TMI Blog2018 (8) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of calculations worked out under section 14A of the Act. - Decided in favor of assessee. Nature of consideration received against sale of carbon credits - Held that:- receipts received by the assessee on sale of carbon credit are to be treated as capital receipts and not liable to tax. Non-claiming of deduction in the original return - Held that:- if a particular item is going to affect taxability of assessee, then a fresh claim can be entertained by the first appellate authority or by the DRP. Thus, we overrule this reasoning of the DRP and direct the AO to treat these receipts in both assessment years as capital receipt. Slump sale - computation of capital gain - assessee company has sold its entire wind energy business to IRL - According to the section 50D the capital gain on sale of such capital asset is to be determined by adopting fair market value of the capital assets on the date of transfer. Under this conception of law, the ld.AO has tried his best to shift the date of transfer from the assessment year 2012-13 to 2013-14. - Held that:- it provide mode of computation of capital gain on transfer of an undertaking by way of slump sale. The cost of acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 43, 451/- under normal provisions and book profit under section 115JB at ₹ 5, 92, 25, 89, 084/-. In this year also the assessee has revised its return of income on 31.3.2014 and declared total income under the normal provision at ₹ 5, 02, 43, 93, 321/-. The case of the assessee in both the assessment years were selected for scrutiny assessment and notice under section 143(2) were served upon the assessee. It is pertinent to note that the assessee-company at the relevant time was engaged primarily in manufacturing of chemicals and gases. After hearing, the ld.AO has passed draft assessment orders in both the years under section 143(3) r.w.s. 144C(1) on 29.3.2016 and 29.12.2016 respectively. The assessee filed objections before the ld.DRP who has disposed of the objection of the assessee and issued necessary directions to the AO. On receipt of order of DRP, the ld.AO has passed the impugned orders on 23.2.2017 and 30.10.2017 in the assessment years 2012-13 and 2013-14 respectively. 5. On scrutiny of the accounts, it revealed to the AO that the assessee has made investments, which has resulted tax free income to the assessee. According to the AO, in the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 75.00 lakhs in each assessment year. The assessee has further contended that Rule 8D is not to be applied arbitrary or unreasonably but can be applied only if the assessee s method of identifying expenditure and adding back the same is not to the satisfaction of the AO. In support of its contentions, it put reliance upon the decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT, (2010) 328 ITR 81. Assessee further contended that it has more interest free funds than the investment. It filed details of funds available with it and how the investments have been made. In support of its contentions, he relied upon the decision of the Hon ble Gujarat High Court in the case of CIT Vs. UTI Bank Ltd., 215 Taxman 8. It also relied upon the decision of Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities Power Ltd. 313 ITR 340. The ld.AO was not satisfied with the contentions of the assessee and he proceeded to disallow the expenditure incurred in accordance with Rule 8D of Income Tax Rules 1962. The working made by the AO in both these years read as under: Assessment Year : 2012-13 Interest Expenses for comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment[(1)+(2)/2] 4, 43, 12, 76, 500 B Assets as on 31.3.2012 (a) 37, 26, 91, 52, 000 Assets as on 31.3.2011 (b) 34, 59, 04, 38, 000 Avg. Assets [(a)+(b)/2] 35, 92, 97, 95, 000 C (i) expenditure directly relating to income which does not form part of total income 1, 88, 997 (ii) Expenses incurred on interest attributable to exempt income [(A x B)/ C] 58, 07, 04, 000 X 4, 43, 12, 76, 500 7, 16, 19, 111 35, 92, 97, 95, 00 0 (iii) Expenses being 0.5% of average investments. [0.5% of B] 0.50 X 4, 43, 12, 76, 500 2, 21, 56, 383 100 Total Disallowance u/s 14A r.w. Rule 8D of the Act 9, 39, 64, 491 The amount of expenditure directly relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is taxable and mutual funds need to be excluded from the investment income from which does not make part of total income. The AO is directed to rework the computation on the basis of these directions. 8. Before us, while impugning orders of Revenue authorities, the ld.counsel for the assessee contended that the AO has not recorded any satisfaction as to how expenditure worked out by the assessee relatable to earning of exempt income are not sufficient for earning such income. He emphasised that the assessee has not made any borrowings for investment. Therefore, interest expenditure cannot be worked out for disallowance. He pointed out that in the assessment year 2012-13, the assessee has reserve and surplus and deferred tax liability of ₹ 2272.44 crores whereas investment was of ₹ 351.76 crores. Similarly, in the assessment year 2013-14, total reserves and surplus and deferred tax liability is ₹ 2653.57 crores and investment is ₹ 534.50 crores. On the strength of Hon ble Gujarat High Court decision in the case of CIT Vs. UTI Bank Ltd. as well as of the Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities Power Ltd. (supra), he s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the disallowance under section 14A of the Act can be made in a year in which no exempt income has been earned or received by the assessee. In this way, the ld.counsel for the assessee agreed that if disallowance to the extent of exempt income in the shape of dividend is being restricted, then the assessee has no objection. 10. On the other hand, the ld.DR relied upon the order of the DRP and submitted that in the assessment year 2013-14, the ld.DRP has examined this issue in detail and thereafter concurred with the AO. 11. We have considered rival contentions and gone through the record carefully. Before we embark upon an inquiry on the facts of the present case, in order to determine the amount of expenditure requires to be disallowed under section 14A read with rule 8D for earning tax free income, we deem it appropriate to take note of section 14A. It reads as under: 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. ( 2) The Assessing Officer shall determine the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply correctly. The ld.DRP has totally ignored the judgment of the Hon ble High Court in the case of CIT Vs. UTI Bank Ltd. (supra) rather it has not made any discussion on it. Similarly, it has ignored judgment of Hon ble Bombay high Court in the case of Reliance Utilities Power Ltd. (supra). The judgment of Hon ble Bombay High Court in the case of Reliance Utilities (supra) has been followed by the Hon ble Gujarat High Court in the case of CIT Vs. UTI Bank (supra). The question of law considered by the Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) reads as under: Whether on the facts and in the circumstance of the case and in law the Hon'ble Tribunal was justified in holding that the assessee-company had sufficient funds of its own for making the investments without using the interest bearing funds even though the Balance Sheet of the assessee-company as at 31-3-1999 shows that the assessee-company has no reserve or own funds for making the investments in the sister concern and therefore, borrowed funds have been utilized and interest on these borrowed funds are rightly disallowed by the Assessing Officer ? 13. The Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. It proceeded on the presumption that since funds are mixed, therefore, it is presumed that direct interest expenditure cannot be worked out and Rule 8D is to be applied. Whereas, the stand of the assessee is that its interest free funds is far more than the investment. For example, in the assessment years 2012-13, it was having interest free funds of ₹ 2272.44 crores and their investment was of ₹ 351.76 crores. Similarly, in the assessment year 2013-14, interest free funds are of ₹ 2653.57 crores against investment of ₹ 534.52 cores. A chart showing availability of these funds and details of investment has been placed on page no.11 of the paper book. It has annexed as annexure A/4 filed before the ld.DRP. The assessee has also compiled the details showing loans and interest for F.Y.2012-13. Similar exercise has been made in the F.Y.2011-12. These details were filed before the ld.DRP. Thus, the assessee has demonstrated that it was having sufficient interest free funds which can take care of these investments. Therefore, no interest expenditure is to be disallowed with the help of Rule 8D. 15. Next fold of dispute relates to working out of administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for the purpose of section 115JB. 17. The ld.counsel for the assessee at the very outset contended that this issue is covered in favour of the assessee by the judgment of Hon ble Gujarat High Court in the case of CIT Vs. Alembic Ltd. in Tax Appeal No.1249 of 2014 as well as decision of Hon ble Bombay High Court in the case of CIT Vs. Bengal Finance Investment P.Ltd., in Tax Appeal No.337 of 2013. He placed on record copies both these decisions. Apart from the above, he placed upon reliance Special Bench decision of the ITAT in the case of CIT Vs. Vireet Investment P.Ltd. 165 ITD 27. On the other hand, ld.CIT-DR relied upon the order of DRP. 18. We have duly considered rival contentions and gone through the record carefully. We find that ld.DRP has relied upon the order of the ITAT, Mumbai in the case of DCIT Vs. Viraj Profiles Ltd., (2016) 46 ITR (Trib) 0626 (Mum) and held that addition required to be made in the book profit could be calculated as per Rule 8D of the Income Tax Rules. The ld.DRP thereafter made reference to decision of Hon ble Delhi High Court in the case of CIT Vs. Geotze India Ltd., 361 ITR 505. According to the ld.DRP, this decision has been considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exempt under Section 10(33). Recording the said statement, the first question is answered in favour of the appellant-Revenue and against the respondent-assessee. 10.5 The assessee has relied upon the judgement of ITAT special bench in the case of Vireet Investment Pvt. Ltd.. In this regard it is pertinent to mention that Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. vs. Additional Commissioner of Income Tax Ors. (2014) 264 CTR 0030 (Bom) : (2013) 96 DTR 0193 (Bom) : (2014) 361 ITR 0531 (Bom) : (2014) 221 Taxman 0166 (Bom); has held that the proceedings before DRP are extension of assessment proceedings. Therefore they are not bound by the decision of Tribunals unlike CIT(A) as long as the issue is not acceptable on merit and/or the issue is being contested by the department. In this case, the decision of Hon'ble Delhi High Court in the case of Goetze (India) Ltd cited above is also in favour to the department on this issue which also shows that the view of AO confirmed by the Panel is a plausible view. 19. There were contradictory orders at the end of the Tribunal. Therefore, Special Bench was constituted to consider the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is consistent with the decision in Apollo Tyres Ltd. v. Commissioner of Income Tax 255 ITR 273 (SC) which held that the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J. The Court declines to frame a question on the above issue. 21. Apart from the above, we have a binding precedent before us - One from Hon ble jurisdictional High Court and other from the Hon ble Bombay High court. The question considered by the Hon ble Gujarat High Court in the case of Alembic Ltd. (supra) is as under: Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s 14A of the Act in computation of book profit u/s 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profits? 22. The Hon ble Gujarat High Court has replied this question as under: 7. So far as issue No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed. 8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income-tax-I vs. Gujarat State Fertilizers Chemicals Ltd. (supra), we are of the opinion that issue Nos. (iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 23. Similarly, Hon ble Bombay High Court has formulated following question in the case of Bengal Finance Investments P.Ltd. (supra) and replied as under: ( b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of ₹ 78, 84, 387/ under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 13, 19, 37, 184/- and ₹ 7, 92, 94, 293/- in the assessment years 2012-13 and 2013-14 respectively. 29. Brief facts of the case are that the assessee has captive power plants at Ranjinagar and Dahej. At Dahej, assessee has coal based captive power plant and gas based captive power plant. According to the AO, it did not claim deduction under section 80IA originally in the assessment year 2013-14. However, after the decision of Hon ble Chhattisgarh High Court in the case of CIT Vs. Godawari Power Ispat Ltd., 223 TAXMANN 234 it has filed a submission claiming deduction. It also revised return of income on 31.3.2015 in the assessment year 2013-14. Similarly, in the assessment year 2012-13, it has enhanced its claim by way of a letter pointing out that the rate for determining the valuation of power generated by it for the purpose of allowing deduction, the rate should be adopted equivalent to the rate at which Madhya Gujarat Vij Company Ltd. ( MGVCL for short) and Dakshin Gujarat Vij Company Ltd. ( DGVCL for short) etc. are supplied the electricity to the assessee s manufacturing unit. The ld.AO did not adjudicate the issue in the assessment year 2012-13 for the enhanceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty supplycompanies are purchasing the electricity should be applied for benchmarking the value of electricity sold by the CPP to its manufacturing units. In other words, the DRP was of the view that noneligible units cannot be taken for the benchmarking for determining the value at which electricity was sold by the CPP. DRP has emphasized that manufacturing units could have different source of procurement of electricity; say from CPP or from electricity boards. But as electricity producer, in a CPP, it could only be sold to distribution licensee holder. In this way, the ld.DRP observed that value of electricity cannot be benchmarked by adopting the rate at which manufacturing units of the assessee has been purchasing the electricity, rather, according to the DRP, the rate at which supplier companies are purchasing the electricity ought to be applied. Before us, the ld.counsel for the assessee contended that this controversy has been silenced by the Hon ble Gujarat High Court in the case of CIT, Gujarat Alkalis and Chemicals Ltd. He placed on record copy of the Hon ble High Court s decision and contended that for the purpose of computation of deduction admissible under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under : 3. With respect to Question [B], the issue pertains to sub Section (8) of Section 80IA of the Income Tax Act, 1961. The assessee had a CPP Unit generating electricity, which was supplying it to a general unit. The electricity generated is being supplied to other consumers also. The CPP unit charged ₹ 5.40 ps. per unit from the general unit. The Assessing Officer applying sub-Section (8) of Section 80IA restricted the same to ₹ 5.32 ps. per unit and, thereby, restricted the deductions claimed by the assessee under Section 80IA of the Act. This restriction was primarily on the basis that the rate of ₹ 5.40 ps. charged by Gujarat Electricity Board ( GEB for short) was inclusive of 8 paise per unit of electricity duty. This component of electricity duty the Assessing Officer discarded for the purposes of ascertaining market value of the electricity generated by the CPP Unit and supplied to its general unit. 4. CIT (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only ₹ 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered. 4. This was followed in case of CIT v. Shah Alloys Ltd. in Tax Appeal No. 2093/2010. This was reiterated in Tax Appeal No.1646/2010 in case of ACITv. Pragati Glass Works (P.) Ltd. (order dated 30.1.2012), in which following observations were made : 7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting ₹ 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that ₹ 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included ₹ 4.17 per unit which was the cost of electricity generation and ₹ 0.34 per unit which was duty paid by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al has rightly allowed the claim of the assessee. In that view of the matter, we do not find any infirmity in the order of the Tribunal. Therefore, we answer question (C) and (D) in favour of the assessee and against the revenue. 6. Issues are thus considered on number of occasions by the Court and held against the Revenue. Questions are answered against the Revenue. Both the tax appeals are therefore, dismissed. This judgment of Hon ble High Court is directly on the issue. Hon ble Court has considered section 80IA(8), therefore, it is not justifiable at the end of ld.DRP to ignore the judgment of Hon ble jurisdictional High Court. 33. Respectfully following the authoritative pronouncements of the Hon ble jurisdictional High Court, we allow these grounds of appeal. We direct the AO to grant deduction under section 80IA(4) on the value of electricity supplied by the CPP to its manufacturing units by adopting the average rate of electricity supplied to the assessee by MGVCL, DGVCL. 34. We now take ground no.5 in the assessment year 2012-13 and ground no.8 in the assessment year 2013-14: 35. In the assessment year 2012-13, the assessee has pleaded that the ld.DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emissions (GHG emissions), which, in the absence of the project activity, would have been vented into the atmosphere. Upon voluntary incineration of HFC-23, emission reduction is achieved and CERs are issued to GFL after complying with the specified monitoring plan approved by the UNFCCC. CERs are issued in electronic form. Once the CERs are generated through the project undertaken, they are credited to GFL's account in the CD Registry. From there, they are transferred to buyers. The same is reported as Sales in the Financial Accounts under the Chemical Segment. Unsold CERs are shown as Inventory at Cost. GFL has sold CERs mainly to multilateral institutions / international buyers and treated the same as business income since CERs are earned / generated from HCFC-22 plant which is the primary business of GFL and also offered the same for taxation at the normal rate of tax like any other sources of income. All the expenses incurred as stated above are claimed as deduction (including tax depreciation on TO plant). In this note, we have given the background of the carbon credits and how the carbon credits are received in the case of our Company. We had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 25.11.2014 for A.Y. 2010-11 3. Copy of the reply dated 02.01.2015 submitted to CIT(A) in response to above remand report during appellate proceedings for A.Y. 2010-11. 24. Discussion and Direction of DRP; : 24.1 It is seen from draft order that issue is not discussed in the draft assessment order, since the claim was made by the assessee during the course of the proceedings itself, as per letter dated 28/01/2015. The DRP has noted that there is no variation of income on this issue in the draft assessment order, which is prejudicial to the interest of Revenue. Thus, in strictly legal terms, the said objection doesn't fall under the provisions of Section 144C of the I.T. Act 1961. 24.2 Also in the case of Goetze (India) Ltd. (284 ITR 323), the Hon'ble Supreme Court has held that the Assessing Officer cannot entertain any claim for allowing deduction resulting in a reduction in the total income returned, which is not claimed in the original return or a revised return. 24.3 On merits, the DRP has noted the CIT (A)'s order of earlier 2 years and concurs with the findings of the CIT (A), that such carbon credit receipts GFL are taxable. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses is taxable as short term capital gain. Accordingly there will be no difference on the tax to be levied on the income of the appellant under such situation also. Thus in the alternate situation also, there shall be no change in the total income of the appellant. 11.3 On the basis of these discussions, it is held that the revenue earned by the appellant company on account of sale of CERs is its income taxable under the head income from business. Hence, this ground of appeal is dismissed. 24.4 In view of the above the claim Of the assessee that carbon credit receipt are not liable to tax is rejected and accordingly, no directions are issued to the AO on this ground of objection. 37. In the assessment year 2012-13, this claim was of ₹ 876.14 crores. The ld.counsel for the assessee while impugning orders of the Revenue authorities below contended that the issue in dispute is squarely covered by decision of Hon ble Gujarat High Court in the case of Alembic Ltd. (supra). He placed on record copy of the Hon ble Gujarat High Court decision in Tax Appeal Nos.553 and 554 of 2017 decided on 28.8.2017. He also pointed out that this issue has been considered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 9.3.2018. It reads as under: Through this application, the assessee points out that in our judgment dated 28.08.2017, while dismissing Revenue s Tax Appeals, we had inadvertently recorded in Paragraph-6 that several High Courts have held that receipts of carbon credit are in the nature of revenue receipts . This is clearly a typographical/ inadvertent error. The above quoted portion of paragraph-6 would, therefore, be corrected and read as under that receipts of carbon credit are in the nature of capital receipts . The applicant stands disposed of accordingly. 40. In view of the above, it is to observe that at the level of Tribunal, the order in the case of Subhash Kabini Power Corporation Ltd. (supra) which has been affirmed by the Hon ble Karnataka High Court (was also authorized by the Judicial Member while posted at Bangalore). Apart from the above, we would like to make reference to the explanatory statement of Finance Act, 2017. It reads as under: Carbon credits is an incentive given to an industrial undertaking for reduction of the emission of GHGs (Green House gases), including carbon dioxide which is done through several ways such as by swi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction resulting in a reduction of total income returned, which is not claimed in the original return or a revised return. To this reasoning of the DRP, we are of the view that we have considered this aspect while dealing with the issue regarded enhancement claim made under section 80IA of the Act. We have made reference to the decision of the ITAT, Mumbai and Bangalore Benches as well as Hon ble High Gujarat High Court in the case of Mitesh Impex (supra) and held that if a particular item is going to affect taxability of assessee, then a fresh claim can be entertained by the first appellate authority or by the DRP. Thus, we overrule this reasoning of the DRP and direct the AO to treat these receipts in both assessment years as capital receipt. 42. The ground no.2 in the assessment year 2012-13 is that the ld.CIT(A) has erred in making addition of ₹ 38, 84, 898/- on account of late payment of employees contribution to provident fund. 43. As the facts emerge from the record, the AO noticed that assessee has deducted an amount of ₹ 38, 84, 898/- towards P.F. contribution from its employees but did not deposit in the Government account within the time prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice and a fresh cheque was required to be issued which was cleared on 02.11.2011 by the bank. Copies of bank statements of relevant dates are attached at page no. 189 to 191. 3 Employees Contribution to PF of ₹ 15, 121/- There were two payments made for the month of February, 2012, one paid in time before due date in case of regular employees. The other payment was for newly joined employees whose application for PF number was made but PF number was not allotted by the PF office. The, differential payment was made on allotment of PF number. 44. The ld.AO did not accept these reasons given by the assessee, and therefore, following judgment of the Hon ble Gujarat High Court in the case of CIT Vs. Gujarat state Road Transport Corporation, 41 taxmann.com 100 (Guj) disallowed the claim of the assessee. 45. After considering submissions of the both the sides, we find that though the Hon ble Gujarat High Court in the case of Gujarat State Road Transport Corporation (supra) has held that if the payment to PF and ESI are not being made within the due date prescribed under those Act, then deduction will not be available to the assessee. However, in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the assets at ₹ 437.80 crores as on 1.4.2012. The AO thereafter observed that by way of a Finance Act, 2012 (Bill No.11 of 2012) presented in the Lok Sabha on 16.3.2012, new sections 50D and section 92BA have been inserted which are applicable w.e.f. assessment year 2013-14. According to the section 50D the capital gain on sale of such capital asset is to be determined by adopting fair market value of the capital assets on the date of transfer. Under this conception of law, the ld.AO has tried his best to shift the date of transfer from the assessment year 2012-13 to 2013-14. 49. Before us the facts are not in dispute. The dispute relates to two fold issues viz. (a) whether capital gain on slump sale is to be determined by taking into consideration fair market value of the assets transferred, (b) which is the correct assessment year for taxation of such capital gain/loss ?. Before adverting to the determination of year of taxability, we would like to take the amount of capital gain which is taxable in the hands of the assessee. It is pertinent to observe that basically the ld.AO has made reference to a large number of documents and circumstances in order to demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y value to separate assets constituting the undertaking or division, then mechanism provided in section 48 would fail. On the other hand, the Revenue would tax the difference under section 41(1) of the Income Tax Act. Similarly, section 49 also does not contain any machinery provision for ascertaining cost of acquisition of an undertaking sold on slump sale basis. In order to silence this controversy, section 50B was introduced by Finance Act, 1999 w.e.f. 1.4.2000. This section has a bearing on the controversy in hand, therefore, it is imperative to take note of section 50B, which reads as under: 50B Special provision for computation of capital gains in case of slump sale.-(1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole expenditure has been allowed as a deduction under section 35AD of the Act, and clause(c) is a residuary clause in respect of assets which do not fall within (a) or clause (b) of this Explanation. Thus, scheme of this section would suggest that if sub-section 2 is looked into with Explanation 1 and 2 than it would reveal that it provide mode of computation of capital gain on transfer of an undertaking by way of slump sale. The cost of acquisition would be taken net worth of the assets transferred under this section. 54. Let us advert to the facts of the present case. As far as quantification of slump sale consideration at ₹ 1 crores and acceptance by the AO, they are not in dispute. Transfer of wind energy business by way of slump sales has also not been disputed. The dispute between the assessee and the Revenue comprised of two folds viz. Whether it be construed that transfer has taken place in accounting year relevant to assessment year 2013-14, and therefore, on the strength of section 50D the sale consideration received could be deemed equivalent to fair market value of the assets. Before deciding the controversy about the year of taxability, let us take into co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 585/-. In view of the above detailed discussion, the AO is directed to tax on protective basis Capital Gains worth ₹ 435, 59, 73, 415/-. Needless to mention here that during the DRP proceedings, the assesse was show caused as to why not Capital Gains should not be worked out in the current year under consideration by using the fair market value of ₹ 437.83 Crore. The DRP has also noted that the AO has in the A.Y. 2013-14 taxed an amount of ₹ 436.8 crores as Short Term Capital Gain on a substantive basis, vide his order dated 29.12.2016. 57. The Hon ble Gujarat High Court in the case of Gauranginiben S. Shodan, 45 taxmann.com 356 (Guj) has observed that section 48 of the Income tax Act talks about expression full value of consideration received . Therefore, it could not be replaced by fair market value with aid of DVO s report. Hon ble Court has considered circumstances in which the full consideration of sale consideration could be replaced. In that connection, reference to section 50C was made wherein it has provided that if a capital asset being land and building or both are sold and consideration received or accruing as a result of such transfer, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market value of consideration. According to the assessee, section 50D confers powers to the AO to substitute fair market value of the capital assets for the full value of consideration only in the circumstances mentioned in the section i.e. consideration of transfer of wind energy business if not determinable or is unascertainable, in that case fair market value be adopted. In the case of the assessee, there is a stated or agreed consideration of ₹ 1 crores in the agreement itself, which has been actually received or paid and on the basis of which capital loss under section 50B has been ascertained and returned by the assessee. The scope of section has been considered by the Hon ble Bombay High Court in the case of Morarjee Textiles (supra) and the discussion made by the Hon ble high Court in this respect reads as under: ( c) At the hearing of the admission, the Revenue did not point out any facts which would evidence that the transaction was not genuine. In such a case where, the genuineness is not disputed with any evidence, it is not open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2013, namely:- '92BA. Meaning of specified domestic transaction.-For the purposes of this section and sections 92, 92C, 92D and 92E, specified domestic transaction in case of an assessee means any of the following transactions, not being an international transaction, namely:- ( i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A; ( ii) any transaction referred to in section 80A; ( iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA; ( iv) any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; ( v) any transaction, referred to in any other section under Chapter Vl-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or ( vi) any other transaction as may be prescribed, and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting year relevant to the assessment year 2013-14 vis- -vis explanation given by the assessee as to why this transaction should be taken in the assessment year 2013-14. Such details have been filed in tabular form. It reads as under: DRP Order extract Assesse s submission and Argument Reference 1 The slump sale agreement has been drawn on 30.03.2012 at the head office and the signatories are Sh. Vivek Jam, Managing Director for GFL and Sh. Deepak Asher, Director for IRL. Both these persons as mentioned above are the main persons behind the Inox group This is factually correct that slump sale agreement and possession letters are signed by Mr. Vivek Jain and Mr. Deepak Asher. Mr. Vivek Jain has signed in the capacity as a Managing Director of a transferor company i.e. GFL. Deepak Asher has signed as director of a transferee company i.e. IRL. Both these persons have signed the documents on behalf of the respective companies and in their legal capacities as managing director and director. Submission to DRP dated 16.09.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sited in bank on the same date as per the pay-in-slip duly acknowledge by bank and cheque was cleared on 03.04.2012. Thus the consideration was received by cheque and deposited on 30th March itself. Page no 48-49 from DRP Order 5 The effective date of the completion of the transfer has to be ascertained from the date of grant of statutory/ mandatory/ regulatory approvals for transfer or at least from the date of transfer. Permissions for transfer of projects, lands, power purchase agreement, loans, insurance policies etc. was not a precondition of the transfer but were part of post-closing activities and complied in due course of time in the period ranging from financial years 2012-13, 2013-14 even in 2014-15 and have no effect on the actual contractually agreed date of transfer. No prior permissions or approvals were required from the above parties or even from the banks for transfer of loans on the date of transfer and they were part of post-closing activity and have been actually transferred as a part of post-closing. RBI has also noted the transfer of loans from GFL to IRL. It will be clearly ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by AO and clearly state that the wind energy business is transferred on 30-03-2012. Further, the stock exchanges have displayed on their website on 30 March itself about the transfer having taken place, and a copy of the said web-page is on record. We have given information to BSE NSE stock exchanges regarding transfer of Wind Energy Business by GFL to IRL on 30th March, 2012 as per the letter dated 30th March, 2012. The intimations were also given by Fax. We are enclosing herewith a copy of the report downloaded from the site ofBSE and NSE. It is mentioned on BSE website on 30th March, 2012 at 19.30 P.M by BSE that Transfer of Wind Energy Business of the Company to Inox Renewables Ltd. Vadodara, a subsidiary of the Company. Gujarat Fluorochemicals Limited has informed BSE that the Company has transferred by way of slump sale, the wind energy business of the Company including all the undertakings therein to Inox Renewables Limited, a subsidiary of the Company . Similarly it is mentioned on NSE website on 30th March, 2012 at 20.05 P.M by NSE that Gujarat Fluorochemicals Limited has informed BSE that the Company has transferred by way of slump sale, the wind energy busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) under the BTA, after Closing, GFL made an application to ICICI Bank on 21st April, 2012 requesting the bank to transfer of above Transferred Facilities to IRL. GFL s letter to ICICI Bank stated that that pursuant to Board and shareholder resolutions, GFL has transferred its wind energy business on 30th March, 2012 through a slump sale to IRL hence all assets and liabilities of such wind energy business stand transferred to IRL with effect from 30thMarch, 2012. Pursuant to the GFL Letter, ICICI Bank Limited as lender to GFL, made an application to the Reserve Bank of India on 1stAugust, 2012 seeking the RBI s permission to allow them to transfer the transferred Facilities to IRL in the manner provided therein. GFL, IRL and ICICI Bank Limited entered into 3 (three) Novation agreements each dated 17thOctober, 2012 with respect to each of the Transferred Facilities. The following relevant clauses from Novation agreements and credit arrangement letters from ICICI Bank are reproduced for ready reference. It will be appreciated that the Novation agreements specifically make reference as under: From Novation agreement dated 17 October 2012: By virtue of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration numbers ( LRN ) in relation to the same. The aforesaid letter of the RBI ( RBI Letter ) is enclosed herewith. Thus no document or Bank communication suggests that prior permission was required for this transaction. RBI and ICICI bank have not objected at all for the transfer of loan and also have not raised any queries regarding prior approval because it was not required at all.In fact, they have processed the transfer of loan, recognizing that the slump sale had already taken place on 30 March, 2012. Thus, from the above, it is clear that the lenders were aware of the transfer of the undertaking under slump sale to IRL and procedures were required to be completed as a part of post-closing activity and it was not the prior condition as stated in the notice. From the above facts, it is quite clear that there was no necessity for obtaining confirmations of prior approval from banks and RBI before transferring the loan in the books for the year ending 31/03/2012. Para 19 of the Submission dated 19.10.2019 8 The letter written by Ms Ernst , Young (F) Ltd mentions that, it is intended that the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er suggest that this transaction was intended to be done in FY 2012-13. The AO is also observing that except BTA the assessee has not furnished any documentary evidence. As stated above the assessee has submitted all the document pertaining to the transaction like BTA, possession letter, copy of cheque of consideration, pay in slip for deposited in the bank, letters dated 30-03-12 intimating the transaction to BSE and NSE etc. We have explained in detail the background of this letter. E Y are not our statutory auditor but they are our consultant advising only, for raising capital for the wind energy business. Page no 54-55 from DRP Order. 9. The application for issue of REC w.r.t. power generated in March, 2012 was applied for by GFL on 20.052012. GFL sold 2800 REC i.e.1000 REC on 25.04.2012 and 1800 REC on 27.06.2012 for ₹ 65.24 lakhs. Accounting of income of ₹ 65.24 lakhs - The income of ₹ 65.24 lakh is accounted in the books of GFL because it was pertaining to the period before date of transfer. The document showing this REC pertaining to earlier periods are submitted. The date of sale of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011. As per the letter dated 12th September, 2012 from Rajasthan Renewable Energy Corporation Limited, they have confirmed the BTA and accepted the request for transfer of ownership from GFL to IRL and agreement referred is the same BTA agreement. In any case, these are post-closing activities as per BTA. Page no 58 from DRP Order. 12 Application to transfer the PPA was filed in F.Y. 2012-13 and the mandatory approval for the transfer of PPA from Rajasthan projects was obtained on 08.012013 from Jodhpur Discom, RDPPC and for Maharashtra project on 12.12.2012. From the chart at page no 59 of the DRP order, it will be observedthat applications are made and permissions are received on various dates. In some cases, even no further transfer documents are required to be executed and just intimation were required to be given of transfer such as Sadiya and Ossiya. In any case, these are post-closing activities as per BTA. Page no 58-59 from DRP Order. The New India Assurance Company Ltd granted approval to IRL for replacement of the name of GFL by IRL in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking under slump sale basis. Therefore, there has to be a single contractually agreed date on which slump sale lakes place and procedural aspects are taken care thereafter. But that does not affect the date of transfer. This is the exact position in our case. Contractually as per the BTA and possession letter dated 30/03/2012, the business got transferred on 30/03/2012 only and hence there cannot be any other date of transfer of the business dependent on the procedural permissions mentioned above and fair value of assets etc. 64. Expression transfer has been defined in section 2(47) of the Income Tax Act. For the purpose of controversy in hand, we would like to make reference to sub-clauses (i) to (v) along with explanation 2 of section 2(47) of the Act. These clauses provide for transfer in relation to a capital asset include (i) the sale, exchange or relinquishment of the asset; or . (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to section 53A of the Transfer of Property Act. Explanation 2 attached with this clause reads as under: Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on given to Stock Exchange, Mumbai was received on 12.4.2012 and by National Stock Exchange, Mumbai on 2.4.2012. Habouring this opinion at the end of DRP as well as the AO has been refuted by the assessee in its explanation. The assessee pointed out that intended transfer was intimated to the stock exchange well in advance according to the guidelines of the SEBI Act. BSE website had displayed this intended transfer on 30.3.2012 itself. 66. The next objection assigned by the AO against non-completion of transfer is that the prior approval from the banks from whom loans were taken by the vendor have not been taken. To this assessee has given a detailed explanation. We have extracted at serial no.7 of the objection. The assessee has pointed out that it never defaulted the loans, and therefore, there is no need for taking such an approval from the bank. It took approval subsequently and nowhere has raised objection. Section 2(47) r.w.s. 50B nowhere contemplates such approval while transferring the assets. An analysis of all these objections in the light of explanation given by the assessee, we are of the view that sale taken place on 30.3.2012. When the rights have been transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report would have no relevance for the purpose of determining full value of consideration received or accruing as a result of the transfer of the capital asset for the purposes of section 48 of the Act. 12. In that view of the matter, the reference to DVO for ascertaining the fair market value of the capital asset as on the date of the sale in the present case would be wholly redundant. 67. We have made reference to the decision of Hon ble Bombay high Court explaining the meaning of section 50D and conditions in which it could be applied. Thus, conditions are missing in the present case. Therefore, neither under section 50B nor section 50D, the AO can replace full value of sale consideration with fair market value. In view of the above discussion, we hold that the transaction has taken place on 30th March, 2012. The capital gain on transfer of capital asset by way of slump sale is taxable on substantive in assessment year 2012-13 and not 2013-14. The full value of sale consideration would not be replaced with fair market value. In other words, the AO is directed to accept full value of sale consideration at ₹ 1 crore disclosed by the assessee and not fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
