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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by assessee for Assessment Year [AY] 2011-12 contest the order of Ld. Commissioner of Income-Tax (Appeals)-21 [CIT(A)], Mumbai, Appeal No.CIT(A)-21/ACIT-13(2)(2)/IT- 53/2014-15 dated 10/03/2016 by raising the following Grounds of Appeal: -
1. The Learned Commissioner of Income Tax (Appeals) erred in issuing a notice of enhancement u/s.251(2), for assessing the long term capital gains arising ITA.No.3524/Mum/2016 Steinmetz Overseas Private Limited Assessment Year 2011-12 on transfer of a residential flat u/s.50 of the Income Tax Act,1961 without appreciating that no depreciation was claimed or was allowed on the residential flat transferred during the previous year.
The learned Commissioner of Income Tax (Appeals) erred in assessing the capital gains arising on transfer of the residential house under the head ‘Short Term Capital Gains’ by invoking provisions of s.50 and while doing so he amongst other failed to appreciate that: a. Provisions of s. 50 of Income Tax Act were not applicable; b. No depreciation was claimed or allowed on the residential flat transferred during the previous year.
The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income-tax 9(3), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 28/02/2014 wherein the income of the assessee was determined at Rs.105.06 Lacs after sole disallowance u/s 14A for Rs.1.50 Lacs. During the impugned AY, the assessee was engaged as trader, exporter & importer of food colors etc .
2. Aggrieved by aforesaid disallowance u/s 14A, the assessee contested the same before Ld.CIT(A) vide impugned order dated 10/03/2016 where Ld. CIT(A) noted that the assessee earned certain capital gains on sale of a flat during the impugned AY which was claimed as Long Term Capital Gain [LTCG]. The said gain, in the opinion of Ld. CIT(A), was Short Term Capital Gain [STCG] in terms of provisions of Section 50 since the flat was reflected by the assessee as Fixed Asset in the Balance Sheet. So far as the factual matrix is concerned, the flat was sold for sale consideration of Rs.90 Lacs and the cost of acquisition of the same was Rs.10.51 Lacs. After claiming the indexed cost of acquisition as Rs.18.41 Lacs, the LTCG was reflected as Rs.71.59 Lacs. After considering assessee’s submissions, Ld. CIT(A) enhanced the assessment by concluding that the aforesaid gain was liable to be taxed as Short Term Capital Gain in terms of Section 50 against which the ITA.No.3524/Mum/2016 Steinmetz Overseas Private Limited Assessment Year 2011-12 benefit of indexation was not available to the assessee. Aggrieved, the assessee is in further appeal before us.
The Ld. Authorized Representative for Assessee [AR], by drawing our attention to the provisions of Section 50 contended that the assessee never claimed and was never allowed depreciation against the said flat which was being used as office premises by the assessee and therefore, the same was not covered by the provisions of Section 50. Per Contra, Ld. DR justified the enhancement on the premise that the said flat was reflected as part of Block of Asset in the Balance Sheet.
We have carefully heard the rival contentions and perused relevant material on record. To resolve the controversy, it would be relevant to reproduce the relevant provisions of Section 50 in the following manner:- Special provision for computation of capital gains in case of depreciable assets.
Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income- tax Act, 1922 (11 of 1922 ), the provisions of sections 48 and 49 shall be subject to the following modifications:- (Emphasis being supplied by us) A bare perusal of the above provision reveals that the asset should form part of the block of assets in respect of which depreciation has been allowed before the provisions of Section 50 could be applied. The Ld. AR has vehemently pointed out that depreciation was never claimed by the assessee since its acquisition and therefore, there was no question of allowing depreciation against the same. A perusal of orders of lower authority reveal that the assessee has indexed the original cost of acquisition of the flat and claimed the same as cost of acquisition which prima facie, lend some strength to the arguments raised by Ld. AR.
ITA.No.3524/Mum/2016 Steinmetz Overseas Private Limited Assessment Year 2011-12 However, since, the financial statements of earlier years are not before us and the assessee also could not demonstrate the said contention with documentary evidences, we remit the matter back to the file of Ld. AO to verify the said contention as raised by the assessee. In case, no depreciation was ever claimed by the assessee since the acquisition of the flat and no depreciation was ever allowed to him against this flat, the assessee would be entitled to get the benefit of indexation else the stand of Ld. CIT(A) shall stand confirmed.
Resultantly, the appeal filed by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 23rd February, 2018