TMF HOLDING LTD., MUMBAI V. PR. CIT -1, MUMBAI

ITA 1628/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4046 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Appeal Filed On: 28-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Revision of order; Earning of tax free income; Cost of acquisition; Wholly owned subsidiary; Assessment record; Prejudicial to interest; Capital receipt; Revised return; Set aside; Capital Gains; Bogus
• Section: 10; 2; 69C; 143(3); 142(1); 14A; 115JB; 207; 208; 192; 43; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., {Formerly Known as Tata Motors Finance Ltd.,} 10 th Floor, 106 A & B Maker Chamber-III Nariman Point, Mumbai PAN: AACCT4644A v. Pr.CIT – 1 3 rd Floor, Room No. 330 Aayakar Bhavan, M.K. Road Mumbai - 400020 (Appellant) (Respondent) Assessee by : Shri Nikhil Tiwari Department by : Shri S.N. Kabra Date of Hearing : 28.01.2022 Date of Pronouncement : 22.04.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax–15, Mumbai [hereinafter in short “Ld. Pr.CIT”] dated 24.03.2020 for the A.Y.2015-16. 2. Brief facts of the case are, the return of income for the A.Y. 2015- 16 was filed on 30.11.2015 thereby declaring total income of Rs. NIL 2 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., under normal provisions of Income-tax Act, 1961 (in short “Act”) and book profits u/s. 115JB of the Act at a loss of ₹.16,91,83,098/-. Subsequently, revised return of income was filed on 30.03.2017 revising the book profits u/s. 115JB of the Act at loss of ₹.17,04,50,098/-. Subsequently scrutiny assessment was made u/s. 143(3) of the Act on 28.12.2017 at total income at ₹.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 3 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 “Manufacturer Guaranteed Business and used vehicle financing business to its wholly owned subsidiary Tata Motors Finance Solutions Pvt. Ltd. by passing a special resolution as a going concern on a slump sale basis. The agreed total consideration for slump sale of ₹.6350,00 lakhs against the net assets value of ₹.5593,10.81 lakhs as on 31/03/2015 has resulted in capital gain to the company of ₹.742,82.74 lakhs. While computing the income, assessee has reduced the above amount while computing its business income. The same has been considered under the head long term capital gain which is computed and the entire amount has been claimed as exempt u/s 47(iv). He observed that in computation of book profit u/s 115JB, the assessee has claimed reduction of the above amount with the following narration: - “Adjustments pursuant to Notes to Accounts forming part of Financial Statement for the year ended 31/03/2015... Rs.742,82.74 lakhs.” 6. Ld PCIT observed that the provisions contained in Explanation 1 to sub-section (2) of section 115JB define book profit to be the profit shown 4 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., in the statement of Profit and Loss account as increased by the amounts mentioned in clause (a) to (k) and as reduced by amounts mentioned in clause (i) to (viii) appearing under the said Explanation. The capital gain on transfer under consideration is certainly not amongst the items which can be reduced in computing the book profit in terms of section 115JB because the same does not find any specific mention in the items mentioned in Explanation 1 sub-section (2) of section 115JB. He observed that assessee also not filed any form No.29B before the Assessing Officer therefore according to him the claim of the assessee has been allowed by the Assessing Officer in the impugned assessment without enquiry into the claim and without verifying the same. Further, he observed that assessee has made investment in equity shares of subsidiary company Tata Motors Finance Solutions Pvt. Ltd and he observed that the above investment in equity shares were capable of yielding exempt income, no disallowance u/s 14A was made by the Assessing Officer while computing the total income of the assessee company. Accordingly, he issued notice u/s. 263 of the Act. In response assessee filed the following submissions: “1. During the financial year under consideration, the company transferred its vehicle financing portfolios 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 5 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., recorded as an Exceptional item by TMEL in its Audited financial statement for the financial year ended 31 st 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 by the jurisdictional bench of the ITAT Mumbai in the case of Shivalik Ventures Pvt. Ltd. vs DCIT (2015) 60 taxmann.com 314 and that the principles held in the above case have been followed by the Mumbai ITAT in the case of JSW Steel Ltd. vs ACIT (2017) 82 taxmann.com 210. 6. As regards the departments contention that no enquiry or verification of the claim has been made before passing the assessment order, it is contended that the required documents including a note on the treatment and disclosure of the capital gains arising on sale of business to subsidiary along with computation of MAT liability was furnished before the AO during the course of assessment proceedings. Also, details of capital gains including the agreement of slump sale explaining as to how the provision of section 47(vi) was applicable to the subject transaction was submitted during the course of assessment proceedings. Thus after considering and verifying the above information/documents available on record during the course of assessment proceedings, the AO accepted the book profit under section 115JB as returned by the Company. 7. Form No. 29B was not filed electronically or during the course of assessment proceedings as the provisions of the section 115JB are applicable only if 18.5% of the book profit exceeds the tax liability under the provisions of the Act and in assessee’s case, there did not exist any book profit u/s 115JB. Hence, the furnishing of Form 29B was not required. 6 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 8. As regards applicability of section 14A, the investments were made towards the end of the financial year and no expenses were made towards such investments.” 7. After considering the submissions of the assessee Ld. PCIT set-aside the order passed u/s. 143(3) of the Act on 28.12.201 as erroneous in so far as interest to the revenue, with the following observations: - “9. The relevant facts on record and the factual and legal position has been discussed in the foregoing paragraphs. It is an admitted position that the transfer under consideration is a slump sale without values being assigned to the individual assets and liabilities and therefore the claim that such transfer was covered by the provisions contained in clause (iv) of section 47 was clearly misplaced. Any transfer in the nature of a slump sale is not covered by section 45 and consequently the exceptions laid down in section 47 are not applicable 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) of Part-ll of Schedule Vi of the Companies Act which inter-alia states that the Profit & Loss account shall disclose every material feature including credits or receipts and debits or expenses in respect of non recurring transactions or transactions of exceptional nature. The Hon’ble High Court further held that capital 7 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., gains would certainly be one of the various items whose information is required to be given to the share holders under clause 3(xii)(b). 9.3 As regards disallowance u/s 14A, the controversy as to whether disallowance can be made by invoking section 14A in cases where no exempt income was earned by an assessee during the relevant year has been settled by CBDT Circular No. 5/2014 dated 11/02/2014 which has clarified that it was not necessary that exempt income should necessarily be earned for warranting disallowance u/s 14A. The legislative intent is to allow only that expenditure as deduction which is relatable to earning of income and it therefore follows that expenses which could be relatable to earning of exempt income should be considered for disallowance u/s 14A no matter whether or not exempt income was earned during the relevant year. The AO was duty bound to make inquiries in view of CBDT Circular No.5/2014. The AO however failed to make inquiries to examine disallowance u/s 14A on fresh investments of Rs.1501,16.95 lakhs made in equity shares of wholly owned subsidiary. 10. I am therefore of the considered view that the AO while making the impugned assessment not only failed to carry out meaningful inquiries and verification which were warranted on the above issues in view of the facts and circumstances of the case but also erred in correctly applying the relevant provisions of law in computing the total income of the assessee under the normal provisions as well as under section 115JB which has clearly rendered the impugned assessment erroneous in so far as it is prejudicial to the interests of the revenue. I note that the assessee during the course of assessment proceedings filed without prejudice details regarding applicability of section 50B in the present case but surprisingly, even such material available on record failed to prompt the AO to at least examine the application of section 50B in the present case. In other words, while the assessee played safe and placed without prejudice material on application of section 50B in 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 8 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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. The Apex Court held that even if the AO applied his mind and decided not to assess the expenses as unexplained u/s 69C because the assessee withdrew the claim for deduction, the Commissioner was still entitled to revise the assessment on the ground that the matter needed further investigation. The ratio laid down by the Apex Court is clearly applicable to the present case. The Apex Court in the case of the Malabar Industrial Co Ltd vs CIT 243 ITR83 defined the scope of proceedings u/s 263: There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. Thus, in case assessment was made by the AO without making relevant and meaningful inquiries, it is liable to be held as erroneous in so far as it is prejudicial to the interests of the revenue thereby warranting revision u/s 263.” 8. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “On the facts and in the circumstances of the case, the Learned PCIT has:- Proceeding under section 263 of the Act is invalid and bad in law 1. erred in invoking and passing the order under section 263 of the Act, without appreciating that revisionary proceedings under section 263 cannot be invoked unless the conjunctive conditions that assessment order passed is erroneous in law as well as prejudicial to the interests of the revenue, are satisfied; 2. erred in initiating revisionary assessment proceedings under section 263 of the Act, with a view to set aside the assessment order by conducting fresh enquiries into the matter by holding that the order passed by the AO is not in accordance with law, without 9 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., appreciating that AO adopted one of the two views possible after examining all the facts of case and documents available on record and therefore the initiation of revisionary assessment 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 entire proceedings bad in law; Disallowance of exemption claimed under section 45 read with section 47(iv) of the Act on slump sale of business of Rs. 742,82,74,000 7. erred in mis-interpreting the provisions of the sections and the law. 8. erred in holding that capital gain of Rs. 742,82,74,000 by impugned transfer of undertaking to the wholly owned subsidiary [i.e. Tata Motors Finance Solution Ltd. ('TMFSL')] on slump sale basis is not exempt under section 47(iv) of the Act; 9. erred in coming to the conclusion that benefit of exclusion under section 47(iv) of the Act is not applicable in case of 'slump sale' taxable as per section 50B of the Act, without appreciating that charging section for Capital Gain is section 45 whereas section 50B is a mere computational section, hence capital gain computed under section 50B is charged under section 45 and therefore exemption under section 47(iv) of the Act is applicable to capital gain computed under section 50B chargeable under section 45 of the Act; 10 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 10. erred in not appreciating and ignoring the fact that the statute itself has excluded certain transactions, which are not regarded as transfer by special provisions under section 47 and the intention of the law is to have exception to those transactions. Addition of gain on slump sale transaction while computing book profits under section 115JB of the Act of Rs. 742,82,74,000 11. erred in not appreciating that appellant had declared Book Loss under section 115JB of the Act and hence the provisions of Rule 40B of the Income-tax Rules, 1962 prescribing Form 29B is not applicable to the case of the appellant 12. erred in revising the order and directing to make addition of the gain of Rs. 742,82,74,000 while computing book profits under section 115JB of the Act, without appreciating that the same is arising from slump sale transaction with wholly owned subsidiary, which is not taxable as per section 47(iv) of the Act and hence such sum is not taxable under section 115JB of the Act; 13. should have appreciated the fact that while computing book profits under section 115JB of the Act only those receipts which are in nature of 'income' and which is otherwise chargeable to tax can only be brought to tax and not 'capital receipt' which is not in nature of income; 14. erred in not appreciating the fact that, the AO has correctly 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 11 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 disallowance of expenditure under section 14A of the Act without appreciating that the appellant had sufficient interest free own funds and hence no interest can be disallowed under section 14A of the Act; The Appellant craves leave to add, alter, delete, or substitute all or any of the aforesaid Grounds of Appeal.” 9. At the time of hearing assessee submitted as under: - “Ground No. 1 to 5: Validity of proceedings under section 263 of the Act A. Revisionary assessment proceedings cannot be initiated unless the conjunctive conditions of section 263 are satisfied: 13. Provisions of section 263 can be invoked only in a case where following twin cumulative conditions (i.e. order being 'erroneous' and 'prejudicial to interest of Revenue' are cumulatively satisfied. The said proposition has been held by various High Courts! Supreme court in various decisions as under: • Malabar Industrial Co. Ltd vs. CIT (2000) (243 ITR 83) (SC) (Refer page 156 to 160 of the legal paper book); • CIT vs. Gabriel India Ltd (1993) (203 ITR 108) (Refer page 161 to 166 of the legal paper book); • Indus Best Hospitality & Realtors Pvt Ltd (ITA No. 3125/Mum/2017) dated 19 January 2018 14. In view of the above judicial precedents, it is submitted that order sought to be revised by the learned PCIT is not erroneous as there is no wrong application of law or an incorrect assumption of fact. All the information and documents were forming part of the record of the learned AO, the impugned order cannot be erroneous in nature. Further, the CIT has not established how the order of AO is unsustainable in the eyes of law. 15. In view of the said decisions, it is clear that twin conditions of order being 'erroneous' and 'prejudicial to the interests of the revenue' are to be cumulatively satisfied to invoke 263 proceedings. Accordingly, since both the conditions are not satisfied in the present 12 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., case, revision under section 263 of the Act is not valid and should be quashed. B. Revisionary proceedings are not valid where AO has adopted one of two possible views 16. Where there are two views possible and the AO has adopted one of the two possible views, then his order cannot be held to be erroneous/ prejudicial to the interest of the revenue and thereby proceedings under section 263 of the Act will not be sustained. 17. Reliance is placed on following 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 wherein it is reduced while calculating the profits and gains from business. (Refer page 3 of paper book). • All necessary disclosures were made by the assessee in the Financial Statements and Notes to accounts. Note 40 to the Financial Statement discloses the treatment of the said gain as an exceptional item (Refer page 43 of Paper book) and the same is also reported as exceptional item in P&L statement (Refer Page 11 of paper book). 13 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., • Pursuant to filing of Return of Income, vide letter dated 1 December 2015 (Refer page 51 to 55 of Paper book), assessee submitted a note on the treatment and disclosure of capital gains on sale of business to subsidiary along with computation of MAT liability under section 115JB of the Act. • In the notice under section 142(1) dated 9 November 2017 (Refer point 8 on page 56 of Paperbook), the learned AO sought specific information on details of capital gain, sale deed, purchase deed and justification of exemption. • The Assessee submitted its response vide submission dated 16 November 2017 along with details of capital gains and the slump sale agreement (Refer page 57 to 89 of Paperbook) and vide submission dated 21 November 2017(Refer page 90 to 93 of Paperbook) wherein Accountants report in Form 3CEA in respect of the slump sale was also submitted. • There were various decisions on the issue available on the date of passing of order under section 263 and the CIT has not referred to the said decisions which clearly lay down that view taken by AO is only view and it is legally sustainable view and therefore revision made is not valid. 19. On the basis of the aforesaid facts, it is clear that the learned AO had made sufficient enquiries and after considering all submissions and material on record, arrived at a possible view basis the information/ documents on record at the time of conclusion of assessment proceedings and accordingly, we submit that the proceedings under section 263 of the Act are invalid and without jurisdiction in the current case. Disclosures with respect to Disallowance under section 14A of the Act and enquiry done by AO 20. In this regard, it is submitted that the learned AO had enquired in respect of applicability of disallowance under section 14A of the Act vide notice under section 142(1) of the Act dated 9 November 2017 (Refer point 6 at page 56 of Paperbook). In response, the Assessee, vide 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 14 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 2019 • TML Distribution Co Ltd (ITA No. 3427/M/2014) dated 13 January 2017 • Indo Rama Synthetics (I) Ltd (185 Taxman 277) (Del HC) • Tamilnadu Magnestie Ltd (Mad HC) (2018) • Idea Cellular Ltd vs ACIT (47 taxmann.com 341) (2014) (Mum ITAT) 22. Thus, we wish to submit that where AO had adopted one of the possible views, thereby subsequent adoption of an alternative view by the PCIT, would not render the order of AO as erroneous. Hence, order of PCIT should be quashed. C. Revisionary proceedings cannot be invoked where the AO had done adequate enquiry 23. In this regard, the assessee wishes to submit that the assessment order dated 28 December 2017 had been passed by the learned AO after conducting multiple hearings, making proper inquiries and applying his mind. 24. Further, the learned AO had made sufficient enquiries and arrived at a possible view basis the information/ documents on record at the time of conclusion of assessment. proceedings. Therefore, the aforesaid assessment order cannot be said to be erroneous or prejudicial to the interest of the Revenue to invoke the provisions of section 263 of the Act. 25. Reliance in this regard can be placed on the decision of Hon'ble Kolkata Tribunal, in the case of Om Foregoing & Engineering Pvt.Ltd. vs PCIT-1 (2017) (ITA No. 509/Kol/2017) (Refer page 194 to 207 of the legal paperbook) wherein the Tribunal considered an identical issue, in light of newly inserted Explanation (2) to section 15 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 263 and after considering the decision of Hon'ble Supreme Court in the case of Malabar Industrial Company limited vs CIT (243 ITR 81) (SC) held as under:- '26. The CIT has made reference to Explanation 2 to sec. 263 of the Act introduced by the Finance Act, 2015. Explanation- 2 so introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does not dispense with compliance or existence of N there being no enquiry made by the Ld. AO; (ii) the AO's conclusion being contrary to CBDT Circular or (iii) against decision of jurisdictional High Court or Supreme Court. In the present case the C/T in the impugned order has not brought facts to show the existence of absence of enquiry especially when the AO has already concluded that the purchases by the assesee from four parties mentioned by the DIT (Investigation) Mumbai in its report were bogus. The decision of the 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; - by applying incorrect application of law; 29. In view of the above, it is submitted that none of the above conditions are applicable in the present facts of the case. Accordingly, it is submitted that the order passed by the AO cannot 16 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., be said to be erroneous and hence revision under section 263 is invalid and should be quashed. Conclusion: 30. In view of above submission, we humbly request your honour to kindly quash PCIT's 263 order, as it is not in accordance with law and thereby ground should be allowed for the following reasons: In the present facts of the case revisionary assessment proceedings were initiated, without satisfying the conjunctive conditions of section 263 In the present facts of the case, revisionary proceedings were made, even though AO has undertaken due enquiry while completing the assessment, thereby leading to a possible view which cannot be termed as lack of enquiry or erroneous in nature; In the present facts of the case revisionary proceedings were made even though order passed by the AO is not prejudicial to the interest of the revenue. 31. In the present case, none of the above-mentioned reasons are satisfied, therefore the PCIT has erred in revising the assessment order and hence, the revisionary order under section 263, should be treated as bad in law and should be quashed. Merits of the Case Without Prejudice to the ground of appeal No. 1 to 5, the Assessee hereby submits the following in respect of merits of the case: Ground No 6-7: Disallowance of exemption claimed under section 45 read with section 47(iv) of the Act on slump sale of business of Rs. 742,82,74,000 32. The learned AO after perusing the computation of total income along-with the MAT computation and the letter dated 1 December 2015 (Refer page 51 to 55 of Paperbook) which was on record at the time of assessment proceedings, sought an inquiry in respect of the capital gains claimed and declared the same as not chargeable under section 47(iv) of the Act. 33. However, the PCIT invoked proceedings under section 263 of the Act in this regard and denied the exemption claimed under section 45 read with section 47(iv) of the Act on gain on slump sale of business of Rs. 742,82,74,000 vide order dated 24 March 2020 by stating that any transfer in the nature of 'slump sale' is covered by 17 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., section 50B (and not covered by section 45) and 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 or gains arising from slump sale became chargeable under the head capital gains under section 45 of the Act (subject to other provisions of the Act). 37. In fact, with the same Finance Act, section 47(iv) was inserted and thereby it is clear that intention is to grant exemption for sale of undertaking to wholly owned subsidiary on slump sale basis. 38. There is no sub-clause under section 2(24) which specifically includes capital gains computed under section 50B of the Act. The same gets included in taxable income only by virtue of the same being in the nature of Capital gains chargeable to tax under section 45 of the Act. Thus, after the insertion of Section 50B, the profits or gains arising from slump sale, as defined in Section 2(420), became chargeable under the head "Capital Gains" under section 45 of the Act. 39. It is further pertinent to note that the transaction in the present case has been given effect as a slump sale by lump sum consideration and not by assigning values to each item of asset and liability. 18 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 40. Section 50B provides "computation mechanism". It is "not a new charging provision". The charging section for capital gains exists in section 45 of the Act. This is supported by the decision of Hon'ble Supreme Court in the case of PNB Finance Ltd. v. CIT (175 Taxman 242) (SC) dated 6 November 2008 (for AY 1970-71) (Refer page 208 to 213 of the legal paperbook) wherein it was held that section 50B is a machinery provision. 41. The Hon'ble Supreme Court held that in the absence of the cost of acquisition, it was impossible to determine capital gains, therefore, it was held that the gains from transfer of business undertaking on a slump basis cannot be brought to tax under the head Capital gains. The Supreme Court had clearly held that Section 45 applies in the case of transfer by way of slump sale. It is only because of the reason that cost of acquisition of business undertaking could not be ascertained, the Court held that computation mechanism fails in such case. 42. Further, the CBDT Circular No. 779 dated 14 September 1999 (Refer page 214 to 221 of the legal paperbook) explaining the provision of section 50B of the Act reads as under: "(xx) A new section 50E3 has been inserted in the Income-tax Act containing special provision for computation of capital gains in the case of slump sale." 43. Similarly, the Memorandum 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). 19 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 is held that object of section 50B is to simply determine the cost to compute capital gains under section 45 (Refer Para '14.3(e ) at Page 288 of legal paperbook) reproduced as under:- "(e) Sub-section (2) of section 50B makes it abundantly clear that the undertaking or division as a whole is considered as one capital asset and the net worth of this capital asset is considered as cost of acquisition and cost of improvement for the purposes of sections 48 and 49. Therefore, it becomes patent that section 50B is a code in itself only for the determination of cost of acquisition and cost of improvement of the undertaking but not for the computation of capital gains in case of slump sale. The object of section 50B is to simply determine and supply the figure of cost of acquisition and cost of improvement of the undertaking to section 48 which eventually computes the amount of capital gain u/s 45. Once the cost of acquisition and cost of improvement of the undertaking or division, being its net worth along with the decision as to whether the undertaking is a long term or short term capital asset is decided and forwarded to section 48, the computation provision in the later section is activated for determining the income chargeable under the head Capital gains' in accordance with the mode of such computation as prescribed therein." 46. Relying on the aforesaid case, the Hon'ble Bombay High Court in case of PCIT vs Wockhardt Hospitals Ltd dated 16 March 2020 (316 CTR 157) affirmed the decision of the Hon'ble Mumbai Tribunal in Wockhardt Hospitals Limited vs ACIT (ITA No. 7454/Mum/2013) dated 6 January 2017 (Refer page 238 to 254 of the legal paperbook) dated 6 January 2017 in holding that section 50B only determines cost of acquisition and cost of improvement of the undertaking. (Refer para 4.9-4.10 at page 241 of legal paperbook). 47. In view of the above, the assessee wishes to submit that section 50B of the Act is a machinery provision which provides the mechanism for computing the capital gain chargeable to tax under section 45 of the Act. The above arguments have been upheld in various judicial pronouncements, some of which are as follows: • Shri Madan Mohan Chandak (ITA No. 1256/Mds/2009) dated 19 May 2011(Refer page 255 to 259 of the legal paperbook) 20 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., • Artex Manufacturing Co. (227 ITR 260) (SC) (Refer page 229 to 237 of the legal paperbook) • 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 purpose of chargeability of capital gains to tax under section 45 of the Act. 50. Therefore, it is submitted that the statute itself has excluded certain transactions, which are not regarded as transfer by special provisions under section 47 and the intention of the law is clear i.e. is to have exception to those transactions. 51. It is further submitted that the provisions of section 47 of the Act begin with a non-obstante clause and hence overrides section 45 of the Act. However, there is no such non-obstante clause under section 50B of the Act, hence, section 47 will take precedence over any other section in the capital gain chapter as the same is subject to provisions of section 45 of the Act. 52. Given that the transaction of slump sale of a capital asset being a business undertaking does not qualify as a 'transfer' for the purpose of section 45 of the Act, gains derived on such transaction are not chargeable to capital gains tax under section 45 of the Act, even though it is possible to compute capital gain under section SOB in such case. 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. 