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2023 (2) TMI 444 - AT - Income TaxCapital gains - Gains arising from transfer of proprietory concern to assessee company - Violation of the conditions of section 47(xiv) - Goodwill acquired by incurring cost - Whether the gains which were exempt should be brought to tax in the hands of the successor company which is the assessee company? - HELD THAT:- As per the details filed by the assessee, goodwill considered by the AO is not self-generated but created by the erstwhile proprietary concern before assets and liabilities have been transferred to Pvt. Ltd. Co., which is evident from the fact that the assessee has filed necessary details of expenditure incurred for generation/creation of goodwill in the books of accounts of proprietary concern. This fact is strengthened by the findings of the order of the Ld.CIT(A) in the case of Mr.D.Sathish Babu [2016 (2) TMI 348 - ITAT CHENNAI] for the AY 2006-07, where the Ld.CIT(A) had categorically find that the assessee has spent a sum of Rs.3.47 Crs. towards goodwill and on account of transfer of proprietary concern to a Pvt. Ltd. Co., there will not be any capital gains. The ITAT Chennai in [2016 (2) TMI 348 - ITAT CHENNAI] had upheld the findings of the Ld.CIT(A) in the case of Mr.Satish Babu and held that since the assessee has generated goodwill by paying consideration, on transfer of said goodwill, capital gains become ‘nil’. From the above, it is very clear that even if you invoke the provisions of Sec.47A(3) of the Act, to withdraw exemption granted u/s.47(xiv)(b) of the Act, but, in principle there cannot be any capital gains on transfer of goodwill, because, said goodwill is not self-generated or created on account of conversion of proprietary concern into a Pvt. Ltd. Co., but acquired by incurring cost. If you consider cost incurred by the assessee for acquiring goodwill, then, capital gains on transfer of said goodwill would come to ‘nil’ amount. CIT(A) after considering the relevant facts has rightly deleted the additions made by the AO. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismissed the appeal filed by the Revenue.
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