T.A.Taylor Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 622/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7455 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 13-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR PUNNA JUNIOR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Proportionate interest; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO.622/CHNY/2017 / ASSESSMENT YEAR : 2012-2013. M/S. T.A. TAYLOR PRIVATE LTD, NO.10/5, ROYAL ENCLAVE, BESANT AVENUE ROAD, ADYAR, CHENNAI 600 020. [PAN AAACT 4165G] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1) CHENNAI. ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI.R. VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SHRI. VIJAY KUMAR PUNNA, JUNIOR STANDING COUNSEL. /DATE OF HEARING : 18-07-2018 ! /DATE OF PRONOUNCEMENT : 19-07-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS D IRECTED AGAINST AN ORDER DATED 31.01.2017 OF COMMISSION ER OF INCOME-TAX (APPEALS)-11, CHENNAI, IT HAS TAKEN ALTOGETHER FOUR GROUNDS OF WHICH GROUND NO. 1 & 4 ARE GENERAL, NEEDING NO SPECIFIC ADJUDICATION. ITA NO. 622/CHNY/2017 :- 2 -: 2. VIDE ITS GROUND NO.2, GRIEVANCE OF THE ASSESSEE IS THAT ENTIRE SALE CONSIDERATION OF E18,31,00,000/- ARISING ON A SLUMP SALE, WAS TAKEN AS INCOME OF THE IMPUGNED ASSESSMENT YEAR. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSES SEE ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLIN G HOME APPLIANCES, HAD THROUGH A SLUMP SALE AGREEMENT DATE D 06.04.2011, WITH ONE M/S. PREETHI KITCHEN APPLIANCES PVT. LTD, TRANSFERRED ITS DIVISION AT THAZHAMBUR ROAD, NAVALUR VILLAGE & POST , KANCHEEPURAM ALONG WITH PLANT & MACHINERY, FURNITURE & FIXTURES, COMPUTERS, INVENTORIES ETC. AS PER THE LD. AUTHORISED REPRESE NTATIVE, THOUGH THE TOTAL CONSIDERATION AGREED WAS E18,31,00,000/-, WH AT WAS RECEIVED DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED A SSESSMENT YEAR WAS ONLY E16,02,00,000/- AND THE BALANCE SUM OF E2, 29,00,000/- WAS RECEIVED IN SUBSEQUENT FINANCIAL YEAR 2012-2013. F URTHER AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD COMPUT ED CAPITAL GAINS FOR THE IMPUGNED ASSESSMENT YEAR, CONSIDERING THE S UM OF E16,02,00,000/- AND THE BALANCE SUM OF E2,29,00,000 /- WAS OFFERED IN THE SUBSEQUENT ASSESSMENT YEAR. HOWEVER, AS PER TH E LD. AUTHORISED REPRESENTATIVE THE LD. ASSESSING OFFICER HELD THE DATE OF ACTUAL RECEIPT OF CONSIDERATION AS IRRELEVANT SINCE THE S LUMP SALE AGREEMENT WAS ENTERED ON 06.04.2011. ACCORDINGLY, TO LD. AUTH ORISED ITA NO. 622/CHNY/2017 :- 3 -: REPRESENTATIVE, THE LD. ASSESSING OFFICER COMPUTED THE CAPITAL GAINS FOR THE IMPUGNED ASSESSMENT YEAR TAKING E18,31,00,0 00/- AS THE SALE CONSIDERATION. 4. CONTINUING HIS SUBMISSIONS, THE LD. AUTHORISED REPRESENTATIVE, STATED THAT ASSESSEE HAD MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS), BUT DID NOT M EET WITH ANY SUCCESS. AS PER THE LD. AUTHORISED REPRESENTATIVE, IT WAS POINTED OUT TO THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THA T ASSESSEE HAD RECEIVED ONLY E16,02,00,000/- DURING THE FINANCIAL YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR AND THE BALANCE WAS KEPT I N ESCROW ACCOUNT AS PER CLAUSE 7 OF THE SLUMP SALE AGREEMEN T. FURTHER, AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD BR OUGHT TO THE ATTENTION OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) THE CONDITIONS SUBJECT TO WHICH ASSESSEE COULD ENCASH T HE AMOUNT LYING IN THE ESCROW ACCOUNT AND WHY THE SUM OF E2,29,00,000 /- LYING IN THE ESCROW ACCOUNT COULD NOT BE CONSIDERED FOR LEVY OF CAPITAL GAINS IN THE IMPUGNED ASSESSMENT YEAR. HOWEVER, AS PER THE LD. AUTHORISED REPRESENTATIVE, LD. COMMISSIONER OF INCOME TAX (APP EALS) DISMISSED ALL THESE OBSERVING THAT ASSESSEE COULD NOT OFFER A NY CONVINCING REPLY FOR CONSIDERING THE BALANCE CONSIDERATION OF E2,29 ,00,000/- IN THE SUBSEQUENT ASSESSMENT YEAR. RELYING ON SLUMP SALE AGREEMENT DATED ITA NO. 622/CHNY/2017 :- 4 -: 06.04.2011 PLACED AT PAPER BOOK PAGES 1 TO 90, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT CLAUSE 3, THOUGH IT MENTIONED PURCHASE PRICE AS E18,31,00,000/-, CLAUSE 4.8 CLEARLY SPECIF IED DEPOSITING PART OF THE CONSIDERATION IN AN ESCROW ACCOUNT. CONTENT ION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT ESCROW AMOUNT CO ULD BE ENCASHED ONLY IF ASSESSEE PERFORMED ITS OBLIGATIONS AS PER S LUMP SALE AGREEMENT, AFTER SETTING OFF CLAIM FOR BREACH OF S ELLERS WARRANTIES AND OTHER DUE COMPENSATIONS ARISING FROM VARIOUS C LAUSES IN THE SLUMP SALE AGREEMENT. PLACING RELIANCE ON THE ESCRO W AGREEMENT DATED 11.04.2011, PLACED AT PAGE BOOK PAGES 91 TO 1 12, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT RELEASE OF THE ESCROWED AMOUNT, WAS SUBJECT TO INTIMATION OF THE CLOSING D ATE TO THE ESCROW AGENT, IN FORM SCHEDULE I IN THE AGREEMENT. AS PE R THE LD. AUTHORISED REPRESENTATIVE, SCHEDULE I OF THE SAID AGREEMENT PL ACED AT PAPER BOOK PAGE 111 CLEARLY INDICATED THAT ESCROW AMOUNT WOULD BE RELEASED BY ESCROW AGENT ONLY IF BOTH SELLER AND PURCHASER AGRE ED AND SIGNED. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE, THE AMOUNT PLACED IN THE ESCROW ACCOUNT HAD NOT CRYSTALLIZED AS INCOME DURING THE RELEVANT PREVIOUS YEAR AND HENCE COULD NOT BE CONSIDERING FO R COMPUTING THE CAPITAL GAINS FOR THE IMPUGNED ASSESSMENT YEAR. RE LIANCE WAS PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HEMAL RAJU SHETE,(2016) 136 DTR 417, THAT OF HONBLE JURISDICTIONAL ITA NO. 622/CHNY/2017 :- 5 -: HIGH COURT IN THE CASE OF CIT VS. MOTOR CREDIT CO. P. LTD, (1981)127 ITR 572 AND THAT OF HONBLE APEX COURT IN THE CASE OF CIT VS. HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LTD, 1 61 ITR 524. 5. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT SLUMP SALE AGREEMENT WAS CLEAR REGARDING THE QUESTI ON OF CONSIDERATION. ACCORDING TO HIM, JUST BECAUSE A PA RT OF THE CONSIDERATION WAS TO BE RELEASED IN THE SUBSEQUEN T YEAR WOULD NOT MEAN THAT CAPITAL GAINS HAD TO BE DISTRIBUTED OVER VARIOUS YEARS. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. SLUMP SALE AGREE MENT ENTERED BY THE ASSESSEE ON 06.04.2011 MENTIONS THE CONSIDERATI ON AT CLAUSE 3 THEREOF. THE SAID CLAUSES IS REPRODUCED HEREUNDE R:- 3 CONSIDERTION:- 3.1PURCHASE PRICE FOR THE BUSINESS THE PURCHASE PRICE FOR THE, BUSINESS (THE 'PURCHASE - PRICE') IS INR 18,31.00,000 (INDIAN RUPEES EIGHTEEN CRORES THIRTY ONE LAKHS ONLY), PROVIDED THAT THE PURCHASE PRICE SHALL BE SUBJECT TO A WORKING CAPITAL ADJUSTMENT AS AGREED BETWEEN THE SELLER AND PURCHASER. 3.2PAYMENT ON THE CLOSING DATE AT CLOSING, PURCHASER SHALL REMIT THE. PURCHASE PRI CE LESS THE ,ESCROW AMOUNT TO THE BANK ACCOUNT DESIGNATED BY THE SELLER TO PURCHASER IN WRITING 'AT LEAST THREE BUSINESS DAYS PRIOR TO .THE 'CLOSING DATE, SUBJECT TO ANY ADJUSTMENTS TO THE PURCHASE PRICE AGREED TO IN WRI TING ITA NO. 622/CHNY/2017 :- 6 -: BETWEEN THE PARTIES. 3.3CLOSING CLOSING SHALL TAKE PLACE AT THE COMMENCEMENT OF BUSINESS HOURS ON THE DAY IMMEDIATELY FOLLOWING THE DATE OF EXECUTION OF THIS AGREEMENT IN CHENNAI AT THE OF FICE OF THE SELLER. 3.4 VALUE ADDED TAX IF ANY VAT BECOMES CHARGEABLE ON THE SALE ,OF ANY OF THE BUSINESS ASSETS AS .A RESULT OF THE TRANSACTION, SU CH VAT WILL BE BORNE BY PURCHASER AGAINST DEL/VERY 'OF' A. CORRESPONDING VAT' INVOICE BY THE SELLER TO PURCHASER. 3.5ADJUSTMENT TO PURCHASE PRICE PURSUANT, TO CLAIMS ALL PAYMENTS (INCLUDING INTEREST PAYMENTS ) MADE UN DER THIS AGREEMENT BY THE SELLER TO PURCHASER OR VICE VERSA, SHALL BE MADE ON ACCOUNT OF, AND WHERE APPLICABLE, AS ADJUST MENT TO THE PURCHASER PRICE. THE FOREGOING INCLUDES ANY PA YMENT MADE IN RESPECT OF ANY CLAIM (I) FOR ANY BREACH OF THIS AGREEMENT (INCLUDING, FOR THE AVOIDANCE OF DOUBT, A BREACH OF A SELLERS WARRANTY) OR ANY AGREEMENT ENTERED INTO PURSUANT THERETO OR (II) PURSUANT TO AN INDEMNITY UNDER THIS AGREEMENT) CONDITIONS REGARDING ESCROW ACCOUNT AS IT APPEARS A T CLAUSE 4.8 OF THE VERY SAME AGREEMENT IS ALSO REPRODUCED HEREUNDER:- ON A DATE NOT LATER THAN 12 APRIL, 20.11, THE PURCH ASER SHALL DEPOSIT THE ESCROW AMOUNT INTO THE ESCROW ACCOUNT WITH THE ESCROW AGENT TO BE HELD IN THE ESC ROW ACCOUNT FOR A PERIOD, OF 1 (ONE) YEAR FROM THE, CLO SING DATE (THE 'ESCROW PERIOD'). THE. ESCROW AMOUNT SHAL L SERVE AS SECURITY (WITHOUT DETRACTING FROM ANY OTHE R RIGHTS OF PURCHASER) FOR THE DUE PERFORMANCE BY THE SELLER OF ITS OBLIGATIONS,' TO !DE EXTENT OF (A) ANY CLAIM FOR BREACH OF :SELLER'S. WARRANTIES FILED' PRIOR TO EXP IRY OF THE ESCROW PERIOD, AND HAVE BEEN PAID PURSUANT TO THE PROCEDURE FOR THIRD PARTY CLAIMS UNDER CLAUSE 7 BEL OW (B) ANY CLAIM IN RELATION TO THE COVENANTS SET OUT IN CLAUSES 4.22 THROUGH 4.55 WHICH CLAIM HAS BEEN 'AWARDED BY THE ARBITRAL TRIBUNAL CONSTITUTED. PURS UANT ITA NO. 622/CHNY/2017 :- 7 -: TO CLAUSE 10.13 BELOW, AND (C).ANY CLAIM UNDER CLAU SE 6.2 WHICH HAVE BEEN PAID PURSUANT TO THE PROCEDURE FOR CLAIMS UNDER CLAUSE 7 BELOW. TO THE EXTENT THAT ANY CLAIM MADE PURSUANT TO . ANY OF THE AFORESAID CLAUS ES HAS NOT RESULTED IN AN INDEMNIFICATION OBLIGATION A S ON THE-DATE OF THE EXPIRY OF THE ESCROW PERIOD, THE AM OUNT OF SUCH CLAIMS SHALL BE RELEASED FROM THE ESCROW ACCOUNT TO THE SELLER WITHOUT PREJUDICE TO THE RIGH T OF PURCHASER TO MAKE AN INDEMNIFICATION CLAIM IN RESPE CT OF THE SAME PURSUANT TO CLAUSE 7 BELOW, IF SUCH CLA IM WERE TO CRYSTALLISE ON A FUTURE DATE. SAVE AS PROVI DED IN THE FOREGOING PROVISIONS OF THIS CLAUSE 4.8.1, THER E SHALL BE NO OTHER CLAIM OF SET OFF, ADJUSTMENT OR DEDUCTION BY PURCHASER FROM THE ESCROW AMOUNT 4.8.2 WITHIN 5 (FIVE) BUSINESS DAYS AFTER EXPIRY O F THE ESCROW PERIOD, THE BALANCE AMOUNT (BEING THE ESCROW AMOUNT LESS ANY AMOUNTS DEDUCTED FOR CLAIMS FILED B Y PURCHASER PURSUANT TO CLAUSE 4.8.1 ),INCREASED BY INTEREST ACCRUED IN THE ESCROW ACCOUNT, SHALL BE PA ID TO THE SELLER 4.8.3 PURCHASER SHALL NOT MERGE WITH ANY OTHER ENT ITY BELONGING TO THE PURCHASER GROUP OR OTHERWISE, AND SHALL NOT DISPOSE OF THE BUSINESS TRANSFERRED PURSU ANT TO THIS AGREEMENT, UNTIL THE PAYMENT OF THE ESCROW AMOUNT TO THE SELLERS IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. IN THE EVENT OF ANY PROPOSAL TO MER GE OR SELL ANY PORTION OF THE BUSINESS TRANSFERRED TO THE PURCHASER, THEN, SUBJECT TO CLAUSES 4.8.1 AND 4.8.2 , ABOVE, THE ESCROW AMOUNT SHALL BECOME IMMEDIATELY PAYABLE TO THE SELLER IN ACCORDANCE WITH THIS AGREE MENT AS A CONDITION FOR SUCH TRANSACTION TO BECOME EFFEC TIVE. CONTENTION OF THE ASSESSEE IS THAT UNLESS AND UNTI L THE ESCROW AMOUNT WAS RELEASED BY THE ESCROW AGENT, THE AMOUNT LYING IN THE ESCROW ACCOUNT COULD NOT BE CONSIDERED FOR COMPUTING CAPIT AL GAINS. PARAS A ITA NO. 622/CHNY/2017 :- 8 -: TO D OF THE ESCROW AGREEMENT DATED 11.04.2011 WHICH ARE VERY RELEVANT IS REPRODUCED HEREUNDER:- (A) THE PURCHASER HAS ENTERED INTO INDIVIDUAL SLUMP SALE AGREEMENTS DATED APRIL 6, 201I( EACH A 'SLUMP SALE AGREEMENT') 'WITH EACH OF MAL, PHC, TAT, DEYEM, SIGMA; GKR., RANGAMALA,' (COLLECTIVELY REFERRED TO AS THE 'SELLE R GROUP') TO PURCHASE THE BUSINESS RELATING TO RESEARCH AND DEVELOPMENT, PRODUCTION, DISTRIBUTION AND SALE OR KITCHEN APPLIANCES IN SOUTHERN INDIA UNDER THE 'PREETHI' ARID 'PREETT' BRANDS FROM THE SELLER GROUP ('BUSINESS'} FOR CONSIDERATION SET OUT. IN THE RESPECTIVE SLUMP SALE AGREEMENT; (B) THE PURCHASER AND THE SELLER HAVE, IN CONNECTION WITH THE PURCHASE OF THE BUSINESS, REQUESTED THE ESCROW AGENT TO ACT AS THE ESCROW AGENT IN RELATION TO THE ESCROWED AMOUNTS AND OTHERWISE IN CONNECTION WITH THE-DELIVERY AND RECEI PT OF THE ESCROWED AMOUNTS; (C) THE PURCHASER AND SELLERS AGREE THAT THE PURCHASER SHALL REMIT THE RELEVANT PROPORTION OF THE ESCROW AMOUNT ATTRIBUTABLE TO . EACH SELLER AS . SE T OUT IN SCHEDULE 4 AGGREGATING TO THE ESCROWED AMOUNT IN THE ESCROW ACCOUNT AND THE ESCROWED AMOUNTS SHALL BE HELD AND RELEASED BY THE ESCROW AGENT IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT (D)THE ESCROW AGENT HAS AGREED TO ACT AS AN INDEPENDENT ESCROW AGENT AND THE PARTIES .MUTUALLY. AGREE TO THE ESCROW MECHANISM AND OTHER RELATED MATTERS SET OUT IN THIS AGREEMENT. CONDITIONS FOR THE RELEASE OF THE ESCROW AMOUNT APP EAR AT PARA 7 AND THIS IS REPRODUCED HEREUNDER:- ITA NO. 622/CHNY/2017 :- 9 -: 7 RELEASE OF THE ESCROWED AMOUNTS AND THE INTEREST AMOUNT 7.1. THE ESCROW AGENT SHALL, SUBJECT TO ANY CLAIM M ADE UNDER CLAUSE 7:3, 'TRANSFER THE ESCROWED AMOUNTS TO THE SELLER'S BANK. ACCOUNT AS PER CLAUSE 7.2 . 7.2 THE ESCROWED AMOUNTS, ARID THE INTEREST AMOUNT, IF ANY, SHALL BE TRANSFERRED TO MAL'S BANK ACCOUNT WIT HIN 5 (FIVE) BUSINESS DAYS AFTER A PERIOD OF 365 (TH.FEE HUNDRED AND SIXTY FIVE) DAYS FROM THE 'CLOSING DATE ('ESCROW PERIOD') LESS ANY DAMAGES NOTIFIED BY THE PURCHASER UNDER AN INDEMNITY LETTER TO THE ESCROW A GENT IN ACCORDANCE WITH CLAUSE 7.3. THE ESCROW AGENT SHA LL RELEASE THE AMOUNT OF DAMAGES, IF ANY, TO THE PURCH ASER IN ACCORDANCE WITH CLAUSE .7.3; PROVIDED IN THE EV ENT THAT THE ESCROWED AMOUNTS REDUCED BY DAMAGES AS SPECIFI ED IN THE INDEMNITY LETTER(S), IS REDUCED TO ZERO ON A CCOUNT OF ADJUSTMENTS MADE BY THE PURCHASER ON ACCOUNT OF DAMAGES SUFFERED BY IT OR CLAIMS MADE . AGAINST THE SELLER GROUP, THE ESCROW AGENT SHALL NO T BE REQUIRED TO TRANSFER ANY MONIES TO SELLER'S BANK AC COUNT. THE DAMAGES IN RESPECT OF A SELLER SHALL BE IN THE PROPORTION AS .. {)AILED IN SCHEDULE 4. PROVIDED FU RTHER THAT UNDER .00 CIRCUMSTANCES WILL THE AMOUNT OF . DAMAGES TO BE ADJUSTED, IN RESPECT OF A SELLER FROM THE ESCROW ACCOUNT EXCEED THE .. PROPORTION OF THE ESCROWED AM OUNT ATTRIBUTABLE TO SUCH SELLER AS SET FORTH IN SCHEDUL E 4. IN THE EVENT THE DAMAGES EXCEED THE AMOUNT AS DETAILED IN SCHEDULE 4 WITH RESPECT TO . EACH SELLER, THE PARTI ES HEREBY AGREE AND UNDERSTAND THAT SUCH EXCESS CLAIM SHALL NOT FORM PART OF THIS ESCROW AGREEMENT. THE PURCHAS ER AND SELLERS SHALL DEAL WITH SUCH EXCESS CLAIMS, SEP ARATELY BETWEEN EACH OTHER. THE RESPONSIBILITY AND LIABILI TY OF THE ESCROW AGENT SHALL BE DEEMED TO BE COMPLETED ON MAKING THE PAYMENT IN ACCORDANCE. WITH THE PROPORTI ON AS DETAILED IN SCHEDULE 4. 7.3 IF AT ANY TIME BEFORE THE EXPIRY OF THE ESCROW PERIOD, THE PURCHASER AND THE SELLERS NOTIFIES THE ESCROW AGENT IN WRITING SUBSTANTIALLY ITI THE FORM SET OUT IN SCHEDULE 3 THAT ANY OR ALL OF THE MEMBERS OF THE SELLER GROUP IS LI ABLE TO INDEMNIFY THE PURCHASER ON ACCOUNT OF ANY DAMAGES (SUBJECT TO THE MAXIMUM OF THE AMOUNTS SPECIFIED AG AINST EACH OF THE SELLERS IN SCHEDULE 4) IN TERMS OF THE SLUMP ITA NO. 622/CHNY/2017 :- 10 -: SALE AGREEMENT ('INDEMNITY LETTER', THE ESCROW AGEN T SHALL, UPON THE EXPIRY OF THE. ESCROW PERIOD, RELEA SE FROM THE ESCROW ACCOUNT (INCLUDING THE FIXED DEPOSIT ACCOUNTS); AN AMOUNT EQUIVALENT T OTHE DAMAGES . FO R THE- PURPOSES TOGETHER WITH ANY PROPORTIONATE INTEREST A CCRUED THEREON FROM THE DATE OF NOTIFICATION TO THE ESCROW AGENT THROUGH THE INDEMNITY LETTER. TILL THE EXPIRY OF TH E ESCROW PERIOD ON THE AMOUNT OF DAMAGES, AND TRANSFER THE S AME TO THE PURCHASER OR .ITS NOMINEE AS SPECIFIED 'IN T HE INDEMNITY LETTER. THE ESCROW AGENT SHALL AND IS HER EBY AUTHORIZED TO TAKE ALL SUCH ACTIONS AS MAY BE NECES SARY FOR RELEASING FROM THE. ESCROW . ACCOUNT (INCLUDING ANY ONE OF THE FIXED DEPOSIT ACCOUNTS) ,. FOR AVOIDANCE OF DOUBT, THE ESCROW AGE NT SHALL RELY EXCLUSIVELY ON THE INSTRUCTIONS AS PROVI DED IN THE INDEMNITY LETTER AND SHALL RELEASE THE AMOUNT STATE D IN THE INDEMNITY LETTER TO THE PURCHASER, UPON RECEIPT' OF THE INDEMNITY LETTER AND SHALL NOT BE REQUIRED TO VERIF Y THE CONTENTS/DOCUMENTS SUBMITTED ALONG WITH SCHEDULE 3. THE BALANCE AMOUNT SHALL BE RELEASED BY THE ESCROW AGEN T TO THE SELLER'S ACCOUNT IN PROPORTION, SET OUT IN SCHE DULE 4. 7.4 . THE SELLER'S GROUP SHALL BE ENTITLED TO SEEK IMMEDIATE 'RELEASE OF THE ESCROWED AMOUNTS IN ITS FAVOUR, IN THE EVENT OF ANY PROPOSAL BY THE PURCHASER TO ME RGE OR SELL ANY -PORTION OF THE BUSINESS TRANSFERRED TO TH E PURCHASER NOTWITHSTANDING THAT THE. ESCROW PERIOD H AS NOT EXPIRED, THE ESCROWED AMOUNT SHALL BECOME IMMEDIAT ELY 'PAYABLE TO THE SELLER GROUP IN ACCORDANCE WITH THI S AGREEMENT AS A CONDITION FOR SUCH TRANSACTION TO BE COME EFFECTIVE 'AND THE 'ESCROW AGENT SHALL IMMEDIATELY RELEASE THE ESCROWED AMOUNTS IN . FAVOUR OF THE SELLER GROU P UPON RECEIPT OF WRITTEN NOTIFICATION IN THE FORM SET OUT ID . SCHEDULE 5 FROM PURCHASER AND SELLER GROUP PURSUANT TO THIS CLAUSE 7.4. THE ESCROW AGENT SHALL RELY EXCLUS IVELY ON SUCH WRITTEN NOTIFICATION AND SHALL RELEASE THE ESC ROWED AMOUNTS TO SELLER GROUP, UPON RECEIPT OF SUCH WRITT EN NOTIFICATION, AND IS NOT REQUIRED TO VERIFY THE CON TENTS OR AUTHENTICITY OF THE LETTER. 7.5 ANY PAYMENT BY THE ESCROW AGENT UNDER THIS AGREEMENT WILL BE MADE WITHOUT ANY DEDUCTION OR WITHHOLDING FOR OR ON ACCOUNT OF ANY TAX UNLESS SUC H DEDUCTION OR WITHHOLDING IS REQUIRED TO BE MADE BY THE ESCROW AGENT. IN ITS CAPACITY AS AN ESCROW AGENT BY APPLICABLE LAW. 7.6 THE ESCROW AGENT SHALL NOT BE OBLIGED TO CHECK OR ITA NO. 622/CHNY/2017 :- 11 -: ENSURE, AND THE ESCROW AGENT SHALL BE ENTITLED TO PRESUME, .THAT ANY COMMUNICATION/S FROM THE OTHER PARTIES TO THE AGREEMENT ARE CORRECT, ACCURATE AND IN ACCORDANCE WITH APPLICABLE LAW, AND SHALL MERELY BE REQUIRED TO ACT AS PER SUCH COMMUNICATION /S. . SP ECIMEN SIGNATURES OF THE AFORESAID .. THIS AGREEMENT, AND THE ESCROW AGENT SHALL AT ALL TIMES BE ENTITLED TO RELY ON THE SAME WITHOUT ANY FURTHER VERI FICATION. THE OTHER PARTIES UNDERTAKE TO GIVE THE ESCROW AGENT P.YE (5) BUSINESS DAYS' NOTICE IN WRITING OF ANY AMENDMENT TO THEIR RESPECT IVE AUTHORISED 'REPRESENTATIVES OR CALLBACK CONTACTS GI VING THE DETAILS SPECIFIED IN SCHEDULE 2. RELEASE OF THE AMOUNT LYING IN THE ESCROW ACCOUNT I S SUBJECT TO ISSUE OF A LETTER FROM SELLER AND PURCHASER TO THE ESCROW AGENT. NO DOUBT, RELEASE OF THE ESCROW AMOUNT, IS DEPENDENT ON SA TISFACTION OF VARIOUS RESPONSIBILITIES UNDERTAKEN BY THE ASSESSEE IN RELATION TO THE SLUMP SALE. HOWEVER, IN OUR OPINION, THIS BY ITSEL F WOULD NOT BE A REASON TO HOLD THAT CONSIDERATION FOR THE SLUMP SA LE WAS NOT E18,31,00,000/-. CONSIDERATION IS CLEARLY MENTIONE D IN THE SLUMP SALE AGREEMENT AS E18,31,00,000/-. SEGREGATING SUCH CO NSIDERATION TO TWO PARTS, ONE PART PAYABLE IN THE RELEVANT PREVIO US YEAR AND OTHER PART PAYABLE IN THE NEXT YEAR COULD NOT BE IN OUR O PINION TO A REASON TO SAY THAT CAPITAL GAINS AROSE ONLY WITH REFERENCE TO FIRST PART, EVEN THOUGH RELEASE OF THE SECOND PART WAS SUBJECT TO TH E SELLER ABIDING BY CERTAIN CONDITIONS OF THE SLUMP SALE AGREEMENT. ITA NO. 622/CHNY/2017 :- 12 -: 7. SECTION 50B OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WHICH DEALS WITH COMPUTATION OF CAPITAL GAI NS IN A CASE OF SLUMP SALE IS REPRODUCED HEREUNDER:- (1) ANY PROFITS OR GAINS ARISING FROM THE SLUMP S ALE EFFECTED IN THE PREVIOUS YEAR SHALL BE CHARGEABLE TO INCOME-TAX AS CAPITAL GAINS ARISING FROM THE TRANSFER OF LONG-TERM CAPITAL ASSE TS AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHI CH THE TRANSFER TOOK PLACE : PROVIDED THAT ANY PROFITS OR GAINS ARISING FROM THE TRANSFER UNDER THE SLUMP SALE OF ANY CAPITAL ASSET BEING ONE OR MO RE UNDERTAKINGS OWNED AND HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FRO M THE TRANSFER OF SHORT-TERM CAPITAL ASSETS. (2) IN RELATION TO CAPITAL ASSETS BEING AN UNDERTAK ING OR DIVISION TRANSFERRED BY WAY OF SUCH SALE, THE 'NET WORTH' OF THE UNDERTAKING OR THE DIVISION, AS THE CASE MAY BE, SHALL BE DEEME D TO BE THE COST OF ACQUISITION AND THE COST OF IMPROVEMENT FOR THE PURPOSES OF SECTIONS 48 AND 49 AND NO REGARD SHALL BE GIVEN TO THE PROVISIONS CONTAINED IN THE SECOND PROVISO TO SECTION 48. (3) EVERY ASSESSEE, IN THE CASE OF SLUMP SALE, SHAL L FURNISH IN THE PRESCRIBED FORM ALONG WITH THE RETURN OF INCOME, A REPORT OF AN ACCOUNTANT AS DEFINED IN THE EXPLANATION BELOW SUB- SECTION (2) OF SECTION 288 INDICATING THE COMPUTATION OF THE NET W ORTH OF THE UNDERTAKING OR DIVISION, AS THE CASE MAY BE, AND CE RTIFYING THAT THE NET WORTH OF THE UNDERTAKING OR DIVISION, AS THE CA SE MAY BE, HAS BEEN CORRECTLY ARRIVED AT IN ACCORDANCE WITH THE PR OVISIONS OF THIS SECTION. EXPLANATION 1. FOR THE PURPOSES OF THIS SECTION, ' 'NET WORTH'' SHALL BE THE AGGREGATE VALUE OF TOTAL ASSETS OF THE UNDERTAKING OR DIVISION AS REDUCED BY THE VALUE OF LIABILITIES OF SUCH UNDERTAKING OR DIVISION AS APPEARING IN ITS BOOKS OF ACCOUNT : PROVIDED THAT ANY CHANGE IN THE VALUE OF ASSETS ON ACCOUNT OF REVALUATION OF ASSETS SHALL BE IGNORED FOR THE PURP OSES OF COMPUTING THE NET WORTH. EXPLANATION 2. FOR COMPUTING THE NET WORTH, THE AG GREGATE VALUE OF TOTAL ASSETS SHALL BE,- ITA NO. 622/CHNY/2017 :- 13 -: (A) IN THE CASE OF DEPRECIABLE ASSETS, THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS DETERMINED IN ACCORDANCE WITH T HE PROVISIONS CONTAINED IN SUB-ITEM (C) OF ITEM (I) OF SUB-CLAUSE (C) OF CLAUSE (6) OF SECTION 43 ; (B) IN THE CASE OF CAPITAL ASSETS IN RESPECT OF WHI CH THE WHOLE OF THE EXPENDITURE HAS BEEN ALLOWED OR IS ALLOWABLE AS A DEDUCTION UNDER SECTION 35AD, NIL ; AND (C) IN THE CASE OF OTHER ASSETS, THE BOOK VALUE OF SUCH ASSETS. WHAT IS CHARGEABLE TO TAX IS PROFITS OR GAINS ARISI NG FROM THE SLUMP SALE. PROFITS OR GAINS ARISING FROM A SLUMP SALE CA N BE CORRECTLY COMPUTED ONLY IF THE TOTAL CONSIDERATION ARISING T O AN ASSESSEE ON ACCOUNT OF SALE IS RECKONED. THERE IS NO PROVISION WHICH ALLOWS THE ASSESSEE TO SEGREGATE THE CONSIDERATION AS PER SLUM P SALE AGREEMENT IN ACCORDANCE WITH THE YEAR OF RECEIPT. 8. COMING TO THE JUDGMENT OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF HEMAL RAJU SHET E (SUPRA) RELIED ON BY THE LD. AUTHORISED REPRESENTATIVE, THE AGREEMENT CONSIDERED BY THEIR L ORDSHIPS CLEARLY DIVIDED THE CONSIDERATION TO INITIAL CONSIDERATION AND DEFERRED CONSIDERATION. IT IS FOR THIS REASON THEIR LORDSHI PS DIRECTED THE EXCLUSION OF THE DEFERRED CONSIDERATION FOR COMPU TING THE CAPITAL GAINS. HERE IN THE CASE BEFORE US, THERE IS NO DEF ERRED CONSIDERATION MENTIONED IN THE SLUMP SALE AGREEMENT. DEPOSITING A PART OF THE CONSIDERATION IN AN ESCROW ACCOUNT WILL NOT BE, IN OUR OPINION BE EQUIVALENT TO A DEFERRED CONSIDERATION. AS FOR THE JUDGMENT OF HONBLE ITA NO. 622/CHNY/2017 :- 14 -: JURISDICTIONAL HIGH COURT IN THE CASE OF MOTOR CREDIT CO. P. LTD (SUPRA) THE QUESTION THERE WAS REGARDING METHOD ACCOUNTING AND RECOVERABILITY OF DEBT. WE DO NOT FIND ANY SIMILAR ITY IN THE FACTS OF THIS CASE WITH THE ONE BEFORE US. AS FOR THE JUDGM ENT OF HONBLE APEX COURT IN THE CASE OF HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LTD (SUPR A) THE QUESTION CONSIDERED WAS TAXABILITY OF TOTAL CONSIDERATION ON COMPULSORY ACQUISITION OF LAND. I N OUR OPINION THIS CASE ALSO HAS NO RELEVANCE ON THE FACTS BEFORE US. FOR THE AFORESAID REASONS, WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO .2 OF THE ASSESSEE STANDS DISMISSED. 9. VIDE ITS GROUND NO.3, GRIEVANCE OF THE ASSESSEE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE OF ALLOWANCE OF EXPENDITURE TO E17,125/- AGAINST E10,41,749/- CLAIM ED BY THE ASSESSEE. 10. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. AS SESSING OFFICER HAD DISALLOWED ALL THE REGULAR EXPENDITURE INCURRED BY THE ASSESSEE FOR MAINTAINING ITS CORPORATE STRUCTURE, C ITING A REASON THAT THERE WAS NO BUSINESS ACTIVITY AFTER SLUMP SALE DAT ED 06.04.2011. AS ITA NO. 622/CHNY/2017 :- 15 -: PER THE LD. AUTHORISED REPRESENTATIVE, LD. ASSESSIN G OFFICER HAD DISALLOWED THE WHOLE OF THE EXPENDITURE OF E10,41,7 49/- DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LD. COMMISSIONER OF I NCOME TAX (APPEALS) ALLOWED THE CLAIM ON PRO-RATA BASIS FOR SIX DAYS, CONSIDERING THE SLUMP SALE AGREEMENT ENTERED ON 06.04.2011. CON TENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT TYPE OF EXPE NDITURE INCURRED BY THE ASSESSEE WAS NECESSARY TO MAINTAIN ITS LEGAL S TATUS AS A COMPANY AND OUGHT NOT HAVE BEEN DISALLOWED. 11. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. WHAT WAS DISALLOW ED BY THE LD. ASSESSING OFFICER IS REPRODUCED HEREUNDER:- 13. EXPENSES SL.NO PARTICULARS AMOUNT 1 MANUFACTURING EXPENSES 2,84,847 POWER AND FUEL 14,056 FACTORY RENT 2,49 ,265 REPAIRS TO MACHINERY 460 INSURANCE 1,628 FACTORY SECURITY CHARGES 19,228 FACTORY MAINTENANCE NAVALOOR 210 ITA NO. 622/CHNY/2017 :- 16 -: 2 EMPLOYEE BENEFITS 1,51,097 SALARIES AND INCENTIVES 1,02,680 GRATUITY FUND CONTRIBUTIONS 21,028 STAFF WELFARE E XPENSES 27,389 3 FINANCE COSTS 50,468 INTEREST CHARGES 16,900 BANK CHARGES 33,568 4 ADMINISTRATIVE & OTHER EXPENSES 5,55,337 RATES AND TAXES 3,53,174 LEGAL AND PROFESSIONAL FEES 1,39,460 POSTAGE, TELEP H ONE & FAX CHARGES 8,089 FILING FEES 7,061 VEHICLE MAINTENANCE 3,900 MISCELLANEOUS EXPENSES 6,209 37,444 GRAND TOTAL 10,41,749 ADMITTEDLY, ASSESSEE HAD TRANSFERRED ITS BUSINESS O N 06.04.2011 IN A SLUMP SALE. EVEN IF WE ACCEPT THAT IT WAS NECESSA RY FOR THE ASSESSEE TO INCUR SOME EXPENDITURE FOR MAINTAINING ITS CORPO RATE STATUS, WE CANNOT UNDERSTAND WHY ASSESSEE INCURRED MANUFACTURI NG EXPENSES. THE TABLE REPRODUCED BY US CLEARLY INDICATE THAT AS SESSEE INCURRED MANUFACTURING EXPENSES OF E2,84,847/-. AT THE BEST , ASSESSEE WOULD BE ELIGIBLE FOR 6/365 OF THE MANUFACTURING EXPENDI TURE OF E2,84,847/-, SINCE IT TRANSFERRED ITS BUSINESS ON 06.04.2011. TH IS WORKS OUT TO E4,683/-. HOWEVER, ASSESSEES CLAIM WITH REGARD TO ITA NO. 622/CHNY/2017 :- 17 -: EMPLOYEE BENEFITS, FINANCE COSTS AND ADMINISTRATIVE AND OTHER EXPENSES OUGHT NOT HAVE BEEN DISALLOWED SINCE THESE WERE NECESSARY TO MAINTAIN ITS CORPORATE STATUS. THEREFORE OUT OF THE TOTAL CLAIM OF E10,41,749/-, WE DIRECT THE LD. ASSESSING OFFICER T O ALLOW E7,61,585/-. BALANCE OF THE DISALLOWANCE IS SUSTAINED. GROUND N O.3 OF THE ASSESSEE IS PARTLY ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 19 TH DAY OF JULY, 2018, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:19 TH JULY, 2018 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF