Gujarat High Court
Alps Technologies Pvt Ltd vs Deputy Commissioner Of Income Tax (Osd) ... on 13 April, 2017
Author: M.R. Shah
Bench: M.R. Shah, B.N. Karia
C/SCA/12468/2014 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 12468 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/-
and
HONOURABLE MR.JUSTICE B.N. KARIA Sd/-
==========================================================
1 Whether Reporters of Local Papers may be allowed NO
to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of NO
the judgment ?
4 Whether this case involves a substantial question of NO
law as to the interpretation of the Constitution of
India or any order made thereunder ?
==========================================================
ALPS TECHNOLOGIES PVT LTD....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX (OSD) CIRCLE
I....Respondent(s)
==========================================================
Appearance:
MR MIHIR JOSHI, SENIOR ADVOCATE with
MR PARTH CONTRACTOR, ADVOCATE for the Petitioner(s) No. 1
MR MANISH BHATT, SENIOR ADVOCATE with
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1
==========================================================
CORAM:HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
Page 1 of 17
HC-NIC Page 1 of 17 Created On Tue Aug 15 23:08:13 IST 2017
C/SCA/12468/2014 JUDGMENT
Date : 13/04/2017
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.00. By way of this petition under Article 226 of the Constitution of India, the petitioner has prayed for appropriate writ, order and/or direction to quash and set aside the impugned notice under section 148 of the Income Tax Act, 1961, by which the A.O. has sought to reopen the assessment for A.Y. 2007-08 on the ground that the income chargeable to tax has escaped assessment for the A.Y. 2007-08.
2.00. Facts leading to the present Special Civil Application in nutshell are as under :-
2.01. That the assessee filed return of income for A.Y. 2007-08. The petitioner was initially engaged in the manufacture and sale of elevators across Gujarat and operated under the name of Trio Elevators Pvt. Ltd. In July 2006, the petitioner entered into an agreement, in terms of which, the petitioner, while retaining the manufacturing division, sold its sale and service divisions to Otis Elevators Company (India) Ltd, for a lump-sum consideration. That pursuant to the aforsesaid, the said Trio Elevators Pvt. Ltd. was renamed to Alps Technologies Pvt. Ltd. - petitioner herein. That therefore, the petitioner pursuant to the aforesaid transaction engaged in the business of manufacture and sale of equipment, components and parts which are in turn used in the manufacture of elevators.
2.02. That thereafter the assessee filed return of income on 23/10/2007 for A.Y. 2007-08. That on the very same day, Page 2 of 17 HC-NIC Page 2 of 17 Created On Tue Aug 15 23:08:13 IST 2017 C/SCA/12468/2014 JUDGMENT the assessee sought to rectify certain errors in the computation of income and consequently uploaded the corrected income tax return in form ITR-6, inter-alia treating the gains on Slump Sales as a Long Term Capital Gain in accordance with the provisions of section 50(C) of the Act.
2.03. That pursuant to the aforesaid, notice dated 22/9/2008 under section 143(2) of the Act was issued to the petitioner and the hearing was scheduled on 1/10/2008.
Pursuant to the aforesaid hearing, a further letter dated 22/1/2009 came to be issued by the A.O. requiring the petitioner to produce information sought for in the said letter. The petitioner vide its letter dated 30/1/2009 submitted requisite documents which the A.O. had sought for. That the petitioner assessee submitted further details relevant to the year under consideration, as sought for by the A.O. vide its letter dated 11/2/2009. As there was change in the incumbent, a fresh notice for assessment under section 143(2) of the Act came to be issued to the petitioner.
2.04. That the petitioner during the course of hearing on 11/8/2009 submitted a letter wherein the petitioner submitted requisite details relevant to the year under consideration including details of the bank accounts, month wise sale of the petitioner, all requisite financial details, copy of the Article of Association, details qua stock hypothetical, details related to Slump Sale, etc. 2.05. That thereafter a further hearing came to be scheduled on 16/9/2009 during which the assessee submitted further details including copy of the Slump Sales Agreement, Page 3 of 17 HC-NIC Page 3 of 17 Created On Tue Aug 15 23:08:13 IST 2017 C/SCA/12468/2014 JUDGMENT details of the payment received under the Slump Sales working of Slump Sale etc. 2.06. That thereafter on 5/10/2009 the assessee was in receipt of an intimation issued under section 143(1) of the Act for A.Y. 2007-08 which intimation did not take into account corrected Income Tax Return uploaded by the petitioner on 23/10/2007, Therefore, the petitioner vide letter dated 6/10/2009 requested the A.O. to make note of the corrections and duly corrected return of income.
