Mumbai v. M/S. Jindal Steel & Alloys Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1723 OF 2016 Pr. Commissioner of Income Tax-5Mumbai Mumbai..Appellant VersusM/s. Jindal Steel & Alloys Ltd...Respondents Mr. Sham Walve for appellantMr. Hiro Rai with Subhash Shetty for respondents. P.C. Taken up for final disposal with the consent of learnedAdvocates for parties. 2]The appeal is filed by the Revenue to challenge the judgement of Income Tax Appellate Tribunal (Tribunal for short).Following questions are presented for our consideration :- (A)Whether on the facts and in thecircumstances of the case and in law, the Hon'ble ITATwas correct in law in holding that the valuation reportobtained by the buyer of the CRM division could atbest be taken to be for the purpose of reaching a board enterprise value by the buyer and could not beconstrued as assigning of sale values to the individualassets and liabilities as understood for the purpose ofsection 2(42C) of the Income Tax Act, 1961? (C)Whether on the facts and in thecircumstances of the case and in law, the Hon'ble ITATwas correct in law in holding that the CRM divisionstood sold from the effective date of 31/5/2007mentioned in the agreement and not from the date of4/9/2007 being the date of registration of the deed oftransfer dated 11[th] June 2007? (E)Whether on the facts and in thecircumstances of the case and in law, the Hon'ble ITATwas correct in deleting the disallowance under section14A read with Rule 8D made by the Assessing Officeron the ground that the assessee had not earned anyexempt income during the year when the assesseehad made investments which were capable of yieldingexempt income? 3]The respondent assessee is registered company. Thisappeal arises out of assessment year 2008-09. The first questionraised by the Revenue pertains to conclusions of the Tribunal thatthe assessee had sold its CRM division to one JSW Limited, by wayof slump sale. Before the Tribunal the revenue contended that thevaluation of the division under sale made by the valuer was on thebasis of segregated valuation of individual assets. The revenue,therefore, contended that the sale in question cannot be treated asslump sale. The Tribunal, however, held that the sale in question 902-itxa-1723-16 was slump sale, finding the fact that the assets and liabilities of theCRM division involved tangible as well as intangible weretransferred to JSW as a going concern. The Tribunal noted thatsection 2(42C) of the Act, defines expression “slump sale” as tomean transfer of one or more undertakings as a result of sale forlumpsum consideration without values being assigned to theindividual assets and liability in such sales. The Tribunal noted theterms of agreement between the assessee and the purchaser of thesaid unit in which the expression "Unit" for the purpose of deed oftransfer was defined as to mean "all the tangible and intangibleassets and liabilities of the entire unit". 4]In view of the above position, we do not find that theTribunal has committed any error. The sale in question wascorrectly held to be a slump sale as defined in section 2(42C) of theAct. Merely because for the purpose of arriving at a propervaluation for transfer of the entire unit in the valuation reportobtained by the purchaser, the valuer assigned separate valuationto different parts of the unit would not take away the fact that whatwas sold by the assessee was entire unit as a going concern. Noquestion of law, therefore, arises. 4]In view of the above position, we do not find that theTribunal has committed any error. The sale in question wascorrectly held to be a slump sale as defined in section 2(42C) of theAct. Merely because for the purpose of arriving at a propervaluation for transfer of the entire unit in the valuation reportobtained by the purchaser, the valuer assigned separate valuationto different parts of the unit would not take away the fact that whatwas sold by the assessee was entire unit as a going concern. Noquestion of law, therefore, arises. 5]The second question raised by the Revenue relates tothe effective date of sale of this unit. The assessee contended allthrough out that the effective date of sale was 31st May 2007. Theagreement was executed between the parties on 11th June 2007and was actually registered on 4th September 2007. The revenuecontends that the sale would be effective from 4th September 2007.This question becomes relevant since the unit in question wasalready in possession of JSW which was operating the unit uponpayment of conducting charges of Rs.50 lakhs per month to theassessee. On this account, the assessee stopped crediting suchsum after 31st May 2007 contending that the unit stood transferredfrom such date to JSW and, therefore, the assessee no longer hadany right to receive the conducting charges from JSW Ltd. 6]The A.O. took the date of registration of the deed oftransfer as the effective date on which the unit stood transferred tothe purchaser. In appeal the CIT (Appeal) gave partial relief holdingthat transfer was effected on 25[th] June 2017 on the basis that thepayment for sale was received on that date. We are informed thatthe payment was made on 11[th] June 2017 but actually credited in 902-itxa-1723-16 the assessee's account on 25[th] June 2017. The Tribunal gave fullrelief to the assessee holding that the unit stood transferred on 31stMay 2007. The Tribunal noted that the agreement refers to the dateof 31st May 2007 as effective date of transfer of unit. Both sideshave interpreted such agreement in this manner. It was, thereafter,not possible for A.O. to shift the effective date of transfer. 7]We do not find that the Tribunal has committed any error.The agreement in question referred to the effective date of transferas 31st May 2007. The Tribunal records that written agreementwhich was executed a couple of months later and was registeredsome time thereafter, would not make any difference. The issue canbe looked from slightly different angle. The date assessee stoppedclaiming income arising out of conducting charges of the said unitafter 31st May 2007, surely the purchaser JSW would also havestopped claiming expenditure towards such charges. If both sideshave accordingly acted in terms of clear understanding, the revenueauthority had no reason or even power to shift such date. That too,in case of only one party i.e. the recipient of the income. This brings us to the sole surviving question of 902-itxa-1723-16 disallowance of expenditure made in terms of section 14A of the Actread with Rule 8D of the Income Tax Rules. The Tribunal deletedthe additions made by the AO and confirmed the order of the CIT onthe ground that the assessee had during the relevant period underconsideration not earned any exempt income. The Tribunal in thatview of the matter referred to and relied upon the decision of GujaratHigh Court in the case of CIT Vs. Corrtech Energy Pvt. Ltd. (2014)Taxman 130(Guj) and deleted the additions made by A.O. 9]We notice that before the A.O. the assessee has notraised such contention. We are informed that before CIT (Appeal)such a contention was raised. However, the same was not dealtwith. The Tribunal has merely made one line declaration that theassessee had not earned any exempt income. We do not find anyreasons for for refraction of the Tribunal's examination on theaccounts of the assessee before coming to such a conclusion. 9]We notice that before the A.O. the assessee has notraised such contention. We are informed that before CIT (Appeal)such a contention was raised. However, the same was not dealtwith. The Tribunal has merely made one line declaration that theassessee had not earned any exempt income. We do not find anyreasons for for refraction of the Tribunal's examination on theaccounts of the assessee before coming to such a conclusion. 10]Under the circumstances, we would request the Tribunalto re-examine this question and give a fresh finding with briefreasons. We are not disputing the Tribunal's conclusion that if theassessee had not earned any exempt income disallowance under 902-itxa-1723-16 section 14A read with Rule 8D could not have been done. This iswhat this Court in a judgement dated 30th January 2019 in IncomeTax Appeal No.1619 OF 2016 in case of The Pr. Commissioner ofIncome Tax Vs. Huntsman International (India) Pvt. Ltd. has held.For this limited issue the appeal is restored to the file of Tribunal.With these observations the appeal is disposed of. (M.S.SANKLECHA, J.) (AKIL KURESHI, J)