TaxTMI 
TaxTMI 
2019 (8) TMI 1617
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....ding the action of the Assistant Commissioner of Income Tax, Ward 6 (3), Mumbai ("the AO") in not treating the sale of textile business to M/s Morarjee Brembana Ltd, as a slump sale on the alleged ground that the Assets and liabilities have been individually valued for arriving at the sales value consideration. 2. He failed to appreciate and ought to have held that the textile division was sold in its entirety and all the Assets and Liabilities relating to the business were transferred and the sales consideration is based on the valuation report of an independent valuer. 3. The Appellant prays that the sale of textile undertaking be held as a slump sale and the Long term Capital Loss of Rs. 34,47,24,138/- be allowed. Without prejudice to ground I: GROUND II : 1. On the facts and circumstances of the case and in law, the CIT (A) erred in disallowing the loss on sale of textile business to the extent of Rs. 3,86,86,330/- out of total loss of Rs. 34,47,24,136/- as "Business loss" under section 28 of the Income Tax Act, 1961 ( "the Act"). 2. In doing so, the CIT (A) upheld the action of the AO of treating loss in respect of deposits....
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....e Assessing Officer, inter-alia, rejected assessee's claim of Long Term Capital Loss of Rs. 34,47,24,138/- which had arisen on transfer of its textile undertaking on a slump sales basis; disallowed the loss on sales of shares of Rs. 67,91,97,223/-; denied the claim of deduction of certain expenses of Rs. 4,50,49,311/- which were treated as prior period expenses in assessment year 2005-06 and added it back to the total income; and, rejected assessee's claim of deduction of Fair Market Value of land purchased before 01.04.1981. The assessment was thus finalised at an income of Rs. 32,48,92,350/-. On appeal to CIT(A), part relief was allowed to the assessee. In this background, both assessee as well as Revenue are in appeal before us on the respective Grounds of appeal. The assessee has challenged the sustenance of additions/disallowances by the CIT(A), whereas the Revenue has challenged the relief allowed by the CIT(A). 4. We may first take-up the appeal preferred by the assessee. The Ground nos. I, II and also an Additional Ground raised by the assessee pertain to denial of Long Term Capital Loss of Rs. 34,47,24,138/-, which is stated to have arisen on transfer of its textile und....
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....venue in nature. However, the CIT(A) held that the deposit with others of Rs. 76,15,921/-, BMC deposit of Rs. 15,00,000/- and excise duty deposit of Rs. 2,95,70,409/- to be capital in nature . In other words, the CIT(A) allowed loss on slump sale to the extent of Rs. 30,60,37,807 to be a business loss. 6. In this background, the Learned Representative for the assessee referred to various clauses of the agreement dated 04.09.2003 and pointed out that the transfer agreement does not assign any values to the individual assets or liabilities. Further, it was pointed out that 'consideration' as defined in clause 1.1(i) of the agreement, inter-alia, means the purchase price being a lump sum amount agreed for transfer of textile undertaking on a going concern basis. In this context, our attention was drawn to the Page No. 41 of the Paper Book - 1 wherein consideration for transfer is defined to mean a lump sum amount. Further, Learned Representative for the assessee referred to various clauses of the agreement dated 04.09.2003 to contend that the transaction was in the nature of slump sale. The Learned Representative referred to the definition of 'slump sale' contained in Secti....
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....the ld. DR, the respective courts have recorded a finding that in the transfer document or agreement to sell itself, individual values were ascribed. Thus, those cases are distinguishable on facts and ratio of the said decisions is not applicable to the facts of the case, as in the present case agreement only provides for lump sum amount. 10. The Learned Representative for the assessee also made an alternate plea that in case capital loss is not allowed, then loss of Rs. 34,47,24,138/- be allowed as business loss. The second alternate argument advanced was if the capital loss is not allowed, then loss pertaining to 'deposit with others', 'BMC deposit' and 'Excise duty deposit' aggregating to Rs. 3,86,86,330/- be allowed to it as a Capital loss under Section 45 of the Act. 11. We have carefully considered the rival submissions. The first and the foremost issue for our consideration is whether or not the transfer of textile division by the assessee is on a slump sale basis; and, thus whether or not the claim of Long Term Capital Loss of Rs. 34,47,24,138/- arising on such transfer is admissible. Section 50B of the Act contains the provisions relating to taxation ....
