Income Tax Appellate Tribunal - Kolkata
J. K. Tyre & Industries Ltd., Kolkata vs Department Of Income Tax on 20 March, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - " ǒब" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
(सम¢)Before ौी ूमोद कुमार,
मार लेखा सदःय एवं/and ौी महावीर िसंह, Ûयायीक सदःय)
[Before Shri Pramod Kumar, AM & Shri Mahavir Singh, JM]
आयकर अपील संÉया / I.T.A No. 2040/Kol/2009
िनधॉरण वषॅ/Assessment Year: 2003-04
Assistant Commissioner of Income-tax, Vs. M/s. J. K. Tyre & Industries Ltd.
Central Circle-VI, Kolkata. (PAN:AAACJ 6716F)
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A No. 2012/Kol/2009
िनधॉरण वषॅ/Assessment Year: 2003-04
M/s. J. K. Tyre & Industries Ltd. Vs. Deputy Commissioner of Income-tax,
Central Circle-VI, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
Date of hearing: 20.03.2012
Date of pronouncement: .05.2012
For the revenue: Shri Niraj Kumar
For the Assessee: Shri D. S. Damle
आदे श/ORDER
Per Mahavir Singh, JM ( महावीर िसंह, Ûयायीक सदःय)
सदःय These cross appeals by revenue and assessee are arising out of order of CIT(A), Central-I, Kolkata in Appeal No.477/CIT(A)C-I/CC-VI/08-09 dated 23.09.2009. Assessment was framed by ACIT, C.C-VI, Kolkata u/s.154/251/143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2003-04 vide his order dated 06.02.2009.
2. The interconnected common issue in these cross appeals is as regards to the rectification carried out by Assessing Officer u/s. 154 of the Act and thereby CIT(A) confirmed the rectification carried out in respect to disallowance of loss assessed under Long Term Capital Gains suffered on transfer of investment in shares to J. K. Agri Genetic Ltd. For this, assessee has raised following two grounds:
2 ITA 2040 & 2012/K/2009 M/s. J. K. Tyre & Industries Ltd. A.Y. 03-04 "1. For that on the facts and in the circumstances of the case, the CIT(A) erred in holding that the A.O. was justified in disallowing the entire loss; assessed under the head "Long Term capital gains", which the appellant had suffered on transfer of investment in shares to J. K. Agri Genetics Ltd., & that there was a mistake apparent from record which was legally rectifiable u/s. 154 of the Act.
2. For that on the facts and in the circumstances of the case, the CIT(A) was grossly unjustified in upholding the A.O.'s order u/s. 154 of the Act even though the issue on which order of rectification was passed; was highly debatable & in fact there was no mistake apparent from record as held by the CIT(A)."
3. In respect to revenue's appeal, the issue is whether the capital gain can be more than the capital receipt or when the value of net worth is negative then it has to be taken as nil for the purpose of computation of capital gains. For this, revenue has raised following grounds:
"1. That the Ld. CIT(A), C-1, Kol is erred in holding that holding negative net worth in computation of capital gain is a disputed issue and thereby deleting addition Rs.716.809 lakhs.
2. That sec. 50B(2) clearly directs to hold net worth of the asset deemed to be cost of acquisition and no regard shall be given to the provision of sec. 48."
4. Brief facts are that the assessee company filed its return of income for the relevant assessment year 2003-04 on 27.11.2003. Assessment was framed u/s. 143(3) of the Act vide order dated 28.03.2005. Subsequently, Assessing Officer issued notice u/s. 154 of the Act to rectify following two mistakes:
(a) Calculation of Long Term Capital Gains of slump sale of sugar unit,
(b) Disallowance of wrong calculation of capital gain u/s. 47 of the Act.
Revenue is in appeal in respect to first issue of Long Term Capital Gains on slump sale of sugar undertaking revised from Rs.3 cr. to Rs.37.16 cr. The assessee in its return of income filed audited report in Form No.3CEA wherein net worth of sugar undertaking was arrived at negative (-) Rs.716.80 lacs. According to assessee, the net worth of Sugar undertaking was negative and the same was considered as nil. The Assessing Officer accepted the negative net worth while framing assessment u/s. 143(3) of the Act. The Assessing Officer issued rectification notice u/s. 154 of the Act by stating that there is no scope of converting the negative figure of net worth as nil and there is mistake in not making addition of negative net worth of Rs.716.80 lacs. According to Assessing Officer, LTCG was computed at Rs.3716.80 lacs as against Rs. 30 cr. computed in the original assessment. The Assessing Officer finally 3 ITA 2040 & 2012/K/2009 M/s. J. K. Tyre & Industries Ltd. A.Y. 03-04 passed rectification order thereby computed Long Term Capital Gains at Rs.3716/80 lacs. Aggrieved, assessee preferred appeal before CIT(A), who held that the issue is debatable and there are two conceivable views possible. Hence, there is no mistake apparent from record which can be rectified. Accordingly, he deleted the addition. Aggrieved, now revenue is in appeal before us.
5. We have heard rival contentions and gone through facts and circumstances of the case. We find that the AO has accepted the computation of LTCG under the head Capital Gains while framing assessment u/s. 143(3) of the Act but the same was recomputed while acting u/s. 154 of the Act pointing out that there is mistake apparent from record. Whether adjustments carried out by AO are beyond the scope and intent of sec. 154 of the Act or not? The AO interpreting the provisions of section 50B of the Act enhanced a LTCG on transfer of sugar undertaking on slump sale basis. We find that as per section 50B of the Act, capital gains is to be arrived at after deducting from sales consideration the net worth of an undertaking, which is subject matter of slump sale. As per section 50B of the Act, net worth is deemed to be the cost of acquisition of undertaking for the purposes of sections 48 and 49 of the Act. The net worth for the purpose of section 50B of the Act is equal to the excess value of assets over the book value of liabilities relatable to the undertaking. In the present case, the AO while framing assessment u/s. 143(3) of the Act computed and gone through the book value of liabilities of sugar undertaking, which was at Rs.130,60,86,238/- whereas the value of assets was at Rs.123,44,06,601/-. It means that the book value of liabilities exceeded the value of assets by Rs.7,16,79,637/-. The AO formed an opinion and accepted this fact during the assessment proceedings u/s. 143(3) of the Act. Subsequently, the AO changed his opinion and formed an opinion that the excess of liabilities over the assets represented the additional cost for transfer of undertaking and excess of liabilities is in the nature of sale consideration of Rs. 30 cr. and thereby AO determined and assessed Long Term Capital Gain at Rs.37,16,80,000/-. As referred by Ld. Counsel for the assessee the decision of ITAT Mumbai Bench in the case of Zuari Industries Ltd. Vs. ACIT (2008) 298 ITR 97 (AT) wherein it is held that the assessee a manufacturer of cement sold its cement division for lump sum consideration and the value of liabilities exceeded the value of assets resulting in negative net worth and it was held that when net worth was negative computation provisions governing assessment of capital gains could not apply and, therefore, no capital gain was chargeable to tax. The Tribunal finally held that when the value of assets computed in the manner prescribed in section 50B of the Act was less than the liabilities, the net worth of the Cement Division would be taken at nil and the 4 ITA 2040 & 2012/K/2009 M/s. J. K. Tyre & Industries Ltd. A.Y. 03-04 capital gain would be assessed equal to the sale consideration received by assessee. Identical view was taken by Delhi Bench of ITAT in the case of Paperbase Co. Ltd. Vs. ACIT 19 SOT
163. It is to be noted that as per the ratio laid down by ITAT Mumbai Bench in the case of Zuari Industries Ltd. (supra) and ITAT Delhi Bench in the case of Paperbase Co. Ltd. (supra), capital gain assessable to tax was equal to the sale consideration received for transfer of undertaking where the net worth as per section 50B of the Act was negative. As argued by Ld. Counsel for the assessee that the facts of assessee's case are pari materia with the facts of the above referred two cases. We find that the facts narrated in the order of the lower authorities and as argued by both the sides before us are that the value of assets of the Sugar Division is less than the value liabilities, the net worth was negative which was required to be taken at nil. We find that the interpretation placed by AO in section 50B of the Act is highly debatable. It cannot be said with certainty that a plan reading of section 50B of the Act reveals that the net worth of the undertaking cannot be considered to be the cost of acquisition for the purpose of sections 48 and 49 of the Act, which is required to be computed in accordance with explanations (1) and (2) of Section 50B of the Act. It means that the issue as regards to the computation of capital gain vis-à-vis value of liabilities and value of assets of that also resulting in negative net worth is a highly debatable issue and the CIT(A) has rightly held so. The enhancement of capital gains income was based upon change of opinion on the part of the A.O. which was beyond the purview of Sec. 154 of the Act which permits rectification of mistake which is apparent from record. Various judicial authorities have repeatedly held that a "mistake" which can be established by a long drawn process of reasoning or where on an issue conceivably more than 2 views are possible, it cannot be said that the mistake is apparent from record within the meaning of section 154 of the Act. This view finds support in the decision of the Supreme Court in the case of Volkart Bros. Vs. ITO (1971) 82 ITR 50. In the present case the view canvassed by the assessee and accepted in the regular assessment was supported by 2 decisions of the ITAT. In the circumstances, the AO could not by invoking Sec. 154, enhance the capital gains from Rs.30 Crores to Rs.37,16,80,000/-. We confirm the order of CIT(A) and this issue of revenue's appeal is dismissed.
6. Coming to the issue of assessee's appeal, we find that the AO while framing regular assessment u/s. 143(3) of the Act has assessed the Long Term Capital Loss on sale of shares held by way of investment after being satisfied that there was transfer of shares pursuant to scheme of arrangement. The AO made disallowance of entire Long Term Capital Loss on transfer of shares by invoking the provisions of section 154 of the Act by resorting to rectify 5 ITA 2040 & 2012/K/2009 M/s. J. K. Tyre & Industries Ltd. A.Y. 03-04 the assessment order originally passed u/s. 143(3) of the Act. In the rectification order u/s. 154 of the Act, the AO held that the above scheme of arrangement was a demerger within the meaning of section 2(19AA) and section 2(19AAA) of the Act. According to AO, as a result, assessee was demerged company and J. K. Genetics Ltd. was a resultant company. We find from the above facts that the scheme of arrangement between the assessee and J. K. Agri Genetics Ltd. was not a scheme of demerger as it understood from section 2(19AA) of the Act. In fact, the assessee did not any time carried out any investment business and the activities of making investment did not constitute business undertaking within the meaning of section 2(19AA) of the Act. We find that the transfer of Agri Genetics business the assessee, the assessee sold the Agri Genetics Undertaking by way of slump sale and Long Term capital Gain on slump sale was separately assessed to tax and no exemption was granted while treating the same as demerger. As argued by Ld. Counsel for the assessee, we are in agreement as regards to transfer of shares it was transfer simplicitor within the meaning of section 2(47) of the Act and no exemption as such is provided in section 47 of the Act as applicable to the assessee. We find that transfer of Agri Genetics Undertaking was considered as a slump sale and LTCG was assessed and more particularly only the investments were transferred for specific value of Rs.64.20 cr. and consideration was paid only the form of share and zero coupon non convertible debentures. The AO while framing assessment u/s. 143(3) of the Act considered this fact that when the investments were sold and /or transferred for specific considerations without complying with all or any of the conditions specified in section 2(19AA) of the Act and when the investments did not constitute a business undertaking of the assessee, the AO rightly assessed the Long Term Capital Loss. We find that the AO while acting in section 154 of the Act on reappraisal of the facts were already available on record and upon change of opinion, considered the very same transaction as demerger of an undertaking and disallowed the Long Term Capital Loss as not chargeable to tax on the ground that transfer of shares was part of demerger u/s. 2(19AA) of the Act. We are of the view that this adjustment did not amount to mistake apparent from record because there is no jurisdiction for the AO to decide this issue while acting u/s. 154 of the Act as this issue is highly debatable. The enhancement of capital gains income was based upon change of opinion on the part of the A.O. which was beyond the purview of Sec. 154 of the Act which permits rectification of mistake which is apparent from record. Various judicial authorities have repeatedly held that a "mistake" which can be established by a long drawn process of reasoning or where on an issue conceivably more than 2 views are possible, it cannot be said that the mistake is apparent from record within the meaning of section 154 of the Act. This view finds support in the decision of the Supreme 6 ITA 2040 & 2012/K/2009 M/s. J. K. Tyre & Industries Ltd. A.Y. 03-04 Court in the case of Volkart Bros. Vs. ITO (1971) 82 ITR 50. In the present case the view canvassed by the assessee and accepted in the regular assessment was supported by 2 decisions of the ITAT. In the circumstances, the AO could not by invoking Sec. 154, enhance the capital gains from Rs.30 Crores to Rs.37,16,80,000/-.
7. In the result, Appeal of revenue is dismissed and that of assessee is allowed.
8. Order pronounced in open court on 31.05.2012 Sd/- Sd/-
ूमोद कुमार,
मार लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(Pramod Kumar) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated : 31st May, 2012
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - ACIT/DCIT, C.C. VI, Kolkata.
2 ू×यथȸ/ Respondent - M/s. J. K. Tyre & Industries Ltd., 7, Council House
Street, Kolkata-700 001.
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/CIT, Kolkata
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.