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TMI Blog2023 (3) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets of the undertaking or division is the sum total of: WDV as determined u/s.43(6)(c)(i)(C) in case of depreciable assets, The book value in case of other assets. Net worth is deemed to be the cost of acquisition and cost of improvement for section 48 and section 49 of the Act. As per section 50B, no indexation benefit is available on cost of acquisition, i.e., net worth. Lower authorities have not examined the evidences submitted and have not verified the terms of the agreement. Assessee also has not given before the lower authorities which would help the CIT(A)/AO to understand the facts, with regard to the clear breakup of the various adjustments made and how the same is relatable to the completion accounts to substantiate that it is an adjustment to purchase price - issue of various adjustments disallowed by the CIT(A)/AO with regard to the computation of capitals gains should be remitted to the AO for a de novo verification of facts. AO is directed to consider the adjustments made based on completion accounts, objections filed by the purchaser, the details of bank guarantee invoked etc., before deciding the case. AO is also directed to keep in mind the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjustment in purchase price as given in Pg. No. 15 of the agreement 1,74,16,651 Final purchase price in respect of capacitors division 114,25,83,349 Add Purchase price in respect of components division 3,00,00,000 Total consideration received 117,25,83,349 Less Expenses and deductions claimed Expenses 2,45,41,438 Investment in REC Bonds 50,00,000 Purchase price adjustment Bank guarantee invocation 1,91,49,675 Provision for other liabilities 1,41,75,477 6,28,66,590 Balance 110,97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to the deduction as claimed. 5. The learned Commissioner (A) ought to have appreciated that the claim was evident from the transaction and the mere fact that was not claimed in the original return cannot prevent the learned Commissioner (A) to consider the claim which was genuine and had direct nexus to the slump sale of the business. 6. The learned Commissioner (A) erred in holding the disallowance of Rs.1,42,67,213/- without appreciating the appellant had to incur the liability out of the sale consideration arising out of the slump sale and thus liable for deduction while computing the capital gains. 7. The learned Commissioner (A) erred in upholding the disallowance of Rs. 51,00.881/- on account of recomputation by the assessing authority of the net worth of the depreciable assets transferred. 8. The learned Commissioner (A) erred in upholding the disallowance of Rs.70,000/- out of the environment expenses. 9. The learned Commissioner (A) erred in upholding the commission payment of Rs.13,00,153/- and without appreciating that the same were incidental to the business and accordingly was liable to be allowed. 10. Without prejudice the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets acquired. With regard to environment expenses the CIT(A) sustained the disallowance for an amount of Rs.70,000 and gave relief for the balance amount. The CIT(A) also upheld the disallowance of Rs.13,00,153. 7. The learned A.R. submitted that it has been agreed by the assessee with the purchaser that the purchaser could invoke bank guarantee in case there is a risk to the purchase price. The ld AR also submitted that amount claimed as deduction are as per the terms agreed with the purchaser. The ld AR further submitted that the bank guarantee invoked by the purchaser has to be settled by the assessee to the bank and therefore should be allowed to be claimed against the capital gains. 8. The learned D.R. submitted that though the assessee and the purchaser agreed only for a provisional price, the agreement also specifies what are the adjustments permitted to arrive at the final purchase price. (page 25 41 of paper book). The learned D.R. also submitted that the provisions of Section 50B of the Act are special provisions and accordingly no other expenses other than the net worth of the company can be claimed as deduction while arriving at the capital gains under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account . The aggregate value of total assets of the undertaking or division is the sum total of: WDV as determined u/s.43(6)(c)(i)(C) in case of depreciable assets, The book value in case of other assets. Net worth is deemed to be the cost of acquisition and cost of improvement for section 48 and section 49 of the Act. There is no scope for any deviation from the aforesaid statutory provisions. Even the provisions of Sec.45(1) provides that any profit or gains arising from transfer of a capital asset effected in the previous year shall 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. The learned counsel for the Assessee referred to the provisions of Sec.48 of the Act and submitted that income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement6 ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to agree with the view canvassed by learned Counsel for the assessee. We are of the view that the CIT(A) fell into an error in accepting the plea of the assessee and holding that the sum not received owing to clause 3.1.2 of the BTA cannot be brought to tax in AY 14-15. We therefore allow the appeal of the Revenue. 9. We have heard the rival contentions and perused the material on record. The main issue for our consideration is whether expenses and deductions claimed by the assessee as a deduction / adjustment to the purchase price is allowable or not. It is noticed that the assessee has sold capacitor business and component business on slum sale basis. As per section 2(42C) of the Act, slump sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. We will therefore first look at the provisions of section 50B of the Act which contain the special provision for computation of capital gains in case of slump sale. The provisions read as under: - 50B. (1) Any profits or gains arising from the slump sale effected in the previous year shall be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43; [(aa) in the case of capital asset being goodwill of a business or profession, which has not been acquired by the assessee by purchase from a previous owner, nil;] (b) in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, nil; and (c) in the case of other assets, the book value of such assets. 10. A reading of Sec.50B (1) of the Act read with Sec.2(42C) of the Act, it is clear that taxability of capital gain on slum sale arises in the year of transfer of the undertaking. Sec.50B of the Act is a special provision for computation of capital gain on slum sale and excludes other provisions of the Act, in so far as it relates to charge and computation of capital gain on slump sale. Capital gains arising on slump sale are calculated as the difference between sale consideration and the net worth of the undertaking. Net worth is defined in Explanation 1 to section 50B as the difference between the aggregate value of total assets of the undertaking or division and the value of its liabilities as appearing in books of account . The aggregate value of total assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke adjustment towards working capital and net fixed assets as on the completion accounts. The assessee in the computation submitted before the lower authorities has shown a sum of Rs.1,74,16,651 as an adjustment in purchase price as per page 15 of the agreement. Therefore the revenue is contending that there should not be any further adjustments to the purchase price and net worth is the only deduction allowed. However on perusal of the purchase contract we notice that the assessee along with its directors stands as a warrantor providing warranties for certain events as per the agreement for a specified period of time and accordingly the assessee has executed a bank guarantee in this regard in favour of the purchaser. We also notice that according to clause 4(g) which reads as under the bank guarantee invoked is a reduction to the purchase price Clause 4(g) Any payment made by the seller or setoff or adjusted against the Bank guarantee sum in respect of a breach of this agreement or arising under or pursuant to this agreement shall be deemed to pro tanto a reduction in the purchase price paid for the capacitators business and the components business respectively. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatable to the completion accounts to substantiate that it is an adjustment to purchase price. Therefore in our considered view the issue of various adjustments disallowed by the CIT(A)/AO with regard to the computation of capitals gains should be remitted to the AO for a de novo verification of facts. The AO is directed to consider the adjustments made based on completion accounts, objections filed by the purchaser, the details of bank guarantee invoked etc., before deciding the case. The AO is also directed to keep in mind the decision of the coordinate bench in the case of Bhoruka Aluminium Ltd (supra) while deciding the allowability of the various adjustments claimed by the assessee against the provisional purchase price. The assessee is directed to submit all the relevant details and cooperate with the proceedings. It is ordered accordingly. 16. With regard to the disallowance of Rs.70,000 as confirmed by the CIT(A) we notice that the disallowance is done on the ground that tax has not been deducted at source and in the absence of any explanation by the assessee. The disallowance towards payments to sales executives is also done on the basis that the assessee failed to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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