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.... Agreement which are significant in the context of the dispute before us. Firstly, in clause 1.1(i) the consideration is defined to mean "the purchase price being a lump sum amount, agreed for the sale of the Textile Business, as a going concern including its assets and liabilities, to be discharged by the Purchaser in accordance with Clause 3". Similarly, in clause 2 it is stated that "...... the Vendor agrees to sell/transfer and the Purchaser agrees to purchase/acquire from the Vendor the Textile Business as a running business/on going concern basis with effect from the Appointed Date, including but not limited to the following: (a) The Purchaser's right to represent itself as carrying on such business in continuation of the Vendor and/or as successors to the Vendor; (b) All the Assets and Liabilities belonging to the Vendor in connection with the Textile Business; (c) All the contracts, rights, powers, authorities, allotments, approvals, consensus, licenses, etc. pertaining to the Textile Business." Thirdly, in clause 3 containing the quantification of consideration, it is stated that "The Purchaser shall satisfy the lump sum Consideration by payme....
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...., licenses which the assessee held entitling it to manufacture and sell Indian Made Foreign Liquor, intangibles including the right to utilize trade marks and the labor force which was being transferred to the purchaser. The transaction involved a slump sale. There was no itemized valuation of the fixed assets and other assets which formed part of the undertaking. What was sold comprised of the undertaking and the business as a whole. 8. The Judgment of the Division Bench of this Court in Premier Automobiles Ltd. (supra) contains an elucidation of the distinction between a slump sale agreement and an agreement for the transfer itemwise of the fixed assets of an undertaking. In the case of a slump sale the sale is for a lump sum price and there is a transfer of the entire business for a fixed price. The sale consideration is, in other words, not attributable to the individual assets of the assessee. Both in the case of a slump sale as well as in the case of itemized assets a transfer of land, building, plant and machinery may and probably would be involved. However, where there is a slump sale, the transfer of land, building, plant and machinery forms part of the transfer o....
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.... fixed assets such as land, building and machinery but other component elements such as the benefit of existing contracts, licenses and approvals and intangibles including intellectual property and transfer of the work force of the undertaking or business, it would be impossible in a case such as the present to attribute or allocate the sale consideration as between the fixed assets on the one hand and the intangibles on the other." (underlined for emphasis by us) Notably, the Hon'ble Bombay High Court has explained the distinction between a slump sale agreement and an agreement for the itemwise transfer of the fixed assets of an undertaking. Undisputedly, in the present case also, the Transfer Agreement does not postulate sale of individual items of assets and liabilities, and instead what has been transferred was the entire textile division as a whole. 14. Further, in the case of M/s. Novartis India Limited vs. DCIT in ITA No. 498/Mum/2003 dated 25.09.2013, our coordinate bench has analysed the above issue and following the judgment of the Hon'ble Bombay High Court in the case of Premier Automobiles Ltd.(supra) held as under: "17. A perusal of sale agreement at ....
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.... the manner of computation of Long Term Capital Gain / (Loss) is provided for in the Section 50B of the Act; and, the Assessing Officer is not empowered to substitute the same. Thus, assessee succeeds on this aspect. 16. The next Ground in assessee's appeal pertains to allowability of expenses of Rs. 4,50,49,311/- as an allowable expenditure for the instant assessment year, which are accounted for a prior period expenditure in the accounts for next assessment year of 2005-06. The assessee made an additional claim during the course of assessment proceedings in the instant year pertaining to expenditure of Rs. 4,50,49,311/-, after making suo-moto disallowance of such expenditure in assessment year 2005-06 since such expenses pertained to assessment year 2004-05. The Assessing Officer placing reliance on the decision of Hon'ble Supreme Court in the case of Goetze India Ltd. vs CIT, 284 ITR 323 (SC) denied the claim as it was not made by filing a revised return of income for instant year and even complete details of such expenditure were not furnished. On appeal, the CIT(A) upheld the action of the Assessing Officer on this issue. 17. Before us, the Learned Representative for the....
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....ers P. Ltd. (supra), the Hon'ble Bombay High Court held that an assessee is entitled to raise before appellate authorities Additional Grounds containing even fresh claims, which were hitherto not made in return of income. Notably, the said decision has been rendered after considering the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (supra). Thus, there was no bar on the CIT(A) to have considered the claim of the assessee. Moreover, at the time of hearing, Learned Representative for the assessee relied on the judgment of Hon'ble Bombay High Court in case of CIT V. Nagri Mills (supra) and the Hon'ble Supreme Court in case of CIT v. Excel Industries Limited (supra) wherein it has been laid down that if the tax rate remains same for present and subsequent assessment year, then an expense which was otherwise allowable, ought to have been allowed as the entire issue regarding year of taxation becomes academic in the absence of tax effect. Admittedly, the tax rates for corporate assessees have remained the same for this year as well as next year. Once that is so, relying on the decision of Hon'ble Bombay High Court in the case of Prut....
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....e would not change the nature that existed before the conversion and the cost adopted in the first year of sale of part of the same land. Slump sale - 2.(a) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in taking inconsistent view by confirming the disallowance of capital loss on alleged slump sale of textile business on one hand and, restricting such disallowance only to transfer of deposits with public bodies and others at Rs. 38686330/-, on the other. 2.(b) The learned CIT(A) erred in holding that the debtors, stock, advances etc. transferred by assessee being subjected to levy of tax in the earlier, the same are allowable, though not as loss on slump sale. 2.(c) The learned CIT(A) filed to appreciate that such assets being a mere assignment, cannot be held on par with any trading transaction for being allowed as a revenue loss. Long term capital loss - 3.(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the long term capital loss of Rs. 65,29,19,139/- on the transfer of shares, share-application money to M/s. MGM Shareholders Trust & M/s.Mo....
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....ns while filing the returns of income in Assessment Years 2002-03 and 2003-04 stating that the fair market value will be substituted on obtaining a report from a Registered Valuer. Subsequently, the assessee vide letter dated 16.02.2005 and 13.12.2005, for the Assessment Years 2002-03 and 2003-04 respectively, submitted the Valuation Report according to which the Fair Market Value as on 01.04.1981 was determined at Rs. 240 per square feet for PC-I and Rs. 260 per square feet for PC-II. Accordingly, the revised Computation of Capital Gains was filed during the assessment proceedings of Assessment Years 2002-03 and 2003-04. 26. During the year under consideration, the assessee further sold part of land 45,662 sq. ft. of PC-I and 2,770 sq. ft. of PC-II. The cost of acquisition taken for calculation of income from Capital Gains was taken at Rs. 240 per sq. ft. of PC-I and Rs. 260 per sq. ft. of PC-II, being the value determined in the aforesaid valuation report and the same was filed along with the Return of Income. In the course of assessment proceeding, the Assessing Officer noted that as per section 55(2)(b)(i) of the Act, the cost of acquisition in relation to a capital asset ac....
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....rein the question before Tribunal was whether the CIT(A) was justified in accepting the assessee's claim of fair market value of the lands as on 01.04.1981 while computing the Long Term Capital Gain, which was raised in the course of assessment proceedings, instead of cost of acquisition claimed by the assessee in its return of income. The Tribunal approved the decision of CIT(A) and held that assessee can exercise its right to claim fair market value of the land as on 01.04.1981 even in the course of assessment proceedings; and, the matter was restored to the file of Assessing Officer for determination of the fair market value as on 01.04.1981. 30. We have carefully considered the rival submissions. In sum and substance, the issue involved is limited to the fact that whether assessee was justified in adopting the fair market value of the land as on 01.04.1981 as cost of acquisition to arrive at the Long Term Capital Gain. Notably, the lands in question, being PC - I and PC - II were acquired during the year 1934-35. The said lands were converted into stock-in-trade in the assessment year 2002-03. The assessee developed the units and sold part of land in PC - II in assessment ye....
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....013 adopting the fair market value of property situated within the vicinity of the relevant area, against which the assessee has filed an appeal before the CIT(A), which is pending. Considering the aforesaid, it is directed that the fair market value as on 01.04.1981 should be allowed to the assessee based on the final outcome of the appeal filed by the assessee for assessment years 2002-03 and 2003-04 challenging the determination of valuation. The Ground of appeal raised by the Revenue is thus dismissed. 32. The second Ground relates to inconsistent view of the CIT(A) wherein on one hand he has confirmed the disallowance of Capital Loss on the impugned slump sale and on the other hand he has restricted such disallowance only to the transfer of deposits with public bodies and others, amounting to Rs. 3,86,86,330/-. Further, the Department has contested the decision of the CIT(A) in holding that debtors, stock, advances, etc. transferred by the assessee are allowable as business loss, though not a loss on slump sale. It is also canvassed that the CIT(A) failed to appreciate that such assets being a mere assignment, cannot be treated on par with any trading transaction for being ....
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....uity shares, preference shares and share application money to MGM S.B. Trust and MBL. Also, assessee had claimed Short Term Capital Loss on sale of investments in equity shares of MBL to MGM S.B. Trust amounting to Rs. 2,62,78,084/-. The said losses were duly reflected by the assessee in the return of income for the instant assessment year 2004-05. The Assessing Officer disallowed the entire long term and short term capital loss treating the same as non-genuine on the ground that shares and share application money were transferred to related parties at unduly low prices with the intention to create losses and to avoid taxes. According to the Assessing Officer, the transactions of sale of shares were non-transparent, since Long Term losses were created so as to set them off against Long Term Capital Gains arising from conversion of Capital asset into stock-in-trade. In nut-shell, the Assessing Officer disallowed the above capital losses on the ground that the transactions of sale of shares were structured in a way to evade tax liability and to benefit the promoters by diverting the profits. The Assessing Officer also held that share application money could not be regarded as a capit....
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....urse of assessment proceedings. Further, assessee furnished a report by an independent valuer to justify that the shares were sold at fair value and not at reduced prices as made out by the Assessing Officer. It was explained that the Assessing Officer never doubted the genuineness of such valuation report. The Learned Representative explained that in order to establish genuineness, assessee submitted the details of sale of shares as recorded in the meeting of Board of Directors dated 26.11.2003. In relation to Transfer of shares of MBL to MGM S.B. Trust, Learned Representative submitted that transfer of shares of MBL to MGM S.B. Trust was a part of corporate restructuring scheme of the assessee and was done with commercial purpose and accordingly, it cannot be alleged as non-genuine. The transfer of shares by the assessee by way of sale was undertaken at fair value based on a valuation report, whose genuineness has not been doubted by the Assessing Officer. It was also pointed out that the issue as to whether the transfer of shares was genuine or not, was examined in the hands of the purchaser MBL by the Hon'ble Bombay High Court vide order dated 24.01.2017 in ITA No. 738 of 2....
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....nt. 44. In reply, the Ld. DR has attempted to distinguish the decision of the Hon'ble Bombay High Court in the case of MTL (supra) by pointing out that it pertained to assessment year 2005-06 and the issue involved in that case was whether Assessing Officer is empowered to substitute the full value of consideration with fair market value, whereas in the present case the issue of substitution of full value of consideration with fair market value is not quite relevant; rather, it is a case where assessee has not submitted the necessary evidence to support the instant transaction resulting in long term/ short term capital loss. 45. We have carefully considered the rival submissions. At the outset, we tabulate below the details of the transactions which resulted into Long Term Capital Loss and Short Term Capital Loss: Long Term Capital Loss: Nature of Asset Shares Transferred No. of shares Indexed purchase Cost Sale Proceeds Profit/ (Loss) Equity Shares Morarjee Brembana Ltd 1,64,38,000 22,14,93,710 4,76,70,200 (17,38,23,510) Morarjee Castiglini Ltd. 10,00,000 1,31,90,883 64,10,000 (67,80,883) PMP Components Ltd. 22,50,7....
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....d obtained a valaution report and based on the same the transfer price was fixed at Rs. 54.53 per share. The Assessing Officer has not pointed out any defect in the valuation report so submitted by the assessee; in the absence of any adverse finding by the Assessing Officer on the quality of the valuation report, we do not find any merit in the stand of the Assessing Officer rejecting the transfer price adopted by the assessee. 47. Next, we take up the transfer price of shares of Morarjee Castiglini Ltd. and PMP Components Ltd., where it has been brought out that the shares were sold, based on the value determined by an independent valuer whose valuation report was furnished before the Assessing Officer. The Assessing Officer has not given any specific reasoning for disallowing the capital loss in respect of sale of shares of MCL and PMP Components Pvt. Ltd. Further, the purchase of shares of PMP Components Pvt. Ltd. by MBL also figured in the case of MBL before the Tribunal in ITA No.1979/M/2009 dated 10.05.2013 (supra). The said decision of the Tribunal in the case of MBL (supra) has been upheld by the Hon'ble Bombay High Court in its order dated 24.01.2017 (supra), wherei....
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....ground is allowed. 5.19 In view of the above discussion, the AO is directed to allow the claim of the long term capital loss of Rs. 65,29,19,139 as claimed by the appellant. 5.20 The AO without prejudice to the above, held that the share application money is a capital asset and thereby had alternatively denied the long term capital loss of Rs. 25,29,92,531/-. The appellant on the contrary submitted that the application money is very much a capital asset within the meaning of section 2(47) of the IT Act, and therefore the appellant was entitled to the long term capital loss on sale of the said right also. In support thereof, the reliance was placed on: (i)Ahmed GH Ariff and others vs. Commissioner of wealth tax 761TR471(SC) (ii) CIT vs Tata Services Ltd. 122 ITR 594 (Bom) 5.21 The undersigned has carefully perused through the rival contentions. 5.22 It is observed and held that the right in the share application money, isa capital asset. However, since the main portion of the ground of appeal has been already allowed, this subsequent portion of the ground has become redundant which is not necessary to be adjudicated upon, as the ....
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....vidence that the transaction was not genuine. In such a case where the genuineness is not disputed with any evidence, it is not open to discard the documents and/or transaction on the basis of some supposed object/intent. In the present facts the Revenue accepts the documents but only substitutes the consideration. Therefore, the issue is whether such substitution of full consideration received by fair market value of the asset is permissible. As held by the Tribunal at the relevant time there was no power vested in the authorities under the Act to substitute a full value of consideration received for sale of shares by fair market value in respect of stocks and shares. The power to substitute full consideration with fair market value in respect of shares came into the statute only on introduction of Section 50D with effect from 1st April, 2013. Moreover, such a power under Section 50D of the Act is only to be exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined.Moreover the decision of the Coordinate bench of the Tribunal in the case of MGM Shareholders Benefit Trust (supra) on identical facts situation h....
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....o submit that share application money is not a capital asset. The Learned Representative for the respondent-assessee relied on the decision of the Hon'ble Supreme Court in the case of Ahmed G. H. Ariff and others v. Commissioner of wealth tax, 76 ITR 471 (SC), and on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Tata Services Limited, 122 ITR 594. 52. We have carefully considered the rival submissions on this aspect. Firstly, we state that the decision relied upon by the Learned Representative are on different set of facts. Both the decisions relied on by the Learned Representative are not on the issue of share application money. Thus, the decision relied upon by the Learned Representative are distinguishable on facts. Coming to the decision relied upon by the ld. DR, we find that the Pune Tribunal in the case of S.R. Thorat Milk Products (P.) Ltd (supra) has held that share application money cannot be equated with share capital as obligation to return money is always implicit in event of non-allotment of shares. The relevant part of the decision is reproduced hereunder: "In the light of the decision of the Co-ordinate Bench of the Tribuna....