M/S. EMIL PHARMACEUTICAL INDUSTRIES P LTD., MUMBAI V. DCIT - 12(2)(1), MUMBAI

ITA 3273/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7509 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 15-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Sale consideration of property below Jantri Value; Additional evidence; Valuation report
• Section: 143(3); 50C

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A. NO. 3273/MUM/2019 (ASSESSMENT YEAR 2014-15) M/S. EMIL PHARMACEUTICAL INDUSTRIES PRIVATE LIMITED 101, SHREE MANGALAM KULUPWADI ROAD, BORIVALI-E MUMBAI-400 066. PAN : AAACE0922A VS. DCIT-12(2)(1) AAYAKAR BHAVAN M.K. ROAD CHURCHGATE MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI ANIL THAKRAR DEPARTMENT BY SHRI VIJAY KUMAR MENON DATE OF HEARING 11 .0 2 .2021 DATE OF PRONOUNCEMENT 25.03.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF LEARNED CIT(A) DATED 29.3.2019 PERTAINING TO ASSESSMENT YEA R 2014-15. 2. THE GROUNDS OF APPEAL READ AS UNDER : 1) IN THE PROCEEDING U/S 143(3) OF THE ACT, THE LD AO AS WELL AS CIT (A) ERRED IN ADDING A SUM RS.2,38,58,286/- AS LONG TERM CAPITA L GAIN FOR SALE OF PROPERTY. 2) LD.A.O AS WELL AS CIT (A) ERRED IN DENYING THE SL UM SALES OF THE APPELLANT AND CONSIDER THE SALE TRANSACTION UNDER THE HEAD LONG TERM CAPITAL GAIN AND ACCORDINGLY ADDED A SUM OF RS.2,38,58,286/-. 3) THE LD CIT(A) IS ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT COMPANY HAD 2 GOING CONCERN UNITS AND ALL THE DETAILS WERE ALREADY FILED BEFORE THE LD AO. 4) LD.A.O AS WELL AS CIT(A) ERRED IN APPLYING SEC 5 0C OF THE I.T. ACT ON SALE OF GOING CONCERN UNIT OF APPELLANT UNDER THE PROVISION OF SLUM SALE. 5) THE APPELLANT PRAYS TO DELETE THE ADDITION MADE ON THIS ACCOUNT. 3. BRIEF FACTS OF THE CASE AS UNDER : M/S. EMIL PHARMACEUTICAL INDUSTRIES PRIVATE LIMITED 2 DURING THE PREVIOUS YEAR 2013-14, THE ASSESSEE SOLD ITS UNIT AT ROORKEE COMPRISING OF LAND, BUILDING AND PLANT & MACHINERY FOR A CONSIDERATION OF RS. 1,72,00,000/-. AS PER SALE DEED, THE STAMP VALUATIO N AUTHORITY VALUED THE LAND, RCC BUILDING AND THE COMPOUND WALL AS UNDER:- PARTICULAR OF THE ASSET VALUE IN RS. LAND 2,83,40,000 RCC BUILDING 32,58,305 COMPOUND WALL 4,08,924 TOTAL 3,46,60,395 IN ITS RETURN OF INCOME THE ASSESSEE CLAIMED THE SA LE AS SLUMP SALE AND DECLARED LONG TERM CAPITAL GAIN OF RS.95,60,095/-. THE ASSESSEE CLAIMED THAT SECTION 50C OF THE ACT IS NOT APPLICABLE IN THE CAS E OF SLUMP SALE. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R FOUND THAT THE UNIT WAS NOT CARRYING ON ANY COMMERCIAL ACTIVITIES OR THE PR ODUCTION ACTIVITIES; THAT THERE WERE NO SIGNIFICANT ASSETS OR LIABILITIES EXC EPT IMMOVABLE PROPERTY CONSISTING OF LAND AND BUILDING; THAT THE ASSESSEE SOLD THE ENTIRE UNIT (INCLUDING LAND AND BUILDING) AT A PRICE LOWER THAN THE VALUE OF THE LAND, BUILDING AND THE COMPOUND WALL AS DETERMINED BY THE STAMP VALUATION AUTHORITY. THE ASSESSEE WROTE OFF DEPOSIT OF RS. 51 ,110/- AND WRITTEN BACK THE CREDITORS OF RS.14,54,594/-RELATING TO ROORKEE UNIT . THE ASSESSING OFFICER HELD THAT THE SALE WAS IN SUBSTANCE SALE OF THE LAND, TH E RCC BUILDING IN THE COMPOUND WALL AND NOT SALE OF ANY UNDERTAKING. THER EFORE, THE ASSESSING OFFICER CONTENDED, IT WAS NOT A SLUMP SALE. THE ASS ESSING OFFICER OBSERVED THAT NO BUSINESS WAS CARRIED OUT IN THE ROORKEE UNIT FOR THE PRECEDING 2 YEARS. THE ASSESSING OFFICER HELD THAT THE SALE OF THE LAND, F ACTORY BUILDING ALONG WITH THE PLANT AND MACHINERY WAS NOT A SLUMP SALE RATHER IT WAS A REGULAR SALE. THE ASSESSING OFFICER CONTENDED THAT THE UNIT WAS NOT S OLD AS AN ONGOING CONCERN BECAUSE NO PRODUCTION ACTIVITY WAS CARRIED OUT IN T HE UNIT FOR THE PRECEDING TWO YEARS. ACCORDINGLY, THE ASSESSING OFFICER COMPU TED LONG-TERM CAPITAL GAIN AFTER INVOKING THE PROVISIONS OF SECTION 50C OF THE ACT AT RS.2,38,58,286/-. M/S. EMIL PHARMACEUTICAL INDUSTRIES PRIVATE LIMITED 3 4. UPON ASSESSEES APPEAL LEARNED CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER BY AGREEING WITH HIM AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. SLUMP SALE IS DEFINED IN SECTION 2(42C) OF THE ACT. THE SAME IS REPRODUCED BEL OW: (42C) 'SLUMP SALE' MEANS THE TRANSFER OF ONE OR MOR E UNDERTAKINGS AS A RESULT OF THE SALE FOR A LUMP SUM CONSIDERATION WITHOUT VA LUES BEING ASSIGNED TO THE INDIVIDUAL ASSETS AND LIABILITIES IN SUCH SALES. EXPLANATION 1. FOR THE PURPOSES OF THIS CLAUSE, 'U NDERTAKING' SHALL HAVE THE MEANING ASSIGNED TO IT IN EXPLANATION 1 TO CLAUSE ( 19AA). EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT THE DETERMINATION OF THE VALUE OF AN ASSET OR LIABILITY FOR THE SOLE PURPOSE OF PAYMENT OF STAMP DUTY, REGISTRATION FEES OR OTHER S IMILAR TAXES OR FEES SHALL NOT BE REGARDED AS ASSIGNMENT OF VALUES TO INDIVIDUAL A SSETS OR LIABILITIES. 4.4.2 AS PER EXPLANATION 1 TO CLAUSE 19AA, 'UNDERTAKIN G' SHALL INCLUDE ANY PART OF THE UNDERTAKING OR A UNIT OR A DIVISION OF AN UNDERTAKING OR A BUSINESS ACTIVITY AS WHOLE, BUT DOES NOT INCLUDE INDIV IDUAL ASSETS OR LIABILITIES OR ANY COMBINATION THEREOF NOT CONSTITUTING BUSINESS ACTIVITY. 4.4.3 I FIND THAT FOR A SALE TO QUALIFY AS SLUMP SALE OF THE ASSET WHICH IS TRANSFERRED MUST BE ONE OR MORE UNDERTAKINGS. THE WORD 'UNDERTAKING' CONNOTES A WORKING ENTERPRISE, PROJECT OR BUSINESS. IN THE STATE OF BOMBAY & OTHERS VERSUS THE HOSPITAL MAZDOOR & OTHERS AIR 1960 S C 610) THE WORD 'UNDERTAKING' WAS HELD TO CONNOTE ACTIVITY SYSTEMATICALL Y UNDERTAKEN FOR PRODUCTION AND DISTRIBUTION OF GOODS AND FOR RENDERI NG MATERIAL SERVICES WITH THE HELP OF EMPLOYEES. THEREFORE, THE WORD UNDERTAKIN G CONNOTES AN ORGANIZATION ENGAGED IN PRODUCTION OF SERVICE. IN OTH ER WORDS, AN UNDERTAKING IS MORE THAN JUST A FACTORY. THE ESSENCE O F AN UNDERTAKING IS THE ONGOING ORGANIZED ACTIVITY RATHER THAN THE FACTORY WHER E THE ACTIVITY TAKES PLACE. IN THE INSTANT CASE WHAT WAS SOLD WAS DEFINITELY NOT AN UNDERTAKING BUT A FACTORY. AS THE AO HAS POINTED OUT, THERE WAS NO CONTINUITY OF BUSINESS. THE APPELLANT HAS CONTENDED THAT IT HAD PROD UCED SOME SALES BILLS BEFORE THE AO AND HAS CONTENDED THAT THOSE SALES PROV E THAT THE UNIT WAS RUNNING AND WAS AN ONGOING BUSINESS CONCERN. THE CL AIM IS NOT CORRECT. A FEW INSTANCES OF SALE CANNOT PROVE THAT PRODUCTION WAS GOIN G ON; IT IS QUITE POSSIBLE THAT THE SALE WAS MADE FROM STOCK OF UNSOLD FI NISHED GOODS. THE APPELLANT DID NOT PRODUCE THE P&L ACCOUNT AND THE BALA NCE SHEET OF THE ROORKEE UNIT IN SUPPORT OF ITS CLAIM THAT THE PRODUCTION ACTIVITIES WERE CONTINUING WHEN THE UNIT WAS SOLD. THE APPELLANT HAS NOT BEEN ABLE TO PROVE WITH SUPPORTIN G DOCUMENTS SUCH AS THE LIST OF EMPLOYEES AT THE TIME OF THE SALE, THE ELECTRIC ITY BILLS, THE DETAILS OF PURCHASES AND SALES DURING THE YEAR UNDER CONSIDERAT ION, DETAILS OF INVENTORY AT THE TIME OF SALE ETC. TO PROVE THAT PRODUCT ION ACTIVITIES WAS GOING ON WHEN THE SALE TOOK PLACE. M/S. EMIL PHARMACEUTICAL INDUSTRIES PRIVATE LIMITED 4 4.4.4 I, THEREFORE, HOLD THAT THE AO WAS JUSTIFIED IN TREATING THE SALE AS A REGULAR SALE AND NOT A SLUMP SALE. CONSEQUENTLY I ALS O UPHOLD THE ADDITION MADE BY THE AO. 5. AGAINST THIS ORDER ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND IN THIS CASE THE CLAIM OF THE ASSESSEE IS THAT IT HAS ENGAG ED INTO SLUMP SALE AS SUCH IT IS CLAIMING THAT PROVISIONS OF SECTION 50C ARE NOT APPLICABLE. HOWEVER, ON THE OTHER HAND IT IS THE FINDING OF THE AUTHORITIES BEL OW THAT THE ASSESSEES BUSINESS WHICH IS SOLD WAS NEVER CARRIED OUT AND IN FACT WAS CLOSED SINCE INCEPTION. AS A RESULT, LEARNED CIT(A) HAS FOUND TH AT THE SALE CLAIMED BY THE ASSESSEE TO BE SLUMP SALE DOES NOT FULFILL THE SLUM P SALE AS DEFINED IN SECTION 2(42C) OF THE ACT. HE HAS FOUND THAT SALE WAS NOT O F AN UNDERTAKING AS PER EXPLANATION (1) TO CLAUSE 19AA OF THE ACT. LEARNED CIT(A) HAS FOUND THAT THE ESSENCE OF AN UNDERTAKING IS THE ONGOING ORGANIZED ACTIVITY. IN THE INSTANT CASE WHAT WAS SOLD WAS DEFINITELY NOT AN UNDERTAKING BUT A FACTORY. LEARNED CIT(A) HAS NOTED THAT THE ASSESSEE HAS CONTENDED THAT IT H AS PRODUCED SOME SALE BILLS BEFORE THE ASSESSING OFFICER AND HAS CONTENDED THAT THOSE SALES TO PROVE THAT THE UNIT WAS RUNNING AND WAS AN ONGOING BUSINESS CO NCERN. HOWEVER, LEARNED CIT(A) HAS NOTED THAT A FEW INSTANCES OF SALE CANNO T PROVE THAT PRODUCTION WAS GOING ON. THAT IT IS QUITE POSSIBLE THAT THE SALE W AS MADE FROM STOCK OF UNSOLD FINISHED GOODS. THAT THE ASSESSEE DID NOT PRODUCE T HE PROFIT AND LOSS ACCOUNT AND THE BALANCE-SHEET OF THE ROORKEE UNIT IN SUPPOR T OF ITS CLAIM THAT THE PRODUCTION ACTIVITIES WERE CONTINUING WHERE THE UNI T WAS SOLD. 7. IN THIS REGARD, BEFORE US LEARNED COUNSEL OF THE ASSESSEE HAS POINTED THAT IN PAGE NO. 75 OF THE PAPER BOOK BEFORE US IS NOTE FORMING PART OF THE BALANCE-SHEET OF THE ASSESSEE-COMPANY WHEREIN FOLLO WING FINANCIALS OF ROORKEE UNIT ARE AS UNDER :- M/S. EMIL PHARMACEUTICAL INDUSTRIES PRIVATE LIMITED 5 EXP ENSES AMOUNT(RS) AMOUNT (RS.) REVENUE AMOUNT(RS) RAW MATERIAL CONSUMED 98,897 SALES 24,000 SALARY 90,000 LABOUR CHARGES 17,267 SECURITY CHARGES 48,000 LOSS 3,59,745 TRAVELLING & CONVEYANCE 41,500 PRINTING & STATIONERY 88,081 TOTAL 3,83,745 TOTAL 3,83,745 8. WE NOTE THAT THIS IS NOTE ABOUT THE OPERATIONS A T ROORKEE UNIT NEEDS EXAMINATION WITH RELATION TO PROFIT AND LOSS ACCOUN T OF THE ASSESSEE. HERE WE NOTE THAT IN THE COST OF MATERIAL CONSUMED IN THE P ROFIT AND LOSS ACCOUNT OF THE ASSESSEE THERE WAS NO PURCHASE OF MATERIAL AT ROORK EE UNIT. SO PRIMA FACIE LEARNED CIT(A)S FINDING IS CORRECT THAT NO MANUFAC TURING ACTIVITY HAS TAKEN PLACE AND ASSESSEE HAS ONLY SHOWN OPENING RAW MATER IAL AS CONSUMED. MOREOVER, WE FIND THAT IN THE PROFIT AND LOSS ACCOU NT WHILE CLOSING STOCK OF ROORKEE UNIT SHOWN AS NIL, OPENING STOCK FOR THAT Y EAR FOR RAW MATERIAL AT RS. 98,897/-. IN SUCH CIRCUMSTANCES, HOW FINANCIAL NOTE REFLECTS RAW MATERIAL CONSUMED AT RS. 24,000/- CLEARLY SHOWS AN ANOMALY I N THE PREPARATION OF FINANCIAL ACCOUNT. IN OUR CONSIDERED OPINION THIS A SPECT NEEDS EXAMINATION AT THE LEVEL OF ASSESSING OFFICER. 9. FURTHERMORE LEARNED CIT(A) HAS NOTED THAT THE AS SESSEE HAS NOT PRODUCED SUPPORTING DOCUMENTS SUCH AS THE LIST OF E MPLOYEES AT THE TIME OF THE SALE, ELECTRICITY BILLS AND OTHER DETAILS NECES SARY TO ESTABLISH THE EXISTENCE OF AN UNDERTAKING IN A CONTINUOUS BUSINESS. FURTHER MORE, WE NOTE THAT LEARNED COUNSEL HAS PRODUCED BEFORE US VALUATION RE PORT GIVING VALUATION OF THE ITEMS SOLD. THIS IS ADDITIONAL EVIDENCE NOT PRO DUCED BEFORE THE AUTHORITIES BELOW. WE NOTE THAT THIS ADDITIONAL EVIDENCE IN THE SHAPE OF VALUATION REPORT ITSELF STATES THAT AS THE ASSESSEES UNIT WAS ESTAB LISHED IN A DELAYED MANNER AND IT WAS NO LONGER ELIGIBLE FOR INCENTIVES AVAILA BLE THERE. THE VALUER HIMSELF STATES THAT THERE ARE NO COMPARATIVE SALES INSTANCE S. THE SAID REPORT WHILE DISCUSSING FAIR MARKET RATE HAS CLEARLY MENTIONED T HAT WE FIND THAT THERE WAS NO BUYER FOR INDUSTRIAL UNIT, NOT ELIGIBLE FOR INCE NTIVE. THIS AMPLY CASTS DOUBT M/S. EMIL PHARMACEUTICAL INDUSTRIES PRIVATE LIMITED 6 OVER THE CLAIM OF THE ASSESSEE THAT THIS WAS SLUMP SALE OF AN UNDERTAKING. IT IS SETTLED LAW THAT ASSESSEE CANNOT BE ALLOWED TO TAKE SHIFTING STANDS WHILE IT IS CLAIMING THAT IS A SALE OF AN UNDERTAKING IT IS GIV ING EVIDENCE THAT THERE CANNOT BE A BUYER FOR SUCH UNIT. IN OUR CONSIDERED OPINION , SINCE THE AUTHORITIES BELOW HAVE NOT EXAMINED THIS ADDITIONAL EVIDENCE, W E DEEM IT APPROPRIATE TO REMIT THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THIS ISSUE AFRESH AFTER TAKING INTO A CCOUNT ADDITIONAL EVIDENCE. THE ASSESSEE IS DIRECTED TO PRODUCE NECESSARY EVIDE NCE IN SUPPORT OF THE CLAIM THAT IT WAS AN ONGOING CONCERN. 10. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STAN DS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 25/3/2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 25/03/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI