TMI Blog2017 (11) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had in the notes forming part of its accounts as on 31.03.2003, had in terms of Accounting Standard 18 (AS-18) in its 'Related party disclosures' therein categorically disclosed that the aforesaid amount of ₹ 9,80,50,000/- was received by it in lieu of transfer of its business rights to L& T Infotech Ltd.. We have deliberated on the facts of the case and after giving a thoughtful consideration to the same, are of the considered view that as the assessee had neither transferred an undertaking or any part of an undertaking, or a unit or division of undertaking or a business activity taken as a whole, but what have been transferred is an individual asset, viz. business leads, which does not constitute a business activity on its own, therefore, are unable to persuade ourselves to subscribe to the view of the lower authorities which had held that the amount of ₹ 9,80,50,000/- (supra) received by the assessee was liable to be characterized as a consideration received by the assessee pursuant to a slump sale as per the provisions of Sec. 50B of the 'Act'. We thus in the backdrop of our aforesaid observations set aside the order of the CIT(A) and therein conclude t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income on 14.11.2003, declaring total income of Rs. Nil. The return of income filed by the assessee company was processed as such under Sec. 143(1) of the 'Act' on 02.09.2004. The case of the assessee was thereafter selected for scrutiny assessment u/s 143(2). 3. That as per the facts averred by the assessee before the lower authorities which are available on record, the assessee company was incorporated in May, 2000 with the main object of providing web based financial services. It commenced its operation by way of a joint venture with Blue Stone Capital Partners, USA. The assessee had in the backdrop of the very nature of its business of providing web based financial services had therein employed qualified and experienced staff which had specialized skills and domain knowledge of wide spectrum of financial services. That during the year 2001-02 the assessee company had launched a full fledged financial services portal for securities transactions which evoked good response from the market. The growth in the business of the assessee in itself could be appreciated from the very fact that its revenues had increased from ₹ 6.75 lacs in the year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and generation of future revenues, was determined at ₹ 9,80,50,000/-, which was paid by L T Infotech Ltd. to the assessee. 4. That during the course of the assessment proceedings the A.O called upon the assessee to show cause as to why the consideration of ₹ 9,80,50,000/- (supra) received by it from L T Infotech Ltd. may not be treated as a consideration received on slump sales. The assessee submitted before the A.O that as unlike in a case of slump sale which would involve transfer of one or more undertaking, the assessee had only transferred some of its customers and business leads to L T Infotech Ltd., and as such had not transferred any undertaking as defined u/s 2(42C) of the 'Act'. The assessee taking support of the definition of the term Slump sale as contemplated in Sec. 2(42C) of the 'Act, along with the definition of the term Undertaking as defined in Explanation 1 of Sec. 2(19AA) of the 'Act', therein submitted before the A.O that there was no justification for treating the transfer of the customers and the business leads as a slump sale in the hands of the assessee. The A.O however not finding favour with the submissions of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter in appeal before the CIT(A). It was submitted by the assessee before the CIT(A) that as there was transfer of only one asset, namely business leads without any other assets and liabilities based on its present value of future cash flows, therefore, the same had wrongly been characterized as a Slump sale by the A.O and as such brought to tax as per the provisions of Sec. 50B. It was submitted by the assessee that as per Sec. 2(42C) slump sale was defined as 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. It was thus submitted by the assessee before the CIT(A) that the subject matter in the case of a slump sale was an undertaking, which as per Explanation 1 of Sec. 2(19AA) included any part of an undertaking, or a unit or division of an undertaking or a business or a business activity taken as a whole, but did not include individual assets or liabilities or any combinations thereof not constituting a business activity. The assessee in the backdrop of his aforesaid contentions therein submitted that as in its case only business leads were tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outset of the hearing of the appeal it was submitted by the Learned Authorized Representative (for short 'A.R.') for the assessee that as the latter had not sold its business as a going concern, therefore, the provisions of Sec. 50B were not attracted. The Ld. A.R. in order to fortify her aforesaid contention drew our attention to Schedule-3, i.e. 'Fixed assets' Schedule (Page 50) of 'Paper book' (for short 'APB') forming part of the balance sheet of the assessee on 31.03.2003, which therein revealed that the 'Block of assets' (Computer) held by the assessee as on 01.04.2002 at a W.D.V. of ₹ 60,58,927/-, after claim of deprecation stood reflected at a net W.D.V. of ₹ 45,33,228/-. The Ld. A.R. further took us through a chart placed at Page 22 of 'APB', which reflected the projected discounted expected revenue of the assessee for the next five years. It was vehemently submitted by the Ld. A.R. that as on the end of the year under consideration, after the aforesaid transaction stood concluded, the assessee was left with certain assets, therefore, it could safely be concluded that the transaction under consideration could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught within the sweep of Sec. 50B. We are of the considered view that as contemplated u/s 2(42C) a slump sale presupposes the transfer of one or more undertakings for a lump sum consideration without values being assigned to the individual assets and liabilities. We further find that the term 'Undertaking' as defined in Explanation 1 of Sec. 2(19AA) includes 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. We have deliberated on the facts of the present case and are of a firm conviction that as per the facts available on record, the assessee in the backdrop of the fact that its business partner, viz. Blue Stone Capital Partners, USA had filed for bankruptcy in USA court, thus remained in no position to handle the large customer base all on its own. That it was in the backdrop of the aforesaid facts that the assessee keeping in view the requirements of the prospective customer base that it had generated, therein transferred the said business leads to L T Infotech Ltd. which was already engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received by the assessee only for transfer of an individual asset, viz. its business leads can safely be gathered beyond doubt from the very fact that the other assets, viz. Computers (forming part of the block of assets) remained as such with the assessee. Similarly, we find that the business liabilities of the assessee, viz. Sundry Creditors of ₹ 1,03,68,351/- (Page 51 of 'APB') also remained with the assessee on 31.03.2003. We further find that the assessee had in the notes forming part of its accounts as on 31.03.2003, had in terms of Accounting Standard 18 (AS-18) in its 'Related party disclosures' therein categorically disclosed that the aforesaid amount of ₹ 9,80,50,000/- (supra) was received by it in lieu of transfer of its business rights to L T Infotech Ltd. (Page 55 of 'APB'). We have deliberated on the facts of the case and after giving a thoughtful consideration to the same, are of the considered view that as the assessee had neither transferred an undertaking or any part of an undertaking, or a unit or division of undertaking or a business activity taken as a whole, but what have been transferred is an individual asset, viz. b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was liable to be brought to tax under the head business income, therefore, the disallowance by the A.O of the interest cost of ₹ 22,11,622/- on the intercompany deposits held by the assessee, for the reason that the same were attributable to the earning of income from transfer of business leads, which had been held to be liable to be assessed as Slump sale , thus, cannot be sustained. We therefore set aside the disallowance of the aforesaid expenditure of ₹ 22,11,622/-, which we find is allowable as an expenditure. The Ground of appeal No. 2 is allowed. 10. The appeal of the assessee is allowed. I.T.A. No. 5286/Mum/2012 11. We shall now take up the appeal of the assessee wherein the latter had assailed the order of the CIT(A) upholding the penalty imposed under Sec. 271(1)(c). The assessee had raised before us the following grounds of appeal :- 1. On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in upholding the penalty u/s 271(1)(c) of the Act disregarding the appellant's submissions. 2. The appellant company craves leave to add to, alter or modify any of the above grounds of appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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