DIREN ENGINEERING CO.,VAPI V. .INCOME TAX OFFICER, WARD-2, VAPI

ITA 227/SRT/2024

AI Insights

The case involves Diren Engineering Co., which appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, confirming the addition of long-term capital gain on the sale of a plot. The plot, sold for Rs.55,00,000, was held for more than 36 months, leading to the surplus being taxed as long-term capital gain. The assessee contested the non-allowance of indexed cost of improvement and acquisition, and the denial of deduction under section 54EC of the Income Tax Act. The Tribunal noted that the additional evidences regarding the cost of improvement and the claim for deduction under section 54EC were not considered by the CIT(A) as they were presented for the first time during the appellate proceedings.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26755 (ITAT-SURAT)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 28-02-2024
• Other Referred Cases: Smt. Prabhavati S. Shah vs. CIT, 231 ITR 1 (Bom.)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Set aside; Capital asset; Additional evidence; Depreciation; Cost of acquisition
• Section: 250; 13; 54EC

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.227/SRT/2024 Assessment Year: (2016-17) (Physical Hearing) Diren Engineering Co., C-1/84, Diren Engineering Co., 100 Shed Area, G.I.D.C – Vapi - 396195 Vs. The ITO, Ward – 2, Vapi èथायीलेखासं./जीआइआरसं./PAN/GIR No: AACFD1127B (Appellant) (Respondent) Appellant by Shri Sapnesh Sheth, CA Respondent by Shri Mukesh Jain, Sr. DR Date of Hearing 27/11/2024 Date of Pronouncement 10/12/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 29.12.2023 by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] for the assessment year (AY) 2016-17. 2. The grounds of appeal raised by the assessee are as under: “1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of Income Tax (Appeals), NFAC has erred in confirming the action of assessing officer in making addition on account of long-term capital gain on sale of plot of Rs.54,44,876/- without allowing benefit of indexed cost of improvement incurred on land amounting to Rs.21,44,976/- & indexed cost of acquisition as on 01.04.1981 on the ground that same is based on additional evidences filed in appellate proceedings. 2. On the facts and in the circumstances of the case as well as the law on the subject, even otherwise also, the learned Commissioner of Income Tax (Appeals), NFAC has erred in not allowing deduction u/s 54EC of the Act 2 ITA No.227/SRT/2024/AY.2016-17 Diren Engineering Co. amounting to Rs.1,50,000/- on the ground that same is based on additional evidences filed in appellate proceedings. 3. On the facts and in the circumstances of the case as well as the law on the subject, even otherwise also, the learned Commissioner of Income Tax (Appeals), NFAC has erred in confirming the action of assessing officer in not allowing set off of enhanced business loss against long term capital gain. 4. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted. 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. The appeal filed by the assessee is barred by limitation by 1 day in terms of provisions of section 253(3) of the Act. The learned Authorized Representative (ld. AR) submitted that the day of 1 day was due to mis- calculation of the time available for filing the appeal. The delay was not intentional or deliberate. The learned Senior Departmental Representative (ld. Sr. DR) did not have any objection if delay is condoned and appeal is decided on merit. After considering the submission of both parties, the delay is condoned and we proceed to decide the appeal on merit. 4. Brief facts of the case are that assessee filed the return of income for AY.2016-17 on 23.07.2016, declaring total income of Rs.4,51,260/-. The case was selected for limited scrutiny on the issue of capital gain on sale of property. The assessee has sold / transferred out industrial Plot No. C-1/84, located in Vapi Notified Industrial Area on 06.04.2015 for a sale consideration of Rs.55,00,000/-. This land had been acquired by assessee on 28.01.1992 as per lease deed registered with Sub-Registrar, Pardi for a consideration of Rs.10,164/-. The Assessing Officer (in short, ‘AO’) held that the asset was a non- 3 ITA No.227/SRT/2024/AY.2016-17 Diren Engineering Co. depreciable asset and hence there was long-term capital gain (LTCG) on transfer of land. However, assessee contended that it was a case of short-term capital gain (STCG) on depreciable asset sold during the year. The contention of assessee was not accepted because the impugned plot of land was a long-term asset as per the details on record. The AO issued show cause notice as to why capital gain of Rs.54,44,876/- arising on sale of the impugned land should not be taxed as LTCG. However, the assessee did not submit any reply even after further time allowed to it by the AO. The impugned plot had been shown separately in the balance sheet as on 31.03.2015 in the fixed assets under the title factory plot and no depreciation was claimed. Hence, the AO observed that provision of section 50 cannot be invoked on sale of the said plot of land. Since it was held for a period of more than 36 months, the surplus of sale price over indexed cost of acquisition was taxed by AO at LTCG. Accordingly, the AO added Rs.54,44,876/- as LTCG and determined total income of Rs.58,96,136/-. 5. Aggrieved by the order of AO, the assessee filed this appeal before the CIT(A). Before the CIT(A), the assessee has raised five grounds of appeal i.e., (i) deduction u/s 54EC of Rs.15,00,000/- for investing in NHAI bonds, (ii) cost of improvement of land and benefit of indexation from 01.04.1981 instead of 28.01.1992 adopted by AO, (iii) continuation of the block of assets and (iv) enhanced business loss. The appellant had made submissions before the CIT(A) on these grounds which were not made before the AO. The details of submission had been discussed by the CIT(A) in paras 4.4 to 4.4.2 of the appellate order. The conclusion of CIT(A) is at paras 4.4.3 to 4.4.5 of the 4 ITA No.227/SRT/2024/AY.2016-17 Diren Engineering Co. appellate order. The assessee had contended that there was error in computing capital gain in the course of filing return of income which should have been assessed under LTCG. However, improvement and development cost of land incurred by the assessee in the form of murrum, boundary wall and gate of factory had not been considered by AO. The indexed cost of improvement on these costs was claimed at Rs.21,44,976/-. On this plea of assessee, the CIT(A) observed that AO had given adequate opportunity to file details and explanation regarding LTCG but appellant did not submit any written submission before the AO. The appellant had also not made no claim of deduction u/s 54EC of Rs.15,00,000/- before AO. All these claims were made for the first time before the CIT(A). Further, no documentary evidence relating to the expenses incurred on improvement of the land was submitted before CIT(A). The assessee also did not make any application before CIT(A) to admit such additional evidence certifying or confirming that conditions of Rule 46A of Income-tax Rules are fulfilled. Therefore, the CIT(A) did not allow claim of assessee on the cost of improvement and development and benefit of exemption u/s 54EC of the Act. He has also denied set off of loss against income from LTCG. In the result, the addition of AO was confirmed and appeal was dismissed. 6. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The ld. AR submitted that though no explanations and details could be filed before the AO, the same were duly filed before CIT(A), which have been duly discussed by CIT(A) at page 11 to 13 of the appellate order. He admitted 5 ITA No.227/SRT/2024/AY.2016-17 Diren Engineering Co. that the assessee had not separately requested for admission of additional evidence under Rule 46A of IT Rules, 1962. However, he has filed copy of NHAI Bond of Rs.15,00,000/- for deduction u/s 54EC of the Act. He requested that an opportunity may be given to explain the case on merit before the lower authority. 7. On the other hand, the ld. Sr. DR of the Revenue supported the order of lower authorities. He submitted that no documentary evidences were submitted before the CIT(A) or AO regarding cost of improvement of the land, factory gate and wall etc. He submitted that AO may be directed to verify this issue as well, in addition to claim of deduction u/s 54EC of the Act, if the matter is set aside to his file. 8. We have heard both the parties and perused the materials available on record. We find that additional evidences were produced for the first time before the CIT(A). Though the issue of LTCG was the matter of scrutiny before the AO and the AO has asked assessee to furnish all details during assessment proceedings, the assessee did not submit any details to the AO for proper appreciation of fact and decision in accordance with law. Before the CIT(A), the claim of deduction u/s 54EC on account of investment in NHAI Bond was made for the first time. The assessee has given part details regarding its claim before CIT(A). However, the assessee has not given any evidence regarding cost of improvement of factory land before the CIT(A). The ld. AR requested that the additional evidence may be admitted and the matter may be set aside to the AO. We have again considered the matter. The Hon’ble Bombay High Court in 6 ITA No.227/SRT/2024/AY.2016-17 Diren Engineering Co. the case of Smt. Prabhavati S. Shah vs. CIT, 231 ITR 1 (Bom.) held that Rule 46A is intended to put fetters on the right of appellant to produce before the CIT(A) any evidence, whether oral or documentary, other than the evidence produced by him during the assessment proceedings before AO, except in the circumstances set out therein. However, it does not deal with the powers of the first appellate authority to make further inquiry or to direct the AO to make further inquiry and to report the result of the same to him. The restriction placed on the appellant to produce evidence do not affect the power of CIT(A) under sub-section (4) of section 250 of the Act. In the present case, though the appellant was non-cooperative before the AO, he has put up certain claim such as deduction u/s 54EC of the Act, which could be statutorily allowed to the assessee if the conditions mentioned in the said section are fulfilled. Therefore, the CIT(A) should have admitted the additional evidence as per law and decided the matter after allowing the AO reasonable opportunity to examine the evidence or documents or to produce any evidence or documents in rebuttal of the additional evidence produced by the assessee. Therefore, we find that the matter was not properly dealt with during the appellate proceedings. At the same time, the appellant has also not explained as to why such evidence could not be adduced before the lower authorities. Considering the totality of the facts, we deem it fit to remand the matter back to the file of the AO in the interest of justice subject to payment of cost of Rs.10,000/- (Rupees ten thousand only) by the assessee to the credit of the ‘Gujarat High Court Legal Aid Authority’ within two weeks from receipt of this order. Subject to payment 7 ITA No.227/SRT/2024/AY.2016-17 Diren Engineering Co. of above cost, we set aside the order of CIT(A) and remit the matter back to the file of AO with a direction to pass de novo assessment order in accordance with law after granting adequate opportunity of hearing to the assessee. The assessee is directed to be more vigilant and diligent and to furnish all the details and explanations as needed by the AO by not seeking adjournment without valid reasons. With these directions, the grounds of appeal raised by the assessee are allowed for statistical purposes. 9. Since the matter has been set aside to the file of AO for de novo assessment, the other grounds are academic in nature and do not require adjudication. 10. In the result, appeal of the assessee is allowed for statistical purposes. Order is pronounced in the open court on 10/12/2024. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 10/12/2024 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat "