PRIDE AND EXPERT PROPERTIES PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1 (1) , PUNE

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.

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 Pride & Expert Properties Pvt. Ltd. A.Y. 2013-14 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.