TaxTMI 
TaxTMI 
2025 (5) TMI 690
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....ngaluru in ITBA/APL/M/250/2023- 24/1063626871(1), 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 ....
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....h 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 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 th....
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....tement wherein it was clearly stated that this discount is given at the time of payment and therefore not reflected in the bills raised for 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 ....
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....discount is not proper. It was submitted that 'other discount' is an expenditure incurred by the assessee wholly & exclusively for the purposes of 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 verif....
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.... firm during the course of search states that 'other discount' is required to be substantiated. In the absence of such substantiation, he agreed for disallowance. 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 Ta....
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.... regular books of accounts and there was no material seized during the course of search to draw an inference that, such "other discount" was in fact not allowed. 8. The learned Commissioner of Income Tax (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 se....
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.... huge amounts to such new partners and hence there was undue benefit conferred on them and in this context it was held that, such benefit is taxable under the provisions of section 45(4) of the act, on the contrary in the appellant case there was business valuation before admitting 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....
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....he assessee. The AO observed that before introduction of new partner, goodwill of the firm was valued at Rs. 49,00,12,501. When the goodwill was created, capital account of the existing partners was credited identically in the ratio of their share of profit. Thus the goodwill created in the books of account was shared between the existing 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 equ....
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....4) does not apply and the decision of the Hon'ble Supreme Court is not applicable to the facts of the present case. 22. The ld. DR vehemently supported the orders of ld. lower authorities and submitted that prior to the introduction of new partner there is goodwill created in the books of account and credited the same to the account of the existing 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 as....
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.... Dyeing & Printing Mills (supra) at para 12 and the Hon'ble High Court considered that decision in para 6 wherein it was held that the said decisions do not lay down any law as it has been decided in entirely different contextual backdrop. He further referred to the decision of Hon'ble Calcutta High Court in 156 taxmann.com 106 wherein the above decision of the Hon'ble Supreme Court was considered 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 shar....
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....olution or otherwise. Even the decision of Hon'ble Supreme Court (supra) does not say to include in 'or otherwise' introduction of fresh partner who contributed the capital afresh. Even the existing partners have not withdrawn any funds of the partnership firm. The funds introduced by the incoming partner were also deployed in the business. 27. The Hon'ble Supreme Court in para 7.5 has categorically 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-....
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....under : "19. In CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 (SC), the Supreme Court held that a partner in a firm (carrying on business of manufacturing and selling pharmaceutical products and literature relating thereto) whose assets (which included goodwill, machinery, furniture, medicines, library and copyright) were valued at Rs. 2,50,000, was paid towards his half share, on the dissolution of the firm, a sum of Rs. 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....
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....n confirming the orders passed by the Commissioner of Income-tax (Appeals) and the respondent. When the appellant was paid Rs. 15 lakhs by Y. Kalyana Sundaram in full and final settlement towards his 50 per cent. share on the dissolution of the firm, there was no "transfer" as understood in law and, consequently, there cannot be tax on alleged capital gain. The appellant was correct in law in contending that the amount he received from Y. Kalyana Sundaram is towards the 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....
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.... it was categorically held that in the fact and circumstances of the case capital gains cannot be taxed in the hands of the appellant. The appellant also submitted the provisions of Section 14 of the Indian Partnership Act, 1932 which reads "subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise by or for the firm or for the purpose and in the 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 appella....