The Tax PublishersITA No 1049/CHNY/2019
2023 TaxPub(DT) 251 (Chen-Trib)INCOME TAX ACT, 1961
Sections 263 & 50B
Admittedly slump sale consideration declared by assessee was '0' i.e., 'nil' and admittedly there was negative net worth because assessee had incurred loss continuously. The negative net worth was Rs.1,82,93,317 and even same was reduced from the slump sale consideration of zero, the ultimate capital gain would be 'zero'. Hence, revision order passed by Pr. CIT was right to the extent that negative net worth was to be considered while computing capital gains but in case of positive consideration. But in the instant case, the slump sale value was zero and hence, computation would fail and secondly, there was no prejudice caused to the Revenue by the order of AO. Hence, revision order passed by Pr. CIT did not fulfill the two conditions under section 263 and was, therefore, set aside.
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Revision under section 263 - Erroneous and prejudicial order - Computation of gain on slump sale -
Pr. CIT invoked jurisdiction under section 263 on ground that assessee sold one division i.e., Medical Ventilator Division on slump sale basis and capital gain under section 50B was shown at 'nil'. The excess of liability over assets of the said division was disclosed by assessee as an exceptional item to the extent of Rs.1,83,92,317 as per annual accounts. According to Pr. CIT, this was nothing but cessation of liability which was to be treated as business income under section 41. Further, it was the net worth that should be deducted from the sale consideration to arrive at the profit or loss on sale of undertaking and net worth means the excess of assets over liabilities. In the instant case since value of liability was more than the asset value, the net worth was negative figure. Negative figure of net worth could not be ignored for working out capital accounts in case of slump sale. Therefore, capital gain on profit of sale to the tune of Rs.1,83,92,317 should have been taxed. As AO framed assessment under section 143(3) without proper verification of this aspect of negative net worth and, therefore, assessment order was erroneous and prejudicial to the interest of Revenue. Held: Admittedly slump sale consideration declared by assessee was '0' i.e., 'nil' and admittedly there was negative net worth because assessee had incurred loss continuously. The negative net worth was Rs.1,82,93,317 and even same was reduced from the slump sale consideration of zero, the ultimate capital gain would be 'zero'. Hence, revision order passed by Pr. CIT was right to the extent that negative net worth was to be considered while computing capital gains but in case of positive consideration. But, in the instant case, the slump sale value was zero and hence, computation would fail and secondly, there was no prejudice caused to the Revenue by the order of AO. Hence, revision order passed by Pr. CIT did not fulfill the two conditions under section 263 and was, therefore, set aside.
REFERRED :
FAVOUR : In assessee's favour
A.Y. :
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