TMI Blog2023 (2) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... oprietary 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. - ITA No.582/Chny/2021 - - - Dated:- 7-9-2022 - SHRI V. DURGA RAO, HON BLE JUDICIAL MEMBER ANDSHRI G. MANJUN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored. 3. The brief facts of the case are that M/s.Univercell Telecommunications, a proprietary concern of Mr.Sathish Babu, has been converted into a Pvt. Ltd. Co., under the name and style of M/s.Univercell Telecommunications India Pvt. Ltd., on 28.09.2005. Pursuant to conversion, the proprietary concern becomes a Pvt. Ltd. Co., and transfer of assets and liabilities of proprietary concern, has been treated as exempt as per provisions of Sec.47(xiv) of the Act. During the course of assessment proceedings, the AO noticed that although, the conversion of proprietary concern into a Pvt. Ltd. Co., is coming under the provisions of Sec.47(xiv) of the Act, but the assessee has violated the conditions prescribed therein by transferring shareholding of Mr.S.Satish Babu, within a period of five years from the date of transfer of proprietary concern and thus, invoked Sec.47A of the Act, and assessed difference between assets and liabilities of company as long term capital gains and added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Only those expenses (Advertisements etc) which have immediate benefit were taken to the P L Account and claimed as revenue expenditure. Hence, the goodwill of Rs.3.47 crores appearing in the books as on 27/09/2005, was nothing but the expenses incurred in the form of advertisement and related expenses which have been capitalized by the assessee in his books. Therefore, since the goodwill of Rs.3.47 cores was the actual expenses incurred and capitalized in the books and since the sale value of the goodwill (by including the sale under the slump sale at book value) was also at Rs.3.47 crores, the capital gains will also be Nil. Hence the Assessing Officer's action of determining the long term capital gains of Rs.3.47 crores on transfer of goodwill is neither factually correct nor justified. As stated earlier, the decision of CIT(A) had been confirmed by Hon'ble ITAT. Therefore, in case of this assessee also, it is held that there was no capital gain on transfer of goodwill at book value. The grounds taken are allowed. 5. The Ld.DR submitted that the Ld.CIT(A) erred in deleting the addition of Rs.3.47 Crs. by holding that there was no capital gains on transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oprietary concern was converted into a Pvt. Ltd. Co., conditions of Sec.47(xiv)(b) of the Act, has been satisfied. However, at later date, Mr.Satish Babu.D has transferred 16.67% of his shareholding to Mr.Shankar S.Nathan on 10.10.2018 i.e. within five years from the date of transfer of proprietary concern into the assessee company and thus, breached the conditions prescribed u/s. 47(xiv)(b) of the Act, i.e. retaining not less than 50% of the shares of successor company for a period of five years from the date of transfer of proprietary concern. Therefore, we are of the considered view that the assessee is hit by provisions of Sec.47A(3) of the Act, and as per the said provision, if certain conditions are violated, then, exemption granted u/s. 47(xiv)(b) of the Act, needs to be withdrawn for the impugned assessment year. To this extent, we cannot find fault with the findings of the AO. But, fact of the matter is that even after invoking the provisions of Sec.47A(3) of the Act, there cannot be any liability of capital gains on conversion of proprietary business into Pvt. Ltd. Co., because, the assessee has transferred all assets and liabilities of erstwhile proprietary ship into Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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