ITO 2(2)(1), MUMBAI V. J.K. INVESTO TRADE (I) LTD, MUMBAI

ITA 1140/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71052 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 17-07-2013
• Assessment Year: 1997-1998
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 1140/MUM/2010 ASSESSMENT YEAR : 1997 - 98 DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), AAYAKAR BHAVA N, ROOM NO.545, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020 VS. M/S. J.K. INVESTO TRADE (I) LTD. NEW HIND HOUSE, N. MORARJEE MARG, BALLARD ESTATE, MUMBAI 400 001 PAN: AAAC J6284E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SOLI E. DASTUR SHRI PANKAJ R. TOPRANI REVENUE BY : SHRI K.C.P. PATNAIK, D.R. DATE OF HEARING : 17.07.13 DATE OF PRONOUNCEMENT : 06.09.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS B EEN PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 01.12.09. THE REVENUE IS AGGRIEVED OF THE DELETION OF ADDITION OF RS.3 , 86,62,467 / - WHICH WAS MADE BY THE AO WHILE COMPUTING THE CAPITAL GAINS OF THE ASSESSEE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE STARTED A NEW DIVISION FOR MANUFACTURING CONDOMS IN THE YEAR 1991 AT AURANGABAD. THE SAID DIVISION WAS TRANSFERRED IN 1996 TO A NEWLY FORMED COMPANY KNOWN AS J.K. CONDOMS (P) LTD. , (NOW KNOWN AS J.K. ANSELL LTD.) IN PURSUANCE OF A JO INT VENTURE AGREEMENT BETWEEN PACIFIC DUNLOP HOLDINGS (SINGAPORE) PVT. LTD. (PDSL) AND THE ASSESSEE COMPANY ITA NO .1140/MUM/10 J.K. INVESTO TRADE (I) LTD. 2 DATED DECEMBER 17, 1996. THE SHAREHOLDING OF J.K. ANSELL LTD. WAS IN THE RATIO OF 50 - 50 BETWEEN PDSL AND THE ASSESSEE. THE TRANSFER OF THE DIVISIO N BY THE APPELLANT WAS IN ACCORDANCE WITH A SCHEME OF ARRANGEMENT FILED UNDER SECTION 394 OF THE COMPANIES ACT, 1956, BEFORE THE BOMBAY HIGH COURT ON APRIL 19, 1997. 3. AS PER THE SCHEME OF ARRANGEMENT AND THE ORDER OF THE HIGH COURT, IN CONSIDERATION O F THE TRANSFER OF THE CONDOM DIVISION, J.K. ANSELL LTD. WAS TO PAY THE ASSESSEE A SUM OF RS.5.51 CRORES AND WAS ALSO REQUIRED TO PAY IMMEDIATELY ONE UNSECURED LIABILITIES OF RS.3.86 CRORES OF CONDOM DIVISION OUT OF TOTAL LIABILITY OF RS.971.73 CRORES. THE AMOUNT OF RS.5.51 CRORES WAS PAID BY J.K. ANSELL LTD. BY WAY OF RS.4.51 CRORES BY CHEQUE RECEIVED BY APPELLANT IN 1997 AND BY ISSUE OF 9,99,990 SHARES OF J.K. ANSELL LTD. AT PAR ALLOTTED ON 10.12.9 7. IN PURSUANCE OF THE JOINT VENTURE AGREEMENT , PDSL SUBS CRIBED FOR 10 LAKHS EQUITY SHARES OF J.K. ANSELL LTD. AT A PREMIUM OF 73.80 PER SHARE. THE SUM OF RS.8.38 CRORES WAS PAID TO J.K. ANSELL LTD. WAS INTER ALIA UTILIZED FOR PAYMENT OF RS.4.51 CRORES TO THE ASSESSEE AGAINST SALE CONSIDERATION AND RS.3.86 CROR ES FOR PAYING UNSECURED LOAN. PDSL ALSO PAID IT A SUM OF RS.1 CRORE AS NON - COMPETE ALLOWANCE ON OCTOBER 20, 1997. T HE AO WHILE REFERRING TO THE VARIOUS CLAUSES OF JOINT VENTURE AGREEMENT , OBSERVED THAT S ANCTION AND ORDER OF THE APPROPRIATE COURT OF LAW IN RESPECT OF THE SCHEME OF ARRANGEMENT WAS BASED ON JVA AND WAS A PART OF JVA. HENCE, TRANSFER OF CONDOM DIVISION BY M/S. JKCL TO M/S. JKAL HAD TO BE SEEN STRICTLY AS PER THE JOINT VENTURE AGREEMENT. APPROVALS FROM COURT OF LAW, REGULATORY AUTHORITIE S ETC. WERE MERELY FORMALITIES AND THESE WERE REQUIRED ONLY TO ENABLE THE PARTIES TO THE AGREEMENT TO FULFILL THEIR COMMITMENTS AND OBLIGATIONS DESCRIBED IN THE AGREEMENT. THEREFORE, ASSESSEES CONTENTION THAT THE TRANSFER HA D BEEN MADE PURSUANT TO THE CO URTS APPROVAL ORDER IN RESPECT OF SCHEME OF ARRANGE M E N T AND THAT THE CONSIDERATION MENTIONED IN THE SCHEME OF ARRANGEMENT WAS DEVOID AND INDEPENDENT OF THE JOINT VENTURE AGREEMENT WAS NOT ACCEPTED BY HIM. IT WAS FURTHER OBSERVED BY HIM T HAT THE ASS ESSEE HAD DELIBERATELY SHOWN CONSIDERATION AT LOWER SIDE AT RS.5,51,42,061/ - IN THE SCHEME OF ARRANGEMENT , AS COMPARED TO THE AGREED AMOUNT OF CONSIDERATION OF RS.9,38,04,562/ - AS PER JVA , WITH A VIEW TO ITA NO .1140/MUM/10 J.K. INVESTO TRADE (I) LTD. 3 EVADE THE COMPUTATION OF CAPITAL GAIN AT A HIGHER SI DE UNDER THE GU ISE AND SHIELD OF COURT ORDER. AFTER CONSIDERING THE FACTS, THE AO HAS CONCLUDED THAT THE PRICE PAYABLE BY PDSL FOR 1,00,000 EQUITY SHARES OF JKAL OF THE FACE VALUE OF RS.10/ - PER SHARE WAS RS.8,38,00,000/ - AND THE TOTAL CONSIDERATION PAYAB LE TO JKCL BY KJAL FOR THE TRANSFER OF ITS CONDOM BUSINESS TO JKAL RS.9,38,04,526/ - . IT WAS ALSO STATED THAT JKCL WOULD RECEIVE MORE CONSIDERATION BY RS.1,00,04,526/ - OVER AND ABOVE THE PRICE OF EQUITY SHARES PAYABLE BY PDSL (9,38,04,526 8,38,00,000). HE FURTHER OBSERVED THAT OUT OF THE TOTAL CONSIDERATION OF RS.9,38,04,526/ - THE ASSESSEE HAD ALREADY BEEN PAID RS.5,51,42,061/ - AND THE BALANCE THAT REMAINED PAYABLE TO THE ASSESSEE WAS RS.3,86,62,467/ - . THIS AMOUNT SHOULD HAVE BEEN OFFERED BUT HAS NOT B EEN OFFERED FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN BY THE ASSESSEE COMPANY. 4 . THE LD. CIT(A) AFTER CONSIDERING THE FACTS DELETED THE ADDITION MADE BY AO OBSERVING THAT IT IS EVIDENT THAT RS.3,86,62,467/ - WAS THE AMOUNT REPRESENTING DISCHARGING OF ONE OF ITS LIABILITIES OUT OF THE TOTAL LIABILITIES ACCEPTED BY JKAL AS PER JVA AND AS PER SCHEME SANCTIONED BY BOMBAY HIGH COURT, THEREFORE THIS AMOUNT COULD NOT BE CONSIDERED AS AN ADDITIONAL CONSIDERATION RECEIVED BY THE APPELLANT. THE AMOUNT WAS PA ID BY JKAL FOR DISCHARGING OF ONE OF ITS LIABILITIES OUT OF THE TOTAL LIABILITIES OF RS.971.73 LAKHS AND THE SAME COULD NOT BE CONSIDERED IN THE HANDS OF THE APPELLANT AS UNDISCLOSED CONSIDERATION RECEIVED. HE THEREFORE DELETED THE ADDITION MADE BY THE A. O. 5. WE HAVE HEARD THE LD. REPRESENTATIVE OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. IN OUR VIEW, THE LD. CIT(A) RIGHTLY DELETED THE ADDITION OF RS.3,86,62,467/ - MADE BY THE AO . IT HAS EMERGED FROM THE FACTS OF THE FILE THAT THE ASSESSEE H AD TRANSFERRED THE UNIT WHERE THE TOTAL ASSETS WERE RS.1523.15 LAKHS AND TOTAL LIABILITIES WERE RS.971.73 LAKHS, RESULTING IN NET CONSIDERATION OF RS.551.42 LAKHS. THUS, THE TOTAL LIABILITIES TO BE DISCHARGED WAS RS.971.73 LAKHS WHICH INCLUDED IMMEDIATELY DISCHARGING OF LIABILITIES OF RS.386.62 LAKHS , WHICH WAS NOT AN ADDITIONAL CONSIDERATION BUT WAS A PART OF THE TOTAL LIABILITIES. HENCE, WE DO NOT FIND ANY ITA NO .1140/MUM/10 J.K. INVESTO TRADE (I) LTD. 4 INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHILE DELETING THE SAID ADDITION MADE BY THE AO. 6 . AT THIS STAGE, THE LD. D.R. HAS RAISED ANOTHER ISSUE TO THE EFFECT THAT THE VALUE OF THE SHARES HAS NOT BEEN CORRECTLY TAKEN INTO ACCOUNT BY THE AO AT THE TIME OF ASSESSMENT AS THE SAID SHARES WERE TRANSFERRED AT A PREMIUM RATE . IT MAY BE OBSERVED THAT THIS ISSUE IS NOT GERMANE OUT OF THE GROU NDS OF APPEALS BEFORE US. MORE OVER THE SAID ISSUE WAS NOT BEFORE THE AO ALSO. THE REVENUE AT THIS STAGE CANNOT BE ALLOWED TO REOPEN THE ASSESSMENT ON A FACTUAL ISSUE WHICH WAS NOT RAISED BEFORE THE AUTHORITIES BELOW. MOREOVER THE REVENUE HAD A CHANCE TO MAKE THE REVISION IN THE ASSESSMENT UNDER SECTION 263 OF THE INCOME TAX ACT WHICH WAS NOT DONE AND SO AT THIS STAGE THIS POINT RAISED BY THE REVENUE CANNOT BE TAKEN INTO CONSIDERATION. 7 . IN VIEW OF OUR FINDINGS GIV EN ABOVE, WE DO NOT FINE ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH SEPTEMBER 2013. SD/ - SD/ - ( P.M. JAGTAP ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 06.09. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.