9911796707
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Issues Involved:
1. Taxation of short-term capital gain of Rs. 2,03,50,292. 2. Validity of the Civil Court order canceling the transaction of transfer of an industrial undertaking. 3. Applicability of section 50B for the assessment year 1996-97. 4. Deduction under section 80HHC. 5. Eligibility of interest on margin money for 80HHC relief. 6. Deduction of export loss from 90% of export incentive for 80HHC relief. Issue-Wise Detailed Analysis: 1. Taxation of Short-Term Capital Gain of Rs. 2,03,50,292 The CIT(A) upheld the Assessing Officer's decision to tax the short-term capital gain of Rs. 2,03,50,292 in the hands of the assessee. The assessee-firm, engaged in the manufacture of bulk drugs and pharmaceuticals, sold its business to M/s. Century Pharmaceuticals Limited at a slump price of Rs. 3,64,00,000. The Assessing Officer computed the short-term capital gain based on this sale consideration. The Tribunal, in its previous order, directed the Assessing Officer to consider the Civil Court's order, which reduced the sale consideration, while computing the capital gain. 2. Validity of the Civil Court Order Canceling the Transaction The Civil Court, in Civil Suit No. 855 of 2000, reduced the sale consideration to Rs. 1,41,49,707 and directed the assessee-firm to pay Rs. 2,03,50,292 to M/s. Century Pharmaceuticals Limited. The Tribunal had previously directed the Assessing Officer to consider this order as relevant evidence. The Tribunal reiterated that the order of the Civil Court, which was accepted and acted upon by the parties, should be taken into account while computing the capital gain. The Tribunal emphasized that the Assessing Officer was bound by its previous order and should not have ignored the Civil Court's decree. 3. Applicability of Section 50B for Assessment Year 1996-97 The assessee argued that the entire business was sold as a going concern, and hence, no capital gain was exigible to tax. The Tribunal noted that section 50B, which deals with the levy of capital gain in the case of slump sale, was introduced by the Finance Act, 1999, effective from 1-4-2000, and therefore, was not applicable to the assessment year 1996-97. The Tribunal concluded that since the sale consideration was reduced by the Civil Court, there was no capital gain, making the argument on section 50B academic. 4. Deduction Under Section 80HHC The CIT(A) rejected the assessee's contention for a deduction of Rs. 42,76,197 under section 80HHC. However, this ground was not pressed by the assessee during the hearing before the Tribunal, and hence, it was rejected. 5. Eligibility of Interest on Margin Money for 80HHC Relief The CIT(A) held that interest on margin money kept with banks in connection with export obligations would not qualify as business income eligible for 80HHC relief. This ground was also not pressed by the assessee during the hearing and was subsequently rejected. 6. Deduction of Export Loss from 90% of Export Incentive for 80HHC Relief The CIT(A) held that the export loss should be deducted from 90% of the export incentive, and only the balance would be eligible for 80HHC relief. The Tribunal noted the recent Supreme Court decision in Ipca Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521, which was relevant to this point. However, since this ground was not pressed during the hearing, it was rejected. Conclusion The Tribunal concluded that the order of the Civil Court reducing the sale consideration should be considered, resulting in no capital gain. Consequently, the addition of Rs. 2,03,50,292 was deleted. The grounds related to section 80HHC were not pressed by the assessee and were rejected. The appeal was partly allowed.
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