2023 (5) TMI 1317 - AT - Income Tax

Reopening of assessment u/s 147 - AO has noted that assessee transferred one of its division and offered LTCG but did not file the Audit Report u/s 50B(3) which was mandatorily to be filed by the assessee therefore there is a failure on the part of the assessee in true and full disclosure of the material facts - HELD THAT - We find that Ld. CIT(A) has invalidated the reassessment proceedings mainly on the ground that there was a full and true disclosure on the part of the assessee and the AO has reopened the assessment merely on the basis of change of opinion. But the facts of the present case we find that in case of the slump sale u/s 50B(3) of the Act it is prescribed for mandatory filing of Audit Report in Form 3CEA. During the course of hearing before us assessee was given opportunity to produce copy of any such Audit Report required u/s 50B(3) which was filed before the AO in original assessment proceedings and the case was adjourned from 04.05.2023 to 16.05.2023 as part heard . Despite providing sufficient opportunity the assessee could not support with documentary evidence that such Audit Report was filed by the assessee before the AO in original assessment proceedings. In these circumstances we are of the opinion that disclosure of this material fact/requirement of law was not fulfilled by the assessee in the original assessment proceedings. Since in the case it is evident that the facts of Audit Report required u/s 50B(3) of the Act being material to the assessment and which was not filed before the AO therefore the assessee is responsible for not disclosing the material facts fully and truly. Hence we set aside the findings of Ld.CIT(A) on the issue in dispute and hold that re-assessment has been validly reopened by the AO. LTCG computation of the assessee arising from slump sale of the food service division - HELD THAT - We find that computation of LTCG on the transfer of undertaking as the slump sale consists of two components. First component is sale consideration and the second component is the net worth or cost of acquisition. When the net worth of division is subtracted from the sale consideration which results into LTCG on the slump sale. In the case of the assessee the AO has taken FMV at Rs. 7, 20, 32, 509/- which was worked out by the valuer following the PECV method whereas the assessee has followed average value of PECV method as well as NAV method to justify the sale consideration actually received. We are of the opinion that AO has not carried out valuation by an independent valuer and merely chosen a part of the valuation report submitted by the assessee. Therefore we restore back the issue to the AO for referring the matter to a valuation expert by way of the issue of commission and thereafter determining the FMV of the undertaking of the food division of the assessee. As far as the net worth of food division worked out by the Assessing officer and the assessee is concerned we have already reproduced same above. Net worth of the undertaking worked out by the assessee is as per the provision of the Act whereas the AO has not taken into consideration the written down value in terms of Explanation-2 to section 50B(3) of the Act. Accordingly we direct the AO while computing the LTCG on the transfer of the slump sale of the undertaking to adopt net worth as per section 50B(3) read with Explanation -2 below that section which has been worked out by the assessee - Ground No.3 raised by the Revenue is accordingly allowed for statistical purposes. Disallowance of employee s contribution to PF/ESI paid after due date prescribed under the relevant Act - HELD THAT - In view of the decision of Hon ble Supreme Court in the case of M/s. Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT the employee s contribution to PF/ESI deposited after due date prescribed under the relevant Act is not eligible for deduction u/s 36(1)(v) - we set aside the finding of Ld.CIT(A) on the issue in dispute and reject the claim of the assessee of deduction u/s 36(1)(va) relevant to the employees contribution to PF/ESI deposited after due date under the relevant Act. Decided against assessee.

Summary

Issues Involved:
1. Validity of Reopening of Assessment
2. Deletion of Addition to Long Term Capital Gains (LTCG)
3. Disallowance of Employee's Contribution to PF/ESI

Summary:

1. Validity of Reopening of Assessment:
The Revenue challenged the ld. CIT(A)'s decision to treat the reopening of assessment as invalid. The original assessment for AY 2012-13 was completed on 05.03.2015. The assessment was reopened on 26.03.2019 under Section 147 of the Income Tax Act, 1961, on the grounds that the assessee failed to file the mandatory Audit Report u/s 50B(3) during the original proceedings. The ld. CIT(A) invalidated the reassessment, citing "change of opinion" and full disclosure by the assessee. However, the Tribunal found that the Audit Report was not submitted during the original proceedings, thus justifying the reopening of the assessment. The Tribunal set aside the findings of the ld. CIT(A) and upheld the reopening of the assessment.

2. Deletion of Addition to Long Term Capital Gains (LTCG):
The Revenue contested the deletion of an addition made by the AO to the LTCG computation arising from the slump sale of the food service division. The AO substituted the sale consideration with the Fair Market Value (FMV) of Rs. 7,20,32,509/- using the Profit Earning Capacity Value (PECV) method, whereas the assessee reported a sale consideration of Rs. 4,50,00,000/-. The Tribunal noted that the AO did not carry out an independent valuation and merely chose a part of the valuation report submitted by the assessee. The Tribunal directed the AO to refer the matter to a valuation expert and recompute the FMV. Regarding the net worth of the division, the Tribunal found that the assessee's computation was as per the provisions of the Act and directed the AO to adopt the net worth as computed by the assessee at Rs. 1,50,04,578/-. The Tribunal allowed the Revenue's ground for statistical purposes.

3. Disallowance of Employee's Contribution to PF/ESI:
The Revenue challenged the ld. CIT(A)'s decision to allow the deduction of employee's contribution to PF/ESI paid after the due date prescribed under the relevant Act. The Tribunal referred to the Supreme Court decision in M/s. Checkmate Services Pvt. Ltd. vs. CIT and held that employee's contributions deposited after the due date are not eligible for deduction u/s 36(1)(va) of the Act. The Tribunal set aside the findings of the ld. CIT(A) and rejected the assessee's claim for deduction.

Conclusion:
The appeal filed by the Revenue was partly allowed for statistical purposes. The Tribunal upheld the reopening of the assessment, directed a fresh valuation for the LTCG computation, and disallowed the deduction for late employee contributions to PF/ESI.