2.07. That thereafter further hearing in relation to the aforesaid assessment proceedings for A.Y. 2007-08 took place before the A.O. and the petitioner during the course of the said hearing submitted detailed explanation qua issue of Slump Sales vide letters dated 13/10/2009, 4/12/2009 and 7/12/2009. Thereafter, after several hearings, and on considering detailed scrutiny of documents including balancesheet, P&L Account of the petitioner, other details qua Slump Sale, A.O. passed an order dated 11/12/2009 under section 143(3) of the Act and inter-alia uploaded computation of the petitioner wherein Long Term Capital Gain was paid on the Slump Sale.
2.08. That thereafter beyond the period of 4 years from the relevant assessment year under consideration and as such after 6 years from the end of the assessment year under consideration, the petitioner assessee received a notice dated 29/3/2014.
2.09. That the A.O. issued notice under section 148 of
Page 4 of 17
HC-NIC Page 4 of 17 Created On Tue Aug 15 23:08:13 IST 2017
C/SCA/12468/2014 JUDGMENT
the Act by which A.O. sought to reopen the assessment for the A.Y. 2007-08 alleging inter-alia that there are reasons to believe that the income chargeable to tax has escaped assessment for A.Y. 2007-08.
2.11. That on receipt of the notice under section 148 of the Act on 29/3/2014, vide communication dated 29/4/2014 the assessee sought for reasons for reopening.
2.12. At this stage, it is required to be noted that according to the petitioner along with the communication / letter dated 29/4/2014, the assessee did file return (original return), however specifically did not state that the said return is pursuant to the notice under section 148 of the Act.
2.13. That vide communication dated 1/5/2014 the A.O. informed the petitioner assessee that as held by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Versus Income Tax Officer and others, reported in (2003) 259 ITR 19 (SC), proper course of action for the assessee is to file return of income and then seek reasons for issuing notice. Thus, the petitioner assessee was informed that only after return of income is filed pursuant to the notice under section 148 of the Act, reasons shall be supplied.
2.14. That as the assessee did not file return of income pursuant to the notice under section 148 of the Act, A.O. issued notice under section 142(1) of the Act on 12/6/2014 and the petitioner assessee was also called upon to show cause as to why the gain arising on transfer of goodwill and trademark should not be treated as Short Term Capital Gain Page 5 of 17 HC-NIC Page 5 of 17 Created On Tue Aug 15 23:08:13 IST 2017 C/SCA/12468/2014 JUDGMENT contending inter-alia that on verification of the records it is seen that the assessee has claimed Long Term Capital Gain of Rs.6,86,48,092/- on lump-sum of its business and taxed the same accordingly. However, on inquiry it is noticed that the transaction in fact was not a Slump Sale but sale of goodwill to the extent of Rs.2 Crores and trademark of Rs.6,42,70,302/- and profit arising on such transfer should have been taxed as Short Term Capital Gain instead of Long Term Capital Gain.
2.15. That thereafter the petitioner assessee filed detailed objections against reopening vide objections dated 26/6/2014. That the objections raised by the petitioner assessee has been disposed of by the A.O. vide order dated 15/7/2014. Hence, the petitioner has preferred the present Special Civil Application under Article 226 of the Constitution of India.
3.00. Mr.Mihir Joshi, learned Senior Advocate has appeared with Mr.Parth Contractor, learned advocate appearing on behalf of the petitioner - assessee and Mr.M.R. Bhatt, learned Senior Advocate has appeared on behalf of the respondent - revenue.
4.01. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioner has vehemently submitted that as such the impugned reopening and the impugned notice under section 148 of the Act to reopen the assessment for A.Y. 2007-08 beyond the period of 6 years from the date of relevant assessment year is absolutely bad in law, illegal and against the provisions of section 147 of the Act.
Page 6 of 17
HC-NIC Page 6 of 17 Created On Tue Aug 15 23:08:13 IST 2017
C/SCA/12468/2014 JUDGMENT
4.02. Mr.Mihir Joshi, learned Senior Advocate appearing
on behalf of the petitioner has further submitted that even
the grounds stated in the notice under section 142(1) of the Act and the reasons recorded to reopen the assessment for the A.Y. 2007-08 are altogether different.
4.03. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioner has further submitted that while issuing notice under section 142(1) of the Act the assessee was called upon to show cause as to why the gain arising on appreciation of goodwill and trademark should not be taxed as Short Term Capital Gain instead of Long Term Capital Gain. It is submitted that in the notice under section 142(1) of the Act, it was alleged that the transaction was not a Slump Sale but sale of goodwill and trademark. It is submitted that however, in the reasons recorded which is reproduced while disposing of the objections, the assessment is sought to be reopened on the ground that though the assessee had shown to have sold only marketing division on slump sale basis, however, there was no separate marketing division and therefore, the entire story about sale of marketing division has been fabricated only to reduce the instance of taxation, which the assessee would have suffered on sale of trademark, which would have been otherwise fully taxed at 30% as business income / short term capital gain.
4.04. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioner has further submitted that the reasons recorded to reopen the assessment for A.Y. 2007-08 were never supplied to the petitioner assessee and therefore, no opportunity has been given to the petitioner to submit Page 7 of 17 HC-NIC Page 7 of 17 Created On Tue Aug 15 23:08:13 IST 2017 C/SCA/12468/2014 JUDGMENT detailed objections against the reasons recorded to reopen the assessment for A.Y. 2007-08.
4.05. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioner has further submitted that even otherwise, assumption of jurisdiction to reopen the assessment for A.Y. 2007-08 is bad in law and against the provisions of section 147 of the Act.
4.06. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioner has further submitted that as such the assessment for the A.Y. 2007-08 sought to be reopened is beyond the period of 4 years (in the present case after 6 years) and therefore, unless and until it is alleged / found that the assessee did not disclose true and correct facts necessary for assessment, reopening is not permissible.
4.07. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioner has further submitted that as such in the present case there is no suppression on the part of the assessee in not disclosing true and correct facts. It is submitted that after the detailed scrutiny, the transaction came to be explained by the A.O. as slump sale, more particularly after considering the material on record. It is submitted that therefore, assumption of jurisdiction to reopen the assessment beyond the period of 4 years (in the present case after 6 years) is absolutely illegal and contrary to section 147 of the Act.
Making above submissions and relying upon the decision of the Division Bench of this Court in the case of Sandeepkumar Mithulal Mehta Versus Income Tax Page 8 of 17 HC-NIC Page 8 of 17 Created On Tue Aug 15 23:08:13 IST 2017 C/SCA/12468/2014 JUDGMENT officer, rendered in Special Civil Application No. 20754 of 2016 and another decision of the Division Bench of this Court in the case of Sopan Infrastructure (P) Ltd. Versus Income Tax office, Ward 8(2) reported in (2017) 78 taxmann.com 170 (Gujarat), it is requested to allow the present petition.
5.00. Present petition is vehemently opposed by Mr.M.R. Bhatt, learned counsel appearing on behalf of the revenue.
5.01. Mr.Bhatt, learned counsel appearing on behalf of the revenue has vehemently submitted that in the present case A.O. was justified in reopening the assessment for the A.Y. 2007-08 as the assessee did not disclose true and correct facts that there was no separate marketing division which was sold and in fact what was sold by the assessee was the entire business including trademark and goodwill. It is submitted that subsequently on the basis of the information provided by the learned CIT(A) (I), Ahmedabad, considering the appellate proceedings in the case of Trio Elevators Company (India) Ltd. for A.Y. 2010-11 (transferee Company) in which the transferee had claimed depreciation on the trademark to the extent of Rs.21,09,375/- which was disallowed by the A.O. and consequently the learned CIT(A) draw attention of the A.O. that the assessee had no separate marketing division and therefore, what was sold by the assessee was goodwill and trademark and the income on such transaction / sale of trademark and goodwill was required to be treated as short term capital gain and could not have been treated as sale of business on slump sale basis, the A.O. was justified in reopening the assessment beyond the period of 4 years.
Page 9 of 17
HC-NIC Page 9 of 17 Created On Tue Aug 15 23:08:13 IST 2017
C/SCA/12468/2014 JUDGMENT
5.02. Now, so far as the submission on behalf of the petitioner that the petitioner was not served with the reasons recorded to reopen the proceedings for A.Y. 2007-08 is concerned, Mr.Bhatt, learned counsel appearing on behalf of the revenue has submitted that as such as per the law laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) assessee is required to file return of income pursuant to the notice under section 148 of the Act and simultaneously may ask for the reasons recorded. It is submitted that in the present case, the assessee asked for the reasons recorded but the assessee did not file return of income pursuant to the notice under section 148 of the Act and without filing return of income, the petitioner assessee straightway asked for the reasons and thus, the assessee did not follow the procedure prescribed by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and therefore, the A.O. rightly did not furnish the reasons recorded.
5.03. Mr.Bhatt, learned counsel appearing on behalf of the revenue has further submitted that thereafter after waiting for sufficient time, A.O. issued notice under section 142(1) of the Act and proceeded further with the reassessment proceedings. It is submitted that only thereafter the petitioner raised objections against reopening vide communication dated 26/6/2014 and for the first time stated that return submitted along with the communication dated 29/4/2014, be treated as return of the assessee pursuant to the notice under section 142(1) of the Act. It is submitted that by that time notice under section 142(1) was already issued. It is submitted that therefore, it is not open for the petitioner to make a grievance Page 10 of 17 HC-NIC Page 10 of 17 Created On Tue Aug 15 23:08:14 IST 2017 C/SCA/12468/2014 JUDGMENT that the petitioner was not furnished reasons recorded to reopen the assessment for the A.Y. 2007-08.
5.04. Mr.Bhatt, learned counsel appearing on behalf of the revenue has further submitted that as such the A.O. at the relevant time accepted the claim of the assessee as it is i.e. accepted the claim that what was sold by the petitioner assessee was slump sale and therefore, at the relevant time there was no occasion to consider whether the transaction was outright sale of business including transfer of goodwill and trademark. It is submitted that in the present case, the A.O. is justified in reopening the assessment for A.Y. 2007-08.
Making above submissions and reiterating that as the assessee did not disclose true and correct facts that there was no separate marketing division and as such what was sold was entire business including goodwill and trademark and income arising therefrom could have been considered and treated as short term capital gain, it is requested to dismiss the present petition.
6.00. At the outset, it is required to be noted and it is not in dispute that assessment for A.Y. 2007-08 is sought to be reopened beyond the period of 4 years (according to the petitioner in the present case beyond the period of six years) from the relevant assessment year. Therefore, considering the proviso to section 147 of the Income Tax Act, unless and until there is any failure on the part of the assessee in not disclosing true and correct facts necessary for the purpose of assessment, A.O. is not justified in reopening the assessment.
Page 11 of 17
HC-NIC Page 11 of 17 Created On Tue Aug 15 23:08:14 IST 2017
C/SCA/12468/2014 JUDGMENT
6.01. In the present case A.O. has sought to reopen the assessment for A.Y. 2007-08 beyond the period of 4 years and the reasons recorded for reopening the assessment read as under :-
"On the basis the information received from the O/o. CIT(A)-I, Ahmedabad vide letter dated 28/03/2014, it is found that during the course of appellate proceedings in the case of M/s. Trio Elevators Co. (India) Ltd. for A.Y. 2010-
11, the party had claimed depreciation on trade marks to the extent of Rs.21,09,375/- which had been disallowed by the A.O. In the earlier year similar disallowance made by the AO had been confirmed by the CIT(A) on the ground that such Trade mark had not been registered in the name of Trio Elevators. On inquiries it was learnt that M/s. Trio Elevators Co. (India) Ltd had purchased the Marketing division of Alps Technologies Pvt. Ltd. during A.Y. 2007-08. M/s. Trio Elevators Co. (India) Ltd claimed that the Marketing division has been purchased on a slump sale basis from alps and hence the individual assets had not been valued and purchased individually. After the purchase of M/s. Trio Elevators Co. (India) Ltd has got the assets valued and assigned value to the assets on the basis of the report of the Valuer. M/s. Trio Elevators Co. (India) Ltd depreciation on the said revalued price.
Page 12 of 17
HC-NIC Page 12 of 17 Created On Tue Aug 15 23:08:14 IST 2017
C/SCA/12468/2014 JUDGMENT
From the assessment records of the
assessee it is seen that the assessee viz. M/s. Alps Technologies Pvt. Ltd. was running the business of making and selling elevators. They did not have a separate marketing division earmarked. The assets of the entire concern were in a single composite entity. The entire business was not sold but it had been claimed that only marketing division was sold on a slump sale basis. The records do not show that any separate marketing division existed in the Company.
When the entire business was not sold, only the marketing division could not be sold as a separate business entity. In fact, the entire story about sale of marketing division has been fabricated only to reduce the instance of taxation which M/s. Alps Technologies would have suffered on sale of Trade mark which would have been otherwise fully taxed @ 30% as business income / short term capital gain.
It is also seen that the assets transferred on execution of the sale agreement as reported by M/s. Trio Elevators Co. (India) Ltd are the only worthwhile asset other than advances received and transferred in this case is Trade Mark and IP assets valued at Rs.2,00,00,000/- and goodwill valued at Page 13 of 17 HC-NIC Page 13 of 17 Created On Tue Aug 15 23:08:14 IST 2017 C/SCA/12468/2014 JUDGMENT Rs.6,24,70,302. Thus, it is clear that case of transfer of the Trade Mark and the associated goodwill and not a case of sale of business on slump sale basis.
Further, the available records do not suggest that no enquiry was made to question the slump sale. Thus, the claim of slump sale is required to be verified as this has resulted in under assessment in turn short levy of taxes on sale of Trade Mark and goodwill to the extent of Rs.2,00,000/- (trade mark) + Rs.6,24,70,302 (goodwill) @ 10%. therefore, the undersigned has reason to believe that the income chargeable to tax for the yer under consideration has escaped assessment, as per the provisions of section 147 of the I.T. Act."
Therefore, it appears that solely on the basis of information received from the office of CIT(A) (I), Ahmedabad vide its letter dated 28/3/2014, assessment for A.Y. 2007-08 is sought to be reopened and the A.O. has doubted the transaction in favour of Trio Elevators Company (India) Ltd. which was treated and considered as slump sale. The A.O. has sought to reopen the assessment for A.Y. 2007-08 by observing that the assessee did not disclose true and correct facts necessary for the assessment inasmuch as the assessee did not disclose that there was no separate marketing division and as such what was sold was the entire business and therefore, the entire story about the sale of marketing division Page 14 of 17 HC-NIC Page 14 of 17 Created On Tue Aug 15 23:08:14 IST 2017 C/SCA/12468/2014 JUDGMENT only has been fabricated only to reduce the instance of taxation which the assessee would have suffered on sale of trademark, which would have been otherwise fully taxed at 30% as business income / short term capital gain. Therefore, what is required to be considered is, whether in fact the assessee suppressed material facts and/or did not disclose true and correct facts necessary for assessment, as sought to be contended by the revenue.
6.02. Considering the material on record it appears that number of questions were raised by the A.O. during the original assessment proceedings with respect to the transaction in question, more particularly whether the sale is on slump sale basis or not. The original assessment was under section 143(3) of the Act. During the course of the assessment proceedings, the assessee produced / supplied requisite documents / materials / details, including details of bank accounts, month wise sale and purchase of the petitioner, all requisite financial details, copy of the Article of Association, details qua stock hypothetical, details related to Slump Sale, copy of the Slump Sale Agreement, details of the payment received under the Slum Sale and documents relating to Slum Sale, etc. and during the course of hearing the assessee also submitted detailed explanation with respect to slump sale and only thereafter the A.O. upheld the fact that the transaction was in fact a slump sale transaction.
6.03. From the material on record it appears that in the communication dated 13/10/2009 the assessee disclosed as under :-
Page 15 of 17HC-NIC Page 15 of 17 Created On Tue Aug 15 23:08:14 IST 2017 C/SCA/12468/2014 JUDGMENT "1. The Business of MARKETING & SERVICING OF ELEVATORS under the "TRIO" brand was sold on Slump Sale basis on the 07th September, 2006 by Alps Technologies Pvt.
Ltd. to Trio Elevators Co. (I) Ltd.
Alps Technologies Pvt. Ltd was left with the activity of manufacturing the Elevators. Alps was required to sale its production to TRIO ELEVATORS CO (I) LTD as per the SSUPPLY AGGREMEN entered between the parties on 07th Sept. 2006. A copy said Agreement is attached herewith."
6.04. Therefore, it was specifically declared by the assessee that what was sold by the assessee was activity of manufacturing elevators. Therefore, as such it cannot be said that the assessee did not disclose true and correct facts necessary for the assessment. It is required to be noted that even the issue as to whether the transaction can be said to be sale of goodwill and/or trademark also came to be considered in detail by the A.O. and only thereafter the transaction in question was considered on slump sale basis.
6.05. In view of the aforesaid facts and circumstances of the case when it is found that the assessee disclosed all true and correct facts necessary for the assessment and it cannot be said that the assessee did not disclose true and correct facts for the purpose of assessment, assumption of jurisdiction by the A.O. to reopen the assessment beyond the period of four years is absolutely bad in law, illegal and contrary to the Page 16 of 17 HC-NIC Page 16 of 17 Created On Tue Aug 15 23:08:14 IST 2017 C/SCA/12468/2014 JUDGMENT provisions of section 147 of the Act. Under the circumstances, on the aforesaid ground alone, the impugned reassessment proceeding deserves to be quashed and set aside.
7.00. In view of the above and for the reasons stated above, present petition succeeds. The impugned notice under section 148 of the Income Tax Act, 1961 for A.Y. 2007-08 and the impugned reassessment proceedings deserve to be quashed and set aside and the same are hereby quashed and set aside. Rule is made absolute accordingly to the aforesaid extent. However, in the facts and circumstances of the case, there shall be no order as to costs.
Sd/-
(M.R. SHAH, J.) Sd/-
(B.N. KARIA, J.) Rafik..
Page 17 of 17HC-NIC Page 17 of 17 Created On Tue Aug 15 23:08:14 IST 2017