Negative figure of the net worth should not be ignored for working out the capital gains in case of a slump sale and the amount of 'Net worth' will be a negative figure and not Zero. Assessing Officer was right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump sale
1. Assessee company is engaged in the business of manufacturing and supply of non woven fabrics, automotive carpets, domestic carpets and blankets
2. AO found that in pursuance of the scheme of amalgamation approved by the Hon’ble high courts of Mumbai and Delhi the assessee sold its fabric lining and carpet manufacturing business to Hitkari hi-tech Filters private Limited on slump sale basis at a net consideration of Rs.10 lakhs,that the net worth of the undertaking was certified at negative figure of Rs. (-) 3,38,69, 898/- as per para 6(e) of the form no 3CEA
3. However while filing the return of income assessee computed capital gain u/s. 50B of the Act of Rs 10,00,000/- only without adjusting the negative net worth
4. The AO raised the query in that regard and held that the computation of capital gain u/s 50B was incorrect and the benefit arising to the assessee of Rs 3.38 Crores was further required to be adjusted upward
5. Assessee submitted that when net worth calculated u/s 50B was negative the cost of acquisition of the industrial undertaking would be taken as NIL
6. AO was not convinced and Placing reliance on the decision of Hon’ble supreme court in case of IPCA laboratories Limited (266 ITR 521)held that negative net worth u/s 50B should also be added to the sales consideration for working out cost acquisition of industrial undertaking. He increased the capital gain computation by Rs 3.38 Crores and charged capital gain of Rs 3,48,69,848/- u/s 50B of the Act
7. Assessee filed an appeal before the CIT(A) who confirmed the addition holding that the case of the Zuari Industries Limited was different,that the assessee had never proved that the industrial undertaking sold by the assessee was saddled with these liabilities
8. Being aggrieved by the CIT(A) order assessee moved to the Tribunal
9. Tribunal following the special bench decision in the case of Zuari Industries Limited decided this issue against the assessee
10. Other grounds were heard and decided partly in favour of assessee by the Tribunal
On Slump Sale : Special Bench - "Thus the question referred to the Special Bench is answered in negative by holding that the Assessing Officer was not right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump sale. However, we allow ground no.2 raised by the Revenue in its appeal by holding that the CIT(A) was not correct in coming to the conclusion that the negative figure of the net worth of Rs. 157 crore should be ignored for working out the capital gains in case of a slump sale. The summary of our conclusion is that the amount of 'Net worth' will be a negative figure of Rs. 157 crore and not Zero. Resultantly the amount of capital gain chargeable to tax will be Rs. 300 crore and not Rs. 143 crore as declared by the assessee"
Respectfully,following the above order of the Special Bench we decide ground no.1 against the assessee.
On not allowing deduction of Rs 2,03,46,191/- from the profits arising out of the sale of undertaking by way of slump sale while working out the income under the head profits and gains from business : We are of the opinion,that in the interest of justice, the matter should be restored back to the file of the FAA for fresh adjudication,who will decide the issue after affording a reasonable opportunity of hearing to the assessee.Ground no.2 is allowed in favour of the assessee,in part.
On Disallowance u/s 43B : Such claim requires verification and also ascertainment whether the conditions and requirements mentioned under circular no 496 is met by the assessee or not.Therefore,in the interest of justice,this ground of appeal is set aside to the file of AO with direction to verify the claim of the assessee in accordance with circular no 496 dated 25.09.1987 and decide the issue in accordance with law after providing proper opportunity to the assessee. Ground no.3 of appeal is allowed in favour of the assessee, in part.
Cases referred to