Capital Gain on Transfer of Goodwill to Retiring Partners

IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH, ‘B’ PUNE – VIRTUAL COURT
BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND
SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER
ITA No.201/PUN/2017

Assessment Year : 2008-09

The Dy. Commissioner of Income Tax,
Circle-1, Jalgaon

vs

M/s. Deepak Foods,
Nilon‟s House, N.H. No.6,
M.J. College Road,
Jalgaon – 425002
PAN: AABFD7212L

Assessee by : Shri Nikhil Pathak
Revenue by : Shri Deepak Garg

Date of Hearing : 22-07-2021

 Date of Pronouncement : 20-10-2021

This appeal by the Revenue is against the order dated 09.11.2016 passed by the Commissioner of Income-tax (Appeals)-2, Nashik for assessment year 2008-09.

2. Brief facts relating to the issue concerning the assessee are that the assessee is a registered firm engaged in the business of manufacturing of Pan Fruity (Papapya Fruit Preserve) and conducts its business under the name and style as M/s. Deepak Foods. The assessee concerning for the year under consideration filed return of income declaring total income of Rs.61,36,560/-. Under scrutiny, the Assessing Officer accepted the same and passed an order u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) to that effect vide order dated 24.12.2010. Thereafter, the AO in order to reopen the said assessment recorded reasons on 11.06.2014 and upon getting sanction from CIT, issued notice u/s 148 of the Act on 23.06.2014. The assessee participated in the said re-assessment proceedings with protest and the AO added an amount of Rs.45,05,47,554/- treating the same as capital gain on the transfer of goodwill to the retiring partners vide order dated 03.03.2016 u/s 143(3) r.w.s. 147 of the Act. Having not satisfied with the re-assessment order, the assessee preferred an appeal before the CIT(A). Upon considering the submissions on reopening in terms of the first proviso to section 147 of the Act, the CIT(A) held there was no failure on the part of the assessee in disclosing fully and truly all the material facts during the course of original assessment proceedings and quashed the re-assessment as bad in law.

3. Coming to the decision of Hon‟ble Supreme Court in the case of Income Tax Officer Vs. TechSpan India (P.) Ltd. (supra) as relied by the ld. DR, wherein the Hon‟ble Supreme Court held every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings. We note that the AO issued notice u/s. 148 of the Act on the basis of subsequent verification of facts initiated u/s. 263 of the Act in the case of Smt. Shakuntala Sanghavi by recording reasons that Shri S.C. Jain, Smt. V.P. Sanghavi and Smt. S.S. Sanghavi retired from M/s. Deepak Foods (assessee) on 17-03-2008 and received goodwill to an extent of Rs.45,05,47,554/- paid by the assessee to the above said three retiring partners. In pursuance of such recording the AO issued notice u/s. 148 of the Act on 23-04-2014. No doubt that if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year assess or reassess such income which has escaped assessment and which comes to his notice subsequently, but the proviso to section 147 of the Act limits such power by explaining, no action shall be taken under this section after expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of failure to disclose fully and truly all material facts by the assessee for that assessment year.

4. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 20th October, 2021.

Please find attached the enclosed file for the full judgement