2018 (7) TMI 42 - ITAT MUMBAI

Disallowance on account of provision for gratuity and leave wages transferred to Oriental Containers Ltd. (OCL) on account of transfer of packing divisions - Held that:- We find that the assessee had claimed that the payment of gratuity and the leave wages by OCL should be considered as constructive payment of these liabilities by it. We find that the basic question of treatment given by OCL in its books of accounts has not been considered by both the lower authorities. It is one of the established principle of taxation that for one payment deduction cannot be claimed by two entities. Besides, nothing is on record as to what was decided by the purchaser and the seller of the packing divisions about the gratuity and leave wages. In short, issue needs further verification. Therefore, in the interest of justice we remit back the issue to the file of the AO for fresh adjudication.

Disallowance u/s. 14A read with rule 8D - Held that:- The principle governing the 14A is that no expenditure should be allowed to an assessee if he claims exemption for such income. Thus, the first and foremost pre- condition to invoke section 14A r. w. r. 8D is incurring of expenditure for exempt income. In the case under consideration the AO has mechanically applied the formula without bringing the basic facts i. e. amount of expenditure incurred for earning exempt income. Therefore, we are of the opinion, that matter should be restored back to the file of the AO for fresh adjudication. Here, we would like to mention that a reasonable disallowance can be made if it is found that expenditure was incurred for earning tax free income. The disallowance should not be more than 2% of the exempt income. We order accordingly. Ground no. 3 is partly allowed.

Reopening of assessment - Computing and charging to tax Long-Term Capital Gain (LTCG) u/s. 50B on transfer of packing division - whether the assessee could have raised the ‘sale versus exchange’ controversy in the reassessment proceedings at appellate stage-especially when it had made no such claim before the AO - Held that:- After the judgment of Bharat Bijlee [2014 (5) TMI 512 - BOMBAY HIGH COURT] it has to be held that transactions involving exchange were not covered by the provisions of section 50B of the Act. Therefore, the assessee was entitled to raise the additional ground about the sale versus exchange controversy. The failure of the assessee to raise the issue before the AO or in the original grounds of appeal filed before the FAA cannot deprive it of its legitimate claim. In the earlier paragraphs, we have held that there cannot be any estoppels in tax proceedings. So, as far as taxability of ₹ 24. 40 crores is concerned, the assessee was entitled to raise it before the FAA for the first time in form of additional grounds.

We find that there is no mention of any money, in the BTA, to be received or paid by the parties concerned. The BAT speaks of ‘issue of 29, 90, 000 fully paid up shares’. Therefore, we have no hesitation in holding that shares cannot be termed cash and that until and unless money is paid a transaction cannot be termed a sale. In commercial and business worlds, it is a well recognised principle that one of the mode to transfer of assets is exchange and it is different from sale. In other words, both the terms cannot be equated. Section 2(42C)and section 50B talk of sale consideration. As the assessee had received shares and not money in lieu of the transferred packaging divisons, so, the disputed transaction cannot be termed a sale or slump sale. We also hold that it was legally justified post Bharat Bijalee Ltd. case to argue before the FAA that it was a case of exchange of assets and that it was not liable to pay tax on ₹ 24. 40 crores.

We find that while issuing notice u/s. 148 the AO had observed that income had escaped on three counts. It is found that on two issues no queries were made during the original assessment proceedings. So, there is no question of changing of opinion, as argued by the assessee. On those two issues no opinion was formed. For initiating proceedings u/s. 147-148, there should be prima facie satisfaction that income had escaped assessment. At that stage the AO is not supposed to have concrete proof of escapement. The reasons to believe should be such that a common man in similar circumstances would fell that stand taken by the AO is possible view. Considering the peculiar facts of the case under consideration, we are of the opinion that the order of the FAA does not suffer from any legal infirmity. So, upholding the same, we decide ground no. 1 against the assessee.