INCOME TAX OFFICER, PARWANOO, H.P V. DEYEM INDUSTRY, NALAGARH SOLAN

ITA 708/CHANDI/2023

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had allowed the appeal of Deyem Industry, a partnership firm engaged in manufacturing stainless steel jars, for the Assessment Year 2012-13. The core issue was the inclusion of an escrow amount of Rs. 3,34,37,500 in the Long-Term Capital Gain (LTCG) for AY 2012-13, which the AO had added after reassessment. The AO contended that the full sale consideration was determinable and agreed upon at the time of the slump sale agreement, thus taxable in AY 2012-13. However, the CIT(A) and the Tribunal found that the escrow amount was contingent upon future events and not an enforceable right of the assessee in AY 2012-13, leading to its exclusion from taxable income for that year.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633091 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Other Referred Cases: CIT, Delhi v. Kelvinator of India Limited, ITO, Ward No. 16(2) v. Techspan India Private Limited, Maya Appliances Pvt. Ltd. v. Assistant Commissioner of Income Tax, CIT Vs. Hemal Raju Shete, Principal Commissioner of Income Tax-1, Chandigarh v. Shri Mahipinder Singh Sandhu, Commissioner of Income Tax-8, Mumbai v. Mrs. Hemal Raju Shete, CIT v. Excel Industries Limited
• Laws Referred To: Income Tax Act, 1961, Transfer of Property Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT SHARMA; VIRTUAL
• Assessee Lawyers: ANKIT AWAL; KHUSHBU SOOD; ADVOCATES
• Keywords: Difference of opinion; Change of opinion; Capital asset; Reassessment proceedings; Tax effect; Capital Gains; Tangible material
• Section: 143(3); 271(1)(c)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: HYBRID MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ ITA No. 708/Chd/ 2023 िनधाŊरण वषŊ / Assessment Year : 2012-13 The ITO Parwanoo, Himachal Pradesh बनाम DEYEM INDUSTRY Nalagarh, Ropar Road Near Hazat Khana, Nalagarh, H.P.- 174101 ˕ायी लेखा सं./PAN NO: AAGFD0437L अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Ankit Awal & Ms. Khushbu Sood, Advocates राजˢ की ओर से/ Revenue by : Shri Rohit Sharma, CIT DR (Virtual) सुनवाई की तारीख/Date of Hearing : 20/03/2025 उदघोषणा की तारीख/Date of Pronouncement : 09/06/2025 आदेश/Order PER KRINWANT SAHAY, AM: This is an appeal filed by the Revenue against the order of the Ld. CIT(A)/NFAC, Delhi dt. 26/09/2023 pertaining to Assessment Year 2012- 13. 2. In the present appeal Revenue has raised the following grounds: “Whether on the facts and in law, the Ld. CIT(Appeals) has erred in deleting the addition made by the AO on account of LTCG. As per provisions of Income Tax Act, 1961 and section 53A of the Transfer of property Act, the transfer of Assets took place in A.Y. 2012-13. 3. Briefly the facts of the case are that the assessee is a partnership firm engaged in manufacturing stainless steel jars and jar assemblies for domestic mixer grinders. For the Assessment Year 2012-13, the assessee filed its return of income on 27.08.2012, declaring an income of Rs. 21,70,06,060/- under the head \"Capital Gains,\" after setting off current 2 year losses. The case was initially selected for scrutiny, and the assessment was completed under Section 143(3) of the Income Tax Act, 1961, accepting the returned income. 3.1 Subsequently, it was discovered that the assessee had entered into a slump sale agreement dated 06.04.2011 with M/s. Preethi Kitchen Appliances Pvt. Ltd. for a total consideration of Rs. 26,75,00,000/-. However, while computing the Long-Term Capital Gain (LTCG), the assessee had considered only Rs. 23,40,62,500/- as the sale consideration, leaving Rs. 3,34,37,500/- (the Escrow amount) undeclared. The Ld. AO noted that the full sale consideration was determinable and agreed upon at the time of the agreement, and the Escrow amount was received by the assessee in April 2012, i.e., at the beginning of the next financial year. 3.2 The AO initiated reassessment proceedings under Section 147/148, contending that the assessee had under-declared the taxable LTCG by not including the Escrow amount in the A.Y. 2012-13. The assessee argued that the Escrow amount was contingent upon certain conditions and was not ascertainable at the time of the original assessment, hence it was accounted for in the subsequent year when the amount was actually received. The assessee also contended that the reassessment was based on a mere change of opinion and relied on judicial precedents to support its stance. 3.3 However, the AO rejected these arguments, holding that the \"transfer\" of assets was completed on 07.04.2011, as per Section 2(47) of the Income Tax Act, 1961. The AO emphasized that the full sale consideration, including the Escrow amount, was determinable and agreed upon at the time of the agreement, and the receipt of the 3 Escrow amount in the next financial year did not alter the taxability of the entire consideration in A.Y. 2012-13. The AO also dismissed the applicability of the Income Recognition Method (AS-9) in this case, stating that slump sale is not an ordinary business activity and the recognition of capital gains is governed by the date of transfer under the Income Tax Act. 3.4 Consequently, the AO made an addition of Rs. 3,34,37,500/- to the assessee's income as under-declared LTCG and recomputed the total income at Rs. 25,04,43,560/-. Penalty proceedings under Section 271(1)(c) were also initiated for furnishing inaccurate particulars of income. The AO further noted that similar transactions were undertaken by the purchaser with other entities, and action in those cases would follow after due approval. 4. Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) allowed the appeal filed by the assessee i.e; Deyem Industry for the Assessment Year 2012-13, addressing the key grounds raised by the assessee. 4.1 On Ground No. 2, which contested the reopening of the assessment under Section 147/148 of the Income Tax Act, the CIT(A) found that the reassessment was based on a mere change of opinion. The assessee argued, and the CIT(A) agreed, that no fresh evidence or information had surfaced to justify the reopening. All relevant details, including the slump sale and the escrow amount, were disclosed during the original assessment proceedings under Section 143(3). The Assessing Officer (AO) failed to provide new tangible material or evidence of suppression by the appellant to support the reassessment. The CIT(A) noted that the reasons for reopening relied solely on existing records, 4 and thus, the reassessment was invalid, allowing the appeal on this ground. 4.2 On Ground No. 3, the assessee challenged the AO’s addition of Rs. 3,34,37,500/- as under-declared Long Term Capital Gain (LTCG) for A.Y. 2012-13. The Ld. CIT(A) examined the Slump Sale Agreement (SSA) dated 06.04.2011, which stipulated that Rs. 26,75,00,000/- was the total consideration for the sale, with Rs. 23,40,62,500/- received in Financial Year 2011-12 and Rs. 3,34,37,500/- held in an escrow account, payable only after one year subject to specific conditions. The Ld. CIT(A) observed that the escrow amount was not accrued or receivable by the appellant in A.Y. 2012-13, as it was contingent on future events, such as claims for breach of warranties or arbitral awards. The final amount receivable from the escrow account was indeterminate during A.Y. 2012-13, and the appellant had no enforceable right to it in that year. The CIT(A) rejected the AO’s argument that the amount, received in F.Y. 2012-13 before filing the return, should be taxed in A.Y. 2012-13, as this violated accrual-based accounting principles. By relying upon the decision of Bombay High Court in case of CIT Vs. Hemal Raju Shete (2016) 136 DTR 417, the CIT(A) held that the escrow amount could not be treated as income for A.Y. 2012-13, allowing the appeal on this ground. 4.3 Grounds No. 1, 4, and 5 were deemed general and did not require specific adjudication. Consequently, the CIT(A) allowed the appeal in its entirety, setting aside the AO’s addition of Rs. 3,34,37,500 and the reassessment order dated 17.08.2017. 5. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal. 5 6. During the course of the hearing, the Learned Authorised Representative (Ld. AR) submitted that the reopening of the assessment on the basis of a mere change of opinion is not valid in law. In this regard, the Ld. AR pointed out that the assessment for Assessment Year (AY) 2012–13 had already been completed by the Learned Assessing Officer (Ld. AO) under Section 143(3) of the Income Tax Act vide order dated 27.02.2015. In that order, the slump sale undertaken during the Financial Year (FY) 2011–12 was specifically acknowledged, and no discrepancies were noted in respect of the tax treatment adopted by the Assessee. 6.1 Therefore, the fact of the slump sale was well within the knowledge of the Department, and all relevant details had been duly disclosed during the original assessment proceedings. 6.2 The Ld. AR further argued that the reopening of the assessment was merely a result of a change in opinion by the Ld. AO and was not based on any new material facts or tangible information that had subsequently come to light. In support of this contention, the Ld. AR referred to the appellate order of the Ld. CIT(A) dated 27.02.2015, wherein at paragraph 5.1, it was observed that the reasons recorded for reopening were based solely on the information already on record, and no fresh or tangible material had been brought forth. 6.3 Hence, it is evident that the reassessment is based purely on a change of opinion, which is impermissible under the law. This legal position has been firmly settled by the Hon’ble Supreme Court in the case of CIT, Delhi v. Kelvinator of India Limited [(2010) 2 SCC 723, Compilation pages 3–5]. The Ld. AR also relied on the following judicial 6 precedents, which unequivocally hold that a mere change of opinion cannot constitute valid grounds for reopening an assessment: a. ITO, Ward No. 16(2) v. Techspan India Private Limited and Am.- (2018) 6 SCC 685 b. Maya Appliances Pvt. Ltd. v. Assistant Commissioner of Income Tax, WP No. 1212 & 1216 of2020 6.4 The Learned Ld. AR further argued that the reopening of the assessment is in gross contravention of law. He submitted that the assessment order dated 17.08.2017 is contrary to legal principles, as the payment received for the disposition of assets by the assessee does not reflect any economic benefit or constructive receipt. This is because, under the slump sale agreement, the parties agreed to defer income, and the taxpayer’s right to such income had neither matured nor vested at the relevant time. 6.5 In support of this, the Ld. AR referred to Clause 4.8 of the slump sale agreement, under which a sum of Rs. 3,34,37,500/- was placed in an escrow account. This amount served as security to ensure the due performance of obligations and was subject to deductions in the event of non-fulfilment of those obligations. 6.6 The Ld. AR further submitted that, as per Clause 4.8 of the slump sale agreement, until the \"closing date,\" both the buyer and the seller had rights over the escrow amount, which served as a security for future liabilities. Therefore, the observation made by the Ld. AO that the entire amount should have been declared in AY 2012-13 is untenable, since the transfer of the escrow amount was contingent. 7 6.7 The Ld. AR contended that there was no certainty regarding the amount receivable by the assessee in AY 2012-13. Accordingly, it cannot be said that the assessee had acquired an absolute, unfettered, and vested right to receive the entire escrow amount in that year, as held by the Ld. AO. He submitted that the assessee had correctly offered an amount of Rs. 21,73,83,298/- to tax in AY 2012-13. The balance amount became ascertained and crystallized only at the end of the closing date, i.e., in AY 2013-14, when it was offered to tax. This tax treatment is in accordance with well-settled legal principles that deferred consideration under a contractual agreement cannot be subjected to tax in an assessment year in which it has not accrued. 6.8 The Ld. AR placed reliance on the judgment of the Hon’ble Punjab and Haryana High Court in Principal Commissioner of Income Tax-1, Chandigarh v. Shri Mahipinder Singh Sandhu [2019 (3) TMI 1358], which upheld the ITAT decision in Mahipinder Singh Sandhu v. ACIT, Circle 2(1), Chandigarh [2018 (3) TMI 1743]. The courts held that real accrual of income must be assessed based on the probability of realization in a realistic manner. Reliance was also placed on Commissioner of Income Tax-8, Mumbai v. Mrs. Hemal Raju Shete [2016 (4) TMI 1082]. 6.9 The Ld. AR emphasized that the assessee has already paid tax on the entire consideration of Rs. 26,75,00,000/- over two assessment years. Specifically, the assessee received Rs. 23,40,62,500/- in FY 2011-12 and the balance Rs. 3,34,37,500/- (as per Clause 4.8 of the slump sale agreement at Annexure 3, Pages 21–22 of the paper book) was transferred to an escrow account and received in FY 2012-13, once the conditions were fulfilled. These amounts were duly offered to tax in the respective years of receipt. 8 6.10 Therefore, it was submitted that the reopening of the assessment and the subsequent order dated 17.08.2017 is revenue-neutral and has no adverse tax implications. Reliance was placed on the judgment of the Hon’ble Supreme Court in CIT v. Excel Industries Limited [(2014) 13 SCC 459], where it was held that if no tax has been evaded, the exercise becomes academic or has only a minor tax effect. Further reliance was placed on the decision in M/s T.A. Taylor Private Limited, Chennai v. The Assistant Commissioner of Income Tax, Corporate Circle 3(1), Chennai [Appeal No. 876 of 2018 & CMP No. 21261 of 2018], where the Hon’ble Madras High Court granted relief in a similar case, observing that the issues had become academic and that taxing the income again in AY 2012-13 was not warranted. The Ld. AR prayed for the dismissal of the appeal filed by the Department. 7. Per contra the Ld. DR relied upon the order of the lower authorities. 8. We have heard the rival contention and perused the material available on the record. In the present case, we find that the reopening of the assessment was not justified, and we also find that the original assessment for Assessment Year 2012–13 was completed under Section 143(3) of the Income Tax Act, and all relevant facts, including details of the slump sale agreement and the escrow amount, were already disclosed during those proceedings. The reassessment was based solely on the same set of facts and no fresh or tangible material was brought on record by the Assessing Officer to justify reopening. Therefore, in our considered view the reopening of the assessment was merely a change of opinion, which is not permissible under the law. 9 8.1 Further, on the issue of addition of Rs. 3,34,37,500/- as Long-Term Capital Gain, we find merit in the assessee’s contention that the amount kept in the escrow account was contingent in nature. The amount was not guaranteed to be received in AY 2012–13 as it depended on fulfilment of certain conditions mentioned in the agreement. We agree with the finding of the CIT(A) that the assessee did not have an absolute or enforceable right to receive the escrow amount during AY 2012–13 and the final amount became receivable only in the subsequent year. Therefore, the addition made by the AO was not justified. 8.2 Accordingly, we upheld the order of the CIT(A) and dismiss the appeal filed by the Revenue. 9. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 09/06/2025 Sd/- Sd/- लिलत क ुमार क ृणवȶ सहाय (LALIET KUMAR) (KRINWANT SAHAY) Ɋाियक सद˟ /JUDICIAL MEMBER लेखा सद˟/ ACCOUNTANT MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "