Income Tax Appellate Tribunal - Delhi
Universal Dairy Products P. Ltd., New ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'H' NEW DELHI)
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.2217/Del/2012
Assessment year : 2008-09
ACIT, M/s Universal Dairy Products
Circle-18 (1), P. Ltd., F-2/7, Okhla Indl. Area,
New Delhi. V Phase-I, New Delhi.
(Appellant) (Respondent)
PAN /GIR/No.AAACU
/GIR/No.AAACU-
AAACU-5759-
5759-P
Department by : Shri A.K. Mishra, CIT-DR
Respondent by : Shri V.K. Jain, C.A.
ORDER
PER TS KAPOOR, AM:
This is an appeal filed by the revenue against the order of Ld CIT(A) dated 23.2.2010. The grounds raised by the revenue are as under:-
1. On the facts and in the circumstances of the case and in law the Ld CIT(A) has erred in giving a relief of `.12,42,42,474/- in the short term capital gains computed on account of slump sale.
2. On the facts and in the circumstances of the case and in law the Ld CIT(A) has erred in not appreciating the fact that the working of net worth submitted by the Chartered Accountant on Form No.3CEA had been wrongly calculated at `.23,14,24,472/- while the difference between the aggregate value of total, assts minus liabilities worked out to `.4,40,01,716/- only and thus reducing
2 ITA No2217/Del/2012 the short term capital gain from `.20,50,98,284/- to `.8,08,55,510/- thereby giving relief of `.12,42,42,474/-.
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of appeal.
2. The brief facts of the case are that assessee is in the business of manufacturing and selling of milk and dairy products. The return of income was filed at a loss of `.3,52,92,18/-. The case of the assessee was selected for scrutiny. During assessment proceedings, the Assessing Officer observed that the assessee had disposed off its entire fixed assets of the Ice Cream Division and declared short term capital gain of `.1,85,75,528/- on the slump sale> The short term capital gain was arrived at after reducing net worth of the undertaking amounting to `.23,14,24,472/- out of sale consideration of `.25 crores. The Assessing Officer observed that the net worth of the undertaking as required to be calculated under the provisions of section 50B(3) in Form No. 3CEA has reflected the net worth at `.23,14,24,472/-. The Assessing Officer observed that there was a calculation mistake in the said form wherein at Point (e) there should have been subtraction from C-D whereas the Chartered Accountant had calculated by making additions of two items instead of subtraction. Therefore, the Assessing Officer calculated the short term capital gain at `.20,50,98,284/- instead of `.1,85,75,528/- calculated by the assessee.
3. Dissatisfied with the order the assessee filed appeal before ld CIT(A) and submitted as under"-
a) That Ld Assessing Officer in the assessment order has mentioned that there is an arithmetic mistake in the calculation of net worth 3 ITA No2217/Del/2012 of the undertaking whereas there was no arithmetic mistake and the WDV of depreciable assets taken over has been shown `.13,81,63,094/- and the loans outstanding against such fixed assets amounted to `.9,32,61,378/- but as the aforesaid loans have not been taken over by the purchaser of unit and have been repaid by the appellant company itself, therefore, there was no occasion to reduce the same from WDV of fixed assets to compute the net worth.
b) That Ld Assessing Officer has failed to consider the letter dated 25.12.2010 sent to ld Assessing Officer wherein it has been clarified that revised calculation of capital gain works out at loss of `.1,24,05,868/- which is supported by business acquisition agreement filed during the course of assessment proceedings.
In this respect, the revised calculation of capital gain was submitted as under:-
Net sales consideration as per para 8.1.
of agreement `.21,90,18,604/-
Less: WDV of fixed assets. `.13,81,63,094/-
Short term capital gain on slump sale. `. 8,08,5,510/-
Less: Amount of secured loans repaid
Out of slumps sale. `. 9,32,61,378/-
Net short term capital loss. `. 1,24,05,808/-
4. The Ld CIT(A) after going through the submissions of assessee and after going through the remand report obtained during appellate proceedings arrived at the figure of capital gain amounting to `.8,08,5,510/- by holding as under:-
4 ITA No2217/Del/2012 "I have gone through the submissions made by Ld AR and the facts discussed by the Assessing Officer in assessment order. There are two dimensions in respect of finalization of the computation of long term capital gain on slump sale in the case of the appellant. Firstly the sales consideration needs to be computed and secondly the net worth of the appellant needs to be computed. As per the calculation furnished by the appellant company before the ld. AO and also during the appellate proceedings the net consideration would work out to `.21 ,90, 18,604/- as per details hereunder:-
Net Sales consideration as per para 8.1 of agreement:
Consideration towards Fixed assets `.25,00,00000/-
Add: Current liabilities. `.1,34,64,003. (As per Schedule 1 of the agreement.
`.26,34,64,003 Paper Book Page 73 ) Less: Current liability. `.4,44,45,399. (As per Schedule 2 of the agreement Net Sales consideration `.21,90,18,604. Paper Book Page 71 ) The sales consideration has been duly specified in clause no. 8.1 of the Business Acquisition Agreement dated 1.11.2007 (Paper Book Page 61) entered into between the appellant company and the purchaser and therefore it will be correct to fix the value of sales consideration at `.21 ,90, 18,604/-.
As regards the computation of net worth of the undertaking, the appellant company in the return of income has computed the net worth as under:-
WDV of Fixed assets transferred by way of Slum Sales. `.13,81,63,094/- Add: Amount of secured loans repaid out of slump sales consideration. `. 9,32,61,378/-
5 ITA No2217/Del/2012 `.23,14,24,47 However, the AO in the assessment order has computed the net worth of the undertaking as under:-
WDV of Fixed assets transferred by way of Slum Sale . `.13,81,63,094/-
Less: Value of liabilities relatable to the undertaking as appearing in the books of account. `.9,32,61,378/-
It is clear that the appellant had outstanding secured loans of `.9,32,61 ,378/- in respect of the undertaking which has been sold. However, it has been explained that such secured loans have not been taken over by the purchaser and only the assumed liabilities as per schedule 2 of the agreement amounting to `44,45,399/- has been taken over. Therefore, as the loans for `.32,61,378/- have not been transferred by the appellant company to the purchaser of .the undertaking therefore, while calculating net worth of the undertaking transferred to the purchaser by the appellant company such loans are not required to be deducted for the purpose of arriving at the Net Worth of the business transferred. Therefore, the net worth of the undertaking shall be computed at `.13,81,63,094/- which represents the WDV of the fixed assets transferred by way of slump sale. Accordingly the calculation of short term capital gain on slump sale of the undertaking is calculated as under:-
- Amount of consideration received on slump sale. `.21,90,18,604/-
Less: Net worth of the undertaking represented by fixed assets. `.13,81,63,094/-
`. 8,08,55,510.
6 ITA No2217/Del/2012 The AO has computed the net capital gain at `.20,50,98,284/- as against the correct working of `.8,08,55,51O/- as computed above and thus the appellant is allowed relief of `.12,42,42,774/-. Therefore, the ground No.2 of appeal is partly allowed."
5. Aggrieved, the revenue is in appeal before us.
6. At the outset, Ld DR submitted that capital gain to the assessee had occurred on account of profit on slump sale and profit has to be calculated as per the provisions of section 50B of the Act. He referred to Form No. 3CEA and submitted that sale consideration was `.25 crores and Ld CIT(A) has wrongly taken at `.21,90,18,604/-. He further argued that CIT(A) has taken this figure after reducing current liabilities and adding current assets which is not as per the provisions of section 50B of the Act. He further argued that whether liabilities are taken over or not does not mater as Section 50B does not talk about it and capital gain has to be calculated as per special provisions of section 50B. Reliance in this respect was placed on the case law of Zuari Industries Ltd. v. ACIT reported in 9 SOT 569 (Bom.).
7. The Ld AR, on the other hand, took us to page 51 of paper book and invited our attention to the sale consideration as per para 'A' of Article 8.1 which was at `.21,90,18,604/-. He took us to page 5 of paper book wherein article 1.1. defines assumed liabilities which meant sundry creditors and amounts payable referred to in Schedule-I. He further took us to Schedule-I placed at pages 69 to 71 and pointed out that term loan was not part of assumed liabilities and therefore the amounts of term loan cannot be reduced for the purpose of calculation of net worth and therefore the Ld CIT(A) has rightly not included the same for calculation of net worth. Continuing his arguments he 7 ITA No2217/Del/2012 submitted that the term loans were to be paid to the bank which was not taken over by the purchaser and which were repaid after getting sale consideration from the purchaser. Reliance in this respect was placed on the case of Gopee Nath Paul and Sons v. Dy. Commissioner of Income-tax [2005] 278 ITR 240 (Cal) wherein it was held that repayment of loan will be considered as expenses from sale consideration.
8. In his rejoinder, the Ld DR submitted that section 50B is a special provision and the provisions of agreement entered into between the seller and purchaser cannot over-ride the provision of slump sale as provided u/s 50B. He submitted that as per agreement `.21.90 crores was to be paid to the seller and `.3.10 crores was to be paid for net current liabilities making total consideration of `.25 crores/ He further submitted that for the purpose of calculation of net worth of an undertaking assets and liabilities appearing in the balance sheet only has to be considered.
9. We have heard the rival submissions of both the parties and have gone through the material available on record. There are two points for consideration to decide the case. One is regarding calculation of net worth of undertaking and the second is regarding amount of sale consideration. The Assessing Officer has taken the consideration value of `.25 crores by making an adjustment of current liabilities and current assets. The sale consideration has been specifically mentioned in the business acquisition agreement vide article 8.1. at page 61 of paper book which is at `.21,90,18,640/-. The Ld CIT(A) has taken this value as sale consideration and we are of the opinion that this is the correct value which should be considered for the purpose of calculation of capital gain. The Ld CIT(A) has not 8 ITA No2217/Del/2012 reduced the amount of secured loans from the amounts of total assets to arrive at the net worth of undertaking which in our opinion is not a correct position as per provisions of section 50B of the Act.
10. Section 50B is a special provision which is applicable in the case involving slump sale and which prescribes a particular method to calculate the capital gain earned by the assessee. Section also prescribes the method of calculating net worth of the undertaking. Since the main dispute is with respect to the calculation of net worth of undertaking we would like to reproduce the Explanation 1 of section 50B which reads as under:-
"Explanation 1 for the purpose of this section net worth shall be 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 accounts.
Explanation (2) for computing net worth the aggregate value shall be:-
a) In the case of depreciable assets, the WDV of the block of assets determined in accordance with the provisions contained in sub items (c )of item (i) of sub clause (6) of section 43.
b) In the case pf capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction u/s 35AD - nil & (c ) in the case of other assets the book value of such assets.
11. From the above explanation to the provision it is very much clear 9 ITA No2217/Del/2012 that for the purpose of calculation of net worth of an undertaking, the following is to be followed"-
a) WDV of admissible assets +
b) Book value of other assets.
c) Aggregate of total assets of undertaking or division -
d) Value of liabilities relatable to the undertaking as appearing in the books of accounts.
e) Net worth.
12. The above method of calculation of net worth is further fortified by Form No. 3CEA which also requires the same figures to be reported by the Chartered Accountant. If we put the relevant figures of this case in the above column we would get the value of net worth of `.1,39,20,320 as calculated below:-
a)WDV of depreciable assets. `.13,81,63,094/-
b) Book value of other assets. `.13,46,4003/-
c) Aggregate lf total assets.
d) Value of liabilities relatable to to the undertaking as appearing in the books of accounts. `.15,16,27097/-
i) Current liabilities. `.44445399/-
ii) Bank liabilities. `.9,32,61,378/- `.13,77,06,777/-
e) Net worth. `.1,39,20,320/-
13. Now if we reduce the sale consideration of `.21,90,18,604/- from net worth as calculated above, the figures of capital gain comes out to `.20,50,98,284/- which is the same figure arrived at by the Assessing Officer. The only difference between our calculation and Ld CIT(A)'s calculation is with respect to net worth. Ld CIT(A) has not considered the amount of bank loans for calculation of the same which in our 10 ITA No2217/Del/2012 opinion should have been considered in view of special provision of section 50B.
14. The reliance put by the Ld AR on the case law of Gopee Nath reported in 278 ITR 240 (Cal.) relates to calculation of capital gain under normal circumstances and that too in a case where the assets cannot be sold without paying the bank liabilities whereas the present case relates to calculation of capital gains under the special provision of sec. 50B and dispute relates to calculation of net worth and not capital gain. Therefore, the case law relied upon by Ld AR is distinguishable.
15. In view of the above discussions, we allow the appeal of revenue and set aside the order of Ld CIT(A).
16. Order pronounced in the open court on 14th day of June, 2013.
Sd/- Sd/- (I.C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dt. 14.6.2013. HMS Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing 11.4.2013
Date of Dictation 29.5.2013
Date of Typing 29.5.2013
Date of order signed by 14.6.2013
both the Members &
pronouncement.
11 ITA No2217/Del/2012
Date of order uploaded on net
& sent to the Bench concerned.