TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 978
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....r. CIT vide show cause notice dated 12.08.2015 u/s. 263 of the Act found fault on three issues, 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 of the Act. According to Ld. Pr. CIT, the aforesaid three issues have not been enquired into by the AO and, therefore, in his opinion make the order erroneous and prejudicial to the interest of revenue and he issued notice to the assessee conveying his intention to invoke revisional jurisdiction u/s. 263 of the Act. The assessee replied to the said notice of the Ld. Pr. CIT vide letter dated 09.09.2015 wherein the assessee had contended that the AO had examined the sale of edible oil manufacturing unit on slump sale basis which was subjected to tax u/s. 50B of the Act as long term capital gain because the said undertaking was held by the assessee for more than 36 months. It was pleaded before the Ld.....
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....erequisite to the exervise of jurisdiction by the Commissioner suo-motto under this section is that the order of the A.O. is erroneous in so far as it is prejudicial to the interest of revenue. Both these conditions have to be satisfied. If the order is not erroneous but prejudicial to the interest of revenue or erroneous but not prejudicial to revenue CIT cannot have recourse to section 263. The provisions cannot be invoked to correct each and every type of mistake or error of the assessment order, it is only when the order is erroneous then the section can be attracted. Every loss of revenue as a consequence of an order of the assessment order cannot be treated as prejudicial to the interest of revenue. For example when in ITO adopted one of the course permissible in law and it has resulted in loss of revenue or where two views are possible and ITO has taken one view with which the CIT does not agree, it cannot be treated as erroneous order prejudicial to the interest of revenue unless the view taken by the ITO is not sustainable in law. 5. In the case of CIT Vs Green Wood Corporation reported in 314 ITR Pg 81(SC), Hon'ble Supreme Court observed that "An Order of Assessmen....
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....en examined by the AO. In order to substantiate the aforesaid averment the Ld. AR drew our attention to the notice dated 15.09.2011 wherein the AO has given show cause notice on slump sale as under: "Furnish the details of sales on non business and business assets as appeared from Schedule F to the balance sheet dated 31.03.2009 of your company along with the copy of the agreement for sale and also the conveyance deed. Further explain why the Capital Gain either Short Term or Long Term from those sales has not been discussed? If the same is truly under the slump sale then also furnish the copy of latest valuation of assets sold under the scheme." 9. The assessee vide letter dated 18.10.2011 has replied that it had sold the business unit, to M/s. K. S. Oils Limited vide their Business Transfer Agreement dated 22nd November, 2008 (copy of BTA was enclosed and marked as Annexure A) as going concern. The assessee also enclosed the 'Business Transfer Agreement' in which all the details of assets as sold to K. S. Oils Limited was mentioned. This fact has been acknowledged by the Ld. CIT at page 18 of the impugned order and the copy of BTA was found by him from the assessment records.....
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....ale, signed on 23.08,2008 by both seller and purchaser is placed on record. The sale proceed was fixed in consideration of Rs. 125,00,00,000/- (Rupees One hundred twenty five crores only) and date of settlement (transfer of unit) was to be completed latest by 15.03.2009. the payment option was set vide clause 3 of MOU and clause 3.3 (relates to Advance Payment) and 3 (relates to Balance Payment) of BTA. The relevant portion of said clauses pertain to MOU as well as BTA is reproduced as follows: "clause 3.3 OF Business Transfer Agreement deed - On the instructions of the Transferor (and the Confirming parties), the Transferee has paid the Advance Payment directly to the Transferor's Fixed Deposit Account maintained with UCO Bank at Flagship Corporate Branch, 3, N. S. Road, Kolkata-700 001 (the UCO Bank) on simultaneous receipt of Bank Guarantee No. 1784IGFIN009408 dated 02 September 2008 by UCO Bank (Bank Guarantee) in favour of the Transferee, for an amount not less than the Advance Payment and on the terms set out in the Bank Guarantee." 14. Thereafter, we note in draft assessment order, clause 3.3 of Business Transfer Agreement deed has been reproduced. We take note that the....
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....er also the AO has taken note of the fact of slump sale in para 2.3 and 2.4. Thus we note that the AO has examined the aspect of sale of its only manufacturing unit situate at Haldia and, therefore, we do not find any merit in the CIT finding fault on the issue that the AO has not examined short term capital gains arising on the sale of various associates during the assessment proceedings. We note from the notices issued by the AO and reply of the assessee and Form 3CEA clearly spells out the details of the slump sale agreement between the assessee and M/s. K. S. Oil Ltd. The MOU and BTA regarding slump sale has been taken note of by the AO and discussed in the draft assessment order and thereafter in the rectification application as well as in the final assessment order. Therefore, the first fault noted by the Ld. CIT has no legs to stand and has to fail. 17. Coming to the second fault which has been raised by the Ld. CIT that the AO has not obtained form 3CEA and has not examined the assessee's claim regarding slump sale despite mentioning in the assessment order, we note that the aforesaid view of the Ld. CIT does not have any merits at all and has to fail for the simple reason....
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....t cost Rs. 61,02,67,259.95 and depreciation thereof Rs. 5,41,56,001.40. Thereafter, the Ld. AR drew our attention to notes on account which is placed at annexure I wherein note 1 of schedule Z reads as under: "On 17th February, 2009 the company has transferred by way of sale its manufacturing division at Haldia (Edible Oil Unit) on Slump Sale basis, for which the shareholders approval was taken under section 293(1)(a) of the Companies Act, 1956" 20. The Ld. AR drew our attention to the facts of computation of total income annexure J wherein the computation of total income under the head "capital gain on slump sale on edible oil unit is disclosed separately"." In the form 3CEA and computation of income of slump sale u/s. 50B, the certificate clearly mentioned that net worth of cost of unit as on 18.02.2009 separately attached and all the details related to computation of long term capital gain on account of slump sale was placed by the assessee on the records of the AO. It was brought to our notice that the computation of LTCG on slump sale is done/reproduced in the computation of total income and return of income on the basis of certificate of CA in form No. 3CEA. 21. As we ha....
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.... as whether the view of the AO in accepting the claim of assessee is unsustainable in law or not? 24 According to the assessee, since the undertaking which was sold for lump sum amount was owned and held by it for more than 36 months, the Long Term Capital Gain are taxable @ 20% as per section 50B of the Act, which stipulate the mechanism for computing capital gains in case of slump sale of going concern. The profits or gains arising from slump sale are chargeable under the head capital gains. It provides for mechanism to compute 'Net Worth'. The benefit of indexation is not available in the case of slump sale and the profit or gain on slump sale regarded as long term or short term depending upon the period of holding of the undertaking being transferred. So, once it is established that a transaction is slump sale, the income arising from such sale will be taxed under this section. The undertaking was set up in 2005 and commercial production of the undertaking started from 06.02.2006. According to assessee, since the undertaking was owned and held by the assessee for more than 36 months and sold as a whole and not as individual assets, the sale of the undertaking as a going concer....
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....49 and no regard shall be given to the provisions contained in the second proviso to section 48. 3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 88, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. Explanation 1. - For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account: Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth. Explanation 2. For computing the net worth, the aggregate value of total assets shall be, (a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in....
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....t. In the case of slump sale, the net worth has to be computed in terms of explanation 1 to section 50B and it is a special provision for computation of capital gains and it will override the other general provisions and so in this case if slump sale happened then computation has to be done as per section 50B of the Act. As per section 50B, deduction is not allowed in respect of cost of acquisition of each individual capital asset of the undertaking, but the net worth of the undertaking as a whole which is determined in the prescribed manner is allowed as a deduction treating it to be the statutory cost of acquisition. Precisely for this reason irrespective of the period for which individual asset is held by the transferor, no benefit of index cost is allowed but deduction is allowed only in respect of net worth of the undertaking as a whole on the date of transfer. Gain on slump sale of undertaking is taxable as "Long Term Capital Gain" or "Short Term Capital Gain" as per sec. 50B(1) of the Act. The proviso further clarify that if the undertaking is owned and held for less than 3 years the capital gain arising from it are chargeable to tax as short term capital gain and so, if the....
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.... covered by the word 'transfer' as defined in Section 2(47) and the contention raised was that Section 50B read with Section 2(42C) is only applicable to "sale" in a narrow sense and not to 'transfer' under Section 2(47) of the Act. 12. The term 'slump sale' been defined to mean a transfer of a business undertaking or a business for a lumpsum consideration with all its assets and liabilities without values being assigned to individual assets/liabilities. The said term has no other Significance and we should not read into and understand that the word 'sale used in the term 'slump sale', as a cause/reason to give a restrictive meaning to *slump sale", i.e. it can only apply to "sales" in a narrow sense and not to "transfers" under Section 2(47). This is apparent as when we read the proviso and sub-section (1) to Section 50B together and in a harmonious way, it is clear that it applies to all types of "transfers" that can be categorized as a "slump sale". Sub-section (2) to Section 50B of also refers to transfer of an undertaking or division by way of sale i.e. 'slump sale' and prescribes the mode of computing and calculating capital gains on suc....
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....anding anything to the contrary set forth in Clause 2.2, the Excluded Assets means such assets, which are not relating to the Business Undertaking and hence are not included in the sale of the Business Undertaking and shall not be sold, conveyed, transferred, assigned or delivered to the Transferee by virtue of this Agreement or otherwise: 2.3.1 the names and any variations of those names, and any logos, and trademarks and trade names which is used by the Transferor or any of its Affiliates and group companies; 2.3.2 corporate minute and other statutory books, corporate seals and accounting and tax records of the Transferor; 2.3.3. VAT Benefits accruing on the Business Undertaking upto 31 March 2008 subject to Clause 3.5; and 2.3.4. all assets kept, fixed installed or otherwise being used at the registered office of the Transferor and the Jar manufacturing unit on rent (which is not a part of fixed assets) and such other assets added to the list of Excluded Assets as set out in Schedule IV. 2.4. Assumed Liabilities. In consideration of this Agreement, the Transferee shall assume certain liabilities with effect from closing Date. For the purpose of this Agreement, the Assu....
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.... (c) All Inventories, Trade Receivables, loans and advances and other current assets, relating to the Business Undertaking, a summary list of which, shall be updated by the Transferor on the Closing Date; (d) All rights, claims and obligations other than termination compensation payable under all contracts, agreements and legally binding commitments having the Transferor as a party and existing solely and exclusively in relation to the Business Undertaking; (e) All rights, title and interest to claims and causes of action to the extent they are transferable, arisen or that may arise in favour of the Transferor in relation to the Business Undertaking up to the Closing Date; (f) All consents, licenses, permits, registrations and approvals from, and filings of all reports, registrations and notifications, with any Government Authority having jurisdiction over the Business Undertaking necessary or useful in any jurisdiction for the effective ownership, operation and use of the Business Undertaking, including, right to acquire rights or interests in future in any property in relation to the Business Undertaking; (g) Grant of various licences in relation to the Business Underta....
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.... been included in the assets forming part of the business undertaking. All rights and interest in the leasehold properties along with building and structures relating to the business undertaking has been included as asset for transfer. All inventories, trade receivable, loans and advances and other current assets relating to the undertaking as on the closing date has been also included in the assets forming part of the business undertaking which was transferred. Thereafter the schedule II has given the list of assets which can be seen from a perusal of the same. We note that as per clause 2.4 the transferee has assumed certain liabilities with effect from the closing date and assumed liabilities mean assumed debts, relating to the business undertaking and which are given in clause 2.4.2, up to 2.4.4 where all future debts liabilities covenants agreements or other obligations incurred or arising after the closing date in relation to the business undertaking are included in the assumed liabilities of the transferee M/s. K. S. Oils. Clause 3 says about the payment of consideration and the recitals of MOU and BTA leaves no doubt in our mind that the business as a whole of its manufactu....
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....cribe to the aforesaid view of the Ld. CIT because a careful reading of the 'Notes on Account' revealed that the assessee was mainly engaged in refining of edible oil in India and that this was the main business. The auditor's statement that there was no separate reportable segment as per the AS 17 simply means that according to the auditors other activities from where the assessee earns income is not significant and the other activities like trading etc. does not constitute the core segment which needs to be reported as per AS 17. It should be taken note that it is the view of the auditor and cannot alter the character of the transaction which the assessee has carried out as per the MOU and BTA; and if the auditor omits to report a segment cannot be used against the assessee to draw adverse inferences against it. Moreover, we note that the second observation of the auditor confirms that the main business of manufacturing division has been sold on slump sale basis. The observation of the auditor that they are of the opinion that the said sale of the manufacturing unit has not affected the going concerns status of the company which means that the assessee's status after the sale con....
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....ll inventories, trade receivable and other current assets, plants, hydrogenation unit, fractional plant, warehouse partly assembled vanaspati plant, company personnel etc. have been transferred. All the rights, title and interest to claims causes of action, to the extent they are transferable, arisen or that may arise in favour of the transferor in relation to the business undertaking upto the closing date are also included in the assets forming part of the business undertaking. The objection raised by the Ld. CIT in respect to clause (d) is also erroneous for the simple reason that the rights claims and obligations which are flowing from legally binding commitments wherein transferor (assessee) as a party cannot be transferred to the transferee K. S. Oils. Other than that, all rights, claims and obligations have been transferred to K. S. Oils. Therefore, we do not find any merit in the observations made by the Ld. CIT in this regard. The other objections of the Ld. CIT is that the condition precedent for confirmation of the transaction is the installation, operation and commission of boiler plant, vanaspati plant and fractionation plant, warehouse and refers to para 4.1 to 4.5 of ....
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....sion in Premier Automobiles Ltd. 84 ITR 169 (Mum) (TM) in which case the Tribunal after analysing the agreement between the parties did not agree with the assessee (Premier Automobiles Ltd.) in respect to their claim that its sale of Kurla Unit was slump sale and held against the assessee. However, we note that the said order of the Tribunal was set aside by the Hon'ble High Court of Bombay in Premier Automobiles Ltd. Vs. ITO 264 ITR 193 (Bom) and the claim of the assessee that its sale of Kurla Unit as 'slump sale' was accepted. In the present case before us, we note that the Ld. CIT has relied on the Tribunal order in Premier Automobiles Ltd. (supra) to find fault with the decision of the AO accepting the claim of the assessee after taking note of a few clauses of the agreement of slump sale. The Ld. CIT erred in viewing certain clauses of the contract in isolation. In order to ascertain the intention of the assessee and the buyer one has to read the contract as a whole and the intention between the parties has to be seen from the view point of the Businessman who were parties to the contract. A reading of the MOU and the contract as a whole gives the picture of the intention of ....