2016 (4) TMI 1131 - AT - Income Tax

Tribunal Decision: Capital Gain, Compensation, Bad Debt, ESI Payment

The Tribunal upheld the CIT(A)'s decisions on various issues, including the deletion of capital gain under Section 50B of the Income Tax Act, disallowance ... Capital gain u/s 50B - whether transfer of the division as slum sale in terms of the provisions of Sec. 2(42)(C) - Held that:- From the definition of slump sale and undertaking”, it is clear that the provision of Sec/ 50B of the Act will be attracted when an undertaking is transferred for lump sum consideration without values being assigned to the individual assets and liabilities in such sales. In the instant case the transferee has taken over all fixed assets, specified current assets and not taken over all the loan and liabilities. Therefore in our considered view the transaction of sale of the fixed and current assets is out of the purview of slump sale as specified under section 50B of the Act. - Decided in favour of assessee Disallowance of compensation on account of machine not performing at an agreed level - Held that:- The compensation was awarded for not meeting the performance parameters. The compensation was not computed with the reference to the cost of the said machines. The compensation paid was neither in form of discount nor against the price nor it was in the nature of subsidy nor it was in the nature of the reimbursement. We further find that it was not even compensation for the recouping the damage caused to the plant and machinery. None of the conditions specified in Sec. 143(1) of the Act for deducting the actual cost from value of the machines were applicable to the compensation. Therefore we are inclined not to reduce the actual cost of the plant and machinery by the amount of compensation - Decided in favour of assessee Allowance of claim of assessee’s bad debt - Held that:- As find from the order of learned CIT(A) we find that the bad debts claimed by the assessee in the year under consideration were recovered in the subsequent AY 2006-07 and offered for taxation. The ld. DR could not bring anything on record contrary to the finding of the learned CIT(A). Therefore, in our opinion, that the debtors shown by the assessee were the genuine. - Decided in favour of assessee Disallowance u/s 43B for delay in deposit of PF and ESI contributions - Held that:- As from the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return as specified u/s.139(1) of the Act. Now, this issue stands covered in favour of assessee and against the Revenue by the decision of Hon’ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited [2011 (9) TMI 30 - CALCUTTA HIGH COURT ] - Decided in favour of assessee Issues Involved:1. Deletion of Capital Gain under Section 50B of the Income Tax Act.2. Deletion of disallowance of compensation on account of machine performance.3. Allowance of bad debt claim.4. Allowance of delayed payment of employees’ contribution towards ESI under Section 43B.Detailed Analysis:Issue 1: Deletion of Capital Gain under Section 50B of the Income Tax ActThe first issue raised by the Revenue is the deletion of capital gain amounting to Rs. 10,92,09,696/- under Section 50B of the Income Tax Act by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, a Private Limited Company engaged in manufacturing thermoplastic films, sold its Biax Division Unit II to another company. The Assessing Officer (AO) treated this transaction as a slump sale under Section 2(42C) of the Act, arguing that the sale included all assets and liabilities for a lump sum consideration. The CIT(A) reversed this decision, noting that the transaction involved the sale of fixed assets and specified current assets without transferring all liabilities, thus not qualifying as a slump sale. The Tribunal upheld the CIT(A)'s decision, emphasizing that the transaction did not meet the definition of a slump sale as per Section 2(42C), which requires the transfer of an undertaking for a lump sum consideration without assigning values to individual assets and liabilities.Issue 2: Deletion of Disallowance of Compensation on Account of Machine PerformanceThe second issue concerns the deletion of disallowance of Rs. 2,56,26,930/- being compensation received due to the machine not performing at an agreed level. The assessee received compensation from a UK company for the failure to meet performance parameters of the purchased machinery. The AO considered this compensation as a reduction in the cost of machinery, thus reducing the depreciation claim. The CIT(A) disagreed, stating that the compensation was for non-performance and not a discount or subsidy related to the cost of machinery. The Tribunal supported the CIT(A)'s view, noting that the compensation was not linked to the cost of machinery but was for performance failure, thus not requiring a reduction in the machinery's cost for depreciation purposes.Issue 3: Allowance of Bad Debt ClaimThe third issue involves the allowance of a bad debt claim of Rs. 42,50,084/-. The AO disallowed the claim, arguing that the trade debtors were taken over by the transferee company, and the assessee did not fulfill the conditions of Section 36(2) of the Act. The CIT(A) found that the trade debtors were not transferred as per the agreement and that the bad debts were genuine, written off in the books, and later recovered and offered as income in the subsequent year. The Tribunal upheld the CIT(A)'s decision, confirming that the bad debts were genuine and the conditions under Section 36(2) were satisfied.Issue 4: Allowance of Delayed Payment of Employees’ Contribution towards ESI under Section 43BThe fourth issue is the allowance of delayed payment of employees' contribution towards ESI amounting to Rs. 50,289/-. The AO disallowed the payment due to a delay in deposit. However, the CIT(A) and the Tribunal found that the payments were made before the due date of filing the Income Tax Return under Section 139(1). The Tribunal referred to the jurisdictional High Court's decision in the case of M/s Vijay Shree Limited, which allowed such deductions if payments were made before the due date of filing the return, thus dismissing the Revenue's ground.ConclusionThe Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions on the deletion of capital gain under Section 50B, disallowance of compensation on account of machine performance, allowance of bad debt claim, and allowance of delayed payment of employees' contribution towards ESI.