21 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 53. In light of the above, the assessee submits that the transfer in the nature of 'slump sale' is covered by section 45 of the Act and therefore the exception laid down in section 47(iv) of the Act is applicable to such transfer (irrespective of the computation mechanism provided under section 50B). Ground No 8-9: Addition of gain on slump sale transaction while computing book profits under section II5JB of the Act of Rs. 742,82,74,000 A. Capital receipt not subject to MAT under section 115JB of the Act 54. It has been time and again held as a fundamental principle by various Courts that all receipts cannot be termed as 'income' and hence cannot be taxed under the Act. It is a settled position that a capital receipt not being in the nature of the "income" cannot be considered as part of book-profit for the purpose of levy of MAT under section 115JB of the Act. 55. The transfer of capital asset by a Holding Company to its 100% Wholly Owned Subsidiary is not regarded as a transfer for the purpose of chargeability under section 45 of the Act. Given that such a transaction is not subject to the 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) 22 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 57. In view of the above judicial precedents, the Assessee submits that the net profit shown in the profit and loss account should be adjusted with the items given in Notes to accounts (i.e. Note no. 40) to find out the true working result of the company, meaning thereby the profit arising on sale of undertaking of Rs.742.83 crores to its wholly owned subsidiary should be excluded from the net profit and the revised net profit so arrived at should be considered as 'net profit as shown in the profit and loss account' used in Explanation 1 to section 115JB. 58. In light of the above, it is humbly submitted that profit on sale of undertaking, which is not income per se in accordance with the provisions of the Act cannot form part of book-profit under section 115JB of the Act and taxed under such provisions. Ground No 10-13: Disallowance of expenditure in respect of exempt income earned under section 14A the Act 59. During the last week of March 2015, the Assessee received consideration of Rs. 6,350 crores towards sale of the business undertaking and had subscribed to equity shares of Rs. 1,501.17 crores of the subsidiary TMFSL. 60. The fact that the investment was made almost towards the end of the Financial Year was also known to the learned AO during the course of assessment proceedings basis which, the Assessing Officer has taken a view that disallowance under section 14A ought not to apply in respect of investment in equity shares of TMFSL. A. Disallowance under section 14A of the Act is not warranted in absence of income 61. The assessee wishes to submit that disallowance under section 14A of the Act should be restricted to the actual exempt income received by the Company during the year under consideration. Reliance in this regard is placed on the following decisions wherein it is held that no disallowance under section 14A of the Act is warranted in absence of exempt income:- • South Indian Bank (112 CCH 0005) dated 9 September 2021 • CIT v. Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250 (SC) (Refer page 434 of the legal paperbook) • Oil Industry Development Board (2019) (103 taxmann.com 326) SC) (Refer page 439 to 440 of the legal paperbook) • CIT Vs. Ballarpur Industries Ltd (ITA No. 51 of 2016) (Born) (Refer page 435 to 436 of the legal paperbook) 23 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., • CIT vs. M/s Delite Enterprises (ITA No. 110 of 2009) (Born) (Refer page 437 to 438 of the legal paperbook) • DCIT Vs JSW Limited [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 since there is no expenditure incurred at all by the assessee in connection with the investment made in the subsidiary company, there should be no disallowance made under section 14A of the Act. C. Only those investments to be considered for computing average value of investment which yielded exempt income during year under consideration 65. The assessee wishes to submit that disallowance under section 14A of the Act should be restricted to only those investments for computing average value of investment which yielded exempt income during year under consideration. Reliance is placed on the following decisions wherein it is held that only those investments are to be considered for computing average value of investment which yielded exempt income during year:- 24 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., • Vireet Investments Pvt Ltd (165 ITD 27) (Del SB) (Refer page 453 to 456 of the legal paperbook) • Mahanagar Telephone Nigam Ltd (2020) (109 CCH 120) (Refer page 449 to 452 of the legal paperbook) D. No disallowance under section 14A should be made if sufficient own funds are available 66. The assessee wishes to submit that the assessee's interest free funds, i.e. Equity share capital and Reserves and Surplus were sufficient to cover the value of investments. The share capital and reserves position as at 31 March 2015 is as under: - Particulars Particulars Amount (Rs. In crores) As on 31 March 2015 As on 1 April 2014 Equity Share Capital 1,319.02 1,289.34 Reserves and Surplus 1,857.24 1,654.88 75. Therefore, since sufficient own funds were available during the year, no disallowance under section 14A of the Act is warrant. In this regard, reliance is placed on the following decisions • Reliance Utilities and Power Limited v. CIT [2009] 313 ITR 340 (Bombay) (Refer page 457 to 460 of the legal paperbook). • HDFC Bank Ltd (2014) (366 ITR 505) (Born HC) (Refer page 470 to 472 of the legal paperbook) • Tata Motors Limited for AY 1999-00 to 2002-03 (ITA No. 3329 to 3332/M/2011) • Tata Motors Limited for AY 2005-06 (ITA No. 33361M12011) dated 13 April 2018 (Refer page 461 to 469 of the legal paperbook) • Brigade Enterprises Limited [2021] (124 taxmann.com 237) (Kar HO) 76. In addition to the above, it also pertinent to note that the Non-Current Liabilities (i.e. borrowed funds) of the Company have actually reduced from Rs. 10,818 crores (as on 31 March 2014) to Rs. 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 25 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 assessee and order passed by the Assessing Officer is erroneous. In this regard he relied on the Malabar Industries Co. Ltd., v. CIT [243 ITR 83]. 11. With regard to capital receipt made by the assessee relating to slum sale he agreed with the finding of the Ld. Pr.CIT that the individual assets values were not specifically identified and capital gains is not determined. 26 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 12. With regard to 14A disallowance, he fairly accepted that no doubt assessee has made the investment in equity shares but no exempt income was earned during this year. 13. Considered the rival submissions and material placed on record. We observe that Ld PCIT invoked the provisions of section 263 by observing that assessee has transferred all the assets to its wholly owned subsidiary TMFSPL as a going concern on a slump sale basis, while computing its business income, it has reduced the profit earned in the above said slump sales and considered the same under the head Capital Gains at the same time claimed exemption u/s 47(iv) of the Act. Ld PCIT raised objections on treating the slump sales under the head Capital gains as well as treatment given by the assessee to compute the book profit u/s 115JB of the Act. After careful consideration, we observe that the assessee has transferred the whole business under slump sale basis and it is fact on record that it is transferred the business on going concern basis to its own subsidiary company. The transaction is covered u/s 47(iv) of the Act and accordingly it is not transfer within the provisions of the Act. Therefore, we are not incline to agree with the findings of Ld PCIT in this regard. Therefore, we are inclined to accept the submissions made by the assessee in this regard. 27 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 14. Coming to the next issue of adjustment of the above said profit in the book profit and the assessee has treated the same as capital profit without routing the transaction thru profit and loss account. On careful consideration, we observe that the assessee has to prepare the annual account by following the Accounting Policies, Accounting Standards as provided in the Act and prepare the accounts as per the Schedule III to the Companies Act, 2013 to determine the book profit. The provisions of section 115JB allows certain adjustments as given Explanation 1 in section 115JB(2) of the Act. We observe that the assesse has treated the above income as capital as the same 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 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 not credited to the Profit and Loss account. The Tribunal rejected the said action of the AO. The Hon’ble Bombay High Court also upheld the order of the Tribunal in its order reported in (2008)(304 ITR 401). The said decision was later followed by the Tribunal in a group of cases, viz., DCIT Vs. M/s Arundhati Traders Pvt Ltd and others (ITA No.6293/Mum/2006 and others dated 02-12-2009). In all these cases, there is no mention about the notes, if any, given in the Notes to accounts with regard to the method of accounting followed by these assessees. Hence, the assessing officer was held to be not justified in including the income that was directly credited to Capital reserve account in the Book Profits. The Tribunal, in the case of M/s Arundhati Traders Pvt Ltd and others (supra) concluded as under:- “19. In view of the ratio laid down by the Hon’ble Supreme Court in Appollo Tyres Ltd Vs. CIT (supra) and by the jurisdictional High Court in CIT Vs. M/s Akshay Textiles Trading & Agencies Pvt Ltd (supra), we hold that where the accounts of a Company are maintained as per the Provisions of Companies Act and are Certified by the Auditors to the effect that the same are maintained as per the requirements of the Companies Act and the same are approved by the shareholders of the company in its annual general meeting and filed before the Registrar of companies, the authenticity of such accounts has to be accepted by the Assessing Officer, while computing the book profits under section 115J/115JA/115JB of the I.T. Act. The assessing officer is however empowered to make such adjustments as provided for in the Explanation to the respective section.” We have earlier expressed the view that the Net profit shown in the Profit and Loss account should be understood as the net profit arrived at after giving to the effect of notes, if any, given in Notes to Accounts. The same has to be accepted by the assessing officer and he is empowered to make only those adjustments which are prescribed in the Explanation 1 to sec. 115JB of the Act. 29 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 23. We shall now examine the second contention urged by the assessee, viz., since the profit arising on transfer of a capital asset by a company to its wholly owned subsidiary company is not treated as income” u/s 2(24) of the Act and since it does not enter into computation provision at all under the normal provisions of the Act, the same should 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 or gains arising from the transfer of a capital asset shall be chargeable to income tax under the head “Capital gains” and the same is included in the definition of “income” u/s 2(45) of the Act. 24. The expression “transfer” is defined in sec. 2(47) of the Act. We have earlier noticed that the profits and gains arising from the transfer of a capital asset shall be chargeable to tax u/s 45 of the Act. Hence the expression “transfer” is defined in sec. 2(47) of the Act, which, inter alia, includes the sale, exchange or relinquishment 30 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., of the asset. Hence the sale of a Capital asset by the assessee to its subsidiary company should normally fall under the definition of “transfer” given in sec. 2(47) of the Act. However, the provisions of sec. 47 of the Act provides certain exceptions by holding that certain transactions shall not be regarded as “transfer”, meaning thereby, even if a transaction falls under the definition of transfer as per the provisions of sec. 2(47) of the Act, yet they shall not be chargeable to tax u/s 45 of the Act, in view of the provisions of sec. 47 of the Act. For the sake of convenience, we extract below the provisions of sec. 47 of the Act. “47 Nothing contained in section 45 shall apply to the following transfers:- ...... (iv) any transfer of a capital asset by a company to its subsidiary company, if— (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian Company.” It can be noticed that the transaction involving any transfer of capital asset by a company to its wholly owned Indian subsidiary company is included in sec. 47 of the Act under clause (iv) and hence the said transaction is not regarded as “transfer”. The existence of the element of “transfer” is an essential condition for bringing the profits and gains arising on a transfer of a capital asset into taxation u/s 45 of the Act. Accordingly, in the absence of “transfer”, the profits and gains arising on said transfer of capital asset by a company to its wholly owned subsidiary is not chargeable to tax u/s 45 of the Act. If the said profits and gains is not chargeable to tax u/s 45 of the Act, the same would not be considered as “income” at all under the definition of income given in sec. 2(24) of the Act. 25. In view of the above said legal provisions, the assessee has 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 31 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 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 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of “income”, are excluded for the purpose of computing “Book Profit”, since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of “total income” and “book profit”, in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of “income” at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in “book profit” u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point. 27. A careful perusal of the decision rendered by the Special bench in the case of Rain Commoditites Ltd (supra) would show that the above said legal contentions were not considered by the Special bench. We notice that the Special bench considered the following decisions:- (a) Malayala Manorama Co. Ltd Vs. CIT (2008)(300 ITR 251)(SC) (b) N.J. Jose & Co. (P) Ltd (321 ITR 132)(Ker) (c) CIT Vs. Veekaylal Investment Co. (P) Ltd (249 ITR 597)(Bom) In all these cases, the Courts were dealing with the issue of inclusion of Capital gains in the computation of “Book Profits”, but such capital 32 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., gains were otherwise chargeable to capital gain tax u/s 45 of the Act under the normal provisions of the Act. However, here is the case that the profits and gains arising on transfer of capital is not falling under the definition of “transfer” and hence under the definition of “Capital gains chargeable u/s 45” and consequently, the same does not fall within the purview of the definition of “income” given u/s 2(24) of the Act. Further, we notice that the Special bench did not have occasion to consider the argument urged before us that the profits and gains arising on transfer of a capital asset by a holding company to its wholly owned Indian Company does not fall under the definition of “income” at all u/s 2(24) of the Act and hence the same does not enter 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 loss account” for the purpose of computation of book profit under Explanation 1 to sec. 115JB of the Act. Alternatively, since the said profit does not fall under the definition of “income” at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of “Book Profit” for the reasons discussed above. 33 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., 15. Respectfully following the above decision, we are incline to accept the submissions of the assessee on merit. 16. With regard to disallowance on section 14A of the Act, we observe that the assessee has made the investments at the end of the year i.e., 26.03.2015 and Ld PCIT of the view that irrespective of the earning of any exempt income, the AO was duty bound to make inquiries in view of CBDT Circular no 5/2014. After considering the detailed submissions of both the parties, it is fact on record that the assessee has made the investment at the fag end of the year and there is no chance of earning any exempt income out of the above said investment, hence the courts have held that where there is no exempt income, Assessing Officer cannot make any disallowance, the disallowance has to be relating to the earning of exempt income. Therefore, in the given case, there is no exempt income earned by the assessee out of the fresh investments, in our considered view, the assessee has a valid case on merit. 17. After considering the above facts on record and discussion in the earlier paras, the assessee has placed all the above facts before Assessing Officer and Assessing Officer has accepted the view and which is one of the possible view under this circumstances, the Ld PCIT cannot impose 34 ITA NO. 1628/MUM/2020 (A.Y: 2015-16) TMF Holdings Ltd., other possible view and moreover, the issues involved under consideration is in favour of the assessee on merit. Therefore, there is no prejudice caused to the interest of the revenue, therefore, the twin condition is not fulfilled to invoke the provisions of section 263 of the Act. Accordingly, we are inclined to set aside the order passed u/s 263 of the Act. 18. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 22.04.2022. Sd/- Sd/- (PAWAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 22.04.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum