DCIT, New Delhi V. M/s. Lili Projects Pvt. Ltd., New Delhi

ITA 210/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5007 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-05-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Keywords: Depreciation; Cost of acquisition; Unabsorbed depreciation
• Section: 148

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 210/DEL/2014 (ASSESSMENT YEAR: 2004 - 05 ) DCIT, CIRCLE - 4(1), NEW DELHI VS. LILI PROJECTS PVT. LTD, H - 5/12, QUTAB AMBIENCE, MEHRAULI ROAD, NEW DELHI PAN:AABCB5532A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHRAVAN GOTRU, SR. DR ASSESSEE BY: SHRI ANIL BHALLA, CA DATE OF HEARING 22/08 / 2017 DATE OF PRONOUNCEMENT 25 / 08 / 2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - VIII, NEW DELHI DATED 30.09.2013 FOR THE ASSESSMENT YEAR 2004 - 05. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6570215/ - CLAIMED AS SLUMP SALES BY THE ASSESSEE AND TREATED AS TRANSFER IN VIOLATION OF DEFINITION OF SLUMP SALE AND THAT TOO WITHOUT ADEQUATE CONSIDERATION BY THE AO. 2. THAT THE ORDER OF THE LD CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THE ASSESSEE IS A COMPANY WHO IS ENGAGED IN THE BUSINESS OF CALL CENTRE. IT FILED ITS RETURN OF INCOME ON 01/11/2004 DECLARING TOTAL INCOME OF RS. 9 341 3717/ . DURING THE YEAR, THE COMPANY HAS TRANSFERRED ITS CALL CENTRE BUSINESS TO ANOTHER COMPANY BY AGREEMENT DATED 17/07/2003. AS PER THE BUSINESS TRANSFER AGREEMENT THE SALE WAS MADE LOCK STOCK AND BARREL AND COMPUTATION OF TOTAL INCOME WAS MADE COMPUTIN G THE LONG - TERM CAPITAL GAIN. APPLYING THE PROVISIONS OF SECTION 50 B OF THE INCOME TAX ACT O F SLUMP SALE AT A LOSS OF RS. 6 570215/ - . THE LD. ASSESSING OFFICER DISALLOWED THE LONG - TERM CAPITAL LOSS FOR THE REASON THAT ASSESSEE IS CONTINUING TO CARRYING ON THE SAME BUSINESS, THE ASSESSEE BEEN SOLD TO A PAGE 2 OF 5 COMPANY WHICH IS A GROUP COMPANY OF THE ASSESSEE, THE DEFINITION OF THE SLUMP SALE. ACCORDING TO SECTION 2(42C) IS NOT COMPLIED WITH, BECAUSE IN THE TRANSFER AGREEMENT THE ASSESSEE COMPANY HAS SHOWN THE VALUE OF INDIVIDUAL ASSETS, THE ASSET SOLD HAVE BEEN IMPORTED JUST BEFORE 2 YEARS AND COMPANY HAS CLAIMED DEPRECIATION ON THESE 2 ASSETS AND FURTHER THE LUMP SUM CONSIDERATION HAS BEEN RECEIVED OF RS. 4591 2927/ . THE MAIN CONSIDERATION OF THE AO IN DISALLOWANCE WAS THAT THE MAIN MOTIVE OF THE COMPANY TO SHOW THE SLUMP SALE IS THAT ASSESSEE HAS ANY CUMULATIVE LOSSES AND UNABSORBED DEPRECIATION CAN BE ADJUSTED ONLY IN CASE OF SOME SLUMP SALE. THEREFORE, ACCORDING TO HIM HEAD THE AMALGAMATION, THE MERGER HAS BEEN CA RRIED OUT, THE CARRY FORWARD LOSSES OR DEPRECIATION WOULD BE ALLOWED TO BE CARRIED FORWARD IN THE HANDS OF THE TRANSFEREE OR RESULTING COMPANY ONLY. IN THE NUTSHELL, HE ALSO OBJECTED TO THE METHOD ADOPTED BY THE ASSESSEE IN TRANSFERRING THE ASSET BY WAY OF SLUMP SALE INSTEAD OF AMALGAMATION OR DEMERGER. THEREFORE HE DISALLOWED THE LOSS OF RS. 6 570215, AND COMPUTED THE TOTAL INCOME OF THE ASSESSEE AT RS. 5319 1430 BY ASSESSMENT ORDER UNDER SECTION 143 ( 3) OF THE ACT DATED 26/12/2006. 4. AGGRIEVED BY THE ORDER, AS SESSEE PREFERRED APPEAL BEFORE THE LD. CIT (A) , WHO DELETED THE ABOVE ADDITION MADE BY THE ASSESSING OFFICER. THEREFORE, REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONTESTE D THAT THE ORDER OF THE LD. CIT(A) WHEREIN HE HAS HELD THAT IF THE AO HAS ANY DOUBT HE SHOULD HAVE REFERRED MATTER TO THE DEPARTMENTAL VALUATION OFFICER FOR VALUING PLANT AND MACHINERY. HE SUBMITTED THAT IF THE FIRST APPELLATE AUTHORITY FINDS THAT AO HAS FAILED TO DO ANYTHING THEN IT IS HIS DUTY TO DO SO . FOR THIS PROPOSITION HE RELIED UPON THE ORDER OF THE HONBLE DELHI HIGH COURT IN CASE OF JAN SAMPARK LTD 375 ITR 333 ( DEL). 6. THE LD. AUTHORIZED REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. CIT (A) , AND SUBMITTED THAT INDIVIDUAL VALUES ARE REQUIRED TO BE MENTIONED FOR THE REASON THAT WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS TRANSFERRED ARE TO BE CONSIDERED TO DETERMINE THE COST OF FIXED ASSETS AND NET WORTH OF THE UNDERTAKING FOR WORKING OUT CAPITA L GAIN UNDER SECTION 50 B FOR THE PURPOSES OF COST OF ACQUISITION. HE THEREFORE SUBMITTED THAT THERE IS NO PAGE 3 OF 5 VIOLATION OF THE DEFINITION OF SLUMP SALE AS STATED IN SECTION 2 (42C) OF THE ACT. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. DURING THE YEAR, ASSESSEE HAS TRANSFERRED ITS CALL CENTRE BUSINESS BY BUSINESS. TRANSFER AGREEMENT DATED 17/07/2003 TO TELETECH SERVICES INDIA LTD AND COMPUTED CAPITAL GAIN ARISING THEREON BY APPLYING THE PROVISIONS OF SEC TION 50 B OF THE INCOME TAX ACT. THE COMPUTATION OF CAPITAL GAINS WAS MADE SHOWING LOSS OF RS. 6570215/ AGAINST CONSIDERATION RECEIVED OF RS. 4591 2927/ . ASSESSEE HAS ALSO SUBMITTED FORM NO. 3CEA FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS ON SLUMP S ALE. THE LD. CIT (A) ANALYZED THE VARIOUS TERMS AND CONDITION OF BUSINESS. TRANSFER AGREEMENT AND HELD THAT ASSESSEE HAS SOLD ITS CALL CENTRE BUSINESS ALONG WITH FIXED ASSETS, EMPLOYEES, ALL RECORDS, ALL CONTRACTS TO THE 3 RD PARTY FOR RS. 45912927/ . THEREF ORE, IT WAS A TRANSFER OF AN ONGOING BUSINESS BY THE ASSESSEE. THERE WAS NO ASSIGNMENT OF VALUE TO THE INDIVIDUAL ASSETS OF THE ASSESSEE IN THE AGREEMENT, HOWEVER, FOR THE PURPOSE OF WORKING OUT THE COST OF ACQUISITION OF THE UNDERTAKING VARIOUS ASSETS HAV E BEEN LISTED AND THE COST OF ACQUISITION OF THE BUSINESS UNDERTAKING WAS WORKED OUT BY THE ASSESSEE FOR COMPLYING WITH THE PROVISIONS OF SECTION 50B OF THE ACT . WHEN A SLUMP SALE TAKES PLACE OF BUSINESS UNDERTAKING, IT IS NOT NECESSARY THAT ASSESSEE CANNO T CARRY ON ANY OTHER BUSINESS. FURTHER, REGARDING THE MANNER OF THE TRANSFER, IT IS BEYOND THE POWERS OF THE ASSESSING OFFICER TO REALLY RECHARACTERISE THE TRANSACTION IGNORING ITS FORM AND SUBSTANCE TO SAY THAT ASSESSEE SHOULD HAVE CARRIED ON THESE TRANSA CTION IN THE FORM OF AMALGAMATION OR DEMERGER. THERE ARE DIFFERENT BENEFITS TO THE ASSESSE OTHER THAN TAX BENEFIT OF CARRYING OUT THIS TRANSACTION BY BUSINESS TRANSFER AGREEMENT. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT MAIN PURPOSE OF THE ENTERING INTO BUSINESS TRANSFER AGREEMENT IS ONLY THE TAX BENEFIT OF CARRYING FORWARD LOSSES AND SETOFF OF UNABSORBED DEPRECIATION. FURTHER THE ARGUMENT OF THE LD. DEPARTMENTAL REPRESENTATIVE RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF JAN S AMPARK LTD WILL ARISE ONLY IF THE ASSESSING OFFICER HAS DOUBT ON THE ACTUAL CONSIDERATION, IN THE PRESENT CASE, THE LD. ASSESSING OFFICER PAGE 4 OF 5 HAS NOT EXPRESSED ANY SUCH DOUBT AND FURTHER THE LD. CIT (A) ALSO DOES NOT HAVE ANY DOUBT WITH RESPECT TO THE ACTUAL CO NSIDERATION. HON HIGH COURT HAS HELD THAT 42. THE AO HERE MAY HAVE FAILED TO DISCHARGE HIS OBLIGATION TO CONDUCT A PROPER INQUIRY TO TAKE THE MATTER TO LOGICAL CONCLUSION. BUT CIT (APPEALS), HAVING NOTICED WANT OF PROPER INQUIRY, COULD NOT HAVE CLOSED T HE CHAPTER SIMPLY BY ALLOWING THE APPEAL AND DELETING THE ADDITIONS MADE. IT WAS ALSO THE OBLIGATION OF THE FIRST APPELLATE AUTHORITY, AS INDEED OF ITAT, TO HAVE ENSURED THAT EFFECTIVE INQUIRY WAS CARRIED OUT, PARTICULARLY IN THE FACE OF THE ALLEGATIONS OF THE REVENUE THAT THE ACCOUNT STATEMENTS REVEAL A UNIFORM PATTERN OF CASH DEPOSITS OF EQUAL AMOUNTS IN THE RESPECTIVE ACCOUNTS PRECEDING THE TRANSACTIONS IN QUESTION. THIS NECESSITATED A DETAILED SCRUTINY OF THE MATERIAL SUBMITTED BY THE ASSESSEE IN RESPON SE TO THE NOTICE UNDER SECTION 148 ISSUED BY THE AO, AS ALSO THE MATERIAL SUBMITTED AT THE STAGE OF APPEALS, IF DEEMED PROPER BY WAY OF MAKING OR CAUSING TO BE MADE A 'FURTHER INQUIRY' IN EXERCISE OF THE POWER UNDER SECTION 250(4). THIS APPROACH NOT HAVING BEEN ADOPTED, THE IMPUGNED ORDER OF ITAT, AND CONSEQUENTLY THAT OF CIT (APPEALS), CANNOT BE APPROVED OR UPHELD. IT IS NOT THE CASE WHERE AO HAS FAILED TO DISCHARGE HIS DUTY OR OBLIGATION TO CONDUCT A PROPER INQUIRY. THE SALE CONSIDERATION IS DOUBTED NEI THER BY AO NOR BY THE LD. FIRST APPELLATE AUTHORITY. IT IS ALSO NOT THE CASE OF LD. FIRST APPELLATE AUTHORITY THAT AO HAS FAILED TO CARRY OUT PROPER INQUIRY. THEREFORE, THERE IS NO NEED FILED BY THE LD. CIT (A) OR EVEN BY US THIS STAGE TO CARRY ON ANY FURTHER INQUIRY. THE ONLY DISPUTE IS WITH MANNER OF COMPUTATION OF CAPITAL GAINS ON TRANSFER OF A BUSINESS UNDERTAKING BY THE ASSESSEE. THEREFORE, THE RELIANCE PLACED BY THE REVENUE ON THE DECISION OF THE HONBLE D ELHI HIGH COURT IS MISPLACED. IN THIS CASE, IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) . IN THE RESULT, WE DISMISS GROUND NO. 1 OF THE APPEAL OF REVENUE. 8. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 / 08 / 2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 5 / 08 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT PAGE 5 OF 5 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR :ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI