Anand Diagnostic Laboratory Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that provisions of section 45(4) of the Income Tax Act are application only when there is transfer of any asset to the partners account from the firm. Accordingly, section 45(4) cannot be invoked in case of incremental capital brought in by the new partner.
Facts- The assessee is a partnership firm engaged in the business of diagnostic center. During the course of search, it was observed that “other discount” is being offered to the customers and corporate clients by the assessee at the time of payment which is not reflected in the invoices of the assessee firm. AO after considering the explanation of the assessee was of the view that discount allowed by the assessee is not reflected in the bills & invoices, but the same is debited in the Profit & Loss account which is not the proper accounting by the assessee. AO thereafter relying on several judicial precedents disallowed Rs.17,40,515 claimed as other discount.
During the course of search, it was found that assessee has introduction of a new partner, viz., Neuberg Diagnostic Pvt. Ltd. on 7.6.2017, who invested Rs.32.69 crores for 40% share in the assessee. The AO observed that before introduction of new partner, goodwill of the firm was valued at Rs. 49,00,12,501. When the goodwill was created, capital account of the existing partners was credited identically in the ratio of their share of profit. Thus the goodwill created in the books of account was shared between the existing partners of the firm in their profit sharing ratio. The new partner brought in money equivalent to share of his profit on the basis of the enterprise value of the goodwill. On looking at the facts, the AO was of the view that the provisions of section 45(4) are to be invoked. Accordingly, AO brought to tax a sum of Rs. 49,00,12,501 by invoking provisions of section 45(4) of the Act.
