ITO 18(2)(3), MUMBAI vs. PRATAP M KAMAT, MUMBAI

The present appeal and cross objection filed by the Revenue and assessee respectively against the order of CIT(A)-29, Mumbai dated 08.08.2012 were heard together and are decided by the common order. The revenue has filed the appeal on the following grounds:

Brief facts of the case are that the assessee, is engaged in the business of printing and is proprietor of M/s. Uma Printers, filed return of income for AY-2009-10 on 29.09.2009 declaring total income at Rs. 4,41,450/-. The return of income was selected for scrutiny. While making the assessment, the Assessing Officer (AO) besides making certain disallowance made addition of Short Term Capital Gain (STCG) u/s. 50 of Rs. 47,000,97/-.

Aggrieved by the order of AO, assessee filed appeal before the CIT(A). The CIT(A) after hearing of the submission of the assessee, deleted the addition of STCG in its order and sustained various disallowance in its order dated 08.08.2012. Against the deletion of STCG revenue filed the present appeal us , and the assessee has filed C.O.

First we shall deal with the appeal filed by the Revenue being ITA No. 6554/M/2012.

We have heard the DR of the Revenue and Authorized Revenue (AR) of the assessee and perused the material available on record. Departmental Representative (DR) for the revenue has argued that CIT(A) wrongly deleted the STCG and prayed for restoration of by supporting the order of AO. AR of the assessee argued that assessee has purchased the new machinery in the same year on different date and further argued that according to section 50(2), the net surplus arising due to sale of asset will be deemed as STCG after considering the addition done during the previous year. It was further argued that contention of AO that block of asset seized to exist on 04.08.2008 is not correct.

We have seen that AO while making the addition of STCG observed that assessee had sold 2nd hand machinery at Rs. 67,50,000/- on 04.08.2008 against the opening balance of block of plant and machinery at Rs.18,84,053/- and purchase of Rs. 1,65,850/- before the sale of plant. The assessee sold the second hand machinery at Rs.67,50,000/-on 04/08/2008 and another machinery was purchased on 20/08/2008 at Rs. 61,20,000/-, the block plant and machinery purchased before got exhausted on that date, and the STCG arise on 04/08/2008. The AO and calculated the STCG as per section 50 at Rs. 47,000,97/-. The CIT(A) while considering the appeal of the assessee concluded that the close reading of section 50(2) make it clear that addition to the Plant & Machinery during the year has to be taken into account before arriving at STCG. CIT(A) concluded as under: “ A close reading of the section makes it clear that the addition of plant and machinery during the year has to be taken into account before arriving at short term capital gain. In this case appellant sold the assets in this block on 04/08/2008 for a consideration of Rs. 67,50,000/-. However, another machinery was purchased on 20 August 2008 Rs. 61,20, 000/-. According to section 50 for calculating short term capital gain on sale of machinery the cost of the asset will be WDV as on beginning of the year increased by the actual cost of any asset falling within that block, acquired by the assessee during the previous year. There is no prescription under this section that acquisition has to be within the date of sale. The period granted is the entire previous year and therefore the purchase of the asset all 20. August 2008 has to be considered. The short-term capital gains determined by assessing officer under section 50 cannot be sustained and is deleted.”

We have carefully gone through the order of AO as well as CIT (A). The AO while making the addition has ignored the relevant date for sale of machinery and the purchase in the year itself. Sub section (2) of section 50 makes it clear that where any block of assets ceases to exist for the reasons that all the assets in that block not transferred during the previous year ,the cost of acquisition of the block of assets the written down value of the block of the assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets acquired by the assessee during the previous year and the income received for accruing during the previous year and the income received for accruing as a result of such transfer shall be deemed to be capital gains arising from the transfer of short term capital assets. The assessee sold the assets in the block 04/08/ 2008 for a consideration of Rs.67,50,000/-and the other machinery was purchased on 20 August 2008 for Rs. 61,20, 000/-that is within the year. As per above discussion, CIT(A) given categorical findings considering the facts of the case and the scope of section 50 of the Act, hence we do not find any infirmity or illegality in the order passed by commissioner of appeal. Hence, this ground of appeal