2015 (9) TMI 799 - AT - Income Tax

Slump sale - CIT confirming addition of negative net worth of the undertaking transferred under the slump sale to the long term capital gain u/s 50B - Held that - As decided in V Summit securities Limited case 2012 (3) TMI 176 - ITAT MUMBAI the Assessing Officer was not right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump sale. However, we allow ground no.2 raised by the Revenue in its appeal by holding that the CIT(A) was not correct in coming to the conclusion that the negative figure of the net worth should be ignored for working out the capital gains in case of a slump sale. The summary of our conclusion is that the amount of Net worth will be a negative figure and not Zero. - Decided against assessee. Disallowance of deduction from the profits arising out of the sale of undertaking by way of slump sale while working out the income under the head profits and gains from business - Held that - The computation of Total income filed by Assessee shows that assessee had starred the computation of business income from (-) ₹ 4,62,67,764/- as per profit and loss account and without increasing it further by the amount of any profit arising on the sale of the business undertaking which is chargeable to tax under the head capital gains and not under the head of profit and gains of the business and profession. It had credited extra-ordinary item in the profit and loss account of ₹ 2,55,74,116/-. As per note no B (6) of schedule 12 of the balance sheet at serial no item no 10 shows profit on sale of non-woven fabrics business under slump sale an amount of ₹ 2,03,46,191/- is shown. In our opinion, said amount has be adjusted in the computation of income and the claim made by the assessee is justified. In the matter of Prithvi Brokers the Hon ble Bombay High Court 2012 (7) TMI 158 - BOMBAY HIGH COURT has held that the appellate authorities can admit new claim made before them,though the AO cannot admit such claim without filing of fresh return. We are of the opinion,that in the interest of justice, the matter should be restored back to the file of the FAA for fresh adjudication,who will decide the issue after affording a reasonable opportunity of hearing to the assessee. - Decided partly in favour of assessee. Disallowance of sales tax deferral scheme - assessee had contended that an amount pertaining to sales tax deferred scheme and same is not disallowable u/s 43B of the Act in view of the circular no 496 dated 25.09.1987 - Held that - It is found that the assessee had also not submitted before AO the details of such claim. Further before FAA details of claims,reconciliation and how it is covered by the circular no 496 dated 25.09.1987were not submitted. Therefore such claim requires verification and also ascertainment whether the conditions and requirements mentioned under circular no 496 is met by the assessee or not. Therefore, in the interest of justice,this ground of appeal is set aside to the file of AO with direction to verify the claim of the assessee in accordance with circular no 496 dated 25.09.1987 and decide the issue in accordance with law after providing proper opportunity to the assessee - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Addition of negative net worth of the undertaking transferred under the slump sale to the long-term capital gain under Section 50B.
2. Non-allowance of deduction from the book profit arising out of the sale of the undertaking by way of slump sale.
3. Disallowance of provisions for sales tax liability under Section 43B.

Detailed Analysis:

1. Addition of Negative Net Worth to Long-Term Capital Gain:
The primary issue was whether the negative net worth of the undertaking transferred under the slump sale should be added to the sales consideration for computing the capital gain under Section 50B. The Assessing Officer (AO) added the negative net worth of Rs. 3,38,69,898 to the sales consideration, resulting in a higher capital gain. The assessee argued that the cost of acquisition should be taken as NIL when the net worth is negative, referencing the case of Zuari Industries Limited. However, the AO, supported by the decision of the Special Bench in V Summit Securities Limited, held that the negative net worth should be added to the sales consideration. The Tribunal upheld the AO's decision, emphasizing that the computation of net worth under Section 50B must consider all assets and liabilities, and thus, the negative net worth should be included in the capital gain calculation. The Tribunal referred to the methodology for computing net worth as provided in Section 50B, which involves subtracting the value of liabilities from the aggregate value of total assets. The Tribunal rejected the contention that negative net worth should be ignored, stating that such an approach would lead to incorrect capital gain computation.

2. Non-Allowance of Deduction from Book Profit:
The second issue was the non-allowance of a deduction of Rs. 2,03,46,191 from the book profit arising from the sale of the undertaking by way of slump sale. The AO did not adjust this amount in the computation of total income, and the First Appellate Authority (FAA) upheld this decision, noting that no application under Section 154 was filed by the assessee. The Tribunal, however, found merit in the assessee's claim and noted that the profit from the sale of the business undertaking, chargeable under the head capital gains, should have been adjusted in the computation of income. The Tribunal cited the Bombay High Court's decision in Prithvi Brokers, which allows appellate authorities to admit new claims. Consequently, the Tribunal directed the FAA to re-adjudicate the issue after providing a reasonable opportunity for hearing to the assessee.

3. Disallowance of Provisions for Sales Tax Liability:
The third issue was the disallowance of Rs. 51,12,586 under Section 43B, related to the sales tax deferral scheme. The AO disallowed this amount, stating that the sales tax liability was taken over by the buyer. The FAA upheld this decision. The assessee argued that the amount was covered under the deferred sales tax scheme and was eligible for deduction under Section 43B, referencing CBDT Circular No. 496 dated 25.09.1987. The Tribunal noted that the assessee had not provided details of the deferred sales tax amount to the AO or the FAA and directed the AO to verify the claim in accordance with the circular and decide the issue after providing a proper opportunity to the assessee.

Conclusion:
The Tribunal partly allowed the appeal, upholding the AO's addition of negative net worth to the capital gain computation, directing the FAA to re-adjudicate the deduction from book profit, and remanding the issue of sales tax liability back to the AO for verification. The order was pronounced in the open court on 31st August 2015.

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