DCIT, CIRCLE-4(2), NEW DELHI vs. BHARTI REALTY HOLDINGS LTD., NEW DELHI

The Revenue has raised following grounds of appeal : 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.5,36,65,783/- made on account of short term capital loss on sale of depreciable assets, without appreciating the findings given by the Assessing Officer in the assessment order that the assessee had sold the assets at a value less than wdv to its sister concern. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made on account of depreciation of Rs.6,20,107/- even through the block of assets ceased to exist.”

Apropos Ground No.1, the Learned CIT-D.R. submitted that the Assessing Officer rightly made addition in the hands of assessee by observing that the ‘mutual adjustment’ between the assessee and its other group entity M/s. Bharti Realty Holdings Ltd. reveals that the assets sold have been transferred at price below Fair Market Value (FMV) of the assets. The Learned CIT-D.R. further submitted that the said arrangement between assessee and other group entity has resulted into Short Term Capital Loss (STCL) of Rs.5,36,65,783/- to the assessee company. Learned CIT-D.R. submitted that the AO rightly took appropriate sale consideration at Written Down Value (WDV) as per Income-tax Act. The Learned CIT-D.R. further submitted that the AO rightly held that the assessee has managed its affairs so as to claim Short Term Capital Loss by not taking Fair Market Value as per Income-tax Act and consequently, the AO rightly made addition on account of Short Term Capital Loss accrued to the assessee. The Learned CIT-D.R. thus submitted that the Learned CIT(A) granted the relief without any basis by considering irrelevant factual position and value of asset transferred by assessee to its group entity. Therefore, impugned appellate order may kindly be set aside by restoring that AO on this issue.

On the other hand, the Learned Assessee’s Representative (AR) supporting the First Appellate order submitted that the assets were sold to the group entity as the assessee no longer requiring the same. The Learned AR further submitted that the AO has not given any basis or reason on the ‘money payable’ has been substituted by Written Down Value (WDV) and how the ‘mutual understanding

The Learned AR also submitted that the same Assessing Officer has passed order in the case of sister concern and all details and financials were available with the AO in the relevant assessment records. The Learned AR submitted that as per Section 43(6)(c)(i) of the Act, the written down value is to be adjusted by reduction of ‘money payable’ with regard to the sold assets falling within that block. He further contended that the money payable as defined in Section 43(6) Explanation 4 r.w.s 41(4) means the price for which it is sold. The Learned AR submitted that the substitution of Written Down Value as Fair Market Value was incorrect, unjustified and wrong and similarly, reducing the Written Down Value of the third block and making it nil when actually it was partly sold, was also against the provisions of the Act. The Learned AR submitted that the Learned CIT(A) has rightly granted relief to the assessee by considering the totality of the facts and considering the relevant provisions of the Act. Therefore, no interference was called for therein.

On careful consideration and submissions, we find it appropriate to reproduce the relevant para of First Appellate order,

In view of above from the assessment order, we note that the Assessing Officer noted that during the year the appellant sold two blocks of assets and a part of third block of assets to its sister concern. Sale price of two blocks resulted into nil Written Down Value as no depreciation was claimed thereon and also resulted into Short Term Capital Loss of 5,36,65,783/-. The AO noticed that the appellant has sold the assets to its sister concern for a low price and presumed that it is, in fact, a mutual adjustment for claiming huge Short Term Capital Loss. With these observations, the AO substituted the Written Down Value of two blocks as Fair Market Value and rejected the loss figure claimed by the assessee.

From relevant part of First Appellate order, we note that the Learned CIT(A) after considering the basis taken by AO and explanation of assessee held that the AO has not given the reason why the ‘money payable’ has been substituted by Written Down Value and how the ‘mutual understanding theory’ prevails upon the provision of the Act. The Learned CIT(A) after evaluating the financials of sister concerns as well as assessee observed that the same has been showing the disclosed value of assets matching with the sale value declared by the appellant. The Learned CIT(A) also noted that the same Assessing Officer has passed assessment order in the case of sister concern and thus all details of its financials were available with the AO in his record. Finally, the Learned CIT(A) rightly held that the disallowance of loss was due to incorrect comprehension of the

We have heard the arguments of both the sides and. Carefully perused the assessment as well as First Appellate order along with material available on record. The AO disallowed depreciation of Rs.6,20,107/- on part of third blocks of assets. The Learned AR contended that there is no sale of assets to the sister concern and ‘mutual understanding’ value does not have any real basis. The Learned CIT(A) granted relief to the assessee by observing that the AO has not brought any fact to deny the actual sale consideration instead of reducing the Written Down Value by sale price (money payable) and he has reduced the Written Down Value from Written Down Value itself. With these observations, the Learned CIT(A) granted relief to the assessee by holding that the disallowance of depreciation on part of third block has to be allowed and addition on this account was rightly deleted being non sustainable. We are unable to see any ambiguity, perversity or any other valid reason to interfere with the order of Learned CIT(A) and thus we upheld the same. Accordingly, ground no.2 of Revenue is also dismissed.