Assistant Commissioner of Income-tax, Central Circle - 2, Nashik V. Asha B Chaudhari, Girish B Chaudhari & Mahesh B Chaudhari, L/h. of Bhagwat Narayan Chaudhary, Jalgaon

ITSSA 51/PUN/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5050 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 07-03-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-06-2017
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained expenditure; Capital asset; Loose papers; Source of fund; Capital Gains
• Section: 68; 263; 207; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, PUNE SHRI PARTHA SARATHI CHAUDHURY, JM AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER IT(SS) A No. 51/PUN/2017 Assessment year: 2009-10 The Asstt. C.I.T. CC-2, Nashik Appellant Vs. Late Shri Bhagwat Narayan Chaudhari L/H 1. Mrs. Asha Bhagwat Chaudhari (wife), 2. Mr. Girish Bhagwat Chaudhari (son) and 3. Mr. Mahesh Bhagwat Chaudhari (son) 11 Swed Bindu, Shanti Nagar Yawal Road, Bhusawal, Jalgaon. PAN: AALPC O512G Respondent Appellant by : Shri Deepak Garg Respondent by : Shri Nikhil Pathak Date of Hearing : 02-03-2022 Date of Pronouncement : 08-03-2022 ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the Revenue emanates from the order of the learned CITA (A) for A.Y.2009-10 as per the following grounds of appeal. i) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 4,84,09,000/- made by the AO on account of long term capital gains by holding that the transaction does not constitute a 'transfer' for the purposes of capital gains in terms of section 47(xiv) of the Act, without appreciating the fact that the assessee was benefitted not only by the allotment of shares but also by receipts on account of goodwill (Rs. 1,82,00,000/-) and the higher valuation of the assets (Rs. 91,11,283/-) and therefore was not entitled for the exemption as per proviso (c) to section 47(xiv) of the Act? ii) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 2,64,00,000/- made on account of the unexplained bank deposits, and the subsequent cash withdrawals found recorded on the seized materials, by admitting additional evidence in the form of a new source bank account claimed by the assessee, without giving a reasonable opportunity to the A.O. as required under the Rule 46A of LT. Rules and by accepting the contention of the assessee that the source of bank deposits was the transfer from another bank account 2 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 when no such new bank account was claimed during the assessment proceedings and therefore the sources of deposits in the new bank account remained unverified in assessment as well as in appeal proceedings ? iii) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 32,96,000/- made by the AO on account of undisclosed expenditure found recorded on the seized material by holding that the assessee had debited bogus purchases in the Assessment Years 2006-07, 2007-08, 2008-09 and 2009-10 and there was availability of cash for telescoping against the unexplained expenditure, when the impugned bogus purchases and the unexplained expenditure were of different periods and no linkages or cash-flow has been established by the assessee? iv) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 28,02,780/- on account of interest income on the interest free advances without appreciating the fact that the assessee did not prove the nexus between the interest free funds available with him and the interest free advances as per the books of accounts of the assessee? v) Any other ground that may be urged at the time of hearing.” 2. In Ground No. 1, the Revenue is aggrieved with decision of the learned CIT (A) in deleting the addition of Rs. 4,84,09,000/- made by the learned A.O on account of long term capital gain while holding that the transaction does not constitute a „transfer‟ for the purpose of capital gains in terms of Section 47(xiv) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). It is the contention of the Department that the assessee was benefited not only by allotment of shares but also by receipts on account of goodwill of Rs. 1,82,00,000/- and the higher valuation of assets of Rs. 91,11,283/- and therefore, the assessee was not entitled for exemption as per proviso (c) to sec. 47(xiv) of the Act. The relevant facts are that the assessee‟s proprietary business was taken over by BNC Power Projects Ltd. w.e.f. 28-2-2009. It was observed by the learned A.O that all the business assets of the assessee proprietary business were taken over by the company. It was further noted by the Ld. A.O that as per the agreement, the assessee was allotted 33,15,000 equity shares of face value of Rs. 10/- at a premium of Rs. 10/- each. Accordingly in this manner, the total consideration of Rs. 6,63,00,000/- being the difference between the assets and liabilities taken over was to be discharged by the company. In the assessment order, the learned A.O has stated 3 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 that apart from consideration of equity shares and premium totaling to Rs. 6,63,00,000/- the assessee has received additional consideration of Rs. 2,73,11,283/- in the form of goodwill valuation of Rs. 1,82,00,000/- and revaluation of assets of Rs. 91,11,283/-. It is the case of the ld. A.O that section 47(xiv) of the Act which provides where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital assets or intangible assets to the company in such a scenario it will not be considered as a “transfer” for computation of capital gains, if the following three conditions are satisfied. (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; (b) that the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and (c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company. 3. The learned A.O has accepted the first condition that all the assets and liabilities of the proprietary concern related to the business have become the assets and liabilities of the company. The second condition that the shareholding of the proprietary should not be less than 50% of the total voting power in the company. This condition is also fulfilled by the assessee company and is accepted by the learned A.O. However, regarding the third condition that the sole proprietor should not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company, the learned A.O has opined that the assessee has not satisfied this condition laid down in section 47(xiv)(c) of the Act. The learned A.O has stated that the assessee was allotted 33,15,000 shares of face value of Rs. 10/- each at premium of Rs. 10/- each. According to the learned A.O by issuing at a premium it has resulted in granting additional benefit to the assessee. He has further stated that the capital account 4 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 of the assessee was credited with goodwill of Rs. 1,82,00,000/- and revaluation of assets at Rs. 91,11,283/-. Hence, according to the learned A.O, the assessee has received additional benefit and therefore, clause (c) of section 47(xiv) of the Act is not satisfied and the learned A.O has therefore, held that the gain arising on transfer of business is taxable in the hands of the assessee. The learned A.O has computed the total consideration at Rs. 9,34,11,283/- which is arrived at after adding the amount of Rs. 6,63,00,000/- plus Goodwill amount of Rs. 1,82,00,000/- and the revaluation amount of Rs. 91,11,283/-. The Ld. A.O has computed the net capital account balance of Rs. 4,50,02,283/- and accordingly worked out the gain at Rs. 4,84,09,000/- which was taxed by him as long term capital gains in the hands of the assessee. It is the contention of the assessee during the appellate proceedings before the learned CIT(A) that as per the agreement of transfer of business from proprietary concern to the company the total consideration was determined at Rs. 6,63,00,000/- and the company is discharging the said consideration by allotting 33,15,000 equity shares of face value of Rs. 10/- at premium of Rs. 10/- each. Accordingly, the assessee submits that it has received only 33,15,000 shares of the said company and no other consideration has been received by the assessee. The assessee categorically submitted that he has valued the goodwill at Rs. 1,82,00,000/- and revaluation of assets by an amount of Rs. 91,11,283/-. This revaluation of asset and valuation of goodwill has been taken into account while arriving at the net consideration of Rs. 6,63,00,000/-. The learned A.O has not appreciated that the amount arrived at Rs. 6,63,00,000/- is inclusive of the goodwill amount and the revaluation amount. 4. The learned A.R demonstrating the aforesaid position before us brought to our notice the business balance sheet of the assessee as on 28-2-2009 i.e. the date on which conversion from proprietary concern to the company has taken place and therein on the assets side total fixed assets is Rs. 6,56,96,302/- and in 5 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 the fixed asset schedule „G‟ wherein goodwill and assets revaluation amount i.e. Rs. 1,82,00,000/- and Rs. 91,111,283/- respectively are included and the total reflected is Rs. 6,56,96,302/-. The total of the assets is Rs. 23,38,42,997/- which is also shown in the schedule „A‟ and therefore, this total assets of Rs. 23,38,42,997/- which includes the fixed assets also includes the amount of goodwill and the revaluation of assets amount. Similarly, in the same schedule „A‟ the total of liabilities is Rs. 16,75,42,996.63 which is coming out the liabilities portion of the balance sheet dated 28-2-2009 wherein the total loan is Rs. 4,86,45,862.33 and total current liabilities and provisions of Rs. 11,88,97,134.30. The net consideration of total asset and liabilities is Rs. 6,63,00,000.37 as per schedule „A‟. The learned A.R submitted that all these facts were placed before the learned A.O and all these documents were explained to him demonstrating that the net consideration of Rs. 6,63,00,000/- includes amount of goodwill and revaluation of assets amount but somehow he has not appreciated the same. The net consideration therefore of Rs. 6,63,00,000/- is inclusive of goodwill amount and the revaluation amount. It was further submitted that when the assessee has received 33,15,000 shares of the company these shares were allotted by the company at a premium of Rs. 10/- each. Had it been the case where the shares were allotted at a face value in that event the company would have been required to issue 66,30,000 shares to the assessee. By issuing shares at a premium the company had issued lesser shares to the assessee. It was also submitted that when the assessee has not received any consideration from the company other than 33,15,000 equity shares and when the amount of goodwill and revaluation of assets is already included while arriving at the net consideration of Rs. 6,63,00,000/- in such a scenario, the assessee has not violated clause (c) of sec. 47(xiv) of the Act and hence the addition on long capital gain of Rs. 4,84,09,000/- should be deleted. 6 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 5. The learned CIT(A) from para 11.2 of his order first of all analyzed the facts in this issue. The Ld. A.O has made an addition of Rs. 4.84.09,000/- on account of long term capital gain arising on transfer of business to the company M/s. BNC Power Projects Ltd. The assessee had transferred his running proprietary business in the name and style of M/s. B.N. Chaudhuri Engg. and Contractors to M/s. BNC Power Projects Ltd. w.e.f. 28-2-2009 and claimed that the said transaction was not liable for capital gain tax since the transfer to the company was in accordance to the conditions prescribed u/s 47(xiv) of the Act. According to the learned A.O the assessee has not satisfied the prescribed condition in sec. 47(xiv)(c) of the Act and therefore, gain on transfer of business was liable for capital gain tax. In this background, crux of the issue for adjudication before the learned CIT(A) was essentially whether the assessee satisfied the condition laid down in sec. 47(xiv)(c) of the Act or not. That according to the learned A.O the assessee satisfies the first two conditions i.e. (i) all the assets and liabilities of proprietary concern relating to business immediately before the succession become assets and liabilities of the company; and (ii) shareholding of the sole proprietor in the company shall not be less than 50% of the voting power and its shareholding should remain as such for a period of five years from the date of the succession. Since the assessee held 98% of the shares of transferee company this condition also stood satisfied. However, the learned A.O opined that the assessee has not satisfied the third condition, which states that the sole proprietor shall not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares hence, the addition. As per the learned A.O, the total consideration of Rs. 6,63,00,000/- payable to the assessee was discharged by the company by issuing 33,15,000 shares of face value of Rs. 10/- each at a premium of Rs. 10/- each. That by issuing shares at a premium resulted in violation of clause (c) of section 47(xiv) of the Act. Further, in para 7 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 15.11 of the order the learned A.O has stated that by issuing shares at a premium the assessee was rewarded by the company resulting in the credit of additional sum of Rs. 3,31,50,000/- to the assessee‟s account in the books of the company which was in addition to the credit on account of share capital of Rs. 3,31,50,000/. Thus, the first objection of the learned A.O was that issuing shares at a premium had resulted in conferring additional benefit to the assessee. Secondly, the assessee has raised goodwill of Rs. 1,82,00,000/- and re-valued its share higher by Rs. 91,11,283/- before transfer which has resulted in additional benefit to the assessee. Hence, the assessee has violated clause (c) of sec. 47(xiv) of the Act and therefore, was liable to pay long term capital gain tax on transfer of business. Thereafter, the learned CIT(A) after considering the assessment order and the submissions of the assessee held as follows: “I have considered the material placed before me. The AO made an addition of Rs. 4 84,00,0001 - on account of Long Term Capital Gain arising on transfer of business to the Company Mis BNC Power Projects Ltd. Brief facts are that the appellant had transferred his running proprietary business in the name and style of Mis B N Chaudhary Engineers & Contractors to Mis BNC Power Projects Ltd. w.e.f 28.02.2009 and claimed that said transaction was not liable for capital gains tax, since the transfer to the company was in accordance to the conditions prescribed under section 47(xiv). According to the A.O. the appellant had not satisfied the prescribed conditions in section 47(xiv) and therefore, the gain on transfer of business was liable for capital gain tax. The AO has stated that as per the agreement entered into, the appellant transferred all its assets and liabilities to Mis BNC Power Projects Ltd. and the difference between the assets andliabilities was worked out at Rs. 6.63 Crores. He further noted that the appellant was allotted 33,15,000 shares of face value of Rs. 10/- each at premium of Rs.1 01 - each. Accordingly, the company M/s BNC Power Projects has discharged the consideration of Rs.6.63 crores payable to appellant. The AO also noted that in the balance sheet prepared for working out consideration payable to the appellant, goodwill of Rs 1,82,00,0001 - was raised and assets were revalued at higher value by Rs 91,11,283/ - hence in his opinion appellant received additional benefits and violated the conditions stipulated uls 47(xiv). 11.3 Crux of the dispute is whether appellant fulfilled the conditions stipulated under section 47 (xiv) so as to not treat the transaction as transfer for purposes of computing the capital gains. According to the AO, the appellant did not fulfill the conditions whereas appellant claimed to have fulfilled all the conditions. As per the provisions of Section 47(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it, then the following three conditions are to be satisfied so that transactions shall not be regarded as 'transfer' for purposes of Capital Gain. (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; (b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five year .from the date of the succession; and 8 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 (c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company"; According to the AO, the appellant had satisfied first two conditions i.e. all the assets and liabilities of proprietary concern relating to business had become assets and liabilities of the company and the second condition ie. The shareholding of sole proprietor in the company shall not be less than 50% of the voting power and his shareholding should remain as such from the date of succession. Since appellant held 98% of the shares in the transferee company, this condition also stood satisfied. However, according to the AO, the appellant has not satisfied the third condition, which states that the sole proprietor shall not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares. As per' the AO, the total consideration of Rs. 6.63 Crores payable to the appellant was discharged by the company by issuing 33,15,000 shares of face value of Rs. 10/ - each at a premium of Rs. 10/ - each. According to the AO, issuing shares at a premium is resulting in violation of clause (c) of section 47(xiv). In para 15.11 of the order, the AO stated that by issuing shares at a premium, the appellant was rewarded by the company resulting in the credit of additional sum of Rs.3,31,50,000 to the appellant's account in the books of the company which was in addition to the credit on account of share capital of Rs.3,31,50,000. Thus, the first objection of the AO was that issuing shares at a premium had resulted in conferring additional benefit to the appellant. Apart from this, the AO had noted that the appellant had raised Goodwill of Rs. 1.82 Crores and revalued its asset higher by Rs. 91,11,283/ - before transfer and it had resulted in percolation of additional benefit to the appellant. Hence, the AO held that the appellant had violated clause (c) of see. 47(xiv) and thereby was liable for payment of Long Term Capital Gain tax on transfer of business. On the other hand, the appellant had disputed the addition made by A.O. Firstly, the appellant stated that consideration arrived at of Rs. 6.63 crores was after considering goodwill created of Rs. 1.82 crores and revaluation reserve of Rs. 91,11,283/-. It was not case of the A.O that the appellant had received any amount over and above net consideration so arrived of Rs.6.63 crores. The appellant further argued that the consideration of Rs. 6.63 crores was discharged by company by issuing 33,15,000 shares of face value of Rs. 10/- each at premium of Rs. 10/- each. It was submitted that the appellant had received only 33,15,000 shares from the company and no additional consideration or benefit in any other manner was received by the appellant from said company. Accordingly, it was submitted that there was no violation of the conditions stipulated in sec. 47(xiv) and entire addition should be deleted as transaction did not constitute transfer resulting in capital gain liability. I find merit in the contention raised by the appellant. There is no dispute that the appellant has received only 33,15,000 shares from M/s. BNC Power Projects Ltd. and no other benefit in cash or kind was received. The amount of Goodwill created and the revalued figure of the asset was taken into account while arriving at the net consideration of Rs. 6.63 crores payable to the appellant on account of transfer of business. Revalued assets including goodwill became asset of the transferee company and in lieu of excess of assets over liability only 33,15,000 shares were allotted to the appellant resulting in appellant‟s shareholding at 98% of total shareholding of the company. In this manner, all the conditions stipulated u/s 47(xiv) were satisfied. Contention of the AO that the appellant had received additional benefit on account of goodwill and revaluation of the asset over and above the amount of Rs. 6.63 crores was not correct. Further, issuing