In ITA No.2945/Mum/2022 – ITAT - Filing of Form 3CEA Audit Report is mandatory for Slump Sale under Sec 50B (3) of Income Tax Act: ITAT (Mumbai)
Members Om Prakash Kant (Accountant) & Kavitha Rajagopal (Judicial) [25-05-2023]

Read Order: DCIT, Mumbai v. Sodexo Facilities Management Services India Pvt. Ltd

LE Correspondent

Mumbai, May 26, 2023: The Mumbai bench of the Income Tax Appellate Tribunal has ruled that the filing of an Audit Report in Form 3CEA is mandatory in the case of a slump sale under section 50B (3) of the Income Tax Act.

The case involved the reopening of the assessment by the Assessing Officer (AO) under section 147 of the Income Tax Act. The AO noted that Sodexo Facilities Management Services India Pvt. Ltd (assessee) had transferred one of its divisions and offered Long Term Capital Gain (LTCG) of Rs. 2,99,95,422/-. The AO further observed that the assessee had failed to file the mandatory Audit Report under section 50B (3) of the Act, resulting in a failure to disclose material facts. The AO made an addition amounting to Rs. 3,26,25,672/-. On further appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] declared the reopening of the assessment as invalid and decided to delete the addition made by the AO.

The bench of Om Prakash Kant (Accountant) and Kavitha Rajagopal (Judicial) held that the Audit Report required under section 50B (3) of the Income Tax Act was material to the assessment. Since the assessee had failed to file the Audit Report before the AO, it was deemed that the assessee did not disclose the material facts fully and truly.

With regard to the challenge to the deletion of the addition made by the AO to LTCG computation arising from the slump sale of the food service division, the bench observed that the AO did not carry out valuation by an independent valuer and merely chose a part of the valuation report submitted by the assessee. As a result, the bench decided to restore the issue back to the AO and directed him to refer the matter to a valuation expert and thereafter, determine the Fair Market Value (FMV) of the undertaking of the food division of the assessee.