2002 (11) TMI 796 - AT - Income Tax

Summary

Issues Involved:
1. Double taxation of Rs. 53,06,632.
2. Taxation of Rs. 46,78,000 under Section 41(1).
3. Classification of the sale of Kalyan business as a slump sale.
4. Bifurcation of slump sale price into various amounts.
5. Allowance of depreciation.

Detailed Analysis:

1. Double Taxation of Rs. 53,06,632:
The assessee contended that the tax authorities erred in taxing Rs. 53,06,632 twice as income. The CIT(A) considered this issue but did not provide a proper explanation before the Assessing Officer. The reconciliation statement was furnished before the CIT(A), and it should have been considered. The matter was set aside to the Assessing Officer for re-examination in light of the reconciliation statement.

2. Taxation of Rs. 46,78,000 under Section 41(1):
The assessee argued that Rs. 46,78,000 was wrongly taxed in the assessment year 1995-96 as it had already been taxed in the assessment year 1996-97. Both assessment years had loss returns but were completed at positive figures, leading to double taxation. The Assessing Officer was directed to verify these facts and delete the amount in the year under appeal if it had been taxed in the assessment year 1996-97.

3. Classification of the Sale of Kalyan Business as a Slump Sale:
The assessee claimed the sale of the Kalyan business as a slump sale, arguing that the surplus/profit earned on the sale of land, factory sheds, plant, and machinery should not be assessable to tax. The Assessing Officer and CIT(A) disagreed, concluding that it was not a slump sale but a sale of specific assets, taxable under long-term capital gains, short-term capital gains, and business income.

Key Points:
- Common Shareholders: Some shareholders of the assessee and the purchaser company were common.
- Asset-wise Breakup: The assessee failed to provide an asset-wise breakup of consideration.
- Valuation Report: The transferee company divided the price between fixed assets and current assets based on a valuation report.
- Sale Agreement: The agreement specified a price for immovable and movable assets.
- Land Area: Only part of the Kalyan business was sold, not the entire unit.
- Due Diligence: The due diligence report indicated valuation of assets, contradicting the slump sale claim.

4. Bifurcation of Slump Sale Price into Various Amounts:
The tax authorities bifurcated the slump sale price into long-term capital gains, short-term capital gains, and business income. The CIT(A) upheld this bifurcation, noting that the sale price for land and building was known and evidenced by the registered sale deed. The assessee's contention that the price was inclusive of technical know-how and capital work-in-progress was rejected.

5. Allowance of Depreciation:
The assessee contended that the tax authorities erred in allowing depreciation of Rs. 7,56,263 instead of the correctly allowable Rs. 9,99,66,820. The Assessing Officer calculated the depreciation based on the sale price of the furniture and the opening WDV. The CIT(A) upheld this calculation, and the Tribunal found no infirmity in the order.

Conclusion:
The Tribunal concluded that the sale of the Kalyan business was not a slump sale. The sale proceeds were assessable to tax as long-term capital gains, short-term capital gains, and business income. The appeal was partly allowed, with specific issues set aside for re-examination by the Assessing Officer.