M/S.Bharat Bijlee Limited vs The Assistant Commissioner Of

6th Floor, Electric Manson, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025. ...Petitioner

.Versus.

1. The Assistant Commissioner of

Income Tax, Circle 6(1), Mumbai Room No.506, 5th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400 020.

2. The Deputy Commissioner of Income Tax, Circle 6(1), Mumbai Room No.506, 5th Floor, Aayakar

Bhavan, M.K. Road, Mumbai - 400 020.

3. The Commissioner of Income Tax, Circle 6(1), Mumbai Room No.506, 5th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400 020.

4. Union of India, Through the Secretary, Department of Revenue, Ministry of Finance, North Block, New Delhi - 100 001. ...Respondents

Mr.J.D. Mistri, Senior Counsel with Mr.Madhur Agrawal i/b Mr.Atul K. Jasani for the Petitioner.

Mr.Suresh Kumar for the Respondents.

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CORAM : S.J. VAZIFDAR &

B.P. COLABAWALLA, JJ. DATE : 5TH MARCH, 2014.

ORAL JUDGMENT (Per S.J. Vazifdar, J.) :-

1. The petitioner has challenged a notice issued by

respondent No.1 - Assistant Commissioner of Income Tax, under

section 148 of the Income Tax Act, 1961 and an order dated

12.10.2012, passed by respondent No.2 - Deputy Commissioner of

the Income Tax, Assessing Officer, disposing of its objections

challenging the validity of the reassessment proceedings.

Respondent No.3 is the Commissioner of Income Tax.

2. An agreement dated 31.05.2004 was entered into

between the petitioner, Tiger Elevator Private Limited and Kone

Elevator India Private Limited (TEPL). Under the agreement subject

to the orders of this Court under sections 391 and 394 of the Act,

TEPL and the petitioner agreed to implement the scheme of

arrangement whereby the petitioner was to transfer its lift field

operations business to TEPL for the consideration and on the terms

and conditions stipulated therein. Clauses 1.9, 1.10, 1.55 and 4.1 of

the said agreement read as under :-

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"1.9 "Bonds A" means the bonds of the value of Rs.95,500,000/- (Rupees Ninety-five million, five

hundred thousand only) to be issued by Tiger to BBL pursuant to the Scheme of Arrangement in the form Schedule AA 1.9.

1.10 "Bonds B" means the bonds of the value of Rs.47,750,000/- (Rupees Forty-seven million, seven hundred and five thousand only) to be issued

by Tiger to BBL pursuant to the Scheme of Arrangement in the form Schedule AA 1.10.

1.55 "Shares" means 33,425,000 (thirty-three million, four hundred and twenty-five thousand)

preference shares of the face value of Rs.10/-

(Rupees ten only) each, to be issued to BBL by Tiger

in its capital pursuant to the Scheme of Arrangement. Schedule AA 1.55 is the format of the preference shares to be issued.

4.1 The consideration for the transfer of the Business shall be Shares and Bonds to be issued by Tiger to BBL the aggregate of the value of Shares and of the Bonds is hereinafter referred to as the ("Fixed

Amount") where, Bonds A shall be subject to plus or minus the 1st Adjustment, plus or minus the 2nd

Adjustment, plus or minus the 3rd Adjustment, plus the 4th Adjustment and plus the 5th Adjustment and Bonds B shall be subject to plus the 6th Adjustment."

3. By an agreement titled Second Amendment Agreement

dated 13.08.2004, clause 4 of the agreement dated 31.05.2004 was

modified as follows :-

"2 CONSIDERATION

Clause 4 of the Agreement is hereby substituted to read as follows :

4.1 The consideration for the transfer of the Business shall be Shares and Bonds to be issued by Tiger to BBL the aggregate of the value of Shares and

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of the Bonds is hereinafter referred to as the "Fixed Amount") where, Bonds A shall be subject to plus or

minus the 2nd Adjustment, plus or minus the 3rd Adjustment, plus the 4th Adjustment and plus the 5th Adjustment and Bonds B shall be subject to plus the

6th Adjustment.

4.2 The Fixed Amount has been calculated according to the following formula:

Fixed Amount = Rs.330,000,000/- (Rupees Three Hundred and Thirty Million Only), i.e. A + B, where;

"A" = Rs.317,520,000/- (Rupees Three Hundred

Seventeen Million Five Hundred Twenty Thousand Only). This is calculated as the outcome of (2.8 x

Annual Value at the Appointed Date), where the Annual Value at the Appointed Date is Rs.

113,400,000/-.

"Annual Value" is defined as being equal to the aggregate amount of the annual customer price of actually transferred Maintenance Contracts. However, for the purposes of calculating the value of factor "A"

only, the Annual Value at the Appointed Date shall be determined on the basis of the list of Maintenance

Contracts attached to hereto as Schedule AA 4.2.

"B" = Rs. 13,086,000/- (Rupees Thirteen Million Eighty Six Thousand Only). This is calculated as the outcome

of (0.0257548 x New Elevator Sales where the New Elevator Sales) is Rs.508,100,000/-.

"New Elevator Sales" is defined as being equal to the amount of the New Elevator Business Turnover for the 12 month period ending at March 31, 2004, as shown

on the 2004 Financial Statements."

4. As the transaction constituted a scheme of arrangement

between the petitioner and Tiger Elevator Private Limited, the

petitioner filed Company Petition No.832 of 2004, seeking the

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sanction of this Court under section 391 and 394 of the Companies

Act, 1956 in respect thereof. By an order dated 17.12.2004, the

company Judge sanctioned the scheme. 01.04.2004 was the

effective date of the scheme. Disputes arose between the petitioner

and other party to the agreement which were settled on the terms

and conditions contained in a Settlement Agreement dated

29.08.2005, clause 3 whereof reads as under :-

"3. The Parties agree that the total consideration to be paid to BBL by Olympus (including

all adjustments) as stated in Clause 4 of the Acquisition Agreement shall be a fixed sum of three hundred and sixty-five million Indian Rupees (INR

365,000,000) (hereinafter referred to as the "Consideration") which includes the agreed aggregated value of Bonds A and Bonds B of INR 117, 500,000/- and shall not be subject to any further adjustment, amendment or negotiation.

i) The funds of INR 247,500,000 that have

already been released by the Escrow Agent to BBL towards the 24,750,000 preference shares forming Escrow Funds Part A under the Escrow Agreement are to be considered as part of the Consideration.

ii) The Escrow Funds of INR 82,500,000 retained at present by the Escrow Agent under the Escrow Agreement as Escrow Funds Part B and Part C shall also form a part of the consideration and shall be released in accordance with Clause 7 read with

Annexure "C" hereunder.

iii) The balance amount of consideration over and above the Escrow Funds, being an amount of INR 35,000,000, shall be paid to BBL in accordance with Clause 9 hereunder."

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5. At the request of the petitioner, a firm of chartered

accountant prepared a "Report On The Valuation Of The Total

Consideration dated 21.10.2005 For Transfer of the Petitioner's Lift

Field Operations Business". The valuation report took into

consideration the Settlement Agreement. Accordingly, the valuation

was fixed at Rs.35.86 crores. The difference in the consideration

mentioned in the Settlement Agreement and in the Valuation Report

was probably on account of the schedule of payment.

6.

On 28.10.2005, the petitioner filed its return for the

assessment year (AY) 2005-2006. The relevant portion thereof reads

as under :-

"II. Capital Gains :

Long Term Capital Gains from transfer of Elevator Field Operations Division (Refer Note 4

to the Computation)"

Note 4 to the computation referred to above facts and

stated that the transfer was by way of exchange and not sale and

was therefore, not within the purview of the definition of Slump Sale

under section 2(42C) of the Act and that the cost of Undertaking is

not ascertainable and therefore, the machinery for computing gains

fails. Without prejudice to the same, it was contended that the

petitioner had calculated the indexed cost of acquisition of the

Undertaking and computed the Long Term Capital Gains.

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Accordingly, the petitioner deposited a sum of Rs.15.50 crores in

section 54EC Bonds within six months from the transfer of the

undertaking. It was contended that the long term capital gains were

therefore, to be treated as exempt from tax.

7. There followed a series of queries raised and requisitions

made by the Assessing Officer, which were replied to and complied

with by or on behalf of the petitioner. The same establish clearly that

the petitioner disclosed all facts material to the assessment and that

the AO was not only aware of but considered the same before

making the assessment order. The issues on the basis of which the

impugned notice has been issued, were considered in considerable

detail and exhaustively by the Assessing Officer before passing the

assessment order dated 31.12.2007 under section 143(3). What

follows demonstrates the same almost beyond doubt.

8 (A)(i). By a notice dated 09.08.2007, the Additional CIT called

upon the petitioner to furnish several documents including ;

"28. Details of transfer of Elevator Field Operation Division alongwith copy of transfer agreement, copy of High Court order and the scheme of arrangement in this regard.

29. Kindly also submit the reasons on which you have stated in your report that these transactions is not taxable as capital gain.

For the purpose of verification and discussion, the case is fixed for hearing on 21.08.2007 at 11:30 AM."

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(ii). Under cover of a letter dated 03.09.2007, the petitioner

forwarded the said agreements, scheme of arrangement, court order

and the receipt for registration with ROC for the said transfer.

B). On 18.09.2007 obviously pursuant to the requisitions of

the respondents, the petitioner forwarded the schedules to the

agreement as well as the details in respect thereof, including those

relating to the transferred business, assets and liabilities, excluded

assets, non-transferred liabilities and statement of net assets

transferred. The copies of the preference shares and bonds were

also forwarded.

C). On 28.09.2007, the petitioner tendered detailed written

submissions as to why the undertaking should be considered as

capital assets and why the transfer should not be construed as only

involving the current assets comprised in the Undertaking.

D). Pursuant to the discussions with the respondent on

19.09.2007, the petitioner on 28.09.2007 forwarded a list of

maintenance contracts as on 01.04.2004 and a list of maintenance

contracts as on 23.12.2004.

These contracts were of vital importance for the purpose

of carrying out the adjustment contemplated under the said

agreement. The adjustment would obviously be dependent inter-alia

upon the number of contracts subsisting as on the effective date. The

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Settlement Agreement quantified and listed the same.

E). Even thereafter the petitioner submitted not only the

preference shares and bonds but also the Settlement Agreement

stating that the value was Rs.36.50 crores.

F). By a letter dated 08.10.2007, the petitioner responded to

the several queries raised by the AO. In paragraph 10, the petitioner

furnished the "Working of adjustments conceived in the Acquisition

Agreement [Annexure VII]". Annexure VII in turn referred to the

second to the sixth adjustments and the Settlement Agreement dated

29.08.2005. Against each of the second to the sixth adjustments, the

petitioner stated the result of the buyers' and the petitioner's

respective interpretations of the adjustments. The petitioner also

referred to the Settlement Agreement dated 29.08.2005.

G). By a letter dated 29.10.2007, the petitioner furnished the

other dates "requisitioned" by the AO in respect of the escrow money

deposited by the purchaser, preference shares redeemed, request

for arbitration, NHB bonds investment made of Rs.15.50 crores, reply

in the arbitration petition in view of the disputes regarding

adjustment, receipt of Rs.3.50 crores towards redemption of the bond

from the purchaser, receipt of Rs.8.25 crores towards redemption of

the bonds from the escrow account and the details of the face value

and redemption value of the bonds. The consideration of the

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preference shares and the value of bonds of Rs.24.75 crores and

Rs.11.11 crores respectively aggregating to Rs.35.86 crores was

also mentioned.

H). By a further letter dated 30.11.2007, the petitioner

submitted a note of case law on the issue regarding transfer of the

EFO division, as well as working as requisitioned by the AO as per

the provisions of section 50B of the long term capital gains on the

transfer of the EFO division.

I).

By a letter dated 05.12.2007, the petitioner furnished the

details of the expenses incurred by it in respect of the transfer of the

EFO division and accounting of the transfer of the division viz. as

approved by the scheme of arrangement sanctioned by this Court

and submitted the books of account.

J). Finally by a letter dated 20.12.2007, the petitioner

responded to the discussions held on 14.12.2007 regarding

treatment of the transfer of the EFO division. The petitioner stated

that it was indicated that the consideration would be Rs.36.50 crores

instead of Rs.35.86 crores as stated in its submissions. It is important

to note that even this difference of Rs.35.86 crores and Rs.36.50

crores was specifically referred to. The petitioner went further and

clarified that though the total consideration was fixed at Rs.36.50

crores by the Settlement Deed, the fair value of the total

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consideration as on the transfer date was valued at Rs.35.86 crores

including the variable consideration defined under the scheme to be

at Rs.64.00 lacs. It was stated that it has been treated as the short

term capital gains in the previous year 2005-2006 for which the

bonds were redeemed and an amount of Rs.45,35,280/- being legal

fees had been claimed as expenditure towards the transfer of the

bonds.

9. The aforesaid correspondence indicates that every aspect

of the transaction was not only disclosed but was specifically noticed

by the AO. More important is the fact that every relevant aspect had

been brought to the notice of the AO not merely in the return filed by

the petitioner but in answer to the specific queries and in response to

the requisitions of the AO during the assessment proceedings. No

aspect of the matter remained to be disclosed. No aspect of the

matter remained to be even sought by the AO.

10. The petitioner had not withheld or failed to disclose any

material relevant to the assessment of its income for the assessment

year in question viz. 2005-2006.

11. The matter does not end there. The assessment order

under section 143(3) was passed on 31.12.2007. It deals with the

effect of the transfer of the division as regards the petitioner's tax

liability in considerable detail. After setting out the petitioner's case in

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detail, the AO considered the same exhaustively. Having done so, he

came to the conclusion that the transaction fits into the definition of a

slump sale. He held that the transaction of the transfer of the said

division was taxable as per the provisions of section 50B of the act

and taxed the same accordingly. The AO proceeded thereafter to

compute the capital gains on the transfer of the said division himself.

He computed taxable long term capital gains at Rs.1,93,61,060/-.

12. The petitioner challenged the order before the CIT

(Appeals). By an order dated 25.07.2008, the appeal was dismissed.

The petitioner challenged the order before the Income Tax

Appellate Tribunal (ITAT). The Tribunal by an order dated

11.03.2011 held that the scheme of arrangement resulted in a

transfer of undertaking in exchange for the preference shares and

bonds and was a case of exchange and not sale. Consequently

neither the provisions of section 2(42C) nor section 50B were

applicable.

13. This brings us to the impugned notice dated 13.03.2012

issued by respondent No.1 stating that there was reason to believe

that the petitioner's income in respect of which it is assessable to tax

for the AY 2005-2006 had escaped within the meaning of section 147

and that it was therefore, proposed to reassess the income. This

was beyond the period of four years from the end of the AY 2005-

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2006.

14. By a letter dated 22.08.2012, the Deputy Commissioner,

at the petitioner's request, furnished the reasons recorded for

reopening the assessment. We do not find anything in the

communication dated 22.08.2012 that was not considered during the

assessment proceedings. Every single aspect referred to therein was

considered in the assessment proceedings. One of the reasons

stated was that as per the valuation report of the transferee's

chartered accountants M/s.P. Krishnan & Associates the fair market

value of the division was determined at Rs.36.50 crores. Mr.Suresh

Kumar, the learned counsel appearing on behalf of the respondents

contended that this report had not been disclosed and that therefore,

reopening of the assessment was permissible. We will deal with this

submission shortly.

15. The petitioner had by a letter dated 26.09.2012,

responded to the letter dated 22.08.2012 rightly contending inter-alia

that the reopening was based on the same set of facts / material

available on record for the year under consideration and that the

reasons reflected a mere change of opinion.

16. By an order dated 12.10.2012, the petitioner's objections

against the initiation of reassessment proceedings were rejected.

The order sets out the reasons and some of the objections raised by

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the petitioner. It also refers to certain authorities. The petitioner's

objections were rejected only on the basis of the report of M/s.P.

Krishnan & Associates. It was held that the assessee was aware of it

and should have disclosed the same before the AO fully and truly.

The order does not even suggest that any of the other reasons

mentioned in the letter dated 22.08.2012 justified reopening.

Mr.Suresh Kumar was unable to indicate any of the other facts

mentioned in the letter dated 22.08.2012 that were not disclosed or

taken into consideration in the assessment proceedings.

17. As we mentioned earlier Mr.Suresh Kumar contended that

the reopening of the assessment was justified in the report of M/s.P.

Krishnan & Associates determining the fair value of the division of

Rs.36.50 crores was not disclosed.

18. The submission is unsustainable. Firstly, the valuation

report was prepared by the transferee's chartered accountants. Even

assuming that the petitioner was aware of the same and had a copy

of it, it would make no difference. It was not suggested that the

report contains any material relevant to the assessment, which was

not disclosed during the assessment proceedings. A mere failure to

furnish a document would not justify reopening an assessment. It

must be established by the department that the contents of the

documents relevant to the assessment were not disclosed by the

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assessee. There may be several documents which may not have be

disclosed during the assessment proceedings. If however, the

contents of the documents relevant to the assessment had been

disclosed and had been considered by the AO, it would not justify

reopening of the assessment. Several documents may contain the

same information. It would not be necessary for the assessee to

disclose every such document unless the existence of such

documents themselves would be material to the assessment.

19.

We referred in detail to all that transpired during the

course of the assessment proceedings, especially the queries raised

and the information sought by the AO and the petitioner's response

thereto. The same indicates beyond doubt that all the material facts

were not only disclosed but were brought to the notice of the AO and

the AO considered the same. As we also mentioned earlier

Mr.Suresh Kumar was unable to indicate any of the other facts

mentioned in the letter dated 22.08.2012 that were not disclosed or

taken into consideration in the assessment proceedings. Even if the

assessment order does not by itself indicate that the AO considered

the same, it would make no difference. In Rabo India Finance

Limited vs. Deputy CIT (2012) 346 ITR 528, a Division Bench of this

Court, to which one of us (S.J. Vazifdar, J.) was a party, held as

under :-

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"17. The facts thus far indicate that the respondents were aware not merely of the existence

of the transactions between the petitioner and Rabobank International but also the details thereof.

They also establish that the Assessing Officer had

specifically considered the same. If an Assessing Officer calls for specific information relating to or in connection with the material before him, absent anything else, it is reasonable to presume that he had

considered the material filed before him as well as the material called for by him before making the assessment order. Had he not considered the material filed before him originally there would be no question of his seeking further information in relation

thereto. It is logical, therefore, to presume that he had considered the material in relation to which he sought

further information. It would equally follow that the Assessing Officer would also have considered the information furnished pursuant to such demand. A

view to the contrary would presume that the Assessing Officer had ignored the very information that he specifically sought. We are not inclined to presume negligence or indifference on the part of an Assessing Officer in such circumstances. It is

reasonable, therefore, to presume that the Assessing Officer had applied his mind to the agreements and

matters connected therewith relating to the agreement."

20. There is nothing on record that indicates that the AO did

not consider the material before him. Indeed the nature of the queries

raised and the information sought by him indicates that he not only

noticed but considered the information supplied by the petitioner. In

the facts and circumstances of this case, it cannot by any stretch of

imagination be held that the petitioner had failed to disclose fully and

truly all material facts necessary for its assessment for the

assessment year 2005-2006.

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21. Rule is made absolute in terms of prayer (a). There shall

be no order as to costs.

(B.P. COLABAWALLA, J.) (S.J. VAZIFDAR, J.)

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