AMRATLAL ASHOK KUMAR & CO,MUMBAI vs. ASST CIT CIR 18(1), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “A” BENCH MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.6689/Mum/2016 (Assessment Year 2013-14) M/s Amratlal Ashokkumar & ACIT-Circle (18)1), 2nd Floor, Earnest House, Co. 438, Gopal Galli, M.J. Market, Kalbadevi Road, Vs. Nariman Point, Mumbai-400002. Mumbai-400021. PAN: AABFA2727M Appellant Respondent Appellant by : Shri K. Gopal & Neha Paranjpe - Advocates Respondent by : Shri Rajesh Kumar Yadav (Sr.DR) Date of Hearing : 01.05.2018 Date of Pronouncement : 31.05.2018 ORDER PER PAWAN SINGH, JUDICIAL MEMBER;

(the Act) is directed against the order of ld. Commissioner of Income-Tax

(Appeals)-29 [ld. CIT(A)], Mumbai dated 22.08.2016 in the matter of

assessment order passed under section 143(3) dated 26.02.2016 for

Assessment Year 2013-14. The assessee has raised the following grounds

of appeal:

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

i. The Ld. CIT(A) erred in confirming the action of the Ld. A.O. in making addition of Rs.96,90,874/- on account of the sale of premises & considering the excess above WDV as taxable u/s 50. without appreciating the facts and circumstances of the case. Hence, the addition of Rs.96,90,874/- is unjustified and the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that the premises sold was a commercial premises entitle to depreciation at 10% & was correctly clubbed with assets entitle to depreciation at 10% since the said premises was used for business purposes & not for residential. Thus, accordingly the Appellant correctly computed its block of asset, which remained positive at year end. Hence, the addition u/s 50 of Rs.96,90,874/- is unjustified and the same may be deleted.

the business of trading, wholesalers of potato, onion and also commission

agents. The assessee filed its return of income for relevant Assessment

Year on 19.03.2013 declaring total income of Rs. 37,14,050/-. The

assessment was completed on 26.06.2016 under section 143(3) of the Act.

The Assessing Officer while passing the assessment order taxed the sale

consideration of Flat No. D-12, Grain Merchant CHS Ltd Sector-17, Vashi

(Flat), as Short Term Capital Gain under section 50 of the Act. The

assessing officer hold that after sale of flat nothing was left in the block of

asset, on which depriciation was claimed and allowed at 5%. On appeal

before the ld. CIT(A), the action of Assessing Officer was confirmed.

Therefore, further aggrieved by the order of ld. CIT(A), the assessee has

filed the present appeal before us.

ld. Departmental Representative (DR) for the Revenue and perused the

material available on record. The ld. AR of the assessee submits that

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

during the Financial Year related to the Assessment Year under

consideration, the assessee sold part of asset and added one more asset in

the block of asset during the relevant financial year. In earlier assessment

year 2012-13, the assessee claimed depreciation @ 10% in respect of

asset, sold during the relevant period. However, due to mistake in earlier

Assessment Years it was claimed @ 5%, though the assessee was entitled

for depriciation @ 10% on such asset. The ld. AR of the assessee further

submits that section 43(6) defines the written down value (WDV) of the

asset. 4. On the other hand, the ld. DR for the Revenue supported the order of

authorities below. The ld. DR for the Revenue submits that there is no

proof about the block of asset used for commercial purpose during the

earlier years. In the earlier years, the assessee claimed and allowed

depreciation @ 5% on the asset (flat) sold during the financial year

relevant to the assessment year under consideration. The assessee now

during the Assessment Year under consideration claimed the deprecation

@ 10%. There is no evidence about the use of asset for commercial

purpose. Mere addition of asset in the block of asset for which depriciation

was claimed @10% is not sufficient. The onus was on the assessee that the

flat was used for commercial purpose. The assessee filed affidavit for use

of asset for commercial purpose, which is not sufficient to discharge the

onus. In support of his submission, the ld. DR for the Revenue relied upon 3

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

the decision of Hon’ble Delhi High Court in case of CIT vs. M/s T. S.

Kishan & Company in ITA No. 1270 of 2011 dated 16.09.2014. 5. We have considered the rival submission of the parties and have gone

through the orders of authorities below. During the assessment, the

Assessing Officer noted that an amount of Rs.1.00 Crore was shown as

Capital receipt. The assessee was asked to explain the facts. The assessee

furnished its reply dated 19.11.2015 and explained that the amount was

receipt on sale of Vashi Flat sold during the year and amount was

deducted from the bock of fixed asset. The assessing officer examined the

bock of fixed asset for assessment year 20110 and 2012-13 and noted that

no depriciation was claimed in assessment year 2011-12 in respect of flat

shown which the amount of Rs.1.00 Crore was realized. The WDV of this

Flat at Rs.3,09,168/- was clubbed with asset of office premises for AY

2011-12 and in subsequent year (AY 2013-14) the depriciation was

claimed @10% on the net block of asset. The assessing officer asked the

assessee to furnish the cost of acquisition with details of proof of sale

consideration. The assessee furnished its reply dated 13.10.2015 and

contended that this flat was allotted by M/s Gain Merchant Co-oprative

Society ltd (‘Society’) in 1989. Assessee filed copy of possession letter,

Share certificate and receipt monthly maintenance charges. The assessee

contended that they are unable to provide the purchase agreement as the

same is untraceable. The assessee also filed copy of assessment order for 4

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

AY 1996-97. On perusal of assessment records furnished by assessee, the

AO noted that the assessee claimed /booked depreciation @5% on the said

flat up to AY 1997-98. In AY 1996-97 the claim of depreciation was

allowed @5%. The AO issued notice under section 133(6) dated

05.02.2016 to the Secretary of M/s Gain Merchant CHS Ltd (Society).

