AFL P.LTD,MUMBAI vs. ASST CIT CEN CIR 13, MUMBAI

The present appeal arises from the order of the CIT(A)-37, dated. 01.07.2014, which in turn arises from the order passed by the A.O u/s 143(3) of the Income-tax act, 1961 (for short ‘Act’), dated. 13.12.2013. The assessee assailing the order of the CIT(A) had carried the matter in appeal before us, therein raising the following grounds of appeal:- “Grounds of Appeal: (The Grounds of Appeal stated herein below are without prejudice to each other) 1) The learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of additional amount of Rs.47,90,000/- (Rs.49,90,000/- less Rs.2,00,000/-) u/s 14. A of the Act. 2) The learned Commissioner of Income Tax (Appeals) erred in confirming the re-computation of disallowance under section 14A of the Act by invoking the provisions of Rule 8D. He failed to appreciate that the pre-conditions necessary for invoking the provisions of Rule 8-D has not been fulfilled in its case. 3) The appellants submit that the disallowance computed u/s 14A is excessive and unreasonable. 4) The learned Commissioner of Income Tax (Appeals) erred in confirming addition of excess of liabilities over assets of the two divisions to sale consideration for the purposes of computation of Long Term Capital Gains. 5) The learned Commissioner of Income Tax (Appeals) erred in confirming re-computation of Long Term Capital Gain on sale of two divisions at Rs.244,21,16,734/-instead of Rs,132,34,03,976/- offered by the Appellant in its computation of income.

The A.O during the course of the assessment proceedings observed that the assessee company which had in its return of income shown capital gain of Rs.132,34,03,976/- on account of slump sale of business of logistics and domestic courier division to M/s FedEx Express Transportation and supply chain service (India) Pvt. Ltd, had though while computing the income under Sec. 50B, worked out the ‘net worth’ of the divisions at (-)Rs.111,87,12,758/-, but thereafter taking support from the order of the Tribunal in the case of : Zuari Industries Ltd. Vs. ACIT (2007) 105 ITD 569 (Mum) had taken the cost of the two divisions at Rs. NIL. The A.O however being of the view that the ITAT order in the case of : Zuari Industries Ltd. (supra) did no longer hold the ground, as the ‘Special Bench’ of the Tribunal in the case of DC1T vs. Summit Securities Ltd. (2012) 135 ITD 0099 (SB) had held that the Negative figure of ‘net worth’ cannot be ignored for working out the capital gains in case of slump sale under Sec. 50B of the ‘Act’, and as such would be required to be added to the sale consideration for determining the capital gains, thus did not find favor with the computation of capital gain by the assessee company. The A.O in the backdrop of his aforesaid conviction, thus declined to accept the working of the capital gain by the assessee, wherein the latter had taken the ‘net worth’ of the divisions at Rs. Nil, despite the fact that the same was computed at (-) Rs. 111,87,12,758/-, and thus going by the order of the ‘Special bench’ in the case of : Summit Securities Ltd. (supra), therein recomputed the capital gain in the hands of the assessee at Rs. 244,21,16,734/- (i.e Rs. 132,34,03,976/- (+) Rs. 111,87,12,758/-).The A.O thereafter deliberating on certain other issues, therein assessed the income of the assessee at Rs. 145,49,93,242/-(i.e after giving effect to the B/forward unabsorbed depreciation for earlier years).

The assessee assailed the assessment order before the CIT(A), who though partly allowed the appeal of the assessee but upheld the computation of the disallowance u/s 14A r.w Rule 8D by the A.O at Rs. 49,90,000/-, therein leading to sustaining of the consequential addition of Rs.47.90 lacs over and above the disallowance of Rs.2,00,000/- offered by the assessee in its return of income. That still further the CIT(A) being of the view that the recomputing of the capital gain by the A.O was in conformity with the order of the ‘Special bench’ of the Tribunal in the case of DC1T vs. Summit Securities Ltd. (2012) 135 ITD 0099 (SB), thus finding no reason to dislodge the same, therefore also upheld the computation of the capital gain by the A.O.

The assessee being aggrieved with the order of the CIT(A) had therein carried the matter in appeal before us. That at the very outset of the hearing of the appeal the Ld. Authorized representative (for short ‘A.R’) for the assessee adverting to the ‘Ground of appeal No. 5’ & ‘Ground of appeal No. 6’, therein assailed the order of the CIT(A) who had upheld the recomputation of the capital gain by the A.O at Rs. 244,21,16,734/-, as against Rs. 132,34,03,976/- reflected by the assessee in its return of income. That however during the course of hearing of the appeal the Ld. A.R very fairly assisted the bench and therein submitted that the issue under consideration, viz. the treatment to be accorded to a Negative figure of ‘net worth’ for working out the capital gains in case of slump sale under Sec. 50B of the ‘Act’ was covered against the assessee by the order of the ‘Special bench’ of the Tribunal in the case of : DC1T vs. Summit Securities Ltd. (2012) 135 ITD 0099 (SB). The Ld. A.R assailing the order of the CIT(A) therein submitted that the computation of the capital gain by the assessee did not suffer from any infirmity and the authorities below had erroneously dislodged the same by misconstruing the scope and the gamut of mode of computation as stood contemplated under Sec. 50B of the ‘Act’. The Ld. A.R further submitted that the order of the ‘Special bench’ of the Tribunal in the case of : Summit Securities Ltd. (supra) which had weighed in the mind of the lower authorities for dislodging the computation of the capital gain as stood reflected in the return of income of the assessee had not attained finality and had been assailed before the Hon’ble High Court, which as on date was pending adjudication. That on the other hand the Ld. Departmental representative (for short ‘D.R’) heavily relied on the orders of the lower authorities and therein averred that the A.O following the order of the ‘Special bench’ of the Tribunal in the case of : Summit Securities Ltd. (supra) had rightly recomputed the capital gain in the hands of the assessee, and the CIT(A) finding no infirmity in the order of the A.O, had as such rightly dismissed the appeal of the assessee. It was thus submitted by the Ld. D.R that the appeal of the assessee was squarely covered by the ‘Special bench’ of the Tribunal, and thus being devoid of any merits was liable to be dismissed.

We have heard the Ld. Representatives of both the parties, perused the orders of the lower authorities and the material produced before us. We have given a thoughtful consideration to the facts of the case and are of the considered view that the issue involved in the present appeal, viz. the treatment to be accorded to a Negative figure of ‘net worth’ for working out the capital gains in case of slump sale under Sec. 50B of the ‘Act’ had been adjudicated upon by the ‘Special bench’ of the Tribunal in the case of : DC1T vs. Summit Securities Ltd. (2012) 135 ITD 0099 (SB), wherein the Tribunal after deliberating on the manifold contentions put forth before it in context of the issue under consideration, had therein held as under:- “In view of the detailed discussion made above, we are with utmost respect unable to concur with the view expressed by the Mumbai Bench of the Tribunal in the case of Zuari Industries Ltd. (supra) and Delhi Bench of the Tribunal in the case of Paper Base Co. Ltd. (supra). Thus the question referred to the Special Bench is answered in negative by holding that the Assessing Officer was not right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump sale. However, we allow ground no.2 raised by the Revenue in its appeal by holding that the CIT(A) was not correct in coming to the conclusion that the negative figure of the net worth of Rs.157 crore should be ignored for working out the capital gains in case of a slump sale. The summary of our conclusion is that the amount of ‘Net worth’ will be a negative figure of Rs.157 crore and not Zero. Resultantly the amount of capital gain chargeable to tax will be Rs.300 crore and not Rs.143 crore as declared by the assessee.”

We have heard the Ld. Authorized representatives for both the parties, perused the orders of the lower authorities and the material produced before us. We have given a thoughtful consideration to the facts of the case and find substantial force in the contention of the Ld. A.R that after the case of the assessee company for A.Y. 2008-09 was restored to the file of the A.O, the latter had vide his order passed u/s 143(3) r.w Sec. 254, dated. 31.03.2015, had returned a finding that as the interest bearing loan funds had been utilized by the assessee for the purpose of its business and no part of it was utilized towards purchase of investments yielding tax free income, therefore no disallowance u/s 14A in respect of the interest paid was called for in the hands of the assessee. We thus in the backdrop of the aforesaid facts, keeping in view the very fact that the year under consideration, viz. A.Y. 2011-12 had witnessed reduction of the secured loans to Rs. Nil as in comparison to A.Y. 2008-09 wherein it stood reflected at Rs. 4,265.99 lacs, and no fresh interest bearing borrowings were raised during the year for purchase of investments yielding tax free income, therefore are of the considered view that no disallowance of any part of the interest charges was called for in the hands of the assessee under Sec. 14A of the ‘Act’. We thus in light of our aforesaid observations herein vacate the addition of Rs.47.90 lacs over and above Rs.2,00,000/- offered as disallowance by the assessee in its return of income, and consequent thereto allow the ‘Ground of appeal