2021 (6) TMI 124 - AT - Income Tax

Capital gain of sale of asset/factory - regular sale or slump sale - claim of the assessee is that it has engaged into slump sale as such it is claiming that provisions of section 50C are not applicable - Admission of additional evidence - HELD THAT - In the instant case what was sold was definitely not an undertaking but a factory. CIT(A) has noted that the assessee has contended that it has produced some sale bills before the Assessing Officer and has contended that those sales to prove that the unit was running and was an ongoing business concern. However, learned CIT(A) has noted that a few instances of sale cannot prove that production was going on. That it is quite possible that the sale was made from stock of unsold finished goods. That the assessee did not produce the profit and loss account and the balance-sheet of the Roorkee unit in support of its claim that the production activities were continuing where the unit was sold. Operations at Roorkee unit needs examination with relation to profit and loss account of the assessee. Here we note that in the cost of material consumed in the profit and loss account of the assessee there was no purchase of material at Roorkee Unit. So prima facie learned CIT(A) s finding is correct that no manufacturing activity has taken place and assessee has only shown opening raw material as consumed. We find that in the profit and loss account while closing stock of Roorkee unit shown as nil, opening stock for that year for raw material - how financial note reflects raw material consumed clearly shows an anomaly in the preparation of financial account. In our considered opinion this aspect needs examination at the level of Assessing Officer. We note that learned counsel has produced before us valuation report giving valuation of the items sold. This is additional evidence not produced before the authorities below. We note that this additional evidence in the shape of valuation report itself states that as the assessee s unit was established in a delayed manner and it was no longer eligible for incentives available there. The valuer himself states that there are no comparative sales instances. The said report while discussing fair market rate has clearly mentioned that we find that there was no buyer for industrial unit, not eligible for incentive. This amply casts doubt over the claim of the assessee that this was slump sale of an undertaking. It is settled law that assessee cannot be allowed to take shifting stands while it is claiming that is a sale of an undertaking it is giving evidence that there cannot be a buyer for such unit. In our considered opinion, since the authorities below have not examined this additional evidence, we deem it appropriate to remit this issue also to the file of the Assessing Officer. The Assessing Officer shall examine this issue afresh after taking into account additional evidence.- Appeal by the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Whether the sale qualifies as a slump sale for the purpose of long-term capital gain computation.
2. Applicability of Section 50C of the Income Tax Act on the sale transaction.
3. Determination of whether the unit sold constituted an undertaking or a regular sale.
4. Assessment of the evidence provided by the assessee to support the claim of ongoing business concern.

Issue 1: Slump Sale Qualification:
The appellant claimed the sale as a slump sale, declaring long-term capital gain. However, the Assessing Officer found that the unit sold did not qualify as an undertaking due to the absence of ongoing business activities. The CIT(A) upheld this view, emphasizing that the sale was not of an undertaking but a factory. The appellant's argument based on sales bills was deemed insufficient to prove ongoing production activities. The lack of supporting documents like P&L accounts and employee details further weakened the appellant's claim. The CIT(A) concluded that the sale did not meet the criteria for a slump sale, leading to the addition of long-term capital gain.

Issue 2: Section 50C Applicability:
The Assessing Officer invoked Section 50C of the Income Tax Act to compute long-term capital gain, as the sale was considered a regular sale rather than a slump sale. This section was applied due to the discrepancy between the sale price and the Stamp Valuation Authority's valuation of the property. The appellant's contention that Section 50C did not apply in the case of a slump sale was dismissed by the authorities, resulting in the addition of long-term capital gain.

Issue 3: Undertaking vs. Regular Sale:
The CIT(A) highlighted that for a sale to qualify as a slump sale, it must involve one or more undertakings, defined as a working enterprise or business activity. The absence of continuity in business activities at the sold unit led to the conclusion that it was not an undertaking but a factory. The authorities emphasized the importance of ongoing organized activities to constitute an undertaking, which was lacking in this case.

Issue 4: Assessment of Evidence Provided:
The appellant presented a financial note regarding the Roorkee unit's operations, indicating expenses and revenue. However, discrepancies in the profit and loss account raised doubts about the existence of manufacturing activities. Additional evidence, such as a valuation report, was produced before the appellate tribunal, suggesting that the unit was not eligible for incentives and lacked buyers. The tribunal decided to remit the issue to the Assessing Officer for further examination based on this additional evidence and directed the appellant to provide necessary proof of ongoing business concern.

In conclusion, the appellate tribunal allowed the appeal for statistical purposes, highlighting the need for thorough examination of evidence to determine the nature of the sale transaction and the applicability of relevant tax provisions.