ACIT CENTRAL CIRCLE 7 4, MUMBAI vs. ZYTEX BIOTECH PRIVATE LIMITED, MUMBAI

The assessee is a company and filed the return of income for AY 2014-15 on 25.09.2014 declaring a total income of Rs.58,04,71,900/-. The assessment under section 143(3) of the Act in assessee's case was completed vide order dated 28.12.2016 accepting the income returned by the assessee. Subsequently there was a survey operation under section 133A in assessee's case on 08.02.2019 and during the post survey proceeding, it is noticed that the assessee has entered into a slump Zytex Biotech Private Ltd. sale transaction with M/s Brenntag Ingredients (I) Pvt. Ltd. for a total consideration of Rs. 62,94,56,979/- against which the assessee has offered a Long Term Capital Gain (LTCG) of Rs. 57,72,08,137/-. The AO held that in the post survey proceedings, it was found that no business undertaking or division has been transferred and only few employees, assets and clients have been transferred treating them as slump sale of an undertaking. The AO further held that no details pertaining to the division or undertaking is mentioned in the audit report and there is no network computation is being done. Accordingly, the AO held that he has reason to believe that the income has escaped assessment and therefore reopened the assessment by issue of notice under section 148 of the Act. The assessee in response filed the return on 23.04.2021 declaring the same income as in the original return of income. The AO after disposing of the objection raised by the assessee completed the assessment where he treated the LTCG declared by the assessee as Short Term Capital Gain (STCG). Aggrieved the assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee raised the legal contention that the reopening of assessment under section 147 is merely based on change of opinion in respect of taxability of the transfer of trading business of the assessee without bringing any fresh material or evidence on record. The CIT(A) allowed the contention of the assessee by holding that – “8.4.2. As stated above, the case of appellant was selected for regular scrutiny and an order u/s 143(3) of the Act was passed on 28/12/2016 without any addition to the returned income. Appellant has submitted the copies of the details filed by it during the assessment proceedings. A submission dated 3/11/2016 which runs into 16 pages explains in detail how the capital gains is chargeable to tax as Long-Term Capital Gains as per Section 50B r.w.s. 2(42C) of the Income Tax Act, 1961. The copy of the agreement with M/s Brenntag Ingredients (India) Pvt ltd dated 7/102013 was submitted along with. Subsequently, vide letter dt 12/12/2016, addressed to the Assistant Commissioner of the Income Tax ,appellant had submitted a list of documentation such as emails, appointment letters issued to financial Zytex Biotech Private Ltd. advisors, documentation relating to due diligence and various other documentation like NOC's from suppliers for transfer of business to M/s Brenntag Ingredients India Private Limited, summary of due diligence report issued by Deloitte, employee transfer letters, Assignment of Distribution Agreement of Novozymes & Danstar, Assignment of Various Sales Contracts, etc. From the details submitted by the appellant, it is evident that the issue of long-term capital gains on slump sale was examined by the AO at the time of original assessment. That, there was no addition made in the assessment, implies that the long-term capital gains shown by the appellant was accepted in the original assessment. 8.4.3. I have gone through the reasons for reopening, as recorded by the AO. As per the reasons, the reopening was done on basis of the findings of the survey action and post survey enquiries. The findings, as given in the paras 4, 5, and 9 of the reasons, are reproduced for reference. “4. As per the extant provisions, a slump sale of a division or undertaking is taxable as LTCG. However, for the same to be eligible as a slump sale, the conditions are to be met are the total sale component should be (i) an undertaking or a division or entire business (ii) transfer pursuant to a sale (iii) it should consists of Form 3CEA elaborating the computation of net worth and certifying that the same has been correctly arrived at (iv) have the net worth and is to be calculated as total assets less total liabilities.

In the instant case, during the course of post-Survey proceedings it was found that no business undertaking or division has been transferred because there was none! Only a few employees, assets and clients have been transferred treating them as a slump sale of an undertaking/division. The same is brought out from the fact that in Form 3CEA, no details for the address or location of this division or undertaking is mentioned. Also, no net worth computation has taken place as mandated under Rule 6H of the Income Tax Rules, 1962. The Form 3CEA submitted by the assessee only has amount of consideration received whereas net worth computation has not been carried out. Without carrying out the net worth calculation of the ‘purported’ undertaking, the CA has certified in the Form 3CEA that the net worth has been correctly computed as per provisions of Section 50B of the IT Act, 1961, which is not only incorrect but fraudulent in nature.

