Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘SMC’
Before: SHRI RAJPAL YADAV
आदेश/O R D E R Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-1, Vadodara dated 3.4.2017 passed for the Asstt.Year 2012-13.
The grounds of appeal taken by the assessee are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief, sole grievance of the assessee relates to disallowance of depreciation amounting to Rs.7,55,62,862/- with regard to the assets purchased in slump sales.
ITA No.1731/Ahd/2017 2 3. Brief facts of the case are that the assessee has filed its return of income on 27.9.2012 declaring total loss at Rs.7,75,52,976/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The assessee-company was incorporated on 11.11.2010 and 99.98% of equity capital was held by holding company viz. M/s.Gujarat Fluorochemicals Ltd.(GFL). According to the assessee, it has acquired wind energy division of GFL during the accounting year relevant to this assessment year. It claimed depreciation. However, its claim was rejected by the AO on the ground that transaction was materialized during the accounting period relevant to the Asstt.Year 2013-14. Dissatisfied with the action of the AO, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) upheld the action of the AO by following directions of DRP given in the case of vendor i.e. GFL. The discussion made by the ld.CIT(A) reads as under: “5.2. During the course of the appellate proceedings, the appellant's AR has made detailed submissions. Thereafter, he has filed a copy of the directions dated 30.12.2010 issued u/s 144C (5) of the IT Act, 1961 by the Dispute Resolution Panel of Mumbai, in respect of the draft assessment order for the AY 2012-13 in the case of M/s. GFL Ltd.
5.2.1. A perusal of these directions shows that the DRP has made a detailed discussion regarding the alleged sale of wind energy business by GFL to IRL and thereafter has given following direction in this regard:
"16. Discussion and Direction of DRP:
16.1, As per the assesses company, ft has sold the Wind Energy Business, on as is where is basis and on 'slump sale' basis with effect from 30th March, 2012, for a lump sum consideration of Rs 1 Crore to Inox
ITA No.1731/Ahd/2017 3 Renewable Limited(IRL) which is 99.98% subsidiary of GFL On this slump safe, the assesses company has computed long term capital loss on transfer of wind energy business at Rs. 1,23,73,585/-
However, the AO is of the viewpoint that the slump sale of 'Wind Energy Business' was not on 30/03/2012 & the actual transfer of assets took place only in F. Y. 2012- 13. 16.2. The DRP concurs with the AO's detailed reasoning for holding that the slump sale was not executed on 30/03/2012 & the actual transfer took place only in the next financial year. The various reasons given by the AO in this regard are summarized below :-
> The slump sale agreement has been drawn on 30.03.2012 at the head office and the signatories are Sh. Vivek Jain, Managing Director for GFL and Sh. Deepak Asher, Director for IRL Both these persons as mentioned above are the main persons behind the Inox group.
> The possession certificate transferring the immovable/ movable assets of various projects located at various states i.e. Tamil Nadu, Gujarat, Rajasthan and Maharashtra was drawn on at the head office and not after due physical verification of the assets at site.
> The transferred business continued to be run by GFL, even after 30.03.2012, as the debit/credit notes for 1 day i.e. 31.3.2012 were raised by GFL on IRL for accounting purpose.
> The payment of Rs. 1 crore towards sale has been credited in the bank account of GFL on 03.04.2012.
> The effective date of the completion of the transfer has to be ascertained from the date of grant of statutory/mandatory/ regulatory approvals for transfer or at least from the date of transfer.
> The intimation dated 30.03.2012 to the Stock Exchange Mumbai was received by Bombay Stock
ITA No.1731/Ahd/2017 4 Exchange Ltd, Mumbai on 12.04.2012 and by National Stock Exchange Ltd. Mumbai on 02.04.2012.
> The bank loan has been transferred .in the books of account of both GFL and IRL on the year ending 31.03.2012, without obtaining concurrence from the banks
> The letter to banks intimating the slum sale transactions and seeking approval to transfer of loan liability was written on 21.04.2012 by GFL.
> The revised agreement (novation agreement) between the bank, GFL &, IRL transferring the bank loan was entered on 17.10.2012.
> The RBI approval to transfer foreign currency loan was obtained on 18.03,2013.
> The letter written by M/s Ernst &, Young (F) Ltd mentions that, "it is intended that the entire 230 MW shall be transferred from GFL to IRL as slump sale in F. Y. 2012-13".
> The application for issue of REC w.r.t. power generated in March, 2012 was applied for by GFL on 20.05.2012. GFL sold 2800 REC i.e.1000 REC on 25.04.2012 and 1800 REC on for Rs. 65.24 lakhs.
> The ownership of free hold land on which windmills are erected was transferred from GFL to IRL m the F.Y. 2012-13. For example, sale deed for land pertaining to Gudhe Panchgani, Maharashtra project was registered on January 2013 and sale deed for land pertaining to hoothukudi, Tamil Nadu project was registered on October 2012.
> The regulatory permission to transfer the registration of wind energy projects in Rajasthan was obtained from Rajasthan Renewable Energy Corporation on 12.09.2012.
ITA No.1731/Ahd/2017 5 > Application to transfer the PPA was filed in F. Y. 2012-13 and the mandatory approval for the transfer of PPA from Rajasthan projects was obtained on 08.01.2013 from Jodhpur Discom, RDPPC and for Maharashtra project on 12.12.2012.
> The New India Assurance Company Ltd granted approval to IRL for replacement of the name of CFL by 1RL in respect of the following policies only on 01.06.2012
16.3. The DRP agrees with the conclusion of the AO that the slump sale of 'Wind Energy Business' on 30/03/2012, to M/s Inox Renewable Limited is merely a paper transaction & the actual transfer of assets took place in f.y. 2012-13 only."
5,2.2. Thus, the issue of alleged sale of wind energy business by GFL to IRL stands covered against the appellant by above directions of DRP. I also concur with the conclusions reached by the DRP and the directions given by it in regard to this transaction. Hence, the AO's inference that the slump sale of wind energy business was only a paper transaction so far as FY 2011-12 is concerned, is upheld and accordingly, the disallowance of claim of depreciation on account of assets of wind energy business by the AO is also upheld.”
The ld.counsel for the assessee at the very outset submitted that the issue is squarely covered in favour of the assessee by the order of the ITAT passed in the case of Gujarat Florochemicals Ltd. i.e. ITA No.805/Ahd/2017 and others. He placed on record copy of the Tribunal’s order. On the other hand, the ld.DR was unable to controvert this submission of the ld.counsel for the assessee.
I have duly considered rival contentions and gone through the record carefully. In the case of vendor, Tribunal has examined the issue in detail and considered the directions of the DRP relied
ITA No.1731/Ahd/2017 6 upon by the ld.CIT(A) in the present case. The Tribunal did not concur with him and held that the transaction has been materialized in the accounting period relevant to the Asstt.Year 2012-13. The discussion made by the Tribunal reads as under:
“62. The issue regarding year of taxability is just an academic issue. It will not going to affect materially. Nevertheless, we consider this aspect also, because kind of revenue involved in this issue would certainly goad the litigation upto the higher appellate forum.
With regard to year of taxability, the AO has narrated various circumstances and on cumulative settings of those circumstances, he harboured a belief that transaction has taken in the assessment year 2013-14 and not in assessment year 2012-13. During the course of hearing, we have confronted the assessee with regard to those circumstances as summarised by the ld.DRP, and on our direction, the assessee has compiled the details in tabular form showing reasons considered by the AO as well as DRP for treating the transactions taken place in the accounting year relevant to the assessment year 2013-14 vis-à-vis explanation given by the assessee as to why this transaction should be taken in the assessment year 2013-14. Such details have been filed in tabular form. It reads as under:
DRP ‘Order extract Assesse’s submission and Reference Argument 1 The slump sale agreement has This is factually correct that slump Submission been drawn on 30.03.2012 at sale agreement and possession to DRP the head office and the letters are signed by Mr. Vivek Jain dated signatories are Sh. Vivek Jam, and Mr. Deepak Asher. Mr. Vivek 16.09.2016 Managing Director for GFL and Jain has signed in the capacity as Sh. Deepak Asher, Director for a Managing Director of a transferor IRL. Both these persons as company i.e. GFL. Deepak Asher mentioned above are the main has signed as director of a persons behind the Inox group transferee company i.e. IRL. Both these persons have signed the documents on behalf of the respective companies and in their legal capacities as managing director and director. 2 The possession certificate It will be observed that the Submission transferring the immovable/ transaction is between Holding to DRP movable assets of various company and its 99.98% dated
ITA No.1731/Ahd/2017 7 projects located at various Subsidiary company and is not 16.09.2016 states i.e. Tamil Nadu, Gujarat, between two unknown parties. Rajasthan and Maharashtra was Therefore, the condition of the drawn on 30.03.2012 at the business, assets, employees etc. head office and not after due was known to both the parities at physical verification 'of the any given point of time. Therefore, assets at site. there was no specific need to do physical verification on any given date as contemplated in the show cause notice/Order as wind energy business including assets and liabilities of the undertaking was transferred on as is where is basis, on a slump sale basis. These documents are not just the paper work. It will be observed that BTA dated 30/03/2012 is the legally enforceable document executed by both the parties. The possession letter was executed in terms and BTA agreement as a part of closing activities. By signing the possession letter on 30/03/2012, GFL had given and IRL has taken over the actual possession of the transferred business and undertakings including employees. The constructive delivery and receiving possession of various assets and liabilities are sufficient and legally accepted mode to give complete effect to the transfer. 3 The transferred business The copies of debit note dated Page no 56 continued to be run by GFL, 31/03/2012 for Rs. 1,93,860 and -57 from even after 30.03.2012, as the credit note dated 31/03/2012 for DRP Order debit/credit notes for 1 day i.e. Rs. 7,88,796 are submitted on 3 1 .3.2012 were raised by GFL page no. 923 to 928. The debit on IRL for accounting purpose. note is in respect of expenses pertaining to the wind energy business for one day. The expenses include insurance cost, 0 & M cost and salary cost of the transferred employees. Similarly, credit note is in respect of allocation of sales revenue of wind energy business for one day i.e. 31/03/2012 i.e. after the business was transferred to IRL and hence the income belongs to IRL. This being a broken period and income and expenses pertaining to a period after transfer belong to transferee as per clause 7 of BTA, such debit and credit notes were raised to account income and expenditure correctly. This cannot
ITA No.1731/Ahd/2017 8 be a basis for not acceptance of the date of transfer contractually agreed, which is 30/03/2012. On the contrary, this actually confirms that the transfer took place on 30/03/2012 since income and expenditure after that date belonged to IRL and was transferred by GFL to IRL, accordingly. The transferred employees continued to run the business.
4 The payment of Rs. 1 crore As stated above the consideration Page no towards sale has been credited of Rs. 1 crore was received by 48-49 from in the bank account of GFL on cheque dated 30.03.2012 and was DRP Order 03.04.2012. also deposited in bank on the same date as per the pay-in-slip duly acknowledge by bank and cheque was cleared on 03.04.2012. Thus the consideration was received by cheque and deposited on 30th March itself.
5 The effective date of the Permissions for transfer of Para 6 (e) completion of the transfer has projects, lands, power purchase and (f) of to be ascertained from the date agreement, loans, insurance submission of grant of statutory/ policies etc. was not a pre- dated mandatory/ regulatory condition of the transfer but were 19.10.2016 approvals for transfer or at least part of post-closing activities and from the date of transfer. complied in due course of time in the period ranging from financial years 2012-13, 2013-14 & even in 2014-15 and have no effect on the actual contractually agreed date of transfer.
No prior permissions or approvals were required from the above parties or even from the banks for transfer of loans on the date of Para 11 of transfer and they were part of the post-closing activity and have Submission been actually transferred as a part dated of post-closing. RBI has also noted 19.10.2019 the transfer of loans from GFL to IRL.
It will be clearly observed that the applications and permissions for transfer of project registration, lands, PPA, transfer of loans and insurance policies etc. were the part of post-closing activities and on which AO is placing heavy
ITA No.1731/Ahd/2017 9 reliance are, on various different dates, spreading over a period of financial years 2012-13, 2013-14 and 2014-2015 even in some cases they were not required at all. This clearly proves that these dates are not of relevance in determining the actual date of transfer of wind energy business and undertakings, being part of post closure activities and not a pre-condition for the transfer of the capital asset i.e. Wind energy business. It will be observed that even for the same project, various permissions, approvals, registrations etc. have happened on different dates and not on the same date. In view of this, they were made as a part of post- closing activities and not pre- conditions of transfers. It will also be appreciated that in such a case of slump sale, it is always a running business and hence position of various assets and liabilities continue to change on day-to-day basis and in such case, unless single date is agreed as per contract for the transfer of the undertaking, it will not be possible to transfer business undertaking under slump sale basis. Secondly, if it is presumed that transfer takes place only when all the permissions are received, there will never be a single date of transfer since different permissions will be received on different dates, and it will be impossible to determine a date of transferfor the purpose of computing capital gains.
It will be observe that this letter and 6 The intimation dated Page no 30.03.2012 to the Stock intimation are very important documents 49-50 from Exchange Mumbai was received and intimation to stock exchanges under DRP Order. SEBI act and rule and are statutory by Bombay Stock Exchange Ltd, intimations. Giving wrong information can Mumbai on 12.04.2012 and by National Stock Exchange Ltd. lead to serious repercussion involving Mumbai on 02.04.2012. penalty and even delisting on the stock exchange. The letters are dated 30-03-2012 and submitted by email and fax on 30 March, 2012, and in hard copy on 2nd April, 2012 itself and not on 12th April, 2012 as observed by AO and clearly state that the
ITA No.1731/Ahd/2017 10 wind energy business is transferred on 30- 03-2012. Further, the stock exchanges have displayed on their website on 30 March itself about the transfer having taken place, and a copy of the said web-page is on record.
We have given information to BSE & NSE stock exchanges regarding transfer of Wind Energy Business by GFL to IRL on 30th March, 2012 as per the letter dated 30th March, 2012. The intimations were also given by Fax. We are enclosing herewith a copy of the report downloaded from the site ofBSE and NSE. It is mentioned on BSE website on 30th March, 2012 at 19.30 P.M by BSE that "Transfer of Wind Energy Business of the Company to Inox Renewables Ltd. Vadodara, a subsidiary of the Company. Gujarat Fluorochemicals Limited has informed BSE that the Company has transferred by way of slump sale, the wind energy business of the Company including all the undertakings therein to Inox Renewables Limited, a subsidiary of the Company"". Similarly it is mentioned on NSE website on 30th March, 2012 at 20.05 P.M by NSE that "Gujarat Fluorochemicals Limited has informed BSE that the Company has transferred by way of slump sale, the wind energy business of the Company including all the undertakings therein to Inox Renewables Limited, a subsidiary of the Company ".
7 (i)The bank loan has been Transfer of bank loans - No Para 19 of transferred in the books of document or Bank communication the account of both GFL and IRL on suggests/requires prior permission Submission the year ending 31.03.2012, for this transaction. RBI and ICICI dated without obtaining concurrence bank have not objected at all for 19.10.2019 from the banks. the transfer of loan and also have not raised any queries regarding (ii) The letter to banks prior approval because it was not intimating the slum sale required at all. The observations of transactions and seeking the AO in case of loan transfer are approval to transfer of loan based on the part of the liability was written on document. The AO is not giving 21.04.2012 by GFL. due weightage to all the documents submitted. There are (iii) The revised agreement three separate loans from ICICI (novation agreement) between Bank which are related to the
ITA No.1731/Ahd/2017 11 the bank, GFL &, IRL transaction under consideration. transferring the bank loan was entered oil 17.10.2012. The sanction letter in respect of first loan (dated December 29, (iv) The RBI approval to 2006) has a negative covenant “4. transfer foreign currency loan No consolidation, demerger, was obtained on 18.03.2013. corporate restructuring without the approval of Lender in the event of default.” (Emphasis provided). Thus, this clause makes it clear that the approval of ICICI Bank is required only in the case of default. In the instant case, there was no default and hence no approval was required. Further, in the sanction letters in respect of other two loans (both dated December 29, 2011) specific reference is made to transfer of assets to the GFLs subsidiary IRL as a part of re-organization. Further, in the loan agreements dated 25.1.2012 and 29.2.2012 for these two loans, there is a specific and clear permission to transfer the assets to Inox Renewables Limited as a part of restructuring process. From the above, it is clear that at the time of sanction of these two loans itself, ICICI Bank had permitted the said transfer of assets. Hence, there was no need for seeking a separate and prior approval.
In accordance with the obligations assumed by GFL (as the Seller) under the BTA, after Closing, GFL made an application to ICICI Bank on 21st April, 2012 requesting the bank to transfer of above Transferred Facilities to IRL. GFL’s letter to ICICI Bank stated that that pursuant to Board and shareholder resolutions, GFL has transferred its wind energy business on 30th March, 2012 through a slump sale to IRL hence all assets and liabilities of such wind energy business stand transferred to IRL with effect from 30thMarch, 2012. Pursuant to the GFL Letter, ICICI Bank Limited as lender to GFL, made an application to the Reserve Bank of India on
ITA No.1731/Ahd/2017 12 1stAugust, 2012 seeking the RBI’s permission to allow them to transfer the transferred Facilities to IRL in the manner provided therein.
GFL, IRL and ICICI Bank Limited entered into 3 (three) Novation agreements each dated 17thOctober, 2012 with respect to each of the Transferred Facilities.
The following relevant clauses from Novation agreements and credit arrangement letters from ICICI Bank are reproduced for ready reference. It will be appreciated that the Novation agreements specifically make reference as under:
From Novation agreement dated 17 October 2012: “By virtue of a Business Transfer Agreement dated 30th day of March, 2012 executed between the Existing Borrower and the Novated Borrower (herein after referred to as “BTA” and annexed hereto as Annexure B), the Existing Borrower has transferred through a slump sale its wind energy business to the Novated Borrower on the terms as stipulated in the BTA including its rights and obligations under the Facility Agreement.”
Thus the bank has also recognized that the slump sale has taken place on 30th March 2012.
Further, we refer to RBI letter dated 28-09-2012 as per which RBI has asked ICICI bank to submit the additional information and clarification regarding this transaction. ICICI bank has replied to RBI as per letter dated 08-10- 2012. On the basis of the information submitted RBI has given no objection to ICICI bank as per letter dated 19-12-2012. In this letter RBI has advice ICICI
ITA No.1731/Ahd/2017 13 bank.
We advice that we have no objection from FEMA 1999 angle, to your constituent for transfer of External Commercial Borrowing (ECB) up to USD 60 million availed from ICIC Bank Singapore vide LRN 201203132 and USD 12.8 million availed from ICIC bank, Hong kong vide LRN 2007151 from Gujarat Fluorochemicals Limited (GFL) to Inox Renewables Limited (IRL) subject to AD to ensure that the ECB continues to adhere the extent ECB guidelines. We further advise you to file a revised form 83 indicating the said changes with the Director, Balance of Payment statistic Division, Department of statistics and information management, Reserve bank of India, Bandra-kurla Complex, and Mumbai-400051.
In respect of LRN 201202101, your constituent may submit a revised form 83 for reduction in the amount of ECB from USD 40 million to USD 16.5 million and Inox Renewables Limited (IRL) may submit a new form 83 for availing ECB of USD 23.5 million from ICIC Bank Singapore subject to AD to ensure that the ECB continues to adhere the extent ECB guidelines.
This communication is issued from the foreign exchange angle under the provisions of FEMA and should not be construed to convey the approval by any other statutory authority of Government under any other laws / regulations.”
On 18thMarch, 2013, the RBI conveyed to ICICI Bank Limited that pursuant to the request made by ICICI Bank Limited for transfer of the Facilities to IRL, the RBI had made changes to its records and allotted new loan registration numbers (“LRN”) in relation to the same. The aforesaid letter of the RBI (“RBI Letter”) is enclosed
ITA No.1731/Ahd/2017 14 herewith.
Thus no document or Bank communication suggests that prior permission was required for this transaction. RBI and ICICI bank have not objected at all for the transfer of loan and also have not raised any queries regarding prior approval because it was not required at all.In fact, they have processed the transfer of loan, recognizing that the slump sale had already taken place on 30 March, 2012.
Thus, from the above, it is clear that the lenders were aware of the transfer of the undertaking under slump sale to IRL and procedures were required to be completed as a part of post-closing activity and it was not the prior condition as stated in the notice.
From the above facts, it is quite clear that there was no necessity for obtaining confirmations of prior approval from banks and RBI before transferring the loan in the books for the year ending 31/03/2012. 8 The letter written by Ms Ernst &, With the above resolutions the Page no Young (F) Ltd mentions that, "it process of transfer of wind energy 54-55 from is intended that the entire 230 business from GFL to IRL DRP Order. MW shall be transferred from commenced. It was not necessary GFL to IRL as slump sale in F.Y. to mention in the resolution any 2012-13". specific date for the completion of the transfer.
The letter written by Ms Ernst & Young (P) Ltd (E & Y) is dated 31/10/2011 and not .3 1/10/2010 as mentioned in the notice. E & Y are not our auditors, but were engaged as consultants for equity fund debt raising for wind energy business - Inox Renewables Limited.
With a view to facilitate raising of capital (both debt and equity) in the wind energy business and to enhance focus on the wind energy business as a core business so as to enable it to grow, GFL had
ITA No.1731/Ahd/2017 15 transferred the wind energy business under a 'Business Transfer Agreement' ("BTA") executed on 30th March, 2012 by way of 'slump sale' to its 99.985% subsidiary, Inox Renewables Limited (“IRL”) for a lump sum consideration of Rs 1 crore.
In this connection, E & Y was appointed as consultants for raising capital for the wind energy business. Even though, it is mentioned in the letter "it is intended that the entire 230MW shall be transferred from GFL to IRL as slump sale in FY 2012-13" it is mentioned in appendix A as a part of their understanding of our requirement. But this appendix A is attached to the letter dated August, 2011, i.e. the date before the actual BTA was entered on 30/03/2012. It is generally a business practice to take consultations on various issues and start discussions before the transaction actually happens. But the said discussions or consultations are not indicative of the dates of legally enforceable contract date and agreements. It will be observed that the process for transfer of wind energy business was even started much before earlier in 2011, and got completed on 30/03/2012. If this letter would have been dated after the actual date of BTA, then it would have been a different situation. The intention of doing slump sale transfer in a particular year has no relevance after the execution and action on BTA for slump sale. The date of transfer has to be ascertained on the basis of BTA and actual conduct of both the parties and not on the basis of the intentions stated in any other documents. .
The AO is drawing conclusion that this letter suggest that this transaction was intended to be done in FY 2012-13. The AO is also observing that except BTA the
ITA No.1731/Ahd/2017 16 assessee has not furnished any documentary evidence. As stated above the assessee has submitted all the document pertaining to the transaction like BTA, possession letter, copy of cheque of consideration, pay in slip for deposited in the bank, letters dated 30-03-12 intimating the transaction to BSE and NSE etc. We have explained in detail the background of this letter. E & Y are not our statutory auditor but they are our consultant advising only, for raising capital for the wind energy business. 9 The application for issue of REC Accounting of income of Rs. 65.24 Page no w.r.t. power generated in lakhs - The income of Rs. 65.24 55-56 from March, 2012 was applied for by lakh is accounted in the books of DRP Order. GFL on 20.052012. GFL sold GFL because it was pertaining to 2800 REC i.e.1000 REC on the period before date of transfer. 25.04.2012 and 1800 REC on The document showing this REC 27.06.2012 for Rs. 65.24 lakhs. pertaining to earlier periods are submitted. The date of sale of REC doesn’t affect the period to which they pertain. The period to which they pertain determine to whom the income belongs are attached at page no. 946 to 950. Further, these are accounted upon sales in the subsequent financial year and disclosed as discontinued operations.
10 The ownership of freehold land From the chart, it will be observed Page no on which windmills are erected that in the case of Maharashtra, no 57-58 from was transferred from GFL to IRL permissions were required being a DRP Order. in the F.Y. 2012-13. For private land and registered sale example, sale deed 'for land deed is executed in January, 2013. pertaining to GudhePanchgani, In case of Sadiya, request letter to Maharashtra project was the Collector was submitted on registered on January 2013 and 14/09/2013 i.e. during financial sale deed for land pertaining to year 2013-14 and the permission Thoothukudi, Tamil Nadu is received on 08/01/2014 and project was registered on sub-lease is transferred on October 2012 14/03/2014. In the case of Ossiya, request letter to the Collector was submitted on 11/02/2013 i.e. during financial year 2012-13 and the permission is received on 28/07/2014 and sub-lease is transferred on 04/08/2014 i.e. during the financial year 2014-15. In case of Tamil Nadu, being a private land, no permissions were required and registered sale deed
ITA No.1731/Ahd/2017 17 is executed in October, 2012. In case of Barmer, letter dated 20/09/2012 was submitted to REC and after the receipt of the permission dated 14/03/2013, lease deed is executed on 1st April, 2013 i.e. in financial year 2013-14. In any case, all these are post-closing activities as per BTA.
11 The regulatory permission to Permission to transfer wind energy Page no 58 transfer the registration of wind projects - From the chart, it will be from DRP energy projects in Rajasthan observed that there was no such Order. was obtained from Rajasthan requirement in case of projects in Renewable Energy Corporation Maharashtra and Tamil Nadu. In on 12.09.2012 case of Rajasthan projects also, the request letters dated 9th February, 2011 and 24th April, 2012 were submitted. They have issued letter dated 12th September, 2012. The request for transfer of project registration was filed on 9th February, 2011. As per the letter dated 12th September, 2012 from Rajasthan Renewable Energy Corporation Limited, they have confirmed the BTA and accepted the request for transfer of ownership from GFL to IRL and agreement referred is the same BTA agreement. In any case, these are post-closing activities as per BTA.
12 Application to transfer the PPA From the chart at page no 59 of Page no was filed in F.Y. 2012-13 and the DRP order, it will be observed- 58-59 the mandatory approval for the that applications are made and from DRP transfer of PPA from Rajasthan permissions are received on Order. projects was obtained on various dates. In some cases, even 08.012013 from Jodhpur no further transfer documents are Discom, RDPPC and for required to be executed and just Maharashtra project on intimation were required to be 12.12.2012. given of transfer such as Sadiya and Ossiya. In any case, these are post-closing activities as per BTA. 13 The New India Assurance The copy of the letter dated 1st Page no Company Ltd granted approval June, 2012 from New India 59-60 to IRL for replacement of the Assurance Company Limited to IRL from DRP name of GFL by IRL in respect is enclosed. In this letter, the Order. of the following policies only on insurance company has 01.06.2012. acknowledged the receipt of slump sale agreement and after noting that the wind mill assets are transferred from GFL to IRL, they have confirmed the transfer of policies in the name of the IRL.
ITA No.1731/Ahd/2017 18 The agreement referred is the same BTA agreement dated 30/03/2012. The insurance policies are continuing policies for a period and by this letter they have just confirmed transfer of policy to the new owner. The letter is not indicative of the fact that the assets are no transferred on 30/03/2012 but subsequently. It will be noted that even in case of transfer of car from one person to another, the policy gets transferred subsequently and not on the exactly same date.
The AO has accepted the contention of assessee that the insurance policy gets transferred afterwards. This cannot be pre- condition at transfer of business and has no bearing on the transaction or the date of transferred. In any case, these are post-closing activities as per BTA.
From the above, it will be clearly observed that the applications and permissions of transfer of project registration, lands, PPA and insurance policies are on various different dates spreading over a period of financial years 2012-13,2013-14 and even 2014-2015 and even -in some cases they were not required at all. This clearly proves that these dates are not of relevance in determining the actual date of transfer of wind energy business and undertakings being part of post closure activities and not a pre-condition for the transfer of the capital asset and they are procedural aspects. It will be observed that even for the same project, various permissions, approvals, registrations etc. have happened on different dates and not on the same date. In view of this, they were made as a part of post-closing activities and not pre- conditions of transfers. It will also be appreciated that in such a case of slump sale, it is always a running business and hence position of various assets and liabilities continue to change on day-to-day basis and in such case, unless single date is agreed for the transfer of the undertaking, it will not be possible to transfer business undertaking under slump sale basis. Therefore, there has to be a single contractually agreed date on which slump sale lakes place and procedural aspects are taken care thereafter. But that does not affect the date of transfer. This is the exact position in our case. Contractually as per the BTA and possession letter dated 30/03/2012, the business got transferred on 30/03/2012 only and hence there cannot be any other date of transfer of the business dependent on the procedural permissions mentioned above and fair value of assets etc.”
ITA No.1731/Ahd/2017 19 64. Expression “transfer” has been defined in section 2(47) of the Income Tax Act. For the purpose of controversy in hand, we would like to make reference to sub-clauses (i) to (v) along with explanation 2 of section 2(47) of the Act. These clauses provide for transfer in relation to a capital asset include (i) the sale, exchange or relinquishment of the asset; or …. (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to section 53A of the Transfer of Property Act. Explanation 2 attached with this clause reads as under:
Explanation 2.—For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;
A perusal of this clause would indicate that sale, exchange relinquishment of the asset or extinguishment of any right in the asset would amount to transfer. Similarly, handing over possession or retaining the possession of an immovable property in part performance of a contract is also to be considered as transfer. Genuineness of agreement dated 30.3.2012 was not doubted by the AO. He also did not dispute the consideration of Rs.1 crore. Thus the question is, whether exhaustive mode of transfer provided in section 2(47) of the Act would not be assumed as taken place by virtue of execution of agreement dated 30.3.2012. The AO was of the view that cumulative settings of certain circumstances would indicate that this transfer is not taken place on 30.3.2012. Though he failed to identify a specific date on which he could construe the transfer, in very sweeping manner he made reference that this transfer would constitute in a financial year 2012-13 relevant to the assessment year 2013-14. We have analysised the circumstances pointed by the AO and the explanation given
ITA No.1731/Ahd/2017 20 by the assessee extracted (supra). There is no dispute that IRL is a 99.98% subsidiary. Thus, both the parties at any given point of time were having complete knowledge of the conditions of business and business, assets, employees etc. There was no requirement as such physical verification of these assets. The representatives of both the assessee have put signatures and executed agreement. Therefore, there could not be any justification for doubting the genuineness of the agreement at the end of the AO by making reference that assets were spread over throughout the country and could not be physically verified. Similarly, other objections made by the AO is that intimation given to Stock Exchange, Mumbai was received on 12.4.2012 and by National Stock Exchange, Mumbai on 2.4.2012. Habouring this opinion at the end of DRP as well as the AO has been refuted by the assessee in its explanation. The assessee pointed out that intended transfer was intimated to the stock exchange well in advance according to the guidelines of the SEBI Act. BSE website had displayed this intended transfer on 30.3.2012 itself.
The next objection assigned by the AO against non- completion of transfer is that the prior approval from the banks from whom loans were taken by the vendor have not been taken. To this assessee has given a detailed explanation. We have extracted at serial no.7 of the objection. The assessee has pointed out that it never defaulted the loans, and therefore, there is no need for taking such an approval from the bank. It took approval subsequently and nowhere has raised objection. Section 2(47) r.w.s. 50B nowhere contemplates such approval while transferring the assets. An analysis of all these objections in the light of explanation given by the assessee, we are of the view that sale taken place on 30.3.2012. When the rights have been transferred by way of slump sales, possession on papers given, cheques for consideration handed over and it was deposited in the bank, the rights have been settled on this date. Vendor relinquished its rights in the property. The circumstances narrated by the DRP as well as by the AO relates to peripheral procedural compliances for running wind energy business. For the sake of argument, let us take that IRL after acquiring assets did not carry this business, then would it require to take such peripheral approval from
ITA No.1731/Ahd/2017 21 Rajasthan Government etc.? Thus, according to our understanding, the AO has endeavored to shift this transaction from the assessment year 2012-13 to 2013-14 only in order to explore the applicability of section 50D of the Act. At the cost of repetition, we would like to mention that Hon’ble Gujarat High Court in the case of Gauranginiben S. Shodhan (supra) has specifically observed that full consideration received on transfer of capital asset could not be replaced with fair market value unless some procedure has been provided. For example, section 50C where a deeming provision has been provided. It is worth to note of Hon’ble High Court finding in this decision on this aspect as under:
“1. Taking the question of ascertaining the fair market value on the date of sale, we notice that section 48, which is also contained in chapter IV of the Act pertains to method of computation of capital gain. A detailed mechanism has been provided for such computation of the income chargeable under the head "Capital Gains". It provides, inter alia, that the income chargeable under the Head "Capital Gains", shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the amounts mentioned therein that is the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. Main thrust of section 48 of the Act, therefore, is the full value of consideration received or accruing as a result of the transfer of the capital asset as reduced by expenditure mentioned therein and the cost of acquisition of the asset. Section 55 A, as we have noticed, refers to the reference to DVO for ascertaining the fair market value of a capital asset. Such ascertainment of fair market value with the aid of the DVO's report would have no relevance for the purpose of determining full value of consideration received or accruing as a result of the transfer of the capital asset for the purposes of section 48 of the Act.
In that view of the matter, the reference to DVO for ascertaining the fair market value of the capital asset as on
ITA No.1731/Ahd/2017 22 the date of the sale in the present case would be wholly redundant.”
We have made reference to the decision of Hon’ble Bombay high Court explaining the meaning of section 50D and conditions in which it could be applied. Thus, conditions are missing in the present case. Therefore, neither under section 50B nor section 50D, the AO can replace full value of sale consideration with fair market value. In view of the above discussion, we hold that the transaction has taken place on 30th March, 2012. The capital gain on transfer of capital asset by way of slump sale is taxable on substantive in assessment year 2012-13 and not 2013-14. The full value of sale consideration would not be replaced with fair market value. In other words, the AO is directed to accept full value of sale consideration at Rs.1 crore disclosed by the assessee and not fair market value adopted by him. We allow both these grounds of appeal in both the years.”
Since in the case of vendor it has been held that wind energy division was sold in the Asstt.Year 2012-13, therefore, it is to be construed that the assessee has acquired this asset in this year and entitle for depreciation. Following the order of the Tribunal in the case GFL (supra), we allow the claim of the assessee, and direct the AO to grant depreciation to the assessee in this year.
7 In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 7th March, 2019.
Sd/- (RAJPAL YADAV) JUDICIAL MEMBER
Ahmedabad; Dated 07/03/2019