RONAK CERAMIC IND LTD,MEHSANA vs. INCOME TAX OFFICER, MEHSANA

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ITA 589/AHD/2023Status: DisposedITAT Ahmedabad08 March 2024AY 2016-2017Bench: Shri Waseem Ahmed (Accountant Member), Ms. Madhumita Roy (Judicial Member)5 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the CIT(A)'s order was not sustainable as it failed to provide the benefit of the cost of acquisition with indexation for the land. The Tribunal directed the Assessing Officer to delete the addition made.

What were the facts?

The assessee received compensation for compulsory acquisition of land and building. The Assessing Officer added the difference between the total compensation and the short-term capital gain shown by the assessee as income. The CIT(A) confirmed this addition, stating land cannot be part of a block of assets for depreciation.

What were the issues?

Whether the cost of acquisition of land along with indexation should be allowed as a deduction when compensation is received for compulsory acquisition of land and building, and whether land can be part of a block of assets for depreciation.

Which sections of the Income-tax Act were involved?

Section 50

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH

Before: Shri Waseem Ahmed

For Appellant: Shri Sumit Shingala, A.R
For Respondent: Shri B.P. Makwana, Sr. D.R

आदेश/ORDER PER : WASEEM AHMED, ACCOUNTANT MEMBER:-

1.

This is an appeal filed against the order dated 30-05-2023 passed by National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2016-17.

2.

The only grievance raised by the assessee is that ld. CIT(A) erred in confirming the addition made by the Assessing Officer for Rs. 7,67,802/- on account of sale of land and building.

2.1 The Assessing Officer during the assessment proceedings found that the assessee has received compensation on the compulsory acquisition of capital assets amounting to Rs. 1,00,09,775/- only. But the assessee has shown short term capital gain of Rs. 92,41,973/- instead of showing the gross amount of Rs. 1,00,09,775/- as its capital gain. On questions by the Assessing Officer, the assessee failed to make any compliance. Therefore, the Assessing Officer treated the difference of Rs. 7,67,802/- (Rs. 1,00,09,775/- minus Rs. 92,41,973/-) as short-term capital gain and added to the total income of the assessee.

3.

Aggrieved by the preferred an appeal to the ld. CIT(A). The assessee the ld. CIT(A) contended that it has shown the impugned assets being land and building as part of the block of asset and claimed the depreciation thereon. Therefore, the written down value of Rs. 7,67,802/- should be allowed as a deduction against the compensation received.

4.

However, the ld. CIT(A) disagreed with the submission of the assessee on the reasoning that the land cannot be made part of the block of assets and therefore the question of claiming the depreciation does not arise. Thus, the ld. CIT(A) confirmed the order of the Assessing Officer.

5.

Being aggrieved by the order of ld. CIT(A), the assessee is in appeal before us.

5.1 The ld. AR before us filed a paper book running from pages 1 to 111 and among other contentions submitted that the land was acquired in the year 1985 and thereafter the building was constructed on such land. As per the assessee, the compensation received for Rs. 1,00,09,775/- comprising of the following: Award for: Amount (Rs.) Land 66,57,235/- Construction over the land 33,52,540/- (See Page 47) Total 1,00,09,775/- 5.2 The ld. AR further contended that even the compensation received by the assessee towards the land is excluded from the income shown by the assessee under the head short term capital gain, then also the assessee is entitled for the deduction the cost of acquisition of the land in dispute along with indexation. But the ld. CIT(A) has not done so.

6.

Similarly, it was also contended that the assessee has offered short term capital gain to tax @ 30% but if it bifurcates the compensation based on long term capital asset and short-term capital asset separately being land and building, then the tax liability of the assessee will reduce drastically. But the ld. CIT(A) has not done so. Accordingly, the ld. AR prayed to set aside the finding of ld. CIT(A).

7.

On the other hand, the ld. Departmental Representative vehemently supported the order of the authorities below.

8.

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note a defect in the order of ld. CIT(A) in so far as the benefit of cost of acquisition with respect to the land has not been provided as mandated under the provisions of law. As such, we note that the ld. CIT(A) on the one hand is denying the benefit of a deduction representing the written down value of Rs. 7,67,802/- and on the other hand, the ld. CIT(A) has not given the benefit of acquisition of land along with the indexation cost. Thus, we are of the view that such an order passed by the CIT(A) is not based on the provisions of law.

8.1 With prejudice to the above, we note that if we calculate the capital gain by the method adopted by the ld. CIT(A), we note that the tax liability of the assessee shall reduce further as evident below: Particulars STCG if sec. 50 is LTCG If Sec. 50 is not applicable applicable Total Consideration 1,00,09,775.00 1,00,09,775.00 Less: WDV -7,67,802.00 N/a. Gain 92,41,973.00 1,00,09,775.00 Tax Rate Applicable @30% @ 20% Resultant Tax 27,72,591.90 20,01,955.00 8.2 In view of the above, we hold that the order passed by ld. CIT(A) is not sustainable and accordingly, we direct the Assessing Officer to delete the addition made by him. Hence, the grounds of appeal of the assessee are hereby allowed.

9.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 08-03-2024 Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCCOUNTNAT MEMBER Ahmedabad : Dated 08/03/2024 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद

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