2017 (2) TMI 546 - AT - Income Tax

Addition of sale of undertaking as slump sale - Held that - It is not disputed by the Revenue that M/s SKODA Auto India Pvt. Ltd. had not approved the transfer of dealership from the assessee to M/s Miracle Cars India Pvt. Ltd. It is also not disputed that there was a clause in the agreement which required approval of M/s SKODA Auto India Pvt. Ltd. for transfer of dealership from the assessee to M/s Miracle Cars India Pvt. Ltd. Even the part consideration received was held by one Shri D. Sivakumar a director of the assessee and was never given to the assessee-company. Thus the agreement dated 30.06.2010 on which reliance has been placed by the Assessing Officer for fastening a liability on the assessee was a conditional one which would become legally enforceable only if M/s SKODA Auto India Pvt. Ltd. gave approval for transfer of the dealership. Further in the subsequent assessment year the Assessing Officer himself noted that the agreement did not go through. Thus in our opinion the CIT(Appeals) was justified in taking the view that there was no slump sale and there was no occasion for making an addition - Decided in favour of assessee.

Summary

Issues involved:
1. Delayed appeal filed by Revenue.
2. Deletion of addition of ?3,00,00,000 made by AO considering sale of undertaking as slump sale.
3. Dispute regarding approval for transfer of dealership.
4. Interpretation of agreement and legal enforceability.
5. Validity of the addition made by AO.
6. Decision on cross-objection filed by assessee.

Delayed Appeal by Revenue:
The Revenue's appeal was delayed by 2 days, and a condonation petition was filed, which was considered justified as per the reason provided. The delay was condoned, and the appeal was admitted for further proceedings.

Deletion of Addition of ?3,00,00,000:
The Revenue contested the deletion of the addition of ?3,00,00,000 made by the Assessing Officer (AO) regarding the sale of the undertaking as a slump sale. The AO had noted that the assessee had entered into an agreement to sell its Skoda dealership, considering it a slump sale. However, the CIT(Appeals) later ruled in favor of the assessee, stating that the agreement did not fructify, as approval from SKODA Auto India Pvt. Ltd. was not obtained. The CIT(Appeals) concluded that there was no enforceable agreement for the transfer, leading to the deletion of the addition.

Dispute Regarding Approval for Transfer of Dealership:
The core issue revolved around the approval required from SKODA Auto India Pvt. Ltd. for the transfer of the dealership. The Revenue argued that this approval was irrelevant, while the assessee contended that without this approval, the agreement was not legally enforceable. The disagreement centered on whether the approval was a crucial factor in determining the validity of the transfer.

Interpretation of Agreement and Legal Enforceability:
The agreement between the parties stipulated conditions, including the requirement for approval from SKODA Auto India Pvt. Ltd. for the transfer to be effective. The AO had based the liability on this conditional agreement, but subsequent assessments revealed that the agreement did not materialize. The Tribunal upheld the view that the agreement was conditional and legally enforceable only upon approval, leading to the dismissal of the Revenue's appeal.

Validity of Addition Made by AO:
The Tribunal found that the AO's decision to add ?3,00,00,000 based on the assumption of a slump sale was unfounded, as the agreement lacked enforceability without approval from SKODA Auto India Pvt. Ltd. The subsequent assessment also supported the non-fulfillment of the agreement, reinforcing the CIT(Appeals) decision to delete the addition.

Decision on Cross-objection:
As the appeal of the Revenue was dismissed, the cross-objection filed by the assessee in support of the CIT(Appeals) decision also became infructuous. Consequently, both the appeal of the Revenue and the cross-objection of the assessee were dismissed by the Tribunal.

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