2009-VIL-330-ITAT-DEL
Equivalent Citation: TTJ 122, 824,
Income Tax Appellate Tribunal DELHI
Date: 20.03.2009
VEEJAY SERVICE STATION.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : RAJPAL YADAV., K. D. RANJAN.
JUDGMENT
The assessee is in appeal, before us against the order of learned CIT(A) dt. 10th Oct., 2005 passed for asst. yr. 2006-07. The grounds of appeal taken by the assessee are not in consonance with r. 8 of the ITAT Rules, they are descriptive and argumentative in nature. In brief the grievance of the assessee is that learned CIT(A) has erred in confirming the penalty imposed under s. 271(1)(c) of the Act.
2. The brief facts of the case are that the assessee at the relevant time was engaged in the business of running of a petrol pump allotted to it by Bharat Petroleum Corporation Ltd. It has filed its return of income on 24th Feb., 2007 declaring an income of Rs. 17,90,578. The firm was originally constituted vide a partnership deed dt. 8th July, 1963 comprising Shri Manohar Lal Juneja, Smt. Pushpawati Juneja and Shri Mahender Juneja, partners having shares in the ratios of 20 per cent, 20 per cent and 60 per cent respectively. Smt. Pushpawati Juneja retired on 31st March, 1968. On 1st of April, 1968, a fresh firm was constituted in between Shri Manohar Lal Juneja and Shri Mahender Juneja having shares of 25 per cent and 75 per cent. In June, 1995, Shri Manohar Lal Juneja, expressed his desire to retire from the firm and as such the goodwill of the firm was valued at Rs. 50 lacs as on 14th June, 1995. Following entries were passed in the books of account:
Dr. Goodwill Rs. 50,00,000
Cr. Manohar Lal Juneja capital a/c. Rs. 12,50,000
Cr. Mohinder Juneja capital a/c. Rs. 37,50,000
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Total Rs. 50,00,000 Rs. 50,00,000
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3. On 25th June, 1995, Shri Manohar Lal Juneja retired from the firm leaving Shri Mahender Juneja with the business. Shri S.K. Aggarwal was introduced as a new partner and he paid a sum of Rs. 50 lacs for his entry into the partnership concern. The assessee in the return has disclosed a gain of Rs. 17,85,000. It computed this gain as under:
Goodwill cost 100
Market value 1-4-81 being 20 times
of average profit of last three years
Average profit for last three years
31-3-1979 45,214
31-3-1980 45,214
31-3-1981 80,252
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1,79,590
Or say 56,860
Market value 1-4-1981 11,37,200
Indexed cost 31,95,000
Sale price 50,00,000
Less: Expenses 20,000
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49,80,000
Gain 17,85,000
4. The AO did not accept the computation made by the assessee. In his opinion, the computation of capital gain in the case of assessee is to be made after taking the cost of acquisition of the goodwill at nil and assessee is not entitled to the benefit of indexation while the capital gain arisen to it on sale of goodwill. The contention of the assessee was that on its case s. 55(2)(b) of the Act is applicable whereas according to the AO, being goodwill it falls within s. 55(2)(a) of the Act. He denied the benefit of indexation of cost of acquisition to the assessee. He took the cost of acquisition at Rs. 200 disclosed by the assessee and computed the capital gain at Rs. 49,99,800. Appeal to the CIT(A) as well as to the Tribunal did not bring any relief to the assessee on quantum.
5. Learned AO has visited the assessee with penalty on the ground that it has furnished inaccurate particulars of income and resultantly concealed the income. He imposed a penalty of Rs. 12,86,512 under s. 271(1)(c) of the Act.
6. Appeal to the CIT(A) did not bring any relief to the assessee.
7. The learned counsel for the assessee while impugning the orders of the Revenue authorities below contended that the business of the firm could be continued upto and until a dealership has been granted to it by Bharat Petroleum Corporation Ltd. for running the petrol pump. Hence the right to run the petrol pump is being given by the petroleum company that right was not transferred by the firm. It is still with the firm and the firm is continuing with the business. There was no goodwill in this case and assessee has wrongly shown the goodwill of Rs. 50 lacs which was offered for tax but that mistake could not be considered even for visiting the assessee with penalty. He further contended that assessee has disclosed all the facts fully and truly the accounting entries were duly passed in the books. those were disclosed in the return of income. In the opinion of the assessee, it was right to run the business only and cl. 55(2)(b) is applicable in the case of assessee. It is entitled for the benefit of indexation. The view point of assessee did not meet the approval of the AO who took it as a goodwill as disclosed by the assessee without ascertaining the actual nature of the business of the assessee and the transaction. This difference of opinion between the assessee and the AO leads to the addition but those very basis cannot be considered sufficient even to visit the assessee with penalty. He drew our attention towards Board's Circular bearing No. 495, dt. 22nd Sept., 1989 where Board has explained the amended provisions of s. 55 which contemplates the method of computation, the cost of acquisition as well as cost of improvement where goodwill is transferred. The learned counsel for the assessee pointed out that in the circular, it has been explained that capital gain tax on transfer of goodwill will be leviable only in case of actual transfer and not in the cases of notional transfer where new partners have been admitted. The learned counsel for the assessee in this way prayed that penalty is not imposable upon the assessee in the given circumstances. He placed on record brief synopsis wherein he has referred more than 50 cases in order to buttress his contention. On the other hand, learned Departmental Representative relied upon the orders of the Revenue authorities below. He submitted that right from the assessment stage upto the Tribunal it has been held that assessee has transferred goodwill and liable to capital gains tax. There is no cost of acquisition for such goodwill and it is not entitled for the benefit of indexation as claimed in the return. Thus, it indicates that assessee has furnished the inaccurate particulars and it deserves to be visited with penalty.
8. We have duly considered the rival contentions and gone through the records carefully. There is no dispute with regard to the fact that assessee has disclosed the complete details of the alleged goodwill. In its opinion, it is entitled for benefit of indexation for working out the capital gain. On the other hand, learned AO did not accept this view point of the assessee. In his opinion, its case comes within the ambit of s. 55(2)(a) of the Act where cost of acquisition of the goodwill is to be taken at nil. The Board while explaining the amendment carried out in s. 55 inconsequent to the decision of Hon'ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) has explained the provisions in the circular bearing No. 495, para Nos. 28.2 and 28.3 of this circular read as under:
"28.2 The Finance Act, 1987, by amending s. 55 has provided for the method of computing the cost of acquisition as well as the cost of improvement, where goodwill is transferred. Where goodwill is purchased by the transferor the cost of acquisition will be taken to the purchase price and in all other cases it shall be taken to nil. The cost of improvement in either case would be taken to be nil.
28.3. The intention in bringing to tax the capital gains on transfer of goodwill is only to cover those cases where goodwill is actually transferred. Those cases where the transfer is notional, for example, when a new partner is admitted to a firm. would not be covered by the amendment. The new provisions will also not apply to professional firms."
9. According to the assessee, it has not actually transferred the goodwill. It has only admitted Shri S.K. Aggarwal, a new partner. It is running the petrol pump under the dealership of Bharat Petroleum. The only change is in the constitution of the firm otherwise the firm is continuing with its business. All these facts were before the AO. On due consideration of all these facts in the light of Board's circular, we are of the opinion that there is no mala fide intention on the part of the assessee to furnish inaccurate particulars. It has disclosed the complete facts before the AO. It has adopted a particular computation for the capital gain which did not meet the approval of the AO but that does not mean that assessee has furnished inaccurate particulars. It is only a difference of opinion between the assessee and the AO. In our opinion, assessee did not deserve to be visited with penalty in the above circumstances.
10. In the result, the appeal filed by the assessee is allowed.
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