DCIT, Coimbatore V. M/s. DRS Industries Ltd., Coimbatore

ITA 2727/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7996 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 21-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: G RAMASWAMY
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI [ CAMP: COIMBATORE ] . . . , ! .#$#%,' !( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ./ ITA NO.2727/MDS/2016 & C.O. NO.176/MDS/2016 (IN I.T.A. NO.2727/MDS/2016) % *% / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, AAYAKARBHAVAN, 63, RACE COURSE ROAD, COIMBATORE 641 018. V. M/S DRS INDUSTRIES LIMITED, 1321, AVINASHI ROAD, PEELAMEDU, COIMBATORE 641 004. PAN : AABCD 0553 B (,-/ APPELLANT) ( RESPONDENT& CROSS-OBJECTOR) ,- . / / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT 01,-./ / RESPONDENT BY : SHRI G. RAMASWAMY, CA 2 .3' / DATE OF HEARING : 18.01.2017 45* .3' / DATE OF PRONOUNCEMENT : 03.02.2017 / O R D E R PER BENCH: THIS APPEAL AND CROSS-OBJECTION OF THE REVENUE AN D ASSESSEE RESPECTIVELY, ARE DIRECTED AGAINST THE ORDER DATED 01.06.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS) 18, CHENNAI. 2 I.T.A. NO.2727/MDS/16 C.O. NO.176/MDS/16 2. APPEAL FILED BY THE REVENUE IS DELAYED BY 2 DAYS . CONDONATION PETITION HAS BEEN FILED. REASON SHOWN FOR THE DELAY SEEMS TO BE JUSTIFIED. LD. A.R. DID NOT RAISE ANY SERIOUS OBJECTION. DELAY IS CONDONED AND THE APPEAL IS ADMITTED. 3. APPEAL OF THE REVENUE IS TAKEN UP FIRST FOR DISP OSAL. 4. REVENUE IS AGGRIEVED ON DELETION OF ADDITION OF ` 3,00,00,000/- MADE BY THE A.O. CONSIDERING THE SALE OF UNDERTAKIN G AS SLUMP SALE FOR THE IMPUGNED ASSESSMENT YEAR. 5. FACTS APROPOS ARE THAT THE ASSESSEE CARRYING ON A BUSINESS OF SKODA CAR DEALERSHIP, HAD FILED RETURN FOR THE IMPU GNED ASSESSMENT YEAR, DECLARING NIL INCOME UNDER NORMAL PROVISIONS OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AND BOOK PROFIT OF ` 1070/- UNDER SECTION 115JB OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD ENTE RED INTO A MEMORANDUM OF UNDERSTANDING BETWEEN ONE M/S MIRACLE CARS INDIA PVT. LTD. ON 30.06.2010. AS PER THE LD. A.O., THE ASSESSEE HAD, THROUGH THIS AGREEMENT, SOLD ITS SKODA DEALERSHIP T O M/S. MIRACLE CARS INDIA PVT. LTD FREE FROM ENCUMBRANCES AND LIEN, FOR A TOTAL 3 I.T.A. NO.2727/MDS/16 C.O. NO.176/MDS/16 CONSIDERATION OF ` 3,00,00,000/-. AS PER THE A.O., THE BUYER, OUT OF THE TOTAL AGREED SUM OF 3,00,00,000/- HAD PAID TO THE ASSESSEE A SUM OF ` 1,38,78,000/- THROUGH CHEQUE AND ` 61,22,000/- BY CASH AGGREGATING TO 2,00,00,000/ -. ASSESSING OFFICER WAS OF THE OPINION THAT THE S ALE HAD TO BE CONSIDERED AS SLUMP SALE WITHIN THE MEA NING OF SECTION 2(42C) OF THE ACT. ACCORDING TO HIM, BY VIRTUE OF SECTION 50B(1) OF THE ACT, PROFIT ARISING FROM SLUMP SALE WAS CHARGEABLE TO TAX AS CAPITAL GAINS ARISING FROM TRANSFER OF LONG-TERM CAPITAL AS SETS. THE A.O. ALSO NOTED THAT THE ASSESSEE HAD NOT FILED AUDIT REPORT IN FORM NO.3CEA AS MANDATED UNDER SECTION 50B(3) OF THE ACT. IN REPLY , ASSESSEE STATED THAT THE AGREEMENT WAS FOR TRANSFERRING SKODA CAR D EALERSHIP AND WOULD BE EFFECTIVE ONLY ON APPROVAL FROM M/S SKODA AUTO INDIA PVT. LTD. AS PER THE ASSESSEE, M/S SKODA AUTO INDIA PVT . LTD. DID NOT GIVE APPROVAL FOR TRANSFER OF DEALERSHIP. FURTHER AS PE R THE ASSESSEE, IT DID NOT RECEIVE ANY AMOUNT FROM M/S MIRACLE CARS INDIA (P.) LTD. AND THE CHEQUE OF ` 1,38,78,000/- MENTIONED IN THE AGREEMENT WAS GIVEN TO ONE SHRI D. SHIVKUMAR, DIRECTOR OF THE ASSESSEE-COM PANY AND ONLY IF THE FORMALITIES COULD BE COMPLETED, THE MONEY WOULD BE TRANSFERRED TO THE ASSESSEE. CONTENTION OF THE ASSESSEE WAS THAT THE AGREEMENT HAD EXPIRED WITHIN THREE MONTHS OF ENTERING INTO IT BY VIRTUE OF CLAUSE 4 4 I.T.A. NO.2727/MDS/16 C.O. NO.176/MDS/16 THEREIN. ASSESSEE ALSO STATED THAT THERE WAS INDIV IDUAL VALUATION OF ASSETS AND SINCE INDIVIDUAL VALUES WERE ASSIGNED, S ECTION 2(42C) COULD NOT BE APPLIED. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF E.D. SASSOON & CO . LTD. V. CIT (1954) 26 ITR 27. HOWEVER, THE A.O. DID NOT ACCEPT THESE CONTENTIONS. ACCORDING TO HIM, THE SUM OF ` 3,00,00,000/- RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF A SLUMP SALE AND COU LD ONLY BE CONSIDERED AS SHORT-TERM CAPITAL GAINS. AN ADDITIO N WAS ACCORDINGLY MADE. 6. IN ITS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE ONCE AGAIN WAS THAT THE AGREEMENT HAD NEVE R FRUCTIFIED. ACCORDING TO THE ASSESSEE, M/S SKODA AUTO INDIA (P. ) LTD. DID NOT APPROVE THE TRANSFER OF THEIR DEALERSHIP AND THE AG REEMENT BECAME INVALID BY VIRTUE OF SUCH DISAPPROVAL. LD. CIT(AP PEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD A S UNDER, AT PARA 6.1 OF HIS ORDER:- 6.1. FROM THE SUBMISSIONS MADE BY THE APPELLANT IT IS SEEN THAT AN AMOUNT OF ` 1,38,78,000/- WAS GIVEN ONLY TO MR. D. SIVAKUMAR, DIRECTOR OF M/S DRS INDUSTRIES LTD., THE APPELLANT HEREIN, TO COMPLETE THE FORMALITIES. HEN CE THE TRANSFER OF THE UNIT FOR A VALUE SPECIFIED COULD BE ONLY AFTER THE APPROVAL FROM THE PRINCIPAL I.E. M/S SKODA. HE NCE, THE 5 I.T.A. NO.2727/MDS/16 C.O. NO.176/MDS/16 APPELLANT SUBMITTED THERE WAS NEITHER TRANSFER AND NOR SLUMP SALE AS CONCLUDED BY THE A.O. IN THE IMPUGNED ORDER. THE AGREEMENT HAD EXPIRED WITHIN THREE MONTHS FROM THE DATE OF ENTERING AS PER THE CLAUSE 4 OF THE AGREEME NT. AS PER THE MEMORANDUM OF AGREEMENT DATED 22.11.2014 ENTERED INTO BETWEEN DRS INDUSTRIES (P) LTD., AND M IRACLE CARS INDIA (P) LTD. COPY OF WHICH HAS BEEN SUBMITTE D TO THE UNDERSIGNED DURING APPELLATE PROCEEDINGS, IT IS SEE N THAT M/S SKODA HAS REJECTED THE REQUEST MADE FOR TRANSFE R OF DEALERSHIP RAISING LEGAL ISSUES. THE AR FURTHER EX PLAINED THAT THE TRANSFER OF DEALERSHIP WAS SUBJECT TO APPR OVAL BY SKODA AUTO INDIA (P) LTD. AND ACCRUAL OF INCOME ARI SES ONLY AT THE POINT OF APPROVAL FROM PRINCIPAL I.E., M/S S KODA. THUS IT IS SEEN THAT THE APPELLANT HAD NOT ENTERED INTO AN ENFORCEABLE AGREEMENT TO TRANSFER THE SKODA CAR DEALERSHIP AND HENCE THERE WAS NO CHANGE OF DEALERS HIP. THUS THE FACTUAL POSITION HAS BEEN MISINTERPRETED B Y THE A.O. IN THE IMPUGNED ASSESSMENT ORDER. FURTHER, TH E A.O. IN THE SUBSEQUENT ASSESSMENT YEAR 2012-13 VIDE ASST.OR DER DATE 30.03.2015 IN PARA NO.3.2 HAS OBSERVED THAT, T HE ABOVE SAID AGREEMENT HAS NOT BEEN ACTED UPON AND THUS, NO TRANSFER HAD BEEN TAKEN PLACE. IN THESE CIRCUMSTAN CES, THE ADDITION ON ACCOUNT OF SLUMP SALE IS FOUND TO BE IN CORRECT AND ACCORDINGLY, THE SAID ADDITION OF ` 3,00,00,000/- IS HEREBY DELETED AND THIS GROUND OF APPEAL IS ALLOWED . 7. NOW BEFORE US, THE LD. DEPARTMENTAL REPRESENTATI VE, STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THE AGREEMENT COULD BE CLEARLY CONSTRUED AS TRANSFER OF BUSINESS BY SLUMP SALE. ACCORDING TO HIM, THE CONSIDERATION HAD ALSO BEEN R ECEIVED. CONTENTION OF THE LD. D.R. WAS THAT THE APPROVAL OF M/S SKODA AUTO INDIA (P) LTD. WAS IRRELEVANT AS FAR AS ASSESSEE AN D M/S MIRACLE CARS INDIA (P) LTD. WERE CONCERNED. 6 I.T.A. NO.2727/MDS/16 C.O. NO.176/MDS/16 8. PER CONTRA, LD. A.R. SUPPORTED THE ORDER OF THE CIT(APPEALS). 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IT IS NOT DISPUTED BY THE REVENUE THAT M/S SKODA AUTO INDIA PVT. LTD. HAD NOT APPROVED THE TRANSFER OF DEALERSHIP FROM T HE ASSESSEE TO M/S MIRACLE CARS INDIA PVT. LTD. IT IS ALSO NOT DISPUT ED THAT THERE WAS A CLAUSE IN THE AGREEMENT WHICH REQUIRED APPROVAL O F M/S SKODA AUTO INDIA PVT. LTD. FOR TRANSFER OF DEALERSHIP FROM TH E ASSESSEE TO M/S MIRACLE CARS INDIA PVT. LTD. EVEN THE PART CONSIDE RATION RECEIVED, WAS HELD BY ONE SHRI D. SIVAKUMAR, A DIRECTOR OF THE AS SESSEE AND WAS NEVER GIVEN TO THE ASSESSEE-COMPANY. THUS THE AGRE EMENT DATED 30.06.2010, ON WHICH RELIANCE HAS BEEN PLACED BY T HE ASSESSING OFFICER FOR FASTENING A LIABILITY ON THE ASSESSEE, WAS A CONDITIONAL ONE WHICH WOULD BECOME LEGALLY ENFORCEABLE ONLY IF M/S SKODA AUTO INDIA PVT. LTD. GAVE APPROVAL FOR TRANSFER OF THE D EALERSHIP. FURTHER, IN THE SUBSEQUENT ASSESSMENT YEAR, THE ASSESSING OFFIC ER HIMSELF NOTED THAT THE AGREEMENT DID NOT GO THROUGH. THUS, IN OU R OPINION, THE CIT(APPEALS) WAS JUSTIFIED IN TAKING THE VIEW THAT THERE WAS NO SLUMP SALE AND THERE WAS NO OCCASION FOR MAKING AN ADDIT ION OF 7 I.T.A. NO.2727/MDS/16 C.O. NO.176/MDS/16 ` 3,00,00,000/- AS DONE BY THE A.O. WE FIND NO REASO N TO INTERFERE WITH THE ORDER OF THE CIT(APPEALS). 10. COMING TO THE CROSS-OBJECTION FILED BY THE ASSE SSEE, IT IS ONLY TO SUPPORT THE ORDER OF THE CIT(APPEALS). SINCE APPEA L OF THE REVENUE IS BEING DISMISSED, THE CROSS-OBJECTION HAS BECOME IN FRUCTUOUS. 11. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS THE CROSS- OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 3 RD FEBRUARY, 2017 AT CHENNAI. SD/- SD/- ( . . . ) ( ! .#$#% ) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) /JUDICIAL MEMBER ' / ACCOUNTANT MEMBER /CHENNAI, 7 /DATED, THE 3 RD FEBRUARY, 2017. KRI. . 0389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. 01,- /RESPONDENT 3. 2 ;3 () /CIT(A)-18, CHENNAI 4. PRINCIPAL CIT, CENTRAL-2, CHENNAI 5. 9< 03 /DR 6. =% > /GF.