2017 (5) TMI 978 - AT - Income Tax

Appellate court overturns CIT's decision, finds Assessing Officer's actions justified.

Ambo Agro Products Ltd. Versus Pr. Commissioner of Income-tax, Kol-3, Kolkata

The appellate court canceled the revisional order of the Principal Commissioner of Income Tax (CIT) dated 25.02.2015, as the Assessing Officer (AO) had ... Revision u/s 263 - firstly the AO has not examined short term capital gain arising on the sale of various assets during the assessment proceedings; secondly, the AO has not obtained form 3CEA and has not examined the assessee’s claim regarding slump sale despite mentioning in the assessment order; and thirdly, the AO has not examined whether assets added during the financial year qualified for benefit u/s. 50B - Held that:- When the AO having gone through the MOU and contract after having made enquiries and after considering the replies of the assessee regarding the said transaction from the assessee, having accepted the transaction as a ‘slump sale’, which fact he acknowledges it in different paragraphs of the draft assessment order, then makes rectification u/s. 154 regarding the very same fact and finds mention of it in the final assessment order is a plausible view which cannot be termed as a finding unsustainable in law. The Ld. CIT, DR’s objection that the AO has not elaborately discussed about the slump sale makes it erroneous cannot be accepted for the simple fact that the assessee cannot dictate the AO how to write the assessment order. The assessee can only answer to the queries and place evidence before the AO in support of its averment, which in this case has been done by the assessee. All the records were furnished before the AO and the AO has called for details from the assessee regarding slump sale and has applied his mind and has decided to accept the claim of the assessee that the transaction in question is ‘slump sale’ which cannot be termed as erroneous simply because the AO has not made any detailed discussion about it in the assessment order. Since we find that the AO has made enquiries into slump sale transaction which took place in the relevant assessment year and the action of AO in accepting the claim of assessee that the transaction in question was a slump sale after detailed enquiry is a plausible view, so , we do not find that the twin conditions required for exercising the jurisdiction u/s. 263 of the Act is found missing/ existing/absent and, therefore, the Ld. CIT ought not to have exercised his revisional jurisdiction - Decided in favour of assessee. Issues Involved:1. Jurisdiction of Ld. Pr. CIT under Section 263 of the Income-tax Act, 1961.2. Examination of short-term capital gain by the AO.3. Requirement and examination of Form 3CEA by the AO.4. Qualification of assets added during the financial year for benefit under Section 50B of the Act.5. Determination of the transaction as a slump sale.Detailed Analysis:1. Jurisdiction of Ld. Pr. CIT under Section 263 of the Income-tax Act, 1961:The main grievance of the assessee is against the action of Ld. Pr. CIT in exercising his jurisdiction under Section 263 of the Income-tax Act, 1961. Section 263 enables supervisory jurisdiction to the CIT over the AO. The CIT is empowered to act under Section 263 when he considers that the AO’s order is erroneous in so far as it is prejudicial to the interest of Revenue. The settled position of law is that the twin conditions, i.e., the AO’s order is erroneous and prejudicial to the interest of revenue, are sine qua non for the assumption of revisionary jurisdiction by CIT. Lack of inquiry by the AO makes the order erroneous, but inadequate inquiry does not. If the AO’s view is plausible based on the facts and circumstances, the CIT cannot exercise Section 263 jurisdiction to impose his own view.2. Examination of Short-Term Capital Gain by the AO:The CIT found fault on three issues, the first being that the AO did not examine short-term capital gain arising on the sale of various assets during the assessment proceedings. However, the evidence on record shows that the AO called for various information relating to the slump sale of the edible oil manufacturing unit and its taxability. The AO issued a notice on 15.09.2011, asking for details of sales on non-business and business assets. The assessee replied on 18.10.2011, providing the Business Transfer Agreement (BTA) and other relevant documents. The AO discussed the slump sale in the draft assessment order and rectified the tax rate on long-term capital gains, indicating that the AO had examined the issue thoroughly.3. Requirement and Examination of Form 3CEA by the AO:The CIT’s second fault was that the AO did not obtain Form 3CEA and did not examine the assessee’s claim regarding slump sale despite mentioning it in the assessment order. The draft assessment order shows that Form 3CEA had been filed before the AO, which was acknowledged in the draft assessment order. The assessee submitted Form 3CEA, audited financials, MOU, and the slump sale agreement before the AO. The AO issued notices and received replies from the assessee regarding the slump sale, indicating that the AO had examined the issue and accepted the claim of the assessee.4. Qualification of Assets Added During the Financial Year for Benefit under Section 50B:The CIT found fault with the AO for not examining whether the assets added during the financial year qualified for benefit under Section 50B of the Act. Section 50B provides the mechanism for computing capital gains in the case of a slump sale of a going concern. The profits or gains arising from a slump sale are chargeable under the head capital gains. The assessee claimed that the undertaking sold was owned and held for more than 36 months, qualifying it for long-term capital gains taxed at 20%. The AO accepted this claim after examining the relevant documents and the statutory Form 3CEA.5. Determination of the Transaction as a Slump Sale:The CIT argued that the sale was not a slump sale but an itemized sale. However, the MOU and BTA indicated that the business of manufacturing edible oil at Haldia was sold as a whole for a lump sum consideration. The AO examined the transaction, issued notices, and received detailed replies from the assessee. The AO’s acceptance of the transaction as a slump sale is a plausible view and cannot be termed as erroneous. The CIT’s reliance on the Tribunal’s decision in Premier Automobiles Ltd., which was set aside by the High Court, was misplaced.Conclusion:The AO made inquiries into the slump sale transaction and accepted the claim of the assessee after detailed examination. The twin conditions required for exercising jurisdiction under Section 263 were not met, and the CIT’s revisionary jurisdiction was not justified. The impugned revisional order dated 25.02.2015 of the Ld. CIT was canceled, and the appeal of the assessee was allowed. The order was pronounced in the open court on 19.05.2017.