M/S. SWETHA HEALTH RESEARCH PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 6(1)(2), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 2435/Bang/2019 Assessment Year : 2016-17

M/s. Swetha Realmart LLP (Successor in interest of M/s. Swetha Health The Deputy Research Pvt. Ltd.) Commissioner of No. 7, Samyakt Uttaradhi Income Tax, Mutt Road, Circle 6(1)(2), Near National College, Vs. Bangalore. Shankarapuram, Bangalore – 560 004. PAN: AAHCS9486L APPELLANT RESPONDENT

: Shri Chythanya K.K., Assessee by Advocate : Smt. Priyadarshini Revenue by Besaganni, JCIT (DR)

Date of Hearing : 02-11-2021 Date of Pronouncement : 09-12-2021

ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal by the assessee has been filed by assessee against the order of Ld.CIT(A), Bengaluru-6 dated 30.09.2019 relating to Assessment Year 2016-17.

Page 2 of 10 ITA No. 2435/Bang/2019 2. Brief facts of the case are as under. The return of income of the assessee was processed under section 143(1) on 16.08.2016. The case of the assessee was selected for scrutiny under CASS and notice under section 143(2) was issued on 18.07.2017. A show cause notice dated 16.11.2018 was issued by the Respondent and the assessee furnished the details on 12.12.2018. The Ld.AO passed assessment order under Section 143(3) dated 21.12.2018 by applying the provisions of section 50 with respect to transfer of capital asset. Aggrieved by the said assessment order, the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) dismissed the appeal of the assessee by observing as under: Aggrieved by the order of the Ld.CIT(A), assessee filed appeal before this Tribunal. This Tribunal passed an order by dismissing the appeal of the assessee in ITA No. 2435/Bang/2019 dated 29.05.2020. The assessee filed Miscellaneous Petition on 12.06.2020 before this Tribunal to recall the original order dated 29.05.2020. This Tribunal passed order dismissing the miscellaneous petition on 14.08.2020. The assessee thereafter filed appeal before Hon’ble Karnataka High Court challenging the order of this Tribunal dated 29.05.2020. Hon’ble Court admitted following question of law. Whether, in the facts and circumstances of the case, the Tribunal is right in law in dismissing the Appeal instead of disposing the matter on merits.

Page 3 of 10 ITA No. 2435/Bang/2019 Hon’ble Court also held as under. “4. We have considered the submissions made by the learned counsel for the parties, It is trite law that for the fault committed by a counsel, a party should not be penalized. It appears that on account of inadvertence, the senior chartered accountant engaged by the assessee could not comply with the directions of the Tribunal to file the documents. The tribunal, infact, should have adjudicated the matter on merits instead of summarily dismissing the same. 5. In view of preceding analysis, the substantial question of law framed by this Court is answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal is quashed. The matter is remitted to the tribunal. Needless to state that the assessee shall file the audited accounts and computation of income as directed by the tribunal within a period of four weeks from the date of receipt of certified copy of the order passed today, before the Tribunal. Thereupon, the Tribunal shall proceed to adjudicate the appeal on merits. Accordingly, the appeal is allowed.”

Page 4 of 10 ITA No. 2435/Bang/2019 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part a block of assets in respect which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922)" 3. The learned CIT (A) while varying the description of the asset from vacant land as held by the DCIT to vacant land with building did not give any opportunity to the appellant to demonstrate that the building on the said land was a tiny structure of 3.5 squares meant for storing lumber and service lines having BWSSB water supply connection RR No. S10-283. 4. The learned DCIT/CIT(A) ought to have appreciated that the definition of a block of assets under Sec. 50 of the Income tax Act. 1960 includes only an asset "in respect of which depreciation has been claimed under this Act" and hence in the instant case no depreciation had been claimed on the asset as it was a largely a vacant land of 9600Sq. Ft - further the definition of Block of asset under 2(11) of the Income Tax Act 1961 interalia includes Buildings, Machinery or plant or furniture in respect of which depreciation is prescribed. The asset in the instant case does not conform the definition of a block of assets. 5. The learned ACIT/CIT(A) ought to have appreciated that the sale of land having been held for over 3 years constituted a long term capital assets as the gain is arising from is a long term capital gain and the provisions of Sec 50 of the Income Tax Act, 1961 dealing depreciable assets has been wrongly applied in the instant case.” 4. Ld.AR submitted that the alleged capital asset transferred during the year under consideration is land measuring 893.04 Sq. mt. (9,600 Sq. ft.). It was submitted that on that land, there existed two sheds measuring 3.5 sq mt. [i.e. 38 sq ft] and 2 sq. mt [i.e. 21 sq ft] respectively, and the percentage of built up area of these two sheds constitute 0.615% of the total land area. The Ld. Counsel referred to Schedule from the Sale Deed dated 25.02.2016 placed at pg 80, which reads as follows: “ Schedule (Property hereby conveyed) All that piece and parcel of the immovable property bearing Site No. 736, measuring an extent of 893.04 sq. mtrs. (or) 9600 sq ft., situate at Sarakki VI Phase Extension, 15th Cross, J.P. Nagar, Ward No. 57, Bengaluru, having BBMP Property ID No. 57-208-736 and

Page 5 of 10 ITA No. 2435/Bang/2019 Measuring East to West : 24.40 meters and North to South : 36.60 meters and Bounded on the East :Site No. 737 West : Road North : Road South : Site No. 735 together with RCC building, brick wall and mosaic flooring measuring 3.5 squares, and ACC cement flooring Shed measuring two squares, with compound wall around the property together with BWSSB water supply connection RR No. S10-283.” Ld. Counsel then referred to extracts from the audited financial statement for the year ended 31.03.2015 at pg 58, 61 and 63 reproduced hereunder for sake of convenience. Balance Sheet Extract: As at March As at March Particulars Note 31, 2015 31,2014 II. ASSETS (1) Non-Current assets 6 45,65,025 45,65,025 (a) Fixed assets (i) Tangible Assets

Notes forming part of Balance Sheet: Notes As at March As at March 31, Particulars No. 31,2015 2014

Fixed assets (i) Tangible Assets Property at No. 736, 6 45,65,025 45,65,025 Sarakki VI Phase, Extension, 15th Cross, J.P. Nagar, Bangalore-560078

Significant Accounting Policies and notes on Accounts: Note No.11: A) Significant Accounting Policies and notes on Accounts. 1. Fixed Assets: a) Fixed Assets are accounted for at historical cost and valued at cost of acquisition inclusive of any other cost attributable to bringing the same to their working condition. b) Depreciation on fixed assets has not been provided as the asset is a vacant site.

Page 6 of 10 ITA No. 2435/Bang/2019 The Ld.Counsel submitted that, similar disclosure was made consistently in past which is evident from audited financial statements for the FYs 2010-11 to 2014-15 which is verifiable from the assessment records for relevant assessment years. 5. The Ld. Counsel submitted that in the Partnership Deed dated 05.12.2000, the value of the alleged capital asset at the time of contribution towards capital by the partner is shown as Rs.45,65,025/- which is the position also in the audited financial statements of the assessee. He submitted that right from the inception, the alleged capital asset is treated as fixed asset being in the nature of vacant site and the same was disclosed in the Significant Accounting Policies and notes on Accounts to the financial statements. He emphasized that the shed which is put up on the land is very negligible as compared to the land. The Ld. Counsel demonstrated the same as under: Particulars Sq. Mtrs % Sq. Ft. % Land 893.04 9,600 Small motor 3.5 0.392 38 0.396 shed Shed 2 0.224 21 0.219 Total 0.616 0.615

Page 7 of 10 ITA No. 2435/Bang/2019 the Significant Accounting Policies and notes on Accounts to the financial statements. In support of, the Ld. Counsel referred to the return of income filed for year under consideration at page 160-161 annexed to written submission. He also relied on the return of income for preceding assessment year placed at page 35-36 of paper book with the same position. He thus submitted that the assessee has neither included the subject capital asset under block of asset nor claimed depreciation as per the provisions of the IT Act. As the asset was never used for any business purpose, the same is not even eligible for depreciation. In support of the arguments, the Ld.AR placed reliance on following decisions.  CIT vs. I.K. International (P.) Ltd., [2012] 206 Taxman 622 (Delhi)  CIT vs. Santosh Structural & Alloys Ltd., [2012] 206 Taxman 616 (P&H)  K.D. Madan vs. ITO [2017] 248 Taxman 157 (Madras) We have perused the submissions advanced by both the sides in the light of the records placed before us. The Ld.Sr.DR relied on orders passed by authorities below. 7. We have considered the rival contentions and perused the material on record including case laws relied upon by Ld.Counsel. 7.1 We note that the alleged asset was brought in as initial capital by Dr. Gaddam Ramana Reddy to the Partnership firm. On subsequent conversion of the firm to Pvt. Ltd. company, the alleged land was shown as fixed asset in the Balance Sheet. Further it is noted that the impugned asset has been nomenclatured as vacant land in the Balance Sheet. There is nothing on record to establish that the sheds standing on the impugned asset formed part of block of assets on which

Page 8 of 10 ITA No. 2435/Bang/2019 depreciation was claimed. The basis for the Ld.AO to hold the impugned land to be STCA instead of LTCA as considered by assessee in our view is on a wrong basis. The reasoning for upholding the disallowance by Ld.AO and applying provisions of section 50C by Ld.CIT(A) is as under: “From the description of the property given in both the partnership deed and the Sale Deed, it is apparent that the property in question was not simply a vacant site as claimed by the appellant but had a building constructed on it and consequently, it was included in the Schedule of Assets under Land and Building. Therefore the AO was correct in applying the provisions of Section 50 of the Act, which reads as follows:” From the above, it is clear that since there was shed on the alleged land, the view of Ld.AO was upheld without verifying the records. Though the sheds on the land was depreciable assets, the financial statements for year under consideration and preceding assessment year suggests that no depreciation was claimed by assessee. 7.2 Further land was transferred by assessee to the purchaser on as is where is basis. There was no bifurcation of cost in respect of the land and the sheds. The sale agreement was composite in nature. 8. In case of CIT vs. I.K. International P. Ltd. (supra), Hon’ble Delhi Tribunal held as under: “The Assessing Officer in our opinion was in error in invoking the provisions of Section 50(2) of the Act to the sale of the land and building comprised in S-7 & 8, Green Park, New Delhi on 29.08.2005. As the depreciation charts and the schedule of fixed assets forming part of the balance sheets show, the cost of the land has been taken at Rs. 1,48,00,000/ - as on 31.03.2002 to 31.03.2005. No depreciation has been allowed on the land in any of the assessment years. In fact, as we have already found, no rate of depreciation has ever been prescribed for land. That land is not a depreciable asset is no longer res Integra after the judgment of the Supreme Court in CIT v. Alps Theatre [1987] 65 ITR 377. If land is not a depreciable asset and cannot form part of the block of assets in the absence of a rate of

Page 9 of 10 ITA No. 2435/Bang/2019 depreciation having been prescribed therefor, we do not see how the provisions of Section 50 of the Act can be invoked to the present case. The Assessing Officer was clearly acted contrary to law when he invoked Section 50(2) of the Act on the footing that the land formed part of the block of assets.” 9. In case of CIT vs. Santosh Structural & Alloys Ltd. (supra), Hon’ble Punjab & Haryana High Court held as under. “6. When we confronted learned counsel for the appellant with the oresaid factual as well as legal position, he could not successfully argue that any question of law would arise because all the questions as claimed by the Revenue are based on presumption that plant and machinery (not in use) would be covered by the expression 'block of assets' even if no depreciation has ever been claimed. Once the Tribunal has recorded a categorical finding of fact that the plant and machinery, which is covered by Section 50 of the Act, would be a depreciable asset and not the one on which no depreciation was ever claimed then such assets which are not depreciable, could not ever be assessed under Section 50 of the Act. The appeal does not raise any question of law much less a substantive question of law and therefore, the same does not warrant admission.” 10. Further, Hon’ble Madras High Court in case of K.D. Madan vs. ITO (supra) held as under. “5. Section 50 of the Act invoked by the Revenue applies to a .asset forming part of a block of assets, in respect of which, depreciation has been allowed. In the present case, the foreign cars do not form part of a block of assets and, admittedly, have not been granted depreciation in so far as depreciation was not allowable in respect of foreign cars for the relevant period. The provisions of section 50 of the Act are thus inapplicable to the present case.” 11. We are of considered opinion that Section 50 of the Act cannot be applied to the present facts of the case. Accordingly, Grounds 2 to 5 stands allowed. 13. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 09th December, 2021. Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 09th December, 2021. /MS /

Page 10 of 10 ITA No. 2435/Bang/2019 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order

Assistant Registrar, ITAT, Bangalore