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Income Tax Appellate Tribunal, ‘B’ BENCH, PUNE
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA No. 397/PUN/2020 : A.Y. 2013-14
Pride and Expert Properties Pvt. Ltd. 901, 9th floor, Pride Hulku 116 Lalbaug Road, Bengaluru – 560 027 PAN: AAACE 4356 J Appellant Vs. The Dy. CIT Central Circle. 1(1) Pune Respondent
Appellant by : Shri Suhas Bora Respondent by : Shri Sardar Singh Meena
Date of Hearing : 16-11-2022 Date of Pronouncement : 16-11-2022
ORDER PER PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER This appeal preferred by the assessee emanates from the order of the Ld. CIT(A)-11, Pune, dated 13-03-2020 for A.Y. 2013-14 as per the following grounds of appeal.
The ld. CIT(A) has erred in confirming the addition made by the AO under the head capital gains arising out of sale of property under the head short term apital gain u/s 50 of the Act on the ground that appellant has disclosed the asset under Companies Act as business asset and not claiming of depreciation under IT Act does not change the character of asset. 2. The ld. CIT(A) while confirming the addition made u/s 50 disregarding the contention of the appellant that the property in question was never included in the block of asset and claimed depreciation u/s 32 for invoking provision of sec. 50 of the Act. 3. The ld. CIT(A) while making addition u/s 50 failed to appreciate that property was held by the appellant as investment and also let out to earn rental income thereon. 4. Reliance of ld. CIT(A) on the decision of Bombay High Court in case of Smt. Meena V. Pamnani 159 DTR is distinguishable as the issue before the court was regarding in some years depreciation was claimed u/s 32 and then discontinued. 5. The reliance of CIT(A) in the case of Shakti Metal Depot 189 Taxman 329 is not at all applicable to the facts of the appellant. The appellant craves leave to add, alter, amend or delete any of the above grounds.”
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That as per the grounds of appeal, grievance of the assessee is the addition made by the ld. A.O under the head “capital gain” arising out of sale of property under the head “short term capital gain” u/s 50 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). It is the contention of the assessee that the addition has been made u/s 50 of the Act disregarding the contention of the assessee that the property in question was never included in the block of assets and neither the assessee had claimed depreciation and therefore, invoking of the said provision is not as per the frame-work of the Act. The relevant facts on the issue are that during the assessment proceedings, the AO noted that the assessee had offered long term capital gain of Rs. 6,12,93,534/- on sale of three office premises at Pune. From the details furnished, the ld. AO noted that the sold office premises were used by the assessee for business purpose and the assessee had claimed depreciation on these office premises for the period 1-4-2005 to 31-3-2009. The ld. A.O held that these offices were depreciable assets and therefore, the assessee should have computed short term capital gain on sale of these assets and offered to tax. Before the ld. A.O, it was submitted by the assessee that it had converted these shops to investment in the F.Y. 2009-10 and no depreciation had been charged from F.Y. 2009-10 onwards. Accordingly, it was claimed before the ld. A.O that these shops were not part of the block as on the date of sale and therefore, provisions of sec. 50 are not applicable. The ld. AO rejected the arguments of the assessee by noting that the offices acquired by the assessee in A.Y. 2006- 07 and in respect of which depreciation was allowed to it as a business asset for four years i.e. upto the A.Y. 2009-10, still continued to be part of the business asset and depreciable asset, no matter its non-use disentitled the assessee to depreciation for three years prior to the date of sale. The ld. A.O held that a depreciable asset forming part of block of asset within the meaning of sec. 2(11) of the Act cannot seize to be the part of block of assets. The
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description of the assets by the assessee in the balance sheet as in investment asset according to the ld. A.O was meaningless and was only to avoid payment of tax on short term capital gain on sale of building. The ld. AO held that so long as the assessee continued business, the offices forming part of the block of assets would retain its character as such, no matter one or two of the assets in one or two years were not used for business purposes and disentitled the assessee to depreciation for those years. The ld. AO therefore, concluded that on the sale of these assets on which depreciation has been claimed by the assessee in earlier years, short term capital gain arises and not long term capital gain and also placed reliance on the decision of Kerala High Court in the case of CIT Vs. Sakhti Metal Depot (2010) 333 ITR 492 (Ker). The ld. AO therefore, assessed a sum of Rs. 6,62,56,535/- as short term capital gain for the assessee.
Thereafter, when the matter travelled before the ld. CIT(A) the assessee submitted as follows:
“During the appeal proceedings, it was submitted that the buildings/constructed spaces in question had never been used for the business purposes and consequently no depreciation allowable u/s 32 of the Act was ever claimed. It is stated that the AO misconceived the depreciation provided in the balance sheet, which needed to be done under the provisions of Companies Act but such depreciation was first added and depreciation allowable u/s 32 of the Act was specially worked out and depreciation on constructed basis was left out. A detailed worksheet of block of asset and depreciation claimed under IT Act was enclosed as annexure. The AO claimed that these buildings are treated as investments by the company and let out for year to year and the rental income disclosed under the head „house property income”. It is therefore, claimed that the sale proceeds of the building/constructed space had rightly been treated to have given rise to long term capital gain.” 4. The CIT(A) placed reliance on the decision of Hon‟ble Bombay High court in the case of Smt. Meena V. Pamnani Vs. CIT (2017) 86 taxmann.com 175 (Bom) and held that once it is proved that the properties in question were business assets then it must form part of block of assets eligible for depreciation and the ld. A.O was correct in assessing the same as short term capital gain u/s 50 of the Act.
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At the time of hearing, the ld. Counsel for the assessee submitted that as per basic requirement for invoking section 50 of the Act the property must form in the block of assets and the depreciation should be allowed but in the case of the assessee, the property in question was never included in the block of assets and that depreciation has not been allowed. The ld. Counsel further submitted that the matter may be remanded back to the file of the ld. AO for verification whether depreciation has been allowed and then re-adjudicate in terms of section 50 of the Act. The ld. D.R did not raise any objection to these submissions of the ld. Counsel.
We have perused the case records, heard the rival contentions and analysed the facts and circumstances in this case. We observe from the reading of section 50 of the Act that the capital asset has to be part of block of assets in respect of which depreciation has been allowed. Before us, the parties have agreed that the matter may go back to the file of the ld. A.O for verification whether at all depreciation has been allowed in respect of the property in question and then the matter may be decided in accordance with the provision of section 50 of the Act. In the interest of justice, we set aside the order of the ld. CIT(A) and remand the matter to the file of the ld. A.O to verify as per above terms whether the assessee has been allowed depreciation and then re-adjudicate the issue as per law in terms of section 50 of the Act. Grounds of appeal are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on this 16th November 2022
Sd/- sd/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE PRESIDENT JUDICIAL MEMBER Pune; Dated, the 16th day of November 2022 Ankam
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Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. C.I.T.(Central) Pune 4. the CIT(A)-11, Pune. 5. D.R. ITAT „B‟ Bench 6. Guard File BY ORDER,
Sr. Private Secretary ITAT, Pune. /// TRUE COPY ///
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1 Draft dictated on 15-11-2022 Sr.PS/PS
2 Draft placed before author 15-11-2022 Sr.PS/PS 3 Draft proposed and placed before the second JM/AM Member 4 Draft discussed/approved by second Member AM/JM
5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 16-11-2022 Sr.PS/PS
7 Date of uploading of order 16-11-2022 Sr.PS/PS 8 File sent to Bench Clerk 16-11-2022 Sr.PS/PS
9 Date on which the file goes to the Head Clerk
10 Date on which file goes to the A.R
11 Date of dispatch of order