PVR Limited as successor-in-interst of SPI Cinema Private Limited , Gurgaon V. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad

ITA 2311/Hyd/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9302 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2015-2016
• Appeal Filed On: 12-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Keywords: Revised return; Capital Gains
• Section: 142(1); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A. NO. 2311/HYD/2018 ASSESSMENT YEAR: 2015-16 PVR LIMITED (FORMERLY KNOWN AS SPI CINEMAS PRIVATE LIMITED), GURGAON, HARYANA [PAN: AABCC7343L] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.A.SAI PRASAD, AR FOR REVENUE : SMT. NIVEDITA BISWAS, DR DATE OF HEARING : 17-12-2020 DATE OF PRONOUNCEMENT : 04-01-2021 O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS IS ASSESSEES APPEAL FOR THE AY.2015-16, DIRECT ED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)6, HYDERABAD, DATED 21-08-2018. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPAN Y, ENGAGED IN THE BUSINESS OF MEDIA AND ENTERTAINMENT, F ILED ITS E-RETURN OF INCOME FOR THE AY.2015-16 ON 30-11-2015, ADMITTING TOTAL INCOME AT RS.17,48,25,240/-. THE RETURN OF INCOME WAS INITIALLY PROCESSED U/S.143(1) OF THE INC OME TAX ACT [ACT]. PURSUANT TO SELECTION FOR SCRUTINY UNDER CASS , THE SAME WAS TAKEN UP FOR SCRUTINY U/S.143(3) OF THE ACT. IN RESPONSE TO THE NOTICES U/S.143(2) AND 142(1) OF THE AC T, THE ITA NO. 2311/HYD/2018 :- 2 -: AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FRO M TIME TO TIME AND FURNISHED THE INFORMATION CALLED-FOR. 2.1. THE AO OBSERVED THAT IN THE RETURN OF INCOME, THE ASSESSEE HAD ADMITTED SHORT TERM CAPITAL LOSS OF RS.3,64,38,969/- ON SLUMP SALE OF ITS UNDERTAKING I.E ., LUXE CINEMAS. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE SHORT TERM CAPITAL LOSS WAS ARRIVED AT, THE ASSESSE E SUBMITTED THAT IT HAS SOLD ITS UNDERTAKING (LUXE CINEMAS) BY TRANSFERRING THE ASSETS, INCLUDING HUMAN RESOURCES AND LIABILITIES AS A GOING CONCERN BY WAY OF SLUMP SALE W.E.F. 01-02- 2015 TO THE BUYER I.E., JAZZ CINEMAS PVT. LTD., FOR A TO TAL CONSIDERATION OF RS.51.50 CRORES AND FURTHER THAT THE VA LUE OF THE ASSETS AS PER THE COMPANIES ACT (NET OF LIABILITIES) TRANSFERRED AS ON THE DATE OF TRANSFER, AMOUNTED TO RS.49,80,52,582/-. THE ASSESSEE FURTHER SUBMITTED THE DETAILS, ACCORDING TO WHICH THE NET WORTH OF THE UNDERTAKING UNDER THE I.T.ACT WAS RS.55,14,38,969/- AND THEREBY, SHORT TERM CAPITAL LOSS WAS COMPUTED AT RS.3,64,38,969/-. IN SUP PORT OF COMPUTATION OF NET WORTH OF THE UNDERTAKING, THE ASSESSEE SUBMITTED FORM-3CEA ISSUED BY THE ACCOUNTANT. THE ASSESS EE ALSO FILED INFORMATION REGARDING THE LOAN SANCTIONED LETTER AND PROJECT COST OF JAZZ CINEMAS PVT. LTD. ON GOING THROUGH THE SAID DETAILS, THE AO OBSERVED THAT THE JAZZ CINEMAS PVT. LTD., HAS DIRECTLY PAID A SUM OF RS.21,50,00,000/- (TO THE C REDITORS OF M/S.SPI CINEMAS PVT. LTD., THE ASSESSEE HEREIN) TO S BI AND THE BALANCE OF RS.30 CRORES WAS PAID TO THE ASSESSEE T HROUGH ITS BANKER. THEREFORE, THE AO ASKED THE ASSESSEE TO SH OW CAUSE AS TO WHY THE BANK LIABILITY OF RS.21,50,00,000 /- WAS NOT INCLUDED WHILE CALCULATING NET WORTH OF UNDERTAKING FOR THE ITA NO. 2311/HYD/2018 :- 3 -: PURPOSE OF COMPUTATION OF CAPITAL GAINS AS THE BANK LIA BILITY WAS SUBSISTING AS ON THE DATE OF SLUMP SALE. 2.2. THE ASSESSEE EXPLAINED THAT THE TOTAL SALE CONSIDER ATION AGREED BETWEEN THE PARTIES WAS RS.51.50 CRORES AND THE ASSESSEE WAS SUPPOSED TO CLEAR THE DEBT BEFORE HANDING OVER THE ASSETS TO THE PURCHASER AND INSTEAD OF PAYING THE TOTA L AMOUNT TO THE ASSESSEE, THE BUYER HAS PAID THE LOAN AMOU NT DIRECTLY TO THE BANK AND THE BALANCE OF RS.30 LAKHS ON LY WAS PAID TO THE ASSESSEE. THEREFORE, HE SUBMITTED THAT THE SH ORT TERM CAPITAL LOSS INCURRED BY THE ASSESSEE WAS RS.3,64,38,969/-. 2.3. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTIONS AND HELD THAT THE NET WORTH INCLUDES ALL THE ASSETS AND LIABILITIES OF THE UNDERTAKING AS ON THE DATE OF SALE AND THEREFORE, THE NET WORTH SHOULD BE REDUCED BY THE S UM OF RS.21,50,00,000/- AND BY DOING SO, THE NET WORTH OF THE UNDERTAKING WOULD BE RS.33,64,38,969/- AND IF THE SAM E IS REDUCED FROM THE SALE CONSIDERATION RECEIVED BY THE A SSESSEE, THERE WOULD BE SHORT TERM CAPITAL GAIN OF RS.17,85,61, 013/- AS AGAINST THE LOSS OF RS.3,64,38,969/-, CLAIMED BY THE ASSESSEE. HE THEREFORE BROUGHT THE SHORT TERM CAPITAL G AIN OF RS.17,85,61,013/- TO TAX. 3. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US BY RAISING THE FOLLOWING GRO UNDS: THE GROUNDS OF APPEAL LISTED BELOW ARE WITHOUT PRE JUDICE TO EACH OTHER. ITA NO. 2311/HYD/2018 :- 4 -: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS)-6, HYDERABAD ['CIT] IS ERRONEOUS, BAD IN LAW, PREJUDIC IAL TO THE APPELLANT AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. SHORT TERM CAPITAL GAINS ON SLUMP SALE 2. THE LEARNED CIT HAS ERRED IN FACTS AND CIRCUMSTA NCES OF THE CASE BY NOT APPRECIATING THE FACT THAT THE SLUMP SALE DE ED DOES NOT TRANSFER BANK LOAN AMOUNTING TO INR 21,50,00,000 AS PART OF THE UNDERTAKING. 3. THE LEARNED CIT HAS ERRED BY INCLUDING THE LIABI LITY AS PART OF THE NET WORTH OF THE UNDERTAKING FOR THE PURPOSE OF COM PUTING CAPITAL GAINS WHILE THE SAME WAS NEVER TRANSFERRED AS PART OF THE SLUMP SALE. 4. THE LEARNED CIT HAS ERRED BY FAILING TO APPRECIA TE THAT EVEN IN A CASE WHERE THE LIABILITY IS INCLUDED AS PART OF THE NET WORTH OF THE UNDERTAKING, THE SETTLEMENT OF THE SAME SHALL NOT F ORM PART OF THE CONSIDERATION RECEIVED BY THE BUYER AND HENCE NEED TO BE REDUCED FROM THE CONSIDERATION. 5. THE LEARNED CIT AS ERRED IN SETTING ASIDE THE FO RM 3CEA CERTIFYING THE NET WORTH OF THE UNDERTAKING. 6. THE LEARNED CIT HAS ERRED IN LEVYING EXCESS INTE REST UNDER SECTION 234C OF THE ACT AMOUNTING TO INR 2,46,609 AS AGAINS T AN AMOUNT-OF INR 1,68,843 CLAIMED BY THE ASSESSEE IN ITS REVISED RETURN DATED 15 DECEMBER 2016. 7. THE LEARNED CIT HAS ERRED IN LEVYING EXCESS INTE REST UNDER SECTION 234B AMOUNTING TO INR 1,62,51,576 AND INTEREST ON R EFUND ISSUED UNDER SECTION234D AMOUNTING TO 2,18,297 OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, SUPPLEMENT, AMEN D, DELETE OR OTHERWISE MODIFY ANY OF THE GROUNDS STATED HEREINAB OVE AT THE TIME OF HEARING. 4. THE CASE WAS TAKEN UP FOR HEARING ON 17-12-2020 THROUGH VIDEO CONFERENCING AND BOTH THE PARTIES WERE HE ARD. 5. THE LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND ALS O REFERRED TO THE PAPER BOOK FILED BY THE ASSESSEE, WHER EIN THE DETAILS OF THE SLUMP SALE AND THE WRITTEN SUBMISSIONS F ILED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW ARE PLACED. IT IS SUBMITTED THAT AS PER THE TERMS OF SLUMP SALE ITSELF, THE ITA NO. 2311/HYD/2018 :- 5 -: LIABILITY OF RS.21.50 CRORES WAS NOT TO BE CONSIDERED FOR COMPUTING NET WORTH OF THE COMPANY AND THEREFORE, THE SAM E WAS NOT TAKEN INTO CONSIDERATION. HE REFERRED TO THE SLUM P SALE DEED AND CLAUSE NO.3 THEREOF, WHEREIN IT IS MENTIONED THAT THE TOTAL CONSIDERATION IS OF RS.51.50 CRORES, OUT OF WHICH THE PURCHASER WOULD PAY RS.21.50 CRORES DIRECTLY TO THE B ANK AND THE BALANCE CONSIDERATION OF RS.30 LAKHS WOULD BE PAI D TO THE ASSESSEE. HE THEREFORE SUBMITTED THAT BOTH THE AO AS WELL AS THE CIT(A) HAVE MIS-CONSTRUED THE TERMS OF SLUMP SALE AND REDUCED THE LIABILITY FROM THE NET WORTH OF THE ASSETS A ND THEREFORE HAVE ARRIVED AT SHORT TERM CAPITAL GAIN. 6. THE LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW AND SUBMITTED THAT NET WORTH OF THE ASSET HAS TO BE COMPUTED U/S.50B OF THE ACT AND THEREFORE THE AO HAS RIGHTLY REDUCED THE LIABILITY OF RS.21.50 CRO RES FROM THE VALUE OF THE ASSETS AS ON THE DATE OF SALE TO ARRIVE AT THE NET WORTH OF THE ASSET. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERI AL ON RECORD, THE UN-DISPUTED FACTS ARE THAT THE ASSESSEE HA S SOLD ITS ASSET (LUXE CINEMAS) BY WAY OF SLUMP SALE TO JAZZ CINEMAS PVT. LTD., AND CLAUSE-3 OF THE SAID SLUMP SALE DEED CL EARLY MENTIONS THAT THE TOTAL SALE CONSIDERATION THAT IS AGREED TO WAS RS.51.50 CRORES AND THAT OUT OF THE SAME THE BUYER WOULD PAY A SUM OF RS.21.50 CRORES DIRECTLY TO THE CREDITOR I.E. , SBI, AND ONLY THE BALANCE OF RS.30 CRORES WOULD BE PAID TO THE ASSESSEE. THEREFORE, THE AO IN PARA 5(B) OF HIS ORDE R HAS RIGHTLY OBSERVED THAT THE ASSESSEE HAS APPLIED THE SALE CONSIDE RATION FOR MAKING THE PAYMENT TO THE CREDITOR I.E., THE BANK. A FTER ITA NO. 2311/HYD/2018 :- 6 -: OBSERVING SO, AO HAS TREATED THE LIABILITY OF RS.21.50 CRORES AS SUBSISTING LIABILITY AT THE TIME OF SALE AND HAS ACCOR DINGLY REDUCED THE NET WORTH OF THE ASSET. BY DOING SO, THE LIA BILITY CONTINUES TO BE THE LIABILITY OF THE PURCHASER AND IF IT IS SO, THEN THE COMPUTATION OF NET WORTH WOULD BE AT A LOWER FIG URE RESULTING IN SHORT TERM CAPITAL GAIN. 7.1. HOWEVER, ONCE AO HAS ACCEPTED THAT PAYMENT OF PAR T CONSIDERATION DIRECTLY TO THE BANK IS THE APPLICATION OF ITS SALE PROCEEDS BY THE ASSESSEE, THEN IT IS TO BE CONSIDERED THAT THE LIABILITY HAS BEEN DISCHARGED BY THE ASSESSEE AND IS NO LONGER THE LIABILITY OF THE PURCHASER. HENCE, THE NET WORTH OF THE ASSETS DOES NOT INCLUDE THE LIABILITY OF RS.21.50 LAKH S, (AS IT IS DISCHARGED BY THE ASSESSEE). THERE IS NO EVIDENCE B ROUGHT ON RECORD BY THE DEPARTMENT THAT THE BUYER HAS PAID THE ASSES SEE ANY AMOUNT MORE THAN RS.51.50 CRORES. THE BUYER HAS RECEIVED THE ASSETS WITHOUT ANY LIABILITY AND THEREF ORE THE NET WORTH OF THE ASSET IS RS.55,14,38,969/-. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THE NET WORTH OF THE ASSET HAS TO BE FURTHER REDUCED BY THE LIABILITY BECAUS E THE LIABILITY HAS ALREADY BEEN DISCHARGED BY THE ASSESSE E ONLY. 8. IN VIEW OF THE ABOVE, THE APPEAL OF ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH DAY OF JANUARY, 2021 SD/- SD/- ( A. MOHAN ALANKAMONY ) ( P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 04-01-2021 TNMM ITA NO. 2311/HYD/2018 :- 7 -: COPY TO : 1.PVR LIMITED (FORMERLY KNOWN AS SPI CINEMAS PRIVAT E LIMITED), BLOCK-A, 4 TH FLOOR, BUILDING NO.9A, DLF CYBER CITY, PHASE-III, GURGAON. 2.THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-14(1 ), HYDERABAD. 3.CIT(APPEALS)-6, HYDERABAD. 4.PR.CIT-6, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.