2016 (9) TMI 542 - AT - Income Tax

Addition as business receipts under section 28(1)(va) OR short term capital gain - Held that - From the facts, of the case we find that the Commissioner of Income Tax (Appeals) has thoroughly examined the issue and made a clear cut finding that the assessee had paid ₹ 90,00,000/- for acquiring the business which he has subsequently sold during the succeeding assessment year for the same price. In such circumstances, obviously the short term capital gain will be Nil. Since the learned Commissioner of Income Tax (Appeals) has examined these facts and has given a clear finding, we do not find it necessary to interfere with his order. It is ordered accordingly.

Issues Involved:
1. Deletion of addition of ?90,00,000/- assessed as business receipts under section 28(1)(va) of the Act by the Assessing Officer.
2. Determination of whether the transaction should be treated as a business receipt or short-term capital gain.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?90,00,000/- Assessed as Business Receipts:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition of ?90,00,000/- assessed as business receipts under section 28(1)(va) of the Income Tax Act by the Assessing Officer. The CIT(A) concluded that the assessee had paid ?90,00,000/- on 29.09.2007 for acquiring a portion of the business from M/s. Onspec Technology Solutions Pvt. Ltd. and subsequently sold it on 27.03.2008 for the same amount. Therefore, the short-term capital gain was computed as Nil.

2. Determination of Whether the Transaction Should Be Treated as Business Receipt or Short-Term Capital Gain:

During the assessment proceedings, the Assessing Officer observed that the assessee claimed "Nil" capital gain from the sale of shares for ?90,00,000/- on 27.03.2008, which were purchased on 29.09.2007 for the same amount. The assessee explained that he purchased a portion of the business from M/s. Onspec Technology Solutions Pvt. Ltd. for ?90,00,000/-, which included paying off the company's overdraft balance and other liabilities. The business was then sold to M/s. Lambent Softsystems Pvt. Ltd. for ?90,00,000/-, resulting in no short-term capital gain. However, the Assessing Officer opined that there was no actual purchase transaction and treated the entire sale consideration as business receipts under section 28(1)(va).

On appeal, the CIT(A) examined the issue in detail and found that the assessee had indeed paid ?90,00,000/- for acquiring the business, which was subsequently sold for the same amount. The CIT(A) noted that the assessee had acted upon the MOU with M/s. Onspec Technology Solutions Pvt. Ltd., undertaking several liabilities and clearing them, as evidenced by bank extracts. The CIT(A) also noted that M/s. Lambent Softsystems Pvt. Ltd. reflected this purchase in its annual statements and claimed deductions for the transferred assets, which the Revenue accepted.

The CIT(A) rejected the Assessing Officer's contention that the payment was a non-compete fee, stating that the non-compete clause was incidental to the transfer of the business as a going concern. The CIT(A) also addressed the Assessing Officer's observations regarding the assessee's explanations and the failure to produce a director of M/s. Onspec Technology Solutions Pvt. Ltd. for cross-examination.

The CIT(A) concluded that the assessee's purchase and subsequent sale of the business constituted a capital asset, and the short-term capital gain was correctly computed as Nil. The CIT(A) deleted the addition of ?90,00,000/- made by the Assessing Officer.

Conclusion:

The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had paid ?90,00,000/- for acquiring the business and subsequently sold it for the same amount, resulting in no short-term capital gain. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal. The judgment was pronounced in open court on 1st August 2016.

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