I have gone through the findings of the survey and the evidences found during the course of Survey. A notice calling for information u/s 133(6) of the Act was issued to the assessee for calling details related to slump sale made by the assessee in relevant AY along with the agreement with Zytex Biotech Private Ltd. Brenntag Ingredients (India) Pvt. Ltd dated 17.09.2013. From the submissions of the assessee against 133(6) notice it is found that the term ‘undertaking’ has been defined under Schedule 1 of the said agreement. The definition of the same itself reveal that the supposed undertaking was not a separate business unit but are conveniently put up facade to justify whatever was being transferred and to put it under the definition of undertaking. For instance, the definition states that “The transferred employees” and not “all the employees in the undertaking”! In terms of assets and properties, no listing is done and only their usage/deployment for operations has been stated. This also proves that there was no clear- cut definition or categorisation of an undertaking and the same has been done to evade taxes. In view of the above, it is evident that the aforesaid transaction squarely falls under section 50(2) of the IT Act, 1961”. 8.4.4. I find that the reasons recorded do not bring out any new facts which were not earlier available with the AO. The details mentioned in the reasons for reopening are available in the agreement dated 7/10/2013 with M/s Brenntag Ingredients (India) Pvt ltd and the said agreement was examined at the time of original assessment proceedings. Considering that the facts recorded in the reasons were already examined by the earlier AO and on the same set of facts, the present AO has taken a different view. I find merit in the argument of the appellant that the reopening is result of ‘change of opinion’. 8.4.5. As per the proviso to section 147, “where an assessment under sub section 3 of section 143 or this section has been made for the relevant assessment year ,no action shall be taken under this section after the expiry of four years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of the assessee to make a return u/s 139 or in response to a notice issued under sub section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year”. In the present case, the notice u/s 148 was issued on 31/3/2021, i.e., beyond four years from the end of the assessment year 2014-15. A regular assessment has been carried out in this case. Therefore, the case can be reopened only if it is established that there was a failure on the part of the appellant to disclose fully and truly all material facts at the time of original assessment. In the reasons for reopening, AO has not highlighted /mentioned any specific material/ fact, which was not disclosed by the appellant in the original assessment. There is nothing new brought on record that was not disclosed by the appellant in the original assessment.

The ld. DR submitted that the assessee's case was reopened based on post survey findings and therefore the claim of the assessee that the reopening is merely based on change of opinion is not correct. The ld. DR drew our attention to the order under section 143(3) where the AO has not discussed anything with regard to the slump sale carried out by the assessee and the AO has merely accepted the income returned by the assessee. Therefore, it is argued by the ld. DR that the AO has not formed any opinion with regard to the impugned transaction and therefore there is no change of opinion on the part of the AO during the course of reassessment.

The ld. AR on the other hand submitted that the reopening in assessee's case is beyond four years and therefore the proviso to section 147 is applicable. Since the assessee has disclosed truly and fully all material facts with regard to the slump sale, the AO could not reopened the assessment based on the same materials without bringing anything new on record. The ld. AR placed reliance on the decision of the Hon'ble Bombay High Court in the case of Ananta Landmark Pvt. Ltd. vs. DCIT [2021] 131 taxmann.com 52 (Bom.). The ld. AR argued that all the details pertaining to the slump sale was submitted before the AO and that the AO raised specific query with regard to the details submitted by the assessee. Our attention in this regard is drawn to the various notices issued by the AO raising query and seeking clarifications with regard to the impugned transactions and the reply filed by the assessee (page 182 to 234 of PB). The ld. AR invited our attention to the specific details submitted before the AO with regard to the slump Zytex Biotech Private Ltd. sale explaining the sequence of events (page 211 to 219 of PB) and that each of the event is supported by the evidences as per the table. The ld. AR accordingly argued that the AO in the original proceedings has considered all the relevant documents pertaining to slump sale and has decided to allow the claim of the assessee. The ld. AR further argued that no new materials were found during the course of search and that the AO has placed reliance on the same set of documents filed by the assessee during the course of original proceedings and therefore the AO's reason for reopening is merely based on change of opinion. The ld. AR relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC) to submit that the AO cannot reopen without any tangible material which has come to his possession that there is an escapement of income.