Itemized sale of the plant and machinery of chemical unit vide agreement was not the sale of the unit as a going concern and hence, the sale cannot be treated as slump sale u/s 2(42C)
INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA
I.T.A No.330/Kol/2013 Assessment Year: 2009-10
Hindustan Engineering & Industries Ltd. vs. Addl. Commr. Of Income Tax
Date of Judgment/Order: 16/03/2016
The assessee company was engaged in the business of manufacturing and selling of chemicals, castings, steel wires, wagons etc. During the course of assessment proceedings, the Assessing Officer noticed that the company was having various business units namely, Railway wagon manufacturing unit, jute processing unit and chemical units in Gujarat and West Bengal. Each of them was independent profit centre for which separate books of account were maintained by company.
The assessee during FY 2008-09 relevant to this AY 2009-10 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. According to AO, this transfer of chemical unit was actually slump sale u/s 2(42C) of the Act. The assessee company argued that since the sale was of assessee’s assets relating to chemical unit itemized and not as a whole undertaking. 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. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the action of AO.
The company agitated the matter before ITAT and contended that 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, the 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.
ITAT observed that 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.
ITAT also placed reliance in Cochin Bench, in the case of Harrisons Malayalam Ltd. V ACIT and 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 .
In view of the facts and circumstances of the case and judgments relied on, ITAT held that the chemical unit was not sld as a going concern but itemized sale was made vide agreement and hence, the sale could not be treated as slump sale.