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TMI Blog2022 (4) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs..35,46,83,760/- under normal provisions of the Act after making the following disallowances: - (i) Provision for Bhavishya Kalyan Yojana Rs. 77,82,000/- (ii) Provision for DMA commission Rs. 1,13,25,899/- (iii Interest on perpetual debentures Rs. 39,86,33,662/- (iv) Provision for Medicare Rs. 36,80,000/- 3. Tata Motors Finance Ltd (TMFL), wholly owned subsidiary of Tata Motors Ltd (TML) and registered as Non-Banking Financial Company (NBFC) is engaged in business of vehicle financing for the vehicles manufactured by TML. Tata Motors Finance Solutions Ltd. (TMFSL), wholly owned subsidiary of TMFL is registered as NBFC and is also engaged in business of used second-hand vehicle financing for the vehicles manufactured by TML. 4. At the time of reviewing the assessment records, Ld. Pr.CIT -1, observed that while making the impugned assessment A.Y. 2015-16 u/s. 143(3) of the Act, the Assessing Officer had failed to carry out relevant and meaningful enquiries as warranted by the facts and circumstances of the case and also failed to correctly apply the relevant provisions of the Act. 5. From the records he observed that assessee has transferred all its "Manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtfolios MGB (Manufacturer Guaranteed Business) and UVFB (Used Vehicle Financing Business) under a slump agreement on a going concern basis to TMFSL. The sale is effective on 31/03/2015. As a result of the slump sale, TMFL had recognised a gain of Rs. 74,282.74 lakhs which has been recorded as an Exceptional item by TMEL in its Audited financial statement for the financial year ended 31st March 2015. 2. As per the provisions of section 47(iv), any transfer of a capital asset by the parent company to its 100% Indian subsidiary is not considered as 'transfer' for the purpose of chargeability of capital gains to tax u/s 45. 3. As the transfer is to a wholly owned subsidiary, there is no actual gain accrued to the transferor Company and hence this exclusion is specifically provided from the charging section under the Act. 4. Pursuant to the disclosure in Note No.40 to the Financial Statements, the book profit u/s 115JB was computed by adjusting the capital gains arising out of the above slump sale transaction to determine the true net profit as per profit and loss account in accordance with part II of schedule VI of the Companies Act, 1956. 5. The said issue is directly covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to such transfer. Instead, the transfer has to be considered as 'slump sale' as defined in section 2(42C) and therefore the provisions of section 50B are clearly attracted in the present case which provides the charge to tax as well as the method for computing the gain which is taxable accordingly. 9.2 Moreover, the gain on such transfer being clearly part of the net profit had to be essentially included while computing the book profit u/s 115JB. I draw strength from the ratio laid down by the jurisdictional High Court in the case of CIT vs Veekaylal Investment Co (P) Ltd 116 Taxman 104 wherein it was held that capital gains would be part of computation of book profit. The Hon'ble High Court has held that under clause (2) of part-ll of Schedule VI to the Companies Act where a company receives the amount on account of surrender of leasehold rights, the company is bound to disclose in its Profit & Loss account, the said amount as non-recurring transaction or a transaction of an exceptional nature irrespective of it being capital or revenue in nature. It would be inappropriate to directly transfer such amount to capital reserve. Such receipts are also covered by clause 2(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n course of the assessment proceedings, the AO did not even bother to examine such material which was available before him. The AO also failed to make necessary inquiries for disallowance u/s 14A in respect of fresh investments of Rs. 1501,16.95 lakhs in equity shares of wholly owned subsidiary. Further, it is found that the AO passed the impugned assessment order without making inquiries which should have been made and therefore the said order shall also be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue within the meaning of the provisions contained in clause (a) of Explanation 2 to sub-section (1) of section 263. The decision of the Hon'ble Supreme Court in the case of CIT vs Amitabh Bachchan in Civil Appeal No. 5009 of 2016 [Arising out of S.L.P.(C) No.11621 of 2009] is relevant to the present proceedings wherein the issue involved was that the assessee had made claim of certain expenses which were later withdrawn. The AO however did not verify the source of the expenses and consequently the Commissioner of Income Tax assumed jurisdiction u/s 263 on the ground that the source of the expenses was not examined for applicability of section 69C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings is bad in law; 3. erred in initiating revisionary assessment proceedings under section 263 of the Act, without appreciating that section 263 cannot be invoked in case where Assessing Officer had done adequate enquiry after calling for all information unless it is established that the order passed by AD is unsustainable in law 4. erred in initiating revisionary assessment proceedings, even after acknowledging the fact that, the 'without prejudice material' was filed before the AO during the course of assessment proceedings and the AO has the passed the Order after examining the