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TMI Blog2009 (6) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... the sole proprietor has not received any payment in cash or in kind or otherwise, except for allotment of shares in the company. - Decided in favor of assessee. - IT APPEAL NO. 270 (COCHIN) OF 2005 - - - Dated:- 12-6-2009 - GEORGE GEORGE K., DR. O.K. NARAYANAN, JJ. V. Sathyanarayana for the Appellant. C. Karthikeyan Nair for the Respondent. ORDER George George K., Judicial Member. This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax, (dated 24-11-2004) passed under section 263 of the Act. The assessment year concerned is 2001-02. 2. The solitary issue that is raised in this appeal is whether the CIT is right in invoking revisional jurisdiction under section 263 of the Act and directing to assess the goodwill to the extent of Rs. 2,45,00,000 under "capital gains tax" on the ground that all the conditions as laid down under the proviso to section 47(xiv)( c) of the Act are not fulfilled. 3. The brief facts that is relevant to this issue are as follows: The assessee is an individual carrying on sole proprietary concern which is in the business of undertaking civil constructions on contract basis. It has its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at shares should be issued for the value of entire assets taken over by the company. (4) For the reasons mentioned above, I strongly object to your proposal to set aside the assessment to bring to tax the value of goodwill of Rs. 2,45,00,000 under the head Capital gains ." 5. Various objections raised by the assessee against invoking revisionary jurisdiction under section 263 was rejected by the Commissioner of Income-tax and he directed the Assessing Officer to recompute the assessee s total income taking into account the amount of Rs. 2,45,00,000 being the capital gains tax under the Income-tax Act. 6. Aggrieved by the section 263 order of the ld. Commissioner, the assessee has filed this appeal before us. 7. The ld. Authorised Representative of the assessee has filed Written Submission and the same is reproduced below for the sake of clarity : "(i)The Commissioner of Income-tax has set aside the assessment under section 263 of the Income-tax Act, only for the reason that one of the conditions specified in the proviso to section 47(xiv)( c) of the Income-tax Act has not been complied with. The condition stipulated is that the sole proprietor does not receive any consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany KAP India Projects and Constructions (P.) Ltd. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the Assessing Officer was erroneous or prejudicial to the interest of the revenue. (iii)( a) The proprietor had not received any consideration or benefit, other than the shares in the new company. The expression "consideration" or "benefit" will not refer to what is due to the proprietor as per the books of account of the sole proprietary concern as on the date of conversion, but it must be some benefit or consideration not traceable to. (b ) In the instant case towards Rs. 2,55,00,000 lying in the capital account of the proprietor, shares have been allotted as under: In the new company: KAP (India) Projects and Constructions (P.) Ltd. Paid-up capital As on 1-10-2000 As on 15-2-2001 As on 30-3-2002 As on 23-8-2005 Rs. % Rs. % Rs. % Rs. % K.V. Mohammed Zakir 5,100 51 1,53,00,000 51 2,41,43,400 51 2,55,00,000 52 Other relatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely unfavourable orders and to levy to tax some money to the treasury. The section is not enacted to get a sheer escapement of the revenue which is taken care of by other provisions of the Act. Prejudice that is contemplated under section 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate s order, in exercise of the supervisory power, but it is to be invoked and employed only for setting right distortions and prejudices to the revenue which is a unique conception which has to be understood in the context of and in the interest of the revenue administration. (c)In Khatiza S. Oomerbhoy v. ITO [2006] 100 ITD 173 , Mumbai Bench of the Hon ble ITAT held that powers vested in CIT under section 263 are extraordinary powers and completed assessment proceedings cannot be reopened unless there is some concrete cogent material to show that there is total non-application of mind on the part of the Assessing Officer or the Assessing Officer has committed any glaring mistake of fact or law. (d)In the case of P.N. Writer Co. Ltd. v. Addl. CIT [2006] 7 SOT 346 , Mumbai ITAT J held that where the Assessing Officer allowed the deduction under section 80- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm due to the proprietor/partner as the case may be, are current liabilities. This is the well accepted position in accountancy and also has been settled in law by judicial decisions. 10.2 When the assets and liabilities of the sole proprietary concern have been transferred to the company, there was a clear agreement between the proprietor and the company (both are different legal entities) as to what constitute the assets and liabilities for the purpose of the transfer and what is the "consideration" payable. In determining the liabilities for the purpose of transfer, it has been agreed that the current account balances of the proprietor in the books of the sole proprietary concern will be taken over as a liability on loan account by the limited company and to be discharged as loan as such. Thus, under sub-clause (a) of the section, such loan has to be necessarily to be transferred as a liability along with all other liabilities to comply with the provisions of sub-clause (a). This is also a matter of agreement/contract relating to the transfer and also in accordance with well accepted principles in accountancy. 10.3 Now, after transferring the liabilities as above, what rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oprietor, therefore, will be a genuine liability of the sole proprietary concern to the proprietor. Here, we are looking at the assets and liabilities of the sole proprietary concern as such, for purpose of section 47(xiv) of the Act. Thus, there could be no scope for any confusion, as to the nature of the liability due on loan account and as to the amount of consideration payable to the proprietor by the proprietary concern. The consideration is payable by the limited company (transferee) to the sole proprietary concern which is the transferor, for the limited purpose of the transfer envisaged under this section, since the undertaking transferred to the company is that of the sole proprietary concern. 10.8 The method of accounting followed for purpose of accounting the assets, the liabilities, the loan and the consideration for the transfer in the books of the company are, therefore, correct both on facts and in law. Towards the consideration as determined for the transfer of the undertaking, shares have been allotted by the company. The inference drawn by the Assessing Officer that towards the full amount of consideration due to the sole proprietary concern as above, shares hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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