TMI Blog2022 (3) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... cts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes 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 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) Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order, the learned A.O has stated 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 sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 proprietar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby 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 33,15,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree 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 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 fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly 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 iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 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., goodwil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained 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 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 @ 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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