECOND ISSUE IS REGARDING THE INCOME OF TH E ERSTWHILE FIRM FOR THE PERIOD FROM 1-4-2003 TO 13-1 1-2003. THE CASE OF THE ASSESSING OFFICER IS THAT THE ERSTWHILE FIRM SHOULD HAVE BEEN ASSESSED FOR ITS INCOME FOR THE PERIOD FR OM 1-4-2003 TO 13-11-2003. THE ERSTWHILE FIRM HAD NOT FILED AN Y RETURN FOR THAT PART OF THE ASSESSMENT YEAR AND AS SUCH THE IN COME HAS TO BE ASSESSED IN RESPECT OF THE ERSTWHILE FIRM AND AD DED TO THE INCOME OF THE ASSESSEE COMPANY IN ITS STATUS AS SUC CESSOR OF THE ERSTWHILE FIRM. THE LOWER AUTHORITIES HAVE REL IED ON THE PROVISIONS OF SECTION 170(1) OF THE ACT IN ORDER TO JUSTIFY SUCH AN ASSESSMENT FOR FRACTIONAL ASSESSMENT YEAR. 17. WE CONSIDERED THE MATTER IN DETAIL. THE ASSES SEE COMPANY, WHICH IS THE SUCCESSOR OF THE OLD FIRM, HA S ALREADY FILED RETURN FOR THE ENTIRE PREVIOUS YEAR FROM 1-4-2003 T O 31-3-2004. - - ITA 421 OF 2012 8 THE ASSESSMENT HAS BEEN COMPLETED BY THE ASSESSING OFFICER UNDER SECTION 143(3). THE INCOME FOR THE SAID FRAC TIONAL ASSESSMENT YEAR HAS ALREADY BEEN ASSESSED IN THE HA NDS OF THE ASSESSEE COMPANY. THIS IS BECAUSE THE ASSESSEE COM PANY ITSELF ASSUMED THE STATUS OF THE SUCCESSOR AND RETU RNED THE INCOME INCLUDING THE INCOME PERTAINING TO THE ERSTW HILE FIRM. 18. THE ASSESSING OFFICER HAVING COMPLETED THE ASSESSMENT FOR THE ENTIRE PREVIOUS YEAR, INVOKING S ECTION 170(1) AT THIS STAGE SEEMS TO BE MOTIVATED BY TECHNICALITI ES. EVEN THOUGH TWO ASSESSMENTS HAVE TO BE MADE FOR THE TWO FRACTIONS OF THE ASSESSMENT YEAR, AS PROVIDED IN SECTION 170( 1), THERE IS AN EXCEPTION PROVIDED IN SUB-SECTION(2) THEREOF TO STATE THAT WHEN THE PREDECESSOR CANNOT BE FOUND, THE ASSESSMEN T SHOULD BE MADE IN THE HANDS OF THE SUCCESSOR ITSELF. WHEN THE ASSESSEE COMPANY ITSELF HAS INTEGRATED THE INCOME O F THE ERSTWHILE FIRM WITH ITS INCOME, THE RIGOURS OF SUB- SECTION(1) OF SECTION 170 IS TO BE SEEN HARNESSED BY THE OPERATIO N OF SECTION 170(2). IN FACT NO INCOME HAS ESCAPED ASSESSMENT. THAT IS THE POINT TO BE REMEMBERED AT THIS JUNCTURE WHEN WE SEE THAT THE - - ITA 421 OF 2012 9 RELEVANT ADDITION WAS MADE AS A RESULT OF THE NOTIC E ISSUED UNDER SECTION 148. 19. THEREFORE, WE FIND THAT THERE IS NO NEED OF AN Y ADDITIONAL ASSESSMENT FOR THE FRACTIONAL PERIOD FRO M 1-4-2003 TO 13-11-2003. ACCORDINGLY THE ADDITION OF ` 1,25,76,728/- IS DELETED. 20. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDERS PRONOUNCED ON FRIDAY, THE 21 ST OF SEPTEMBER, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 21 ST SEPTEMBER, 2012. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.