TaxTMI 
TaxTMI 
2026 (6) TMI 224
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....care services. The return of income for the year under consideration was filed declaring loss of Rs.21,48,24,522/-. The assessment under section 143(3) of the Act was completed by the Assessing Officer at an assessed income of Rs.10,81,78,904/- after making various additions/disallowances including disallowance under section 36(1)(iii), capitalization of interest, denial of depreciation, addition on account of profit on sale of assets, disallowance under section 14A, denial of short-term capital loss and taxation of compensation receipt claimed as exempt income. 3. Aggrieved against the assessment order, the assessee preferred appeal before the learned CIT(A), who partly allowed the appeal of the assessee. Against the relief granted by the learned CIT(A), the Revenue is in appeal before us, whereas the assessee is in appeal against the additions/disallowances sustained by the learned CIT(A). 4. We shall first take up the appeal filed by the assessee. 5. Ground Nos. 1 and 2 raised by the assessee relate to the denial of short-term capital loss amounting to Rs. 5,92,80,158/- arising on the slump sale of the Jaipur undertaking. 5.1. The facts borne out from the assessment ....
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....apital Gain in case of slump sale vide Annexure 198 to this letter. Respectfully submitted that the sale of the undertaking has been done based on commercially agreed price and no specific consideration has been allocated by (he assessee company on each individual assets." 5.4. The submission of the assessee was that a genuine slump sale governed by Section 50B of the Act had happened, and the consideration had been mutually agreed between the parties on commercial consideration, and no specific consideration had been allocated by the assessee company on each individual asset. The AO has noted that assessee has not given the basis of arriving at the evaluation of Rs.60 Cr as against the Accounting Report for Rs.65.92 Cr of the Unit and therefore, has disallowed the short term capital loss claimed by the assessee. 6. In appeal, the learned CIT(A) affirmed the action of the Assessing Officer. The learned CIT(A) observed that although the Accountant had worked out the net worth of the undertaking at Rs.65,92,80,158/-, the assessee adopted lower sale consideration without furnishing any convincing commercial justification. The learned CIT(A) further observed that the tra....
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....ted consideration with the "net worth" as determined by the accountant under Section 50B (3) of Act, but only with the FMV as worked out under Rule 11UAE. The approach adopted by the AO in the present case for AY 20092010 is without the sanction of law. 4. It is trite law that "when a procedure is laid down statutorily and there is no challenge to the said statutory procedure the Court should not, in the name of interpretation, lay down a procedure which is contrary to the express statutory provision. It is a time-honoured principle as early as from the decision in Taylor v. Taylor that where a statute provides for something to be done in a particular manner it can be done in that manner alone and all other modes of performance are necessarily forbidden. This principle has been followed by the Judicial Committee of the Privy Council in Nazir Ahmad v. Emperor and also by this Court in Deep Chand v. State of Rajasthan and also in State of U.P. v. Singhara Singh. Chief Information Commr. v. State of Manipur, (2011) 15 SCC l[pr. 40 at pg. 13]. 5. A more iteration of this principle can be found in OPTO Circuits (India) Ltd. v. Axis Bank, (2021) 6 SCC 707 at page 716, w....
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....the transfer." In the present case, the AO had no recourse to this provision also, given its deletion with effect from 01.04.1988. 7. Notably, under Section 50C of the Act, as it stood then, did empower the AO to substitute the "consideration received or accruing as a result of the transfer" with the "value adopted or assessed" by a "stamp valuation authority", a prescription consciously absent in Section 50B of the Act. In fact, Section 50C as it stands now also enables the substitution of the "consideration received or accruing as a result of the transfer" with the "value adopted or assessed" by a "stamp valuation authority", subject to the caveat that the "value adopted or assessed" by a "stamp valuation authority" exceeds the "consideration received or accruing as a result of the transfer" by 10%. 8. This distinction between Sections 50B and 50C of the Act has been duly noticed b}' a Special Bench of this Hon'ble Tribunal in the case of DCIT v. Summit Securities Ltd. while dealing with a case of AY 2006-2007[i.e. prior to the 01.04.2021 amendment] in para 16.1 of the order reported in [2012] 19 taxmann.com 102(Mum.) (SB). 9. It is thus cl....
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....0B as follows: "(ii) fair market value of the capital assets as on the date of transfer calculated in the prescribed manner shall be deemed to be the full value of consideration received or accruing as a result of the transfer of such capital asset' The term "prescribed manner" refers to Rule 11 UAE added to the Rules in 2021. As the amendment is prospective it cannot be imported into cases prior to 01.04.2021. 16. The question whether Transfer Pricing Regulations applied to domestic transactions arose before the Hon'ble Supreme court in CIT Delhi vs Glaxo Smithkline Asia (P) Ltd. (2010) 236 CTR 113 (SC) when it was noted that there was no provision in the Act sanctioning the same. The court made a suggestion to the term "prescribed manner" refers to Rule 1 1 UAE added to the Rules in 2021. As the amendment is prospective it cannot be imported into cases prior to 01.04.2021. 16. The question whether Transfer Pricing Regulations applied to domestic transactions arose before the Hon Tale Supreme court in CIT Delhi vs Glaxo Smithkline Asia (P) Ltd. (2010) 236 CTR 113 (SC) when it was noted that there was no provision in the....
