11. [2019] 202 TTJ (Mum.) 517 ITO vs. Kantilal G. Kotecha ITA No. 205/Mum/2018 A.Y.: 2009-10 Date of order: 5th July, 2019
Sections 47 r.w.s. 2(47), 271(1)(c) –
Entire material facts relating to computation of total income having been
disclosed by the assessee before the AO – The disallowance of partial relief
u/s 47(xiv) on a difference of opinion would not make it a case of furnishing inaccurate
particulars of income attracting penalty u/s 271(1)(c)
FACTS
During the year, the assessee converted his
proprietary concern into a public limited company. Thus, the business of the
proprietary concern was succeeded by a public limited company. On succession of
business, the assessee transferred all the assets (including self-generated
goodwill) and liabilities of the proprietary concern, and in consideration for
the said transfer, received fully paid-up equity shares of the public limited
company. The AO denied the exemption u/s 47(xiv) in respect of part of the
goodwill transferred by taking a view that the said goodwill was never
mentioned in the books of the proprietary concern. He further opined that the
goodwill which was transferred from the assessee to the company was not covered
by the exemption u/s 47(xiv). Accordingly, the AO levied penalty u/s 271(1)(c)
for filing inaccurate particulars of income read with Explanation 1 thereon.
Aggrieved by the assessment order, the
assessee preferred an appeal to the CIT(A). The CIT(A) held that merely because
there was no balance mentioned towards ‘Goodwill’ in the balance sheet of the
proprietary concern, it could not be brushed aside that there was no goodwill
at all in the said business which was in existence for 30 years. The CIT(A)
also noted that all the information of goodwill was provided by the assessee in
the return of income and part of the goodwill was also allowed by the AO.
Hence, it was not a case of furnishing any incorrect information in the return
of income. Accordingly, he deleted the penalty levied u/s 271(1)(c) of the Act.
Aggrieved by the CIT(A) order, Revenue filed
an appeal to the Tribunal.
HELD
The Tribunal held that it had to be seen
whether the denial of exemption u/s 47(xiv) to the extent of goodwill which was
self-generated in the books of the proprietary concern would amount to
furnishing of inaccurate particulars of income. The assessee had given
reasonable explanation as to why there was no value reflected in the balance
sheet of the proprietary concern in respect of the self-generated goodwill. It
was not in dispute that the assessee was in business for the last 30 years
which had earned substantial goodwill for the assessee. Even the AO had
accepted this fact and had partially granted exemption in respect of the same
u/s 47(xiv) in the assessment.
The assessee also had a bona fide
belief that since there was no value for the self-generated goodwill in terms
of section 55(2), the allotment of shares for the same pursuant to conversion
of proprietary concern into public limited company would also not be considered
as transfer within the meaning of section 2(47), as the computation mechanism
fails in the absence of cost of the asset. In fact, the AO had accepted the
value of self-generated goodwill to be Rs. Nil. This goes to prove that there
was existence of self-generated goodwill in the hands of the proprietary
concern. Hence, apparently, the claim of exemption u/s 47(xiv) by the assessee
for the transfer of self-generated goodwill together with the other assets and
liabilities could not, per se, be considered as wrong.
It was found from the materials available on
record that all these facts were duly reflected in the return of income itself
by the assessee and subsequently during the course of assessment proceedings.
The entire facts of proprietary concern getting converted into public limited
company were made known to the Department. Thus, the assessee’s case falls
under Explanation 1 of section 271(1)(c) of the Act wherein he had offered bona
fide explanation narrating the entire facts before the AO. Moreover, it was
well settled that the discharge of consideration by way of issue of shares was
a valid consideration and hence for the goodwill portion, the assessee was
allotted shares in the public limited company and would have to be treated as
valid consideration for the transfer of goodwill together with other assets and
liabilities. No explanation furnished by the assessee was found to be false by
the AO. It was only a genuine difference of opinion between the assessee and
the AO in not allowing the claim of exemption u/s 47(xiv).
In view of the above, the CIT(A) had rightly
deleted the penalty in respect of denial of exemption u/s 47(xiv) of the Act on
the self-generated goodwill portion partially.
