UNIVERSAL MEDICARE P.LTD,MUMBAI vs. DCIT CEN CIR 3(2), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee and cross objection by revenue are directed against the order of learned Commissioner of Income –tax (Appeals) [ld. CIT(A)]-51, Mumbai dated 14.03.2016 which arises from the assessment

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

order dated 29.03.2014 passed under section 143(3) for Assessment Year

2012-13. 2. Brief facts of the case are that the assessee is a company engaged in

manufacturing and trading of Pharmaceutical Products. The assessee

filed its return of income for relevant Assessment Year on 28.11.2012

declaring total income of Rs. 495,49,42,070/-. During the assessment, the

Assessing Officer noted that Universal Medicare Pvt. Ltd. (UMPL)

‘assessee’ has sold its marketing division to M/s Aventis Pharma Ltd.

(APL), (now known as Sanofi) the assessee has shown total sale

consideration against the sale of marketing division of Rs. 567.07 crore.

However, in the computation of income, the assessee has shown Capital

Gain of Rs. 477.30 crore only, on sale of marketing division, after

deducting Rs. 89.73 crore. The assessee claimed that total sale

consideration payable to the assessee amounts is Rs. 567.07 crore, out of

which Rs. 89.49 crore is placed by the purchaser in a Escrow Account

opened with Hongkong and Shanghai Banking Corporation Ltd. (HSBC),

which will accrued to the assessee company in five annual equal

instalment annually, subject to fulfilment of certain obligation being on

the achievements of the performance targets every year. Further, out of

Rs. 89.45 crore, the assessee has offered Rs. 17.89 crore being first

instalment and remaining Rs. 71.56 crore was kept/shown/deposit in

Escrow Account with HSBC Bank. The Assessing Officer issued show- 2

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

cause notice as to why the entire amount in the Escrow Account should

not be taxed as the income being part of Capital Gain accrued to the

assessee on sale of marketing division. The assessee filed its reply stating

that the amount will be realized in five equal annual instalments on

fulfilling certain specific conditions and can be taxed only year of

realization. The extract of reply of assessee is recorded by Assessing

Officer in para-3.1.2 of the assessment order. 3. The reply/ explanation furnished by assessee was not accepted by

Assessing Officer by taking view that section 50B clearly states that any

profit or gain arising from slum sale effected in the previous year shall be

chargeable to tax as Capital Gain arising out from the transfer of Long

Term Capital Asset and shall be deemed to be income of the previous

year in which transfer took place. The business in which Capital Gain on

slum sale earned was transferred on 03.11.2011 accordingly; the Capital

Gain from transfer cannot accrue in instalments. 4. Secondly, the assessee is following the accrual system of accounting and

the income earned is accrued to the assessee on sale of transfer. The

contention of assessee is that the amount is kept in Escrow Account is not

released to the assessee is not accepted. 5. Thirdly, as per section 2(42C), in case of slum sale, the undertaking

which is transferred as a whole, single unit without values being attached

to the new asset and liabilities. The consideration of Rs. 567 crore earned 3

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

on selling the marketing division is directly related to slum sale and

income is earned because of transfer of marketing division and does not

have any bearing on any other things (conditions). 6. Fourthly, once the agreement is executed, the transfer took place and any

payment or obligation can spread over some time, this does not mean that

transfer is also happening over a period of time. The transfer is one time

event whereas payment can happen over a period which is agreed

between the parties. As the transfer took place on 03.11.2011, major part

of consideration was received on the day itself i.e. Rs. 477.62 crore, out

of Rs. 567.07 crore i.e. 84% of total consideration. 7. Fifthly, the amount kept in Escrow Account has no relation, whatsoever

with the transfer of marketing division. It has only bearing of supply

agreement between the parties. 8. And sixthly on going through the Escrow agreement and supply

agreement, the Assessing Officer took the view that interest on the

amount kept in Escrow Account belong to the seller and that assessee has

offered interest of Rs. 3.03 crore accrued on full Escrow Account from

03.11.2011 to 31.03.2012. The assessing officer took his view that these

facts clearly establish that the amount is clearly earned by assessee. The

Assessing Officer brought the remaining amount of Rs. 71.57 crore, kept

in Escrow Account to tax as income of assessee for the assessment year

under consideration. 4

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

affirmed. The ld. CIT (A) while affirming the action of Assessing Officer

held that as per the agreement, the business of distributing and selling

Pharmaceutical Products a going concern was sold on slum sale basis.

The assessee also entered with business purpose agreement to supply

certain Pharmaceutical Products to the purchaser. As per the supply

agreement, the assessee shall supply certain product to purchaser/APL as

per terms and conditions against which it would received separate

amount for a period five years to ensure these supplies without any

disruption to Escrow agreement was executed. As per the Escrow

agreement, an amount of Rs. 89.45 crore was kept in Escrow account in

HSBC Bank. The claim of assessee that amount of Rs. 17.89 crore being

released in five annual equal instalments would accrue to the assessee

whenever said instalment is realized; which is subject to fulfilling of

certain conditions and should be taxed in relevant Assessment Year, but

as per business purpose agreement closing means, the completion of sale

and purchase of business pursuant to clause-(7) of Sale Agreement.

Clause-(7), the date and place of closing, closing event, payment of

closing and breach of closing obligation, the closing events also define in

schedule -(6) of the Agreement and on further scrutiny of agreement, the

ld. CIT(A) took the view that purchaser has paid the entire amount of

closing date and it is the assessee who had instructed the purchaser to 5

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

keep the amount in the Escrow Account. The ld. CIT(A) further took his

view that on conjoint reading of various clauses of the agreement that

sale transfer is not linked to Escrow Account and the assessee, as the

guarantee of supply agreement placed certain amount in the Escrow

Account and the same is not linked to the sale of business. The ld CIT(A)

concluded that it is like a bank guarantee against the performance. The

assessee instead of paying this amount separately allowed APL/purchaser

to keep the part of consideration in the Escrow Account, the sale of

business/marketing division is irrevocable and completed on the closing

date mentioned on the agreement and finally concluded that he concur

with the finding of Assessing Officer that amount kept in Escrow

Account has no relation whatsoever to the transfer of marketing division

and accordingly, the Assessing Officer rightly brought the capital gain to

tax the entire gain for the year under consideration.

present appeal before this Tribunal by raising the following grounds of

appeal:

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

loss of Rs.5,00,00,000/- in A.Y. 2012-13. The conclusion reached by Learned Commr. of Income Tax(A) is erroneous and the appellant prays that the loss suffered on account of defalcation loss amounting to Rs.5,00,00,000/- may be allowed while computing the total income. 6. The Learned Commr. of Income Tax (A) has erred in rejecting the claim of appellant that no interest u/s 234B be levied for A.Y. 2012-13. On the facts & circumstances of the case the appellant prays that interest levied u/s 234B by Learned Assessing Officer and confirmed by the Learned Commr. Of Income Tax (A) be deleted.

additional grounds of appeal:

On the facts and circumstances of the case and in law, the Ld.AO and the Ld.CIT(A) erred in computing capital gains arising from transfer of the "Marketing Division" even when the "Full Value of Consideration" arising as a result of transfer of the said division was not determinable and, thus, the mechanism to compute capital gains failed.

Cross Objection (CO) by raising following grounds of cross objection:

"Whether on the facts and circumstances of the case and in law, the assessee is justified in filing additional grounds of appeal disputing calculation of capital gain by AO, which was upheld by CIT(A), on the ground that the full value of consideration arising as a result of transfer of said division was not determinable, even though the company itself declared the said transfer as a slump sale by filing Audit Report in Form 3CEA and the purchaser M/ s Sanofi India Ltd has reflected the entire amount i.e. Rs. 567.07cr in A.Y 2012-13". 13. We have heard the submission of Shri J.D. Mistry, ld. senior

Counsel/Authorised Representative (AR) of the assessee and Miss. S.

Padmaja, ld. CIT-DR for revenue and perused the record carefully. We

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

have also gone through the orders of lower authorities with the active

assistance with ld. Sr. Counsel and ld. CIT-DR for the revenue. In

support of submission of additional ground of appeal, the ld. AR of the

assessee submits that vide application dated 09.09.2017, the assessee has

raised the additional ground of appeal, which is purely legal in nature.

The ld. Sr. Counsel submits that no additional facts are required to be

brought on record. The facts relating to the raising of additional ground

of appeal are emanating from the order of lower authorities. The ld. Sr.

Counsel submits that the revenue has filed cross objection. The cross

objection is barred by limitation. No proper application for condonation

of delay of Cross Objection is filed by revenue, the ld. Sr. Counsel

submits that the cross objection raised/filed by revenue are liable to be

rejected out-rightly. 14. On the other hand, the ld. CIT-DR submits that the assessee has raised

additional grounds of appeal vide application dated 09.09.2017, which

was handed over during the hearing of the appeal and the additional

ground of appeal, was referred to the Assessing Officer. Thereafter, the

Assessing Officer after obtaining necessary approval from the ld.

Principal Commissioner of Income tax (ld. PCIT) filed cross objection

and simultaneously application for condoning the delay. The ld. CIT-DR

further submits that the cause of action for filing Cross Objection against

the additional ground of appeal arose only on service/supply of additional 9

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

ground of appeal. The ld. CIT-DR prayed that considering the contents of

application for condonation of delay, if any delay the Assessing Officer

has requested that due to administrative reason and paucity of staff and

transfers, the objection could not be filed in time. The ld. CIT-DR

submits that there is sufficient ground for condoning such delay which is

bonafide and there was no intentional and deliberate delay. 15. We have considered the submission of both the parties and noted that in

the additional ground of appeal, the assessee has claimed that in

computing capital gain on the transfer of marketing division as a result of

transfer of said division was not determinable and thus, the mechanism of

computing capital gain fails. In our view for deciding additional ground

of appeal, no new facts are required. The facts are emanating from the

order of lower authorities. Therefore, considering the fact that when no

new facts are necessary to be brought on record and that the facts are

emanating from the orders of lower authorities. We are inclined to admit

the additional ground of appeal raised by assessee. 16. Now turning to the Cross Objection filed by revenue/Assessing Officer.

In our considered view, the cause of action for filing cross objection

against the additional ground of appeal arises only on service of the

additional ground of appeal. The Cross Objections are filed on

07.11.2017. Considering the contention of Assessing Officer/revenue that

the delay was due to administrative reason and paucity of staff. 10

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

Moreover, we have noted that there is a delay of about 21 days in filing

the said cross objection. We have noted that ld. AR of the assessee has

not explained as to when the copy /notice of additional ground of appeal

was served upon the revenue. However, on perusal of order-sheet, it is

revealed that the hearing of this appeal was fixed on 15.09.2017, thus we

assume that the additional ground of appeal was served upon the revenue

on 15.09.2017 and that the Assessing Officer/revenue could file its cross objection till 15th October 2017, however, the cross objection filed on

07.11.2017. Thus, there is delay of about 20/21 days. Considering the

contents of application for condonation of delay that the delay in filing

the Cross Objection is neither intentional nor deliberate but due to

bonafide reason, the delay in filing the Cross Objection was condoned. 17. The admission of additional grounds of appeal and the Cross Objections

including the condonation of delay was communicated to the parties

while hearing the submissions of the parties. 18. Now adverting to the merits of the appeal. Ground No. 1 to 4 relates to

the addition on account of amount kept in Escrow Account. The ld. AR

of the assessee submits that assessee-company is engaged in the business

of manufacturing and marketing pharmaceuticals and nutraceutical

products. During the previous year, the assessee sold its marketing

division to Aventis Pharma Limited (which is known as Sanofi India

Ltd.) through business purchase agreement (BPA) dated 24.08.2011 by 11

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

way of slump sale. Copy of business purchase agreement is filed on

record. Under the Business Purchase Agreement the gross consideration

was agreed at Rs. 567.07 crores, out of which Rs. 477.62 crores accrued

and became payable upon transfer and balance of Rs. 89.44 crores was

placed in Escrow Account and would accrued and payable to the assessee

annually in five equal instalments of Rs. 17.89 Crore each. Pursuant to

the business purchase agreement, the assessee entered into Escrow

Agreement dated 28.10.2011 with the purchaser, wherein purchaser as

per the clause 3.1 of the Escrow Agreement was required to deposit the

said contingent portion of consideration in Escrow Account. The copy of Escrow Agreement is also placed on record. 19. During the submission, the ld. AR of the assessee also read over various

clauses of Business Purchase Agreement and Escrow Agreement and

would submit that deposit of Rs. 89.45 crore in a Escrow Account was

agreed term with fulfilment of certain condition and in the event, the

assessee did not fulfil those conditions, the amount kept in Escrow

Account was not receivable by assessee. The ld. AR of the assessee

further submits that while filing return of income, the assessee offered a

lump-sum payment of Rs. 477.30 crore as well as Rs. 17.89 crore (out of

Rs. 89.45 crore), accrued to the assessee during the previous year. The ld.

AR of the assessee also referred annual accounts, wherein the assessee

has disclosed sale of marketing division as a slump sale. The ld. AR o the 12

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

assessee submits that balance of Rs. 71.56 crore was offered in four

subsequent AYs. The balance offered by assessee in four subsequent year

i.e. in A.Y. 2013-14 to A.Y. 2016-17 was accepted by revenue in

assessment order passed under section 143(3), copies of assessment order

with the computation of income is also placed on record. The Assessing

Officer and the ld. CIT(A) treated the business purchase agreement and

Escrow Agreement independent to each other and held that Escrow

Account could not be linked to supply agreement and therefore, entire

consideration of Rs. 567.07 crore accrued to the assessee in the

Assessment Year itself. The ld. AR of the assessee submits that ground

no.1 to 4 relates to contingent consideration kept in Escrow Account. The

ld. AR of the assessee submits that perusal of various clause of Business

Purchase Agreement and Escrow Agreement clearly demonstrate that

maintaining of Escrow Account was an integral part of Business

Purchase Agreement, the sale would be incomplete without the same.

The amount kept in Escrow Account would accrue to the assessee only

upon fulfilment of certain condition, can be offered to tax only upon

accrual and not otherwise. The ld. AR of the assessee submits that as per

the various clauses mentioned in the Business Purchase Agreement, the

“closing” of the transaction has been defined to mean as completion of

sale and purchase of business pursuant to clause-7 of the Business

Purchase Agreement. Further, “closing amount” has been defined as an 13

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

amount equal to purchase price less Escrow Account. Further Clause-7

defines the closing events of transfer. Clause-7.3 states that on closing,

the purchaser which pays the closing amount directly to the seller and

deposits the Escrow amount in Escrow Account. Further, Clause-7.4

provides that if purchaser failed to complete with its obligation under

clause-7.3, the seller shall be entitled to terminate this agreement. Thus, a

combined reading of clause-7.3 & 7.4 clearly proves that if the condition

laid down in clause-7.3 are not fulfilled the Business Purchase

Agreement, will be terminated, therefore, the deposit of Escrow amount

in the Escrow Account is intrinsic and integral part of transfer of the

marketing division under the Business Purchase Agreement. The ld. AR

of the assessee further submits that Clause-3 & 3.9 prescribes that

assessee and the purchaser shall enter into an agreement for the supply by

the seller of pharmaceutical products that are manufactured by assessee.

A draft of supply agreement is an integral part of Business Purchase Agreement. 20. On the observation of Assessing Officer and ld. CIT(A) that Escrow

agreement has no connection to the transfer of undertaking, but is a result

of supply agreement. The ld. AR of the assessee point out that recital-II

of Escrow Agreement clearly states that it has been entered pursuant to

the term of Business Purchase Agreement. The Escrow Account refers to

the Business Purchase Agreement dated 24.08.2011. The Escrow amount 14

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

is defined as amount deposited by purchaser as per agreed term in the

Escrow Account. The ld. AR would submit that the facts and clauses

therein clearly reflects that Escrow arrangement was an integral part of

the Business Purchase Agreement, without which the Business Purchase

Agreement would not have closed and that supply agreement is an

integral part of Business Purchase Agreement but has no mention of

Escrow Account. From the above facts, it is clear that contingent

consideration deposit in Escrow Account by purchaser was on account of

transfer of marketing division on slum sale basis and such contingent

consideration was to accrue only upon fulfilment of conditions over a

period of five years. Accordingly, the assessee offered the said amount in

respect of orders without it was accrued and was taxed in the year in which the said amounts were offered. 21. On the observation of Assessing Officer that interest accrued to the seller

on this issue, it was pointed out that interest amount was received in as

much as the first instalment has accrued to the assessee. Therefore, the

interest accrued until such date has also accrued to the assessee. The said

interest was duly offered to tax. In the event, contingent consideration

was not receivable by assessee, the interest thereon would have to be

refunded back to the purchaser such to same adjustment. Thus, interest

was to be treated in accordance with the term of contractual agreement

between the parties and cannot be considered as basis for calculating the 15

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

entire contingent account accrued to the assessee. The Assessing Officer

himself assessed the amount deposited in Escrow Account as capital gain

of assessee. If the deposit in the Escrow Account was linked only to

supply agreement then the same would be in the nature of Business

Income and not capital gain. Once accepted that deposit in the Escrow

Account is in the nature of capital gain, the only question arise is the

point of accrual of such capital gain. On the observation of ld. CIT(A)

regarding that Escrow Agreement does not have any impact and process

of sale of business, it was explained that ld. CIT(A) completely misread

the agreement. Paragraph no. 4.1 to 4.3, 7.3 and 7.4 of Business Purchase

Agreement clearly proves that if the conditions lay down in clause-7.3

(payment of closing amount and deposit in Escrow Account) are not

fulfilled then the business agreement will be terminated. The ld. AR of

the assessee finally submits that there is no dispute about the transfer

took place in the year under consideration. However, the limited issue is

whether the capital gain in respect of the portion of consideration which

was contingent upon fulfilment of condition “accrued to the assessee

during the current year”. Section 45 r.w.s. 48 provides that capital gain is

charged only when income is received or has “accrued” as a result of

transfer of capital asset. The assessee did not acquire any right to receive

the income; inasmuch as such alleged right was dependent upon

necessary condition being fulfilled. The Assessing Officer himself 16

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

assessed the amount deposited in Escrow Account as captial gain of the

assessee. If the deposit in Escrow Account was not linked only to supply

agreement than the same would be in the nature of business income and

not capital gain. Once accepted that the deposit in Escrow Account is in

the nature of capital gain, the only question which arise is the point of

accrual of such capital gain. The revenue in subsequent years too, has

taxed the amount withdrawn from Escrow Account as a capital gain of

the assessee. It was further submitted that if the view of the AO that the

entire amount of Rs. 567 crore is the amount to be considered for capital

gain, than as stated earlier the amount of Rs. 89.45 crore was contingent

consideration, which may or may not have accrued/arisen to the assessee

(depending on future condition being fulfilled) and therefore, in this

Assessment Year it was not possible to compute “full value of consideration”. 22. In support of his submission, the ld. AR of the assessee relied upon the

decision of Hon’ble Supreme Court in Sunil Siddharthbhai [156 ITR 509

(SC)] and in CIT vs. Gorge Henderson & Co. Ltd. [66 ITR 622 (SC)]

wherein it was held that absence of quantifiable consideration result in

failure of the assessee for charging capital gain tax. Accordingly, if

contention of AO accepted then following the aforesaid ratio of Hon’ble

Apex Court, full value of consideration not being determinable, the

Capital Gain accruing on account of Slum sale was not determinable at 17

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

all. It was submitted that fundamental rule of law on taxation is that unless otherwise expressly provided, the income cannot be taxed twice. Thus, the lower authority erred in assessing the entire amount as chargeable to tax in the current year. In support of his other submission, the ld. AR of the assessee also relied on the following decisions:  CIT vs. Mrs. Hemal Raju Shete (239 Taxmann 176 (Bom. HC).  CIT vs. Balbir Singh Maini (398 ITR 531(SC).  E.D. Sassoon & Co. Ltd. vs. CIT (AIR 1954 SC 470).  CIT vs. Excel Industries (358 ITR 295 SC).  Morvi Industries Ltd. vs. CIT (82 ITR 835 SC).  Late Shri Gordhandas S. Garodia (Through LR’s vs. DCIT (ITA No. 5097/Mum/2015.  CIT vs. M/s Nagarjuna Fertiliser (ITTA No. 100 of 2003 (AP High Court.  DCIT vs. Rohan Projects (113 taxmann.com 339 Bom.) 23. The assessee has placed following documents on record;  (i) LTCG working statement from AY 2013-14 to 2015-16,  (ii) HSBC Bank Statement showing the amount received for sale consideration of assessee’s marketing division on 03.11.2011,  (iii) Copy of Escrow agreement between assessee, purchaser and HSBC Bank,  (iv) Copy of Escrow release letter and receipt of accounts in HSBC A/c for AY 2012-13 to 2015-16 and  (v) Copy of computation of income for AY 2012-13 with annual accounts. 18

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

lower authorities. The ld. DR submits that assessee sold its marketing

division to Aventis Pharma Ltd., now known as Sanofi India Ltd.(SIL)

The assessee claimed the sale as a slump sale. According to the assessee,

the consideration of sale of was Rs. 567.07 crore. The assessee claimed

that only Rs. 477.30 crore was relevant for the computation of capital

gain in A.Y. 20012-13. And Rs. 89.45 Crore was placed in Escrow

Account against a supply agreement with the SIL. The assessee filed its

Audit Report in Form No. 3CEA relating to computation of capital gain

in slump sale. It was submitted that as per section 45, Capital Gain

arising from transfer of capital asset affected in the previous year is

chargeable to tax under the head “Capital Gain” and shall be deemed to

be income of previous year in which transfer took place. The ld. DR

further submits that section 48 is the computation section for capital

gains and referred to only two deductions, namely (i) expenditure

incurred wholly and exclusively in connection with such transfer and (ii)

the cost of acquisition of asset and any improvement thereto. The ld. DR

submits that deduction claimed by assessee on account of amount of Rs.

89.45 crore placed in Escrow Account is not allowable as per section 48. 25. On the submission of ld. AR of the assessee that the remaining amount of

Rs. 89.45 crore has been offered in the subsequent years, the ld. DR

submits that the chargeability arises only in the year in which transfer 19

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

took placed and the relevant A.Y. is 2012-13 only. In any event the

assessee has set it off against losses which would never have been the

case had it been offered to tax in the year of transfer which is in A.Y.

2012-13 in this case. The ld. DR further submits that the assessee has

shown Rs. 17.89 crore for each of subsequent AYs as net capital gain on

transfer of business purchase agreement. However, for A.Y. 2014-15 and

2015-16 this amount of Rs. 17.89 crore in each year, has been set off

against the Long Term Capital Loss on sale of mutual funds of Rs. 7.55

crore and Rs. 4.36 crore respectively. However, it is not known as to

what amount were declared for A.Y. 2016-17. 26. The ld. DR further submits that in the business purchase agreement dated

24.08.2011 between assessee and Aventis Pharma Ltd. there is recital

“(A) The seller is, interalia engaged in the business (as defined below).

Geltec is, interalia engaged in the business of manufacturing

nutraceutical and pharmaceutical product”. (B) The seller has agreed to

sale the business and to assume the obligation imposed on the seller

under this agreement. (C) The promoter collectively holds 100% of the

issued and paid-up share capital of the seller and Geltec. (D) The

purchaser had agreed to purchase the business of a going concern and

on a slump sale basis, and to assume the obligation imposed on the

purchaser under this agreement.” The ld. DR submits that from the

above recital it is evident that the transaction between assessee and 20

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

Aventis Pharma is that of slump sale and obligation imposed on the purchaser are separate from the slump sale transaction. The ld. DR further submits that clause 2 of Business Purchase Agreement (BPA) is the agreement to sale the business, thus what is sold are the asset mentioned and the so-called deduction of Rs. 89.45 crore on account of supplementary agreement is not a part of slump sale. Further, the other clause of the business purchase agreement, it is clearly establishes that slump sale consideration is Rs. 567.07 crore. This price is subject to adjustment is an event only subsequent to the slump sale. A sale of going concern is either slump sale or not a slump sale. The assessee cannot claim to slump sale under section 50B and at the same time can stay claim that it is not a going concern transaction but subject to adjustment. The ld. DR vehemently submits that the transfer of business on which the Capital Gains arise is not dependent on the supply agreement. In support of her submission, the ld. DR for the revenue relied upon the following decisions:  T.A. Taylor (P.) Ltd. (ITA No. 622/Chny/2017 dt. 19.07.2018.  CIT vs. Rohtak Textiles Ltd. 138 ITR 195 (Del.)  Ajay Guliya vs. ACIT [2012] 24 taxman.com 276(Del.) dt. 16.07.2012.  E.D. Sasson & Co. Ltd. vs. CIT (267 ITR 27 (SC).  Morvi Industries Ltd. vs. CIT [1971] 82 ITR 835.  CIT vs. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC).  CIT vs. Equinox Solution (P.) Ltd. [2017] 393 ITR 566 (SC).

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

into 22 pages. The relevant part of her submission are extracted below :

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

the business to be sold is detailed at sub clause (i) to (xi) and this comprises inter-alia, products, business IPR, contracts, permissions, inventory etc. Thus, what is sold are the assets mentioned, and the deduction on of Rs 89.45 cr on account of supplementary agreement is therefore not part of the slump sale. 5. Please see Clause 4 in internal pp 21 of BPA which is pp 108 of PB. Clause 4 is "Consideration and Escrow Arrangement". Clause 4.1 reads as follows "On the Closing date, the Purchaser shall pay Rs. 5,670,700,000 (Rupees five billion six hundred seventy million seven hundred thousand) as the lump sum consideration for the sale and transfer of the Business under this agreement as and by way of slump sale as a whole as a going concern (the Purchase Price"). The Purchase Price paid at Closing is subject to the adjustments set out in Clause 8.3 and Clause 8.4 of this agreement:" This clause establishes that the lump sum consideration for slump sale i.e. the purchase price is Rs.567,07,00,000/-. That this purchase price is subject to adjustments is an event only subsequent to the slump sale. A sale as a going concern is either a slump sale or not a slump sale. Assessee cannot stake a claim to slump sale u/s. 50B and in the same breath stake a claim that it is not a going concern transaction but subject to adjustments. Having claimed the said transaction with Aventis Pharma as transfer of a going concern as slump sale, the computation of capital gains is against the lump sum consideration of Rs. 567,07,00,000/-. If the assessee is staking a claim that lump sum consideration of Rs. 567,07,00,000/- is subject to adjustment then it cannot be taxed as a slump sale u/s. 50B and the assessee would have to calculate Capital Gains of individual assets. 6. Please see Clause 4.2 which reads as follows "The Seller will instruct the Purchaser to place an amount of Rs. 894,500,000 (Rupees eight hundred ninety four million five hundred thousand) (the "Escrow Amount'] out of the Purchase Price payable under this Agreement in Escrow in an interest bearing bank account (the Escrow Account) opened with the Escrow Bank. The Escrow account will be operated by the Escrow Agent in accordance with the terms and conditions of the Escrow Agreement." This clause makes it amply clear that the amount of Rs.894,500,000/- placed in the Escrow Account is out of the purchase price payable under this agreement. Thus, this Rs.894,500,000/- is an application of the lump sum consideration of Rs.567,07,00,000/-. 7. Please see Clause 6.4 which is "Termination- Material Adverse Change". It reads as follows "If prior to Closing any Material Change shall occur, the Purchaser shall be entitled by notice in writing to the Seller to terminate this Agreement (other than provisions of Clause 1 (Definitions and Interpretation). 16, 17.2 to 17.14,18,19 and 20). The termination of this Agreement under this Clause 6.4 shall not release any Party from any liability which at the time of termination has already accrued to another Party, or which thereafter may accrue in respect of any act or omission prior to such termination. "Also see Clause 7.4 which is "Breach of Closing Obligations". None of these clauses stipulate that in the event of not meeting any requirement, the going concern will revert to the Seller; when such is the case there is no question of a part of the lump sum consideration being payable to the seller contingent on the fulfillment of certain obligation by the Seller.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

Purchaser an amount equal to Rs.73,250,000 (seventy three million two hundred fifty thousand), less the Net Working Capital set out in the Closing Balance Sheet. (ii) If the Net Working Capital set out in the Closing Balance Sheet is more than Rs.73,250,000 (seventy three million two hundred fifty thousand), the Purchaser will pay to the Seller an additional amount equal to the Net Working Capital set out in the Closing Balance Sheet less Rs.73,250,000 (seventy three million two hundred fifty thousand) and Any payment pursuant to this Clause 8.3 shall be made on or before 10 (ten) Business Days after the date on which the process described in paragraph 3 of Part 1 of Schedule 9 is completed. II It is amply clear from the above that on the Closing Date, the Purchaser shall pay Rs.5,670,700,000 as the lump sum consideration for the sale and transfer of the Business by way of slump sale as a whole as a going concern and this Rs.5,670,700,000 is the "Purchase Price" which is to be paid at Closing and this is subject only to the adjustments set out in Clause 8.3 and Clause 8.4 which are "Adjustment of the Purchase Price for Liabilities" and "Adjustment of the Purchase Price for Net Working Capital" and these clauses do not refer to the Escrow amount and /or the supply agreement. Thus, deduction of amount placed in escrow account cannot be claimed against the lump sale consideration. It is also evident that the amount is placed in escrow at the instructions of the Seller; the amount placed in escrow account is thus an application of the lump sum sale consideration arising from slump sale and not allowable as a deduction therefore. 13. Please see Form No 3CEA filed by assessee appellant in the AY 12-13. Form 3 CEA is the "Report of an accountant to be furnished by an assessee under sub-section (3) of Section 50 B of the Income Tax Act, 1961 relating to computation of capital gains in case of slump sale". 14. Also see copy of letter dt. 3.2.2012 , placed at Annexure 1, which is a letter addressed to Aventis Pharma Limited from Universal Medicare Pvt. Ltd, the subject line of which reads,

“Re: Adjustment of the Purchase Price Pursuant to Clause 8 of the Business Purchase Agreement dated 24th August 2011”. This letter reads as follows, " ... Accordingly, the net consideration received by us for sale of the Business is as follows: Amount received from you on the Closing Date Rs. 5,670,700,0000 Less: amount refunded to you as mentioned above Rs. 58,504,174 ------------------- Net Consideration Received Rs.5,612,195,826/-"

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

It is amply clear that the consideration was Rs 567.07 cr and out of this Rs 89.45 cr was placed in Escrow Account. 16. Please refer to pp 35 of this PB 4 which is " Notes to Financial Statements for the Year Ended March 31, 2014" . Here too , it unequivocally stated that the gross consideration is Rs 5,670,700,000/- out of which Rs 894,500,000/- is placed by the Purchaser in Escrow Account opened with the Hongkong and Shanghai Banking Corporation Limited, which will be paid to the Company annually in five equal installments subject to achievement of certain performance targets every year." Thus, the amount placed in Escrow is only an application of the gross consideration of Rs 5,670,700,000; and therefore no deduction against this lump sum consideration is allowable per Sec 50 B. 17. Please see prayer for admission additional evidence u/r 29 of ITAT Rules, 1962 filed by Revenue vide letter dated 2.7.2018. This is the Auditor's Report of Sanofi India Ltd. (formerly Aventis Pharma Ltd.) for the accounts for Y.E. 31.03.2012 and this report is dated 12.11.2012. Please pp 28 which is the Schedules annexed to and forming part of the Financial Statement for the Y.E. 31.03.2012 of Sanofi India Ltd. (formerly Aventis Pharma Ltd.). Please see Clause 16 which discusses the BPA with Universal Medicare Pvt. Ltd. the narration is as follows "During the year, the company entered into Business Purchase Agreement (the "Agreement” with Universal Medicare Private Limited (UML) for purchase of marketing and distribution business of branded nutraceutical formulations in India on a going concern basis via slump sale effective from November 3, 2011 for a consideration of Rs.5,670,700/- thousands. Subsequently due to change in net working capital, the consideration was revised to Rs.5,612,195 thousands." Thus, it is evident that the purchaser, SIL, in this slump sale transaction has accounted for it entirely to the extent of a consideration of Rs.5,670,700 thousands and revised the same to Rs.5,612,195 thousands owing to change in net working capital, which is as per the BPA wherein the purchase consideration was subject to "Adjustment of the Purchase Price for Liabilities" and "Adjustment of the Purchase Price for Net Working Capital". The argument that the lump sum consideration was contingent on the supply agreement cannot hold for only one party to the transaction; the slump sale consideration if at all it were to be contingent on the supply agreement would apply to both parties to the transaction, that is the seller and the purchaser. It cannot be that the contingency applies only to the seller and not to the purchaser. Thus, in this conspectus of the facts, the entire lump sum consideration is to be subject to capital gains tax. 18. There is nothing in the BPA which defines the mechanism by which the transfer of marketing division shall fail, should there be a breach of the supply agreement. One cannot envisage a transaction which is contingent on the fulfillment of obligation in a supply agreement, which involves a consideration for transfer of intangible or tangible assets, in which the contingency and breach of obligation is not spelt out contractually and which defines the mechanism of the transfer falling through - this has not been brought out by the Ld Counsel in his arguments nor is it to be found anywhere in the documents filed.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

the assessee and the ld. Commissioner of Income- Tax Departmental

Representative (ld. CIT-DR) for the revenue. We have also deliberated

on the various case laws relied by the ld. representatives of the parties.

During the assessment the assessing officer noted that during the

previous year the assessee has sold its marketing division to Aventis

Pharma Ltd (APL) for consideration of Rs. 567.07 Crore, however in the

computation of income the assessee has shown Capital Gain of Rs. 477

Crore and remaining of Rs. 89.73 Crore was kept in Escrow account with

HSBC Ltd. On show cause the assessee explained that Rs. 89.73 Crore

will accrue to the assessee in five equal yearly instalment of Rs. 17.89

Crore each, on fulfilment of certain obligation being on achieving of

performance of targets, starting from March 2012 and up to Mach 2016.

It was also explained that out of Rs. 89.73 Crore, first instalment of Rs.

17.89 Crore was received by the assessee in the financial year under

consideration and have been offered to tax. The explanation/ reply of the

assessee was not accepted by the assessing officer. Assessing Officer by

took his view that section 50B clearly define states that any profit or gain

arising from slump sale effected in the previous year shall be chargeable

to tax as Capital Gain arising out from the transfer of Long Term Capital

Asset and shall be deemed to be income of the previous year in which

transfer took place. The Capital Gain on slump sale earned was 28

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

transferred on 03.11.2011 accordingly; the Capital Gain from transfer

cannot accrue in instalments. The assessee is following the accrual

system of accounting and the income earned is accrued to the assessee on

sale of transfer. In case of slum sale of the marketing division which is

transferred as a whole, single unit without values being attached to the

new asset and liabilities. The consideration of Rs. 567 Crore earned on

transfer of marketing division, does not have any bearing on any other

conditions. Once the agreement to sale is executed, the transfer took

place and any payment or obligation can spread over some time, this does

not mean that transfer is also happening over a period of time. The

transfer is one time event whereas payment can happen over a period

which is agreed between the parties and major part of consideration Rs.

477.62 crore was received on 03.11.2011 i.e. 84% of total consideration.

The amount kept in Escrow Account has no relation, whatsoever with the

transfer of marketing division. It has only bearing of supply agreement

between the parties. And the amount kept in Escrow Account belong to

the seller and that assessee has offered interest of Rs. 3.03 crore accrued

on full Escrow Account from 03.11.2011 to 31.03.2012. On the aforesaid

observation the Assessing Officer brought the remaining amount of Rs.

71.57 crore, kept in Escrow Account to tax is income of assessee for the

assessment year under consideration.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

submitted that the amount accrued to the assessee on fulfilment of certain

obligation and the same was offered to tax as and when it accrued. The

income taxed by the assessing officer is infact not accrued to the

assessee. The income on hypothetical basis cannot be taxed. The assessee

also relied on the various clauses of Escrow release agreement. 30. The ld CIT(A) on perusal of supply agreement took his view that the

assessee are require to supply certain product to purchaser(APL). And as

per the Escrow agreement the amount of Rs. 89.73 crore was kept in

Escrow account in HSBC Bank. The claim of the assessee that amount of

Rs. 17.89 Crore is liable to release in five annual equal instalments would

accrue to the assessee whenever said instalment is realized; which is

subject to fulfilling of certain conditions and should be taxed in relevant

Assessment Year. However, as per business purchase agreement the

date, place of closing, closing event, payment of closing and breach of

closing obligation, the closing events also define in Schedule-6 of the

Agreement. And on further scrutiny of agreement, the ld. CIT(A) took

the view that purchaser has paid the entire amount of closing date and it

is the assessee who had instructed the purchaser to keep the amount in

the Escrow Account. The sale of business is irrevocable and complete on

the closing date mentioned in the agreement. The capital gain is accrued

on the date of sale. 30

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

clauses of the agreement it can be held sale transfer is not linked to

Escrow Account and the assessee, as the guarantee of supply agreement

placed certain amount in the Escrow Account and the same is not linked

to the sale of business. The ld CIT(A) concluded that sale of marketing

division is completed on the closing date mentioned on the agreement

and finally concluded that he concur with the finding of Assessing

Officer that amount kept in Escrow Account has no relation whatsoever

to the transfer of marketing division and affirmed the action of Assessing

Officer. 32. We have perused the various clauses which are referred and relied by

respective parties of business purchase agreement dated 24.08.2011,

supply agreement which is schedule to the business purchase agreement

and Escrow Account agreement dated 28.10.2011. Perusal of aforesaid

clauses of business purchase agreement, the clauses of supply agreement

(annexure to BPA) and Escrow Agreement demonstrate that maintaining

of Escrow Account was inconsequence of business purchase agreement.

