DCIT CC 41, MUMBAI vs. CLASSIC ELECTIRCALS LTD, MUMBAI

raised by the Revenue reads as under: 1. "On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in deleting the addition in respect of capital gain arising on account of slump sale, by accepting the contention of the assessee that the liability of Rs. 3,22,40,330/- pertains to units other than Motiwada Unit, and hence coming to the conclusion that the allocation of proportionate liability against the net worth computation of capital gain arising on account of slump sale of Motiwada Unit does not arise, without verifying the genuineness of the claims made by the assessee." The appellant prays that the order of the CIT(A) on the above ground be set aside and that of Assessing Officer be restored.”

A notice u/s 148 dated 26.03.2012 was served upon the assessee. In response to the notice, the assessee filed its reply dated 18.07.2012 and requested that return filed u/s 139 may be treated as revised return. After reply of assessee, notice u/s 143(2) dated 24.07.2012 was served upon the assessee. During the re-opening assessment proceeding, the AO observed that assessee sold its Motiwada Udarva Division as slump sale and the assessee has shown loss in his accounts. Accordingly, the assessee was asked to submit details of Profit & Gains arising from slump sale affected during the previous year. Assessee filed its reply dated 14.08.2012 and submitted that assessee has loan liability of Rs. 3,22,40,330/- as on 31.03.2007 and Rs. 38,83,554/- as on 30.03.2006 pertaining to Plast Chem (Div of Classic Electricals Ltd.) which was not sold as slump sale during the above AY, the contention of assessee was not accepted by the AO. AO concluded that assessee erred in valuing the net worth in calculation of capital gain of slump sale. The AO further concluded that on 31.03.2007, the assessee has loan liability of Rs. 3,24,40,330/-, this liability was for entire business of assessee, the proportionate amount that pertains to Motiwada Unit was also be taken for the purpose of deduction towards liability, arising the net worth and calculated the Short Term Capital Gain (STCG) in the following manner: Amount of loan = (3,60,83,554 + 3,22,40,330)/2 = 3,41,61,942 Depreciated value of Udarva Division = 95,02,737 Depreciated value of the unit = 3,80,63,701 Total 4,75,66,438 Proportionate amount of loan liability for Motiwada Udarva 2

Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). In Appeal, the CIT(A) deleted the addition of capital gain allegedly arising on account of slump sale of Motiwada Unit. Aggrieved by the order of CIT(A), the Revenue has filed the present appeal before us.

We have heard the Departmental Representative (DR) for Revenue and Authorised Representative (AR) for assessee and perused the material available on record. DR for Revenue argued that assessee has three units out of which one unit was sold and the AO proportionately worked out the capital gain. No evidence was given by the assessee before the CIT(A) that assessee’s liability was not against the Motiwada Unit and prayed that order of AO be restored and the CIT(A) may be reversed. AR of the assessee argued that assessee submitted letter dated 14.08.2012 before the AO on 16.08.2012 wherein it was made clear that the liability of Rs. 3,22,40,330/- does not pertain to Motiwada Unit. The AO failed to mention the reasons that why he made the addition despite the submission that liability pertains to the units other than the Motiwada Unit. The allocation of proportionate liability against net worth, of capital gain arising on account of slump sale does not arise. 6. We have considered the rival contention of the parties and gone through the record of the case, the assessee is carrying his business activities from three Units (1) Mumbai branch- engaged in business of Leasing & Investments (2) Plast Chem Unit Chikli Valsad- engaged in the business of manufacturing of U.F. Molding Power. (3) Motiwada Unit Udvada- engaged in business of Fabrication of CRC sheets & brass cutting on Labour Job basis and repairing of Moulds & Dies. Assessee sold Motiwada Unit for consideration of Rs. 1,10,00,000/- and suffered capital loss of Rs. 7,72,687/-. However, the AO while framing the assessment order mentioned that the assessee has liability as on 31.03.2006 of Rs. 3,60,83,554/- which was reduced to 3,24,40,330/- as on 31.03.2007, the AO also mentioned in the assessment order that the value of net worth of Rs. 1,17,22,687/- has shown in the computation of capital loss of Rs. 7,72,687/- and did not include proportionate liability pertaining to Motiwada Unit. The assessee vide his letter dated 14.08.2012 to AO clearly stated that the liability of Rs. 3,22,40,330/- does not pertain to Motiwada Unit. This reply/letter was furnished by assessee during the course of re-opening of assessment proceeding, the AO failed to take the notice of contents of letter dated 14.08.2012 and no reason for discarding the contents of letter of assessee dated 14.08.2012 in its finding. The CIT(A) correctly appreciated the fact that the liabilities pertains to the unit other than the Motiwada Unit. And the allocation of proportionate liability against the net worth computation of capital gain arising on account of slump sale of Motiwada Unit was correctly deleted by CIT(A). 7. With these observations, we do not find any illegality, perversity or infirmity in the impugned order dated 10.02.2014 passed by CIT(A).