NETMATRIX CROP CARE PRIVATE LIMITED,HYDERABAD V. DCIT., CIRCLE-5(1), HYDERABAD

ITA 599/HYD/2025

AI Insights

The case revolves around the appeal by Net Matrix Crop Care Pvt. Ltd. against the order of the Pr. CIT, Hyderabad, which was based on the A.O.'s initial assessment under Section 143(3) r.w.s. 144B of the Act. The dispute centered on the eligibility of the company to claim a deduction under Section 54EC for a slump sale of its manufacturing unit in SEZ, Atchutapuram. The Pr. CIT contended that the deduction was not applicable as the slump sale involved the transfer of an entire business undertaking rather than individual long-term capital assets like land or building. However, the Tribunal found that the sale included land valued at Rs. 7,00,10,000, thus qualifying for the deduction under Section 54EC as it involved the transfer of a long-term capital asset.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705289 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PURCHASE FROM A PREVIOUS OWNER; NIL
• Keywords: Set aside; Capital asset; Fair market value; Cost of acquisition; Capital Gains; Assessment record
• Section: 143(3); 263; 80C

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘ए’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad श्री रवीश सूद, माननीय न्याययक सदस्य एवं श्री मिुसूदन सावडिया, माननीय लेखा सदस्य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, HON'BLE ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.599/Hyd/2025 (निर्धारण वर्ा/ Assessment Year: 2020-21) Net Matrix Corp Care Pvt. Ltd., Hyderabad. PAN : AABCN3529P. Vs. The Deputy Commissioner of Income Tax, Circle – 5(1) Hyderabad. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri Jaydeep, C.A. राजस्व का प्रतततितित्व/ Department Represented by : Shri B. Bala Krishna, CIT-DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 30.06.2025 घोर्णध की तधरीख/Date of Pronouncement : 04.07.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee company is directed against the order passed by the Principal Commissioner of Income Tax (for short \"Pr. CIT\"), Hyderabad – 4, under Section 263 of the 2 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. Income Tax Act, 1961 (for short “the Act”), dated 10.02.2025, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s. 144B of the Act, dated 12.09.2022 for A.Y. 2020- 21. The assessee company has assailed the impugned order on the following grounds of appeal before us: 3 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. 2. Succinctly stated, the assessee company, which is engaged in the business of manufacturing of crop protection chemicals/ insecticides, had filed its return of income for A.Y. 202-21 on 04.11.2020, declaring an income of Rs. 75,19,06,190/-. The return of income was initially processed as such under Section 143(1)(a) of the Act. Thereafter, the A.O., vide his order passed under Section 143(3) r.w.s. 144B of the Act dated 12.09.2022, assessed the income of the assessee company at Rs. 75,19,06,190/-, i.e. as was originally returned. 3. The Pr. CIT, after the culmination of the assessment called for the assessment record of the assessee company. On a perusal of the record, it was inter alia observed by him that the assessee company had during the subject year carried out the slump sale of its manufacturing unit no.2 at the Special Economic Zone (SEZ), Atchutapuram, District: Visakhapatnam. The Pr. CIT observed that the assessee company had, against the profits/gains arising from the aforesaid slump sale of its unit, raised a claim for deduction under Section 54EC of ₹ 50 lacs. The Pr. CIT held a firm conviction that the assessee company was not entitled to claim 4 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. deduction u/s 54EC of the Act, as it was available only in the case of the sale of a long-term capital asset [“being land or building or both”]. Elaborating further on his conviction, the Pr. CIT was of the view that the assessee company had sold its ongoing business concern, being the SEZ unit, as a slump sale attracting the provisions of Section 50B of the Act, therefore, it was not entitled to claim deduction u/s 54EC of the Act. The Pr. CIT, based on his aforesaid observation, called upon the assessee company to put forth its explanation regarding its claim of deduction u/s 54EC of the Act. In reply, it was the claim of the assessee company that as it had sold the SEZ unit as a slump sale, which included land of ₹ 7,00,10,000/-, on which sale consideration tax was deducted at source, therefore, its claim for deduction u/s 54EC of the Act was in order. It was further stated by the assessee company that there was no restriction under the provisions of Section 54EC or Section 50B of the Act for raising a claim under Section 54EC against the sale consideration received under slump sale. Apart from that, the assessee company to fortify its aforesaid contention, had drawn support from its return of income filed in ITR-6, wherein at Column No. 2(d), there was a provision for raising a claim for 5 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. deduction under Section 54EC against the full value of consideration received from the slump sale. 4. However, the aforesaid explanation of the assessee company did not find favour with the Pr. CIT, who was of the view that, as in the case of slump sale, the entire business undertaking was to be considered as an “asset” for transfer instead of considering individual assets within the business undertaking, therefore, in the absence of there being any transfer of long term capital asset, [“being land or building or both”], the claim of the assessee company for deduction u/s 54EC against the consideration received on the slump sale did not merit acceptance. For the sake of clarity, the observations of the Pr. CIT are culled out as under: -left blank intentionally- 6 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. 7 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. 5. Accordingly, the Pr. CIT vide his order under Section 263 of the Act, dated 10.02.2025, held the order passed by the A.O. under Section 143(3) of the Act, dated 12.09.2022, as erroneous insofar as it was prejudicial to the interest of the revenue, and directed him to pass a fresh assessment order after affording opportunity to the assessee of being heard. 6. The assessee company, being aggrieved with the order of the Pr. CIT under Section 263 of the Act, dated 10.02.2025, has carried the matter in appeal before us. 7. We have heard the learned Authorized Representatives of both parties, perused the orders of lower authorities, and the material available on record. 8. Controversy involved in the present appeal lies in a narrow compass, i.e., whether or not the claim of the assessee company for deduction u/s 54EC of the Act against the consideration received on slump sale of its manufacturing unit - 2 at the Special Economic Zone (SEZ), Atchutapuram, District: Visakhapatnam, is per the mandate of law? 8 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. 9. Before proceeding any further, it will be apposite to cull out the relevant statutory provisions involved in the present appeal as under: (A). Section 50B: Special provision for computation of capital gains in case of slump sale. 50B. (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income- tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which 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 more 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 from the transfer of short-term capital assets. (2) In relation to capital assets being an undertaking or division transferred by way of such slump sale,— (i) the \"net worth\" of the undertaking or the division, as the case may be, shall be deemed 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; (ii) fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. (3) Every assessee, in the case of slump sale, shall furnish in the prescribed form a report of an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the 9 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions 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 purposes of computing the net worth. Explanation 2.—For computing the net worth, the aggregate value of total assets shall be,— (a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (c) of item (i) of sub-clause (c) of clause (6) of section 43; (aa) in the case of capital asset being goodwill of a business or profession, which has not been acquired by the assessee by purchase from a previous owner, nil; (b) in the case of capital assets in respect of which 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. (emphasis supplied by us) (B) Section 54EC: Capital gain not to be charged on investment in certain bonds. 54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset, being land or building or both, (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— 10 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. (a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 : Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees : Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. (2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head \"Capital gains\" relating to long-term capital asset of the previous year in which the long- term specified asset is transferred or converted (otherwise than by transfer) into money: Provided that in case of long-term specified asset referred to in sub-clause (ii) of clause (ba) of the Explanation occurring after sub-section (3), this sub-section shall have effect as if for the words \"three years\", the words \"five years\" had been substituted. Explanation.—In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken. 11 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. (3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub- section (1),— (a) 57[***] (b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006. Explanation.—For the purposes of this section,— (a) \"cost\", in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset; (b) \"long-term specified asset\" for making any investment under this section during the period commencing from the 1st day of April, 2006 and ending with the 31st day of March, 2007, means any bond, redeemable after three years and issued on or after the 1st day of April, 2006, but on or before the 31st day of March, 2007,— (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988); or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), and notified by the Central Government in the Official Gazette for the purposes of this section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such bond) as it thinks fit: Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification, by the Central Government in the Official Gazette under the provisions of clause (b) as they stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed to be a bond notified under this clause; 12 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. (ba) \"long-term specified asset\" for making any investment under this section,— (i) on or after the 1st day of April, 2007 but before the 1st day of April, 2018, means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 but before the 1st day of April, 2018; (ii) on or after the 1st day of April, 2018, means any bond, redeemable after five years and issued on or after the 1st day of April, 2018, by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956) or any other bond notified in the Official Gazette by the Central Government in this behalf.” (emphasis supplied by us) (C). Section 2(42C): Section 2 – In this Act, unless, the context otherwise requires,-- … xx …… xx ……xx……xx.. ……xx……xx.. ……xx……xx.. Section (42C) – “slump sale\" means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer. Explanation 1.—For the purposes of this clause, \"undertaking\" shall have the meaning assigned to it in Explanation 1 to clause (19AA). Explanation 2.—For the removal of doubts, it is hereby 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 similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. Explanation 3.—For the purposes of this clause, \"transfer\" shall have the meaning assigned to it in clause (47);]” 13 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. 10. We find on a careful perusal of Sub-section (1) of Section 54EC of the Act, the same contemplates that where the capital gain arises from the transfer of a long-term capital asset, [“being land or building or both”], and the assessee has, at any time, within a period of six months after the date of such transfer, has invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in the manner therein specified, viz. (a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under Section 45, and; (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 of the Act. 11. On the other hand, we find that Section 50B(1) of the Act contemplates that any profits/gains arising from the slump sale effected in the previous year shall be chargeable to income tax as capital gains arising from the transfer of long term capital asset 14 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. and shall be deemed to be the income of the previous year in which the transfer took place. However, the “1st proviso” to Section 50B contemplates that any profits/gains arising from the transfer under the slump sale of any capital asset being one or more 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 from the transfer of short-term capital assets. 12. Ostensibly, sub-section (1) of Section 50B of the Act contemplates that the profits/gains arising from the transfer under the slump sale shall be chargeable to income tax as capital gains arising from the transfer of a long-term capital asset, except for in a case where the same arises from the transfer of any capital asset, being one or more undertakings, owned and held by the assessee for not more than 36 months immediately preceding the date of transfer, in which case it shall be deemed to be capital gains arising from the transfer of a short-term capital asset. Considering the clear mandate of Section 50B of the Act, it transpires that the profits/gains arising from the slump sale of any capital asset, being one or more undertakings owned and held by 15 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. the assessee for more than 36 months immediately preceding the date of its transfer, shall be chargeable to income tax as capital gains arising from the transfer of a long-term capital asset. 13. We find, on a conjoint perusal of Section 50B(1) and Section 54EC of the Act, that as the profits/gains arising from the slump sale are held to be capital gains arising from the transfer of a long- term capital asset, therefore, the pre-condition contemplated in Section 54EC of the Act that the capital gain arises from the transfer of long term capital asset [“being land or building or both”], is satisfied to the extent the sale consideration so received on the said slump sale is linked to the “book value” of the said long-term capital asset i.e. the land or building or both. Although, the Pr. CIT has observed that, in the case of a slump sale, the entire business undertaking is to be considered as an asset for the transfer of capital except instead of considering the individual assets within the undertakings deduction, which thus, disentitled the assessee company from claiming deduction u/s 54EC of the Act, i.e., only when there is transfer of long term capital asset [“being land or building or both”], but we are unable to concur with the same. 16 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. 14. Ostensibly, the claim for deduction under Section 54EC pre- supposes the capital gain arising from a transfer of a long-term capital asset [“being land or building or both”]. On the other hand, the profits/gains arising from the slump sale are chargeable to income tax as capital gains arising from the long-term capital asset, except for in a case where the capital asset, i.e., undertaking, is owned and held by the assessee for not more than 36 months immediately preceding the date of transfer. As the sale of the SEZ unit by the assessee as slump sale in the present case before us included land of ₹7,00,10,000/- (book value), as disclosed in Column 6(b) in “Form No. 3CA”, therefore, we find no reason as to why the profits/gains from the slump sale though restricted to the extent of the “book value” of the land is not to be allowed as a deduction to the assessee company under Section 54EC of the Act. 15. Be that as it may, we find that the “return of income” filed by the assessee company in ITR-6 in Column 2 in itself has a provision for claiming deduction u/s 54EC against the full value of the consideration received on slump sale. For the sake of clarity, the requisite details filed by the assessee company in its return of 17 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. income for the year under consideration in ITR-6 is culled out as under: 16. Considering the aforesaid facts, we are of the firm conviction that as the slump sale effected by the assessee company during the subject year included the transfer of a long-term capital asset, i.e., which as per “Form No. 3CA” included land with a “book value” of Rs.7,00,10,000/-, therefore, there was no justification for the Pr. CIT to have declined its claim for deduction under Section 54EC of the Act. 17. Also, we are of the view that now when the legislature in all its wisdom has, in the return of income, i.e., ITR-6, in itself provided for raising a claim for deduction under Section 54EC from the full value of consideration received on slump sale, therefore, the said fact in itself establishes beyond doubt that the A.O., while framing the assessment, had, based on a plausible view, allowed 18 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. the assessee’s claim for deduction under Section 54EC of the Act amounting to Rs.50 lacs. 18. We thus, in terms of our aforesaid deliberations, are unable to persuade ourselves to subscribe to the view taken by the Pr. CIT, wherein he had set aside the order passed by the A.O. under Section 143(3) r.w.s. 144B of the Act, dated 12-09-2022, by holding the same as erroneous insofar as it was prejudicial to the interest of the revenue, for the reason that he had wrongly allowed the claim of the assessee company for deduction u/s 54EC of the Act of Rs. 50 lacs, and thus, vacate his order and restore the order passed by the A.O. 19. Resultantly, the appeal filed by the assessee company is allowed in terms of our aforesaid observations. Order pronounced in the Open Court on 4th July, 2025. Sd/- (श्री मिुसूदन सावडिया) (MADHUSUDAN SAWDIA) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER Hyderabad, dated 04.07.2025. TYNM/sps 19 ITA No.599/Hyd/2025 Netmatrix Crop Care Pvt. Ltd. आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Net Matrix Crop Care Pvt. Ltd. H.No.13-1-84/3, Flat No.101, Madhavi Enclave, Moti Nagar, X Road, Moti Nagar, Hyderabad – 500 018. 2. रधजस्व/ The Revenue : The Deputy Commissioner of Income Tax, Circle – 5(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad "