TaxTMI 
TaxTMI 
2022 (4) TMI 1176
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....3) of the Act on 28.12.2017 at total income at Rs..35,46,83,760/- under normal provisions of the Act after making the following disallowances: - (i) Provision for Bhavishya Kalyan Yojana Rs. 77,82,000/- (ii) Provision for DMA commission Rs. 1,13,25,899/- (iii Interest on perpetual debentures Rs. 39,86,33,662/- (iv) Provision for Medicare Rs. 36,80,000/- 3. Tata Motors Finance Ltd (TMFL), wholly owned subsidiary of Tata Motors Ltd (TML) and registered as Non-Banking Financial Company (NBFC) is engaged in business of vehicle financing for the vehicles manufactured by TML. Tata Motors Finance Solutions Ltd. (TMFSL), wholly owned subsidiary of TMFL is registered as NBFC and is also engaged in business of used second-hand vehicle financing for the vehicles manufactured by TML. 4. At the time of reviewing the assessment records, Ld. Pr.CIT -1, observed that while making the impugned assessment A.Y. 2015-16 u/s. 143(3) of the Act, the Assessing Officer had failed to carry out relevant and meaningful enquiries as warranted by the facts and circumstances of the case and also failed to correctly apply the relevant provisions of the Act. 5. From th....
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....financial year under consideration, the company transferred its vehicle financing portfolios MGB (Manufacturer Guaranteed Business) and UVFB (Used Vehicle Financing Business) under a slump agreement on a going concern basis to TMFSL. The sale is effective on 31/03/2015. As a result of the slump sale, TMFL had recognised a gain of Rs. 74,282.74 lakhs which has been recorded as an Exceptional item by TMEL in its Audited financial statement for the financial year ended 31st March 2015. 2. As per the provisions of section 47(iv), any transfer of a capital asset by the parent company to its 100% Indian subsidiary is not considered as 'transfer' for the purpose of chargeability of capital gains to tax u/s 45. 3. As the transfer is to a wholly owned subsidiary, there is no actual gain accrued to the transferor Company and hence this exclusion is specifically provided from the charging section under the Act. 4. Pursuant to the disclosure in Note No.40 to the Financial Statements, the book profit u/s 115JB was computed by adjusting the capital gains arising out of the above slump sale transaction to determine the true net profit as per profit and loss account in a....
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....ed. Any transfer in the nature of a slump sale is not covered by section 45 and consequently the exceptions laid down in section 47 are not applicable to such transfer. Instead, the transfer has to be considered as 'slump sale' as defined in section 2(42C) and therefore the provisions of section 50B are clearly attracted in the present case which provides the charge to tax as well as the method for computing the gain which is taxable accordingly. 9.2 Moreover, the gain on such transfer being clearly part of the net profit had to be essentially included while computing the book profit u/s 115JB. I draw strength from the ratio laid down by the jurisdictional High Court in the case of CIT vs Veekaylal Investment Co (P) Ltd 116 Taxman 104 wherein it was held that capital gains would be part of computation of book profit. The Hon'ble High Court has held that under clause (2) of part-ll of Schedule VI to the Companies Act where a company receives the amount on account of surrender of leasehold rights, the company is bound to disclose in its Profit & Loss account, the said amount as non-recurring transaction or a transaction of an exceptional nature irrespective of it being capit....
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....pplication of section 50B in the present case. In other words, while the assessee played safe and placed without prejudice material on application of section 50B in course of the assessment proceedings, the AO did not even bother to examine such material which was available before him. The AO also failed to make necessary inquiries for disallowance u/s 14A in respect of fresh investments of Rs. 1501,16.95 lakhs in equity shares of wholly owned subsidiary. Further, it is found that the AO passed the impugned assessment order without making inquiries which should have been made and therefore the said order shall also be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue within the meaning of the provisions contained in clause (a) of Explanation 2 to sub-section (1) of section 263. The decision of the Hon'ble Supreme Court in the case of CIT vs Amitabh Bachchan in Civil Appeal No. 5009 of 2016 [Arising out of S.L.P.(C) No.11621 of 2009] is relevant to the present proceedings wherein the issue involved was that the assessee had made claim of certain expenses which were later withdrawn. The AO however did not verify the source of the expenses and conse....
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....w, without appreciating that AO adopted one of the two views possible after examining all the facts of case and documents available on record and therefore the initiation of revisionary assessment proceedings is bad in law; 3. erred in initiating revisionary assessment proceedings under section 263 of the Act, without appreciating that section 263 cannot be invoked in case where Assessing Officer had done adequate enquiry after calling for all information unless it is established that the order passed by AD is unsustainable in law 4. erred in initiating revisionary assessment proceedings, even after acknowledging the fact that, the 'without prejudice material' was filed before the AO during the course of assessment proceedings and the AO has the passed the Order after examining the same, 5. erred in passing order under section 263 of the Act and directing the Assessing Officer for conducting fresh enquiry without justifying that the order passed by the Assessing officer is neither erroneous nor prejudicial to interest of revenue; 6. erred in making revision under section 263 of the Act by setting aside entire original assessment order and....
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....ection 115JB of the Act only those receipts which are in nature of 'income' and which is otherwise chargeable to tax can only be brought to tax and not 'capital receipt' which is not in nature of income; 14. erred in not appreciating the fact that, the AO has correctly followed the jurisdictional Tribunal which was binding on him. Disallowance of expenditure in respect of exempt income earned under section 14A the Act 15. erred in making revisionary proceedings to direct the Assessing Officer to make that it has been properly disallowance under section under section 14A, without appreciating that it has been properly enquired and accepted by the Assessing Officer that no 14A of the Act is warranted; 16. erred in directing the Assessing Officer to compute disallowance under section 14A of the Act, without appreciating that the appellant had not earned any exempt income during the year and hence no disallowance under section 14A could be made; 17. erred in not appreciating the fact that no expenses at all were incurred (neither interest nor administrative expenses) for investments made at the end of the year (i.e. on 26th M....
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..... B. Revisionary proceedings are not valid where AO has adopted one of two possible views 16. Where there are two views possible and the AO has adopted one of the two possible views, then his order cannot be held to be erroneous/ prejudicial to the interest of the revenue and thereby proceedings under section 263 of the Act will not be sustained. 17. Reliance is placed on following decisions where it is held that where two views are possible on a particular issue and the AO has adopted one view, then the same shall not be termed as prejudicial to the interest of the Revenue only because CIT disagrees to the view, unless the view taken by the AO is unsustainable in law. Reliance in this regard is also placed on the following decisions:- * Malabar Industrial Co. Ltd vs. CIT (supra) (Refer page 156 to 160 of the legal paper book) * CIT vs Amitabh Bachchan (2016) (384 ITR 200)(SC) (Refer page 167 to 177 of the legal paper book) * CIT vs. Max India Ltd (295 ITR 282) (SC) (Refer page 178 to 180 of the legal paper book). * CIT vs. Gabriel India Ltd (203 ITR 108) (Born) (Refer page 161 to 166 of the legal paper book) *....
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....edings and accordingly, we submit that the proceedings under section 263 of the Act are invalid and without jurisdiction in the current case. Disclosures with respect to Disallowance under section 14A of the Act and enquiry done by AO 20. In this regard, it is submitted that the learned AO had enquired in respect of applicability of disallowance under section 14A of the Act vide notice under section 142(1) of the Act dated 9 November 2017 (Refer point 6 at page 56 of Paperbook). In response, the Assessee, vide submission dated 21 November 2017 (Refer page 90 to 93 of Paperbook) has submitted a detailed response. Further, the learned AO had thoroughly examined the copy of the Financial Statements which disclosed the investment in Subsidiary and also fact that there was no dividend income received from the same. 21. Reliance is placed on the decision of Bombay HC in case of Gabriel India Ltd (203 ITR 108) (Refer page 161 to 166 of the legal paperbook) wherein it has been held that an order shall not be considered to be 'erroneous' simply because the AO did not make any discussion in the order in relation to the query made and explanation submitted b....
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....introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does not dispense with compliance or existence of N there being no enquiry made by the Ld. AO; (ii) the AO's conclusion being contrary to CBDT Circular or (iii) against decision of jurisdictional High Court or Supreme Court. In the present case the C/T in the impugned order has not brought facts to show the existence of absence of enquiry especially when the AO has already concluded that the purchases by the assesee from four parties mentioned by the DIT (Investigation) Mumbai in its report were bogus. The decision of the Mumbai and Delhi ITAT in the case of M/s. Shri Narayan Tatu Rane (supra) and M/s. Amira Pure Foods (P) Ltd. (supra) cited by the Ld. AR clearly supports the view that Explanation-2 to sec. 263 of the Act will not be of any assistance to the plea of the revenue unless the facts and circumstances set out there in exists in a given case." 26. In addition to the above, similar proposition has been laid down by the Hon'ble Mumbai Tribunal in case of Dena Bank Vs PCIT (ITA No. 2159/Mum/2018) dated 23 January 2020 and in assessee's group company in cas....
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.... 32. The learned AO after perusing the computation of total income along-with the MAT computation and the letter dated 1 December 2015 (Refer page 51 to 55 of Paperbook) which was on record at the time of assessment proceedings, sought an inquiry in respect of the capital gains claimed and declared the same as not chargeable under section 47(iv) of the Act. 33. However, the PCIT invoked proceedings under section 263 of the Act in this regard and denied the exemption claimed under section 45 read with section 47(iv) of the Act on gain on slump sale of business of Rs. 742,82,74,000 vide order dated 24 March 2020 by stating that any transfer in the nature of 'slump sale' is covered by section 50B (and not covered by section 45) and therefore the exception laid down in section 47 of the Act are not applicable to such transfer. In this regard, the assessee wishes to submit as under: A. Section 45 is the charging section for capital gains and section 50B is merely provides a computational mechanism 34. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall....
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....s impossible to determine capital gains, therefore, it was held that the gains from transfer of business undertaking on a slump basis cannot be brought to tax under the head Capital gains. The Supreme Court had clearly held that Section 45 applies in the case of transfer by way of slump sale. It is only because of the reason that cost of acquisition of business undertaking could not be ascertained, the Court held that computation mechanism fails in such case. 42. Further, the CBDT Circular No. 779 dated 14 September 1999 (Refer page 214 to 221 of the legal paperbook) explaining the provision of section 50B of the Act reads as under: "(xx) A new section 50E3 has been inserted in the Income-tax Act containing special provision for computation of capital gains in the case of slump sale." 43. Similarly, the Memorandum to Finance Bill 1999 (Refer page 222 to 225 of the legal paperbook) has expressly stated as under:- "5.3 There has been a raging controversy regarding tax incidence upon sale of an undertaking by way of 'slump sale'. It has always been a matter of litigation as to whether slump sale gives rise to any capital gains tax liability.....
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....7) affirmed the decision of the Hon'ble Mumbai Tribunal in Wockhardt Hospitals Limited vs ACIT (ITA No. 7454/Mum/2013) dated 6 January 2017 (Refer page 238 to 254 of the legal paperbook) dated 6 January 2017 in holding that section 50B only determines cost of acquisition and cost of improvement of the undertaking. (Refer para 4.9-4.10 at page 241 of legal paperbook). 47. In view of the above, the assessee wishes to submit that section 50B of the Act is a machinery provision which provides the mechanism for computing the capital gain chargeable to tax under section 45 of the Act. The above arguments have been upheld in various judicial pronouncements, some of which are as follows: * Shri Madan Mohan Chandak (ITA No. 1256/Mds/2009) dated 19 May 2011(Refer page 255 to 259 of the legal paperbook) * Artex Manufacturing Co. (227 ITR 260) (SC) (Refer page 229 to 237 of the legal paperbook) * CIT vs Bharat Bijlee Limited (365 ITR 258) (Bom HC) (Refer page 318 to 323 of the legal paperbook) * Bharat Bijlee Limited v. ACIT [ITA No. 6410/Mum/2008] (2006) (Mumbai Tribunal) (Refer page 301 to 317 of the legal paperbook) 48. In view of th....
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....fore the exception laid down in section 47(iv) of the Act is applicable to such transfer (irrespective of the computation mechanism provided under section 50B). Ground No 8-9: Addition of gain on slump sale transaction while computing book profits under section II5JB of the Act of Rs. 742,82,74,000 A. Capital receipt not subject to MAT under section 115JB of the Act 54. It has been time and again held as a fundamental principle by various Courts that all receipts cannot be termed as 'income' and hence cannot be taxed under the Act. It is a settled position that a capital receipt not being in the nature of the "income" cannot be considered as part of book-profit for the purpose of levy of MAT under section 115JB of the Act. 55. The transfer of capital asset by a Holding Company to its 100% Wholly Owned Subsidiary is not regarded as a transfer for the purpose of chargeability under section 45 of the Act. Given that such a transaction is not subject to the charging provisions of section 45 of the Act, it is not in the nature of 'income' per se for the purpose of charging it to tax. Thus, the gain earned by the Assessee is in the natu....
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....at disallowance under section 14A ought not to apply in respect of investment in equity shares of TMFSL. A. Disallowance under section 14A of the Act is not warranted in absence of income 61. The assessee wishes to submit that disallowance under section 14A of the Act should be restricted to the actual exempt income received by the Company during the year under consideration. Reliance in this regard is placed on the following decisions wherein it is held that no disallowance under section 14A of the Act is warranted in absence of exempt income:- * South Indian Bank (112 CCH 0005) dated 9 September 2021 * CIT v. Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250 (SC) (Refer page 434 of the legal paperbook) * Oil Industry Development Board (2019) (103 taxmann.com 326) SC) (Refer page 439 to 440 of the legal paperbook) * CIT Vs. Ballarpur Industries Ltd (ITA No. 51 of 2016) (Born) (Refer page 435 to 436 of the legal paperbook) * CIT vs. M/s Delite Enterprises (ITA No. 110 of 2009) (Born) (Refer page 437 to 438 of the legal paperbook) * DCIT Vs JSW Limited [2020] 189 DTR 0015 (Mum ITAT) (Refer page 441 to 448 ....
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....quity share capital and Reserves and Surplus were sufficient to cover the value of investments. The share capital and reserves position as at 31 March 2015 is as under: - Particulars Particulars Amount (Rs. In crores) As on 31 March 2015 As on 1 April 2014 Equity Share Capital 1,319.02 1,289.34 Reserves and Surplus 1,857.24 1,654.88 75. Therefore, since sufficient own funds were available during the year, no disallowance under section 14A of the Act is warrant. In this regard, reliance is placed on the following decisions * Reliance Utilities and Power Limited v. CIT [2009] 313 ITR 340 (Bombay) (Refer page 457 to 460 of the legal paperbook). * HDFC Bank Ltd (2014) (366 ITR 505) (Born HC) (Refer page 470 to 472 of the legal paperbook) * Tata Motors Limited for AY 1999-00 to 2002-03 (ITA No. 3329 to 3332/M/2011) * Tata Motors Limited for AY 2005-06 (ITA No. 33361M12011) dated 13 April 2018 (Refer page 461 to 469 of the legal paperbook) * Brigade Enterprises Limited [2021] (124 taxmann.com 237) (Kar HO) 76. In addition to the above, it also pertinent to note that the Non-Current Liabi....
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....raised objections on treating the slump sales under the head Capital gains as well as treatment given by the assessee to compute the book profit u/s 115JB of the Act. After careful consideration, we observe that the assessee has transferred the whole business under slump sale basis and it is fact on record that it is transferred the business on going concern basis to its own subsidiary company. The transaction is covered u/s 47(iv) of the Act and accordingly it is not transfer within the provisions of the Act. Therefore, we are not incline to agree with the findings of Ld PCIT in this regard. Therefore, we are inclined to accept the submissions made by the assessee in this regard. 14. Coming to the next issue of adjustment of the above said profit in the book profit and the assessee has treated the same as capital profit without routing the transaction thru profit and loss account. On careful consideration, we observe that the assessee has to prepare the annual account by following the Accounting Policies, Accounting Standards as provided in the Act and prepare the accounts as per the Schedule III to the Companies Act, 2013 to determine the book profit. The provisions of section....
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.... we hold that where the accounts of a Company are maintained as per the Provisions of Companies Act and are Certified by the Auditors to the effect that the same are maintained as per the requirements of the Companies Act and the same are approved by the shareholders of the company in its annual general meeting and filed before the Registrar of companies, the authenticity of such accounts has to be accepted by the Assessing Officer, while computing the book profits under section 115J/115JA/115JB of the I.T. Act. The assessing officer is however empowered to make such adjustments as provided for in the Explanation to the respective section." We have earlier expressed the view that the Net profit shown in the Profit and Loss account should be understood as the net profit arrived at after giving to the effect of notes, if any, given in Notes to Accounts. The same has to be accepted by the assessing officer and he is empowered to make only those adjustments which are prescribed in the Explanation 1 to sec. 115JB of the Act. 23. We shall now examine the second contention urged by the assessee, viz., since the profit arising on transfer of a capital asset by a company t....
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.... of transfer as per the provisions of sec. 2(47) of the Act, yet they shall not be chargeable to tax u/s 45 of the Act, in view of the provisions of sec. 47 of the Act. For the sake of convenience, we extract below the provisions of sec. 47 of the Act. "47 Nothing contained in section 45 shall apply to the following transfers:- ...... (iv) any transfer of a capital asset by a company to its subsidiary company, if- (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian Company." It can be noticed that the transaction involving any transfer of capital asset by a company to its wholly owned Indian subsidiary company is included in sec. 47 of the Act under clause (iv) and hence the said transaction is not regarded as "transfer". The existence of the element of "transfer" is an essential condition for bringing the profits and gains arising on a transfer of a capital asset into taxation u/s 45 of the Act. Accordingly, in the absence of "transfer", the profits and gains arising on said transfer of capital asset by a company to its wholly owned su....
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....e tax Act, cannot also be included in "book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point. 27. A careful perusal of the decision rendered by the Special bench in the case of Rain Commoditites Ltd (supra) would show that the above said legal contentions were not considered by the Special bench. We notice that the Special bench considered the following decisions:- (a) Malayala Manorama Co. Ltd Vs. CIT (2008)(300 ITR 251)(SC) (b) N.J. Jose & Co. (P) Ltd (321 ITR 132)(Ker) (c) CIT Vs. Veekaylal Investment Co. (P) Ltd (249 ITR 597)(Bom) In all these cases, the Courts were dealing with the issue of inclusion of Capital gains in the computation of "Book Profits", but such capital gains were otherwise chargeable to capital gain tax u/s 45 of the Act under the normal provisions of the Act. However, here is the case that the profits and gains arising on transfer of capital is not falling under the definition of "transfer" and hence under the definition of "Capital gains chargeable u/s 45" and consequently, the same does not fall within the purview of the definition of "income" given ....