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TMI Blog2025 (5) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 25.03.2024 for the A.Y.2017-18 confirming the order of the Assistant Commissioner of Income Tax, Circle-2(4), Bengaluru under the provisions of section 143(3) r.w.s 153A of the act is opposed to the facts of the case and law applicable to it. 2. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in confirming the disallowance of the claim of "Other Discounts" amounting to Rs. 17,40,515/- ignoring the fact that, the said discount was allowed to the customer at the time of realization of dues and settling the accounts and under law there is no prohibition for allowing such discounts. 3. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in confirming the disallowance of the claim of "Other Discounts" amounting to Rs. 17,40,515/- with a finding that, such discount was not allowed in the bills raised and hence not allowable. 4. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in confirming the disallowance of the claim of "Other Discounts" amounting to Rs. 17,40,515/- with a finding that, no credit notes/debit notes or fresh bills were found at the time of search indicating allowing such difference and hence the said e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the disallowance of claim of "other discount" ignoring the fact that, there was no material seized during the course of search to justify the inference drawn but was only on the basis of certain statements recorded which was not corroborated also and hence such disallowance could not have been made in an order U/s.153A of the act. 11. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in not following the ratio laid down by Hon'ble Supreme Court in the case of Pr.Commissioner of Income Tax, Central -3 V. Abhisar Buildwell (P) Ltd (2023) 149 Taxmann.com 399 (SC), wherein it is held that, no income can be quantified or disallowance made invoking provisions of section 153A of the act unless justified on the basis of material seized during the course of search. PRAYER The appellant prays that the Hon'ble Tribunal may kindly hold that, the order U/s.143(3) r.w.s 53A of the act passed by Deputy Commissioner of Income Tax, Central Circle-2(4), Bangalore is cad in law in as much as there was no material seized during the course of search to invoke the provisions of section 153A of the act and direct that, the disallowance of Rs. 17,40,515/- made in 7- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which prompt payment is made and discount is given for that bill. The assessee also referred to answer to Q.11 of her statement wherein the same was confirmed. Therefore the contention of the assessee is that there is no confession at all either in the statement of Mrs. Sanghamitra or of Sujay Rama Prasad. The assessee also submitted the details of discount by submitting the extract from LIS system maintained by the assessee and also submitted the complete detail of such discount in Compact Disc to the ld. AO. The assessee also reiterated the same facts by letter dated 6.12.2019 which is extracted at pages 23 to 29 of the assessment order. 6. The ld. AO after considering the explanation of the assessee was of the view that discount allowed by the assessee is not reflected in the bills & invoices, but the same is debited in the Profit & Loss account which is not the proper accounting by the assessee. He further held that the statement of the partner of the assessee to Q.6 wherein he agreed that the other discount figure may be disallowed for want of substantiation. The ld. AO thereafter relying on several judicial precedents disallowed Rs. 17,40,515 claimed as other discount, passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and hence allowable. 9. The ld. DR submitted that when the disclosure is made u/s. 132(4) of the Act by making a statement, it has evidentiary value and therefore same is correctly made. He supported the orders of ld. lower authorities. 10. The ld. AR, in the rejoinder, submitted that each of the other discount is identified with respect to the party, particular bill and rate of discount. The books of account are audited and it is not the case of the revenue that any of the parties who have been paid discount have not received such discount. The books of account of the assessee are audited and also verified by the AO. The ld. AO has also not shown that the discount mentioned in the account of any of the parties, have denied receiving such discount. 11. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. As the assessee is carrying on business of diagnostic center, on prompt payment of the bill, it gives discount to various parties. During the course of search, on verification of books of account, the accountant of the assessee Mrs. Sanghamitra was asked that in the books of account from FY 2011-12 to 2017-18, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance. However, when later on during the course of assessment proceedings, neither the AO nor the CIT(Appeals) could find any infirmity, therefore, it is apparent that the expenditure incurred by the assessee under the head 'other discount' is wholly and exclusively incurred by the assessee for the purposes of its business and is fully supported by name and party, invoice no., and rate of discount, could not be disallowed. Accordingly, the orders of ld. Lower authorities are reversed and the AO is directed to the delete the disallowance. Ground Nos. 1 to 11 of the appeal of the assessee are allowed. 12. In the result, ITA No. 968/Bang/2024 filed by the assessee is allowed. AY 2018-19 13. Coming to the facts of the case for AY 2018-19 in ITA No. 969/Bang/2024, the following grounds are raised:- "1. The order of the learned Commissioner of Income Tax (Appeal)-15, Bengaluru in ITBA/APL/M/250/2023- 24/1063340210(1), dated 25.03.2024 for the A.Y.2018-19 confirming the order of the Assistant Commissioner of Income Tax, Circle-2(4), Bengaluru under the provisions of section 143(3) of the act, dated 31.12.2019 is opposed to the facts of the case and law applicable to it. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals)-15, Bengaluru erred in giving a finding that, the whole arrangement of claim of "other discount" appears to be to reduce the taxable income by entering an amount as discount at the end of the year ignoring the factual position that, the entry "other discount" appeared in the individual customer ledger as and when the realization was finalized and this was not a single entry in the Profit & Loss account as alleged by CIT(A), but consolidation of various entries on dates spanning over the year in the individual customer's accounts. 9. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in confirming the disallowance of claim of "other discount" merely on the basis of alleged statements recorded which were not corroborated with any factual evidence. 10. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in confirming the disallowance of claim of "other discount" ignoring the fact that, there was no material seized during the course of search to justify the inference drawn but was only on the basis of certain statements recorded which was not corroborated also and hence such disallowance could not have been made in an order U/s.153A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new partners. The Good Will arose on account of business valuation. The Good Will value was allocated to existing partners in proportion to their fixed capital. Subsequently new partners are admitted and no portion of the Good Will valuation was credited to them as such there was no undue benefit conferred on the new partners, hence the decision of Supreme Court would not apply on facts and law. 15. The learned Commissioner of Income Tax (Appeals)-15, Bengaluru erred in ignoring the fact that, in the appellant's case what was recognized was an intangible asset being good will and the value was allocated to the existing partners and such allocation was within their right and the new partner admitted later on had brought in sufficient capital to justify the share of profit allocated to them and hence the decision of Hon'ble Supreme Court in the case of Commissioner of Income Tax V. Mansukh Dyeing and Printing Mills (2022) 145 Taxmann.com 151 (SC) was not applicable at all, all the more so for the reason that, the existing partners did not withdraw any portion of the credit to the capital account on account of revaluation of business . 16. The learned Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners of the firm in their profit sharing ratio. The new partner brought in money equivalent to share of his profit on the basis of the enterprise value of the goodwill. On looking at the facts, the AO was of the view that the provisions of section 45(4) are to be invoked and therefore assessee was directed to furnish an explanation. 18. The assessee vide letter dated 27.11.2019 submitted that there is no distribution of assets, goodwill has continued in the books of assessee firm, none of the asset is transferred and therefore there is no scope for applicability of section 45(4) of the Act. It was submitted that none of the partners have withdrawn any sum from the firm. 19. The ld. AO rejected the contention of the assessee. He noted that assessee just before reconstitution of the firm revalued its assets and created goodwill. Amount equivalent to goodwill was distributed to existing partners by crediting their account in their profit sharing ratio. Therefore, provisions of section 45(4) applies to the facts of the case. Accordingly he brought to tax a sum of Rs. 49,00,12,501 by invoking provisions of section 45(4) of the Act. Assessment order u/s. 143(3) of the Act was pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing partners and therefore clearly the provisions of section 45(4) apply and there is no infirmity in the orders of ld. lower authorities. The ld. DR further referred to the decision of the coordinate Bench of Hyderabad Tribunal in the case of Shree Estates, 208 ITD 287 (Hyd. Trib.) stating that it does apply to the facts of the case. 23. The Ld AR submits that:- (i) The decision of the Hon'ble Supreme Court in the case of Mansukh Dyeing & Printing Mills, 449 ITR 439 (SC) does not apply to the facts of the present case. In fact he referred to the decisions of the Hon'ble Telangana High Court and Hon'ble Calcutta High Court to state that both these Courts have considered the above decision of the Hon'ble Supreme Court and stated that it was decided on peculiar facts of the case and therefore does not apply to the case of the assessee. (ii) Circular No. 495 dated 22.9.1987 clearly provides that the provisions of section 45(4) applies only when there is a transfer of capital asset by a firm on dissolution or otherwise. He submits that there is no transfer of any of the capital asset from the partnership firm to the partners. He further stated that the Circular binds the revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered in para 16 and it was decided. Thus, the case of Mansukh Dyeing & Printing Mills (supra) was decided on its own facts. It was further stated that the facts of the assessee are also quite different. 24. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The brief facts of the case show that assessee, a partnership firm, was having the partners viz., Dr. A.V. Ramaprasad (40% share), Dr. Sujoy Prasad (20% share), Mrs. Sheela Ashok (20% share) & Mrs. Smitha Jayaram (20% share). These existing partners were carrying on the business of Pathology pertaining to routine tests. By deed of Partnership dated 07.06.2017, Ms/. Syllam Enterprises Pvt. Ltd. became a partner in the firm and made an investment of Rs. 32,68,00,075 acquiring 40% of the share in the capital as well as in the profit. Prior to the introduction of the above company as partner, the assets of the partnership were revalued and share of goodwill was credited to the account of Dr. A.V. Ramaprasad (Rs. 19.60 crores), Dr. Sujoy Prasad (9.80 crores), Mrs. Sheela Ashok (9.80 crores) & Mrs. Smitha Jayaram (9.80 crores). There was no credit of the goodwill to the account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly held that provisions of section 45(4) were invoked for the reason that on dissolution of the assets of the partnership firm, some new partners were inducted and on introduction of small amounts of capital, had used credits to their capital account immediately after joining the partnership which was available to the partners for withdrawal and in fact some of the partners withdrew the amount so credited. Therefore it was held that provisions of section 45(4) were applicable to the facts of that case. It was held as under :- "7.5 In the present case, the assets of the partnership firm were revalued to increase the value by an amount of Rs. 17.34 crores on 1-1-1993 (relevant to A.Y. 1993-1994) and the revalued amount was credited to the accounts of the partners in their profit-sharing ratio and the credit of the assets' revaluation amount to the capital accounts of the partners can be said to be in effect distribution of the assets valued at Rs. 17.34 crores to the partners and that during the years, some new partners came to be inducted by introduction of small amounts of capital ranging between Rs. 2.5 to 4.5 lakhs and the said newly inducted partners had huge credits to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,25,000 in lieu of his share, the arrangement between the partners of the firm amounted to a distribution of the assets of the firm on dissolution. It held that there was no sale or exchange of the respondent's share in the capital assets to the other partner. The Supreme Court of India further held as follows : "In the course of dissolution the assets of a firm may be valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying the money value equivalent thereof. This is a recognized method of making up the accounts of a dissolved firm. In that case the receipt of money by a partner is nothing but a receipt of his share in the distributed assets of the firm. The respondent received the money value of his share in the assets of the firm ; he did not agree to sell, exchange or transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the respondent under the arrangement of his share was therefore not in consequence of any sale, exchange or transfer of assets." 20. The Supreme Court upheld the contention of the assessee that no part of the amount of Rs. 1,25,000 received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full and final settlement of his share and such adjustment of his right is not a "transfer" in the eye of law. It is a recognized method of making up the accounts of the dissolved firm and the receipt of money by him is nothing but a receipt of his share in the distributed asset of the firm. The appellant received the money value of his share in the assets of the firm. He did not agree to sell, exchange or transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the appellant under the compromise was not in consequence of any sale, exchange or transfer of assets to Y. Kalyana Sundaram. Moreover, as rightly contended by the assessee, up to the assessment year 1987-88, section 47(ii) of the Income- tax Act, 1961, excluded these transactions. From assessment year 1988-89, in the case of dissolution of a firm, only the firm is taxable on capital gains on dissolution under section 45(4) of the Income-tax Act, 1961, and not the partner. Section 45(4) states as follows: "45.(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm. 5. I have gone through the submissions of the appellant and also the observations made by the A.O. in the assessment order. After going through the above, it is noticed as per M/s.Montage Manufacturers, the goodwill was of Rs. 7,95,88,699/- and not Rs. 8,22,17,952/-. As per the appellants submissions and case laws relied in the case of Chalasani Venkateswara Rao v. I.T.O., the goodwill cannot be taxed in the hands of the appellant. Therefore, I am in agreement with the submissions of the appellant and the long-term capital gains are deleted." 16. The above order, according to learned Senior Standing Counsel for the respondent-Department, has not been subjected to further challenge in any forum. So far as the decisions relied upon by the learned Senior Standing Counsel for the respondent-Department in R.F. Nangrani (2 supra) (also relied upon by the learned counsel for the appellant) and the decision in Mansukh Dyeing and Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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