The conditions of supply agreement cannot be delinked from business

purchase agreement dated 24.08.2011. The Escrow Agreement was

executed on 28.10.2011. The Escrow account agreement was executed in

furtherance of BPA. Further, the amount in Escrow Account would

accrue to the assessee only on fulfilment of certain condition. Further, a 31

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

joint reading of clause 7.3 and clause 7.4 shows that if the condition

mentioned in clause 7.3 is not fulfilled, then business purchase agreement

will be terminated. Thus, the deposit in Escrow Account is intrinsic and

integral to the transfer of marketing division under business purchase

agreement without it, the sale shall be incomplete. Further, clause 3.1 and

clause 3.9 is prescribed that assessee and the purchaser shall enter into

agreement for the supply by the seller of pharmaceutical product that is

manufactured by assessee. A draft of supply agreement was also prepared

as a part of business purchase agreement as a schedule to the agreement. 33. In our view, once the condition of contract is reduced in writing, one

must look at the substance of term of the contract. The contract must be

read as a whole and not in a pick and choose manner. Further, the

intention of parties must be found in the words used by them and if more

than one interpretation is possible, one which gives effect and proper

meaning of all parts of the contract should be adopted. 34. The Hon’ble Supreme Court in Bharat Aluminium Company vs. Kaiser

Aluminium Technical Services Inc. (Civil Appeal No. 7019 of 2005)

(SC) and in Delhi Development Authority vs. Durga Chand (AIR 1973

SC 2609) also held that if two interpretations of the document are

reasonably possible, as it seems possible, the principle to apply would

be that the interpretation favouring the grantee as against the grantor

should be accepted. 32

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

submitted that Capital Gain is chargeable to tax only when income

“accrues” to assessee. The contingent consideration accrued only upon

compliance of condition in subsequent Assessment Years, the same was

chargeable only in the years in which the said income accrued. The ld.

AR also furnished the copy of income tax return and the income offered

to tax a capital gain of Rs. 17.89 crore each in A.Ys. 2013-14, 2014-15,

2015-16 & 2016-17. 36. The Hon’ble Bombay High Court in CIT vs. Mrs. Hemal Raju Shete

(supra) held that only income that was actually received or accrued to

assessee upon sale of shares had to be taxed and not any contingent

deferred income. Hon’ble Supreme Court in CIT vs. Balbir Singh Maini

(supra) held that when for want of permissions, entire transaction of

development of land envisaged in Joint Development Agreement (JDA)

fell through; there would be no profit or gain which arose from transfer

of capital asset, which could be brought to tax under section 45, read with

section 48.

1954 SC held that income may accrue to an assessee without the actual

receipt of the same. If the assessee acquires a right to receive the income,

the income can be said to have accrued to him though it may be received

later on its being ascertained. The basic conception is that he must have 33

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

acquired a right to receive the income. It was further held that unless and

until there is created in favour of the assessee a debt due by somebody it

cannot be said that he has acquired a right to receive the income or that

income has accrued to him.

379/38 taxmann.com 100 (SC) the Hon’ble Court by referring to various

judgments on the expression "accrues", and then held it is now well

settled that income tax cannot be levied on hypothetical income. In CIT

v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co.,

(1962) 46 ITR 144 (SC)] it was held that Income tax is a levy on income.

No doubt, the Income Tax Act takes into account two points of time at

which the liability to tax is attracted, viz., the accrual of the income or its

receipt; but the substance of the matter is the income. If income does not

result at all, there cannot be a tax, even though in book keeping, an entry

is made about a 'hypothetical income', which does not materialize. Where

income has, in fact, been received and is subsequently given up in such

circumstances that it remains the income of the recipient, even though

given up, the tax may be payable. Where, however, the income can be

said not to have resulted at all, there is obviously neither accrual nor

receipt of income, even though an entry to that effect might, in certain

circumstances, have been made in the books of account. In Morvi

Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 34

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

1974 SCC (Tax) 140 : (1971) 82 ITR 835] the Hon’ble Apex Court also

considered the dictionary meaning of the word "accrue" and held that

income can be said to accrue when it becomes due.

held that where assessee sold a land during relevant assessment year and

as per Memo of Understanding (MOU), part of sale consideration was

payable by purchasers on completion of assessee’s obligation under

MOU, assessee having not met conditions of MOU during relevant year

such amount was not taxable in relevant assessment year. The Hon’ble

High Court also referred its earlier decision in CIT vs. Nagri Mills Co.

Ltd. [1958] 33 ITR 681 (Bom)] wherein it was held that as under:

“3. We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.” 35

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

for the year under consideration of Rs. 447.30 crore and further Rs. 17.89

crore was accrued to the assessee. The assessee offered the same under

the head Capital Gain and no other income which is not accrued to the

assessee is not liable to tax in the year under consideration. The

remaining income was accrued only in subsequent Assessment Year i.e.

A.Y. 2013-14 to 2016-17 that is an amount of Rs. 17.89 Crore each in

four subsequent years, and the same has been offered for taxation under

the head Capital Gain. Even this fact is not disputed by the revenue.

year claim set off of Long Term Capital Loss on sale of mutual funds of

Rs. 7.55 crore and Rs. 4.36 crore. In our view, the assessee is legally

entitled to claim the set off of legitimate losses under the same head if it

accrues to the assessee.

Mills Co. Ltd. (supra) held that as to why the Income-tax authorities, in a

matter such as where the deduction is obviously a permissible deduction

under the Income-tax Act, raise disputes as to the year in which the

deduction should be allowed. The question as to the year in which a

deduction is allowable may be material when the rate of tax chargeable

on the assessee in two different years is different; but in the case of

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

income of a company, tax is attracted at a uniform rate. Applying the

same analogy that the assessee being a corporate entity is taxed at the

marginal rate, the revenue should not fritter away its energies in fighting

matters.

the facts of the present case as the same are based on different set of

facts. In CIT vs. Rohtak Textiles Ltd. (supra) it was held that section 55

clearly laid down that capital gains are to be deemed to be income of the

previous year in which the transfer of the asset took place. There was no

dispute about the point of time at which transfer took place. It was held

that capital arise from the transfer were rightly charged in the year when

undertaken vested in the Government, irrespective of whether the sale

became complete on those dates or on later when price was determined

and became payable. However, in the present case, though the price was

determined but was payable on fulfillment of certain condition as agreed

in Escrow Agreement and the same were paid subsequently. In E.D

Sasson & Co. Ltd. (supra) (also relied by ld. AR) wherein it was held that

income may accrue to an assessee without the actual receipt of the same.

If the assessee acquires a right to receive the income, the income can be

said to have accrued to him though it may be received later on its being

ascertained. The basic conception is that he must have acquired a right to

receive the income. Thus, the ratio of this decision is more favourable to 37

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

the assessee. In Morvi Industries Ltd. vs. CIT (supra) the facts of the case

are entirely different, wherein it was held that if the income for the year

in question were given up unilaterally by assessee after they had accrued

to it, the assessee company could escape the liability to tax. However, in

the present case, the assessee has offered the capital gain in subsequent

Assessment Years. In CIT vs. Ashokbhai Chimanbhai (supra) the facts

are entirely different. In said case it was held under Income Tax, the

income is taxable when it accrues, arises or received, or when it is by

fiction deemed to accrue, arises or deemed to receive. The receipt is not

the only test of chargeable to tax; if income accrues or arise it may

become liable to tax. The word “accruing” and arising are used to contra-

distinguish the word “receive”. Income is said to be received when it

reaches to the assessee; when right to receive the income vested to the

assessee, it is said to be accrue or arise. The dormant profit cannot be

equated with charged to tax under section 3 & 4 of the Income Tax Act.

agreement suggesting that entire consideration or part was not paid or the

title to the shares will revert to the seller. In T.A. Taylor (P.) Ltd. (supra)

there was no deferred consideration mentioned in the slump sale

agreement. Depositing a part of consideration in an Escrow Account,

equivalent to deferred consideration (para-8 of the order). In CIT vs.

Equinox Solution (P.) Ltd. (supra) the assessee sold its entire running 38

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

business with all assets and liability and one go. In CIT vs. Mrs. Hemal

Raju Shete (supra) was not a case of slump sale and only income that was

actually received or accrued to the assessee upon sale of shares was taxed

and not any contingent deferred income.

view that the accrued capital gain in the year under consideration was

offered by the assessee to tax and the remaining of the capital gain which

was accrued only in the subsequent years have been offered to tax in AY

2013-14 to 2016-17. The assessee has placed on record the copy of

computation and return of income for AY 2013-14 to 2016-17

for the assessee submits that assessee suffered loss on account of

defalcation of Rs.19.04 Crore which was detected in AY 2006-07. The

assessing officer while passing the assessment order for AY 2006-07

accepted the fact that the assessee suffered losses and in the assessment

order gave working of the loss suffered year wise. However, the

assessing officer reduced the claim of loss by Rs. 5.00 Crore and

accepted the claim of Rs. 14.04 Crore as the Economic offence Wing

attached the property of the culprit. The assessee, subsequently in the

return filed in pursuance of notice under section 153A claimed the same

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

loss of Rs. 5 crore as there was no recovery from the employee (culprit).

However, the same was not accepted by AO on the ground that no new

claim can be made while filing return of income in response to notice

under section 153A. For the year under consideration, the assessee raised

a claim of Rs. 5 crore in the First Appellate proceeding in A.Y. 2006-07

as well as in A.Y. 2012-13 on the ground that no recovery has been

made. The Tribunal in the appeal for A.Y. 2006-07 while adjudicating

the corresponding ground held that no new claim can be made under

section 153A and that issue with respect to the claim of defalcation was

remitted back to the file of AO. The ld. AR prayed to remand back the

issue to the file of AO for the year under consideration as well to avoid

the duplicity of the claim.

2006-07 under section 143(3) dated 31.12.2008 for allowing loss of

embezzlement of Rs. 5.00 crore, copy of assessment order under section

153A rws 143(3) for not allowing the loss of embezzlement of Rs. 5.00

crore and final report of Economic offence wing on the complaint of

embezzlement of Rs. 5.00 crore by an employee.

appeal does not arise from the impugned assessment order or from the

order of ld. CIT(A). Since the ld. AR during the hearing submitted that in

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

ITA No. 2967-2971/M/16 for A.Y. 2006-07 to 2009-10 the Tribunal set

aside the matter to the AO and submitted that defalcation loss must be

allowed in one or the other and matter may be set aside to the file of AO.

The ld. DR submits that issue may be restored to the file of AO and no

comment on the merit of grounds was made.

through the orders of the lower authorities. We have noted that in

assessee’s appeal for A.Y. 2006-07 to 2009-10 in ITA No. 2967-

2971/M/16 the claim of assessee with regard to defalcation loss has been

restored to the file of AO. Therefore, to avoid the duplicity, the issue is

restored to the file of AO to examine the claim and pass the order in

accordance with law. In the result this ground of appeal is allowed for

statistical purpose.

and the revenue vide its application dated 24.10.2017 made application

for admission of additional evidence. However, we have noted that while

making submission as well as in written submission, none of the parties

have made their submission for admission of the additional ground nor

was referred any contents for other reference, therefore, both the

applications are dismissed. Any other application if pending and not

brought to our notice for any order or direction is also dismissed.

ITA No. 4418 M 16 & C.O. 268 M 17-Universal Medicare Pvt. Ltd.

C.O. No. 268/Mum/2017 by revenue

revenue are interconnected. We have noted that while making

submission, the ld. AR of the assessee has not made any specific

submission on the additional ground of appeal nor file any written

submission, therefore, the same is treated as not pressed and dismissed

accordingly. As we have dismissed the additional ground of appeal,

therefore, the grounds in cross objection are become academic.

is dismissed.

Order pronounced in the open court on 06/03/2020.

Sd/- Sd/- S. RIFAUR RAHMAN PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 06.03.2020 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “F” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai