2019 (7) TMI 706 - HC - Income Tax

Revision u/s 263 - change of opinion - AO taken one permissible view, whether order is erroneous? - transfer of the business undertaking as a whole - reopening of assessment u/s 147 on same ground i.e invoking Section 50B (slump sale) - HELD THAT - Notice was issued u/s 148 on the ground that the holding company ceased to hold whole of the share capital of the subsidiary company, the exemption granted has to be withdrawn as per provision of Section 47A. The original sale of the textile unit has to be treated as transfer and net worth has to be subjected to capital gains treating this transactions as a slump sales as per provisions of Section 50B. With regard to the proposal made by the AO for reopening the assessment by proposing to invoke Section 50B, the assessee stated that as per Section 2(42C) Slump Sale has to be defined to mean the transfer of one or more undertaking as a result of the sale for lumpsum sale without values being assigned to the individual assets and liabilities in such sales. It was further stated that in the assessee's case, the transfer price was based on the individual assets and liabilities of the undertaking transferred and the sale would not qualify as Slump Sale as per Section 2(42C). This explanation offered by the Assessee was accepted by the AO and the assessment was completed. For the very same reasons, the Commissioner has invoked the power u/s 263. In the order passed by the CIT, Coimbatore dated 10.03.2008, there is no reference to the reopening made by the AO, notice issued by him, reply given by the assessee and how the assessment was completed. Considering this fact, the Tribunal held that the power u/s 263 could not have been invoked by the Commissioner. The Tribunal rightly took note of the decision in Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT . Thus, revenue has not made any ground to interfere with the order passed by the Tribunal - Decided against revenue.

Summary

Issues:
1. Validity of proceedings initiated under Section 263 of the Income Tax Act.
2. Applicability of Section 50B to the transfer of business undertaking.

Issue 1: Validity of Section 263 Proceedings
The appeal before the Madras High Court concerned the validity of proceedings initiated by the Commissioner of Income Tax under Section 263 of the Income Tax Act. The Tribunal accepted the assessee's case, ruling that Section 263 could not have been invoked as it amounted to a clear change of opinion. The Court concurred with the Tribunal's findings. Section 263 empowers the Commissioner to revise orders prejudicial to the revenue, requiring a re-examination of the records and the passing of necessary orders. The Court referred to the Malabar Industrial Co. Ltd case, emphasizing that not every loss of revenue due to an Assessing Officer's order is automatically prejudicial. The order must be both erroneous and prejudicial to the revenue. The Court highlighted that if the Assessing Officer's decision is legally sustainable, even if it results in a revenue loss, it cannot be considered prejudicial unless it is unsustainable in law.

Issue 2: Applicability of Section 50B
The case involved the applicability of Section 50B to the transfer of a business undertaking. The Assessing Officer had reopened the assessment, claiming that the original sale of a textile unit should be treated as a transfer, subjecting the net worth to capital gains under Section 50B. The assessee argued that the assets were transferred at book value, with liabilities also accounted for at book value. They contended that the transfer did not qualify as a "Slump Sale" under Section 2(42C) as the transfer price was based on individual assets and liabilities. The Tribunal noted that the Commissioner's order lacked reference to the reopening by the Assessing Officer and the subsequent assessment completion. As a result, the Tribunal held that Section 263 could not have been invoked. The Tribunal's decision was based on precedent, including the Max India Ltd. case. Consequently, the Court dismissed the revenue's appeal, upholding the Tribunal's decision and answering the substantial questions of law against the revenue.

In conclusion, the Madras High Court dismissed the appeal, emphasizing the importance of legal correctness and the need for proper application of provisions like Section 263 and Section 50B of the Income Tax Act in assessments and revisions to safeguard revenue interests.