of shares at a premium does not result in conferring additional benefit to the appellant. Clause (c) of sec. 47(xiv) states that the sole proprietor should not receive any consideration or benefit other than by way of allotment of shares in the company. In this case, the appellant has only received 33,15,000 shares in M/s. BNC Power Projects Ltd. and he has not received any other consideration either in monetary fork or in kind from the company. By issuing shares at a premium the company had issued lesser shares to the appellant. In case, the shares were issued at the face value, the company was to issue 66,30,000 shares to the appellant as against which the appellant was issued 33,15,000 shares. It was explained that he received lesser number of shares on account of premium included therein, hence was at the position of disadvantage. It is therefore, held that the appellant has not received any other consideration directly or indirectly in the company and therefore, the appellant had duly complied with the condition specified 9 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 in clause (c) of sec. 47(xiv). In view of this conclusion, I am not going into the working of capital gains liability as the transaction did not constitute „transfer‟ for purposes of capital gain in terms of provisions of sec. 47(xiv). Accordingly, the addition made of Rs. 4,84,00,000/- is deleted and ground raised by the appellant is hereby allowed.” 6. `We have perused the relevant documents available on record and analyzed the facts and circumstances of the case and have considered the submissions of the parties herein. It is an undisputed fact that there was a conversion of the proprietary concern of the assessee to company on 28-2-2009. During the assessment proceedings, the A.O in terms of section 47(xiv) of the Act, observed that three conditions as provided therein have to be satisfied so to get exemption from levy of capital gains tax. The assessee has satisfied the first condition i.e. all the assets and liabilities of the sole proprietary concern relating to the business immediately before succession has become assets and liabilities of the company. The assessee has also complied with the second condition i.e. the shareholding of the sole proprietor in the company is not less than 50% of the total voting power in the company and such shareholding continues to remain as such for a period of five years from the date of succession. These two conditions, according to the learned A.O, have been satisfied by the assessee and there is no dispute as such. The ld. A.O has made the addition only on the ground that the assessee is hit by clause (c) of section 47(xiv) of the Act where it states that the sole proprietor does not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company. As per the learned A.O the total consideration of Rs. 6,63,00,000/- payable to the assessee was discharged by the company by issuing 33,15,000 shares of face value of Rs. 10/- each at a premium of Rs. 10/- each. The learned A.O stated that by issuing shares at a premium, the assessee was rewarded by the company resulting in the credit of additional sum of Rs. 3,31,50,000/- to the assessee‟s account in the books of account which was in addition to the credit on account of share capital of Rs. 3,31,50,000/-. Therefore, the learned A.O had objected that 10 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 the issuing of the shares at a premium has resulted in conferring additional benefit to the assessee. Apart from this, the learned A.O also held the assessee has raised goodwill of Rs. 1,82,00,000/- and revaluated its assets higher by Rs. 91,11,283/-. We have already examined from the business balance sheet as on 28-2-2009 wherein total fixed asset is at Rs. 6,56,96,302/- as per Schedule „G‟ which, in fact, consisted of goodwill amounting to Rs. 1,82,00,000/- and assets revaluation of Rs. 91,11,283 and thereafter, we have also examined in Schedule „A‟ where the total asset is mentioned at Rs. 23,38,42,997/- which includes the fixed assets of Rs. 6,56,99,302/- and which in turn includes the amount of goodwill and revaluation of asset amount. Similarly, on the liability side totaling to Rs. 16,75,42,996.63 includes the total loan amount of Rs. 4,86,45,862.33 and liability and provision at Rs. 11,88,97,134.30 and as such the difference of total assets and total liabilities is at Rs. 6,63,00,000. Therefore, the net consideration so arrived at Rs. 6,63,00,000/- is inclusive of goodwill amount and revaluation amount. This consideration was discharged by the company by issuing 33,15,000 shares of face value of Rs.10/- each at a premium of Rs. 10/- each. There is no dispute that the assessee has received only 33,15,000 shares from M/s. BNC Power Projects Ltd. and no other benefit in cash or kind was received. We are therefore, in conformity with the findings of the learned CIT(A) that amount of goodwill created and revalued figure of assets was taken into account while arriving at net consideration of Rs. 6,63,00,000 crores payable to the assessee on account of transfer of business. Revalued asset including goodwill became asset of the transferee company and in lieu of excess assets over the liabilities only 33,15,000 shares were allotted to the assessee resulting in assessee‟s shareholding at 98% of the total shareholding of the company. Therefore, the contention of the ld. A.O that the assessee had received additional benefit on account of goodwill and revaluation of the assets over and above the amount of Rs. 6,63,00,000/- is not correct. We are in conformity with the observation of the learned CIT(A) that 11 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 issuing of shares at a premium does not result into conferring additional benefit to the assessee. In fact issuance of shares at a premium the company had issued lesser shares to the assessee. In case, the shares were issued at a face value the company was to issue 66,30,000 shares to the assessee, as against which the assessee was issued only 33,15,000 shares. Therefore, as facts demonstrate the assessee has received lesser number of shares on account of premium including therein hence the assessee was in disadvantage position. We find that Co- ordinate Bench of the Tribunal at Panaji in the case of ACIT Cir. 1(1) Panaji, Goa Vs. Joe Marcelinho Mathias (2013) 34 taxman.com 129 (Panaji) – Trib) on an identical facts and circumstances has analyzed the scope of clause (c) to section 47(xiv) of the Act. The words “other than by way of allotment of shares in the company” qualifies the words “does not receive any consideration or benefit” as well as “directly” or “indirectly”. This clearly denotes that the proviso (c) permits receiving of consideration or benefit „directly‟ or „indirectly‟ by way of allotment of shares in the company. It is not a case where the assessee has received any other consideration or benefit “other than allotment of shares in the company”. In view of this interpretation, clause (c) of section 47(xiv) of the Act does not prohibit receipt of higher number of shares and such receipt of higher value of share because of revaluation of assets at the time of succession cannot be treated as consideration or benefit received other than by way of allotment of shares. In that decision, the Panaji Bench also considered another decision of Bombay Bench of the Tribunal in the case of Asstt. CIT Vs. Nayan L. Mepani (2012) 18 Taxmann.com 59. The relevant part of the judgment of the Panaji Bench (supra) is extracted as follows: “ 14. As per sec. 47(xiv) it is apparent that where the sole proprietorship concern is succeeded by a company in the business carried on by it, as a result of which some proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company, the transactions are not treated as transfer subject to the three conditions laid down therein. It is not denied by the revenue that all the assets and liabilities of the same proprietorship concern relating to business immediately before the succession has become the assets and liabilities of the company. It is also not 12 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 denied that the shareholding of the same proprietor was not less than 50% of the total voting power in the company. The only objection on the part of the revenue is that the Assessee did not comply with the condition no. 3 since the Assessee has received consideration by way of allotment of shares in the company and the value of those shares are much more than the value of the assets as was disclosed in the books of the proprietary concern. In our opinion, the Assessee has duly complied with the condition as stipulated under clause (c) to Section 47(xiv). This proviso only requires that same proprietor does not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company. The words 'other than by way of allotment of shares in the company' qualifies the words 'does not receive any consideration or benefit' as well as 'directly or indirectly'. This clearly denotes that proviso (c) permits receiving of consideration or benefit directly or indirectly by way of allotment of shares in the company. It is not a case where the Assessee has received any other consideration or benefit other than the allotment of shares in the company. In view of this interpretation, we do not find any illegality as caused in the order of CIT(A) in deleting the addition made by the Assessing Officer. Clause (c) of Section 47(xiv) does not prohibit receipt of higher number of shares because the re-valuation. Receipt of higher value of shares because of re-valuation of the assets at the time of succession cannot be treated as consideration or benefit received other than by way of allotment of shares. Our aforesaid view is duly covered by the decision of the Mumbai bench in the case of Asstt. CfT v. Nayan L. Mepani (supra) in which while dealing with similar issue, the Hon'ble Tribunal held as under: (emphasis supplied) "As far as proviso (c) of section 47(xiv) is concerned the revenue has not disputed that the Assessee has not received any consideration apart from allotment of shares in the company. The grievance of the revenue is only that prior to the transfer of the business to the Limited Company revaluation of assets had taken place and that intangible assets were also revalued. According to the revenue by doing so shares were issue at a higher cost to the Assessee and in future when Assessee transfers such shares cost of acquisition of the shares will be higher and consequently there would be a benefit of lesser capital gain on transfer of those shares. At the outset we are not convinced with this line of reasoning adopted by the AO. The section envisages denial of exemption under section 47(xiv) under proviso (c) only in a case where consideration benefit for transfer of the business is received other than by way of allotment of shares in the company. It is not the case of the revenue that any other consideration or benefit directly or indirectly received by the Assessee other than allotment of shares the section does not contemplate a future benefit which the Assessee is likely to get (even such benefit is only contingent and not certain). As rightly contended on behalf of the Assessee receipt of higher number of shares because of revaluation cannot be treated as consideration or benefit received other than by allotment of shares." (emphasis supplied) 15. In the case of Asstt. CfT v. Madan Mohan Chandak [2011] 14 taxmann.com 27/47 SOT 207 (Chennai), (URO) the Hon'ble Tribunal has taken the view that provision of Sec. 47(xiv) shall apply even in case of sale and the provisions of Sec. 50B will not apply. While dealing with the issue, the Tribunal under para 6 of its order held as under: "6. Even in a case of sale, this section would apply. The term 'sole proprietary concern sells or otherwise transfers any capital asset" purportedly establishes that 'sale' is also exempt. When there is a specific provision i.e. 47(xiv) in the Act dealing with a particular case, it is not advisable to shift to other similarly worded provision. Hence, section 50B will not apply to the facts of the given case. It is true that the assets and liabilities of the proprietary concern cannot become the assets and liabilities of the company before the succession. The term "immediately before" cannot be taken to mean that they should precede the succession. The transfer can take place only at the time of succession 13 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 and not before, which is impossible. Consequently, we do not find any infirmity in the order of the ld. CIT(A) and we are also of the considered opinion that this transaction has to be treated as a transfer within the meaning of section 47(xiv) and the surplus over the net worth is held to be exempt from income tax." 16. In the case of Prakash Electrical Co. (supra) the issue involved does not relate to the transfer of the undertaking by the proprietorship concern to the company. Therefore, this decision in our opinion will not apply to the facts of this case. 17. In the case of D.P. Sandu Bros. Chembur (P.) Ltd. (supra) the issue before the Hon'ble Supreme Court do not relate to the provisions of Sec. 47(xiv). The issue before the Hon'ble Supreme Court related to the chargeability of the income to tax prior to the amendment of sec. 55(2) arising due to the consideration received for surrendering of tenancy rights. In this case, the Hon'ble Supreme Court ultimately held if the income cannot be taxed under Section 45, it cannot be taxed at all. This decision, in our opinion, is entirely different to the facts relating to the case before us. 18. In the case of K. V Mohammad Zakir v. Asstt. CIT [2010] 36 SOT 433 (Cochin), the issue before the Cochin Bench related to the validity of the order passed under Section 263. In this case, the Hon'ble Tribunal while dealing with the order revised under Section 263 with regard to the applicability of Sec. 47(xiv) took the view that the proprietor's business was taken over by the company along with all assets and liabilities by paying consideration to extent of proprietor's capital by way of allotment of shares and the same was to the extent of 51 % of share capital of the company and thus conditions of Sec. 47(xiv)(c) was satisfied and held that the CIT was not justified in revising order under Section 263 on the ground that amount lying to credit of current account of proprietor was not clubbed with amount of consideration while issuing shares as current account of the proprietor being current liability, the same cannot enter into computation of consideration and the revision under Section 263 was not valid. 19. We have also gone through the applicability of the decision of Mcdowell & co. (supra) In our opinion, this decision is not applicable in the case of the assessee. Hon'ble Supreme court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 7061132 Taxman 373 (SC) duly considered this decision and held that the basis of mcdowell case did not appear to be correct. Legal steps cannot be as non-est based upon some hypothetical assessment of the 'real motive" of the assessee. The +-, apex court held that an act which is otherwise permissible and valid in law cannot be termed as non-est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest. The provision of section 47(xiv) has been incorporated by the government through the Finance Act and therefore same cannot be said to be illegal and the transactions being carried out according to that provision cannot be regarded to be against the national interest and for tax evasion. We, therefore, are of the firm view that the decision of Mcdowell & co is not applicable in the case of the assessee. In view of the aforesaid discussion and the decisions of co-ordinate bench and there being no contrary decision brought to our knowledge by the learned DR, we are of the view that no interference is called for in the order of CIT(A) in deleting the addition made by the Assessing Officer holding that the provisions of Sec. 47(xiv) are not applicable. We confirm the order of CIT(A) deleting the said addition. Thus, ground nos. 1 to 4 stands dismissed.” 14 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 7. Per contra, the ld. D.R referred to the decision of Co-ordinate Bench of Mumbai Tribunal in the case of Kantilal Gopalji Kotecha, Mumbai Vs. ITO 8(2)(4), Mumbai in ITA No. 6903/Mum/2012 for A.Y. 2009-10 which also travelled upto Hon‟ble Bombay High Court in Income-tax Appeal No. 1731 of 2014 dated 18-7- 2016 and by referring to these judgments, the learned D.R submitted that in these decisions, the issue was decided in favour of the Revenue and are applicable to the facts of the present case. 8. Having gone through both the above referred judgments, we are of the considered view that the facts in those cases are substantially different as compared to the case of the assessee before us. In the cited judgments by the learned D.R., goodwill generated has no mention in the books of the proprietary concern and neither it is a part of the assets and liabilities of the said proprietary concern which was succeeded by the company, whereas in the case of the assessee before us, we have already examined that goodwill was very much part of the fixed assets in the business balance sheet drawn on 28-2-2009 as per Schedule „G‟ and such goodwill imbibed within the fixed assets of the proprietary concern when the conversion took place on 28-2-2009 from proprietary concern to the company. Further we observe as per the facts before the Hon‟ble jurisdictional High Court (supra) were as follows: “According to the assessee, the excess credit balance, namely, the difference between the agreed consideration and the capital balance was accounted as goodwill in the books of the Private Limited Company.” Therefore, in this case, goodwill is a balancing figure. Whereas in the case of the assessee before us goodwill is a part of the assets of the proprietary concern as per the balance sheet dated 28-2-2009. Again, in the case before the Hon‟ble Bombay High Court (supra), such goodwill was arising on succession whereas in the case of the assessee goodwill has not arisen out of succession rather it is within the assets of the proprietary concern as explained through 15 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 Schedule „G‟ and Schedule „A‟ corresponding to the assets as per the balance sheet of the proprietary concern of the assessee. When the facts are substantially different in the decision of the Hon‟ble Bombay High Court (supra) referred by the learned D.R., the same cannot be applied to the present facts and circumstances of the assessee‟s case before us. Thus, on examination of aforestated facts and circumstances and judicial pronouncements, we are of the considered view that no interference is called for in the order of the learned CIT(A) in deleting the addition made by the A.O holding that the provisions of sec. 47(xiv) are not applicable since the transaction does not constitute „transfer‟ for the purposes of capital gains in view of the said provision. We confirm the order of the learned CIT(A) deleting the said addition and the relief provided to the assessee is sustained. Ground No. 1 of the revenue’s appeal stands dismissed. 9. In Ground No. 2, the Revenue is aggrieved by the deletion of addition of Rs. 2,64,00,000/- made on account of unexplained bank deposits and the subsequent cash withdrawals. The relevant facts are that during the search at the residential premises of Shri Girish Bhagwat Chaudhary at Pune, several incriminating documents were seized. On page 7 of Annexure A/1 several hand- written noting have been found. The aforesaid documents belonged to the assessee Shri Bhagwat Chaudhary. These documents contained detailed narration of the entries in Bank A/c No. 07921000006316 of Shri Girish B. Chaudhary with HDFC Bank. From verification of this bank account, it was found that during the period from 22-7-2008 to 26-3-2009 total sum of Rs. 2,64,00,000/- has been deposited and the same has been withdrawn by self-paid cheques. That the entire amount of Rs. 2,64,00,000 deposited in between this period has been withdrawn in cash. However, when the assessee was asked to explain the source of the aforesaid amount of Rs. 2,64,00,000/-, the assessee failed to furnish any satisfactory explanation, despite being given sufficient opportunity with 16 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 regard to substantiating the transaction of deposits totaling to the sum of Rs. 2,64,00,000/- as appearing in his books of account with HDFC Bank No. 07921000006316 during the period from 22-7-2008 tom 26-3-2009 in corresponding to his books of accounts. According to the A.O the cash of Rs. 2,64,00,000/- for the year under consideration and Rs. 1,66,00,000/- during the F.Y. 2011-12 were withdrawn and handed over to Chartered Accountant Shri Palai who arranged the entire transactions. The A.O further noted in para 17.8 that the deposits were routed through RTGS with the role of the main architect as arranger being apparently played by Shri Palai and it was some kind of arrangement. Merely because the bank accounts were used the assessee was not absolved from explaining the source of funds. The ld. A.O therefore, held that since the assessee failed to explain the said deposits, the addition of Rs. 2,64,00,000/- was made u/s 68 of the Act. On the other hand, the assessee submitted that there was no reason to make the addition since all these amounts are duly recorded in his books of account which was audited u/s 44AB of the Act. The bank accounts were part of the books of account of the assessee. The assessee submitted the relevant ledger account to point out that all these deposits amounting to Rs. 2,64,00,000/- were out of the funds transferred from another bank account No. 792230000307 maintained by the assessee with the HDFC Bank Ltd. The learned CIT(A) accepted this contention of the assessee that the deposits made in a/c No. 07921000006316 of the HDFC Bank were from the funds withdrawn from another a/c No. 7922320000307 also from HDFC Bank Ltd. The learned CIT(A) opined that the ld. A.O has simply made the addition without verifying the facts and since the deposits of Rs. 2,64,00,000/- were made from the funds transferred from another bank account held by the assessee, there was no question of treating the entire amount of Rs. 2,64,00,000/- as unexplained cash credit. 17 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 10. At the time of hearing, the ld. D.R submitted that the assessee, during the course of search has stated that the documents contained business transactions of various group concerns which were recorded in the books of account. However, before the ld. CIT(A), the assessee has come out with the new explanation that the funds were actually from another bank account of the assessee in the same HDFC Bank in the Account No. 7922320000307. The ld. D.R vehemently submitted that, during the post search enquiry as well as during the course of assessment proceedings, the assessee has never come forward with this new version of his submission. The ld. CIT(A) has also not forwarded the information of this new bank account for factual verification purposes to the ld. A.O and that the ld. A.O was not given an opportunity to verify the correctness of the claim of the assessee which he was now making before the ld. CIT(A). The ld. CIT(A) has simply relied on the submissions of the assessee and has provided relief. It is also pointed out by the ld. D.R that the ld. CIT(A) mentioned in his order that during the course of remand proceedings the books were produced for examination by the assessee to the ld. A.O, he did not point out any unexplained cash credit in the bank account. Whereas, the fact was on the issue as demonstrated by the ld. D.R., bringing to our notice the remand report annexed at pages 51 and 63 in the paper book, wherein it is clearly mentioned that irrespective of the opportunity being provided, the assessee has not submitted his “contention”. Therefore, this finding in the ld. CIT(A)‟s order that books were produced for examination by the assessee is a wrong finding of fact. In this perspective the ld. A.R fairly submitted that the issue may be remanded to the file of the ld. A.O for verification of bank account No. 7922320000307 with HDFC Bank Ltd. belonging to the assessee and if the factual parameters are correct that the deposits were made from the funds from this account then in such case, relief 18 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 may be given to the assessee as per law. The ld. D.R. fairly conceded to this submission of the ld. A.R. 11. Having heard the parties herein, considering the facts and circumstances and in the interest of justice, we are of the considered view that the ld. A.O should verify the sanctity and correctness of the Bank A/c No. 7922320000307 in HDFC Bank Ltd. belonging to the assessee and examine whether the funds deposited of Rs. 2,64,00,000/- in the bank account No. 07921000006316 of the HDFC Bank, whether they were from this account or not and re-adjudicate this issue in totality as per law. Needless to say that, the ld. A.O. shall comply with the principles of natural justice and provide an opportunity of hearing to the assessee. Ground No. 2 of the revenue’s appeal is allowed for statistical purposes. 12. In Ground No. 3, the Revenue is aggrieved with the deletion of Rs. 32,96,000/- by the ld. CIT(A) which was made by the ld. A.O. on account of undisclosed expenditure funds recorded in the seized material. The relevant facts are that during the course of search at the residence, pages 2 and 3 were seized vide Annexure „A-2‟ which recorded the names of various Government Officials like Executive Engineer, Dy. Executive Engineer and other staff members and against their names and designations amounts were mentioned. During the course of assessment proceedings, the ld. A.O noted that payments recorded against Government Officials totaling to Rs. 32,96,000/- were not an allowable expenditure and also asked the assessee to explain the source of funds used for making these payments. The assessee submitted before the ld. A.O that the paper was not in his hand writing and did not belong to him. The assessee also submitted that these were papers showing sundry expenses incurred on site for finalization of R.A. Bills. Nowhere on the papers it was mentioned that the amounts paid to Government officials and no such expenditure was claimed in the books of account. This was not accepted by the ld. A.O and accordingly he added 19 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 an amount of Rs. 32,96,000/- being unexplained expenditure to the total income of the assessee. Before the ld. CIT(A), it was submitted by the assessee that there was no date mentioned on the papers and it could not be said that the amounts were actually paid, therefore, the papers were dumb documents. However, the ld. CIT(A) did not agree with the contention of the assessee in principle since there was a co-relation of executing work contract awarded to the assessee by Maharashtra State Electricity Corporation and considering the business of the assessee and close association of Government officials, the ld. CIT(A) was of the opinion that the amounts were actually paid. Alternatively, the assessee contended that for A.Y 2006-07 to 2008-09 and also during the year under consideration i.e. A.Y. 2009-10, the unexplained cash credit being on account of purchases from fictitious parties totaling to Rs. 59,58,770/- was made by the ld. A.O and the assessee did not press the addition on merit during A.Y. 2006-07 to 2008-09. Therefore, telescoping benefit on account of cash being available by debiting fictitious purchases should be allowed against the unexplained expenditure of Rs. 32,96,000/-. The ld. CIT(A) held, finding merit in this contention of the assessee that he had debited bogus purchases to the extent of Rs. 59,58,770/- which was upheld by the ld. CIT(A) for A.Y 2006-07 to 2008-09 and also for the year under consideration. This was not challenged by the assessee. Therefore, availability of cash to the extent is to be considered for telescoping against the unexplained expenditure. There is no justification of making a separate addition on account of unexplained expenditure. Therefore, the ld. CIT(A) gave benefit of telescoping adjustment and deleted the addition. 13. At the time of hearing, the ld. D.R objected that by giving telescoping benefit of adjustment to the assessee, the ld. CIT(A) has not enquired into the cash flow statement. In absence of such cash flow statement, it is difficult to ascertain the amount of availability of cash for telescoping against the 20 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 unexplained expenditure. Per contra, the ld. A.R submitted that during A.Y 2006- 07 to 2008-09 and also for the year under consideration i.e. A.Y 2009-10, the ld. A.O made an addition of Rs. 59,58,770/- in respect of bogus purchases and there was no other unaccounted income unearthed by the ld. A.O with regard to the assessee. Therefore, when the only addition made is with regard to the bogus purchases which is to the extent of Rs. 59,58,770/- there is no need for separate cash flow statement for telescoping unexplained expenditure. We are in conformity with the submission made by the ld. A.R since it is undisputed fact that for A.Y 2006-07 to 2008-09 and during the year under consideration unexplained cash credit on account of bogus purchases totaling to Rs. 59,58,770/- was made by the ld. A.O and the assessee did not press the addition on merit. Therefore, telescoping benefit on account of cash being available by debiting factious purchases should be allowed. Therefore, availability of cash to that extent is to be considered for telescoping against unexplained expenditure. We agree with the findings of the ld. CIT(A) that there is no justification for making separate addition on account of unexplained expenditure. The relief provided to the assessee is sustained. Ground No. 3 of the Revenue’s appeal is dismissed. 14. In Ground No. 4, the Revenue is aggrieved with the decision of the ld. CIT(A) in deleting the addition of Rs. 28,02,780/- on account of interest income on the interest free advances. The relevant facts are that the ld. A.O noted from the balance sheet that as per Schedule „L‟, advances given to others were Rs. 2,2,33,117/- as on 28-2-2009 (in fact correct amount as appearing in the balance sheet is Rs. 2,22,53,117/-). It was also noted that the assessee earned interest of Rs. 27,59,074/- from the FDRs and made interest payments of Rs. 1,33,30,111/- on borrowed funds. He asked the assessee to furnish details of interest received from the persons to whom advances of Rs. 2,22,33,117/- were given. The assessee did not furnish any information and therefore, estimating interest income 21 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 @ 9% p.a. on advances of Rs. 2,22,33,117/- the addition of 28,02,780/- was made. That before the ld. CIT(A) it was submitted by the assessee that he had sufficient capital and interest free funds to make interest free advances. That thereafter, the ld. CIT(A) had also forwarded the submissions of the assessee to the ld. A.O for his comments. The assessee submitted the Audited copy of the balance sheet as on 28-2-2009 along with Annexures. It was submitted that the assessee had capital of Rs. 8,99,72,455/- as on 28-2-2009 and of Rs. 4,49,51,906/- as on 31-3-2008 which was sufficient to make interest free advances. The ld. CIT(A) placed reliance on the decision of Hon‟ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 340) wherein it has been held that the presumption is that interest free funds were used for non- business purposes. Hence, no disallowance was called for. In view of the decision of Hon‟ble Jurisdictional High Court (supra) relied upon by the assessee and iview of the examination of facts that assessee‟s capital was in excess of advances of Rs. 2,22,33,117/- made for non-business purposes, the ld. CIT(A) held that no disallowance of interest u/s 36(1)(iii) of the Act was called for and the ld. A.O was directed to delete the said disallowance. 15. At the time of hearing, the ld. D.R fairly submitted that this issue is covered by the decision of Hon‟ble Jurisdictional High Court (supra) as referred by the assessee and the Revenue also could not bring any materials/documents on record to suggest facts otherwise and therefore, it remains undisputed fact that the assessee‟s capital was in excess of advances of Rs. 2,22,33,117/- made for non-business purposes and hence we do not find any reason for interference with the findings of the ld. CIT(A) in deleting the said addition. Therefore, the relief granted to the assessee is sustained. Ground No. 4 of the Revenue’s appeal is dismissed. 22 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 16. In the combined result, the appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in the open Court on this 8 th day of March, 2022. Sd/- sd/- (DR. DIPAK R. RIPOTE) (PARTHA SARATHI CHAUDHURY) (ACCOUNTANT MEMBER) JUDICIAL MEMBER Pune; Dated this 8 th day of March 2022 Ankam Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A) concerned 4. The Pr. CIT concerned 5. The CIT (DR) ITAT. 6. Guard File BY ORDER, /// TRUE COPY /// Sr. Private Secretary ITAT, Pune. 23 I.T.(SS)A No. 51/PUN/2017 Bhagwat N. Chaudhary Assessment year : 2009-10 Date 1 Draft dictated on 04-03-2022 Sr.PS 2 Draft placed before author 07-03-2022 Sr.PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS 6 Kept for pronouncement on Sr.PS 7 Date of uploading of order Sr.PS 8 File sent to Bench Clerk Sr.PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order