same, 5. erred in passing order under section 263 of the Act and directing the Assessing Officer for conducting fresh enquiry without justifying that the order passed by the Assessing officer is neither erroneous nor prejudicial to interest of revenue; 6. erred in making revision under section 263 of the Act by setting aside entire original assessment order and directing Assessing Officer to conduct fresh enquiry, without appreciating that original assessment order is subject matter of appeal before CIT(A) (appeal pending) and thereby CIT exceeded its jurisdiction, making entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly followed the jurisdictional Tribunal which was binding on him. Disallowance of expenditure in respect of exempt income earned under section 14A the Act 15. erred in making revisionary proceedings to direct the Assessing Officer to make that it has been properly disallowance under section under section 14A, without appreciating that it has been properly enquired and accepted by the Assessing Officer that no 14A of the Act is warranted; 16. erred in directing the Assessing Officer to compute disallowance under section 14A of the Act, without appreciating that the appellant had not earned any exempt income during the year and hence no disallowance under section 14A could be made; 17. erred in not appreciating the fact that no expenses at all were incurred (neither interest nor administrative expenses) for investments made at the end of the year (i.e. on 26th March 2015) in equity shares of appellant's subsidiary company and investment sold during the year of State Bank of India which was duly offered to capital gains tax, and hence no disallowance under section 14A is warranted; 18. without prejudice to the above, erred in directing Assessing Officer to make disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions where it is held that where two views are possible on a particular issue and the AO has adopted one view, then the same shall not be termed as prejudicial to the interest of the Revenue only because CIT disagrees to the view, unless the view taken by the AO is unsustainable in law. Reliance in this regard is also placed on the following decisions:- * Malabar Industrial Co. Ltd vs. CIT (supra) (Refer page 156 to 160 of the legal paper book) * CIT vs Amitabh Bachchan (2016) (384 ITR 200)(SC) (Refer page 167 to 177 of the legal paper book) * CIT vs. Max India Ltd (295 ITR 282) (SC) (Refer page 178 to 180 of the legal paper book). * CIT vs. Gabriel India Ltd (203 ITR 108) (Born) (Refer page 161 to 166 of the legal paper book) * Tata Motors Ltd for AY 2013-14 (ITA No. 3424/Mum/2019) dated 6 March 2020 (Refer Page 181-193 of legal paper book) * Nirav Modi (390 ITR 292) (Bom) 18. Therefore, it is submitted that the learned AO has made adequate inquiry and after the same AO has adopted one view. Disclosures with respect to addition on account of Slump sale and enquiry made by AO * The gain is shown as a separate line item in the Computation of Income as well whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de submission dated 21 November 2017 (Refer page 90 to 93 of Paperbook) has submitted a detailed response. Further, the learned AO had thoroughly examined the copy of the Financial Statements which disclosed the investment in Subsidiary and also fact that there was no dividend income received from the same. 21. Reliance is placed on the decision of Bombay HC in case of Gabriel India Ltd (203 ITR 108) (Refer page 161 to 166 of the legal paperbook) wherein it has been held that an order shall not be considered to be 'erroneous' simply because the AO did not make any discussion in the order in relation to the query made and explanation submitted by the assessee and thereafter the CIT adopts a different view (para 14). Similar proposition was also laid down by Delhi Tribunal in case of Ajit Gupta vs ITO (23 SOT 9). Further reliance in this regard is placed on the following decisions: * Tata Motors Limited for AY 2013-14 (ITA No. 3424/Mum/2019) dated 6 March 2020 (Refer Page 181 to 193 of the legal paper book) * Tata Motors Limited for AY 2009-10 (ITA No. 3727/Mum/2016) dated 3 September 2019 * Tata Motors Limited for AY 2011-12 (ITA No. 3802/Mum/2018) dated 15 April 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Mumbai and Delhi ITAT in the case of M/s. Shri Narayan Tatu Rane (supra) and M/s. Amira Pure Foods (P) Ltd. (supra) cited by the Ld. AR clearly supports the view that Explanation-2 to sec. 263 of the Act will not be of any assistance to the plea of the revenue unless the facts and circumstances set out there in exists in a given case." 26. In addition to the above, similar proposition has been laid down by the Hon'ble Mumbai Tribunal in case of Dena Bank Vs PCIT (ITA No. 2159/Mum/2018) dated 23 January 2020 and in assessee's group company in case of Tata Motors Ltd (ITA No. 3425/M/2019) dated 5 March 2021 (Refer Page 473 to 501). 27. In view of the above, the assessee wishes to submit that the action of PCIT in invoking revisionary proceedings under section 263 of the Act even though the learned AO had done adequate enquiry after calling for information is not justified and bad in law. D. No justification that the order passed by the AO is erroneous and prejudicial to the interests of Revenue 28. Assessee wishes to submit that an order can be treated as erroneous only when it is passed: - without any application of mind; - on incorrect assumption of facts; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the exception laid down in section 47 of the Act are not applicable to such transfer. In this regard, the assessee wishes to submit as under: A. Section 45 is the charging section for capital gains and section 50B is merely provides a computational mechanism 34. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head 'Capital Gains'. 35. Pre-insertion of section 50B of the Act, the profits or gains arising from the transfer of the whole business undertaking as a going concern could not be ascertained in the absence of any specific provision to determine the cost of acquisition of the business undertaking. 36. In order to tax the gains arising from slump sale transaction, section 2(420) (which defines the term 'slump sale') and section 50B (which lays down a special mechanism for computing the gains therefrom) were inserted by the Finance Act, 1999 (Refer Page 222 to 228). After the insertion of section 50B, the cost of acquisition of the business undertaking is notionally fixed in case of slump sale and hence, the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Finance Bill 1999 (Refer page 222 to 225 of the legal paperbook) has expressly stated as under:- "5.3 There has been a raging controversy regarding tax incidence upon sale of an undertaking by way of 'slump sale'. It has always been a matter of litigation as to whether slump sale gives rise to any capital gains tax liability. The Finance Act. 1999 seeks to provide clarity on this aspect by providing that the gains arising from such sales would be taxed under the head 'capital gains'. It has introduced following amendments in the Act for this purpose: ........ Section 50B has been inserted to provide the manner of computing capital gains in case of a slump sale." 44. In addition to the above, Memorandum to Finance Bill 2021 which rationalizes the provisions of slump sale also clarify that section 50B of the Act is a computation provision. (Refer page 226 to 228 of the legal paperbook). 45. Also, the Special Bench of Hon'ble Mumbai Tribunal in case of DCIT vs Summit Securities Ltd (15 ITR 01) dated 7 March 2012 (Refer page 260 to 300 of the legal paperbook) explains the entire modus operandi to compute capital gains from transfer of undertaking and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perbook) * CIT vs Bharat Bijlee Limited (365 ITR 258) (Bom HC) (Refer page 318 to 323 of the legal paperbook) * Bharat Bijlee Limited v. ACIT [ITA No. 6410/Mum/2008] (2006) (Mumbai Tribunal) (Refer page 301 to 317 of the legal paperbook) 48. In view of the above, it is submitted that the provisions of section 50B are merely computational provisions (and not charging section) and the charging section for the capital gains would be section 45 only and by no stretch of imagination section 50B of the Act can be said to be a charging provision. B. Section 47(iv) of the Act specifically provides for exemptions of certain cases which are not covered within the ambit of transfer and hence not taxable as capital gains 49. Section 45 of the Act is the charging section to tax any profit or gains arising from the transfer of a capital asset. Further, section 47 of the Act prescribes certain transactions which are not regarded as 'transfer' for the purpose of section 45 of the Act. As per the provisions of section 47(iv) of the Act, any transfer of a capital asset by the parent company to its 100% Indian subsidiary company is not considered as 'transfer' for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charging provisions of section 45 of the Act, it is not in the nature of 'income' per se for the purpose of charging it to tax. Thus, the gain earned by the Assessee is in the nature of the capital receipt and the same should be excluded while computing the book profit under section 11 5JB of the Act. 56. Reliance is placed on following decisions wherein it has been held that where a particular receipt is not in the nature of 'income', it cannot also be considered as part of book-profit for the purpose of levy of MAT under section 11 5JB of the Act. * Ankit Metal & Power Ltd. [2019] 416 ITR 591 (Calcutta) (Refer page 331 to 366 of the legal paperbook). * JSW Steel Ltd. [2019] (112 taxmann.com 55) (Refer page 367 to 387 of the legal paperbook) * Shivalik Ventures (P.) Ltd v. DCIT [2015] (60 taxmann.com 314) (Refer page 400 to 411 of the legal paperbook) * Alok Industries Limited vs DCIT (ITA No. 7243/Mum/2017) dated 26 July 2019 (Refer page 388 to 399 of the legal paperbook) * Shree Cement Ltd. v, ACIT (2014) 31 ITR(T) 513 (Jaipur Tribunal) (Refer page 412 to 433 of the legal paperbook) 57. In view of the above judicial precedents, the Assessee submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted [2020] 189 DTR 0015 (Mum ITAT) (Refer page 441 to 448 of the legal paperbook) 62. Accordingly, in absence of any exempt income earned out of investment in TMFSL, there should not be any disallowance under section 14A of the Act. B. No General or Administrative expenditure incurred by the Company in respect of investment in equity shares 63. The assessee wishes to submit that during the AY 2015-16, no expenditure has been incurred by TMFHL towards its investment in equity shares of TMFSL. It is relevant to note that the investment in equity shares of TMFSL have been made at the fag end of the year and there is an unlikely possibility of incurring any expenditure on such investment between 26 March 2015 to 31 March 2015. Therefore, no disallowance is required if no expenditure is incurred. Reliance is placed on the following decisions:- * Hero Cycles Limited (323 ITR 518) (P&H HC) * Metalman Auto (P.) Ltd. (2011) 336 ITR 434 (P&H) * ACIT vs. Crompton Greaves Ltd. [2019] 111 taxmann.com 338 (Mum ITAT) * CIT vs Reliance Industries Ltd. [2009] 339 ITR 632 (Bom HC) * Sam P Bharucha vs ACIT [2012] 53 SOT 192 (Mum ITAT) 64. In view of the above, it is submitted that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,107.18 (as on 31 March 2015) crores during the relevant FY. Thus, if it is believed that the investment in the shares of TMFSL is made during the year out of borrowed funds, there must also be an increase in the long-term borrowings of the Assessee which is not the case. 77. In light of the above, the assessee wishes to humbly submit that no interest can be disallowed under section 14A of the Act. Prayer 78. In view of the above discussion above, our submission is two-fold as under: * Revision made under section 263 by the learned PCIT is invalid and should be quashed * Without prejudice to the above, even on merits of the case, disallowance of exemption claimed under section 45 read with section 47(iv) of the Act on slump sale of business is not justified and bad in law and should be deleted including addition under section II5JB of the Act. * Without prejudice to the above, even on merits of the case, disallowance of expenditure in respect of exempt income earned under section 14A the Act is not warranted." 10. On the other hand, Ld.DR submitted that he supported the order passed u/s. 263 of the Act and submitted that section 50B is applicable in the case of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is between the subsidiary company, which will not be part of book profit. However, we are in agreement with Ld.PCIT that the above adjustment made by the assessee is not the adjustment mentioned in the Explanation 1 to section 115JB. However, we observe that the courts have held that when the receipt or profit earned by the assessee are in the nature of capital receipt or capital profit, these profit has to excluded from the book profit for the purpose of section 115JB also. The relevant extract of the decision of the coordinate bench in the case of Shivalik Venture (supra) is reproduced below: - "22. At this stage, we feel it relevant to discuss about a decision rendered by the co-ordinate Mumbai bench and which stands approved by Hon'ble Bombay High Court. In the case of ACIT Vs. Akshay Textiles Tdg & Agencies P Ltd (ITA No.1139/M/2002 dated 28-06-2005), the assessee earned capital gains and the same was directly credited to Capital reserve account, i.e., it was not credited to the Profit and Loss account. The said method of accounting was approved in the Annual General Meeting. The AO sought to bring the above said Capital gain within the ambit of "Book Profit", since it was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be considered for the purpose of computing book profit u/s 115JB of the Act. In order to appreciate the contentions of the assessee, we feel it pertinent to extract the relevant provisions here. The provisions of sec. 2(24) of the Act defines the term "income" and under clause (vi), the capital gains is included in the definition. For the sake of convenience, we extract below the said definition:- "2(24) "income" includes - (vi) any capital gains chargeable under section 45" The provisions of sec. 45 of the Act reads as under:- "45 (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income tax under the head "Capital gains" and shall be deemed to be the income of the previous year in which the transfer took place." We notice that the provisions of sec. 45 postulate three conditions, viz., (a) There is a capital asset. (b) There is a transfer of the above said Capital asset. (c) The said transfer results in any Profits or gains. If all the above said three conditions are satisfied, then the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the profits and gains arising on transfer of a capital asset by a company to its subsidiary company does not fall under the definition of "Income" as given in sec. 2(24) of the Act and hence it does not enter into the computation provisions of the Income tax Act. Accordingly it was contended that, an item of receipt which is not considered as "income" at all and which does not enter into the computation provisions of the Income tax Act, cannot be subjected to tax u/s 115JB of the also. 26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the computation provisions of the Act at all. We are impressed by the arguments advanced in this regard and we have also extensively dealt with the relevant provisions and also about the scheme of the provisions of sec. 115JB of the Act. We are of the view that the said contentions distinguish the decision rendered by the Special Bench in the case of Rain Commodities (supra). On merits also, we have earlier seen that the assessee herein has attached a note in the notes forming part of accounts and in the case before the Special bench, no such notes has been inserted, which fact was specifically noted by the Special bench. Hence on this factual aspect also, the decision rendered by the Special bench is distinguishable. 28. In view of the foregoing discussions, we find merit in the contentions of the assessee that the profit arising on transfer of capital asset to its wholly owned Indian subsidiary company is liable to be excluded from the Net profit., i.e., the Net profit disclosed in the Profit and Loss account should be reduced by the amount of profit arising on transfer of capital asset and the amount so arrived at shall be taken as "Net profit as shown in the profit and l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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