TMI Blog2017 (5) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... mple fact that the assessee cannot dictate the AO how to write the assessment order. The assessee can only answer to the queries and place evidence before the AO in support of its averment, which in this case has been done by the assessee. All the records were furnished before the AO and the AO has called for details from the assessee regarding slump sale and has applied his mind and has decided to accept the claim of the assessee that the transaction in question is ‘slump sale’ which cannot be termed as erroneous simply because the AO has not made any detailed discussion about it in the assessment order. Since we find that the AO has made enquiries into slump sale transaction which took place in the relevant assessment year and the action of AO in accepting the claim of assessee that the transaction in question was a slump sale after detailed enquiry is a plausible view, so , we do not find that the twin conditions required for exercising the jurisdiction u/s. 263 of the Act is found missing/ existing/absent and, therefore, the Ld. CIT ought not to have exercised his revisional jurisdiction - Decided in favour of assessee. - I.T.A. No. 676/Kol/2016 - - - Dated:- 19-5-2017 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brushed aside the objections raised by the assessee and held that the sale effected as per the Business Transaction Agreement (BTA) of its manufacturing unit of edible oil at Haldia was not a slump sale and, therefore, the provisions of sec. 50 are applicable to the sale of its undertaking and directed AO to pass consequential order. Aggrieved, the assessee is before us. 3. We note that section 263 of the Act enables supervisory jurisdiction to the CIT over the AO. The CIT is empowered to act u/s. 263 of the Act when he considers that AO s order is erroneous in so far as it is prejudicial to the interest of Revenue. It is a settled position of law that the aforesaid twin condition i.e. AO s order is erroneous and prejudicial to the interest of revenue is sine qua non for assumption of revisionary jurisdiction by CIT. As per the scheme of the Act, AO has a dual role to discharge while assessing the income of an assessee. He is both an investigator as well as an adjudicator. If the AO fails in discharging any of the two said duties i.e. as an investigator or that of an independent/impartial adjudicator, the CIT s supervisory jurisdiction is attracted because the order of the AO wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the Income Tax Officer in the case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income Tax Officer on being satisfied with the explanation of the assessee. This decision of the Income Tax Officer could not be held to the erroneous simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the income tax officer to re examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the Commissioner of Income Tax under Section 263 . 7. In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about the transaction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O wherein vide para (iv) has raised the following query: Further your company has not paid any tax on Long/Short Term Capital Gain on account of Slump Sale of unit according to the period between acquiring of Assets and then sale. Explain with all supporting evidences to avoid from drawing any adverse inferences on this issue. 11. The Ld. AR drew our attention to the reply of the assessee dated 09.11.2011 which is placed at page 28 of the paper book wherein the assessee has replied for the aforesaid query as under: The Computation of Total income for the Assessment Year 2009-10 in respect of Slump Sale transaction and accountability of the same for the Computation of Long Term Capital Gains arriving thereon for ₹ 75,61,39,754/- adjusted against the loss from Business of ₹ 70,76,70,487/- vide page nos. 39 to 40. 12. The Ld. AR drew our attention to page 32 of the paper book which is the reply of the assessee dated 21.11.2011 wherein the assessee has replied to the AO in respect to the said issue as under: Slump Sale: During the relevant previous year we had sold our unit at Haldia as a going concern to KS Oils Ltd. as per MOU dated 23.8.2008/Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 3.2, 3.3 and para 8 has clearly mentioned as under: As the assessee had transactions with its Associated Enterprises (AE), so the Audit Report in Form No. 3CEB was filed and reference has been made to the Transfer Pricing Officer to assess the Arms s Length Price in respect of International Transactions with AEs. 15. We also take note that the assessee after perusing the draft assessment order dated 11.02.2013 filed rectification application dated 12.03.2013, wherein it was pointed out that the slump sale of fixed unit attracts only long term capital gains @ 20% and not 30% as computed by the AO. The Ld. AR thereafter took our attention to page no. 35 of the paper book, which is the order passed by the AO dated 10.04.2013 wherein the AO after realizing that income on account of slump sale offered under the head long term capital gain has to be taxed @ 20% and the mistake of charging tax @ 30% was duly rectified by the AO. After all these processes only the final assessment order dated 07.01.2014 was passed by the AO wherein also we note that the AO has taken note of the slump sale of its only manufacturing unit edible oil at Haldia was recorded by the AO as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the AO and the AO has clearly taken note of the said fact at page 8 para 8 of his draft assessment order as below: As the assessee had transactions with its Associated Enterprises (AE), so the Audit Report in Form No. 3CEB was filed and reference has been made to the Transfer Pricing Officer to assess the Arm s Length Price in respect of International Transactions with AEs. 18. Thus, we note that Form 3CEA has been filed by the assessee before the AO which fact had been acknowledged by the AO as aforestated and the assessee before us also has placed at page 29 of the paper book form 3CEA which is the report of the accountant furnished by the assessee as per sub-section 3 of section 50B of the Act, which is relating to computation of capital gains in case of slump sale. We note that the certificate of Chartered Accountant in the form 3CEA was obtained by the assessee and the said fact was mentioned so in the computation of income and was attached along with it. It was pointed out before us that the slump sale related statement and disclosure was made in almost in all documents, i.e. audit report, tax audit report, financial statement, schedule, computation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it at Haldia on 15.09.2011, and pursuant to the said notice assessee filed the Business Transfer Agreement dated 22.11.2008. Thereafter, the AO issued notices again asking queries about the slump sale on 21.10.2011 and the assessee replied to it vide reply dated 09.11.2011 and 21.11.2011. We note that in the draft assessment order dated 11.02.2013 the fact of sale of slump sale of the manufacturing unit situate at Haldia has clearly mentioned by the AO and in the rectification order u/s. 154 that too specifically regarding computation of LTCG of the slump sale of Haldia Unit was the only issue which was brought to the knowledge of the AO, who accepted the mistake which was apparent on the face of record and rectified the same and also the fact of slump sale figures as well as in the final assessment order dated 07.01.2014 wherein also the AO has discussed the fact relating to sale of manufacturing unit of the assessee as a going concern on slump sale and computed the long term capital gain u/s. 50B of the Act and charged tax at long term capital gain @ 20% and thus, the second fault pointed out by the Ld. CIT that Form 3CEA was not filed by the assessee also fails on the face of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of capital gain in the case of slump sale has to be made u/s. 50B of the Act and so, the assessee has filed the statutorily required Form 3CEA as per rule 6H which is the report of the accountant as required by sub-section 3 of sec. 50B of the Act, which is relating to computation of capital gain in case of slump sale. 25. We note that section 50B was inserted in the Act vide the Finance Act, 1999 w.e.f. 1st April, 2000, in view of the judicial decisions that slump sale were not taxable under the capital gain provisions because it was not possible to compute cost of acquisition, it was held that when computation cannot be made in the absence of cost of acquisition, then the charging section itself would not be applicable.( refer PNB Finance Ltd v CIT 307 ITR 75 (SC) 26 Slump sale , as then understood, meant transfer of business as a going concern, and therefore, it was not possible to determine the actual cost namely the cost of acquisition even though, in a given case, it might be a generated asset ( refer CIT v Artex Manufacturing Co 227 ITR 260 (SC). In such cases, it was not possible to break up and compute capital gains on the assets sold, either individually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 43; (b) in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, Nil; and (c) in the case of other assets I the book value of such assets. Section 2 (42C) defines Slump Sale as under: slump sale means the transfer of one or more undertakings as a result of the sale for 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 assignment of values to individual assets or liabilities; Explanation 1 to Section 2(19AA) For the purposes 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, the capital gains arising from it would be chargeable to tax as Long term capital gain. 29. The Hon ble Delhi High Court in SREI Infrastructure Finance Ltd. Vs. Income-tax Settlement Commission ( w.p no 1592/2012)has observed in respect to slump sale as under: 11. The term 'slump sale', which has now been specifically defined in Section 2(42C) of the Act means transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. The use of the word 'transfer' in said section is significant. The term 'transfer' is used in said section is with reference to the transaction in the nature of 'slump sale'. Thus any type of transfer which is in nature of slump sale i.e. when lump sum consideration is paid without values being assigned to individual assets and liabilities are covered by the definition clause 2(42C) and then by Section 50B of the Act. This is the reasonable, plausible and natural grammatical meaning which has to be given to the definition clause 'slump sale'. It is not correct to construe and regard the word 'slump s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the MOU and the BTA entered into by the assessee and buyer M/s. K. S. Oil and reproduce the important recitals from them to have better understanding: Recital of Transfer Price in Memorandum of Understanding dated 23.08.2008 is reproduced as under: Transfer Price: shall mean a lump sum consideration ₹ 1,25,00,00,000/- (Rupees one hundred and twenty five crores only) , subject to certain adjustments as set out in clause 3.2 Recital of Transfer Price in Business Transfer Agreement dated 22.11.2008 is reproduced as under: Transfer Price: shall mean a total lump sum consideration ₹ 1,25,00,00,000/- (Rupees one hundred and twenty five crores only),payable in accordance with Clause 3.2. Clause of Transfer and Assumption in Business Transfer Agreement dated 22.11.2008 is reproduced as under: 2. Transfer and Assumption 2.1. Agreement to Transfer. In consideration of the Transfer Price and subject to the satisfaction of the terms and conditions of the Agreement including the condition precedents under Clause 3.4 hereof, the Transferor shall, on the Closing Date, transfer, grant, sell, convey, assign and deliver as a going concern to the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties shall mean: 2.4.1. the Assumed Debts, relating to the Business Undertaking, which shall be updated by the as of the Closing Date; 2.4.2. those arising out of the contracts and consents referred to in sub-clauses (d) and (f) of Schedule II, to be transferred to the Transferee, the conduct of the Business Undertaking and ownership and use thereof with immediate effect from the Closing Date, but not those having their origin prior to the Closing Date (except gratuity); 2.4.3. all obligations with respect to company Personnel and Personnel Plans arising out of or relating to their employment in connection with the Business Undertaking commencing with immediate effect from the Closing Date, but not those having their origin prior to the Closing Date; and 2.4.4. all future debts, liabilities, covenants, agreements or other obligations, incurred or arising after the Closing Date in relation to the Business Undertaking. 2.5. Retained Liabilities: For the avoidance of doubt, all liabilities and obligations (whether fixed, contingent, known or unknown) of the Transferor that are not relating to the Business Undertaking and are not specifically assumed by the Transferee un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking; (h) The Boiler Plant; (i) 100 MT Hydrogenation unit; (j) Fractionation Plant; (k) Warehouse; (I) Transfer of partly assembled Vanaspati Plant as set out in Annexure B; (m) all VAT benefits accruing to the Business Undertaking on or after April 1,2008; (n) Company Personnel; (o) List of Fixed Assets as per Annexure A; Schedule IV of Business Transfer Agreement dated 22.11.2008 is reproduced as under: SCHEDULE IV List of Excluded Assets HEAD OFFICE OFFICE EQUIPMENTS QTY. FAX MACHINE 2 SCANNER 2 AQUAGUARD 1 ELECTRONIC ATT RECORDER 1 COMPUTER UPS 28 XEROS CUM PRINTER 1 FURNITURE FIXTURES TABLE 11 CHAIR 61 AC 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of assets which can be seen from a perusal of the same. We note that as per clause 2.4 the transferee has assumed certain liabilities with effect from the closing date and assumed liabilities mean assumed debts, relating to the business undertaking and which are given in clause 2.4.2, up to 2.4.4 where all future debts liabilities covenants agreements or other obligations incurred or arising after the closing date in relation to the business undertaking are included in the assumed liabilities of the transferee M/s. K. S. Oils. Clause 3 says about the payment of consideration and the recitals of MOU and BTA leaves no doubt in our mind that the business as a whole of its manufacturing unit of edible oil at Haldia was sold at a lump sum price and not an itemised sale of assets. We note that the CIT has made certain observations to state that the BTA is not a slump sale but an itemised sale. For that he refers to note no. 10 para B of Notes on Accounts of schedule 2 annexed to and forming part of the accounts for year ended 31.3.2009 of the audited accounts wherein it has been mentioned as under: During the year, the company was mainly engaged in refining of edible oil in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich needs to be reported as per AS 17. It should be taken note that it is the view of the auditor and cannot alter the character of the transaction which the assessee has carried out as per the MOU and BTA; and if the auditor omits to report a segment cannot be used against the assessee to draw adverse inferences against it. Moreover, we note that the second observation of the auditor confirms that the main business of manufacturing division has been sold on slump sale basis. The observation of the auditor that they are of the opinion that the said sale of the manufacturing unit has not affected the going concerns status of the company which means that the assessee s status after the sale continues to be a going concern makes no difference. The auditor simply says that the undertaking which has been sold to M/s. K. S. Oils has not affected the going concern status of the assessee which is correct because the case of the assessee is that it has sold its undertaking which manufactures edible oil as a going concern to M/s. K. S. Oils. And by selling the said undertaking the assessee as a company which is a legal entity survives (not dissolved) and its other activities are not affecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n raised by the Ld. CIT in respect to clause (d) is also erroneous for the simple reason that the rights claims and obligations which are flowing from legally binding commitments wherein transferor (assessee) as a party cannot be transferred to the transferee K. S. Oils. Other than that, all rights, claims and obligations have been transferred to K. S. Oils. Therefore, we do not find any merit in the observations made by the Ld. CIT in this regard. The other objections of the Ld. CIT is that the condition precedent for confirmation of the transaction is the installation, operation and commission of boiler plant, vanaspati plant and fractionation plant, warehouse and refers to para 4.1 to 4.5 of BTA and was of the opinion that these are new plants and was not a part of the business undertaking since, according to him, it has never been utilised for the business of the business undertaking and therefore, cannot form part of the going concern and so, it is not within the confines of slump sale. We do not find any merit in the said observation of the Ld. CIT because the department should not tell how the businessman to do his business. It is for the businessman to decide what he has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kurla Unit as slump sale was accepted. In the present case before us, we note that the Ld. CIT has relied on the Tribunal order in Premier Automobiles Ltd. (supra) to find fault with the decision of the AO accepting the claim of the assessee after taking note of a few clauses of the agreement of slump sale. The Ld. CIT erred in viewing certain clauses of the contract in isolation. In order to ascertain the intention of the assessee and the buyer one has to read the contract as a whole and the intention between the parties has to be seen from the view point of the Businessman who were parties to the contract. A reading of the MOU and the contract as a whole gives the picture of the intention of the assessee to sell its only manufacturing unit of edible oil at Haldia as a going concern for a lump sum amount. 36. When the AO having gone through the MOU and contract after having made enquiries and after considering the replies of the assessee regarding the said transaction from the assessee, having accepted the transaction as a slump sale , which fact he acknowledges it in different paragraphs of the draft assessment order, then makes rectification u/s. 154 regarding the very ..... X X X X Extracts X X X X X X X X Extracts X X X X
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