TMI Blog2016 (12) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... in the face of commercial sense. Unfortunately, the Revenue’s understanding is that in a going concern the buyer is bound to pay good money, transact and purchase bad and irrecoverable debts. Not only does it fly in the face of common and commercial understanding, but it is not even a pre-condition , as is evident from the definition of “undertaking”, cited in Explanation (1) to Section 2 (19) (A) of the Act. This definition of “undertaking” is what has been engrafted into by reference, under Section 2(42C) of the Act. Therefore, if certain assets or properties are left out because they would cause inconvenience or lead to some kind of a trouble for the purchasing party, it is well within its right to exclude it from the list of assets. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a lump sum consideration of `45.85 crores. The net book value of the assets so transferred was `5.27 crores. In the return filed by the assessee on 10.11.2007 it declared a corresponding income and since its undertaking had been in existence for more than three years it computed long term capital gains under Section 50B and offered 20% of it as tax. 4. The assessee s claim was selected for scrutiny during which it relied upon the agreement dated 22.09.2016 and its various terms. The Assessing Officer (AO) rejected the assessee s claim holding inter alia that the slump sale tax claim was a sham transaction designed to avoid tax liability by artificially inflating assets value and that the assets so transferred were short term in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have arisen. In so holding, this Court relied upon the decision of the Supreme Court in Commissioner of Income Tax Vs. Smifs Securities Ltd. 348 ITR 302 (SC). Besides, the Court also noted the relevant Financial Reporting Standard i.e., No. 10 and the Accounting Standard issued by the Chartered Accountants of India. Therefore, the Court concluded that the excess consideration paid over and above the value of the net tangible asset, was none other than the value of the goodwill. 7. The ITAT, in the present case, negated the ruling of the CIT(A), which had concluded that the slump sale reported by the assessee here was not genuine. It was apprised of its previous ruling, in the buyer s case which had, in effect, rejected the Revenue s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion of the judgment in that case and stated that a transaction held to be not a device or a sham, in the hands of one of the parties cannot transform itself to a suspect and a sham transaction in the hands of the other party. Accordingly, the Revenue highlighted that the remittance order should be upheld. He highlighted that there are certain other aspects which cannot be papered over; the principle one being that the entire undertaking was not transferred to the buyer. It was submitted that two assets i.e. one in the form of bad debt and another shown to be written off were retained by the seller. In the circumstances the entire undertaking was not sold . To satisfy the pre-requisites of a slump sale, as defined in Section 2(42C) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of undertaking is what has been engrafted into by reference, under Section 2(42C) of the Act. Therefore, if certain assets or properties are left out because they would cause inconvenience or lead to some kind of a trouble for the purchasing party, it is well within its right to exclude it from the list of assets. 12. For these reasons, the revenue s contentions are rejected. 13. For the foregoing reasons, the appeal has to succeed; question of law framed has to be answered in favour of the assessee and against the renue. It is so answered. Accordingly, it is held that the slump sale qualifies for treatment under Section 50(B) of the Act. 14. The appeal is consequently allowed and CM No.26426/2016 stands disposed off. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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