Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: NONE Department by: Shri V. Vidyadhar (DR) Date of Hearing: 07.03.2018 Date of Pronouncement: 29.05.2018 O R D E R
PER AMARJIT SINGH, JM:
The present appeal has been filed by the assessee against the order dated 31.1.2013 passed by the Commissioner of Income Tax (Appeals)-24, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2009-10.
The assessee has raised the following grounds: -
I) Determination of short term capital loss u/s 50 of Rs.29,71,812
1. The Ld. CIT(A) erred in determining the short term capital loss u/s 50 at Rs.29,71,812 (Rs.27,20,989 + Rs.2050,823) by replacing the fair market value u/s 45(2) of the fixed assets & capital work. In progress (CWIP) by reducing there from notional depreciation A.Y.2009-10 without considering the fact that there has been appreciating in the value of asset.
2. The Ld. CIT(A) erred in determining the fair market value u/s 45(2) in relation to the fixed assets & CWIP converted to: (i) Opening stock at Rs.2,59,73,992 on 1.04.2008 against the WDV value of $s.2,86,94,981, thereby determing the short term capital loss of Rs,28,20,989. (ii) Opening stock at Rs.30,93,608 (from total CWIP of Rs.5,93,7988) on 1.04..2008 against the WDV value of Rs,33,44,431, thereby determining the short term capital loss of Rs,2,50,823.
3. The determination of short term loss u/s 50 of (-) Rs.29,71,812 requires to be deleted and short term capital gains u/s 50 as determined by AO be accepted. (II) Enhancement of profit & gains from business by Rs,27,20,989 in relation to fixed asset converted into stock in trade.
1. The Ld. CIT(A) erred in enhancing the profit & Gains from business by Rs.27,20,989 in relation to fixed asset converted into stock in trade as on 1.04.2009.
2. The Ld. CIT(A) erred in determining the fair market value (FMV) of opening stock at Rs.2,59,73,992 against Rs.2,86,94,981 reflected by the appellant and accepted by the AO, thereby enhancing the business income by Rs.27,20,989.
3. The Ld. CIT(A) erred in applying notional depreciation on the opening WDV of fixed assets converted to stock in trade to determine the fair market value as on 1.04,2008 inspite of the fact there has been appreciation in the value of fixed asset.
4. The enhanced income of Rs.27,20,989 requires to be deleted. (III) Enhancement of profit & gains from business by Rs.2,50,823 in relation to capital work in progress (CWIP) converted into stock in trade. 1.The Ld. CIT(A) erred in enhancing the profit & Gains from business by Rs.2,50,823/- in relation capital work in progress converted into stock in trade as on 1.04.2009.
2. The Ld. CIT(A) erred in determining the fair market value (FMV) of CWIP at Rs.5,91,28,965 against Rs.5,93,79,788 reflected by the appellant, thereby enhancing the business income by Rs.2,50,823
3. The Ld. CIT(A) erred in applying notional depreciation on the opening CWIP of converted to stock in trade to determine the fair ITA. No.3154/M/2013 A.Y.2009-10 market value as on 1.04,2008 inspite of the fact there has been appreciation in the value of CWIP 4. The enhanced income of Rs.2.50,823 requires to be deleted.”
3. The brief facts of the case are that the assessee filed its return of income on 30.09.2010 declaring total income to the tune of Rs.27,74,900/-. The case was selected for scrutiny. The notice u/s 143(2) of the Act dated 19.08.2010 was issued and served upon the assessee. Subsequently, notice u/s 142(1) of the Act dated 10.06.2011 was also issued and served upon the assessee. The assessee company was engaged in the business of Trading & Import of used Cranes and sale in India. The assessee also submitted the Audit Report along with Balance-sheet, profit & loss account, details of loan & advance, sundry debtors and creditors and other details as called for. The assessee has converted the cranes into stock in trade which has been reflected in Annexure-6 i.e. particulars of Depreciation allowable as per I.T. Act. The assessee has shown the W.D.V. of cranes of Rs.2,86,94,981/- and sold the same during the year. The assessee was asked to show the capital gain occurred on the same. Finding no justifiable reply, the short term capital gain to the tune of Rs.17,90,019/- was added u/s 45(2) of the I.T. Act. The assessee has shown the opening stock of Rs.8,80,74,770/- and shown the closing stock as Nil. The explanation was called and it was noticed that the assessee added the stock to the tune of Rs.2,86,94,981/-, therefore, the excluding the same the unexplained stock to the tune of A.Y.2009-10 Rs.5,93,79,788/- was added to the income of the assessee. The assessee also given the interest free loan to various parties to the tune of Rs.3,79,60,976/-. After getting explanation, it was found that the assessee has given the interest free loan to the three parties to the tune of Rs.51,06,861/-. Thereafter notional interest @ 12% was added to the income of the assessee i.e. to the tune of Rs.6,12,823/-. The total income of the assessee was assessed to the tune of Rs.6,45,57,530/-. The assessee was not satisfied, therefore, the assessee filed an appeal before the CIT(A) who rejected the claim of the assessee on account of the cranes which has been mentioned above, therefore, the assessee filed the present appeal before us. ISSUE NOS. 1 & 2:- 4. The Ld. Representative of the assessee has challenged the confirmation of the AO determining the short term capital loss u/s 50 of the Act of Rs.29,71,812/- and also confirmation of enhancement of profit and gains from business by Rs.2,50,823/- in relation to fix asset into stock in trade. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “6. I have considered the facts of the case and submissions made by the assessee. The assesse converted the capital into stock in trade, the assessing officer invoked the provisions of section 45(2) and treated the profit in selling the cranes as STCG. In this connection it is necessary to see the provisions of sub-section (2) of section 45. The sub-section reads as under:
ITA. No.3154/M/2013 A.Y.2009-10 “Notwithstanding anything contained in sub-section(1), the profits or gains arising from the transfer by way of conversion by the owner of capital asset into, or its treatment by him as, stock-in- trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatmen.The provisions start with a non-obstinate clause, stipulating that any conversion of capital asset into stock in trade shall be treated as capital gain? the year in which the same is sold. It is clear from section 45(2) that transfer conversion of capital asset in to Stock-in-trade will be treated under capital gain and liability arises in the year in which the stock in trade after conversion is in this case admittedly the assessee converted the fixed assets held in the form Cranes into Stock-in-trade in the relevant assessment year and these cranes the book value of Rs.2,36,94,981/- and valued at the same figure Rs.2,86,94,981/- at the time of conversion. The book value as on 31/03/Z (W.D.V.) was Rs,2,80,94,981/- the conversion date was 01/04/2008 (FMV; Rs.2,86r94,981/-. Thus the conversion of assets into Stock-in-trade did not re in any profit. The assessee during the previous year relevant to the assessment year sold the Stock- in-trade which was converted after few months from the of conversion. The assessing officer treated the difference between purchase and sale price as capital gain. The assessing officer in the assessment order finding that the cranes were sold within 3-4 months from the date of convert and asked the Authorized Representative why the sale price should not be as FMV. For this finding, the assesses Authorized Representative agreed di_ the assessment proceedings. The assessing officer, thus, taken W.D.V. as books and sale price as FMV and treated the difference as Short Term Ca gains. The assessing officer though not correct as far as computation of ca gain is concerned, in view of the facts and circumstances of the case he treatment Sale price as FMV as there was no information submitted by the assessee assessment proceedings. The assessee on the other hand submitted that treatment given by the assessing officer as STCG does not alter the taxability the impact is Nil. He submitted the methods or computation under Capital gain Business income. It is seen that A.Y.2009-10 the assesses computation or treatment of difference between FMV at the time of conversion and sale price as business to be correct. It is to be seen carefully the manner of computation visage1 h in the submission (2) of section 45 is as under: Book Value before conversion. (as on 31.03.2008) – A F.M.V. after conversion (as on 01.04.20108) – B Sale price (during the F.Y. 2008-09)- C B-A = Capital gain in the year in which it is sold C-B = Business income As per the above B-A Rs.0; C-B=Rs.17,90,019/-“ 5. On appraisal of the above said finding, we nowhere noticed that illegality and irregularity in the above mentioned order in view of the finding of the CIT(A). We noticed that the assessee has converted the cranes into stock in trade and the depreciation was allowed and conversion value of was taken into consideration and the sale amount was also taken into consideration. Thereafter the AO assessed the income of the assessee under the head of profit and gains of business or profession. The assessee did not appear before us to distinguish the finding of the CIT(A). No material of any kind has been produced before us to which it can be assumed that the finding of the CIT(A) is not justifiable. Therefore, in the said circumstances, we affirmed the finding of the CIT(A) on this issue and decide this issue in favour of the revenue against the assessee.
ISSUE NO 3:-
Under this issue the assessee has challenged the confirmation of the enhancement of profit of gains from business by Rs.27,20,989/- in relation to CWIP converted into stock in trade. The relevant finding A.Y.2009-10 has been given in para no. 16, 17 & 18 which is hereby reproduced below: - “16. I have considered the submissions made by the assessee in response to enhancement proposal made by me. The assessee contended that the sale value cannot be taken as FMV for the purpose of 45(2). For the reasons given in the decision for ground no.1 by me, the sale value is not treated as FMV and assessing officer's stand of assessing the same is not found to be correct. Further, the purchase cost of Rs.39,08,95l/- of one crane which was missed during the assessment proceedings has also been considered for arriving at the FMV The assesses submitted that this value has been reflected in the closing stock hence, there is no effect. As this value of the crane is also taken into consideration for arriving at Capital loss and business income while deciding the Ground no.1 the income is not computed separately. However, in the first group of cranes, the business income has been enhanced by Rs.27,20,989/-. The detailed reason for the enhancement is given in the decision to Ground no, 1. 17. As regards, second issue of the Capital work in progress converted into stock-in-trade, the assessing officer assessed the cranes u/s,S9B, After appreciating the facts, submissions made by the assessee and after carefully examining the Balance sheet and Profit and Loss account for the instant assessment year and also immediate preceding assessment year, it is decided, while adjudicating ground no,3, that the amount of Rs,5r93,79,789/- cannot be assessed u/s.69B of the I.T Act and the same has to be deleted. Consequently, the is of section 45(2) are attracted since the assessee converted these cranes trade. The assessee in his reply for enhancement proposal submitted that the cranes were repaired, refurbished etc, and the Sale price should not be taken as FMV as on the date of conversion. The submission of the assessee is considered and for the reasons mentioned in the decision to Gr.No.l in the pre-paras in this group of cranes also the sale price is not to be treated as FMV. 18. Then, what should be the value (FMV) as on conversion. In this group of cranes unlike the first group of cranes mentioned in Ground no, l, during the F,Y.2007-08 relevant to A.Y 2003-09 the assesses made improvements by repairing the cranes incurring an expenditure of Rs.32,S2,570/- and arrived at the figure of Rs,S,93,79,788/-, Therefore, when addition is made to the cranes unlike the first group of cranes, it cannot be said that the value ITA. No.3154/M/2013 A.Y.2009-10 would depreciate. Therefore, the cost as at 31/03/2008 should be taken as conversion value (FMV) except in respect of one crane mentioned below at Sr.No.8 where no additions by way of repairs have been made. Hence, a possible depreciated value is taken after reducing 7,5% of Rs,33,44r431/- i.e. Rs.2,50,823/- from the cost price of this crane to arrive at the FMV on conversion. Accordingly, capital loss of Rs.2,5Q,823A has to be computed. The details of expenditure incurred on repairs of second group of cranes are as under: Name of Purchase Custom C/f Repairs Total S. the price duty charges n cranes/inv (INR) oice date 1 Cranes- 1,05,78, 30,66,2 2,96,6 2,70,1 1,42,11, KRUPP 174 97 31 51 253 at 4070 49,145 2.7.2008 2 Cranes- 1,02,07, 30,06,1 2,88,4 2,97,1 1,37,98, LIEBHE 010 27 71 72 780 RR LTM 49,145 1070 2.7.2007 3 Cranes- 63,05,0 19,73,2 195,72 2,61,0 87,3505 Lima 40 54 0 36 0 1500 SC 3.3.2007 4 Manitow 53,00,0 - - 23,05, 76,05,6 oc 3900 00 612 12 20.2.200 7 5 Cranes- 26,52,9 8,06,92 1,04,0 32,420 35,96,4 TADANO 90 0 87 17 TG 500 2.7.2007 6 Coles 16,11,9 4,78,23 83,144 60,605 22,33,8 45/50-I 00 2 81 2.8.2007 7 Crane 11,01,6 3,13802 16,826 20,350 14,52,6 Grove 25 03 RT 62 29.9.200 7 8 Grove 24,97,3 7,93,19 53,918 - 33,44,4 TMS475 20 3 31 Sr.No.30 A.Y.2009-10 486 15.10.20 07 9 Luna GT 14,58,1 4,48,28 18,828 20,000 19,45,3 50 85 9 02 29.9.200 7 1 Luna GT 16,95,1 5,89,23 58,523 15,224 23,58,1 0 60- 92 1 70 II4.10.20 07 Total 4,34,07, 1,15,73, 11,16, 32,82, 5,93,79, 436 635 148 570 788 Computation of Income: In order to have clarity, in my opinion, it is necessary to arrive at the income of the assessee under different heads of income. For this purpose, the Trading & Profit and Loss account for the instant assessment year and computation of taxable income are also given as under.”
On appraisal of the above said finding, we nowhere noticed any illegality and irregularity in the above mentioned order passed by the CIT(A). We noticed that the assessee has converted the cranes into stock in trade and the depreciation was allowed and conversion value of was taken into consideration and the sale amount was also taken into consideration. Thereafter, the AO assessed the income of the assessee under the head of profit and gains of business or profession. The only effect was that the value of one crane was not taken into consideration. The assessee did not appear before us to distinguish the finding of the CIT(A). No any material of any kind has been produced before us to which it can be assumed that the finding of the CIT(A) is not justifiable. Therefore, in the said circumstances, we ITA. No.3154/M/2013 A.Y.2009-10 affirmed the finding of the CIT(A) on this issue and decide this issue in favour of the revenue against the assessee.