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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI [CAMP: COIMBATORE]
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE
आदेश /O R D E R
PER BENCH:
This appeal and cross-objection of the Revenue and assessee respectively, are directed against the order dated 01.06.2016 of the Commissioner of Income Tax (Appeals) – 18, Chennai.
Appeal filed by the Revenue is delayed by 2 days.
Condonation petition has been filed. Reason shown for the delay seems to be justified. Ld. A.R. did not raise any serious objection.
Delay is condoned and the appeal is admitted.
Appeal of the Revenue is taken up first for disposal.
Revenue is aggrieved on deletion of addition of `3,00,00,000/- 4. made by the A.O. considering the sale of undertaking as slump sale for the impugned assessment year.
Facts apropos are that the assessee carrying on a business of SKODA Car dealership, had filed return for the impugned assessment year, declaring NIL income under normal provisions of Income-tax Act, 1961 (in short 'the Act') and book profit of `1070/- under Section 115JB of the Act. During the course of assessment proceedings, it was noted by the Assessing Officer that the assessee had entered into a Memorandum of Understanding between one M/s Miracle Cars India Pvt. Ltd. on 30.06.2010. As per the Ld. A.O., the assessee had, through this agreement, sold its Skoda dealership to M/s. Miracle Cars India Pvt. Ltd free from encumbrances and lien, for a total
3 C.O. No.176/Mds/16 consideration of `3,00,00,000/-. As per the A.O., the buyer, out of the total agreed sum of ₹3,00,00,000/- had paid to the assessee a sum of `1,38,78,000/- through cheque and `61,22,000/- by cash aggregating to ₹2,00,00,000/-. Assessing Officer was of the opinion that the sale had to be considered as “slump sale” within the meaning of Section 2(42C) of the Act. According to him, by virtue of Section 50B(1) of the Act, profit arising from slump sale was chargeable to tax as capital gains arising from transfer of long-term capital assets. The A.O. also noted that the assessee had not filed audit report in Form No.3CEA as mandated under Section 50B(3) of the Act. In reply, assessee stated that the agreement was for transferring SKODA Car Dealership and would be effective only on approval from M/s SKODA Auto India Pvt. Ltd. As per the assessee, M/s SKODA Auto India Pvt. Ltd. did not give approval for transfer of dealership. Further as per the assessee, it did not receive any amount from M/s Miracle Cars India (P.) Ltd. and the cheque of `1,38,78,000/- mentioned in the agreement was given to one Shri D. Shivkumar, Director of the assessee-company and only if the formalities could be completed, the money would be transferred to the assessee. Contention of the assessee was that the agreement had expired within three months of entering into it by virtue of clause 4 assets and since individual values were assigned, Section 2(42C) could not be applied. Reliance was also placed on the judgment of Hon'ble Apex Court in the case of E.D. Sassoon & Co. Ltd. v. CIT (1954) 26 ITR 27. However, the A.O. did not accept these contentions. According to him, the sum of `3,00,00,000/- received by the assessee was on account of a slump sale and could only be considered as short-term capital gains. An addition was accordingly made.
In its appeal before the CIT(Appeals), argument of the assessee once again was that the agreement had never fructified.
According to the assessee, M/s SKODA Auto India (P.) Ltd. did not approve the transfer of their dealership and the agreement became invalid by virtue of such disapproval. Ld. CIT(Appeals), after considering the submissions of the assessee, held as under, at para 6.1 of his order:-
“6.1. From the submissions made by the appellant it is seen that an amount of`1,38,78,000/- was given only to Mr. D. Sivakumar, Director of M/s DRS Industries Ltd., the appellant herein, to complete the formalities. Hence the transfer of the unit for a value specified could be only after the approval from the principal i.e. M/s SKODA. Hence, the appellant submitted there was neither transfer and nor slump sale as concluded by the A.O. in the impugned order. The agreement had expired within three months from the date of entering as per the clause 4 of the agreement. As per the Memorandum of Agreement dated 22.11.2014 entered into between DRS Industries (P) Ltd., and Miracle Cars India (P) Ltd. copy of which has been submitted to the undersigned during appellate proceedings, it is seen that M/s SKODA has rejected the request made for transfer of dealership raising legal issues. The AR further explained that the transfer of dealership was subject to approval by SKODA Auto India (P) Ltd. and accrual of income arises only at the point of approval from principal i.e., M/s SKODA. Thus it is seen that the appellant had not entered into an enforceable agreement to transfer the SKODA car dealership and hence there was no change of dealership. Thus the factual position has been misinterpreted by the A.O. in the impugned assessment order. Further, the A.O. in the subsequent assessment year 2012-13 vide Asst.Order date 30.03.2015 in para No.3.2 has observed that, the above said agreement has not been acted upon and thus, no transfer had been taken place. In these circumstances, the addition on account of slump sale is found to be incorrect and accordingly, the said addition of`3,00,00,000/- is hereby deleted and this ground of appeal is allowed.”
Now before us, the Ld. Departmental Representative, strongly assailing the order of the CIT(Appeals), submitted that the agreement could be clearly construed as transfer of business by slump sale.
According to him, the consideration had also been received.
Contention of the Ld. D.R. was that the approval of M/s SKODA Auto India (P) Ltd. was irrelevant as far as assessee and M/s Miracle Cars India (P) Ltd. were concerned.
Per contra, Ld. A.R. supported the order of the CIT(Appeals).
We have perused the orders and heard the rival contentions. It is not disputed by the Revenue that M/s SKODA Auto India Pvt. Ltd. had not approved the transfer of dealership from the assessee to M/s Miracle Cars India Pvt. Ltd. It is also not disputed that there was a clause in the agreement which required approval of M/s SKODA Auto India Pvt. Ltd. for transfer of dealership from the assessee to M/s Miracle Cars India Pvt. Ltd. Even the part consideration received, was held by one Shri D. Sivakumar, a director of the assessee and was never given to the assessee-company. Thus the agreement dated 30.06.2010, on which reliance has been placed by the Assessing Officer for fastening a liability on the assessee, was a conditional one which would become legally enforceable only if M/s SKODA Auto India Pvt. Ltd. gave approval for transfer of the dealership. Further, in the subsequent assessment year, the Assessing Officer himself noted that the agreement did not go through. Thus, in our opinion, the CIT(Appeals) was justified in taking the view that there was no slump sale and there was no occasion for making an addition of
Coming to the cross-objection filed by the assessee, it is only to support the order of the CIT(Appeals). Since appeal of the Revenue is being dismissed, the cross-objection has become infructuous.
In the result, the appeal of the Revenue as well as the cross- objection of the assessee are dismissed.
Order pronounced on 3rd February, 2017 at Chennai.