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TMI Blog2012 (11) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and thereafter, if the explanation offered by the sssessee about the source of such expenditure is not found satisfactory by the Assessing Officer, the amount may be added to his income. [CIT v. Lubtech India Ltd, 2007 (7) TMI 281 - DELHI HIGH COURT] The showroom was owned by the retiring partner and the assessee-firm continued to pay rent to the retiring partner at the same rate. The firm was not taken over by any of the agency. Therefore, there cannot be question of estimating the value of the goodwill. In the Present case even if it is assumed that some benefit is accrued on the retirement of the third partner, the benefit may be accrued to the surviving partners and not to the assessee-firm. In case of that, if any addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring ratio of 35%, 35% and 30% respectively. On 5.10.2007 the assessee-firm was reconstituted and M/s Prasant Jain(HUF) retired. Accordingly, the profit share ratio of the remaining partners increased to 50% each. On retirement, the balance in the capital of the account of the retiring partner was paid or credited to his account along with proportionate share in profit for the year upto the date of his retirement. The showroom is situated in the premises owned by M/s Prasant Jain (HUF), the retiring partner and the rent is continued to be paid to him even after the retirement. The Assessing Officer has held that the retiring partner, M/s Prasant Jain(HUF) should have taken his share in the following assets by virtue of reconstitution of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and worked out the notional sale of share of the retiring partner and that too for a notional consideration of Rs.2,07,25,297 based on assumed value of assets by ignoring that all the assets are accounted for in the books of account and that there are liabilities against the assets belonging to the firm. Presumption of the Assessing Officer with regard to the three assets considered by him to calculate the value of alleged unexplained expenditure is wholly erroneous and based on wrong appreciation of facts. 5. The ld. CIT(A) re-examined the issue in the light of material available on record and came to the conclusion that in the light of the judgment of Hon'ble Delhi High court in the case of CIT v. Lubtech India Ltd., 311 ITR 175, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee firm made payment of Rs.2,07,25,297/- being fair market value of the assets of the firm relating to the retiring partner. He considered the said expenditure as unexplained and made addition under section 69C of the Income Tax Act, 1961. 6.5.3 On careful consideration of the matter and records, it is observed that (i) there is reconstitution of the firm by way of retirement of a partner and his share has been determined in the partnership business on book values after due consideration of accounted liabilities and proportionate share of his profits for the year; (ii) there is no evidence of any revaluation of the assets or business of the firm for the purpose of the settlement of retiring partner. Rather on enquiry it is noticed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and thereafter, if the explanation offered by the sssessee about the source of such expenditure is not found satisfactory by the Assessing Officer, the amount may be added to his income." 6.5.5 In the present case, there is nothing to show that the alleged expenditure was in fact incurred by the appellant firm. The AO has just assumed a notional sale of assets in the firm by the retiring partner and has presumed that the alleged consideration, as estimated by him, has been paid by the firm, for which there is not even an iota of proof. In view of the aforesaid facts and judicial pronouncements cited, I am of the considered opinion that the addition of Rs.2,07,25,297/- is based on mere conjectures and surmises of the AO and on wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account has been paid to the retiring partner. The goodwill and closing stock was of the firm and it would remain in the firm. Moreover, there was no actual payment to the retiring partner to gain any benefit in the hands of the assessee-firm. Therefore, addition made by the Assessing Officer is totally unjustified and not sustainable in the eyes of law. It was further contended that even if it is assumed that some benefit is accrued on the retirement of the third partner, the benefit may be accrued to the surviving partners and not to the assessee-firm. In case of that, if any addition is required to be made the same can be made in the hands of the individual partners and not to the assessee-firm. Therefore, no addition can be made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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