ITO 2(2)(3), MUMBAI V. MIDLAND FINANCE & INVESTMENT P. LTD, MUMBAI

ITA 1121/MUM/2010

• Counselvise Citation: 112119914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 08-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI. RAJENDRA SINGH (A.M.) ITA NO.1121/MUM/2010 ASSESSMENT YEAR : 2005-2006 I.T.O. 2(2)(3) R.NO.542, 5 TH FLR., AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S. MIDLAND FINANCE & INVESTMENT PVT. LTD. JEHANGIR BUILDING, 133, M.G. ROAD, FORT, MUMBAI 400 001. PAN : AAACN7681A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.S. SUNDER SINGH (DR) RESPONDENT BY : NONE. (AR) DATE OF HEARING : 08.09.2011 DATE OF PRONOUNCEMENT : 08.09.2011 O R D E R PER RAJENDRA SINGH, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 11.12.2009 OF THE LD. CIT(A)-5 FOR THE ASSESSMENT Y EAR 2005-06. THE DISPUTE RAISED BY THE REVENUE IN THIS APPEAL RELATE S TO DISALLOWANCE OF EXPENSES U/S.40A(2)(B) AND REGARDING THE NATURE OF INCOME ARISING FROM THE TRANSFER OF DEPRECIABLE PREMISES. 2. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE A O DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD INCURRED EXPENSES ON ACCOUNT OF PAYMENT OF SALARY AND BONUS TO ITS SUBSI DIARY JAYANT DALAL PVT. LTD. AND THE DIRECTORS. THE AO OBSERVED THAT THE AS SESSEE WAS NOT CARRYING OUT ANY BUSINESS FOR THE LAST SEVERAL YEARS AND THE RE WAS NO EVIDENCE ITA NO.1121/MUM/2010 ASSESSMENT YEAR : 2005-2006 2 PRODUCED REGARDING SERVICES RENDERED BY THESE ENTIT IES. THE AO, THEREFORE, RESTRICTED THE DEDUCTION ON ACCOUNT OF SUCH EXPENSE S TO ONLY `. 5,000/- PER MONTH IN RESPECT OF EACH PARTY, AND THE BALANCE EXP ENDITURE AMOUNTING TO ` .6,66,884/- AND `. 4,41,353/- WERE DISALLOWED U/S.40A(2)(B). THE ASSES SEE HAD ALSO TRANSFERRED ITS PREMISES DURING THE YEAR, ON WHICH DEPRECIATION WAS ALLOWABLE. THE ASSESSEE TREATED THE INCOME FROM SUCH TRANSFER AS LONG TERM CAPITAL GAIN AND SET OFF THE SAME AGAI NST THE LONG TERM CAPITAL LOSS FROM SALE OF SHARES. THE AO DID NOT AC CEPT THE CLAIM OF THE ASSESSEE AND HELD THAT, SINCE THE PREMISES WERE DEP RECIABLE ASSETS, THE SAME WAS COVERED UNDER THE PROVISIONS OF SECTION 50 OF THE I.T. ACT. AND ACCORDINGLY, HE TREATED THE INCOME FROM TRANSFER AS SHORT TERM CAPITAL GAIN WHICH WAS NOT ALLOWED TO BE SET OFF AGAINST L ONG TERM CAPITAL LOSS FROM THE SALE OF SHARES. IN APPEAL, THE LD. CIT(A) ALLOWED BOTH THE GROUNDS IN FAVOUR OF THE ASSESSEE. AGGRIEVED BY WHICH, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE STRONGLY DEFENDED THE ORDER OF THE AO, WHEREAS THE LD. AR FILED A LET TER DATED 02.09.2011 SIGNED BY THE DIRECTORS, IN WHICH IT WAS MENTIONED THAT BOTH THE DIRECTORS WERE SENIOR CITIZENS HAVING HEALTH PROBLEMS AND, TH EREFORE, DESPITE HAVING A CASE ON MERIT, THEY DID NOT WANT TO PURSUE THE AP PEAL AND THUS CONCEDED THE ISSUES RAISED IN THIS APPEAL. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE AO DISALLOWED THE EXPENSES U/S.40A(2)(B) ON TH E GROUND THAT THERE WAS NO EVIDENCE OF SERVICE RENDERED BY THE PERSONS CONCERNED. THE CIT(A) HAS ALLOWED THE CLAIM WITHOUT CONTROVERTING THE FIN DING OF AO. THE ASSESSEE HAD NOW CONCEDED THE ISSUE IN FAVOUR OF TH E REVENUE AND, THEREFORE, THE ORDER OF THE AO HAS TO BE UPHELD. SI MILARLY, IN CASE OF INCOME FROM TRANSFER OF DEPRECIABLE ASSETS, CIT(A) HAS HELD THAT THE PROVISIONS OF SECTION 50 WOULD APPLY ONLY IN CASES WHERE THE DEPRECIATION HAS BEEN ACTUALLY ALLOWED IN RESPECT OF ASSETS TRAN SFERRED AGAINST THE VIEW TAKEN BY THE AO THAT SECTION 50 WAS APPLICABLE EVEN IF DEPRECIATION WAS ITA NO.1121/MUM/2010 ASSESSMENT YEAR : 2005-2006 3 NOT ACTUALLY ALLOWED AS THE PREMISES WERE DEPRECIA BLE. THE ISSUE IS HIGHLY DEBATABLE. HOWEVER AT THE TIME OF HEARING OF APPEAL , THE ASSESSEE DID NOT PURSUE THE ISSUE AND INFACT CONCEDED THE ISSUE IN F AVOUR OF THE REVENUE. THEREFORE, THE ORDER OF THE AO TREATING THE INCOME AS SHORT TERM CAPITAL GAIN U/S. 50, HAS TO BE UPHELD. WE ACCORDINGLY, SET ASIDE THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ORDER OF THE AO DISALLOW ING THE CLAIM U/S.40A(2)(B) AND TREATING THE INCOME FROM TRANSFER OF THE PREMISES AS SHORT TERM CAPITAL GAIN U/S.50 AND DISALLOWING TH E CLAIM OF SET OFF AGAINST THE LONG TERM CAPITAL LOSS. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. 6. ORDER PRONOUNCED IN THE OPEN COURT ON 08.9.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI, DATED: 08.09.2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, J - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI