MERCK LTD, V. ASST CIT RG 6(3),

MA 162/MUM/2015

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4779 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 15-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARCI PARDIW ALA
• Keywords: Valuation report
• Section: 54; 28

Judgement Text

1 M.A.NO. 162/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER M.A. NO. 162/MUM/2015 IN ITA NO.8120/MUM/2011 ASSESSMENT YEAR: 2007-08 MERCK LIMITED SHIV SAGAR ESTATE, ANENIE BESANT ROAD , WORLI, MUMBAI PAN: AAACE 2616F VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, RANGE 6(3) AAYAKAR BHAWAN, M.K. ROAD, MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PARCI PARDIW ALA (AR) REVENUE BY : MISS NILU JAGGI (D R) DATE OF HEARING : 01.07.2016 DATE OF ORDER : 23.09.2016 ORDER PER PAWAN SINGH, JUDICIAL MEMBER 1. THE PRESENT MA IS FILED BY ASSESSEE FOR SEEKING REC TIFICATION OF ERRORS ALLEGEDLY APPARENT IN THE TRIBUNALS ORDER DATED 2 AUGUST 2013. 2. IN THE APPLICATION THE ASSESSEE INTER ALIA PLEADED THAT ONE OF THE ISSUE AROSE IN THE APPEAL WAS WHETHER THE AO WAS JUSTIFIED IN ASSESSING THE S UM OF RS.65,50,00,000/- RECEIVED BY THE ASSESSEE ON THE SALE OF ITS ANALYTICS AND RESEA RCH BUSINESS (A &R BUSINESS) AS A GOING CONCERN AS A BUSINESS PROFIT UNDER SECTION 28 (IV) OF THE ACT. THE APPLICANT FURTHER PLEADED IN THE APPLICATION THAT DURING THE ASSESSME NT PROCEEDINGS IT HAS TAKEN A STAND THAT THE GAIN WHICH AROSE ON THE TRANSFER OF THE BUSINES S WAS TO BE ASSESSABLE AS LONG-TERM CAPITAL GAIN (LTCG). THE REVENUE AUTHORITIES WERE O F THE VIEW THAT TRANSACTION WAS NOT ONE OF SLUMP SALE OF THE BUSINESS AND, IN DOING SO, HAD RELIED UPON THE ALLOCATION OF THE CONSIDERATION IN THE BOOKS OF ACCOUNTS OF PURCHASER VIZ MERCK SPECIALITIES PRIVATE LTD AND, ACCORDINGLY, BROUGHT THE ENTIRE CONSIDERATION TO THE TAX UNDER SECTION 28(IV) OF THE ACT. FURTHER, DURING THE COURSE OF HEARING BEFORE T HE TRIBUNAL THE ASSESSEE SUBMITTED THE DOCUMENTS WHICH INCLUDES AGREEMENT FOR SALE OF A&R BUSINESS, BREAKUP OF THE 2 M.A.NO. 162/MUM/2015 CONSIDERATION PAYABLE IN TERM OF THE AGREEMENT, THE VALUATION REPORTS BY M/S BANSI S MEHTA CAS, AND DELOITTE HASKINS AND SELLS CAS, EXPL ANATORY STATEMENT CIRCULATED AMONG THE APPLICANTS SHAREHOLDERS PURSUANT TO SECTION 173 (2) OF THE COMPANIES ACT. ALL THE ABOVE REFERRED DOCUMENTS WERE REFERRED DURING THE C OURSE OF HEARING. THE TRIBUNAL, IT IS SUBMITTED, WHILE ACCEPTING THAT THE PROVISION OF SE CTION 28 (IV) WOULD HAVE NO APPLICATION, HELD THAT THE ASSESSING OFFICER WAS EN TITLED TO CONSIDER THE NATURE OF THE RECEIPT AND THE CIRCUMSTANCES IN WHICH THE AMOUNT W AS RECEIVED BY THE ASSESSEE IN TERMS OF THE AGREEMENT. 2.2 THE ASSESSEE IS SPECIFICALLY STATED IN PAGE 2 OF I TS APPLICATION THAT THE OBSERVATION OF THE TRIBUNAL THAT THE APPLICANT HAS NOT BEEN ABLE TO PLACE ANY MATERIAL ON RECORD ON THE BASIS OF WHICH IT IS A VALUED THE INTANGIBLE ASSETS . AND FURTHER PARA 20 OF THE ORDER THAT THE APPLICANT HAS BIFURCATED THE SUM OF RS. 65 ,50,00000/- TOWARDS CONTRACT WITH TOLL MANUFACTURER AND EARMARKED RS. 10,45,40,000/- TOWARDS ITS VALUATION WITHOUT ANY BASIS . AND FURTHER THAT IN RESPECT OF THE VALUATION AND EARMARKED BY T HE ASSESSEE FOR TECHNICAL KNOW-HOW OF RS. 3,75,90,000/ -NO DOCUMENTARY EVIDENCE IS ON RECORD TO ESTABLISH THAT ANY SECRET FORMULA FOR THE PRODUCTION PROCESS HAS BEEN TRANSFERRED BY THE APPLICANT TO THE PURCHASER ARE FACTUALLY ERRONEOUS. 2.3 IT IS FURTHER PLEADED IN THE APPLICATION THAT THE A SSESSEE HAS EARMARKED THE CONSIDERATION OF RS. 65,50,00,000/- AMONGST THE OTHER VARIOUS A SSETS THAT THE CORRECT FACTUAL POSITION IS THAT SUCH ALLOCATION OF THE CONSIDERATION WAS DONE BY THE PURCHASER BECAUSE IT WAS INCUMBENT UPON THE PURCHASER TO ALLOCATION OF THE CONSIDERATION PAID BY IT FOR ACQUIRING THE BUSINESS OVER BY THE VARIOUS ASSETS THAT IT ACQ UIRED. THE ASSESSEE HAS NOT DONE ANY ALLOCATION HAS HELD BY THIS TRIBUNAL IN PARA 20 OF ITS ORDER AND THAT THE OBSERVATION OF THE COURT IS A MISTAKE APPARENT FROM THE RECORD WHICH N EEDS TO BE RECTIFIED. 2.4 IN THE PRAYER CLAUSE OF APPLICATION ASSESSEE PRAYED TO RECTIFIED THE ORDER HOLDING THAT THE GAIN ARISING ON THE TRANSFER OF A&R BUSINESS IS TO BE ASSESSED AS LONG-TERM CAPITAL GAINS, BY RECALLING ORDER DATED 2 AUGUST 2013 WITH REGARD TO GROUND NUMBER 1.4 AND RE-FIXED THE GROUND FOR ADJUDICATION OR SUCH OTHER RELIEF AS THE NATURE AND CIRCUMSTANCES OF THE CASE REQUIRED. 2.5 THE LD AR OF THE ASSESSEE ARGUED THAT DURING THE YE AR UNDER CONSIDERATION THE ASSESSEE SOLD ITS A&R BUSINESS TO ITS SISTER CONCERN I.E MER CK SPECIALITY PRIVATE LIMITED (MSPL) FOR A TOTAL CONSIDERATION OF RS. 81.67 CRORE S. AND AS PER THE SAID AGREEMENT THE PURCHASE PRICE OF RS. 16,16,47,433/- REPRESENTS VA LUE OF ASSETS AND LIABILITIES IN THE BOOKS OF ACCOUNT OF ASSESSEE ON 31 MARCH 2006 AND R S. 65.65 CRORE BEING VALUE OF 3 M.A.NO. 162/MUM/2015 INTANGIBLES RELATING TO ANALYTICAL RESEARCH BUSINES S. THE ASSESSEE CLAIMED THE SALE OF RS.65.50 CRORE IS THE PROFIT AND IS AS LONG TERM GA PITAL GAIN AND CLAIMED EXEMPTIONS UNDER SECTION 54 EC OF THE ACT. TO SUBSTANTIATE THE CLAIM, THE ASSESSEE HAS FILED ON RECORD THE AGREEMENT FOR SALE OF A & R BUSINESS, BREAK UP OF CONSIDERATION PAYABLE IN TERMS OF THE AGREEMENT DATED 17.04.2016, VALUATION REPORT OF M/S BANSI MEHTA, C.A. & M/S DELOITTE HASKINS AND SELLS, C.AS. AND THE COPY OF E XPLANATORY STATEMENT CIRCULATED AMONGST THE SHORE-HOLDER OF ASSESSEE-COMPANY IN PUR SUANCE OF SECTION 173(2) OF COMPANIES ACT. THE LD. AR OF THE ASSESSEE FURTHER A RGUED THAT ALL THESE DOCUMENTS WERE REFERRED AND RELIED BY HIM WHILE MAKING THE SUBMISS ION ON 28.06.2013. THE LD. AR FURTHER ARGUED THAT THE HONBLE TRIBUNAL IN ITS ORD ER HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO PLACE ANY MATERIAL ON RECORD ON THE BASIS O F WHICH THE ASSESSEE VALUED THE INTANGIBLE ASSETS. THE FINDINGS IN PARAGRAPH 20 OF THE TRIBUNALS ORDER ARE FACTUALLY ERRONEOUS. THE ASSESSEE HAS EARMARKED THE CONSIDERA TION OF RS. 65.50 CRORE AMONGST THE VARIOUS ASSETS OVERALL LOOKING THE CORRECT FACTUAL POSITION IN ALLOCATION OF THE CONSIDERATION PAID BY THE PURCHASER. THE FINDING OF THE TRIBUNAL IS VITIATED BY AN ERROR APPARENT ON RECORD AS MUCH AS IT PROCEED ON FACTUAL LY INCORRECT PRESUMPTION THAT THE CONSIDERATION ARRIVED ON THE BASIS OF INDIVIDUAL BA SIS OF ASSETS WHICH THEREFORE, NEGATED THE ASSESSEES CONTENTION THAT GAIN ARISE ON THE TR ANSFER OF A&R BUSINESS HAS TO BE ASSESSED AS LTCG. LD. THE LD. AR FINALLY ARGUED THA T THE FINDING ON ISSUE NO.1.4 BE RECTIFIED HOLDING THAT GAIN ARISING ON TRANSFER OF A&R BUSINESS TO BE ASSESSED AS LTCG OF IN ALTERNATIVE THE ORDER DATED 02.08.2013 BE RECALL ED, SO FAR AS IT RELATES TO GROUND NO. 1.4 OF THE CASE MAY BE RE-FIXED FOR DE-NOVO ADJUDICATIO N. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ARGUED THAT THERE IS NO APPARENT ERROR ON THE FACE OF RECORD OF THE ORDER PASSED BY THE TRIBUNAL. THE LD. DR FOR REVENUE SUPP ORTED THE FINDING OF TRIBUNAL AND FURTHER ARGUED THAT GROUND NO. 1.4 WAS RESTORED TO THE FILE OF AO WHILE DECIDING THIS GROUND BY THE TRIBUNAL. THOUGH, THERE IS NO ERROR I N THE FINDING OF THE TRIBUNAL, IF SOME MINOR DISCREPANCY OR OMISSION, IT MAY BE CONSIDERED FOR THE SAKE OF ARGUMENT, IT WILL NOT AFFECT THE DECISION ON THE GROUND RENDERED BY THE T RIBUNAL. 3. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL CONSIDERED THE GROUND NO. 1 .4 OF THE APPEAL IN PARAGRAPH NO. 13 TO 21 OF ORDER DATED 02.08.2013. IN NUTSHELL, THE A SSESSEE AND THE REVENUE HAVE LOCKED THEIR HORN, IF THE AMOUNT OF RS. 65.50 CRORE REALIZ ED BY ASSESSEE IS TO BE TREATED AS BUSINESS PROFIT U/S 28(IV) OF THE ACT OR AS A LTCG. THE RELEVANT FACT LEADING TO THE CONTROVERSY WAS ELABORATELY DISCUSSED IN THE ORDER OF TRIBUNAL. THE PARA 14 TO 19 OF THE 4 M.A.NO. 162/MUM/2015 ORDER DEALS WITH THE FACTUAL BACKGROUND BROUGHT BEF ORE THE TRIBUNAL, PARA 20 DEALS WITH THE OBSERVATION AND PARA 21 DEALS WITH THE CONCLUSI ON ARRIVED ON THE BASIS OF THE FACTUAL OBSERVATION CONTAINED IN PARA 14 TO 19 OF THE ORDER AND PARA 21 IS THE CONCLUSION OF THE ORDER . 4. IN OUR VIEW, THE TRIBUNAL HAS NOT ADJUDICATED WHETH ER THE RECEIPT OF RS. 65.50 CRORE IS A BUSINESS PROFIT OR CAPITAL GAIN. THIS GROUND OF AP PEAL WAS RESTORED TO THE FILE OF AO TO DECIDE THE ISSUE AFRESH WITH THE FOLLOWING DIRECTIO N THEREFORE, WE RESTORE TO AO TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF ABOVE OBSER VATION MADE BY US HERE-IN-ABOVE AND CONSIDERED SUCH MATERIAL AS MAY BE PLACED BEFORE HI M BY A REASONED ORDER, HENCE, GROUND 1 IS ALLOWED FOR STATISTICAL PURPOSE BY REST ORING THE MATTER TO AO FOR FRESH CONSIDERATION (REFER PARA 21 OF THE IMPUGNED ORDER). THE ASSESSEE, AS EXPLAINED, IS FEELING PREJUDICED B Y THE OBSERVATIONS OF THE TRIBUNAL AT PARA 21 OF THE ORDER, WHICH READS AS UNDER: CONSIDERING THE FACTS OF THE CASE, THE REASONS STA TED HEREINABOVE THAT THE ASSESSEE HAS NOT ABLE TO PLACE ANY MATERIAL ON RECORD ON THE BASIS OF WHICH THE ASSESSEE HAS VALUED INTANGIBLE ASSET AND WHETHER THE AMOUNT OF R S. 65.50 CRORE MAY BE CONSIDERED TOWARDS NOT COMPETE THE FEE OR FOR OTHER CONSIDERATION, WE ARE OF THE CONSIDERED VIEW THAT THE SAID ISSUE BE RESTORED TO AO TO CONSIDER THE NATURE OF RECEIPT IN THE LIGHT OF FRESH EVIDENCE. THE ASSESSEE HAS IN THIS REGARD BROUGHT TO OUR NOTI CE THAT TWO VALUATION REPORTS AS WELL AS THE EXPLANATORY STATEMENT (TO ITS SHAREHOLD ERS) U/S. 173(2) OF THE COMPANIES ACT, 1956, WERE ALSO ADDUCED DURING HEARING AND FORM PAR T OF THE RECORD OF THE TRIBUNAL. WE FIND NOTHING IN THE DIRECTION BY THE TRIBUNAL TO TH E AO, EXTRACTED ABOVE, THAT WOULD OPERATE TO CAUSE ANY PREJUDICE TO THE ASSESSEE IN T HE SET-ASIDE PROCEEDINGS. THE SAME IS ONLY AN OPEN SET-ASIDE. WE MAY, HOWEVER, IF ONLY AL LAY ANY APPREHENSION IN THIS REGARD MAKE IT CLEAR THAT NO RESTRICTION HAS BEEN PLACED B Y THE TRIBUNAL ON THE ASSESSEE WITH REGARD TO THE MATERIAL THAT IT CAN RELY UPON IN THE REMAND PROCEEDINGS. THE AO SHALL ADJUDICATE AFRESH AFTER ALLOWING ADEQUATE OPPORTUNI TY OF HEARING TO THE ASSESSEE. WE CLARIFY ACCORDINGLY. 5. IN THE RESULT, M.A FILED BY THE ASSESSEE IS ALLOWED IN THE TERM STATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD SEPTEMBER, 2016. SD/- SD/- (SANJAY ARORA) (PAWAN SI NGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 23/09/2016 5 M.A.NO. 162/MUM/2015 S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/