TMI Blog2019 (5) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... e not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief, sole grievance of the assessee relates to disallowance of depreciation amounting to ₹ 7,55,62,862/- with regard to the assets purchased in slump sales. 3. Brief facts of the case are that the assessee has filed its return of income on 27.9.2012 declaring total loss at ₹ 7,75,52,976/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The assessee-company was incorporated on 11.11.2010 and 99.98% of equity capital was held by holding company viz. M/s.Gujarat Fluorochemicals Ltd.(GFL). According to the assessee, it has acquired wind energy division of GFL during the accounting year relevant to this assessment year. It claimed depreciation. However, its claim was rejected by the AO on the ground that transaction was materialized during the accounting period relevant to the Asstt.Year 2013-14. Dissatisfied with the action of the AO, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) upheld the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by GFL on IRL for accounting purpose. The payment of ₹ 1 crore towards sale has been credited in the bank account of GFL on 03.04.2012. 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. The intimation dated 30.03.2012 to the Stock Exchange Mumbai was received by Bombay Stock Exchange Ltd, Mumbai on 12.04.2012 and by National Stock Exchange Ltd. Mumbai on 02.04.2012. The bank loan has been transferred .in the books of account of both GFL and IRL on the year ending 31.03.2012, without obtaining concurrence from the banks The letter to banks intimating the slum sale transactions and seeking approval to transfer of loan liability was written on 21.04.2012 by GFL. The revised agreement (novation agreement) between the bank, GFL , IRL transferring the bank loan was entered on 17.10.2012. The RBI approval to transfer foreign currency loan was obtained on 18.03,2013. The letter writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on record copy of the Tribunal s order. On the other hand, the ld.DR was unable to controvert this submission of the ld.counsel for the assessee. 5. I have duly considered rival contentions and gone through the record carefully. In the case of vendor, Tribunal has examined the issue in detail and considered the directions of the DRP relied upon by the ld.CIT(A) in the present case. The Tribunal did not concur with him and held that the transaction has been materialized in the accounting period relevant to the Asstt.Year 2012-13. The discussion made by the Tribunal reads as under: 62. The issue regarding year of taxability is just an academic issue. It will not going to affect materially. Nevertheless, we consider this aspect also, because kind of revenue involved in this issue would certainly goad the litigation upto the higher appellate forum. 63. With regard to year of taxability, the AO has narrated various circumstances and on cumulative settings of those circumstances, he harboured a belief that transaction has taken in the assessment year 2013-14 and not in assessment year 2012-13. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking was transferred on as is where is basis, on a slump sale basis. These documents are not just the paper work. It will be observed that BTA dated 30/03/2012 is the legally enforceable document executed by both the parties. The possession letter was executed in terms and BTA agreement as a part of closing activities. By signing the possession letter on 30/03/2012, GFL had given and IRL has taken over the actual possession of the transferred business and undertakings including employees. The constructive delivery and receiving possession of various assets and liabilities are sufficient and legally accepted mode to give complete effect to the transfer. Submission to DRP dated 16.09.2016 3 The transferred business continued to be run by GFL, even after 30.03.2012, as the debit/credit notes for 1 day i.e. 3 1 .3.2012 were raised by GFL on IRL for accounting purpose. The copies of debit note dated 31/03/2012 for ₹ 1,93,860 and credit note dated 31/03/2012 for ₹ 7,88,796 are submitted on page no. 923 to 928. The debit note is in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 observed that the applications and permissions for transfer of project registration, lands, PPA, transfer of loans and insurance policies etc. were the part of post-closing activities and on which AO is placing heavy reliance are, on various different dates, spreading over a period of financial years 2012-13, 2013-14 and 2014-2015 even in some cases they were not required at all. This clearly proves that these dates are not of relevance in determining the actual date of transfer of wind energy business and undertakings, being part of post closure activities and not a pre-condition for the transfer of the capital asset i.e. Wind energy business. It will be observed that even for the same project, various permissions, approvals, registrations etc. have happened on different dates and not on the same date. In view of this, they were made as a part of postclosing activities and not preconditions of transfers. It will also be appreciated that in such a case of slump sale, it is always a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 business of the Company including all the undertakings therein to Inox Renewables Limited, a subsidiary of the Company . Page no 49-50 from DRP Order. 7 (i)The bank loan has been transferred in the books of account of both GFL and IRL on the year ending 31.03.2012, without obtaining concurrence from the banks. (ii) The letter to banks intimating the slum sale transactions and seeking approval to transfer of loan liability was written on 21.04.2012 by GFL. (iii) The revised agreement (novation agreement) between the bank, GFL , IRL transferring the bank loan was entered oil 17.10.2012. (iv) The RBI approval to transfer foreign currency loan was obtained on 18.03.2013. Transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Business Transfer Agreement dated 30th day of March, 2012 executed between the Existing Borrower and the Novated Borrower (herein after referred to as BTA and annexed hereto as Annexure B), the Existing Borrower has transferred through a slump sale its wind energy business to the Novated Borrower on the terms as stipulated in the BTA including its rights and obligations under the Facility Agreement. Thus the bank has also recognized that the slump sale has taken place on 30th March 2012. Further, we refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 230 MW shall be transferred from GFL to IRL as slump sale in F.Y. 2012-13 . With the above resolutions the process of transfer of wind energy business from GFL to IRL commenced. It was not necessary to mention in the resolution any specific date for the completion of the transfer. The letter written by Ms Ernst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction 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 REC doesn t affect the period to which they pertain. The period to which they pertain determine to whom the income belongs are attached at page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 9th February, 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. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of various assets and liabilities continue to change on day-to-day basis and in such case, unless single date is agreed for the transfer of the undertaking, it will not be possible to transfer business undertaking 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave put signatures and executed agreement. Therefore, there could not be any justification for doubting the genuineness of the agreement at the end of the AO by making reference that assets were spread over throughout the country and could not be physically verified. Similarly, other objections made by the AO is that intimation 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration received or accruing as a result of the transfer of the capital asset as reduced by expenditure mentioned therein and the cost of acquisition of the asset. Section 55 A, as we have noticed, refers to the reference to DVO for ascertaining the fair market value of a capital asset. Such ascertainment of fair market value with the aid of the DVO's 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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