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2022 (1) TMI 931 - AT - Income TaxComputation of capital gain - slump sale - Long Term Capital Gains - aggregate value of assets for purpose of computing net worth of undertaking in terms of provisions of section 50B - liabilities considered for computing net worth of undertaking - whether calculation of net worth as claimed by the assessee in its computation is as per law - whether CIT(A) ought to have appreciated the fact that when the liabilities are with the assessee and not taken over by the buyer which is contradiction of explanation of 'net worth' as per provision of Sec. 50B - HELD THAT:- We find substance in the arguments of the assessee for simple reason that share application money received pending allotment which was part of long term borrowings has been subsequently converted into equity share capital by allotment of shares which is evident from financial statements filed by the assessee for the financial year 2014-15 - advance sale consideration received from M/s. Micro Therapeutic Research Lab P. Ltd., buyer of the undertaking was received starting from financial year 2009 to 2011 which was shown as long term borrowings in the balance sheet of the assessee. Since advance sale consideration received from buyers of the undertaking is not a liability, but consideration received for sale of undertaking, same cannot be considered as liability for computing net worth of undertaking. Similarly, loans from directors as admitted by the learned DR, said liability is continued with the assessee even after sale of undertaking on slump sale basis, because said liability has not been taken over by the buyer. Once liability was not part of sale arrangement for undertaking, then said liability cannot be considered for computing net worth of undertaking. Deferred tax liability - Assessee has rightly not considered deferred tax liability for computing net worth, because it is only notional entry created in the books of account for timing difference in taxes on income, but not liability which can be paid immediately. Therefore, it cannot be considered as liability for ascertaining net worth of undertaking. CIT(A) after considering relevant facts has rightly held that long time borrowing includes advance sale consideration received from buyer of undertaking, share application money pending allotment is not liability for an undertaking for computing net worth for purpose of computation of capital gain in terms of section 50B - Similarly, as regards deferred tax liability the learned CIT(A) has rightly appreciated arguments of the assessee in not considering deferred tax liability while computing net worth, because it is only notional entry for timing difference in taxes on income by the undertaking. Therefore, we are of the considered view that there is no error or infirmity in the reasoning given by the learned CIT(A) to delete additions made towards computation of short term capital gains on transfer of undertaking in terms of section 50B of the Income Tax Act, 1961. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds raised by the revenue.
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