TOYO AUTO ENGINEERS,MUMBAI vs. ITO WD 22(2)(4), MUMBAI

This appeal filed by the assessee being 11th March, 2013 passed by the learned Commissioner of Income Tax (Appeals)- 33, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 28th December, 2010 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

Aggrieved by the assessment order dated 28-12-2010 passed by the A.O. u/s. 143(3) of the Act , the assessee filed first appeal before the ld. CIT (A).

Before the ld. CIT(A) , the assessee submitted that the ITAT has decided the appeal vide order in and accepted the office premises to be a depreciable asset and upheld the relief given by the ld. CIT(A). It was submitted that the said office premises were put to use in the assessment year 2007-08 and was part of block of asset on which depreciation was allowed on the said premises. Thus it was submitted that the Tribunal has decided the issue in favour of the assessee and hence the additions be deleted . The ld. Counsel also referred the decision of ITAT in ITA No. 4662/Mum/2010 , wherein it was observed by learned CIT(A) that the Tribunal upheld the disallowance made by the ld. CIT(A) of Rs. 84,000/-. In the appellate order passed by the learned CIT(A) , for depreciation on office premises, the same was taken as put to use only after 21st February, 2007 and this view was upheld by the Tribunal. However, it was observed by the ld. CIT(A) that the assessee has purchased a new office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai for which payment of Rs. 15 lacs was made and had got the commencement certificate on 19th March, 2008 only and thus there was no question of possession of premises on 6th February, 2008 of the said premises because the building got commencement certificate only on 19th March, 2008. The assessee has shown addition to the block of asset of Rs. 16,27,010/- which was never claimed before the AO. This was a new claim made by the assessee before the learned CIT(A) which was never claimed before the A.O. during assessment proceedings. In fact no application u/r 46A of Income Tax Rules, 1962 was filed before the learned CIT(A) for addition of Rs. 16,27,010/-. The assessee simply stated that they are repairs by nature . Thus, the learned CIT(A) agreed with the AO that short term capital gain of Rs. 9,25,880/- was ITA 2995/Mum/2013 9 to be brought to tax and upheld the assessment order of the A.O. .The enhanced amount of Rs. 16,27,010/- to the cost of block of asset was rejected by the ld. CIT(A) by appellate orders dated 11.03.2013.

Aggrieved by the appellate orders dated 11-03-2013 passed by the ld. CIT(A), the assessee filed appeal before the Tribunal.

The ld. Counsel for the assessee submitted that there was a sale of office premises No. 605, 6th Floor, Maithili's Signet, Plot No.39/4, Sector-30A, Vashi, Navi Mumbai to M/s Hi-Tech Infra Projects (India) Pvt. Ltd. for a consideration of Rs. 25,25,000/- on 19th December, 2007. The said office premises were purchased by the assessee on 21st February, 2007 for a total consideration of Rs. 15,99,120/- , and the gain arising from the sale of the said office was brought to tax as short term capital gain by the Revenue . The ld. Counsel submitted that the said asset being office premises was used for business purposes on which depreciation of 10% is available being a building not used for residential purposes and since the block of asset is continuing even after the sale of the said office and the block of asset is not empty, hence, no income can be brought to tax on the depreciable asset as it forms part of the block of asset of buildings which are not used for the purposes of residential . It was submitted that in the preceding year , the said asset was acquired which was put to use and the Tribunal in for the assessment year 2007-08 vide orders dated 24.02.2012 , whereby the Tribunal upheld the disallowance made by the ld. CIT(A) of Rs. 84,000/-. Thus, it was submitted that the Tribunal allowed the depreciation on the said asset being part of block of asset on which rate of depreciation prescribed is 10% being building not used for residential purposes. It was submitted that the assessment order for the assessment year 2008-09 was passed on 28th December, 2010 , which was prior to the afore-stated order of the Tribunal dated 24.02.2012. It was submitted that the learned CIT(A) has referred to the Tribunal order but relied on the AO order while passing the appellate ITA 2995/Mum/2013 10 order. With respect to the another premises, it was submitted that forceful possession was taken of the new office premises being shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai and this is a part of block of asset and hence assessee is entitled to treat the same as block of asset as it is a part of building which was not residential building , although conveyance deed has not been executed. The ld. Counsel relied on the decision of the Hon’ble Delhi High Court in & 602/2011 in the case of CIT v. Ansal Properties and Infrastructure Limited to contend that office premises and industrial premises are buildings which are not used for residential purposes on which same rate of depreciation is prescribed being 10% and hence constitute same block of asset thus , keeping in view balance carried forward from the preceding year of office premises and industrial premises, the said block of asset was never empty after the sale of office premises being 605,Plot No. 39/4, Sector 30-A, Vashi, Mumbai and hence as per scheme of Act related to gain arising from sale of depreciable asset forming part of same block of asset as contained in Section 50 of the Act, there is no profit arising on sale of said office premises which can be brought to tax. It was contended that the Hon’ble Delhi High Court I the afore-stated case of Ansal Properties and Infrastructure Limited (supra) has held that the depreciation is rate specific and not division/ asset specific. The learned counsel referred to the definition of Block of Asset as is contained in Section 2(11) of the Act. The ld. Counsel also drew our attention to the tax audit report whereby the depreciation was allowed @ 10% under the head ‘office premises’ and ‘industrial premises’. It was submitted that even if the said office premises i.e. shop no. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai is excluded to be included in block of asset, still no capital gain can be brought to tax as per scheme of the Act as contained in provisions of Section 50 of the Act because there will still be positive figure in the block of assets. It was submitted that the findings of authorities with respect to holding that repair is included in block of asset is perverse, as the same is stamp duty paid on transfer of asset.

The ld. D.R. submitted that the assessee has purchased new asset being office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai for which payment of Rs. 15 lacs was made and the commencement certificate was received on 19th March, 2008 only and thus there was no question of forceful possession of said premises on 6th February, 2008 of the said premises because the building got commencement certificate for construction only on 19th March, 2008. The assessee has sold office premises No. 605, 6th floor, Maithili’s Signet, Vashi Navi Mumbai to M/s Hi- Tech Infra Projects on 19th December, 2007. The short term capital gain was rightly brought to tax by the authorities below and he relied on the orders of the authorities below.

The learned counsel for the assessee submitted in the rejoinder that even if the said office premises i.e. shop no. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai is excluded to be included in block of asset, still no capital gain can be brought to tax as per scheme of the Act as contained in provisions of Section 50 of the Act because there will still be positive figure in the block of assets.

We have considered the rival contentions and also perused the material available on record including the case laws relied upon. We have observed that the assessee has sold office premises No. 605, 6th Floor, Maithili's Signet, Plot No.39/4, Sector-30A, Vashi, Navi Mumbai to M/s Hi-Tech Infra Projects (India) Pvt. Ltd. for a consideration of Rs. 25,25,000/- on 19th December, 2007. The said office premises were purchased by the assessee on 21st February, 2007 for a total consideration of Rs. 15,99,120/- and gains arising thereon sale of the said office premises was brought to tax by the Revenue as short term capital gain. The Tribunal in its order in and 3992/Mum/2010 for the assessment year 2007-08 vide orders dated 24th February, 2012 has given a categorical finding that the assessee has been ITA 2995/Mum/2013 12 able to establish that the said office premises was put to use in the year under consideration before the Tribunal i.e. assessment year 2007-08 for business purposes. Respectfully following the order of the Tribunal in assessee’s own case for the assessment year 2007-08 , we hold that office premises No. 605, 6th Floor, Maithili's Signet, Plot No.39/4, Sector-30A, Vashi, Navi Mumbai was also being put to use during the relevant assessment year i.e. 2008-09 in the absence of any contrary findings by the Revenue and this asset shall form part of block of asset being building not used for residential purposes on which depreciation @10% is provided. Secondly, with respect to the contention of the assessee that the block of asset which shall constitutes and include ‘office premises’ and ‘industrial premises’ both as the buildings which are not used for residential purposes on which depreciation @ 10% is provided and hence shall be part of the same block of assets as defined u/s 2(11) of the Act, we agree with the assessee that the assessee has rightly included the same in the block of asset of building which is not used for residential purposes carrying depreciation @ 10%. Our view is further fortified by the decision of Hon’ble Delhi High Court in the case of Ansal Properties and Infrastructure Limited(supra). Thirdly, with respect to the contention of the assessee that assessee has paid Rs. 15 lacs for the purchase of office shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai, whereby the possession was forcefully taken by the assessee on 06-02-2008 against which building commencement certificate to start construction was received by the Builder Hi-tech Infra Projects (India) Private Limited on 19th March, 2008 and no conveyance deed was executed by the builder in favour of the assessee, rather the assessee has treated the said office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai as part of the block of asset being the building which is not used for residential purposes on which depreciation @ 10% was provided under the scheme of the Act against which the depreciation was claimed by the assessee as it was claimed that the said asset was put to use by the assessee, we reject ITA 2995/Mum/2013 13 the afore-stated contention of the assessee as the said asset i.e. office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai has not been proved by the assessee to be constructed prior to the end of the financial year and there is no question of having any physical possession with the assessee with respect to the said office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai which was not even built prior to end of the financial year, no depreciation can be allowed on the said office premises as the same is not proved to be put to use prior to the end of financial year and hence shall not form part of the Block of assets keeping in view peculiar facts and circumstances of the case, as the builder itself has received commencement certificate to start construction on 19-03-2008 only. The onus was on the assessee to prove that the said office premises was existing prior to 31-03-2008 and also put to use during the previous year relevant to the impugned assessment year which the assessee in the instant case could not prove as per our detailed discussions above. The assessee has brought on record affidavit of Mr. Vinod Shankar More, Peon stating that the files have been transferred by him to the afore-stated office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai during the previous year and the asset was put to use. The A.O. wanted to verify the said contentions of the assessee and accordingly issued summons to said Sh. Vinod Shankar More,Peon to appear before him , but the said person Sh. Vinod Shankar More did not appeared before the AO and also could not be produced by the assessee before the A.O. No evidence has been brought on record that the assessee has put the said office premises to use prior to end of the financial year, hence, we reject the contentions of the assessee. With respect to the finding of the ld. CIT(A) that the assessee has added Rs. 16,27,010/- to the block of assets which are in the nature of repairs, this is a new claim made by the assessee before the learned CIT(A) which was never claimed before the A.O. during assessment proceedings. In fact no application u/r 46A of Income Tax Rules, 1962 has been filed before the ITA 2995/Mum/2013 14 learned CIT(A) with respect to said claim of Rs. 16,27,010/-. The assessee has only stated that they were repairs by nature and the learned CIT(A) rejected the contentions of the assessee for inclusion of Rs.16,27,010/- to the block of asset, and hence short term capital gain of Rs. 9,25,880/- was brought to tax by the ld. CIT(A) while the assessee has contended that the same being the payment of stamp duty for purchase of office, this has to be further enquired and verified by the authorities below and finding of the facts has to be recorded by the A.O. on merits after due enquiry /verifications for which we deem it fit and proper to set aside and restore this issue back to the file of the A.O. for necessary verification and enquiry so that the AO can record his finding of fact. Needless to say proper and adequate opportunity of hearing shall be provided by the AO to the assessee in accordance with the principles of natural justice and in accordance with law. We also direct the A.O. to compute the short term capital gain , if any chargeable on the sale of office premises No. 605, 6th Floor, Maithili's Signet, Plot No.39/4, Sector-30A, Vashi, Navi Mumbai being depreciable asset in accordance with provisions and scheme of Act in accordance with the directions as contained in this order. We order accordingly.

In the result, the appeal filed by the assessee in 2008-09 is partly allowed as indicated above.