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Judgment
PER AMITABH SHUKLA, AM
This appeal filed by the Revenue is directed against the order of Ld. Commissioner of Income Tax(Appeals)/NFAC, Delhi, dated 15.12.2025 arising out of assessment order dated 27.03.2024 passed under section 143(3) of the Act for the Assessment Year 2022-23. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The Revenue has raised following grounds of appeal:-
“1.Whether the Ld. CIT(A), NFAC erred in law and on facts in deleting the addition of Rs.40000000/- made by the Assessing Officer on account of capital gain on slump sales, despite the fact that there was no loss on slump sales as liabilities were more than the assets in the slump sale deal.”
The only issue arising from the appeal of the Revenue is regarding the deletion of the addition of Rs.4 Crores by the Ld. CIT(A). Brief facts of the case as culled out from the order of lower authorities is that the appellant namely Savista Global Solutions Private Limited is private limited company, primarily engaged in the business of providing healthcare outsourcing services for the healthcare industry in United States of America. During AY 2022-23, the assessee entered into a Business Transfer Agreement ('BTA) with NRS Software Global Private Limited for sale of its Gurgaon undertaking that provides business process outsourcing services by way of slump sale on a going concern basis for a lumpsum consideration of INR 4,00,00,000. The assessee claimed long-term capital loss amounting to INR 2,03,24,979 (i.e. Full value of consideration of IN 4,00,00,000 less net worth amounting to INR 6,03,24,979) in its return of income under the provisions of section 50B of the Act read with rule 11UAE of Income-tax Rules, 1962. The assessee had also furnished a report from an accountant in Form 3CEA in relation to computation of net worth of the undertaking as per section 50B(3) of the Act. During the assessment proceedings, the AO issued a show-cause notice dated 13 March 2024 proposing (i) disallowance of the long-term capital loss of INR 2,03,24,979 claimed by the assessee in its ITR and (i) taxation of book profit of INR 3,40,88,869 in relation to slump sale, by disregarding the BTA, Form 3CEA and valuation report. The assessee, vide its submission dated 20 March 2024, submitted before the AO that the gain of INR 3,40,88,869 arising on the slump sale represented an accounting profit reflected in its books of account. However, the AO disregarded the submissions of the assessee and proceeded to disallow the long-term capital loss of INR 2,03,24,979. In appeal, the ld. CIT(A) considered arguments taken by the assessee and proceeded to delete the impugned addition of Rs.4 Crores by observing as under:-
“…On the basis of the valuation determined by the independent valuer, the Appellant adopted the FMV of the undertaking at Rs.4,00,00,000/- in accordance with Rule 11UAE and computed the net worth at Rs.6,03,24,979/- as required u/s.50B. Relying on this statutory computation, the Appellant declared a long-term capital loss of Rs.2,03,24,979/- (i.e. full value of consideration of Rs.4,00,00,000/- minus net worth of Rs.6,03,24,979/-) in its returns of income. However, disregarding the valuation report and the statutory mechanism, the AO treated the entire consideration of Rs.4,00,00,000/- as long-term capital gain.
During the appellate proceedings, the Appellant contends that the AO erred in disregarding the independent valuation report and Form 3CEA, incorrectly recomputing the net worth of the undertaking at NIL and taxing the entire slump sale consideration of Rs.4 crore as tong-term capital gain instead of the correctly computed long-term capital loss of Rs.2,03,24,979/-u/s.50B read with Rule 11UAE.
The Appellant executed a valid Business Transfer Agreement, obtained an expert valuation determining FMV at Rs.4,00,00,000/-and net worth at Rs.6,03,24,979/-, filed Form 3CEA as required and computed the loss strictly as per the statutery mechanism. All relevant documents were furnished before the AO. However, the AO reduced the net worth by deducting finance lease obligations of Rs.4,57,68,200/-, rent equalisation reserve of Rs.98,40,000/- and depreciation-related adjustments of Rs.66,91,654l-, none of which were proposed in the show-cause notice, supported by evidence or permissible u/s.50B or Rule 1TUAE. It is undisputed that the lease and rent reserves don't pertain to the Gurgaon undertaking and, therefore, can't affect its net worth. These adjustments artificially reduce the net worth to zero, defeating the statutory formula. The AO's reliance on the book profit of Rs.3,40,88,869/- is also misplaced, as section 50B overrides accounting entries for the purpose of slump sale taxation.
The AO has not demonstrated any defect in the valuation methodology nor shown that the valuation is contrary to Rule 11UAE or that Form 3CEA is incorrect. In the absence of such findings, the AO has no authority to recompute net worth by making unprescribed and extraneous adjustments. Further, the AO's re-computation of net worth at NIL was never proposed in the show-cause notice, violating principles of natural justice as well as CBDT Instruction No.20/2015, which mandates that additions must be preceded by a clear and specific SCN. On this procedural lapse alone, the addition is liable to be deleted. Accordingly, Ground No.2 is allowed….”
During the course of present hearing, the ld. DR vehemently argued in favour of the ld. Assessing Officer. It was stated that the affairs of the assessee were not transparent and that assessee had attempted to conceal true incidence of taxation. The ld. DR assailed the order of the ld. CIT(A) submitting that the relief was not based upon true appreciation of facts of the case.
The ld. Counsel argued in favour of the order of the ld. CIT(A). The ld. Counsel submitted that the gain arising to the assessee on account of slump sale by way of a business transfer agreement represented an accounting profit and was reflected in the books of accounts of the assessee. It was argued that a consequently the same cannot be considered for computing any capital gains. The ld. Counsel argued that the appellant has rightly invoked provisions of section 50B of the Act, which are triggered in cases of slump sales. It was argued that the appellant has based its entire calculation of taxable profits from the impugned sales in terms of a valuation made under Rule-11UAE by an unbiased third party valuer. The ld. Counsel argued that the ld. Assessing Officer has violated CBDT Instructions in as much as, whereas it had proposed for addition, in its show-cause notice (SCN), an amount of Rs.3,40,88,869/-, it finally added the entire sale consideration of Rs.4 Crores as Long Term Capital Gains, without providing the assessee opportunity of being heard. The ld. Counsel further argued that the ld. Assessing Officer has not demonstrated any defect in the assessee’s valuation report or to allude that the said valuation is contrary to prescribed procedure given in Rule-11UAE. The ld. Counsel placed reliance upon the decision of Hon’ble Apex Court in the case of Dr. Mrs. Renuka Datla 135 taxmann 200 (SC) holding that violation reports coming from experts need not ordinarily be interfered with. Further, it was stated that in the case of Miheer H Mafatlal AIR 1997 SC 506, it was held that valuation of shares is a technical and complex issue and should be left to be experts in the field of accountancy. Similar view taken by this Tribunal in the case of Weldone Polymers Pvt. Ltd. 163 taxmann.com 773 and of Hon’ble Jodhpur Tribunal in the case of Manjula Singhal 10 taxmann.com 45 was also relied upon. The ld. Counsel further argued that the ld. Assessing Officer had committed a fatal mistake by deducting fixed assets valued at Rs.66,91,654/- from the total value of depreciable assets. It was argued that the act of the ld. Assessing Officer constituted exclusion of an item which never formed part of the original value. Similar arguments were putforth with reference to action of the ld. Assessing Officer in adding the finance lease obligations of Rs.4,57,68,200/- to the total liabilities which were transferred under the slum sale as well as qua the amount of Rs.98,40,000/- on account of rent equalization reserves.
We have heard rival submissions in the light of material placed on records. It is an undisputed fact on record that the transaction under consideration has arisen on account of slump sale which is governed by a business transfer agreement. We have noted that section 50B of the Act reproduced hereunder is a full code in itself prescribing treatment of slump sale transaction arising through business transfer agreement. Thus, section 50B provides as under:-
Special provision for computation of capital gains in case of slump sale.
50B. (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
(2)In relation to capital assets being an undertaking or division transferred by way of such slump sale,—
(i)the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48;
(ii)fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.
(3)Every assessee, in the case of slump sale, shall furnish in the prescribed form a report of an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.
Explanation 1.—For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account : Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth.
Explanation 2.—For computing the net worth, the aggregate value of total assets shall be,—
(a)in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (C) of item (i) of sub-
(aa)in the case of capital asset being goodwill of a business or profession, which has not been acquired by the assessee by purchase from a previous owner, nil;
(b)in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, nil; and
(c)in the case of other assets, the book value of such assets.
We have further noted that section 50B(3) provides that in cases of slump sale, the assessee shall furnish a report of an accountant read with provisions of Rule-11UAE of Income Tax Rules. Thus, we have noted that the law provides specified guidelines to be followed by a tax payer fall in within the purview of section 50B of the Act. The Revenue has not contested application of Rule-50B in this case. The issue that thus arrives is as to whether ld. Assessing Officer is entitled and empowered to reject the violation report of the assessee. We are in agreement to the findings of the ld. CIT(A) that so far as the ld. AO has not demonstrated any defect in the valuation methodology nor shown that the valuation is contrary to Rule 11UAE, he does not gets an authority to substitute the valuation with his own valuation. We are also in agreement with the findings of the ld. First Appellate Authority that the action of ld. Assessing Officer in making an addition without issuing a proper Show Cause Notice was violative of provisions of CBDT Instruction No.20/2015. Accordingly, we are of the considered view that the order of ld. CIT(A) is based upon correct understanding an appreciation of the facts of the case and does not require any interference at this stage. We, therefore, confirm the order of the ld. CIT(A) and dismiss the grounds of appeal raised by the Revenue.
In the result, the appeal of the Revenue is dismissed.