The Society filed its reply dated 11.02.2016. In the reply the Society

contended that the purchase agreement is not available. However, the copy

of leave and license agreement showing that the flat was used for

residential purpose was provided. The society in its reply also contended

that it was formed with an objective to provide the residential

accommodation to its members. On the basis of the inquiry carried by the

AO, the AO took the view that the flat was never used for the purpose of

business activity and therefore, the asset (flat) is eligible for 5% rate of

depreciation. Since, the flat was never used for commercial purpose a

therefore, it was rightly included in the block of asset eligible for 5% of

depreciation. The affidavit filed by assessee was not believed by the

assessing officer holding that it was filed by assessee of its own and no

corroborative evidence was filed. Therefore, the assessing officer rejected

the claim of capital receipt and taxed the receipt and treated it as Short

Term Capital Gain under section 50 of the Act. 6. Before the ld. CIT(A), the assessee urged that the assessee is entitled for

depreciation @ 10% on the block “Building”, on opening written down 5

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

value. The assessee correctly carried down the earlier years closing

balance. The assessee further contended that the correct computation

should be as follows:

Opening WDV of building 24,25,745 Refer para 5 wherein the AO has confirmed the WDV of block at Rs. block 24,25,745 Additions during the year 1,03,73,660 Purchase of Pune Factory Deductions during the year 1,00,00,000 Sale of premises 27,99,405 - Depreciation 2,79,941 Depreciation claimed 10% Closing WDV of building 25,19,464 block

Act, the block of asset viz. building has not extinguished and thus, nothing

can be taxed under section 50 of the Act. However, the Assessing Officer

computed the Short Term Capital Gain. Therefore, the Assessing Officer

has changed the written down value of the building of block as determined

in the last assessment for Assessment Year 2012-13. The assessee also

filed affidavit in support and contended that mere mistake in the

classification in passing cannot change the result of functional test. Such

mistake was not prejudicial to the revenue and was corrected by Assessing

Officer in the past. The contention of assessee was not accepted by ld.

CIT(A). The ld. CIT(A) concluded that there is no evidence to substantiate

the claim of the assessee that the said flat was used for commercial

purpose. The fact on record shows that the flat has been used for

residential purpose. The society has been formed to cater the needs of

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

member of residents. The onus was upon the assessee to prove that it was

used for commercial purpose, the assessee failed to discharge his onus.

The assessee has been claiming depreciation @ 5% knowing it very well

that it is a residential flat. Hence, there cannot be any occasion for any

ignorance on the part of assessee. The ld. CIT(A) further concluded that

assessee has brought his flat in the 10% depreciation block just to avoid

tax. The ld. CIT (A) also noted that the assessee also purchased land at

Satara and shown this as office premises in the name of Pune factory, even

the assessee cannot produce the evidence on factory building or an office

in the said land at Satara. Therefore, it appears to be an arrangement to

keep the balance as block of asset so as to avoid tax on capital gain arising

from the sale of Vashi flat. The affidavit of assessee was also discarded by

ld. CIT(A) holding that the flat has been allotted by Grain Merchant’s

CHS Ltd. and its meaning for the residential purpose of the Member. The

assessee also claimed the depreciation @ 5% which is rate applicable to

residential flat and that in the Assessment Year 2011-12, the assessee is

suddenly brought the residential flat in the block of asset with 10%

depreciation for no reason. The claim of depreciation @ 5% in earlier year

was claimed wrong in fact the depreciation at 10% now claimed is wrong. 8. We have noted that the assessee was allowed depreciation @10% on the

block of asset in Assessment Year 2012-13. The block of asset consists of

the flat in dispute. In our view once the revenue has accepted and allowed 7

ITA No.6689/M/16- M/s Amratlal Ashokkumar & Co.

depreciation @10% on the block of asset in Assessment Year 2012-13, the

same cannot be allowed for treating it differently, when the part of block

was sold in subsequent years. The ld. DR for the Revenue has relied upon

the decision of M/s T.S. Mishan & Co. Ltd. wherein the Hon’ble High

Court has held that mere affidavit is not sufficient to substantiate the

contention in absence of other evidence. The ratio of the decision is not

applicable on the facts of the present case as the revenue has already

accepted the block of asset which consists of the flat in dispute allowed

depreciation @10% on the block of asset in Assessment Year 2012-13. In

view of the above discussion, we direct the assessing officer to delete the

addition under section 50 of the Act. Hence, the grounds of appeal raised

by assessee are allowed.

In the result, appeal filed by assessee is allowed.

Order pronounced in the open court on 31.05.2018.

Sd/- Sd/- G.S. PANNU PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 31.05.2018 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “A” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai