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TMI Blog2019 (3) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... account of unexplained credit." (ii) "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by confirming only Rs. 8,08,60,000/- out of addition on two grounds totaling to Rs. 22,14,63,126/- made by the Assessing Officer on account of amount received and/or receivable from M/s Blue Circle Infratech even though the assessee had failed to produce any supporting documentation or confirmation as evidence that could support that these are capital receipts/" (iii) "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by confirming only Rs. 8,08,60,000/- out of addition on two grounds totaling to Rs. 22,14,63,126/- made by the Assessing Officer on account of amount received and/or receivable from M/s Blue Circle Infratech without appreciating the facts that whatever assessee had received through capital account and as advance was over and above the share of profit and capital introduced." (iv) "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by confirming only Rs. 8,08,60,000/- out of addition on two grounds totaling to Rs. 22,14,63,126/- made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 9,41,63,126/- which was made without giving the assessee opportunity of being heard. 4 The above Grounds of Appeal are without prejudice to one another. 5 The Appellant craves leave to amend or alter any of the above grounds or to add new grounds during the course of appeal proceedings. 6 The learned CIT (APPEAL) erred in making on addition of Rs. 2,21,93,334/- on account of amount received in A.Y. 2013-14 only on the pretext that the assessee has received the amount from Partnership firm. 7 The learned CIT (A) has calculated the amount received at Rs. 8,08,60,000/- on receipt basis, but factually and actually amount received is of Rs. 4,47,68,663/-." 5. In the form of additional ground, the assessee raised following ground: - (i) "On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in not considering the provisions of section 28(iv) and section 45(4) of the I.T. Act, 1961." 6. Briefly stated the facts are that, the assessee, an individual, is engaged in business of real estate and film production. He is proprietor of three concerns namely- (1). M/s D'Silva Corporation- Builder and Developer, (2). M/s D'Silva Ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as on 31.03.2011 and 04.05.2011 and Rs. 3,50,00,000/- made by Cheque/ RTGS totaling to Rs. 6,66,66,666/-. Assessee was issued following Cheques: - Date Cheque No. Amount (Rs.) Bank 26.05.2012 427081 2,21,93,334/- Citibank, Vashi Branch 26.06.2012 427082 2,54,60,000/- Citibank, Vashi Branch 26.07.2012 427085 2,54,60,000/- Citibank, Vashi Branch 26.08.2012 427087 2,54,60,000/- Citibank, Vashi Branch 26.09.2012 427188 2,54,60,000/- Citibank, Vashi Branch These payments were towards brokerage/commission of Rs. 12,73,00,000/-. The assessee was to receive 5 cheques of Rs. 2,54,60,000/- each. However, Rs. 32,66,666/- was deducted from the amount of 1 cheque being difference between Rs. 6,66,66,666/- (-) Rs. 6,34,00,000/-. However, cheque issued for Rs. 2,21,93,334/- only was cleared and the other four cheques got dishonored by the bank. 10. The Learned Assessing Officer while completing the assessment u/s. 143(3) of the Act made following additions based on the Consent Terms and Books of Accounts of the assessee. SI No. Addition (Rs.) Nature 1 1,00,00,000/- Goodwill as LTCG taxable @ 20%. 2 4,67,00,000/- Rs.9,41,63,126/- Credited in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his technical ground alone as these amounts were not received in A.Y. 2012-13. Ld. Counsel submitted that the Ld. CIT(A) in fact has noted that because of the dispute and litigation there was uncertainty about the payments and therefore since the assessee received the payments in A.Y 2013-14 addition in A.Y. 2012-13 is unjustified and be deleted fully. 14. Ld. Counsel for the assessee without prejudice to contentions raised above submitted that the amount of Rs. 1,00,00,000/- as per Consent Terms on account of Goodwill was not liable to Income Tax. He submitted that this amount was paid to the assessee pursuant to the Consent Terms on his retirement from the Firm. Goodwill if any was generated by M/s Blue Circle Infratech over a period of time. Even after retirement of the assessee, the Firm continued its business with three partners and Goodwill remained the property of the firm, hence the amount of Rs. 1,00,00,000/- received by the assessee was not liable to income tax. 15. He further submitted that this issue is covered by the decision of the ITAT, Hyderabad Bench in the case of ACIT v. N. Prasad in ITA No.1200/Hyd/2010 dated 27.01.2014. Ld. Counsel for the assessee submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It was argued that the amount of Rs. 4,74,63,126/- was received by the assessee on account of share of profits from M/s Blue Circle Infratech. An amount of Rs. 4,78,57,241/- was credited to the assessee's capital account as assessee's share of profit in the firm M/s Blue Circle Infratech. Referring to P&L Account of M/s Blue Circle Infratech for A.Y. 2011-12 which is placed at page 92 of Paper Book it is submitted that M/s Blue Circle Infratech had earned STCG of Rs. 24,67,32,955/- during F.Y.2010-11 relevant to A.Y. 2011-12. Net profit of the firm was Rs. 14,39,47,362/-. The assessee's share of profit was Rs. 4,79,82,454/- and this amount was credited to his capital account. Ld. Counsel for the assessee submitted that this amount is exempt from income tax under section 10(2A) of the Act. In any case this was share of profit for the A.Y. 2011-12 and could not have been added in A.Y. 2012-13. 19. Ld. Counsel for the assessee further submitted that the assessee retired from partnership w.e.f 04.05.2011 and P&L Account was prepared on this date. The assessee's share of loss for the period from 01.04.2011 to 04.05.2011 was Rs. 3,94,115/-. The assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10,18,40,000/-, vide order dated 18.01.2016, passed under section 154. It was argued that the Ld.CIT(A) was not right in upholding addition to the extent of the amount received by the assessee. It is submitted that the Ld.CIT(A) did not appreciate the fact that the amount was received by the assessee on his retirement from the firm M/s Blue Circle Infratech and amounts received on account of withdrawal of capital and also share of profit in the firm were not liable to tax. It is submitted that any amount received over and above the capital and share of profit was also not liable to tax because there was no transfer of asset and such receipt was also not of revenue nature. It is submitted that this issue is covered in favour of the assessee by the judgment of the Jurisdictional High Court in the case of Prashant S Joshi (supra). The High Court categorically held that amount paid to a partner upon retirement after taking accounts and upon deduction of liabilities does not involve an element of transfer within meaning of section 2(47) of the I T Act and not chargeable to income tax. The Court also held that section 28 provides certain categories of income which shall be chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the authorities below. Assessee is in the business of real estate and film production. Assessee conducting the business as a proprietary concern of M/s. D'Silva Productions and various other concerns including the firm M/s. Blue Circle Infratech (BCI) which was constituted on 6.11.2006 with four partners as explained in earlier paragraphs. As the disputes arouse among the partners the assessee was forced to retire from the firm accordingly the deed for release was signed on 12.05.2011 and the assessee retired from the partnership w.e.f. 04.05.2011. The assessee was not paid his share of capital and profits of the firm as promised in the release deed. Assessee approached the court for appointment of court receiver to protect his interest in the firm. Finally, the assessee and the partners settled the dispute by entering into consent terms, which was filed before the Court of District Judge, Raigad which is at Page Nos. 101 to 108 of the Paper Book. Based on the consent terms the Civil Miscellaneous Application filed by the assessee in the court of District Judge, Raigad was disposed off on 04.04.2012 in terms of the consent terms filed before the District Judge. The consent te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready issued 5 postdated cheques, as per the details mentioned here under and the same shall be honored on its presentation on the date mentioned in the cheques: Date Cheque No. Amount (Rs.) Drawn On 26.05.2012 427081 2,21,93,334/- Citibank, Vashi Branch 26.06.2012 427082 2,54,60,000/- Citibank, Vashi Branch 26.07.2012 427085 2,54,60,000/- Citibank, Vashi Branch 26.08.2012 427088 2,54,60,000/- / Citibank, Vashi Branch 26.09.2012 427188 2,54,60,000/- Citibank, Vashi Branch (2) The Opponents who are continuing partners of the firm jointly and severally undertake that the postdated cheques referred to in the sub clauses of Clause No.l, hereinabove would be honored on their presentation on their respective due dates and in case of dishonor of any of the aforesaid cheque, the applicant is having a right to file civil or criminal litigation against the said opponents. The same hereby is admitted by the opponents. (3) On execution hereof and on receipt of the aforesaid quantum by cheques and postdated cheques, subject to clearance of the same, the Applicant agrees to withdraw all the allegations, imputations, claims and counter claims of whatsoever nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a share in profits. On a dissolution of a partnership or upon retirement, a partner is entitled to a valuation of his share in the net assets of the partnership which remain after meeting the debts and liabilities. An amount paid to a partner upon retirement, after taking accounts and upon deduction of liabilities does not involve an element of transfer within the meaning of Section 2(47). Chief Justice P.N. Bhagwati (as the learned Judge then was) speaking for a Division Bench of the Gujarat High Court in Commissioner of Income Tax, Gujarat v. Mohanbhai Pamabhai3 dealt with the issue in the following observations: - " ...When, therefore, a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts on the footing of notional sale of the partnership assets and given to him, what he receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. His share in the partnership is worked out by taking accounts in the manner prescribed by the relevant provisions of the partnership law and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relied upon its judgment in Sunil Siddharthbhai v. Commissioner of Income Tax, (1985) 156 ITR 509 (S.C.). The Supreme Court reiterated the same principle by relying upon the judgment in Addanki Narayanappa & Anr. v. Bhaskara Krishnappa & Ors. [(1966) SC 1300]. The Supreme Court held that what is envisaged on the retirement of a partner is merely his right to realise his interest and to receive its value. What is realised is the interest which the partner enjoys in the assets during 4 165 ITR 166 the subsistence of the partnership by virtue of his status as a partner and in terms of the partnership agreement. Consequently, what the partner gets upon dissolution or upon retirement is the realisation of a pre-existing right or interest. The Supreme Court held that there was nothing strange in the law that a right or interest should exist in praesenti but its realisation or exercise should be postponed. The Supreme Court inter alia cited with approval the judgment of the Gujarat High Court in Mohanbhai Pamabhai (supra) and held that there is no transfer upon the retirement of a partner upon the distribution of his share in the net assets of the firm. In Commissioner of Income-Tax v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9] 236 ITR 515 (SC). This Court in the matter of Prashant S. Joshi (supra) has also referred to the decision of Tribuvandas G. Patel (supra) rendered by this Court and its reversal by the Apex Court. Moreover, the decision of this Court in the case of Prashant S. Joshi (supra) placed reliance upon the decision of the Supreme Court in the case of CIT v. R. Lingamallu Rajkumar reported in [2001] 247 ITR 801, wherein it has been held that amounts received on retirement by a parnter is not subject to capital gains tax. In the above circumstances, we see no reason to entertain the proposed question of law." 28. Similar view has been taken by the Hon'ble Jurisdictional High Court recently in the case of PCIT v. R.F. Nangrani HUF [93 taxmann.com 302]. 29. Assessing Officer brought to tax Rs. 9,41,63,126/- being the amount credited in capital account of M/s. D'Silva Enterprises and capital credited to assessee James P. D'Silva account as undisclosed income u/s. 68 of the Act. We see no justification at all in treating such amounts as addition u/s. 68 of the Act. We find that major part of these amounts have been received as part of settlement in terms of consent terms entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, in the hands of the firm, the payment is also to be treated as capital expenditure." 31. As could be seen from the above the Hon'ble Jurisdictional High Court held that payment made to partner in realization of his share in the net value of the assets upon his retirement from the firm, does not fall under clause (v) of section 28 of the Act. It is not in dispute that the assessee retired from BCI by virtue of consent terms entered into among the partners including the assessee which was settled in the court of law as the assessee approached the District Court for appointment of a receiver and to protect the properties as there was a dispute among the partners, and finally the case was disposed off on 04.04.2012 by the District Judge in civil Miscellaneous Application No 57 of 2012 and closed the proceedings in terms of the consent application filed by the assessee and the existing pnartners. It is not in dispute that by virtue of the consent terms the assessee finally agreed for settlement and quantified the amount payable to him on his retirement from the firm at Rs. 19.07 crores comprising of Rs. 5.34 crores towards share capital and accrued profit, Rs. 1,00,00,000/- t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the assessment year under consideration and the balance amount was received from M/s. Brand Value Communication Ltd., in earlier years. Ld.CIT(A) also observed that the advances were received by the assessee in the course of conducting the business of film production and the details provided shows that these amounts were received as advances and therefore cannot be considered as income. Learned Counsel for the assessee submitted that since the advances to the extent of Rs. 37.40 lakhs was received in Assessment Year 2011-12 the same cannot be considered as unexplained cash credit during the current Assessment Year. Since in the current Assessment Year what has been received by the assessee is only Rs. 11.25 lakhs, it was submitted that the source for these Rs. 11.25 lakhs only is liable to be explained by the assessee and since it was not done the matter may be restored to the file of the Assessing Officer. 34. On hearing both sides, we find force in the submissions of the assessee as well as observation of the Ld.CIT(A) in concluding that there shall not be any addition of Rs. 37.40 lakhs which was received as advances in the business of film production in the earlier Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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