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DCIT, CIRCLE-11, Kolkata Versus M/s Xpro India Ltd.

2016 (4) TMI 1131 - ITAT KOLKATA

Capital gain u/s 50B - whether transfer of the division as slum sale in terms of the provisions of Sec. 2(42)(C) - Held that:- From the definition of slump sale and undertaking”, it is clear that the provision of Sec/ 50B of the Act will be attracted when an undertaking is transferred for lump sum consideration without values being assigned to the individual assets and liabilities in such sales. In the instant case the transferee has taken over all fixed assets, specified current assets and not .....

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machines. The compensation paid was neither in form of discount nor against the price nor it was in the nature of subsidy nor it was in the nature of the reimbursement. We further find that it was not even compensation for the recouping the damage caused to the plant and machinery. None of the conditions specified in Sec. 143(1) of the Act for deducting the actual cost from value of the machines were applicable to the compensation. Therefore we are inclined not to reduce the actual cost of the .....

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e were the genuine. - Decided in favour of assessee

Disallowance u/s 43B for delay in deposit of PF and ESI contributions - Held that:- As from the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return as specified u/s.139(1) of the Act. Now, this issue stands covered in favour of assessee and against the Revenue by the decision of Hon’ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limi .....

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143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 28.12.2007 for assessment year 2005-06. Revenue has raised grounds of its appeal, which reproduced below:- 1. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred in deleting the Capital Gain amounting to ₹ 10,92,09,696/- u/s 50B of the IT Act treating the transfer slump sale as per provision of section 2(42C) of the IT Act. 2. On the facts and in the circumstance of the .....

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g the claim of assessee regarding delayed payment of employees contribution towards ESI amounting to ₹ 50,289/- 2. The first issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the capital gain for ₹ 10,92,9,696/- u/s 50B of the Act for not treating the transfer of the division as slum sale in terms of the provisions of Sec. 2(42)(C )of the Act. 2.1 The facts in brief are that the assessee is a Private Limited Company and engaged in the manufacturing business .....

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n at and through Biax Division Unit I, including Approvals, Immovable assets, Movable Assets, Employees, contracts, Intellectual Property Rights and Property Information. Accounts and Funds, Systems, Know-how, Goodwill, Business Records and every related, associate or incidental activity of Biax Division Unit II and all other rights of XPRO in Biax Division Unit II along with benefits and goodwill of the Business, which are existing and which XPRO may acquire in future upto the Closing Date, but .....

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000 (Rupees Two Hundred Seventy five Millions Six Hundred and Eighty Thousands Only), equal to Euros 4,865,000 (Euros Four Million Eight Hundred and Sixty Five Thousand), plus amount equivalent to the value of the Current Assets as on the Closing Date (hereinafter referred to as Purchase Price ) in the manner provided in this Agreement. The assessee submitted that the division was sold without transferring the loan liability of the said unit. The transferee took over only specified current asset .....

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adjusted with the WDV for the relevant block of assets. The profit arose on the transfer of net current assets, tax under the business head was offered. In view of above, the assessee submitted that the transaction of transfer of its undertaking was out of the purview of slump sale and consequently the provisions of Sec. 50B of the Act are not attracted. However, the AO disagreed with the clarification of the assessee, particularly for contents of the clause 3.2 of the agreement, which is reprod .....

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s availed of a loan facility from UTI (as defined later). An amount of ₹ 130,000,000 is presently due and payable by XPRO to UTI. Parties agree that tin discharge of XPRO s said obligation to UTI, the Company shall, if so requested b XPRO in writing, directly pay the said amount of ₹ 130,000,000 or such lesser amount as indicated by XPRO in the request, on XPRO s behalf to UTI. This amount shall be payable on Closing Date in accordance with the provisions of Clause 7 hereof and such .....

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have or may have to be executed, performed or taken by and between the Parties and/or any Third party in order to give complete effect and force to this Agreement or any of the obligations contained herein. No further consideration shall be paid and/or be payable by the Company. The Purchase Price shall, at all times, be the payment for the whole of the Business even though any individual asset or constituent thereof is for other purposes such as stamp du9ties, registrations etc., valued indivi .....

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eration. Accordingly, the AO issued a show cause notice to the assessee dated 24.12.2007 for treating the transfer of division as slump sale. In compliance thereto, the assessee submitted that the transaction for transferring the undertaking is not covered within the definition u/s 2(42C) of the Act as the loans of the assessee were not transferred. All the current assets were not taken and no current liability was taken by the assessee. However, AO disregarded the claim of the assessee and trea .....

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ccount of slump sale by observing as under:- 8.13 In the case of appellant also the specific consideration/value has been assigned to each individual assets. The consideration for the land has been specifically mentioned as per the valuer s report. The appellant had not transferred the undertaking with all the assets and liabilities. All the financial assets available to the appellant upto the date of transaction were not transferred but had been retained by the appellant. Further, the appellant .....

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appellant case. The AO is directed to compute the income of the appellant accordingly without invoking provisions of Sec. 50B of the Act. The ground no. 1 to 4 are allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is appeal before us. Shri D.S.Damle, Ld. Authorized Representative appearing on behalf of assessee and Shri Radhey Shyam, Ld. Departmental Representative appearing on behalf of Revenue. 4. We have heard rival submissions and perused the materials available on record. The Ld. .....

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eaded that the transaction of sale of the fixed assets and current assets does not amount to transfer of business undertaking as a whole. So the provisions of slump sale will not be applied in the instant case. The learned AR relied in the order of the learned CIT(A). On the contrary the ld. DR vehemently supported the order of AO. From the aforesaid discussion we find that the assessee in the present case has sorted fixed assets and specified current assets as appearing on the closing date. The .....

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a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Explanation 1. - For the purposes of this clause, undertaking shall have the meaning assigned to 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 assig .....

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of this clause, undertaking 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. From the aforesaid definition of slump sale and undertaking , it is clear that the provision of Sec/ 50B of the Act will be attracted when an undertaking is transferred for lump sum consideration without values being assigned to t .....

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under : Section 2(42C), read with Section 50B, of the Income-tax Act, 1961 - Capital gains -Slump sale (Meaning of) - Assessment year 2000-01 - Assessee-company carried on business of growing and manufacture of tea - It owned two tea gardens - During relevant year, assessee sold one tea estate for a total value of ₹ 18 crores - Assessing Officer noted that assessee company sold its entire tea estate as a going concern basis - He thus opined that it was a case of slump sale - Accordingly, A .....

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d - Held, yes [Paras 18 and 20] [In favour of assessee] Relying in the above decision, we do not find any infirmity in the decision of the ld. CIT(A). Hence we dismiss the ground of Revenue s appeal. 5. Next issue in this appeal of Revenue is that Ld CIT(A) erred in deleting the disallowance of ₹ 2,56,26,930/- being the compensation on account of machine not performing at an agreed level. 6. The assessee purchased the plant and machinery from a company based in UK. The plant and machinerie .....

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sought clarification from the assessee why the compensation has been considered as capital receipt and why the compensation has not been reduced from the value of the said plant and machineries. In compliance to the notice the assessee submitted that the compensation was neither in the nature of discount nor it represents any subsidy in relation to the plant and machinery. The compensation was awarded as the machine supplier s failure to meet performance parameters therefore it is capital in na .....

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Batenfeld. The compensation received by assessee is towards mitigating the cost of the machine which has been supplied to assessee and same is a capital receipt but it has to be reduced from the cost of the machine as it has been specifically provided and compensated to assessee. After considering the same, AO recomputed the depreciation @ 25%. 7. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who after careful consideration held that AO was not justified in holding that entire amoun .....

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tion by observing as under:- 11.4 In the case of appellant it has received the compensation/liquidated damages from Battenfeld for the reason that the supplier could not demonstrated fully the performance parameters of the machinery as per the contract and therefore, the appellant could not get desired results. The amount of compensation of Euro 450000 has no co-relation with the actual cost of the machinery. However, on the other hand, I am not inclined to agree with the submission of the appel .....

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ppellant would definitely go to reduce the cost of machinery capitalized by the appellant. In view of above facts and the decision of the Hon'ble Apex Court in the case of Saurashtra Cement Ltd. (supra), the AO is directed to restrict the disallowance of depreciation on ₹ 95,79,985/- which is 10% invoice value of the machinery by reducing the WDV of the machinery. The compensation of ₹ 2,56,26,93-/- received by the appellant is a capital receipt which would not reduce the cost of .....

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ne supplier failed to meet the predetermined performance parameters therefore it is a capital receipt. From the facts of the case of the finding that the assessee has purchased plant and machinery from a company based in UK which agreed for certain performance parameter but failed to achieve the desired level of performance. Accordingly the UK Company had to pay the compensation to the assessee in terms of the agreement. The AO has linked compensation with the cost of machines and held that it n .....

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he Contract, but in light of the fact that the performance parameters could not be demonstrated, BATTENFELD shall pay a sum of € 450,000,000 (Euro four hundred and fifty thousand) to XPRO. From the above, it is clear that the compensation was awarded for not meeting the performance parameters. The compensation was not computed with the reference to the cost of the said machines. The compensation paid was neither in form of discount nor against the price nor it was in the nature of subsidy n .....

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). Hence this ground of Revenue s appeal is dismissed. 9. Next ground is that Ld. CIT(A) erred in allowing the claim of assessee s bad debt of ₹ 42,50,084/-. 10. The assessee during the year has written off bad debts for an amount of ₹ 42,15,084/- under section 36(2) of the Act. The bad debts were related to Biax Division-II of the assessee which was sold during the year. Therefore the AO opined that the trade debtors has been taken over by the transferee company then the question of .....

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2) of the Act has not been fulfilled by the assessee. Therefore the AO disallowed the bad debts written off and added to the total income of the assessee. 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition by observing as under:- 14. I have considered the submission of the appellant and perused the assessment order. On going through the assessment order it is apparent that the AO has mainly disallowed the claim of bad debt made by the appellant for the reason .....

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2004-05. There is also no dispute on the fact that the debt was actually written off in the books of account in the year under consideration. The appellant has also demonstrated that as per the Business Transfer Agreement, the sundry debtors, as on the date of transfer, were not transferred to the joint venture company. Under the circumstances, I am of the opinion that there is no reason to reject the claim of bad debts made by the appellant when the conditions u/s. 36(1)(vii) read with Sec. 36( .....

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e decision of the learned CIT(A). 12. We have heard rival contentions and perused the materials available on record. From the aforesaid discussion we find that the AO during the course of assessment proceedings apprehended that the bad debts claimed by the assessee were actually transferred to the transferee. Therefore the question of claiming the bad debts does not arise. However the assessee submitted before us that as per the agreement with the transferee the debtor for not transferred and th .....

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from XPRO as part of Net Current Assets, as on the Closing Date, free from all encumbrances; The AO also contended that the assessee failed to furnish the details of the years in which the sundry debtors were taken into income. However from the order of learned CIT(A) we find that the bad debts claimed by the assessee in the year under consideration were recovered in the subsequent AY 2006-07 and offered for taxation. The ld. DR could not bring anything on record contrary to the finding of the l .....

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