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.... 2. The revenue has attempted to sit in the arm chair of the Appellant trying to tell him as to how he should conduct his business contrary to the observations of Hon'ble Supreme Court in the case of S A Builders Ltd. vs Commissioner of Income Tax (2007) 288 ITR 1 (SC). 3. McDowell has been invoked in a casual manner minus facts and evidence which would point to a colorable device. 4. The failure on the part of the revenue to prove any consideration having passed over and above the figure contracted between the parties. 5. There was no mechanism to adopt a figure other than the price contracted between the parties vis-a-vis the law prevailing in There was no mechanism to adopt a figure other than the price the year under Appeal." 8. Per contra, the learned Departmental Representative strongly relied upon the findings recorded by the Assessing Officer and the learned CIT(A). It was submitted that the assessee failed to establish any commercial rationale for transferring a valuable undertaking to its own subsidiary company at a substantial loss and therefore the authorities below rightly held the transaction to be a colourable device. 9. We....
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....he slump sale consideration remains identical at Rs. 60 crores, there exists a variation in the value of total assets, liabilities and consequently in the resultant net worth of the undertaking transferred. The audited financial statements reflect the net value of the undertaking at Rs. 66,47,02,350/-, whereas Form No. 3CEA certifies the net worth at Rs. 65,92,80,158/-, resulting in a difference of Rs. 54,22,192/-. Similarly, the total assets and liabilities reflected in the two documents are also not identical. The audited accounts appear to be based upon the book value of assets and liabilities disclosed in the financial statements, whereas Form No.3CEA adopts the written-down value methodology contemplated under section 50B of the Act. However, no proper reconciliation explaining the variation between the two computations was furnished either before the Assessing Officer or before the lower appellate authority. 9.4 The learned Assessing Officer, during the course of assessment proceedings, had specifically called upon the assessee to justify the basis of arriving at the slump sale consideration of Rs. 60 crores. In response thereto, the assessee merely stated that the conside....
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....y adopted by the assessee also remained unsupported by convincing and independent evidence. In these circumstances, the Assessing Officer was justified in doubting the correctness of the assessee's claim of capital loss arising from the impugned transfer. We are unable to accept the plea of the assessee that the claim stood duly substantiated merely on the basis of book entries and self-serving documents produced during the assessment proceedings. The surrounding facts, relationship between the parties, prior arrangements with Fortis group entities and the nature of restructuring undertaken by the assessee collectively justify a deeper scrutiny of the transaction. 9.7 Accordingly, in the totality of facts and circumstances of the case, we find no infirmity in the action of the Assessing Officer in examining the genuineness and correctness of the claim of capital loss arising from the slump sale transaction. The grounds raised by the assessee challenging such examination and disallowance, therefore, do not merit acceptance and are accordingly dismissed 9.8 With respect to the reliance on the decision of the Special Bench in the case of Sumit Security is concerned, in that case....
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....cruing as a result of transfer. It has been specifically given other connotations in some other provisions. For example section 50C provides that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. It is worth noting that for thepurposes of section 50C, the ambit of the expression 'full value of consideration' has observed departure from its general meaning of the amount actually received or accruing. In case of transfer of capital assetin the nature of land or building or both, this expression shall mean not the consideration received or accruing but the stamp value, where the former is less than the latter. In such a situation, the amount actually received or accruing to the assessee as a result of the transfer of land or building or both shall lose it....
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....evious year in which such stock-in-trade is sold or transferred by him and for the purposes of section 48, the 'fair market value' of the asset on the date of such conversion or treatment 'shall be deemed to be the full value of consideration received or accruing' as a result of transfer. In the like manner section 45(4) dealing with the transfer of capital asset by way of distribution of capital assets on the dissolution of a firm etc. provides that the capital gain shall be chargeable to tax as the income of the firm etc. of the previous year in which the said transfer takes place and for the purposes of section 48, the 'fair market value' of the asset on the date of such transfer 'shall be deemed to be the full value of consideration received or accruing' as a result of such transfer. There are certain other provisions as well which deem the 'fair market value' of the asset 'as full value of consideration received or accruing' as a result of transfer of such capital asset. 16.3 On the other hand there are some sections in which 'fair market value' of the asset is deemed as 'cost of acquisition'. Section 49(....
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....h respect to the computation of capital gain in case there is negative net worth, whereas in the present case, the issue is not of the capital gain, rather it is a case of capital loss, not on account of any negative net worth but on account of the net worth estimated by the auditor in terms of Form 3CA under Rule 6H. As noted hereinabove, the slum sale between two related parties, whereas in the case cited by the assessee, the transaction was between unrelated parties. Further, in the case of Sumit Security, there was a valuation of the assets by the independent auditors, whereas in the present case, there is no such valuation by the independent auditor at the time of entry into the Sale Purchase Agreement. We fail to appreciate how related parties, operating under the same management and having full knowledge of the actual value of the assessee's hospital, would transfer their own assets to another subsidiary of the assessee at a price substantially lower than the fair market value. Such a proposition defies logic, common sense, commercial prudence, and settled business principles. What is material and requires due appreciation is that the Jaipur hospital of the assessee was an o....
