In a recent ruling, the Chennai bench of the Income Tax Appellate Tribunal (ITAT) has ordered adjudication when the settlement of a dispute under the Vivad se Vishwas (VSVS) Scheme on computing income in terms of APA between parties.
Calchennai Mobile Worx P.Ltd., the assessee company is a digital mobile advertising company based in Chennai with offices in the USA. The assessee owned two intellectual property rights in the name of Los Angeles & Dex Monics, Zest ADZ which essentially helps advertisers and agencies deliver targeted mobile advertising campaigns to drive brand awareness, and marketing in smartphone and feature phone platforms.
During the financial year relevant to the assessment year 2012-13, the assessee company entered into an asset purchase agreement with M/s. Komli Media India (P) Ltd., to sell the above-mentioned business of the assessee company. The assessee company has declared long-term capital gains from the sale of the business at Rs. 18,55,846/-, by considering a sale consideration of Rs. 2,44,14,250/-.
The AO based on an agreement between the parties for the sale of the asset and also confirmation received from the purchaser observed that the assessee has received a sum of Rs. 5.76 crores as consideration for transfer of business. The AO made additions of Rs. 5,34,87,923/- under the head income from business and profession.
The CIT(A) held that consideration received for the transfer of business is assessable under the head income from the business as per section 28(va) of the Income Tax Act, 1961 and upheld the findings of the AO in assessing income under the head income from business and profession.
It was submitted that the assessee’s appeal on the very same issue, has been settled under the Direct Taxes Vivad se Vishwas, 2020 scheme and said fact needs to be considered while computing the income in terms of APA between the assessee and the purchaser.
As regards consideration received for the transfer of business, the CIT(A) after considering relevant facts held that the amount accrued and received during the assessment year 2012-13 only needs to be considered for computation of income and directed the AO to recompute income by considering actual amount of consideration received.
A Coram comprising of Shri Mahavir Singh, Vice President and Shri G Manjunatha, Accountant Member observed that although the assessee claims that there is a dispute between the assessee and the purchaser, no evidence has been brought on record to substantiate the claim.
The Tribunal set aside the issue to the file of the AO and directed the Assessing Officer to re-consider the issue in light of the agreement between the parties. The AO is also directed to consider the issue of settlement of the dispute on the very same issue by the assessee in their appeal under the VSVS Scheme, 2020 while computing the income in terms of APA between the parties.
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