TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1131
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....f machine not performing at an agreed level. 3. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred in allowing the claim of the assessee's bad debt of Rs. 42,50,084/- though the assessee had failed to fulfill the condition of section 36(2) of the IT Act. 4. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred in allowing the claim of assessee regarding delayed payment of employees contribution towards ESI amounting to Rs. 50,289/-" 2. The first issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the capital gain for Rs. 10,92,9,696/- u/s 50B of the Act for not treating the transfer of the division as slum sale in terms of the provisions of Sec. 2(42)(C )of the Act. 2.1 The facts in brief are that the assessee is a Private Limited Company and engaged in the manufacturing business of thermoplastic films, sheets and liners. The assessee had a manufacturing unit at Pithampur, Madhya Pardesh which is known as Biax Division Units II. The assessee sold its said division to M/s Terxpro Films Pvt. Ltd.,(TFPL for short) in terms of agreement dated 8th of September 2004. The relevant extract of the agreement ....
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....ransaction of transfer of its undertaking was out of the purview of slump sale and consequently the provisions of Sec. 50B of the Act are not attracted. However, the AO disagreed with the clarification of the assessee, particularly for contents of the clause 3.2 of the agreement, which is reproduced below:- "In consideration for the purchase of the business from XPRO, the Company shall pay to XPRO in cash Rs. 275,680,000 (Rupees Two Hundred seventy five Millions Six Hundred and Eighty Thousands only) equal to Euros 4,865,000(Euros Four Million Eight Hundred and Sixty Five Thousand) plus amount equivalent to the value of the Current Assets as on the Closing Date (hereinafter referred to as "purchase Price") in the manner provided in this Agreement. As stated in this Agreement, XPRO has availed of a loan facility from UTI (as defined later). An amount of Rs. 130,000,000 is presently due and payable by XPRO to UTI. Parties agree that tin discharge of XPRO's said obligation to UTI, the Company shall, if so requested b XPRO in writing, directly pay the said amount of Rs. 130,000,000 or such lesser amount as indicated by XPRO in the request, on XPRO's behalf to UTI. This amount shal....
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....s. The transferee has not taken over the loan liability. Accordingly the assessee contended that the transaction does not amount to slump sale. Accordingly the ld. CITA deleted the addition made by the AO on account of slump sale by observing as under:- "8.13 In the case of appellant also the specific consideration/value has been assigned to each individual assets. The consideration for the land has been specifically mentioned as per the valuer's report. The appellant had not transferred the undertaking with all the assets and liabilities. All the financial assets available to the appellant upto the date of transaction were not transferred but had been retained by the appellant. Further, the appellant had assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it could not be said that the transfer was a slump sale within the meaning of Sec. 50B of the Act. In view of facts in the case of appellant and in view of decisions of Hon'ble ITAT, Kolkata and ITAT, Cochin, it is held that in the case of appellant there was no slump sale of undertaking but the itemized sale of assets and therefore, the provisions of Sec. 50B are not applic....
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....y for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities;] Explanation 1 to section 2(19AA) reads as under:- "demerger" in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 to 1956), by a demerged company of its one or ,more undertakings to any resulting company in such a manner that- (i) ... (ii) ... (iii) .... (iv) .... (v) ... (vi) .... (vii) .... Explanation 1, - For the purposes of this clause, undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. From the aforesaid 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 th....
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..... The AO accordingly sought clarification from the assessee why the compensation has been considered as capital receipt and why the compensation has not been reduced from the value of the said plant and machineries. In compliance to the notice the assessee submitted that the compensation was neither in the nature of discount nor it represents any subsidy in relation to the plant and machinery. The compensation was awarded as the machine supplier's failure to meet performance parameters therefore it is capital in nature. However the AO observed that there was no defect in the machines. As per agreement with M/s Battenfeld a UK Company has waived 10% of the purchase price which was the balance price payable by assessee and assessee has capitalized 100% of value of the Machines and claimed the depreciation on same. The compensation which is received by assessee is nothing but a specific amount which has been paid to the assessee-company to make good the price of machine which has been paid by assessee to M/s Batenfeld. The compensation received by assessee is towards mitigating the cost of the machine which has been supplied to assessee and same is a capital receipt but it has to be r....
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....er of Ld. CIT(A) Revenue is in appeal before us. 8. We have heard both the sides and perused the materials available on record. Before us the ld. DR submitted that that the assessee is claiming double deduction by not reducing the compensation from the value of the machine which is not as per law and relied in the order of AO. On the other hand the learned AR submitted that compensation was received as the machine supplier failed to meet the predetermined performance parameters therefore it is a capital receipt. From the facts of the case of the finding that the assessee has purchased plant and machinery from a company based in UK which agreed for certain performance parameter but failed to achieve the desired level of performance. Accordingly the UK Company had to pay the compensation to the assessee in terms of the agreement. The AO has linked compensation with the cost of machines and held that it needs to be reduced from the value of the machine. However we find from the settlement deed with the UK Company that compensation was given as the performance parameters were not achieved. The settlement deed is placed on page number 193 of the paper book. The relevant extract of the ....
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....rred an appeal before Ld. CIT(A) who deleted the addition by observing as under:- "14. I have considered the submission of the appellant and perused the assessment order. On going through the assessment order it is apparent that the AO has mainly disallowed the claim of bad debt made by the appellant for the reason that Biax Division Unit-II was sold by the appellant during the year under consideration and that it was not known as to in which year such income was offered for taxation. On careful consideration of the fact, I am of the opinion that there is no dispute on the fact that the debts written off was the trade debt of the appellant's Biax Division Unit-II. The said unit was purchased by the appellant during F.Y 2003-04 and sold in F.Y 2004-05. Thus, the trade debtor would be of the year 2003-04 or 2004-05. There is also no dispute on the fact that the debt was actually written off in the books of account in the year under consideration. The appellant has also demonstrated that as per the Business Transfer Agreement, the sundry debtors, as on the date of transfer, were not transferred to the joint venture company. Under the circumstances, I am of the opinion that there is ....