Lease rental expenses for slump sale property transfer deductible under section 48(1) capital gains computation

The ITAT Mumbai held that lease rental expenses incurred for completing property transfer under a slump sale scheme are deductible while computing capital gains under section 48(1). The tribunal ruled that when expenses are incurred to effectuate transfer as per NCLT-approved scheme arrangements, they must be allowed as transfer expenditure. Additionally, stamp duty and registration charges were held deductible for computing gains from port business demerger, despite CIT(A)'s denial on technical grounds. The tribunal emphasized that crystallized expenses related to transfer cannot be denied on hyper-technical reasons when facts are undisputed. Revenue's appeal was dismissed and assessee's cross-objection allowed.

---

---

Issues Involved:
1. Additional expenditure incurred by the assessee related to subsequent financial years.
2. Deduction of the additional expenditure u/s 48(1) in computing capital gain on slump sale.
3. Empowerment of CIT(A) to reduce returned income by recomputation of deduction u/s 50B.
4. Allowability of expenses crystallized in a subsequent assessment year.
5. Applicability of the High Court decision in Commissioner of Income Tax Versus Exxon Mobil Lubricants Private Limited.
6. Consideration of increased liability in computing net worth u/s 50B.

Summary:

Issue 1: Additional Expenditure Related to Subsequent Financial Years
The assessee, M/s. Larsen & Toubro Limited, claimed an additional expenditure of Rs. 82,59,94,515/- related to FY 2018-19, 2019-20 & 2020-21, arguing it was necessary for the transfer of undertaking as a slump sale. The CIT(A) did not appreciate this claim.

Issue 2: Deduction u/s 48(1)
The CIT(A) granted the amount of Rs. 82,59,94,515/- as a deduction u/s 48(1) while computing the capital gain on the slump sale of the port division for FY 2015-16 relevant to AY 2016-17.

Issue 3: Empowerment of CIT(A) u/s 50B
The CIT(A) was challenged for recomputing the deduction u/s 50B, which the Revenue argued was not permissible under the Act concerning modification of claims.

Issue 4: Allowability of Expenses Crystallized in Subsequent AY
The CIT(A) allowed the expenses of Rs. 82,59,94,515/- in the instant assessment year, which the Revenue contended should be allowed only in AY 2019-20 as per the mercantile system of accounting.

Issue 5: Applicability of High Court Decision
The Revenue argued that the CIT(A) did not consider the decision of the High Court of Delhi in Commissioner of Income Tax Versus Exxon Mobil Lubricants Private Limited, which held that expenses crystallized in the current year should be allowed only in that year.

Issue 6: Consideration of Increased Liability u/s 50B
The Revenue contended that the CIT(A) failed to consider the increased liability of Rs. 82,59,94,515/- in computing the net worth of the undertaking as per explanation 2 to section 50B for calculating capital gain.

Judgment Details:
The Tribunal upheld the CIT(A)'s decision, stating that the differential lease rental, stamp duty, and registration charges were integral to the transfer of the slump sale business and should be allowed as deductions u/s 48(i). The Tribunal referred to the scheme of arrangement approved by the NCLT and the decision of the Bombay High Court in Sesa Goa Ltd. vs. Addl. CIT. The Tribunal also directed the AO to allow the stamp duty and registration charges after due verification, dismissing the Revenue's appeal and allowing the assessee's cross objection.

Conclusion:
The Tribunal concluded that the expenses incurred were necessary for the transfer of the slump sale business and should be deducted while computing capital gains. The appeal by the Revenue was dismissed, and the cross objection by the assessee was allowed.

---