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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘G’ MUMBAI
Before: Shri Joginder Singh, & Shri Manoj Kumar Aggarwal
आदेश / O R D E R
Per Joginder Singh(Judicial Member) The Revenue is aggrieved by the impugned order dated 09/09/2014 of the Ld. First Appellate Authority, Mumbai. As per the revised form No.36, the Revenue has challenged through ground no. 1 and 2, to allow the claim of deduction by the Ld. Commissioner of Income Tax (Appeal) of Rs.11,07,74,465/- on account of alleged increase in value of land hived without calling remand report from the Assessing Officer, which is in violation of principle of natural justice, by observing that the notional surplus arising in the hands of the assessee is not an item in its hands as the same does not constitute transfer in terms of section 47(vib) of the Income Tax Act, 1961 (hereinafter the Act).
During hearing, the ld. CIT-DR, Ms. Vidisha Kalra, strongly defended the addition/disallowance of deduction by contending that the assessee is trying to reduce the value of the land hived by the assessee because as per the books, value of the land is Rs.20 lakhs and further the Assessing Officer has also cryptically dealt with the issue. Our attention was invited to section 47(vib) of the Act along with section 2(19AA)(iii) Explanation -3 of the Act. The crux of the argument is in support of the assessment order.
M/s Graham Firth Steel Products (I) Ltd.
2.1. On the other hand, the ld. counsel for the assessee, Shri Paresh Shaparia, defended the impugned order by explaining that identical shares were given to the share holder of the demerge entity and the assessee wrongly claimed /offered notional value of land in profit & loss account and no revised return was filed. It was argued that the Ld. Commissioner of Income Tax (Appeal) adjudicated the issue of waiver of principle of amount of loan and the issue in relation to difference in value was not adjudicated by him. On the issue of not providing opportunity to the Assessing Officer, it was claimed that a speaking order has been passed by the Ld. Commissioner of Income Tax (Appeal). The crux of the argument is that merely accounting entry was passed. The order of the Ld. Commissioner of Income Tax (Appeal) was defended by contending that there was no change in the share holding pattern.
2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company was incorporated in 1960, engaged in the business of manufacturing and trading of cold rolled steel. The assessee firm was promoted with technical collaboration with M/s Firth Steel Ltd, U.K., which was later on taken over by M/s British Steel ltd.. Over the years, it accumulated substantial losses as is evident from returned loss of Rs.1.22 crores of the Income-tax return of 2006-07. Due to wiping out of its working capital, it has M/s Graham Firth Steel Products (I) Ltd. become a sick unit. BIFR vide order dated 29/05/2007 approved the scheme of rehabilitation/demerger of assessee company. As per this order, the land and building of Mumbai Unit was to be hived off to a new corporate entity i.e. Graham Firth Mumbai Ltd. (hereinafter referred to as GFML). As per plan envisaged Shri Patel and Shri Dhiraj were to infuse equity of Rs.15.98 crores and were to get the land of the assessee at Mumbai in return. Coupled with some write-off of the dues by the bankers, the equity infusion was to meet the liabilities arising on account of secured creditors and the workers at Mumbai. After the issue of retrospective effective BIFR order, the assessee filed a revised return for Assessment Year 2006-07, declaring nil income after set off of losses of Rs.18.58 crores. The Assessing Officer placing reliance upon the decision in Goetze India Ltd. vs CIT 284 ITR 323 (SC) denied the revised claim of the assessee. The surplus in question arose as follows in the books of the assessee. The surplus with banks by way of waiver of principal amount of loans of Rs.8,36,99,463/- and increasing the value of land hive off of Rs.11,07,74,65/- (total Rs.19,43,73,938/-) was adjudicated by Ld. Commissioner of Income Tax (Appeal). The contention of the assessee is that the land hived off was on account of the land at Mumbai Unit to the new demerge company and the same was done as per the plan recovery sanctioned BIFR. It was claimed that surplus, which arose in the books of the assessee was on account of transfer of its own land to M/s Graham Firth Steel Products (I) Ltd. the demerge company and thus it would not be considered as transfer. The holding pattern of the demerge company and the resultant company remains the same. As per section -2 (19AA)(iii) of the Act, which defines demerger the property and liabilities being transfer to demerge company are to be transferred at values appearing in the books of accounts immediately before the demerger.
2.3. The issue before us, is with respect to chargeability of land hived off to GMFL. In the order dated 29/05/2007 of BIFR (paragaraph 10.03, page No.8) it has been mentioned as under:-
“With effect from the appropriate date of demerger i.e. 01/04/2005, the movable assets of the Mumbai unit (other than the plant and machinery which are proposed to be shifted to Aurangabad) will be hived off and vested in a new corporate entity i.e. GMFL………..”
2.4. It is also noted that land in question has been handed over to the resultant company i.e. GMFL and the share holding pattern of the resultant company is identical to the pattern of demerge company, meaning thereby, merely ownership has changed hands but there is no effective change of beneficial ownership. The provision of section 2(19AA) of the Act mandates that a transfer of asset from demerge company to the resultant company has to be made at the value as in the books of the demerge company just
M/s Graham Firth Steel Products (I) Ltd. before demerger. In the instant case, the cost of the original land and building, appearing in the books and balance sheet of the assessee as on 31/03/2005 are Rs.2,38,068/- and Rs.17, 70,656/-, respectively. Thus, the valuation of land and building sought to be hived off has to be Rs.20,08,724/- . Thus, in view of explanation-3 to section 2(19AA) of the Act, any change in the value at a later date, on account of revaluation has to be ignored. Admittedly, the position of the land was handed over and necessary entries were made in the books of the resultant company and also of the demerge company, it would not constitute transfer in terms of provisions of section 47(vib) of the Act. Thus, we do not find infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal). It is affirmed. Finally, the appeal of the Revenue is dismissed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 30/01/2017. Sd/- Sd/-
(Manoj Kumar Aggarwal) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 27/02/2017 f{x~{tÜ? P.S/.�न.स.
M/s Graham Firth Steel Products (I) Ltd.