UMESH KUMAR,MANDI vs. ITO, BILASPUR

PER DIVA SINGH, J.M.

The present appeal has been filed by the assessee assailing the correctness of the order of Ld. CIT(A)-1, Amritsar Camp at Palampur (HP) dt. 14/02/2016 on the following grounds

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CIT(A) against the part relief granted by the CIT(A) assessee is in appeal before the ITAT. The Ld. AR inviting attention to the facts of the present case submitted that the assessee at the relevant point of time was a student and was living in a rented house. As a result of this, the notices which may have been sent, were never received. The said premises were left in July 2009. The issue, it was submitted, was that the assessee’s ancestral house was compulsorily acquired by the government and the compensation etc. received was taxed. It was submitted that no notice from the AO had been received by the assessee.

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otherwise capital in nature not liable to be taxed as pleaded by the Ld.Counsel for the assessee. 19. The facts which are not disputed are that the assessee was the owner of a property built on land taken on lease by her from her husband for a period of 20 years and was running a guest house on the same. The period of lease remaining when the said property was acquired by the Government was 15 years. The assessee had been compensated for the acquisition of property to the tune of Rs.66,04,202/- and thereafter the assessee had requested the LAO to compensate her further for goodwill on account of discontinuation of her business, in response to which the assessee had filed copies of her Balance Sheet to the LAO to prove that she had been running a guest house on the said property and earning income of approximately Rs.75,000/- per year. The LAO had accepted the contentions of the assessee and directed that the assessee be compensated for her loss of yearly income which amounted in all to Rs.11,25,000/-. The relevant application of the assessee and the order of the LAO formed part of the Paper Book placed at pages 36 to 38. 20. What emerges from these facts is that the LAO had awarded the sum of Rs.11,25,000/- to the assessee as compensation for the loss of the income earning apparatus of the assessee. The Government having taken over/acquired the premises and the land on which the assessee was running her guest house, the assessee had been deprived of her income earning source and since the remaining lease for the guest house was 15 years, she had been deprived of her income earning apparatus for the next 15 years. Considering these facts the LAO had compensated her for the loss of her income earning apparatus. Such compensations received for loss of business on account of compulsory requisition of business assets has been held to be capital receipts by the Hon’ble Apex court in the case of Senairam vs CIT (1961) 42 ITR 392. The said receipt, therefore, is capital in nature and cannot be brought to tax in the hands of the assessee. 21. The contention of the Revenue that the same formed part of the consideration for the asset is totally off the mark. The compensation received by the assessee on account of the acquisition of the building formed part and was included in the award granted to the assessee, the amount of which was Rs.66,04,202/- only, as per the said sheet placed at Paper Book page No.26. The figure of Rs.11,25,000/- does not form part of the said sheet. In fact, as pointed out above, the LAO had awarded the sum as compensation for loss of income and, therefore, by no stretch of imagination the said amount can be said to be part of the compensation of acquisition of asset. 22. In view of the above we hold that the amount received amounting to Rs.11,25,000/-as compensation for loss of business was a capital receipt distinct from the compensation received for acquisition of land and thus not taxable in the hands of the assessee. Ground No.2 raised by the assessee therefore stands allowed.” 8.2 In the absence of any change in fact or position of law, ground No. 2 raised by the assessee in the present proceedings is allowed. 9. The next issue agitated by the assessee in the present proceedings vide ground Nos. 3 to 5 is found addressed in pages 6 and 7 of the impugned order. A perusal of the same shows that the specific property acquired consisted of first floor and second floor which was residential and hotel accommodation. Fifty percent of the building was treated as depreciable asset being used for hotel business and 50% as residential purposes. The AO treated the same as short term capital gain. The CIT(A)

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has upheld the said decision. The said issue, it is seen, has also been considered by the ITAT in the aforesaid decision. Conscious of the said decision, ld. AR nevertheless reiterated the 10. submissions before the authorities below. 10.1. The ld. Sr.DR relies on the order of the ITAT as well as the consistent orders of the Tax Authorities. 12. I have heard submissions and perused the material on record. I find that the Co-ordinate Bench after considering the identical submissions of the parties before the Bench proceeded to consider the issue vide paras 30 to 34 in following manner and also proceeded to consider ground No. 4 raised in the facts of that case vide paras 35 to 36 holding as under : 30. We have heard both the parties and perused the documents filed before us. We find no merit in the contention of the Ld. Counsel for assessee. It is an admitted fact that before the LAO the assessee had staked claim to be compensated for loss of its business income and as evidence of the same had filed Balance Sheet before the LAO showing that the impugned asset was its business asset and was being depreciated accordingly. The assessee in her application before the LAO had submitted that she was running a guest house in the said property and was earning income thereon. Even the LAO awarded compensation to the assessee of Rs.11,25,000/- for loss of Business income. All these facts,which have not been controverted by the assessee lead only to one logical conclusion, that the asset was the business asset of the assessee. The Revenue, therefore, has rightly held the capital gain earned thereon as Short Term Capital Gain earned on sale of business asset as per the provisions of section 50 of the Act and denied the assessee indexation on the cost of acquisition of the asset thereon. 31. The claim of the Ld. counsel for assessee that the said asset was not its business asset is based solely on the fact that it had never filed returns before the Income-tax Authorities claiming so. We find no substance in this argument of the Ld. counsel for assessee. Non filing of income tax return does not prove that the asset was not the business asset of the assessee. The non-filing of income tax return is in fact a default on the part of the assessee which has its own consequences but merely because the assessee does not file her income tax return does not mean that she has earned no taxable income at all. The non filing of Income Tax Return does not prove anything at all. 32. The Ld. counsel for the assessee has also contended that as per section 50 of the Act ,which treats capital gains earned in case of depreciable assets as short term capital gains, the capital asset should form block of capital assets on which depreciation has been “allowed” under the Act. The contention of the Ld.Counsel is that since no return has been filed by the assessee, the assessee has not claimed depreciation also and having not claimed depreciation, the same cannot be said to have been allowed to it also. 33. We do not find any merit in this contention of the assessee also. Firstly as per the assessees own claim before the LAO, the impugned asset i.e. the building ,is its business asset which is being depreciated year to year as reflected in the balance sheet filed before the LAO. Merely because no return has been filed by the assessee will not take away the admitted fact that the asset is a business asset of the assessee forming part of block of asset i.e. Building. Moreover depreciation “allowed” to the assessee cannot be read so as to mean that allowed after having been claimed by the assessee. Explanation 5 to section 32(1) ,which deals with allowability of depreciation ,states depreciation will be allowed as per the provision of section 32 whether or not the assessee has claimed the deduction while computing its income. Therefore actual claim by the assessee is not required even by statute for allowing it. 34. We, therefore, hold that the capital gain earned on compulsory acquisition of the property has been rightly held to be Short Term Capital Gain and

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has been correctly computed at Rs.56,50,290/- after denying the indexation on the cost of the acquisition. Ground No.3 raised by the assessee is, therefore, dismissed. 35. Ground No.4 raised by the assessee reads as under: “4. That in the facts and circumstances of the case the Ld Commissioner of Income Tax (Appeals) in not allowing deduction under section 54F/54D of the Income Tax Act, 1961. The same is very much allowable in the eyes of law.” 36. The above ground was not pressed before us and is, therefore, dismissed as not pressed. In effect, the appeal of the assessee stands partly allowed.” 12.1 In the absence of any change in facts or circumstances or the position of law, respectfully following the order of the Co-ordinate Bench, the said grounds of the assessee are dismissed. Said order was pronounced in the Open Court at the time of hearing itself. 13. In the result, appeal of the assessee is partly allowed. 4. Accordingly, in the light of the submissions of the parties before the Bench it is deemed appropriate to set aside the impugned order back to the file of the assessing officer with a direction to take into consideration the directions of the coordinate Benches wherein identical issues have come up for consideration. I have seen that in view of availability of relevant evidences, full facts could not be considered. Accordingly in the peculiar facts and circumstance of the present case, it would be appropriate to direct the assessee to place full facts and circumstances in support of the case. The AO shall pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. While so directing, it is made clear that the assessee shall ensure its participation fully and fairly before the assessing officer and shall not abuse the trust reposed in it as failing which the assessing officer would be at liberty to pass a speaking order on the basis of material available on record. Said order was pronounced in the open court at the time of hearing itself.

Sd/- (DIVA SINGH) JUDICIAL MEMBER AG/Poonam Copy to: 1.The Appellant 2. The Respondent 3. The CIT 4. The CIT(A)5. The DR

Asstt. Registrar ITAT Chandigarh