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....low. 15. We have carefully considered the rival submissions and perused the orders passed by the authorities below along with the material placed on record. The issue involved in the present grounds relates to taxability of compensation amounting to Rs.6,40,09,600/- received by the assessee from the erstwhile promoters and claimed as non-taxable capital receipt in the computation of income. The case of the assessee throughout has been that Dr. Naresh Trehan, who had been associated with Escorts Heart Institute for a considerable period of time, was identified with the reputation, goodwill and brand value of the institution and therefore his departure in May, 2007 resulted in impairment of the very source of income of the assessee. It was on this basis contended that the compensation received pursuant to agreement dated 21.07.2008 represented capital receipt not liable to tax. 15.1 The Assessing Officer, while examining the aforesaid claim during the course of assessment proceedings, analysed the surrounding facts and circumstances in detail. The Assessing Officer noted that the compensation was received from one of the erstwhile promoters against alleged losses said to have b....
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....ions and anticipated business losses and therefore retained the character of revenue receipt. Accordingly, the addition made by the Assessing Officer was confirmed. 15.3 Upon careful consideration of the entire factual matrix, we find ourselves in agreement with the concurrent findings recorded by the authorities below. The fundamental test for determining whether a receipt is capital or revenue in nature is whether the receipt relates to destruction, sterilization or permanent impairment of the profit-earning apparatus itself or whether it merely compensates for loss in trading operations or diminution in future profits. If the source of income continues to exist and the business remains operational, compensation received for adverse impact on business performance ordinarily assumes the character of revenue receipt. 15.4 In the present case, admittedly, the assessee continued to operate the hospital even after the departure of Dr. Trehan. The institutional structure, infrastructure, licences, medical facilities, workforce and overall business organisation of the assessee remained intact. No material has been brought on record to demonstrate that the assessee had lost any ind....
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...., and therefore the departure or resignation of such person cannot automatically be treated as giving rise to a capital loss or impairment of the profitmaking apparatus of the assessee. 15.8 Further, it is also pertinent to note that no specific performance can be enforced against a medical professional requiring him to continue rendering surgical or professional services in a particular hospital. The professional association of a doctor with a hospital remains contractual and personal in nature and cannot be equated with ownership or transfer of any capital structure of the business. 15.9 The assessee has also failed to bring on record any empirical or cogent material demonstrating that the resignation of Dr. Trehan resulted in destruction or sterilization of the profit earning apparatus of the assessee company. No comparative financial data showing the volume of business before and after the resignation of Dr. Trehan has been furnished. Likewise, no details of actual revenue allegedly attributable directly or substantially to the services rendered by Dr. Trehan have been produced before the lower authorities. In the absence of any concrete evidence establishing a direct nex....
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....pital work-in-progress amounting to Rs.94,64,033/-. The Assessing Officer also examined the applicability of section 14A read with Rule 8D in relation to investments held by the assessee. 20.1 The Assessing Officer held that borrowed funds had been diverted towards interest-free advances granted to subsidiaries and group concerns and accordingly made disallowance of Rs.2,96,53,129/- under section 36(1)(iii) of the Act. The Assessing Officer rejected the contention of the assessee that such advances had been made out of own funds and held that proportionate interest attributable to such advances was liable to be disallowed. 20.2 The Assessing Officer further disallowed a sum of Rs.11,35,683/- on account of capitalization of interest relatable to capital advances/work-in-progress by observing that the borrowed funds had been utilized for acquisition of assets not put to use during the year and therefore interest attributable thereto was required to be capitalized. 20.3 The Assessing Officer also invoked provisions of section 14A read with Rule 8D and made disallowance of Rs.54,68,660/- on account of expenditure allegedly incurred in relation to exempt income. The Assessing O....
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....butable to capital advances/work-in-progress was liable to be capitalized in view of the provisions of the Act and therefore the deletion of addition of Rs.11,35,683/- by the ld. CIT(A) was erroneous. 24.2 With regard to disallowance under section 14A, the ld. DR submitted that once investments capable of yielding exempt income existed in the books of account, the provisions of section 14A read with Rule 8D were clearly attracted and the Assessing Officer had rightly computed the disallowance. It was accordingly prayed that the order of the ld. CIT(A) be set aside and that of the Assessing Officer be restored. 25. Per contra, the ld. Authorised Representative appearing on behalf of the assessee supported the order passed by the ld. CIT(A). It was submitted that all the issues raised by the Revenue stood squarely covered in favour of the assessee by the orders passed by the Tribunal in assessee's own case for earlier assessment years as well as subsequent assessment years. 25.1 The ld. AR submitted that the assessee was having sufficient own funds and reserves far in excess of the advances made to subsidiaries and group concerns and therefore no disallowance under section 3....