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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the assessee against the appellate order of the Commissioner of Income Tax(Appeals)-XI, Ahmedabad [CIT(A) in short] dated 15/05/2014 in
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 2 - the matter of assessment order under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") passed by the Assessing Officer (AO) dated 20/12/2012 for the Assessment Year (AY) 2010-11. The assessee has challenged the chargeability of Long Term Capital Gains (LTCGs) on sale of land determined by the CIT(A).
Briefly stated, the assessee an individual is engaged proprietary business of manufacturing pharmaceutical machinery. The assessee filed return of income for AY 2010-11 declaring total income of Rs.2,36,790/-. The return of income was subjected to scrutiny assessment. In the course of the scrutiny assessment, the AO noticed that the assessee has sold factory shed for Rs.42 lakhs and purchased another factory shed for Rs.43.10 lakhs It was found by the AO that both the transactions of sale as well as purchase were net off and no capital gain tax liability was determined by the assessee on sale of factory shed. The AO after giving show-cause notice to the assessee in this regard worked out Long Term Capital Gain (LTCG) on sale of land/factory shed at Rs.26,42,620/- and included the aforesaid income while determining the assessed income.
Aggrieved, the assessee carried the issue before the CIT(A). The CIT(A) took note of the submissions made by the assessee and granted
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 3 - partial relief. The relevant operative para of the order of the CIT(A) reads as under:-
“2.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. During the year the appellant has sold its land and factory shed for Rs.42 Lacs and purchased a new land and factory shed for Rs. 33.10 Lacs. The AO did not accept the contention of the appellant that it was a sale of an ongoing concern and divided the sale consideration between the land and building. The appellant had purchased the land and factory building for Rs. 16 lakh in the year 2006. The AO considered the cost in the ratio of 50-50. He held that the building was a depreciable asset and accordingly the depreciated value of the building was deducted from the sale consideration of Rs. 42 Lacs and balance consideration was considered towards land sale and capital gain was worked out after allowing the indexation. The appellant has submitted that it has sold the factory shed as composite and single unit and no separate sale consideration was received towards land and structure. Since it was a composite consideration on transfer of capital assets the AO had no powers to bifurcate such consideration. It has also objected to the manner of bifurcation and working of capital gains. She has submitted that AO was wrong to assume that factory shed would depreciate and would not appreciate. It has been submitted that since the cost has been divided in the ratio of 50:50 the sale price should also be bifurcated in the same ratio. After considering the factual matrix, it is noted that the, assets which have been sold by the appellant during the year was not part of the block of whether the AO can assign separate value for the different assets taken over when it is not so agreed upon by the parties. It was answered in favour by the Apex Court in case of Electric Control Gear P Ltd (227 ITR 278) The law we later on amended by insertion of Sec 50B w.e.f 1-4-2000. WRITTEN SUBMISSION No: 3
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 4 - With reference to the above and further to the written submissions dt.l 6-9- 2013 and 11-10-2013, the .appellant begs to submit that during the course of la. f hearing on 15-10-2013, your honour had asked the appellant to establish that the business had commenced from the new factory premises, failing which the same would not form part of the block of assets and stock on sale of old factory shed would be taxable as it is.
2.1 The appellant begs to state that the following evidence produced herewith clearly establish that the appellant had handed over the possession of the old premises after the sale deed and continued production till it started occupying and using the new factory premises which was also much before the purchase deed was executed:
(i) Lorry receipt no 4.3 dt 29-3-2010 of Roshni Cargo Movers showing the new address.
(ii) Letter dt 25-2-2010 and 17-2-2010 of AXIS Bank certifying the new address.
(iii) Bank statement for the period 1-2-2010 to 16-4-2010 of Bank of India Vatva Br. showing new address.
(iv) Undertaking given to GIDC duly notarized on 30-1-2010 wherein the new address is mentioned.
(v) Letter dt 21-4-2010 from GIDC sanctioning the transfer of lease rights and similar approvals given by GIDC for transfer of sheds.
In view of the above it is submitted that the appellant had not handed over the possession of the entire old shed at the time of execution of the sale deed and continued the operations from part of. the said shed. Similarly the possession of the new shed was taken earlier to establish the operations. It assets on
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 5 - which depreciation was claimed. The appellant did not claim any depreciation on the factory shed. Therefore, the cost for the purpose of calculating the capital gain shall be the cost of acquisition for which the appellant has purchased the asset in the year 2006. Since it is an asset on which no depreciation has been claimed there is no need to apportion the cost of acquisition between the land and the factory building. The calculation of capital gain shall have to be done by taking the asset as a normal long term asset and provisions related to the capital gain on assets on which the depreciation has been claimed will not be applicable. It appears that neither the appellant nor the AO understood the correct implications of the sale of these assets. The capital gain shall have to be normally calculated by reducing the cost of acquisition, after taking into account the cost inflation index, from the sale consideration received by the appellant. Accordingly the AO is directed to take the sale consideration as 42 lakh and the purchase price as Rs. 16 lakh and calculate the capital gain, as per the provisions of the Act, accordingly.”
Aggrieved, the assessee preferred the appeal before the ITAT against the aforesaid order of the CIT(A).
The Ld.AR for the assessee Mr.S.N.Divatia submitted at the outset that the assessee had originally acquired the land and factory building at a purchase price of Rs.16 lakhs. The Indexed cost of which works out to Rs.21,91,907/-. It was pointed out that the assessee did not claim any depreciation on the factory shed. The Ld.AR submitted that the aforesaid factory shed along with land was combinedly sold and simultaneously a new factory shed together with land was purchased at Rs.33.10 lakhs for which the assessee is entitled set off as claimed in view of the fact that both the assets are similar in nature and falls in the same ‘block’ as
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 6 - contemplated under s.2(11) r.w.s.32 of the Act. The Ld.AR submitted that regardless of the fact that no depreciation was claimed on the factory shed which is inseparable from land, the assessee has bought and substituted another factory shed of similar nature falling in same block. The Ld.AR submitted that no tax liability therefore can be fastened on the assessee towards capital gain in view of the block of the said scheme provided in the statute.
The Ld.DR, on the other hand, relied upon the order of the CIT(A). The Ld.DR referred to section 50 of the I.T.Act and submitted that the order of the CIT(A) does not suffer from any infirmity whatsoever in computing the capital gains. The Ld.DR accordingly submitted that no interference with the order of the CIT(A) in the circumstances is called for.
We have carefully considered the rival submissions and perused the orders of the authorities below. The applicability of special provisions for computation of capital gain in respect of depreciable assets is essentially in question. It is the case of the assessee that the land and factory shed purchased at Rs.16 lakhs on 21/12/2006 forms integral and inseparable asset which is part of the ‘block of asset’ under s.2(11) r.w.s.32 on which benefit of set off provided in section 50 of the Act is available regardless of the fact that no depreciation has been claimed on such asset. It is further case of the assessee that as the new asset has been
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 7 - purchased falling in the same block and there being no excess remaining on transfer of the factory shed due to new acquisition, the assessee is not susceptible to any capital gain tax. The Revenue, on the other hand, contends that the original factory shed never formed part of the block of asset as no depreciation has been admittedly claimed on the factory shed in transfer nor has been allowed under the Income Tax Act. In this regard, we take note of section 50 of the Income Tax Act which specifically deals with the aforesaid situation. Section 50 of the IT Act, inter alia, provides that where the capital asset forms part of a block of asset in respect of which depreciation has been allowed under the Income Tax Act, the sale consideration received or accruing as a result of transfer of asset falling in the block which exceeds actual cost of the assets acquired during the previous year falling in the same block shall be deemed to be Short Term Capital Gains (STCGs) arising on such transfer.
We notice here that it is an admitted position that the assessee has never claimed any depreciation on the asset under transfer. Therefore, the very premise for claiming the same to be part of block of asset for the purpose of s.50 is a damp squib. Secondly, the benefit of section 50 is available only when the depreciation has been allowed on the asset under transfer. It is an admitted position that no such depreciation has been either claimed or allowed on factory shed in transfer. The assets sold is thus not a depreciable asset in so far as provisions of s.50 is
ITA No. 2164/Ahd/2014 Smt. Niharika Maheshkumar Trivedi vs. ITO Asst.Year – 2010-11 - 8 - concerned. Admittedly, assessee has claimed indexation benefit as per its submission before the CIT(A). Thus, the asset in transfer was also not understood to be a Short Term Capital Asset as contemplated under s.50 of the Act by the assessee himself. Therefore, we do not, in totality, see any substance in the plea of the assessee. A reading of the order of the CIT(A) shows that action of the CIT(A) is in confirmity with law and does not call for any modification. 9. In the result, appeal of the assessee is dismissed. This Order pronounced in Open Court on 16/ 10 /2017
Sd/- Sd/- (महावीर �साद) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 16/ 10 /2017 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-XI, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad