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TMI Blog2007 (8) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999-2000 4-10-2002 The abovesaid four appeals and cross-objection filed 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 charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered during the course of recording of statement under section 133A of the Act was not included 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed at page 90 of the paper book. The comparative figures of gross receipts and net profit are 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the survey proceedings. We confirm the order of CIT(A) in upholding the addition of Rs. 4,14,490 in assessment year 1997-98 and deleting the addition in assessment year 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 regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer requisitioned the assessee why the said sum of Rs. 20 lakhs on account of bills receivable and goodwill of Rs. 25 lakhs declared during the course of survey was not offered 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder along with the answer to the said question. " Q. 6. I am showing you a diary (Creart) marked A-% as per the inventory of books of account found during the course of survey. You 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 recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are proposed to be written off during the current financial year. The list of such creditors is furnished the total of which comes to Rs. 12,53,203. This sum of Rs. 12,50,000 is being offered as additional 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs. During the course of survey, when the statement of Mr. Rajesh Bahl was recorded, he was confronted with the notings in his diary Annexed as A-5 and in respect of the notings on page 65, he had admitted that "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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the previous owner or the assessee, and ( ii )in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil; ] ( b )in relation to any other capital asset, ] ( i )where the capital asset became the property of the assessee before the [1st day of April, [1981], means the cost 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profits or Gains therefrom are includible in the hands of the said person in the said year itself, as Income from Capital Gains. 34. Coming to the facts of the present case, while recording the statement on 5-11-1998, the assessee in reply to question No. 7 had admitted that "the business of M/s. Samta Marine Kakinada was transferred to the 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 : "5.2 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. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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