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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI GAGAN GOYAL
ORDER PER GAGAN GOYAL, A.M: These two appeals by assessee are directed against the order of National Faceless Appeal Centre, Delhi [for short ‘NFAC’] orders dated 24.03.2022 & 26.03.2022 for Assessment Years (AY) 2016-17& 2017-18 respectively. We shall first take up appeal of assessee for A.Y. 2016-17 as lead case. The assessee has raised the similar grounds of appeal
for both the AYs except variation of amounts in figure, which are as under: “1. The Honourable Commissioner of Income Tax (Appeals), NFAC upheld the following disallowance of sums amounting to Rs. 8,42,105/- made by the Assessing Officer: (a) a sum of Rs. 7,39.112/-, being depreciation at the rate of 10 percent on the value of land situated at Kolkata, West Bengal as computed by the Assessing Officer and (b) a sum of Rs. 1.02,993/-, being depreciation at the rate of 5 percent on the value of land situated at Ahmadabad, Gujarat as against the rate of 10 percent computed by the Assessing Officer. Your Appellants submit that the said disallowance be deleted and the claim of depreciation be allowed in calculating the total income of Your Appellants.
2. Without prejudice to the above, the Honourable Commissioner of Income Tax (Appeals), NFAC erred in upholding the same value of land amounting to Rs. 94,50,977/- built in the office premises in respect of both the properties purchased during the year i.e. properties located at Kolkata and Ahmadabad. Your Appellants submit that the calculation of land portion built in the office premises by the Assessing Officer be rejected and instead should be calculated at the time when it was purchased and according to the rates available in the respective states.”
2. Brief facts of the case are that the assessee filed its return of income on 30- 11-2016 declaring total income at Rs 16, 95, 62,560/- the case was selected for scrutiny under CASS. Assessee Company engaged in the business of shipping agency where they represent the Indian activities of foreign lines NVOCC and tank operators. During the year under consideration assessee purchased two properties one at Ahmadabad amounting to Rs 58, 85,300/- and another at Kolkata amounting to Rs 1, 99, 12,640/-. The purchase amount of these properties has been added to the block of assets under the head building depreciable @10%.
3. During the assessment proceedings assessee was asked to submit relevant documents pertaining to purchase of these properties. In response to that assessee submitted relevant purchase deed of both the properties. Based on these documents AO demarcated the value of purchase between land and building. Consequent to this he disallowed depreciation @ 10% on land portion of the consideration paid. 4. Assessee being aggrieved approached the office of Ld.CIT (A) (NFAC). Ld.CIT (A) also confirmed the view taken by the AO. In turn, against this order of Ld.CIT (A) assessee approached this tribunal with the grounds raised mentioned above. We have gone through the order of AO, order of the Ld.CIT (A) and submissions of the assessee along with the document relating to purchase of properties and case laws relied upon by both the sides.
5. For just and fair adjudication of the matter we need to appreciate the facts enumerated in the documents relating to purchase of properties under consideration as under: (i) Property at Kolkata: We have gone through the deed of conveyance made on 08-04-2015 and registered on 10-04-2015. This deed contains total 23 pages the relevant page for this transaction starts from pg no. 9 to 23. Total consideration for this property was settled at Rs 1.8 cr. On this transaction assessee got office space room no. 1, 5th floor and measuring 1150 square feet area in the building known as “Vasundhara” situated at premises no. 2/7, Sarat bose road Kolkata as demarcated portion of the office space along with 1.2% undivided share of land over which this building Vasundhara is constructed. It is clearly emanated after observing this document that assessee has not paid specifically towards purchase of land out of the total consideration paid. This fact is further corroborated with the fact that as far as land is concerned assessee got an undivided share of the land to the extent of 1.2% only. It is further observed that there is no demarcation of this 1.2% out of total area of plot. Practically also this undivided share of assessee (1.2%) is not available for any independent sale, although assessee received a right in the land by virtue of this building purchase transaction but has no specific value assigned, no specific marking is being done in favour of the assessee, no possibility of selling/ transfer it separately. (ii) Property at Ahmadabad: We have gone through the deed of conveyance made on 21-09-2015 and registered on 20-10-2015. This deed contains total 18 pages. Total consideration for this property was settled at Rs 52lakhs. On this transaction assessee got office space room no. 208, 2nd floor and measuring 1102 square feet area in the building known as “Aaryan” situated at plot no. 84 of town planning scheme no 20 Ahmadabad demarcated portion of the office space. It is clearly emanated after observing this document that assessee has not paid specifically towards purchase of land out of the total consideration paid. This fact is further corroborated with the fact that as far as land is concerned assessee got nothing as an undivided share of the land. Practically also this undivided share of assessee, if any is not available for any independent sale, although assessee received a right in the land by virtue of this building purchase transaction but has no specific value assigned, no specific marking is being done in favour of the assessee, no possibility of selling/ transfer it separately.
Giving due consideration to the facts mentioned supra about the office purchase transaction and the order of the AO one fact emerged very clearly that there is no specific value assigned to the land part of the transaction rather in Ahmadabad property transaction we observed that even undivided, unmarked share even not given to the assessee. Whatever the calculations and logics applied by the AO to segregate the value between land and building is a result of over thinking at the part AO.
Considering the facts mentioned above, even if for the time being assume that the working of the AO is correct, at the time of sale how capital gain on transfer of land will be calculated, certainly, not at the figures assigned by the AO. Just to Achieve purpose of section. 32, AO can’t disturb the whole scheme of capital gains. If one goes by the logics of AO the machinery provisions embodied in the scheme of capital gain will fail. As the scheme of capital gains talks about actual cost incurred by assessee to acquire any capital asset or statute itself has provided cost as Nil value in some cases where cost is not ascertainable still statutes intention is to tax the same under the head Capital Gains. In this case valued assigned to land as per the formula prescribed by the AO is not meeting either of the method provided in the scheme of Capital Gains.
In addition to the above technical discussions, we have relied on following judicial pronouncements delivered by various co-ordinate benches of ITAT as under: (i) [2003] 86 ITD 135 (KOL.) (TM) IN THE ITAT KOLKATA BENCH ‘D’ (THIRD MEMBER) ITC Ltd. v. Deputy Commissioner of Income-tax Section 50 of the Income-tax Act, 1961 - Capital gains - Computation of, in case of depreciable assets - Assessment year 1994-95 - Commissioner (Appeals) sustained Assessing Officer’s orders holding that land and building being one composite unit and inseparable, since assessee received total sale consideration in respect of floor spaces sold by it, long-term capital gain offered by assessee separately on sale of individual interest in land was not acceptable - Held, yes - Whether land and building are separate assets and in normal course they have to be separately considered for purpose of depreciation as also for computation of capital gains - Held, yes - Whether, however, nature of treatment of sale/purchase consideration can be verified from books of seller and purchaser, and if sale/purchase consideration is treated as composite and depreciation is also claimed and allowed, and it is impossible to bifurcate cost/sale consideration of land from total sale consideration, then only it has to be treated as a composite sale and Assessing Officer would be justified in taking composite sale consideration - Held, yes - Whether, however, if it is possible to work out cost of land and its sale consideration on basis of material on record, AO will not be justified to adopt the above method - Held, yes (ii) ITO Vs. Millennium Spire India Management (P.) Ltd. In ITA No. 3297/Del/2013. (iii) M/s. Bharat Homes Ltd. Vs. ACIT in ITA No. 6792/Mum/2011.
To achieve the purpose of one section, AO can’t disturb the scheme of machinery section provided in any other head of income. We further observed that Ld. DR has not assailed the factual position that the consideration paid was not a composite consideration. Therefore, keeping in view, the facts enumerated above and the order of AO we are of the view that hypothetical assignment of value by the AO is not sustainable and consequent disallowance of depreciation on these office purchase transaction by the assessee is not warranted. In above terms we allow Ground No.1 raised by the assessee and direct the AO to delete the disallowances made as discussed above.
As the Ground No. 1 has already been decided in favour of assessee, Ground No. 2 is no more relevant hence left undecided.
ITA No. 1875/Mum/2022 (A.Y. 2017-18)
Grounds raised in this appeal are similar to . Facts of this year are also similar to those of ITA No. 1874/Mum/2022. As has already been decided as discussed (supra), results will apply mutatis mutandis to this appeal also. Resultantly, Ground No.1 of this year also allowed and Ground No.2 left undecided as the same is not relevant after adjudication of Ground No.1. In these terms this appeal of assessee is also allowed.
In the result, both the appeals filed by the assessee are fully allowed. Order pronounced in the open court on 16th day of December, 2022.