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2020 (4) TMI 28 - AT - Income TaxAccrual of income - Addition on account of amount kept in Escrow Account - slump sale - whether sale of business is irrevocable and complete on the closing date mentioned in the agreement and capital gain is accrued on the date of sale - gain on transfer of business purchase agreement - HELD THAT - Income for the year under consideration of ₹ 447.30 crore and further ₹ 17.89 crore was accrued to the assessee. The assessee offered the same under the head Capital Gain and no other income which is not accrued to the assessee is not liable to tax in the year under consideration. The remaining income was accrued only in subsequent Assessment Year i.e. A.Y. 2013-14 to 2016-17 that is an amount of ₹ 17.89 Crore each in four subsequent years, and the same has been offered for taxation under the head Capital Gain. Even this fact is not disputed by the revenue. The objection of ld. DR for the revenue is that the assessee in subsequent year claim set off of Long Term Capital Loss on sale of mutual funds of ₹ 7.55 crore and ₹ 4.36 crore. In our view, the assessee is legally entitled to claim the set off of legitimate losses under the same head if it accrues to the assessee. As noted above the Hon ble Jurisdictional High Court in CIT vs. Nagri Mills Co. Ltd. 1957 (9) TMI 30 - BOMBAY HIGH COURT held that as to why the Income-tax authorities, in a matter such as where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate. Applying the same analogy that the assessee being a corporate entity is taxed at the marginal rate, the revenue should not fritter away its energies in fighting matters. The case law relied by the ld. DR for the revenue are not applicable on the facts of the present case as the same are based on different set of facts. In the present case, though the price was determined but was payable on fulfillment of certain condition as agreed in Escrow Agreement and the same were paid subsequently. In E.D Sasson Co. Ltd. 1954 (5) TMI 2 - SUPREME COURT (also relied by ld. AR) wherein it was held that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. Thus, the ratio of this decision is more favourable to the assessee. The word accruing and arising are used to contradistinguish the word receive . Income is said to be received when it reaches to the assessee; when right to receive the income vested to the assessee, it is said to be accrue or arise. The dormant profit cannot be equated with charged to tax under section 3 4 of the Income Tax Act. We are of the view that the accrued capital gain in the year under consideration was offered by the assessee to tax and the remaining of the capital gain which was accrued only in the subsequent years have been offered to tax in AY 2013-14 to 2016-17. The assessee has placed on record the copy of computation and return of income for AY 2013-14 to 2016-17 - Decided in favour of assessee Defalcation loss disallowance - allowable busniss loss - HELD THAT - We have noted that in assessee s appeal for A.Y. 2006-07 to 2009-10 in 2018 (12) TMI 406 - ITAT MUMBAI the claim of assessee with regard to defalcation loss has been restored to the file of AO. Therefore, to avoid the duplicity, the issue is restored to the file of AO to examine the claim and pass the order in accordance with law. In the result this ground of appeal is allowed for statistical purpose.
Issues Involved:
1. Taxability of the amount kept in escrow account. 2. Defalcation loss claim. 3. Levy of interest under section 234B. 4. Admission of additional grounds of appeal and cross objections. Detailed Analysis: 1. Taxability of the Amount Kept in Escrow Account: The primary issue revolves around whether the amount kept in the escrow account should be taxed in the year of the slump sale. The assessee sold its marketing division to Aventis Pharma Ltd. for ?567.07 crore, out of which ?89.45 crore was placed in an escrow account, to be released in five annual installments contingent upon the fulfillment of certain conditions. The assessee argued that only ?477.30 crore should be taxed in the year of sale, with the remaining ?89.45 crore being taxed in subsequent years as it accrues. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the entire amount of ?567.07 crore should be taxed in the year of sale, as per section 50B of the Income Tax Act, which states that any profit or gain arising from a slump sale is chargeable to tax in the year of transfer. They argued that the escrow arrangement was separate from the sale transaction and did not affect the accrual of income. The Tribunal, however, sided with the assessee, stating that the escrow arrangement was an integral part of the business purchase agreement and that the contingent consideration should only be taxed in the years it accrues. The Tribunal emphasized that income is taxable only when it accrues or is received, and hypothetical income cannot be taxed. The Tribunal allowed the assessee's appeal on this ground, noting that the remaining amount was offered to tax in subsequent years and accepted by the revenue. 2. Defalcation Loss Claim: The assessee claimed a defalcation loss of ?5 crore, which was part of a larger loss detected in AY 2006-07. The AO had previously accepted a loss of ?14.04 crore but disallowed ?5 crore, which the assessee later claimed in the return filed under section 153A. The AO rejected this claim, stating that no new claims can be made in such returns. The Tribunal noted that the issue was remanded to the AO for AY 2006-07, and to avoid duplicity, the Tribunal also remanded the issue for the current year to the AO for examination and decision in accordance with the law. 3. Levy of Interest Under Section 234B: The assessee contested the levy of interest under section 234B. However, the Tribunal did not provide a detailed analysis or ruling on this issue in the judgment, focusing primarily on the taxability of the escrow amount and the defalcation loss claim. 4. Admission of Additional Grounds of Appeal and Cross Objections: The assessee raised additional grounds of appeal, arguing that the full value of consideration from the transfer of the marketing division was not determinable, thus affecting the computation of capital gains. The revenue filed cross objections, which were delayed but condoned by the Tribunal. The Tribunal admitted the additional grounds of appeal, noting that no new facts were required and that the facts were already on record. However, the Tribunal dismissed the additional grounds of appeal as not pressed, and consequently, the cross objections by the revenue became academic and were also dismissed. Conclusion: The Tribunal allowed the assessee's appeal regarding the taxability of the escrow amount, remanded the defalcation loss claim to the AO, and dismissed the additional grounds of appeal and cross objections. The ruling emphasizes the principle that income is taxable only when it accrues or is received, not on a hypothetical basis.
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