2024 (3) TMI 1009 - AT - Income Tax

Capital gain computation - lease rental expenses are related to the transfer of slump sale business while computing the capital gain u/s 48(1) or not? - HELD THAT - It is not in dispute that the company has incurred these charges to complete the transfer of the property as per scheme of agreement and leasehold rights in the land was part of the port undertaking which was transferred as per the scheme of arrangement. When it was a slump sale section 45 48 do not bar the company from claiming expenses. So in order to compute the capital gains provisions contained under section 48 are applicable which provide that while computing the capital gain the value of consideration reduced by the cost of improvement and cost of acquisition and also expenditure incurred for transfers are to be considered. When the income of the assessee is chargeable under the head capital gains qua the years in which transfers was affected, the expenses pertaining to the transfer, they crystallized later on but as per scheme of arrangement it has to be allowed. So when the assessee has incurred the amount in question to complete the transfer as per scheme of arrangement approved by the Hon'ble NCLT, without which transfer could not have been effected, the Ld. CIT(A) has rightly and validly decided the issue in favour of the assessee. Eligibility of deduction claimed by the assessee on account of stamp duty and registration charges for the purpose of computing the gains arising on demerger of port business - In view of the findings returned on the earlier issue when it is proved on record that the assessee is entitled for upfront lease rental expenses incurred in relation to the transfer of slump sale business while computing the capital gains under section 48(i) of the Act the assessee is also entitled for deduction of stamp duty and registration charges. CIT(A) despite thrashing the facts has denied this relief to the assessee on the ground that no request for admission of any additional evidence or additional ground has been raised before him hence this claim cannot be entertained. When the amount has been crystallized in the books of account and facts have been brought on record before the Ld. CIT(A) which have not been disputed the claim of the assessee, otherwise admissible, cannot be denied on the basis of hyper technical reasons. Both the questions framed are answered in favour of the assessee. So the AO is directed to allow the stamp duty and registration charges after due verification. Appeal filed by the Revenue is hereby dismissed and the cross objection filed by the assessee is hereby allowed.

Issues Involved:
1. Additional expenditure incurred by the assessee related to subsequent financial years.
2. Deduction of the additional expenditure u/s 48(1) in computing capital gain on slump sale.
3. Empowerment of CIT(A) to reduce returned income by recomputation of deduction u/s 50B.
4. Allowability of expenses crystallized in a subsequent assessment year.
5. Applicability of the High Court decision in Commissioner of Income Tax Versus Exxon Mobil Lubricants Private Limited.
6. Consideration of increased liability in computing net worth u/s 50B.

Summary:

Issue 1: Additional Expenditure Related to Subsequent Financial Years
The assessee, M/s. Larsen & Toubro Limited, claimed an additional expenditure of Rs. 82,59,94,515/- related to FY 2018-19, 2019-20 & 2020-21, arguing it was necessary for the transfer of undertaking as a slump sale. The CIT(A) did not appreciate this claim.

Issue 2: Deduction u/s 48(1)
The CIT(A) granted the amount of Rs. 82,59,94,515/- as a deduction u/s 48(1) while computing the capital gain on the slump sale of the port division for FY 2015-16 relevant to AY 2016-17.

Issue 3: Empowerment of CIT(A) u/s 50B
The CIT(A) was challenged for recomputing the deduction u/s 50B, which the Revenue argued was not permissible under the Act concerning modification of claims.

Issue 4: Allowability of Expenses Crystallized in Subsequent AY
The CIT(A) allowed the expenses of Rs. 82,59,94,515/- in the instant assessment year, which the Revenue contended should be allowed only in AY 2019-20 as per the mercantile system of accounting.

Issue 5: Applicability of High Court Decision
The Revenue argued that the CIT(A) did not consider the decision of the High Court of Delhi in Commissioner of Income Tax Versus Exxon Mobil Lubricants Private Limited, which held that expenses crystallized in the current year should be allowed only in that year.

Issue 6: Consideration of Increased Liability u/s 50B
The Revenue contended that the CIT(A) failed to consider the increased liability of Rs. 82,59,94,515/- in computing the net worth of the undertaking as per explanation 2 to section 50B for calculating capital gain.

Judgment Details:
The Tribunal upheld the CIT(A)'s decision, stating that the differential lease rental, stamp duty, and registration charges were integral to the transfer of the slump sale business and should be allowed as deductions u/s 48(i). The Tribunal referred to the scheme of arrangement approved by the NCLT and the decision of the Bombay High Court in Sesa Goa Ltd. vs. Addl. CIT. The Tribunal also directed the AO to allow the stamp duty and registration charges after due verification, dismissing the Revenue's appeal and allowing the assessee's cross objection.

Conclusion:
The Tribunal concluded that the expenses incurred were necessary for the transfer of the slump sale business and should be deducted while computing capital gains. The appeal by the Revenue was dismissed, and the cross objection by the assessee was allowed.

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