TaxTMI 
TaxTMI 
2023 (5) TMI 1317
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....approval of PCIT was taken before issue of Notice u/s 148 of the I.T. Act." 2. "Whether on the facts and circumstances of the case, the ld. CIT(A) erred in holding the treating reopening invalid without appreciating that for the relevant assessment year AO had examined with reference to the ROI filed and it was found that the assessee had not filed necessary report as required u/s 50B(3) of the Act and it was seen that the assessee had incorrectly adopted the amount of networth of asset while computing Long Term Capital Gain of slump sale made during the year under consideration and this had resulted incorrect computation of LTCG and hence under assessment of Rs. 2,70,32,509/-". 3. "Whether on the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition made on account of Capital Gains arising on slump sale of the food services business Rs. 3,26,25,6227- without appreciating that the PEVC (Profit Earning Capacity Value) was required to be considered for valuation thereof. The valuation of the said business of Food Service Division on the basis of PECV works out to Rs. 7,20,32,509/- whereas the assessee has adopted the sale consideration o....
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.... division amounting to Rs. 94,11,315/-, worked out by the valuer as against the net worth of Rs. 1,50,04,578/- computed by the assessee. 4. The fair market value (FMV) of the sale consideration computed by the AO is reproduced as under: - Sl. No. Particulars Profit Before Tax Tax 1. PERFORMANCE Rs. Rs. 2006-07 1,89,36,647 2007-08 2,15,21,971 2008-09 1,79,20,548 2009-10 4,71,60,172 2010-11 2,68,60,953 Total 13,24,00,291 2. FUTURE MAINTENANABLE PROFITS Average profit before tax 2,64,80,058 Less: TA/TM(&2% of Estimated Turnover) 65,75,78,245 1,31,51,565 Less Income Tax Payable @ 30% 30,98,548 Surcharge Payable @2% 1,99,927 41,98,475 Education Cess Payable 2% 83,970 Higher Education Cess 25 41,985 43,24,230 3. Net Maintainable Profit after tax 90,04,064 Capitalization Rate 12.50% Capi....
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....re was clear involvement of "change of opinion" and the proceedings of reopening could be valid and legal only if there was no full and true disclosure of material facts, on the part of the assessee. This is clear by the proviso to Section 147 of the Act and, for ready reference, it is reproduced as under: - "Provided that where an assessment under subsection (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year." 11. Before us, Ld.Sr.DR submitted that there was failure on the part of the assessee in submitting the Audit Report required u/s 50B(3) of the Act, which was mandatorily to be filed by the assessee and therefore, there was a failure on the part of the asses....
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....ion 288, 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 sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43 ; 51 [***] 52[(b) in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD , nil; and ....
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....adopting the FMV of the sale consideration and that too relying on own method of valuation and ignoring the valuation report submitted by the assessee. The second component is net worth of the division, which according to the assessee was Rs. 1,50,04,578/- but the AO has worked out at sum of Rs. 94,11,450/-. The relevant findings of Ld.CIT(A) on the issue in dispute is reproduced as under: - 5.1.3 "All the facts and circumstances related to the impugned addition of Rs. 3,26,25,672 are duly considered. The Net Worth of the business was worked out for the purposes of Section 50B(3) of the Act at Rs. 1.50,04,578by replacing book value of the Fixed Assets by the written down value of the block of assets under the Income-tax Act in terms of the above referred provisions of Section 50-B (3) of the Act. assessee was in the service sector, the valuation should have been adopted at the value of the business arrived at on PECV method instead of the average of NAV& PECV. this Method has been prescribed and followed by the erstwhile Controller of Capital Issues (CCI). Further, the said valuer has considered various methods and after careful consideration has adopted this method. Hence....
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....ood solutions India Pvt. Ltd. was enclosed with the written submission uploaded on ITBA. 5.1.7 In the light of such facts, I am afraid; there is no such occasion to confirm action of Ld. A.O. in making the impugned addition of Rs, 3,26,25,672 and relief has to be given to the appellant Company as it is entitled for the same. The amount of addition being only an estimate and that too without any basis is not confirmed and is directed to be deleted. Therefore, Ground no. 2 with its5subGroundsviz. 2.1 to 2.5 are allowed." 17. Before us, Ld.Sr. DR referred to section 50B(2) of the Act and submitted that for the purpose of LTCG on transfer of a capital asset by way of slump sale, FMV of the capital asset as on the date of transfer is deemed to the full value of the consideration received or accruing as a result of the transfer of such capital asset , therefore the AO has correctly substituted the sale consideration exchange between the parties with FMV worked out by the valuer on PECV method. He further submitted that net worth of the food division has already been adopted on the basis of the books of the accounts of the assessee. 18. On the other hand, Ld. Counsel for th....
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.... already reproduced same above. 21. In our opinion, the net worth of the undertaking worked out by the assessee is as per the provision of the Act whereas the AO has not taken into consideration the written down value in terms of Explanation-2 to section 50B(3) of the Act. Accordingly, we direct the AO while computing the LTCG on the transfer of the slump sale of the undertaking to adopt net worth as per section 50B(3) read with Explanation -2 below that section, which has been worked out by the assessee at Rs. 1,50,04,578/-. The Ground No.3 raised by the Revenue is accordingly allowed for statistical purposes. 22. Ground No.4 raised by the Revenue relates to the disallowance of employee's contribution to PF/ESI paid after due date prescribed under the relevant Act. The finding of Ld.CIT(A) on the issue in dispute is reproduced as under: - 5.5.1. "For ready reference, this Explanation 5 is reproduced, as below:- Explanation 5: For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of....