TaxTMI 
TaxTMI 
2007 (8) TMI 476
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....iled by the revenue and the assessee were heard together and are being disposed off by this consolidated order for the sake of convenience. 2. The revenue has raised the following grounds of appeal : ITA No. 5368/Mum./2002 : Assessment Year 1997-98 : "1.On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition on account of cash expenses to the extent of Rs. 40,19,879 without appreciating the fact that the assessee has not proved that the expenses were incurred wholly and exclusively for the purposes of business either before Assessing Officer or before CIT(A). 2.Without prejudice to Gr. No. 1, the ld. CIT(A) erred in restricting the addition to Rs. 4,14,490 in spite of holding in para 6.5 of his order that it would be difficult to conclude that these expenses were incurred wholly and exclusively for the purposes of business." ITA No. 308/Mum./2003 : Assessment Year 1998-99: "1.On the facts and in the circumstances of the case the ld. CIT(A) erred in law in deleting the addition of Rs. 4,00,000 on account of labour stitcher and coolie charges and Rs. 4,00,000 on account of boat, transport and other miscellaneous expenses. 1....
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....luded in the Return of Income for both the years i.e., assessment years 1997-98 and 1998-99. The Assessing Officer during the course of assessment disallowed 50 per cent of expenses on account of labour charges, female coolie charges, stitcher charges and miscellaneous expenses totalling Rs. 88,68,738 on estimate basis as the assessee had failed to furnish documentary evidence apart from the self-made vouchers. The Assessing Officer also relied on the disclosure made by the assessee in assessment year 1996-97 as the basis for making disallowance of Rs. 44,34,369 being 50 per cent of total expenditure of Rs. 88,68,738 in assessment year 1997-98. 7. Similarly, the Assessing Officer disallowed Rs. 8 lakhs in accordance with the disclosure made by the assessee during the course of survey being Rs. 4 lakhs out of labour, stitcher and female coolie charges and Rs. 4 lakhs out of boat transport and other miscellaneous expenses in assessment year 1998-99. 8. Before the CIT(A), it was pleaded by the learned AR for the assessee that the disclosure of additional income of Rs. 10 lakhs/Rs. 8 lakhs for assessment years 1997-98 and 1998-99 were made under pressure and the same cannot be th....
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....as under : Assessment years 1998-99 1997-98 1996-97 Gross Receipts (in lakhs) Rs. 76.46 Rs. 229.00 Rs. 418.43 Net Profit before Depreciation, Interest and Tax (in lakhs) Rs. 3.75 Rs. 7.07 Rs. 8.48 N.P. per cent of Gross Receipts 4.90% 3.09% 2.03% The ld. AR for the assessee pointed out that after inclusion of the additional income of Rs. 12 lakhs in assessment year 1996-97, the net profit rate works to 4.89 per cent. The ld. AR, further pointed out that in case the additional income of Rs. 10 lakhs is included in assessment year 1997-98, the net profit rate would works out to 7.45 per cent and on inclusion of Rs. 8 lakhs in assessment year 1998-99, the net profit rate would be 15.36 per cent. The ld. DR placed strong reliance on the order of Assessing Officer and also the additional income offered by the assessee during the course of recording of statement in survey proceedings. 12. We have heard the rival submissions and perused the records. The sole basis for making the addition in assessment years 1997-98 and 1998-99 are the additional income offered and accepted in assessment year 1996-97. The basis for offering and acceptan....
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....1998-99. Accordingly, the grounds of appeal raised by the assessee in assessment year 1997-98 are dismissed and the grounds of appeal raised by the revenue in assessment years 1997-98 and 1998-99 are also dismissed. ITA No. 309/Mum./2003 : assessment year 1999-2000 (Revenue's appeal): CO No. 44/Mum./2004 : assessment year 1999-2000 (Assessee's cross-objection): 15. The revenue has raised the following grounds of appeal : "1.On the facts and in the circumstances of the case the ld. CIT(A) erred both in law in deleting the addition of Rs. 25,00,000 on account of goodwill and Rs. 20,00,000 on account of bills receivable overlooking the answer to question No. 9 that the books of account were not prepared till the date of survey.". The assessee has raised the following grounds of cross-objection : "1.The ld. CIT(A) erred on facts and in law in confirming the action of the Assessing Officer disallowing Rs. 31,025, being sundry debit balances written off, when above advances were given in the regular course of business and, therefore, should be allowed as deduction under section 37 of the Act." 16. The ld. AR for the assessee at the outset stated that they are not pre....
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....for taxation. In reply, the assessee explained that the assessee was following cash system of accounting and as the assessee had not received the aforesaid amounts during the year under consideration, the same were not included as income for the year. It was also explained by the assessee that no amount was received towards goodwill account due to bad market/business conditions at Kakinada and the same was also not provided for in the books of account of M/s. Samta Services (Kakinada) (P.) Ltd. It is also stated by the assessee that the offer was made during the course of survey only subject to the condition that the income from bills receivable shall be included, if realized during the year. As the assessee was following cash system of accounting, no amount could be brought to tax unless the same is received during the year under consideration. The Assessing Officer in para 5.2 at page 6 categorically observed that 'as regards goodwill of Rs. 25 lakhs, it is a fact that the decision of receiving goodwill was taken and the business had also been transferred to M/s. Samta Services (Kakinada) (P.) Ltd.' The Assessing Officer included the said sum of Rs. 25 lakhs on account of goodwil....
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....ou are requested to go through the same and explain the contents of the same? Ans. This diary consists of business planning and strategy as discussed and decided by us. The contents are written by me in my handwriting." 24. The assessee was further requisitioned to explain the contents written on pages 65, 66 and 67 in detail, as per question No. 7 raised and the answer to the said question is as under : "Q.7. Please explain the contents written in pages 65, 66 and 67 in detail? Ans. These pages pertain to the business decision regarding M/s. Samta Marine Kakinada and M/s. Samta Marine Kandla. The details are as under : Page No. 65: This is regarding the firm of M/s. Samta Marine Kakinada. As per the decision arrived at after discussion with my brother Shri Rajiv and the partner, Mrs. Salma Jayraj (Mr. Nair) the business of M/s. Samta Marine Kakinada was transferred to the Pvt. Ltd. Co., viz. M/s. Samta Services (Kakinada) Pvt. Ltd. It was mutually decided that the firm would receive an amount of Rs. 25 lakhs as goodwill. The stocks of gunny bags and tarpaulin was decided to be disposed of. Page No. 66: This page reflects the sales of the stocks of gunny bags and ....
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....dditional income for the current year i.e., assessment year 1999-2000 over and above the regular income, if any." 26. In question No. 11, the assessee was asked to summarise the additional income offered in the two firms for various years and for this Mr. Rajesh Bahl in the account of M/s. Samta Marine Kakinada i.e., the assessee herein offered additional income of Rs. 12 lakhs in assessment year 1996-97, Rs. 10 lakhs in assessment year 1997-98 and Rs. 8 lakhs in assessment year 1998-99 on account of expenses. In relation to assessment year 1999-2000, total additional income of Rs. 70 lakhs was offer as under : (i)On account of goodwill (Ref. Q. No. 7) : Rs. 25,00,000 (ii)On account of cash received (Ref. Q. No. 7) (a)Tarpaulin sale : Rs. 7,50,000 (b)Gunny bags sale : Rs. 17,50,000 (iii)On account of bills receivable (Ref. Q. No. 10) : Rs. 20,00,000 Total : Rs. 70,00,000 27. The assessee while furnishing the Return of Income included aggregate sum of Rs. 25 lakhs on account of sale of gunny bags and tarpaulin as offered during the course of survey. But the additional income offered on account of goodwill of R....
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....ajiv and the Partner Mrs. Salma Jayraj (Mr. Nair), the business of M/s. Samta Marine Kakinada was transferred to the Pvt. Ltd. Co., viz. M/s. Samta Services (Kakinada) Pvt. Ltd." It was a categoric admission of Mr. Rajesh Bahl on behalf of the assessee that the business of the assessee-firm was transferred to the Pvt. Ltd. Co., i.e., M/s. Samta Services (Kakinada) Pvt. Ltd. It was further stated in the said answer to question No. 7 that 'it was mutually decided that the firm would receive an amount of Rs. 25 lakhs as goodwill'. Thus implying that till the date of survey the sum of Rs. 25 lakhs was to be received and it is the claim of the assessee that the said sum of Rs. 25 lakhs has not been received during the financial year. The CIT(A) deleted the addition on the basis that as the assessee was following cash system of accounting and since the said sum of Rs. 25 lakhs was not received during the financial year, the same cannot be form part of income for the year under consideration. 30. While determining the income under the head 'Income from business', the provisions of the Act allow that the assessee may either follow mercantile system of accounting or cash system of accoun....
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.... any of the modes specified in [sub-section (1) of] section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head 'Interest on securities', 'Income from house property', 'Profits and gains of business or profession', or 'Income from other sources', and the expression 'improvement' shall be construed accordingly. (2) [For the purposes of sections 48 and 49, 'cost of acquisition',- [(a)in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or loom hours,- (i )in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii)in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil; (aa)[in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Secu....
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....st of acquisition of the asset to the assessee or the fair market value of the asset on the [1st day of April, [1981], at the option of the assessee; (ii)where the capital asset became the property of the assessee by any of the modes specified in [sub-section (1) of] section 49, and the capital asset became the property of the previous owner before the [1st day of April, [1981], means the cost of the capital asset to the previous owner or the fair market value of the asset on the [1st day of April, [1981], at the option of the assessee; (iii)where the capital asset became the property of the assessee on the distribution of the capital assets of a company, on its liquidation and the assessee has been assessed to income-tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; (iv)[***] [(v)where the capital asset, being a share or a stock of a company, became the property of the assessee on- (a )the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares, (b)the conversion of any shares of the company i....
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.... Pvt. Ltd. Co., viz. M/s. Samta Services (Kakinada) Pvt. Ltd.". In case the said transfer of business has taken place during the financial year relevant to assessment year 1999-2000, the profits and gains on transfer of goodwill is includible in the hands of the assessee in the year under consideration even if the consideration on account of goodwill has not been received by the assessee. During the course of assessment proceedings, the Assessing Officer has observed in para 5.2 at page 6 of the order as under : "5.2As regards goodwill of Rs. 25 lakhs it is a fact that the decision of receiving goodwill was taken and the business had also been transferred to M/s. Samata Services (Kakinada) (P.) Ltd. However, the assessee has not received the goodwill for M/s. Samata Services (Kakinada) Pvt. Ltd. for a simple reason that the moment the assessee receives the goodwill or debits the amount of goodwill to the account of M/s. Samata Services (Kakinada) Pvt. Ltd., the goodwill shall become taxable in the hands of the assessee. There is no doubt as regards the receiving the goodwill as the only condition for receiving the goodwill viz., Transferring of business to M/s. Samata Services (....