9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (8) TMI 1617 - AT - Income TaxDenial of Long Term Capital Loss - loss on slump sale - whether or not the transfer of textile division by the assessee is on a slump sale basis; and, thus whether or not the claim of Long Term Capital Loss arising on such transfer is admissible? - HELD THAT - It is not the case of the Revenue that all the assets and liabilities of the textile division were not transferred as a going concern in a slump sale. It is also not the case of the Revenue that the individual assets and liabilities of the undertaking were assigned values in the agreement and were individually available for purchase by the purchaser. These facts clearly substantiate the case of the assessee that for all intent and purposes, it was a transfer of an undertaking on a going concern basis. As held in case of Premier Automobiles Ltd. 2003 (4) TMI 43 - BOMBAY HIGH COURT that it is intent of the parties which is relevant to categorize the transfer as slump sale. Once that is so, we do not find merit in the contention of the Revenue that since assessee has obtained valuation report, which states value against each of the assets and liabilities, it should not be treated as a slump sale. Thus, in the case of Polychem Ltd. 2012 (2) TMI 327 - BOMBAY HIGH COURT and Premier Automobiles Ltd. (supra), it has to be inferred that transfer of textile division by the assessee on a going concern basis for a lump sum consideration is in the nature of slump sale. Further, once the transaction is held to be in the nature of slump sale, the manner of computation of Long Term Capital Gain / (Loss) is provided for in the Section 50B of the Act; and, the Assessing Officer is not empowered to substitute the same. Thus, assessee succeeds on this aspect. Prior period expenditure - suo-moto disallowance of such expenditure in assessment year 2005-06 since such expenses pertained to assessment year 2004-05 - HELD THAT - Admittedly, the tax rates for corporate assessees have remained the same for this year as well as next year. Once that is so, relying on the decision of Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholders P. Ltd 2012 (7) TMI 158 - BOMBAY HIGH COURT we don t find any justifiable reason for the CIT(A) to have denied assessee s claim of expenses in the instant assessment year of 2004-05, which were suo-moto disallowed by the assessee in assessment year 2005-06 treating the same to be prior period expenditure. Merely because the claim for expenses was made in the course of assessment proceedings, cannot ipso facto lead to an inference that such claim is not admissible as it was not made by way of a revised return of income. We thus, direct the Assessing Officer to consider assessee s impugned claim in the instant year. However, we note that as per the Assessing Officer, the details of such expenses were not available; therefore, we hereby remand the matter back to the file of Assessing Officer for the limited purpose of verification of the details of such expenses, and thereafter allow the same as per law. Accordingly, this Ground of the assessee is allowed, as above. Capital gain computation - FMV determination - CIT(A) in directing Assessing Officer to adopt the cost of acquisition of land at Fair Market Value as on 01.04.1981 determined by the registered valuer although the assessee had opted to adopt actual historical cost in the return of income for assessment year 2002-03 during which the asset was first converted into stock-in-trade and sold - HELD THAT - In the present year the assessee has claimed the fair market value as on 01.04.1981 in its return of income itself unlike in assessment yea₹ 2002-03 and 2003-04, wherein such claim was made in the course of assessment proceeding. As following the directions of the Tribunal in assessee s own case for assessment yea₹ 2002-03 and 2003-04, the Assessing Officer has passed an order u/s 143(3) r.w.s. 254 of the Act dated 31.03.2013 adopting the fair market value of property situated within the vicinity of the relevant area, against which the assessee has filed an appeal before the CIT(A), which is pending. Considering the aforesaid, it is directed that the fair market value as on 01.04.1981 should be allowed to the assessee based on the final outcome of the appeal filed by the assessee for assessment yea₹ 2002-03 and 2003-04 challenging the determination of valuation. The Ground of appeal raised by the Revenue is thus dismissed. Long term capital loss - corporate restructuring undertaken at the group level - transfer of shares and share application money which were sold to MGM Shareholders Trust and Morarjee Brembana Ltd ( MBL ) on the restructuring of the assessee group - HELD THAT - Subsequent to transfer of shares by the assessee, MBL went through an exercise of capital re-structuring wherein, the transferee Trust landed up tendering these shares for capital reduction at ₹ 0.10 per share. Thus, timely sale of shares by the assessee company helped in avoiding a situation of higher capital loss in future. The assessee has sufficiently explained the basis of determining the share transfer price. Merely because the shares are transferred to related party, it cannot lead to an ipso facto inference that assessee has attempted to evade tax. Thus, we do not find any error on the part of the CIT(A) in accepting the Long Term Capital Loss and Short Term Capital Loss arising on transfer of Equity Shares of MBL. Preference shares of MBL - Assessee had obtained a valaution report and based on the same the transfer price was fixed at ₹ 54.53 per share. The Assessing Officer has not pointed out any defect in the valuation report so submitted by the assessee; in the absence of any adverse finding by the Assessing Officer on the quality of the valuation report, we do not find any merit in the stand of the Assessing Officer rejecting the transfer price adopted by the assessee. Transfer price of shares of Morarjee Castiglini Ltd. and PMP Components Ltd. - As brought out that the shares were sold, based on the value determined by an independent valuer whose valuation report was furnished before the Assessing Officer. The Assessing Officer has not given any specific reasoning for disallowing the capital loss in respect of sale of shares of MCL and PMP Components Pvt. Ltd. Further, the purchase of shares of PMP Components Pvt. Ltd. by MBL also figured in the case of MBL before the Tribunal 2013 (7) TMI 443 - ITAT MUMBAI as upheld by the Hon'ble Bombay High Court 2017 (2) TMI 122 - BOMBAY HIGH COURT wherein the Hon'ble High Court has categorically held that the Department does not have any power to substitute the full value of the consideration by the market value of shares. Share application money cannot be termed as capital asset within the meaning of section 2(14) of the Act as it does not provide right of any kind to the assessee to enforce allotment of shares. This aspect of the matter is decided in favour of the Revenue and the order of CIT(A) is set aside to this extent.
Issues Involved:
1. Whether the sale of the textile business constitutes a slump sale. 2. Allowability of loss on sale of the textile business as a business loss. 3. Deduction of certain prior period expenses. 4. Adoption of fair market value as the cost of acquisition for land. 5. Consistency in the CIT(A)'s decision regarding capital loss on slump sale. 6. Allowability of long-term and short-term capital losses on the transfer of shares and share application money. Detailed Analysis: 1. Whether the sale of the textile business constitutes a slump sale: The assessee sold its textile business to its subsidiary, claiming it as a slump sale under Section 2(42C) of the Income Tax Act, 1961. The Assessing Officer (AO) and CIT(A) denied this claim, stating that individual values were assigned to assets and liabilities, which contradicts the definition of a slump sale. However, the Tribunal referred to the Business Transfer Agreement, which specified a lump sum consideration without assigning individual values, aligning with the definition of a slump sale. The Tribunal cited the Bombay High Court's decision in Polychem Ltd. and Premier Automobiles Ltd., concluding that the sale was indeed a slump sale, allowing the assessee's claim for long-term capital loss. 2. Allowability of loss on sale of the textile business as a business loss: The CIT(A) partially allowed the assessee's alternative claim, treating certain current business assets as revenue in nature and allowing them as business losses. However, deposits with others, BMC deposits, and excise duty deposits were treated as capital in nature. Since the Tribunal upheld the transaction as a slump sale, this ground became infructuous. 3. Deduction of certain prior period expenses: The assessee claimed expenses of ?4,50,49,311/- as allowable for the current assessment year, which were initially treated as prior period expenses in the next assessment year. The AO denied this claim based on the Supreme Court's decision in Goetze India Ltd., which mandates claims to be made via revised returns. The Tribunal, referencing the Bombay High Court's decision in Pruthvi Brokers and Shareholders P. Ltd., allowed the claim, directing the AO to verify the details and allow the expenses as per law. 4. Adoption of fair market value as the cost of acquisition for land: The assessee adopted the fair market value as on 01.04.1981 for land acquired in 1934-35, instead of the historical cost. The AO denied this, stating the option was exercised in earlier years. The CIT(A) allowed the claim, and the Tribunal upheld this decision, referencing its earlier order for the assessee's previous assessment years. The fair market value for the current year was to be based on the final outcome of the appeal for earlier years. 5. Consistency in the CIT(A)'s decision regarding capital loss on slump sale: The Revenue contested the CIT(A)'s inconsistent view on capital loss from the slump sale. Since the Tribunal upheld the sale as a slump sale, this ground was dismissed as infructuous. 6. Allowability of long-term and short-term capital losses on the transfer of shares and share application money: The AO disallowed the losses, suspecting the transactions were structured to evade taxes. The CIT(A) allowed the claims, noting the transactions were part of a restructuring exercise and were conducted at fair value determined by an independent valuer. The Tribunal upheld the CIT(A)'s decision, citing the Bombay High Court's ruling in the assessee's group concern case, which held that the AO cannot substitute the full value of consideration with the market value without evidence of non-genuineness. However, the Tribunal held that share application money is not a capital asset under Section 2(14) of the Act, as it does not confer enforceable rights to the applicant. Conclusion: The Tribunal allowed the assessee's appeal regarding the slump sale and prior period expenses, dismissed the Revenue's appeal on the adoption of fair market value and capital losses on shares, but ruled that share application money is not a capital asset. The matter of fair market value for land was remanded for verification based on the outcome of earlier appeals.
|
