2018 (3) TMI 312 - HC - Income Tax

Sale of property at Ghatkopar as a slump sale within the meaning under Section 2(42C) - Revenue s case is that real intention of the Assessee is to be ascertained from the transaction and not in what manner they have designed the transaction - Held that - Defining criteria for determining as to whether a particular transaction of property involving both movable and immovable is slump sale or not is composite sale of an undertaking or part thereof. Second point on which Mr. Nizamuddin emphasised was that the sale of both the immovable assets as well as plant and machinery etc. took place in the same financial year. Whether it is a composite sale of the assets or there was the sale of individual components thereof is essentially a question of fact. On this point, we find both the Commissioner of Appeals and the Tribunal went with the Assessee s case. Commissioner in particular has analysed the transaction and directed the Assessing Officer to allow relief to the appellant considering the amount of long term gains computed by the Assessee itself which was without invoking the computation methology stipulated in Section 50B of the Act. On this point we do not find the first and the second appellate fora went wrong in law. The assessee showed separate sale of furniture and fixtures and plant and machinery. The impact of subsequent development of property was also considered by the Commissioner of Appeals. We, accordingly, answer the first question in the negative and in favour of the assessee. Writing off bad advances - Held that - We accept the argument of Mr.Khaitan that for determining the character of claim for deduction AO need not confine his scrutiny on the accounts as submitted by the assessee but he ought to analyse the nature of the claim himself on the basis of materials on record. AO has not undertaken that exercise. But in our opinion without that exercise being undertaken, the Tribunal ought not to have had sustained the claim of the assessee straightway. There is no proper analysis of the nature of advances which were sought to be written off. For this reason, we answer the second question in affirmative and in favour of the Revenue and remand the matter to the AO for deciding the limited question as to whether there was actual irrecoverability of the advances which the assessee chose to write off in its account and claimed the written off amount as business loss. On the basis of such analysis, further determination would be necessary as to whether the expenditure claimed as bad advances constituted revenue expenditure or capital expenditure.

Summary

Issues Involved:
1. Whether the sale of property at Ghatkopar constitutes a slump sale under Section 2(42C) of the Income Tax Act, 1961.
2. Whether the amount of Rs.4,15,63,688/- and Rs.2,73,866/- written off in the P/L account represents a deductible business loss under Section 28 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Slump Sale Determination:
The primary issue was whether the sale of the Assessee's immovable property at Ghatkopar should be treated as a slump sale under Section 2(42C) of the Income Tax Act, 1961. The Tribunal found that the property sold consisted only of land, as the plant, machinery, furniture, fixtures, and building were either scrapped or non-existent at the time of sale. The Tribunal concluded that the sale did not constitute a slump sale because it was not a transfer of an undertaking for a lump sum consideration without assigning values to individual assets and liabilities. The Tribunal's findings were based on the agreements and schedules of the property transferred, which clearly indicated separate transactions for land and scrapped items. The court upheld this view, noting that both the Commissioner of Appeals and the Tribunal had correctly analyzed the transaction and allowed relief to the Assessee. The court answered this issue in favor of the Assessee, stating that the sale was not a composite sale of an undertaking but rather individual components.

2. Deductibility of Written-off Advances:
The second issue concerned the Assessee's claim for deduction of Rs.4,15,63,688/- and Rs.2,73,866/- written off as business loss. The Assessee argued that these amounts were part of a larger provision made in the year 2000 due to the inability to reconcile and adjust advances due to lack of information and old records. The Tribunal accepted the Assessee's claim, noting that the amounts were related to advances to suppliers, staff, and other business-related expenses, and were written off after a thorough review and due diligence. The Tribunal held that the loss was incidental to the business and should be allowed as a deduction under Section 28 of the Act. However, the court found that the Assessing Officer had not adequately analyzed the nature of the advances and their irrecoverability. The court remanded the matter to the Assessing Officer to determine whether the advances were indeed irrecoverable and to decide if the expenditure was revenue or capital in nature. The court answered this issue in favor of the Revenue, requiring further examination by the Assessing Officer.

Conclusion:
The appeal was partly allowed. The court upheld the Tribunal's decision that the sale of the property at Ghatkopar was not a slump sale, answering this issue in favor of the Assessee. However, the court remanded the issue of the deductibility of the written-off advances to the Assessing Officer for further analysis, answering this issue in favor of the Revenue. There were no orders as to costs.