TaxTMI 
TaxTMI 
2026 (6) TMI 1255
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....nd circumstances of the case shows that the sales were effected in the normal course of business transactions? 4. Whether the Ld.CIT(A) had erred in holding that F.Y 2014-15 was an extraordinary year to the assessee company, BYD India without considering the facts that the assessee was fully aware as early as in September, 2013 about impending shutdown of the business of its predominant customer M/s Nokia and the likely fall in its sales during the F.Y 2014-15? 5. Whether the Ld.CIT(A) has erred in granting relief to the assessee by deleting the disallowance of preliminary expenses that are capital in nature? 6. Whether the Ld.CIT(A) has erred in granting relief to the assessee by deleting the disallowance made on account of sale of core assets which was treated as slump sale and charged to Short Term Capital gains tax? 7. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 2. The assessee is a company and wholly owned subsidiary of Lead Wealth International Ltd. British Virgin Island. During the year under consid....
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....as arrived at Rs. 26.08%. The assessee compared the same with its own PLI of 37.69% to conclude that the international transaction of sale of finished goods is at arm's length. The TPO rejected the TP study of the assessee and recomputed the PLI of the assessee at (-)26.75%. The TPO did not accept the submissions of the assessee with regard to distress sale and held that the Nokia India has announced the shut down in September, 2013 itself and the assessee-company still went on to manufacture the goods for Nokia models knowing fully well that it may not be able to sell the entire goods directly to Nokia India. The TPO further held that the claim of the assessee without any basis or records and conducted independent search to arrive at seven comparables whose margin ranged from 5.89 to 6.38%. Accordingly the TPO proceeded to make TP adjustment to the tune of Rs. 10,70,45,309/-. On further appeal, the CIT(A) deleted the adjustment made by the TPO stating that: "5. The submissions of the appellant were considered vis-a-vis the findings of the Transfer Pricing Officer: 5.1 The Transfer Pricing Officer in her order had stated that it is evident that the assessee co....
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....hat some details were furnished by the assessee during appellate proceedings but the CIT(A) neither discussed the details nor called for any remand report from the A.O. The Ld. DR argued that the claim of the assessee that there is no agreement between assessee and Nokia for supply of products is without any basis and that any prudent licensed manufacturer could foresee such eventuality as in the present case and would agree for a compensation in case of such unforeseen circumstances. The ld. DR further argued that the Nokia shutdown during FY 2014-15 was already envisaged in earlier year and the assessee still went on to manufacture the goods for Nokia knowing fully well that it may not be able to sell the entire goods is not acceptable. Accordingly, the Ld. DR submitted that the claim of the assessee that the distress sale to its AE of the products manufactured for Nokia India at a lesser rate is unsubstantiated and the CIT(A) is not correct in deleting the said adjustment. 5. The Ld. Authorized Representative (AR) of the assessee submitted that the assessee has no other customers for the goods manufactured for Nokia India and therefore had to make a distressed sale to BYD, Ch....
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....oposed shut down should not have continued its production of components. It is a well settled position that AO cannot sit in the "armchair of a businessman" to question the prudence, wisdom, or effectiveness of an assessee's commercial decisions. The commercial wisdom of the assessee cannot be examined using the lens of tax liability, since the prudence of the business decision is taken based on many commercial factors. The revenue's scope is to ensure tax compliance and to examine the genuineness of the claim of the assessee considering the overall facts and circumstances. Accordingly in our considered view, the proposing TP adjustment based on a commercial decision of the decision of the assessee to continue its manufacturing till the close down of Nokia India is not tenable. The next contention of the revenue is that the assessee has not furnished the details of sale to AE and the subsequent sale by AE to Nokia Group. In this regard we notice that the assessee has submitted the detailed breakup of the sales to its AE and the details of subsequent sale / internal utilisation of goods sold to AE. Further the sale for the year under consideration made by the assessee to its....
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.... that: "7.1 The facts of the case have been carefully considered. The disallowance amounting to INR 43,26,63,304 has been split in to two parts. Double Disallowance amounting to INR 11,08,98,175 and the balance amounting to INR 32,17,65,129. 7.2 Double Disallowance :- In this context the Financial Statements and the Tax Computation of the appellant was examined, and it is noted that the following expenses debited to the Profit and Loss Account has been voluntarily disallowed by the appellant in the Tax Computation. 7.3 With respect to depreciation amounting to INR 11,02,97,173 (2/3rd of the total expenditure), it is noticed that the Appellant had disallowed the entire depreciation amounting to INR 16,54,45,760 while determining the taxable income. Accordingly, disallowance of 2/3rd of the total depreciation again has resulted in double disallowance. 7.4 Further, INR 6,01,002 (2/3rd of INR 9,01,504) of disallowance pertaining to Provision for Doubtful Debts and Advance and disallowance on account of non-deduction of taxes was added back by the appellant in the tax computation. 7.5 As it was found that the appellant itself has dis....
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....cur according to plan?" 7.11 The Assessing Officer's premise talks of all things as certain, which may not be the case. This is an year in which the company had to shut down one of its business due to unforeseen circumstances and was under the uncertainty as to its further course of action. In such a juncture, it would be unfair to assume that the appellant has immediately contemplated a future plan and incurre expenditure towards the said new business. 7.12 The Company had ventured into the business of manufacturing of electronic automobile components only during the AY: 2018-19. Accordingly, there is no possibility of incurring any expenses in AY: 2015-16 in relation to new business which was decided to be undertaken only in AY: 2018-19. 7.13 Taking into account all the above facts as well as judicial precedents pertaining to this case, it is clear that disallowance by the Assessing Officer is not tenable in law and hence, these grounds of appeal are allowed in favour of the appellant." 8. The Ld. DR submitted that the CIT(A) has erred in stating that there is a double disallowance with respect to claim of depreciation for the reason that the ass....
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.... that during the year under consideration the assessee did not incur any expenditure towards its new business activity. The ld. AR argued that the assessee being a corporate entity has to keep the business running as a going concern and has to continue to incur the regular administrative expenses. The Ld. AR further argued that the employees engaged in the manufacturing of mobile components could not be retrench immediately on shutdown of Nokia-India operations and keeping in mind the welfare of the employees, the assessee continue to keep them on roles and paid salary. The Ld. AR also argued that the impugned payments therefore meet all the conditions laid out for claim of any expenditure u/s. 37 and therefore the CIT(A) has rightly allowed the expenditure. 10. We have heard the parties, and perused the material available on record. The AO during the course of assessment noticed that the assessee has incurred substantial expenses that are not commensurate with the revenue. The AO held that since the assessee has stopped the manufacturing unit due to shut sown of Nokia India, the expenses cannot relate to the said activity and that the expenses should be for the future ventures ....
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....uble disallowance with regard to provision for doubtful debts since the assessee in the computation of income has already disallowed the same. However, we are unable to agree with the same finding with regard to depreciation since the assessee in the computation has disallowed the book depreciation but has claimed deduction towards depreciation under the Act. Accordingly, there is merit in the argument of the ld DR that double disallowance with regard to depreciation is not the correct ground for deleting the disallowance. We have already held that the expenses claimed by the assessee to keep the business running as a going concern cannot be disallowed on adhoc basis. Accordingly we see no infirmity in the decision of CIT(A) in deleting the disallowance of expenses and the grounds raised in this regard by the revenue are dismissed. Addition towards short term capital gains - Ground No. 6 11. During the year under consideration, the assessee has sold assets in the nature of plant and machinery amounting to Rs. 45,37,96,425/- and the said consideration was reduced from the block of plant and machinery. The A.O held that the sale of plant and machinery is in the nature of slump ....
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....temized sale and not an undertaking as held by the Assessing Officer. Hence, for the reasons provided above, the same cannot be considered as slump sale. 8.8 Thus taking the facts as well as law, this addition also cannot be sustained and the Assessing Officer is directed to delete the addition of Rs. 24,65,26,951/-The appellant succeeds on grounds 4.1 to 4.6." 12. The Ld. DR submitted that the assets retained by the assessee in the block of plant and machinery are general assets and the assessee has sold the core assets pertaining to the mobile manufacturing unit. The Ld. DR further submitted that since the assessee had sold the assets immediately after the suspension of production of mobile components goes to prove that the specific plant and machinery used for manufacturing activity are sold by the assessee. Accordingly, the ld. DR submitted that the A.O has correctly treated the impugned transaction as a slump sale since the assessee has disposed off the assets pertaining to the specific undertaking i.e, the manufacturing unit. 13. The Ld. Authorized Representative (AR) of the assessee submitted that the contention that the assessee has sold the entire assets in ....
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....it in Explanation 1 to clause (19AA). Explanation 2.-For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. Explanation 3.-For the purposes of this clause, "transfer" shall have the meaning assigned to it in clause (47); 15. The definition of "Undertaking" as per Explanation 1 to section 2(19AA) shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. A combined perusal of the above definitions makes it clear that for a transaction to be considered as a slump sale there should a transfer of undertaking for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer. In the present case, from the perusal of the workings of profit/loss of sale of fixed assets (pages 147 to 157 of paper book) we notic....