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The Supreme Industries Limited Versus The ACIT, CC-29, Mumbai

2016 (5) TMI 264 - ITAT MUMBAI

Taxing of capital gains u/s.50B r.w.s.2(42C) - transfer of the BOPP films undertaking to Xpro India Ltd. (XIL) - Held that:- We had gone through the terms of BTA, which clearly provides that sale of undertaking as a going concern for a lump sum consideration of ₹ 14 crores. With regard to the contention of ld. AR that individual values has been ascribed to net current asset, we found that the AO has reproduced the individual items of assets/liabilities in para 3.6 and has held that most of .....

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e value of such assets in the intervening period i.e. the date of agreement and the date of conveyance.

The conclusion drawn by the AO and CIT(A) are as per material on record, therefore, did not require any interference on our part. Accordingly, we uphold the addition made by the AO u/s.50B on account of gain arising from transfer of BOPP Films Undertaking.

Computation of deduction u/s.80HHC - reducing 90% of receipt on account of sundry receipts including sale of empty ba .....

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8 of the Income Tax Act, will not be eligible for inclusion ill the profits of the business for computing the relief under section 80HHe. Therefore, items like dividend income, profit on sale of investments, etc., which are not assessable under section 28, will have to be excluded while computing the profits of the business for computing the relief under section 80HHC.

(2) Any receipt, which has no element of export turnover, should be treated as independent income ill terms of the ju .....

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case of CIT vs. Lakshmi Machine Works, reported in(2007 (4) TMI 202 - SUPREME Court ). - ITA No. 7524/Mum/2007 - Dated:- 29-4-2016 - Shri R. C. Sharma, AM And Shri Amarjit Singh, JM For the Petitioner : Shri Nitesh Joshi For the Respondent : Shri Alok Johri ORDER Per R. C. Sharma ( A. M ) This is an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2004-2005. 2. First grievance of the assessee relates to taxing of capital gains amounting to ₹ 10,30,0 .....

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(XIL) for sale of its BOPP Films undertaking at Pithampur, Madhya Pradesh as a going-concern for a total lump-sum consideration of ₹ 14 crores. In the return of income, the assessee offered a sum of ₹ 10,30,06,590/- as short term capital gains in respect of the said transfer in accordance with the provisions of section 50B of the IT. Act. However, subsequently, the assessee filed a revised return withdrawing the aforesaid income by way of short term capital gains on the ground that .....

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amount for which value of individual assets was to be determined at the time of conveyance. The AR of the assessee referred to Article 2.3, 4.3 and 5.26 of the BTA in support of this contention that the net current asset were to be valued individually and payment for the same was to be made over and above the lump-sum consideration. The AR submitted before the AO the details of individual items of assets and liabilities which were taken over by the XIL at mutually agreed price and it was accordi .....

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d to Articles B to D of the BTA which has been reproduced in para 3.2 of the assessment order. As regards the submission of the assessee that individual values has been ascribed to net current asset, the AO has reproduced the individual items of assets/liabilities in para 3.6 and has held that most of the items have been taken over by the buyer at the book value with minor and negligible difference. The A.O. has also referred to the fact that in the list of current assets/liabilities, the assess .....

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ot be determined at the time of entering into contract which is usually much earlier than the date of conveyance (actual transfer). It has been observed by the AO that it is for this reason that all such agreements for sale of a going concern, including the impugned BT A, provides for valuation of current assets just before conveyance. The AO has accordingly held that such assignment of individual value to net current asset is only for the purpose of ascertaining the change in the value of such .....

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determining whether a transaction would be a slump sale or otherwise. The AO has examined the impugned sale on the basis of tests laid down by the Bombay High Court and has came to the conclusion that the impugned sale of the BOPP. undertaking was a slump sale. The AO has further referred to the decision of the ITAT, Hyderabad Bench in the case of Coromandel Fertilisers Ltd. 90 ITD 344 (Hyd) in which an identical issue came up for consideration of the ITAT wherein the value of the current assets .....

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it is to guard against such fluctuations that the agreement stipulated special procedures for valuation of such items just before the date of conveyance. Such valuation, it was held by the ITAT would not detract from the fact that it was a slump sale of the unit as a whole and as a going concern. On the basis of these arguments as well as judicial pronouncement discussed above, the AO rejected the contention of the appellant that the sale of the BOPP undertaking was not a slump sale and accordi .....

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c Control Gear Manufacturing Co. 227 ITR 278(SC) does not help the case of the appellant as these decisions were given prior to the introduction of section 50B in the IT. Act and were with reference to section 41(2) of the IT. Act. As regards the decisions in the case of Karnbli Co-operative Sugar Factory Ltd. vs. JCIT 83 ITD 460 (Bangalore), it is found that the facts of that case are not at all comparable to the facts of the present case. In the case of Karnbli Co-operative Sugar Factory Ltd. .....

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, the deposits made by the assessee with banks, local authority, electricity board and domestic gas authorities and investment in the shares of the BDCC bank were retained by the erstwhile factory. It was in this background that the Hon'ble Tribunal held that the agreement for sale was not for the factory as a going concern and was therefore, not a slump sale. It is also pertinent to note that this decision was also related to a period prior to introduction of section 50B on the statute. I a .....

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of the Bombay High Court in the case of Premier Automobiles Pvt. Ltd. vs. ITO 264 ITR 193 to the facts of the case for determining whether the impugned sale is slum sale or not. As discussed in para 3.8 of the assessment order, the facts of the present case fully satisfies the tests laid down by the jurisdictional high court for determining whether a transaction is a slum sale or not. As regards the objection of the appellant that the transfer of BOPP undertaking is not a slump sale as value of .....

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of the valuation of few ancillary items, that the sale is not a slump sale. The Hon'ble ITAT Bench observed that what was to be examined was whether the cement unit as a functional unit had been transferred for a lumpsum price. The IT AT held that it was so transferred, and was therefore, a slump sale. There is no contrary decision on the issue. Therefore, following the decision of the IT AT, Hyderabad Bench mentioned above, there is no dispute that the impugned transfer of the BOPP undertak .....

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Limited, 365 ITR 258, PNB Finance Limited, 307 ITR 75. It was contended by ld. AR that transaction cannot be considered as a slump sale within the meaning of Section 2(42C) of the Act. 7. On the other hand, ld. DR relied on the order of lower authorities. 8. We have considered rival contentions and deliberated on judicial pronouncements referred by lower authorities in their respective orders as well as judgments relied on by ld. AR and DR during the course of hearing before us. From the record .....

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ideration of ₹ 14 crores. With regard to the contention of ld. AR that individual values has been ascribed to net current asset, we found that the AO has reproduced the individual items of assets/liabilities in para 3.6 and has held that most of the items have been taken over by the buyer at the book value with minor and negligible difference. Further the net current assets by nature are such that its value change from day-to-day, and, therefore, its exact value on the date of actual trans .....

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g Co. 227 ITR 260 and Electric Control Gear Manufacturing Co., 227 ITR 278, reached to the conclusion that these cases were pertaining to the period prior to introduction of Section 50B in the Income Tax Act and were with reference to section 41(2) of the Act. The decision relied on by the ld. AR in the case of Bharat Bijlee Limited (supra) is distinguishable on facts, insofar as assessee has transferred its one of its division of undertaking under scheme of arrangement without any monetary cons .....

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are supporting their conclusions. Detailed analysis of the facts of the case was made with reference to the various judicial pronouncements as narrated at page 3 & 4 of the appellate order. The conclusion drawn by the AO and CIT(A) are as per material on record, therefore, did not require any interference on our part. Accordingly, we uphold the addition made by the AO u/s.50B on account of gain arising from transfer of BOPP Films Undertaking. 9. Next grievance of the assessee relates to comp .....

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TA Nos.866 & 905/M/2005 vide its order dated 19.2.2008 made the following observations and restored the matter to the file of the Assessing Officer with the directions as contained at paras 7 to 9 of the order. The same is reproduced hereunder:- "7. We heard the parties and considered their rival submissions. Clause (baa) of Explanation to section 80HHC defines "profits of the business" as profits of the business as computed under the head "Profits and gains of business o .....

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tion (baa)(J) be excluded from the profits of the business. The distinction between the two limbs is quite clear in that the first limb covers only operational business income, which comes out of export turnover while the second limb refers to non-operational business income, which is in the nature of independent income having 170 element of export turnover. Explanation (baa) also makes it quite clear that any income which is not assessable under section 28 or which does not arise out of export .....

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tion also the judgment of the Hon'ble Bombay High Court in the case of Bangalore Clothing Co. (supra) is relevant. In the case of Bangalore Clothing Co. supra, it has been held that as some expenditure might be incurred in earning the incomes referred to in clause (baa)(I), an adhoc 10% deduction from such incomes has been provided for, to account for those expenses. The Hon'ble Supreme Court also taken the view that profit incentives and items like rent, commission, brokerage, charges, .....

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of such income which has to be excluded from the profits of the business. These authorities clearly indicate that the Legislature itself has fixed a ceiling of 10% to cover the expenses in earning the incomes referred to in clause (baa)(J) of Explanation to section 80HHC. 9. In view of the aforesaid, the Assessing Officer is directed to re-examine all the issues raised in Ground No.2a), b) and c) and adjudicate upon the same in the light of the following principles: (1) Net income, which is 110 .....

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