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2022 (7) TMI 158 - AT - Income TaxCapital gain on relinquishment of rights in the assets of the firm - assessee paid amounts over and above the sum, standing to the credit of the capital account - amounts due to the assessee upon retirement from partnership - ascertained goodwill for the purposes of accounting and settlement - whether the amount received by the assessee in excess of the amount standing to the credit of the partnership firm which is paid towards the notional gain on revaluation of land held as stock in trade is ‘goodwill’ as the and therefore not liable to tax? - contention of AR that difference between the total amount standing to the credit of the capital account, in the form of capital contribution, interest and accumulated profits and the final amount paid to the assessee at the time of retirement is goodwill - HELD THAT:- We notice that, the revaluation of the inventory carried out by the firm was not accounted in the books by the firm, nor the same is reflected in the capital accounts of the partners. The computation of the gain is not disputed by the lower authorities, though the assessee has not produced any supporting document to show how the original cost of the land was arrived at. The important fact to be noted here is that, neither the stock in trade (land) is reflecting the revalued amount nor the capital account of the partners is credited with the gain on revaluation. When an Accounting Standard deals with a specific intangible asset, then AS-26 does not apply e.g., Valuation of Inventories. Also the internally generated goodwill arises when an enterprise incurs expenditure for future benefits e.g., Scientific Research, development of prototypes, etc., then the enterprise should not recognize any goodwill that may arise out of incurring of such expenditure at a future period as it is beyond the control of the enterprise. We are, therefore, of the view that the claim of the assessee for not routing the revaluation through the capital account of the partners stating it to be a practice as per AS-26 is not tenable. The Tribunal in the case of Savitri Kadur [2019 (7) TMI 593 - ITAT BANGALORE] clearly stated that the goodwill to the extent of the amount recorded in the books is not taxable and the goodwill that is not substantiated by entries in the books of accounts of the assessee would become taxable. In assessee’s case though the assessee claims that the difference in the amount as per capital account in the books and the amount settled to the assessee is goodwill, however, the same is not recorded in the books. Hence, respectfully following the above decision of the coordinate bench of the Tribunal, we hold that the amount being the amount paid in excess of what is standing to the credit of the partner’s capital account is taxable in the hands of the assessee. Thus, the appeal of the assessee is dismissed.
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