TaxTMI 
TaxTMI 
2017 (3) TMI 1976
X X X X Extracts X X X X
X X X X Extracts X X X X
....s No. 1.a, 1.c, 1.d and 1.e. Hence, same stand dismissed, as not pressed. ITA/7825/Mum/2004: 2.First Ground of appeal(GOA), raised by the assessee, is about levy of capital gain tax on sale of its petrochemical division at Vapi. During the assessment proceedings, the AO found that the assessee had entered into a slump sale agreement, dated 15.04.1998 with Perstorp Aegis Chemical Pvt. Ltd. for transferring its entire industrial undertaking at Vapi, including land, building, plant etc. as well as its rights and obligations with Lloyds Finance Ltd. (LFL), as a going concern, for a consideration of Rs. 26.10 crores, that the agreement however, provided that there should be a guaranteed working capital of Rs.2.59 crores as part of purchase consideration, that as per the balance sheet as on 31.08.1998 net working capital was (-) Rs. 5.25 crores. Considering the above, the AO held that the then net consideration received by the assessee as on 31.08.1998 was Rs. 20.85 crores (Rs. 26.10 cr- Rs. 5.25 crores). Regarding transfer/sale of industrial undertaking, it was contended before AO that no capital gain was chargeable to tax, that cost of acquisition and improvement of capital asset....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dge made law, that they were applicable for the year under consideration also, that sale of petro-chemical division at Vapi would fall under the category of slump sale of a going concern, that the transaction constituted a sale of capital asset. The FAA referred to principle of networth of undertaking/division of a going concern and held that networth was to be considered as cost of acquisition of a going concern for the purpose of section 48 and 49 of the Act. He further held that concept of networth was in existence in earlier years and was approved by the Courts, that if the theory of networth was applied for the purpose of cost of acquisition to work out capital gains that would not mean that the provisions of section 50 B had been applied, that without invoking the said provisions the concept of net worth could be used for working out the taxable capital gain, that the undertaking in question fell within the definition of long term capital asset, that it was a case of slump sale, that capital gains chargeable as the undertaking was an long term capital asset. He directed the AO to obtain the working of networth and to treat the same as cost of acquisition for working out LTCG.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nciples of taxation jurisprudence any charging section is not retrospective until and unless there is a specific mention in the Act. Generally, the legislature would not tax the assessee from an earlier date. There is nothing in the explanatory notes or the memorandum to prove that the provisions of section 50B were to be applied for the year under consideration or the earlier years. The FAA had practically applied that section, even though he held that the transaction in question was slump sale. Once the undertaking was sold as a going concern in the AY.1999-2000,there was no justification on part of the departmental authorities to tax it under section 50B of the Act. It is also a fact that assets like leased land along with the intangible assets were not assigned any value by the assessee and the AO and the FAA had admitted that their value was not ascertainable. It is also to be remembered that the assessee had computed the capital gains as an alternative only-the first claim of the assessee was that the transaction being a slump sale was out of taxation provisions. The FAA and the AO had calculated the alleged capital gain in a particular manner. The assessee had given alternat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....45 is concerned, three tests are required to be applied. In this case, section 45 applies. There is no dispute on that point. The first test is that the charging section and the computation provisions are inextricably linked. The charging section and the computation provisions together constituted an integrated code. Therefore, where the computation provisions cannot apply, it is evident that such a case was not intended to fall within the charging section, which, in the present case, is section 45. That section contemplates that any surplus accruing on transfer of capital assets is chargeable to tax in the previous year in which transfer took place. In this case, transfer took place on July 18, 1969. The second test which needs to be applied is the test of allocation/attribution. This test is spelt out in the judgment of this court in Mugneeram Bangur and Co. (Land Department) [1965] 57 ITR 299. This test applies to a slump transaction. The object behind this test is to find out whether the slump price was capable of being attributable to individual assets, which is also known as item-wise earmarking. The third test is that there is a conceptual difference between an undertaking a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he above, we decide ground.1.b.in favour of the assessee. 3.Ground Nos. 2 and 3 are with regard to contribution to provident fund/ESIC. During the course of assessment proceedings, the AO found that contribution to PF were delayed on several occasions from the due date prescribed. Accordingly he made a disallowance of Rs. 7. 76 lakhs on the ground that payments were not made within the due date, invoking the provisions of section 43B r.w.s 36(1)(iv) of the Act. 3.1.Before the FAA, during the Appellate proceedings, it was stated that payments were made within the grace period permitted and/or during the relevant previous year. After considering the submission of the assessee, the FAA held that amounts of Rs. 59,140/- and Rs. 81,383/- were beyond the grace period, that the AO was justified in disallowing the same. He directed the AO to allow the balance amounts. Similarly, he held that contribution/payment to ESIC, were made after the due date, that there was no provision for grace period for making contribution to ESIC, he upheld the order of the AO. 3.2. Before us, the AR relied upon the cases of Ghatge Patil Transports Ltd. (368 ITR 749) and Hindustan Organics Chemicals L....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claimed as revenue expenditure. The AO and the FAA rejected the claim, but the Tribunal allowed the claim made by the assessee. Matter travelled up to the Hon'ble Apex court and dismissing the appeal filed by the department, it held that the expenditure incurred towards professional charges of the solicitors' firm for the services rendered in connection with the amalgamation was in the course of carrying on of the assessee's business and, therefore, deductible as a revenue expenditure. In the case under consideration expenses were incurred for selling the unit as going concern. The payment in not in doubt and expenditure is relatable to business of the assessee. Therefore, respectfully following the above judgment of the Apex Court, we allow fourth Ground of appeal. 5.Next Ground of appeal is disallowance of miscellaneous expenditure of Rs. 5.24 lakhs being 5% of the total expenditure of Rs. 104.92 lakhs. During the assessment proceedings, the AO held that miscellaneous expenses of Rs. 1.04 crores were not fully verifiable on an estimate basis, he disallowed (5%) of the claim i.e. Rs. 5,24,600/-.The FAA, in the appellate proceedings, upheld the order of the AO. 5.1.B....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that item such as sales tax set off, dividends, miscellaneous receipts, excessive provision written off would form part of business profit for claiming deduction u/s. 80HHC of the Act, that such receipts were not in the nature of commission, interest, rent, charges or any other receipt of similar nature, that the assessee had received a sum of Rs. 129.36 lakhs by way of interest on loans and advances, deposits with bank, that the assessee had incurred an expenditure of Rs. 441.09 lakhs by way of interest, that the net expenditure stood at Rs. 319.73 lakhs under the head interest. After considering the submission of the assessee and the assessment order, the FAA held that interest on loan and advances, deposits with bank was not income from business, that same was income from other sources, that the AO had rightly reduced 90% of the interest of Rs. 129.36 lakhs from the profits of assessee for the purpose of working out deduction u/s. 80HHC,that no netting off could be allowed, that the source of debit and credit of interest was not same, that there was difference of opinion about netting off, that the gross interest received by the assessee had to be considered for its rejectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in the case of ACG Associated Capsules Pvt. Ltd.(supra)wherein the court has held as under : "Under clause (1) of Explanation (baa) to section 80HHC of the Act, ninety per cent. of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and gains of business or profession". The expression "included any such profits" would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and gains of business or profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and gains of business or profession", ninety per cent. of such quantum of receipts cannot be reduced under clause (1) of Explanation (baa) from the profits of the business. In other wor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p may either be shown separately in the profit and loss account or may be deducted from the amount spent by the manufacturing unit on the raw material from which goods are manufactured. The raw material, which is not capable of being used for manufacturing the goods will have to be either sold as scrap or might have to be re-cycled of disposed of to someone who would re-cycle the scrap. When such scrap is sold, the sale proceeds of the scrap cannot be included in the term "turnover". Therefore, the proceeds of sale of such scrap would not be included in "sales" in the profit and loss account of the assessee. The situation would be different in the case of the buyer, who purchases scrap from the assessee and sells it to someone else. The sale proceeds for such a buyer would be treated as "turnover" for the simple reason that the buyer of the scrap is a person who is primarily dealing in scrap. When a recognised body of accountants, such as the Institute of Chartered Accountants of India, after due deliberation and consideration publishes certain material for its members, one can rely upon it. The meaning given by the Institute clearly denotes that in normal account....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before the due date of filing of returns under section 139 (1) of the Act. Respectfully following the judgments of the honorable jurisdictional High Court in the cases of Ghatge Patil Transports Ltd. (supra) and Hindustan Organics Chemicals Ltd.(supra), we dismiss the first ground of appeal. 8.Next ground pertains to exclusion of sales tax, amounting to Rs. 45.38 lakhs from the total turnover for the purpose of calculating deduction under section 80HHC of the Act. While dealing with the ground number six of the assessee, we had narrated the facts regarding to computation of deduction under section 80 HHC. We find that the issue stands covered by the judgment of the Hon'ble Bombay High Court in the case of Sudarshan Chemicals and Industries Ltd.(245 ITR 769).We would like to reproduce the relevant portion of the judgment and it reads as under: "Under section 80HHC(1) of the Income-tax Act, 1961, it is, inter alia, provided that where an assessee is engaged in the business of export of any goods, there shall be allowed in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods. In other words, in computi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ground of appeal, filed by the assessee is about levy of penalty u/s. 271(1) (c)of the Act. While computing the assessment, the AO issued a notice as to why penalty for inaccurate particulars and concealing the income should not be levied. After considering the submission of the assessee, the AO, vide his order dated 28.903.2006 levied a penalty of Rs. 11.39 lakhs. In his penalty order, the AO mentioned that the submission of the assessee was not acceptable with regard to professional charges(Rs. 3.46 lakhs) and 80HHC deduction specially regarding the interest income(Rs. 29.07 lakhs),that the professional charges were relatable to capital receipt, that same were claimed as revenue expenditure, that the assessee had failed to justify the claim regarding lease rent for computing deduction u/s. 80 HHC. Finally, he levied the penalty of Rs. 11.39 lakhs, as stated earlier. 10.1. Aggrieved by the order of AO, the assessee preferred an appeal before the FAA. Before him it was argued that the assessee had paid professional fee of Rs. 3.46 lakhs for its business purposes, that the expenditure pertained to sale of Vapi Unit. It relied upon the case of Bombay Dyeing & Manufacturing Co. Ltd....