2022 (3) TMI 1377 - AT - Income Tax

LTCG - exemption from levy of capital gains tax - business assets of the assessee proprietary business were taken over by the company - whether transaction does not constitute transfer for the purposes of capital gains? - HELD THAT - As 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 - assessee goodwill has not arisen out of succession rather it is within the assets of the proprietary concern as explained through 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 KANTILAL G. KOTECHA VERSUS ITO - 8 (2) (4) MUMBAI 2016 (7) TMI 975 - BOMBAY HIGH COURT 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 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. Unexplained bank deposits and the subsequent cash withdrawals - HELD THAT - 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. Undisclosed expenditure funds recorded in the seized material - CIT(A) gave benefit of telescoping adjustment and deleted the addition - HELD THAT - When the only addition made is with regard to the bogus purchases 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. Addition on account of interest income on the interest free advances - CIT-A deleted the addition - HELD THAT - 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 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.

Summary

Issues Involved:
1. Deletion of addition on account of long-term capital gains.
2. Deletion of addition on account of unexplained bank deposits.
3. Deletion of addition on account of undisclosed expenditure.
4. Deletion of addition on account of interest income on interest-free advances.

Detailed Analysis:

1. Deletion of Addition on Account of Long-Term Capital Gains:
The primary issue was whether the transaction constituted a "transfer" under Section 47(xiv) of the Income-tax Act, 1961. The Revenue contended that the assessee received additional benefits apart from shares, including goodwill and asset revaluation, thus violating Section 47(xiv)(c). The CIT(A) and ITAT found that the assessee received only shares, and the goodwill and revaluation were part of the total consideration of Rs. 6,63,00,000/-. The issuance of shares at a premium did not confer additional benefits but rather resulted in fewer shares being issued. The ITAT upheld the CIT(A)'s decision, stating that the transaction did not constitute a transfer for capital gains purposes as per Section 47(xiv).

2. Deletion of Addition on Account of Unexplained Bank Deposits:
The Revenue challenged the deletion of Rs. 2,64,00,000/- added under Section 68 for unexplained bank deposits. The CIT(A) accepted the assessee's explanation that the deposits were from another bank account, which was not verified by the AO. The ITAT remanded the matter back to the AO for verification of the new bank account, directing the AO to re-adjudicate the issue in accordance with the law and principles of natural justice.

3. Deletion of Addition on Account of Undisclosed Expenditure:
The Revenue disputed the deletion of Rs. 32,96,000/- added for undisclosed expenditure based on seized documents. The CIT(A) provided telescoping benefit, allowing the adjustment of this expenditure against the cash available from fictitious purchases debited in earlier years. The ITAT upheld this decision, agreeing that the availability of cash from bogus purchases justified the deletion of the separate addition for unexplained expenditure.

4. Deletion of Addition on Account of Interest Income on Interest-Free Advances:
The AO added Rs. 28,02,780/- as notional interest income on interest-free advances. The CIT(A) deleted this addition, citing that the assessee had sufficient capital to cover these advances, relying on the jurisdictional High Court's decision in Reliance Utilities and Power Ltd. The ITAT confirmed this decision, noting that the assessee's capital exceeded the advances, and thus no disallowance under Section 36(1)(iii) was warranted.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on the first, third, and fourth issues, confirming the deletions of additions made by the AO. On the second issue, the ITAT remanded the matter to the AO for verification and re-adjudication. The appeal was partly allowed for statistical purposes.