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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]
Per Shri Mahavir Singh, JM: This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata vide Appeal No. 237/CIT(A)-VI/Cir-5/2011-12/Kol dated 03.12.2012. Assessment was framed by Addl. CIT, Range-5, Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 28.12.2011.
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in treating the sale of assets of chemical units as a slump sale u/s. 2(42C) read with section 50B of the Act. For this, assessee has raised following ground no. 1: “1. For that in view of the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the action of AO in treating itemized sale of the assets of the Chemical Unit of your petitioner as being slump sale and accordingly confirming the AO's action in aggregating the consideration of Rs.41,98,00,000/- as being consideration towards slump sale u/s 2(42C) read with Sec. 5OB although such provision was not at all applicable. Even otherwise and without prejudice the Ld. CIT (A) failed to appreciate that neither the liability of such unit were not transferred nor whole of the assets of such unit were transferred and the sale of assets was itemized sale and as such it cannot be treated as slump sale within the meaning of section 2(42C) of the I. T. Act, 1961. Thus, the CIT(A) erred in confirming the action in such respect is without appreciating the fact and in the law in such respect and the sale of such assets has to be considered as per the computation of your petitioner and in view of the facts and in the circumstances of the case it may kindly be held accordingly.” 3. Brief facts relating to this issue are that the assessee is engaged in the business of manufacturing and selling of chemicals, castings, steel wires, wagons etc. The AO during the course of assessment proceedings noticed that the assessee company is having various business units namely, Railway wagon manufacturing unit, jute processing unit and chemical units in Gujarat and West Bengal. According to AO, each of these units is independent profit centre for
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which separate books of account are maintained by assessee company. According to AO, the assessee during FY 2008-09 relevant to this AY 2009-10 sold its chemical unit at Haldia to Petro Carbons & Chemicals Pvt. Ltd. and according to him, this transfer of chemical unit is actually slump sale u/s. 2(42C) of the Act. But assessee company before AO argued that since the sale was of assessee’s assets relating to chemical unit itemized and not as a undertaking whole. According to him, this cannot be covered under the definition of slump sale u/s. 2(42C) of the Act. But the AO treated the transfer of the assessee unit’s assets, except land as slump sale and profit arising out of this transfer was considered as short term capital gain amounting to Rs.31,13,58,000/-. The transfer of land was treated as long term capital gain and assessed at Rs.7,56,82,683/-. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the action of AO by observing in para 27 to 44 as under: “27. In this case the assessee had transferred a business activity and the business activity was transferred for a lump sum although shown as itemised sale showing value of each item as claimed. The assessee's claim that intention was to make an itemised sale of assets is not supported by the documents and the rear intention was to sell it as a going concern. This particular business activity of this unit comprising of various assets of the assessee was sold for a lump sum single consideration and the appellant has not produced that any tenders/quotations for itemized sale of assets were called. The intention of the appellant is clear that all the necessary items to run it as a unit were sold to one person. For treating a transaction as slump sale and not an itemised sale, one needs to consider the intention of the parties, the facts and the documents of the transaction. Even if liabilities have not been transferred then the transaction can be deemed to be a slump sale provided: a. There is a transfer of an undertaking b. the transfer is as a going concern c. The undertaking transferred can and does continue the business without the liabilities being transferred d. The consideration is a lump sum or a single consideration for various assets/basket of assets e. no values have been assigned to individual assets and liabilities i.e. there is no valuation report showing the price consideration break up for each assets and liabilities f. The intention of the parties was to sale the undertaking as a going concern for a lump sum without assigning values to individual assets and liabilities. 28. In section 2(19AA) a specific condition has been prescribed for transfer of all assets and liabilities of an undertaking. There is no such condition prescribed in section (2)(42C) that all liabilities must be transferred for slump sale. If the above conditions are satisfied, then even if liabilities are not transferred it may be deemed to a slump sale. Essentially, as long as the buyer can continue the business as is it does not vitiate the concept of Slump Sale even if certain assets and liabilities are not taken over. One of the most important questions to ask in such a purchase or sale of a business is whether it is only some the assets that are being sold by seller or a business activity is sold as a 'going concern'. In the itemized sale of individual assets which can be separately identified and valued, the purchaser chooses or cherry picks the assets that he intends to acquire. 29. In the case of Rohan Software Pvt. Ltd v ITO 304 ITR 314 (An (MUM) it has been held that the assessee had transferred its business including intellectual property, codes, formulae and designs, along with all the rights. However, it did not transfer all assets and liabilities pertaining
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to the undertaking. The Income Tax Appellate Tribunal (Tribunal), Mumbai held that if the purchaser could carry on the business, which was carried by the seller prior to the business transfer, without acquiring all assets and liabilities of the undertaking, plea of the revenue that the seller has not sold the undertaking as a whole, is difficult to accept. Slump sale or itemised sale-Assessee in the business of software sold its business including intellectual properties, codes, formulae-and designs sans building, motor car and assets and liabilities regarding income-tax matters as a going concern-It was a case of slump sale of undertaking within the meaning of s. 2{42C) r/w s.2{19AA) . Fact that assessee did not transfer motor car building and assets and liabilities relating to income-tax matterrs would not make the transfer of business to fall short of slump sale because it could not be said that the purchaser cannot continue the activities in the absence of building and motor car, which had been kept apart. It further held as under: “29. In brief, as discussed hereinabove, "slump sale" has been defined as transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. In the instant case of the assessee, though in the purchaser's books of account the individual assets have been priced independently, assessee had not assigned separate values and consequently sold the items for independent price. It is not the revenue's case also that individual assets had the price fixed separately and charged. "Undertaking" is explained in Explanation I to section 2(l9AA). According to this Explanation, as we noted already above, includes any part of an undertaking or a unit or division of an undertaking or a business activity as a whole. Revenue's case is that some of the items like motor car and building has been retained by the assessee; as such this cannot be treated as a slump sale. But the fact to be considered is assessee is in the field of intellectual property rights. Computers, furniture, etc. which is linked with the business of the assessee has. been sold. The items that the assessee kept separately, has nothing to do with assessee's business, which is sold/handed over to the purchaser, i.e., IISL. The business has been sold. The purchaser could very well carry on the business, which was carried by the assessee before the sale, without purchasing any independent items. In view of the above, the plea of the revenue that the assessee has not sold the undertaking as a whole, is difficult to accept.” 30. The Hon'ble Bombay High Court in the case CIT v. Polychem Ltd 343 ITR 114 held that the agreement did not contain an itemized valuation in respect of the land, building and fixed assets transferred. The total consideration of Rs. 10.6 crores determined under the agreement was for. the transfer of the business and undertaking as a whole comprising but not limited to the land, building and fixed assets. The transaction involved was a slump sale. 31. In ECE Industries Ltd. vs. DCIT ( Delhi ITAT D Bench) (ITA Nos. 2584 & 5508/De1/2003) (2007) 111 TT J (Del) 11 it has been held that the assessee company sold its one unit to another company as a going concern along with all tangible and intangible assets including goodwill, licences and liabilities, against a lump sum consideration and the transferee acquired absolute ownership and full control over the running business of the undertaking. There was no separate sale of building or plant and machinery nor any specific price was assigned to land, building or plant and machinery. There is no evidence or material on record to show that any part of the sale consideration was attributed to depreciable assets or any other asset. Hence, it is a case of slump sale and not a case of itemised sale or piecemeal sale, and s. 50 cannot be applied. 32. The Hon'ble Punjab & Haryana High court in case of Max India 319 ITR 68 held that the Tribunal held that the sale was a slump sale if it was a sale of a going concern, even if some of the assets were retained by the transferor and sections 50 and 50A of the Act were not applicable. On further appeal, the Revenue contended that the sale was a sale of block of assets the gain from which was liable to be treated as short-term capital gains and that the assessee was not entitled to indexing under section 48 of the Act. The Court held, dismissing the appeal that the sale proceeds received by the assessee were from sale of a going concern, which was a slump sale and not a sale of block of asset.
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The Hon'ble Bombay High Court ln Premier Automobiles Ltd. v. Income-tax Officer 264 ITR 193 held that a perusal of the documents connected with the transaction showed that the intention of the parties in the .commercial sense was to transfer the Kalyan business, as a whole, for a lump sum consideration of Rs. 247 crores, that, the parties did not Intend to make a sale of itemized assets. Mere execution of conveyance of immovable property by itself would not constitute sale of itemized assets. PPL (originally KMCL) never intended to purchase individual items and apart from land, building, plant and machinery, PAL had transferred business advantages like licences, quotas, permission to use the name "Premier", work-force and other intangibles. 34. The Hon'ble ITAT Kolkata “D” Bench in the case of CIT vs. I C I (India) Ltd. (ITA No. 1020/Ko1/2007) reported in (2008) 23 SOT 58 (Kol) has held that the question is whether it is a "slump sale" of the undertaking as a whole or it is the sale of the depreciable assets within the meaning of s. 50. The fertilizer business of the assessee has been transferred as a going concern to CCFC. All assets and liabilities relating to fertilizer business has been transferred, only assets excluded are bank balance and the outstanding Insurance claim on the date of transfer. Merely because these two assets have been excluded from the assets transferred, it cannot be said that it is not the transfer of the undertaking as a "going concern". It was further held that exclusion of some of the liabilities in the agreement does not in any way affect the smooth transfer of the going concern. 35. In this case, all the attributes are of a slump sale. A slump sale contemplates sale of a going concern with lock, stock and barrel. The agreement of itemised sale is a device to prevent the Assessing Officer from computing the correct liability of the assessee. In this case, there is transfer of the undertaking with lock, stock and barrel. In this case, the entire undertaking was almost transferred with almost all the assets and liabilities and it constitute a slump sale. The Hon'ble Supreme Court in the case of CIT v. Artex Manufacturing Co. [1997] 227 ITR 260 has held that in order to constitute a slump sale, there must be a sale of a going concern as a whole on as is where is basis and in the present case also entire unit has been sold. 36. The basic controversy is whether there was a sale of itemized assets or whether there was a sale of the entire unit/industrial undertaking. Further, it is held that it is impossible to assign a sale value to the assets like licences, quotas, technical information, work-force, use of brand name, etc. while selling a whole unit. In the slump sale agreement assessee has transferred licenses, permits, quota intellectual property, technical know-how etc. In order to ascertain the true character of payment one has to go by the substance of the transaction and not by the manner in which the assessee had apportioned the price. The intention of the parties on the date of MOU and the surrounding circumstances and contemporaneous documents in existence on that date show that it was a sale of the entire business. 37. Further, in deciding the question as to whether the sale was a slump sale or a sale of itemized assets, one has to look at the overall transaction and ascertain whether the basic structure of the unit is transferred or not transferred and that one cannot go by individual items of assets being transferred unless that particular asset goes to the root of the matter, i.e., products could not have been manufactured without such an asset. The assets being sold constitute a running business and the transaction is a slump sale. The assessee has simply assigned sale values to the itemized assets to come out the slump sale and to avoid the payment of taxes. 38. The Hon'ble Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 has laid down certain tests to decide whether the transaction is a slump sale and held that the branch of the assessee had goodwill and, therefore, when the branch is transferred as a whole for a given price, it constituted a slump sale. Therefore, one of the tests applied by the Bombay High Court was transfer of a running business. The second test applied by the Bombay High Court was to look at the subject agreement in its entirety and if it is found that
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several items mentioned in the agreement were such that they could not be independently purchased then the transaction was a slump sale. It further held as follows:- "Only two contentions are raised' before us on behalf of the Revenue: (i) Each branch could not be treated as a separate entity and, therefore, did not have independent goodwill. (ii) In view of the specification of the price of items of assets and liabilities in the agreements, it could not be said that the sales were of the going concerns as a whole for a slump price. It is not possible to accept these submissions. The first submission pertains to a factual aspect. As a matter of pure principle, even a branch of a publishing house like this can have different goodwill which depends upon a host of factors such as popularity, performance, circulation, peculiarities of the region, etc. As regards the second submission, a mere look at the agreements would clearly indicate that what was sold was the entire branch business as a whole - lock, stock and barrel. Several items were such as would not be independently purchased. The value of the liabilities is adjusted against the value of assets. An inventory has to be made for the purpose of identification, because inventory was made and the value was indicated against each item and the overwhelming character of the transaction was not changed The Supreme Court decision in CIT V/ Mugneeram Bangur and Co. [1965] 57 ITR 299 also pertained to the agreement containing a schedule indicating the itemwise value of different assets and liabilities. The 1965 Circular clarified the principle involved in the said decision. Our attention was invited by the Revenue to the decision of the Gujarat High Court in the case of Jayantilal Bhogilal Desai v, CIT [1981] 130 ITR 655. Attention of the Tribunal was also drawn to the said decision. Rightly has the Tribunal come to the conclusion that the ratio of that decision would not apply to the instant case since it pertains to a different backdrop and two separate and individual agreements of sale. The Tribunal has rightly held that no question of law arose for reference. The present application is, therefore, rejected and rule discharged No order as to costs.” 39. It is found that even in the present case there are several such items which were not purchasable independently including licences, quota, intellectual property rights and no buyer would have bought each of these items alone. That every buyer would have insisted on total purchase and, these intangibles were not purchasable item-wise separately and independently in the market. In the circumstances, the second broad test applied by the Bombay High Court was that if several items were not capable of independent purchase then it would amount to a slump sale. The various test applied by Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 were applicable to this case also. 40. There is hardly machinery valued at Rs.1,50,561/- for which the details were not submitted during the appellate proceedings, The investment of Rs.45,000/- was in the name of the appellant and only it can reason it, therefore lying into the amount and nature of investment there was hardly any issue to sale and to keep it back. Therefore, looking into the facts and circumstances as discussed (supra), it is practically sale of a running unit with a change of control from one management to the other called all licenses, permission etc. The sale and transfer of the assets of the undertaking for which sale prices had been predetermined and agreed and disclosed in the agreement may be taken as sale price for slump sale and accordingly shall be determined in accordance with Sec. 50 read with Sec. 43(6)(c) for depreciable assets and for stock its business income u/s. 28 and long term capital gain on land. The Assessing Officer directed to reduce the cost of such assets transferred from the value of the consideration realised for determining the capital gain in the slump sale.
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The appellant has taken ground 1 to 9 stating to reduce the cost of assets transfer from the sale value of the unit. The plea of the appellant has not been dealt by the Assessing Officer in the, order. The Assessing Officer has take out the entire sale consideration without reducing the liability as profit of the appellant. The provision of section 50B(2) provides that the net worth of the undertaking will be deemed to be the cost of acquisition and the cost of improvement for the purposes of Section 48 & 49 and further no record was to be given to the previous contended in the 2nd proviso to Section 48. The Assessing Officer has not taken the aggregate value of total assets as per Explanation-2(2) Section-50B. In this case the appellant has not sold the liabilities and retained the same. Therefore, the net worth of the assets will be the WDB as per Income tax as provided of Clause A to Explanation of Section 50B and in case of other assets the book value of other assets will taken as per clause-C of Explanation-2 to Section 50B. The Assessing Officer is directed to take the values and reduce the same from the sale price. 42. The Assessing Officer has treated the entire gain on sale as per short term capital gain although the assets were purchased since more 36 months prior to sale. Therefore, it has to treat the entire gain as long term capital gain. The Assessing Officer in the assessment order at page-7 has observed that the assessee has not submitted the details regarding the no. of months in which the assets other than land were held by the assessee company. The appellant has produced the copies of balance sheet for assessment years 2006-07, 2007-08 and 2008-09 in which the addition is only Rs.97,604/- in assessment year 2006-07 and Rs.22,650/- in assessment year 2007-08. There is no addition in assessment year 2008-09. The appellant is directed to submit the details to the Assessing Officer and the Assessing Officer if possible will determine the sale price of the said assets if available from the agreement. In case it is not possible the Assessing Officer will determine the gain proportionately i.e. value of assets for less than 36 months and the balance value of the assets by taking proportionately to calculate the value of the long term and short term capital gain. 43. The appellant has given as alternative plea that the appellant has reduced the sale price from the value of assets of the gross block and thereby has taken lesser amount of depreciation. It has submitted that accordingly the value of the assets may be increased which are being taken as part of slump sale and the revised chart of depreciation may be considered for allowing higher/correct amount of depreciation in the computation of income. Otherwise there will be a double addition i.e. the assessee had considered sold assets as part of the bigger depreciation chart and reduced the value thereby claiming lesser depreciation and now being taxed as capital gain. It was pleaded that the depreciation may be allowed on the assets without reducing the value of the sold assets considered as part of slump sale. The plea of the appellant is accepted. The appellant has filed the said calculation which is attached as Annexure-A of this order. The Assessing Officer is directed to allow the depreciation on the assets in the depreciation chart without reducing the value of the sold assets considered as part of slump sale The Assessing Officer will verify this figures and the appellant is directed to produce the relevant records before the Assessing Officer to get it verified. The Assessing Officer on verification, if find any discrepancy will pass a detailed speaking order giving reasons for the same. 44. The appellant has filed as an alternative plea that the sale price and aggregate value of assets as per Explanation-2 to Section 50B determining the long term capital gain on the various assets which is attached as Annexure-A of this order. The Assessing Officer will verify the figures and the appellant is directed to produce the various details. The appellant on being asked has determine the value by taking capital assets in proportion of value for less than 36 months and the balance as discussed under Para 42 of this order. The Assessing Officer on verification of this calculation, if find any variation from the calculation will pass a speaking order giving details for variation.”
Aggrieved, assessee came in second appeal before Tribunal.
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We have heard rival contentions and gone through facts and circumstances of the case. We find from the facts of the case that the AO made addition of Rs.31.13,58,000/- holding the sale of assets of Chemical Unit by assessee as slump sale and assessed the same as short term capital gain. The assessee sold its Chemical Unit at Haldia to Petro Carbons and Chemicals (P) Ltd on individual asset basis and deducted the sale price from block of assets in the depreciation chart. The Assessing Officer has held it to be a slump sale u/s50B read with section 2(42C) of the Act. The assessee produced the copy of the agreement selling/assigning the asset of the assessee to Petro Carbons and Chemicals Pvt. Ltd is as under: a) Haldia Plant of HEIL consisting of plot of land containing an area of 30 acres more or less situate in Mouzas Bardhanyaghata and Kismetdhanyaghata within P.S Sutahata in the District of Midnapore which HEIL holds as a Lessee for a period of 99 years with effect from Ist day of June 1977. b) Together with the infrastructure of plant and machinery fixed and moveable installed and for lying inside the said factory in "as is where is basis" c) Together with the Housing Complex for home to its staff situated at a nearby plot of land containing an area of 1.6 acres more or less situated within the sapid Mouzas Bardhanyaghata and Kismatdhanyaghata within P.S Sutahata in the district of Midnapore which HEIL holds as a lessee for a period of 30 years with effect from 12th September 1981. d) Also together with all licenses permissions orders including the certificate issued by the Pollution Control Authority and all relevant sanctions and clearances to the extent transferable to the Promoters. e) Stores and spares lying in the said Haldia Plant f) Raw Petroleum Coke (All the aforesaid Properties enumerated in (a) to (f) above belonging to HEIL are hereinafter collectively referred as "the Property"). 2) HEIL and the Promoters have now agreed that the Property shall be sold by HEIL and purchased by the Promoters and/or their nominee the said Private Limited Company at agreed consideration be more fully agreed and recorded hereinafter. NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:- HEIL will sell the property to the Promoters and/or their nominee the said Private Limited Company at and for the total consideration of Rs.41,98, 00, 000/- (Rupees forty one crores ninety eight lacs only). Land & Building (including railway siding) Rs.10,00,00,000/- (Rupees ten crores only) Plant and Machinery Rs.25,75,00,000/- (Rupees twenty five crores seventy Stores & Spares five lakhs only) Raw Petroleum Coke approximately 5473 MT @ Rs 93,00,000/- (Rupees ninety three lacs only) Rs.9684/- per MT Rs 5,30,00,000/- (Rupees five crores thirty lacs only)
8 ITA No.330/Kol/2013 Hindustan Engg. & Ind. Ltd., AY 2009-10 The assessee was asked to produce the list of assets which constituted the plant & machinery which have been stated to have been sold and the details given by the assessee are as under: Particulars Railway Siding Machinery Electric Installation Water & Sanitation System Tools & Equipments Furniture & Fixtures Motor Cars & Vehicles We find from the agreement, which provided that purchaser will bear and pay all expenses for running of the said chemical unit from the date of sale but all liabilities incurred by him to the said date will be payable only by the seller. It is also provided in the agreement that in the event the seller is required to pay for or meet any liabilities pertaining to prior period to the said date of the agreement and remaining unpaid then purchaser shall pay the same on behalf of the seller and same shall be reimbursed to the purchaser by the seller. We further noted that as per agreement wherein gratuity due to staff, employees etc. retired up to the date of sale and gratuity and other retirement benefits due to all management staff of the chemical unit up to the date of sale was to be borne and paid by the seller. Even all the rates, taxes, rents, cess on green leaves, sales tax, excise duty, impositions and all other outgoings arising up to the date of sale was the liability of the seller and which was to be paid for by the seller only. 5. According to assessee the contention of the AO that this entire unit was sold/transferred to the purchaser as a going concern is wrong. According to it the Agreement and Addendum to the Agreement at Annexure - J this unit itself was never sold and or transferred as a going concern in toto but only assets of this units were sold and transferred to the purchaser at a pre determined and agreed price for each type of assets being sold and transferred and the consideration fixed for all the assets sold was not in lump sum for all assets and hence the very conception of the AO that it was a slump sale of the unit as a going concern is wholly wrong and is not based on correct state of affairs. In this connection, first, the assessee drew attention to provisions contained in sec. 2(42C) defining as to what could be treated and or said, underlined lay emphasis, “[42(C) "slump sale" means the transfer of one or more undertakings as a result of
9 ITA No.330/Kol/2013 Hindustan Engg. & Ind. Ltd., AY 2009-10 the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Explanation 1 - For the purposes of this clause, "undertaking" shall have the meaning assigned to it in Explanation 1 to clause (19AA). Explanation 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 assessee also drew our attention to Explanation - I to clause 2(19AA), which is also reproduced hereunder: " Explanation 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. "
The assessee explained that it owning different units/undertakings for Manufacturing and Selling of Chemicals, Casting Steel, Wires, Wagons, Points & Crossings, Jute, Petrochemicals etc. During previous year relevant to A.Y 2009-10, assessee entered into a Memorandum dated 25.10.2007 followed by Addendum to the Memorandum dt.26.1 0.2007 with M/s M/s Khatau Narbheram & Company (a unit of Narbheram Vishram), a Partnership Firm to sale some of the assets of this unit as under at a predetermined sale price as under to them or their nominee for selling some of the assets belonging to petrochemicals unit at Haldia. The assesse agreed to sell only some of the assets of this unit and for which prices of each individual assets were determined and fixed at an predetermined and agreed value and in this connection it may not be out of place to mention that it is such prices determined that had been received by different Account Payee Cheques during the previous relevant to A.Y 2009-10. The assessee produced copy of the Balance Sheet of this unit as on the date of transfer at and from a perusal of which it is clear that in addition to the assets sold & transferred this unit was having several other assets which were neither sold nor transferred to the purchaser. Similarly, along with sale & transfer of some of such assets none of the liabilities were transferred to the purchaser and such liabilities continued to be the liabilities of assessee and were discharged by assessee was also not transferred to the purchaser. In view of the above facts we are of the view that such sale of few assets of the unit at a predetermined and agreed price and retaining all other assets and all the liabilities by seller unit cannot be treated as slump sale because from definition of slump sale as reproduced above, as there could be no slump sale when prices of individual assets being sold
10 ITA No.330/Kol/2013 Hindustan Engg. & Ind. Ltd., AY 2009-10 and transferred had been determined by an Agreement and only sale prices of such individual assets had been received and when some of the liabilities had at all been transferred and all the liabilities had been retained by the seller. Further, it was on the basis of such individual item of assets sold and transferred that the capital gain had been determined and in respect of depreciable assets the realized value had been reduced from the block of assets in terms of sec. 43(6)(c) of the Act. 6. In view of the facts of the case, we now will go through the case law with the principles decided in these cases which are squarely on the facts in the case of assessee in accordance with sale of such individual assets with predetermined sale value cannot be treated as slump sale.The co-ordinate bench of this tribunal Cochin Bench, in the case of Harrisons Malayalam Ltd. V ACIT (2009) 315 ITR AT 1 wherein it is held as under: "(iii) That the estate in the nature of a rubber plantation was a going concern. The sale of every assets was attributable to a specified sum of consideration. Therefore, there could not be a "slump sale". Since all the assets and liabilities had not been sold as per the agreement this was not a slump sale as construed in sec. 50B of the Act. It was sale of several assets through a common agreement with different amounts of consideration ultimately culminating into a total consideration. This was not a "slump sale" under sec. 50B of the Act. The profits arising on sale of agricultural land was agricultural income in nature and, therefore, the surplus did not fall within the meaning of capital assets and it would not come under the provisions of sec. 50B of the Act. " Further, Hon’ble Supreme Court in the case of CIT v, Artex Manufacturing Co. (1997) 227 ITR 260 in which though the issue involved was regarding determination of income u/s. 41(2) of the Act but the sale in this case was of the entire business as a going concern for a lump sum but where sale prices of plant & machinery and dead stock had been predetermined and hence it was held not to be slump sale and hence principles enunciated in this case will apply in the case assessee. Further, Hon’ble Calcutta High Court in the case of Kwality Ice Cream (India) Ltd. v. CIT (2011) 336 ITR 100 in which also though the sale of the undertaking was for a lump sum consideration it was held that sec. 50 of the Act in respect of depreciable assets will override all other previsions and for depreciable assets, the value has to be determined in accordance with the principles of block of assets read with sec. 43(6) of the Act. In view of the aforesaid facts and circumstances, we are of the view that sale and transfer of some of the assets of the undertaking for which sale prices had been predetermined and agreed and disclosed in the agreement itself without transferring other assets and without transferring any of the liabilities cannot be treated as slump sale.
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In a recent decision of this Tribunal of Kolkata Bench in the case of DCIT Vs. Tongani Tea Co. Ltd. in ITA No. 1233/Kol/2008 for AY 2000-01 dated 06.11.2015 on identical facts has held as under: “14. Now we have to go through the case laws cited by Ld. Counsel for the assessee whereby he has referred to first leading case of slump sale in the case of CIT Vs. Magniram Bangur & Co. (Land Department) (1965) 57 ITR 299 (SC), wherein the partnership firm transferred its business as a going concern to a Limited Company and the consideration was received by the partners in the form of shares. In the course of transfer of all assets and liabilities of the business were taken over by the company for a lump sum consideration. The AO and the Tribunal held that though the assessee has disclosed in its books goodwill at Rs.2.5 lacs but firm did not enjoy any goodwill and the sum of Rs. 2.5 lacs was nothing but additional value of land which was stock in trade of the assessee’s business. Hon’ble Supreme Court held that there was nothing in the agreement or document evidencing the transfer which in any manner proves that any attempt was made by the parties to value the land on the date of sale and, therefore, slump sale price could not be apportioned to stock in trade and, therefore, no business income could be assessed. Hon’ble Supreme Court finally held as under: “The learned counsel for the appellant relies on two grounds to support the contention that there is profit attributable to the sale of land which was the stock-in- trade of the vendors. He says first that in the schedule to the agreement the value of land and the value of goodwill and other items is specified. He says that although the amount of Rs. 2,50,000 was shown as price of goodwill, it was really excess value of the land sold along with other assets. Secondly, he says, relying on the passage already cited above from Doughty's case** that the vendor's business was a business of purely buying and selling land. In our opinion, on the facts of this case it cannot be said that the vendors were carrying on the business of purely buying and selling land. In this case the vendors were engaged in buying land, developing it and then selling it. The agreement itself shows that the vendors had already incurred debts and liabilities for development expenses such as opening out roads, laying out drains and sanitary arrangements, providing electricity and providing for a school. It seems to us that in the case of a concern carrying on the business of buying land, developing it and then selling it, it is easy to distinguish a realisation sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realisation sale. The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold. There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, constituted by the vendors themselves, no effort would ordinarily have been made to evaluate the land as on the date of sale. What was put in the schedule was the cost price, as it stood in the books of the vendors. Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land. In our view the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd.* and Doughty's case** that no part of the slump price is taxable. We, therefore, answer question No. 3 in the negative. As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4.” 15. Ld. Counsel for the assessee also relied on the judgment of Hon’ble Bombay High court in the case of Premier Automobiles Ltd. Vs. ITO (2003) 264 ITR 193 (Bom), wherein Hon’ble
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High Court considered similar issue, wherein the assessee’s sold its Kalyan Undertaking engaged in manufacturing of car for lump sum consideration. Hon’ble High court on close scrutiny of documents connected with the transfer and conduct of the parties found that the intention of the parties was to transfer the business as a whole for a lump sum consideration of Rs.246 cr. Therefore, Hon’ble Bombay High Court found that, in fact, there was a sale of all assets and liabilities of the Kalyan Undertaking and it is a transfer of going concern and, therefore, it was a case of slump sale and accordingly, it was stated that there arises long term capital gains. Hon’ble Bombay High court in Premier Automobiles Ltd., supra has held as under: “There is one more aspect which needs to be mentioned. Our above conclusion, namely, that the transaction is a slump sale is not only based on our interpretation of terms and conditions of the entire arrangement but it is also based on the manner in which the gain is accounted for by PAL in its books of account. As can be seen from the extracts of accounts of PAL at page 341 of the paper-book, it is clear that PAL has not accounted for profits on itemized assets. That, Rs. 81.31 crores was the book profit on the slump sale. That, the crucial figure in the accounts at page 341 of the paper-book was Rs. 210 crores and not Rs. 37.84 crores (approx.) as the value of the net current asset did not give rise to any profits and, therefore, that value had to be ignored. These accounts of PAL support the slump sale agreement because the accounts are not based on the sale of itemized assets. This aspect has been lost sight of by the Assessing Officer. There was a separate ledger for the Kalyan business which contains various heads of accounts, viz., building account, land account, plant and machinery account, in which debit/credit entries were made as per the figures given on page 341 of the paper-book. Rs. 81.31 crores was the book surplus and not a tax surplus. In order to decide the tax surplus, one has to take into account cost of acquisition of building, plant and machinery, paint shop, etc. Therefore, Rs. 81.31 crores did not represent taxable profits. That, figure represented only book profits. These accounts of PAL support the slump sale agreement. Therefore they are relevant. Under section 2(14), capital asset is defined to mean property of any kind held by an assessee whether connected or not connected with his business or profession. In the case of West Coast Electric Supply Corporation Ltd. v. CIT [1977] 107 ITR 483 (Mad), it has been held that the word “property” in the definition of “capital asset” in section 2(14) would include an undertaking acquired as a whole. Therefore, the Kalyan business acquired as a whole by PPL, constituted property in the definition of “capital asset”. In the case of demerger, all assets and liabilities stand transferred at book value. There is no such condition prescribed for a slump sale. In the case of a slump sale, there is a sale for consideration. That consideration is paid to the transferor-company and not to shareholders. A slump sale agreement is contractual in nature. The only condition in the case of slump sale is that the sale should be for a lump sum price. Therefore, in the case of a slump sale, there is a transfer of the entire business activity for a fixed price and, therefore, sale value is not attributed to individual items of assets. In the present case, all the tests laid down by the Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 stand satisfied. In our view, principles for computing capital gains are the same, both under section 41(2) as it stood at the relevant time and under section 50 of the Income-tax Act. In the present case, having held that the transaction was a slump sale, the Assessing Officer will now have to decide, on remand, the computation of capital gains. That question of computation does not arise before us in this appeal. In the present case, we have held that there is a sale of an entire Kalyan undertaking under the slump sale agreement and, therefore, the Assessing Officer will now have to compute the quantum capital gains under sections 45 to 50 of the Income-tax Act. Assuming for the sake of argument that, in this case, our finding that there was a slump sale is erroneous and that the transaction was a sale of itemized assets even then there is a basic fallacy
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in the stand taken by the Department. In this case, the Assessing Officer has held that there was a sale of itemized assets. According to the Income-tax Officer, there was a short-term gain on sale of building of Rs. 19.31 crores ; Rs. 64.39 crores on plant and machinery, Rs. 7.57 crores on paint shop. These short-term gains have been calculated by the Assessing Officer by assigning specific sale values to building, paint shop, plant and machinery. For example, the sale price attributed to plant and machinery has been taken at Rs. 97.73 crores. Similarly, the sale price for building is fixed at Rs. 23.24 crores. Similarly, the sale price for paint shop is taken at Rs. 68 crores. Basically, the Assessing Officer has apportioned Rs. 210 crores over land, building, plant and machinery. However, he has not given any sale value to intellectual property, the right to use the name “Premier”, technical proprietary information and intangibles like licences, quotas, permits, etc., all of which have been transferred to PPL and consequently the liability of PAL stood increased arbitrarily. Moreover, there is arbitrariness in the assignment of sale value by the Assessing Officer. For instance, the Assessing Officer has assigned sale values to buildings, plant and machinery on the basis of the report of the valuer of September, 1996. However, when it came to assignment of the sale value to the paint shop, the Assessing Officer, arbitrarily, without reasons, has reduced the value of the paint shop from Rs. 70 crores to Rs. 68 crores although the paint shop is valued at Rs. 70 crores in the said report. The reason is obvious. If the paint shop is valued at Rs. 70 crores then the total of the assigned sale values exceeds Rs. 210 crores and, therefore, without reasons, the Assessing Officer reduces the sale value of the paint shop from Rs. 70 crores to Rs. 68 crores. Further, in this case, the controversy in computation of capital gains by the Assessing Officer is, whether the Assessing Officer was justified in taking into account valuation of assets done by PPL in September, 1996. At this stage, it may be mentioned that PAL sold the entire Kalyan business for a net consideration of Rs. 247 crores (see page 267 of the paper-book). As per the returns filed by PAL, the book profit/surplus was Rs. 81.31 crores. The Assessing Officer has increased the book profits by 17.92 crores on the basis of revaluation of assets. However, in our view, the Assessing Officer was wrong because revaluation is considered for arriving at a profit on sale for the purposes of books of account of PAL. For the purposes of computing assessable profits, one has to go by the provisions of the Income-tax Act. If the income/profit is the long-term capital gain, one has to take original cost with indexation. For short-term capital gain, one has to take the amount shown under the block of assets on the first day of the previous year. Lastly, the valuation of assets done by the transferee-PPL in this case is not for determining value of individual assets but for allocating the price of various assets in their books of account. Therefore, the sale value assigned by the transferee for the purposes of their books of account cannot constitute the basis for computing income/profits of PAL under the Income-tax Act. In the case of sale of business as a whole, there is no allocation of price to any particular assets and, therefore, the computation of capital gains in such a case is done on the business as a whole which business itself is a capital asset. However, in the case of sale of itemized assets, the Assessing Officer has to allocate the total amount of Rs. 210 crores not only to land, building, plant and machinery but to also all other assets and only then the computation of capital gains could be said to be correct. Otherwise, if Rs. 210 crores is restricted to specific three items then liability of the assessee would stand increased artificially. In the case of sale of itemized assets, the Department will have to work out the cost of each item. We are dealing with the case concerning the assessment year 1995-96. At that time, there was no definition of slump sale. The concept of slump sale is based on judge-made law. Under the circumstances, even if we were to accept the contention of the Department, namely, that there was a sale of itemized assets, the computation of capital gains tax liability in this case is erroneous as Rs. 210 crores is not apportioned over all the transferred assets.” 16. Similarly, the coordinate Bench of this Tribunal exactly on identical facts in the case of Harrisons Malayalam Ltd. Vs. ACIT (2009) 32 SOT 497 (Cochin) discussing the fact that the assessee company was engaged in various business activities like growing and manufacturing tea, rubber plantation, agriculture operation, executing engineering contracts etc. During the relevant year the assessee sold one of its rubber estates with standing trees and all other paraphernalia known as ‘Boycee Estate’ as a going concern. The CIT(A) held that the surplus arising out of the sale of its ‘Boycee Estate’ was taxable as capital gain u/s. 50B of the Act read with section 2(42C) of the Act, as
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the rubber estate owned by the assessee was sold as a going concern, which showed that the sale was a slump sale of undertaking in its entirety. The bench of the Tribunal discussing the issue reversed the order of CIT(A) and held that it is not a slump sale by observing in para 34 to 47 as under: “34. We considered the matter in detail. The assessee-company is engaged in different types of business like running of plantations, executing turnkey projects, clearing and forwarding agency and shipping business, etc. In its agricultural division, the assessee-company is having a number of estates growing tea, rubber, cocoa, cardamom, etc. In the case of rubber itself, the assessee is having about 12 different estates. During the previous year relevant to the assessment year under appeal, the assessee-company has sold one of its rubber estates known as "Boyce Estate". The estate has been sold on the basis of a detailed agreement executed between the vendor and vendee. The total consideration stipulated for the transfer of the estate has been spilt over different assets both movable and immovable enumerated in different schedules and annexure. 35. The assessee-company has assigned specific consideration/value for the rubber plantation as such along with the standing trees. The consideration for the extent of land has been specifically mentioned. Thereafter, the assessee has listed out every item of movable property transferred to the buyer and value has been assigned to those movable assets. Vehicles and other assets were shown and sold separately. The assessee-company has not transferred the estate with all the assets and liabilities. All the financial assets available to the assessee up to the date of the transaction were not transferred as per the agreement but have been retained by the assessee-company. The assessee-company has assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it is not possible to hold that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a "going concern". 36. Even though the expression "going concern" is a functional qualification as far as the estate is concerned, the said functional qualification is not sufficient enough to decide the exact legal character of the transaction, for the purpose of income-tax assessment. The Commissioner of Income-tax (Appeals) has pointed out that the workers on the rolls of the assessee have also been absorbed by the buyers along with the estate. That does not change the character of the transaction. Rubber plantation is a highly labour oriented activity. It is not easy to retrench all the experienced workers only for the reason that the property has been changed hands. Retrenchment of the workers will create serious labour problems and it will not be possible either for the assessee or for the buyer to dose the contract without having a clear cut understanding on the engagement of labour deployed in the rubber estate. Therefore, the agreement with the buyer that the new owners would absorb the existing labour force is not a salient feature to decide whether the sale was a slump sale or not. 37. The meaning of the expression "going concern" has to be understood in the light of the peculiar nature of the property transferred in the present case. What is transferred in the present case is a rubber estate. The activities in a rubber plantation/estate is a continuous and uninterrupted one and that tapping operations have to be carried out on a regular basis and all other activities have to be carried out without any interruption. Therefore, by the nature of the activities of the rubber plantation itself, it is a "going concern". Even if there is no such an expression in the agreement that the rubber estate is sold as a going concern, the nature of the asset has become "a continuous asset". Even, in the absence of such a specific clause, by its nature, a rubber plantation is in the nature of a "going concern". Unless and
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until the yielding rubber trees are usually slaughtered and once tapping is started, it always partakes of the character of a "going concern". 38. Therefore, it is to be seen that while adding an expression in the agreement that the rubber estate was transferred as a going concern, the purpose was only to refer to the state of affairs and refer to an existing fact and not to create any legal proposition in the context of the sale deed. 39. Therefore, in the facts and circumstances of the case, we are of the considered view that the Commissioner of Income-tax (Appeals) has been highly carried away by the commercial expression reflected in the 'agreement like "going concern". At the cost of repetition, we have to state that a rubber plantation is always a "going concern". Even if the parties to the contract do not say so, still the estate in the nature of a rubber plantation is a going concern. Therefore, the said expression is not a test to be relied on to decide the exact nature of the transaction for the purpose of income-tax law. 40. The Income-tax Appellate Tribunal, Cochin Bench in the case of Accelerated Freeze Drying Co. Ltd. v. Deputy CIT in I.T.A. No.611/Coch/08 has considered the issue of "slump sale" in its order dated December 15, 2008. In that case, the Tribunal found that there was a bifurcation of sale proceedings, splitting up of the value between the movable and immovable assets, and those are depreciable assets. In that case, the Tribunal held that section 50 is applicable. The Tribunal further held that it was not the value of the transaction to be taken as a noteworthy for the purpose of "slump sale". The Tribunal held that section 50B did not attract in that case. 41. The Income-tax Appellate Tribunal, Bangalore Bench, in the case of Kampli Co-operative Sugar Factory Ltd. v. Joint CIT [2002] 83 ITD 460 has considered the case of split sale vis-a-vis slump sale. In that case, the Tribunal observed that the liabilities did not enter into a transaction in question and what was sold were the assets, movables and immovables and not the liabilities. The agreement made it clear that the liabilities would be the responsibility of the vendor. The Tribunal held that it was not a slump sale for the reason that only the assets excluding the investment and deposits were sold and the liabilities remained with the assessee. 42. In the present case before us, the answers are exactly to the facts and circumstances of the case decided by the Bangalore Tribunal as mentioned above. As in the case of Kampli Co-operative Sugar Factory Ltd, v. Joint CIT [2002] 83 ITD 460 in the present case also, the items sold did not include liabilities. The sale agreement did not include investments and deposits. All the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets enumerated in the schedules and annexure were sold to the vendee. Therefore, in the light of the above judgment of the Bangalore Tribunal, it is to be seen that the present case is one of split sale and not a case that of slump sale. 43. Similarly, the Income-tax Appellate Tribunal, Mumbai Bench "J", in the case of Mahindra Sintered Products Ltd. v. Deputy CIT [2004] 279 ITR (AT) 1; [2005] 95 ITD 380 has held that where the price had been fixed before hand in respect of identifiable assets of undertaking and no liability was transferred to the buyer, the transfer of undertaking would not constitute a slump sale. 44. The Income-tax Appellate Tribunal, Kolkota Bench "D", in the case of Deputy CIT v. ICI (India) Ltd. [2008] 23 SOT 58 has held the same view that there
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cannot be a case of slump sale, if all the assets and liabilities of an undertaking have not been transferred to the vendee. 45. As rightly relied on by the learned chartered accountant appearing for the assessee, the same view was taken by the Income-tax Appellate Tribunal, Ahmedabad Bench, in the case of Camphor and Allied Products Ltd. v. Deputy CIT [2001] 79 ITD 489. 46. In the present case, the rubber estate has been sold by the assessee excluding cash in hand, stock in hand, receivables, finance, assets and liabilities. It was not a case of sale by lock, stock and barrel. The assessee company has made conscious exclusions. The assets sold by the assessee have been listed out in different schedules and annexure. The consideration has been specifically assigned to the sale of immovable property by way of rubber estate. Separate consideration has been assigned to the sale of movable properties including vehicles and other properties. Therefore, it is not a case of slump sale for a lump sum amount of consideration where the consideration is not attributable to any particular item of asset. There is no such a statement of blanket consideration in the present case. Here, the sale of every asset is attributable to a specified sum of consideration. Therefore, we cannot say that there is a "slump sale". What is reflected is only "total consideration". As all the assets and liabilities have not been sold as per the agreement, this is not a slump sale as construed in section 50B of the Act. It is a sale of several assets through a common agreement with different amounts of consideration ultimately culminating into a total consideration. The facts being so, in the light of the judgment of different Benches of the Tribunal as stated in the above paragraphs, we hold that this is not a "slump sale" answerable to section 50B of the Act. 47. Moreover, in the light of the decisions: (a) Manubhai A. Sheth’s case (supra); (b) S. Mutyam Reddy’s case (supra); (c) Alanickal Co. Ltd.’s case (supra); (d) All India Tea and Trading Co. Ltd.’s case (supra) and; (e) Singhai Rakesh Kumar’s case (supra) The profits arising on sale of agricultural land is agricultural income in nature and therefore, the surplus does not come within the meaning of capital assets and by the nature of the income, it will not come under the provisions of section 50B, Therefore, in the facts and circumstances of the case, we hold that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to levy long-term capital gains under section 50B on the surplus arising to the assessee on sale of its "Boyce Estate". The said direction is set aside. This issue is decided in favour of the assessee.”
In view of the above facts and circumstances of the case, we find that Section 50B of the Act provides that any profit or gain arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gain arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place. Further, Section 2(42C) of the Act defines 'slump sale' as a transfer of one or more undertakings as a result of the sale for a lump sale consideration without values being assigned to the individual assets and liabilities in such sales. The Explanation I to section 2(42C) of the Act further provides that 'undertaking' shall have the meaning assigned to it in the Explanation I of clause (19AA) of section 2 of the Act, whereby an undertaking means, in an inclusive sense, 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. The
17 ITA No.330/Kol/2013 Hindustan Engg. & Ind. Ltd., AY 2009-10 Explanation 2 to section 2(42C) of the Act further provides 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.” 8. In view of the above facts and circumstances of the case, the assessee has sold the chemical unit not as a going concern but itemized sale was made vide agreement and hence, the sale cannot be treated as slump sale. We reverse the orders of the lower authorities and this issue of assessee is allowed. 97. In the result, appeal of assessee is allowed. Order pronounced in the open court on 16.03.2016 Sd/- Sd/- (M. Balaganesh) (Mahavir Singh) Accountant Member Judicial Member
Dated : 16th March , 2016
Jd. Sr. P.S Copy of the order forwarded to: 1. Appellant – M/s. Hidnustan Engineering & Industries Ltd., C/o Salarpuria Jajodia & co., 7, C.R. Avenue, Kolkata-700072 2. Respondent – Addl. CIT, Range-5, Kolkata. 3. CIT(A) , Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.