2015 (4) TMI 972 - AT - Income Tax

Tribunal remits case for AO to verify asset transfer in slump sale

The tribunal remitted the case back to the Assessing Officer (AO) to verify if all assets and liabilities were transferred as per the MOU. The AO was ... Computation of Capital gain - Disallowing the claim of the assessee as 'slump sale' - No evidence on records to show entries regarding transfers of current assets & liabilities - Held that:- The assessee put a contention that the he had sold all the assets and liabilities including current assets and liabilities in respect of business of processing of profile grinding operations to M/s. S.R.P. Tools Limited and being so it is considered as “slump sale’’. If the argument of the assessee is correct there should be transfer of inventories, sundry debtors, cash and bank balances, interest receivable, loans and advances and also current liabilities and provisions. However, in the present case, assessee has not placed any evidence to suggest the current assets and liabilities has been transferred to purchaser by passing appropriate entries in its books of accounts. If this current assets have been transferred the assessee should have furnished the details of the same. Being so, in our opinion evidence brought on record does not clearly suggest that this is 'slump sale'. Hence, it is appropriate to remit the issue in dispute back to the file of the Assessing Officer with a direction to examine the books of accounts of the assessee so as to verify whether all the assets and liabilities including current assets and liabilities have been duly transferred to the purchaser as per MOU dated 03.10.2005 and also examine relevant parties herein including the person who has issued certificate in form No.3CEA dated 02.11.2006. With these observations, we are remitting the entire issue back to the file of the Assessing Officer for fresh consideration. - Appeal filed by assessee is allowed for statistical purpose. Issues Involved:1. Computation of capital gain.2. Classification of the sale as a 'slump sale' or individual asset sale.3. Applicability of Section 50B of the Income Tax Act.4. Determination of whether the transaction should be treated as Short Term Capital Gain or Long Term Capital Gain.5. Examination of the evidence supporting the classification of the sale.Issue-wise Detailed Analysis:1. Computation of Capital Gain:The primary grievance of the assessee concerns the computation of capital gain. The Assessing Officer (AO) disallowed the claim of the assessee treating the transaction as a 'slump sale' and instead added back a sum of Rs. 38,69,919/- as Short Term Capital Gain.2. Classification of the Sale as a 'Slump Sale' or Individual Asset Sale:The assessee argued that the entire assets were taken over by M/s. SRP Tools as a whole and that the transaction should be treated as a 'slump sale' under Section 50B of the Income Tax Act. The AO, however, noted that the purchasing company had valued each asset individually and recorded these values in its books, leading to the conclusion that the transaction was not a 'slump sale'.3. Applicability of Section 50B of the Income Tax Act:The assessee contended that the assignment of values for land and building for registration purposes does not make a transaction a 'slump sale'. The AO relied on the judgment in Anand Electric Co. Ltd vs. CIT (237 ITR 587) to support the decision that the transaction could not be treated as a 'slump sale'. The assessee countered this by citing various judgments, including Kalooram Govindran vs. CIT and CIT vs. Spunpine & Construction Co. Ltd, to argue that the total consideration should be apportioned based on fair market value and that depreciation should be available on such apportioned cost.4. Determination of Whether the Transaction Should be Treated as Short Term Capital Gain or Long Term Capital Gain:The AO treated the sale transactions as resulting in Short Term Capital Gain, adding Rs. 38,69,919/- to the income of the assessee. The assessee argued that the sale should be treated as Long Term Capital Gain and that they were entitled to the benefits under Section 54EC.5. Examination of the Evidence Supporting the Classification of the Sale:The AO noted that the assessee had sold the following assets with assigned values:- Land: Rs. 51,122- Buildings - Factory: Rs. 2,03,335- Buildings - Office: Rs. 7,37,271- Furniture & Fittings: Rs. 81,889- Machinery - Indigenous: Rs. 88,50,980- Vehicles: Rs. 7,639- Inspection Equipments: Rs. 29,763- Electrical Equipments & Installations: Rs. 34,939- Typewriters: Rs. 3,062- Total: Rs. 1,00,00,000The AO's findings were supported by a Chartered Accountant's certificate in form 3CEA, which indicated that the value of liabilities was nil. The assessee claimed that all assets and liabilities, including current assets and liabilities, were transferred, but failed to provide evidence supporting this claim.Conclusion:The tribunal concluded that the evidence did not clearly suggest that the transaction was a 'slump sale'. The case was remitted back to the AO to examine the books of accounts of the assessee and verify whether all assets and liabilities, including current assets and liabilities, were transferred as per the MOU dated 03.10.2005. The AO was also directed to examine relevant parties, including the person who issued the certificate in form 3CEA. The appeal was allowed for statistical purposes.