2021 (11) TMI 418 - AT - Income Tax

LTCG - As per CIT-A there was a slump sale within the meaning of section 2(42C) attracting the provisions of section 50B - HELD THAT - We find that as per the agreement, the price consideration for the undertaking and assets to be bought and sold (business) is ₹ 14,00,00,000/- as set out in the schedule attached as annexure A quoted supra. Therefore, the case in hand is squarely covered by the judgment of the Hon ble Supreme Court in the case of Vatsala Shenoy 2017 (2) TMI 865 - SC ORDER As per the definition of section 2(42C), sale in question could be treated as slump sale only if there was no value assigned to the individual assets and liabilities in such sale. This has obviously not happened. It is stated that at the cost of repetition the value was assigned to individual assets, as per Annexure A, which is placed and liabilities were taken over by the purchaser. Considering the facts of the present case, it is held that the sale in question is not slump sale, obviously, section 50B also does not get attracted as this section contains special provision for computation of capital gains in case of slump sale. Respectfully following the above judgement of the Hon ble Supreme Court, we set aside the order of the CIT(A) and direct the AO to delete the addition made by the AO treating the same as long term capital gains - Decided in favour of assessee. Disallowance of expenditure - AO found that the assessee could not furnish bills and vouchers towards administrative and selling expenses claimed in the return of income filed - HELD THAT - As revenue authorities have made the disallowance on the ground that the AR of the assessee agreed for the same during the course of assessment proceedings. Whereas, the AR of the assessee submitted that the assessee has not authorized its AR for agreed addition. In view of the contrary submissions, we remit this issue to the file of the AO with a direction to redecide the issue after examining the material put-forth by the assessee before him in accordance with law after providing reasonable opportunity of hearing to the assessee in the matter. The assessee is directed to substantiate its claim by way of documentary evidence at his own risk and responsibilities with three effective opportunities of hearing. Therefore, the ground raised by the assessee on this issue is allowed for statistical purposes.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Treatment of the sale transaction as a slump sale under Section 50B of the Income Tax Act, 1961.
3. Taxability of consideration received towards the sale of goodwill.
4. Disallowance of administrative and selling expenses amounting to ?12,14,253/-.

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The assessee's appeal suffered from a 753-day delay in filing before the ITAT. The delay was attributed to the misplacement of appeal papers by office staff. The Tribunal referred to the case laws "Collector Land Acquisition vs Mst. Katiji & Ors" and "University of Delhi Vs. Union of India," which support condonation of delays backed by cogent reasons to ensure substantial justice. The Tribunal held that the delay was neither intentional nor deliberate but due to circumstances beyond the assessee's control and thus condoned the delay, allowing the case to be adjudicated on merits.

2. Treatment of the Sale Transaction as a Slump Sale:
The assessee sold its passenger car dealership business to JAPL for ?14,00,00,000/-, which the AO treated as a slump sale under Section 50B of the Act. The AO added ?3,68,33,000/- as Long Term Capital Gains (LTCG), being the difference between the sale consideration and the net worth of the company. The CIT(A) upheld this view, stating that all assets related to the business were transferred to JAPL, and the sale was not itemized, thus falling under the definition of a slump sale per Section 2(42C).

The Tribunal, however, referred to the agreement and Annexure A, which detailed individual assets and liabilities transferred. Citing the Supreme Court judgment in "Vatsala Shenoy Vs. JCIT," the Tribunal concluded that the sale was not a slump sale as individual values were assigned to the assets. Consequently, Section 50B did not apply, and the addition of ?3,68,33,000/- as LTCG was deleted.

3. Taxability of Consideration Received Towards Sale of Goodwill:
The assessee contended that the difference between the sale consideration and the net worth was received towards the transfer of goodwill and should not be taxable. The CIT(A) dismissed this argument, referencing the amendment to Section 55 of the Act by the Finance Act, 1994, which states that the cost of acquisition of self-generated goodwill is to be taken as NIL, making the consideration received on its transfer taxable under capital gains. The Tribunal upheld this view, confirming that the consideration received towards the transfer of goodwill is taxable as per the provisions of the Act.

4. Disallowance of Administrative and Selling Expenses:
The AO disallowed ?12,14,253/- of administrative and selling expenses due to the lack of supporting bills and vouchers, noting that the assessee’s AR had agreed to this disallowance during assessment proceedings. The CIT(A) confirmed the disallowance on the same grounds. However, the assessee argued that the AR was not authorized to agree to such disallowance. The Tribunal remitted the issue back to the AO for re-examination, directing the AO to provide the assessee with an opportunity to substantiate its claim with documentary evidence.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal condoned the delay in filing the appeal, ruled that the sale transaction was not a slump sale, confirmed the taxability of the consideration received towards goodwill, and remitted the issue of disallowed expenses back to the AO for re-examination.