A bench headed by Chief Justice SH Kapadia has adjourned the matter till April 30.
The assesse, engaged in the business of manufacturing and sale of chemical fertilisers and allied products as well as cement, had hived off its 1.7-million-tonne cement division in Andhra Pradesh to Zuari Cement, in which 50% shares were held by assessee against lump sum consideration of R75.98 crore.
According to the department, Zuari in its income tax returns for 2001-02 had shown receipts from transfer of cement division at R75.98 crore, but the actual receipt as per the Board of Directors resolution is for R524 crore.
However, Zuari had claimed that the net worth of cement division as per computation done under Section 50B of the Income Tax Act was in the negative (-R 150.46 crore). As such, in the absence of cost which is a necessary limb for computing capital gain, the relevant section for computing capital gain fails, thus consideration received amounted to capital receipt not chargeable to tax, the company stated.
However, the assessees claim was rejected by the Assessing Officer (AO), who computed the capital gain at R224.55 crore by adding the net worth to the sale consideration.
According to the I-T, the assesse had not disclosed the entire details regarding the benefit which had resulted consequent to transfer of the cement division. It further added that Zuari had not been able to substantiate the explanation as its tax auditors had not advised that the transaction had not resulted in the capital gains, as can be seen from the certificate issued by AF Ferguson.
Even the assesse had twisted the facts and changed its stand regarding receipts on account of capital gains at the assessment stage and even before the CIT and the tribunal, the appeal stated.
The CIT(A) also upheld the order of the assessing officer and dismissed Zuaris appeal. However, the Income Tax Appellate Tribunal in June 2006 partly allowed the appeals filed by the Revenue and Zuari.
Subsequently, penalty up to R14.26 crore was levied on Zuari for furnishing inaccurate particulars in August 2009. While CIT dismissed the companys appeal, the tribunal deleted the penalty. Even the Bombay High Court held that there was no concealment of the particulars of the income.
The high courts judgment was challenged by the Revenue before the apex court on the ground that the high court proceeded on the basis that mere non-acceptance of the assessees contention cannot lead to conclusion that the assesse intended to furnish inaccurate particulars or that it intended to conceal the income.
According to the department, the bonafides of the claim are yet to be checked in the quantum tax appeal pending before the high court on the issue of capital gains filed by Zuari as well as the cross-appeal filed by the Revenue. The decision in quantum appeal would have a direct effect on penalty proceedings and therefore, the high court should have admitted the tax appeal.