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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI R.C.SHARMA & SHRI PAWAN SINGH
O R D E R
PER PAWAN SINGH, JM:
The present appeal has been filed by the Revenue against the order of CIT(A)-31, Mumbai dated 09.12.2013 in respect of Assessment Year (AY) 2011-12 on the following grounds of appeal: I. The Ld. CIT(A) has erred on the facts and circumstances of the case and in law in directing the AO to allow deduction u/s 54. EC against the Short Term Capital Gain arised on sale of depreciable asset. II. The Ld. CIT(A) has erred on the facts and circumstances of the case and in law in relying on the decision of ITO v ACE Builders reported in 281 ITR 210 without appreciating that the facts in the instant case are different. In the instant case the assessee has erroneously claimed deduction u/s 54EC against the Short Term Capital Gain arised on sale of depreciable asset and the same was rightly shown in the Return of Income e-filed originally. III. The appellant prays that the order of the CIT(Appeal) on the above grounds be set aside and that of the AO be restored.
IV. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be J1.ecessary.
The brief facts of the case are that the assessee filed its return of income through CPC on 14.07.2011 declaring total income of Rs. 1,64,280/-. The return was processed by ACIT, CPC vide order dated 05.01.2012 determining the income of assessee at Rs. 94,74,070/- and calculated the payable tax of Rs. 32,71,850/-.
Against the determination of income, the assessee filed application under section 154 of ITAct for rectification in the application assessee urged he is entitled to deduction u/s 54EC for investment made in NHAI Bond of Rs. 100,00,000/- however the application of assessee was rejected vide order dated 16.08.2012 against which an appeal was filed before the CIT(A) and, ld. CIT(A) allowed the appeal of assessee in the impugned order dated 09.12.2013 against which the present appeal is filed before us.
We have heard both the parties and gone through the material available on record.
We have seen that the assessee has invested Rs. 50 Lakhs on 31.12.2010 and Rs. 50 Lakhs on 30.04.2011 in NHAI bonds as prescribed u/s 54EC of the Act 6. The Authorised Representative (AR) of the assessee relied upon the judgment of Hon’ble Bombay High Court in CIT vs. ACE Builders Pvt. Ltd. , judgment of Co- ordinate Bench of Mumbai Tribunal in titled as Mrs. Lilavati M. Sayani vs. ITO , ITAT Bench Panji in ITA No. 9/PNJ/13 titled as ITO vs. Rania Faleiro and ITAT Jaipur Bench ITA No. 648/11 titled as ACIT vs. Raj Kumar Jain & Sons (HUF).
The Hon’ble jurisdictional High Court in CIT vs. ACE Builders Pvt. Ltd. has held as under: "The assessee cannot be denied exemption under s.54E, because, firstly, there is nothing in s.50 to suggest that the fiction created in s. 50 is not only restricted to ss. 48 and 49 but also applies to other provisions. On the contrary, s. 50 makes it explicitly' clear that the deemed fiction created in sub-ss. (1) and (2) of s. 50 is restricted only to the mode of computation of capital gains contained in ss. 48 and 49. Secondly, it is well established in law that a fiction created by the legislature has to be confined to the purpose for which it is created. The fiction created under s. 50 is confined to the computation of capital gains only and cannot be extended beyond that: Thirdly, s. 54E does not make any distinction between depreciable asset and non-depreciable asset and, therefore, the exemption available to the depreciable asset under s. 54E cannot be denied by referring to the fiction created under s.
50. Sec. 54E specifically provides that where capital gain arising on transfer of a long-term capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under s. 54E cannot be denied to the assessee on' account of the fiction created in s.
50. It is true that s. 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. In other words, where the long-term capital asset has availed depreciation, 'then the capital gain has to be computed in the manner prescribed under s. 50 and the capital gains tax will be charged as if such capital gain has arisen out of a "short-term capital' asset, but if such capital gain is invested in the manner prescribed in s. 54E, then the capital gain shall not be charged under s.
To put it simply, the benefit of s. 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under ss. 48 and 49 or under. s.
The contention of the Revenue that by amendment to s. 50, the long-term capital asset has been converted into a short-term capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as short-term capital asset; Therefore, it cannot be said that s. 50 converts long term capital asset into a short-term capital asset. The Tribunal was justified in allowing the benefit of exemption under s. 54E to the assessee in respect of the capital gains arising on the transfer of a capital asset on which depreciation has been allowed.
Further the Co-ordinate Bench of Mumbai Tribunal in case of Mrs. Lilavati M. Sayani vs. ITO reported viz. (2014) (32) ITR (Tribunal) 0174 Mumbai has held as under: “Capital gains-Not to be charged on investment in certain bonds-assessee derived long term capital gain of Rs. 84,59,538 from sale of her new office premises and claimed same to be exempt u/s 54EC on ground that investment of Rs. 85 lacs was made in bonds issued by Rural Electrification Corporation Ltd. amounting to Rs. 50 lacs on 25-3-2008 and in bonds issued by National Highways Authority amounting to Rs. 35 lacs on 30-6-2008-AO observed that assessee was entitled to claim u/s 54EC upto maximum exemption to the extent of Rs. 50 lacs for investment made in specified bonds and made disallowance of Rs. 35 Lacs-CIT(A) confirmed disallowance m de by AO-Held, if Assessee transferred capital asset after 30th September of financial year, he could make investment of Rs. 50 lacs each in two different financial years-Assessee could also claim exemption upto Rs.1 crore u/s 54EC-Benefits which were available to Assessee could not be denied-ITAT directed AO to allow claim of Assessee for exemption u/s 54EC- Asessee's appeal allowed”.
We have further seen that assessee has claimed deduction of Rs. 1 Crore in column 3F of Schedule CG against an amount of Rs. 93,09,792/- which was declared as deemed STCG on depreciable assets which was also shown in the computation of income from business or profession in the P&L A/C, thus, a clear exemption was claimed by the assessee in his e-return.
The ld. CIT(A) while disposing of the appeal of the assessee in paragraph no. 5.4 and 5.5 of its order has observed as under: “5.4 As per the provisions of section 143( ), the A.O. is empowered to make only the following adjustments: - i. Any arithmetical error in the return; or ii. An incorrect claim, if such incorrect 'claim is apparent from any information in the, return
5.5 In the remand report, the A.O. has submitted that the capital gain on sale of fixed asset as per section 50(2) of the, I T Act is short term capital gain and assessee is not entitled to claim deduction of Rs 93,09,792 u/s 54EC against short term capital gain. This view of Assessing Officer is one view. The other view is that the claim of deduction u/s 54EC is allowed on transfer of a long term capital asset and it is immaterial whether the corresponding gain is a short term capital gain by virtue of deeming fiction under section 50 of the IT. Act. This view is supported by the decision of jurisdictional High Court of Bombay in the case of ITA Vs ACE Builders reported in 281 ITR 210 and therefore is the law applicable on the issue at hand to the authorities functioning within the territorial jurisdiction under the Hon'ble Court. Therefore, the issue is debatable or rather, the law as it stands after the decision of the jurisdictional High Court, is against the view taken by the Assessing Officer, therefore the adjustment made is beyond the scope of section u/s 143(1). The claim of deduction u/s 54EC is against a deemed short term capital gain u/s 50 of the LT. Act. It is material to note that as per the provisions of section 50, only the gains resulting from sale of assets on which depreciation is claimed, are deemed to be short term capital gains. The provision does not stipulate that the asset on the sale of which, the said, gains arise will be considered as a 'short term capital asset' (regardless of the period of its holding by the assessee). The information in the e-return filed by the appellant nowhere indicates that the fixed asset sold was a short term asset and therefore the return did not contain data, which could have enabled the Assessing Officer to make adjustment appealed against from the details available on the face of the record. The view taken by the Assessing Officer that the sale of asset resulted in a deemed short term gain and therefore deduction u/s· 54EC is not an allowable deduction is not a satisfactory reason for adjustment u/s 143(1) because as stated earlier it is debatable or incorrect as per the decision of Hon'ble Bombay High Court. Therefore, on appreciation of the facts of the instant case and the position of law as discussed above, the adjustment is beyond the scope of section 143(1) and adjustment made u/s 143(1) as well as rejection or subsequent application u/s 154 cannot be upheld. Accordingly, the ground raised by the appellant is allowed”.
In the above discussion, we do not find any infirmity or illegality in the order passed by CIT(A) and the case of assessee is squarely covered by the case of ACE Builders Pvt. Ltd. And Mrs. Lilavati M. Sayani case as stated above.
In the result the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 20th November 2015. 13.