DCIT, CHENNAI vs. CHETTINAD LOGISTICS PVT. LTD., CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

These cross-appeals filed by the Revenue and assessee

respectively, is directed against order of the Commissioner of Income-

tax (Appeals)-1, Chennai in ITA No.283/13-14/A.1, dt 27.03.2015 for

the assessment year 2010-2011 passed u/s.143(3) and 250 of the

Income Tax Act, 1961 (herein after referred to as ‘the Act’).

First we take up assessee appeal in ITA No.1388/Mds/2015 2.

of assessment year 2010-2011 for adjudication:-. The assessee has

raised two substantive grounds that Commissioner of Income Tax

(Appeals) erred in confirming the findings of the ld. Assessing Officer

in rejecting sale of transfer of windmill division without appreciating

provisions of Sec. 2(42C) r.ws. 2(19AA) of the Act which were wrongly

interpreted and further Commissioner of Income Tax (Appeals) has

confirmed the computation of long term capital gains on land and

short term capital gains on transfer of wind mill without appreciating

the facts and law.

the business of clearing, forwarding, manufacturing, trading and ship

mangement services and filed return of income on 15.10.2010 with

total income of �18,68,93,580/-. Subsequently filed revised return on

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28.02.2011 with total income of �27,44,14,678/- and the case was

selected for scrutiny under CASS and notice u/s.143(2) and 142(1) of

the Act dated 25.08.2011 was issued. In compliance to notices, the

ld. Authorised Representative appeared from time to time and

submitted details. The ld. Assessing Officer in the assessment

proceedings found that the assessee has offered long term capital

gains on sale of asset �10,49,12,310/- being difference in value of

sale consideration �12,96,00,000/- and net worth of assets transferred

�2,46,87,690/-. The ld. Authorised Representative submitted that as

per Memorandum of Understanding (MOU) with Clarion Wind Farm

Pvt. Ltd the sale of ‘’project assets’’, being land and windmill for a

lumpsum amount of �12,96,00,000/- and for the purpose of calculating

net worth, the assessee also considered liabilities and supported with

the MOU dated 11.12.2009 for claim of slump sale u/s.50B of the Act.

The ld. Authorised Representative relied on the computation of net

worth as per form 3CEA. The ld. Assessing Officer perused the MOU

with Clarion Wind Farm Pvt. Ltd and verified the clauses referred at

page 3 of his order and came to a conclusion that assets of the

assessee are only ‘’project assets’’ with 24 nos. of wind energy

generators and land measuring 97.58 acres and the MOU does not

specify any information of any other asset. The assessee has

calculated net worth based on value movable assets which the ld.

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Assessing Officer has disputed and sent letter dated 14.03.2013 and in

compliance the reply was filed on the query of the fixed deposit, bank

balances and other and assessee has referred to provisions of Sec.

2(42C) of the Act as under:-

‘’As per section 2(42C) slump sale means the transfer of one or more undertaking as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sale’’.

and also explanation 1 to clause (19AA) states that ‘’undertaking shall

include any part of the undertaking or a unit or division of undertaking

or a business activity as a whole’’. We have transferred our main

business activity assets viz land and windmill for a lumpsum

consideration without assigning any values to individual assets.

Hence, this transaction is slump sale as per Section 2(42C) .The ld.

Authorised Representative explained the mode of computation of net

worth as per the provisions of sec. 50B of the Act. Considering the

assessee’s calculation statements and MOU, the ld. Assessing Officer

is of the opinion that the assessee has only sold ‘’project assets’’ being

24 Nos. of windmills and land and the slump sale is nothing but

transfer of whole or part of business concern as a going concern as

lock, stock and barrel. As per the provisions of Income Tax Act,

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further the transfer shall be the entire undertaking including the assets

and liabilities of such undertaking without assigning any value to the

individual assets and sold for a lump sum consideration. The ld.

Assessing Officer examined the Audit report Form 3CEA and

understood that the net worth of undertaking shall be the value of

asset transferred by way of slump at written down value or book

value. But, the assessee has sold the project assets being only land

and windmill and not entire undertaking and wrongly calculated

computation of the net worth based on MOU with M/s. Clarion Wind

Farm P. Ltd and the sale was registered in favour of others. The ld.

Assessing Officer with these findings and observations has calculated

separately long term capital gains on sale of land �11,94,569/- and

short term capital gains �11,77,17,195/- on transfer of wind mills

considering the written down value of wind mills and assessed

income and passed order u/s.143(3) of the Act dated 27.03.2013.

Aggrieved by the order, the assessee filed an appeal before

Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative argued the grounds and explained the facts and the

provisions of slump sale. The ld. Commissioner of Income Tax

(Appeals) considered the submissions, grounds and the findings of the

ld. Assessing Officer and dealt on the provisions of Sec.50B of the Act

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and the methodology of calculation of long term gain gains on land

�11,94,569/- and short term capital gains on windmills

�11,77,17,195/- referred at page 4 of his order and relied on the

definition of provisions of Sec.50B and Sec.2(42C) of the Act on

slump sale at page 5 of his order as under:-

‘’Sec. 2(42C) ‘’Slump sale’’ means the transfer of one or more undertakings as a result of the sale for a lump sum consideration, without values being assigned to the individual assets and liabilities in such sales.

Explanations: 1. For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19AA). 2. For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.

The definition of ‘undertaking’ as per Explanation 1 to clause 19AA is as under:- Explanations: 1. For the purposes of this clause, “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity’’.

As seen from the above provisions, the slump sale would mean the transfer of entire undertaking or division but not

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individual assets/liabilities. Assessing Officer is right in holding that the appellant has transferred only the windmill and the land appurtenant thereto but not the entire assets and liabilities of the undertaking or division, therefore, the appellant is not entitled to claim slump sale benefit u/s.50B. I fully agree with the view taken by the Assessing Officer and the reworking of the capital gains of land and windmill for the purpose of taxation. The ground is dismissed’’.

and upheld the order of the Assessing Officer. Aggrieved by the

Commissioner of Income Tax (Appeals) order, the assessee filed an

appeal before Tribunal.

Before us, the ld. Authorised Representative argued the 5.

grounds and reiterated the submissions made in the assessment

proceedings and appellate proceedings. The only point of dispute is

whether slump sale has to be considered for individual assets or

undertaking. The ld. Authorised Representative submitted that the

Commissioner of Income Tax (Appeals) has confirmed the findings of

the ld. Assessing Officer in rejecting the claim of computation of slump

sale u/s.50B of the Act wereas the assessee has claimed slump sale

as per provisions of sec. 2(42C) r.w.s. 2(19AA) of the Act which the ld.

Commissioner of Income Tax (Appeals) has wrongly interpreted. The

ld. Assessing Officer calculated long term capital gains and short term

capital gains separately which is not in accordance of law. The ld.

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Authorised Representative filed paper book to explain the facts and a

support his submissions. The Windmills are transferred as lot and

calculation of net worth based on the asset and liabilities is in

accordance with law. The name change in transaction after MOU is

supported by the evidence in the paper book. With these submissions,

the ld. Authorised Representative prayed for allowing the appeal.

Contra, the ld. Departmental Representative relied on the 6.

findings of the Commissioner of Income Tax (Appeals) and Assessing

Officer and the calculation of net worth by the assessee relying on the

movable assets cannot be considered as slump sale, under transaction

of slump sale total undertaking should be sold and transferred as

lock, stock and barrel but the assessee company has sold individual

assets. The ld. Assessing Officer has made elaborate discussions and

calculations in assessment order and disallowed the claim and prayed

for dismissing the assessee appeal.

We heard the rival submissions and perused the material on 7.

record. The ld. Authorised Representative contention that as per MOU

with M/s. Clarion Wind Farm P. Ld, the assessee has to sell the wind

farm with 24 Nos of WEGs including land measuring 97.58 acres

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referred as ‘’projects asset’’ and also no other liabilities shall be taken

over. The ld. Authorised Representative referred to the page 122 of

paper book and explained the terms and conditions in respect of

transfer of undertaking and the methodology of calculation of net

worth as per form 3CEA of the Chartered Accountant’s report. The ld.

Authorised Representative submitted that net worth of the undertaking

is aggregate value of assets and reduced by the liabilities and as per

the provisions of Sec. 2(42C) of the Act and Explanation 1 to clause 2

(19AA). The ld. Authorised Representative explained the undertaking

shall include any part of undertaking or unit or division of undertaking

or a business activity as a whole land and windmills and supported

with the letter of Tamil Nadu Electricity Board to M/s. Shriram EPC Ltd

for transfer of windmills. The ld. Authorised Representative argued on

the transfer of wind mills to M/s. Shriram EPC Ltd as the Business

understanding and MOU were M/s. Clarion Wind Far P. Ltd directing

the assessee company to raise proforma invoice in the name of M/s.

Shriram EPC Ltd as assignee. The ld. AR demonstrated the value and

calculation of slump sale which the Assessing Officer has considered in

the assessment order and to substantiate the claim referred to the

Annual report for the year 2006-07, 2007-08 and 2008-2009. On

perusal of the Balance sheet as on 31.03.2009 under fixed asset

schedule V, the assessee company has shown the land and

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windmills division in the balance sheet and other assets in the fixed

asset schedule are excluded from slump sale. Prime face as per the

Memorandum of Association the assessee’s main object is as under:-

‘’1)To Operate and plan movement of goods and vehicles and to enter into contract for carriage of mails, passengers, goods and cargo of any kind by any means and either by its own vehicles or chartered or through railways and other conveyances.

2) To establish, maintain and operate shipping air transport and surface transport services and all ancillary services either as independent undertakings or to purchase, to take on lease charter, hire, construct or otherwise acquire and to work, manage and trade.

3) To undertake technical management and crewing of all types of ships, Tugs and Barges.

4) To undertake and carry on all or any of the trade with Shippers, Ship owners, Ship Surveyors, Managers, Ship Brokers, Shipping Agents and Insurance Brokers, Marine Average adjusters, Arbitrators, Loading Brokers, Freight Contractors arid Clearing and Forwarding Agents, Stevedores, collection and delivery of any type of ships and vessels from any part of the world, Salvage, Towage, Storage and other associated technical services as would be necessary and carriers by Land, Air and Water and to carry 'on the said business either as principals or agents or commission or other wise.

*INSERTED BY SPECIAL RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING OFTHE COMPANY HELD ON 30TH DECEMBER, 2013

5) To operate, plan movement, purchase, sell, import, export, deal and trade in textiles, cotton fabrics yarns, threads for textile use, textiles and textile goods, bed and table covers, lace and embroidery, ribands and braid, buttons press buttons, hooks and eyes, pin and needless, artificial flowers, carpet, rugs, mats and matting, linoleums and other materials for covering existing floors, wall hangings (non textile) ropes, strings, net, tents, awning, tarpaulins, sails, sacks and bags, passing and stuffing coal, limestone, gypsum, silica, unwrought and partly wrought common metals and their ollys, metal building materials, transportable buildings of metal, materials of metal for railway tracks, non electric cables and wires of common metal,

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ironmongery, small items of metal hardware, pipes and tubes of metals, safes, goods of common metal and ores, precious metals and their alloys and goods in precious metals or coated therewith (except cutlery, forks and spoons) jewellery, precious stories, horological, chronometric instruments, minerals and all other goods’’.

The contention of the ld. DR that it is a sale of individual asset

consisting of land and windmills. After sale the assessee company still

holds assets and the sale was only restricted to wind mills and land

and the only dispute whether slump sale has to be considered for

individual assets or undertaking. The ld. Authorised Representative

relied on Tribunal decision is in respect of software company were the

intangible assets as going concern are considered, we are not

conceived with the arguments of the ld. AR as the assessee could

function on tangible assets and transfer of windmills and land is

sufficient to continue operations. The consideration specified in the

agreement for transfer of ‘’project assets’’ has been split into windmills

and land but still the company holds assets in the Balance sheet

wereas the slump sale is defined under Sec. 2(42C) of the Act being

sale for lump sum consideration without assigning any values to the

individual assets and liabilities. The assessee’s company fixed deposits

and current assets still exist in the Balance Sheet and liabilities are not

transferred alongwith undertaking but only transfer of project assets.

The MOU with M/s. Clarion Wind Farm P. Ltd exclude fixed deposits,

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receivables and other current assets and not sale by a lock, stock and

barrel but individual assets . Considering the apparent facts, judicial

decisions, findings of the ld. Commissioner of Income Tax (Appeals),

Annual reports and paper book, we are of the opinion that transaction

does not fit in the category of slump sale and it is in the nature of sale

of individual asset though projected as ‘’project asset’’ in the MOU.

Therefore, we are not inclined to interfere with the order of

Commissioner of Income Tax (Appeals) who has dealt exhaustively on

the facts and the provisions and findings of the Assessing Officer and

we uphold the same. This ground of the assessee is dismissed.

The next ground raised by the assessee on disallowance 8.

u/s.14A of the Act. The assessee has made investments in shares and

listed group companies and incurred interest expenses of �20,20,495/-

in the financial year 2009-2010. The assessee has not disallowed

any expenses as no dividend was received during the financial year

2009-2010 and wereas for the financial year 2008-2009, dividend

income received was �8,61,500/-. The assessee company investments

as on 31.03.2010 are �173,20,05,925/- and these investments

includes group companies were the assessee company has

substantial equity shares in Durandel Food Pvt. Ltd. In compliance to

the letter of the Assessing Officer, the assessee company explained

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that company has not received any dividend income and therefore

provisions of Sec. 14A of the Act are not applicable. The ld. Assessing

Officer considered the submissions and found that the assessee

company has claimed substantial administrative and personal expenses

in the profit and loss account and also under other heads of

expenditure, being bank charges, printing & stationery, travelling

expenses, audit fees which are incidental to the administration of the

company. The submissions of the assessee that it has not incurred

any expenditure does not have rationality as the investments are in

listed companies and group companies. Considering the provisions of

Sec. 14A r.w.r. 8D. The ld. Assessing Officer made disallowance of

�82,71,382/-. Aggrieved by the order, the assessee filed an appeal

before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 9.

Representative has argued the grounds and submitted that assessee

has not incurred any expenditure and the provisions invoking

disallowance u/s.14A r.w.Rule 8D are inapplicable and explained the

facts and filed objections as referred by the Commissioner of Income

Tax (Appeals) at page 11 of his order with judicial decisions. The ld.

Commissioner of Income Tax (Appeals) has exhaustively dealt on the

applicability of provisions of Sec. 14A of the Act, Finance Act, Tribunal

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and High Court decision from page No. 12 to 16 of his order and

distinguished the decisions relied by the assessee and relied on the

jurisdictional High Court decision and confirmed the applicability of

provisions of Sec. 14A r.w.Rule 8D and partially granted relief to

exclude investments in subsidiary companies for calculation of Rule 8D

and observed at page 18 of his order as under:-

‘’It is also to be noted that investment in subsidiaries also will not make much difference when it is the question of interest disallowance so long as there was expenditure involved while earning such exempt income. As was already point out 14A provisions are disallowance provisions and so long as there is an investment in exempt income earning avenues the expenditure need to be disallowed irrespective of whether the investment is in subsidiaries or other concerns and whether there was an intention to earn dividends or not. It is also immaterial whether such dividends were derived during the year or not.

(iv) With regard to applicability of limb (iii) of Rule 80(2) the decision in the case of Escorts Ltd, 102 TT J 522, the ITAT Delhi has clearly held that indirect management and administration expenses qualify for disallowance u/s 14A and there is no decision so far by any similar forum contradicting the above findings. Similar view was also taken by ITAT Chennai in the case of Southern Petrochemical Industries (93 TT J 161) as under:

".Whether to invest or not to invest and whether to retain the investments or to liquidate the same are

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very strategic decisions which the management is called upon to take. These are mind-boggling decisions and top management is involved in taking these decisions. This decision-making process is very complicated and requires very careful analysis. Moreover, the assessee had to keep track of various dividend incomes declared by the investee companies and also to keep track of the dividend income having been regularly received by the assessee. That activity itself called for considerable management attention and could not be left to a junior clerk’’.

This view has been further supported by the decision of Hon'ble Kerala High Court in the case of Smt. Leena Ramachandran (2011) (339 ITR 293) (Kerala HC).

6.2.4 In view of the above discussion, the Assessing Officer is right in invoking the provisions of s.14A and working of disallowance as per Rule 80. However, as part of the investment made is in the subsidiaries, the Assessing Officer Is directed to eliminate the investment made in such subsidiaries while working out average investment as per Rule 80(2)(ii) and (iii) in view of the decision of the jurisdictional IT AT in the case of EIH Associated Hotels Ltd (supra). The ground is partly allowed’’.

and partly allowed the ground. Aggrieved by the order of

Commissioner of Income Tax (Appeals) order, the assessee has

assailed an appeal before Tribunal.

Before us, the ld. Authorised Representative argued the 10.

grounds and the assessee company has not received exempted

income and lower authorities relied on the provisions of Sec.14A

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r.w.Rule 8D which are not applicable to the assessee and reiterated

the submissions made in the assessment proceedings and appellate

proceedings. The main contention of the Authorised Representative

that assessee has not incurred any expenditure and if any

disallowance as the provisions should be restricted to exempted

income and the ld. Commissioner of Income Tax (Appeals) has erred

in confirming the addition and prayed for deleting the addition.

Contra, the ld. Departmental Representative relied on the 11.

orders of the lower authorities and opposed to the grounds.

.We heard the rival submissions and perused the material on 12.

record. The crux of the issue being applicability of provisions of Sec.

14A r.w.Rule 8D. As per the amendment of Finance Act, 2008 w.e.f.

24.03.2008 and applicable judicial decisions, the disallowance under

Sec. 14A of the Act has become mandatory for the Assessing Officer

to apply three limbs under Rule 8D. On Perusal of the financial

statements, the assessee company has made substantial investments

in subsidiary and group companies and claimed expenditure towards

personal, administrative overheads in the profit and loss account

though indirectly related to the investments as management of the

company has taken policy and strategic decisions on investments. The

contention of the ld. Authorised Representative as no expenditure

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incurred is ruled out as indirectly included in the financial statements

and assessee company has not identified direct expenditure. The ld.

Assessing Officer considered the applicability and has dealt on the

provisions and calculated as per law. The ld. Commissioner of Income

Tax (Appeals) has confirmed the applicability of provisions of Sec. 14A

r.w.Rule 8D. We perused the order of the Commissioner of Income

Tax (Appeals) found that ld. CIT(A) has exhaustively dealt on the

provisions of applicability judicial decisions and directed the Assessing

Officer to eliminate the investments in subsidiary companies relying

on the judicial decisions for calculation of average investments under

Rule 8D. The assessee has invested in group companies not to earn

exempted income. Considering apparent facts, the investments

pattern, judicial decisions and findings of the ld. Commissioner of

Income Tax (Appeals) and nature of expenditure claimed as per

Audited Financial Statements, we are of the opinion that the matter

has to re-examined and direct the Assessing Officer to verify the

investments in group subsidiaries on commercial expediency and

expenditure attributable to investments and apply the provisions of

Sec. 14A r.w. Rule 8D, we remit the issue to the file of Assessing

Officer for fresh consideration. This ground of the assessee is allowed

for statistical purpose.

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Now, we adjudicate the Department appeal ITA 13.

No.1647/Mds/2015 of assessment year 2010-2011. At the time of

hearing, the ld. Departmental Representative has not pressed ground

2.1 to 2.3 and same is treated as dismissed.

Commissioner of Income Tax (Appeals) erred in directing to eliminate

the investments made in subsidiaries while working out disallowance

under Rule 8D(2) of the Act.

applicability of provisions and remited the issue to the file of Assessing

Officer for fresh consideration. Therefore the ground of the

Department is allowed for statistical purpose.

The last ground raised by the ld. Departmental 16.

Representative is that the ld. Commissioner of Income Tax (Appeals)

erred in allowing 60% depreciation on UPS as part of block computers

instead of 15% allowed by Assessing Officer and UPS falls into the

category of office equipment on not computer parts.

The assessee has claimed depreciation at the rate of 60% on UPS 17.

as the integral part of computer block. But the ld. Assessing Officer

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observed that UPS should be included in the block of office equipments and

allowed deprecation @15% . Aggrieved by the order, the assessee filed an

appeal before Commissioner of Income Tax (Appeals).

Income Tax (Appeals) allowed the appeal of the assessee by placing

reliance on Co-ordinate Bench decision of Tribunal in the case of

Sundaram Asset Management Co. Ltd in ITA No.1774/Mds/2012 dated

19.07.2013. Aggrieved by the Commissioner of Income Tax (Appeals)

order, the Revenue has assailed an appeal before Tribunal.

Before us, ld. Departmental Representative relied on the 19.

grounds and argued that UPS cannot be considered as integral part of

computer to be included in office equipment and eligible for deprecation

@15% only.

Commissioner of Income Tax (Appeals) and opposed to the grounds of the

Revenue.

We heard the rival submissions, perused the material on record 21.

and judicial decision cited. The assessee company considered UPS

part of computer block and claimed the deprecation. The fact that

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computer alone cannot work without the support of UPS and regulating the voltage stability of the electricity. If there is power fluctuation without UPS, the computer will malfunction and the data will be lost. So, considering the usage and essentiality of the product being integral part of computer, we upheld the order of Commissioner of Income Tax (Appeals) in directing the Assessing Officer to allow deprecation @60% and dismiss the ground of the Revenue.

In the result, the appeal of the assessee and Revenue are 22. partly allowed for statistical purpose.

Order pronounced on Tuesday, the 7th day of June, 2016, at Chennai.

Sd/- Sd/- (चं� पूजार�) (जी. पवन कुमार) (CHANDRA POOJARI) (G. PAVAN KUMAR) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 07.06.2016 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF