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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & MS. ASTHA CHANDRA
The appeal by the assessee is directed against the order dated 02.08.2016 of the Ld. Commissioner of Income Tax (Appeals)-17, New Delhi (“CIT(A)”) pertaining to the Assessment Year (“AY”) 2011-12.
The assessee is a partnership firm engaged in the business of manufacturing of stainless steel sink and allied products. For AY 2011-12, the assessee filed its return of income on 29.09.2011 declaring income of Rs. 11,39,16,690/-. The case was processed under section 143(1)(a) of the Income Tax Act, 1961 (the “Act”). Subsequently, the case was reopened by issue of notice under section 148 on 15.04.2014. In response thereto, the assessee filed letter dated 23.02.2015 requesting to treat the return filed earlier under section 139(1) as compliance to notice under section 148 of the Act.
During the assessment proceedings, the Ld. AO asked the assesee vide order sheet entry dated 16.03.2015 as under:- “As the total purchase price payable by the purchaser as per the agreement dated 31.12.2010 is Rs. 12,91,00,000/- justify why the same should not be taken as sale consideration in r/o slump sale of business.”
3.1 The reply of the assessee is contained in para 5.2 and 5.3 of the order of the Ld. AO which is reproduced hereunder:- “5.2 The assessee has submitted that out of Rs. 12,91,00,000/- the amount of Rs. 41,00,000/- was not received by them and furnished a letter dated 31.03.2012 from Tropical Industries International Private Limited addressed to the assesee, the relevant paras of the same is reproduced as follows- Your kind attention is drawn to clause 3.2.2 of the agreement. Since despite our best efforts, we have failed to achieve the promised production and sales levels as mentioned in the said clause, we are bringing into action clause- 3.2.2 of the said Agreement and are not paying the balance amount stated in the clause 3.2.2. Therefore, as per clause 3.1 read with clause 3.2.2, we finalize and close the deal at Rs. 12,50,00,000/- instead of Rs. 12,91,00,000/- in full and final settlement. Hereafter nothing is payable to your under the above mentioned Agreement. You are free to raise objections if any to the facts stated above, kindly note that if no objection is raised form your side within 30 days from receipt of this letter, it will be presumed that you agree to the action of forfeiture of balance purchase consideration. The assessee also submitted vide its reply dated 20.03.2015 as follows- Justification of forfeiture of Rs. 41 Lacs- It is informed that as against sales consideration of Rs. 12.91 Crore fixed initially at the time of execution of agreement, the same was restricted to Rs. 12.50 Crore. Letter issued from the purchaser in this respect has already been submitted to your goodself. Hence the final deal was for Rs. 12.50 Crore instead of Rs. 12.91 Crore as decided initially in agreement executed in December 2010. Moreover, Rs. 41 Lacs income was never due during the year under assessment.
5.3 Further the assessee vide reply dated 16.03.2015 had submitted as under- Rs. 12.50 Crore sales consideration as slump sale as mentioned in the agreement includes Rs. 9 Lacs on account of rent received. This was agreed mutually 'Tween both the parties. M/s Tropical Industries International Pvt. Ltd. Running the show from the B-57/4, Mayapuri Industrial Area, Phase-I, New Deilhi-110064 and shifted finally to Kundli. This was agreed that finding out a suitable new place and shifting will take time and till the completion of that process business ' be run from the same place for one year. Based on this fact, it was also agreed that vendor will assist and provide all co-operation in finding a suitable place as mentioned in the clause 2.3 of the said agreement;- That is why Rs. 9 lacs shown as rental income in the hands of Mr. Raj Paul Shekhri and Rs. 2.41 Crore as sales consideration for slump sale.”
3.2 The explanation offered by the assessee was not acceptable to the Ld. AO. For the reasons recorded by him in para 5.4 of his order, the Ld. AO rejected the claim of the assessee that Rs. 41,00,000/- was never due during the year under assessment and completed the reassessment on 23.03.2015 adding the said amount to its total income in his order under section 148 read with srction143(3) of the Act.
Aggrieved the assessee filed appeal before the Ld. CIT(A) but without success. The Ld. CIT(A) dismissed the appeal of the assessee by observing in para 3.1 of his order as under :- “3.1 After going through the facts and circumstances of the case, submission of the appellant and perusal of the assessment order, I find no merit in the argument of the appellant. The fact remains that the appellant was the holder of trademark "Neelkanth" and licensed to engage in the business of manufacturing stainless steel sinks and allied products, the agreement, the appellant entered into with M/s. Tropical Industries International Pvt. Ltd. was for slump sale of business and as per agreement, the purchaser was required to pay Rs. 12,91,00,000/- to the appellant. Though, there was a clause 3.2.2 in the agreement by which Rs.41 lac was to be paid within 14 months as per the terms and conditions mentioned in the agreement. The first argument of the appellant that the income of Rs.41 lac had not become due to be included while computing capital gain for the year under consideration as the same was not receivable during the year under consideration, however, I find that as per section 50B, it is clear that being special provision for computation of total capital gain in respect of slump sale, entire sale consideration -ar. per agreement dated 31.12.2010 of Rs. 12,91,00,000/- became due to be considered for computing capital gain for the year under consideration. Further, though, the appellant was entitled to raise any objection with regard to non achievement of the target of production and sale, however, there are no evidence placed on record that they had raised any objection in this regard and the claim of not achieving the targets was a genuine claim. No documentary evidence was placed on record either before the AO or before me with regard to non achieving the target of production and sale within required period. It appears that it was a colourable device adopted by the appellant with the help of M/s. Tropical Industries International Pvt. Ltd. to reduce the income/capital gain and thereby to reduce the tax liability whereas the facts do not support their claim in absence of any supporting documents with regard to their submission/claim in this regard. I find that on the facts in the present case, the ratio of the judgment of Apex Court in the case of Sumati Dayal Vs. CIT reported in 214 ITR 801 (SC) is applicable in which the Hon'ble Apex Court has discussed the issue relating to human probability and surrounding circumstances. The facts clearly show that in the present case, though, the agreement was made for Rs. 12,91,00,000/- but amount of Rs.41 lac was claimed to be forfeited but forfeiting such a huge amount without placing any documentary evidence on record to substantiate their claim to be genuine appears to be a colourable device. It is also worth to mention here that the appellant has not raised any objection for forfeiting such a huge amount whereas there was no material on record to prove the fact that the targets of production and sale were not achieved. Further, when the entire business was transferred as slump sale, how the production and sale was in the control of the appellant. The appellant could not demonstrate these facts also with the supporting documents. Therefore, the AO was justified to disallow the claim of the appellant.”
This has brought the assessee before the Tribunal.
The Ld. AR drew our attention to para 3 and 3.1 of Ld. CIT(A)’s order wherein the Ld. CIT(A) observed that as per the agreement dated 31.12.2010, total sale price was agreed at Rs. 12,91,00,000/-. The purchaser was required to pay the first instalment of Rs. 12,50,00,000/- and the balance amount of Rs. 41,00,000/- was to be paid as provided in clause 3.2.2 of the agreement i.e. all the assets shall have been fully transferred to the purchaser and provided further that completion as set out in clause 4 has occurred and the target of production and sale of 72,000 stainless steel sinks are achieved within 14 months of operation from the completion date.
6.1 The Ld. AR submitted that the purchaser of business, namely Tropical Industries International Pvt. Ltd. wrote a letter dated 31.03.2012 (copy at page 23 of Paper Book) to the assessee seller stating therein that despite best effort promised production and sales level mentioned in clause 3.2.2 of the agreement could not be achieved and therefore the deal is closed at Rs. 12,50,00,000/- instead of 12,91,00,000/- in full and final settlement. This letter was before the Ld. AO and Ld. CIT(A) but they did not consider it.
6.2 The Ld. AR argued that the parties had clearly contracted to waive payment of Rs. 41,00,000/- on failure to fulfil the stipulated conditions in the agreement. In support Production Chart was sought to be produced before the Tribunal for the first time. Since there was no application for admission of additional evidence the bench directed the Ld. AR to comply forthwith the legal requirement in this regard.
6.3 The Ld. AR further submitted that the income of Rs. 41,00,000/- was, thus conditional and never due or deemed to be accrued in the hands of the assessee.
6.4 The Ld. AR pointed out that the purchaser (Tropical Industries International Pvt. Ltd.) has shown Rs. 41,00,000/- as its other income in its Profit & Loss Account for the year ended 31.03.2012 relevant to AY 2012-13. This is reflected in Note 18 of Notes to Profit & Loss Account by way of remission of liability under section 41 of the Act (pages 24-34 of the Paper Book).
6.5 In support of his arguments the Ld. AR relied on the following decisions:- (i) Konkan Storage Systems (P) Ltd. vs. ACIT (2018) 98 taxmann.com 308 (Bangalore-Trib) (ii) CIT vs. Mrs. Hemal Raju Shete (2016) 68 taxmann.com 319 (Bom) (iii) CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 27 taxman 450A (SC)
6.6 The Ld. DR supported the orders of the Ld. AO/CIT(A).
We have carefully considered the arguments advanced by the Ld. AR/ Ld. DR and perused the material on record. It is a case of slump sale governed by the provisions of section 50B of the Act. We have gone through the copy of agreement dated 31.12.2010 for slump sale (appearing at pages 6-22 of the Paper Book) between the vendor (Sekhri Brothers) and the purchaser (Tropical Industries International Pvt. Ltd.). Definition clause 1.1(d) defines ‘Completion’ to mean completion as in clause 4 and clause 1.1(e) defines ‘Completion Date’ to mean February 1, 2011. Clause 3 provides for consideration and payment. Total purchase price payable by the purchaser of the unit is Rs. 12,91,00,000/- (clause 3.1) to be paid to the vendor in two instalments: Rs. 12,50,00,000/- on the Completion Date (clause 3.2.1); Rs. 41,00,000/- fourteen (14) months from the Completion Date subject to the fulfilment of the following conditions:- (i) all the assets shall have been fully transferred to the purchaser; (ii) completion as set out in clause 4 has occurred; and (iii) the target of production and sale of 72,000 stainless steel sinks are achieved within 14 months of operation from the Completion Date.
7.1 The contention of the assessee before the Revenue authorities has been that the promised production and sale of 72,000 stainless steel sinks could not be achieved by the purchaser within 14 months starting from 01.02.2011 and ending on 31.03.2012. This was conveyed to the vendor through letter dated 31.03.2012 (page 23 of paper book) specifically mentioning therein that the deal was finalised and closed at Rs. 12,50,00,000/- instead of Rs. 12,91,00,000/- as full and final settlement. This letter of the purchaser to the vendor has been taken note of by the Ld. AO and Ld. CIT(A) but has not been given credence. Both the authorities doubted the terms and conditions of the agreement for slump sale without bringing on record any adverse material.
7.2 The assessee has produced Production Chart to substantiate the claim of the purchaser that the target of production and sale was not achieved within specified period. Moreover, the amount of Rs. 41,00,000/- forfeited by the purchaser has duly been accounted for by the purchaser as its income by way of remission of liability in AY 2012-13. In such a scenario, we are of the considered view that the matter needs to be remanded to the Ld. AO for consideration and decision afresh after due verification of the assessee’s contention in the light of the evidence which the assessee may produce before him in accordance with law after allowing reasonable opportunity of being heard to the assessee to establish that Rs. 41,00,000/- was in fact not receivable/received by the assessee as per the terms of the agreement dated 31.12.2010. Accordingly, we remand the matter and restore it back to the file of Ld. AO with above directions.
In the result, the appeal by the assessee is treated as allowed for statistical purposes.