9911796707
TMI Blog2014 (2) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s. 147 of I.T. Act." 4. Brief facts of the case are that assessment u/s. 143(3) of the Act was completed on 31-01-2004 accepting return income. Subsequently notice u/s. 147 of the Act was issued on 05-04-2004, after recording reasons for re- opening the assessment, according to which the assessee had purchased running business of Alpa Marketing Enterprises, a proprietary concern of Jalpa Specific Family Trust as per provisions of section 50B of the Income Tax Act. They had unpaid sales tax liability of Rs. 2,01,778/- which was taken over by the assessee company. In the course of assessment of Jalpa Specific Family Trust AO found that against this unpaid liability assessee paid a sum of Rs. 1,85,594/- before the due date for filing the return and the unpaid liability of Rs. 16184 was not incorporated in the tax audit report. Hence the assessment was reopened. Before Ld. CIT(A) assessee submitted that the original assessment was made after verification of all the details. The re-assessment proceedings were initiated merely on change of opinion which was not permissible and therefore reopening of the completed assessment was void ab-initio. However Ld. CIT(A) was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of any disallowance in this regard does notarise. Your good self has referred to the non incorporation of the referred unpaid sales tax liability in form 3CD report and stated that the same is liable for disallowance. However the non incorporation of the said liability in 3CD report can not be the basis for disallowance, when the expense in respect of the said liability has not been claimed at all by the assessee company. In view of above, the notice issued u/s. 148 is in fructuous and request you to kindly drop the proceedings initiated. We hope the above details would suffice you requirements. Should you require any other information in the matter or are not in agreement with any of the information details, please inform specifying the reasons for non-agreement and we shall be please to furnish/clarify the details." It is clear from the above that assessee's stand since beginning has been that assessee has not claimed any deduction in respect of unpaid sales tax liability of Alpa Marketing Enterprises of Rs. 16,180/- therefore question of any disallowance of this amount and/or escaping any income from assessment did not arise. Since this fact remained undisputed at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciable asset. The same issue was this year since the assessee has claimed depreciation of Rs 8,20,313 in the same license fee. In the show cause notice dated 10-3-2006 the assessee was asked as under: i) In the matter of claim of depreciation on license fee, furnish the details of the balance sheet of Alpa Marketing Enterprise, what are the assets and the liabilities as have been received, at the time of purchase of this concern. ii) You could not furnish the valuation of license fee based on which Rs. 50 lacs have been paid. iii) Furnish the balance sheet of AME, to verify the assets and the liabilities of this concern. iv) From the entire episode it seems that you have paid this amount for the running business of AME, this payment is payment for the goodwill of the business. Therefore explain as to why the depreciation should be allowed on the same. v) From the Agreement dated 10.12.2000, it is clear that the seller has sold the entire business of AME as going concern. The entire set up of the sellers proprietary concern has been sold w.e.f. 01.01.2001 for total consideration of Rs. 50,000/-. This means that the Goodwill of the business has been sold at Rs. 50 lacs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt hereof, be deemed to mean and include its successors, representatives and nominees) of the other Part. AND NAVJN DETERGENTS PRIVATE LIMITED a Company incorporated under the provisions of the Companies Act, 1956, having Registered office at Kashmir* Chambers. B/h. Popular House, Ashram Road, Ahmcdatad - 380 009 (hereinafter referred to as "the purchase) which expression shall unless it be contrary or repugnant to the subject or context thereof, be deemed to mean and include its successors, representatives and nominees) of the Second Part. WHEREAS. 1. The Seller is inter alia owner of the proprietary concern in the name and style of M/s. Alpa Marketing Enterprises (AME) having its principal place of business at Nirma House, Ashsram Ahmedabad and branches in various States. The said AME is engaged in business of marketing various products under the brand name MMA/NIRMA (hereinafter referred to as the "said business"). 2. The Seller has obtained and/applied for various government approval/Licenses and registrations for the said business in name of M/s. Alpa Marketing Enterprise. 3. The purchaser is desirous for acquiring the said business of AME of seller as a going concern tog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Purchaser. The purchaser shall alone, after the effective date, be entitled to recover and collect various amounts deposited by the seller with the Banks, government authorities and other parties or due to the seller by debtors or others and for this purpose, the seller shall authorize the purchaser to take all such steps as may be necessary for realizing such amounts. 7. The seller and purchaser also agree that all the contracts, deeds, agreements and other instruments and documents of whatsoever nature to which the seller Company is a partly without any further concurrence of any party or parties thereto, shall remain in full force and effect against or in favor of the Purchaser, as the case may be, and the same may be enforced fully and effectively as if instead of the Seller, as the case may be the Purchaser is party thereto 8. All legal suits, appeals or other proceedings, penalties and prosecutions of whatever nature by or against the Seller under any statute, pending on the date of Trans, the same shall not abate be discontinued or be in way prejudicially affected by reasons of transfer, by the said legal suits, appeals or other proceedings, penalties and prosecut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement on the day and place first hereinabove mentioned. FOR SELLER Sd. FOR PURCHASER Sd. From this agreement itself, it is very clear that this amount of Rs. 50 lacs have been paid over and above the total assets and liabilities received by the assessee. This payment is in lieu of the total assets (with the liabilities) and in lieu of the running business of Alpa Marketing Enterprise (AME). This means that this amount of Rs. 50 lacs is a lump sum payment for the running business of the assessee and it has been given a name of licence fee to claim the depreciation on the same. Though this payment and the entire asset and liability purchased from the seller is not a depreciable asset but this has been given a name of license fee to claim depreciation. 3.3 In its report filed in Form No. 3CEA in accordance to Rule 6H, the auditors have also given the report dated 28/10/2001 as under:- FORM NO. 3CEA Report of accountant to be furnished by an assessee under sub-section (3) of section 50B of the Income-tax Act 1961 relating to computation of capital gains in case of slump sale I Particulars of the assessee effecting the slump sale (a) Name Jalpa Specific Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een computed correctly in accordance with the provisions of section 50B of the Income-tax Act, 1961. Place: Ahmedabad Sd/- Date: 28-10-01 R.D. Shah. From this 'report' and 'certification' it is crystal clear that the Rs. 50 lacs are a consideration for the slump sale and this amount of Rs. 50 lacs does not amount to purchase of any license or intangible asset as is depreciable in nature or it may be allowed depreciation by any provision of law. 3.4 The assessee contended that the agreement dated 10-12-2000 shows that the assessee has received various government approvals/ licences and registrations for the said business in the name of AME and that is why the deprecation has been claimed on this amount of Rs. 50 lacs. But this contention of the assessee is not found correct since this amount of Rs. 50 lacs does not amount to valuation of these government approvals/ licenses and registrations. This amount of Rs. 50 lacs is a lump sum payment over and above the entire assets and liabilities of the assessee, therefore this is for the running business and is not in lieu of only "licenses" or other "commercial rights" if any pertaining and owned by AME. This amount is not exact valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- "In law and in facts and circumstances of the Appellant's case, the ld. CIT(A) has erred in not entertaining ground regarding not granting TDS credit of Rs. 89,152." 13. The AO has dealt this ground as under:- "5. The assessee has claimed TDS of Rs. 89,152 in the name of Alpa Marketing Enterprise (AME), the corresponding income relating to the same has been offered in A.Y. 2000-01 and A.Y. 2001-02. Therefore, the TDS claim can be made in those years only, in the light of clear provisions of section 199, which read as under: 199. Credit for tax deducted. (1) Any deduction made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or depositor or owner of property or of unit-holder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment, if any made under this Act for the assessment year for which such income is assessable: From this provision, it is clear that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account of the assessee, it was found that the assessee has made total sales of Rs.74,23,347 and total purchase was made of Rs. 54,65,375 and in this volume of the business, such a huge financial expense claim of Rs. 23,60,108 has been made which includes payment of Rs 22, 99,322 to its related persons i.e Niya Fin Stock P. Ltd. The assessee was asked to prove the genuineness of this claim of expense because this was not justifiable at all and it looked as if the assessee has tried to reduce its profit and diverted its profit by paying such huge interest expense. However there was no need of so large funds. The assessee was asked to explain as to why in the light of sec ton 40A(2)(a) this claim should not be restricted. It was also found the assessee has given Rs 27.54 lacs, which reflected in the balance sheet, as advance given to suppliers. Therefore, the assessee was asked to explain as to why such huge claim of interest expense of Rs. 22,99,322/- should be allowed to it when it has returned as gross loss bfore depreciation and tax of Rs. 15,41,630/- 4.1 The representative of the assessee has argued that the financial expenses were the genuine expenses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient fund since the assessee deals in the FMCG Market. This means the unsecured loans have been taken only to divert the profit to the related person when there was no requirement of the same. In the light of the above observation, the interest claim of Rs. 22,99,322/- paid to the related person is hereby disallowed." 23. The submission of the assessee before Ld. CIT(A) has been noted by him in his order as under:- "In the written submissions before me the appellant submitted that they had borrowed funds from Niya Finstock Pvt Ltd for the purpose of business. The quantum of purchases and sales are not the important factors but the factors like fixed assets, borrowed funds, current assets, inventories, cash and bank balances which would represent such borrowings are relevant. It is stated that when the funds arc used for the business, interest expenses should be allowed. It is also argued that Niya Finstock Pvt. Ltd. has confirmed the receipt of interest and they are being assessed to tax. Section 40A(2) has no application. The observation about diversion of profit are not correct. It is also argued that the interest is paid at 10% which is nominal market rate and hence there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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