Indian Kanoon - Search engine for Indian Law

Assessment Year 2017-2018

5. The learned CIT(A) has erred, in law and on facts, in holding that Form 3CEA is the basis of determining the purchase price and hence, values are assigned to individual assets and liabilities of the business without appreciating that Form 3CEA is a certificate issued by a chartered accountant indicating the computation of net worth, as required by Section 50B(3) of the Act, to be submitted by the seller of business before the specified date referred to in Section 44AB of the Act.

2. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."

3. The relevant facts in brief are that Assessee, a subsidiary of Digital Insight Corp, USA, is a captive service provider which was engaged in providing software services to Digital Insight Corp, USA. During the relevant previous year, the Assessee entered into a 'Business Sale and Purchase Agreement', dated 24/03/2017, with NCR Corporation India Pvt. Ltd. [for short „the Buyer‟]. The contention of the Assessee is that the aforesaid transaction was in the nature of „Slump Sale‟ for a lumpsum consideration of INR 22.40 Crores. However, the entire sale consideration was not received by the end of the relevant previous Assessment Year 2017-2018 year, therefore, the Trade Receivables of INR.22.40 Crores, and 22.01 Crores were reflected in the Balance Sheet of the Assessee as on 31/03/2017 and 31/03/2018, respectively. The Assessee filed revised return of income for the Assessment Year 2017-2018, on 29/06/2018 declaring gross total income of INR.11,57,39,368/- comprising of business income of INR.3,57,22,844/-, Long term Capital Gains from slump sale amounting to INR.7,99,04,490/- and Income from Other Sources of INR.1,12,034/-. The case of the Assessee was selected for regular scrutiny. During the assessment proceedings vide notice, dated 17/10/2019, the was asked to explain why INR.44,41,91,261/- [sales consideration receivable amounting to INR.22,40,00,000/- shown in Return of Income for AY 2017-2018 and trade receivable amounting to INR.22,01,91,261/- shown in Return of Income for AY 2018-2019] should not be treated as taxable business income since the transaction did not qualify as slump sale and provisions of Section 50B of the Act were not applicable. In response, the Assessee filed replies. However, the Assessing Officer was not convinced and proceed to conclude assessment vide Assessment Order, dated 23/11/2011, passed under section 143(3) of the Act. The Assessing Officer treated the slump sale transaction as business transaction and added back the lump sum consideration of INR.22.40 Crores to the business income of the Assessee-Company.

4. We have considered the rival submission, have perused the material on record and examined the position in law in view of the submissions advanced.

4.1. It is admitted position that during the relevant previous year, the Assessee sold its business for sum of INR.22.40 Crores. The Assessee treated the transaction as a „Slump Sale‟ and availed the benefit of the provisions of Section 50B of the Act.

4.2. The Assessing Officer took a view that the transaction was business sale (and not a slump sale). Therefore, the Assessing Officer added the sale consideration of INR.22.40 Crores to total income of the Assessee by invoking the provisions contained in Section 28(ii) of the Act. While doing so, the Assessing Officer made following observations:

4.9. Further, the reliance placed by the CIT(A) on Form 3CEA is clearly misplaced. In terms of Section 50B(3) of the Act an Assessee undertaking the slump sale transaction is mandated to furnish a report of accountant in Form 3CEA indicating the computation of the „net worth‟ of the undertaking. Explanation 1 and Explanation 2 to Section 50B of the Act deal with the manner of computation of „net worth‟ and value to be assigned to asset for the purpose of computation of „net worth‟. In our considered view, the statutory requirements of furnishing Form 3CEA giving computation of „net worth‟ of undertaking transferred by way of slump sale cannot lead to an adverse inference to the effect that the Assessee has undertaken transaction of itemized sale.