TMI Blog2016 (7) TMI 1696X X X X Extracts X X X X X X X X Extracts X X X X ..... entered in to by the assessee with the JV company. We find that in the agreement the assessee had specifically mentioned that the property was valued at Rs.59.31 crores for registration purposes. It is further found that in application made u/s.230A of the Act, the total sale consideration for transfer of construction manufacturing undertaking was mentioned and no separate value for land and building was indicated. Considering the above, we are of the opinion that no value was assigned to plot of land and building while transferring the assets to the JV and that the assessee had transferred the business at a lumpsum consideration by way of slump sale without assigning any individual value to various assets and liabilities. We find that one of the reasons, given by the FAA, for not considering the transaction a slump sale was that the purchaser had assigned cost to the assets acquired by it.It is a coincidence that the AO for the assessee happened to be the AO for the JV also and from the return of income of the JV he found that the purchaser had shown exact cost of each of the assets.In our opinion, it cannot be the deciding factor.A purchaser of a going concern has to assign cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve relied upon the case of K K Doshi [ 2000 (8) TMI 74 - BOMBAY HIGH COURT ] that stands reversed by the Hon ble Apex Court [ 2007 (10) TMI 61 - SC Orde ].Therefore, we are of the opinion that the issue needs a fresh adjudication at the level of the AO. Addition u/s 14A - reducing the amount claimed as exempt under section 10 (15)and 10(33) - HELD THAT:- We find that while deciding the appeal for the AY.1997-98 [ 2013 (10) TMI 1581 - ITAT MUMBAI ], the Tribunal had disallowed the expenses relating to interest on tax free bonds @ 2%, and had held that strategic investments made by the assessee, should be excluded for 14A disallowance. Following the same, ground raised by the assessee is allowed in its favour, in part. Computing book profit u/s 115JA - HELD THAT:- AR and DR stated that this issue stands decided in light of the decisions delivered in the cases of Vijaya Bank [ 2010 (4) TMI 46 - SUPREME COURT ], TRF Limited [ 2010 (2) TMI 211 - SUPREME COURT ] The second item with regard to computation under section 115JA is about disallowance made under section 14A of the Act. Respectfully, following the judgment of Vijaya Bank (supra) and TRF Ltd.(supra)we allow the appeal filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AR for the assessee submitted that this issue is considered and decided in favour of the assessee by the Tribunal for AY.1997-98 [ 2013 (10) TMI 1581 - ITAT MUMBAI ] DR could not controvert the claim made by the AR.Therefore, respectfully following the above order of the Tribunal, last ground is decided against the AO. - S/Shri Joginder Singh, Judicial Member And Rajendra, Accountant Member For the Revenue : Shri Mukund Chate For the Assessee : Shri J.D. Mistry ORDER Per Rajendra A.M.- Challenging the order dt. 26.03.20130 of the CIT(A)-5, Mumbai the Assessing Officer(AO) and the assessee have filed cross-appeals for the year under consideration. Assessee-company, engaged in the business of construction, manufacturing of heavy machinery and cement, etc., filed it return of income on, 27.11.1998, declaring income of Rs. 37.20 crores.The AO completed the assessment, on 28.02.2001, under section 143(3) of the Act, determining the income of the assessee at Rs. 2,09,15,37,490/-. ITA/4442/Mum/2010: 2. First ground of appeal is about confirming the disallowance of Rs. 3.15 crores, being the commission paid to certain parties during the previous year. During the course of hearing be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to treat the transfer of Bangalore undertaking as slump sale and disallowing depreciation of Rs. 17.58 crores. During the assessment proceedings, the AO found that the assessee had reduced the profit on sale of Bangalore undertaking of Rs. 108.18 crores from the profit and loss account, that it had claimed capital loss in its return, that construction equipment manufacturing undertaking of the company at Bangalore was sold and transferred for a lump sum consideration, as a going concern, to a joint-venture company, that it had treated the undertaking itself is a non-depreciable capital asset and had worked out the LTCL of Rs. 47.29 crores, that the LTCL was the difference between the slum price and the indexed cost of the undertaking, that it had reduced from the respective blocks the written down value of the assets forming part of the undertaking which was transferred.The AO directed the assessee to file explanation with details of computation and treatment made the books of accounts and the legal basis on which it had claimed the transaction was a slump sale. The assessee, vide its letter dated 13/01/2001, stated that the Bangalore works was transferred to a newly incorporated j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such difference was assessable as capital gains, that in the case under consideration there was no sale of entire business, that the assessee had sold fixed assets and current assets, that the lump sum purchase consideration of Rs.186 crores was partly attributable to depreciable assets and party to land which was a non -perishable fixed asset, that the consideration of Rs.39.10 crores was specifically attributable to net current assets. He referred to the provisions of section 41(2), (2A) and 50 of the Act and held that the business activity of the assessee comprised manufacturing of cement, engineering and construction including earthmoving equipments and heavy machinery electronic equipments, that transfer of part of activity in form of sale of Bangalore unit did not constitute sale of the entire business as a going concern or a slump sale, that the transfer specifically excluded engine division, marketing division, parts and service division, training Centre as per the agreement entered into by the assessee with the JV-company, that entire business was not transferred, that a part of the assets of winner one unit had been transferred, that it was not a case of slum sale, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion could not be treated as slum sale is claimed by the assessee, that the taxablity would be determined in accordance with the allocation two different assets which would be treated as values attributable to those assets out of the sale price, that the value so apportion therefore would be credited to the respective blocks was sale consideration in case of the assessee which would be accordingly reduced the claim of depreciation, that in respect of non-depreciable asset i.e. land, as LTCG would be attracted, that in respect of R D assets for which the sale consideration would be 4.5 crores provisions of section 41 (3) of the Act would be attracted, that as per the provisions of the said section the amount has to be treated as profits under the head business income. He worked out the LTCG on sale of land and reduced the claim of depreciation as under: 4.2. During the appellate proceedings, the assessee made elaborate submission, besides reiterating the arguments advanced before the FAA, before the FAA.After considering the submissions of the assessee, the FAA held that the Bangalore division had not been sold as a whole as going concern, that only certain assets had been transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brevory Ltd.(100TTJ 502) and observed that mere recitals of the agreement would not be sufficient to hold that transaction was slump sale or not, that though the recital in the agreement indicated lump sum payment but the facts had to be seen in the context of itemised valuation report in the case of the purchaser, that the contention raised by the assessee was contradictory.Finally, he held that the AO was fully justified in rejecting the claim of slum sale and considering the transaction as itemised sale and applying the relevant provisions of the Act. 4.3. Before us, the AR stated that the AO/FAA had disregarded the transaction as a slum-sale transaction and had proceeded in determining the tax liability by hypothetically allocating the values attributable to individual assets by crediting the values of block of respective assets, that the facts of the case of Artex Manufacturing Company (supra) were not applicable to the facts of the case, that in the case under consideration the undertaking was transferred as a whole along with all its rights and privileges for a lump sum consideration without assigning any individual value to its assets and liabilities, that the income arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was separately considered for determining the profits on sale/transfer of Bangalore works, that the said cost could not be termed treated as market value of the current assets as held by the AO, that the AO had wrongly presumed that there was no sale of entire business but of only fixed assets and current assets, that the assessee had transferred not only fixed and current assets but also the rights and obligations privileges and charges and everything connected with the construction equipment manufacturing undertaking, that the AO had totally ignored the aspect and concluded that lump sum purchase consideration was specifically attributable to the depreciable and not the appreciable assets, that the AO had wrongly concluded that since the assessee was in various businesses transfer of any one of the business did not cost you transfer or sale of entered business is going concern or slum sale, that the concept of business of an undertaking could never be meant to be all the businesses of the company clubbed together, that what was important was whether the particular business constituted separate unit or an undertaking of the company, the Bangalore works which had been sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erbial lock stock and barrel.In the case of Polychem Ltd. (343 ITR115)Hon ble Bombay High Court has defined the word slump sale in following manner: When a transfer takes place of the whole business and undertaking of the assessee and the transfer involves not only fixed assets such as land, building and machinery but other component elements such as the benefit of existing contracts, licences and approvals and intangibles including intellectual property and transfer of the work force of the undertaking or business, it would be impossible in such a case to attribute or allocate the sale consideration as between the fixed assets on the one hand and the intangibles on the other. In that matter it was found that the assessee, engaged in the business of manufacture and sale of liquor, entered into an agreement on 24.03.1994, to sell to the purchaser the undertaking/business together with its assets and liabilities as a running business/going concern on as is where is basis. According to the assessee, the profit arising on the transfer of the undertaking was not chargeable to tax. The AO deducted from the total sale price of Rs. 10.38 crores the written down value of the fixed assets an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h(supra)under an agreement, the entire land of the assessee-firm, measuring 5 acres along with the factory buildings, plant and machinery and the assets and liabilities were sold for a total consideration of Rs.1.50 Crores.In reassessment proceedings for the assessment year 1995- 96, applying the provisions of section 41(2) of the Act, the difference between the sum of Rs. 1.50 Crores and the written down value of the assets of Rs.23,02,460 was brought to tax.On appeal, the FAA came to the conclusion that it was a slump sale and that capital gains were not attracted.The Tribunal dismissed the Department s appeal. On appeal to the High Court, dismissing the appeal the Hon ble Court held as under: .the agreement did not reflect the actual value of the land, building, plant and machinery nor the actual liability of the assessee payable to different persons. It was a composite agreement, agreeing to sell the entire going concern of the factory, as it was. Therefore, the Assessing Officer was not correct in bringing to tax the various assets sold by the assessee for a sum of Rs. 1,50,00,000 shown in its books at a written down value of Rs. 23,02,460 . 9. Both the counsel have relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing Company [1997] 227 ITR 260 (SC), during the course of assessment, the assessee had produced the document to show the value of the articles sold by it. Therefore, the facts involved in Artex Manufacturing Co. and the facts involved in the present case are different. But in the case of Electric Control Gear Manufacturing Company [1997] 227 ITR 278, the agreement relied upon in the said judgment and the agreement relied upon in the present case are more or less same. Therefore, relying upon the judgment in Electric Control Gear Manufacturing Company [1997] 227 ITR 278, we have to answer the questions of law against the Revenue and in favour of the assessee. Finally, we would also like to refer to the case of Ece Industries Ltd.(344ITR382) of the Hon ble Delhi High Court.In that matter the assessee had sold its lamp division in the previous year relevant to the assessment year 1999-2000 for a sum of Rs. 42.50 crores. In the computation of capital gains, the assessee showed cost of the lamp division at Rs. 59.33 crores and declared the long term capital loss at Rs. 16.83 crores to be adjusted against the profit for the current year. The AO invoked the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding was part of the sale consideration, as it was to borne by the transferee. The sale of the unit was thus, a composite sale and, therefore, a case of slump sale. When an undertaking was sold it was to be understood as a whole of undertaking. Therefore, section 50 dealing with the depreciable assets would not be applicable when the entire unit as a going undertaking was sold by the assessee. From the above discussion it is clear that if ongoing concern is sold for a lump sum amount it has to be treated a slump sale and had to be taxed as such.In such cases itemised sale of the assets is not there-an amount is paid for transferring an independent unit.To find out the facts of the case we would like to refer to the agreement entered in to by the assessee with the JV company. 4.6. We have perused the Business Transfer Agreement(BTA), dated 01.02.1998 and deed of transfer of land and building of Bangalore Works Undertaking dt.11.3.1998.We find that the agreement was entered in to between the parties on the following understanding- Whereas, L T desires to sell to JVC, and JVC desires to purchase from L T, a part of L T s construction equipment manufacturing business alongwith certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to the terms and conditions hereof, shall be assumed by JVC on the final Closing Date, JVC does not assume, and shall not be deemed to have assumed at any time, any obligations or liabilities of L T, whether arising out of or relating to the L -T Transferred Business, or otherwise. 3. Purchase Price 3.1 Consideration The total consideration to be paid to L T by JVC for the L T Transferred Business shall be in an amount equal to the Effective Amount plus/minus Adjustment Amount (the Final Closing Amount ). As of the Eftective Date, the Parties have agreed upon the Effective Amount as set out in the Exhibit-A hereto, based upon the valuation confirmed by Komatsu and mutually agreed. A perusal of the above leaves no doubt that the assessee had sold a going concern and the JV had taken over all the assets and liabilities of the assessee for a lumpsum price.We futher hold that earth moving equipment manufacturing unit was an independent unit and was sold to the JV for Rs.186.10 crores without assigning any individual value to either fixed assets or current assets, that it was sale of undertaking as a whole.It is found that the said unit was allowed 80I deduction in earlier years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, valuation report obtained by the purchaser do not prove at all that the assets had the same value for the seller.Once an assessee sells the lock stock and barrel of a unit for that assessee individual items loose existence.In the case before us, there is nothing on record to show that the value shown by the JV was the itemized value of the assets owned by the assessee.Considering the above discussion, we hold that the sale of earth moving manufacturing unit was a slump sale.Here, we want to make it clear that the assessee would not be entitled to claim loss for the transaction in question.Finally, reversing the order of the FAA, we decide ground no.3 in favour of the assessee, in part. 5. Fourth ground of appeal is about upholding the computation of deduction u/s.80HHC of the Act on following basis: - i. total turnover was taken inclusive of unclaimed credit balance and scrap sale ii. 90% gross interest received was reduced from the profits of business iii. loss on export of trading goods was set off against profit on export of manufacture goods 4. 90% of miscellaneous income was reduced from the profits of business During the course hearing before us, the AR and the DR stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue, raised by the assessee, is decided in its favour. 6. The next item is with regard to unclaimed credit balance in the total turnover (Rs.76.10 crores).While deciding the appeal, filed by the assessee, the first appellate authority (FAA) followed the order of his predecessor of the earlier AY. and decided the issue against the assessee.Before us, the AR relied upon the case of Jeyar Consultants and Investments Pvt. Ltd.(46 ITD 71).The DR supported the order of the FAA.We have heard the rival submissions and perused the material before us.We find that the issue is covered in favour of the assessee by the decision of Jeyar Consultants(supra), relied upon by it. Therefore, we decide issue in favour of the assessee. 7. Next ground is about the 80HHC calculation and reduction of 90% of gross interest receipt (Rs.6078 lakhs) from the profits of business disregarding interest paid of Rs.13, 512 lakhs by the assessee.During the course of hearing before us, AR and DR stated that identical issue was deliberated upon by the Tribunal while deciding the issue for A.Y. 1997-98. We find that at page 9 of the order (para 22), the Tribunal has decided the issue as follows: 22. Ground nos. 13 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentives(Rs.1422.16 lakhs), Collection against outstanding (Rs. 72. 08lakhs), Other miscellaneous income (Rs.1041.422 lakhs), Less profit on sale of import licence (Rs.184 lakhs) considered separately). 9.1. During the assessment proceedings, the AO, referring to the matter of K K Doshi(245ITR 849)held that all the above mentioned receipts were not directly derived out of the export activities of the assessee, that there was no nexus between those receipts and the export business, that same were to be excluded to the extent of 90% as per the provisions of section 80HHC expl.(bba)He recalculated the profit of the business at page no.31 of the assessment order. 9.2. In the appellate proceedings, the FAA held that there was no merit in the case of the assessee, that the AO was justified in applying explanation (baa)and following the decision of K K Doshi(supra). 9.3. Before us, the AR relied upon the orders of Sharda Gums and Chemicals Industrial Area (76 ITD 282) and Honda Siel Power Products Ltd. (77 ITD 123).The DR supported the order of FAA.We have heard the rival submission and material before us.We find that the issue decided by the Tribunal in the case of Honda Seil Power Prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock-intrade of the business carried out by it. Finally, he held and ad hoc expenditure @ 5% under the head Establishment and Administrative Charges was to be deducted. He worked out the disallowance at Rs.12.85 lakhs out of the claim made under section 10(15) and of Rs.98.97 lakhs out of the claim made under section 10(33) of the Act. 10.1. Aggrieved by the order of the AO the assessee filed an appeal before FAA.After considering the assessment order and the submission of the assessee, the FAA held the provisions of section 14A r.w. rule 8D of the Income Tax Rules, 1962 (Rules) were clearly applicable to the facts of the case, that there was scope for making an estimated disallowance of expenditure attributable to exempt income as per the direction of the FAA, the assessee furnished a working of disallowance as per Rule 8D. The FAA found that as per the working disallowance has to be made at Rs.3.90 crores in place of Rs.1.119 crores. It was contested that the provisions of section 14A r.w. Rule 8D could not be applied retrospectively. Referring to the decision of the Daga Capital Investment Ltd. (26 SOT 603), the FAA held Rule 8D as well as the provisions of sub sections (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,501. The expenses were incurred towards professional fees, foreign travel, local travel and consultancy fees in respect of proposed projects but ultimately not materialized. In support of the contention, the learned Counsel has relied on various decisions including the decision of the Andhra Pradesh High Court in the case of CIT Vs. Coromandal Fertilizers [247 ITR 417] , Calcutta High Court in the case of CIT VS. Graphite India Ltd [221 ITR 420] and that of Gauhati High Court in the case of DCIT Vs. Assam Asbestos Limited [185 CTR 223]. This issue was considered by the Tribunal in assessee's own case for the assessment year 1989-90 (mentioned supra). The Tribunal after considering the facts and circumstances of the case has confirmed the 50% disallowance made by the Assessing Authority. The expenses were incurred for flat glass project, market survey for fruits and vegetables, tyre project, bulk drugs etc. We agree with the CIT(A) that even though the proposed projects may he intimately connected to the existing business carried on by the assessee, the assessee-company was in fact exploring the prospectus of new units. Those units were not ultimately successful; we can say tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stands dismissed. ITA 4599/Mum/2010: 16. First ground of appeal, raised by the AO, is about disallowance of claim for loss in computation of value of work-in-progress on construction contracts(Rs.15,39,06,000/-).The DR and the AR conceded before us that identical issue was decided in favour of the assessee by the Tribunal, while deciding the appeal in ITA No. 4299/Mum/2001 for A.Y. 1997-98 as under: 14. Ground No. 5 with its sub grounds relate to deletion of the addition of Rs.10,75,11,000/- on account of unforeseeable losses in computation of work-in-progress on construction account. This issue has been considered by the Assessing Officer at para 16 on page 9 of his order and the same has been considered by the CIT(A) at para 11 on page 4 of his order. Similar issue was considered by the Tribunal in ITA No. 2863/Mum/2000 at para 44 and 45 on page 15 of its order, wherein the Tribunal has followed its findings for A.Y. 1994-95 in ITA No.4264 4982/Mum/98. Facts and issues being identical, respectfully following the decision of the Tribunal in the assessee s own case, findings of the CIT(A) are confirmed. Ground No. 5 with its sub ground is accordingly dismissed. Respectfully follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ).We observe that the issue before us has been decided by the Tribunal, in favour of the assessee, while adjudicating the appeal for the AY.1997-98(supra).Respectfully following the above, ground No. 4 stands dismissed. 18. Fifth ground of appeal is about interest and commitment charges in respect of borrowings made for cement projects (Rs.1,59,85,43,981/-).It is found that the issue has been deliberated upon and decided in favour of the assessee by the Tribunal in ITA No. 4299/Mum / 2001 (supra).The Tribunal has held as under: 16. Ground No. 7 with its sub ground relates to the deletion of the addition of Rs.71,87,42,880/- on account of interest and commitment charges in respect of borrowings made for Cement Projects. The disallowance has been made by the Assessing Officer at para 22 on page 15 of his order and the CIT(A) has deleted the additions as discussed at para 17 on page 12 of his order. Similar disallowance was considered by the Tribunal in the assessee s own case in ITA No. 2863/Mum/2000 at para 46 at page 15 of its order, wherein the Tribunal has followed the findings in the assessee s own case for A.Y. 1994-95 in ITA Nos. 4264 4892/Mum/98. Facts and issues being identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances being identical, respectfully following the decision of the Tribunal, ground No. 11 is dismissed. 21. Ground No. 12 relates to the deletion of Rs.1,00,65,540/- being expenditure incurred on mining. This issue has been considered by the Assessing Officer at para 25 of his order. The additions made by the Assessing Officer has been deleted by the CIT(A) vide para 24 at page 15 of his order. The Tribunal has dismissed a similar ground in ITA No. 2200/Mum/2000 vide para 22 on page 8 of his order. We have no hesitation in following the findings of the Tribunal in the assessee s own case. Ground No. 12 is accordingly dismissed. Respectfully following the above, ground No.7 stands dismissed. 21. Ground No.8 of appeal is about interest under section 244A of the Act.At the time of hearing the AR for the assessee submitted that this issue is considered and decided in favour of the assessee by the Tribunal for AY.1997-98.The DR could not controvert the claim made by the AR.Therefore, respectfully following the above order of the Tribunal, last ground is decided against the AO. As a result, appeal filed by the assessee stands partly allowed and appeal of the AO is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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