ITO 6(1)(3), MUMBAI vs. BLUE FOODS P.LTD, MUMBAI

Date of Hearing –04.05.2017 Date of Order - 01.06.2017

O R D E R PER: SHAMIM YAHYA

This appeal by the revenue is directed against order of Ld. CIT-A dated 21.12.2012 and pertains to assessment year 2009-10.

1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of negative net worth of Rs.(- ) 10,00,54,507 /- to the long term capital gain."

Blue Foods P. Ltd., ITA no.2425/Mum./2013 2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of negative net woth of Rs.(-) 10,00,54,507/- to the long term capital gain without appreciating the fact that on the similar issue the Special Bench of the Mumbai Tribunal in the case of DCIT Vs. Sumit Securities Ltd ha~ decided this issue in favour of Revenue." 3. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on contingent interest liability of Rs.2,62,20,586/- while calculating the net worth of the assessee company without appreciating the fact that this liability need to be considered for arriving at the correct net worth." 4. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on contingent liabilities related to customs duty of Rs.43,22,499/- while calculating the net worth of the assessee company without appreciating the fact that this liability need to be considered for arriving at the correct net worth." 5. "The appellant prays that the order of Ld.CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 6. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

Blue Foods P. Ltd., ITA no.2425/Mum./2013 year under consideration, the appellant has sold its restaurant business to PAN India Food Solutions Pvt. Ltd. for a lump-sum consideration of Rs.10,00,00,000/-. The sale, as stated is a lump-sum sale within the meaning of Section 2(42C) of the Income Tax Act as all the assets and liabilities relating to the restaurant business have been transferred to PAN India Food Solutions Pvt. Ltd. Since it was a slump sale agreement, for a lump-sum consideration, the appellant computed its tax liability i.e. Long Term Capital Gain in accordance with the provisions of Section 50B of the Act.

“From the above, it would be evident that the dispute which is pending for the decision of the Special Bench, is in regard to the determination of full value of consideration in those cases where the negative net worth of an undertaking transferred on slump sale basis, is on account of excess of liabilities of the undertaking over its assets transferred to the transferee party. The dispute before the Special Bench is not in respect of those cases, where the negative net worth is on account of accumulated losses in the undertaking. In the case of accumulated losses in an undertaking, no extra benefit, over and above the sale consideration, would be derived by the transferor on account of the slump sale of the undertaking. It is only in those cases, where the transferee party takes over all the liabilities and assets in a case of slump sal1 and the liabilities are in excess of assets that the transferor is going to get an extra benefit in terms of such excess liabilities taken over by the transferee. In the case of Attilli N. Rao (supra) also, on the basis of which the Division Bench differed from the Blue Foods P. Ltd., ITA no.2425/Mum./2013 decision in Zuari industries Ltd (supra) and the Special Bench has been constituted, the facts were largely similar in the sense that the assessee Attili N. Rao had owed a debt to the Excise Department and in respect thereof, had mortgaged his property to the said department. And when the said department sold the mortgaged property, the issue in dispute was computation of capital gain; whether on the basis of full sale value or net sale value (i.e. after deducting the assessee's liability to the Excise Department). Thus the facts in the case of Attili N. Rao (supra) are also different from the facts in the case of the appellant. Hence, it is also evident that the issue referred to the Special Bench is of no relevance in the case of the appellant. Section 50B mentions that the net worth of the undertaking on the date of transfer is the cost for the purpose of calculating capital gain under section 48. The net worth has been determined by the Auditors at (-) Rs.10,00,54,507/-. And for the purpose of Section50B of the Act, the cost cannot be a negative figure and it has to be taken as nil. The negative net worth of the undertaking is solely on account of accumulated losses. The accumulated losses are nothing but profits lost in the past. Practically speaking therefore, the appellant is not going to get any benefit over and above the sale consideration in this case. In such a case, therefore, in terms of section 50B, the cost for the purpose of computation of capital gain could not be a negative figure. Hence, in my view the appellant has rightly adopted the net worth (or the cost) of the undertaking as nil for the purposes of section 50B of the Act. Furthermore, the issue can also be looked into from the point of view of the purchaser. If the negative net worth is also considered to be the par of sale consideration, then the total gain to the seller would be adopted as the cost in1the hands of the purchaser. Therefore, when the purchaser sells the undertaking to a third party, his gain shall accordingly be lower. In that case, there will be no extra gain of revenue from the two composite transactions, one of the sale by the appellant and t1e other of the sale by the appellant's Blue Foods P. Ltd., ITA no.2425/Mum./2013 purchaser to a third party. Hence the negative cost cannot be considered in the case of the appellant especially in view of the fact that the appellant has not gained anything over and above the sale consideration because the negative net worth is on account of accumulated losses. Therefore, in my view, the appellant company has rightly treated the net worth of the undertaking as Nil and accordingly computed the capital gain at Rs.10 crores i.e. the full value of consideration received under the slump sale agreement. The AO's view that transfer of excess liabilities over assets is required to be considered as deemed sale consideration may hold good, if there is actual transfer of excess liabilities over the assets. In the present case, this is not so. Hence, in the light of above discussion, I am inclined to agree with the appellant's contention that the negative net worth should be ignored while computing the long-term capital gain under on 48 read with 50B of the Income Tax Act Accordingly, the AO is directed not to consider the negative net worth as sale consideration and delete the addition of Rs.10,00,54,507/- made in this regard.”

Blue Foods P. Ltd., ITA no.2425/Mum./2013 7. Since the issue has been decided in favour of the assessee by the learned CIT(A) and learned Counsel of the assessee is fairly agreeing before us that there has been a mistake on the part of the assessee in submitting the computations before the Assessing Officer, interest of justice requires that all the issues raised in this appeal need to be remitted to the file of the Assessing Officer. Accordingly, the issues raised in the appeal are remitted to the file of the Assessing Officer. The Assessing Officer is directed to consider the issue afresh taking into the account the revised computations and submissions of the assessee. Needless to add the assessee shall be granted adequate opportunity of being heard.