NATIONAL ENGINEERING INDUSTRIES LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 5(1), KOLKATA

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 04.12.2025 for the AY 2017-18.

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 2.1. Brief facts of the case are that assessee is engaged in manufacture of bearings. It also manufactures rubber profiles that are used in automobiles. During the year the assessee had assigned leasehold rights which it held in two office spaces in Constantia Office Complex to M/s Desai Haribhakti& Co. for aggregate consideration of Rs.18,15,66,000/-. The deed of assignment was executed on 31.03.2017. According to the circle valuation certificate, the valuation of the said property for the purpose of stamp duty valuation at the time of assignment was stated to be Rs.21,22,52,562/-, which was less than the actual consideration received by the assessee. The AO required the assessee to explain as to why the actual sale consideration should not be substituted with the circle value in terms of Section 50C of the Act. To this, the assessee submitted that, section 50C applies only to the capital asset being land or building or both and that leasehold rights are neither land or building or both nor can these rights be included within the scope of land or building. The AO however being not satisfied with this explanation added the difference of Rs.1,79,00,241/- by way of long-term capital gains.

2.2. Being dissatisfied, the assessee carried the matter in appeal and the Ld. CIT(A) dismissed the ground raised by the assessee.

2.3. The Ld. AR for the assessee drew out attention to the provisions of section 50C of the Act, wherein it has been specifically mentioned that this Section is applicable to those capital assets only which are land or building or both. He Page 2 of 10

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 contended that Section 50C is a deeming provision and it should be applied only in respect of situation specifically mentioned therein. According to him, leasehold rights are a independent specie of capital asset distinct from a capital asset being land or building or both, and thus Section 50C has no application. In support of his contention, he gave reference to certain sections under the Act whereby "land or building" and "rights in land or building" have been recognized separately such as Section 54D of the Act &Section 5(1) of the Wealth Tax Act, 1957. He further placed reliance on the following decisions:-

i. Britannia Industries Ltd vs. PCIT (161 taxmann.com 705) [ITAT Kol] affirmed by the Hon’ble Calcutta High Court in ITAT No. 70 of 2025 (176 taxmann.com 470)

ii. CIT v. Greenfield Hotels & Estates (P.) Ltd. [2017] 77 taxmann.com 308/245 Taxman 125/[2016] 389 ITR 68 (Bom HC)

iii. DCIT vs. A.R Sulphonates (P.) Ltd (161 taxmann.com 451) [ITAT Kol]

iv. Ritz Suppliers (P.) Ltd.v ITO [2020] 113 taxmann.com 349/182 ITD 227 (Kol.- Trib.)

v. Dy. CIT v. Tejinder Singh [2012] 19 taxmann.com 4/50 SOT 391

vi. Teckmen Systems vs. ITO (ITA No. 28/Mum/2025) [ITAT Mum] Page 3 of 10

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 vii. Neha Gupta vs ITO (179 taxmann.com 567) [ITAT Del]

viii. Atul G. Puranik v. ITO [2011] 11 taxmann.com 92/132 ITD 499 (Mum.)

ix. Smt. Sowmya Sathyan v. ITO [2021] 124 taxmann.com 74/187 ITD 149 (Bang. - Trib.)

x. Noida Cyber Park Pvt. Ltd. ITO [2021] 123 taxmann.com 213/186 ITD 593 (Delhi - Trib.)

xi. Bharat Bhushan Jain v. ITO [ITA No/316/Del/2020, dated 27-5-2022]

xii. CIT v. Envair Electrodyne Ltd. [ITA No. 611/PN/2018, dated 30-6-2022]

xiii. Kadir Ahmed v. ITO [ITA No. 418/Del/2020, dated 4- 10-2022]

xiv. Damyanti Mundhra v. ITO [ITA No. 1722/Del/2019, dated 21-8-2019.

2.4. Per contra, the Ld. DR placed emphasis on the findings of the AO and the CIT(A) and prayed that the addition be sustained.

2.5. After hearing the rival contentions and perusing the material placed on record, we find that this issue is no longer res integra before us. This exact same issue has been decided in the favour of the assessee by the Coordinate Bench of this Page 4 of 10

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 Tribunal in the case of DCIT vs. A.R Sulphonates (P.) Ltd (supra), the relevant portion of the order of the Tribunal is as follows:

““8. We have heard the rival contentions and perused the material on record. We have carefully gone through the submissions of both the parties as well as agreements and judicial precedents referred before us. When we refer to the agreement dated 07.12.2016 by which MIDC as guarantor of leasehold right has transferred the lease rights to the assessee as the licensee in the said agreement, it is noted that assessee i.e. licensee had applied to the guarantor i.e. MIDC for grant to it, a lease of the land and premises which the guarantor had agreed to grant to it upon certain terms and conditions. The consideration prescribed in the said agreement is in respect of premium payable by the licensee. This agreement has been referred to as agreement to lease through which guarantor had handed over the possession to the licensee of the said industrial plot of land. In sub-clause (b) of clause (2) of this agreement, it is specifically mentioned that the licensee cannot assign, letting or part with the possession of the demised premises or any part thereof without the previous written consent to the Chief Executive Officer and the Chief Executive Officer may in his absolute discretion, refuse such consent or grant the same subject to such condition as he may think fit. Thus, with this restrictive covenant, assessee has limited rights for the transfer of even the leasehold right that it had obtained under this agreement.

8.1. In the agreement for assignment dated 28.04.201 between the assessee as transferor/assignors and partners of SMI as transferee/assignees in clause (4), it is specifically stated that the transfer of lease is subject to grant of permission by MIDC that in clause 14 it is specifically stated that on grant of requisite permission of MID C, the transfer or assignment in respect of said plot will be completed in favour of the transferees/assignees for which necessary agreement/deeds shall be executed. Similar requisition of obtaining permission of MIDC is also contained in clause 17 of this agreement. Further to this, the order from MIDC dated 23.02.2016 is in respect of granting of approval for the transfer of lease from the assessee to SMI in absence of which the entire transaction of transfer would have failed. Thus, taking into consideration all these three documents, it is evidently demonstrated by the assessee that the leasehold rights are limited and restrictive in nature as compared to the ownership rights.

8.2 The moot point before us to be considered is whether the transfer of leasehold rights in land falls within the purview of section 50C or not. In this respect, from section 50C(1) itself, we have already noted that it refers to transfer of a capital asset, being land or building or both. Whether this land or building or both would include the leasehold rights in the said land or building or both is what we need to consider.

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ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 8.3. In the written submission made by the Ld. Sr. DR, while referring to the pre- requisite of charging long term capital gain u/s. 50C, it is stated that existence of capital asset as land or building is one of the important prerequisite. In this statement, Ld. Sr. DR has also used the word "immovable property" which in our understanding does not find place in section 50C(1). By referring to "immovable property", ld. Sr. DR has gone into the provisions of section 269UA(d) wherein this term 'immovable property' is defined which refers not only to 'land or building or part of a building' but by way of explanation, also includes "any rights therein" which has a restrictive application as the explanation mentions "for the purpose of this sub clause". Ld. Sr. DR has also referred to the definition of "transfer" in section 2(47)(vi) according to which any transaction which has the effect of transferring or enabling the enjoyment of any immovable property is also covered by the definition of transfer. Again in this definition by way of explanation (1), the term 'immovable property' draws its meaning from clause (d) of sec. 269UA which we have dealt above.

8.4. By taking recourse to the phrase 'immovable property', Ld. Sr. DR has made an attempt to infer that the transaction of even leasehold property would yield long term capital gain, liable to be taxed u/s. 50C. In this context, it is important for us to note that sec. 50C is a deeming provision by which the full value of consideration is substituted by the value adopted or assessed or assessable by stamp valuation authority in place of consideration received for a transfer of capital asset being land or building or both. It is a settled legal proposition that deeming provision cannot be extended beyond the purpose for which it is enacted. Section 50C(1) does not refer to immovable property but to specific capital asset being, land or building or both. Thus, the inference arrived at by the Ld. Sr. DR fall apart for which due force is drawn from the judicial precedence of Hon'ble Supreme Court in the case of Amarchand N. Shroff (supra) and Mother India Refrigeration (supra), referred above in this respect.

9.1. For this, we need to understand the nature of rights accruing on a property which is freehold and the one which is leasehold. In this respect, we do find force in the submission made by the Ld. Counsel exhaustively dealing with several parameters to distinguish between the features of leasehold property and a freehold property, already tabulated above. Accordingly, the capital asset being land or building or both referred to in sec. 50C(1) do not include leasehold rights in land or building or both.

9.2. Further, we take note of the fact that wherever legislature intended to include specific reference to "rights in land or building or part thereof" which is included in certain sections such as section 54D, section 54G, sec. 54GA, sec. 27(iiib), sec. 5(1) of Wealth Tax Act, 1957 and explanation to sec. 269UAD. Such a reference to "rights Page 6 of 10

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 in land or building or part thereof" does not find place in sec. 50C(1) which sets it apart from the inference to be drawn that capital asset being, land or building or both would also include rights in land or building or part thereof, to cover leasehold rights which are limited in nature and cannot be equated with ownership of land or building or both. The Act has given separate treatment to land or building or both and the rights therein. 9.3. Considering the exhaustive discussion made above on various aspects of the issue before us, and the factual matrix corroborated by relevant documentary evidence, we are in agreement with the submissions made by the Ld. Counsel for the assessee to hold that leasehold rights in land are not within the purview of section 50C of the Act. Accordingly, we concur with the finding arrived at by Ld. CIT(A) in deleting the addition of Rs.5,29,39,153/- on account of long term capital gain for transfer of leasehold industrial plot u/s. 50C of the Act.” 2.5.1. Similar view was also expressed by the coordinate bench in the case of Britannia Industries Ltd Vs PCIT (supra) dated 06.03.2024, whose relevant portion is reproduced below :-

“18. We have perused the provisions of section 56(2)(x) of the Act and note that the provisions of section are not applicable to acquisition of leasehold rights in land and building and therefore, the direction of the ld. PCIT requiring the ld. Assessing Officer to examine the transactions of acquisition in light of section 56(2)(x) of the Act is ex-facie untenable and contrary to the provisions of law. We observe that the provisions of section 56(2)(x) of the Act are applicable in a case where transfer of land and building or both, but not to the leasehold rights. The case of the assessee finds support from the decision of the Hon'ble Bombay High Court in the case of Green Fields Hotels & Estates (supra), wherein a ratio has been laid down that in respect of leasehold rights, the provisions of section 56(2)(x) of the Act are not applicable. We note that the similar issue has been laid down by the Coordinate Bench of ITAT in the case of Tejinder Singh (supra); Atul G. Puranik (supra), Soumya Sathyan (supra) and various decisions as relied and referred by the assessee during the course of hearing by the ld. A.R and noted above. Therefore, the exercise of jurisdiction by the ld. PCIT is unsustainable in the eyes of law.” 2.5.2. The above decision has been upheld by the Hon’ble jurisdictional Calcutta High Court as well. Following the decisions cited above, we are in agreement with the submissions made by the ld. AR for the assessee

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ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 that leasehold rights in land are not within the purview of section 50C of the Act. Accordingly, we direct the AO to delete the addition of Rs.1,79,00,241/- made on account of long-term capital gain for transfer of leasehold rights u/s. 50C of the Act. Ground no.1 is allowed.

“"5. Regarding the issue of disallowance u/s 14A of the Act, it is worth considering that as a corporate entity, the assessee is legally bound as per the Companies Act, 2013 to follow Ind-AS in preparing its accounts. IndAS-109, read with Ind-AS-113 clearly direct that investments have to be valued at a fair or market valuation, which was done by the assessee. Incidentally, suo moto disallowance was made on that basis only. However, subsequently the assessee filed a revised computation before the Ld. AO after adopting the cost price of such investments, in line with ICDS-1 principles. In this context, the relevant portion from CBDT's Circular No. 10/2017 (supra) deserves to be extracted as under: CBDT Circular number 10/2017 dated 23.3.2017 "Question 8 : Para 4(H) of ICDS-I provides that Market to Market ( MTM) loss or an expected loss shall not be recognized unless the recognition is in accordance with the provisions of any other ICDS. Whether similar consideration applies to recognition of MTM gain or expected incomes? Answer : Same principle as contained in ICDS-I relating to MTM losses or an expected loss shall apply mutatis mutandis to MTM gains or an expected profit. It is a settled position that ICDS has been notified u/s 145(2) of the Act and would, therefore, take precedence over Ind-AS in case there is a conflict between the two. Since the assessee's action in assuming the cost price or Page 8 of 10

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 acquisition cost of investments for the purposes of disallowance u/s 14A of the Act is in consonance with ICDS hence it deserves to be supported in principle. However, since the Ld. AO has adopted the figures in the accounts of the assessee hence, he could not have examined the veracity of figures presented by the assessee as denoting the cost of acquisition. Thus, we deem it fit to remand this matter back to the Ld. AO for examining the correctness of claim about the cost aspect of investments as per ICDS and thereafter recomputing the disallowance u/s 14A read with Rule 8D(2)(ii), on that basis.” 3.1. The Ld. AR also filed the corrected computation of disallowance u/s 14A of the Act by adopting the value of investments at cost, which is placed at Pages 126 to 127 of the paper book. Per contra, the Ld. DR supported the order of ld. CIT(A).

3.2. After hearing the rival submissions, we find that the impugned issue stands covered in favour of the assessee in their own case (supra) and therefore the investments are required to be valued at their original cost for the purposes of Rule 8D. This being so, respectfully following the decision of Coordinate Bench, the Assessing Officer is directed to verify the workings furnished by the assessee before us and recompute the disallowance u/s 14A r.w.s. 8D. This ground is therefore allowed for statistical purposes.

4.1. After hearing the rival contentions and perusing the materials available on record, we find that the issue is settled in favour of the assessee by the decision of special Bench of this Tribunal at Delhi in case of ACIT Vs. Vireet Investment Pvt. Page 9 of 10

ITA No. 418/KOL/2026 National Engineering Industries Ltd.; A.Y. 2017-18 Ltd (ITA No.502/Del/2012), wherein the Hon'ble Special Bench has held that the disallowance by the ld. AO u/s 14A read with Rule 8D of the Rules is not required to be made to the book profit u/s 115JB of the Act. Accordingly, we direct the ld. AO to delete the addition made to the book profit u/s 115JB of the Act. Ground No. 3 of the assessee is therefore allowed.

Order pronounced on 11.09.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 11.09.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

(Manish Bhoi) Dy. Registrar Income Tax Appellate Tribunal, Kolkata

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