RESHMA TOOLS & ENGG. P.LTD,MUMBAI vs. ITO WD 3, THANE

Reshma Tools &Engg. Pvt. Ltd. 2. At the very outset, our attention was drawn to the fact that the present appeal is prima facie barred by 1 day delay. Considering the negligible period of delay and keeping in view the principles laid down by Hon’ble Supreme Court in case of “Land Acquisition Collector Vrs. MstKitzi, AIR 1987 S.C. 1353/(1987) 167 ITR 471 (SC), we condone the delay of 1 day in filing the appeal and admit the same to be heard on merits.

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee.

Reshma Tools &Engg. Pvt. Ltd. Aggrieved by the order of Ld. CIT(A), assessee has preferred the present appeal by raising the above grounds.

Ground No. 1. 4. This ground raised by the assessee elates to challenging the order of Ld. CIT(A) indisallowing set-off of Short Term Capital Loss of Rs. 685, 490/- against Long Term Capital Gain.

4.4 I have carefully considered facts of the case, findings of the AO in assessment order, submissions of the Ld AR and material placed on record. On going through the facts of the case, it is seen that during the Reshma Tools &Engg. Pvt. Ltd. year, the appellant has sold plot no 115 (which was purchased on 30.11.1994), admeasuring about 3266 sqyrd, for lump-sum consideration of Rs 60 lakhs, on 28.04.2008. In order to ascertain the claim of the appellant regarding disposal of asset, namely 1) Factory building - Rs 5,69,888/- , 2) Electrical installations - Rs 95,998/-, 3) Tools and Equipments - Rs 9,732/- and Furniture - Rs 9,872/-, the appellant was required to furnish proof regarding sale thereof. In compliance, the Ld AR could not furnish credible documents, to support the above claim, except stating that the same were sold along with plot of land and copy of sale deed was also submitted. 1 have carefully examined the sale deed and noticed that in the sale deed there is no mention of either of above assets, except sale of plot area of 3266 sq yard, against above sale executed for consideration of Rs 60 lakhs. Had the plot of land been sold along with factory building and other assets, the deed executor must have incorporated the same in the sale deed, hence the claim of the appellant is not tenable.

4.5 In the schedule of fixed assets, copy filed without authentication of auditors, reflect the value of factory building at Rs 17.20 lakhs, electric installation at Rs 11.27 lakhs, furniture at Rs 0.29 lakhs and tool and equipments at Rs 1.35 lakhs, as on 01.04.2010,

Reshma Tools &Engg. Pvt. Ltd. totaling around Rs 30 lakhs, claimed to had been sold along with the plot of the factory, without any consideration, not so reflected in the sale deed, is not believable. It is further noticed that the appellant had sold its assets in F Yr 2003-04 and accordingly shown loss on sale of fixed assets at Rs 6,83,715/-. Accordingly the appellant was required to furnish year-wise details of business activities, depreciation claimed, WDV worked out, for the last ten years to establish the depreciated value of above assets, brought forward in the relevant year in compliance, the Ld AR could not furnish the same, in the required format. In view of these facts, the appellant has clearly failed to establish the working of claim of loss against above assets, if any. The appellant has also failed to furnish any documents regarding disposal of these assets for nil consideration. The sale deed does not talk about sales of above assets along with plot of land, hence the claim of the appellant is not verifiable. In the absence of required details / proof for disposal of assets, the contention of the appellant is not acceptable, therefore rejected and disallowance of Rs 6,85,490/-, made by the AO, is upheld. This ground of appeal is dismissed.

Reshma Tools &Engg. Pvt. Ltd. After having gone through the orders passed by revenue authorities and after hearing the arguments for both the parties at length, we find that the initially the assessee company was carrying on the business of maintenance and servicing of all types of electrical and mechanical equipments from its factory premises situated at Kavle Industrial Estate, Village Isambe, Tal. Khalapur, Dist. Raigad. The business of the assessee company had been discontinued since A.Y. 2004-05, therefore, the assessee sold the plot of land on which factory building was situated, which had resulted into Long-term Capital Gains of Rs.54,43,696/-. As per the submission of the assessee, the assessee company had sold the land along with the factory building situated thereon and written off the factory building having WDV of Rs.5,69,888/-, electrical installation having WDV of Rs. 95,998/ ,- tools and equipment having WDV of Rs.9,732 – and furniture having WDV Rs. 10,372/-, which aggregated to Rs. 6,85,490/-. The aforesaid short term Capital Loss (balancing charge) was adjusted against the Long-term capital Gains received on sale of land of Rs.54,43,696/-.

Reshma Tools &Engg. Pvt. Ltd. We find from the written submission of the assessee that AO disallowed the aforesaid Short-term Capital Loss mainly on the ground that the assessee company did not furnish bills or vouchers in support of the sale of the said assets. Secondly, the assets which were discarded could have fetched scrap value which is not accounted by the assessee. Therefore, the assessee's claim of Short-term Capital Loss was rejected. It is the case of the assessee before us that as it had closed down its business activities, therefore the assessee sold the land along with the structure and the electrical installation, equipment and furniture lying therein for a lumpsum consideration of Rs.60,00,000/- and therefore, the scrap values of building, electrical installation, equipment or furniture were not separately fetched by the assessee but the same is forming part of the aforesaid consideration. Secondly, these assets were not required by the assessee and therefore, they were given along with the land.

It was also submitted that the WDV of the aforesaid asset as on the first day of the accounting period i.e. 01.04.08, which was discarded by the assessee were claimed as Short- term

Reshma Tools &Engg. Pvt. Ltd. Capital Loss. It was also submitted that the Deed of Conveyance refers to House, OutHouse, Edifice, Building, Courtyards, Drains, Compound, etc. having been sold along with the land. Therefore, the factory building which was constructed on the said land and electric installation, equipment, furniture, etc. were given along with the land for the lump sum consideration of Rs.60,00,000/- which included scrap value of the building, electrical installation, equipment and furniture lying therein. It was also submitted that the said short term capital loss being the written down value of these assets of Rs. 6,85,490/- may be allowed and the same may be adjusted against the Long term capital gains on sale of the land. Our attention was also drawn towards paper book at page no. 26, which is copy of deed of convenience. On perusal of the deed of convenience, we noticed that the assessee had transferred the property in favour of purchaser. It is an undisputed fact that apart from 60 lakhs, no other amount has been received by the assessee and the factory building which was constructed on the said land alongwith electrical installation, equipment, furniture, etc. were also sold along with land for the total lumpsum Reshma Tools &Engg. Pvt. Ltd. consideration of Rs. 60 lakhs which includes script value of the building. Whereas the claim of the assessee was rejected on the ground that the sale deed does not talk about sales of above assets alongwith plot of land and hence the claim is not verifiable. On the contrary, sale deed contains the recital that the factory building which was constructed on the said land alongwith electrical installation, equipment, furniture, etc were also sold alongwith the land for a total lumpsum consideration of Rs. 60 lakhs including script value of the building. Therefore, while taking into consideration the facts of the present case and after appreciating the documents, more particularly the registered convenience of deed, we are of the considered view that the lumpsum sale consideration of Rs. 60 lakhs includes value of land and electrical installation, equipment, building, furniture, etc. Therefore, in these circumstances, the AO is directed to adjust the Short term capital loss being the written done value of these assets of Rs. 6,85,490/- against the Long term capital gain on the sale of the land. With these directions, we allow this ground of appeal raised by the assessee.

Reshma Tools &Engg. Pvt. Ltd. Ground No. 3. 5. This ground has not been pressed by the assessee, therefore this ground of appeal becomes infructuous.

Ground No. 2, 4 & 5. 6. Since all the grounds raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in disallowing set-off of unabsorbed depreciation of Rs. 46,29, 650/- against income of long Term Capital Gain, therefore we thought it fit to dispose of the same by this common order.

In this respect, it was submitted by Ld. AR that assessee company is claiming carried forward and set off of unabsorbed depreciation of the earlier years and not carried forward and set off of unabsorbed business loss of the earlier years and hence sec.72(1) of the Act has no application. In this respect, Ld. AR drawn our attention to the decision of theMumbai Tribunal in the case of Suresh Industries vs. ACIT 1(2012) 27 taxmann.com 203)] wherein the Hon'ble Tribunal for A.Y.2007-08 held asunder: "10. A comparative study of pre-amendment and post amendment provisions of Sec. 32(2) suggests that prior to the amendment, the set off was restricted to the profits and gains, if any, of any business or profession whereas post amendment (i.e. the law applicable for the year under consideration) the set off is available Reshma Tools &Engg. Pvt. Ltd. from profits or gains chargeable for the previous year. The claim of the lower authorities that profits or gains so mentioned should be restricted to profits or gains of business or profession cannot be accepted because had that been the intention of the legislature it would not have deleted phrase "of any business or profession in the post amended provisions of Sec. 32(2). The law regarding set off of unabsorbed depreciation upto 1.4.1996 was very liberal and set off was allowable against any income. This was also upheld by the Hon'ble Supreme Court in the case of Virmani Indus. (P.) Ltd. (216 ITR 607). However, the law regarding such set off was changed by the Finance Act No. 2 of 1996 and from A.Y. 1997-98 to 2002-03 the unabsorbed depreciation was put at par with business losses u/s.

It was further submitted by Ld. AR that in respect of reasons given about depreciation written off for A.Y.2001-02 of Rs.9,89,033/-, our attention was invited to page 74 which is Notes to the audited accounts for A.Y. 2001-02 which reads as under: "Depreciation of fixed assets is provided on Straight Line method at the rates prescribed under Schedule XIV of the Companies Act, 1956. The method of providing depreciation has been changed from Written Down Value Method to Straight Line Method. The loss for the year is reduced to the extent of depreciation written back of Rs.9,89,033/-."

Reshma Tools &Engg. Pvt. Ltd. It was submitted that the aforesaid is the accounting entry writing back the depreciation and therefore, it has no relevance to carry forward and set off of the unabsorbed depreciation of the earlier years in the year under consideration.

In respect of waiver of loan, the assessee company had taken loan of about Rs.58,00,000/- from C.K.P. Co-op. Bank Ltd. in theyear 1996-97. As per the assessee, it could not repay the loan and interest thereon due to loss, therefore the assessee had applied for one-time settlement to the bank whereby the ‘principal amount’ of the loan was repaid and the interest on the loan amount was waived. The said interest though provided in the books was not claimed while computing income in view of sec.43B as the said interest was not paid. Therefore, the waiver of the interest amount was not offered for taxation.

We further notice that the next reason given by AO while making disallowance on account of belated filing of returns of income for A.Ys. 2002-03, 2004-05 and 2005-06. In this respect our attention was drawn to the decision of the Appellate Reshma Tools &Engg. Pvt. Ltd. Tribunal, Mumbai Bench,in the case of ACIT vs. Anil Printers Ltd. 1(2016) 68 taxmann.com 368) wherein the Tribunal held that the condition of filing return of income within the time prescribed u/s.139(1) of the Act is not applicable for the provisions of sec.32(2) of the Act and therefore, carry forward and set off of the unabsorbed depreciation can be allowed even though the returns of those respective years were not filed within the time prescribed u/s. 139(1) of theAct.

After having gone through the facts of the present case and keeping in view our findings as mentioned above, we hold that brought forward unabsorbed depreciation be allowed for set off against Long Term Capital Gains and we direct accordingly. Resultantly, these grounds of appeal raised by the assessee are allowed.

8. In the net result, the appeal filed by the assessee stands allowed with no order as to cost. Order pronounced in the open court on 10th Oct. 2018 Sd/- Sd/- (N. K. Pradhan) (Sandeep Gosain) लेखासदस्य / Accountant Memberन्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 10.10.2018 Reshma Tools &Engg. Pvt. Ltd. Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT,